CHICAGO – Moody’s Investors Service this afternoon downgraded Illinois’ $24 billion of general obligation and related debt by one notch to A2 due to the size of the state’s structural budget imbalance and delays in legislative action to address the state’s revenue problems.
The rating agency took the state off its negative review list, but warned of potential further action over the long term by assigning a negative outlook. The downgrade came ahead of the state’s competitive sale on Thursday of $155 million of sales tax-backed Build Illinois bonds. The deal is the first in a series that will offer the market about $5 billion worth of state paper to digest including the state’s first Build America Bond and qualified school construction bond issues.
Lawmakers rejected Gov. Pat Quinn’s efforts to push through an income tax increase during the 2009 session, and the various parties instead agreed to a $54 billion 2010 budget that wiped out a $12 billion deficit with $2 billion in spending cuts and one-time measures that included $3.5 billion in bonding to cover pension payments and $2 billion in debt restructuring. The budget also pushed the payment of $3.8 billion of fiscal 2009 bills off to fiscal 2010.
Quinn is expected to again push for a tax increase when the General Assembly convenes early next year, but not until after the February primary election. “The planned deferral of legislative action to address fiscal 2010 imbalances until at least February or March leaves little time in the fiscal year to take actions to materially reverse the trend of financial weakening,” Moody’s wrote.
