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State

Moody’s: Illinois, New Jersey most prone to problems if recession

Report points to state’s unfunded pension liabilities, low reserves

Susan Mendoza
Susan Mendoza

SPRINGFIELD – A report from one of the nation’s leading credit rating agencies says Illinois and New Jersey are the two states least-equipped to handle another recession.

While “the probability of a recession beginning within the next year appears to be low,” according to the release Monday by Moody’s Investors Service, “[New Jersey and Illinois] are likely to face more difficult challenges than other states” in dealing with it.

Chief among the issues are Illinois’ large unfunded pension liabilities and the state’s low “rainy day” reserves for when the national economy turns sour.

“If revenues declined to a degree equal to the worst one-year decline they had experienced in the past, [Illinois] would not have enough reserves available to cover even half the shortfall,” the report said, adding the state would likely have to resort to midyear spending cuts, tax increases or more borrowing to get through.

Illinois Comptroller Susana Mendoza responded to the report by saying the state is still feeling the effects of the recent 2-year budget impasse, and “is, as Moody’s reports, in a weakened position to address a recession at present.”

“That is why it is imperative for the General Assembly and governor to pass a responsible budget that seeks to meet our obligations and cut into the state’s bill backlog, which stands at $7.4 billion as of [Monday],” Mendoza said in an emailed statement.

Earlier this month, Moody’s released a separate report calling Illinois’ potential switch to a graduated income tax beneficial, depending how the state uses the new revenue. But the state’s bond rating remains at the lowest investment grade available largely for the same reasons for its low ranking in the recession preparedness report.

The report also stated federal aid might not be as generous as in the recession of 2009, when the economy was boosted by a stimulus package meant in part to help local and state governments.

“…Concerns around the level of federal deficits and debt, in addition to a polarized political environment, may hinder” the federal government’s ability to help states through a recession, it said.

The office of Illinois treasurer did not respond in time for publication.

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