Pritzker credits fiscal prudence for Illinois' first bond rating upgrade in two decades
Gov. JB Pritzker praised Illinois’ first bond-rating upgrade in more than 20 years Tuesday as recognition for his administration’s fiscal prudence and for what he described as a team effort with other Democratic leaders in state government.
“Make no mistake, despite all the challenges of the last year, after eight credit downgrades our state suffered under my predecessor, I say with full certainty Illinois’ fiscal condition is headed in the right direction for the first time in the 21st Century,” Pritzker said at a Statehouse news conference.
“We are truly forging a new path for our great state,” the governor said.
Pritzker’s comments came after Moody’s Investor Service earlier in the day upgraded Illinois’ ratings on its general obligation bonds from Baa3 with a stable outlook — just above junk-bond status — to Baa2 with a stable outlook.
New York-based Moody’s also upgraded its rating on the state’s Build Illinois sales-tax revenue bonds to Baa2 from Baa3. And Metropolitan Pier and Exposition Authority ratings were upgraded to Baa3 from Ba1.
Moody’s attributed the ratings improvements, which allows the state to borrow at a lower interest rate in the future, to “material improvement in the state’s finances.”
Moody’s commended the state’s enacted state budget for fiscal 2022, which begins Thursday, for increased contributions to the state’s pension debt, repayment of Federal Reserve borrowing during the COVID-19 pandemic, and keeping the state’s backlog of unpaid bills “in check” with “only constrained use” of federal pandemic-relief funds.
Moody’s summary also said: “Illinois still faces longer-term challenges from unusually large unfunded pension liabilities, which are routinely shortchanged, under the state’s funding statute. These liabilities could exert growing pressure as the impact of federal support dissipates, barring significant revenue increases or other fiscal changes.”
The bond rating improvements came less than a week after Fitch Ratings, one of three credit rating agencies that grade Illinois bonds, upgraded its “credit outlook” for the state from negative to positive. The outlook is different from bond ratings.
Pritzker, who was elected in November 2018 when he defeated Republican incumbent Bruce Rauner, said he recently signed the state’s third balanced budget.
And though $1.8 billion of the $42.3 billion spending plan came from federal stimulus funding through the American Rescue Plan, Pritzker said the federal dollars weren’t what allowed his administration to balance the state budget.
Pritzker earlier this year proposed a largely flat budget, along with more than $900 million in savings through the elimination of what Pritzker called “corporate loopholes” and a second year of forgoing a recommended $350 million boost in the school aid formula.
After forecasts of better-than-expected state revenues during the economic recovery, and after debate in the legislature and decisions to use some of the state’s $8.1 billion in federal stimulus money, the $350 million in education funding was restored and $550 million in corporate loopholes, rather than almost $1 billion, were eliminated.
The state also was able to avoid cutting funding for local municipalities.
“Today, on the precipice of the new fiscal year, 2022, Illinois is being praised for our fiscal stability and our responsible governance,” Pritzker said.
“It’s an achievement that could only happen because a coalition of public servants across the state rolled up their sleeves and got to work turning this ship around on behalf of the people that we serve,” he said.
Laurence Msall, president of The Civic Federation, a Chicago-based, nonpartisan public policy group, said Pritzker and Democratic legislative leaders deserve credit for the bond rating improvements, though Illinois still has the lowest credit rating of any state in the nation.
“It’s positive, but it’s by no means ‘mission accomplished,’” Msall said.
The state still needs to get control of its $140 billion in net pension liabilities as a way of reducing the state’s structural deficit, he said.
The state should come up with more ideas for early retirement options for current employees, he said.
And Msall said lawmakers should ask the voters to change the state constitution in a way that would allow the state to reduce the compounding, 3% cost-of-living annual increases guaranteed for state retirees through their pensions.
Senate Minority Leader Dan McConchie, R-Hawthorn Woods, said the credit rating improvement is encouraging. But he said the billions of dollars in federal COVID-19 relief the state received over the past two years while Pritzker was governor won't guarantee financial stability for Illinois in the future.
“Claiming victory with federal money is misleading the people of our state,” McConchie said. “Like someone trying to hide a hole in the wall by covering it with wallpaper, the governor and Democratic majorities are trying to paper over the state’s ongoing systemic budgetary and economic issues.
“Today is a positive step, but there will come a day when the governor and his party run out of other people’s money.”
McConchie said that in addition to the $140 billion in unfunded pension liabilities for the five state retirement systems, “the Chicago pension system is still projected to run out of money in six years."
"Meanwhile," he said, "state pension payments continue to consume a quarter of Illinois’ operating budget, which is billions of dollars that can’t be used to fund schools, increase public safety or improve our transportation system. Illinoisans deserve systemic, structural changes to our longstanding issues, not lies about our financial status.”
But Senate President Don Harmon, D-Oak Park, said: “Stability and responsibility produce results. You don’t need to ruin people’s lives to have sound fiscal policies and positive outcomes.”
And House Speaker Emanuel “Chris” Welch, D-Hillside, said: “Thanks to responsible and balanced budgets, as well as sound economic policy decisions, we continue to move our state toward financial stability. This is yet another example that we can support all Illinois families, invest in our communities, provide high-quality state services to those in need, all while improving our fiscal health.”
Contact Dean Olsen: firstname.lastname@example.org; (217) 836-1068; twitter.com/DeanOlsenSJR.