* Gov. Pat Quinn, the Tribune editorial board, myself and several others have repeatedly warned that failure to pass both Medicaid and pension reform this spring would lead to a significant bond rating downgrade. Medicaid reform did pass with (mostly) bipartisan support (except for the Senate Republicans, who took themselves out of the game again), but pension reform stalled. So, how did the raters react? Here’s a quick roundup.
* Fitch seemed almost positive…
Karen Krop, an analyst at Fitch Ratings, said while she has not seen details as yet, the fact the budget was passed on time with Medicaid reforms “that seemed significant for cost controls” was a positive move for Illinois.
She said that Fitch’s ‘A’ rating with a stable outlook was more reflective of Illinois’ fiscal balance and operations, and any pension reform would be considered positive.
* A Moody’s analyst conceded that the ratings agency understands the political problems involved, but wanted some action relatively soon…
But Moody’s Investors Service analyst Ted Hampton said on Friday the credit ratings agency was looking for “significant” action on Illinois’ pensions.
“Any sign the state is at an impasse and is unable to move forward on this issue would be a negative credit factor,” Hampton said, adding that Moody’s recognizes the political and legal challenges involved.
“The state’s pension challenges remain staggering regardless what happens in Springfield in the next few weeks,” he said, adding there was no “silver bullet” that will make the enormous unfunded pension liability immediately disappear.
* And S&P, which warned of a multiple downgrade if action wasn’t taken on both Medicaid and pensions this spring, was cautious…
However, an agreement on a budget for next year with reduced deficits and big Medicaid cutbacks was a positive sign for the New York credit rating agencies, assuming the details stand up to scrutiny. The question is whether long-term pension costs also can be curtailed.
“Pension reform is the other piece that’s pretty critical to where the state’s rating moves,” said Robin Prunty, lead Illinois credit rating analyst for New York-based Standard & Poor’s Ratings Services. “A lot will depend on whether there’s action on pension reform.” […]
“If there is no action on pension reform, that is not a positive from a credit standpoint,” said Ms. Prunty.