CHICAGO, Feb 5 (Reuters) - Illinois’ already low credit rating could be impaired if the state relies on one-time revenue measures or increases its large unpaid bill backlog to balance its upcoming budget, Moody’s Investors Service said on Tuesday.
The credit rating agency, which rates Illinois one step above junk at Baa3 with a stable outlook, also put weak demographic trends and escalating public pension payments on its list of the top credit issues facing the state’s new governor.
Democrat J.B. Pritzker, who took office last month and will unveil his fiscal 2020 budget on Feb. 20, has not released detailed plans for tackling Illinois’ structural budget deficit and a $133.5 billion unfunded pension liability.
Jordan Abudayyeh, Pritzker’s spokeswoman, said “Illinois will need years to dig out of the fiscal mess this administration inherited.”
Moody’s cited reports that Pritzker is considering increasing near-term pension payments, while rejecting moves to reduce retirement benefits for current workers.
“In general, any efforts to boost current contributions would be credit-positive for the state, while efforts to defer or reduce contributions for fiscal relief would revive questions about pension plan sustainability,” Moody’s said in a report.
The governor has also talked about “a fair tax system” that would replace Illinois’ flat personal income tax rate with graduated rates.
Because the change would require voter approval of a constitutional amendment, Moody’s said it will not be a factor in the state’s budget for the fiscal year that begins July 1. In the meantime, Pritzker has advocated for the sale and taxation of recreational marijuana and possibly expanded gambling.
“Increasing the state’s financial flexibility by creating new revenue streams or instituting a more flexible income tax regime should be credit positive, provided that new revenues help address the state’s pension liabilities and that any adverse economic impacts are minimal,” Moody’s said.
Meanwhile, business group the Civic Committee of the Commercial Club of Chicago released a blueprint on Tuesday aimed at eliminating Illinois’ chronic budget gap, as well as the state’s unpaid bill pile, estimated at $7.2 billion on Tuesday, and boosting pension funding by $2 billion a year. The group called for increasing state revenue by $6 billion annually mainly by hiking personal and corporate income tax rates and taxing retirement income and some services. The state would also save $2 billion annually through less-costly employee and retiree healthcare and operational improvements. (Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)