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Fitch: Illinois will be challenged to maintain investment grade credit rating

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Thursday, October 8, 2020  |  Article  |  By Greg Bishop | The Center Square

Bonds, Bonding, Borrowing, Debt, Credit Rating

(The Center Square) – Illinois will be challenged to maintain its investment grade credit rating, according to Fitch Ratings.

About $850 million in bonds that Illinois is putting out this month has a near-speculative grade credit rating, according to Fitch Ratings. The state's overall rating has been affirmed, but with continued negative outlook.

The credit rating agency gave several bonds Illinois put out this month a BBB- rating, which is one notch above BB, a rating the agency says is speculative grade. Others say that’s junk bond status.

“Illinois' 'BBB-' [issuer default rating] and GO ratings reflect Fitch's anticipation of a fundamental weakening of the state's financial resilience given its already tenuous position entering the current severe downturn,” the agency said Wednesday. “The state's lack of meaningful reserves and the limited nature of other fiscal-management tools at its disposal mean Illinois will be challenged to maintain its investment-grade IDR.”

Illinois Sports Facilities Authority bonds have been rated BB+, as has the Metropolitan Pier and Exposition Authority expansion project bonds.

When a government body has a low credit rating it costs taxpayers more in higher interest rates for the state to sell bonds, which are loans that have to be paid back.

“We’re paying more in interest than any other state in the nation and we have the worst credit,” said state Rep. Joe Sosnowski, R-Rockford. “We’re in a very tough situation and we still have lots of problems to face in the future.”

The state also has an “ongoing pattern of weak operating performance and irresolute fiscal decision-making that has produced a credit position well below the level that the state’s broad economic base and substantial independent legal ability to control its budget would otherwise support,” the agency said.

“The Negative Outlook reflects the risk that the depth and duration of the downturn lead Illinois to implement nonstructural budget-management measures the state finds difficult to quickly unwind once an economic recovery finally begins to take hold,” Fitch said.

For the state’s operating performance, it scored a “bb” from Fitch.

“Illinois' operating performance, both during the 2008 Great Recession and the subsequent economic expansion, had been very weak,” Fitch said. “The current downturn will further stress the state's limited financial resilience as Fitch anticipates a widened structural budget gap and at least short-term growth in the sizable accounts-payable backlog.”

Other long-term problems Fitch sees is pension costs.

“Fitch estimates the state's total long-term liabilities at approximately $200 billion with pensions accounting for about 80% of the total,” the agency said. “Importantly, absent a constitutional change, Illinois appears to have no ability to unilaterally modify retiree benefits, including OPEB, for current employees and retirees.”