Moody’s Confirms Institute Analysis

by Ted Dabrowski Last Thursday, the Illinois Policy Institute warned of Illinois’s ballooning pension liabilities (See US Downgraded: Illinois Next?).  In particular, the Institute’s paper highlighted the increasing scrutiny Illinois will receive from credit agencies once they begin to account for state’s overwhelming retirement obligations. Only hours later, Moody’s Investors Service, the credit rating agency, released...

by Ted Dabrowski

Last Thursday, the Illinois Policy Institute warned of Illinois’s ballooning pension liabilities (See US Downgraded: Illinois Next?).  In particular, the Institute’s paper highlighted the increasing scrutiny Illinois will receive from credit agencies once they begin to account for state’s overwhelming retirement obligations.

Only hours later, Moody’s Investors Service, the credit rating agency, released a “Special Comment” update on Illinois confirming our very concerns.  It underscores Illinois’s “unsustainable ascent” in spending for pension benefits.

Moody’s already granted Illinois the worst credit rating in the nation in 2010.  With an A1 rating and a negative outlook, Illinois is without a national peer.

That rating comes after years of chronic overspending and budget obfuscations.  Unfortunately, the 2012 budget is no different, only worse.  In addition to another unbalanced budget, more appropriation gimmicks, and unpaid bills, Illinoisans were burdened with a record tax increase.  (For more on the Institute’s 2012 budget analysis, see Budget FAIL).

To make matters worse, Moody’s hasn’t yet considered Illinois’s $85-200 billion unfunded pension obligation in its current rating.  This is because, today, states are not required to report pension liabilities on their balance sheet.  And since Illinois has one of the worst, if not the worst, unfunded pension obligation in the nation, there is a real cause for concern once Moody’s adds pension liabilities to its rating analysis.
Under the state’s current laws, Illinois should have an additional $85 billion in the bank today in order to have a properly funded pension plan for its retirees of tomorrow.  It does not.  And given the fiscal standing of the state and its bloated spending commitments, it is highly unlikely to have those funds in the future.  Only now is it starting to dawn on retirees, analysts, and politicians alike that pension’s stealth liabilities will overrun the state’s ability to meet its obligations.

The state needs pension reform now in order to assure state pensioners a secure retirement, to guarantee spending for the state’s vital programs, and to protect taxpayers from even more taxes.

Illinois has a chance to launch one big signal to Moody’s, and to the rest of the nation, that the state is changing course for the better.  That big signal must be serious pension reform.