January 5, 2010

All three major credit rating agencies have now officially warned Illinois to get its financial house in order.  

A report from Fitch Ratings on Dec. 30 confirmed that Illinois is now on negative watch related to its general obligations bonds. As a result, the state is now on negative outlook—and ripe for rating downgrades—with all three national credit rating agencies: Fitch, Moody’s and Standard & Poor’s.

The comments provided by Fitch Ratings said that placing the state on negative watch “reflects the magnitude and persistent nature of the state’s fiscal problems.” Fitch specifically cited Illinois’ “poor financial performance” and a 2010 budget that did not address the sizeable accumulated deficit and which relied on one-time revenue streams to close the budget gap.

This is another in a series of negative reactions to Illinois’ budget situation, which recently resulted in December downgrades from Moody’s and Standard & Poor’s for Illinois’ general obligation bonds for pensions and capital projects. Fitch downgraded the state to an A from an AA- in July 2009.

Although the state’s general obligation rating was held by Fitch at an “A” (“AAA” being the best rating, “A” being the worst in that category), the negative outlook indicates that it’s likely the state will have an actual Fitch Ratings downgrade in the future.

Fitch criticized the state for trying to borrow its way out of debt and for its deadbeat habits in failing to pay state vendors. The rating agency warned that a downgrade could be triggered by the state’s inability to adopt ongoing and substantial deficit-reducing budget measures, and a failure by Illinois to “address the cumulative budget deficit and significantly reduce the accounts payable balance.”

 

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