Illinois upgraded by Moody’s Ratings

Illinois received an upgrade Thursday from Moody’s Ratings, which lifted its issuer rating to A2 from A3.

The upgrade is driven by realized and expected improvement in the state’s financial metrics, the rating agency said. Illinois continues to add to its reserves and fund balance, which is critical to mitigate risks associated with the state’s high leverage and shifts in federal policy, Moody’s said.

The outlook, previously positive, in now stable at the higher rating.

Gov. JB Pritzker celebrated the latest in a series of upgrades for the state since he took office in 2019.

“Our tenth credit upgrade speaks volumes to the state’s commitment to consistent fiscal discipline — even as the Trump administration creates widespread economic uncertainty,” he said in a statement Thursday. “With each credit upgrade, Illinois saves taxpayers millions of dollars in interest payments and further demonstrates the benefits of long-term improvements to our fiscal position.”
 
Illinois remains an outlier among states for exposure to unfunded pension obligations that contribute to high leverage and fixed costs, Moody’s said.

It is the only state Moody’s rates in the single-A category, following its September upgrade of New Jersey to Aa3.

The rating agency said the state’s operating flexibility is constrained by its high fixed cost burden, as well as constitutional provisions that protect post-employment benefits and prohibit certain changes in tax structure. Its fund balance and budget reserves continue to reach historic highs, but they both remain lean as a share of revenue compared to those of other states.

With the issuer rating upgrade, Illinois general obligation bonds rise to A2 from A3, as do its Build Illinois sales tax bonds. Moody’s also upgraded to Baa1 from Baa2 the rating on Metropolitan Pier & Exposition Authority bonds that are partially paid with state appropriations.

Moody’s said an upgrade could come if the state can make more timely releases of its audited financial statements that show fund balances above 15% of revenue, lower its liability and fixed-cost burdens, accelerate economic expansion, or increase pension contributions to reduce its large liabilities.

Pritzker said the upgrade reflects management improvements under his tenure, including passing seven consecutive balanced budgets, eliminating the state’s backlog of overdue and unpaid bills, increasing the rainy-day fund, and “years of responsible financial management and discipline.”