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

Tyler Durden – July 5, 2017

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.