S&P downgraded the rating on Illinois' general obligation bonds from A- to BBB+. The agency also lowered the rating on Illinois’ appropriation debt from BBB+ to BBB-. Additionally, the state’s moral obligation debt was downgraded from BBB- to BB+, which is only a single step above a “junk rating.”
S&P credit analyst John Sugden said the decision was related to the state’s inability to develop a cohesive plan to address liabilities.
"The downgrade reflects the state's weakened financial management and fiscal position and our view that Illinois' continued delay in developing a long-term plan to address its liabilities is placing increased pressure on the rating," Sugden said in a statement. "In our view, the duration of this mismanagement has undermined Illinois' credit profile and impeded its ability to address its long-term liabilities.”
In the report, the agency details the long-term financial challenges facing the state, including a $4 to $5 billion budget gap, a $9 to $10 billion bill backlog and an unfunded pension liability that has ballooned from $111 million from $85.6 million in 2010.
S&P gave a negative outlook for ratings and warned that prolonged “political gridlock in Springfield” could result in reduced financial flexibility and continued deficit spending.
The ratings agency claimed to be concerned with Illinois’ bipartisan divide and inability to compromise on a budget solution and expressed little faith in the legislature passing a fiscal year 2017 budget before the July 1 deadline.
“The increasing political polarization between branches of state government has muted the state's ability in a practical sense to effect the changes necessary to stabilize its fiscal situation,” the report reads. “It is evident that there is a growing understanding in Springfield that any fiscal solution will likely require a combination of revenue and expenditure adjustment; however, the lack of consensus on how to achieve that fiscal balance concerns us.”
According to the report, S&P would consider updating their outlook if the state is able to compromise on a “revenue and spending package that makes significant and long-lasting improvement’s the state’s structural budget alignment.”
On Wednesday, Moody’s downgraded Illinois’ credit rating. Gov. Bruce Rauner’s office issued a statement on the downgrade Thursday, placing blame on Democrats.
“When the General Assembly adjourned without passing a balanced budget, the Administration warned the super majority in the legislature there would be consequences,” Rauner spokeswoman Catherine Kelly said. “This report underscores the need for real structural changes to repair the years of unbalanced budgets and deficit spending by the majority party on Illinois’ finances.”
“Every rank-and-file Democrat who blindly followed the Speaker down this path is directly responsible for the downgrade,” the statement added.
House Speaker Mike Madigan responded Thursday, blaming the governor for the downgrade.
"It's an outrage that we have gone nearly a year without a state budget," Madigan said in a statement. "This downgrade is directly attributable to Governor Rauner's reckless decision to hold the state houstage for more than a year and to create the crisis he desired.
“The governor's own proposed budgets are billions of dollars out of balance, and, for almost a month, a bipartisan plan to provide emergency funding for human services providers and our most vulnerable has languished on Governor Rauner's desk."
The state's budget impasse dates back to July of last year. It has largely hinged on a battle between Rauner and Illinois democrats over the governor's pro-business Turnaround Agenda. Last week, the General Assembly adjourned their spring legislative session without passing a new budget.
Illinois Comptroller Leslie Munger delivered a stark warning about the negative effects of a prolonged budget impasse Thursday, warning about the $23 billion in spending for things like schools, health and human services and higher education that would stop if legislation isn’t passed in Springfield.