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.


* Exelon makes another closure threat
* Illinois Credit Unions – A Smarter Choice
* Your weekly Oscar the Puppy picture
* Exelon Tells Wall Street Its Illinois Plants Make Money So Why Is It Still Asking Springfield For A Bailout??
* Stop the silly games
* Question of the day
* Poll: Chicagoans are fed up
* Kudos and barbs
* Sen. Kirk says Trump a "net benefit" to the party
* SIU warns of big trouble directly ahead
* Kristen McQueary discovers her inner Poindexter
* More like this, please
* More green shoots?
* Emanuel refuses CTU's offer to help
* *** UPDATED x1 *** No Cleveland for Rauner
* SUBSCRIBERS ONLY - Supplement to today’s edition
* SUBSCRIBERS ONLY - Today's edition of Capitol Fax (use all CAPS in password)
* Good morning!
* 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

  
* iPhone 7 Plus Smart Connector may not get to be
* Meet Queen University’s HoloFlex, a flexible smartphone that produces holograms
* Moto G (2016) slides through Zauba, possible specs revealed
* Leak shows that Windows 10 Mobile link opening may get options
* Talk conversationally dirty to me, Google
* MacRumors Giveaway: Win a Limited Edition 'Lost Time' UE Boom 2 Speaker From Ultimate Ears
* Does Phone Camera Aperture Size Matter? Huawei P9 vs Galaxy S7!

* Latos aiming to rebound in series opener vs. Twins
* Avisail homers, but White Sox rally thwarted
* White Sox left frustrated on close play at plate
* Avisail homers, but White Sox rally thwarted
* Brett Lawrie is the brand-new 'Canadian vampire'
* White Sox honor Ortiz; Commish on hand
* Avisail homers, but White Sox rally thwarted

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


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

Archives
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
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


* SEIU Illinois files unfair labor claim on home-.....
* SEIU Illinois files unfair labor claim on home-.....
* Illinois collects another $1.6M from late-vehic.....
* SEIU Illinois files unfair labor claim on home-.....
* QC nuclear plant could close in 2018, company says..
* It’s up to you: transportation funding lock to .....
* SEIU Illinois files unfair labor claim on home-.....
* SEIU Illinois files unfair labor claim on home-.....
* SEIU Illinois files unfair labor claim on home-.....


* Group turns in signatures for redistricting ballot question
* Former US Rep. Mel Reynolds seeks release to halfway house
* Report finds false, faulty testimony by Chicago officers
* Chicago police officer shoots armed suspect on south side
* Illinois collects another $1.6M from late-vehicle fines
* SEIU Illinois files unfair labor claim on home-care work
* Bond at $5M for ex-prosecutor facing retrial in wife's death
* Commission approves plan to evenly spread O'Hare noise
* SIUE approves contracts for temporary service employees
* Black University of Illinois workers allege discrimination

* Group turns in more than 550K signatures for redistricting ballot question
* Group turns in signatures for redistricting ballot question
* Late-vehicle registration fines up to $6.5M through April
* SEIU Illinois files unfair labor claim on home-care work
* Voters to see road fund 'lockbox' amendment on November ballot
* Black U of I workers allege discrimination
* Illinois Senate OKs lawyers for juvenile murder suspects
* Illinois Senate passes $454 million more for colleges
* Memorial day honors fallen Illinois police officers and their families
* Road fund bill the only constitutional amendment to pass both chambers

* Feinberg rejects central states' plan for pension cutbacks
* Commission approves plan to evenly spread O'Hare noise
* Can this e-commerce startup challenge Amazon in Chicago?
* World's rich families are putting private equity firms on notice
* More than trauma center needed to bridge Chicago's life expectancy gap


* Man gets 45 years for 2013 Gary shooting
* Woodstock man charged with possessing, reproducing child porn
* Breaking down racial segregation with neighborhood theater
* Rahm on the third rail of Second City’s ‘Red Line’
* How much lying will Trump get away with?
* 1 man dead after shooting at mall in suburban D.C.
* Group of masked men commit three robberies in Waukegan
* Chicago man charged with burglarizing Park Ridge Jiffy Lube
* Ready to jump on a Divvy bike now? There’s an app for that
* Man missing from Beverly


* Crystal Lake couple creates family with help from frozen embryo donations
* Cubs, White Sox and the inconvenience of winning
* O'Hare communities OK plan to spread out jet noise
* U.S. doubles down on Egypt's dictator
* Rauner mum on Trump endorsement snub
* Ben Zobrist's two homers pad Cubs lead over Nats
* Police: Federal officer arrested in school shooting in D.C. suburbs, may be linked to other cases
* Large shareholder to Tribune Publishing: Talk to Gannett about sale
* Lincoln-Way spent $821,000 in activity funds on questionable expenses
* Barrington High School graduate suffers fatal head injury at University of Illinois


* Group turns in more than 550K signatures for redistricting ballot question
* Late-vehicle registration fines up to $6.5M through April
* SEIU Illinois files unfair labor claim on home-care work
* Voters to see road fund 'lockbox' amendment on November ballot
* Black U of I workers allege discrimination
* Illinois Senate OKs lawyers for juvenile murder suspects
* Their View: Nepal, stuck in neutral as aid languishes
* Their View: A lifeline for Puerto Rico
* Illinois Senate passes $454 million more for colleges
* Memorial day honors fallen Illinois police officers and their families


* U.S. Army veteran Douglas Shaw to replace Linda Butler on District 150 board
* Updated: no foul play suspected in death of UI student
* UPDATE: Tolono man found dead
* first fed
* Tom's #Mailbag, May 6, 2016
* A wetter Corn Belt pattern ahead
* Road fund amendment going on November ballot
* UPDATE: Prognosis promising for injured eagle
* 05-06-16 Penny for Your Thoughts
* Why Ebertfest, marathon will share same weekend in '17


* Key Kane County official supports residential plan for Elburn religious retreat
* Algonquin fundraiser to fight human trafficking
* Vernon Hills police offer women's self-defense class
* Mundelein High School literacy programs earn grants
* Group turns in signatures for redistricting ballot question

* House lawmakers overcome hurdle on key tra...
* Rodney Davis talks funding with Bloomingto...
* The agency that fought Illiana gets a new ...
* Rep. Dold takes educational cruise down Ch...
* Lawmakers decry high turnover rate of VA h...
* CBD Oil, and politics
* Simon considering state Senate bid
* Killer Congressman Tom MacArthur trying to...
* Shutdown? State may not notice
* Rep. Bob Dold

* Senator Durbin Corrects the Record on Gitm......

* Illinois voters should hold Sen. Mark Kirk......
* Is The Human Rights Campaign Tacitly endor......
* Donald Trump looms large in key Senate rac......

* lllinois GOP Legislators Question State Auditor's Previous Campaign Spending
* Illinois GOP Legislators Question State Auditor's Previous Campaign Spending
* Entrepreneurs, Deadline Is Approaching To Be The Next FLATS Small Business
* Ald. Osterman On Homeless Encampments and Housing-First Pilot Program
* Cartoon Of The Day
* Fate of disputed earnest money among topics covered in May DR Legal News
* Illinois REALTORS® to meet with lawmakers in D.C. next week
* Ventra
* Cartoon of the Day - 5/5/16 - Trump, GOP support and Chris Christie
* Alvarez Recuses Herself From McDonald Case (UPDATED)


* Emergency Management Officials, National Weather Service Encourage Winter Preparedness - November is Winter Weather Preparedness Month in Illinois
* Keep Your Family Safe This Winter - November through February are leading months for carbon monoxide related incidents
* Governor Takes Bill Action
* Illinois Department of Labor Director Hugo Chaviano Awards Governor’s Award for Contributions in Health and Safety to the Illinois Refining Division of Marathon Petroleum Company LP
* State Regulator Elected Treasurer of Interstate Medical Licensure Compact




Hosted by MCS -- CapitolFax.com Privacy Policy -- SUBSCRIBE to Capitol Fax -- Advertise Here -- Mobile Version -- Contact Rich Miller