Illinois Credit Downgrade

July 12, 2010

A $13 billion budget deficit and growing debt obligation caused Moody’s Investor Service and Fitch Ratings to downgrade the State of Illinois’ credit ratings.

Illinois is now tied with California as the worst-rated state in the nation by Moody’s Investors Service.

Illinois is the second-lowest rated state in the nation after California by Fitch Ratings.

These downgrades are independent “report cards” of the state’s finances, and likely will lead to hundreds of millions of dollars in higher interest costs over future years.

The majority and the Governor are blaming Illinois’ fiscal problems on the poor national economy and argue Illinois’ problems are no different than those encountered by other states.

These credit downgrades are proof that the “it’s just the national economy” defense being put forth by the majority doesn’t hold water.

The independent financial experts at these rating agencies who watch all states’ finances very closely are saying that Illinois’ fiscal situation is much, much worse than almost every other state in the nation and there is no indication things are improving. Clearly, there is something more at play in Illinois than just the national economy.

Fitch’s own analysis refutes the argument that the national recession is the primary cause of our current budget deficit.  Fitch says:

“Illinois entered this economic cycle with little financial flexibility to handle a downturn.  It came out of the last recession relatively late and did not take actions to build its reserves or restructure its finances as its economy and the national economy grew over the five years leading into this recession.”

Despite what’s happening in Illinois, rating agencies are not taking a lot of actions to downgrade other states.  Recent downgrades are mostly unique to Illinois and California.  To highlight this point the following chart shows Standard and Poor’s credit rating changes for states over the last year and a half.

The two recent downgrades bring the total number of Illinois rating downgrades during Governor Quinn’s 18 months in office to eight – almost triple the three downgrades under former Governor Blagojevich in his six years in office.

Our state has only been downgraded 17 times in its entire history, most coming in the last 8 years of Democrat leadership.  See the following charts to illustrate this point:

Viewed another way, the following chart illustrates that almost half of all downgrades in the history of our state have occurred in the last 18 months on Pat Quinn’s watch.

Standard and Poor’s retained our rating of “A plus” (second worst in the country to California) and has kept Illinois on “negative watch,” saying the rating could be lowered if structural changes to the budget are not made soon.  All three agencies question the “willingness” of the State’s leaders to restore budget balance.

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