Moody’s Investors Service downgraded Illinois’ credit rating to “A3” from “A2” after the General Assembly failed to move forward on pension reform before the end of the spring legislative session. The rating agency also says it has a negative outlook on Illinois’ credit:
“The negative outlook reflects our expectation that Illinois’ pension liabilities will continue to grow, in the absence of substantive reform efforts, and that annual funding requirements will become unmanageable, particularly if no steps are taken to address the loss of revenue from expiring income tax increases in 2015.”
This was Illinois’ 13th credit downgrade under Gov. Pat Quinn.
These credit downgrades come with serious consequences. They send a continuous warning signal to businesses to avoid Illinois, something the state with the nation’s second-highest unemployment rateand rank of 48th in economic outlook can’t afford. Every downgrade puts a further strain on Illinois’ reputation for doing business and attracting capital and entrepreneurs.
The state already had the worst credit rating in the nation prior to the downgrade and is now only four notches away from junk-bond status – meaning many institutional investors will no longer be able to buy Illinois debt.
The state pays the highest borrowing penalty rate in the nation – nearly three times higher than California’s – and the downgrade will increase Illinois’ borrowing costs.
This latest Moody’s downgrade comes shortly after Fitch Ratings downgraded Illinois immediately after the legislative session ended.
Will lawmakers allow pressure to continue building in order to advance their progressive tax agenda? Or will they enact the real pension reforms that Illinois so desperately needs to end its crisis?