* From Fitch Ratings…
The Outlook Revision to Positive from Negative, reflects Illinois’ preservation of fiscal resilience given the quick and sustained economic recovery since the start of the pandemic, coupled with the state’s unwinding of certain nonrecurring fiscal measures. Recent fiscal results and the enacted fiscal 2022 budget suggest further improvements in operating performance and structural balance in the near and medium-term that could support a return to the pre-pandemic rating or higher.
Illinois’ ‘BBB-’ IDR reflects a long record of structural imbalance and irresolute fiscal decision making, resulting in a credit position well below what the state’s slow-growing but broad economic base and substantial ability to control its budget would otherwise support. The rating also reflects the state’s elevated long-term liability position and resulting spending pressure. […]
Over the long term, Fitch expects Illinois’ broad revenue base, primarily income and sales taxes, to capture the breadth of its economy and to track its slow growth trajectory. Illinois has unlimited legal ability to raise revenues. […]
Long-term liabilities are an elevated but still moderate burden on Illinois’ significant resource base, even when considering non-traditional liabilities such as the state’s accounts-payable backlog. Illinois has very limited flexibility to modify existing pension and other post-employment benefit obligations (OPEBs). […]
Illinois’ operating performance, both during the 2008 Great Recession and the subsequent economic expansion, had been very weak. Recent improvements, including reduction in accounts payable and enacting plans for early retirement of federal pandemic loans, signal improvement in budget management.
* From the governor’s office…
“Fitch’s improved outlook for Illinois is yet another sign of positive momentum for our state’s fiscal condition, a testament to strong financial management and responsible actions by the General Assembly and my administration, and a product of the state’s economic resilience,” said Governor JB Pritzker. “The story of Illinois in 2021 is that in the face of a crisis, fiscal discipline and smart economic policy pays off. I want to thank the General Assembly, especially Speaker Chris Welch and President Don Harmon and their budget negotiators for their partnership in our common purpose of bringing about long-term fiscal strength for Illinois. Together, in the face of a deadly global pandemic, we enacted a balanced budget for the third straight year of my administration, demonstrating fiscal responsibility works with a vision of governance focused on working families.”
Highlights from Fitch’s analysis:
• “The state is prudently applying the gains to fully retire federal deficit borrowing undertaken just a few months ago, repay outstanding interfund loans used as budget balancers in prior years and drive down the bills backlog.”
• “Recent fiscal results and the enacted fiscal 2022 budget suggest further improvements in operating performance and structural balance in the near and medium-term that could support a return to the pre-pandemic rating or higher.”
• “Recent improvements including reduction in accounts payable and enacting plans for early retirement of federal pandemic loans, signal improvement in budget management.”
• “The May Debt Transparency Act (DTA) report also notes $191 million in reported pending late payment interest penalties, down 40% from February 2020 ($319 million) and down 78% from the first DTA report from December 2017 ($887 million).”
• “Broadly, the state reports a $1 billion reduction in total general fund spending for fiscal 2022 ($42.3 billion) versus the current services estimate provided in November 2020. General fund base operating spending remains flat in the fiscal 2022 enacted budget versus fiscal 2021 at $30.8 billion. Funding for K-12 and higher education is up 3%, including a $350 million increase for K-12.”
• “Unlike recent years, the budget includes no interfund loans or sweeps.”
…Adding… Comptroller Mendoza…
“Fitch Ratings Agency’s change of outlook on Illinois’ finances from negative to positive vindicates the responsible approach my office has taken in paying down the backlog of bills from $16.7 billion in 2017 to $3.4 billion today,” Comptroller Susana A. Mendoza said. “My administration has been committed and vocal about the need to show fiscal discipline and accountability. Fitch notes the responsible approach we have taken with the General Assembly and the Governor’s office to target better-than-expected revenues to paying down debt.”
Fitch cited numbers the Comptroller’s office issues in monthly reports as a result of Comptroller Mendoza’s signature “Debt Transparency Act” (DTA) that gives state policy-makers, legislators and citizens a more comprehensive accounting of the state’s debts, including progress made in paying down late payment interest penalties run up under the previous administration.
“We are extraordinarily pleased with our hard work since passing the DTA, which allowed me to methodically tackle paying down the bill backlog quickly and effectively over the last four years,” Mendoza said. “We have been keeping the rating agencies appraised of our progress and we look forward to improved credit ratings for Illinois in the near future. In the meantime, this sends a powerful signal to the financial community that Illinois remains a good investment.”
Please note that these improved outlooks from all three ratings agencies happened before any of the federal ARP stimulus money has arrived. That will only improve Illinois’ financial standing.
…Adding… Speaker Welch…
“This improved outlook is yet another example of what our state is capable of with strong leadership and responsible economic policy decisions. All three rating agencies have upgraded Illinois’ outlook which is proof we can support families, invest in underserved communities, and be fiscally prudent at the same time. I am incredibly grateful to our House Budgeteer Greg Harris for all of his hard work, as well as the bipartisan budget working groups, for making the fiscal health of our state a top priority.
…Adding… Sen. Sims…
Fitch Ratings released a revised outlook of Illinois’ General Obligation bonds from negative to positive. State Senator Elgie R. Sims, Jr. released the following statement:
“Fitch Ratings Agency’s change of Illinois’ financial outlook from negative to positive reflects the state’s commitment to putting our fiscal house in order, which includes prioritizing paying the state’s backlog of bills - down from over $16 billion, at the height of the Rauner budget impasse, down to a normal payment cycle and nearly $3 billion today.
“As the Senate Appropriations Committee Chairman, I am committed to taking a fiscally responsible approach to our state’s finances and putting Illinois on a path toward a brighter future.
“The new outlook from Fitch highlights several key points where the General Assembly in partnership with the Governor have worked together to tackle the challenging finances of our state.
“While I am proud of the positive reports released by the bond rating agency, because they show Illinois is on the right path, I know more must be done to provide for our most vulnerable, educate our young people, keep our communities safe, create good jobs and grow our economy, this is how we will keep our fiscal house in order and I remain committed to doing the work necessary to ensure that Illinois continues to enact responsible budgets and remains on an improved path toward fiscal stability.”