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The Governor’s Office of Management and Budget projected last week the current fiscal year’s budget will run a $267 million deficit. The budget office recommended taking “immediate” action to plug the hole.
And the problem gets much worse in the future, with a $2.2 billion projected deficit for next fiscal year, which begins July 1. […]
According to Governor’s Office of Management and Budget, the “One Big Beautiful Bill Act” will cost the state $587.2 million this fiscal year in corporate income tax receipts and another $249 million in individual income tax receipts (although the commission reports that individual tax receipts are still rising as expected). […]
The governor’s budget office said it wants the Illinois General Assembly to “immediately” change state law to decouple from the new “bonus depreciation” law ($121 million in corporate income taxes and $23 million in individual taxes) and unspecified others. It also wants the General Assembly to update state law to “reflect the federal change from global intangible low-taxed income to net controlled foreign corporation tested income” ($90 million corporate).
* And yet, the state got its 10th credit ratings upgrade in a row yesterday. Crain’s…
Moody’s gave Illinois another credit upgrade, citing improvement in the state’s financial metrics while still expressing concerns over its massive pension liabilities.
The firm raised the state’s rating to A2, five steps above junk, from A3, with a stable outlook. It’s the 10th credit upgrade since Gov. JB Pritzker took office six years ago. Improved credit ratings lowers the state’s borrowing costs. However, Illinois still has the lowest rating of any state.
“Illinois continues to add to its reserves and fund balance, growth in which is a crucial element in mitigating risks associated with the state’s high leverage, as well as shifts in federal policy,” Moody’s said.
* Bond Buyer…
The rating agency said the state’s operating flexibility is constrained by its high fixed cost burden, as well as constitutional provisions that protect post-employment benefits and prohibit certain changes in tax structure. Its fund balance and budget reserves continue to reach historic highs, but they both remain lean as a share of revenue compared to those of other states.
With the issuer rating upgrade, Illinois general obligation bonds rise to A2 from A3, as do its Build Illinois sales tax bonds. Moody’s also upgraded to Baa1 from Baa2 the rating on Metropolitan Pier & Exposition Authority bonds that are partially paid with state appropriations.
Moody’s said an upgrade could come if the state can make more timely releases of its audited financial statements that show fund balances above 15% of revenue, lower its liability and fixed-cost burdens, accelerate economic expansion, or increase pension contributions to reduce its large liabilities.
As part of efforts to mitigate risks to federal funding, Pritzker in recent weeks told state agencies to cut costs to put up to 4% of their budgets into reserves. In past years, Illinois held very little cash in reserves. For example, the state had only $3.6 million in its rainy day fund in 2019. Since then, officials built up the rainy day fund to a record $2.4 billion this year, though it still holds among the smallest levels of any state, according to a report released by the governor’s office of management and budget earlier this month.
* Moody’s…
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
⁃ Development of a material budget gap due to, for example, an economic recession, federal funding cuts, or support of fiscal challenges of downstream governmental units
⁃ Decline in GAAP-basis fund balance to below 10% of revenue
⁃ Growth in leverage (debt or other unfunded liabilities) or the state’s fixed cost burden
⁃ A departure from fiscal management practices that support growth in reserves and stronger pension contributions
* Pritzker press release…
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. Before Governor Pritzker took office, the State of Illinois experienced 24 downgrades over 15 years. Between just 2015 and 2017, Illinois suffered eight credit rating downgrades and sat at the top of many analysts’ lists of the worst managed states in the nation under the previous administration. At its worst, Illinois’ bill backlog hit nearly $17 billion.
Across major credit rating agencies Moody’s Investors Service, S&P Global Ratings, and Fitch Ratings, the State has received ten upgrades since June of 2021. Prior to those upgrades, the State had not received an upgrade since June of 2000, over two decades. Agencies have cited the State’s actions in paying down bill backlogs, repaying debts, increased fiscal transparency, building financial reserves, and balancing the State budget as factors in the upgraded ratings.
* In related news, here’s Capitol News Illinois…
The new leader of the Illinois Federation of Teachers says state lawmakers should consider raising taxes on wealthy individuals and corporations that have received federal tax breaks under the Trump administration to increase state spending on education and other public services.
As noted above (and in a Capitol News Illinois story earlier this month) that’s already happening and will continue in the spring. The object will be to use that money to plug federally created holes. No mention of that in the story, however.
posted by Rich Miller
Friday, Oct 24, 25 @ 8:40 am
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Overall good news, even if Moody’s is being a bit optimistic.
Reading between the lines, Moody’s says the State’s constitutional protection of the pensions and the flat tax provision are holding the State back.
There really isn’t anything the State can do about the pension debt other than continue with the modified Edgar ramp.
Someone could take a run at changing the State’s flat tax provision … but that didn’t go well the last attempt. Probably have more success with additional service taxes.
Comment by RNUG Friday, Oct 24, 25 @ 9:05 am
2.2 billion short and you blaming trump for shorting you 700 million… Where’s the remaining 1.5 billion then?
Comment by Red headed step child Friday, Oct 24, 25 @ 9:13 am
===Where’s the remaining 1.5 billion then? ===
Read the report that I posted weeks ago.
Comment by Rich Miller Friday, Oct 24, 25 @ 9:27 am
==more timely releases of its audited financial statements==
They noticed too, huh?
Comment by City Zen Friday, Oct 24, 25 @ 9:49 am
Having worked at GOMB and as a CFO under Rauner, I always wonder what he thinks of all these upgrades after his perpetual/habitual downgrades
Comment by Lurker Friday, Oct 24, 25 @ 9:51 am
Another interpretation of Moody’s upgrade is that they have confidence that Governor Pritzker and the Democrat Supermajority have the will and power to continue raising taxes to support their increased spending.
Someone should take a run at the Illinois Constitution Pension language also…….same as the Fair Tax….they aren’t mutually exclusive issues.
Comment by Don't lose Sight Friday, Oct 24, 25 @ 9:52 am
==Someone should take a run at the Illinois Constitution Pension language==
IPI is that you? lol.
Comment by Demoralized Friday, Oct 24, 25 @ 10:03 am
“Someone should take a run at the Illinois Constitution Pension language also … .”
Remember, Pension Language was added to protect pensions of firefighters (among others) from Home Rule (firefighters were not part of Medicare at that time). If you also want to repeal Home Rule …
Comment by Anyone Remember Friday, Oct 24, 25 @ 10:27 am
Or the other interpretation is that Moody’s is forecasting the economy will continue to grow faster nationwide and in Illinois than in the past because of the pro business/ pro worker policies of the Republicans currently in control of the Federal government.
Comment by Harrison Friday, Oct 24, 25 @ 10:27 am
Just saw an article put out by Illinois Policy that has this line “they should support a constitutional amendment to allow changes to future, not-yet-accrued benefits.” You don’t need a constitutional amendment to accomplish this. All that is needed is for the legislature to create a new pension plan for new hires just like they did for Tier 2. Somehow too many people are hung up the amendment process which is harder to accomplish.As RNUG says let the ramp do its job. The problem will be solved in a number of years as more Tier 1 die off and the ramp time frame is over.
Comment by illinifan Friday, Oct 24, 25 @ 10:48 am
===Or the other interpretation is that Moody’s is forecasting the economy will continue to grow faster nationwide===
You must not have read the report. It contains rear-covering caveats about the national economy, like this: “The stable outlook is supported by the likelihood that, outside of a major economic contraction, Illinois will retain its improved reserves and continue to slowly address its outsized leverage.”
Comment by Rich Miller Friday, Oct 24, 25 @ 11:24 am
do its job. The problem will be solved in a number of years as more Tier 1 die off and the ramp time frame is over.
No…the,ramp requires billions more every year, of which it isnt l covering the costs anyways…how does the state come up with these,extra billions? More,tax….which is what the folks cant have…rnug will agree
Comment by Silky Friday, Oct 24, 25 @ 11:35 am
Yes the nature of the ramp is increasing payments over the years with it peaking by 2045. By this time most of Tier 1 will also have died off and payments to the system should begin to reduce.
Comment by illinifan Friday, Oct 24, 25 @ 11:54 am
==All that is needed is for the legislature to create a new pension plan for new hires just like they did for Tier 2.==
No, they’re talking about changing benefits not yet earned for current hires. New tiers don’t address that.
We’d be better off pursuing an amendment that guarantees no pension enhancements to existing plans.
Comment by City Zen Friday, Oct 24, 25 @ 12:58 pm
=No…the,ramp requires billions more every year, of which it isnt l covering the costs anyways…how does the state come up with these,extra billions? More,tax….which is what the folks cant have…rnug will agree=
The legacy debt is the reason for this and will not change. You can add 10 more pension tiers and eliminate new pensions and that won’t change until the debt is paid.
Tier 2 has reduced that annual cost of the pensions by hundreds of millions (not sure but the last time I heard an estimate it was 500 million and that was over 5 years ago). That reduction will continue to offset some of the ramp increase. The changes to Tier 2 being proposed (retire at 62 and max pension tied to SSI max) make sense and will not be very costly.
=…peaking by 2045. By this time most of Tier 1 will also have died off…=
Whoa there, take it easy. I plan to live waaayy beyond 2045. I hope.
Comment by JS Mill Friday, Oct 24, 25 @ 1:04 pm
Now why are others taking credit for Susana’s work? According to her cheesy video said SHE did all the work. (insert side eye).
Comment by Trinity Friday, Oct 24, 25 @ 2:23 pm