S&P lowers Illinois’ credit rating over pension issues
BY DAVID MCKINNEY and DAVID ROEDER Sun-Times Media August 29, 2012 8:50PM
Updated: October 1, 2012 5:37PM
Illinois’ failure to solve its $83 billion pension crisis resulted in a credit downgrade Wednesday from a top Wall Street bond-rating agency in a move that triggered a new round of partisan finger-pointing.
Standard & Poor’s Rating Services changed its rating on Illinois’ general obligation bonds to “A” from “A+” and assigned a negative outlook to the state’s finance state.
“The downgrade reflects the state’s weak pension funding levels and lack of action on reform measures intended to improve funding levels and diminish cost pressures associated with annual contributions,” Standard & Poor’s credit analyst Robin Prunty said in a prepared statement. “The downgrade also reflects continued financial weakness despite significant measures in the past two years to improve structural budget performance.”
The move, which Gov. Pat Quinn said Wednesday was not surprising, means that costs for state government to borrow for such things as construction projects will become more costly.
“Over and over again this summer, I made clear that if we do not act on pension reform, the state of Illinois would suffer the consequences. Now it has,” Quinn said in a prepared statement. “Eliminating our $83 billion unfunded pension liability is vital to getting our financial house in order. Today’s action by Standard & Poor’s is more evidence that we must act.”
The S&P action comes less than two weeks after the Illinois General Assembly failed to take action on pension debt. Quinn wanted the Legislature to vote on a debt-reduction measure during a special session, but lawmakers adjourned after taking no action.
On Wednesday, Republicans quickly cast blame on the Democratic governor for not having the political capital to muster support in the Democratic-led General Assembly for a pension-reform package.
“It’s a devastating demonstration, again, of his catastrophic failure of leadership,” Senate Minority Leader Christine Radogno (R-Lemont) said from the Republican National Convention in Tampa. “He knew this was coming. We have not met at all over pensions all summer. I know he’s out there pointing the finger, but he has absolutely no credibility whatsoever on this issue.”
Even Wisconsin Gov. Scott Walker, a Republican, joined in needling Quinn and the Democratic leaders of the Illinois Legislature.
“There could not be a more stark contrast between Wisconsin and Illinois,” Walker said in a prepared statement. “Political leaders in Illinois kicked the can down the road, raised taxes, and ignored fiscal realities. Now, they’re realizing the consequences of their actions: credit downgrades and negative outlooks.”
Only California has a lower rating from S&P, but the service says the outlook for California is positive. Illinois falls into the “negative outlook” category.
State officials said they were afraid S&P would order a “double downgrade,” a two-notch rate reduction, as a result. While only a one-notch cut was ordered, S&P made clear with its negative rating that future downgrades could occur.
The lower rating applies to more than $1 billion in general obligation bonds.
The Moody’s rating service has also warned that it may lower the state’s rating.
Lower ratings can raise the interest rate Illinois must pay when borrowing money.
Illinois retirement systems have the country’s largest gap between the money available and what they’ll eventually pay out in pensions. Officials have been deadlocked for months over what to do.
Quinn said he intends to call the four legislative leaders back together for a meeting in “early September” to talk about how to pick up the pieces on a pension deal.