Champaign and Springfield are among the cities in Illinois that have the most to lose because of the state's poor fiscal condition and "will suffer the most as it tries to get on a long-run path to a sustainable budget," says a report by Moody's Analytics.
"The University of Illinois will likely be forced to shoulder an ever larger share of its educational needs as the state looks to restructure its pension system. While the university relies increasingly more on other sources of funding to supplement state appropriations, its ability to withstand further reductions is limited. Pension reform measures that shift some of the burden from the state onto the universities and local communities are also a threat."
Further, the report says that potential cuts in federal spending also will hurt the local economy.
"Although Illinois is not overly exposed to possible defense cuts, it would be among the hardest hit by reductions to nondefense discretionary spending because of its reliance on federal aid," said the report. "Federal grants subject to sequester account for 8.5 percent of Illinois' revenue, the second highest share in the nation after South Dakota. Among the state's metro areas, Champaign is most exposed. Although some of the federal money goes to financial aid grants, the bulk goes to research institutes, which are important drivers of private sector growth, as personnel and research ideas drift into private companies and university spin-offs."
On the other hand, Moody's was optimistic about the agricultural economy.
"Despite the strong competition from agricultural powerhouses Brazil, Argentina, India and China, Illinois' farmers will benefit from a growing global economy. Domestic and international policy developments point to increased openness of agricultural markets," said the report.
Alternative energy sources, including renewable sources that are eligible for tax breaks, are expanding markets for agricultural products, Moody's noted.
"The price of oil, now in the $95 to $100 per barrel range, is likely to rise only slowly over the course of this year, but it will increase steadily in the medium term. This will make alternative energy production, in which Illinois is focused on ethanol, more economically viable," said the report.
It also predicted that farm subsidies "will remain an integral component of U.S. agriculture," although the budget deficit could result in a reduction in subsidies down the road.