No. of Recommendations: 3

Growing more pessimistic that Illinois can reduce its pension costs, one of the big Wall Street credit rating agencies signaled that the state's already low credit rating may soon be lowered again.

While keeping the state's $28 billion in general obligation bonds outstanding rated at A2, Moody's Investors Service downgraded the outlook for the state's credit to negative from stable.

The change in the rating outlook comes as the Illinois General Assembly prepares to tackle the pension reform issue again early next month.

“The negative outlook reflects our view that the state's pension funding pressures are likely to persist and perhaps worsen in the near term," Moody's said. "Moreover, fiscal 2014 marks the last year before Illinois' 2011 income tax increases are partly unwound, putting the state on track to deal with simultaneous growth in pension funding needs and loss of revenue. If the legislature in coming weeks or months enacts significant pension reforms, they are almost certain to be challenged, given the state's constitutional protection of retiree benefits. Political pressures, coupled with the threat of litigation, may mean that any reforms enacted have only a marginal effect on liabilities.”
Prognosis negative.......d'uh! At least the unions are happy.
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