Naperville Business Lawyer on the Latest Bond Rating for Illinois

rating, Naperville business attorneyA common refrain during most presidential election cycles is that the country should be run like a business. This argument, usually maintained by those in favor of decreasing government spending, has been especially prevalent this time around, due to the business background of the Republican front-runner.

As a business law attorney, I understand why voters would be inclined to think that running the country like a for-profit company is a good idea and that the concept could be applied at the state level as well. While avoiding political debate and commentary, it is interesting to note that if the state of Illinois was a business, it would be in a great deal of trouble right now, as its recently-released bond rating is the lowest for any state in over a decade.

Budget Deadlock

For the last 12 months, Illinois has been operating without a budget, a very dangerous proposition for any entity. When temporary tax increases expired last year, lawmakers and the governor were unable to reach an agreement over how to cover the shortfall they left, and have been essentially at an impasse ever since. Emergency measures have been used in the meantime to prevent a shutdown, but Springfield continues to spend more than is being collected or generated. As a result, two major credit rating organizations have downgraded the state’s rating, noting that there is little evidence that lawmakers will avert starting a second fiscal year with no budget.

Bond Ratings

Moody’s Investors Service recently announced that it was dropping its rating on Illinois’ $28.8 billion in general-obligation and sales tax debt to Baa2. The designation represents a medium-grade rating, indicating the debt is subject to moderate credit risk. The last time any state was given a grade this low was in 1992 when Massachusetts received a Baa2. The news of the cut rating was accompanied by a similar report from S&P Global Rating, which dropped Illinois to BBB+. Other rating agencies are considering similar moves, as the outlook on the state’s financial future does not seem promising at the moment.

Going Forward

The budget crisis has already started to affect many small and medium business around Illinois, especially those working under contracts with the state. Countless non-profits have also been impacted, and many social services have been cut due to lack of funding. It is pretty fair to observe that if the legislature and the governor cannot reach an agreement soon, serious financial problems could be in store.

Whether or not the state should be run like a profitable business is up for debate. Running a profitable business, however, is the goal of every company owner and entrepreneur. When you have questions or need advice on making sound decisions, contact an experienced Naperville business law attorney. Call 630-756-1160 to schedule a consultation at The Gierach Law Firm today.

 

Sources:

Bloomberg

Standard & Poors

Moodys