Gov. J.B. Pritzker’s $46 billion reelection year budget is getting another positive review with a credit upgrade from a Wall Street agency that cited “sustained evidence of more normal fiscal decision-making” in a state long known for financial chaos.
With the two-notch bump from Fitch Ratings on Thursday, Illinois has received upgrades from all three major credit ratings agencies in less than a year. Fitch, which downgraded the state to its lowest investment grade in the early days of the coronavirus pandemic, last gave Illinois an upgrade in 2000.
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All three ratings agencies, however, have made note of the major challenges still facing the state’s chronically anemic finances, including staggering pension debt and slow economic growth. And even after the recent upgrades, including one earlier this month from Moody’s Investors Service, Illinois’ ratings remain below those of any other state.
Nevertheless, the Fitch upgrade from one notch above junk bond status to three notches — announced as Pritzker was signing a measure extending a pension buyout program that has helped reduce the state’s long-term unfunded liabilities — lends more weight to the governor’s election-year argument that he and fellow Democrats are steadily improving the state’s financial picture.
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Higher bond ratings mean the state generally is able to borrow money at lower interest rates, ultimately saving money for taxpayers. The upgrade comes as the state prepares to issue $1.8 billion in bonds this month to fund the pension buyout program and construction projects.
“This is credit that should go to the General Assembly, to Democrats who passed the budget — the balanced budget — this year, four balanced budgets in a row,” Pritzker said during Thursday’s bill-signing event in his Springfield office.
He lauded Democratic leaders for their effort “to make sure that we’re back in good fiscal order, that the state is building its fiscal foundations for the road ahead.”
On top of normal spending on education, social services and other state operations, the budget Pritzker signed into law this spring put $1 billion into the state’s depleted rainy-day fund; made additional pension contributions of $500 million on top of a required $9.6 billion; and paid off more than $1 billion in old employee health insurance bills and other debts.
In its analysis, Fitch said its upgrade “reflects fundamental improvements in Illinois’ fiscal resilience,” along with “meaningful contributions to reserves and sustained evidence of more normal fiscal decision-making.”
The state has been able to take those additional steps to shore up its finances in large part due to strong revenue growth stemming from a quicker-than-expected economic recovery, spurred by federal stimulus efforts, Fitch noted.
Indeed, the legislature’s bipartisan forecasting commission noted in a recent report that the $8 billion in revenue collected in April was the most in any month in state history.
While noting some improvements, the state’s spending plan for the budget year that begins July 1 “maintains some fundamental weaknesses,” Fitch said.
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Most notably, even with the additional $500 million contribution to its pensions, the state continues to spend less than needed to address its nearly $140 billion in unfunded liabilities, the report noted.
And while a rare contribution to the rainy-day fund is a positive move, Fitch noted it will only create a balance large enough to cover “a still modest 2.2%” of budgeted expenses.
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Republicans, seeking to cut into Democrats’ legislative supermajorities and win back the governor’s office in November, have sought to downplay the ratings upgrades. They’ve also attempted to pin the state’s improved finances on federal coronavirus relief efforts, which most recently included more than $8 billion in aid last year from President Joe Biden’s American Rescue Plan.
Senate Republican leader Dan McConchie of Hawthorn Woods said in a statement that Pritzker “is grasping for straws at this point for any sort of news that he can spin to try and cover for all the failures of his administration.”
“He isn’t fooling anyone,” McConchie said. “These recent credit ratings have nothing to do with Pritzker’s ‘fiscal responsibility.’ Instead, they are a result of the billions of dollars poured into this state by the federal government.”
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But the ratings agencies have factored the federal money into their evaluations.
Fitch noted in its analysis that the federal aid “is focused on one-time investments rather than recurring operating needs,” a point Democrats have made repeatedly in touting their financial management.
dpetrella@chicagotribune.com