Standard & Poor's Ratings Services said it affirmed its A-minus rating on Illinois' general obligation bonds.
Standard & Poor's also affirmed its BBB-plus rating on the state's appropriation debt and its BBB-minus rating on the state's moral obligation debt. Standard & Poor's removed all ratings from CreditWatch, where they had been placed with negative implications on May 8, 2015.
The outlook on all is negative.
"The negative outlook reflects our view that we could lower our rating to the BBB category should Illinois reach a budgetary agreement that does not make significant improvements to its budgetary alignment," said Standard & Poor's credit analyst John Sugden.
In light of the Supreme Court's decision on the unconstitutionality of pension reform, an even greater focus is placed on the state budget's ability to absorb the future servicing costs and on the state to structurally align its budget over the long term.
Although the budget impasse clearly signals a breakdown in the fiscal policymaking process, the agency is affirming the rating because in its view, it has not significantly impaired the state's ability or willingness to make debt payments.
Furthermore, it believes that this breakdown reflects divergent preferences among lawmakers on major public policy matters and that the importance of these issues warrants allowing the discussion to play out. That is, in its view, the substance of the agreements reached will be more predictive of future credit quality than the timing of when they are reached. The outlook is negative because, given the length of current budget impasse and the absence of substantial agreement among elected leaders, it believes any structural reform outcomes will not be known within the CreditWatch horizon and will likely extend into fiscal 2017.
