Moody’s upgrade roundup
Wednesday, Jun 30, 2021 - Posted by Rich Miller
* More background is here if you need it. Bond Buyer…
Illinois won a one-notch upgrade Tuesday from Moody’s Investors Service, action that turns the rating tide for a state stung by more than a decade of downgrades that left it one cut away from a speculative grade.
Moody’s moved its general obligation and Build Illinois sales tax-backed ratings up one level to Baa2 from Baa3. It continues to assign a stable outlook.
Illinois’ management through the COVID-19 pandemic and prudent actions with its rosier revenue projections and $8.1 billion in new federal relief from the American Rescue Plan Act drew Moody’s praise.
“Just a little over six months ago, there was a raging debate over whether Illinois would be able to hold onto its investment grade rating,” Ty Schoback, a senior municipal research analyst for Columbia Threadneedle Investments, which owns Illinois debt as part of $17 billion in muni assets, said in an interview.
“It’s truly just a night and day situation and outlook for the state,” Schoback said. “To Illinois’s credit, despite their reputation and their history with fiscal decisions, they’ve made highly prudent choices.”
Illinois finances have been buoyed by the economic recovery as revenue exceeds expectations and the state receives $8.1 billion in aid from President Joe Biden’s rescue plan. The state is paying back the outstanding portion of the $3.2 billion it borrowed from the Federal Reserve’s emergency lending facility last year with higher-than-anticipated tax collections. The state has cut its unpaid bills to less than $3 billion. That backlog had reached more than $16 billion in 2017 during the state’s budget impasse.
“They need to just not mess it up,” Schoback said. “They need to maintain their discipline on pensions, moving to structural balance.”
* NPR Illinois…
Moody’s said Tuesday it upgraded Illinois’ bond status due to “material improvement in the state’s finances,” specifically the $42 billion budget Democrats pushed through the legislature last month. The agency said the budget repays emergency federal borrowing the state did in the depths of COVID last year and will keep the state’s bill backlog “in check” without dipping too far into the $8 billion in federal funds coming to Illinois from the American Rescue Plan.
Moody’s also gave the budget credit for increasing contributions to the state’s five pension systems, though it acknowledged Illinois’ pension debt — $144 billion in unfunded liabilities at last calculation — is “unusually large” and poses a long-term challenge to the state and could “exert growing pressure” on the state as “federal support dissipates,” barring new revenues or reductions in spending, the analysis said.
Still, Democrats were in a self-congratulatory mood Tuesday. In a statement, Senate President Don Harmon (D-Oak Park) obliquely referred to the budget impasse and those who cheered Rauner on during the standoff with Democrats from 2015 to 2017.
“Stability and responsibility produce results,” Harmon saiid. “You don’t need to ruin people’s lives to have sound fiscal policies and positive outcomes.”
Laurence Msall, the president of the Civic Federation, said the governor deserves credit, but the state is not yet out of the woods.
“From a fiscal analysis standpoint, this is positive news — it’s reflective of a more conservative budget approach that he has taken in the last year,” Msall told the Sun-Times. “It’s a step in the right direction, but much heavier lifting, and much harder work is needed, if we’re going to move from being barely investment grade to an A-rated credit or ideally a double A or triple A, which 13 other states are.”
Gov. J.B. Pritzker called the change a “major milestone.”
“I say with full certainty, Illinois’ fiscal situation is heading in the right direction for the first time in the 21st century,” the Democrat said. […]
The state’s general obligation rating — now Baa2, up from Baa3 — is still relatively low, but moving up a notch means Illinois should save money when it goes to the bond market; Pritzker estimated those savings will be worth tens of millions of dollars.
The upgrade will also give Pritzker something to boast about as he’s expected to soon begin campaigning for another term. Pritzker has thus far evaded saying whether he’ll run again, but with the June 28, 2022 primary now a year away, decision time should come soon.
While the upgrade from Moody’s is welcome news, it only returns the state’s rating to where it was before the last of three downgrades during the tumultuous tenure of Pritzker’s predecessor, former Republican Gov. Bruce Rauner.
* And sour grapes in Center Square Land…
Bill Bergman, director of research for Truth in Accounting, said credit ratings can be misleading.
“The rating has turned positive for some reason, the outlook anyway, which doesn’t mean much since they are borderline junk anyway in Illinois,” he said.
Womp womp. Bergman was wrong about state spending just a few days ago in the same outlet.