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* This is the second downgrade in a week. Fitch hit Illinois earlier. Now, Moody’s…
“Our rating now assumes the government will not take action to reduce the state’s pension liabilities any time soon,” Moody’s said in a statement.
“The legislature’s political paralysis to date shows not only the magnitude of Illinois’ unfunded benefit liabilities, but also the legal and political hurdles to legislation that would make pensions more manageable long term.”
The downgrade to A3 from A2 with a negative outlook affects $27 billion of outstanding GO debt.
*** UPDATE *** From the We Are One Illinois coalition…
“Moody’s rating downgrade makes clear that the House of Representatives must act swiftly to finish the work of sound pension reform the Senate has initiated.
Moody’s has concerns over “legal and political hurdles” and calls for a “credible, comprehensive long-term pension funding plan” to be implemented. They have laid out the path that should be followed, and it clearly leads to SB 2404. SB 2404 is the only legal, comprehensive, and responsible pension funding solution. It will restore fiscal stability and solvency to the state’s pension systems.
Critically, SB 2404 is also the only solution left that has earned a supermajority of support, unlike SB 1 which has essentially twice failed the Senate.
Led by President John Cullerton, the Senate has acted. It’s time for state representatives to have an opportunity to vote on SB 2404 in special session.”
posted by Rich Miller
Thursday, Jun 6, 13 @ 11:56 am
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Great. Who forgot the binoculars for the ice look out on this ship?
Comment by RonOglesby Thursday, Jun 6, 13 @ 12:00 pm
I can’t be bothered by this trivia! I am still smoldering that Bruce Rauner has hills or mountains or bluffs or some other elevation in the Earth’s surface in his campaign video.
Comment by Meanderthal Thursday, Jun 6, 13 @ 12:01 pm
I share Meanderthals concerns for the more important issues. I insist that all campaign discussion be centered exclusively around SSM until further notice. The future of our state depends on this one issue.
Comment by DanL60 Thursday, Jun 6, 13 @ 12:08 pm
All hail the great and powerful Speaker of the House, captain of the Titanic!
Comment by James the Intolerant Thursday, Jun 6, 13 @ 12:14 pm
great; another down grade. Moody’s statement is right on–”Our rating now assumes the government will not take action to reduce the state’s pension liabilities any time soon.” apparently our decision makers in Springfield don’t see this as a problem. shaking my head in disgust…
Comment by Susiejones Thursday, Jun 6, 13 @ 12:15 pm
How did these ratings agencies handle AIG? Credit default swaps?
What accountability was meted for those errors?
Comment by Carl Nyberg Thursday, Jun 6, 13 @ 12:18 pm
The full Moody’s report also references the need to address the income tax sunset. Also, “An A3 rating, while very low for a US state, is consistent with the General Assembly’s inability to steer the State from a path to fiscal distress. Illinois still has a diverse and large economic base, with above-average wealth levels.”
The large unfunded pension liability is the canary in the mine, but the cause of fiscal distress is years of failing to match funding with costs on a current basis. We can’t keep satisfying political goals with budget illusions.
Comment by archimedes Thursday, Jun 6, 13 @ 12:21 pm
=== The full Moody’s report also references the need to address the income tax sunset. ===
Compare with California’s Prop 30 tax increase.
Comment by Bill White Thursday, Jun 6, 13 @ 12:25 pm
It’s time to play “What Would The Three Stooges Do?”
“The legislature’s political paralysis to date shows not only the magnitude of Illinois’ unfunded benefit liabilities, but also the legal and political hurdles to legislation that would make pensions more manageable long term.”
Vernon Dent: “Is this work in competent hands?”
Curly: “Coitainly, we’re all incompetent!”
(SLIPPERY SILKS, 1936)
Comment by Calhoun Native Thursday, Jun 6, 13 @ 12:36 pm
=== How did these ratings agencies handle AIG? ===
Great. Let’s just point to that as our credit rating spirals downward.
That’s got to be good for a few basis points with our lenders.
Comment by Formerly Known As... Thursday, Jun 6, 13 @ 12:36 pm
The downgrades play in the media, but how do the folks in finance view them? Our actual borrowing costs haven’t spiked as a result, have they? Until it actually costs more to borrow money, I’d guess the rating agencies can say what they will.
Comment by Elo Kiddies Thursday, Jun 6, 13 @ 12:41 pm
the quinn/madigan/labor/cook county rats nest is imploding…and I feel fine…let it burn…and then lets rebuild…
Comment by warhed Thursday, Jun 6, 13 @ 12:49 pm
Until it actually costs more to borrow money
It’s already costing more for new debt, just not catastrophically more to date. How much more is too much?
Comment by Plutocrat03 Thursday, Jun 6, 13 @ 12:50 pm
Hrrrm, let’s see. California passes a permanent tax increase on annual incomes exceeding one million.
Illinois didn’t.
California reduced pensions for new hires.
Illinois did too.
California has a budget surplus, and has been upgraded by the ratings agencies.
Illinois has been downgraded by the ratings agencies.
The only thing I see missing from Illinois is a permanent tax increase to which Moodys referred in its downgrade when it referenced, as Bill points out, the upcoming income tax sunset.
Comment by PublicServant Thursday, Jun 6, 13 @ 12:52 pm
I would bet this would not have happened if Madigan would have called Culerton’s bill up for a vote.
Comment by Anon Thursday, Jun 6, 13 @ 12:58 pm
Pension reform, California style:
=== Moody’s Investors Service on Monday said the legislation boosts the credit outlook for state and local governments participating in CalPERS. The agency currently give California an A1 rating with a stable outlook. ===
http://www.huffingtonpost.com/2012/09/12/california-pension-reform-bill_n_1878662.html
This appears less draconian to existing workers than Madigan’s SB1
Comment by Bill White Thursday, Jun 6, 13 @ 1:03 pm
In addition Bill, current CAPPERS retirees are excluded, which SB1 does not do for our state’s retirees.
Comment by PublicServant Thursday, Jun 6, 13 @ 1:08 pm
To PublicServant:
Illinois has a different state Constitution than California. Illinois can’t just raise state income taxes on upper income individuals without a change in the state constitution: remember we have a flat tax. So, yes, it’s earsier for California to raise taxes on certain people because they have way more flexibility in their state constitution. If you want a change in the Illinois state constitution try attempting it.
Comment by Steve Thursday, Jun 6, 13 @ 1:26 pm
Lovely. More taxes going to pay interest cost and less available for services for the citizens.
Thanks for nothing Democrats running Illinois.
Comment by Downstater Thursday, Jun 6, 13 @ 1:30 pm
My solution:
Enact Cullerton’s SB2404
AND
Dedicate the revenue stream from a permanent extension of the expiring income tax increase to the debt service on a bond issuance used solely to pay down past due bills.
Betcha the IL credit ratings would go way up
Comment by Bill White Thursday, Jun 6, 13 @ 1:35 pm
Great snark, DanL60! I trust Elo Kiddies is snarking, too.
This is a measurable disater coming at us. Everyone is waiting for someone else to blink. Assuming taxes will fix everything, well we’ve seen that a plan like that doesn’t work. We spend it on something else. Illinois GA dealing with finance is like the Black Knight in Monte Python…http://www.youtube.com/watch?v=2eMkth8FWno
Bond ratings….a flesh wound!
Comment by LisleMike Thursday, Jun 6, 13 @ 1:35 pm
@PublicServant - you glossed over the very painful cuts California made.
While we have made painful reductions ourselves, California’s choices make us look like we’re barely scratching the surface.
For example:
While Illinois was negotiating a pay raise for employees last year, California was negotiating a 5% pay cut.
California reduced education funding by $9.3 billion between 2008 - 2012.
30,000 state employees were laid off.
Welfare cash assistance was reduced from 60 months to as little as 24 months.
California cut CalWORKS, their welfare program, by $428 million in 2012.
California cut Medi-Cal and other state health programs by more than $1 billion in 2012.
California paid some state employees with IOUs.
It’s not all tax increases any more than it’s all budget cuts.
Comment by Formerly Known As... Thursday, Jun 6, 13 @ 1:40 pm
== Our actual borrowing costs haven’t spiked as a result, have they? Until it actually costs more to borrow money, I’d guess the rating agencies can say what they will ==
Well it isn’t a simple as that, Illinois debt is actually not a bad investment (still have not missed a payment) the problem is as the rating goes down more entities can not invest in it because of restrictions on the funds that invest.
Think of the All-Kids issue that Alexi had to deal with when the ’safe’ bond fund invested in stuff that had a lower rating than they were supposed to invest in (not Alexi’s fault) but the lower your rating goes not only does your interest rate tend to go up due to higher risk, you also have less players looking to buy and those players are expecting a higher return because that is what they are explicitly looking for (that is why they take more risk, more risk without more reward (interest) is just stupid).
Comment by OneMan Thursday, Jun 6, 13 @ 2:01 pm
Another slightly tongue-in-cheek suggestion …
Don’t know a lot about the bond market, but maybe one of the bond houses should just start an IL only Mutual Bond fund and let the real market determine it’s worth. There are plenty of small investors chasing returns these days and they aren’t limited by the rules the institutional investors have to follow.
Comment by RNUG Thursday, Jun 6, 13 @ 2:16 pm
When our rating is down to a C and we can’t pay legislative salary’s then we might get some movement. People are moving out of this state in droves, voting with their feet.
Comment by Mokenavince Thursday, Jun 6, 13 @ 2:19 pm
@Steve - I know perfectly well that we have a flat tax, but SB1 wants to abbrogate the Pension clause of our constitution claiming a fiscal emergency that requires the use of police powers to ignore the pension clause. Just saying they could abbrogate the clause referring to a flat tax in Illinois using the same police powers argument.
Comment by PublicServant Thursday, Jun 6, 13 @ 2:26 pm
We can pay salaries We paid 6 Billion into pensions and increased spending overall If we extend the tax there is no crisis at all There really isn’t one now
Tom Cross seemed to confuse another firms downgrade with 2 downgrades
Comment by RNUG Fan Thursday, Jun 6, 13 @ 2:28 pm
@Formerly - I’m aware of the cuts that we’re not making, and I’m not arguing that cuts don’t need to be made.
Comment by PublicServant Thursday, Jun 6, 13 @ 2:28 pm
“only thing I see missing from Illinois….”
Even if you could make a special tax, have you considered that there are substantially more millionaires per capita in the Golden State than in Illinois?
Comment by plutocrat03 Thursday, Jun 6, 13 @ 2:33 pm
BTW Corporate Junk is yielding just 5% and let me tell you that stuff does go broke I would cynically say its the bond fund people conspiring with the ratings agencies to get a better yield
Alexandra Leibanthal was on CNBC yesterday and was given an open chance to comment on states in trouble and she said after Calif turnaround she worried only about……………Puerto Rico
Maybe they could bring up impeachment it only requires a simple majority.
Simon endorsed 2404 but she seems ton want a future. I know it seemed classless to walk away from him but she is walking away from a disaster area who could blame her now
Comment by RNUG Fan Thursday, Jun 6, 13 @ 2:34 pm
“….IL only Mutual Bond fund and let the real market determine it’s worth”.
You really, really wouldn’t want to do that - particularly these days. Here’s why - if you did this, you just created an Illinois Government ‘canary in the coal mine’ in real time, so everybody and their brother could measure how the marketplace measures our financial stability (daily, btw.).
It’s a great idea if you are doing well - like, let’s say a North Dakota. Not such a good idea if it is Illinois these days.
Can you imagine the ammunition this would give to all those business raiding parties out there, who are coming to Illinois to try and steal jobs?
They would be waving the results (imagine the trend lines) in the face of every business they talked to - and it wouldn’t be from consultants or ‘experts’, the results would be from the marketplace. Remember, private business also plays in the marketplace, so they will tend to pay attention to what it is telling them. And downward trends do not tend to inspire confidence.
Really bad idea unless you think there’s big time upside right around the corner.
Comment by Judgment Day Thursday, Jun 6, 13 @ 2:37 pm
To PublicServant :
If and when the state legislature attemps to cut anyone’s public pension by one penny- a very, very legitimate lawsuit will happen : heard by judges that have a conflict of interest. The most likely way pensions will be diminished in Illinois is when the money runs out. Some day in the future, there will not be money to send out checks if taxes and or other spending isn’t cut. So, everyone enjoy your checks while you can. The present value of a $60,000 a year pension with these low interest rates is at least $ 2 million .
Comment by Steve Thursday, Jun 6, 13 @ 2:42 pm
http://www.chicagobusiness.com/article/20130605/NEWS02/130609929/
We are such a terrible place-Oh wait …
Comment by RNUG Fan Thursday, Jun 6, 13 @ 2:50 pm
FYI formerly known as - Illinois has the lowest per capita staffing level in the country, we are trying to keep things moving and the federal money comming - not all staff are in the union and since Blago that means if you are a professional and not in the union you don’t get a raise for over 13 years - but our deductions do increase. It would just be great if someone would say thank you once in a while.
Comment by Marie Thursday, Jun 6, 13 @ 3:04 pm
Steve, thanks for the heads up. Get back to me when you have a date.
Comment by Mr. Keynes Thursday, Jun 6, 13 @ 3:15 pm
Seems to me that these rating agencies warned Illinois about this a year ago. BTW everybody in the state that votes is culpable. If voters weren’t aware that the pension fund was being shorted for years then they were not very informed voters. The state still wastes a lot of money ie the shooting range in Sparta, the water project in Murphysboro just to name two.
Comment by Friedman Thursday, Jun 6, 13 @ 3:20 pm
RNUG
Missed your comment but yes they could There are all sorts of single state funds usually because it is double tax exempt which Illinois isn’t Muni Bond interest is almost all taxable But investors are desparate for yield so I really would not be surprised to see this. And it wouldn’t be the first time the ratings agencies were used for marketing product -see subprime crisis
Comment by RNUG Fan Thursday, Jun 6, 13 @ 3:44 pm
–Well it isn’t a simple as that, Illinois debt is actually not a bad investment (still have not missed a payment) the problem is as the rating goes down more entities can not invest in it because of restrictions on the funds that invest.–
I really don’t see that as a problem. Investment guidelines can always be changed.
Besides, nothing in the stock market is guaranteed. Nothing in corporate debt. No lack of investors there.
The junk bond and IPO markets have been hot, although investors have been reigning back a little bit the past week or so.
It’s not a good thing, by any stretch.But financially it’s not the end of the world right now because borrowing costs are historically low.
I’d view it more as how the rating agencies rank Illinois’ state fiscal stewardship (not it’s economy) among the 50 states. And that is last, fair or not.
Comment by wordslinger Thursday, Jun 6, 13 @ 4:05 pm
To assume that SB2404 would meet Moody’s expectations for “credible comprehensive long-term pension funding plan” is wrong.
WeAreOne’s statement is wishful thinking, and tries to spin Moody’s position.
It didn’t get support precisely because it did not come close enough to meeting that goal.
Comment by walkinfool Thursday, Jun 6, 13 @ 5:05 pm
@Mokenavince
The entire country gained 1.7% in population from 2000 to 2010. Over that period Illinois gained 3.1%. Maybe before you spout off the “leaving in droves” line you can do two minutes of research via google.
Comment by Anon Thursday, Jun 6, 13 @ 5:44 pm
@Marie, it seems you may have misinterpreted my comments as an attack on public workers, which it is not meant to be.
I was simply comparing.
And fwiw, thank you.
Actually, THANK YOU.
Comment by Formerly Known As... Thursday, Jun 6, 13 @ 8:11 pm
California has nothing like Home Rule, and their constitution doesn’t have a pension guarantee (which, if I read the transcripts of the Constitutional Convention correctly, is a result of Home Rule).
Comment by Smitty Irving Thursday, Jun 6, 13 @ 9:28 pm