report found that state budgets across the U.S. are in a much
better position coming into fiscal 2023 and are structured to
combat inflationary and macro pressures over the next several
“Enacted budgets have effectively moved from restoring cuts
taken during the brief but severe downturn to programmatic
spending, while also adding to reserves and reducing taxes,”
Fitch Senior Director Karen Krop said.
The enacted budgets consider potential economic and geopolitical
headwinds. After historically strong U.S. GDP growth of 5.7% in
2021, Fitch expects growth to slow sharply in 2022 to 2.9% and
then further to 1.5% in 2023, due to rapidly rising interest
rates. GDP in the first two quarters of 2022 showed negative
The report said strong labor markets, while integral to state
revenue strength, also pose a challenge to government and school
districts in recruiting and retaining employees.
Senior Director Eric Kim said all 50 states have enacted budgets
as fiscal 2023 gets underway thanks largely to surging revenues.
“There are of course outliers, Illinois being one of them as the
only state in the BBB category, but for the most part states are
pretty well positioned to deal with downturns,” Kim said of
Illinois' lowest-in-the-nation credit rating.
A rating denotes “good prospects for ongoing viability.” The
financial institution’s fundamentals are adequate, such that
there is a low risk that it would have to rely on extraordinary
support to avoid default. However, adverse business or economic
conditions could impair their standing.
Just as an individual consumer with bad credit has to pay higher
interest rates, the lower the credit rating for a taxing body,
the more the taxpayers have to pay in interest to pay back
bonded debt that governments issue.
Despite the budget requiring annual pension system contributions
to reach 90% funded by 2045, Kim said the amount being set aside
each year is inadequate to fully address the state’s pension
burden, and the contribution demands will grow over time if the
state continues to underfund the systems.
Kevin Bessler reports on statewide issues in Illinois
for the Center Square. He has over 30 years of experience in radio
news reporting throughout the Midwest.