Lack of pension fix pushes Illinois' credit rating lower
CHICAGO (Reuters) - Illinois' bond rating slid down the credit scale on Thursday to the lowest level in the state's history as Moody's Investors Service cut it a notch and Standard & Poor's Ratings Services warned that the state could fall into the triple-B category.
The Moody's downgrade prompted Illinois Governor Patrick Quinn to call a special legislative session for June 19 to address Illinois' nearly $100 billion unfunded pension liability. The state legislature adjourned May 31 without addressing public pension reform, and House Speaker Michael Madigan did not attend a meeting of legislative leaders Tuesday called by the governor to seek a compromise.
The state now has the lowest general obligation ratings in its history after the Moody's downgrade to A3, which matches the A-minus the state received from Fitch Ratings on Monday and the A-minus S&P gave the state in January. And those ratings, which carry negative outlooks, are the lowest among all the U.S. states.
Any further downgrades by the three major rating agencies would put Illinois into the triple-B category, which is the low end of investment grade.
S&P said only three states - California, Louisiana, and Massachusetts - ever have had ratings as low as Illinois' current level in roughly the past 50 years. California was the last to see its credit sink so low, in 2004.
The downgrades come as Illinois had been expected to sell up to $1 billion of general obligation bonds as soon as this month. If the sale goes forward, the state likely would need to offer a higher interest rates on its securities because of the lower ratings.
Lawmakers adjourned their spring session without passing pension reform as House Speaker Michael Madigan and Senate President John Cullerton each backed different approaches and could not work out a compromise. Lamenting the negative rating news, Quinn called the special the legislative session "to finish their job for the people of Illinois."
Previous attempts to get the Democrat-controlled legislature to vote on pension reform have fizzled, including a special session Quinn called last August. The new session would require a three-fifths majority vote in each chamber to pass a law.
Illinois Senate Republican Leader Christine Radogno questioned the usefulness of Quinn's move.
"I appreciate the call - but I'm not sure what dynamics have changed in this pension reform discussion," she said in a statement. "Clearly there is a rift amongst Democrat leaders."
And the rating agencies are not convinced anything will happen quickly.
"Our rating now assumes the government will not take action to reduce the state's pension liabilities any time soon," Moody's said in a statement.
S&P, meanwhile, said Illinois "is approaching a precipice from a credit standpoint" because it failed to deliver on public pension reform.
"While it is unusual for a state rating to fall into the BBB category, a lack of action on pension reform and upcoming budget challenges over the next year could result in further credit deterioration, particularly if it translates into weaker liquidity," the rating agency said in a statement.
Fitch on Monday also warned that Illinois' lower rating could be in further jeopardy if the state does not take action to stabilize its finances ahead of the planned partial rollback in 2015 of big income tax rate increases enacted in 2011.
Illinois' worst-in-the-nation pension funding was created by years of skipping and skimping on payments, and various reform efforts have failed in several legislative sessions.
Billions of dollars in annual pension payments for state workers, legislators, judges, public school teachers and higher education employees in Illinois are squeezing out spending for core state services such as health care and public safety.