Slight Upgrade to Illinois’ Credit Outlook

The three major New York-based bond-rating agencies agree that the State of Illinois has the lowest credit rating among the 50 states. Using the terminology published by two of the three rating agencies (Standard & Poor’s and Fitch Ratings), Illinois has had a BBB- credit rating – the lowest level above “junk bond” territory – with a “negative outlook” for further changes. Any reduction in Illinois’ credit rating from BBB- would push the State’s general obligation (GO) debt, the bonds Illinois sells to finance a wide variety of day-to-day capital expenses, into the realm of non-investment-grade securities.

Fitch Ratings this week revised Illinois’ debt outlook from “negative” to “positive.” The move reaffirmed Illinois’ sub-optimal GO bond rating, but also offered hope that a move to fiscal prudence by Illinois lawmakers and the State could pull it up from the brink of junk bond territory. The rating agency praised Illinois’ “operating performance and structural balance” during the post-pandemic reopening of the American economy, while noting that Illinois’ economy and budget outlook had not yet returned to pre-pandemic levels.   

Illinois and its taxpayers will continue to be required to pay much higher interest rates that the taxpayers of other debt-issuing states. The interest rates that lenders charge BBB- borrowers is significantly higher than the near-zero interest rates currently charged to AAA states, such as Illinois’ neighboring state of Indiana.