Two major credit houses aren't overly worried about an Illinois judge tossing out a pension overhaul designed to close a $100 billion deficit, but neither is thrilled with the state's financial condition.
Fitch Ratings issued a statement Tuesday saying the decree by Sangamon County Circuit Judge John Belz "does not raise a new credit concern" because the agency had not factored in the savings lawmakers projected from the law they adopted in December 2013.
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A day earlier, Moody's Investors Service stated that it had issued a "credit negative" rating on Illinois as a result of last Friday's court opinion. That is a warning that further problems would result in another credit downgrade for Illinois — which already is at the lowest level of any state.
Although Fitch took no action as a result of Belz's action — which the state attorney general has pledged to appeal the state Supreme Court — the agency said it's more worried about the January expiration of a four-year temporary income tax increase imposed by Gov. Pat Quinn. The Democrat proposed making it permanent before he was defeated for re-election this month.
Republican Bruce Rauner, the governor-elect, has pledged to roll back the tax increase, and after criticizing the pension package as an "insider deal," told the Chicago Sun-Times on Monday (http://bit.ly/1vKeqqw ) he hopes the state Supreme Court will provide advice about what's a constitutionally allowed pension patch.
"Hopefully they will give us some feedback that will help guide the discussion for future modifications as appropriate for the pensions," Rauner said.
Lawmakers and Quinn temporarily raised the income tax rate from 3 percent to 5 percent in 2011. It's set to roll back to 3.75 percent in January. Quinn wanted to extend the increase, warning that letting it drop would create a $2 billion budget deficit for the second half of the state's fiscal year.
Lawmakers adopted a budget that counted on revenues from a continued increase without approving the extension, "with a stated intent to revisit the issue after the November elections," Fitch noted.
"Taking steps to address the long-standing structural mismatch between revenues and spending would put the state on more solid financial footing," Fitch said.
Contact John O'Connor at https://twitter.com/apoconnor