Illinois' Credit Prognosis: Negative

Jul 24, 2014
Originally published on July 23, 2014 6:29 pm

Wall Street's view of Illinois' financial health has taken a hit, thanks largely to the state budget that took effect at the start of this month. Pensions also continue to be a drag. 

When Illinois Democrats passed the state's latest budget, many seemed to hold their nose. Credit ratings agencies are more direct: Standard & Poors has revised Illinois' credit outlook to "negative." 

It says the new budget "is not structurally balanced and will contribute to growing."

Translation: Illinois is spending money it doesn't have. The state income tax rate is set to drop at the end of the year, costing billions in revenue. And yet the budget does not contain billions in cuts; instead relying on one-time fixes to get by.

Standard & Poor's analyst Robin Prunty says the new state budget is to blame -- it's not "structurally aligned."

Prunty says during the recession, all states experienced difficulties. But they're getting over it, while Illinois is still grappling with budget gaps.

"Most states are in a fiscal recovery mode, where they're building reserve funds and addressing other fiscal challenges, and that's where Illinois diverges," Prunty says. The S&P report also highlights a recent Illinois Supreme Court decision that said retirees' free healthcare premiums are a protected part of their pension package. Many observers say that doesn't bode well for Illinois' comprehensive pension overhaul, which is facing its own court challenge.

If that pension law is declared invalid, the S&P analysts write "we believe there could be a profound and negative effect on Illinois' budgetary performance."

Gov. Pat Quinn's office blames legislators for passing what an "incomplete budget," and says this is the predictable result. He has asked the General Assembly to permanently extend Illinois' 5 percent income tax rate, but lawmakers didn't oblige.

Standard and Poor's did have some good things to say about Illinois: the state has placed a high priority on paying off debts, the per-capita income of its residents is above-average, and the economy - anchored by Chicago - is "deep and diverse."

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