Moody's Investors Service recently downgraded Illinois' credit outlook to negative from stable in part because investment losses as a result of the current market environment will likely make the state's dire pension funding situation even worse, the ratings agency said in a report Tuesday.
The state, which already has a Baa3 rating with Moody's, its lowest investment-grade rating, will likely see its substantial financial challenges exacerbated due to investment losses and impending tax revenue declines, according to the report.
The state's five pension funds have the worst funded status in the U.S. among state pension plan,s with a funding deficit totaling $137.3 billion as of June 30, according to actuarial valuations.
While that number is down from a peak of $250 billion in 2017 because of favorable investment gains and changes in interest rates used to value liabilities, "these factors likely work against the state for both is fiscal 2020 and fiscal 2021 pension data," and the report adds that because of this, Illinois could face a "large increase" in its pension liabilities.
Moody's also says the loss of tax revenue could "encourage the state to increase underfunding relative to the tread-water level, further adding to growth in unfunded liabilities."
The state's total required contribution to its five pension funds in fiscal year 2021 is $9.7 billion, according to the funds' most recent actuarial valuation.
Illinois Senate President Don Harmon requested in an April 14 letter to the state's congressional delegation that the federal government provide $40 billion in supplemental relief, including $10 billion in cash or loans to help with pension contributions.
Moody's said in the report, however, that "such state-specific measures are unlikely, given the precedent it would inevitably set for other states to seek similar largesse."