CHICAGO Dec 10 Standard & Poor's Ratings
Services on Tuesday revised the outlook on Illinois' A-minus
credit rating to developing from negative due to the state's
passage of long-awaited pension reform last week.
The credit ratings agency said the revision to developing,
an unusual outlook designation for a state, indicates that
Illinois' rating could be raised or lowered during a two-year
"Although we view the consensus achieved by Illinois on this
difficult issue as positive from a credit standpoint, the
developing outlook reflects the implementation risk - legal and
budgetary - associated with various provisions of the pension
reform as well as the overall structural budget challenges
facing the state," S&P analyst Robin Prunty said in a statement.
Illinois' sweeping reforms to its public retirement system,
which were signed into law by Governor Pat Quinn on Thursday,
are aimed at easing a $100 billion unfunded pension liability
that has been squeezing out funding for core state services.
State lawmakers said the measure will cut the unfunded
liability by 20 percent and save the Midwestern state $160
billion over 30 years by reducing and suspending cost-of-living
increases for retiree pensions as well as with other changes.
Public labor unions have attacked the law, which takes
effect in June, for violating a state constitutional prohibition
against diminishing retirement benefits for public workers. The
unions' fight against the law could lead to a protracted court
S&P said invalidation or delayed implementation of the law
and a continued structural budget deficit would have negative
consequences for the state's credit. However, if the pension
reforms take hold and the budget imbalance is addressed starting
in fiscal 2015, "a higher rating would be warranted."
The outlook revision came ahead of Illinois' sale of $350
million of taxable general obligation bonds in competitive
bidding on Thursday. Fitch Ratings on Tuesday affirmed an
A-minus rating with a negative outlook for the issue, while
Moody's Investors Service on Monday rated the bonds A3 with a
Legislative inaction on pension reform led to a series of
downgrades that left Illinois with the lowest ratings among