Credit ratings agencies have taken notice of the court ruling on Friday that tossed out Illinois’ law reducing workers’ pensions. But they’re not worried enough to lower the state’s rating.
Illinois’ credit rating remains unaffected by last week’s court ruling, which found a landmark pension law to be unconstitutional. But agencies are watching.
Credit ratings are important as, the lower the rating, the more it costs the state to borrow.
It’s also an important indicator of a state’s relative fiscal health.
“The average state from our perspective or the expected rating for a state is AA1, which is our second highest rating. And so Illinois is A3, so that’s five rating notches below that," said Ted Hampton, a Vice President at Moody's Investor Service. “Which is to say, it’s still an investment-grade rating. It’s still a strong rating in the context of every kind of security that we rate. But it’s far below all of the other states.”
Hampton says Moody’s saw Illinois’ passage of the pension overhaul as beneficial, but not enough to move the credit ratings needle – because a court challenge was suspected. The recent court ruling likewise wasn’t not enough to prompt a change, though Moody’s called the decision “credit negative" in a notice sent out Tues., Nov. 24.
“We do get a lot of inquiries about states, particularly Illinois where there are problems that are in the news, and where the situation is in flux. And publishing these comments helps us get our opinion out to those investors, or to the general public," Hampton said.
Hampton says Moody’s is waiting for the Supreme Court to give its opinion, and to see what Gov.-elect Bruce Rauner will do early next year about the missing revenue from Illinois' rolled-back income tax rate.
Another agency, Fitch, also says the circuit court ruling isn’t a new concern. It has already figured that into its rating of Illinois.