Downgrade Illinois's general obligation bond rating this week

Fitch Ratings became the second ratings agency to downgrade Illinois's general obligation bond rating this week, saying the state's government hasn't demonstrated the willingness to take action during the fiscal crisis to restructure its budget to achieve balance. Ratings agencies have taken issue with the state's failure to enact substantial recurring budget-balancing measures, which has been a consistent problem in recent years. On Friday, Fitch said the state has relied "almost exclusively on borrowing to close its sizable budget gaps." The ratings agency said the state's fiscal 2011 budget doesn't address either the annual operating deficit or accumulated liabilities. Accounts payable are expected to remain high throughout the next fiscal year and the state expects to rely on additional deficit borrowing to close its projected budget gap. The state's debt burden is rising and additional borrowing is expected under the $31 billion capital plan and with significant borrowing expected to close the projected fiscal 2011 budget gap. Fitch lowered the state's rating by one notch to A, which is five notches under AAA. The ratings outlook is negative, meaning future downgrades are possible. Failure to enact budgetary measures that reduce the deficit on an ongoing basis, address the cumulative budget deficit and reduce the accounts payable balance could trigger another downgrade, Fitch warned. The ratings were supported by the state's large, diverse economy, which is centered on the Chicago metropolitan area. Illinois entered the recession later than the national average and is likely to emerge later as well, according to Fitch. On Tuesday, Moody's Investors Service lowered its GO bond rating on the state by one notch to A1, citing similar budget concerns. Standard & Poor's Ratings Services, meanwhile, said it would mull a downgrade in March. Both rate the state one notch above Fitch's new rating. Illinois's problems are an exaggerated version of dynamics playing out across the U.S. All states, except Vermont, have at least a limited requirement to balance their budgets. In practice, many states rely on one-time revenue windfalls or short-term borrowing to scrape through from one fiscal year to the next. The recession has decimated income-tax and sales-tax revenue, and lawmakers often don't want to anger voters by raising taxes during an election year. -By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/nae/al?rnd=gcYsK8LXN1QuBUQZ1fROIw%3D%3D. You can use this link on the day this article is published and the following day.