When Moody's Investors Service downgraded Illinois' credit rating in October, Illinois earned not only the distinction of having the lowest credit score of any state (it had had that for some time) but also became the first state to receive a rating below single-A.
But what does that mean and how can Illinois get out of last place? Can Illinois sink even lower on the credit scale, to a point that investors don't want to buy our bonds?
"There is no floor for U.S. state ratings, despite states' inherent credit strengths and typically very high ratings," Moody's VP-Senior Credit Officer Ted Hampton says. "The majority of states are rated either Aaa or Aa1, and this concentration at the top of our rating scale reflects states' powers - such as the ability to cut general spending - and positive features that include prudent governance practices, moderate debt burdens, and stable, diverse economies."
A month after dropping Illinois to a rating of Baa1 negative, Moody's has released an FAQ document that explains why Illinois fell into its bad credit situation and how it can rebound. Moody's succinctly spells out the causes of the state's credit decline: "governance weaknesses, bill payment deferrals, chronic structural budget gaps, and soaring unfunded pension liabilities."
Here are Moody's six FAQ summaries, followed by explanatory excerpts from the full document. Despite the current budget and fiscal clouds hovering over Illinois government, the news here isn't all bad (see Nos. 5 and 6).