SUBSCRIBE to Capitol Fax      Advertise Here      Mobile Version     Exclusive Subscriber Content     Updated Posts    Contact
CapitolFax.com
To subscribe to Capitol Fax, click here.
Rating agencies weigh in on Quinn tax proposal

Friday, Apr 4, 2014

* From a Pat Quinn budget office press release…

Two bond rating agencies have released their reviews of Illinois’ finances ahead of next week’s scheduled sale of $250 million in General Obligation bonds that will finance roads, bridges and schools around the state.

While they say the state still has much work to do, they note the hard work the state government has done to cut costs, pay down old bills, and pass a comprehensive pension reform plan.

“We are pleased that the bond rating agencies recognize the difficult work the Governor and the General Assembly have done to cut spending, pay down the bills and pass comprehensive pension reform,” Acting Budget Director Jerry Stermer said. “It’s clear the rating agencies agree the Governor’s proposed budget would bring long-term fiscal stability to Illinois.”

* Not everything the raters had to say was positive, but considering how New York has trashed us in the past, I suppose beggars can’t be choosers. From Fitch

KEY RATING DRIVERS

BUDGET TEMPORARILY STABILIZED WITH TAX INCREASE: Temporary increases in both the personal and corporate income tax rates, coupled with statutory spending limits, have closed a significant portion of the structural gap in the state’s budget through the current fiscal year 2014.

NEED FOR LONG-TERM SOLUTION REMAINS: Due to the temporary nature of the enacted tax increases, the state will need to find a more permanent solution to the mismatch between spending and revenues. The Negative Outlook reflects the critical need to address this issue. The governor’s recommended budget for the coming fiscal year would make these tax increases permanent and provide a basis for the state to achieve fiscal balance.

LARGE BALANCE OF DEFERRED PAYMENTS REMAINS: The state has a large general fund accounts payable backlog, which although reduced still totaled $4.2 billion at the end of fiscal year 2013. The state prudently used higher than forecast income tax collections in fiscal 2013 to pay down a portion of the accounts payable balance.

LONG TERM LIABILITIES HIGH: The state’s debt burden is above average and rose during the recession with issuance for operational purposes. Continued borrowing is expected under the $31 billion capital plan. Further, unfunded pension liabilities are exceptionally high and are expected to remain so, even if pension reform survives legal challenge.

ACTION ON PENSIONS: Passage of pension reform legislation was a positive indication of the state’s willingness to take action on this complicated issue after many failed attempts. Legal protection of pension benefits is particularly strong in Illinois and, as expected, legal challenge to the reform has been filed.

ECONOMY STRONG BUT RECOVERY SLOW: The state benefits from a large, diverse economy centered on the Chicago metropolitan area, which is the nation’s third largest and is a nationally important business and transportation center.

RATING SENSITIVITIES

Maintenance of the ‘A-’ rating will require timely action in advance of the expiration of temporary tax increases in fiscal 2015. Deterioration in the state’s financial position, as evidenced by excessive use of non-recurring revenues or additional payment deferrals, would likely lead to a downgrade. In addition, stabilization of the rating will reflect the extent to which pension reform enhances the funding levels of the pension systems and controls the growing impact of pension payments on the budget.

* From Moody’s

SUMMARY RATING RATIONALE

The rating is supported by the state’s general obligation (GO) pledge. Despite substantial pension reforms adopted in December, Illinois remains the lowest-rated US state, at A3 with a negative outlook. Reform enactment launched the legal process that will determine whether constitutional protections prevent the state (and local units) from lowering liabilities through plan changes that affect existing pension participants. Courts may invalidate the reform package altogether, or block pieces of it. If allowed, the reforms could put Illinois on track to manageable long-term pension funding, although the retiree benefits burden will still be heavy compared with many other states. Also pressuring Illinois’ finances is a history of operating deficits, negative GAAP-basis fund balances and payment deferrals. As offsets to its challenges, Illinois has a large and diverse economy, with above-average wealth, and its powers over revenue and spending are strong. State law gives the highest priority to the payment of general obligation debt service. […]

OUTLOOK

Illinois’ negative outlook reflects our expectation that the state’s financial position could deteriorate further if the state’s 2011 tax rate increases are allowed to expire without offsetting steps next year. Pension reforms passed in December could improve the state’s credit standing, by reducing accrued liabilities, but they may be rejected after legal challenges from employees and retirees.

WHAT COULD MAKE THE RATING GO UP

–Implementation of a credible, comprehensive long-term pension funding plan, after favorable court ruling

–Substantial progress in reducing payment backlog, with adoption of a legal framework or plan to prevent renewed buildup of bills

–Establishment of a pattern of structurally balanced budgets

WHAT COULD MAKE THE RATING GO DOWN

–Failure to address impending revenue loss from partial sunset of 2011 tax increases

–Significant further deterioration in pension funded status

- Posted by Rich Miller        


6 Comments
  1. - RNUG - Friday, Apr 4, 14 @ 4:02 pm:

    WHAT COULD MAKE THE RATING GO UP

    –Implementation of a credible, comprehensive long-term pension funding plan, after favorable court ruling

    WHAT COULD MAKE THE RATING GO DOWN

    –Significant further deterioration in pension funded status

    Translation: if the ISC rules agaist pension reform, you’re in big trouble. Even if the ISC approves pension reform, you still need to properly fund it if you want better ratings.


  2. - wordslinger - Friday, Apr 4, 14 @ 4:05 pm:

    Rating agencies love new debt to rate and taxes to cover them.

    And yeah, they just said that if the tax increase isn’t extended, the state will get whacked.


  3. - Hit or Miss - Friday, Apr 4, 14 @ 4:10 pm:

    ===Due to the temporary nature of the enacted tax increases, the state will need to find a more permanent solution to the mismatch between spending and revenues. The Negative Outlook reflects the critical need to address this issue.===

    If the ‘temporary’ income tax increase is allowed to expire how will this impact the states bond rating? Will it lower the states bond rating yet again? Will it increase the states cost of barrowing yet again and if so at what cost (cost in dollars to the taxpayers)?


  4. - Mokenavince - Friday, Apr 4, 14 @ 4:17 pm:

    The rating agencies have spoken, the tax increase is here to stay.
    Rauner will have to deal with it. Lets hope he can fix it.

    We should be worrying about towns going bankrupt. I would not look for much help from our legislature. They have no will or way.


  5. - Arthur Andersen - Friday, Apr 4, 14 @ 4:25 pm:

    Good Lord, how long has Stermer been Acting Budget Director?


  6. - Walker - Friday, Apr 4, 14 @ 4:36 pm:

    At least the ratings agencies have noticed and reported that the total amount of past-due payables is being reduced. That means, of course, that the operating budget is producing a surplus to pay them down.

    Yet GOP candidates and spokesmen that I’ve read, (Murphy, Cross, Duffy, Sweeney, and others) claim that we have not even achieved a “balanced budget” because we still have any late payables at all. They must think we are all stupid.


Sorry, comments for this post are now closed.


* Rauner admin won't deny plan to use National Guard in strike
* Question of the day
* A wedge that might work
* Because... Madigan
* This is what's known as "lip service"
* Reforms are having an impact
* De-escalation
* *** UPDATED x1 *** Rate Mark Kirk's new online ad
* The never-ending stalemate
* Weirdest. FOIA denial. Ever.
* Today's quotable
* Rauner admin claims it wants Teamsters-like bargain with AFSCME
* It's time for the top dog to act like it
* While I was away...
* Yesterday's blog posts

Support CapitolFax.com
Visit our advertisers...

...............

...............

...............

...............

...............

...............

...............


Search This Blog...

Search the 98th General Assembly By Bill Number
(example: HB0001)

Search the 98th General Assembly By Keyword

          
        * HTC deals on One M9, Nexus 9, RE camera, and accessories
        * OnePlus’ Follow-Up, OnePlus 2, Looks Like Another Promising Smartphone
        * What you won’t find on the OnePlus 2: no NFC, no Quick Charging, no Wireless Charging, no microSD card support
        * 5 reasons I’m excited for the OnePlus 2, plus 4 reasons I’m not
        * Smaller iPhone 6c project reportedly ditched over fear of iPhone 6 cannibalization
        * OnePlus 2 puts the competition on notice next month
        * Google almost got in the burger biz

        * Bats alive from beginning to end in Boston
        * Samardzija set to make first start at Fenway Park
        * White Sox 10, Red Sox 8: Barn burner in Boston
        * White Sox win fifth straight at Fenway
        * Slumping LaRoche to sit out two games
        * Samardzija deflects uncertainty ahead of start
        * Podcast: Sweet Sweeping

        ...............


        Main Menu
        Home
        Illinois
        YouTube
        Pundit rankings
        Obama
        Subscriber Content
        Durbin
        Burris
        Blagojevich Trial
        Advertising
        Updated Posts
        Polls

        Archives
        July 2015
        June 2015
        May 2015
        April 2015
        March 2015
        February 2015
        January 2015
        December 2014
        November 2014
        October 2014
        September 2014
        August 2014
        July 2014
        June 2014
        May 2014
        April 2014
        March 2014
        February 2014
        January 2014
        December 2013
        November 2013
        October 2013
        September 2013
        August 2013
        July 2013
        June 2013
        May 2013
        April 2013
        March 2013
        February 2013
        January 2013
        December 2012
        November 2012
        October 2012
        September 2012
        August 2012
        July 2012
        June 2012
        May 2012
        April 2012
        March 2012
        February 2012
        January 2012
        December 2011
        November 2011
        October 2011
        September 2011
        August 2011
        July 2011
        June 2011
        May 2011
        April 2011
        March 2011
        February 2011
        January 2011
        December 2010
        November 2010
        October 2010
        September 2010
        August 2010
        July 2010
        June 2010
        May 2010
        April 2010
        March 2010
        February 2010
        January 2010
        December 2009
        November 2009
        October 2009
        September 2009
        August 2009
        July 2009
        June 2009
        May 2009
        April 2009
        March 2009
        February 2009
        January 2009
        December 2008
        November 2008
        October 2008
        September 2008
        August 2008
        July 2008
        June 2008
        May 2008
        April 2008
        March 2008
        February 2008
        January 2008
        December 2007
        November 2007
        October 2007
        September 2007
        August 2007
        July 2007
        June 2007
        May 2007
        April 2007
        March 2007
        February 2007
        January 2007
        December 2006
        November 2006
        October 2006
        September 2006
        August 2006
        July 2006
        June 2006
        May 2006
        April 2006
        March 2006
        February 2006
        January 2006
        December 2005
        April 2005
        March 2005
        February 2005
        January 2005
        December 2004
        November 2004
        October 2004

        Blog*Spot Archives
        November 2005
        October 2005
        September 2005
        August 2005
        July 2005
        June 2005
        May 2005

        Syndication

        RSS Feed 2.0
        Comments RSS 2.0
        WordPress

        Loading


        * Texas prosecutor names committee to review Sandra Bland case
        * Banks' estranged wife says he had dementia when signing will
        * Opening statements made in alleged officer killer's trial
        * Several dogs survive southern Illinois house explosion
        * Mitsubishi, UAW to work together on buyer for Illinois plant
        * Report: Illinois retirees contacted about working if strike
        * Illinois hosted 109.4M visitors in 2014, up 3.5 percent
        * Mitsubishi, UAW to work together on buyer for Illinois plant
        * Mussel survey must be done before Sylvan Island bridge fix
        * Podiatrist donates shoes to Fairdale tornado victims

        * More Illinois residents feel pain as budget impasse drags on
        * New UIS Public Safety Building is another budget casualty
        * ACLU pushes for change in 'right of conscience' law
        * Study finds Illinois in middle of pack when it comes to key ethics laws
        * Data show drop in Illinois prisoners but still overcrowded
        * Hundreds of NIU employees want to join state worker union
        * Debate over rising Illinois lawmakers' salaries ignites again
        * Illinois budget impasse may mean no free ACT tests
        * State retirees contacted about returning to work if AFSCME goes on strike
        * Rauner's borrowing from special funds could have effect on state finances

        * CPS credit ripped to junk again
        * CPS credit plummets to junk again
        * Sky-high costs prompt gas-main reboot by new Peoples Gas owner
        * Peoples Gas fires chief pipe-replacement contractor as cost soars past $8 billion
        * Fired! Peoples Gas sacks chief pipe-replacement contractor as cost soars


          * Another ratings agency downgrades CPS' debt to junk status
          * 2 suspects shot, 3rd in custody in firearms investigation in Chicago Heights
          * 6 wounded in shootings since Monday afternoon
          * Family, friends hold vigil for man killed on West Side
          * Man stabbed to death on Southwest Side
          * Joliet man found not guilty in 2012 shooting outside restaurant
          * Walker chomps double cheeseburger, Trump's tweet
          * Mysterious big cat eludes capture and easy explanation in Milwaukee
          * Charges: Milwaukee father took blame for son's fatal hit-run
          * Setback for man suing over wrongful conviction in Lake Co. rape case


          * Our Opinion: Vietnam vets never forgot Mel-O-Cream's kindness
          * Robert Lynch: Chatham gun owner ready for 'terrorist punks'
          * Otto Fafoglia: Illinois attorney general little help with contractor complaint
          * Kathleen Parker: Alzheimer's research could help to solve Medicare's money woes
          * More Illinois residents feel pain as budget impasse drags on
          * New UIS Public Safety Building is another budget casualty
          * ACLU pushes for change in 'right of conscience' law
          * U.S. Attorney Jim Lewis: Public safety is everyone's responsibility
          * Study finds Illinois in middle of pack when it comes to key ethics laws
          * Data show drop in Illinois prisoners but still overcrowded


          * UI roundup: Trudeau arrested for drunk driving
          * Mendenhall hits Hollywood after football
          * Tate: QB Club puts Illinois in good light
          * Defensive tackle Jackson commits to Illini
          * Urbana council to meet PACA halfway on bricks
          * Juveniles arrested over LeRoy break-ins, vehicle thefts
          * July 29 Illinois basketball chat
          * News-Gazette Sports Page 07-27-15
          * Street closures listing
          * PODCAST: Jeannie Cisney 07-27-15


          * Chicago White Sox starter Samardzija: Should he stay or should he go?
          * Amid hot streak, LeMahieu making Cubs regret trade
          * 'Aggressive' search underway for 2 teens on fishing trip
          * Hotel robbed near Elk Grove Village
          * White Sox outlast Red Sox 10-8

          * House lawmakers overcome hurdle on key tra...
          * Rodney Davis talks funding with Bloomingto...
          * The agency that fought Illiana gets a new ...
          * Rep. Dold takes educational cruise down Ch...
          * Lawmakers decry high turnover rate of VA h...
          * CBD Oil, and politics
          * Simon considering state Senate bid
          * Killer Congressman Tom MacArthur trying to...
          * Shutdown? State may not notice
          * Rep. Bob Dold

          * Gens. Selva, McDew win Senate confirmation......
          * Durbin, Gutierrez Urge Cooperation To Expe......

          * Congress Moves Toward Export / Import Bank......
          * Congress Moves Toward Export / Import Bank......
          * Rate Mark Kirk's new online ad - The Capit......

          * Mitsubishi typical of corporate attitude; should we really cater to it too much?
          * MCA's Sewer Pipe Tower Prelude to the Chicago Architectural Biennial
          * The Sewer Pipe Tower that's MCA's Prelude to the Chicago Architectural Biennial
          * Life's a Beach
          * Because the APD Does Not Like Her...
          * Thought Catalog: 5 Ways To Make Every Job A Stepping Stone
          * Chicago Aldermen Seek Answers About Unprocessed Rape Kits
          * Chicago Pension Overhaul Deemed Unconstitutional
          * Chicagoland Coalition Marks ADA's 25th Anniversary With New Initiatives
          * Report: Higher Ed Investments Key To Closing Racial Unemployment Gap In Illinois


          * Time Running Out to Stop Legislator Pay Raise
          * Governor Announces Appointments
          * Governor Takes Bill Action
          * Governor Signs Historic Anti-BDS Law in Illinois
          * Governor’s Office Statement




              Hosted by MCS SUBSCRIBE to Capitol Fax Advertise Here Mobile Version Contact Rich Miller