S&P to Pritzker: Pension reform only way to avoid ‘junk’ credit rating

A report from one of the largest credit rating agencies criticized Gov. J.B. Pritzker’s “dubious” budget proposal for avoiding necessary fiscal reforms.

Gov. J.B. Pritzker released his first proposed budget Feb. 20. And while the governor presented his plan for fiscal year 2020 as balanced, he failed to convince Standard & Poor’s Global Ratings, one of the largest credit rating agencies.

One fundamental problem with the governor’s proposal? The lack of meaningful pension reform, according to S&P.

“If the state fails to redeem its longer pension amortization schedule through a practical reduction in liabilities,” the report says, “its credit trajectory could slip.”

Illinois already holds the distinction of worst credit rating in the nation, slouching just one notch above “junk” status. A further decline could mean serious challenges in terms of the state’s ability to borrow money. That should be of particular concern to Pritzker, whose proposed budget includes $2 billion in bonds to reduce the state’s pension liability.

Those bonds constitute one aspect of Pritzker’s “five-point” pension plan, but S&P cautions that they may jeopardize the state’s long-term pension funding levels. Other aspects of the governor’s plan include new and increased taxes and prolonging the schedule of contributions to the state’s pension funds. S&P warns these measures will test the limits of Illinois’ budgetary flexibility if deficits grow. That may lead to service cuts, the report says, which would in turn “undermine the state’s economy.”

S&P also finds dubious the remaining two points in the governor’s plan: the sale of state assets and a pension buyout program. Pritzker’s office has yet to identify the assets it proposes to sell, the report points out, carrying a risk the agency views “as a negative credit factor.” And savings from a pension buyout program included in Illinois’ previous budget have fallen far short of projections, raising concerns over the new program’s reliability.

“Illinois has a track record of leaving difficult fiscal choices to future budgets,” the report notes. Unfortunately, Pritzker’s budget proposal fails to buck that trend.

The governor would be wise to heed S&P’s advice: Any pension plan that avoids a “practical reduction in liabilities” will not address the state’s $134 billion pension debt. Leaders in Springfield must look to other states that overcame similar pension crises and lead the push toward a constitutional pension amendment.

Illinois will not see real, lasting pension reform without an amendment to the Illinois Constitution that protects already-earned pension benefits, while allowing for affordable adjustments to future benefit accruals. It’s the only way for the state to keep its promises to retirees while protecting taxpayers.