S&P Global Ratings dropped Illinois' credit rating by one notch to BBB-minus on Thursday and warned the state could sink into junk unless it passes a budget that addresses a gaping structural deficit.
The rating action came the day after the Illinois Legislature ended its spring session without an agreement on a spending plan for the fiscal year that begins on July 1.
Illinois, already the lowest-rated U.S. state, is limping toward the June 30 end of its second-straight fiscal year without a complete budget due to an impasse between its Republican governor and Democrats who control the legislature.
The state has been operating under court-ordered spending, stopgap budgets, and ongoing appropriations mandated by law. As a result, the state's pile of unpaid bills, a barometer of its structural deficit, has topped $14 billion.
"The rating actions largely reflect the severe deterioration of Illinois' fiscal condition, a byproduct of its stalemated budget negotiations, now approaching the start of a third fiscal year," S&P analyst Gabriel Petek said in a statement.
He also said "unrelenting political brinkmanship" poses a threat to the timely payments for core state priorities.
S&P said the nation's fifth-largest state risks "entering a negative credit spiral" in which further credit downgrades could sap its weak liquidity.
Eleni Demertzis, spokeswoman for Governor Bruce Rauner, blamed House Speaker Michael Madigan and his fellow Democrats.
"Madigan’s majority owns this downgrade because they didn’t even attempt to pass a balanced budget, get our pension liability under control, and other changes that would put Illinois on better financial footing," she said.
This latest rating downgrade marks the seventh for Illinois since January 2015 by major credit rating agencies.
S&P also downgraded the AAA rating on Build Illinois sales tax revenue bonds to AA-minus and pushed the rating on the state's appropriation debt issued by the Illinois Sports Facility Authority and the Chicago-based Metropolitan Pier & Exposition Authority from BBB-minus to the junk level of BB-plus.
"In our view, the ongoing budget impasse has increased the nonpayment risk associated with Illinois' obligations that require a budget appropriation before they can be funded. We now view these payment obligations as having speculative-grade characteristics," S&P said.
Illinois is rated Baa2 by Moody's Investors Service and BBB by Fitch Ratings, both with negative outlooks. Records from S&P, Moody's, and Fitch dating back about half a century or more show no states rated junk.
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