Fitch Ratings lowered Illinois' credit rating to BBB from BBB+ on Wednesday because of the state's continued budget impasse.
Illinois has been operating without a full budget since July 1, 2015.
A temporary six-month budget was passed June 30 by the Illinois Legislature, but it expired Jan. 1.
The downgrade of Illinois' issuer default rating and related ratings “reflects the unprecedented failure of the state to enact a full budget for two consecutive years and the financial implications of spending far in excess of available revenues, which has resulted in increased accumulated liabilities and reduced financial flexibility,” the ratings agency said in a news release. “Even if the current attempts at a resolution to the extended impasse prove successful, Fitch believes that the failure to act to date has fundamentally weakened the state's financial profile.”
Among the state's long-term liabilities are its pension liabilities.
Illinois' five state pension systems faced $129.8 billion in total unfunded liabilities and an aggregate funding ratio of 37.6% on a market-value basis as of June 30.
Fitch acknowledged that the state Senate is currently working on a pension reform bill for three of the five state retirement systems and the Chicago Public School Teachers' Pension & Retirement Fund, although its passage is uncertain. As of June 30, the Chicago teachers pension fund had a funded status of 52.4% on an actuarial basis.
The bill proposes that workers hired before Jan. 1, 2011, choose between reduced and delayed cost-of-living increases or future salary increases being excluded from their pension calculations.
The bill would apply to members of the $45.6 billion Illinois Teachers' Retirement System, Springfield; $16.7 billion Illinois State Universities Retirement System, Champaign; $9.8 billion Chicago Public School Teachers' Pension & Retirement Fund; and $49 million Illinois General Assembly Retirement System, Springfield.
The $840 million Illinois Judges' Retirement System, Springfield, and $15 billion Illinois State Employees' Retirement System, Springfield, are not included.
Fitch had previously downgraded Illinois in October 2015 because of the budget impasse.
“Fitch's action further demonstrates the importance of reaching bipartisan agreement on a truly balanced budget and changes that will grow our economy and bring new jobs to our state,” a spokeswoman for Illinois Gov. Bruce Rauner said in an email Wednesday.