According to today’s Chicago Tribune, the Illinois credit rating was downgraded again last Friday and is now the lowest of all 50 states in the latest rankings of a major credit ratings agency.
Illinois fell to the bottom of the pile following the failure of Gov. Pat Quinn and General Assembly to fix the state’s pension system funding during this month’s lame-duck session, as the state’s pension debt continues to mount each day.
Standard & Poor’s Ratings Service downgraded Illinois in what is the latest fallout over the $96.8 billion debt to five state pension systems. The New York firm’s ranking signaled that taxpayers may pay tens of millions of dollars more in interest when the state borrows money for roads and other projects.
State Treasurer Dan Rutherford estimated the state will pay $95 million more in interest annually than if Illinois had a AAA rating, which is much higher rating than the state has now.
The S&P credit ratings agency is threatening even further reductions in the state’s credit ratings, if the Democratic majorities and Governor don’t do something to reduce the debt and increased borrowing.
One other ominous point in the Standard & Poor’s report is that inaction could lead to downgrading Illinois to BBB, an “unusual” low rating for any state. The agency noted that a “lack of action on pension reform and upcoming budget challenges could result in further credit deterioration.”
Not only does Illinois have pension problems, but the state has cut school funding two consecutive years and more cuts are on the horizon. The 67% tax increase last year, most of which went to the pensions, has a sunset clause, which will gradually cause the pension debt to climb even faster. The state also has $8 to $9B in unpaid bills.