Agency Upgrades Illinois' Credit Outlook to Positive

Fitch Ratings, one of three credit rating agencies that grade Illinois bonds, has upgraded its credit outlook for the state from “negative” to “positive.”

Although the state’s overall rating remains at near-junk status at BBB-, the agency said the state’s economic outlook coming out of the pandemic, combined with the recently-enacted budget, are moving the state in the right direction.

“The Outlook Revision to Positive from Negative, reflects Illinois' preservation of fiscal resilience given the quick and sustained economic recovery since the start of the pandemic, coupled with the state's unwinding of certain nonrecurring fiscal measures,” the agency said in a statement Wednesday. “Recent fiscal results and the enacted fiscal 2022 budget suggest further improvements in operating performance and structural balance in the near and medium-term that could support a return to the pre-pandemic rating or higher.”

The change in outlook is not the same as a change in the state’s immediate credit worthiness, but instead reflects the agency’s view of its credit trajectory, indicating the possibility of a credit upgrade in the future.

The continuing BBB- rating is the result of what Fitch called “a long record of structural imbalance and irresolute fiscal decision making” that has resulted in a credit position well below what the state’s broad, but slow-growing economy would otherwise suggest. It also reflects the state’s large, long-term liabilities such as pension obligations that will continue to put stress on the state’s finances.

But the agency also said that the state’s revenue base, primarily income and sales taxes, are expected to grow as the state’s economy grows, while recent improvements, such as paying down the state’s bill backlog and its plan to pay off its federal pandemic borrowing early, are signs of improved budget management.

The action by Fitch follows similar moves earlier this year by the state’s other two rating agencies, Moody’s and S&P, which revised their outlooks from “negative” to “stable.”

Democratic leaders in Illinois, including Gov. JB Pritzker, quickly seized on the news

“Fitch’s improved outlook for Illinois is yet another sign of positive momentum for our state’s fiscal condition, a testament to strong financial management and responsible actions by the General Assembly and my administration, and a product of the state’s economic resilience,” Pritzker said in a statement Wednesday. “The story of Illinois in 2021 is that in the face of a crisis, fiscal discipline and smart economic policy pays off.”