By Jamey Dunn
While one bond-rating agency upgraded Illinois status, two others held steady their ratings of the state’s ability to pay off its debt, reporting “negative” outlooks for the future.
Lenders look at Illinois’ bond ratings when deciding what interest rates to charge the state on its borrowing.
Moody’s Investor’s Services stuck with its A1 rating of Illinois state government. Standard & Poor’s extended its A+ rating and removed the state from a watch list for a potential downgrade, which Illinois had been on since March. However, both groups raised concerns about Illinois’ fiscal future. (Both groups' websites require registration to read the reports.)
Moody’s cited the state’s billions of dollars in overdue bills and the lack of an approved plan to pay them down as a primary reason for its negative outlook. “Legislation authorizing long-term debt to address past-due payments was not enacted at the end of the 96th General Assembly. Illinois' chronic failure to provide for structurally balanced operations over the years, and its reliance on payment deferral to manage operating fund cash, has fueled growth in past-due bills (those outstanding for more than 60 days). This practice has in turn hurt private providers of goods and services, as well as public-sector entities, such as transit agencies, universities and municipalities, that rely on state funding.”
Gov. Pat Quinn released three-year budget projections that include $8.75 billion in borrowing that would be used to pay down the backlog. That borrowing plan failed to pass in the General Assembly earlier this month, but Senate President John Cullerton reintroduced it at the beginning of the new legislative session. Moody’s report characterized the release of multi-year budget projections as a positive change for Illinois.
Both groups agreed that failing to make pension payments or taking on too much debt could cause Illinois’ rating to drop.
According to the Standard & Poor’s report: “The negative outlook reflect[s] our view of ongoing weakness in the state's pension funds and the possibility that the state might issue a significant amount of additional debt as part of its effort to address the large accumulated budget deficit. If the pension funding levels continue to deteriorate and debt levels increase significantly, which would pressure the state's near-term financial performance, we could lower the ratings. If pension funding levels stabilize and revenues meet the state's current projections, thereby stabilizing liquidity, we could revise the outlook to stable.”