Illinois was hit Thursday with its second credit-rating downgrade of the week following the Legislature’s failure to whittle down the state’s pension deficit.
Meanwhile, Gov. Pat Quinn said he was calling lawmakers to return to Springfield June 19 to address the issue “to finish their job for the people of Illinois.”
Moody’s Investors Service cut the rating on $27 billion of outstanding general obligation bonds one notch to A3 from A2, which is still investment grade.
In addition, Moody’s lowered by a notch its ratings on about $5 billion in related debt the state has issued.
Moody’s laid the decision on the Illinois General Assembly, which ended its session May 31 with no action on pension liabilities exceeding $96 billion.
“Our rating now assumes the government will not take action to reduce the state’s pension liabilities any time soon,” Moody’s said. “The legislature’s political paralysis to date shows not only the magnitude of Illinois’ unfunded benefit liabilities, but also the legal and political hurdles to legislation that would make pensions more manageable long term. Without significant reforms, substantial growth in both unfunded liabilities and in annual funding burden [is] likely in coming years.”
Moody’s noted that income-tax increases are due to expire in 2015, potentially worsening the state’s finances.
On Monday, Fitch Ratings lowered the grade it assigns to Illinois debt by one level, to “A-minus.”
Lower debt ratings force the state to pay higher interest rates when it seeks new credit.
On Tuesday, Gov. Pat Quinn tried convening a meeting with House Speaker Michael Madigan (D-Chicago) and Senate President John Cullerton (D-Chicago) to try reconciling their differences on pension legislation.
Madigan was a no-show, with an aide telling the Chicago Sun-Times 11 times the powerful speaker “was not available” when pressed on his whereabouts and reasoning for missing the meeting after the Fitch downgrade.
Quinn told reporters he tried to get the speaker to call in to the meeting but learned Madigan doesn’t carry a cell phone.