Credit rating agencies act on state’s woes
By Mark Fitton
Illinois News Network
SPRINGFIELD — Two credit rating agencies on Monday took note of Illinois’ financial woes, including its inability to make its November pension-system payments.
Fitch Ratings announced it has has downgraded the rating on $26.8 billion in outstanding Illinois general obligation bonds to BBB+ from A-.
Ratings on bonds related to the state based on its appropriations have been downgraded to BBB from BBB+, Fitch said.
Fitch also reduced its rating outlook for Illinois from stable to negative.
Moody’s Investor Services took a lesser measure, issuing Illinois a “credit negative” but not downgrading the state’s credit rating.
Moody’s rates Illinois at A3 with a negative outlook.
Both credit rating houses have Illinois as the lowest-rated state in the nation.
Fitch said its actions reflect “reflects the deterioration of the state’s financial flexibility as its budget stalemate continues deep into the current fiscal year.
“With the national economic expansion now extending into a sixth year, Illinois has failed to capitalize on economic growth to restore flexibility … or to find a solution to its chronic mismatch of revenues and expenditures,” the Fitch statement said.
“Once again, the state has displayed an unwillingness to address numerous fiscal challenges, which are now again increasing in magnitude as a result,” Fitch said.
Moody’s noted it had calculated Illinois’ adjusted net pension liabilities to be 260 percent of the state’s revenues, the largest of any state and approximately five times higher than the 50-state median of 52 percent for the same time period.
Not only is Illinois’ long-term debt picture not improving, Moody’s said, the short-term view isn’t good.
“With the lapse of the (2011) tax package and the Illinois Supreme Court’s rejection of pension reform last May, the state reverted to accumulating unpaid bills, which the comptroller’s office estimates at $6.9 billion. As the budget impasse continues, less scope is available to address the current year’s budget gap through either spending reductions or revenue increases,” the agency said.
Like Fitch, Moody’s noted “the continued failure of the state’s political leadership to enact a fiscal 2016 budget.”
Illinois Comptroller Leslie Geissler Munger, R-Lincolnshire, last week announced the state would be unable to make its November pension-systems payment of about $560 million.
The state will attempt to make up for the late payments in the spring, she said. Pension checks will still go out, but the state’s retirement systems will have to dip into the body of their already under-funded accounts.
Illinois is in its fourth month of fiscal year 2016 without a budget, but it is spending at a rate said to put it on track for a $5 billion shortfall as it funds primary and secondary education and items mandated by court order and continuing appropriation.
Republicans led by Gov. Bruce Rauner of Winnetka and legislative Democrats who hold supermajorities in the General Assembly remain at an impasse that has changed little since May.
Rauner complains that Democrats have sent him plans for billions heavier in spending than in estimated revenue. While Rauner says he’s willing to discuss new revenue, he also says he won’t sign off until he gets at least some of his agenda items, which he considers fundamental reforms.
Democrats complain Rauner and the GOP have been unwilling to work with them until the governor gets what he wants, and they don’t consider his agenda items directly related to the annual budget, which they consider the state’s most pressing need.
Rauner answers that his proposals are necessary to retain and attract jobs and improve the state’s long-term economic health.
One political analyst said the financial news might add a bit of pressure for the Republican governor and legislative Democrats to renew talks on a compromise.
“I think …. (it) adds to the drumbeat that is becoming louder and underscoring the idea that the governor and the speaker (Michael Madigan, D-Chicago) need to come together to resolve this stalemate,” said Jim Nowlan, a former Republican member of the House and retired senior fellow with the University of Illinois Institute of Government and Public Affairs.