CHICAGO Dec 4 Credit ratings agencies said on
Wednesday that Illinois' pension reform bill was a welcome
development, though it is unclear whether it will improve the
state's credit rating, which is the lowest among U.S. states.
Lawmakers in Illinois passed a pension reform bill on
Tuesday to address a $100 billion unfunded liability, over the
objections of public labor unions opposed to cuts in retirement
"Our immediate reaction is that it appears the state has
done something pretty significant on the pension reform front,"
said Ted Hampton, an analyst at Moody's Investors Service,
pointing to changes in cost-of-living adjustments for retirement
payments, a 30-year funding plan and higher retirement ages.
But he added that Moody's needs to analyze actuarial data to
determine how the bill will affect Illinois' A3 credit rating,
which currently carries a negative outlook.
Fitch Ratings called the passage of the bill "a positive
indication of the state's willingness to take action on this
complicated issue after many failed attempts."
The credit agency, which rates Illinois A-minus with a
negative outlook, said it will be analyzing the reforms to
determine their outcome on pension funding levels and state
Standard & Poor's Ratings Services, which also rates
Illinois A-minus with a negative outlook, will also be reviewing
data for the reforms, said S&P analyst Robin Prunty.
"I think we certainly highlighted the need for pension
reform as it relates to (Illinois') overall credit profile," she
The ratings agencies noted legal challenges to the pension
changes were expected from the state's public labor unions,
which strongly opposed the bill for breaching a state
constitutional prohibition against diminishing retirement
benefits for public workers.
Illinois Governor Pat Quinn is expected to sign the measure
into law in the coming days, but it does not take effect until
June 2014. Litigation could stall implementation of the reforms
During Tuesday's debate on the bill, several lawmakers
pointed out that Illinois has the lowest credit ratings among
states due largely to its inability to rein in pension costs.
Illinois has a nearly $100 billion unfunded pension liability,
which the reforms hope to immediately trim by 20 percent. Bill
supporters said the pension changes will save the state $160
billion over 30 years.
The credit cloud over the state has led investors to demand
heftier yields for Illinois bonds. A planned sale of $350
million of taxable general obligation bonds by the state next
week may show if the passage of pension reform has changed