Illinois debt downgraded again by two of three major credit agencies

The downgrades imposed by Moody’s and Standard & Poor’s, move Illinois to the brink of “junk bond” status. The rating status, which in Moody’s terminology is “Baa3” and in S&P’s wording is “BBB-“, comes with a “negative outlook,” a formal warning by both debt-rating firms that a further demotion of Illinois’ status to non-investment-grade is both possible and relatively imminent. The moves, announced on Thursday, June 1, followed the Democrat-controlled General Assembly’s failure to enact a FY18 budget by the May 31st deadline.

Should Illinois’ debt be demoted to below investment-grade status, the consequences would go beyond higher interest costs to Illinois taxpayers. Many segments of the investment industry, such as pension funds, are partially or totally barred from taking positions in non-investment-grade securities. The State of Illinois might find itself increasingly unable to sell debt at all, a fate which is already affecting the non-investment-grade bonds issued by Chicago Public Schools. Furthermore, economic experts warn that a further reduction in Illinois’ debt to below investment grade would serve as a signal to the global private sector that Illinois is diminishing its commitment to policies that make the State an acceptable place to invest money and create jobs.

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