CHICAGO Dec 13 Illinois' public pension
funding problems, likely to persist if not worsen, led Moody's
Investors Service on Thursday to revise the state's credit
outlook to negative from stable, putting more pressure on state
lawmakers to act.
Illinois' finances are buckling under a $96.8 billion
unfunded pension liability while Governor Pat Quinn and various
state lawmakers are pushing to get various reform measures
passed by the legislature in early January.
But Moody's, which affirmed Illinois' A2 rating, said the
passage of any reforms stands a good chance of being challenged
in court on the basis of strong state constitutional protections
for pension benefits.
"Political pressures, coupled with the threat of litigation,
may mean that any reforms enacted have only a marginal effect on
liabilities," Moody's said in a statement.
In the meantime, the state's problems could be exacerbated
by the partial expiration of income tax rate increases in fiscal
2015, leaving the state with a lower revenue base while pension
payments escalate, according to the rating agency.
Abdon Pallasch, Illinois' assistant budget director, said
the outlook revision underscores the need for comprehensive
"Every day that goes by without action, the pension problem
gets worse," he said. "As Governor Quinn has repeatedly warned
legislators, sky rocketing pension costs are eating up critical
services like education and public safety more and more every
Moody's warned that Illinois could face a rating downgrade
if pension funding deteriorates further, the state fails to make
a required and complete pension payment or enacts reforms that
have a limited impact on its pension liabilities.
At A2, Illinois' credit rating is the lowest among states
that Moody's rates.
A bipartisan proposal that surfaced in the Illinois House
last week would boost workers' pension contributions, raise
retirement ages and limit cost-of-living increases for retirees
with the aim of fully funding pensions in 30 years.
The plan would also gradually shift pension payments
currently made by the state to local schools districts,
universities and colleges.
Illinois has skipped or skimped on pension payments for
years, leaving it with the lowest funded ratio among states.
That ratio fell to 39 percent at the end of fiscal 2012 from
43.3 percent, with both well below the 80 percent level