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* Moody’s…

Three years after our municipal finance analysts last evaluated U.S. states’ recession preparedness, Moody’s has published an update (attached) that looks at four fiscal and credit variables and determines how well states can weather a moderate recessions without significant adverse credit impact. Our new criteria shows 22 states strongly prepared for the next recession, with 26 states moderately prepared, and two – Illinois (rated Baa3/stable outlook) and New Jersey (A3/stable) – weaker in recession preparedness.

“While current economic conditions are strong, states are aware that a downturn will come eventually and are building reserves to prepare,” said Emily Raimes, Vice President and Senior Credit Officer at Moody’s. “While most states have healthy reserves and inherently strong fiscal flexibility, Illinois and New Jersey both have low levels of reserves relative to the potential revenue decline in our recession scenario. In addition, they both show weakness in their pension risk scores.”

Moody’s rated the states on the following credit factors:

Revenue Volatility – 25%
Coverage by Reserves – 25%
Financial Flexibility – 30%
Pension Risk – 20%

Moody’s adds that while fiscal expansions at the federal level has offset state revenue shortfalls in previous recessions, the economy will enter the next recession with less fiscal space than before the financial crisis. Wide federal budget deficits, a rising debt burden, and a polarized political environment have reduced the fiscal space of the United States (Aaa/stable) compared with its position before the most recent recession. The federal government therefore might not be in a position to help states in the next recession as it has in the past.

posted by Rich Miller
Monday, May 20, 19 @ 12:04 pm

Comments

Yes but Illinois will soon have Marijuana so there is that.

Comment by Chaz Monday, May 20, 19 @ 12:10 pm
So we’ve got till 3rd quarter next year.

Comment by Honeybear Monday, May 20, 19 @ 12:14 pm
–weather a moderate recessions without significant adverse credit impact. –

Perhaps Moody’s could tell us what outstanding state bond obligations they fear might not get paid on time or in full if there is a recession.

Isn’t that what their credit ratings are supposed to measure — actual risk to debt service payments on outstanding bonds?

Moody’s negative credit yammerings are curious because throughout the state’s history — through wars, recessions, Depression — the state’s record on servicing bonded indebtedness is flawless.

Just recently, the Rauner administration piled on $12 billion in unpaid bills in just 2.5 years — yet all bonded debt service payments were made on time, and in full.

So…. what’s the risk, again?

Comment by wordslinger Monday, May 20, 19 @ 12:21 pm
No risk at all Wordslinger, just keep ignoring the problem

We are the most fiscally irresponsible state in America and if we funded our pensions properly it would require not 1/4 of our tax revenue but close to 50%

Comment by Lucky Pierre Monday, May 20, 19 @ 12:43 pm
I’m sure Moody’s is aware of our payment history

Comment by AndyIllini Monday, May 20, 19 @ 1:01 pm
What “Quinn and Blago” tax increase was that?

I can see why you choose to be anonymous. Good call.

Comment by wordslinger Monday, May 20, 19 @ 1:39 pm
–I’m sure Moody’s is aware of our payment history–

Yes. Which begs the question: With a flawless payment history, exponential debt service coverage, state mandates that bonded indebtedness gets paid first and sovereign powers, why the negative credit rating?

–No risk at all Wordslinger, just keep ignoring the problem–

What problem is that? I’m writing specifically about debt service on outstanding bonds.

Sorry if you don’t have a canned response to that subject from the Island of Misfit Bots. Your handful of chanting points are rather limited in their application.

Comment by wordslinger Monday, May 20, 19 @ 2:03 pm
=Yes. Which begs the question: With a flawless payment history, exponential debt service coverage, state mandates that bonded indebtedness gets paid first and sovereign powers, why the negative credit rating=

It’s not a serious question - they explain their ratings and their criteria, as you know.

I suppose I could get snarky and point out that they probably have data that indicates that everyone who defaults for the first time had previously never defaulted.

But keep in mind, that it’s not like their rating indicates that Illinois is likely to default, it’s that someone who has a 2.5% chance of default, gets a significantly lower rating than someone with a 0.5% chance of default, or something like that.

Comment by AndyIllini Monday, May 20, 19 @ 2:27 pm
What problem is that? I’m writing specifically about debt service on outstanding bonds.

Technically Word is correct Illinois must pay its bond obligations. Unfortunately, there could come a day when the “crowding out” caused by the cost of debt service linked to the imbalance between revenue/expenses that further bond issuance becomes so expenses that the market will reject it. That is a day we should all hope never comes.

Comment by Donnie Elgin Monday, May 20, 19 @ 2:30 pm
Ok so lower the bond ratings to correctly reflect risk. Higher cost of debt can deter agencies from issuing so much of it and focus on reforms that stabilize costs long term.

Comment by California Guy Monday, May 20, 19 @ 2:42 pm
Cannabis legalization equals tax revenue, equals tourism, equals jobs, equals more demand for services in our state. Dems and Repubs need to do their jobs and get this passed.

Comment by Illinois Resident Monday, May 20, 19 @ 3:08 pm
Tourism? Really?

Recreational pot is no longer a unicorn.

Comment by Plutocrat03 Monday, May 20, 19 @ 3:40 pm
==everyone who defaults for the first time had previously never defaulted.==

A Lannister always pays his debts…until he doesn’t.

Comment by City Zen Monday, May 20, 19 @ 3:53 pm
Well at least we’re in good company with New Jersey.

I guess the joke is on the other 48 states. No reason to be concerned about Illinois. We can always raise the already high taxes further and no one will mind. Great logic.

Comment by SSL Monday, May 20, 19 @ 4:57 pm
–But keep in mind, that it’s not like their rating indicates that Illinois is likely to default, it’s that someone who has a 2.5% chance of default, gets a significantly lower rating than someone with a 0.5% chance of default, or something like that.–

Something like that? Don’t get all technical on us here.

You realize that Moody’s and S&P, with their unimpeachable criteria, assigned AAA ratings to subprime mortgage securities when they could not possibly have had a clue as to the risk associated with the securities or the values of the underlying assets?

For that, straight-shooting Moody’s paid a fine of $864 million, while trustworthy S&P coughed up $1.4 billion.

The ratings agencies are a federal government-mandated racket.

https://www.cfr.org/backgrounder/credit-rating-controversy

Comment by wordslinger Monday, May 20, 19 @ 7:13 pm
–Unfortunately, there could come a day when the “crowding out” caused by the cost of debt service linked to the imbalance between revenue/expenses that further bond issuance becomes so expenses that the market will reject it.–

I wonder if I read that a fourth time it will make any sense?

Comment by wordslinger Monday, May 20, 19 @ 7:19 pm