Moody's Investors Service downgraded Illinois' general obligation credit rating to the lowest rating in the state's history, the second downgrade by a major rating agency since state lawmakers last week failed to pass a plan to deal with a $100 billion unfunded public pension liability.
Moody's downgraded Illinois' $27 billion of general obligation debt to A3 from A2, with a negative outlook. Even prior to the downgrade, Illinois had the lowest rating of any U.S. state.
"Our rating now assumes the government will not take action to reduce the state's pension liabilities any time soon," Moody's said in a statement.
"The legislature's political paralysis to date shows not only the magnitude of Illinois' unfunded benefit liabilities, but also the legal and political hurdles to legislation that would make pensions more manageable long term."
The downgrade followed action on Monday by Fitch Ratings, which cut Illinois a notch to A-minus with a negative outlook. Standard & Poor's Ratings Services had downgraded the state to A-minus with a negative outlook in January. Any further downgrades by the three major rating agencies would put Illinois into the triple-B category, which is still considered investment grade.
The downgrades come as Illinois had been expected to sell up to $1 billion of GO bonds as soon as this month. If the sale goes forward, the state likely would need to offer a higher interest rate on its securities because of the lower ratings.
Governor Pat Quinn and some state lawmakers had warned that the state's credit standing would continue to slide if lawmakers could not agree on pension reform. Illinois' worst-in-the-nation pension funding was created by years of skipping and skimping on payments, and various reform efforts have failed in several legislative sessions.
Lawmakers adjourned their spring session Friday night without passing pension reform as House Speaker Michael Madigan and Senate President John Cullerton each backed different approaches and could not work out a compromise. Madigan did not attend a meeting called by Quinn on Tuesday at which the governor had said he hoped to hammer out a compromise solution.
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