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"The
downgrade reflects our view of continued weak financial
management and increased long-term and short-term pressures tied
to declining pension funded levels," said S&P analyst John
Sugden in a statement.
Illinois, the lowest-rated U.S. state, is in its second straight
fiscal year without a complete budget due to an impasse between
its Republican governor and Democrats who control the
legislature.
The impasse, along with a $111 billion unfunded pension
liability and a growing pile of unpaid bills have pounded
Illinois' credit ratings into the low-investment grade triple-B
level.
S&P said another downgrade could follow "should the state
continue to demonstrate a lack of ability or willingness to
adopt a long-term structural budget solution that also
incorporates a credible approach to its long-term liabilities."
The credit rating agency added that continued political gridlock
could affect Illinois' ability to pay off its debt.
"Although we don't foresee this in the immediate
future, challenges to the state's debt payment priority could
emerge should liquidity dwindle to the point where it affects
the state's ability to provide essential services," S&P said.
The downgrade to just two notches above the junk level came as
the nation's fifth-largest state prepares to sell as much as
$1.7 billion of new and refunding general obligation (GO) bonds
in October despite having to pay a hefty penalty in the U.S.
municipal market.
Governor Bruce Rauner's office said S&P's report underscores the
need for "tangible" pension reform.
"It’s time for the super majority in the legislature to
recognize the current pension system is fatally flawed and
requires immediate action," his office said in a statement.
"Governor Rauner continues to fight for pension reform and other
fundamental, structural reforms that will free up resources to
help balance the budget."
The Illinois Supreme Court in 2015 voided on state
constitutional grounds a 2013 law aimed at curbing pension
costs.
Earlier this week, Illinois' GO ratings were affirmed at Baa2 by
Moody's Investors Service and BBB-plus by Fitch Ratings, which
warned of a downgrade should the state fail to take
comprehensive action in January towards solving its fiscal
problems.
(Reporting By Karen Pierog; Editing by Christian Schmollinger)
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