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* S&P…
S&P Global Ratings believes that Illinois’ (BBB-/Stable) executive budget proposal precariously balances the current budget, but punts measures to address fiscal progress to future years. It prioritizes service solvency at the expense of lower pension contributions and does not make meaningful progress toward tackling the $7.9 billion bill backlog or projected out-year deficits. The governor called the fiscal 2020 budget a “bridge” and laid out the framework of a multiyear strategy whose success hinges largely on a tough campaign to pass a progressive income tax that requires a constitutional amendment. Its pension component also relies on unidentified asset transfers to the pension plans, but no savings from those asset transfers are built into the fiscal 2020 budget plan. Illinois has a track record of leaving difficult fiscal choices to future budgets, and to the extent that reforms do not materialize to offset weaker pension funding, the fiscal 2020 budget could weaken the state’s credit trajectory. […]
The new administration laid out a five-step plan that infuses assets into the pension systems, but undermines funding progress through extending the plans’ amortization period for budgetary relief. […]
We consider the fiscal 2020 budget’s balance dubious. First, it relies on legalization of sports betting and recreational marijuana, which could take the state longer than it estimates to implement. Second, revenue projections could prove optimistic given our expectation that U.S. economic growth will slow. The budget estimates 3.19% growth in base individual income taxes and 2.79% growth in base sales taxes, and if the state misses these projections, it would quickly exhaust its 0.4% budgeted surplus and has minimal cushion to weather additional fiscal pressures that would accompany an economic downturn. However, in our view, reliance on a degree of uncertain revenues and lingering structural imbalance is status quo for Illinois.
More consequential for credit quality, the proposed budget asks legislators to reduce pension contributions based on the faith that future years’ budgets will address fiscal sustainability. The governor has predicated his multiyear strategy on a progressive income tax that requires a constitutional amendment that will not appear on the ballot until November 2020. This revenue stream is far from certain, and there is no detail yet on rates, brackets, or the amount of revenue it is supposed to generate. Despite the potential for a more collaborative budget process with single-party control of state government, Illinois has yet to prove its ability to make politically difficult decisions in favor of structural balance and sustainability. If it adopts the budget in its current form, it remains at risk of repeating a pattern of putting off hard choices while eroding pension funding. Illinois cannot indefinitely push out pension payments given benefit payout requirements, and we saw in 2017 that it faces limits to its bill backlog. If the state fails to redeem its longer pension amortization schedule through a practical reduction in liabilities, its credit trajectory could slip.
posted by Rich Miller
Friday, Feb 22, 19 @ 3:02 pm
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We consider the fiscal 2020 budget’s balance dubious.
As do I, as do I. T-minus excuse making in 10, 9, 8, 7
Comment by Ole General Friday, Feb 22, 19 @ 3:07 pm
They’re not wrong on any of the points. I think they are pretty gun shy of ANY risk, so I question how much weight they are putting behind their concerns, but the points are valid themselves.
Comment by Perrid Friday, Feb 22, 19 @ 3:10 pm
Unicorns and rainbows, rating agencies usually aren’t big on that as a solution.
Comment by Dupage Bard Friday, Feb 22, 19 @ 3:23 pm
The ratings agencies have no citizens to care for or provide services to. Makes it really easy to use euphemisms like “service solvency”.
Comment by Jibba Friday, Feb 22, 19 @ 3:33 pm
” The governor has predicated his multiyear strategy on a progressive income tax that requires a constitutional amendment that will not appear on the ballot until November 2020. This revenue stream is far from certain, and there is no detail yet on rates, brackets, or the amount of revenue it is supposed to generate”
The Pritzker mandate meets reality
Comment by Donnie Elgin Friday, Feb 22, 19 @ 3:37 pm
No surprises here. Our problems are not going to be solved overnight.
Comment by Pius Friday, Feb 22, 19 @ 3:40 pm
Can we add “working together on a grand bargain” to fill the anticipated deficit?
Comment by Anonymous Friday, Feb 22, 19 @ 3:44 pm
=== The ratings agencies have no citizens to care for or provide services to. Makes it really easy to use euphemisms like “service solvency”. ===
Are you saying the ratings agencies should cut us some slack because the money the state is spending is for good causes? They don’t care about that, nor should they. Their job is to assess financial risk, and the fact that Illinois increases that risk with dubious budgets year after year shouldn’t be excused just because we’re doing it to help people.
Comment by Occasional Quipper Friday, Feb 22, 19 @ 3:57 pm
Just buy the raters off, it’s what the big companies do anyway
Comment by Precinct Captain Friday, Feb 22, 19 @ 4:09 pm