CHICAGO — Illinois’ deferral of its November pension contribution over a cash flow crunch is a negative credit factor, said Moody’s Investors Service.
The announcement last week by state Comptroller Leslie Geissler Munger that the state can’t afford to make the $560 million November payment and possibly the December payment illustrates the budgetary, pension, and political strains pressuring Illinois, Moody’s said in its weekly credit outlook report published Oct. 19.
“The credit-negative payment delay reflects Illinois’ outsize unfunded pension obligations, the lapse of an existing tax package that would have yielded roughly $5 billion in the current fiscal year, and the continued failure of the state’s political leadership to enact a fiscal 2016 budget,” Moody’s wrote.
Moody’s rates Illinois A3 with a negative outlook. The other rating agencies assign equivalent ratings, in all cases making Illinois the lowest among states.
Fitch Ratings downgraded Illinois to BBB-plus Monday; Standard & Poor’s rates the state A-minus, on CreditWatch with negative implications.
Illinois’ adjusted net pension liabilities, a calculation applied by Moody’s, are at five times the 50-state median and the largest of any single state. The state’s $6.7 billion pension contribution for the fiscal year that ended June 2014 represented more than 10% of its total governmental revenues, while falling short of the $7.8 billion that would have met its actuarial required contribution. The state’s unfunded liabilities based on an actuarial assessment totals $111 billion.
In addition to the state’s pension woes, rating agencies track the state’s overdue bill backlog as it provides an overview of the state’s cash position. Munger warned last week that the backlog now stands at $6.9 billion and is on track to hit $8.5 billion by the end of the calendar year. Munger said the state would make up the pension contributions in later more cash-rich months before the fiscal year ends June 30 but that will only drive up the backlog of other unpaid bills.
The impasse between the General Assembly’s Democratic majority and the rookie Republican Gov. Bruce Rauner over the budget shows no signs of easing.