CHICAGO Aug 21 Illinois lawmakers' inability to
reform a woefully underfunded public retirement system at a
special session last Friday is likely to weigh on the state's
already relatively low credit ratings.
"We are in the process of reviewing the total credit
picture, including the budget, pensions, etc," Standard & Poor's
Ratings Services analyst Robin Prunty said on Tuesday.
"But certainly, the lack of action on pensions is not a
She added that the likelihood for action by the state in the
remainder of the year will also be a factor.
Many U.S. states are struggling with soaring pension costs
and most have implemented some reforms. In Illinois, pension
problems are pushing the state's weak finances to the edge.
S&P, which rates Illinois A-plus with a negative outlook,
put the state on notice in March that it could face a
multiple-notch general obligation rating downgrade if there is
no "credible progress" in taming its huge $83 billion unfunded
pension liability and on tackling a structural budget imbalance.
While the state enacted a $33.7 billion, fiscal 2013 budget
that included Medicaid reforms and spending cuts, the
Democrat-controlled General Assembly adjourned its spring
session on May 31 without a pension fix.
Governor Pat Quinn, a Democrat, called lawmakers back into a
special session last Friday that also produced no solution for
the worst-funded state pension system in the United States amid
political squabbling and labor protests.
Quinn has repeatedly warned that the lack of pension reform
was imperiling Illinois credit ratings and he said on Friday he
will be launching a grass-roots campaign w i th taxpayers and the
business community to press for legislative action.
Ted Hampton, an analyst at Moody's Investors Service, which
downgraded Illinois to A2 from A1 earlier this year, declined to
comment specifically on the unsuccessful special session. But he
noted that Illinois' pension obligation has been a factor in
downgrades and other negative rating actions in recent years.
"When we lowered the rating in January we definitely
factored in pensions as a very serious challenge for the state
and that identifying and implementing a complex solution would
not be an easy lift," Hampton said on Tuesday.
Illinois' A2 GO rating with a stable outlook is the lowest
among the states Moody's rates, while S&P rates only California,
at A-minus with a positive outlook, lower than Illinois. An
analyst at Fitch Ratings, which rates Illinois at A with a
stable outlook, had no immediate comment on the state's pension
Illinois and California have had their share of financial
problems that were exacerbated by the economic recession and
housing market collapse. And both states are big issuers of debt
in the $3.7 trillion U.S. municipal bond market.
Investors are demanding higher yields to invest in Illinois'
bonds as its so-called credit spread over Municipal Market
Data's benchmark triple-A scale for 10-year debt is the widest
at 157 basis points among major U.S. c i ty and state debt issuers
tracked by MMD, a unit of Thomson Reuters. California's spread
by comparison is less than half of Illinois' at 66 basis points.