Capitol Fax.com - Your Illinois News Radar

Fitch stays with negative Illinois outlook

Posted in:

Illinois
Updated Posts

Democratic Gov. JB Pritzker hailed the expected final passage today of President Joe Biden’s $1.9 trillion COVID-19 stimulus package as a major fiscal win for the state’s cash-strapped coffers and for Illinoisans awaiting $1,400 stimulus checks.

The governor and Democratic U.S. Rep. Raja Krishnamoorthi, whose House subcommittee helped shape how much state and local governments would receive, dissected one of the largest spending packages ever assembled in Congress during a joint appearance on WBEZ’s morning newscast. […]

Pritzker has made clear one of his first spending priorities once that money reaches Illinois will be the repayment of $2.875 billion in loans the state took out last year from the Federal Reserve’s Municipal Liquidity Facility to help offset the fiscal impact of COVID-19.

That commitment caught the eye of some of the bond-rating agencies, which for years have consistently rated Illinois’ state government as a notch above junk-bond status because of its long-running budgetary ills.

“If the state focuses use of the significant one-time infusion to reduce liabilities and on other one-time needs, it could support stabilization of the state’s fiscal resilience and rating outlook,” according to a statement released Tuesday by Fitch Ratings.

* Toplines from Fitch…

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

– Enactment of the ARP, followed by a clear dedication of the state to using new federal aid to unwind one-time budgetary measures taken over the past year and restore fiscal resilience, would support stabilization of the Outlook and potentially upward rating movement toward its pre-pandemic level.

– A quick and sustained recovery in Illinois’ economic activity and revenue collections could support stabilization of the Outlook by allowing the state to preserve financial resilience and minimize exacerbating its structural budget challenges. Such a recovery is more likely now than even a few months ago given the rollout of multiple vaccines nationally and globally as well the high likelihood of substantial new federal economic stimulus. Similarly, structural changes that lead to materially higher revenues or reduced spending could also support stabilization of the Outlook.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

– A downgrade could be triggered by the lack of a credible path to reversing the state’s current pandemic-driven use of non-structural budget measures or by a reliance on short-term measures that materially compound the state’s long-term challenges such as its pension liability burden. Specifically, Fitch will assess any additional federal aid that could mitigate the state’s fiscal challenges and the long-term structural implications of the state’s fiscal 2022 budget currently under legislative consideration. Actions that materially exacerbate structural budget challenges, such as substantial use of one-time federal aid for recurring expenditures, could trigger negative rating action.

–More severe economic weakness than envisioned in Fitch’s coronavirus baseline scenario that triggers greater than anticipated, sustained and deep revenue declines and materially erodes the state’s gap-closing capacity could lead to negative rating action. Fitch’s assessment of the state’s long-term economic growth prospects could also be fundamentally weakened from an already modest level. This would pressure all aspects of the state’s credit profile.

Go read the rest. The legislature absolutely, without a doubt has to avoid putting that federal aid into the spending base. Period.

* Bond Buyer…

On Tuesday, the legislature’s Commission on Government Forecasting and Accountability revised its revenue estimates for the current fiscal year upward from last fall.

Warnings of a $4 billion gap last November due to the failure of the graduated income tax amendment on the November ballot and decision against tapping the full legislative authority to borrow $5 billion from the MLF overshadowed the positive news that $2.3 billion more in tax revenue was expected.

Base revenues were revised upward Tuesday again by another $596 million for the current fiscal year. That estimate tracks closely with the Governor’s Office of Management and Budget’s $485 million revision, said Jim Muschinske, COGFA revenue manager.

The state now expects $40.4 billion of general fund revenue for fiscal 2022, down from $41.6 billion this year, which was inflated by the windfall of income tax that flowed to coffers at the start of fiscal 2021 due to the extension of the tax filing deadline. Otherwise collections will continue to grow with personal income taxes rising by 3% and sales by 2.8%, slightly better than the administration’s forecast. Those figures don’t account for the impact of Pritzker’s proposals.

* Press release…

Illinois State Comptroller Susana Mendoza issued this statement Wednesday after the U.S. House of Representatives passed the $1.9 trillion American Rescue Plan:

“Thank you, members of the U.S. Congress and the U.S. Senate, for responding to the needs of America to survive COVID-19. This financial relief is needed in Illinois to pay back billions of dollars we borrowed from the federal reserve that allowed us to cover the state’s health care bills as we fight our way through this pandemic.

“As I said in my guest column in Crain’s Chicago Business today:

• Yes, Illinois and all states need the stimulus package.
• No, it’s not a ‘bailout’ of blue states by red states. People in blue, red, and purple states are hurting and need help. From 2015 to 2019, Illinois taxpayers sent $16.4 billion more to the federal government than they got back in federal spending. Illinois has dutifully served as a top donor state, helping some of those same dependent states whose senators now mislabel this stimulus as a “bailout.”
• Before we spend money on anything else, any stimulus money that comes to Illinois is earmarked to pay back money we borrowed from the Federal Reserve for the state’s COVID-19 and other medical expenses during this pandemic.
• Restaurants and hotels were closed and not paying sales taxes. Employees were laid off. Not only were they not earning a paycheck and not paying personal income taxes to the state, people who’d never sought unemployment benefits had to file for the first time and avail themselves of other state services. The state had less money coming in and more demand for services. It was a double whammy to the people and to the state budget, and it will take years to recover.
• No, we are not going to spend a penny of the stimulus on old pension debt that predated the COVID-19 pandemic.
• Yes, 76% of Americans support the stimulus, including 60% of Republicans.”

…Adding… Speaker Welch on the passage of the American Rescue Plan…

The COVID-19 pandemic has had a devastating effect on our state. Although we will never forget the lives we have lost and the hardships we have faced, we now know that help is on the way. Today, President Biden and the United States Congress officially approved a $1.9 trillion COVID-19 relief bill. The state of Illinois will receive $7.5 billion in assistance and local governments will receive another $6 billion. This is funding that will go towards schools, vaccine distribution, improved administration and operations for critical agencies like the Illinois Department of Employment Security, small business support and financial aid. This act will give direct payments of $1,400 to millions of Illinoisans. It will also extend and enhance unemployment benefits and expand the child tax credit, which will put more money directly in the pockets of our most low-income families. I am grateful to Senators Durbin, Duckworth, and our congressional delegation for making sure Congress took bold, swift action. Once guidelines are issued by federal authorities, I look forward to working with the Pritzker administration and our budget leaders on how to best appropriate these funds so they meet the needs of our most vulnerable communities. While I know the road to recovery will not be easy, this bill gives us the funds necessary to simultaneously address this health and economic crisis.

* Related…

* Taxes on unemployment benefits helped improve Illinois’ revenue estimate

posted by Rich Miller
Wednesday, Mar 10, 21 @ 1:15 pm

Comments

Glad that it passed but giving checks to couples making $150k per year instead of more help to the truly needy seemed unnecessary.

Comment by striketoo Wednesday, Mar 10, 21 @ 1:29 pm
Some good news too on the state/local aid front

It appears that the language might have a lot more flexibility in terms of how the money can be used , so that excess can go into improving services or infrastructure.

https://twitter.com/JHWeissmann/status/1369725355586621446?s=19

Comment by Nick Wednesday, Mar 10, 21 @ 1:31 pm
It is obviously wrong and incendiary for any one to describe this package as a Red states bailing out Blue states situation. It is not. However, it is correct to point out that residents of states which have historically elected more responsible policy makers –and conversely, which have not made a decades long hash out of their finances –will indeed be bailing out states of the latter description. Like us.

Comment by Responsa Wednesday, Mar 10, 21 @ 1:38 pm
“It is obviously wrong and incendiary for any one to describe this package as a Red states bailing out Blue states situation.”

The formula is based on unemployment rates which is why some look at it this way i.e. the harder and longer a state locked down the more money they get. That talking point could have been taken away if the formula was calculated on a per capita basis.

Comment by 1st Ward Wednesday, Mar 10, 21 @ 1:41 pm
- Responsa -

Explain McConnell and Kentucky.

It’s good McConnell voted against helping his state in the Covid era?

Comment by Oswego Willy Wednesday, Mar 10, 21 @ 1:43 pm
There are parts of this state where the enhanced unemployment benefits are the best thing that’s happened economically in decades.

Comment by Candy Dogood Wednesday, Mar 10, 21 @ 1:46 pm
Long overdue relief

Comment by Kayak Wednesday, Mar 10, 21 @ 1:48 pm
The responsible vs irresponsible thing doesn’t make much sense either. Illinois actually suffered far less in revenue shortfalls than, say, Texas or Florida because our tax base is wider.

Like it can both be true that our fiscal state was a mess but that no state, good or bad, could forsee the impact of a unprecedented public health crisis.

Comment by Nick Wednesday, Mar 10, 21 @ 1:53 pm
Will what the state receives from the Fed be enough to pay back the borrowed amounts?

Comment by James the Intolerant Wednesday, Mar 10, 21 @ 2:05 pm
“The legislature absolutely, without a doubt has to avoid putting that federal aid into the spending base. Period.” For this to be even entertained to me is crazy. Does this really stand a chance of happening? If so, how much of a chance do we believe?

Comment by Chambanalyst Wednesday, Mar 10, 21 @ 2:25 pm
=point out that residents of states which have historically elected more responsible policy makers –and conversely, which have not made a decades long hash out of their finances –will indeed be bailing out states of the latter description. Like us.=

Just kind of curious, based on your statement, what exactly is the definition of “responsible policy makers” and how on how many states have you completed a longitudinal and exhaustive research study of their policy and legislative actions, cross referenced with Illinois for comparison?

Illinois financial situation is dominated by a single issue and that is legacy debt. There are other underlying and or contributing issues that are found in almost every state, but the legacy debt is the biggie. It is a problem that reaches back to the early 20th century and primarily the fault of diverting dollars to other expenditures and under taxation.

If you look at news papers from other states, very few actually sing the praises of their state’s government. Most see issues. In what many consider low tax states the citizens often complain about taxes.

What some may see as sound fiscal policy may actually be a grift of federal tax dollars.

Kentucky, in one study shared here several weeks ago, is the single largest per cap recipient of federal largesse in the country. Blue and Red state taxpayer money. While others keep minimum wage low and worker protections even lower and force people onto the welfare roles. I don’t think Mississippi, Indiana or Alabama are particularly enlightened when it comes to fiscal policy. But please share your research with us as mine is only anecdotal.

Comment by JS Mill Wednesday, Mar 10, 21 @ 2:29 pm
James the Intolerant, the numbers reported yesterday that yes it should be enough to pay back the Fed plus reduce the bill backlog enough to eliminate the state’s need to pay interest from not paying bills timely. Those two will combine to cover 70-80% of what the state will recieve.

I would like someone to ask Comptroller Mendoza about how much the Unemployment Insurance Fund has been depleted by COVID & whether Illinois can put some of the ARP money into replenishing.

Comment by Blake Wednesday, Mar 10, 21 @ 2:30 pm
== i.e. the harder and longer a state locked down the more money they get. That talking point could have been taken away if the formula was calculated on a per capita basis.==

Using that logic wouldn’t we just be rewarding states that put profits over the health of their citizens? Why would anybody, but especially Democrats, want to do that? Especially since Republicans unanimously opposed relief efforts

Comment by SWIL_Voter Wednesday, Mar 10, 21 @ 2:47 pm
==Kentucky, in one study shared here several weeks ago, is the single largest per cap recipient of federal largesse in the country.==

Virginia ranks #2 per capita and #1 overall in balance of payments.

Comment by City Zen Wednesday, Mar 10, 21 @ 3:00 pm
“The legislature absolutely, without a doubt has to avoid putting that federal aid into the spending base. Period.” Rich, this is spot on, times 100.

Comment by Just a guy Wednesday, Mar 10, 21 @ 3:09 pm
JS Mill, re: legacy debt - I recall reading a few years ago a letter the governor wrote to the General Assembly concerning unfunded pension debt. He was concerned that a disaster was pending in 10 or 12 years if the GA did not correct the problem. That letter was written in 1917.

Comment by Motambe Wednesday, Mar 10, 21 @ 3:16 pm
==Just kind of curious, … what exactly is the definition of “responsible policy makers” and how on how many states have you completed a longitudinal and exhaustive research study of their policy and legislative actions, cross referenced with Illinois for comparison?==

The header and focus of the thread pretty much says it all. How much additional exhaustive research effort is actually required with our state being considered “one step above junk status” by bond raters, and rated the lowest of all states across all 3 agencies as Illinois is?

Comment by Responsa Wednesday, Mar 10, 21 @ 3:37 pm
=== The header and focus of the thread pretty much says it all. How much additional exhaustive research effort is actually required with our state being considered “one step above junk status” by bond raters, and rated the lowest of all states across all 3 agencies as Illinois is?===

(Insert - Wordslinger - rant pertaining to Illinois, ratings, the constitution, and payments)

Comment by Oswego Willy Wednesday, Mar 10, 21 @ 3:38 pm
=“one step above junk status” by bond raters, and rated the lowest of all states across all 3 agencies as Illinois is?=

When was the last time Illinois paid a GO bond late or defaulted?

If we are in such bad shape, why do investors gobble up our bonds like they were pez?

Spoiler Alert for both: Because the bond rating business is an absolute scam (Candy Dogood had a better term yesterday or the day before but I cannot remember it).

=How much additional exhaustive research effort=

Should be a lot when you make statements like that.

And what OW said about Wordslinger- he had the goods on this whole thing.

Take out the legacy debt payment and you have a surplus budget and current bills down to 30-60 days. That includes making the annual pension payment.

40% of liabilities since 1970. By my math that is over 50 years.

Comment by JS Mill Wednesday, Mar 10, 21 @ 3:52 pm
City Zen, does that include spending from for the huge Naval complex at Norfolk? And the ginormous contracts received by the Newport News Shipbuiilding and Drydock Company? And doesn’t Kentucky have some big Army base? I seem to recall signs to that effect while driving through Kentucky to Tennessee. And, of course, it has Mitch mcconnel whose patoot is ritually kissed by top Democrats. Richard J. Daley didn’t want big military spending in Illinois. Indeed the Naval office that I worked at just outside Great Lakes was transferred to Virginia on his watch.
Senator Chuck Percy at least came to see us. But all he said was “They tell me it will save money, so how can I object.” When I worked for the Navy in Hyattsville Md, the Congresswoman fought like a tiger, doing the nearest thing to a filibuster in the House, just to avoid us being moved across town to Arlington (and out of her district). Percy didn’t object to a big facility (ESO) being moved to Pennsylvania. At least he showed up yo talk to us. No one else did.

Comment by Streamwood Retiree Wednesday, Mar 10, 21 @ 3:52 pm
==The header and focus of the thread pretty much says it all==

Stop making so much sense. You are making their heads explode.

Comment by Barn Burner Wednesday, Mar 10, 21 @ 3:54 pm
==rant pertaining to Illinois, ratings, the constitution, and payments==

Unfortunately, that’s not what constitutes a rating by Fitch. There’s pace of spending growth, long term liability burden, debt and pension considerations, etc. I suppose you can petition the ratings agencies to base their ratings 100% on what happened in the past and state constitutional provisions. Whether or not investors will bite is another thing.

https://www.fitchratings.com/research/us-public-finance/us-public-finance-tax-supported-rating-criteria-27-03-2020

Comment by City Zen Wednesday, Mar 10, 21 @ 4:16 pm
=== Unfortunately, that’s not what constitutes a rating by Fitch.===

What is seemingly arbitrary… the reality is still the same.

Defending an arbitrary plan versus ignoring… Illinois, ratings, the constitution, and payments… fir a person so distraught about the reality of things, choosing to “side” outside the reality is comical… every time you do it.

Comment by Oswego Willy Wednesday, Mar 10, 21 @ 4:19 pm
=== ==The header and focus of the thread pretty much says it all==

Stop making so much sense. You are making their heads explode.===

… and yet the honesty to the payments, and the constitution, and the angst…

Comment by Oswego Willy Wednesday, Mar 10, 21 @ 4:21 pm
==The header and focus of the thread pretty much says it all==

Jeez, how some pounce on the negative and ignore any of the positive, just from yesterday. Bias perhaps?

https://capitolfax.com/2021/03/09/sp-revises-illinois-outlook-from-negative-to-stable-based-on-cuts-proposed-budget-and-dissipated-political-gridlock/

Comment by Just A Dude Wednesday, Mar 10, 21 @ 4:23 pm
==Defending an arbitrary plan==

Not sure I would categorize a 45 page plan as arbitrary. But go ahead and pitch your alternate ratings plan to Fitch and the other agencies. I’ll even click the mouse for you during your presentation.

Comment by City Zen Wednesday, Mar 10, 21 @ 4:41 pm
Fitch. Good news - no mention of late audit / CAFR reports. Bad news - gave attention to John Tillman.

Comment by Anyone Remember Wednesday, Mar 10, 21 @ 4:43 pm
=== Not sure I would categorize a 45 page plan as arbitrary.===

Wholly ignoring the Illinois constitution to have a rating that may (or may not) generate a higher yield without factoring in that… hmm.

Comment by Oswego Willy Wednesday, Mar 10, 21 @ 4:58 pm
===But go ahead and pitch your alternate ratings plan to Fitch and the other agencies. I’ll even click the mouse for you during your presentation.===

It’s a racket. They know what they know but to get higher yields for the guaranteed bonds, they arbitrarily decide to ignore the constitution.

Again, for someone so distraught about rules that seem arbitrary you use a great deal of… leeway… to who can get by with rules.

Comment by Oswego Willy Wednesday, Mar 10, 21 @ 5:03 pm
“It’s a racket”

So on point. In Mexico the center-left AMLO decided to cancel Fitch’s contract after Fitch released a fallacious report on Pemex.

Will save Pemex 350k dollars per year

Comment by Julian Perez Wednesday, Mar 10, 21 @ 5:36 pm
- Responsa - Wednesday, Mar 10, 21 @ 3:37 pm:

That you put your faith in corrupt ratings agencies says a lot about you.

onversation.com/why-credit-rating-agencies-are-still-getting-away-with-bad-behaviour-117549

Comment by Precinct Captain Wednesday, Mar 10, 21 @ 5:42 pm
Anyone know if the cuts that Pritzker announced to the rest of the FY21 budget last December, as well as cuts proposed in his budget address last month, will be overturned now that the American Rescue Plan and the federal dollars are coming to the state?

Or are the cuts still happening anyway–and maybe more to come? (Including possible furloughs and cuts for state employees).

Comment by Essential State Employee Wednesday, Mar 10, 21 @ 6:11 pm
=that’s not what constitutes a rating by Fitch.=

Serious question- Have you ever gone through the process required to issue public GO Bonds? you would really understand what a racket the ratings business is.

Most school cannot get a AA rating. Why is that important? Because it has a negative impact on rates so we get an A+ everytime and have to by bond insurance sort of like PMI except we cannot ever default on GO bonds. Ever. We should be AAA.

Comment by JS Mill Wednesday, Mar 10, 21 @ 6:59 pm
=== residents of states which have historically elected more responsible policy makers –and conversely, which have not made a decades long hash out of their finances –will indeed be bailing out states of the latter description. Like us.===

“Responsible” would also mean enforcing mask mandates, demanding federal lawmakers implement real relief that allows non-essential workers to stay home for the past year, and generally not pretending the greatest human tragedy in American history is a hoax. And yet Iowa, South Dakota, and their ilk are doing just fine under ARP.

Comment by One hand //ing Thursday, Mar 11, 21 @ 12:01 am
– the greatest human tragedy in American history –

Hmmm… you sure you want to stake that claim there, pardner?

Comment by JB13 Thursday, Mar 11, 21 @ 12:47 am