S&P lowers Illinois credit rating, blames pensions


SPRINGFIELD -- Illinois’ credit rating took another hit Friday when Standard & Poor’s downgraded Illinois another notch.

Citing the state’s ongoing inability to deal with its pension funding issues, S&P cut its rating of Illinois’ credit to A-minus from A.

Illinois has the worst credit rating of any state in the nation, according to S&P.

“The downgrade reflects what we view as the state’s weakened pension funded ratios and lack of action on reform measures intended to improve funding levels and diminish cost pressures associated with annual contributions,” S&P said.

In preliminary budget figures released last week, Gov. Pat Quinn warned that education programs face a $400 million appropriation reduction next year, largely because more money needs to be diverted to the state’s pension obligations.

S&P said it believes consensus on pension reform in the General Assembly this spring “will be difficult to achieve given the poor track record in the past two years.” Even if reforms are passed, the agency said, they’ll probably be challenged in court and it could be years before the state sees any improvement in pension funding.

S&P also warned that further downgrades are possible if Illinois doesn’t get a grip on its finances.

“While it is unusual for a state rating to fall into the ‘BBB’ category, lack of action on pension reform and upcoming budget challenges could result in further credit deterioration,” S&P said.

Illinois plans to sell $500 million in general obligation bonds this week. S&P assigned an A-minus rating to those bonds, too.

Speaking before the downgrade was announced, Quinn said the pressure to enact pension reforms is “higher than ever.”

“We’ve got to put on our seat belts here and understand the rating agencies won’t give us better marks until the legislature passes (reforms) and gets the job done,” Quinn said. “That’s really the message the credit rating agencies are screaming at the top of their voice.”

Treasurer Dan Rutherford, a possible Republican candidate for governor in 2014, said the state’s credit downgrades are costing Illinois millions more in interest payments each time bonds are sold.

“We now are the bottom of the pile according to Standard & Poor’s,” Rutherford said.

Quinn has said pensions add $17 million to their debt each day the General Assembly does nothing about them.

Moody’s has Illinois rated at A2, a level higher than S&P. Fitch has the state rated ‘A’, but has warned that a downgrade will occur in six months if the state doesn’t deal with pensions.

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