By Matthew Heimer

Illinois, a state often ridiculed for its shaky management of public finances, got another black mark next to its name this week when two credit-rating agencies, Fitch Ratings and Moody’s Investor Services, downgraded their ratings on the state’s debt. Illinois is now ranked two notches lower than any other state by Moody’s; it’s tied with California for the worst rating from Fitch (though Fitch rates the outlook for California, whose budget woes have lessened of late, as “positive” while Illinois’s is “negative”).

But while Illinois’s legislature may stand out for its dysfunction, the instigating factor behind the downgrades is one it shares with many other struggling state governments. Illinois’s legislature triggered the demotions by adjourning at the end of May without having reached a compromise to close its pension program’s yawning funding gap. And the downgrade itself shows why many states face pressure to make their public-sector pension plans less generous.

When an entity’s credit rating goes down, of course, its borrowing costs rise–making any state-funded project potentially that much more expensive, and crimping the state’s ability to invest in infrastructure or economic development. The Illinois Policy Institute, a conservative research group, calculated earlier this spring that Illinois pays an average of 1.33 percentage points more in interest on new 10-year bonds than the states that have the highest credit ratings—adding $1.33 million a year in interest payments to the cost of every $100 million the state borrows. The most recent downgrade is only likely to drive those costs up further.

And with pensions making up a huge portion of most states’ budgets, fiscally shaky pension programs and downgraded debt increasingly go hand-in-hand. The table above shows how Fitch rates the 5 states that are furthest behind on funding their pensions (as calculated by the Pew Center on the States). All five rank among the 13 least credit-worthy of the 50 states; Illinois, as mentioned previously, is tied for lowest-ranked, and Kentucky is third from the bottom. And that means each state is in that much more danger of getting fish-eyed suspicion—and demands for high rates—from any lenders they do business with.

The good news is that current economic trends may already be helping some states turn the corner. Tax revenues have been rising in many states as the economy improves; and if interest rates also continue to rise, that could help states close their funding gap, since lower rates force pension providers to keep more cash on hand to meet their obligations. What’s more, since 2009, at least 43 states have either cut benefits, increased employee contributions or both in order to shore up their pension finances, according to the National Conference of State Legislatures. Illinois, however, remains pretty far from the vanguard of reform.