Two Wall Street ratings firms lauded efforts to end Illinois's fiscal stalemate but warned of consequences if officials can't agree on a new package of taxes and spending.
S&P Global Inc. said Monday there is "increased likelihood" that Illinois will soon have a budget in place following a House vote Sunday approving higher personal and corporate income taxes.
The state Senate still has to approve the same legislation, which would become Illinois's first budget in two years.
If those attempts falter, S&P said, "the weakened condition of Illinois' finances and liquidity provide it with minimal margin at its current rating level."
S&P currently rates Illinois debt at one level above junk. It warned last month that Illinois would drop to junk credit status if it wasn't able to solve its partisan gridlock. Such a downgrade would worsen Illinois's financial straits by likely increasing interest rates on all future borrowings.
S&P rival Fitch Ratings, which currently has Illinois rated two notches above junk, also issued a statement Monday citing "concrete progress." It didn't express concern about a pledge from Gov. Bruce Rauner to veto the House legislation, saying "there appear to be sufficient votes to override the veto."
The House passed its revenue and spending measures with more than 71 votes -- the threshold needed to override the governor's decision. The Senate has a Democratic super majority which could also reject the governor's veto.
Fitch said it would "continue to monitor the developments in Illinois" but warned a downgrade would result without an agreement "that sets the state on a path toward budgetary balance."
Ratings firms rank debt on a scale according to how safe an investment they believe it to be. The 12 safest tiers are considered "investment grade," meaning they have adequate protection against the risk of default.
Below that bonds are considered junk, or "speculative grade," meaning they face much greater risks. No state has ever been rated as junk.
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(END) Dow Jones Newswires
July 03, 2017 15:30 ET (19:30 GMT)