Another state credit downgrade highlights need for pension reform

Pennsylvania is the latest state to receive a Moody’s Investors Service credit downgrade. The drop was largely due to the state’s growing pension crisis. Moody’s issued the following statement with its credit downgrade of Pennsylvania to Aa3 from Aa2: “The downgrade of the general obligation rating to Aa3 reflects the commonwealth’s growing structural imbalance …...

Pennsylvania is the latest state to receive a Moody’s Investors Service credit downgrade. The drop was largely due to the state’s growing pension crisis. Moody’s issued the following statement with its credit downgrade of Pennsylvania to Aa3 from Aa2:

“The downgrade of the general obligation rating to Aa3 reflects the commonwealth’s growing structural imbalance … and the expectation that large and growing pension liabilities coupled with modest economic growth will limit Pennsylvania’s ability to regain structural balance in the near term.”

Pennsylvania Gov. Tom Corbett said in a news release:

“It’s clear that this pension crisis has put severe strain on Pennsylvania’s finances. As families struggle with skyrocketing property taxes, pension costs are consuming more than 60 cents of every new dollar of state general fund revenues. Doing nothing is not an option and doing nothing fails our families.”

Pension debt is hurting Pennsylvania’s families. But if Pennsylvanians are hurting, Illinoisans are hurting even more. With an unfunded pension liability two times larger than Pennsylvania’s and the worst credit rating in the nation, Illinois’ outlook is much more grim.

It’s time to modernize state pension systems. States should look no further than Oklahoma, where pension reform will end the state’s traditional pension system for newly hired state employees in favor of a 401(k)-style retirement plan. Since the Great Recession, several other states including Georgia, Utah and Michigan have modernized as well. It’s time Illinois got on board.