Illinois Credit Rating Downgraded Amid Coronavirus

CHICAGO — Illinois credit rating was downgraded to one notch above junk status Thursday by Fitch Ratings, which revised its outlook for the state from stable to negative. According to the ratings agency, Illinois will be "challenged to maintain" an investment-grade credit rating.

The other major ratings agencies, Moody's Investors Service and S&P Global Ratings, had already rated Illinois credit as barely investment grade. Both revised their outlook for Illinois to negative earlier this month.

"Illinois has demonstrated a repeated inability to address its structural challenges due to an absence of consensus and resistance among key stakeholders," according to Fitch's analysis. "Despite progress in the most recent legislative session, the track record for the political environment in the state, and its hampering of prudent fiscal policy, remains a negative rating consideration."

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Earlier this week, Gov. J.B. Pritzker said the state's budget shortfall for the coming fiscal year would exceed $6 billion, even if voters approve a constitutional amendment in November to repeal the state's ban on progressive income taxes.

"We will need to make extraordinarily difficult decisions on top of the difficult decisions we've already made," Pritzker said Wednesday. "But together with the state legislature we will make them."

According to Fitch's analysis, Illinois could see the one of he most severe declines in revenue caused by the coronavirus of any state, with tax revenues expected to rebound slower than in most other states as well.

"This will likely constrain Illinois' ability to restore its limited financial resilience," the analysis said. "Deeper economic declines as outlined in the downside scenario would trigger more substantial revenue declines, making it even more difficult for the state to maintain an investment-grade credit profile."

Illinois was the first state in the nation to receive a credit rating downgrade from Fitch following the COVID-19 outbreak. However, the agency has placed Alaska on its negative rating watch, revised New York's rating outlook to negative and affirmed its ratings for California, Ohio and Virginia since the pandemic began, according to a spokesperson. Due to its roughly $140 billion in unfunded pension liabilities and a structural budget deficit, Illinois has the lowest credit rating in the country from all major agencies.

Revising its outlook for Illinois to negative, Moody's analysts said the COVID-19 pandemic would "exacerbate" the state's existing financial challenges and "test its resiliency" compared to other states.

"Large unfunded pension liabilities and a chronic unpaid bill backlog are likely to worsen significantly and reduce the state's financial flexibility," according to the rationale for Moody's outlook revision last week. "The actual toll on Illinois in social, economic and budgetary terms will be determined by factors such as federal aid, virus containment efforts and near-term financial market performance. Illinois' credit is supported by a large, diverse economy with above-average wealth. The state also has strong powers over revenue and spending and substantial non-operating fund liquid resources."

Related:

• Even With Budget, Illinois At Risk For 'Junk' Credit Status
  
• Pritzker's Budget Increases Risk Of Junk Status: Ratings Agencies
• Coronavirus Could Lead To $7.4 Billion Deficit In Illinois