CHICAGO – Illinois Gov. Pat Quinn called a special legislative session for June 19 to try to break the pension reform gridlock that prompted the second blow to the state’s already weak general obligation rating Thursday.
Moody’s Investors Service downgraded the state’s GO rating one notch to A3 from A2 and warned of the potential for further deterioration by continuing its negative outlook.
Illinois already held the distinction of being Moody’s lowest rated state. Fitch acted Monday to lower the rating one notch to A-minus. It also assigned a negative outlook. Standard & Poor’s lowered the state to A-minus with a negative outlook in January.
“Will two downgrades in one week be enough to convince the General Assembly that our pension crisis can’t be ignored anymore?” Quinn said Thursday. His statement announced the special session.
“Time and time again, failure to act by deadlines has resulted in the bond rating agencies lowering our credit rating, which hurts our economy, wastes taxpayer money and shortchanges the education of our children,” Quinn added, calling the situation an “emergency.” Quinn is calling lawmakers back to work even as a solution remains elusive. Senate and House Democratic leaders support rival plans and have showed no signs of budging. Quinn is also a Democrat.
Moody’s analysts offered a stinging assessment of the General Assembly’s gridlock on pensions, less than a week after lawmakers adjourned their spring session after failing to reach an agreement on how to overhaul the system. Its analysts expressed little confidence that a solution could be achieved any time soon.
The state is saddled with $95 billion of unfunded liabilities with its system just 40% funded and pension payments are annually consuming more of the state’s $35 billion budget with a nearly $1 billion increase to $6 billion needed in fiscal 2014.
“The Illinois General Assembly on May 31 concluded its session without addressing the severe pension liabilities that are the state’s greatest credit challenge,” Moody’s wrote. “Our rating now assumes the government will not take action to reduce the state’s pension liabilities any time soon.
“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,” analysts added.
Even though the state benefits from a diverse and large economic base, the rating is “consistent with the General Assembly’s inability to steer the state from a path to fiscal distress,” the ratings agency said.
The downgrade impacts $27 billion of outstanding bonds. Illinois is the lowest rated state by Moody’s and Standard & Poor’s. Fitch also rates California A-minus but it carries a positive outlook. Moody’s also lowered $5 billion of other Illinois state-related debt one notch, including state sales-tax bonds now at A3, Metropolitan Pier and Exposition Authority bonds and Civic Center program bonds are now Baa1.