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Illinois' already disastrous financial situation worsened Friday as another credit rating agency downgraded its rating to the worst of any state in the country, blaming lawmakers' ongoing failure to resolve a multibillion-dollar pension crisis.
Standard & Poor's rating service said Friday that the rating on the state's general obligation bonds was downgraded to A- from A. The agency also gave an A- rating to $500 million in general obligation bonds that the state plans to release next week. The agency says the outlook is negative, an indication it could take the unusual step of further downgrading the state if conditions don't improve.
The downgrade is just the latest warning from the New York bond houses about the state's ongoing credit deterioration. It means taxpayers will likely pay a higher interest when the state issues bonds, or borrows money, for big items such as construction projects.
Speaking at a press conference on an unrelated topic Friday, Democratic Gov. Pat Quinn said "the pressure is higher than ever" for lawmakers to pass pension reform — something they failed to do during a special legislative session last year and in a lame duck session that ended earlier this month, despite urgent pleas from Quinn and other leaders.
"We've got to put our seatbelts on here and understand the rating agencies won't give us better marks until the legislature passes Senate Bill 1 and gets the job done," Quinn said, referring to a recently proposed pension reform bill. "That's really the message the credit rating agencies are screaming at the top of their voice. I've heard it, and I think the members of the legislature need to hear it as well."
Illinois has a $96 billion unfunded liability in its five state-employee pension funds, due to decades of shorting or skipping its pension payments. To catch up, the state must allocate nearly one-third of its general revenue annually to pensions, putting a squeeze on money for services such as education and health care.
Standard & Poor's analysts said Friday the new rating reflects what the agency sees as the state's "weakened pension-funded ratios" and lack of action on reform measures.
"While legislative action on pension reform could occur during the current legislative session and various bills have been filed, we believe that legislative consensus on reform will be difficult to achieve given the poor track record in the past two years," analysts said.
Moody's Investors Service gave Illinois its worst rating of any state in January 2012. Earlier this month — days after lawmakers left the lame luck session without a pension deal — Fitch Ratings changed Illinois' financial outlook to "negative" from "stable," an indication that a ratings downgrade could be coming.
In its report Friday, Standard & Poors analysts said even if Illinois is able to pass pension legislation soon, the state is likely to face a legal challenge, so it could be years before the budget situation or the unfunded liability improve. That, along with an income tax increase that's scheduled to expire on Jan. 1, 2015, contribute to the state's negative economic outlook.
Illinois Treasurer Dan Rutherford, a Republican who's indicated he may challenge Quinn in the 2014 race for governor, said lawmakers' inaction "has our great state headed for a fiscal disaster."
"It is beyond irresponsible to let this continue," he said.