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S&P raises state credit outlook to “developing”

Tuesday, Dec 10, 2013

* From S&P…

Standard & Poor’s Ratings Services revised its outlook on Illinois to developing from negative. In addition, we affirmed our ‘A-’ rating on the state’s general obligation (GO) bonds outstanding. A developing outlook indicates that we could raise or lower the rating during the two-year outlook horizon.

“The change reflects the consensus reached on pension reform, which we believe could contribute to a sustainable path to fiscal stability,” said Standard & Poor’s credit analyst Robin Prunty. “Although we view the consensus achieved by Illinois on this difficult issue as positive from a credit standpoint, the developing outlook reflects the implementation risk — legal and budgetary — associated with various provisions of the pension reform, as well as the overall structural budget challenges facing the state,” added Ms. Prunty.

At the same time, Standard & Poor’s assigned its ‘A-’ rating and developing outlook to Illinois’ GO bonds, series of December 2013.

In addition to normal budget pressures facing the state, the statutory reduction of current personal and corporate income tax rates on Jan. 1, 2015, highlights a difficult budget climate over the next two years.

If pension reform moves forward and the state takes credible action to achieve structural budget balance beginning in fiscal 2015, we believe a higher rating would be warranted.

Conversely, if the pension reform is declared unconstitutional or invalid, or implementation is delayed and there is a lack of consensus and action among policy makers on the structural budget gaps and outstanding payables, we believe there could be a profound and negative effect on the state’s budgetary performance and liquidity over the two-year outlook horizon.

While a developing outlook is unusual for a state, it reflects the magnitude and scope of pension and budgetary issues facing Illinois.

If this thing is declared unconstitutional and there’s no immediate “Plan B” on the table, the bond houses are gonna freak, as S&P made perfectly clear today.

Of course, we could’ve had a “Plan B” measure included in the pension bill, as Senate President John Cullerton agreed to do well over a year ago. But Speaker Madigan, the Chicago newspaper editorial boards and the Civic Committee were all against that idea. I’ll never fully understand why, either.

* From a press release…

Governor Quinn issued the following statement regarding today’s announcement that Standard & Poor’s ratings agency has improved its outlook on the state of Illinois’ bonds from “negative” to “developing.”

This is the first positive movement for Illinois bonds in years and is the direct result of the bipartisan, comprehensive pension reform legislation that Governor Quinn signed into law last week. On Friday, Moody’s called the new pension reform law a “credit positive” and said it “may be the largest reform package implemented by any U.S. state.”

“I am pleased the ratings agencies are recognizing that Illinois is moving in the right direction,” Governor Quinn said. “As I’ve always made clear, one of the many reasons to resolve Illinois’ pension crisis was the negative impact it had on our bond rating, which cost taxpayers more money to finance critical repairs and improvements to roads, bridges and schools.

“This improved outlook will be the first of many positive developments towards a revitalized and stronger Illinois,” the Governor said.

Fitch retained its “negative” outlook the other day.

- Posted by Rich Miller        

  1. - wordslinger - Tuesday, Dec 10, 13 @ 11:48 am:

    LOL, things are always “developing,” aren’t they?

  2. - Six Degrees of Separation - Tuesday, Dec 10, 13 @ 11:51 am:

    Well, I guess they could always sell the tollway and Starved Rock State Park…

  3. - Oswego Willy - Tuesday, Dec 10, 13 @ 11:54 am:

    I have a “GPS” in my car, and when I go off the path, it tells me it’s “recalculating”.

    Why do I think of this being the same as my “GPS”?

  4. - walkinfool - Tuesday, Dec 10, 13 @ 11:58 am:

    Offering plan B to the court could have undercut the “emergency” arguments for plan A, and offered them an easier path out of a very difficult case.

    And plan B simply would not have done enough to address the crisis. It would truly have been what Rauner claims, a delay causing worse future problems.

    I’m guessing that’s the thinking.

  5. - Robert the Bruce - Tuesday, Dec 10, 13 @ 12:02 pm:

    To walkinfool’s point: Perhaps they also figured that a plan B (cullerton’s plan) could be passed shortly after the court strikes down plan A. Not sure it’ll be that easy.

  6. - RNUG - Tuesday, Dec 10, 13 @ 12:06 pm:


    a) Illinois finally broke their gridlock on pensions

    b) We aren’t so sure this will do the job

    c) We’re waiting to see if there is a income tax extension

    d) Yes, we’ll push the latest Illinois GO bonds

  7. - A guy... - Tuesday, Dec 10, 13 @ 12:07 pm:

    As Yogi Berra said “When you get to a fork in the road…take it”. Plan B would have offered a fork in the road that certain people didn’t want. The rating agencies would have reacted more coolly to such a fork in the road. Time will tell how supremely this was vetted.

  8. - RNUG - Tuesday, Dec 10, 13 @ 12:14 pm:

    walkinfool - Tuesday, Dec 10, 13 @ 11:58 am:

    I don’t think a Plan B in the legislation would have mattered to the emergency argument. The various leaders made enough public comments undermining the supposed urgency of the situation.

  9. - Old and in the Way - Tuesday, Dec 10, 13 @ 12:29 pm:

    Talk about tone deaf! Senator Biss sent this out to his constituents. My sister sent it on to me but you really have wonder just how the senator thinks this will go over given his role in undermining pension security for so many of his constituents! And his guest experts……really callous.

    I wanted to send you a quick email tell you about two events my office is hosting in the coming days.
    The first is a seminar this Wednesday hosted by Central Management Services (CMS) to help explain changes to retiree health coverage for public workers.
    The second is the last in our Critical Issues Series, this time about ways to help workers find retirement security when their employers offer them no options. I’m excited to be joined by a fantastic panel, and look forward to hearing your thoughts on this important topic.
    Panelists: Lucy Mullany, Senior Policy Associate with the Heartland Alliance and Coordinator of the Illinois Asset Building Group; Spencer Cowan, Vice President of the Woodstock Institute; and Scott Adams, labor specialist who was instrumental in passing a similar piece of legislation in California.
    Please let my office know if you have any questions at 847-568-1250, and I look forward to seeing you soon!

    Senator Daniel Biss
    9th District – Illinois
    District Office
    3706 Dempster Street • Skokie, IL 60076
    847-568-1250 (Phone) • 847-568-1256 (Fax)
    Springfield Office
    M121 Capitol Building • Springfield, IL 62706
    217-782-2119(Phone) • 217-558-0715(Fax)

  10. - Union Man - Tuesday, Dec 10, 13 @ 12:38 pm:

    -Talk about tone deaf! Senator Biss sent this out to his constituents.-

    What a tool.

  11. - catrike - Tuesday, Dec 10, 13 @ 1:09 pm:

    “If this thing is declared unconstitutional and there’s no immediate “Plan B” on the table, the bond houses are gonna freak, as S&P made perfectly clear today.”

    And you can bet the Supremes read the newspapers.

  12. - Decaf Coffee Party - Tuesday, Dec 10, 13 @ 1:18 pm:

    Ty could not have written it any better…

  13. - Obamas Puppy - Tuesday, Dec 10, 13 @ 1:53 pm:

    Because MJM really cares about pension policy…NOT

  14. - Decaf Coffee Party - Tuesday, Dec 10, 13 @ 1:53 pm:

    I was referring to S&P’s message, not Rich’s conclusion…

  15. - Anonymous - Tuesday, Dec 10, 13 @ 3:08 pm:

    “….Developing….” Has a third world ring to it, eh?

  16. - PublicServant - Tuesday, Dec 10, 13 @ 3:20 pm:

    @catrike - The Supremes read the constitution too. Better have plan B ready.

  17. - wordslinger - Tuesday, Dec 10, 13 @ 3:20 pm:

    You know what else is “developing?”

    The criminal prosecution of S&P for prostituting their hard-earned good name to defraud investors around the world and inflict misery on the planet for their indispensable role in the subprime MBS Great Hustle.

    Couldn’t have happened without them. The AAA ratings were the trigger.

    I’ll believe the prosecutions when I see them. When it comes to the Masters of the Universe, b-s talks, money walks.

  18. - Rod - Tuesday, Dec 10, 13 @ 3:39 pm:

    First off lets be clear here,Standard & Poor’s Ratings Services has not changed its rating for the State. Second aside from the legal challenge to the SB1 report/pension reform there is the very big issue of an actuarial analysis of the savings for the State.

    S&P, Fitch, and Moody’s want to see the actuarial analysis. If the analysis reveals limited real savings for the state from 2014 to 2016 the reaction will I suspect not be good. The TRS limited actuarial that Rich linked to on Nov 30 did not indicate awe inspiring savings for the State early on in the 30 year reform plan. But Greg Harris has made other claims which can be seen at

    Harris is claiming the deal will result in “Current liability will be[ing] reduced by an estimated $21.4 billion when the plan takes effect.” This however does not mean an actual savings of $20 billion when the plan takes effect. A careful reading of what Harris put out indicates actual cash saving for the first three years of under $2 billion. If that turns out to be the case it won’t thrill the rating agencies.

  19. - Jimbo - Tuesday, Dec 10, 13 @ 4:01 pm:

    I’m curious whether the effect on ratings of passing this law only to have it thrown out will be worse than doing nothing. I’m quite certain it will be worse if they spend the “savings” before it is tossed. Do we really think they won’t?

  20. - Arthur Andersen - Tuesday, Dec 10, 13 @ 4:42 pm:

    Reading this rating stuff, I’m reminded of an employee appraisal process that changed the rating “Needs Improvement” to “Developing” in an attempt to be more constructive and affirming.

    Rod, to be clear, there is no $20b savings from the pension bill on Day 1. The accrued, and unfunded, liabilities, arguably reduce at that time, but unless you are John Filan, you can’t save money until you spend it.

    There will be zero savings in FY 2014 because the bill doesn’t take effect until June 2014 in part (last month of FY14) and January 2015 in part (FY15.) If the estimates are good, FY15 and 16 contributions under the new law should reduce by around $2b or a bit more than the old law. FY17, when the new EAN actuarial valuation method kicks in, with $7b of negative savings, is unclear to me.

    Receiving the real numbers on this from the actuaries could be interesting.

  21. - Demoralized - Tuesday, Dec 10, 13 @ 4:47 pm:

    ====If the analysis reveals limited real savings for the state from 2014 to 2016 the reaction will I suspect not be good.==

    You aren’t going to get huge savings that quickly with anything.

  22. - Jimbo - Tuesday, Dec 10, 13 @ 5:06 pm:

    I’m on chrome with ABP disabled and all I see is the blue background too.

Sorry, comments for this post are now closed.

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