Illinois avoids credit ‘junk’ heap — for now

Illinois has escaped the immediate pressure of its credit rating being downgraded to “junk” bond status — for now— Moody’s Investors said on Thursday.

Moody’s said the passage of a state budget for the first time in two years “alleviated liquidity pressure and moved the state closer to fiscal balance.”

Lawmakers overrode Gov. Bruce Rauner’s vetoes of a budget package earlier this month — marking the end to a historic impasse that decimated the state’s social service network and public universities. The threat of a “junk” downgrade was very real. And even after the passage, Moody’s last week placed Illinois’ near-junk bond rating under review for a possible downgrade, citing “credit challenges” that linger.

On Thursday, the ratings agency affirmed Illinois’ rating of Baa3 — still one notch above “junk.” More importantly, Moody’s noted there’s still big challenges ahead and there’s still a possibility of a downgrade within the next year or two.

“The state’s unfunded pension liabilities, which we estimate at $251 billion for the fiscal year ended June 30, 2016, are the highest of any state and will keep growing in coming years despite some reforms included in the budget,” Moody’s said in a release.

Illinois’ credit ratings stand at one notch above “junk” status with all major ratings agencies. The ratings are important because they help determine the interest rates at which the state borrows money; the worse the rating, the more taxpayers pay.

Moody’s also emphasized that the state must reduce its $14 billion bill backlog. There are some provisions to pay back some of that backlog contained within the passed budget bills. Moody’s said that will improve liquidity to allow for a “significant” drop in the backlog to about $8 billion.

A spokesman for Illinois Senate President John Cullerton said “it’s hard to disagree with many of the points Moody’s makes.”

“Our balanced budget highlights our ability to self-govern and the strengths of Illinois’ diverse economy. What Moody’s seems to ask is: What took you so long? That’s a valid criticism,” spokesman John Patterson said in a statement. “Looking forward, the Senate President knows more work is needed to continue to shore up our financial stability and keep Illinois moving in a positive direction.”