CHICAGO -- Moody's Investors Service yesterday downgraded Illinois's $4.3 billion of outstanding general obligation debt to Aa1 from Aaa, a rating the state had held since 1944.

The move follows action taken by Standard & Poor's Corp. on Aug. 2 when it lowered the state's Go rating to AA from AA-plus.

In announcing the towngrade, Moody's said the recently passed $27.5 billion all-funds budget for fiscal 1992, which began July 1, could not reverse the damage caused by the state spending more than it had in recent years.

"A substantial deficit, accumulated in the past two fiscal years, is expected to take several years to reverse, leaving state finances vulnerable to other potentially adverse developments." the rating agency wrote.

George Leung, Moody's vice president and managing director for state ratings, said the state ended fiscal 1991 with a $740 million deficit as measured on a budgetary basis.

That reasoning was similar to that of Standard & Poor's, when it announced its downgrade last month.

At that time, Standard & Poor's cited that state's "significantly weakened financial operations and position during the past two fiscal years."

Moody's also cited increased non-GO state borrowing in recent years, such as the Build Illinois revenue bond program, saying it placed "enlarged debt commitments" on the state as another reason for the downgrade.

Mr. Leung added that the $185 million in short-time borrowing the state completed last week was a sign Illinois was still having cash-flow problems brought on by past overspreading.

That sentiment was underscored by a report issued last Friday by state Comptroller Dawn Clark Netsch showing that the entire $185 million from its GO certificate issue was spent in one day last week, paying off bills incurred in the last fiscal year.

"That money has already been spent in an effort to curb our cash-flow problems." Ms. Netsch said in a press release. "Yet I am sorry to say the problem still remains."

Despite the short-time borrowing, Ms. Netsch said the state could still face a $500 million backlog of unpaid bills of Sept. 30.

In addition, the comptroller reported that the state ended August with a $6.5 million general funds balance, the lowest monthly ending balance ever.

Officials in Gov. Jim Edgar's office were unhappy but not surprised by the action, according to Budget Director Joan Walters. She added that she believed recent budget actions taken by the Edgar administration were reversing the fiscal decline cited by the rating agencies in their downgrade announcements.

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