The ongoing pension crisis is a big part of it.
By Ethan Soifer | Illinois Policy Institute
Despite two recent upgrades, Illinois’ credit rating remains the worst in the country, with a couple key issues holding the state back.
Moody’s Ratings raised the state to A1 from A2, and S&P Global Ratings elevated Illinois to A from A-. The ratings are based on a government’s ability and willingness to pay back debt principal and interest on time.
The agencies said significant headwinds remain in Illinois, including sluggish economic and population growth and the state’s unfunded pension liabilities.
A higher credit rating enables a state to borrow or roll over existing debt at lower interest rates. A lower rating creates more risk for investors, who will demand higher interest payments.
Illinois’ worst-in-the-nation credit rating hurts taxpayers. A Charles Schwab report from shortly before the ratings upgrades using Bloomberg data showed that Illinois’ 10-year bond yields are 62 basis points, or 0.62%, higher than bonds issued under a “generic 10-year AAA index.”
Applying that to the $2.6 billion in general-obligation bonds Illinois plans to sell this year would mean $16.1 million more in annual interest payments than states with the highest rating. That could slightly improve given the recent upgrades.
The upgrades reflect the state’s progress in improving its fiscal standing. Since 2019, the year Gov. J.B. Pritzker took office, Moody’s has upgraded Illinois’ credit rating five times from Baa3, the lowest rating deemed investment-grade and one notch above junk status. S&P has upgraded the rating four times, from one notch above junk status, BBB-, to A. Including Fitch Ratings, the governor’s office boasts of 12 upgrades.
Report continues here.
