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.

More From Wirepoints

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

Comments (28)
No. 1-14

As soon as Obanba builds his new prebsidechull lie-berry in Chicago, things will turn around. You just wait and see.


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

Obviously, some Illinois residents are already fled due to previous new taxes. Newer new taxes will make other residents flee for their lives.

"Instead, look for Pritzker to ignore Illinois’ conundrum..."

Apparently he already has, since he said no cut in pensions. The question is, when do the majority of people of Illinois, tax revolt? It took a tax rate of 46% to get the French to put on their yellow vests.


Moody's is hardly honest if it cannot place cuts in government programs ahead of tax increases as part of a fiscal solution.


All states have the exact same problems in varying degrees......anything (everything)not tied to gov't ,not dependent on a gov't "check",gov't contract,gov't subsidy,supported by GOVERNMENT is leaving or goin outta business.


Dangerous times all over. The time when the unfunded pension crisis could have been managed and avoided is past. There are now only two possible outcomes. One leads through Stockton, San Bernardino and Detroit to bankruptcy. The other leads through the Weimar Republic, Zimbabwe and Venezuela to insolvency. Politicos everywhere are desperately hoping they can slip out the door before the crap sandwich they've made explodes on their watch.