Two credit rating agencies increase state’s bond rating. Third awaits

The following is a continuation of the piece The State’s Bond Ratings Over the Years. Read about it here.

Prairie State Policy previously published a piece illustrating the state’s bond rating over the years.

Good news was delivered the last few weeks as two of the major three credit rating agencies have upgraded the state of Illinois’ bond rating based on an improved financial outlook.

With Moody’s and S&P’s upgrade, the new chart now looks like this:

Charts created by Prairie State Policy via data from the Illinois Commission on Government Forecasting and Accountability. The Aa* rating by Moody’s assigned August 1992 is no longer used, but was lower than Aa1.

The two credit rating upgrades are a major step in the right direction for Illinois’ finances. As recently reported, Moody’s upgrade was the first in nearly 20 years and S&P 25 years. Moody’s technically upgraded the state’s credit rating in March/April 2010 but it was only via recalculation.

There there are a couple reasons why the two upgraded the state at this time. Both cited the additional influx of funds from the federal government via the American Rescue Plan (ARP) and decrease in the state’s backlog as major factors warranting the rating upgrade.

The additional funds provided the state with an extra cushion to invest more public goods, such as infrastructure. Most importantly, the extra money provided the state with leverage to help pay down debt and meet required pension obligations, which helped improve overall financial condition.

Even without the help of federal funds, the financial condition of the state seemed to be on the right track. Prairie State Policy recently published a piece highlighting the decrease in both the General Fund and Office of the Comptroller’s backlog since 2017. We encourage you to check it out here.

With the two upgrades, it will be interesting to see how Fitch responds. The trend of upgrades and downgrades is similar with Fitch. Fitch technically upgraded Illinois in June 2010, but this was only via recalculation from a downgrade in March/April 2010. So really the last notable upgrade from Fitch was June 2000. Only time will tell if Fitch follows suite with their competitors. Stay tuned.

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