- Oops!Something went wrong.Please try again later.
- Oops!Something went wrong.Please try again later.
Long known for financial instability, Illinois on Tuesday got its first credit rating upgrade in more than two decades on the strength of the state’s latest budget.
In upgrading Illinois’ credit by one step — to two notches above junk bond status instead of one — Wall Street ratings agency Moody’s Investors Service noted that the $42 billion spending plan for the year starting July 1 “increases pension contributions, repays emergency Federal Reserve borrowings and keeps a backlog of bills in check with only constrained use of federal aid” from President Joe Biden’s coronavirus relief plan.
Even after the upgrade, Illinois remains the lowest-rated state on Moody’s scale, two notches below the next-lowest: New Jersey. Generally, states with higher credit ratings are able to borrow money at lower interest rates, ultimately saving taxpayers money.
Moody’s last upgraded Illinois in 1998, while Fitch Ratings last upgraded the state in June 2000, when Republican George Ryan was in the governor’s office.
Democratic Gov. J.B. Pritzker lauded the state’s progress in the mind of Wall Street, which comes after voters in November resoundingly rejected the cornerstone of his plan for stabilizing the state’s finances: replacing the flat-rate income tax with a graduated tax that would have allowed higher levies on higher incomes.
“Illinois’ fiscal condition is heading in the right direction for the first time in the 21st century,” Pritzker said during a statehouse news conference called after the upgrade was announced.
While the upgrade from Moody’s is welcome news, it only returns the state’s rating to where it was prior to the last of three downgrades during the tumultuous tenure of Pritzker’s predecessor, former Republican Gov. Bruce Rauner.
Sign up for The Spin to get the top stories in politics delivered to your inbox weekday afternoons.
Fitch downgraded the state twice during the Rauner era and again last year in light of an anticipated hit from the coronavirus pandemic. S & P Global Ratings, which last upgraded Illinois in 1997, moved its rating down three notches while Rauner was in office.
A standoff with the Democratic-controlled legislature over Rauner’s pro-business, union-weakening agenda led to two years without a complete state budget during his single term.
“Stability and responsibility produce results,” Senate President Don Harmon, an Oak Park Democrat, said in a statement responding to Tuesday’s upgrade. “You don’t need to ruin people’s lives to have sound fiscal policies and positive outcomes.”
As of Tuesday, Fitch and S & P still had Illinois’ general obligation bonds at the lowest investment grade rating, though Fitch last week improved the state’s financial outlook to positive from negative. Moody’s and S & P raised their outlooks to stable from negative earlier this year.
The long-term question remains whether Illinois can maintain forward progress in light of the mammoth unfunded liabilities in its pension funds and a widely acknowledged structural imbalance in its budget.
“Illinois still faces longer-term challenges from unusually large unfunded pension liabilities, which are routinely shortchanged under the state’s funding statute,” Moody’s said in announcing its decision. “These liabilities could exert growing pressure as the impact of federal support dissipates, barring significant revenue increases or other fiscal changes.”
In the coming year, pension contributions total $9.8 billion, nearly a quarter of the state’s operating budget.
The state has unfunded liabilities totaling $141 billion across its five pension systems, and Moody’s and other analysts argue that the contributions required by law fall short of what actuaries say is necessary to ensure long-term health.
The budget for the year that begins Thursday included no general tax or fee increases to bring more revenue into the state coffers, though it does rely on an estimated $655 million in anticipated new revenue from a series of tax law changes that Democrats have said amount to closing corporate loopholes. Republicans have decried those changes as tax hikes on business in the midst of their recovery from a pandemic-induced economic slowdown.
The state plans to pay off a $2 billion emergency coronavirus loan it took out from the Federal Reserve in the coming year, well ahead of schedule.
The General Assembly drew up plans to spend only about $2.8 billion of the more than $8 billion the state is receiving from Biden’s American Rescue Plan, leaving more time to decide how to use the funds, which can be used to cover certain expenses — but not to pay off debt — through 2024.
“Thanks to responsible and balanced budgets, as well as sound economic policy decisions, we continue to move our state toward financial stability,” House Speaker Emanuel “Chris” Welch, a Hillside Democrat, said in a statement. “This is yet another example that we can support all Illinois families, invest in our communities, provide high-quality state services to those in need, all while improving our fiscal health.”
House Republican leader Jim Durkin of Western Springs and Senate GOP leader Dan McConchie of Hawthorn Woods had no immediate comment on the upgrade.