SZALINSKI’S SUMMARY: Moody’s upgraded Illinois’ issuer and general obligation bond ratings to A1 on Wednesday with a “stable” outlook, which is the highest rating from the agency since 2011. It’s the 11th time a credit rating agency has upgraded the state’s credit rating under Gov. JB Pritzker’s tenure.
WHY IT MATTERS: The upgrade spells more good news for the state, which has struggled with financial stability over the last two decades. Higher ratings allow the state to borrow money at lower interest rates. It also gives Gov. JB Pritzker another talking point as he runs for a third term and tells voters that he has a track record of proven financial success.
“Moody’s latest upgrade returns Illinois to its highest rating in nearly 15 years and reflects the tremendous financial progress we have made since taking office,” Gov. JB Pritzker said in a statement. “With the General Assembly as a committed governing partner, we have moved Illinois from years of fiscal instability to its strongest financial position in decades.”
Build Illinois sales tax bonds and Metropolitan Pier and Exposition Authority bonds also received upgrades.
WHY IT HAPPENED: According to an analysis by Moody’s, the state’s financial metrics have improved with balanced budgets and Pritzker’s conservative approach to budgeting. State spending, outside the core areas of healthcare, pensions and education, has grown by less than 1% in each of the last two years.
The rating agency also liked that the state’s reserves have grown, which gave the agency confidence the state can navigate and future budget pressures and continue to have financial flexibility.
NEGATIVES: Moody’s analysis wasn’t all sunshine, however. The agency said the state is still being held back from further financial success by unfunded pension liabilities and constitutional limits barring the state from changing benefits for current employees or changing the state’s tax structure. And while the state has grown the “rainy day” fund to $2.5 billion, Moody’s notes that is still below other states with higher credit ratings.
The rating agency also noted Illinois’ economy has grown slower than most other states over the last decade and could continue to be handicapped by minimal population growth.
WHERE ILLINOIS RANKS: The credit upgrade is good news for the state, which once earned 24 consecutive downgrades, including eight during the 2-year budget impasse between 2015 and 2017. But on Moody’s scale, Illinois still has the lowest credit rating in the nation even with the upgrade.
LOOKING AHEAD: “The stable outlook reflects the state’s strengthened financial position and our expectation that Illinois will continue to demonstrate disciplined fiscal management, maintain reserves at historically elevated levels, and make gradual progress in reducing leverage,” Moody’s analysis said. However, it also said the state’s outlook is stable because it doesn’t expect the pension liability or economic growth to meaningfully improve compared to higher-rated states.
Moody’s says Illinois could earn future upgrades by devoting more money than required to pensions and continuing to pass balanced budgets and grow reserves. However, it could earn downgrades if debt or other unfunded liabilities growth.
The state’s next bond sale is scheduled for the end of September.
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