Standard & Poor’s Global Ratings downgraded Illinois’ credit to BBB from BBB+ as a result of the state’s continuing financial issues, including operating without a budget for 15 months and its significant pension fund liabilities.
S&P Global Ratings cited among other reasons the “large net pension liability for its five pensions systems” as well as its political leaders’ “highly polarized views” that has “left the state without a fully adopted budget for a second year,” according to a news release Friday.
“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 John Sugden, S&P Global Ratings credit analyst, in the news release. “In our view, the extremely weak market returns for Illinois pension systems will contribute to substantial increases in the state’s statutory contribution, in addition to the contribution increases resulting from several changes to assumed rates of return.”
“This report underscores Illinois’ need for tangible pension reform after career politicians deliberately underfunded the system for decades. It’s time for the supermajority in the Legislature to recognize the current pension system is fatally flawed and requires immediate action. Gov. (Bruce) Rauner continues to fight for pension reform and other fundamental structural reforms that will free up resources to help balance the budget,” said Catherine Kelly, spokeswoman for Mr. Rauner, in an e-mailed statement.
As of June 30, 2015, Illinois’ five state retirement systems faced $111 billion total in unfunded liabilities and a funding ratio of 41.9%, the worst in the nation.