* From Moody’s…

Moody’s Investors Service has revised the outlook on the State of Illinois to stable from negative, while affirming the Baa3 ratings assigned to both the state’s general obligation and Build Illinois sales tax revenue bonds. Bonds issued by the Metropolitan Pier and Exposition Authority and by the state under its Civic Center program, which together account for $3 billion of debt, have been affirmed at Ba1.

RATINGS RATIONALE

The state’s GO rating incorporates substantial credit strengths - sovereign capacity to raise revenue and reduce expenditures, and a broad, diversified tax base - as well as increasing challenges from fixed costs attributable to employee pension and retirement health benefits. Build Illinois bonds’ allocation of sales tax revenue, despite providing substantial coverage of debt service, is not sufficiently separated from the state’s general operating needs to carry a higher rating than the GO, under the Special Tax methodology.

The Met Pier and Civic Center program bonds carry ratings below the state’s GO because, in both cases, annual legislative appropriation is required for payment of debt service. A legal structure with additional strengths - enhanced incentives to appropriate — in both cases offsets the arguably less essential nature of the financed facilities.

RATING OUTLOOK

The state’s stable outlook is in line with expectations that, despite continued under-funding of pension liabilities, any credit deterioration in the next two years will not affect the state’s finances, economy, or overall liabilities to an extent sufficient to warrant a lower rating.

This view is supported by the continuing budgetary benefits of the state’s recent income tax increase, and near-term fiscal risks that remain manageable.

FACTORS THAT COULD LEAD TO AN UPGRADE

-Adoption of a comprehensive plan to address pension liabilities

- Progress in lowering the bill backlog that does not depend on long-term borrowing

- Measures to achieve sustainable budget balance

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Renewed growth in payment backlog that reverses progress achieved through financing

- Reduction in pension contributions to provide fiscal relief

- Substantial assumption of debt or pension liabilities accrued by local governments

Baa3 is one notch above junk status.

I gave subscribers my take on this earlier today, so I’ll just let it stand at that.

* Frankly, the lack of an actual upgrade with a mere change in “outlook” from negative to stable is about the least Moody’s could do. In fact, it is the least Moody’s could do. I suppose that’s better than nothing, particularly considering the last three years, but check out all the “Huzzah, we’re not gonna die today” headlines…

* Moody’s has some good news for Illinois’ credit

* Moody’s has some good news on Illinois credit

* Moody’s rating outlook revision pulls Illinois from edge of junk

* Illinois gets some breathing room from Moody’s

There’s almost no way that Moody’s could’ve put us in junk territory after last year’s tax hike. And now that we have an agreed budget, a “stable” outlook is justified.

So, let’s not start dancing in the streets. A lot of tough choices and pain remain in our future.