The State of Illinois’ (Baa2 negative) credit rating is vulnerable to further downgrades as “grand bargain” talks to resolve an almost two-year budget impasses have broken down, and intensifying liquidity pressures have tripled the state’s chronic backlog of unpaid bills to a record $13 billion, Moody’s Investors Service says in a new report.
“Illinois is at a critical juncture and its leaders must choose between further credit deterioration and drift without compromise, or the potential for stabilization. With a budget consensus, Illinois could quickly secure its financial position,” said Ted Hampton, a Moody’s Vice President – Senior Credit Officer.
The report, “Illinois (State of): Record Bill Backlog Signals Critical Juncture for State’s Leaders,” notes Illinois is the lowest-rated state and is seven notches lower than the median Aa1 state rating. Illinois’ credit weakness incorporates very large unfunded pension liabilities, the two-year political standoff, and its long-running reliance on payment deferral to manage operating budget imbalances.
The state’s bill backlog reached a record $13 billion on March 20, according to the state comptroller, and if no agreement is reached it could approach $28 billion by the end of FY 2019. The lack of an agreement to raise revenue, which is at the center of the state’s fiscal impasse, means that Illinois taxes and other revenues are insufficient to cover its operations.
Failure to reach a consensus before the current legislative session adjourns on May 31 would signal political paralysis, leaving Illinois on a path toward unsustainable fiscal challenges that will heighten the risk of creditor-adverse actions. These could include borrowing from debt service funds, depleting available non-operating cash, or prioritizing core operating needs over debt service.
While the state’s growing liquidity pressures have not yet impacted its ability to pay bondholder debt, the state’s chronic underfunding and payment deferral is running into political and legal limits, notably at the state’s public universities, where Illinois has appropriated $1.5 billion less than it normally would have.
While Illinois’ current fiscal year operating deficit is $5.7 billion, the state could quickly begin stabilizing its finances once budget balancing measures have been reached. Liquidity would be promptly restored because Illinois’ financial pressures have been driven by gridlock, rather than economic conditions beyond the government’s control.
And while the “Grand Bargain” appears to be stalled in the legislature, Moody’s believes the revenue measures in the deal, combined with spending restraints that keep payment deferrals from recurring, could improve Illinois’ financial prospects.
- AnonymousOne - Thursday, Mar 30, 17 @ 9:12 am:
But our governor and his supporters says we’re winning?!
- Anonymous - Thursday, Mar 30, 17 @ 9:16 am:
What’s it going to take?
How does one person hold 13 Million Illinoisans hostage without any accountability for another year and a half?
GOP need to support Radagno & save their party and IL.
Enough!
- RNUG - Thursday, Mar 30, 17 @ 9:17 am:
In a talk to RSEA yesterday, Dan Long said he expected the rating houses would take further action this year, depending on what happened with the Grand Bargain and/or a budget getting passed. He also did a good overview of the numbers and what it would take, revenue wise, to right the ship of state.
So this really isn’t a surprise. We all know what needs to happen: a budget with additional revenue.
- Arock - Thursday, Mar 30, 17 @ 9:17 am:
It takes at least two to Tango.
- @misterjayem - Thursday, Mar 30, 17 @ 9:20 am:
“as ‘grand bargain’ talks to resolve an almost two-year budget impasses have broken down”
This use of the passive voice makes Illinois budget nightmare sound like the result of a natural disaster or some other Act of God. Not so.
This is deliberate.
While one may be able to argue about whether the benefits of Gov. Rauner’s strategy will one day outweigh the pain inflicted upon the state and people of Illinois, no one should pretend that this is not his explicit strategy.
– MrJM
- Mr. K - Thursday, Mar 30, 17 @ 9:21 am:
Apparently, Rauner hasn’t indicated to Moody’s that the GOP is “winning” — so, obviously, this warning is incorrect.
Clearly, Moody’s has no idea what they’re talking about. It’s just more noise. Rauner’s got the signal, though. And it’s hot. Hot.
- Oswego Willy - Thursday, Mar 30, 17 @ 9:25 am:
===It takes at least two to Tango.===
Nope. Sorry.
“How do I know?”
Candidate Rauner made the continual downgrades a cornerstone of “Pat Quinn failed”…
Also, Rauner himself said he’s winning.
You can’t win at something you don’t take Credit for…
So, there’s that too.
- NorthsideNoMore - Thursday, Mar 30, 17 @ 9:32 am:
Raise Taxes tp 5% or so, cut a few deals on WC and term limits, freeze Prop taxes for 2 years. Move along nothing to see here folks.
- Hit or Miss - Thursday, Mar 30, 17 @ 9:33 am:
I see another credit rating downgrade by the Moody’s, Fitch, and S&P to be highly likely some time in June. As a taxpayer I see higher interest costs for the state for many years in the future.
- Anon221 - Thursday, Mar 30, 17 @ 9:35 am:
From the article: “The lack of an agreement to raise revenue, which is at the center of the state’s fiscal impasse, means that Illinois taxes and other revenues are insufficient to cover its operations.”
You don’t raise revenue by property tax freezes. You don’t raise revenue with term limits. You don’t raise revenue by refusing to honor contracts. You don’t raise revenue by leaving Federal matching funds on the table. Rauner’s ROIs for Illinois are abysmal, but he’s “winnin’”. He has a gambling problem and we as a state are paying the high price for his “addiction”.
- Anon - Thursday, Mar 30, 17 @ 9:38 am:
Bruce is makin’ a lot of money for his bond holdin’ buddies.
- Ducky LaMoore - Thursday, Mar 30, 17 @ 9:38 am:
===It takes at least two to Tango.===
Actually, in this case it takes 30 and 60 to tango. Or perhaps 36 and 72.
- Anon - Thursday, Mar 30, 17 @ 9:40 am:
===Raise Taxes tp 5% or so, cut a few deals on WC and term limits, freeze Prop taxes for 2 years. Move along nothing to see here folks===
Papa Bruce didn’t get the memo.
- City Zen - Thursday, Mar 30, 17 @ 9:46 am:
Has a ratings agency ever met a tax hike it didn’t like?
- wordslinger - Thursday, Mar 30, 17 @ 9:49 am:
This is the first I can recall the rating agencies raising the possibility of “borrowing from debt service funds.”
Under current law, I don’t think that’s possible for state bond debt. That’s why shorting pension contributions and stiffing state contractors have been the preferred methods of deadbeat borrowing.
Anyone know if there is any wiggle room to tap debt service funds? If so, that would seem to require a highly unlikely agreement among the governor, comptroller and treasurer.
- zatoichi - Thursday, Mar 30, 17 @ 9:50 am:
===It takes at least two to Tango.===
5 at a table would get the dance going.
- RNUG - Thursday, Mar 30, 17 @ 9:50 am:
== Raise Taxes tp 5% or so … ==
Although the math says it needs to be higher, the politics say it will be no more than 4.99%, with new service taxes and assorted fees making up the rest of the needed revenue.
- The Dude Abides - Thursday, Mar 30, 17 @ 10:01 am:
The Charlie Brown football analogy is accurate with this Governor. In his latest campaign commercial Rauner doesn’t mention workman’s comp reform but he’s big on term limits. I remember when workman’s comp reform was a big precondition for a budget. The Governor is being disingenuous and dishonest with the public and the media isn’t doing their job calling him out on it. In late February he said that he wanted to stay out of grand bargain negotiations so not to derail a possible agreement. When March arrived and it appeared that they were close to a deal he abruptly killed the deal. I don’t hear much talk from GOP members about term limits because they aren’t crazy about it either. The Governor is intentionally throwing those things out there to muddy the waters.
If we ever pass term limits we need to include a provision to make it easier to recall a Governor. No legislative approval needed to get a Recall Amendment on the ballot. Just like buying a car that’s a lemon, in electing Rauner we’ve bought ourselves a lemon and he will be with us until January 2019 and continue to run this state into the ground and there appears to be no recourse. I don’t have a big problem with Illinois joining 15 other states that have term limits but we need a full and balanced budget a lot more than we need term limits. Term limits will not attract business to come to Illinois, that’s just nonsense for the Governor to suggest that. What will attract business is a state that is on sound fiscal health, and under the Governor’s leadership the state is becoming sicker by the day.
- don the legend - Thursday, Mar 30, 17 @ 10:04 am:
“I don’t have time for these Madigan controlled rating agencies, I got me some campaignin to do”.
#fakegovernorrauner
- Realist - Thursday, Mar 30, 17 @ 10:12 am:
At this point there is no fixing Illinois. We are a failed state (past tense). The best we can do is try to slow down the bleeding while we start the long process of reconfiguring and creating a new state from the ashes. That new state cannot include Rauner or Madigan. It cannot include legislators like Jimenez who seem to have no ability to have original and independent thoughts. We desperately need a convention, and we need to institute an expedited way to run politicians out of Springfield if they don’t do their jobs.
- City Zen - Thursday, Mar 30, 17 @ 10:13 am:
==The best we can do is try to slow down the bleeding while we start the long process of reconfiguring and creating a new state from the ashes.==
Can we be West West Virginia?
- Juice - Thursday, Mar 30, 17 @ 10:14 am:
wordslinger,
The debt service funds can be tapped if a law is passed by the General Assembly to borrow from it or sweep it. (It’s been done once before)
Changes could also be made to limit the amounts that need to be held in reserve from the funds.
- Anon - Thursday, Mar 30, 17 @ 11:31 am:
=== “leaders must choose between further credit deterioration and drift without compromise, or the potential for stabilization.” ===
The only way Republicans can opt for further credit deterioration in good conscience is by dismissing Moody and the other rating agencies as liberal propagandists who are out of touch with reality.
- thechampaignlife - Thursday, Mar 30, 17 @ 12:03 pm:
===Can we be West West Virginia?===
Wester Virginia
The better question: can we get a court order giving the ILGA a deadline by which they must “make appropriations for all expenditures of public funds by the State” (Art VIII, Sec. 2(b)) and, if that deadline is not met, put appropriations into common law receivership?
- Realist - Thursday, Mar 30, 17 @ 3:54 pm:
Ha! I like “Wester Virginia!” I also like “West-South Carolina!” Actually Illinois once fell under the authority of the governor of W. Virginia. I say it’s time to return to that!
- wordslinger - Thursday, Mar 30, 17 @ 4:25 pm:
– Actually Illinois once fell under the authority of the governor of W. Virginia.–
WV admitted to the union 1863, Illinois 1818
- City Zen - Thursday, Mar 30, 17 @ 5:06 pm:
==Ha! I like “Wester Virginia!” I also like “West-South Carolina!”==
Wouldn’t it be “North West South Carolina”??
I also prefer Wester Virginia.
- Brother Bill - Thursday, Mar 30, 17 @ 7:35 pm:
Rauner will soon change is tune is he is smart. As the ratings decline with his poll numbers he will get the blame. Madigan only has to win in his district Rauner has to win the state. Good luck with that.