Illinois budget impasse generates more negatives: Moody's

[October 20, 2015]  By Karen Pierog

CHICAGO (Reuters) - Illinois added to the negative factors weighing on the state's credit rating with the announcement last week that a monthly payment to pension funds would be delayed due to the ongoing budget impasse, Moody's Investors Service said on Monday.

"The news of the pension contribution in and of itself is not a rating trigger, but contributes to a growing number of negatives that could affect our view of the state's credit standing," said Moody's analyst Ted Hampton.

Moody's, which rates Illinois A3 with a negative outlook, said plans to skip a $560 million pension payment next month "reflects Illinois’ outsize unfunded pension obligations, the lapse of an existing tax package that would have yielded roughly $5 billion in the current fiscal year, and the continued failure of the state’s political leadership to enact a fiscal 2016 budget."

A budget battle between Republican Governor Bruce Rauner and Democrats who control the legislature has left the state without a spending plan for the fiscal year that began on July 1. Various court orders have locked in funding for payroll and certain services at fiscal 2015 spending levels. The Jan. 1 rollback of temporarily higher income tax rates will result in lower fiscal 2016 revenue.

Moody's said Illinois continues to have an outsized pension liability compared with other states, while falling short of the actuarially required contributions to improve its low pension funded ratio.

The credit rating agency also repeated its caution from an August report that Illinois is losing budget flexibility.

"As the budget impasse continues, less scope is available to address the current year’s budget gap through either spending reductions or revenue increases, and the likelihood of additional credit-negative cash-management actions increases," Moody's said.

(Reporting by Karen Pierog; Editing by Matthew Lewis)

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