* Two weeks ago…

The Governor’s Office of Management and Budget projected last week the current fiscal year’s budget will run a $267 million deficit. The budget office recommended taking “immediate” action to plug the hole.

And the problem gets much worse in the future, with a $2.2 billion projected deficit for next fiscal year, which begins July 1. […]

According to Governor’s Office of Management and Budget, the “One Big Beautiful Bill Act” will cost the state $587.2 million this fiscal year in corporate income tax receipts and another $249 million in individual income tax receipts (although the commission reports that individual tax receipts are still rising as expected). […]

The governor’s budget office said it wants the Illinois General Assembly to “immediately” change state law to decouple from the new “bonus depreciation” law ($121 million in corporate income taxes and $23 million in individual taxes) and unspecified others. It also wants the General Assembly to update state law to “reflect the federal change from global intangible low-taxed income to net controlled foreign corporation tested income” ($90 million corporate).

* And yet, the state got its 10th credit ratings upgrade in a row yesterday. Crain’s…

Moody’s gave Illinois another credit upgrade, citing improvement in the state’s financial metrics while still expressing concerns over its massive pension liabilities.

The firm raised the state’s rating to A2, five steps above junk, from A3, with a stable outlook. It’s the 10th credit upgrade since Gov. JB Pritzker took office six years ago. Improved credit ratings lowers the state’s borrowing costs. However, Illinois still has the lowest rating of any state.

“Illinois continues to add to its reserves and fund balance, growth in which is a crucial element in mitigating risks associated with the state’s high leverage, as well as shifts in federal policy,” Moody’s said.

* Bond Buyer…

The rating agency said the state’s operating flexibility is constrained by its high fixed cost burden, as well as constitutional provisions that protect post-employment benefits and prohibit certain changes in tax structure. Its fund balance and budget reserves continue to reach historic highs, but they both remain lean as a share of revenue compared to those of other states.

With the issuer rating upgrade, Illinois general obligation bonds rise to A2 from A3, as do its Build Illinois sales tax bonds. Moody’s also upgraded to Baa1 from Baa2 the rating on Metropolitan Pier & Exposition Authority bonds that are partially paid with state appropriations.

Moody’s said an upgrade could come if the state can make more timely releases of its audited financial statements that show fund balances above 15% of revenue, lower its liability and fixed-cost burdens, accelerate economic expansion, or increase pension contributions to reduce its large liabilities.

* Insurance Journal…

As part of efforts to mitigate risks to federal funding, Pritzker in recent weeks told state agencies to cut costs to put up to 4% of their budgets into reserves. In past years, Illinois held very little cash in reserves. For example, the state had only $3.6 million in its rainy day fund in 2019. Since then, officials built up the rainy day fund to a record $2.4 billion this year, though it still holds among the smallest levels of any state, according to a report released by the governor’s office of management and budget earlier this month.

* Moody’s…

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

⁃ Development of a material budget gap due to, for example, an economic recession, federal funding cuts, or support of fiscal challenges of downstream governmental units
⁃ Decline in GAAP-basis fund balance to below 10% of revenue
⁃ Growth in leverage (debt or other unfunded liabilities) or the state’s fixed cost burden
⁃ A departure from fiscal management practices that support growth in reserves and stronger pension contributions

* Pritzker press release…

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. Before Governor Pritzker took office, the State of Illinois experienced 24 downgrades over 15 years. Between just 2015 and 2017, Illinois suffered eight credit rating downgrades and sat at the top of many analysts’ lists of the worst managed states in the nation under the previous administration. At its worst, Illinois’ bill backlog hit nearly $17 billion.

Across major credit rating agencies Moody’s Investors Service, S&P Global Ratings, and Fitch Ratings, the State has received ten upgrades since June of 2021. Prior to those upgrades, the State had not received an upgrade since June of 2000, over two decades. Agencies have cited the State’s actions in paying down bill backlogs, repaying debts, increased fiscal transparency, building financial reserves, and balancing the State budget as factors in the upgraded ratings.

* In related news, here’s Capitol News Illinois…

The new leader of the Illinois Federation of Teachers says state lawmakers should consider raising taxes on wealthy individuals and corporations that have received federal tax breaks under the Trump administration to increase state spending on education and other public services.

As noted above (and in a Capitol News Illinois story earlier this month) that’s already happening and will continue in the spring. The object will be to use that money to plug federally created holes. No mention of that in the story, however.