Big Trouble In Little Chi-Town: Illinois Downgraded From AA- To A+ By S&P On Liquidity Issues

The rating agencies have decided to once again remind the world of their pathetic, and decades behind the curve existence. The most recent act: downgrading Illinois From AA- to A+ with a negative outlook. From the report: "The downgrade reflects what we view as the state's deteriorating liquidity and financial position," said Standard & Poor's credit analyst Robin Prunty. "Illinois failed to address its fiscal 2009 deficit, which was carried into fiscal 2010. Similar to many other states, revenues are performing below originally forecast levels."

In addition, the fiscal 2010 budget was balanced with various spending reductions and a plan for debt restructuring to provide budget savings; the savings from both are uncertain at this time. The state has made limited progress in our view in addressing the current year budget gap, which has weakened liquidity. Standard & Poor's believes this budgetary gap and the high reliance on nonrecurring measures to balance the budget make the return to structural budget balance unlikely for many years.

The negative outlook reflects Standard & Poor's view that, although we think Illinois has the capacity to restore budget balance due to the absence of tax limitations or stringent constitutional or legal requirements related to spending that we see in other states, its willingness to implement difficult and politically unpopular measures to restore budget balance is questionable in our view. We believe the state's high reliance on nonrecurring revenues and the accumulated budget deficit will make the return to structural budget balance unlikely for many years and will likely continue to pressure liquidity. The absence of recurring solutions in the next year to deal with the current budget challenges and begin to stabilize liquidity will likely result in a further downgrade of Illinois.