Aug 23 Illinois' failure to improve its sagging
public retirement system during a special legislative session
last week is a negative credit factor for the state, Moody's
Investors Service said.
"Inaction on the state's pension liabilities will further
strain this lowest-rated U.S. state's finances," the credit
rating agency said in a report on Thursday.
Illinois has an A2 general obligation rating, the lowest
among states Moody's rates. Before last Friday's special
session, Governor Pat Quinn warned that the state's credit
ratings could slide further if action was not taken to lower the
$83 billion unfunded pension liability.
However, the one-day session produced no solution for the
worst-funded state pension system in the United States amid
political squabbling and labor protests.
"There are six legislative session days in late November and
early December, but Illinois may not agree on an approach to
pension funding until early 2013," Moody's said in the report.
"In the meantime, the funding challenge will keep growing."
Citing the report, Illinois Treasurer Dan Rutherford said
the state could be headed for another rating downgrade that will
increase its borrowing costs. Moody's cut Illinois' rating in
January and Standard & Poor's Ratings Services has warned of a
multiple-notch downgrade if the state makes no progress this
year on its pension liability and structural budget imbalance.
Pension costs have consumed revenue from 2011's big hike in
income tax rates, according to Rutherford.
"Illinois' available resources can neither pay off its
massive debt nor cover the cost of providing needed state
services to all of its citizens," he said in a statement.
"Comprehensive, constitutional, and fair pension reforms are
required to reverse this situation."
Meanwhile, Moody's said legislation passed by Michigan
lawmakers last week for the state's Public School Employees'
Retirement System is a positive credit factor for school
"The reforms will reduce (districts') pension-related
budgetary expenses by capping the contribution rate at the
fiscal 2012 level, thus shifting subsequent pension
contributions to the state," Moody's said.
It added that increased employee contributions for pensions
and retiree health care will reduce the system's unfunded
liability "to some degree."