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Credit Rating Agencies Issue Warnings About Illinois

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A pair of credit rating agencies issued warnings Tuesday on the finances of both the state of Illinois — and its largest city.

Moody’s Investors Service looked at whether America’s 25 biggest cities are prepared for a recession. Among them, just two were rated notably “weaker” than their peers: Detroit and Chicago.

Moody’s warns that high debt and pension costs leave Chicago “one of the cities least prepared for a near-term recession.”

On the other hand, it acknowledges Chicago’s diverse tax base and its broad legal authority to tap into it by raising taxes.

Separately, Fitch Ratings identified Illinois among three states to watch in 2020.

Voters will be deciding whether to change Illinois’ flat income tax into a graduated tax, where the wealthy pay a higher rate.

Democratic Gov. J.B. Pritzker campaigned on the change and argues it’s crucial to securing Illinois’ fiscal future. Republicans argue it would pave the way for future tax increases.

Fitch says if the constitutional amendment passes, it’ll be watching what Illinois does with the extra money. And if voters say no, it wants to see if state government can “adjust its budget” — which likely means cutting its budget — to cope with structural fiscal problems.

(Fitch’s other states to watch are Alaska, where the governor is seeking to maintain dividend payments for residents and constitutional amendments that would, as Fitch describes it, limit the state’s future budgetary flexibility; and Kentucky, where a newly elected Democratic governor will have to work with a Republican legislature to deal with significant fiscal challenges.)

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