The state of Illinois, which hasn’t had a budget in two years due to partisan gridlock, has been warned it may be downgraded to junk status as early as next month, reports the Wall Street Journal.
The state’s problems are symptomatic of challenges in many parts of the country, but the situation facing the US 5th largest state by GDP is especially dire:
“Illinois is one of many states that, despite a generally strong U.S. economy, are struggling to close budget gaps because of pensions and other entitlements. State and local retirement liabilities have ballooned since the financial crisis, and some governments don’t have enough assets to cover all future obligations.
S&P on Thursday dropped its grade on the state’s general-obligation bonds one level to BBB-minus, the lowest possible investment-grade rating, citing Illinois’s inability to pass a budget. Moody’s Corp. also dropped its Illinois rating one notch above junk. Fitch Ratings has rated Illinois at two notches above junk.”
Analysts point out that allowing the state to be downgraded has already added to the budgetary problems, which are in danger of getting even worse. S&P issued a warning that the state could be downgraded below investment level next month.