Fitch upgrades Illinois’ credit outlook to ‘positive’
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[June 25, 2021]
By PETER HANCOCK
Capitol News Illinois
phancock@capitolnewsillinois.com
SPRINGFIELD – Fitch Ratings, one of three
credit rating agencies that grade Illinois bonds, has upgraded its
credit outlook for the state from “negative” to “positive.”
Although the state’s overall rating remains at near-junk status at BBB-,
the agency said the state’s economic outlook coming out of the pandemic,
combined with the recently-enacted budget, are moving the state in the
right direction.
“The Outlook Revision to Positive from Negative, reflects Illinois'
preservation of fiscal resilience given the quick and sustained economic
recovery since the start of the pandemic, coupled with the state's
unwinding of certain nonrecurring fiscal measures,” the agency said in a
statement Wednesday. “Recent fiscal results and the enacted fiscal 2022
budget suggest further improvements in operating performance and
structural balance in the near and medium-term that could support a
return to the pre-pandemic rating or higher.”
The change in outlook is not the same as a change in the state’s
immediate credit worthiness, but instead reflects the agency’s view of
its credit trajectory, indicating the possibility of a credit upgrade in
the future.
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The continuing BBB- rating is the result of what Fitch called “a long
record of structural imbalance and irresolute fiscal decision making”
that has resulted in a credit position well below what the state’s
broad, but slow-growing economy would otherwise suggest. It also
reflects the state’s large, long-term liabilities such as pension
obligations that will continue to put stress on the state’s finances.
But the agency also said that the state’s revenue base, primarily income
and sales taxes, are expected to grow as the state’s economy grows,
while recent improvements, such as paying down the state’s bill backlog
and its plan to pay off its federal pandemic borrowing early, are signs
of improved budget management.
The action by Fitch follows similar moves earlier this year by the
state’s other two rating agencies, Moody’s and S&P, which revised their
outlooks from “negative” to “stable.”
Democratic leaders in Illinois, including Gov. JB Pritzker, quickly
seized on the news
“Fitch’s improved outlook for Illinois is yet another sign of positive
momentum for our state’s fiscal condition, a testament to strong
financial management and responsible actions by the General Assembly and
my administration, and a product of the state’s economic resilience,”
Pritzker said in a statement Wednesday. “The story of Illinois in 2021
is that in the face of a crisis, fiscal discipline and smart economic
policy pays off.”
House Speaker Emanuel “Chris” Welch, D-Hillside, called the revised
outlook “proof we can support families, invest in underserved
communities, and be fiscally prudent at the same time,” while
Comptroller Susana Mendoza said the move “vindicates” her office’s
effort to pay down the state’s bill backlog.
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The Illinois State Capitol is pictured in
Springfield. (Capitol News Illinois file photo)
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“My administration has been committed and vocal about
the need to show fiscal discipline and accountability,” Mendoza said
in a statement. “Fitch notes the responsible approach we have taken
with the General Assembly and the Governor’s office to target
better-than-expected revenues to paying down debt.”
In its announcement, Fitch listed a number of things Illinois could
do that might lead to a credit upgrade. Those include continuing to
pay down the bill backlog, continuing the recent pattern of passing
balanced budgets on time and narrowing what Fitch called a
“structural budget gap” by matching recurring revenues with
recurring expenses, including funding its pension obligations at
actuarially determined levels.
Recent budgets have included the pension payments required by
statute that are otherwise short of the actuarially determined
payments that would prevent the state’s unfunded liability from
increasing. The state’s statutory pension payment, which it made in
full for the upcoming fiscal year, was about $9.8 billion, or 23
percent of the state’s General Revenue Fund budget for the year.
However, the agency also noted factors that could lead to a credit
downgrade, such as failing to follow through on plans for early
retirement of federal pandemic loans and repayment of interfund
borrowing, or using one-time federal aid for recurring expenses in
the future.
Meanwhile, Fitch said, bonds issued as part of the Rebuild Illinois
capital improvements plan continue to be rated BBB+, a slightly
higher rating than the state’s general obligation bond rating,
because the capital plan bonds are backed by dedicated sources of
revenue.
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Fitch said it believes those revenue sources, which include motor
fuel tax revenue and license plate fees among others, would remain
sufficient even in the event of an economic downturn.
Capitol News Illinois is a nonprofit, nonpartisan
news service covering state government and distributed to more than
400 newspapers statewide. It is funded primarily by the Illinois
Press Foundation and the Robert R. McCormick Foundation. |