Fitch cuts Illinois credit rating, cites budget gridlock, massive debt and sluggish growth
The Illinois General Assembly is refusing to fix Illinois’ structural problems. Downgrades are the consequence.
Illinois’ general-obligation bonds are rated just three notches above junk status, thanks to a credit-rating downgrade on Oct. 19 from Fitch Ratings. The ratings agency dropped its estimation of Illinois’ debt to BBB+ from A-.
Illinois is home to the lowest credit rating in the nation, and the state hasn’t had a AAA rating since February 1979. In contrast, neighboring Indiana has maintained its AAA credit rating from all three major credit agencies (Fitch, Moody’s Ratings Service, and Standard & Poor’s) since 2010.
Fitch cited the state’s budget gridlock, massive levels of long-term debt and a flagging state economy as reasons for the downgrade.
“The downgrade on the GO bonds of the state of Illinois to ‘BBB+’ from ‘A-‘ reflects the deterioration of the state’s financial flexibility as its budget stalemate continues deep into the current fiscal year,” according to a press release from Fitch.
“With the national economic expansion now extending into a sixth year, Illinois has failed to capitalize on economic growth to restore flexibility utilized during the last recession or to find a solution to its chronic mismatch of revenues and expenditures. Once again, the state has displayed an unwillingness to address numerous fiscal challenges, which are now again increasing in magnitude as a result.”
Illinois is a laggard state when it comes to economic growth. Since 2010, it is the only Midwest state to add more people to food-stamp rolls than payrolls.
When it comes to budgetary issues, Illinois’ No. 1 problem is taxpayers fleeing the state, not to mention a General Assembly in which Democrat supermajorities in the House and Senate have refused to pass a balanced budget.
In terms of debt, Fitch points out that Illinois has the highest ratio of debt and unfunded pension liabilities to personal income of any state in the country, at a colossal 25 percent as of 2014.
“Growing pension contributions have been crowding out other expenditure growth and absorbing revenue growth,” Fitch officials wrote.
“Illinois has no ability to unilaterally modify retiree benefits, as legal protections in the state are exceptionally strong.”
The ratings agency also announced ratings downgrades to BBB from BBB+ for Illinois Sports Facilities Authority sports facilities bonds, Metropolitan Pier & Exposition Authority McCormick Place expansion project bonds; and city of Chicago motor-fuel tax revenue bonds.