Terrible News For Illinois: Moody's Puts State On Review For Downgrade To Junk Despite Budget

Tyler Durden's picture

The passage of Illinois' budget, which is scheduled for tomorrow despite the veto of Gov. Rauner which was duly overriden on July 4, was supposed to be critical catalyst that saved the state from a downgrade to junk status by the rating agencies, a first in US history. Unfortunately, moments ago Moody's said that the passage of the budget may have been too little too late, and moments ago the rating agency said that it had place the rating of Illinois’s Baa3 general obligation under review for possible downgrade, citing the state’s failure to fully enact timely budget for fiscal year that began July, and its failure to achieve broad political consensus on how to move toward balanced financial operations.

A downgrade from Baa3, even by just one notch, means that Illinois would become the first US state rated junk, potentially forcing many muni bond managers to dump its bonds, and sending its costs of funding sharply higher despite a relief rally that took place today on hopes the state's day of reckoning had been pushed indefinitely into the future.

In short: the scramble to pass a budget may have been for nothing.

The full note from Moody's is below:

Moody's Investors Service has placed the general obligation rating of the State of Illinois, currently Baa3, under review for possible downgrade following the state's failure to fully enact a timely budget for the fiscal year that began July 1, and its failure to achieve broad political consensus on how to move toward balanced financial operations.


The review also applies to several related state debt ratings: the Baa3 assigned to sales-tax backed Build Illinois bonds and the Ba1 ratings assigned to Illinois subject-to-appropriation bonds, the convention center bonds issued by the Metropolitan Pier and Exposition Authority and bonds issued under the state's Civic Center program. Illinois has outstanding debt of about $32 billion, of which 82% is general obligation.


The state's government in recent days has made legislative progress towards a fiscal recovery plan based on permanent income tax rate increases, after going through two fiscal years without a complete budget in place. The decision to place the state's ratings under review for downgrade incorporates our expectation that the legislature will implement revenue increases, overriding the governor's vetoes. The review will provide a limited amount of time for the Illinois General Assembly to finish voting on the measures, and for assessment of the plan's credit implications. The review process will also address the likelihood of further deterioration in Illinois' most pressing credit challenges: its severely underfunded pensions and a backlog of unpaid bills, which has doubled during the past year.


Despite the progress toward budget balance that the emerging fiscal plan embodies, the plan entails substantial implementation risk. The governor yesterday vetoed the plan's revenue, spending and implementation legislation, citing a $2 billion current-year deficit and the plan's failure to incorporate proposals in areas such as workers compensation insurance reform and caps on local property taxes. The plan's approval relied almost entirely on Democratic party support in the state's senate, and a vote to override the governor's vetoes of the measures has been deferred by the state's house of representatives. The plan therefore appears to lack broad bipartisan support, which may signal shortcomings in its effectiveness once implemented. In addition, the state's baseline tax collections declined in fiscal 2017, suggesting that any tax increase may yield less revenue than anticipated in coming months.


So far, the plan appears to lack concrete measures that will materially improve Illinois' long-term capacity to address its unfunded pension liabilities. A June 30 order from a federal judge that the state accelerate payments owed to Medicaid managed care organizations and service providers cast doubt on the state's immediate ability to keep up with its statutory pension contribution schedule while also meeting obligations for debt service, payroll and school funding.


The state anticipates addressing its approximately $15 billion backlog of payments owed partly through a bond offering that probably will rank among the largest in the state's history. This component of the state's broader fiscal plan leaves Illinois not only dependent on market access to ease liquidity pressures, but also facing a significant increase in its tax-supported debt burden. Moreover, the effectiveness of the state's strategy to contain and reduce its deferred bills, once the backlog-financing debt has been issued, remains to be seen.

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I am a Man I am Forty's picture

Does the 10 year still yield a whopping 4.4% for Illinois or have yields increased?

NugginFuts's picture

Is the Obama Bridge to Nowhere project delayed? Oh, rats.

2ndamendment's picture

We've all already suffered through 8 years of Obama's bridges to nowhere. Unfortunate but true.

38BWD22's picture



See nearby ZH thread for what happens to DUMPS when the going gets tough (S Africa).

In Illinois and have a brain?  Leave!

Save_America1st's picture

maybe Ill-annoying can call up Christine "leatherface" Legarde at the IMF for some kind of "NINJA" bailout loan?  Isn't that what the IMF is all about?  Helping indebted governments get back on their feet and back on the path to freedom and prosperity with kindly loans with no strings attached? ;-)

PT's picture

Don't worry.  They'll still be eligible to borrow money to buy a new car or a house.

Delving Eye's picture


Vatican_cameo's picture


I personally think Connecticut may be in worst shape than Illinois, they're just doing a better job of Kicking the Can down the Road.  Not much longer though, the Hens are circling and looking for a place to roost.

Zorba's idea's picture

The little missing digit mayor of chicago was quoted recently..."I've always relied on the kindness of strangers." 

johngaltfla's picture

Best part about this is the number of businesses which will leave IL and is not part of viability determination for the bonds the state issues. After raising taxes this much, the wealthy and middle class will flee in greater numbers and with that, so shall many corporations who are not part of the good old boy system in that state.

Enjoy your junk status Illinois, you've earned it.

Lumberjack's picture

Welcome to Capital Flight Airlines.... please fasten your seatbelt and the life jacket might be under the seat.

These will be the 'New American Refugees'.

PT's picture

Might be a business there for you:  Lumberjack (or anyone else out there) Rental Trucks:  We're not cheap but we're cheaper than IL and more importantly, we're fast!

Lumberjack's picture

How much is the toll on that bridge Obama built?

In the meantime in Illinois....

Lawmakers rename part of I-55 for former president Obama


Lumberjack's picture

Check this out. I add that the Obama foundation Is located in Chicago.

Former president meddling behind the scenes cements status quo


Obama Foundation taps social media to fight online echo chambers


Ghost of Porky's picture

Allocate the pension funds to PepeCoin.

bobdog54's picture

Yep, the make believe budget didn't change reality...

GUS100CORRINA's picture

Terrible News For Illinois: Moody's Puts State On Review For Downgrade To Junk Despite Budget

Illinois Tax Rate Soars 32% After Senate Overrides Governor Veto

My response: I can already hear the stampede of human feet out of Illinois and it will get louder by the day. 

You know what they call this situation? A DEATH SPIRAL

gregga777's picture

Illinois last big tax increase cost the state about $14 BILLION in lost revenue, from 2011-2014, due to outbound migration. There is a very large net outbound flow and each outbound taxpayer's income is ~$20,000 more than the few inbound migrants. Way to go Illinois political parasite MORONS!

Omen IV's picture

The Blacks will rebuild Illinois

a Smudge by any other name's picture

I'm just waiting for the day I can buy Illinoise from the Fed in a liqudation sale. But if it comes to that point the Fed will be weak enough so I'LL JUST TAKE IT.

Hal n back's picture

Can you buy illinois without buying cook county?

Lumberjack's picture

The Devil has dibs on that one.

QQQBall's picture

Call it a predicamenrt?  Finally, Ill out in front of the default tsunami.

TeethVillage88s's picture

I can already hear CNN, ABC-CBS-NBC-BBC-CBN-NYT-WSJ-WaPo-Sky-IPR-NPR-PBS... all saying how certain banks and ratings agencies are all giving Chicago a clean review. It is very Progressive after all!

- Very Progressive!

Shinebama's picture

Darned right. I"m leaving in about 3 weeks. Saw this coming many years ago, and what comes next with pensions is really bad. It's about 4 or 5 years off. Pensions already devour 25% of the state budget.

Bank_sters's picture

It is the job of central bankers to artifically price risk.  Mark to myth.   Inside tip- go long the 100 year mexican bond.   Shit's good as gold. cough.

Postal's picture

I wouldn't buy an IL bond even at 44%. If I'm going to throw away money, it's going to be at a strip club. At least I have a chance of getting some decent action that way. Or crabs. O.o

ZippyBananaPants's picture

We are just flying back to Florida from Chicago. It's a shithole, some areas.

Juggernaut x2's picture

I'm sure Miami, Jacksonville, etc have no shitty areas/  sarc.  You can't go to any mid-to-large US city and not find shitty areas any more.

rf80412's picture

University of Virginia produced a color-coded race map of the entire USA: one dot per person, rather than a swath of color by percentage.

I don't browse real estate listings without it open in another tab.

Wrenching Away's picture

Yeah, just look at Baltimore or Chicago, you'll see their problem very clearly

Hal n back's picture

Miami wanted to be a sanctuary city until it learned it would lose federal funding.

johngaltfla's picture

Weird that you mention that. The worst parts of Jacksonville and Miami are run by who?

Yeah, Democrats.


xtremers9's picture

Time to move to Florida (or Australia).

matinee55's picture

stay / keep them in their own cesspool. Do not infect others

MrTouchdown's picture

Damn straight. They made this bed, now they need to sleep in it. Illinois residents are not welcome without a sponsor, and they can never have voting rights I say.

matinee55's picture

Mercy it is Junk. Everyone knows. Osama killing zone is great huh?

New_Meat's picture

Obama's policies are the greatest!!!  Tony Rez made the small things happen, but Valerie, well ... she'z da' bomb!


gregga777's picture

The Intellectual Yet Idiot classes ruling MORONS go almost three years without a budget and then they expect a reprieve by finally passing a budget, guaranteed to accelerate the out-migration wave to epic proportions, at the last minute.

As Bugs Bunny would have saiid, "What a bunch of maroons."

TeethVillage88s's picture

"I will get my pound of Flesh."

"Just sign here, and here, please."

- Greece keeps signing, again & again, based on JPM or other banker estimates provided before 2008 & after 2010

HRH Feant2's picture

Illinois is a failed state. More to follow. When? Soon.

2ndamendment's picture

Once an entity goes down the rabbit hole of Junk ratings, its almost impossible to recover. I've done this with a highly rated company once, and they never recovered prior to being sold at a huge discount. 

yogibear's picture

Madigan and his gang are all junk. So well deserved.

New_Meat's picture

one can hope that the Irish don't have ... insulation ... from their patterns of behaviour.

'tain't just (((your favourite group)))

don't cha' know

vegas's picture

Fuck Illinois. It's a complete shitbox filled with nothing but corrupt Pols, the "free shit crowd", and poor old folks waiting to die. Sheeple that live there are simply nuts for putting up with the bullshit of higher taxes and getting zero in return. All the Pols want is to "kick the can" down the road and 1) buy more votes with freebies, and 2) borrow more money to pay for everything, and then stick it to another generation down the road. Burn the place down and start over.



gregga777's picture

And hopefully literallly get out of the state before they get lynched after the SHTF!

markar's picture

corrupt Pols, the "free shit crowd", and poor old folks waiting to die. 


There are a lot of very wealthy people in and around Chicago who can afford the tax hits, so the place is really starting to mirror Venezuela.