articles Ratings /ratings/en/research/articles/200601-illinois-fiscal-2021-budget-anticipates-and-needs-additional-federal-aid-11514461 content esgSubNav
In This List

Illinois Fiscal 2021 Budget Anticipates, And Needs, Additional Federal Aid


Russia-Ukraine Military Conflict: Key Takeaways From Our Articles


U.S. Mortgage Revenue Bond Program Rating Actions In Line With Expectations After Application Of Updated Criteria


Cyber Risk Insights: Ongoing Preparedness Is Key To U.S. Power Utilities Keeping Attackers In The Dark


Not-For-Profit Acute Health Care State Snapshot: Maryland

Illinois Fiscal 2021 Budget Anticipates, And Needs, Additional Federal Aid

BOSTON (S&P Global Ratings) June 1, 2020--S&P Global Ratings believes that Illinois' (BBB-/Negative) adopted budget continues to be precariously balanced, and does not include measures to meaningfully address structural instability. We consider the fiscal 2021 budget structurally misaligned, as along with an outstanding $7.2 billion bill backlog, the pension and other postemployment benefit obligations are not funded based on actuarial recommendations. On a budgetary basis, the total resources exceed the total expenditures, but the revenue side anticipates an additional $5 billion in either additional direct federal aid or borrowings through the Federal Reserve's Municipal Liquidity Facility (MLF). Whereas we believe that additional direct federal aid is possible, the amount, timing, and potential restrictions on use are unclear at this point, and so budgeting potential use introduces risk.

Should additional federal aid not be received or not be received to provide liquidity in time for budgetary use, the state passed legislation allowing for MLF borrowing, with potential repayment over up to a 10-year period, although the current MLF authorization allows only for 36-month repayment schedules. Management indicates that the $5 billion may not be borrowed at one time, but if needed, could be tapped in various borrowings from the MLF over the fiscal year. There is capacity in the MLF authorization legislation for an additional $5 billion from Illinois, but such a borrowing simply shifts the repayment to future budget years, and the hope for additional aid is a precarious assumption. The state recently sold $800 million in tax-exempt general obligation (GO) bonds on the open market, demonstrating some level of market access, and the MLF is designed to provide liquidity when other market conditions would be uncertain or costly.

The new budget has a $39.0 billion operating component and then another $3.9 billion in additional expenditures, including statutory transfers out, debt service, and other borrowing repayments (including those needed to fund operations in fiscal 2020). All spending considered, the $42.9 billion budget is 5.8% larger than the fiscal 2020 budget. Illinois entered into this recession slowly working toward budget stability, but with little to no money in the budget stabilization fund (BSF). Where many other states had taken advantage of the long economic expansion following the Great Recession, Illinois faced political gridlock through multiple fiscal years, built a significant bill backlog, delayed action to reduce a sizable pension obligation, and could not accumulate a rainy day fund. We consider the state's current options available to address the pandemic to be limited, compared to those of other states.

In the 2021 budget, the revenue side introduces more risk. Compared with the draft executive budget presented in January, the adopted budget reflects over a $4 billion decrease in recurring revenues, or 10.5% lower. The nominally largest revenue decrease is in the individual income tax line: the $1.8 billion decrease is 8.8% off the January estimate. But the sales tax estimate decrease is a larger percentage decline, with the almost $1.6 billion reduction reflecting a 17.5% decrease in assumed receipts for the fiscal year. These, and all other, revenue declines are offset through an increase of $300 million in interfund borrowing, the previously mentioned $5 billion MLF borrowing or federal aid receipts, and $1.274 billion in potential new individual income taxes, should a constitutional amendment pass in November instituting a graduated income tax. The original estimate of additional revenue receipts attributable to the graduated income tax was $1.435 billion, and so the state is reflecting a reduction caused by the recession.

So, in order to fully meet the total expenditure obligations in the budget, the state is relying on interfund borrowing, either federal aid or further federal borrowing, and the support of the electorate to vote to revise the tax structure to raise more revenue. Should any of those not materialize as expected, the state will need to look to more significant expenditure cuts through later legislative action. We believe the state has capacity to make cuts to close a gap, as there are no cuts in the current budget.

Illinois expects that the $5 billion MLF borrowing would be tapped if direct federal aid is not sufficient in terms of timing or amount. Should the direct federal support not materialize as hoped, the security for the MLF borrowing is the state GO, and we would view this borrowing on parity with existing GO debt. Currently the outstanding GO debt has a relatively rapid maturity with 74% retired within the next decade, and so there is some replacement capacity, but by our calculations, Illinois already has the fifth-highest debt per capita in the nation. Debt service on existing debt declined from fiscal 2020 by 11% or $211 million in the adopted fiscal 2021 budget.

The expenditure side of the fiscal 2021 budget holds most line items to the fiscal 2020 spending levels, but there are no layoffs or program eliminations being adopted to help balance the budget. Level funding, though, will extend personnel and purchasing controls put in place at the outset of the pandemic, into fiscal 2021. The school funding formula is set equal to fiscal 2020; however, this is $350 million less than the state intended to fund for fiscal 2021 when it revised its school funding formula several years ago, and $462 million or 5.2% less than the governor's original budget earlier this year. The college and university system, although funded $129 million less than in the January draft budget, is also level funded to the fiscal 2020 budget. So, the state is holding the districts to level funding assumptions, but with existing teacher contracts and other obligations, we do expect cuts to be passed down to the local school level decision-makers.

There are a couple of credit positives in the adopted budget. First, the statutorily set annual pension contribution is being fully met. As the statutory pension funding is designed to attain a 90% funded status in 2045, this is one of the least conservative funding methodologies in the nation among state peers, and so anything less than meeting this obligation would have been seen as a notable credit negative. Second, the state appropriated the necessary amounts to support the priority lien ratings we have tethered to the state, Build Illinois (BBB/Negative), Metropolitan Pier and Exposition Authority (MPEA) (BBB/Negative), and Illinois Sports Facility Authority (BBB/Negative), with additional provisions to support the MPEA operations.

As we have noted in past reports, Illinois has a history of leaving difficult fiscal choices to future budgets, and to the extent that expected federal aid does not materialize and the state does not adjust expenditures to reflect available resources, the fiscal 2021 budget could weaken the state's credit trajectory.

Fiscal Year 2020 Closeout

The state expects a $2.7 billion shortfall through the end of the fiscal year and is closing that gap predominantly through federal aid and borrowing. Not all of this is lost revenue, however, as income taxes will be due in the next fiscal year, on July 15, conforming with the federal change to the tax filing date. The largest component of the resources needed to close the fiscal 2020 gap is a $1.2 billion borrowing likely through the MLF. The contemplated GO Certificate Series of June 2020 would need to be repaid in June 2021. This borrowing provides immediate cash flow support, but does create a cash flow pressure for the time of repayment. Additionally, the state is using other interfund borrowings to close out the fiscal year, including $400 million through the Treasurer's Investment Pool. In times of fiscal challenge, we often see budget gaps closed with use of reserves, expenditure cuts and deferrals, new revenues, and debt. As Illinois entered the recession without reserves to tap, and believes state government services critical to responding to the pandemic, the solutions to date have all been on the debt and federal assistance side of the ledger.

The state has over the past three months received more than $5 billion in federal aid. Much of that has restrictions on use, in that it has to be used to cover costs associated with fighting COVID-19. As the state's expenditures to date have not been to this level, and the state has until Dec. 31, 2020 to account for the spending, the receipt of these funds has been helpful in addressing the unbudgeted costs associated with the pandemic.

Unemployment Insurance Fund

The state has been authorized by the federal government to borrow up to $5 billion in May and $6.4 billion in June to help pay claims or replenish unemployment insurance funds. This shows the severity of social distancing measures affecting the economy. Federal law mandates that if a state fails to fully repay a loan after approximately two years, the state unemployment tax credit on employers in that state decreases in each subsequent year in favor of a greater allocation of the tax rate to the federal government, until the state repays the loan. States also have the ability to issue bonded debt to repay such loans, and Illinois issued $1.5 billion in the series 2012 A, B, and C bonds for this purpose. Therefore, the federal borrowing aids in immediate liquidity and supporting the ability to pay claims, and S&P Global Ratings does not consider this federal loan as debt, until it is repaid through a public bond sale, but it does introduce another potential longer term credit pressure.

We recently revised the outlook on the State of Illinois to negative. For further detail, please see our full analysis published April 28, 2020.

Related Research

  • Illinois Fiscal 2019 Audit Shows Little Improvement, As Expected, May 8, 2020
  • State of Illinois, full analysis, April 28, 2020

This report does not constitute a rating action.

S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 26 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.

Primary Credit Analyst:Geoffrey E Buswick, Boston (1) 617-530-8311;
Secondary Contact:Blake E Yocom, Chicago (1) 312-233-7056;

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to:

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back