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New Fallout from Illinois Pension Reform Ruling

The effect of the Illinois Supreme Court’s May 8 ruling already extends further than the heightened fiscal challenge facing the state finances and pension plans. Standard & Poors wasted no time in putting the state of Illinois on credit watch.

S&P’s current ratings for Illinois are an A- Go rating, an appropriation-backed rating of BBB+ and a BBB- moral obligation rating. In a press release, S&P said putting the state on watch was a direct consequence of the state High Court’s ruling. That, plus the 2016 budget proposal and new pension reform proposals, highlights the “profound” challenges facing the state’s credit rating, budget and fiscal liability.

S&P Credit Analyst John Sugden said that the court ruling contributes to the credit rating and research organization’s doubts regarding fresh pension reform efforts in Illinois. It also gives them pause concerning how sustainable the state’s pension systems are and how well Illinois’ budget will be able to absorb the expense of servicing debt in the future.

The current legislative session and 2016 budget deliberations are the focus of S&P’s attention, and it expects to resolve the credit watch by August. Unless the state government adopts a 2016 budget it considers “credible” and structurally aligns revenues and spending, S&P says it will lower the state’s appropriation-backed rating to BBB and could make additional downgrades.