S&P Global Ratings, one of the major agencies that assign credit scores to governments, has assigned a rating just better than junk to Illinois’ upcoming $6 billion general obligation bond issuance.
The poor rating is a result of the state’s extended budget crisis, when Governor Bruce Rauner pushed the state to the brink, holding the budget hostage in order to pass non-budgetary reforms.
In July, lawmakers passed a state budget without the involvement of the Governor. The bipartisan coalition ultimately decided the Governor’s agenda – which would have pushed the state into a third consecutive year without a budget – would do irreparable damage to the state’s finances and institutions.
S&P Global Ratings credit analyst Gabriel Petek said of the rating, “The ‘BBB-‘ GO [general obligation] rating reflects our view of the state’s nearly depleted budget reserves and generally weakened financial condition that intensified into liquidity stress during the state’s two-year budget impasse, lingering structural budget imbalance even after a permanent increase to the state’s individual and corporate income tax rates, backlog of unpaid bills that will remain elevated even following the current bonding plan to refinance the bills, and distressed pension funding levels that will require substantial contribution increases in the coming years.”
While the budget became law thanks to the lawmakers’ override, the State of Illinois still owes more than 60 entities at least $10 million each, a review by the Chicagoland Chamber of Commerce found. Thirteen are owed $100 million or more.
The interest payments on the debt is also becoming an increasing burden. The Comptroller’s office predicted that number to grow by $700 million in interest in this budget year – more than twice the state’s previous record.
For months, Rauner resisted calls by the state’s elected officials to begin paying down the state’s massive debt, a move which was authorized in the July bipartisan budget passed against Rauner’s wishes.
Under great pressure, he finally announced he would finally begin this process by issuing these GO bonds to begin paying down the nearly $16 billion of debt accumulated during Rauner’s impasse.