state's moody rating

Recently, Moody’s Investors Service issued a special commentary and review of Illinois’ finances. The report noted that the state still has the worst Moody’s rating in the nation at A1 with a negative outlook, worse than even California’s A1 rating with a stable outlook.

Moody’s emphasized that the tax hike passed by Democrats in January is only a temporary solution to the state’s “significant funding burden” for pensions. The rating agency confirmed that while the 2010 pension reforms for new state employees will have a significant impact, the primary savings won’t be realized for many years.

Recent news reports have indicated that there is a willingness on the part of some lawmakers to revisit pension reforms for current employees this Fall. Moody’s echoes calls from legislators, financial oversight organizations, and taxpayer protection groups for further benefit reductions. Many agree that these reforms are necessary to truly address the unsustainable nature of Illinois’ retirement systems, but because the retirement benefits for current employees are Constitutionally-guaranteed, legal impediments may stand in the way.

The ratings agency went on to point out that “The state may be able to use increased tax revenue to chip away at its large balance of past-due budgetary payment obligations, but has not adopted a comprehensive plan to do so.” As of June 30, 2011, Comptroller Topinka estimated the state’s current bill backlog at $7.4 billion. Moody’s noted that the state’s outstanding obligations “will significantly drain fiscal 2012 revenues and perpetuate late payments into fiscal 2013.”

And while Gov. Quinn has reportedly indicated that the ratings agencies look favorably upon his continued proposals for long-term bonding to pay bills, Moody’s appeared at best neutral to Quinn’s bonding plan, saying: “This approach would significantly increase the state’s bonded debt burden, while at the same time helping those entities awaiting payment.”

Moody’s cautioned that while there have been signs that the state’s economy is in recovery, economic turmoil at the national level could have serious ramifications for Illinois. As noted, “Because of its financial weakness, Illinois is less well positioned than other states to handle a renewed downturn in the national economy.”

The backlog of bills still grows. I have said more bond issues deserve spending caps. If the State of Illinois continues to borrow, it has to watched and used to get caught up. Governor Quinn has to formulate a plan to pay past-due payment obligations.
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