S&P cuts Illinois' credit rating on
state's 'weak' management
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[October 01, 2016]
CHICAGO (Reuters) - S&P Global
Ratings dropped Illinois' credit rating one notch to BBB on Friday and
warned it could fall further absent a long-term solution that deals with
the state's chronic structural budget deficit and pension woes.
"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.
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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.
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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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