* 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.