* Moody’s…
Moody’s Investors Service has upgraded the issuer rating of the State of Illinois to Baa1 from Baa2. Moody’s has also upgraded the following: to Baa1 from Baa2 the rating on the state’s outstanding general obligation bonds, and to Baa1 from Baa2 the rating on the state’s outstanding Build Illinois sales tax bonds. Moody’s has affirmed the Baa3 rating on outstanding Metropolitan Pier & Exposition Authority bonds that are partially paid with state appropriations. The outlook is stable.
RATINGS RATIONALE
The upgrade to Baa1 reflects the state’s solid tax revenue growth over the past year, which expanded its capacity to rebuild financial reserves and increase payments towards unfunded liabilities. The state is on track to close the current fiscal 2022 with its strongest fund balance in over a decade, which is net of complete repayment of borrowing from the US Federal Reserve’s Municipal Liquidity Facility and reflects continued progress towards paying down accounts payable. The state is also increasing pension contributions, indicating increased commitment to paying its single-largest long-term liability.
The rating balances the state’s recent financial progress with underlying challenges that will remain in place for some time. These challenges include heavy long-term liability and fixed cost burdens that constrain the state’s financial flexibility and contribute to a weak financial position compared to other states, despite the recent improvement in fund balance. Moreover, the Illinois economy has for the past decade expanded at a slower pace than most states and will likely continue to do so given a weak population trend.
The Baa1 rating on general obligation bonds is the same as the issuer rating and incorporates the availability of the state’s broad revenue base to pay the bonds.
The Baa1 rating on the Build Illinois sales tax bonds primarily reflects the lack of legal and physical separation of the pledged tax revenue from the state’s general financial activities. This lack of separation caps the rating at the level of the state’s issuer rating, despite strong coverage of debt service by pledged sales taxes levied on a very broad economic base.
The Baa3 rating on the Metropolitan Pier & Exposition Authority bonds is two notches lower than the state’s issuer rating. This reflects the moderate legal framework associated with the bonds and the less essential nature of the financed convention center. The moderate legal framework assessment incorporates the subject-to-appropriation nature of funds necessary to meet debt service requirements.
RATING OUTLOOK
The stable outlook balances the financial progress being made by the state with the uncertainty of the present economic climate. The state’s lean financial reserves, and heavy long-term liability and fixed cost burdens make it more vulnerable than other states to a negative shift in the national or global economy, which presently limits the probability of further rating improvement.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Continued improvement in state financial performance as indicated by, for example, growing fund balance
- Accelerated economic expansion, especially as compared to other states, that indicates sustained and strong revenue growth
- Moderation of the state’s long-term liability and fixed cost burdens
- Maintenance of fiscal management practices that support growth in reserves and stronger pension contributions
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Slow revenue growth that intensifies budgetary pressure or weakens fund balance
- Growth in leverage (debt or other unfunded liabilities) or the state’s fixed cost burden
- A material drop in available liquidity
- A departure from fiscal management practices that support growth in reserves and stronger pension contributions
…Adding… Media advisory…
Updated Daily Public Schedule: Thursday, April 21, 2022
What: Gov. Pritzker to host press conference announcing the state’s third credit upgrade.
Where: James R. Thompson Center, Blue Room, 15th Floor
When: 1:30 pm
Watch: www.illinois.gov/livevideo
…Adding… Speaker Chris Welch…
Speaker Welch’s Statement on Moody’s Credit Rating Upgrade
“Illinois is well on its way to long term fiscal surety. Moody’s credit rating increase is further affirmation that Democrats are getting Illinois’ finances back on track through steadfast, responsible leadership. We’ve turned Bruce Rauner’s $17 billion debt into a surplus, and now we’re using that financial stability to make historic investments in human services and public safety, and put money back into the pockets of hardworking families. This is the financial responsibility Illinoisans deserve.”
…Adding… Gov. Pritzker…
Governor JB Pritzker celebrated the state’s improved bond rating from Moody’s Investor Service on Thursday, the second such upgrade by Moody’s in less than a year and third overall in two decades. Since taking office, Gov. Pritzker has tirelessly focused on strong and responsible fiscal management, working with the General Assembly to hold the line on spending while making key investments to strengthen Illinois’ outlook.
Moody’s last upgraded the state’s bonds in June of 2021 and today’s upgrade credited the state’s “solid tax revenue growth over the past year” which expanded the state’s ability to rebuild financial reserves and increase payments toward unfunded liabilities. Moody’s noted that Illinois is “on track to close the current fiscal 2022 with its strongest fund balance in over a decade,” its progress in repaying its debts, and its increased pension contributions, taken as an indication of the state’s increased commitment to paying its pension debt.
“Illinois was in a deep hole in the years before I was sworn into the governorship, and together with the General Assembly, step by step, we are putting Illinois on firm fiscal footing,” said Governor JB Pritzker. “This credit upgrade means Illinois will likely pay a lower interest rate, saving taxpayers hundreds of millions of dollars in the coming years. I would like to especially thank Speaker Welch, President Harmon, Leader Greg Harris, Senator Elgie Sims, Comptroller Susana Mendoza and Treasurer Michael Frerichs for their partnership. There’s more work to be done, but step by step, rung by rung, we are steadily climbing the ladder out of a hole that was dug over decades. Illinois’ future is bright.”
The upgrade follows the enactment of the state’s fourth balanced budget in a row, while providing $1.8 billion in tax relief to the working families of Illinois and marked Illinois’ first contribution to a Rainy-Day Fund in 18 years, as well as a $500 million overpayment toward the state’s pensions. The historic budget places Illinois it its strongest financial position in a generation while funding key investments for education, human services, law enforcement and violence prevention.
Moody’s upgraded Illinois’ rating on its General Obligation bonds to Baa1 stable outlook from Baa2 stable outlook, and also upgraded Build Illinois sales tax bonds to Baa1 from Baa2 while maintaining their stable outlook. Moody’s affirmed the Baa3 rating and stable outlook on outstanding Metropolitan Pier and Exposition Authority bonds that are partially paid with state appropriations.
The rating of a state’s bonds is a measure of their credit quality. A higher bond rating generally means the state can borrow at a lower interest rate, saving taxpayers millions of dollars.
Between 2015 and 2017, the State of Illinois suffered eight credit rating downgrades and sat at the top of many analysts’ lists of the worst managed states in the nation. At its worst, Illinois’ bill backlog hit nearly $17 billion.
Key Actions – Responsible Fiscal Management
Fiscally responsible choices over the last three years have resulted in historic progress toward financial stability in Illinois.
Illinois’ FY2023 budget:
• Deposits $1 billion to the Budget Stabilization Fund (BSF) across FY2022 and FY2023 - the first deposits in 18 years. Also creates ongoing, permanent funding for BSF for the first time.
• Contributes an additional $500 million directly towards state unfunded pension liabilities, reducing long-term liabilities by an estimated $1.8 billion
• Pays down $4 billion in debts across FY2022 and FY2023, including eliminating the payment delays in the employee and retiree health insurance program through $898 million in FY2022 supplemental appropriations.
• Keeps pace with payment of the state’s bills, with estimated bill payment delays at the lowest levels since before the Great Recession, saving taxpayers hundreds of millions in unnecessary interest costs
…Adding… Comptroller Mendoza…
For the second time in less than a year, Moody’s Investors Services, one of the “Big Three” credit rating agencies in the United States, announced Thursday that it upgraded Illinois’ credit rating.
Moody’s cited the state’s use of tax revenue growth to rebuild its financial reserves (Rainy Day Fund) and the increase of pension contributions among reasons for the upgrade. Moody’s also noted the state’s shrinking accounts payable, which stands at $2.7 billion today, a massive reduction compared to the $16.7 bill backlog in 2017.
Proof of the state’s commitment to shoring up its Rainy Day Fund comes today as Comptroller Susana A. Mendoza transfers the first installment – $400 million from the General Revenue Fund – into the Budget Stabilization Fund (Rainy Day Fund). She is also sending $300 million to the Pension Stabilization Fund. Under the budget passed by the General Assembly and signed by Governor JB Pritzker, the state will commit $1 billion to the Rainy Day Fund, as well as an additional $500 million to the Pension Stabilization Fund, saving Illinois taxpayers $1.8 billion – similar to homeowners making an extra payment to reduce the principal on a mortgage.
This is exactly the kind of responsible budgeting Comptroller Mendoza and the credit rating agencies have called for.
“I knew that through our smart fiscal management, this upgrade was on the horizon,” Comptroller Mendoza said. “This is not by chance. Even before a penny of American Rescue Plan Act (ARPA) federal stimulus dollars came to Illinois, the Illinois Office of Comptroller methodically paid down the state’s bills and shortened the bill payment cycle. I thank Moody’s for continuing to recognize this remarkable progress with their second upgrade in less than a year, and I look forward to more good news ahead as Illinois continues to gain solid financial footing. This is a great day for Illinois.”
Today’s news follows an upgrade from Moody’s on June 29, 2021, which was the first upgrade the state had earned in more than two decades. The next week, on July 8, S&P Global also upgraded the state’s credit rating.
This means the state has now earned three credit rating upgrades in less than a year, all while managing to come back from the 2015-2017 budget impasse and astutely maneuver the financial challenges wrought by the COVID-19 pandemic.
In addition to the transfers into the Rainy Day and Pension Stabilization Funds, Comptroller Mendoza on Thursday also directed $230 million to protect funds invested by families into the College Illinois! pre-paid college tuition program.
All told, within two days of the Governor signing the fiscal year 2023 budget earlier this week, the Illinois Office of Comptroller already made significant movement by making $1 billion of essential payments toward the recovery of Illinois’ finances into the Rainy Day, Pension Stabilization, College Illinois, and Group Health Insurance funds.
