Standard & Poor’s: Illinois’ Budget “precariously balanced”

The negative review from one of the world’s largest fiscal-monitoring firms served as a continued signal that that the credit rating of the State of Illinois is hovering close to junk-bond level.  Standard & Poor’s renewed its rating of Illinois general-obligation debt at BBB- with a negative outlook.  BBB- is the S & P’s closest approach to a “junk bond” rating.  So-called junk bonds, rated at BB or less, are debt obligations that are not seen as secure investments.  Many investment funds, particularly funds that are bound by rules of prudence that govern the oversight of funds saved for purposes of pension funding and retirement savings, are contractually banned from investing in non-investment-grade junk-bond securities.

In its review, Standard & Poor’s stated that the State of Illinois’ pro forma FY21 “balanced budget” depends on up to $5 billion in borrowing from the federal government.  The fiscal monitor labeled this dependence as an additional risk factor facing the State and its taxpayers.  In particular, S & P pointed to a feature of SB 2099, the majority party’s FY21 borrowing-authorization bill, which authorizes the Governor to borrow money from the U.S. Federal Reserve’s Municipal Liquidity Facility lending window for a period of up to 10 years.  This 10-year Illinois-federal debt was authorized in SB 2099 even though the Municipal Liquidity Facility was created and authorized by federal law with a time limit of no more than 36 months.  The conclusion of S & P’s analysts was that the State of Illinois’ ability to implement its current borrowing plan is a “precarious assumption.”