It’s Official: Illinois credit now tied for worst in the nation

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It's Official: State's credit now tied for worst in the nation

Moody's Investors Service lowered Illinois' bond rating recently, pointing to

the state's inability to address its financial problems, including an unbalanced

budget, billions in unpaid bills and faltering revenues. Moody's said the

failure to tackle Illinois' fiscal issues " underscores a chronic lack of

political will that indicates further erosion of an already weak financial

position. "

With the new rating, Illinois has now tied California for the worst credit in

the nation from Moody's. It's also anticipated that the other two major credit

rating agencies will soon downgrade Illinois.

What this means for Illinois? A lower state credit rating usually translates

into higher costs when the state tries to borrow money.

Though the bond rating was lowered, Moody's did note that Illinois possesses

several " credit strengths, " including a strong ability to raise revenue and

reduce expenditures. It also noted Illinois' diverse economy with

higher-than-average wealth levels is an asset.

However, Moody's said the state's reliance on delaying payments to vendors,

Illinois' extremely large unfunded long-term liabilities—including pensions and

retiree health care—and its use of non-recurring resources to finance state

spending, pose serious risks to the state's rating.

Moody's pointed to " infighting between the executive and legislative branches, "

as directly contributing to " both the erosion of the state's finances and the

widening of severe pension funding gaps. " It also reinforced, " The longer

solutions to the state's challenges are deferred, the more difficult they will

become to implement. "

Despite these issues, Moody's highlighted progress in certain areas.

Specifically, a bipartisan pension reform measure that reduces benefits for new

state employees. As a result, the minimum retirement age is increased to 67 (up

from as low as 55), employees will no longer be allowed to " double-dip, " or

collect benefits from one state plan while accruing benefits under another, and

limits were placed on the salary that could be used to calculate benefits.

Moody's also cited new revenue generators related to video gaming, vehicle fees

and taxes on alcoholic beverages and other products, which will go to help

finance debt related to the state's capital improvement program.

Illinois has now had 10 " hard " ratings downgrades since Democrats took control

of state government in 2003. Illinois saw its credit ratings drop three times

during Rod Blagojevich's six years in office. In less than 18 months in office,

Pat Quinn earned seven credit rating drops, or more than twice as many as his

running mate, in less than one-third the time.

In contrast, from 1983 through May 2003, the state was only downgraded six times

and several of those were offset by subsequent upgrades. Illinois was last

downgraded under a Republican governor in 1995, and that was followed by four

subsequent upgrades from 1997 to 2000 under Republicans.

When Blagojevich took over, Illinois had its best credit rating on record with

one major rating agency, AA+ (Fitch ratings).

Although Gov. Pat Quinn has said lawmakers are likely to return before the end

of June to continue work on the state budget, it remains uncertain whether

legislators will be called back. Senate Republicans say that while Quinn

continues to push for additional borrowing to fund increased state spending,

neither he nor his party's legislative leaders have shown any serious interest

in Republican alternatives that could save the state money and eliminate the

need for additional borrowing.

Although Republicans have been accused of not helping to identify solutions to

the state's budget problems, the reality is Republicans have never refused any

negotiation. When invited to the table, they've bargained in good faith, even as

others walked away.

For years, Senate Republicans have pushed the majority to reduce spending and

stop creating new programs. The Senate GOP has encouraged Medicaid reform,

submitting numerous cost-saving Medicaid measures that have been stalled by the

Democrat majority. Republican lawmakers also pushed for commonsense workers'

compensation reforms to fight fraud and reduce the cost of doing

business—without affecting benefits. However, the suggestions were declined.

Senate and House committees are filled with Republican proposals to cut spending

and reform state programs. They were halted by the state's leaders. Republicans

have also been frustrated because, as the trial of former Gov. Rod Blagojevich

gets under way, programs and policies that directly led to his impeachment have

been left untouched and even expanded under Gov. Quinn.

In contrast, looking at the accomplishments of the last two years, most have

been bipartisan and, in some cases, the final product directly mirrors

recommendations first made by Republican legislators.

Changes to the state's pension system to make them more affordable, for example,

were first pushed by Senate Republicans. Other examples of bipartisan

cooperation have included reforms of the Metropolitan Pier and Exposition

Authority (McPier), the 2009 infrastructure improvement program, financing

changes that allowed mass transit in the Chicago region to keep running, a new

law to encourage broadband expansion, and the bipartisan CLEAR Commission, which

works to update the state's criminal code.

In fact, when looking at the record, many of the failures of the past year and a

half could be attributed to the Governor and his party's legislative leaders:

Strong bipartisan support in the legislature rescued the McPier reform after the

Governor used his amendatorily veto power to put campaign contributions and

personal power ahead of the best interests of the state. Illinoisans had to

settle for loophole-ridden campaign finance reform after Democrat party leaders

insisted on exemptions to protect their power and influence.

Similarly, non-partisan gerrymandering reform pushed by the League of Women

Voters and other independent groups won support from Republican lawmakers only

to be blocked by the Senate President and Speaker of the House. A Republican-led

proposal to end legislative scholarships also fell victim to partisan politics.

And business and civic groups submitted ideas to the Senate's Deficit Reduction

Committee, which were never implemented.

Democrat leaders say Republicans " dropped out " of the program, but the reality

is that the House and Senate Democrats who control state government have ignored

Republican suggestions for seven years. In fact, this spring Republican Caucus

leaders were largely left out of the budget negotiation process by Gov. Quinn,

the Speaker of the House and the Senate President.

The Republican plan is to scale back state government and stop creating new

programs. Illinois must also reform the state's largest expenditure, Medicaid,

and create a better jobs climate by advancing litigation and workers

compensation reforms. The Senate GOP has called for reducing the cost of doing

business for employers as a way to draw industry and grow jobs—because

stimulating revenue through growing Illinois' economy is the best way to close

the state's budget deficit.

Despite the rhetoric, Republicans have offered a budget approach—it's just one

the other party isn't willing to discuss.