New York, June 13, 2017 — Summary Rating Rationale
Moody’s Investors Service has downgraded the Regional Transportation Authority’s outstanding general obligation bonds, which are backed by a pledge of regional sales tax revenues, to A2 from Aa3, affecting about $2.2 billion of outstanding debt. The outlook remains negative.
The downgrade factors in the repercussions of an extended political impasse in the Illinois General Assembly over how to balance the state’s budget. After two years of failed negotiations, and operating with substantial budget deficits, the state has allowed a backlog of bill payments to reach record levels, putting pressure on many public- and private-sector entities awaiting state payments, including the RTA.
Payment deferrals have led RTA to rely on short-term borrowings that have created biennial refinancing requirements. This practice, while manageable, is only one measure of RTA’s potential stress stemming from the continuing financial erosion of its two largest related governments - the State of Illinois (Baa3 negative) and the City of Chicago (Ba1 negative). Over the long term, pressures to provide funding for constitutionally guaranteed state and local pension plans are increasingly apt to harm RTA’s economic base, eroding its ability to generate funding to support transit system capital investment and operating needs. Although these factors are outside the RTA’s control, they will pose increasingly serious challenges, offsetting the otherwise strong credit profile of the authority’s sales-tax revenue debt.
After the downgrade, the RTA sales tax bond rating remains higher than the general obligation debt of either Chicago or the state. The rating differentials (of five and four notches, respectively) between the authority and these related governments are supported by legal and practical insulation of pledged regional sales tax revenues. It also reflects RTA’s sufficient debt service coverage from the sales taxes and the authority’s role in overseeing transit in a region that relies heavily on maintaining its far-reaching, high-capacity public transportation system. At the same time, fiscal pressures of the local and state governments will make the city and state more inclined to take adverse actions, such as shifting operating expense burdens onto the transit agencies when possible, and the prospects for state capital funding support will be diminished. The lower rating is consistent with RTA’s exposure to the state, which collects its regional sales tax and also provides matching payments for those revenues.
Rating Outlook
The negative outlook incorporates the State of Illinois’ continuing credit deterioration, which threatens to keep exacerbating ongoing aid payment delays in coming months, without an agreement to bring the state’s revenues and expenditures into closer alignment. It also factors in the Chicago area’s economic vulnerability to overlapping public pension liabilities, which may necessitate sizable tax increases that erode resources that could otherwise be used to address the transit system’s deferred capital investment needs.
Factors that Could Lead to an Upgrade
More dependable flow of state aid funds, reducing the need for short-term borrowings
Mitigation of pension funding pressures affecting related state and local governments
Improved bondholder protections, such as a more stringent additional bonds test
Factors that Could Lead to a Downgrade
Substantial increase in length of state aid payment delays
Weakening sales tax revenue performance and reduction in debt service coverage
Deteriorating liquidity position and lack of market access
- IllinoisBoi - Tuesday, Jun 13, 17 @ 4:07 pm:
This is just getting exhausting…
- Rich Miller - Tuesday, Jun 13, 17 @ 4:08 pm:
Agreed, IllinoisBoi. I think I’m gonna take a nap.
- Oswego Willy - Tuesday, Jun 13, 17 @ 4:16 pm:
According to Gov. Rauner, he drives his trashcan van everywhere, no need for the RTA…
Rauner doesn’t look at a State, in this case Illinois, and as its governor, as a living thing, needing infrastructure, transportation, educational institutions, social service providers…
… Rauner only sees a State as an entity that feeds Labor, the enemy according to Rauner… and every tool possible to destroy Labor will be used, including destroying higher ed, social services… and transportation too… all things that make up… a State.
- 47th Ward - Tuesday, Jun 13, 17 @ 4:16 pm:
There is already a Rauner No Budget Clock. Is anyone keeping score on the Rauner Credit Agency Downgrades?
I remember when getting downgraded was a very big deal in government. It was like a neutral third party, who knew the numbers well, said your leadership was horrible and not worthy of investing in. Those were the days my friend. Those were the days when the rating agencies still had credibility and facts still mattered.
- Dance Band on the Titanic - Tuesday, Jun 13, 17 @ 4:45 pm:
Another reason Kirk Dillard is not a member of the Bruce Rauner fan club.
- Anonymous - Tuesday, Jun 13, 17 @ 5:22 pm:
=Rauner only sees a State as an entity that feeds Labor, the enemy according to Rauner… and every tool possible to destroy Labor will be used, including destroying higher ed, social services… and transportation too… all things that make up… a State.=
This may drive or legitimize Rauner’s worldview. As a business man, he has been successful by assembling a team to taking over an entity, then reducing or eliminating every debt and liability associated with that entity by whatever means available.
He may view that he is saving Illinois by eliminating state obligations owed to “liabilities” such as employees, credit carrying vendors, universities, public transportation, and others that the state owes. If the state can make these “liabilities” go away, all the better as far as his former profession is concerned.
Not sayin’ it’s right, ethical, or even productive, but our society and economic system has valued this type of bust-out activity highly.
- Oswego Willy - Tuesday, Jun 13, 17 @ 5:24 pm:
===Not sayin’ it’s right, ethical, or even productive, but our society and economic system has valued this type of bust-out activity highly.===
… ‘cept for that 58% disapproval Rauner has…
Hmm.
- Biker - Tuesday, Jun 13, 17 @ 5:29 pm:
I haven’t kept track of this nationally, is destroying mass transit a thing again?
- Anonymous - Tuesday, Jun 13, 17 @ 5:33 pm:
===Not sayin’ it’s right, ethical, or even productive, but our society and economic system has valued this type of bust-out activity highly.===
… ‘cept for that 58% disapproval Rauner has…
Hmm.=
‘cept he’s made a gazillion dollars do this kinda thing in the private sector, no polls, just ruins for others and proceeds for Bruce.
- RNUG - Tuesday, Jun 13, 17 @ 5:34 pm:
== If the state can make these “liabilities” go away, ==
He can’t make the State’s biggest problem, the pension debt, go away.
He’ll never do it, but he could fix the pension debt problem by raising the income tax and designating a specific percentage just to the pension funds.
- Slippin' Jimmy - Tuesday, Jun 13, 17 @ 5:39 pm:
Then he should be ready to explain to the rest of us how doing away with the State’s employees, Universities, businesses and its transportation infrastructure makes it a better place in which we live.
- Oswego Willy - Tuesday, Jun 13, 17 @ 5:39 pm:
===‘cept he’s made a gazillion dollars do this kinda thing in the private sector, no polls, just ruins for others and proceeds for Bruce.===
Your point? I’m not seeing it.
=== ===Not sayin’ it’s right, ethical, or even productive, but our society and economic system has valued this type of bust-out activity highly.===
… ‘cept for that 58% disapproval Rauner has…
Hmm.=== ===
Seems society… isn’t too keen on governing that way.
- JDuc - Tuesday, Jun 13, 17 @ 5:45 pm:
We keep taking on more water……this ship is sinking fast
- Anonymous - Tuesday, Jun 13, 17 @ 5:53 pm:
=Your point? I’m not seeing it.=
My point is: Ready?
According to our (market-based) society, people are paid their worth in the marketplace.
If he’s making a gazillion bucks busting-out problem entities from their debts, he’s valued accordingly - a gazillion dollars.
Like or not ( I don’t) we place a high value on non-productive, speculative, and even destructive activity, that’s Rauner’s gig.
He’s attempting to transition this into “public service” by paper over it with his GOP employees (Durkin etc.), the Carhartt’s, the van, the Harley, and his thespian skills.
- Slippin' Jimmy - Tuesday, Jun 13, 17 @ 5:56 pm:
Well, I guess, but you’d agree his clock is ticking politically wouldn’t you?
- Oswego Willy - Tuesday, Jun 13, 17 @ 5:57 pm:
===He’s attempting to transition this into “public service” by paper over it with his GOP employees (Durkin etc.), the Carhartt’s, the van, the Harley, and his thespian skills===
Um, ok… but you continually miss the whole point…
===Like or not ( I don’t) we place a high value on non-productive, speculative, and even destructive activity, that’s Rauner’s gig.===
… and it’s polling at 58% disapproval… within the governing.
Society. Ain’t. Approvin’
- Anonymous - Tuesday, Jun 13, 17 @ 6:06 pm:
=He can’t make the State’s biggest problem, the pension debt, go away.
He’ll never do it, but he could fix the pension debt problem by raising the income tax and designating a specific percentage just to the pension funds.=
He aint done yet. Illinois is becoming nationally infamous. A trip to congress to allow bankruptcy - mission accomplished!
Right now he’s at the USC against employees. He’s killing universities, “succeeded” against SS agencies, hurting transit, hurting k-12.
- Anonymous - Tuesday, Jun 13, 17 @ 6:14 pm:
=… and it’s polling at 58% disapproval… within the governing.
Society. Ain’t. Approvin’=
Disagree. Your not giving him enough credit (no pun intended). Does the polling you refer to ask voters for a large tax increase versus the Rauner status quo of destruction?
I, unlike you, don’t underestimate how much damage he can do before the election, assuming he isn’t re-elected.
The secret to Madigan’s and other’s success with voters could be summarized as: “Would you rather pay what you owe now or dig a deeper hole.” Every time over the past several decades, voters pick the destruction -they vote to dig a deeper hole.
- Oswego Willy - Tuesday, Jun 13, 17 @ 6:23 pm:
===Disagree.===
58% disapproval. That’s not approving. Do you know his math works?
===I, unlike you, don’t underestimate how much damage he can do before the election, assuming he isn’t re-elected.===
Really? Hmm. Usually I’m the half empty, but “you know”, you’ve seen my comments…
===The secret to Madigan’s and other’s success with voters could be summarized as: “Would you rather pay what you owe now or dig a deeper hole.” Every time over the past several decades, voters pick the destruction -they vote to dig a deeper hole.===
Yeah, explain “Pat Quinn fails”
(Sigh)
You have no arguments.
- Just Me - Tuesday, Jun 13, 17 @ 6:38 pm:
Our elected officials have failed us. They’ve failed us at every level. They have zero interest in the people they pretend to represent.
- blue dog dem - Tuesday, Jun 13, 17 @ 6:57 pm:
Double the price of the ride. It will help.
- TransitRider - Tuesday, Jun 13, 17 @ 8:29 pm:
Ironic that the state’s troubles caused the downgrade, as I’m pretty sure the RTA has been using their good credit rating to borrow to cover the massive state transit payment delays for years. Last I heard, the state owed the RTA something like $400 million dollars. This should make things more difficult.
- Anonymous - Tuesday, Jun 13, 17 @ 10:20 pm:
The problem here is that the governor thinks he walks on water and the legislature knows he can’t. Neither side will budge, because they both expect to be vindicated down the road.
- Fromafar - Wednesday, Jun 14, 17 @ 4:02 am:
you know it is bad, when a news headline out of NEW ZEALAND reads “Could Illinois be the First State to Go Bankrupt?”
- Back to the Mountains - Wednesday, Jun 14, 17 @ 8:21 am:
==[H]e has been successful by assembling a team to taking over an entity, then reducing or eliminating every debt and liability associated with that entity by whatever means available.==
Reducing every debt and liability available… By growing the bill backlog to record levels and deficit spending for two years now? Odd way of reducing debt and liabilities, no?
- AnonymousOne - Wednesday, Jun 14, 17 @ 8:46 am:
First governor to test the bankruptcy option in the courts. Ditch the debt, start clean.
Unfortunately, the courts, with regard to the pension debt, stated that there are remedies to this problem. THe state has options in dealing with this debt. No one likes the options but that doesn’t mean that we continue as if there is no solution available.
- Cook County Commoner - Wednesday, Jun 14, 17 @ 9:27 am:
If a large part of the cure is higher taxes, can we see any studies as to their impact on an already fragile state economy?