Monday, February 7, 2022
SPRINGFIELD – Illinois Comptroller Susana A. Mendoza is asking the big three bond rating agencies – Fitch, Moody’s and S&P – to consider once again upgrading the state’s credit rating. Her letter sent Friday to the rating agencies describes the progress that has been made and is expected to continue into fiscal year 2023.
“It’s exciting to have such good news to share with the agencies,” said Comptroller Mendoza. “I’m confident that my office’s prudent financial management, combined with the recent proposals outlined by the Governor, will propel Illinois along its path to fiscal recovery.”
The Governor’s budget proposal includes a path toward addressing the State’s structural budget challenges. That includes a supplemental appropriation of $898 million for fiscal year 2022 to go toward the State’s employee and retiree health insurance program, which would meet the program’s liability. It also includes $500 million above what is required to go toward the state’s pension systems. And it includes an $800 million infusion into the state’s Rainy Day Fund.
Additionally, Comptroller Mendoza has worked diligently to right the state’s fiscal ship. As of today, the General Funds backlog is below $3 billion. Bills are getting paid on time. Last month, the State paid off a federal COVID loan early, saving taxpayers an estimated $82 million in interest.
By the end of this fiscal year, Comptroller Mendoza also plans to pay back the $719 balance due in short-term borrowing utilized to help to recover from the 2015-2017 budget impasse and the pandemic.
Comptroller Mendoza also sent letters to the rating agencies last year, spelling out her progress in paying down the state’s backlog of bills and which were followed by upgrades from Moody’s and S&P – the first upgrades for Illinois in two decades. Fitch has raised the state’s credit outlook but has yet to upgrade the state’s credit rating.
The following is the text version of the letter sent to the credit rating agencies:
February 4, 2022
Ted Hampton, Vice President Eric Kim, Senior Director
Moody’s Investors Service Fitch Ratings
7 World Trade Center 300 W. 57th Street
New York, NY 10007 New York, NY 10019
Geoffrey E. Buswick, Managing Director
S&P Global Ratings – U.S. Public Finance
225 Franklin St., 15th floor
Boston, MA 02110-2804
Dear Mr. Hampton, Mr. Buswick, and Mr. Kim:
As a follow up to my letter last July, I want to give you an update on the progress Illinois has made so far this fiscal year, and I am confident it will continue into budget year 2023. I am hopeful this will be welcome news to you and that your ratings agencies will reward Illinois with yet another credit upgrade.
I am pleased to report that, as of the end of this week, Illinois’ General Funds backlog is still less than $3 billion, which is nearly the same level I reported to you at the conclusion of fiscal year 2021. That Illinois has held steady in paying its bills should help ease concerns that the reduced backlog amount was just a temporary accomplishment. In fact, after my office pays today’s bills, the State’s oldest commercial voucher will be just 14 business days. Payments for debt service, pensions, schools, payroll, and human services continue to take priority as our core monthly expenditures while significant improvements have been made in addressing payments for government services, interfund transfers, and medical programs. The Illinois Office of Comptroller also prioritizes Medicaid payments and therefore maximizes the enhanced federal reimbursement rate, which helps us pay more bills while giving our healthcare industry the predictability it needs to maintain stable operations during these challenging times of the ongoing pandemic.
At the start of this fiscal year, I informed you of the state’s pledge to pay off the remaining $1 billion in borrowing from the Municipal Liquidity Facility by the end of the fiscal year. We did not wait until the end of the fiscal year to pay it off and instead finished the repayment last month, nearly two years early, and saved taxpayers an estimated $82 million in interest. It is important to note that these payments to the Federal Reserve were drawn from state revenues without using direct federal relief funds.
Our next goal is paying back the remaining $719 million of the $2.6 billion in short-term borrowing that was needed to recover from the aftermath of the state’s 736-day budget impasse between 2015 and 2017 and the State’s response to the pandemic. While our plan is to complete this repayment by the end of this fiscal year, I am hopeful we can do it sooner, especially since it was one of the specific items mentioned by Mr. Kim that could help lead to a credit upgrade for Illinois. I will notify you when this liability has been eliminated.
If this information is not sufficient to lead to a favorable review, Governor Pritzker’s recently announced budget proposal will surely check off any remaining doubts that Illinois is on the right track to fiscal stability. As you know, the Governor’s plan is aimed at improving the State’s structural budgetary challenges with its Group Insurance Program and State pensions. Specifically, his budget includes a supplemental appropriation of $898 million for fiscal year 2022 for the State employee and retiree health insurance program, which will meet the program’s liability and allow my office to put the program more in line with the General Funds swift payment cycle. These providers have not enjoyed a payment cycle like this since well before the budgetary impasse. The Governor’s plan also provides $500 million above the required certified amount of State contributions to the State’s five pension systems, which is estimated to reduce the pensions’ total liability by $1.8 billion.
Furthermore, the Governor’s budget proposal includes an $800 million infusion into the state’s Rainy Day Fund over the next year-and-a-half. Several of your prior analyses on Illinois’ finances cited Illinois for not having an adequate contingency reserve fund to respond to potential funding emergencies. It is a testament to Illinois that we do not spend everything it takes in, but rather set aside revenues to better prepare Illinois’ finances for unexpected fiscal events that could impede our ability to meet obligations.
As noted in my previous letters, the bond market rightly continues to believe that Illinois is a sound investment. For instance, the State bonds issued in October 2020 and March 2021 experienced a strong appetite for new Illinois debt. Our March issuance had more than 130 investors submit orders for $16 billion worth of bonds, even though the State issued only $1.26 billion. We saw a similar thirst for Illinois’ bonds when we issued $400 million in December 2021. Additionally, the secondary market has identified the stability of Illinois debt, which is why the yield on Illinois’ debt has dropped precipitously in the past year. This drop had been occurring even before past positive changes in outlook. Investors believe Illinois is on a positive trajectory, which is why we have seen the consistent narrowing of spread penalties on our debt.
My office is doing everything possible to manage the current backlog of bills and address Illinois’ finances head-on. The Illinois Office of Comptroller urges you to consider these positive factors and progress made in strengthening Illinois’ financial position when evaluating Illinois’ creditworthiness.
I believe Illinois is due to be recognized for our current achievements and plans to further strengthen our financial situation, and I believe these are strong indicators that favor upgrading Illinois’ credit rating.
Sincerely,
Susana A. Mendoza
Illinois State Comptroller
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