- Reuters/John Gress
In the end, it’s the children who suffer.
That’s the likely result of Illinois’ latest round of budget troubles, punctuated most recently by twin downgrades from the two major credit rating agencies late last week.
So who is most immediately affected?
Most “cities, counties and property wealthy school districts remain relatively insulated from state budget pressures,” Moody’s says.
In contrast, “K-12 school districts with low property wealth or high poverty are relatively dependent on state funding.”
Illinois is on the verge of going a third straight year without a budget, according to WGN, after lawmakers failed to pass one in the spring session. It has more than $14 billion in unpaid bills.
“The rating actions largely reflect the severe deterioration of Illinois’ fiscal condition, a byproduct of its stalemated budget negotiations, now approaching the start of a third fiscal year,” S&P Global Ratings credit analyst Gabriel Petek said in a press release.
Petek also put Illinois on “CreditWatch negative” and warned that the state is at risk of entering a “negative credit spiral, where downgraded credit ratings would trigger contingent demands on state liquidity, further exacerbating its fiscal distress.”
The downgrades have left Illinois’ debt just one notch above junk status, which would create limitations on the kinds of investors who can hold the bonds.
This has caused a sharp spike in bond spreads on Illinois general obligation bonds, making it more costly for the already cash-strapped state to borrow.
- Bank of America-Merrill Lynch