Fitch downgrades Illinois’ credit rating
The New York-based credit agency cited the lack of action on a budget as the primary reason for the downgrade.
Fitch Ratings downgraded Illinois’ credit rating to BBB from BBB+. The New York-based credit rating agency downgraded its view of $26 billion in state debt, citing politicians’ “unprecedented failure” to pass a state budget after more than 18 months of negotiations, Crain’s Chicago Business reports.
The decision to downgrade Illinois’ credit will make borrowing even more expensive, and moves the state one step closer to junk-bond status. Fitch also has labeled Illinois with a negative watch, a strong indicator that more downgrades are likely in the next few months, Crain’s reports.
Fitch also commented on the Senate budget proposal, which includes $5 billion in tax hikes, stating that even if negotiations between Senate President John Cullerton and Minority Leader Christine Radogno result in a budget, the inability to act has weakened faith in the state’s ability to pay.
Fitch’s downgrade will also negatively affect Chicago’s $268 million worth of motor fuel tax revenue bonds, which depend on the credit rating of the state, Crain’s reports.
This is not the first time Illinois has seen credit downgrades from Fitch and other credit rating agencies. Fitch’s warnings serve as another indicator of how dire the situation in Springfield is. Illinois has serious debt problems and the inability to pay bills on time makes agencies like Fitch move the Prairie State closer and closer to deadbeat status.
Illinois needs to pass a truly balanced budget that does not spend more than the state takes in. The Senate budget plan raises tax and does not balance, only delaying further downgrades.
In fact, raising taxes will only worsen any hopes of paying Illinois’ bills.
Data from the Commission on Government Forecasting and Accountability show that government revenues could actually be decreasing on a year-to-year basis. This is the main reason why Moody’s Investors Service, another major credit ratings agency, warned that Illinois could be approaching an economic death spiral wherein Illinois’ revenues actually fall after a tax increase.
Illinois needs a truly balanced budget that will meet current obligations without taking an axe to its tax base, and one that will also implement the necessary structural reforms that will make Illinois grow economically and improve its credit rating.