Moody’s gives Illinois second credit upgrade within one year
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[April 22, 2022]
By JERRY NOWICKI
Capitol News Illinois
jnowicki@capitolnewsillinois.com
SPRINGFIELD – Illinois on Thursday received
its second credit rating upgrade from Moody’s Investors Service within
one year, moving up one notch but remaining in the worst shape of the 50
states.
It’s the third upgrade between the three major credit ratings agencies
during Gov. JB Pritzker’s tenure, the other coming last year from
Standard & Poor’s shortly after the first Moody’s upgrade.
The upgrade to Baa1 status, or three notches above what is referred to
as “junk bond” status, reflects “solid tax revenue growth,” which
allowed the state to bolster financial reserves and increase payments
toward unfunded liabilities, according to Moody’s.
The upgrade to the general obligation bond rating likely means lower
interest costs when the state borrows money.
“A credit upgrade means Illinois will likely pay a lower interest rate,
saving taxpayers hundreds of millions of dollars in the coming years,”
Pritzker said in a news conference called after the Moody’s
announcement. “Higher credit ratings result in the elimination of
wasteful spending, and they mean that we will have more resources for
education, for health care, public safety and future tax breaks.”
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Pritzker credited the upgrade to the recently passed $46 billion state
operating budget, and the fact that the state dedicated an added $500
million to its pension system and retired $900 million in other
interest-accruing health insurance debts.
The pension investment is expected to reduce unfunded liabilities in the
pension system by about $1.8 billion. At the end of 2021, the Commission
on Government Forecasting and Accountability pegged that unfunded
liability at about $130 billion.
While the pension investment indicated an “increased commitment to
paying its single-largest long-term liability,” according to the report,
the remaining liability precluded a more substantial upgrade.
“The rating balances the state's recent financial progress with
underlying challenges that will remain in place for some time,” the
Moody’s report stated. “These challenges include heavy long-term
liability and fixed cost burdens that constrain the state's financial
flexibility and contribute to a weak financial position compared to
other states, despite the recent improvement in fund balance.”
As well, the report noted, Illinois’ economy has routinely expanded at a
slower pace than the nation at large in recent years, as evidenced by
its 4.7 percent March unemployment rate compared to a 3.6 percent rate
nationwide rate.
Moody’s also credited the state for bolstering its fund balances.
The budget dedicated $1 billion to the state’s “rainy day” fund and
created an ongoing $3.75 million monthly contribution to the fund
beginning in July 2023. The state also dedicated $230 million to paying
down the unfunded liabilities of its College Illinois program.
Those actions also mean millions of dollars of interest payments will be
freed for general revenue funds spending.
Still, there are reasons to be cautious, according to the report.
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![](../images/042222PIX/news_a49.jpg)
Gov. JB Pritzker speaks at a news conference Thursday
after the state received its second credit rating upgrade from
Moody's Investors Service within one year. (Credit:
Blueroomstream.com)
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“The stable outlook balances the financial progress being made by the
state with the uncertainty of the present economic climate,” the report
stated. “The state's lean financial reserves, and heavy long-term
liability and fixed cost burdens make it more vulnerable than other
states to a negative shift in the national or global economy, which
presently limits the probability of further rating improvement.”
Moody’s noted Illinois could see a further upgrade if fund balances
continue to improve in future budget years, economic expansion
accelerates, if the state continues to moderate its long-term
liabilities, and if it continues on a path of growing reserves and
increasing pension payments.
Downgrades could follow if revenue growth slows, unfunded liabilities
grow, fund balances decrease, or if the state departs from “fiscal
management practices” of building fund reserves and increasing pension
contributions.
In February, Pritzker’s Department of Revenue testified in a committee
presentation that much of almost $5 billion in unforeseen state revenue
growth for the current fiscal year was a result of pandemic-related
shifts in consumer spending and other federal aid, either directly or
indirectly.
That was largely driven by increases to the state’s personal and
corporate income taxes, as well as sales taxes, as consumers purchased
more taxable goods than untaxed services amid the COVID-19 pandemic.
Increased federal unemployment benefits played a role as well.
IDOR warned of a revenue slowdown at that committee hearing and Pritzker
said the budget for the upcoming fiscal year anticipates one.
“We lowered our revenue estimates for the state because we know that the
economy of Illinois can't grow at 5.7 percent or 6 percent every year.
That's not going to happen,” he said. “That was an unusual year. We were
coming out of, we still are coming out of a pandemic. But significant
infusions into the economy by the federal government all across the
nation. But we do expect growth in the state and we have planned for a
lower level of revenue and as a result lower spending to meet the
revenue that we've got.”
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Comptroller Susana Mendoza, a frequent critic of former Gov. Bruce
Rauner who presided over eight credit downgrades between the three major
agencies, said the state began making fiscal progress prior to the
direct receipt of federal funds.
An unpaid backlog of bills overseen by the comptroller’s office that
once reached nearly $17 billion under Rauner now sits within a 30-day
billing cycle from the date vouchers are received by the comptroller’s
office.
“I knew that through our smart fiscal management, this upgrade was on
the horizon,” Mendoza said in a statement. “This is not by chance. Even
before a penny of American Rescue Plan Act (ARPA) federal stimulus
dollars came to Illinois, the Illinois Office of Comptroller
methodically paid down the state’s bills and shortened the bill payment
cycle.”
Capitol News Illinois is a nonprofit, nonpartisan news
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