Fiscal Focus
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Fiscal Focus

ILLINOIS RECEIVES FIRST CREDIT RATING UPGRADES IN 20 YEARS

COMPTROLLER’S OFFICE MARKS KEY MILESTONE ON THE ROAD TO FISCAL RECOVERY

Let’s hop in the time machine and travel to June 2000.

The world made it through its Y2K fears. Lawmakers gathered at the State Capitol to temporarily repeal the state’s 5% sales tax on gasoline and give motorists relief from rising gas prices. And Illinois would receive a credit rating upgrade — its last for two decades.

After the upgrade issued by Fitch Ratings in June 2000, Illinois boasted AA+, AA and Aa2 ratings on its General Obligation bonds from Fitch, S&P Global and Moody’s Investors Service, respectively, nearing the best ratings the agencies award for investment-grade bonds.

But in the years following, those same rating agencies downgraded Illinois’ General Obligation bond rating on 26 separate occasions, as the rating plummeted to just one notch above speculative grade, commonly referred to as “junk.”

The worst periods of downgrades came during Illinois’ budget impasse of 2015–2017, when Fitch, S&P and Moody’s downgraded Illinois’ credit eight times in less than two years.

Another rough period began with a downgrade in December 2008 at the start of the Great Recession, with eight more downgrade actions following over the next 18 months during the nationwide economic downturn.

Data sources: Illinois Commission on Government Forecasting and Accountability, Fitch Ratings, S&P Global Ratings and Moody Investor’s Services

Turning the corner

Today, there’s good news. Recent credit-positive events are moving Illinois in the right direction.

Illinois rebounded to end fiscal year 2021 with a year-over-year $8.790 billion increase in General Funds base revenues. That was after suffering a year-over-year base revenue loss of $1.135 billion to end fiscal year 2020, amid the COVID-19 pandemic.

The General Funds bill backlog also dropped to $3.151 billion at the end of fiscal year 2021, a level not seen since years before the 2015–2017 budget impasse, when the backlog rose to nearly $17 billion.

The $42.3 billion fiscal year 2022 budget keeps appropriated General Funds spending essentially flat, fully funds the evidence-based funding requirement for elementary and high schools and meets statutory obligations to the State pension systems.

Fiscal responsibility leads to upgrades

To address the costs associated with the pandemic while continuing to meet core obligations, pay vendors and keep the bill backlog in check, the State borrowed from the Federal Reserve’s Municipal Liquidity Facility $1.198 billion and $1.998 billion, respectively, in June 2020 and December 2020.

By May 2021, the $1.198 billion issuance had been repaid in full — one month ahead of schedule.

The repayment terms of the $1.998 billion issuance required three annual principal repayments, plus interest, beginning in December 2021. But by January 2022, Comptroller Mendoza repaid the money borrowed in full, two years early. The move saved taxpayers an estimated $82 million in interest.

In March 2021, S&P Global Ratings and Moody’s Investors Service improved Illinois’ outlook to stable from negative, and in June 2021, Fitch Ratings joined the other agencies and moved the State’s outlook to positive from negative.

Then on June 29, 2021, Moody’s became the first rating agency to issue the State’s first credit upgrade of its General Obligation bonds in over 20 years to Baa2 from Baa3. S&P followed suit in July 2021 with an upgrade of Illinois’ General Obligation bonds to BBB from BBB-.

Comptroller Mendoza believes these changes help signify that the state is on its way to fiscal recovery. Challenges continue after the 2015–2017 budget impasse and because of the ongoing pandemic. The remarkable progress Illinois has made continues to bring better ratings from the credit agencies. ■

This publication is designed to provide fiscal information of general interest. Fiscal Focus is published by the office of Illinois State Comptroller Susana A. Mendoza, 201 Statehouse, Springfield IL 62706. Questions or comments may be directed to 217-782-6000.

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Illinois State Comptroller

Illinois State Comptroller

The official account for Illinois State Comptroller Susana A. Mendoza. Follow us for office services and #ILbudget updates.

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