It just became a little more expensive for the state of Illinois to borrow money and issue general obligation (GO) bonds.
Standard & Poor’s Ratings Service lowered its rating on those bonds and lowered them from ‘A’ from ‘A+’. At the same time, Standard & Poor’s assigned its ‘A’ rating to the state’s $50 million GO bonds of September 2012. The outlook is negative.
“The downgrade reflects the state’s weak pension funding levels and lack of action on reform measures intended to improve funding levels and diminish cost pressures associated with annual contributions,” said Standard & Poor’s credit analyst Robin Prunty. “The downgrade also reflects continued financial weakness despite significant measures in the past two years to improve structural budget performance,” added Ms. Prunty.
The negative outlook reflects the potential for further erosion of the state’s pension funds during the two-year outlook horizon and the uncertainty and risk to future budget performance due to the expiration of personal and corporate income tax rate increases on Jan. 1, 2015.
The state of California has a lower rating from S&P, but the service says the outlook for California is positive. Illinois has fallen into the “negative outlook” category. S & P also suggested another downgrade could occur with inaction on the issue.
Moody’s rating service has also warned that it may lower the state’s rating. It is likely they will follow suit.
Governor Pat Quinn is saying I told you so, as he released a statement about the revised bond rating.
“Today’s action is no surprise. Over and over again this summer, I made clear that if we do not act on pension reform, the state of Illinois would suffer the consequences. Now it has. Eliminating our $83 billion unfunded pension liability is vital to getting our financial house in order. Today’s action by Standard & Poor’s is more evidence that we must act,” said Governor Quinn.
Republicans cast blame on Governor Quinn for not pulling the issue together in uniting the Democratic-led General Assembly for a pension-reform package.
“It’s a devastating demonstration, again, of his catastrophic failure of leadership,” Senate Minority Leader Christine Radogno (R-Lemont) said from the Republican National Convention in Tampa. “He knew this was coming. We have not met at all over pensions all summer. I know he’s out there pointing the finger, but he has absolutely no credibility whatsoever on this issue.”
Governor Quinn said that he wants to meet with the four legislative leaders from both parties. “I am inviting the four legislative leaders to a meeting in early September to work on pension reform. Illinois cannot move forward without it,” the Governor promised.
The Democratic leadership did not issue statements to The Chicago Examiner regarding the downgrade.
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John is the author of an award-winning book, the 2010 Winner of the USA National Best Book award for African-American studies, published by The Elevator Group Mr. and Mrs. Grassroots: How Barack Obama, Two Bookstore Owners, and 300 Volunteers did it. Also available an eBook on Amazon. John is also a member of the Society of Midland Authors and is a book reviewer of political books for the New York Journal of Books