With state government finances flailing from Connecticut to California, even residents of solvent states are nervously watching to see if problem cases can right themselves before federal bailouts become necessary.
Illinios just upped the ante again on this front, with Standard & Poor's announcing that its credit rating has been downgraded again. The new rating came out now because the state is poised to issue $500 million in new bonds.
"The downgrade is the latest fallout over the $96.8 billion debt to five state pension systems," WGNTV reported. "The downgrade now ties Illinois with California, but California has a positive outlook. Illinois’ fragile overall financial status netted it a negative outlook, putting it behind California overall."
"We've got to put our seatbelts on here and understand the rating agencies won't give us better marks until the Legislature passes Senate Bill 1 and gets the job done," Gov. Pat Quinn said at a press conference, as reported by ABC news. Quinn was referring to a pension reform bill currently under discussion. "That's really the message the credit rating agencies are screaming at the top of their voice. I've heard it, and I think the members of the Legislature need to hear it as well."
But Quinn's hope for a quick fix is doubtful in any case. "In its report Friday," the ABC report noted, "Standard & Poors analysts said even if Illinois is able to pass pension legislation soon, the state is likely to face a legal challenge, so it could be years before the budget situation or the unfunded liability improve. That, along with an income tax increase that's scheduled to expire on Jan. 1, 2015, contribute to the state's negative economic outlook."
Illinois has been on this pathway for many years, S&P analysts say. “Most states will build reserves when the economy is performing well, and that typically provides a cushion when the revenues deteriorate,” Robin Prunty, the S&P analyst who heads the agency’s state ratings group, told the Chicago Tribune. “But Illinois has never really carried or accumulated any kind of budgetary reserves.”
Last-ditch pension reform efforts failed in December. At that point, the AP noted that this was a "problem decades in the making, through nearly a dozen Republican and Democratic governors and through legislatures controlled by both parties, dating back to before Illinois changed its constitution in 1970 to prohibit reductions in state employee retirement plans."