Moody’s spares Illinois bonds from junk declaration

Posted on July 20, 2017
Springfield
Moody’s Investors Service decided not to reduce Illinois government’s credit rating to junk.  (WJBC file photo)

By Howard Packowitz

Illinois is again avoiding the unwelcome prospect of becoming the first state in the U.S. to have its credit sink to junk.

Moody’s Investors Service announced Thursday it is confirming the current status for Illinois bonds, affecting $32 billion in debt, but Moody’s maintains a negative outlook for the state.

The Illinois General Assembly, over Gov. Bruce Rauner’s objection, passed an income tax increase that’s expected to generate $5 billion in the fiscal year that started July 1.

Moody’s said the tax hike, combined with internal and external borrowing provisions in the legislation, will help contain a backlog of unpaid bills that hovers above $14 billion.

While the budget alleviates immediate threats to Illinois’ credit, Moody’s noted the state’s “outsized” pension burden will keep growing in coming years.

Reducing and containing the backlog of unpaid bills, said Moody’s, will likely depend on repeated operating surpluses, which has not occurred here in recent memory.

S&P Global Ratings also removed Illinois government from its negative CreditWatch shortly after the legislature adopted the budget and tax increase.

Howard Packowitz can be reached at [email protected]

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