CHICAGO (Reuters) - Standard & Poor's on Wednesday lowered the rating on about $167 million of Chicago revenue bonds six notches to BBB-plus from AA-plus because motor fuel tax revenue mainly backing the debt has stopped flowing to the city due to Illinois' budget impasse.
As a result, bond payments are dependent on Chicago's "ability and willingness" to tap available revenue, according to the credit rating agency, which warned the rating could fall further.
A standoff between Illinois' Republican governor and Democrats who control the legislature over a budget for the fiscal year that began July 1 has left Chicago without its monthly state distribution of motor fuel tax revenue since August, according to S&P. Those taxes are subject to annual appropriation by the legislature.
Chicago Mayor Rahm Emanuel's office issued a statement urging state officials to pass a budget.
"Until then, the city will continue to responsibly fund our infrastructure maintenance with general operating funds for the safety of our residents with the expectation that the state budget impasse will eventually be resolved and the city will be reimbursed,” the statement said.
Unspent tax revenue was used by Chicago to make August and September payments on the bonds and is expected to be tapped for October and November payments as well, the rating agency reported. Chicago projects that available motor fuel tax cash could be exhausted by January, but intends to use other revenue to avert a default on the bonds.
S&P's downgrade also affects Chicago's $101 million drawdown loan under the federal Transportation Infrastructure Finance and Innovation Act that also relies on motor fuel tax revenue.
Fitch Ratings, which rates Chicago's motor fuel tax bonds BBB-plus with a negative outlook, also raised concerns last month about the state budget battle's impact on the bonds.
(Reporting by Karen Pierog; Editing by Matthew Lewis and Tom Brown)