On the heels of a pandemic-recession, a major credit ratings agency is upgrading Illinois’ creditworthiness for the first time in two decades.
Moody’s Investors Service on Tuesday announced it was lifting Illinois’ bond rating from one notch above junk status to two. Illinois still has the lowest credit rating of all states by far, but Gov. JB Pritzker and other Democrats in charge of state government celebrated after Moody’s upgrade.
“Despite all the challenges of the last year, after eight credit downgrades our state suffered under my predecessor, I say with full certainty Illinois’ fiscal condition is heading in the right direction for the first time in the 21st century,” Pritzker told reporters Tuesday afternoon, referring to downgrades from the big three New York credit ratings agencies during the state’s budget impasse under former Gov. Bruce Rauner.
Bond ratings indicate how likely an entity — from a local government to a state to a company — is to pay off its debts to creditors. Illinois periodically sells bonds to pay for projects or other costs, and with the lowest bond rating of any state, is subject to higher interest rates when the state goes to the bond market. Illinois’ general obligation bonds are the main measure of creditworthiness for the state, but Illinois sells other types of bonds, too, also rated by Moody’s and others.
Moody’s has consistently downgraded Illinois’ bond rating since ex-Gov. Rod Blagojevich’s first few months in office in 2003. Before then, the last time Moody’s gave Illinois an upgrade was 1998 — 23 years ago.
The big three credit rating agencies — which also include Fitch Ratings Inc. and Standard & Poor’s — are not always in lockstep when it comes to rating states’ creditworthiness; Moody’s and S&P, for example, downgraded Illinois to one notch above junk status on their respective scales on June 1, 2017, after the General Assembly adjourned their regular spring session for a third year in a row without passing a budget.
Fitch, however, didn’t make that same calculation until last April in the first several weeks after COVID-19 hit Illinois. Fitch last week moved Illinois’ credit outlook from “negative”to “positive.”
The last time Fitch upgraded Illinois’ credit rating was 2000, and the last time S&P gave the state a ratings boost was 1997.
Moody’s said Tuesday it upgraded Illinois’ bond status due to “material improvement in the state’s finances,” specifically the $42 billion budget Democrats pushed through the legislature last month. The agency said the budget repays emergency federal borrowing the state did in the depths of COVID last year and will keep the state’s bill backlog “in check” without dipping too far into the $8 billion in federal funds coming to Illinois from the American Rescue Plan.
Moody’s also gave the budget credit for increasing contributions to the state’s five pension systems, though it acknowledged Illinois’ pension debt — $144 billion in unfunded liabilities at last calculation — is “unusually large” and poses a long-term challenge to the state and could “exert growing pressure” on the state as “federal support dissipates,” barring new revenues or reductions in spending, the analysis said.
Still, Democrats were in a self-congratulatory mood Tuesday. In a statement, Senate President Don Harmon (D-Oak Park) obliquely referred to the budget impasse and those who cheered Rauner on during the standoff with Democrats from 2015 to 2017.
“Stability and responsibility produce results,” Harmon saiid. “You don’t need to ruin people’s lives to have sound fiscal policies and positive outcomes.”
New House Speaker Chris Welch (D-Hillside) said the Moody’s upgrade was “yet another example that we can support all Illinois families, invest in our communities, provide high-quality state services to those in need, all while improving our fiscal health.”
Comptroller Susana Mendoza, whose main job is managing the state’s bills, has recently boasted the state has finally gotten back back onto a normal 30-day bill payment cycle after years of late payments exacerbated by the budget impasse, when the state’s bill backlog skyrocketed to nearly $17 billion.
“I couldn’t be happier that our hard work is producing results: the first rating upgrade for Illinois,” Mendoza said. “This means lower costs for Illinois taxpayers. As you have seen in recent months, even in the middle of a global pandemic, my administration has successfully paid down a backlog of bills that just four years ago hit $16.7 billion – down to $2.9 billion today – and did so while prioritizing the most vulnerable people in our state.”
Pritzker boasted that credit ratings agencies were taking notice of the state’s fiscal recovery even after a pandemic that a year ago threatened to topple any economic gains the state had been making pre-COVID.
“After the most difficult year in memory, Illinois is making a major comeback,” Pritzker said.
But he acknowledged the state’s structural deficit isn’t a thing of the past. Pritzker’s signature graduated income tax plan failed at the ballot box in November, with voters rejecting a constitutional change the governor promised would bring $3.5 billion more into state coffers annually by charging high-income earners more in taxes.
Pritzker pivoted to cutting what he called tax “loopholes” or “corporate welfare” in February, threatening to end or delay nearly $1 billion in tax incentives for businesses and certain individuals during his annual budget address.
The state’s new $42 billion budget that goes into effect Thursday only included about two-thirds of the governor’s proposed cuts, but the business community or its GOP allies don’t that outcome as having been spared, accusing Pritzker of breaking his word.
Senate Republican Leader Dan McConchie (R-Hawthorn Woods) gave only tepid praise Tuesday, pointing to the state's structural deficit and unfunded pension liabilities, and claimed Illinois was only propped up through the pandemic due to federal money.
“Illinoisans deserve systemic, structural changes to our long-standing issues - not lies about our financial status," McConchie said in a statement. "The truth is, that without the influx of federal aid, our state would very likely be looking at yet another credit downgrade. When the federal money dries up, as it will, the governor and his party will no longer be able to pretend that there’s no hole in the wall."
