* S&P looks at the governor’s budget, but won’t yet evaluate its credit rating, so the question it asks isn’t really answered…
S&P Global Ratings acknowledges that this is only a budget proposal and there is uncertainty about the pace of economic recovery and prospects for additional federal stimulus. Future credit direction will be evaluated as greater clarity is available on these key issues.
* Key takeaways…
- Although Illinois ‘proposed fiscal 2022 general fund operating budget is slightly smaller than the previous year’s proposal, and balanced in terms of current-year obligations, we do not view it as structurally balanced due to the treatment of pension obligations.
- Pension contributions are budgeted to fully meet increasing statutorily set amounts but are still less than actuarially determined amounts.
- The state expects to close fiscal 2021 with a small surplus, after prepaying the next fiscal year’s municipal liquidity fund’s debt service.
- Illinois has a bill backlog, limiting flexibility, but this is markedly reduced from this time last year.
- The COVID-19 pandemic continues to affect state economic activity with unemployment through December 2020 above the national average, with 2021 activity improving employment conditions.
* Potential risks…
Federal uncertainty: The budget does not rely on additional federal aid, but educational enhancements and further efforts to retire MLF borrowing obligations early could be aided by further stimulus. Should additional aid materialize, the state could adjust budget expectations.
Pensions remain a high fixed cost: Included in the budget is $9.4 billion for general fund contributions to the state’s various pension systems. This is a $739 million increase over the previous budget contribution. The statutory contributions are forecast to continue to increase, but the state projects its share of the budget will remain at about 25% of expenditures through 2045.
Challenge in changing tax structure: The fiscal 2022 budget relies on changing business tax provisions to generate an estimated $932 million in additional revenues. Legislative scrutiny of the tax-structure proposal could limit change and revenue projections.
Prolonged economic disruption: Outside the timing of vaccine distributions, any long-term permanent changes in business, travel, or consumer patterns in and around Chicago will likely have a material effect on the state’s economic recovery.
* Capital program debt…
We view Illinois’ general obligation (GO) debt burden positively. With more than 75% of GO debt retired in 10 years and the state in the third year of a long-term $45 billion Rebuild Illinois capital improvement plan, it is expected to maintain debt ratios at similar levels. As of Feb. 1, 2021, the state has $27.2 billion of fixed-rate GO debt outstanding and $2.845 billion of GO MLF debt, equating to debt per capita of about $2,375, which we consider moderate.
*** UPDATE *** Something weird is going on. Check out this press release, which doesn’t seem to be written by the same people who wrote the actual report…
Illinois’ Proposed Fiscal 2022 Budget Could Signal The State Is Turning The Corner, Report Says
BOSTON (S&P Global Ratings) Feb. 25, 2021—The Illinois governor’s proposed fiscal 2022 general fund operating budget could be a small step toward putting the state on firmer financial footing, S&P Global Ratings said today in a report titled “Is Fiscal Stabilization On The Horizon For Illinois?”.
The $41.7 billion general fund budget is slightly smaller than the initial $42 billion budget proposed last year before the COVID-19 pandemic began, and $1.8 billion or 4.2% less than the estimated final spend in fiscal 2021. The introduced budget is designed to generate a $120 million surplus.
However, the state still faces fiscal challenges, including a significant bill backlog, underfunded pension plans, and the ongoing effects of the pandemic.
“Although Illinois’ proposed fiscal 2022 general fund operating budget is slightly smaller than the previous year’s proposal, and balanced in terms of current-year obligations, we do not view it as structurally balanced due to the treatment of pension obligations,” said S&P Global Ratings credit analyst Geoff Buswick.
- RNUG - Thursday, Feb 25, 21 @ 2:03 pm:
In other words, Illinois is doing pretty good with what they have to work with.
- Oswego Willy - Thursday, Feb 25, 21 @ 2:06 pm:
I read it…
“Considering? Yeah, ok. Let’s see what it looks like passed, but we’re gonna leave our open ended question as it is for now… if it’s all the same with you”
- thechampaignlife - Thursday, Feb 25, 21 @ 2:07 pm:
===its share of the budget will remain at about 25% of expenditures through 2045===
We are past the halfway point. 24 years to go. It may sound like a long time, but 1995 was 26 years ago. We can do this. And come 2046, our budget will have some $6 billion extra to cut taxes, invest in infrastructure, fund schools, etc.
- Candy Dogood - Thursday, Feb 25, 21 @ 2:09 pm:
Bond rating agencies have never accurately reported the risk or credit worthiness of public sector bonds, and especially not Illinois GO Bonds.
Their views on the credit worthiness of our state are as meaningful to reality as a Chicago Tribune editorial piece has become.
- FranklinCounty - Thursday, Feb 25, 21 @ 2:20 pm:
==In other words, Illinois is doing pretty good with what they have to work with.==
If you ignore the multiple bullet points about pensions, yes.
- Julian Perez - Thursday, Feb 25, 21 @ 2:28 pm:
All state/municipal debt has been rallying due to the hundreds of billions of dollars in incremental federal aid.
A few years ago Mayor Emanuel had to sell City of Chicago Public School debt at a taxable equivalent approaching 11%.
Today, Mayor Lightfoot can sell the same kind of LT debt at 4%.
Point? Pritizker will not have to worry about selling LT Illinois debt for at least another four years.
That happens when the USA can sell 10-year Treasuries at an interest rate of 1.3%.
- Nick - Thursday, Feb 25, 21 @ 4:10 pm:
If I remember correctly the estimate was something like ~$7.5 billion could be made available to the state once the latest stimulus package is enacted.
Of course it’ll depend on how the eligibility for using those funds is structured, but any extra bit helps.
- MyTwoCents - Thursday, Feb 25, 21 @ 5:21 pm:
FranklinCounty, the multiple bullet points about pension (all related to debt) are exactly what Illinois has to work with. Debt is debt and unless hundreds of billions of dollars just magically appear out of thin air we’re at were we’re at.