Illinois bond rating sinks to worst in the nation
BY DAVE McKINNEY AND ZACH BUCHHEIT Staff Reporters January 25, 2013 2:20PM
Standard & Poor's lowered Illinois' bond rating to the worst in the nation.
Updated: February 27, 2013 6:13AM
SPRINGFIELD — Citing inaction on pensions, a prominent Wall Street bond-rating agency downgraded Illinois’ bond rating Friday, making the state the nation’s worst credit risk.
The move by Standard & Poor’s to rate Illinois’ bonds at A- with a negative outlook comes as the state is preparing to go out on the market Wednesday with a $500 million bond issue.
With the new lowered rating, Illinois eclipsed California as the least creditworthy state in the country in Standard & Poor’s eyes and could face higher borrowing costs.
“We assessed what the pension fund status is, what the pension funding levels are, and is there a likelihood there’d be significant change on that front. Only way that can happen is legislative action, and our view is we don’t expect significant change,” Robin Prunty, a credit analyst with the rating agency, told the Chicago Sun-Times.
“The past two years, they’ve been discussing pension reform, and there hasn’t been action,” she said.
Lawmakers left Springfield earlier this month, once again fumbling efforts to solve Illinois’ $95 billion pension crisis. Since last May, the Democratic-led House and Senate failed on four occasions to rally behind a single plan despite continuous prodding from Gov. Pat Quinn.
On Friday, before word of the downgrade had circulated, Quinn warned that continued inaction on pensions by lawmakers would lead to the very action Standard & Poor’s took and embraced a new pension plan — Senate Bill 1 — being touted by Senate President John Cullerton (D-Chicago).
“We’ve got to put our seat belts 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,” Quinn told reporters. “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.”
Cullerton’s proposal combines competing House and Senate pension plans into one bill, an approach Quinn described Friday as a “very good vehicle” for pension reform.
The true financial impact of Friday’s downgrade is hard to judge because of several market variables that factor into pricing the state’s bond issues.
But State Treasurer Dan Rutherford said the difference between Illinois’ new, lowered rating and the highest, most creditworthy ranking available could cost Illinois taxpayers about $95 million more in interest payments over the life of the upcoming $500 million bond issue.
“Seven times since the income tax increase went into effect [in January 2011] there has been a negative ramification — we have either been downgraded, given a warning or put on a watch,” Rutherford said, referring to actions taken by the three main bond-rating agencies.
“My point here is, every deadline set and inaction occurred, it cost us a negative issuance,” he said. “We now have joined the bottom of the pile.”
Standard & Poor’s action follows a similar negative move by Fitch three days after lawmakers concluded their lame-duck session earlier this month without a pension deal. Fitch placed its “A” rating on $26.2 billion in outstanding state debt on a “negative” outlook.