Bond Rating Agency Says Graduated Income Tax Passage May Not Improve Illinois’ Credit Rating

Using revenue increases coming from the proposed graduated state income tax will only help improve the state’s bond rating, according to Moody’s, if most or all of the incremental revenue is put towards correcting underfunded pension obligations rather than being used to pay for new state programs in other areas. Moody’s currently rates Illinois government obligations at Baa3, just one step above junk status.

The current bill putting a referendum on the proposed amendment to the state constitution on the November 2020 ballot does not require any of the projected additional revenue to be put toward pension obligations. Moody’s warns that the graduated tax could increase revenue unpredictability in future years, resulting in a credit downgrade, rather than an improvement.