Moody’s Warns Illinois Governor: New Taxes Might Make Illinois Residents Flee


Bond rating agencies almost always like tax hikes. But Moody's has a special warning for Illinois.

This is a guest post by WirePoints. The full report by Moody’s is proprietary.

Moody’s to Pritzker: "New Taxes Could Threaten to Increase the Outflow of Illinois Residents" by Ted Dabrowski and John Klingner.

New Illinois Gov. J.B. Pritzker got a warning of sorts from Moody’s ahead of the governor’s first budget address. The rating agency’s most recent report*highlighted the usual crises Pritzker must tackle: ballooning pension debts and chronic budget deficits. Moody’s rates Illinois just one notch above junk largely due to the state’s finances and malgovernance.

Moody’s says new revenue likely will be required to achieve stability, as you’d expect, because rating agencies love higher taxes. But for the first time, the agency has included outmigration among its top-three credit concerns. That matters because Pritzker’s number one prescription to “fix” Illinois is tax hikes, something that’s sure to accelerate Illinois’ out-migration trend and further erode the state’s tax base.

Moody’s calls it a “conundrum” for Illinois. From their report: “… the population loss and relatively sluggish employment trends suggest a degree of economic vulnerability that poses a conundrum: revenue growth from existing sources will be too tepid to offset escalating fixed costs, while new taxes could threaten to increase the outflow of residents.”

These new comments are significant because Moody’s has long considered tax hikes a budget-balancing option for the state. That’s not surprising since Moody’s priority is the well-being of bondholders, not taxpayers. The agency’s ratings reflect the likelihood that bondholders get repaid – and tax hikes make repayment more likely.

But that’s only true as long as tax hikes don’t destroy the tax base and, ultimately, make the repayment of bonds less likely. It appears the flight of Illinoisans has gotten so big that Moody’s can no longer ignore it.

Moody’s reported: “From 2013 through 2018, Illinois lost 544,541 residents through migration to other states (net of people who migrated into the state). This number amounted to 4.2% of Illinois’ 2013 population, the third-highest ratio among states [see Wirepoints graphic below]. These figures, though partly offset by foreign immigration and births, made Illinois one of only two states to lose population in each of the past five years.”

Which bring us back to Illinois’ usual problems.

Moody’s writes that Illinois is already stretched to the limit paying for pensions – yet the plans require still more just to keep the debt from growing: “Illinois faces burdensome – and growing – pension contribution requirements under state law, even though its annual pension payments are insufficient from an actuarial perspective.”

The ratings agency paints grim picture, especially considering Illinois taxpayers have seen state pension debts grow by $80 billion over the decade despite a quadrupling in the amount of money they’re putting in.

Illinois’ high tax rates, increasing out-migration, enormous debts and a near-junk credit rating should force Pritzker to pursue a constitutional amendment for pensions. A reduction in retirement debts – for both pensions and retiree health insurance – is Illinois’ only true option. But all indications show the governor is loathe to pursue an amendment.

Instead, look for Pritzker to ignore Illinois’ conundrum and the flight of Illinoisans to continue.

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The results speak for themselves. Illinois is a terrible place to conduct business.

It does not have the climate advantages of California nor the business environment of neighboring Indiana.

Illinois does have a fiscal and pension crisis in numerous cities Sadly, the only proposals on the books are 100% guaranteed to make matters worse.

Mike "Mish" Shedlock

No. 1-14

Why anyone would want to live in the climate of the upper midwest is beyond me. Companies are even crazy to setup shop there because productivity goes down during winter. This is the biggest advantage the south and southwest have. The same could be said of many parts of the northeast. The population migration to the south and west will continue. Even wealthy investors are fleeing the 50 states for Puerto Rico which now has a 4% income tax and no federal tax for residents. Puerto Rico set itself up as a tax haven for wealthy investors.


Sounds like they're going down the drain like every other socialist country.


Watch them come up with an outrageous sales tax if you plan on leaving the state. Also going in cahoots with other states to make it equally sucky everywhere. This is bad for other states as well. Do you want more residents? Will they vote in people like they did in Ill? Just like out here in rural KS, people moving in from the city to get away then start turning small towns into little versions of the hell they came from. Thank god im not on the list of desired places to move to. No offense to anyone but it is what it is.


For a country that prides itself on being ”special”, the US keeps showing complete ineptitude when it comes to managing pensions and health care. Yet, when you tell Americans that they should look at how other countries manage these two important areas, they will tell you that the US is better than everyone else, and to mind your own business! Funny.


NY governor Cuomo is getting the idea...."On Monday, he told his state's citizens that income tax revenues were coming in $2.3 billion below the expectations of just a month ago. "That's as serious as a heart attack," he said." All the while he keeps his hand on the monetary throttles toward the liberal utopia.