Moody's Investors Service said it has downgraded the state of Illinois' $26.8 billion of general obligation bonds to Baa1 from A3, while also lowering ratings on the state's sales-tax (Build Illinois) bonds to Baa1 from A3, and on the state's subject to appropriation bonds (issued by the Metropolitan Pier and Exposition Authority and for the state's Civic Center program) to Baa2 from Baa1.
The outlook for all of these obligations remains negative.
The downgrades reflect weakening of the state's financial position during 2015 and our expectation that an ongoing budget stalemate will lead to further deterioration.
Structural budget imbalance, accounts payable, and other fiscal metrics are back-tracking, despite a favorable economic climate, leaving the state more vulnerable to the next economic downturn, barring unexpectedly strong and swift corrective actions.
Any recurring measures ultimately enacted for the fiscal year that began July 1 will have a short time in which to offset the state's approximately $6 billion (or 16%) general fund deficit caused in part by recent income tax cuts.
Payment deferrals could drive the state's balance of unpaid bills higher than the levels seen in late 2012, when the backlog approached $10 billion. Additionally, the partisan gridlock evident this year is impeding efforts to address the state's unfunded liabilities for pensions and retiree health benefits.
Despite the emergence of early speculative characteristics, Illinois' credit is still supported by a diverse economy, legal provisions that ensure continued payment on debt even with no enacted budget, and a broad legal ability to adjust state revenues and spending.