Credit houses take no major action after pension ruling

Associated Press
Updated 11/25/2014 4:02 PM

SPRINGFIELD (AP) -- 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.


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 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.  

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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.

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