Illinois could see its already worst-in-the-nation credit rating sink further -- all the way down to "junk" status. Moody's Vice President Ted Hampton said investors have asked the ratings agency if that's even possible.
Because they can raise taxes, states are generally considered safe, and have high ratings.
But Hampton said there's no credit floor. It is possible for Illinois' rating to drop to "junk," due to its growing pension debt and budget deficits.
"It's just a couple of notches away from that (well, three notches below where it is now). It certainly is conceivable. We have a negative outlook which indicates that we see further deterioration in the credit situation as being more likely," he said.
Credit ratings are an indicator of governments' fiscal position; lower ratings drive up borrowing costs.
Illinois will soon reach its six month without a budget -- that's halfway through the fiscal year.
Hampton said even if Illinois reached an agreement now, the state's credit standing would not improve right away.
"At best they'll have 5 or six months to implement whatever they decide to implement. So that makes it a very steep climb for them to fix the current year's roughly $5 billion problem," Hampton said.
"So we're therefore not really expecting some sort of rabbit being pulled out of the hat here. We're expecting that this process may drag on a little bit, and the solution, whatever it is, will be piecemeal and will leave the state, at least for the remainder of the current fiscal year, with its finances deteriorating."
Moody's also sent notice that it's conceivable Illinois could reach "junk" bond status due to its growing pension debt and budget deficits.
