Moody's Lower's Illinois' Credit Rating Again, but Then RAISES Its Outlook from Negative to "Stable"

FROM MOODY'S DOWNGRADE OF ILLINOIS'CREDIT RATING FROM A-1 to A-2, ON GENERAL OBLIGATION BONDS. NOTE ALSO THEY DROPPED THE RATING on $2.48 Billion worth of bonds for Chicago's Metropolitan Pier and Exposition Authority. That's fallen from A-2 down to A-3.

And YET ! The raise their outlook on Illinois from Negative, to Stable !


Opinion
Moody's Investors Service has lowered the State of Illinois' general obligation bond rating to A2 from A1 and revised the state's outlook to stable from negative. The A2 rating has also been assigned to $800 million general obligation January 2012 Series A and Taxable Series B bonds that the state has scheduled to price on January 11. Proceeds will finance school, transportation and other capital projects. We have also downgraded to A2 from A1 the rated portion of the state's $2.47 billion of outstanding Build Illinois sales tax revenue bonds, and to A3 from A2 $2.48 billion of Metropolitan Pier and Exposition Authority and $73 million of Civic Center Program bonds.


SUMMARY RATING RATIONALE

The downgrade of the state's long-term debt follows a legislative session in which the state took no steps to implement lasting solutions to its severe pension under-funding or to its chronic bill payment delays. Failure to address these challenges undermines near- to intermediate-term prospects for fiscal recovery. It remains to be seen whether the state has the political willingness to impose durable policies leading to fiscal strength, though in the recent past it has reached consensus on difficult decisions, such as temporary income tax increases enacted last year that stabilized state finances and reduced the state's need for non-recurring budgetary measures. Illinois retains the sovereign revenue and spending powers common to all U.S. state governments. These powers, along with Illinois' legal provisions giving G.O. debt service priority over other state spending, support the move to a stable outlook.


STRENGTHS

- Sovereign powers over revenue and spending

- Statutory provisions giving priority to debt-service over other state expenditures

CHALLENGES

- Severe pension funding shortfall
- Chronic use of payment deferrals to manage operating fund cash

- Weak management practices reflected in pension under-funding and payment delays

Outlook

The state's stable outlook reflects its sovereign powers over revenue and spending, as well as statutory provisions establishing priority of payment for G.O. debt service. Although the likelihood of effective, proactive movement on major challenges appears minimal at present, the state's stable outlook also relies on a demonstrated ability to make politically difficult choices as the need arises.


WHAT COULD MAKE THE RATING GO UP

- Adoption of a credible, comprehensive long-term pension funding plan

- Substantial progress in reducing payment backlog, and legal framework or plan to prevent renewed buildup of late bills

WHAT COULD MAKE THE RATING GO DOWN

- Early phase-out of 2011 tax increases without offsetting binding expenditure actions, increasing the structural gap

- Further deterioration in pension funded status or failure to make legally required contributions

FULL Article
http://www.moodys.com/research/MOODYS-LOWERS-STATE-OF-ILLINOIS-GO-RATING-TO-A2-FROM--PR_234787

The Beat Goes On: Pension Bill Passes, in Back and Forth Tug-of War on House Floor

The House voted on Tuesday to allow borrowing nearly $4 Billion to make the state's pension payment. It as one of the major dramas floating as the legislators work to wrap up a legislative session that was supposed to be ended on May 7.

The House voted earlier on Tuesday -- around 4 PM - on whether to borrow to make the payment. IT was noted by supporters of borrowing that this was the best of three bad options. Either the state borrows -- at approximately 4% -- to make the payment, OR they face a built-in 8.5% interest accumulation clause if they fail to make the payment. And the third option was to take the money that would have gone to pay those doing business with the state, and use that money to pay the pension payment. But when you pay vendors late, you have to pay 12.5 % interest on the bill.

So what do you want to pay if you're forced to borrow; 4%, 8.5%, or 12.5% ? If you picked 4% as your option, then you side with those who voted to borrow the money. Still, the bill passed by just ONE vote.

Some on the Democratic side of the aisle say the logic of lower interest rates is so clear, that the Republicans are playing pure politics on this issue by voting against it. In fact one of the more dramatic moments in the last ten years in the House came when the Governor stood on the House floor and stared down House Republican leader, Tom Cross, as Cross went into a series of ways the state is being mismanaged, and that we therefore go from one crisis to another.

And that lies at the heart of the Republican opposition to more borrowing. That by borrowing the money to make the payment, the legislature is becoming an enabler of bad policy decisions, and that the Quinn Administration - and the Legislature -- are therefore not facing the tough choices of cutting spending, regulation, and enacting pro-business policies that would lead to greater economic growth -- and thus more money to the state to balance its budget through organic revenue growth.

With these factors in place the vote on whether to borrow FAILED TO PASS on the first vote --failing BY ONE VOTE. And the irony here is Rep David Miller -- the Democratic candidate for Comptroller -- voted NO, in a parliamentary move to place him on the winning side, should the vote be defeated. The Dem leadership didn't have the vote count nailed, and thus sank the first vote themselves by having Miller vote no.

When you vote on the winning side of an issue, you can offer a Motion to Reconsider. That is to say, to allow another vote on the bill. And when it was defeated by one vote - Miller offered his Motion to Reconsider. This lead to another vote some two hours later, in which Miller voted FOR borrowing.. and the bill passed.

Even this lengthy post is a simple version of the political gamesmanship, and drama that was going on around this one issue. IT is also instructive of the horrible state of legislative cooperation-- or lack thereof -- that is hanging over every vote as the lawmakers now try again to put together some bill they'll call a budget, that will allow them to go home.

But the larger issue facing the state isn't this pension borrowing, or this year's budget. It's that the State of Illinois is not having a government facing the realities of needed cuts, needed revenue, needed reforms.. in any kind of organized cooperative fashion, that the citizens would expect of leaders trying to honestly resolve a financial crisis.

And so we won't resolve it. The financial crisis in Illinois will continue to linger.. and next year at this time... we'll be writing about just how they're going to make the pension payment. By then, we'll be past the elections. Perhaps then, with the governor's race behind us, and lawmakers safe for two years.. the tough choices will be faced, and the changes that will return fiscal sanity will be made.

But not this Spring.