Tuesday, September 4, 2012

S&P Downgrades Illinois

By Tim Dulaney, PhD

Due to unfunded pension liabilities, S&P downgraded the state of Illinois last week.  In conjunction with this ratings action, S&P also downgraded several Illinois issuers.

As Reuters reports, this ratings action -- which downgrades Illinois' credit rating from A+ to A -- now makes Illinois the second lowest rated state (after California which is currently rated A- by Standard & Poor's).  According to S&P's credit analyst Robin Prunty
[t]he downgrade reflects the state's weak pension funding levels and lack of action on reform measures intended to improve funding levels and diminish cost pressures associated with annual contributions [...]  [t]he downgrade also reflects continued financial weakness despite significant measures in the past two years to improve structural budget performance.
These ratings downgrades will likely become more and more common as states begin to recognize the poor state of their books and especially their pension liabilities.

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