Dale Righter

Illinois State Senator | 55th District


Special Update: Illinois gets hit by a Credit Drop

Friday, January 25, 2013

Special Update: Illinois gets hit by a Credit Drop

Just one day after Illinois escaped a credit downgrade from one major rating agency, another weighed in, dropping Illinois' credit ranking a notch and putting the state into a tie with California for the worst credit in the country.

Standard and Poor's rating services announced Jan. 25 that they were downgrading Illinois to an "A-/negative outlook" rating. It is the lowest rating Illinois has ever received from S&P and, if the "negative outlook" is taken into consideration, Illinois is now ranked below California.

Fitch, Moody's Ratings Held Steady

Also on Friday, Moody's Investor Services announced they were leaving the state's credit rating unchanged. But that was small consolation, since Moody's already ranked Illinois the worst in the nation. The day before, Fitch Ratings Services announced they were leaving Illinois at an "A" rating, but issuing a "negative watch," which is a warning that the credit could be dropped if the state does not get its financial house in order.  

All three ratings were released in advance of an anticipated sale of construction bonds at the end of January.

Quinn Now Owns 11 Credit Downgrades

The rating drop from S&P gives Governor Quinn his 11th downgrade since taking office. No other Governor in the state's history has presided over more credit downgrades than Quinn. In fact, Quinn now owns more downgrades than all earlier governors combined. The previous record holder, Rod Blagojevich, had three downgrades during his time in office.

In dropping the state's credit rating, S&P also gave the state a "negative outlook," which is a warning that further credit rating cuts are likely. The company cited the state's $95 billion unfunded pension liability at the end of 2012 and noted that the funding ratio of the state's retirement funds has dropped from 43.4% in FY2011, to 40.4% in FY12 and is expected to fall to 39% before the current fiscal year ends.

Bleak Outlook

The company also noted that despite the 67% income tax increase enacted in 2011, the state has continued to run substantial deficits.

In issuing its negative outlook, S&P also issued a warning that the best the state can hope for is to hold its ratings at the current low level, cautioning, "We believe there is limited upside potential for the rating in the next two years given the size of the accumulated deficit and the liability challenges Illinois faces..."

While keeping the state's ranking unchanged, Moody's said, "...the state's pension funding pressures are likely to persist and perhaps worsen in the near term " and warned that they view the state heading on an "unsustainable" path.

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