Even after the state of Illinois increased its tax on gasoline with funds expected for Chicago, a credit rating agency has downgraded the city’s motor fuel tax bonds to speculative-grade, commonly called “junk,” status.
Fitch Ratings downgraded Chicago’s Motor Fuel Tax Bonds to BB+ Thursday and, to reflect the state of Illinois’ credit, the bonds have a negative outlook. The city’s motor fuel tax bonds were previously rated BBB- with a stable outlook.
The affected series 2013 bonds total $179.1 billion.
“Fitch expects fuel tax revenue growth to remain stagnant (absent policy action) following a significant bump in revenues in 2020 as a result of a doubling of the tax rate effective July 2019,” the rating agency said in a report.
The city’s rating could be improved if the state’s rating improves, but both have negative outlooks.
“Motor fuel tax revenues are likely to remain relatively stagnant, notwithstanding the bump expected due to the increase in the rate and the subsequent indexing of the rate to the CPI,” the report said. “This reflects Fitch’s expectations of a long-term, national trend of stable to declining fuel consumption, and stagnant population growth.”
“Fitch expects a recession of unprecedented depth since World War II and pressure on local government tax revenue from coronavirus containment measures that have severely restricted business activities and non-essential travel to slow the spread of the virus,” the agency said.