CHICAGO Dec 10 Illinois' inability to so far
fix its woefully underfunded public pension system could derail
plans by the state to continue to issue debt to fund an ongoing
infrastructure improvement program, Governor Pat Quinn said on
"You can't do that building and issue those bonds if you
have this severe situation overlooking you," the Democratic
governor said at a media briefing hosted by Bloomberg News,
adding that the state could face more downgrades of its already
relatively low credit ratings among states.
That in turn could raise borrowing costs, leaving fewer
dollars to spend on construction that boosts the state economy,
Inaction on a huge unfunded pension liability and structural
budget deficit has already fueled downgrades this year. In
January, Moody's Investors Service dropped Illinois' rating to
A2, the lowest rating level among the U.S. states it rates.
Standard & Poor's Ratings Services cut Illinois to A with a
negative outlook in August.
Illinois sold $5.1 billion of bonds so far this year, making
it the third biggest debt issuer in the U.S. municipal market in
the first three quarters of 2012 behind the New York State
Dormitory Authority and California, according to Thomson Reuters
data. Illinois is the fifth most populous U.S. state.
The state's fiscal woes have led investors to demand hefty
yields to buy its debt with Illinois' so-called credit spread
over Municipal Market Data's benchmark triple-A scale lingering
as the second highest behind Puerto Rico among government
issuers tracked by MMD.
Illinois' credit spread for 10-year bonds has tightened,
however, to 129 basis points in the week ended Dec. 7 from 140
basis points in the previous week. Almost a year ago, the spread
was a much-wider 174 basis points.
Quinn said his deadline for state lawmakers to pass pension
reform legislation is Jan. 9. The Democrat-controlled General
Assembly, which returns for a lame-duck session on Jan. 2,
failed to pass pension bills during its regular session that
ended in May or during a special session the governor called in
"We don't want to end up like the Titanic. We don't want to
sink. We've got to act," Quinn said, who noted the state's
pension liability grows by about $17 million a day.
Years of skipping or skimping on pension payments left
Illinois with an unfunded liability of $96.8 billion at the end
of fiscal 2012, a sharp jump from $83 billion in the prior
fiscal year. The funded ratio, which was already the lowest
among states, sank to 39 percent from 43.3 percent. A funding
level of 80 percent is considered healthy.
Quinn said his administration was involved with actuarial
number crunching for a bipartisan proposal that was unveiled by
House lawmakers last week.
That plan would boost worker contributions, raise retirement
ages and limit cost-of-living increases for retirees with the
aim of fully funding the pension system in 30 years. It would
also gradually shift pension payments currently made by the
state onto local school districts, universities and
The governor said the proposal includes reforms he has
pushed for, adding that any new pension-related laws will
inevitably be challenged, leaving state courts to decide if they
A coalition of public worker unions and Senate President
John Cullerton have raised questions on whether the measure
could violate protections of pension benefits in the Illinois
Quinn said pension payments, which jumped to more than $5
billion in the current fiscal year from $1.4 billion a few years
ago, would squeeze out funding for essential services such as
education, health care and public safety.