* Shot from the Bond Buyer…

* Chaser from S&P…

S&P Global Ratings revised the outlook to positive from stable and affirmed its ‘BBB’ rating on the State of Illinois’ general obligation (GO) debt outstanding, its ‘BBB-’ rating on the state’s appropriation-backed debt, and its ‘BB’ rating on the state’s moral obligation debt. At the same time, S&P Global Ratings assigned its ‘BBB’ long-term rating to the state’s $400 million GO bonds series A and B of December 2021, with a positive outlook. […]

The positive outlook means that there is at least a one-in-three chance that we could raise the rating within the two-year outlook period given Illinois’ continued improved transparency and budgetary performance. While pension-related fixed costs are likely to persist, if funding of the actuarially determined pension obligations does not continue to improve and the state’s forecast budgetary outyear gaps do not meaningfully narrow, we could revise the outlook to stable. If funding of the actuarially determined pension obligations continues to improve and the state resolves its forecast budgetary outyear gaps in a timely way, we could raise the rating. […]

Illinois’ strengthened operational reporting and controls and improving economic condition are leading to positive budgetary performance. The state now forecasts fiscal 2022 will close on June 30 with a $418 million surplus. This projected surplus includes $1 billion to complete repayment of the Municipal Liquidity Fund (MLF) borrowings from the Federal Reserve, a $928 million repayment of interfund borrowing, a proposed $913 million supplemental appropriation to reduce the health insurance reserve fund backlog, and a $300 million proposed contribution to the almost empty budget stabilization fund (BSF). This follows fiscal 2021’s strong results showing a $2.7 billion general fund surplus that also included a $1 billion MLF paydown. Not including the MLF paydown, the surplus represents more than 6% of fiscal 2021’s total expenditures. […]

As strong as the current performance is, the five-year forecast could indicate that this positive performance may not be short-lived. One year ago, the five-year forecast delivered in the annual Economic and Fiscal Policy Report from the Governor’s Office of Management and Budget (GOMB) showed five consecutive outyear budget gaps of $4.2 billion-$4.8 billion annually. The November 2021 report shows a considerably more manageable budget gap forecast, with the largest expected deficit occurring in fiscal 2025 of $1 billion and all other years below that. In the annual budget cycle in a state with the resources that Illinois has, we view it to be able to close a $1 billion gap without any extraordinary measures. […]

The positive outlook reflects our anticipation that continued economic recovery will deliver revenues in line with forecast, the state will take action to rebuild the BSF, and that regular revenue and expenditure reporting will lead to timely actions to deliver a fiscal 2022 surplus.

…Adding… Fitch also assigned a positive outlook…

The Positive Outlook reflects Illinois’ preservation of fiscal resilience through the pandemic, coupled with unwinding of certain nonrecurring fiscal measures. Continued improvements in operating performance and structural balance could support a return to the pre-pandemic rating or higher. […]

Factors that could, individually or collectively, lead to positive rating action/upgrade:

–Sustained progress in reducing the state’s liability burden by maintaining recent improvements including further reducing accounts payable closer to a level more consistent with normal operations, or fully repaying federal and interfund borrowings in the next fiscal year;
–Continuation of the recent pattern of more normal fiscal decision making, including on-time budgets that address fiscal challenges primarily with sustainable measures;
–Narrowing of the structural budget gap by better matching recurring revenues with recurring spending, including funding pensions at actuarially determined levels.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

–Failure to implement plans for early retirement of federal pandemic loans and repayment of interfund loans in fiscal 2022;
–Actions that materially exacerbate structural budget challenges, such as substantial use of one-time federal aid for recurring expenditures in future years.

The word “normal” in the context of Illinois fiscal matters has rarely been seen in years past.

…Adding… Yvette Shields…

The Teachers Retirement System, the largest of the five that make up the state’s pension system, said its newly released fiscal 2021 actuarial results “revealed that since the 2019 inception of two benefit buyout programs, TRS members have collected $534 million in advance benefit payments, which has led to a $70 million reduction in the required state contribution in the new fiscal year.” […]

The Teachers’ Retirement System recently published its preliminary fiscal 2021 financial report showing its funded ratio moved up to 42.5% after holding steady around 40% for several years and its unfunded liabilities dropped slightly to $79.9 billion from $80.7 billion due in large part to stellar investment returns of 25.5% for fiscal 2021, according to Segal Consultants.

The state’s total fiscal 2020 tab was $141 billion. If the others show similar results to TRS the total figure would mark a reversal in the steady rise.