Fitch Ratings upped Illinois' credit rating to BBB+ from BBB- on Thursday.
The upgrade of Illinois' issuer default and related ratings by two spots "reflects fundamental improvements in Illinois' fiscal resilience including full unwinding of pandemic-era and certain prepandemic non-recurring fiscal measures, meaningful contributions to reserves and sustained evidence of more normal fiscal decision-making," the ratings agency said in a news release.
Fitch Ratings defines its BBB ratings as those that have good credit quality with low default risk expectations. In its news release, the agency does note that the BBB+ rating "reflects the state's elevated long-term liability position and resulting spending pressure, as well as a long record of structural imbalance primarily related to pension underfunding."
It is the second credit upgrade for the state by a notable ratings agency in the past month. Moody's Investor Services upgraded Illinois' credit rating to Baa1 from Baa2, citing its tax revenue growth of the past year, which has expanded its capacity to increase payments toward unfunded pension liabilities and rebuild financial reserves.
Fitch Ratings' upgrade by two notches is its first for Illinois since 2000. The ratings agency dropped the rating to BBB- from BBB in April 2020 due to the economic impact of the COVID-19 pandemic, and had previously dropped it to BBB from BBB+ in February 2017 after the state had been operating for nearly two years without a budget due to an ongoing legislative impasse.
Fitch's ratings upgrade came the same day Illinois Gov. J.B. Pritzker signed a bill into law authorizing a $1 billion general obligation bond to fund an extension of the pension buyout option for state employees until the end of the state's fiscal year 2026. Previously, the buyout option was set to expire on June 30, 2024.
The state's fiscal year 2023 budget includes in an additional $500 million contribution to five state retirement systems in addition to the $9.6 billion minimum required contribution. It will be the first-ever contribution to the state's Pension Stabilization Fund, which was created in 2006 to make additional contributions to the five retirement systems when state general fund revenues exceed certain annual thresholds.
According to 2021 actuarial valuation reports, the funding ratios for the five state retirement systems range from 19.3% to 43.8%.