Illinois could be first junk-rated state.

Illinois Could Be First Junk-Rated State

As Republicans prepare for a potential Senate repeal of the Affordable Care Act on the federal level, Illinois may be on its way to become the nation’s first junk-rated state.

Illinois was reminded again this week just how bad off its finances are as S&P Global rated the Land of Lincoln a “BBB,” leaving a host of experts to speculate that Illinois is headed for disaster if lawmakers fail to pass a budget, something they’ve failed to do in just shy of two years.

The downgrade is just one in a recent series of setbacks as what has been called the “Grand Bargain” budget continues to only inch through the statehouse. Illinois was also downgraded to a “BBB” by Fitch Ratings in February.

The S&P and Fitch grades now place Illinois one spot above junk status. Moody’s has Illinois just two spots above junk. Chicago Public Schools is among a host of Illinois public agencies that already qualify.

Illinois has been operating without a budget since July 1, 2015. Legislators were able to pass a temporary $356 million spending plan last June, one expected to get them to a solid plan. However, as the stalemate between Illinois House Speaker Michael Madigan (D) and Gov. Bruce Rauner (R), continues, it expired on January 1. A $817 million stopgap budget is currently pending after being passed by the House last month.

The state’s poor credit ratings are centered largely on its inability to fix funding problems with five municipal pension systems that have now exceeded $130 billion in combined unfunded debt. While spokesmen from four unions have agreed to reform, talks with the American Federation of State, County and Municipal Employees (AFSCME) have resulted in little progress.

One option to right the ship is to overhaul an option for employees who seek a 401(k)-style savings plan, namely those in the State University Retirement System.

Meanwhile, severe downgrades have reached Illinois public universities, several of which are digging deeply into reserves and reducing staff.

Last month, S&P Global knocked the University of Illinois system down to an “A” grade. Further clips would come without an end to the state’s two-party feud.

Southern Illinois University was downgraded to BBB; Eastern Illinois and Northeastern Illinois fell to “BB.” S&P hit Governors State and Western Illinois universities with “BB-” grades.

Moody’s Investors Service placed seven of Illinois’ universities on review in April, as collective debt has now reached $2.2 billion in the absence of state funding.

Community colleges are also taking the hit. Rockford’s Rock Valley College approved a cost-cutting effort to eliminate 28 instructors in February in order to balance the school’s budget after it lost nearly $7 million in funding. The small school is facing a looming $1.6 million deficit for the upcoming fiscal year.

Illinois nonprofits that depend on state money are also tightening their belts in light of the funding drought and credit downgrades. Local leaders say further roadblocks could have long-term effects on vital social services programs.

“I am concerned with how many nonprofits in our community have been impacted and how this is negatively affecting those individuals with the greatest needs,” Rockford Mayor Tom McNamara said. “I would also be concerned if the state changes the methods to which they return our own tax dollars to local municipalities.”

The Illinois House approved the stopgap bill just before its April recess. It includes Monetary Award Program (MAP) grants of more than $200 million for social services and around $559 million for colleges and universities. Funds would come by way of two accounts that collect a percentage of Illinois’ state income tax revenue. While the plan would get the state through the summer and hold off further credit downgrades, Rauner is expected to veto it.

[Featured Image by Mark Wilson/Getty Images]

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