Fitch Ratings gives Illinois a negative outlook

Crain's Chicago Business reports:

Illinois’ obligation to pour billions of dollars into its significantly under-funded pension program contributed to a negative outlook from Fitch Ratings.

Illinois, which carries an overall “AA” rating, was one of three states to receive the unfavorable outlook. Michigan and Louisiana were the others. Most states received a stable outlook with California, which has been recovering from a financial crisis in the early 2000s, earning a positive rating.

Fitch analysts, which issued the state outlooks this year for the first time, cited Illinois’ requirement to pay $1.48 billion into its pension fund during 2006, $2.75 billion in 2008 and $3.8 billion in 2010 as a large contributor to its negative outlook.

“It’s the big jump they have to take in the pension in the next three years,” John Ceffalio, a Fitch analyst said. “That’s the big wall the state is facing next year. We think the rating is likely to move down in the next one to two years.”

Illinois is the most underfunded pension system but other states also are in trouble.Look for municipal bond downgrades in some states that have problems with unions,in the next few years.