(The Center Square) – Credit rating agencies are optimistic about Illinois’ finances for the first time in a while, but one researcher said the news was overrated.
Fitch Ratings revised the outlook on Illinois’ general obligation bonds from negative to positive, but maintained the state’s credit rating at one notch above junk-bond status.
The agency said recent fiscal results and the enacted fiscal 2022 budget suggest further improvements in the state’s operating performance.
“Credit ratings are ratings of the creditworthiness and the creditworthiness of the bonds,” said Bill Bergman, director of research for Truth in Accounting. “They are not indicators for taxpayers.”
Fitch was the last of the big three credit rating agencies to signify an improved outlook for Illinois, following changes by Moody’s Investors Services and S&P Global Ratings in March that moved the state from a negative outlook to a stable outlook.
Gov. J.B. Pritzker credited the General Assembly and its leaders for working together with him in a common purpose of bringing about long-term fiscal strength for Illinois.
“The story of Illinois in 2021 is that in the face of a crisis, fiscal discipline and smart economic policy pays off,” Pritzker said in a statement.
House Speaker Emanuel “Chris” Welch said the fact that all three rating agencies have changed their tune on Illinois is “proof we can support families, invest in underserved communities, and be fiscally prudent at the same time.”
Bergman disagreed, noting that Illinois is spending more and not paying down debt.
“The state’s tailwinds have helped it, but I don’t believe the state is being fiscally prudent by growing its spending at a time when the debts are so massive,” Bergman said.
Comptroller Susana Mendoza said the report vindicates the “responsible approach” taken in paying down the backlog of bills “from $16.7 billion in 2017 to $3.4 billion today.”
Fitch noted that the BBB-minus rating for Illinois government was reflective of a “long record of structural imbalance and irresolute fiscal decision making, resulting in a credit position well below what the state’s slow-growing but broad economic base and substantial ability to control its budget would otherwise support.”
Fitch credited federal stimulus funds and aid for playing a role in supporting a rebound in economic activity in Illinois, though it noted the state traditional lags behind national trends such as job recovery.
Fitch reported continued concerns about the state’s pension costs.
“Illinois’ long-term liabilities, particularly pension liabilities, are very high for a U.S. state. As of Fitch’s October 2020 State Pension Update report, the state’s combined debt and Fitch-adjusted pension burden was 27% of personal income, well above the 5% state median and the highest of the states. Fitch estimates the state’s total long-term liabilities at approximately $200 billion with pensions accounting for about 80% of the total,” according to the report. “Net pension liabilities and related contribution demands are expected to grow as the state continues to underfund the systems, and as the systems regularly fall short of actuarial assumptions such as investment returns.”
