The COVID-19 crisis will “exacerbate” financial problems that have festered in Illinois for years, analysts say.
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Gov. J.B. Pritzker gives his daily update on the coronavirus situation on April 13, 2020. Tyler LaRiviere/Sun-Times file
The coronavirus pandemic will “exacerbate the already substantial financial challenges” facing Illinois and “could inflict some long-term damage” to the state by the time it’s contained.
That’s according to a report released Tuesday by the credit ratings agency Moody’s, which earlier this month already affirmed the cash-strapped state’s rating at a notch above junk status and revised its outlook for Illinois from “stable” to “negative.”
“The negative outlook aligns with our view of the probable effects of the coronavirus pandemic, which will reduce tax collections and likely cause current-year pension investment losses, both of which would weigh more heavily on Illinois, given its existing weaknesses relative to other states,” Moody’s report states.
“Federal government support will mitigate some of the direct budgetary burden, but the state will face liquidity pressure that may lead it to near-term actions such as adding to its balance of unpaid bills. The state is also increasingly likely to take actions that worsen its long-term liabilities, in view of revenue shortfalls and growing health and social burdens.”
One potential action is an extension of Gov. J.B. Pritzker’s stay-at-home order that has ground the state economy nearly to a halt. Pritzker is expected to extend that order later this week, keeping thousands of businesses closed — though it’s not clear for how long.
The governor announced last week the crisis has blasted an estimated $2.7 billion revenue shortfall into the state’s current budget, and could wreak havoc in the next one. The state has spent nearly $177 million in its COVID-19 response so far, according to the state comptroller’s office.
While the pandemic is expected to make things worse, the key issues affecting the state’s rating have been around since long before COVID-19, according to Moody’s. Those include “extremely large unfunded pension liabilities that remain on an upward trajectory,” a “persistent backlog of bills,” and “weak governance practices that have led to pension underfunding and negative fund balances.”
“But Illinois at this point does not appear likely to suffer economic impacts markedly more severe than other large-economy states with heavily populated urban areas,” Moody’s analysts wrote.
The state could see an upgrade by enacting “recurring financial measures that support sustainable budget balance,” taking “decisive action to improve funding of the state’s main pension plans” and making “progress in lowering the bill backlog that does not rely on either long-term borrowing or on a significant decrease in non-operating fund liquidity,” according to Moody’s.:no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/19916423/CV_PRITZKER_041420_3__1_.jpg)
Gov. J.B. Pritzker at a daily update on the coronavirus on April 13, 2020. Tyler LaRiviere/Sun-Times file
Reducing pension contributions or assuming substantial liabilities from local governments could lead to a downgrade, the agency said.
And whether voters approve an amendment to the state constitution in November allowing for a graduated income tax system could have an impact, Moody’s said.
The graduated system pushed by Pritzker “would add some revenue volatility but would greatly improve flexibility to respond to pension contribution and other spending needs as well as shifting economic conditions,” Moody’s analysts wrote. “Rejection of the amendment probably will force the state to consider other alternatives, such as aggressive spending reductions, an increase in the existing flat income tax rate or application of the state sales taxes to services.”
Last week, the governor’s office projected the budget shortfall for the fiscal year that begins on July 1 could balloon from an expected $6.2 billion to $7.4 billion if Pritzker’s coveted graduated income tax proposal fails to pass.
Asked about the change in the state income tax at his briefing that day, Pritzker would only say that we need it “now more than ever.”
The coronavirus pandemic will “exacerbate the already substantial financial challenges” facing Illinois and “could inflict some long-term damage” to the state by the time it’s contained.
That’s according to a report released Tuesday by the credit ratings agency Moody’s, which earlier this month already affirmed the cash-strapped state’s rating at a notch above junk status and revised its outlook for Illinois from “stable” to “negative.”
“The negative outlook aligns with our view of the probable effects of the coronavirus pandemic, which will reduce tax collections and likely cause current-year pension investment losses, both of which would weigh more heavily on Illinois, given its existing weaknesses relative to other states,” Moody’s report states.
“Federal government support will mitigate some of the direct budgetary burden, but the state will face liquidity pressure that may lead it to near-term actions such as adding to its balance of unpaid bills. The state is also increasingly likely to take actions that worsen its long-term liabilities, in view of revenue shortfalls and growing health and social burdens.”
One potential action is an extension of Gov. J.B. Pritzker’s stay-at-home order that has ground the state economy nearly to a halt. Pritzker is expected to extend that order later this week, keeping thousands of businesses closed — though it’s not clear for how long.
The governor announced last week the crisis has blasted an estimated $2.7 billion revenue shortfall into the state’s current budget, and could wreak havoc in the next one. The state has spent nearly $177 million in its COVID-19 response so far, according to the state comptroller’s office.
While the pandemic is expected to make things worse, the key issues affecting the state’s rating have been around since long before COVID-19, according to Moody’s. Those include “extremely large unfunded pension liabilities that remain on an upward trajectory,” a “persistent backlog of bills,” and “weak governance practices that have led to pension underfunding and negative fund balances.”
“But Illinois at this point does not appear likely to suffer economic impacts markedly more severe than other large-economy states with heavily populated urban areas,” Moody’s analysts wrote.
The state could see an upgrade by enacting “recurring financial measures that support sustainable budget balance,” taking “decisive action to improve funding of the state’s main pension plans” and making “progress in lowering the bill backlog that does not rely on either long-term borrowing or on a significant decrease in non-operating fund liquidity,” according to Moody’s.
Gov. J.B. Pritzker at a daily update on the coronavirus on April 13, 2020. Tyler LaRiviere/Sun-Times fileReducing pension contributions or assuming substantial liabilities from local governments could lead to a downgrade, the agency said.
And whether voters approve an amendment to the state constitution in November allowing for a graduated income tax system could have an impact, Moody’s said.
The graduated system pushed by Pritzker “would add some revenue volatility but would greatly improve flexibility to respond to pension contribution and other spending needs as well as shifting economic conditions,” Moody’s analysts wrote. “Rejection of the amendment probably will force the state to consider other alternatives, such as aggressive spending reductions, an increase in the existing flat income tax rate or application of the state sales taxes to services.”
Last week, the governor’s office projected the budget shortfall for the fiscal year that begins on July 1 could balloon from an expected $6.2 billion to $7.4 billion if Pritzker’s coveted graduated income tax proposal fails to pass.
Asked about the change in the state income tax at his briefing that day, Pritzker would only say that we need it “now more than ever.”
3 non-reusable PLASTIC water bottles?!! For Shame.....
ReplyDelete/s
Then the only way out is for taxpayers to bend over and grab their ankles.
ReplyDeletethe flip side to that is for Irish-Welfare workers to bend over and grab their ankles and take a big hit.....
DeleteI kind of hope that Illinois does file for bankruptcy. Then the Federal Judge will knock all the state workers back to reality. Then it will be , welcome back boys and girls to reality like the private sector. Get ready to work until you're 65 like the rest of America. And also time to sell off the summer home since your wages will take a large cut back to private sector sized wages.
DeleteProperty taxes may also come down.
Illinois democrats trying desperately to collect as much Federal Covid-19 money as possible to pay Peter after robbing Paul for so long, basically buying more time before the big collapse......
ReplyDeleteCut city pensions in half
ReplyDeleteHow about having all the money we contributed to the pension system returned to us to invest on our own. We certainly could do better than Vanecko did.
ReplyDelete