Illinois has announced plans to issue $1.8 billion of general obligation bonds to fund accelerated pension benefit payments and capital expenditures through the Rebuild Illinois program. The issuance will consist of $250 million taxable Series 2024A and $1.55 billion tax-exempt Series 2024B. The fixed-rate bonds are expected to be priced this week, with Jefferies, Siebert Williams Shank, and Barclays acting as joint senior managers on the deal.
Rating Agencies and Outlook
Moody’s Ratings recently revised Illinois’ outlook to positive from stable, citing improvements in the state’s fund balance, budget reserves, and stable revenue. Fitch upgraded Illinois’ issuer default rating to A-minus with a stable outlook in November. S&P Global Ratings affirmed its A-minus rating with a stable outlook as well. Despite the positive credit trajectory, rating agencies point out significant concerns such as retirement liabilities, funding shortfalls, and limited budgetary reserves.
In offering documents, the state mentioned that it has made strides in improving its financial position. Illinois has deposited $1.2 billion to the Budget Stabilization Fund in fiscal 2023, bringing the balance to $1.9 billion. The state plans to add more funds to reach the statutory target of 7.5% of projected fiscal 2025 revenues. While the state’s operating performance is considered solid, rating agencies highlight ongoing challenges related to pension liabilities and structural imbalances.
Illinois faces constraints related to its constitutional obligations, particularly concerning pension contributions. Despite progress in reducing other post-employment benefit liabilities, gaps in pension contributions remain. The state has managed to significantly reduce its legacy bill backlog and improve its cash balance in the general fund. However, Fitch warns that Illinois will continue to face pressure due to high carrying costs and demands for retiree benefits.
Economic Growth and Revenue Base
Fitch predicts that Illinois’ broad revenue base, mainly from income and sales taxes, will capture the breadth of its economy over the long term. The state’s declining unemployment rates and rising per capita income are positive indicators. However, the slow economic growth trajectory and ongoing challenges with pension obligations raise concerns about Illinois’ long-term financial stability.
Illinois is taking necessary steps to address its financial challenges by issuing general obligation bonds to fund critical expenses. While rating agencies have noted improvements in the state’s financial outlook, concerns about pension liabilities and structural imbalances persist. Illinois must continue to prioritize fiscal responsibility and long-term sustainability to ensure its economic stability in the future.