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Moody’s upgrade roundup

Wednesday, Jun 30, 2021

* 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.

* Bloomberg

“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.”

Agreed.

* 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.”

* Sun-Times

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.”

* WTTW

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.

* Tribune

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.

- Posted by Rich Miller        

11 Comments
  1. - Grandson of Man - Wednesday, Jun 30, 21 @ 7:50 am:

    The professional fiscal responsibility scolds are unhappy that we’re being fiscally responsible? Shocking.

    “The rating has turned positive for some reason”

    Center Square knows why but is probably unhappy for several reasons, one being that a political cudgel has been taken away, another that state employees and government spending were not slashed. Also and perhaps most importantly, red state models that certain interests want us to emulate have been proven unnecessary. That’s their raison d’etre, so naturally they’re not pleased.


  2. - Oswego Willy - Wednesday, Jun 30, 21 @ 8:06 am:

    === 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.===

    LOL… what a pathetic excuse of a take.

    “…which doesn’t mean much since they are borderline junk anyway in Illinois,” he said….”

    I mean… seriously. Your whole professional take is… “that”

    Of course the continued and purposeful ignoring of the Illinois constitution when it comes to debt and bonds is in full effect, and it’s true we are discussing the outlook, how can the outlook not include the reality of how Illinois treats debt.

    “… they are borderline junk anyway… “

    Like a petulant teenager who wanted something but denied… so ya say it’s still bad “anyway”. My goodness gracious.

    This, however, I do concur, said almost the same, but I ain’t Laurence Msall;

    ===…”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…===

    I’ll stop Mr. Msall right there. Stopping there is wholly accurate. Stopping there is spot on reading the fiscal reality.

    This is merely playing to those in the racket of maximizing monetary gain by ignoring constitutional realities;

    ===… 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.”===

    We are not … barely investment grade, what we are… we are caught in a racket that ignores the truth to constitutional fiscal truths so folks in the bonds business can soak Illinois with a flimsy analysis of what it means to be a bad risk. That’s where I parted ways with Mr. Msall.


  3. - AnonymousFool - Wednesday, Jun 30, 21 @ 8:38 am:

    How does one get a job by being wrong all the time? Asking for a friend.


  4. - TheInvisibleMan - Wednesday, Jun 30, 21 @ 8:50 am:

    “The rating has turned positive for some reason”

    Well, that’s certainly the type of depth of knowledge I would trust with an in-depth analysis of a complex situation.

    What an embarrassing thing to say.


  5. - PublicServant - Wednesday, Jun 30, 21 @ 8:58 am:

    Well, at least you relegated Center Square to Last Mention status. That’s progress, Rich.


  6. - Back to the Future - Wednesday, Jun 30, 21 @ 9:33 am:

    AF- How does one get a job by being wrong all the time?
    I got a job right out of college at a bond rating firm so knowing a lot was not a requirement then.
    I learned a lot or at least enough to give a semi informed opinion on the Illinois rating change. it is very hard to get an upgrade.
    I get the comments about Illinois still having a low rating, but this change by Moody’s is a very big deal. It will save the state taxpayers a really big amount of money and because the State rating effects the ratings of local governments when they go to market it will also help local governments in Illinois.


  7. - Candy Dogood - Wednesday, Jun 30, 21 @ 9:35 am:

    And yet there has been no change to the risk associated with Illinois general obligation bonds. None whatsoever.


  8. - Back to the Future - Wednesday, Jun 30, 21 @ 9:56 am:

    Candy Dogood raises an interesting point.
    Peddling paper can be a tricky process. I recall a relatively recent Illinois Bond issue that was oversubscribed by about 300%. The bankers followed the rating agencies and set a price that, on reflection, Mr. Market thought was low and buyers jumped in to get what they thought was a good deal on Illinois Bonds.
    The new opinion from Moody’s will help deal with the pricing issue and Illinois should be able to get better prices on it’s bond deals.
    Their is just no way to reach any other conclusion than the Moody’s new opinion on Illinois bonds is a very good thing for Illinois citizens.


  9. - Scott Cross for President - Wednesday, Jun 30, 21 @ 11:15 am:

    Pity the Center Square editors. They’ve been up all night trying to figure out a way to blame Madigan for this.


  10. - Blake - Wednesday, Jun 30, 21 @ 11:33 am:

    Laurence Msall did a good job setting a target, joining the 13 states with AA or AAA rating.


  11. - Proud Sucker - Wednesday, Jun 30, 21 @ 12:21 pm:

    “Bergman was wrong about state spending just a few days ago in the same outlet.”

    Yes, he sent me an e-mail yesterday asking for money so he can be wrong more often. I think I will encourage him to invest in muni bonds.


Sorry, comments for this post are now closed.


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