Credit ratings agencies had swift reactions to the Illinois Supreme Court decision Friday that found the state's 2013 pension law unconstitutional.
Illinois was expecting to save billions by reducing retirement benefits for state workers, teachers and university employees. But not any more, thanks to a unanimous decision by the state's high court invalidating the law.
A credit rating may not seem like a big deal. But when your budget is staring down a 20-percent deficit and your rating is already worst in the nation, it could be significant.
A low rating means it costs more to borrow money, which means there's less money to spend on other needs, which heightens budget strain and could raise the potential for an even lower rating.
Standard & Poor’s is warning that Illinois may be headed in that direction.
S&P didn't mince words. It has placed Illinois on CreditWatch with negative implications.
S&P says in a report issued Friday afternoon that the Supreme Court decision and a pension proposal by the governor underscore the state's "profound credit challenges" and cast doubt on future initiatives.
S&P says it will watch as lawmakers develop a new Illinois budget; but, absent a credible one, it will lower the state's rating in the next few months. S&P hints at how difficult that will be.
Moody's was less pointed in its report. The agency says it had expected this outcome but nonetheless calls the court ruling negative for the state's credit. It says the court's rejection of the pension law puts Illinois under "increased pressure" to devise a way to pay for more than $100 billion in long-term liabilities.
Moody's says "to date" the state has not tried to "orchestrate a funding strategy" that would do it.
Now that the state's pension overhaul has been struck down, lawmakers may soon revisit a plan to force universities, school districts and other local governments to pick up more of the state's pension burden. Gov. Bruce Rauner has proposed cutting state support for localities in half and freezing property taxes for two years.
- Amanda Vinicky and Hannah Meisel contributed to this report.