Four days after Illinois’ general obligation bonds saw a downgrade from Fitch Ratings Inc. to one notch above junk status, Moody’s Investors Service on Tuesday warned the coronavirus pandemic and its accompanying economic consequences will strain the state’s creditworthiness and “are likely to exacerbate the already substantial financial challenges that Illinois faces.”
Moody’s has rated Illinois’ the state’s general obligation bonds as one notch above junk status since 2017 in the depths of the state’s two-year budget impasse when Illinois operated without a full spending plan from 2015 to 2017. Since then, Moody’s last year revised the state’s outlook to positive, giving hope that Illinois might see a credit upgrade. In March of last year, newly minted Gov. JB Pritzker traveled to New York to meet with investors and credit ratings agencies, all of whom gave cautiously optimistic reviews of the state’s credit outlook in subsequent weeks and months.
But weeks into a global pandemic, Moody’s has again revised the state’s credit outlook to negative, noting Illinois is particularly vulnerable to bad global economic conditions like those created by the coronavirus pandemic.
“In view of fiscal year-to-date investment losses and impending tax revenue declines, the state’s large unfunded pension liabilities and its chronic unpaid bill backlog are likely to worsen significantly, reducing future financial flexibility,” Moody’s said in its report published Tuesday.
As of Tuesday, Illinois’ bill backlog sat at $8.1 billion. Initial figures from the state’s Commission on Government Forecasting and Accountability released earlier this month show the state has already lost millions in tax revenues. Pritzker’s move to delay Illinois’ income tax deadline from April 15 to July to match the federal government’s similar push will also create fiscal pressure. The state already faced a $9.8 billion pension payment for Illinois’ five retirement systems.
Pritzker last week laid out the state’s projected $2.7 billion budget shortfall for the current fiscal year ending on June 30, and a much larger budget hole — up to $7.4 billion — for the 2021 fiscal year.
Pritzker and other state leaders are pushing for Congress to pass another Covid-19 related relief package, with funds for state and local governments that would be unrestricted in use, unlike the $4.9 billion made available to Illinois in the $2 trillion stimulus bill passed last month, which can only be used for Covid-19 related public health spending and not for plugging budget holes.
“Factors such as federal aid, virus containment efforts and near-term financial market performance will determine the pandemic’s actual toll on Illinois in social, economic and budgetary terms,” Moody’s said in its report.