CHICAGO -- Illinois' third consecutive annual population loss poses a credit negative that underscores weak economic growth, a rating agency said Wednesday.

Tepid growth trends "will complicate efforts to enact a balanced budget and keep up with mounting pension funding pressures," Moody's Investors Service wrote in a commentary included in its weekly outlook piece.

Illinois bucked the national trend which from 2013 to 2016 saw an increase of 2.2%. In contrast, Illinois shrank by 0.6% as thousands of residents departed for other states, Moody's said. Illinois was one of only four states that recorded an annual population loss from 2014 through 2016, according to U.S. Census Bureau data released late last month.

West Virginia saw a 1.2% decline in its share of population due to the contraction of the coal industry. Connecticut and Vermont also saw losses.

Illinois is not the only Midwestern state to experience declines. Four of five bordering states saw negative migration -- where more leave a state than move into it – in recent years and net migration has negatively impacted 31 states since the last census.

"The case of Illinois appears more severe; its annual outflow of residents steadily worsened during the past three years," Moody's noted. Many of the departing residents have left for Indiana and Michigan which have seen stronger job growth, as well as warmer climates such as Arizona, California, and Florida.

"These states may be attractive for their vibrant economies, warmer climates or aspects favorable to retirees," Moody's said of the latter three.

Illinois could rebound.

"The Midwest states that attract large numbers of Illinois residents are seeing larger proportions of their own populations relocate to Illinois," Moody's said. "Still, stronger economic growth in the state clearly would lure more job seekers from outside, bringing Illinois' flow of exiting and arriving migrants closer to balance."

Without a shift, the state's economy could erode and that would make it all the harder for Illinois to dig itself out of its growing budget hole amid a prolonged budget impasse driven by political gridlock.

"A self-reinforcing cycle of population loss and economic stagnation could greatly complicate Illinois' efforts to stabilize its finances," Moody's warned.

Illinois lawmakers return to work Monday for a two-day lame-duck session, before the new legislature that was elected in November is sworn in on Wednesday. Democrats held on to their majorities in both chambers and retained a three-fifths supermajority in the Senate but lost it in the House.

Republican Gov. Bruce Rauner and Democrats remain at loggerheads over budget issues. The governor refuses to back a tax hike without Democratic support for his policy and governance proposals which they oppose. A stopgap plan that funded some government expenses not covered by continuing appropriations or court orders and consent decrees expired Jan. 1.

The state faces a growing $5 billion deficit – due to the partial expiration of a 2011 income tax hike last January -- and a bill backlog that was at $10.8 billion Wednesday.

"Even assuming the state reaches a consensus on addressing its current operating deficit and benefits from steady economic growth, Illinois' pension funding requirements as a share of budget likely will rise to 30% (from about 23% currently) in coming years," Moody's warned.

The latest revenue data from the legislature's non-partisan Commission on Government Forecasting and Accountability paints a bleak picture of the state's revenue situation.

Overall base revenues fell $257 million in December.

"Troubling weakness in income tax receipts coupled with continued dismal federal source reimbursements were responsible for the bulk of the decline," wrote the commission's revenue manager, Jim Muschinske.

Revenues are off $865 million, or 6.1%, for the first half of the fiscal year that ends June 30.

"To summarize, to date the state has experienced across the board revenue weakness. The most closely economically-tied major sources are experiencing levels of weakness not seen since the last recession," Muschinske wrote.

Gross personal and corporate income taxes and sales taxes are down 4.5%. Federal source revenues have fallen sharply by 22.4%. Weaker revenues have limited the state's ability to direct more resources to reimbursable spending and as a result, federal source receipts have suffered, the report notes.

Illinois is the lowest rated state, with its general obligation rating in the triple-B category and warnings that further erosion could occur if progress is not made on tackling its budget and pension woes.

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