SUBSCRIBE to Capitol Fax      Advertise Here      Mobile Version     Exclusive Subscriber Content     Updated Posts    Contact
CapitolFax.com
To subscribe to Capitol Fax, click here.
*** UPDATED x5 *** Fitch switches Illinois to “negative” outlook, gives state six months to fix problem

Friday, Jan 11, 2013

* From Fitch

Fitch Ratings has placed the ‘A’ rating on the general obligation (GO) bonds of the State of Illinois on Rating Watch Negative. The rating action affects approximately $26.2 billion in outstanding GO bonds of the state. Ratings linked to the state GO rating, listed at the end of this release, have also been placed on Rating Watch Negative.

The Rating Watch Negative reflects the ongoing inability of the state to address its large and growing unfunded pension liability, most recently through the failure to pass pension reform in the ‘lame duck’ portion of the 97th general assembly legislature that ended on Jan. 8. Fitch believes that the burden of large unfunded pension liabilities and growing annual pension expenses is unsustainable. The Rating Watch Negative will be resolved after an assessment of the extent to which the state takes action within the next six months that limits the impact of pension payments on the budget while bolstering pension funded levels. Failure to achieve meaningful results would lead to a downgrade of the rating.

Illinois’s long-term liabilities, particularly pension liabilities, are very high for a U.S. state. As of June 30, 2012, the unfunded actuarial accrued liability was reported at $94.6 billion, resulting in a 40.4% reported funded ratio. This large unfunded pension liability is despite the issuance of pension obligation bonds and passage of bipartisan comprehensive pension reform affecting new employees in March 2010.

Annual pension funding requirements have been increasing significantly and growing pension payments are crowding out other expenditure growth and absorbing revenue growth. Pension payments from the general fund increased $965 million to $5.1 billion in 2013, an increase of 23%, reflecting in part the use of more conservative investment return assumptions. Fitch notes that even these large payments, which consume a well-above-average percentage of the state’s general fund budget, are based on statutory formula and are below the actuarially required contribution (ARC).

Several reform proposals have been presented by the governor and various legislators that would adjust benefits for existing employees, increase employee contributions, limit cost of living increases, and increase the retirement age. Other proposed structural changes to the pension program include shifting some responsibility for employer contributions to school districts and state universities and establishing a 30-year funding schedule based on the ARC that aims to reach 100% funding by 2042. Under current statute, annual contributions are designed to reach 90% funding by 2045. Fitch believes that enactment of reform is critical to the long-term stability of the state’s fiscal position, although legal protection of pension benefits is particularly strong in Illinois and Fitch expects any changes to be litigated.

The ‘A’ rating on Illinois’s GO bonds reflects the state’s broad based and diverse economy offset by the challenges presented by a budget that is balanced through significant temporary tax increases, high long-term liabilities including pensions, and a large accounts payable backlog that reflects the payment deferrals the state used to manage its operating deficit through the downturn.

The state’s GO bonds benefit from an irrevocable and continuing appropriation for all GO debt service, and continuing authority and direction to the state treasurer and comptroller to make all necessary transfers from any and all revenues and funds of the state. The state funds debt service in advance by setting aside 1/12 of principal and 1/6 of interest every month for payments due in the ensuing 12 months. [Emphasis added.]

That’s not nearly as bad as it could’ve been, but there are other ratings agencies.

*** UPDATE 1 *** From the governor’s office…

“The Fitch report speaks for itself. This should be required reading for every member of the new General Assembly. We have an emergency and it’s not going away.”

*** UPDATE 2 *** Sun-Times

The move may not have a direct impact on the state’s finances and posts “very minimal risk” to existing state bond holders, but it ultimately could foreshadow higher borrowing costs the next time Illinois goes to market for long-term loans, a company spokeswoman said.

“The immediate result, to be honest, is probably nothing. It doesn’t affect what they’re doing on a day-to-day basis,” Fitch analyst Karen Krup told the Chicago Sun-Times. “But for direct impact on the state, when they try to go to market the next time, there could be implications on borrowing costs.”

*** UPDATE 3 *** From Leader Tom Cross…

“Fitch’s downgrade of our bond rating is embarrassing and may cost the state more money—money that we clearly do not have. How many more times do we have to be downgraded to prompt action in the General Assembly? I have worked and will continue to work with other members in the House and Senate to pass meaningful pension reform.”

*** UPDATE 4 *** Treasurer Rutherford…

“Fitch Ratings announced that the agency has placed Illinois’ general obligation bonds rating on negative watch. Fitch decided to do this because of the state’s inability ‘to address its large and growing unfunded pension liability.’ The next step could potentially be the downgrade of the state’s credit rating from Fitch. Failure to enact pension reforms will eventually bring Illinois to its financial breaking point, and it will be worse than any fiscal calamity we have seen thus far in this state. Our state’s credit rating cannot afford to take another hit.”

“Furthermore, it has now been two years since Governor Pat Quinn’s 66% income tax hike was passed, and though it was billed as a measure that would help solve the state’s financial problems, money matters in Illinois have only gotten worse. On January 11, 2011, the state’s backlog of bills was reportedly $8.5 billion. Today the state owes vendors nearly $9 billion dollars.”

“In the past decade, the state’s bonded debt has nearly tripled. Illinois’ debt is colossal and growing– our debt obligations now exceed $200 billion. It is estimated that the failure to address the state’s pension liability is costing the state at least $17 million per day. It is beyond irresponsible to let this continue. The state needs to reign in the pension escalation and not use long-term borrowing as a ‘solution’ to this problem.”

Also, the governor was asked about Fitch’s move today. Raw audio…

*** UPDATE 5 *** Rep. Elaine Nekritz and Sen. Daniel Biss…

“This announcement just confirms what we have feared and warned about: our state finances are in real trouble. We must act quickly and decisively to address the pension problem and send a strong message that Illinois is serious about getting its fiscal house in order for the long term.”

- Posted by Rich Miller        


27 Comments
  1. - 47th Ward - Friday, Jan 11, 13 @ 12:00 pm:

    I went to see Dr. Fitch, He told me I had six months to live. When I couldn’t pay the bill, he gave me another six months.


  2. - RNUG - Friday, Jan 11, 13 @ 12:06 pm:

    Two immediate thoughts:

    The state has 6 more months to stall.

    By specifically identifying the tmeporary income tax increase as one of the tools currently being used to manage things, are they hinting to make it permanent?


  3. - Makandadawg - Friday, Jan 11, 13 @ 12:07 pm:

    Once again the problem is defined as “ongoing inability of the state to address its large and growing unfunded pension liability”. This does not mean my pension benfits are broken and need to be reduced. This means the state legislature is broken and needs to be fixed


  4. - Loop Lady - Friday, Jan 11, 13 @ 12:09 pm:

    Has Madigan seen this? Is it finally time for him to rescue us from himself and others?


  5. - Crime Fighter - Friday, Jan 11, 13 @ 12:15 pm:

    If the money was just paid back wouldn’t this go away?
    How much credit do the ratings agencies give for the absence of a service tax in a service economy?


  6. - Arthur Andersen - Friday, Jan 11, 13 @ 12:18 pm:

    47th, excellent!


  7. - RNUG - Friday, Jan 11, 13 @ 12:20 pm:

    Crime Fighter,

    Yes, but it will take a 30 year diet to do so …


  8. - Jimmy - Friday, Jan 11, 13 @ 12:22 pm:

    I lot better than I expected. Maybe they feel optimistic about reform in the upcoming regular session?


  9. - Soccertease - Friday, Jan 11, 13 @ 12:23 pm:

    Nekritz to Fitch: “Hey, how about giving IL a two-minute-warning or whatever you guys call it so I can mess with State employees and retirees a little more?”


  10. - Crime Fighter - Friday, Jan 11, 13 @ 12:39 pm:

    RNUG - Thanks. OK, I’m in! We need a 30 year ramp diet and a service tax to deal with the tab from the last 30yrs of overindulgence.
    I won’t get my yacht polished as often and will cut down on meetings with my wealth management consultants.(Snark of course)


  11. - Small Town Liberal - Friday, Jan 11, 13 @ 12:54 pm:

    I wish I had a job where I could make mistakes worth hundreds of millions of dollars and still have the authority to give deadlines to an entire state.

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajs7BqG4_X8I


  12. - iThink - Friday, Jan 11, 13 @ 1:00 pm:

    == legal protection of pension benefits is particularly strong in Illinois and Fitch expects any changes to be litigated==

    Yup. Perhaps Fitch has some constitutional ideas to fix this mess; our inept elected officials sure don’t.


  13. - Meaningless - Friday, Jan 11, 13 @ 1:05 pm:

    Easy solution to make Fitch happy. Fix the pension debt ramp and increase revenue. Employees contribute 2% more, close corporate tax loopholes, and revise the state sales tax to include more services. What’s so difficult?


  14. - western illinois - Friday, Jan 11, 13 @ 1:06 pm:

    Dear Fitch
    Illinois bond debt is a bit high I think we should resturture it in a few months(means we pay less) But your bondholders might sue sinnce bonds like pensions are a contract.
    BTW Where were you in 2008?
    Do you have the abilty to primary anyone?
    Where were you in 1970?
    For all those who call use Greece our debt would have to be 120%v of GDP which for Illinois would be about 600 Billion Dollars


  15. - Rich Miller - Friday, Jan 11, 13 @ 1:10 pm:

    ===Easy solution to make Fitch happy. ===

    If it was so easy, it would’ve been done by now.


  16. - western illinois - Friday, Jan 11, 13 @ 1:32 pm:

    Nothing is easy even if there is an agreemnet with the unions on a 2% increas,which i think would do maore than Cullertons”choice”a NUG could still sue and might very well win


  17. - Cook County Commoner - Friday, Jan 11, 13 @ 1:39 pm:

    I think our legislature doesn’t worry too much about the downgrade. There are so many yield hungry investors out there that bids on debt will not suffer much. Besides, a lot of other states are catching up to Illinois with their own version of the fiscal flu. This may help to keep the bond prices up.

    The more important issue concerns staff slashing at state agencies like the Dept of Financial and Professional regulation, as reported in today’s Tribune. Related to pension and other fiscal presuures? Probably.

    How many truly valuable government services will be compromised before IL state and local governments take meaningful action ?


  18. - bourbonrich - Friday, Jan 11, 13 @ 1:52 pm:

    If we accept the concept that retirement benefits will not be touched and if there is no increase in revenues, then aren’t the choices either fewer state employees or reduced salaries?


  19. - Liberty_First - Friday, Jan 11, 13 @ 2:14 pm:

    I have a better idea. Default on bonds to pay pensions.


  20. - Meaningless - Friday, Jan 11, 13 @ 2:37 pm:

    re … response to easy solution. I think we all know why the practical and common sense solutions are not even on the table at this time ($$$$$). But remember … everyone also knows that cutting pensions will not even be a good band-aid and besides being unconstitutional, would / will have a dramatic negative impact on Illinois’ economy.


  21. - Joe M - Friday, Jan 11, 13 @ 2:49 pm:

    ===If we accept the concept that retirement benefits will not be touched and if there is no increase in revenues, then aren’t the choices either fewer state employees or reduced salaries?

    It would seem a possibility that reduced salaries would get tangled up in contract law lawsuits. And Illinois already has the fewest number of state employees per capita out of all 50 states - so kind of hard to cut there too.


  22. - Norseman - Friday, Jan 11, 13 @ 2:51 pm:

    === Fitch believes that enactment of reform is critical to the long-term stability of the state’s fiscal position, although legal protection of pension benefits is particularly strong in Illinois and Fitch expects any changes to be litigated. ===

    And what if the litigation is successful because of the “strong” protection?


  23. - dupage dan - Friday, Jan 11, 13 @ 3:02 pm:

    Dr Fitch told me I am terminally ill. I asked for a second opinion. He told me I am ugly, too.


  24. - Anonymous - Friday, Jan 11, 13 @ 3:16 pm:

    Cross: “I have worked and will continue to work with other members in the House and Senate to pass meaningful pension reform.”

    It would be real nice and possibly helpful if he and the rest would work with ALL the STAKEHOLDERS here.


  25. - props - Friday, Jan 11, 13 @ 3:32 pm:

    Well played 47th Ward, well played.


  26. - western illinois - Friday, Jan 11, 13 @ 3:50 pm:

    We did have one downgrade and because of the afformentioned yield hungry investor …nothing much happened


  27. - Anyone Remember? - Friday, Jan 11, 13 @ 4:53 pm:

    Other states have “fixed” their pension problems by doing George Carlinesque seven dirty word things to their employees and retirees. However, none of them have the Illinois Constitution’s guarantee. What other states have done should be unconstitutional here. There’s the rub.


Sorry, comments for this post are now closed.


* Reader comments closed for the weekend
* No pension bump for Stermer, MJM still not persuaded on special session
* SUBSCRIBERS ONLY - More comptroller stuff
* 1:30 comptroller announcement expected - Stermer appointed, says he will resign January 12th
* SUBSCRIBERS ONLY - Comptroller stuff
* Golden Horseshoe Awards
* Bears open thread
* More adventures in misgovernance
* Question of the day - Golden Horseshoe Awards
* Petulance all around
* Yesterday's blog posts

Support CapitolFax.com
Visit our advertisers...

...............

...............

...............

...............

...............


Search This Blog...

Search the 98th General Assembly By Bill Number
(example: HB0001)

Search the 98th General Assembly By Keyword

          
        * Android Community Weekly Digest: Dec. 21, 2014
        * The Perfect Gaming Phone
        * Google releases Android 5.0.2 for Nexus 7 (2012) tablet
        * Announcement timing is everything
        * Galaxy Note Edge Review
        * Oppo R5 vs HTC One M8: Thin vs. Powerful
        * Bring Back the Old School with the NES30 Bluetooth Controller [DEALS]

        * Facebook in 2015: Drones, messaging and virtual reality, oh my!
        * Samsung SE790C Curved Monitor Introduced
        * Notch’s Mansion Recreated In Minecraft
        * Zooti Enters the Streaming Games Arena With a New Tablet and Cloud Service
        * Star Wars: The Force Awakens Trailer Recreated In GTA 5
        * Halo 3: ODST Offered For Free As Compensation
        * 11 Hot Last Minute Gifts

        * The year in injuries: White Sox have been better, could've been worse
        * Williams: Make protesting voices heard through vote
        * Williams: Make protesting voices heard through vote
        * White Sox also had a December to remember 100 years ago
        * Terrerobytes: Future of Cuban baseball complicated on both sides
        * White Sox sign George Kottaras to a minor league deal
        * Kottaras to join White Sox with Minor League deal

        ...............


        Main Menu
        Home
        Illinois
        YouTube
        Pundit rankings
        Obama
        Subscriber Content
        Durbin
        Burris
        Blagojevich Trial
        Advertising
        Updated Posts
        Polls

        Archives
        December 2014
        November 2014
        October 2014
        September 2014
        August 2014
        July 2014
        June 2014
        May 2014
        April 2014
        March 2014
        February 2014
        January 2014
        December 2013
        November 2013
        October 2013
        September 2013
        August 2013
        July 2013
        June 2013
        May 2013
        April 2013
        March 2013
        February 2013
        January 2013
        December 2012
        November 2012
        October 2012
        September 2012
        August 2012
        July 2012
        June 2012
        May 2012
        April 2012
        March 2012
        February 2012
        January 2012
        December 2011
        November 2011
        October 2011
        September 2011
        August 2011
        July 2011
        June 2011
        May 2011
        April 2011
        March 2011
        February 2011
        January 2011
        December 2010
        November 2010
        October 2010
        September 2010
        August 2010
        July 2010
        June 2010
        May 2010
        April 2010
        March 2010
        February 2010
        January 2010
        December 2009
        November 2009
        October 2009
        September 2009
        August 2009
        July 2009
        June 2009
        May 2009
        April 2009
        March 2009
        February 2009
        January 2009
        December 2008
        November 2008
        October 2008
        September 2008
        August 2008
        July 2008
        June 2008
        May 2008
        April 2008
        March 2008
        February 2008
        January 2008
        December 2007
        November 2007
        October 2007
        September 2007
        August 2007
        July 2007
        June 2007
        May 2007
        April 2007
        March 2007
        February 2007
        January 2007
        December 2006
        November 2006
        October 2006
        September 2006
        August 2006
        July 2006
        June 2006
        May 2006
        April 2006
        March 2006
        February 2006
        January 2006
        December 2005
        April 2005
        March 2005
        February 2005
        January 2005
        December 2004
        November 2004
        October 2004

        Blog*Spot Archives
        November 2005
        October 2005
        September 2005
        August 2005
        July 2005
        June 2005
        May 2005

        Syndication

        RSS Feed 2.0
        Comments RSS 2.0
        WordPress

        Loading


        * Quinn set to go to Maryland to visit soldiers..
        * Letter: Rauner needs to tell us his plan..
        * Quinn to deliver Christmas cards to wounded sol.....
        * Illinois Temporary Income Tax expires soon..


        * 4 people including 2 children killed at Rockford home
        * 4 found dead, including 2 children, in Rockford
        * Quinn set to go to Maryland to visit soldiers
        * Illinois to get $1.6M for Heart of Dallas Bowl
        * Report: Illinois treasurer OK'd raises for dozens
        * 1 dead, many injured in shooting at suburban party
        * Milestone in osprey program as birds migrate
        * Raising juror pay, reducing juries gets mixed reviews
        * Police looking for suspect in Effingham shooting
        * Firefighters battle grain bin fire for 9 hours

        * Raising juror pay gets mixed reviews
        * Gov. Quinn set to go to Maryland to visit soldiers
        * State treasurer employees get raises, stipends as Rutherford’s term comes to end
        * Springfield-based U.S. attorney’s investigations nab 13; race questions raised
        * 2nd Illinois prison with possible chickenpox
        * Quinn signs bill increasing juror pay
        * Quinn names longtime aide Jerry Stermer comptroller until Jan. 12
        * Quinn signs law to nix deadline for asbestos lawsuits
        * Quinn to name comptroller replacement this afternoon
        * Madigan says T-Mobile settlement shields consumers

        * Can Garcia's run for mayor fire up independents?
        * Chicago's newest workout (and personal statement) options
        * A photo shop for photographers
        * The Life of Patrick Ryan: Act II, Scene 2
        * Office conversions kick small firms to the curb


        * Lakeview pot dispensary on hold; Tunney opposes Halsted location
        * Despite community pleas, CPS puts Dyett HS out for proposals
        * Quinn to appoint new Illinois Comptroller today
        * Gov. Quinn appoints longtime aide as Illinois comptroller
        * Watch: President Obama's year-end press conference
        * Rewriting the Sony cyberattack script
        * time for new course in Cuba
        * Are Rahm's numbers creeping up? New internals show him near 50
        * Obama guidance, press schedule, Dec. 19, 2014. Press conference
        * A whole lot of nothing from the City Council


        * Chicago-based Cards Against Humanity doles out pieces of Maine island
        * South Loop crash kills 2, hospitalizes 1
        * 1 dead, 5 wounded in separate West, South side shootings
        * Man killed at house party shooting was headed to Army
        * Bronzeville man held on $300K in Loop convenience store robbery
        * Borman Expressway closed in both directions
        * Operation Santa delivers cheer to fallen or injured officers' families
        * Mayoral challengers call for suspension of red light camera program
        * Cops warn of attempted child luring on West Side


        * Listen to State Week - December 19, 2014
        * Quinn Picks Budget Chief To Be Temporary Comptroller
        * 'Uber-gentrification' a force in Chicago's West Loop
        * Durbin leaving Congressional roommates behind
        * Worries rise in Russia as ruble falls
        * Improviser finds purpose in Chicago police mental health crisis trainings
        * Chicago 'petcoke' handler says it'll enclose piles
        * Waukegan woman seeks to trademark 'I can't breathe'
        * Obama re-establishing US relations with Cuba
        * Teaching hospitals hit hardest by medicare fines for patient safety


        * Quote of the day: Monday, Dec. 22, 2014
        * Raising juror pay gets mixed reviews
        * Gov. Quinn set to go to Maryland to visit soldiers
        * Quote of the day: Sunday, Dec. 21, 2014
        * Bernard Schoenburg: Rauner talks of dogs, housing and the work ahead as governor
        * State treasurer employees get raises, stipends as Rutherford’s term comes to end
        * Cathy Becker: Because it’s the right thing to do
        * T. Ray McJunkins: Justice, righteousness descend to fulfill dream
        * Springfield-based U.S. attorney’s investigations nab 13; race questions raised
        * 2nd Illinois prison with possible chickenpox


        * Brenda Steinmetz
        * Mary Kirby
        * Donald Stroud
        * Carolyn Foss
        * Hubert Armes
        * Kimberly Brown
        * Charles Rice
        * Mary Edwards
        * Harry Fitzgerald
        * Evelyn Altenberger


        * Report: Mississippi recruit QB Chad Kelly arrested
        * Report: Former Clemson QB Chad Kelly arrested
        * Kane leads Blackhawks past Maple Leafs 4-0
        * Women's Top 25 Capsules
        * No. 21 Mississippi State rolls past Miami (Ohio) 68-42

        * Midterm elections see Big Red wins in Ill....
        * Over 95 percent of ANCA-endorsed candidate...
        * Danny Davis Defeats Robert Bumpers In Illi...
        * Rehab of Affordable Housing Building in Ol...
        * Rep. Danny Davis Hopes to Keep His Seat fo...
        * Illinois House Dems agonize over vote to f...
        * Congressman calls for removal of police co...
        * Congressmen Plan House Speech on Chicago's...
        * Davis To Obama: 'Do Everything In Your Pow...
        * Rahm Touts New Law to Clear Juvenile Polic...

        * Durbin OK With Budget...
        * Durbin on Korea Hack...
        * Obama Takes a Page From Reagan's Trade Book...
        * Are Academics Limited When It Comes To Fre......

        * Ex-General On Benghazi: 'We Should Have Tr......
        * Soldiers Reunite With Families Just In Tim......
        * Menorah lighting marks 6th night of Hanukkah...

        * Will school officials be like judges?
        * My condolences to the NYPD
        * Is It Good To Be Paul Vallas Now?
        * Rahm says SEIU 73’s Boardman can bargain away employee pensions. I don’t think so.
        * Elected retired delegates are on a watch list at the IEA RA.
        * Tollway Testing Apps To Let Drivers Pay Tolls, Get Travel Info
        * Rubio.
        * Sunday reads.
        * Mayor Emanuel continues getting cash from firms managing Chicago's pension money
        * Islamic State Mocks US With Photoshopped Santa Held Hostage


        * Governor Quinn Appoints Jerry Stermer as Illinois Comptroller
        * Governor Quinn Calls Legislative Special Session - Governor Urges Legislature to Set Up 2016 Special Election for Comptroller
        * Governor Quinn Announces Illinois’ Unemployment Rate Hits New Low - Illinois’ Economic Comeback Continues; Unemployment Rate Falls to Lowest Level in More than Six Years
        * Illinois Ranks #1 in Volunteer Rate Among the Country’s 8 Largest States - 2.57 Million Illinoisans Give $7.2 Billion in Service
        * Law Enforcement, IDOT Make Final Push to Save Lives in 2014, Roadside Safety Checks Planned Over Holidays - New Episode of “The Driving Dead” Premieres Friday as Holiday Travelers are Reminded to Drive Sober and Buckle Up




            Hosted by MCS SUBSCRIBE to Capitol Fax Advertise Here Mobile Version Contact Rich Miller