* S&P…

S&P Global Ratings considers the Illinois governor’s fiscal 2021 budget proposal a step toward improving structural balance, building liquidity, and addressing pension liabilities, although it is a very small step. The proposed $42 billion fiscal 2021 budget calls for recurring revenues to fund recurring expenditures, assuming voters pass a graduated income tax constitutional-amendment ballot initiative in November, and the budget includes measures to attain balance if the vote fails. The largest step taken is toward attaining current-year structural stability without budget gimmicks or the use of one-time revenues, while applying reasonable economic assumptions. However, we do not consider the budget balanced, because the pension funding is statutorily set and is not at a level supported by a third-party actuary. In addition, the annual pension funding proposed still does not meet our static funding calculation.

The $1.4 billion budgeted to be received from the graduated income tax will be held back, and will only be distributed to the budgeted line items beginning Jan. 1, 2021, should the measure be passed. Should the graduated income tax measure not pass in November, the state would alter the budget by withholding $1.4 billion in proposed budgetary reserves (see details below).

Proposing a budget with this level of revenue uncertainty raises credit risks, but the passage of the graduated income tax is the administration’s primary goal. The new tax structure, if approved, would net about $3.6 billion in additional annual general fund revenues, enabling the state to address its lingering structural imbalance to some extent. We would view the successful passage of the proposed constitutional amendment as a further step toward fiscal progress, absent large expenditure reductions, since the full $3.6 billion would be incorporated into the fiscal 2022 budget. However, even with this additional money, the state will only make partial progress toward reducing the approximately $7 billion outstanding bill backlog as of Dec. 31, 2019. The bill backlog peaked at $16.7 billion in fiscal 2018 and has been reduced by almost $1 billion over the past year. However, since the backlog totals over 16% of the proposed budget’s general fund, these obligations greatly limit Illinois’ budget options.

Even with this outstanding backlog, the administration expects to request a $50 million deposit into the rainy day fund in fiscal 2020 and then another $50 million in fiscal 2021; the second is contingent on the passage of the graduated income tax amendment. We have cited the lack of reserves as a limiting credit factor in the past, and so while still a very small potential offset to revenue declines, these actions are mildly positive. The last notable step toward fiscal stability is a $100 million deposit in fiscal 2021 to improve the state’s pension position. Although this is a move in the right direction, the amount is still not meaningfully above the statutory (not actuarially recommended) level being funded and keeps the target funded ratio at 90% by 2045, considerably slower than that of higher-rated peers.

Another positive is that the state’s fiscal 2020 year-to-date revenues and expenditures are projected to result in a current-year operating surplus at fiscal year-end (June 30). While we anticipate stability in the near term, we do not expect the current or proposed budgets will materially improve the state’s credit profile, as the overall liquidity position and funding of pension and other post-employment benefit obligations remain below those of higher-rated peers, and the bill backlog remains significant.

* Tribune…

“I’ve never said that we would solve all the problems in one year’s budget,” Pritzker said. “But I have said that it’s important that we are consistent and persistent at addressing the challenges that we have in the state.”

S&P also noted that there has been no word from a task force Pritzker created more than a year ago to recommend state assets that could be sold or transferred to infuse cash into the five statewide pension systems.

Pritzker said the group is still working on crafting legislation that would allow those transfers to take place.

“It isn’t the case today that you could just take an asset and move it into the five pension systems,” he said.