Moody’s warns Illinois credit rating could fall without pension reform
In what’s become a habit for Moody’s Investors Service, the credit rating agency warned today that Illinois faces more credit downgrades if it fails once again to reform its state-run pension systems. The state already has the lowest credit rating in the nation. This means Illinois pays more to borrow money than any other state. But what’s...
In what’s become a habit for Moody’s Investors Service, the credit rating agency warned today that Illinois faces more credit downgrades if it fails once again to reform its state-run pension systems.
The state already has the lowest credit rating in the nation. This means Illinois pays more to borrow money than any other state.
But what’s more worrisome is what a downgrade means for the state’s reputation for doing business and attracting capital and entrepreneurs. The state already has the nation’s second-highest unemployment rateand ranks 48th in economic outlook.
That said, the Illinois General Assembly shouldn’t pass just any reforms to get Moody’s off of its back, even if it’s for the short term.
The choice between the two competing bills – House Speaker Mike Madigan’s Senate Bill 1 and Senate President John Cullerton’s Senate Bill 2404 – is a false one.
Neither plan fixes Illinois’ pension crisis. Instead, they provide some near-term budget relief while leaving the cause of the problem, flawed defined benefit plans, untouched.
And there is something that makes both of these proposals toxic. They both contain pension funding guarantees that make sure taxpayers are on the hook for any and all failures of the government-run pension systems, no matter whether those problems are created by politicians, the stock market or overly generous benefits for government workers.
A pension-funding guarantee means that government worker pensions will be first in line when the General Assembly decides how to spend money each year. Education, health care and public safety will all be cut if there is not enough funding for pensions.
That’s a guarantee that neither taxpayers nor the poor and disadvantaged, who would bear the brunt of any cuts in core services to make room for pensions, should be forced to support.
Legislators should reject the false choice they have between the two failed plans and instead amend them with real reforms that help end the crisis.
The best way is to implement reforms found in state Reps. Tom Morrison and Jeanne Ives’ House Bill 3303 and state Sen. Jim Oberweis’ Senate Bill 2026. They leverage 401(k)-style plans to give government workers full control over their retirements and to stop adding more and more to the state’s unfunded liabilities.
Politicians don’t need to be running the state’s retirement systems. They’ve proven for decades to be horrible stewards.
UPDATE
The Senate took up SB1 (Madigan’s pension bill) and failed with only 16 yes votes.
The House adjourned prior to a vote being taken in the House on SB 2404 (Cullerton’s pension bill).
That means, no pension reform bill passed out of the Illinois General Assembly.