Illinois’ credit rating got another boost on Thursday, but some disagree on what's behind the growing faith in the state's ability to pay its debts.
Several weeks ago, Fitch Ratings maintained the state’s worst-in-the-nation rating, but changed the state’s credit rating outlook from negative to positive.
Last week, Moody’s increased the state’s rating a notch upward.
Thursday, at an unrelated event in Springfield, Sen. Dick Durbin welcomed the developments.
“The governor announced and I was happy to hear it that our credit rating as a state has improved dramatically for the first time in a long time,” said Durbin, D-Springfield. “Part of the reason is we are sending $8 billion dollars (in federal taxpayer funds) to the state of Illinois.”
Last week, Gov. J.B. Pritzker said it was holding the line on spending and a better-than-expected economic recovery that did the trick, not billions in federal funds.
“The aid from Congress was not used to balance the budget in 2022,” Pritzker said. “That’s a fallacy. Whoever is saying that has got it wrong.”
Thursday, S&P Global Ratings announced a credit upgrade for Illinois’ from BBB- to BBB. That’s still a few notches above speculative, or junk-bond status.
The rating agency noted the state’s weaknesses included “an almost empty budget stabilization fund that would further limit budgetary flexibility; the remaining bill backlog; pension funding practices ... which is one of the least conservative funding methodologies in the nation among peers; and a recurring practice of relatively late audit reports,” the report outlined. “The audit for the fiscal year ended June 2019 was not released until April 2020 and the fiscal 2020 audit is still not published.”
Credit strengths include, the agency noted included revenues “stronger than forecast during the depths of the economic trough, and the receipt of unbudgeted federal stimulus to help bridge the gap to a fully functioning economy.”
The Democratic House speaker and Senate president praised the upgrade, saying Illinois’ finances are on the right track.
"For the first time in decades, Illinois has received not one, but two bond rating upgrades,” said House Speaker Emanuel “Chris” Welch, D-Hillside. “I am incredibly proud of our state's responsible financial choices that continue to improve our fiscal standing, as well as put hardworking Illinoisans and their families first.”
“This is further proof we are on the right track in balancing our fiscal realities with the real-world needs of working men and women,” said Senate President Don Harmon, D-Oak Park. “We are moving Illinois forward by paying our debts while at the same time investing in education, health care, childcare and other key programs people need to get ahead.”
Senate Minority Leader Dan McConchie, R-Hawthorn Woods, said the recent actions are driven by the federal bailout.
“We still have the worst unfunded pension liability in the entire nation, we’re still the worst credited state in the entire nation, and at some point, somebody is going to have to be the adult in the room and do their job,” he said.
He said Democrats can’t spend other people’s money when that money runs out.
After an upgrade from Moody’s last week, Pritzker said the state still has work to do.
“We need to overcome the structural deficit of the state, we haven’t fully overcome that,” Pritzker said. “That structural deficit is still there. We have to work at it year in and year out.”
While the state’s credit rating is still among the worst of all states, upgrades could lead to tens of millions of dollars in savings for taxpayers when the state goes out to sell debt with lower interest rates.
“We could raise the rating if we believe the recent improvements in fiscal operations and overall budget management coupled with the economic recovery will continue,” S&P said Thursday. “Any upside to the state's creditworthiness, however, remains somewhat constrained by the poorly funded pension systems and other outsize liabilities.”
“If Illinois were to make sustainable progress toward structural balance, including meeting its pension obligations, further reducing its bill backlog, and increasing reserves, we could raise the rating,” the report said.