Illinois Gov. J.B. Pritzker's 2020 budget proposal "would not materially address the state's structural budget issues in the current fiscal year or the next" and would likely result in a further credit downgrade, Fitch Ratings said in a news release Tuesday.
The ratings agency currently gives Illinois a rating of BBB with a negative rating outlook and would lower the rating further "if Illinois returned to a pattern of deferring payments for near-term budget balancing."
One portion of Mr. Pritzker's budget proposal was the Feb. 14 plan rolled out by Deputy Gov. Dan Hynes to close the $134 billion unfunded liability gap for Illinois' five pension funds, which includes extending their amortization schedule by seven years to make the plans 90% funded by 2052 instead of 2045 to save the state $800 million annually. Fitch Ratings said the "uncertain pension proposal" poses "risks for the state."
Fitch said the 90% funding target is "comparatively weak" and that "without committing to full actuarially determined contributions, the reamortization could cost the state more over time by perpetuating an already inadequate funding approach."
Fitch Ratings' release comes on the heels of a similar warning from S&P Global Ratings, which in a Feb. 22 news release said that "deferring pension contributions has been a key contributor to Illinois' deteriorating credit position. Even if the state were to continue its current 2045 amortization schedule, its pension plans exhibit negative cash flows given that annual benefit payments exceed incoming contributions." S&P's rating for Illinois is BBB-.
Mr. Pritzker's spokeswoman Jordan Abudayyeh said in an emailed statement that Mr. Pritzker "proposed a realistic plan to serve as a bridge to the future" and that "no element of the comprehensive approach can be viewed in isolation and Gov. Pritzker is ready to work with the Legislature to put the state back on a path towards fiscal stability. The alternative to this plan is doing more of the same: namely, raising taxes on the middle class. The mess in Illinois was created over many years, which is why Gov. Pritzker is offering a long-term solution."