Illinois has the lowest credit rating in the nation.
The sad truth is Illinois hasn’t been a AAA-rated state since February 1979 – when a gallon of gas cost less than a dollar and the Dow Jones Industrial Average hovered in the low 800s. The state’s credit rating has been in a downward spiral ever since.
Since Gov. Pat Quinn took office in 2009, Illinois suffered 13 downgrades from the three major rating agencies.
The state’s latest downgrades came in June 2013 when Fitch Ratings and Moody’s Investors Service downgraded Illinois to A- and A3, respectively.
Illinois’ rating was downgraded twice by S&P over the last year two years – first in August 2012 to A from A+, then in January 2013 to A- from A. The rating agency cited a “lack of action on reform measures” as a reason for both downgrades.
Each of the rating agencies has recently expressed concern with Illinois’ financial future.
Illinois’ long-term liabilities, particularly pension liabilities, are very high for a U.S. state and are expected to remain so even with improvement in pension funding from pension reform. Illinois is among the weakest of the states in terms of its ratio of debt and unfunded pension liabilities to personal income, at 25%, well above the median of 7% for states rated by Fitch.
Illinois’ budgetary performance, rising unfunded pension liability and legislative inaction on many fronts contributed to a pattern of credit deterioration since 2008; as a result, we have lowered our rating four times. This is at odds with the state sector’s credit performance as a whole.
The rating is supported by the state’s general obligation (GO) pledge. Despite substantial pension reforms adopted in December, Illinois remains the lowest-rated U.S. state, at A3 with a negative outlook. Reform enactment launched the legal process that will determine whether constitutional protections prevent the state (and local units) from lowering liabilities through plan changes that affect existing pension participants.
The writing on the wall is clear. Illinois needs a complete overhaul.
For Illinois to become a leader in economic growth and job creation, lawmakers must modernize the way they budget and spend. That means Illinois’ political leadership needs to discern what government can and should be doing, and return to the basics of good public policy – a balanced budget and limited spending. Only then will Illinois put an end to a cycle of credit downgrades and set the foundation for a positive outlook.