CHICAGO May 11 Illinois faces costly
consequences if it fails to pass a budget by the end of May and
is hit with more credit rating downgrades, state lawmakers were
warned this week.
John Miller, co-head of fixed income at Nuveen Asset
Management, told a House committee on Thursday that reaching a
balanced budget deal by May 31 is "absolutely critical" for the
nation's fifth-largest state.
He said the move could stabilize or improve Illinois'
triple-B credit ratings, which are two notches above junk and
the lowest among U.S. states. Without a budget agreement,
Illinois risks falling into junk, where the pool of investors
willing or able to purchase its debt is much smaller, he added.
Miller said contagion from Illinois' shaky credit standing
has spread to other municipal bond issuers in the state,
resulting in an extra $930 million in annual debt service paid
Illinois is limping toward the June 30 end of a second
straight fiscal year without a complete budget, something no
state has ever done, due to an impasse between its Republican
governor and Democrats who control the legislature.
As a result, its pile of unpaid bills, a barometer of the
state's structural deficit, has topped $13 billion. Major rating
agencies, which have pushed Illinois down the credit scale six
times since Governor Bruce Rauner took office in January 2015,
have signaled more downgrades are possible.
"If the impasse continues, that's significant bad news for
the state's credit position in our view," Moody's Investors
Service analyst Ted Hampton said Thursday.
Records from S&P, Moody's, and Fitch Ratings dating back
about half a century or more show no states rated junk.
After voting on a bipartisan bill package aimed at ending
the stalemate stalled again in the Senate late Wednesday, Senate
President John Cullerton said entering a third straight fiscal
year without a spending plan and adequate revenue will lead to
junk bond ratings for Illinois.
One of the bills in the package dubbed the grand bargain
would authorize the state to sell $7 billion of seven-year bonds
to pay off bills.
On Monday, Illinois Treasurer Michael Frerichs, a Democrat,
said Illinois will be paying "significantly more interest" on
future bond issues unless a budget is passed.
"Money, instead of going to pay bondholders, should be going
into our roads, into our buildings, into our education system,"
he told a news conference.
Illinois is already paying much higher borrowing costs than
(Reporting by Karen Pierog; Editing by Matthew Lewis)