Illinois is being sucked into a 'negative credit spiral,' warns S&P

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Chicago Teachers Union employees and supporters protest outside of City Hall in Chicago, on July 2, 2015.

The State of Illinois faces a "negative credit spiral" that will plunge its bonds into junk status unless lawmakers can end three years of political squabbling and pass a budget soon, S&P Global Ratings warned Thursday.

The credit agency, citing "unrelenting political brinksmanship," dropped the state's rating by one notch — to Triple B minus — a day after the state legislature ended its spring session without an agreement on spending for the fiscal year that begins July 1.

Illinois was already the lowest-rated state.

Partisan squabbling intensified Wednesday as Democrats and Republicans blamed each other for an impasse that threatens to send the state into its third consecutive fiscal year without a complete budget.

The gridlock pits Republican Gov. Bruce Rauner against a statehouse controlled by Democrats, each with sharply divergent budget priorities.

House Speaker Michael Madigan, a Chicago Democrat, said Wednesday that budget talks will move to a June overtime session in which a tougher vote of a three-fifths majority will be needed for approval.

$14 billion backlog of unpaid bills

Illinois, the nation's fifth-largest state, has been slogging through a fiscal year with court-ordered spending, stopgap spending, and ongoing appropriations mandated by law.

Meanwhile, without an approved budget, some spending has been halted, leaving a mounting backlog of more than $14 billion in unpaid bills. The state's cash crunch has delayed $1.1 billion in payments to public school districts. It has led to big spending cuts at state universities and has put social services on life support.

This latest rating downgrade marks the seventh for Illinois since January 2015 by major credit rating agencies.

Illinois is rated Baa2 by Moody's Investors Service and BBB by Fitch Ratings, both with negative outlooks.

Records from S&P, Moody's, and Fitch dating back about half a century or more show no states rated junk, Reuters reported.

—Reuters contributed to this report

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