June 4, 2019
CHICAGO (Reuters) – Illinois avoided deterioration in one of its low investment-grade credit ratings on Tuesday when Moody’s Investors Service affirmed the state at Baa3 with a stable outlook, citing recent steps taken to shore up the state’s shaky finances.
The rating, which affects about $30.2 billion of outstanding debt, remains the lowest among U.S. states at a notch above the junk level due largely to Illinois’ huge unfunded pension liability and chronic structural budget deficit.
Moody’s said Illinois avoided making its fiscal woes worse over the past year.
“Buoyant tax revenues encouraged policymakers to refrain from proposed cuts to pension contributions, and the legislature authorized some new revenue sources, as well as a referendum to potentially adopt progressive income taxes to further increase revenue-raising capacity,” the credit rating agency said in a statement.
After an unexpected income tax revenue surge in April, Democratic Governor J.B. Pritzker dropped a proposal to extend the state’s current 50-year pension payment plan schedule and reduce the coming fiscal year’s contribution.
The full pension payment was included in a $40.1 billion fiscal 2020 budget passed during the legislature’s spring session, which ended on Sunday.
Lawmakers also put a constitutional amendment on the November 2020 ballot asking voters to adopt graduated personal income tax rates to replace the current flat rate. Pritzker championed the amendment as a way to raise about $3.4 billion annually to address the state’s fiscal woes.
Other new potential revenue raisers passed included legalized recreational marijuana and a massive gambling expansion.
Moody’s said the recent legislative action indicated “improvement in political willingness,” but warned pension contributions will outpace revenue growth, subjecting the state to “persistent fiscal pressure.”
It added that a comprehensive plan addressing pension liabilities could help improve Illinois’ rating, while renewed growth in the state’s unpaid bill backlog, currently estimated at $6.65 billion, could lead to a rating downgrade.
Moody’s last month singled out Illinois and New Jersey as the two states least able to cope with a moderate economic recession.
Illinois’ BBB-minus rating from S&P Global Ratings is also just a notch above junk, while Fitch Ratings has the state at BBB with a negative outlook.
(Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis)