"We are bearish on the finances of both states as they are facing significant challenges and doing an admirable job making them worse,” said a Municipal Market Analytics piece, co-authored by Matt Fabian, comparing New Jersey and Illinois.

CHICAGO – Despite last week’s downgrades, Illinois general obligation paper fares better than higher-rated New Jersey for relative credit risk, Municipal Market Analytics said in a commentary piece.

MMA, in its weekly commentary, posed the question of whether it’s better to own the GOs of a state stuck in a budget feud related to its fiscal trajectory as Illinois is, or the appropriation debt of a state like New Jersey that agreed to a budget that MMA says supports continued deterioration of its fiscal condition.

MMA lands in favor of Illinois.

“Although its recent downgrade puts a spotlight on comparisons of Illinois to the next lowest rated state, New Jersey, Illinois GO is still a better relative credit risk than the later,” MMA wrote in its commentary published Oct. 26.

Illinois was downgraded one notch last week by both Fitch Ratings and Moody’s Investors Service to BBB-plus and Baa1, respectively, due to its prolonged budget fiscal 2016 budget impasse as its window to make progress on a structural budget solution narrows.

New Jersey is rated A by Fitch and A2 by Moody’s but MMA warns that a downgrade may not be far behind given the state’s pension strains, lack of voter support for a gas-tax hike, and other budgetary maneuvers.

The comparison is by no means an endorsement of Illinois paper.

“In the near to medium-term, we are bearish on the finances of both states as they are facing significant challenges and doing an admirable job making them worse,” MMA wrote. “We caution against adding to either position in the near‐term as it is reasonable to expect that they will exhibit relative underperformance as negative headlines and rating actions are likely.”

Illinois enjoys revenue raising capacity and a robust structure supporting bondholder repayment. New Jersey has more theoretical ability to modify its retirement benefits but its high tax burden diminishes its flexibility, according to the commentary, authored by partner Matt Fabian and managing director Lisa Washburn.

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