Rating agency sours on Illinois' financial outlook

SPRINGFIELD -- Fitch Ratings has warned Illinois that it will downgrade the state’s credit rating if the state doesn’t act on pension reform within six months.

Fitch, one of three ratings agencies along with Moody’s and Standard and Poor’s, placed Illinois on a “ratings watch negative” Friday, after lawmakers failed to address pension reforms during the recent lame-duck session of the General Assembly.

“The Rating Watch Negative reflects the ongoing inability of the state to address its large and growing unfunded pension liability, most recently through the failure to pass pension reform in the lame duck portion of the 97th General Assembly legislature that ended on Jan. 8,” the company’s statement said. “Fitch believes that the burden of large unfunded pension liabilities and growing annual pension liabilities is unsustainable.”

Fitch did not change the “A” rating it has assigned to the state’s general obligation bonds, but it said that could change.

“The Rating Watch Negative will be resolved after an assessment of the extent to which the state takes action within the next six months that limits the impact of pension payments on the budget while bolstering pension funded levels,” the company said. “Failure to achieve meaningful results would lead to a downgrade of the rating.”

Gov. Pat Quinn had warned lawmakers that another downgrade in the state’s credit rating was imminent if pension reforms weren’t enacted. Pension costs are expected to increase by another $1 billion in next year’s budget, putting further pressure on lawmakers to cut other spending.

“The Fitch report speaks for itself,” Quinn budget spokesman Abdon Pallasch said in a statement. “This should be required reading for every member of the new General Assembly. We have an emergency and it’s not going away.”

House Republican Leader Tom Cross of Oswego called the Fitch action “embarrassing and may cost the state more money, money that we clearly do not have.”

“How many more times do we have to be downgraded to prompt action in the General Assembly?” Cross said in a statement.

Pension reform proposals have been introduced in both the House and Senate for consideration by the new General Assembly, but they will not see immediate action. The House is not scheduled to return to Springfield until Jan. 30. The Senate is not scheduled to return until Feb. 5.

Doug Finke can be reached at (217) 788-1527.