Illinois Stumbles In Effort To Better Bond Rating: 'Deadbeat Of The Country'

When J.B. Pritzker, Illinois' new Democratic governor, proposed his first budget, he warned that getting the state’s troubled finances in order would be a long-term project.

“It took decades to get us into this mess. It will take at least several years to get us out of it,” he said.

Like a person telling their credit card company they want to start fixing their debt problem but are going to need years to do it, Pritzker is finding those who influence the lending rates aren't exactly brimming with enthusiasm about the borrowing prospects for the state with the worst credit rating in the nation.

Just Above Junk 

All three of the major bond rating agencies have Illinois rated worst in the country, and two of them have had the state’s bond rating just a step above junk status for some time.

The state stands out — and not in a good way. California Treasurer Fiona Ma recently touted her state's AA- and Aa1 ratings from the three rating agencies with a list of how all the states compare.

Illinois was the only rated state that didn't have some level of A rating. In recent years, Illinois and New Jersey have had the lowest ratings, according to a 2017 Pew Research report.

“Illinois is the financial deadbeat of the country,” wrote policy analyst Ted Dabrowski, president of Wirepoints, which tracks Illinois’ financial and government policies.

And Pritzker’s plans for restoring the state’s financial outlook haven’t made it better.

While Pritzker is aiming to start unraveling the state's financial mess, his plans to handle the state’s underfunded pension by borrowing some more and stretching out future payments of unfunded liabilities by seven additional years didn’t sit well with bond rating agencies. 

S&P Global Ratings warned that Pritzker’s plan “punts measures to address fiscal progress to future years” and could “weaken the state's credit trajectory” even more. S&P already has Illinois rated BBB-, a step above junk.

S&P also said Pritzker’s budget assumptions were precarious, including the fact that balancing his $39 billion spending plan relies on revenue from sports betting and marijuana, neither of which is yet legal. It also noted that Pritzker is banking on a constitutional change to allow the state to replace its flat income tax with a progressive one.

“Illinois has a track record of leaving difficult fiscal choices to future budgets,” the S&P report said. “To the extent that reforms do not materialize to offset weaker pension funding, the fiscal 2020 budget could weaken the state’s credit trajectory.”

S&P analyst Carol Spain went a bit further, telling The Bond Buyer "that if Illinois were to adopt the budget in its current form, it would have negative implications for its credit trajectory." 

Another credit rating agency, Fitch Ratings, also warned last month that deferring payments to the state’s five pension plans for near-term budget balancing poses further risk and could trigger a new credit downgrade.

Fitch has a negative outlook on Illinois’ BBB rating, two steps above junk status.

The third big rating agency, Moody’s Investors Service, also has Illinois at the lowest investment-grade rating. 

Hoping To Avoid Tax Hikes

The Pritzker administration has suggested the easiest way to speed up the fix would be to do what the new governor doesn't plan to do: "more of the same: namely, raising taxes on the middle class," a spokeswoman recently told The Chicago Tribune. 

The low ratings don't just make borrowing more difficult, they are lowering the business community's confidence in Illinois.

“Illinois’ fiscal problems are negatively impacting our economy and our ability to create a robust and competitive jobs climate,” Rick Waddell, chairman of the Commercial Club of Chicago's Civic Committee, said on the group's website, where the committee has proposed a plan for restructuring the state's pension contribution schedule to boost its funding. 

“Economic and job growth needs the certainty that will come only from a credible plan that solves the fiscal problem and is faithfully implemented over time.”

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