* Press release…

Moody’s: New revenues will begin to flow, but disparities and uncertainty remain for Illinois and its municipalities

Despite improved revenue prospects following the passage of its first comprehensive budget since fiscal year 2015, the State of Illinois (Baa3 review for downgrade) and its municipalities face lingering credit challenges, according to Moody’s Investors Service in a new report examining the budget’s implications.

“Illinois projects its income tax increases will generate an additional $4.7 billion in fiscal 2018,” says David Levett, a Moody’s assistant vice president and analyst. “The funds will help ease a long-running cash crunch that has driven up a $15 billion backlog of unpaid bills and placed growing pressure on other issuers in the state.”

The budget legislation authorizes supplemental cash resources totaling $7.5 billion, primarily consisting of the ability to issue as much as $6 billion of general obligation debt, to help pay down the state’s unpaid bills. However, the state’s ability to generate sustained surpluses to prevent further growth in its backlog remains unclear.

Among downstream issuers that receive state aid, K-12 public school districts face the greatest uncertainty since they will not receive revenue appropriated by the new budget until a separate, evidence-based funding model is enacted. The General Assembly passed a bill on May 31 that would adopt such a funding formula, but the governor does not support the bill in its current form. Any delay would further pressure school districts, including Chicago Public Schools (B3 rating under review)

“School districts with low property tax wealth or high poverty face the greatest risk from a state funding disruption because of their material dependence on state aid,” said Levett. “School districts with high property wealth and healthy reserves will be minimally affected.”

For public colleges and universities, the passage of a budget relieves some immediate operating and liquidity pressures by backfilling a material portion of a funding gap for fiscal year 2017. The comptroller has announced the release of $523 million, using existing education funds, to the state’s colleges and universities to cover MAP and operational funding. However, the ongoing timing of additional and future payments from the state is uncertain given the state’s massive bill backlog.

Smaller, regional public universities in Illinois are also confronting material challenges that linger following two years without a full budget. Their competitive positions have been impaired due to reputational damage, program and staff reductions, and notable enrollment declines that will continue this fall.

Community colleges, which had more flexibility to weather pressures during the two year impasse, will benefit from the renewed flow of funding for scholarship programs and state appropriations Although the state’s budget cuts some revenues for Illinois’ cities and counties, state aid distributions should become more timely, reducing uncertainty for local governments.

Extended delays in Medicaid payments from the state during the budget impasse had a limited effect on the majority of rated NFP hospitals, but came as hospitals continue to experience lower Medicare reimbursements and declining rate increases from commercial insurers. Illinois hospitals will thus benefit from the increase in unrestricted cash and investments as the state makes its payments. The June 30 ruling expediting state Medicaid payments will also benefit Illinois’ hospitals.

* Gov. Rauner was asked about SB 1 today. “Schools are gonna open,” he said. “We’re gonna make sure schools get open.”

But then he added this…

We’re gonna make sure that it’s done on a basis that’s fair for taxpayers all across the state and it doesn’t benefit only one community at the expense of residents of other communities.