* I told subscribers to expect this earlier today. Press release…

Governor JB Pritzker hailed the state’s improved bond rating from S&P Global Ratings on Thursday, the second such rating upgrade in recent days. The announcement follows Moody’s credit upgrade and Fitch’s upgraded credit outlook for the state—a trifecta of good news from the three major credit rating agencies.

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 in programs working families rely on while continuing to strengthen Illinois’ fiscal outlook.

“A well-known proverb states, a journey of a thousand miles begins with a single step. Throughout my administration we’ve remained steadfast in our goal to return Illinois to fiscal stability. That has meant making responsible decisions step by step, day by day, working closely with our partners in state government,” said Governor JB Pritzker. “These responsible decisions are paying dividends, as evidenced by today’s upgrade from S&P, last week’s upgrade from Moody’s and our outlook rise to positive by Fitch. My administration has worked diligently to make real progress, the rating agencies are acknowledging our progress and we remain committed to further strengthening Illinois’ fiscal standing.”

S&P last upgraded the state’s bonds in July 1997 and today’s upgrade analysis credited “improved liquidity,” “demonstrated operational controls during the COVID-19 pandemic” and an “improving economic condition” in making the rating change.

“Throughout the pandemic, the state has been able to deliver needed services and programs, both traditional governmental and pandemic-response-related without meaningfully changing the debt profile,” S&P stated.

The Governor noted all the positive reports from the top rating agencies are the result of many leaders working cooperatively in the best interest of Illinois’ taxpayers, especially thanking Speaker Welch, President Harmon, Leader Greg Harris, Senator Sims, Comptroller Mendoza and Treasurer Frerichs for their continued partnership.

S&P upgraded Illinois’ rating on its General Obligation bonds from BBB- to BBB with a stable outlook also upgraded the Metropolitan Pier and Exposition Authority ratings to BBB+ from BBB based on the state’s support. Build Illinois bonds were upgraded to BBB+ from BBB.

Last week Moody’s upgraded Illinois’ rating on its General Obligation bonds from Baa3 with a stable outlook to Baa2 with a stable outlook, and also upgraded the Metropolitan Pier and Exposition Authority ratings to Baa3 from Ba1 based on the state’s support. Build Illinois bonds were upgraded to Baa2 from Baa3.

In an updated credit analysis issued by Moody’s released Wednesday, the rating agency noted last week’s credit upgrade was supported by a material improvement in the state’s finances, demonstrated by the ability to repay emergency Federal Reserve borrowings promptly and keep unpaid bills in check at a low level.

“One of the most striking developments in recent months was the state’s reduction of a “backlog” of unpaid bills, underscoring the improvement in the state’s finances,” Moody’s wrote.

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.

…Adding… Speaker Chris Welch…

For the first time in decades, Illinois has received not one, but two bond rating upgrades. I am incredibly proud of our state’s responsible financial choices that continue to improve our fiscal standing, as well as put hardworking Illinoisans and their families first. These are the types of positive changes you see when government leadership is truly working for the people they represent.

…Adding… Comptroller Mendoza…

“S&P’s upgrade of the state’s credit rating is further evidence that Illinois is moving in the right direction. Upgrades are good news because they mean lower costs for taxpayers on the bonds that we use to build roads, bridges, schools and other projects. A top priority of mine as comptroller has been paying down the state’s bill backlog, knowing that credit rating agencies would recognize our hard work. From a high of $16.7 billion during the prior administration’s budget impasse, that backlog is down to $2.9 billion today.

“As the state comptroller, my priority continues to be managing the state’s bill backlog and providing evidence to the credit rating agencies that Illinois is an excellent investment and is on a path to financial stability and certainty.”

…Adding… Senate President Harmon…

This is further proof we are on the right track in balancing our fiscal realities with the real-world needs of working men and women. We are moving Illinois forward by paying our debts while at the same time investing in education, health care, child care and other key programs people need to get ahead.

*** UPDATE *** From the S&P report…

The adopted fiscal 2022 $44.3 billion general funds budget is similarly sized to the fiscal 2021 spending and is designed to generate an $88 million surplus. In addition, the fiscal 2022 budget anticipates using $2.8 billion in federal American Rescue Plan (ARP) funding for pandemic-related purposes, $1.8 billion for economic recovery and other pandemic needs, and $1 billion for capital. The capital money will be split approximately $575 million for project types specifically authorized in the ARP guidelines (broadband, water, and sewer) and the remaining $425 million on other projects once the reimbursement rules are finalized. That leaves $5.3 billion for additional uses to be determined through the ARP spending deadline of Dec. 31, 2024. The plan for spending the ARP money is ongoing but looks to be aimed at pandemic expenses, supporting economic development, and aiding small businesses affected by the pandemic.

Although Illinois’ fiscal 2022 general fund budget is flat compared with the previous year’s spend, and balanced in terms of current-year obligations, we do not view it as structurally balanced due to the treatment of pension obligations. Pension contributions of $9.4 billion are budgeted to fully meet increasing statutorily set amounts but are still less than actuarially determined amounts. We view the difference between the statutorily set contribution amounts and our defined minimum funding progress as a structural gap.

Illinois’ bill backlog remains, but according to the state comptroller at the end of fiscal 2021 was approximately $2.6 billion, the lowest level in more than a decade. As of July 7, the bill backlog was $2.9 billion, but such variation is expected. Continued reduction in these liabilities could give the state needed budgetary flexibility and help it avoid unnecessary interest charges. We expect the state’s focus will remain on paying the past-due obligations (although most are now less than 45 days’ delinquent), before shifting to establishing a reserve for future recessions.

The remaining $5.3 billion in ARP funds come with some use limitations, such as a prohibition on using this money to resolve pension-funding deficiencies, depositing into rainy day reserves, and paying back the MLF; the federal funds could be used to replace lost revenue, repay part of the $4.2 billion borrowed from the federal government for unemployment payments, or further reduce the bill backlog.

Credit weaknesses supporting the ‘BBB-’ rating include:

• An almost empty budget stabilization fund that would further limit budgetary flexibility;
• The remaining bill backlog;
• Pension funding practices where the statutory pension funding is designed to attain a 90% funded status in 2045, which is one of the least conservative funding methodologies in the nation among peers; and
• A recurring practice of relatively late audit reports. The audit for the fiscal year ended June 2019 was not released until April 2020 and the fiscal 2020 audit is still not published. Although not required for us to consider an upgrade, a return to a more abbreviated audit release period would be in line with that of higher-rated peers.

Credit strengths include:

• On the revenue side of the budget, various tax revenues have held up stronger than forecast during the depths of the economic trough, and the receipt of unbudgeted federal stimulus to help bridge the gap to a fully functioning economy;
• On the expenditure side of the budget, whereas in the recent past the state has hesitated to make expenditure cuts during times of fiscal stress, the administration made more than $700 million in budget cuts and freezes in fiscal 2021 during the budget year. Not all cuts and freezes were general fund-related, but the recurring actions indicate a potential change in practice;
• Overall, the budget, aside from the inherent pension gap between the statutory funding and actuarial recommendations, during this current period of favorable and improving economic conditions is seeing improved structural balance; and
• The political gridlock that stymied governance a few fiscal years ago has dissipated.

The stable outlook reflects the expected strength of the liquidity position, continued economic recovery, and regular revenue and expenditure reporting and budgetary control usage.