Illinois’ large budget imbalance and an $83 billion unfunded pension liability have led Standard & Poor's Ratings Services to lower the state’s credit rating from A-plus to A.
Today’s announcement also gives Illinois a negative outlook for the future.
The action on the state's general obligation bonds comes less than two weeks after a special Illinois legislative session on pension reform ended with no resolution on reining in the pension costs.
Illinois Gov. Pat Quinn says the latest reduction in the state credit rating is no surprise but should still drive home the need for quick action on government pensions. Quinn says he wants to resume negotiations with legislative leaders early next month.
“The only thing standing between Illinois and comprehensive pension reform is politics,” Quinn said. “We must put politics aside.”
He didn't blame anyone specifically, but in the past he has accused Republican leaders of standing in the way.
S&P had warned in March that a downgrade was in store if Illinois' longstanding fiscal problems were not resolved.
Republican State Treasurer Dan Rutherford, who is attending the Republican National Convention in Tampa, Fla., said there will be an impact next month as a result of the rating change.
“Illinois plans to issue General Obligation bonds in September of 2012,” he said. “The cost of these bonds to taxpayers will increase because of the lower A rating.”
Illinois remains the second lowest-rated U.S. state after California, which is rated A-minus by S&P.
S&P analyst Robin Prunty said the lower rating reflects Illinois' "continued financial weakness despite significant measures in the past two years to improve structural budget performance."
The credit ratings agency kept a negative outlook on the lowered rating, citing the potential for further erosion of the state's pension liability over the next two years and budget risks due to the Jan. 1, 2015, expiration of big income tax rate increases enacted in 2011.
“It’s not even two years since the largest income tax increase in Illinois history,” Rutherford said, “and those revenues have already been consumed by the escalating cost of the state’s pension systems. Taxpayers are justifiably frustrated and angry over Springfield’s lack of action to protect their dollars.”
S&P's A rating for Illinois matches the A2 rating that resulted from a downgrade by Moody's Investors Service in January. That left Illinois with the lowest rating among states Moody's rates. Illinois is also rated A by Fitch Ratings.