Despite state downgrade, city of Champaign's credit still resilient

Despite state downgrade, city of Champaign's credit still resilient

During the summer, when Standard & Poor's downgraded the federal credit rating, I wrote that Champaign's finances were "resilient."

Last week, Moody's made Illinois its lowest-rated state in the nation when the credit agency downgraded the state from A1 to A2. According to Moody's, Illinois is behind even California when it comes to the states' ability to pay their bills (but don't worry, according to the other two agencies, Illinois is only the second-worst in the nation, ahead of California).

Despite the downgrade, it looks like the city of Champaign's finances are still resilient. Champaign Finance Director Richard Schnuer believes it will not affect the city's credit rating. He wrote this in an email to me:

"The agencies that rate the City's debt (Moody's and Fitch) have not made any announcements concerning possible adverse effects on local governments of the state downgrading. If the rating agencies had thought this was an issue they would likely have notified clients and the public."

Further, he said the city's credit rating was higher than the state's before the downgrade, anyway (actually, the city has the highest possible credit rating), so the overall picture has not changed.

That being said, there's still a small risk to the city in regards to its short-term finances. Illinois municipalities receive a portion of income tax revenue in the form of payments from the state. Those payments are proportional to a city's population, and for Champaign, it's several million dollars per year.

And like all the state's bills, there's not always a guarantee that payments will be made on time -- or ever.

Gov. Pat Quinn has said in the past that he has considered cutting those shared revenue payments to municipalities. The downgrade of the state's credit rating doesn't necessarily add to that threat, but it does raise the question of whether the state would cut shared revenue to pay other bills (pension payments, for example) in an attempt to improve its credit rating.

Just like with your personal finances, a lower credit rating ultimately affects the state's ability to get good interest rates on loans. Higher interest rates make those multi-million dollar capital projects that much more expensive, which means a heavier burden for taxpayers.

A hypothetical shared-revenue cut wouldn't affect the city's long-term ability to pay its bills (like pensions or bonds), Schnuer wrote, so it's unlikely to affect the city's credit rating. But it could have a short-term effect.

"If the State were to cut a significant portion of state-shared revenue to municipalities, the City would have to increase revenues or cut services to fill the budget gap," Schnuer wrote.

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Sid Saltfork wrote on January 12, 2012 at 3:01 pm

Notice how the story is about Champaign's credit rating; but the News Gazette manages to inject the State of Illinois pension issue?   If the state reduces, or cuts it's state-shared revenue to municipalities; Champaign would have to increase revenues.  This is the fault of state pension holders, of course, in the view of the News Gazette.   If revenues need to be increased, just steal the pensions of the workers?  Theft is theft no matter how you justify it.  

Patrick Wade wrote on January 12, 2012 at 3:01 pm
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Thanks for your comment.

I apologize if I gave the impression that pensions are the only problem. I only meant to use it as an example of where the state might start sending more money. I chose to single out pensions because, since the downgrade, it's the only kind of reform that I've seen mentioned by state officials as a potential solution to the state's dismal credit rating.

That being said, the state is also behind on all kinds payments to all kinds of agencies, from social services to municipalities to bond payments. I didn't focus on any of these, because I haven't seen reports of them being mentioned by state officials in the context of last week's credit rating downgrade. But these, too, all factor in to Moody's decision.

Sid Saltfork wrote on January 12, 2012 at 10:01 pm

I understand.  The state owes money to various groups.  My concern is that the legislators are unwilling to curb spending, especially for their pork barrel projects in their home areas.  They, also, have assisted corporations in legislation (tax cuts) in return for "campaign donations".   The public cannot continue to pursue "wants" versus "needs".   If a municipality wants to pursue investigations, buy more statues, or fund summer youth programs; they should fund it thru tax increases; not by pushing for state employees pensions be stolen to fund it.  There is not enough money.  Now, it seems that the only solution being sought is to violate the state constitution; and steal public employees pensions.  Your right.  The only thing "mentioned by state officials" is pension "reform".  Please look at the legislators.  Look at their "campaign donations"; who provided them; and what they got for the payoffs.  Look at their pension system which they have funded while skipping (stealing) employee pension funding.  I understand your use of the pension reform in your article; but please state all of the facts.  The employees did nothing wrong.  The legislators did the wrong; and the public encouraged it. Thanks for responding.