The financial watchdog, which currently ranks Illinois debt one level above junk, long has had a dour take on Illinois finances, but it backs up its opinion that COVID-19 is making things worse with some solid data.
For instance, Moody’s reports that the Teachers’ Retirement System of the State of Illinois, the state’s largest pension fund, had an estimated return on investment of just 0.52 percent in the year ended June 30, a small fraction of TRS’ assumed 7 percent. The stock market and presumably TRS’ portfolio since have rebounded, but that’s a sobering figure.
Overall, Moody’s projects, the state government’s liabilities as a share of gross Illinois product are on track to leap to 45 percent by the end of fiscal 2021, up from 35 percent at the end of 2019. And the state’s ratio of liabilities to revenue is considerably worse than other highly leveraged states such as New Jersey and Texas.
With the COVID recovery moving at a moderate pace at best, fixed state costs (notably pensions and debt service) almost certainly will be worse into the next decade, rising from 30 percent of current revenue to as much as 35 percent.
Pritzker’s solution to that is the graduated, or “fair,” tax and Moody’s says it definitely will help even if the state has reduced its first-year revenue projection from the measure, when it would be in place for about six months, to $1.27 billion from $1.54 billion.
The amendment “would provide an almost immediate revenue boost and future flexibility to address changing fiscal and economic conditions,” it says. That’s a real boost.
However, it adds, even passage of the amendment “wouldn’t restore the lower pre-pandemic level of fixed costs to revenue.” As a result, it continues, “The ‘fair tax’ proposal is unlikely to be the last of the state’s revenue raising initiatives, given the scale of its need for additional fiscal capacity.” It particularly mentions expansion of the sales tax to more services, something Pritzker repeatedly has appeared to rule out.
Neither Pritzker’s office nor the group pushing for the amendment immediately responded to emails seeking comment. I wouldn’t be surprised, though, if foes of the amendment seize on the Moody’s report to amplify their argument that broader change is needed.
One thing Moody’s largely dismissed is the possibility of significant COVID relief funds from Congress, either before or after the election. Though Congress so far is stalemated, anything the state gets would help it reduce up to $5 billion it’s borrowing from the Federal Reserve to balance this year’s budget.
Moody’s also downplayed the possibility of large budget cuts, saying the state would have to slash spending almost 11 percent across the board just to equal the amount it expects to net if the graduated income tax amendment passes.
via Crain’s Chicago Business
October 2, 2020 at 01:44PM