Illinois' general obligation bond rating is under review for a possible downgrade by Moody's Investors Service following the state's inability to "enact a timely budget" for fiscal year 2018, which began July 1, and its "failure to achieve broad political consensus on how to move toward balanced financial operations," the ratings agency announced Wednesday prior to the budget's passage Thursday.
The Illinois Legislature passed a full-year budget on Tuesday that was vetoed by Illinois Gov. Bruce Rauner the same day. Mr. Rauner's veto was overridden by the Senate on Tuesday and the House on Thursday.
Moody's argued Wednesday that while the state has made "legislative progress towards a fiscal recovery plan based on permanent income tax increases," the budget plan "entails substantial implementation risk" and "appears to lack concrete measures that will materially improve Illinois' long-term capacity to address it unfunded pension liabilities."
"The plan's approval relied almost entirely on Democratic party support in the state's Senate, and a vote to override the governor's vetoes of the measures has been deferred by the state's House of Representatives. The plan therefore appears to lack broad bipartisan support, which may signal shortcomings in its effectiveness once implemented," Moody's added. "In addition, the state's baseline tax collections declined in fiscal 2017, suggesting that any tax increase may yield less revenue than anticipated in coming months."
Moody's and S&P Global Ratings downgraded Illinois' credit rating to one step above junk on June 1, citing continued concerns over the state's budget impasse.
The state has been operating without a full budget since July 1, 2015 and faces $141.1 billion in unfunded liabilities across its five pension plans on a GASB 68 accounting basis.