After passing a budget for the first time in two years, Illinois maintained its investment grade rating with Moody’s.
Moody’s was the last of the three major ratings agencies to complete a review of the state since its budget was enacted earlier this month.
Moody’s said it confirmed the state’s Baa3 rating “following passage of budget legislation that alleviates immediate liquidity pressures, moves the state closer to fiscal balance and should keep pension and other fixed costs at manageable levels at least in the near term.”
The rating affects about $32 billion in general obligation bonds and other debt.
On July 6, the Illinois House voted to override Gov. Bruce Rauner’s vetoes on an income tax hike and budget, ending a two-year impasse, the longest in the nation since the Depression. Prior to the override, the state had paid its bills under court orders or consent decrees instead of standard appropriations.
The budget, Moody’s said, “highlighted two of Illinois’ intrinsic strengths: sovereign control over its taxing and spending policy and a diverse economy with the capacity to generate additional revenue.”
The income tax increases are expected to generate about $5 billion in fiscal 2018, which, along with borrowing provisions in the budget, “will help contain a backlog of unpaid bills that has been hovering above $14 billion in recent weeks,” Moody’s said.
Under the new budget, the state is authorized to sell as much as $6 billion of long-term bonds to help pay down its bills. It also calls for increasing taxes, which should raise $5 billion more annually, and spending cuts of $2 billion.
The other major ratings agencies, S&P Global Ratings and Fitch, affirmed their investment-grade ratings earlier this month.
Although Moody’s said long-term challenges remain, the budget alleviates immediate threats to the state’s credit and gives bondholders a measure of comfort.