Illinois' rating on $23.4 billion of municipal bonds was cut one level to A- by Fitch Ratings, which cited a rising budget deficit in the next fiscal year for the second-lowest rated state after California.
The fiscal 2011 budget "will not sufficiently" address the estimated general fund gap, expected to total $9.3 billion, or 33 percent of revenue, Fitch said in a report today. Fitch kept the state on a ratings watch list for a possible further downgrade from the fourth-lowest investment grade.
The lower ranking may raise the state's borrowing cost as it comes to market with more than $1 billion of new debt and investors demand a higher yield. Standard & Poor's cut the state's rating March 26 by one level to A+, its fifth-highest, and Moody's Investors Service today assigned an A2 rating with a negative outlook, meaning the bonds may be downgraded.