- The upgrade will help the state market its next bond sale
- Illinois remains the lowest-rated state government
S&P Global Ratings upgraded Illinois' general obligation debt to A from A-minus on Tuesday, citing a track record of capable fiscal management, including multiple consecutive balanced budgets, deft actions to counter imbalances and a buildup of operating reserves and liquidity. The outlook is stable.
Concurrently, S&P raised its ratings on Illinois' Build Illinois sales tax bonds to A-plus from A, the state's moral obligation debt to BBB from BBB-minus, and the Metropolitan Pier and Exposition Authority's expansion project bonds to A-plus from A.
The S&P upgrade comes on the heels of
"One of the key things that was part of the impetus for the upgrade is that we are now able to of quantify the H.R. 1 changes, the changes to Medicaid and (the Supplemental Nutrition Assistance Program), and we're able to see the time frame, and we're able to come to a back-of-the-envelope calculation as to how this impacts the budget," Scott Nees, director and lead analyst at S&P, told The Bond Buyer.
"We look at that relative to Illinois' preparedness to deal with those changes and we think that is going to be manageable, but it is going to be painful," he said.
Illinois Gov. JB Pritzker's office said in a statement this is the 12th credit rating upgrade since his administration took office and the highest S&P rating for Illinois in over a decade.
"Working alongside the General Assembly, we have transformed Illinois from a state defined by fiscal instability into one earning recognition for responsible financial management," Pritzker said in the statement.
"Even as the Trump administration creates uncertainty and new challenges for states, we are strengthening our reserves, confronting our pension obligations, and putting Illinois on a path toward long-term financial security," he added.
Illinois saw 24 bond rating downgrades over the 15-year period leading up to Pritzker's inauguration in January 2019. When Pritzker took office, the state had nearly $17 billion in unpaid bills and depleted financial reserves, his office noted.
Illinois' rainy-day fund is still well below the average for all states, S&P said, but Illinois' reserves are at their highest level since the budget stabilization fund was created in the early 2000s. The rainy-day fund currently stands at $2.53 billion, or 5.1% of revenues, after a $161 million addition in fiscal 2026.
"Illinois has had a pretty easy go of it in terms of its budget the last couple of years, because the economy has been pretty stable and you've seen revenues performing ahead of forecast every single year," Nees said.
"FY26 was the first year in which we did see a little bit of turbulence, even adversity in terms of the state budget and the uncertainty in the overall macro environment," he said. "A lot of this was stemming from H.R. 1, which … ended up having an immediate impact on state revenues."
State lawmakers moved to decouple from parts of the H.R. 1 tax policy changes relating to corporate taxes during the veto session last fall.
"It was meaningful; you saw the state be able to claw back several hundred million dollars — that it would have otherwise lost — in a way that was fairly deft," Nees said. "And then we saw the governor put in an executive order that had all the state agencies hold up to 4% of their appropriations in reserve in anticipation of … any shortfalls that might be coming out of the federal policy."
Nees said it demonstrated an intra-year management capability "in response to a budgetary environment that was a little more turbulent than what we'd seen."
S&P noted in its rating report that Illinois remains the lowest rated state, due largely to its elevated pension liabilities and chronically underfunded pensions.
The rating agency said it nevertheless believes the state's conservative fiscal management, enhanced financial resilience and successive if piecemeal efforts to tackle long-term liabilities "place it in closer proximity to peers" and leave it well-positioned to manage looming credit risks.
Nees said the governor's plan to fully fund pensions, while incremental, would be credit positive if passed by the legislature.
"I think the governor has been pretty persistent in bringing this package back," he said. "He's been pretty consistent in communicating that he would like something like his proposal to go forward in the future. And so, if (Pritzker is) reelected … I would not be at all surprised if some version of this reemerges in a future legislative session."
But other challenges remain. The full effects of H.R. 1 are set to kick in over the near-term, and "that is one of the key things we're looking out for," Nees said.
The pivotal window for Illinois will be 2028 through 2032, Nees said, adding, in 2028-29, "you start to see the SNAP administrative changes and cost shifts really beginning to have a much more pronounced effect in state budgets."
And "starting in 2028, you see the kind of phased-in step-down of provider taxes that will affect both provider tax revenue and federal matching revenue, and have progressively larger effects in that time frame," he said.
He noted, while S&P is predicting 2.1% growth through the end of this year, the war in Iran and the interest rate trajectory inject "so much uncertainty" into the economy.
"If you were to see those two things go together in tandem, H.R. 1 changes phasing in at the same time as the economy is not performing up to what it's done the last few years, then those would be the two things we'd be looking at" as far as challenges facing Illinois, he said.
