S&P lowers Illinois credit rating over pensions
SPRINGFIELD, Ill. (AP) — Stubborn pension problems and government gridlock earned Illinois another reduction in its credit rating Wednesday, potentially costing taxpayers millions of dollars.
Standard & Poor's Ratings Services said it lowered Illinois' rating a notch because of "weak pension funding levels and lack of action on reform measures." The firm also said the financial outlook for Illinois is negative, in part because the state's temporary income tax is scheduled to expire in 2015.
Illinois politicians agreed the state's massive pension shortfall must be corrected quickly, but they blamed others for the delay. Democratic Gov. Pat Quinn said legislators didn't do their job. Republican legislative leaders said Democrats were the ones who quit.
Meanwhile, Wisconsin Republican Gov. Scott Walker pounced on the financial setback, saying it shows the "stark contrast" between stumbling Illinois and sure-footed Wisconsin.
Lower ratings can raise the interest rate Illinois must pay when borrowing money.
Illinois may have to pay an additional $1.5 million annually for each $100 million it borrows for public works projects, said Brian Battle, director of trading at Chicago's Performance Trust Capital Partners. With Illinois selling hundreds of millions of dollars' worth of bonds each year, the extra interest cost could hit $15 million, he said.
The downgrade, from A+ to A, leaves Illinois with the nation's second-lowest rating from S&P. California is rated A-, but it has earned a "positive outlook" from the firm.
Moody's rating service has also warned that it may lower Illinois' rating.
Quinn said in a statement that the downgrade is no surprise and shows that state leaders must fix public pension systems. Illinois' retirement systems have a gap of roughly $85 billion between the money available and what they will eventually pay out in pensions, the largest shortfall in the country.
Trying to close the gap costs the state more money each year, leaving less for other government needs. Pension payments this year will make up 20 percent of state government's general spending, compared with 13 percent three years ago.
Quinn called legislators into special session earlier this month, but they couldn't agree on what to do, largely because of a dispute about whether to transfer some pension costs to school districts. Quinn said he's asking legislative leaders to meet with him early next month to resume talks.
"It's regrettable that our legislators did not act promptly when they had a chance. We just have to keep pushing them," Quinn said.
The Republican legislative leaders, Senate Minority Leader Christine Radogno of Lemont and House Minority Leader Tom Cross of Oswego, said Democrats should not have ended the special session after a single day.
"We continue to be ready to address the problem, armed with ideas and solutions that could work," they said in a joint statement.
Radogno said this reduction in the credit rating is Illinois' 10th under Quinn, which she said is more than the four previous governors combined.
Wisconsin's governor renewed his campaign to portray his state as a more stable and business-friendly place than Illinois, where he says leaders "kicked the can down the road" instead of solving problems. Walker blasts Illinois for raising income taxes and has invited its companies to move to Wisconsin.
His efforts haven't always worked, though. Just last week, aerospace company Woodward Inc. decided to build a $200 million manufacturing center near Rockford despite being courted by Walker.
Battle, the trading director, said Illinois faces further credit downgrades if officials don't take action. The state is nearing the level where institutional investors will no longer feel comfortable putting money into Illinois bonds, he said.
"Illinois willfully ignores the problem," Battle said. "I would hope everyone would just be screaming to their elected representatives, 'Fix this!'"
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