Fitch Issues First Credit Downgrade of Rauner Era, Cites Illinois Pension Trouble

Editor's note: This post has been updated to reflect an Illinois credit rating downgrade issued by Fitch Ratings on Monday afternoon.

"With The Economy In Meltdown..."

Reality: Pat Quinn Has Seen Illinois' Credit Rating Downgraded 13 Times, And Our GDP Growth Is Among The Worst In The Midwest

Under Quinn, Illinois' Credit Rating Has Been Downgraded 13 Times.

The statement above appeared on Bruce Rauner's campaign website during the 2014 election. It's in a section titled, "Pat Quinn's Reality Check."

As a candidate, Rauner clearly saw the state's tumbling credit rating -- it's now the worst in the nation -- as the exclusive property of the state's chief executive.

On Monday afternoon, Rauner took ownership of the state's first credit rating downgrade on his watch when Fitch Ratings lowered the rating on $26.8 billion in outstanding Illinois general obligation bonds.

Fitch based its action on the state's failure to enact a budget to address a large gap between ongoing government spending and a budget shortfall that the comptroller's office has estimated will reach $5 billion. It also cited the state's highest-in-the-nation unfunded pension liability and the Illinois Supreme Court decision from May that means the state can't avoid its pension debt, which amounts to roughtly $110 billion through 2045.

From the Fitch report:

REDUCED FLEXIBILITY: The downgrade reflects the continued deterioration of the state's financial flexibility during its extended budget impasse. Illinois's inability to balance its operations, eliminate accumulated liabilities, and grow reserves during a period of economic expansion leaves it far more vulnerable to the next economic downturn.

ONGOING BUDGET GAPS: After four years of nominally balanced operations that benefitted from temporary tax increases, the fiscal 2015 budget was only balanced through extensive one-time action and a budget has not been enacted for fiscal 2016, which began on July 1. The state continues to spend in most areas at the fiscal 2015 rate, which is expected to lead to a sizeable deficit. As was the case during the most recent recession, this deficit spending is likely to be addressed by deferring state payments and increasing accumulated liabilities.

LONG TERM LIABILITIES HIGH: The state's debt burden is above average and unfunded pension liabilities are exceptionally high. The state has limited flexibility with regard to pension obligations following the May 2015 Illinois Supreme Court decision that found the 2013 pension reform unconstitutional. Pensions remain an acute pressure on the state's fiscal operations.

House Speaker Michael Madigan, with whom Rauner is locked in a bitter standoff over the state budget, said Fitch's action should be a wake-up call to Rauner to come to the budget bargaining table...

Read the rest at Reboot Illinois.

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