* Some pointy heads are gonna explode… again…
Governor JB Pritzker today celebrated S&P Global Ratings’ upgrade of Illinois bonds. This latest action means that Illinois has received a total of seven upgrades in less than two years under Governor Pritzker. This fiscal progress was achieved due to strong fiscal leadership by Gov. Pritzker and Democrats in the General Assembly.
S&P Global Ratings announced a ratings upgrade to A- for Illinois’ General Obligation bonds, its third upgrade of Illinois’ bonds since July 2021. The last time Illinois had an A- rating from S&P was before May of 2016. Fitch Ratings upgraded Illinois’ bonds by two notches last spring, the first Fitch upgrade for Illinois’ General Obligation bonds since June 2000. Illinois received two upgrades from Moody’s Investor Service in two separate actions in April 2022 and June 2021.
“I am thrilled to see our hard work at righting the past fiscal wrongs of our state reflected in today’s action by S&P with another credit rating upgrade—the third such upgrade in just two years,” said Governor JB Pritzker. “Our continued fiscal responsibility and smart budgeting will save Illinois taxpayers millions from adjusted interest rates, and my partners in the General Assembly and I look forward to building on that success.”
The upgrade follows unveiling of the Governor Pritzker’s proposed fiscal year 2024 budget which builds on four years of historic progress with balanced budgets, a Budget Stabilization Fund on track to hit $2.3 billion, elimination of the state’s bill backlog and reaching $1 trillion GDP. The proposed spending plan maintains the Governor’s commitment to fiscal responsibility while growing Illinois into an economic powerhouse and makes transformative, generational investments in early childhood education and efforts to fight poverty.
“The upgrade on the GO debt reflects our view that Illinois’ commitment and execution to strengthen its budgetary flexibility and stability, supported by accelerating repayment of its liabilities, rebuilding its Budget Stabilization Fund to decade highs; and a slowing of statutory pension funding growth, will likely continue during the outlook period,” S&P Global stated.
S&P last upgraded the state’s bonds in May 2022 and today’s analysis credited the state’s recent actions in paying longstanding debts, rapid and early repayment debts taken on during the pandemic-induced recession and transparent reporting both from the Comptroller and the Governor’s Office of Management and Budget.
S&P Global upgraded Illinois’ rating on its General Obligation bonds to A- (stable outlook) from BBB+ (stable outlook), and also upgraded Build Illinois sales tax bonds to A (stable outlook) from A- (stable outlook).
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.
…Adding… The S&P report is here…
The GO rating on Illinois reflects our view of the state’s:
- Deep and diverse economic base;
- Adequate liquidity with access to currently untapped interfund borrowing options, and a growing budget stabilization fund (BSF);
- Expectation that open collective bargaining units will be settled in a timely manner; and
- Transparent reporting both from the comptroller and the governor’s office of management and budget that we expect will be sustained or improve.
Offsetting factors, in our opinion, include:
- High pension and other postemployment benefit (OPEB) liabilities and a pension funding practice where the statutory pension funding is designed to attain a 90% funded status in 2045, which is just part of one of the least conservative funding methodologies in the nation among peers;
- Trend of annual financial audits being released later than in most other states; and
- Population declines that are forecast to continue, and if this accelerates could potentially challenge economic growth.
The stable outlook reflects our view that Illinois’ near-term credit profile has stabilized, given improved liquidity, an economy rebounding from the COVID-19 pandemic-driven recession, and historic levels of direct federal support.
We could lower the rating if a structural deficit were to increase, derived from economic uncertainties; or if increases in pension, OPEB, or other fixed-cost obligations exceed expectations.
If the state continues to improve pension, OPEB, and BSF funding levels, while shrinking the structural deficit that we believe was created by not funding to an actuarially determined contribution level without experiencing meaningful deterioration in other credit factors, we could raise the rating. 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.
…Adding… The governor announced the upgrade during a speech today. Click here for the video.
…Adding… Speaker Welch…
“Less than two years ago we celebrated Illinois’ first credit rating increase in decades. Today, we celebrate our seventh, and a return to A-level credit. This is further affirmation that Democrats are making fiscally responsible decisions that move our state forward. I’m proud of what we’ve accomplished together, and I look forward to continued progress and success for the people of Illinois.”
…Adding… History time with Hannah…
…Adding… Sen. Elgie Sims, the chair of the Senate Appropriations Committee and Majority Caucus Appropriations Leader…
“Today’s news is yet another sign the years of fiscal responsibility from the General Assembly is paying off. In recent years, we have been able put money back in the pockets of the state’s hardworking families and provide funding for the people who need the most help – all while paying down our bill backlog. Illinois is a standout state when it comes to putting the needs of our residents first, and we do so in a responsible and equitable way.
“S&P Global Ratings’ upgrade of Illinois bonds shows our fiscally responsible budgeting approach is working and is independent proof that our state is headed in the right direction. Our future looks bright and I look forward to continued collaborative efforts during this year’s budget negotiation process to keep the state on this upward economic trajectory.”