Fitch downgrades Illinois after lawmakers fail to pass pension reform

by Ted Dabrowski Fitch Ratings downgraded Illinois’ credit rating to “A-” from “A” after the General Assembly failed to move forward on pension reform before the end of the spring legislative session. In its statement announcing the downgrade, Fitch called Illinois’ pension liability “unsustainable” and said it was concerned about the state being able to...

by Ted Dabrowski

Fitch Ratings downgraded Illinois’ credit rating to “A-” from “A” after the General Assembly failed to move forward on pension reform before the end of the spring legislative session.

In its statement announcing the downgrade, Fitch called Illinois’ pension liability “unsustainable” and said it was concerned about the state being able to deal with its “numerous fiscal challenges.”

This downgrade is the 12th Illinois has experienced under Gov. Pat Quinn and comes shortly after a threat by Moody’s Investors Service to downgrade Illinois’ credit rating if it did not make significant progress on the pension crisis.

Credit downgrades since Quinn took office

Source: Commission on Government Forecasting and Accountability, Illinois Policy Institute

These credit downgrades come with serious consequences. They send a continuous warning signal to businesses to avoid Illinois, something the state with the nation’s second-highest unemployment rateand rank of 48th in economic outlook can’t afford. Every downgrade puts a further strain on Illinois’ reputation for doing business and attracting capital and entrepreneurs.

What’s more, Illinois’ many credit downgrades increase the state’s borrowing costs. The state already pays the highest penalty rate in the nation – nearly three times higher than California’s.

Politicians may avoid making the real reforms that Illinois needs, but they can’t hide from the market.

Eventually, lenders, entrepreneurs and families will take their capital – both monetary and human – to states that offer real opportunities for growth and prosperity.