(Chicago) – On Tuesday Standard & Poor’s became the third bond rating agency to tilt in favor of Illinois making its temporary income tax increase permanent.
Standard & Poor’s cautiously embraced this week Governor Pat Quinn’s proposed FY 15 Illinois budget that seeks to permanently extend the 2011 income tax increase in order to maintain the budget’s “balance”.
“We believe that the not-recommended budget could weaken structural alignment for Illinois,” Standard & Poor’s wrote in its review of the state’s finances released late Monday. “The recommended budget could contribute to enhanced structural alignment due to less severe spending reductions needed to achieve balance…”
That’s financial speak for “woot, woot!!!”
Standard and Poor’s is the third rating agency to review the state’s finances – including Quinn’s proposed FY 15 budget – in advance of Illinois’ scheduled sale this week of $250 million in General Obligation Bonds to fund the building of roads, bridges and schools around the state.
All three ratings agencies say the state financial challenges remain daunting and outlined potential pitfalls, but they do note Illinois’ efforts to cut costs, pay down old bills, and pass a comprehensive pension reform plan.
“Structural budget alignment improved in fiscal 2013 and 2014 due to economic and revenue recovery, revenue enhancement, and spending restraint and reform. Illinois generated a surplus in fiscal 2013 and forecasts another for fiscal 2014, which has lowered the general fund deficit and payables outstanding on a budgetary basis. This reduction is positive, in our view…,” according to the Standard & Poor’s statement.
The rating agency’s cautious optimism brought praise from a top Quinn Administration official.
“We are pleased that the bond rating agencies recognize the difficult work the Governor and the General Assembly have done to cut spending, pay down the bills and pass comprehensive pension reform,” Acting Budget Director Jerry Stermer said. “It’s clear the rating agencies agree the Governor’s proposed budget would bring long-term fiscal stability to Illinois.”
Standard & Poor’s saved its strongest language for Illinois’ pension reform law that is before the Illinois Supreme Court which will decide the measure’s constitutionality.
“We view the pension reform as a significant accomplishment that could lead to improved pension funding levels, greater pension plan sustainability, and improved prospects for budget stability,” said the ratings agency.
“We consider the reform to be comprehensive, addressing a range of areas that we believe should significantly reduce liabilities. If pension reform moves forward and Illinois takes credible action to achieve structural budget balance beginning in fiscal 2015, we believe a higher rating would be warranted.”
On Friday, Fitch and Moody’s also released positive reviews of Illinois’ finances based on the possibility of the permanent extension of the 2011 Illinois income tax increase.
(*Note to Political Insiders: The Illinois Observer also offers our exclusive, subscriber-only e-newsletter – The Insider – to, well, Illinois political insiders. Each Tuesday and Friday at 6:00 a.m. The Insider, whose Consulting Editor is Capitol Fax Publisher Rich Miller, arrives in e-mail boxes with the choicest Illinois, Cook County, and Chicago political gossip, insider information, and news tips. For more information and a free, 4-week trial subscription to The Insider, please go here).