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Moody’s lowers Illinois’ credit outlook

Updated: January 15, 2013 11:47AM



A major Wall Street credit rating agency on Thursday indicated it could further lower Illinois’ rating on worries the state won’t resolve its pension problems.

Moody’s Investors Services lowered Illinois’ credit outlook to “negative” from “stable.” It kept its rating of the state’s $28 billion general obligation debt at A2 — the worst credit rating given to any state.

The General Assembly is expected to take up reforms to deal with the state’s $96 billion in unfunded pension obligations when lawmakers return Jan. 3 for a lame-duck session.

“The negative outlook reflects our view that the state’s pension funding pressures are likely to persist and perhaps worsen in the near term,” Moody’s said in its report. “Moreover, fiscal 2014 marks the last year before Illinois’ 2011 income tax increases are partly unwound, putting the state on track to deal with simultaneous growth in pension funding needs and loss of revenue.”

Moody’s also pointed out that any steps likely to be taken to reform the pension system will almost certainly be challenged because the state’s constitution protects retiree benefits.

Moody’s lowered Illinois’ credit rating in January, saying it was troubled by the state’s failure to balance its budget and strengthen its government pension funding. Lower credit ratings generally mean the state winds up paying more interest when it borrows money by selling bonds.

On Thursday, the ratings agency cited the state’s “severe pension funding shortfall” and delayed bill payments. Sun-Times Media



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