Credit ratings agencies have had swift reactions to Friday's state Supreme Court decision that found Illinois' 2013 pension law unconstitutional.
Illinois' was expecting to save billions by reducing state workers, teachers' and university employees' retirement benefits. But not anymore, thanks to an unanimous decision by the state's high court tossing the law.
A credit rating may seem boring; not like any big deal, but when your budget is staring down a 20-percent deficit (as is Illinois) and your rating is already worst in the nation (as is Illinois') it can 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, raising the potential for an even lower rating, and so on: It's a cycle that's hard to break. Standard & Poor’s is warning that Illinois may be headed in that direction.
Standard and Poor's 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'll watch as lawmakers develop a new state budget. But absent a credible one, it will lower Illinois' rating in the next few months. S&P hints at how difficult that'll be.
Moody's was less pointed in the short report it put out; 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.