S&P to Illinois: prepare for next downgrade
Standard & Poor’s Rating Services revised Illinois’ credit outlook to “negative” from “developing” on July 23. Illinois’ current S&P rating is A-, the lowest of any state in the country. With this revision, S&P and the other major rating agency in the country, Moody’s Investors Service, are once again on the same page. Both companies...
Standard & Poor’s Rating Services revised Illinois’ credit outlook to “negative” from “developing” on July 23.
Illinois’ current S&P rating is A-, the lowest of any state in the country. With this revision, S&P and the other major rating agency in the country, Moody’s Investors Service, are once again on the same page. Both companies now have Illinois’ credit rating four notches away from junk-bond status with a negative outlook.
S&P cited the state’s unbalanced budget and the possibility that the recent Illinois Supreme Court ruling on state retiree health care could reverse enacted benefit reforms as reasons for the revision:
“The outlook revision follows the enactment of Illinois’ fiscal 2015 budget which in our view is not structurally balanced and will contribute to growing deficits and payables that will likely pressure the state’s liquidity,” said Standard & Poor’s credit analyst Robin Prunty. “The outlook also reflects the implementation risk associated with recent reforms related to postretirement benefits.”
S&P also expressed concern about pension reforms as a whole, floating the possibility of yet another downgrade should the state Supreme Court strike down SB1, the recently passed pension reform bill.
“If the pension reform is declared unconstitutional or invalid, or implementation is delayed and there is a continued lack of consensus and action among policymakers on the structural budget gaps and payables outstanding, we believe there could be a profound and negative effect on Illinois’ budgetary performance and liquidity over the next two years and that this could lead to a downgrade.”
This latest action by S&P is yet another warning to Illinois that ratings agencies are tired of the state’s lack of real reform in the face of such massive fiscal and pension crises.
And more taxes aren’t going to fix Illinois’ problems. Even S&P acknowledges the 2011 income tax hike didn’t work – the agency lists the state’s “revenue-enhancement measures” in its list of negative credit factors:
“Sizable and chronic accumulated budget-based deficits despite revenue-enhancement measures implemented in 2011 and improved economic trends. While the deficit is reduced significantly, it remains significant relative to the size of the budget.”
The precipitous decline in ratings is an indictment of the politicians who control Illinois’ government-worker pension systems. Those politicians have massively hiked taxes while retirement security for government workers continues to collapse.
Politicians need to be taken out of the retirement business altogether. It’s time Illinois followed the lead of other states in adopting 401(k)-style plans for government workers. It’s the only way to ensure budget stability, end the tax hikes and give workers what they deserve – real retirement security.