CHICAGO Jan 11 Illinois' inability to resolve
its huge public pension problem led Fitch Ratings to warn on
Friday it could cut the state's general obligation rating,
affecting about $26.2 billion of outstanding debt, if there is
no meaningful fix.
Fitch, which rates Illinois at A, pointed to the lack of
action on a pension reform plan during the state Legislature's
lame-duck session that ended on Tuesday.
"Fitch believes that the burden of large unfunded pension
liabilities and growing annual pension expenses is
unsustainable," the rating agency said in a statement.
It added that pension reform "is critical to the long-term
stability of the state's fiscal position," noting that Illinois
constitutional protections of pension benefits is strong and
that any pension changes are likely to be challenged in court.
Illinois has the most underfunded pension system among
states and Governor Pat Quinn and lawmakers have struggled to
come up with a solution to ease the $96.8 billion unfunded
Fitch said it will assess how the state addresses the
problem in the next six months and it warned that failure to
achieve "meaningful results" would lead to a rating downgrade.
A spokesman for Quinn said the emergency is not going away.
"The Fitch report speaks for itself," said Abdon Pallasch,
an assistant budget director. "This should be required reading
for every member of the new General Assembly."
The Democratic governor has repeatedly said that ballooning
annual pension payments are siphoning money needed for core
state services such as education, health care and public safety.
He has also warned Illinois risks having its credit rating
hammered lower, forcing the state's borrowing costs to rise.
Moody's Investors Service said last month it could downgrade
the current A2 rating, the lowest among states its rates, if a
pension fix remains elusive. Standard & Poor's Ratings Services
dropped Illinois to A with a negative outlook in August due in
part to the pension problem.
But majority Democrats did not call up any reform measures
for a vote earlier this week as public labor unions made it
clear they would challenge diminished pension benefits in court.
In the new legislative session that began on Wednesday, some
lawmakers reintroduced pension reform bills from the previous