Moody's says pension ruling a 'credit negative' for Illinois

In the wake of rating downgrades for the city of Chicago, its public school system and the local park district, the Moody’s rating agency also has some bad news for the state of Illinois.

While Moody’s didn’t downgrade the state’s credit rating, it did issue a brief report Thursday noting that the recent Illinois Supreme Court decision on pension reform would have a negative impact on the state’s credit.

That ruling last week declared that a 2013 law attempting to reduce pension benefits to deal with a looming unfunded pension liability was unconstitutional.

“Moody’s declaration of ‘credit positive’ or ‘credit negative’ does not connote a rating or outlook change,” according to a statement by Moody’s, which recently lowered bond ratings for both the city, schools and parks to junk status. However, the statement continued: “It is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer.”

The reforms in the law would have reduced Illinois’ reported pension liability by about $21 billion. Now, Moody’s noted: “Rejection of the pension benefit legislation puts the state under increased pressure to devise a way to pay for liabilities created through decades of insufficient contributions.”

Gov. Bruce Rauner has proposed legislation to reduce pension costs, and although he “asserts that these pension plan changes would not violate the state’s constitutional protections, we believe they will at least be subject to litigation and delay. Moreover, the court’s latest ruling raises doubt that they can be implemented at all,” Moody’s said in the statement.