February 26, 2019 / 8:03 PM / 3 months ago

Proposed Illinois budget falls short on filling structural gap -Fitch

CHICAGO, Feb 26 (Reuters) - The fiscal 2020 budget proposed by Democratic Illinois Governor J.B. Pritzker last week does not do enough to address the state’s structural deficit, Fitch Ratings said on Tuesday.

The credit rating agency warned that Illinois could risk a downgrade by returning “to a pattern of deferring payments for near-term budget balancing.”

Illinois has been hurt by a huge unfunded pension liability currently at $133.5 billion, chronic structural budget deficits and a political impasse under the previous Republican governor that left the state without complete budgets for two straight years. These problems led to downgrades that pushed the state’s credit ratings to a notch or two above the junk level.

Pritzker’s nearly $39 billion general funds budget for the fiscal year that begins on July 1 depends on $1.1 billion in estimated new revenue, including money from yet-to-be legalized sports betting and recreational marijuana. It also frees up cash by reducing contributions to the state’s five retirement systems.

“Illinois faces significant fiscal problems that will likely take multiple years to fully address, but the executive budget does not provide enough clarity on how the state will deal with them,” Fitch said in a statement.

The credit rating agency, which rates Illinois at BBB with a negative outlook, said about a third of the budget’s proposed new revenue is nonrecurring. It added that a plan to extend an existing 50-year pension payment plan by seven years “could cost the state more over time by perpetuating an already inadequate funding approach.”

There was no immediate comment from Pritzker’s office. The new governor, who took office in January, has said the spending plan would act as a bridge until the state can replace its flat income tax rate with graduated rates - a move that requires voter approval of a constitutional amendment.

On Friday, S&P Global Ratings, which rates Illinois a notch above junk at BBB-minus with a stable outlook, said the “precariously” balanced budget could “weaken the state’s credit trajectory.” (Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)

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