State bond rating lowest in nation — but it can’t get worse for a while. Yay?
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The bad news is that Moody’s Investors has affirmed Illinois’ bond rating at one notch above junk status, with the state remaining the lowest-rated in the country.
But the good news is it can’t get any worse, at least for the next year or two.
“While the negative outlook connotes downward pressure and the possibility of a downgrade, the stable outlook translates to stability and means the rating should not change for the next 12-24 months,” the Wall Street credit rating agency said on Thursday.
Moody’s said despite the underfunding of pension liabilities — one of the state’s most pressing problems — “any credit deterioration in the next two years will not affect the state’s finances, economy, or overall liabilities to an extent sufficient to warrant a lower rating.”
The rating agency said that’s due to the benefits of the income tax hike approved in last year’s budget and “near-term fiscal risks that remain manageable.”
Moody’s notes the state can actually get a rating upgrade if it comes up with a plan to address pension liabilities and lowers the bill backlog while coming up with ways to achieve balanced budgets.
A credit downgrade could happen if the backlog gets worse, if pension contributions are reduced to get fiscal relief and if local governments accrue more debt or pension liabilities.
The state’s current bill backlog stands at $7.79 billion as of Thursday, according to a ledger on Illinois Comptroller Susana Mendoza’s website.
The state in July 2017 escaped the immediate pressure of its credit rating being downgraded to “junk” bond status after passing a budget for the first time in two years. That’s when lawmakers worked to override Gov. Bruce Rauner’s vetoes of a budget package that included a bump in the state’s income tax rate.
Illinois’ credit rating stands at Baa3, one notch above “junk” status. The ratings are important because they help determine the interest rates at which the state borrows money.
Moody’s also had good news for Chicago and Chicago Public Schools last week, raising the school district one notch higher from B3 to B2, but still deep into junk status. The city’s outlook was raised to stable because the CPS burden has been lifted and because of Mayor Rahm Emanuel’s five-year plan to boost contributions to the city’s unfunded pension liabilities, the agency noted.