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Published On: Thu, Dec 14th, 2017

In spite of tax hike, ratings agency eyes change that could junk Illinois

SPRINGFIELD (Illinois News Network) — Illinois could be on the fast track to a junk credit rating, despite lawmakers assuring that a tax hike in July would keep the state from the infamous designation.

“If we don’t get this done we will become the first state in the history of the United States of America to be in junk bond status,” state Rep. Mike Unes, R-East Peoria, said this summer. He and several other Republicans joined Democrats in overriding Gov. Bruce Rauner’s veto of a budget that included a $5 billion income and corporate tax hike.

“The credit ratings agencies have said that with no budget in place for [fiscal year] ‘18, they’re gonna downgrade us to junk,” said Rep. David Harris, R-Arlington Heights, who also voted in favor of the override.

It might happen anyway.

Moody’s Investor’s Services announced this week that they’re thinking about weighing pension debt more heavily when they rate states for credit worthiness. Considering Illinois is one grade away from a junk-bond status, financial watchdog Wirepoints President Ted Dabrowski predicts the change would mean Illinois is placed firmly into speculative status.

“Illinoisans may be stuck with not only a $5 billion tax hike, but we may end up being junk anyway,” he said.

The designation, Dabrowski said, would not only mean that Illinois would have to pay higher interest rates than it already does to borrow money, but it will also serve as a negative message to businesses and individuals considering setting roots in the state.

Moody’s estimates Illinois has $250 billion in public pension debt. Its request for comments states that the changes would not immediately lead to governments being put on notice of downgrade, but Dabrowski doubts that it would be long before they take another look at Illinois’ finances through this new lens.

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In spite of tax hike, ratings agency eyes change that could junk Illinois