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 Gov. J.B. Pritzker released his first proposed budget Feb. 20.
And while the governor presented his plan for fiscal year 2020 as balanced, he
failed to convince Standard & Poor’s Global Ratings, one of the largest credit
rating agencies.
One fundamental problem with the governor’s proposal? The lack of meaningful
pension reform, according to S&P.
“If the state fails to redeem its longer pension amortization schedule through a
practical reduction in liabilities,” the report says, “its credit trajectory
could slip.”
Illinois already holds the distinction of worst credit rating in the nation,
slouching just one notch above “junk” status. A further decline could mean
serious challenges in terms of the state’s ability to borrow money. That should
be of particular concern to Pritzker, whose proposed budget includes $2 billion
in bonds to reduce the state’s pension liability.
Those bonds constitute one aspect of Pritzker’s “five-point” pension plan, but
S&P cautions that they may jeopardize the state’s long-term pension funding
levels. Other aspects of the governor’s plan include new and increased taxes and
prolonging the schedule of contributions to the state’s pension funds. S&P warns
these measures will test the limits of Illinois’ budgetary flexibility if
deficits grow. That may lead to service cuts, the report says, which would in
turn “undermine the state’s economy.”
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S&P also finds dubious the remaining two points in
the governor’s plan: the sale of state assets and a pension buyout
program. Pritzker’s office has yet to identify the assets it
proposes to sell, the report points out, carrying a risk the agency
views “as a negative credit factor.” And savings from a pension
buyout program included in Illinois’ previous budget have fallen far
short of projections, raising concerns over the new program’s
reliability.
“Illinois has a track record of leaving difficult fiscal choices to
future budgets,” the report notes. Unfortunately, Pritzker’s budget
proposal fails to buck that trend.
The governor would be wise to heed S&P’s advice: Any pension plan
that avoids a “practical reduction in liabilities” will not address
the state’s $134 billion pension debt. Leaders in Springfield must
look to other states that overcame similar pension crises and lead
the push toward a constitutional pension amendment.
Illinois will not see real, lasting pension reform without an
amendment to the Illinois Constitution that protects already-earned
pension benefits, while allowing for affordable adjustments to
future benefit accruals. It’s the only way for the state to keep its
promises to retirees while protecting taxpayers.
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