Illinois has announced that it will be issuing $1.8 billion of general obligation bonds in order to fund accelerated pension benefit payments and capital expenditures through the Rebuild Illinois program. The bonds will be split into $250 million taxable Series 2024A and $1.55 billion tax-exempt Series 2024B. The fixed-rate bonds are set to be priced this week, with Jefferies, Siebert Williams Shank, and Barclays serving as joint senior managers on the deal. Public Resources Advisory Group is acting as the municipal advisor while Chapman and Cutler LLP and McGaugh Law Group LLC are co-bond counsel. These bonds are direct general obligations, backed by the state’s full faith and credit, with a continuing appropriation in place to guarantee bond repayment without the need for the General Assembly to act.
Moody’s Ratings recently revised Illinois’ outlook to positive from stable, citing improvements in the state’s fund balance and budget reserves, as well as stable revenue. Fitch also upgraded Illinois’ issuer default rating to A-minus with a stable outlook back in November. S&P Global Ratings affirmed its A-minus rating as well, with a stable outlook. Despite the positive credit trajectory that Illinois is on, S&P noted the state’s retirement liabilities, funding shortfall, and the need for continued improvement in its Budget Stabilization Fund. Fitch highlighted Illinois’ structural imbalances tied to underfunding pension liabilities, which have a significant impact on the state’s operating performance.
Illinois has made progress in strengthening its financial position, with deposits made to the Budget Stabilization Fund in fiscal 2023 totaling $1.2 billion. The state is on track to reach a target balance of 5% of projected fiscal 2025 revenues, nearing the statutory target of 7.5%. However, Fitch pointed out that Illinois still lags behind other states in terms of operating performance due to pension obligations and slow economic growth. The state’s high carrying costs and contribution demands for retiree benefits continue to be major pressure points. While progress has been made in reducing the bill backlog and improving cash balances, structural budget gaps related to pension contributions remain a concern.
Investor Presentation and Economic Indicators
In its investor presentation for the bond issuance, Illinois highlighted declining unemployment rates and rising per capita income, which tracks national and regional trends. The state’s per capita income for 2023 exceeded both national and regional averages, showing positive economic growth. With $26.4 billion of outstanding GO bonds already in place, the additional $1.8 billion in debt will bring the total to approximately $28.2 billion.
While Illinois is making efforts to improve its financial position and meet its pension obligations, challenges still remain. The state’s continued focus on reducing liabilities, improving operating performance, and maintaining fiscal discipline will be crucial in ensuring long-term financial stability. The success of the bond issuance and the state’s ability to manage its debt will be key indicators of Illinois’ financial health in the years to come.