Illinois Gov. JB Pritzker’s budget proposal has been met with the disdain of a major credit ratings agency, which says the fiscal plan postpones needed structural reforms.
Pritzker’s $39 billion spending blueprint called for a graduated income tax and other levies to help shore up the Prairie State’s ballooning pension deficit. But the income tax change would require altering the state constitution, an iffy proposition. And the plan lowers the state’s contributions to the pension system by extending the funding deadline by seven years. Plus, it calls for selling unidentified state assets and issuing $2 billion more in bonds.
S&P Global Ratings, however, is not on board with Pritzker’s decision. In a report, the ratings organization said the proposal “precariously balances the current budget, but punts measures to address fiscal progress to future years.”
The ratings company added that the budget “prioritizes service solvency at the expense of lower pension contributions” without making any “meaningful progress” at handling the state’s $7.9 billion bill backlog or projected out-year deficits.
Since Pritzker’s pension element is reliant on moving unidentified assets into the plans with no savings from the transfers noted in the 2020 budget plan, the agency is concerned that the constitutional changes needed for this to happen are a far from safe bet, and condemns the practice as “status quo” for the state of Illinois.
“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,” said the report.
S&P added that the state could raise taxes and delay bond payments to stop a “near-term liquidity crisis and service insolvency.” In S&P’s view, “While Illinois retains broad authority to raise more revenue, the state has yet to demonstrate it has the political will to do so.”The report also went on to call the 2020 fiscal budget “dubious” on the grounds of its reliance on sports betting and marijuana legalization, which may take longer to become a reality than Illinois needs. And S&P observed that positive revenue expectations in the face of slowing US growth cannot afford to be wrong as the state would “quickly exhaust its 0.4% budgeted surplus and has minimal cushion to weather additional fiscal pressures that would accompany an economic downturn.” According to S&P, “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.” Lastly, the agency said that if the state can’t get it together, “its credit trajectory could slip.”
Nevertheless, S&P said its criticism of Pritzker did not warrant any action on its near-junk BBB-rating for Illinois.
“The governor proposed a realistic plan to serve as a bridge to the future, with the ultimate goal of a fair tax system that will transform state finances – including pensions – in a momentous way,” said Jordan Abudayyeh, a spokeswoman for Pritzker. “No element of the comprehensive approach can be viewed in isolation and Governor Pritzker is ready to work with the legislature to put the state back on a path towards fiscal stability. The alternative to this plan is doing more of the same: namely, raising taxes on the middle class. The mess in Illinois was created over many years, which is why Governor Pritzker is offering a long-term solution.”
Illinois’ public pension system is 36% funded, according to a study from Pew Charitable Trusts.