Illinois credit rating sinks to worst in nation
Chicago Tribune: Illinois fell to the bottom of all 50 states in the rankings of a major credit ratings agency Friday following the failure of Gov. Pat Quinn and lawmakers to fix the state’s hemorrhaging pension system during this month’s lame-duck session.
Standard & Poor’s Ratings Service downgraded Illinois in what is the latest fallout over the $96.8 billion debt to five state pension systems. The New York rating firm’s ranking signaled taxpayers may pay tens of millions of dollars more in interest when the state borrows money for roads and other projects.
“It’s absolutely bad news for taxpayers,” said Dan Rutherford, the Republican state treasurer. Illinois received its bottom-of-the-pack ranking when it fell from an “A” rating to “A-minus.”
That’s the same rating as California, but California has a positive outlook. Illinois’ fragile overall financial status netted it a negative outlook, putting it behind California overall. The ratings came out now because Illinois plans to issue $500 million in bonds within days.
Exactly how much Illinois’ credit-rating slide ultimately will cost taxpayers is unknown until the demand for the state’s bonds is measured in the markets. But Rutherford estimated the state will pay $95 million more in interest than if Illinois had a AAA rating, which is much higher.
Even before the downgrade was revealed, Quinn said in Chicago the “pressure is higher than ever” to solve the pension problem because “credit rating agencies are screaming at the top of their voice” for final action. The Democratic governor and lawmakers couldn’t cut a pension deal despite his deadline for the outgoing legislature to act before the new General Assembly was sworn in Jan. 9.
On Friday, Quinn called for lawmakers to take up legislation sponsored by Senate President John Cullerton, D-Chicago, that combines two rival pension plans emerging from the House and Senate. Both rein in costs by reducing benefits, an action unions have argued is unconstitutional. Cullerton spokeswoman Rikeesha Phelon said the rating agencies are “confirming what we all recognize. It’s time for action on pensions.”
House Republican leader Tom Cross of Oswego maintained Friday’s downgrade underscores the “gravity of Illinois’ fiscal crisis.” Moody’s already ranks Illinois 50th among the states, and Fitch ranks the state 49th but warns of a negative watch, Rutherford said.
One other ominous point in the Standard & Poor’s report is that inaction could lead to downgrading Illinois to “BBB,” an “unusual” low rating for any state. The agency noted a “lack of action on pension reform and upcoming budget challenges could result in further credit deterioration.”
“Most states will build reserves when the economy is performing well, and that typically provides a cushion when the revenues deteriorate,” said Robin Prunty, the S&P analyst who heads the agency’s state ratings group. “But Illinois has never really carried or accumulated any kind of budgetary reserves.”
On top of the pension meltdown, Illinois faces more grim budget duties. The state already has made major cuts in school funding in two straight budgets, and the Quinn administration predicted more cuts are on the way. In addition, a 67 percent increase in the income tax rate lawmakers imposed in 2011 starts to decline in 2015. And the state has billions of dollars in unpaid bills.
Maybe when Illinois hits $16TRILLION+ in debt Obama will really be impressed.