* From David Jacobson at Moody’s Investors Service…
On p. 5 of its new Weekly Credit Outlook for Public Finance released today, Moody’s notes the State of Illinois (rated Baa2/negative outlook) has experienced a third consecutive annual population drop in 2016, a credit negative underscoring tepid growth trends that will complicate efforts to enact a balanced budget and keep up with mounting pension funding pressures. From 2013-16 as the national population increased 2.2%, Illinois shrank by 0.6% as thousands of residents departed for other states. Illinois was one of only four states to see population declines each year for the period 2014 through 2016, according to Census Bureau data released on December 20.
Net migration has had a negative impact on populations in 31 states since the last census, while helping population growth primarily in states that serve as retirement havens or that have strong economies. But the case of Illinois appears more severe; its annual outflow of residents steadily worsened during the past three years. Based on the Census Bureau’s state-to-state migration estimates for 2015 (the most recent available), many of the top destination states for those leaving Illinois were adjacent or nearby states, such as Indiana (Aaa/stable) or Michigan (Aa1/stable), which both featured faster job growth. Other top destinations for those leaving Illinois included Arizona (Aa2/stable), California (Aa3/stable) and Florida (Aa1/stable).
Population loss can be a cause, as well as an effect, of economic deterioration. A self-reinforcing cycle of population loss and economic stagnation could greatly complicate Illinois’ efforts to stabilize its finances. Even assuming the state reaches a consensus on addressing its current operating deficit and benefits from steady economic growth, Illinois’ pension funding requirements as a share of budget likely will rise to 30% (from about 23% currently) in coming years.
Moody’s declaration of “credit positive” or “credit negative” does not connote a rating or outlook change. It is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer.
Pension payments rising to 30 percent of the budget is just downright chilling.
We need a budget and some growth yesterday.
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