Moody's Investor Service upgraded the state of Illinois' credit rating to Baa2 from Baa3.
The rating agency cited the "material improvement" of the state's finances in a news release Tuesday.
Moody's had downgraded Illinois to Baa3, which is one step above junk, in June 2017. At the time, Illinois had been operating without a full budget for nearly two years due to long-stalemated budget negotiations, and the ratings agency had downgraded the state because the stalemate posed "a threat to the timely payment of the state's core priority payments," a news release at the time said.
In its Tuesday announcement, Moody's said the "enacted fiscal 2022 budget for the state increases pension contributions, repays emergency Federal Reserve borrowings and keeps a backlog of bills in check with only constrained use of federal aid from the American Rescue Plan Act."
The Illinois FY 2022 budget includes $9.4 billion in pension contributions to the state's five pension funds.
In a March report, Moody's said Illinois' adjusted net pension liability will total $317 billion for the current year, and the Tuesday announcement did note that one factor that could lead to a downgrade of the rating are "reductions in pension contributions to provide fiscal relief."
Illinois Gov. J.B. Pritzker in a news release, also Tuesday, hailed the state's first ratings upgrade in more than 20 years and said the "Moody's ratings upgrade demonstrates that Illinois' finances are heading in the right direction for the first time in two decades. A ratings upgrade pays momentous dividends for taxpayers, and the people of Illinois deserve credit for their incredible resilience and determination."
At Baa2, Illinois has the lowest credit rating among the 50 states in Moody's rankings.