MOODY’S REVIEWS ILLINOIS’ FINANCES
The warning comes on the heels of a special commentary and review of the state’s finances by Moody’s Investors Services.
Recently, Moody’s Investors Service issued a special commentary and review of Illinois’ finances. The report noted that the state still has the worst Moody’s rating in the nation at A1 with a negative outlook, worse than even California’s A1 rating with a stable outlook. Illinois’ credit rating has sunk to 49th place by ratings companies Standard & Poor’s and Fitch Ratings.
Governor Quinn has reportedly indicated that the ratings agencies look favorably upon his continued proposals for long-term bonding to pay bills. However, Moody’s appeared at best neutral to Quinn’s bonding plan, saying: “This approach would significantly increase the state’s bonded debt burden, while at the same time helping those entities awaiting payment.”
Moody’s also emphasized that the tax hike passed by Democrats in January is only a temporary solution to the state’s “significant funding burden” for pensions. The rating agency confirmed that while the 2010 pension reforms for new state employees will have a significant impact, the primary savings won’t be realized for many years.
SOME LAWMAKERS WANT TO REVISIT PENSION REFORM
Recent news reports have indicated that there is a willingness on the part of some lawmakers to revisit pension reforms for current employees this fall.
Moody’s echoes calls from legislators, financial oversight organizations, and taxpayer protection groups for further benefit reductions.
Many agree that these reforms are necessary to truly address the unsustainable nature of Illinois’ retirement systems, but because the retirement benefits for current employees are constitutionally-guaranteed, legal impediments may stand in the way.
ILLINOIS HAS NO PLAN TO PAY UNPAID BILLS
The ratings agency went on to point out that “The state may be able to use increased tax revenue to chip away at its large balance of past-due budgetary payment obligations, but has not adopted a comprehensive plan to do so.”
The state currently has more than 190,000 unpaid bills totaling nearly $4 billion dating back to April 19. Those bills represent overdue payments to businesses, schools, hospitals, not-for-profit and social service agencies in every corner of the state. Moody’s noted that the state’s outstanding obligations “will significantly drain fiscal 2012 revenues and perpetuate late payments into fiscal 2013.”
Moody’s cautioned that while there have been signs that the state’s economy is in recovery, economic turmoil at the national level could have serious ramifications for Illinois. As noted, “Because of its financial weakness, Illinois is less well positioned than other states to handle a renewed downturn in the national economy.”