SPRINGFIELD (AP) – A major credit rating agency has soured on the economic forecast for Illinois after another failed attempt this week to rectify the $96 billion pension system deficit.
Fitch Ratings announced Friday that it has relabeled Illinois’ financial outlook to “negative” from “stable.”
The outlook does not affect Fitch’s opinion of the state’s credit worthiness, still listed as “A.” That’s two steps below the grade for the best-quality borrowers – sound, but reflective of a climate where state finances are vulnerable to economic changes.
The announcement serves as an advance warning to Illinois that a downgrade could be on the horizon unless it resolves the gaping difference between its pension system’s assets and what it will eventually owe state employee retirees.
“It’s important that our bond-rating agencies give us as much time as possible in order to stabilize the pension system,” Gov. Pat Quinn told reporters Friday at a stop Friday in Bedford Park, about 14 miles southwest of Chicago.
Now, the Democrat and former high school distance runner compares the pension quest to a marathon.
Quinn had declared a pension-reform deadline of Jan. 9, the end of the last legislative term, anticipating negative responses from credit agencies. He said that deadline was set because Fitch and other agencies were “poised to take a look at us and we want to tell our legislators this is not a time to run in place. This is time to get the job done for the people back home.”
A downgrade from “A’’ could mean a higher interest rate to borrow money. The state typically borrows money for big items such as construction projects by selling bonds backed by promised future tax revenue. But decades of underfunding the pension system means that to catch up, Illinois must put up nearly one-third of its general revenue annually, putting a squeeze on money for services such as education and health care.
“Failure to enact pension reforms will eventually bring Illinois to its financial breaking point, and it will be worse than any fiscal calamity we have seen thus far in this state,” Republican Treasurer Dan Rutherford said in a statement.
The latest attempt at pension repair fizzled in the final hours of the legislative session on Tuesday. The plan would have required larger contributions from state employees and reduced eventual retirement benefits, but top House lawmakers had agreed to temporarily set aside the Republican-opposed idea of shifting the employers’ portion of contributions for teachers to local school districts.
Fitch noted that the negative outlook could “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.”
Fitch is one of three agencies that monitor state finances and grades ability to repay debt, and its change in outlook matches the “negative” labels the other two – Moody’s Investors Service and Standard & Poor’s – laid on the state last year.