CHICAGO – Illinois' release of motor fuel tax, gambling, and emergency surcharge revenues to local governments is a positive for the credit of the municipalities, says Moody's Investors Service.

Distribution of the revenues collected by the state had been held back by the lack of a fiscal 2016 budget. In a rare bipartisan budget move, lawmakers recently passed and Gov. Bruce Rauner signed legislation allocating the disbursement of about $3 billion in revenue to local governments and others.

"The release is credit positive for Illinois cities and counties including the city of Chicago," Moody's wrote in its weekly outlook published Monday. "The distributions will have the most significant benefit for Chicago and the small number of local governments that depend on casino gaming distributions."

The legislation frees up the distribution of $583 million in motor fuel taxes, $340 million in so-called use taxes, $154 million for 9-1-1 call centers, and $145 million in local governments' share of casino and video gambling revenues.

Chicago is the only city rated by Moody's to issue debt backed by the motor fuel revenues. After the state halted Chicago's motor fuel revenues, the city stepped up to cover monthly deposits to the bond trustee from unspent tax collections it had on hand.

"The release of MFT revenues will allow Chicago to use current-year allocations to cover the next debt payment due in July 2016," the report said.

In October, Standard & Poor's dropped Chicago's $270 million of motor fuel-tax backed bonds six notches because stoppage. S&P downgraded the credit to BBB-plus from AA-plus. Moody's already linked the rating on the city's motor fuel bonds to the city's general obligation rating of Ba1.

Casino gambling revenues represent a significant source of funds for a handful of municipalities, Moody's said. The four cities rated by Moody's maintain healthy operating fund balances of more than 25% of revenues that helped bridge the temporary stoppage in the flow of revenues.

The Aa2-rated Chicago suburb of Des Plaines, which received the largest total gambling distribution in 2014, benefitted from a conservative policy to use gambling receipts only for capital expenditures and early debt retirement, according to the report authored by analysts David Levett and Matt Butler.

The report notes that for most, the revenues released by the legislation don't represent major revenue streams. More worrisome is Rauner's proposal to cut in half local governments' share of state income taxes. The rookie GOP governor included that cut in his proposed 2016 budget that was rejected by the General Assembly's Democratic majority. The sides remain locked in an impasse over a balanced spending plan.

"The potential for income tax distribution cuts or other reductions remains a credit negative for Illinois local governments given the state's deteriorating financial operations," Moody's wrote. The rating agency downgraded the state's general obligation rating to Baa1 with a negative outlook over the ongoing impasse.

The legislative package also frees up $1 billion for lottery winners, while $31 million will go to state transportation officials to purchase road salt, and $165 million for home heating bill assistance.

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