Illinois bonds once again rated just above junk
One rating agency cited Illinois’ “persistent crisis-like budget environment” as explanation for the state’s near-junk credit. A spending cap constitutional amendment and pension reform could go a long way toward putting the state on a healthier fiscal path.
Illinois’ credit rating remains just one notch above junk level, according to credit rating agencies Moody’s Investors Service and S&P Global Ratings. That rating comes as Illinois prepares to issue half a billion dollars in new general obligation bonds for infrastructure and technology improvements.
Illinois already has earned the lowest credit rating on record for a U.S. state. To explain its rating in the coming bond sale, Moody’s stated: “The rating reflects Illinois’ extremely large net pension liabilities and a long history of unbalanced financial operations that culminated in a record level of overdue bills last year.”
Moody’s also assigned the state a negative outlook, which means ratings could go down further in the future. According to Moody’s, this outlook was based on “expectation of continued growth in the state’s unfunded pension liabilities, the state’s difficulties in implementing a balanced budget that will allow further reduction of its bill backlog, and elevated vulnerability to national economic downturns or other external factors.”
S&P blamed the state’s “persistent crisis-like budget environment” and “structural deficit” for the low rating, but held the outlook stable, according to the Chicago Sun-Times.
Building better budgets
Fortunately, there is a solution for both of the problems outlined by S&P currently receiving bipartisan support in the General Assembly.
Constitutional amendments filed by state Sen. Tom Cullerton, D-Villa Park, and state Rep. Allen Skillicorn, R-East Dundee, would tie state spending to what taxpayers can afford. The amendments SJRCA 21 and HJRCA 38, respectively, would limit the growth in the annual general funds budget to the average growth of the Illinois economy over the preceding 10 years.
The spending cap amendment would help balance the Illinois budget without future tax increases. A key reason Illinois has a structural deficit is that state spending per capita has grown 25 percent faster than Illinoisans’ personal income per capita over the last decade. This growth in spending is the main reason Illinois has not had a balanced budget since at least 2001.
Another benefit of the spending cap amendment is bringing stability to the state budget process. Predictions on how much revenue the state will bring in for the coming year are usually wrong. As a result, lawmakers don’t accurately gauge how much money they have to spend and can’t balance the budget.
Worse, the General Assembly and governor’s office often disagree about revenue estimates. This disagreement adds uncertainty to the budget process. Throughout the recent budget impasse, lawmakers did not pass a revenue estimate despite a legal requirement to do so.
Combined with serious pension reform, the spending cap amendment would go a long way toward addressing key concerns of rating agencies and would put Illinois on the path toward restoring fiscal stability and protecting taxpayers.