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UPDATE 1-Moody's revises Illinois credit outlook to negative on pensions
December 13, 2012 / 11:46 PM / in 5 years

UPDATE 1-Moody's revises Illinois credit outlook to negative on pensions

CHICAGO, Dec 13 (Reuters) - The likelihood of persistent and worsening public pension funding problems for Illinois 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 huge $96.8 billion unfunded pension liability and 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 pension reform.

“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 day.”

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 Moody’s rates.

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