Question

The state of Illinois has experienced several bond rating downgrades over the last several years. Find an article related to the state of Illinois bond ratings and analyze what is happening within the state. If you were a bondholder, what would be some of your concerns? If you were a bond issuer, what would be some of your concerns? If you are an Illinois taxpayer, what would be some of your concerns?

Answer 1

It is true that since last several years state of Illinois has experienced the downgrades which was confirmed by the "Reuters" in its article of 15th March 2019 regarding bond rating and the main cause for the downgrade rating is as under:

• Decreasing trend in the revenue cycle.
• Inability to pay $133.5 Billion unfunded pension liability.
• No cost cutting plan in unwarranted major cost.
• Chronic Structure budget Deficit

Following are the concern for the Bondholder:

• Non repayment of Principal amount
• Non repayment of Interest amount
• Breaking of normal payment cycle and saving cycle of Bondholder
• It affects the other debt of the bond holder also as it weakens the ability to pay the normal debt of the bond holder.

Following are the concern from the bond issuer part:

• Credit worthiness goes down.
• It affect all the future cash flow
• It affect the lending ability of the bond owner
• All the money lending agencies will charge high interest rate as well as charges.

Following are the concern from the taxpayer part:

• Inability to pay interest and pension amount will directly affect the tax revenue also.
• If tax amount will not collect then overall growth would be in trouble.
• Capital project will be on high risk
• Illinois is only one notch above the junk means any time it will be like scrap and total burden will be shift on the economy.