Crain's Chicago Business reports:
The first Wall Street reaction to today's state Supreme Court decision tossing out Illinois pension reform is in, and it's pretty ominous.
In a statement, Moody's Investors Service noted that it "did not factor in the proposed pension reforms" to its latest reviews of Illinois, Chicago and other government debt but clearly will do so now.
"Moody's is currently reviewing the Illinois Supreme Court pension reform decision and analyzing its potential impact," the bond reviewer said. "The ruling provided additional evidence that pension benefit reductions will not be permitted."
Moody's has downgraded both the city and the state recently and has both on negative credit outlook, meaning that another downgrade is likely.
Illinois already has the lowest rating of any American state, with Chicago two grades above junk level.
Here's
Fitch reports:
The Illinois Supreme Court decision finding 2013 pension reform unconstitutional is clearly a set-back for state budget managers but does not have an immediate impact on Fitch's rating of the state. It was always clear that the reform would confront strong legal challenge that Fitch anticipated would be resolved at the state supreme court level. Fitch has long noted that legal protection of pension benefits is particularly strong in Illinois and did not factor the benefits of the reform into the state's rating.
Illinois is currently the lowest-rated U.S. state at 'A-' with a Negative Outlook, and the outsized unfunded pension liability is a significant negative factor in that rating. The ruling leaves pensions as an acute pressure on the state's fiscal operations.
Budget pressures, including due to pensions, underpin the Negative Outlook. The state needed to take significant one-time actions to fill a $1.6 billion gap in the current fiscal 2015, following the expiration of temporary tax increases. The state faces an even larger $6 billion gap in fiscal 2016, which starts on July 1, reflecting the full-year impact of the expirations. The governor has proposed solving this gap with spending reductions, including assumed savings from another attempt at pension reform. The budget is currently being reviewed in the legislature.
The outcome of budget negotiations for the coming fiscal year will be significant to Fitch's evaluation of the Illinois credit.
Can you say junk bond status?
