Illinois Outlook Cut to Negative by Moody’s on Pension Shortfall

Illinois had the outlook on about $28 billion of general-obligation bonds revised to negative from stable by Moody’s Investors Service, according to a statement from the ratings company.

New York-based Moody’s, which already rates Illinois the lowest among U.S. states, cited its underfunded pension systems and said the shortfall is “likely to persist and perhaps worsen.”

Illinois in January had its rating cut to A2, sixth-highest, after a legislative session that “took no steps to implement lasting solutions to its severe pension underfunding.” The state’s worst-funded retirement system has 43.4 percent of assets needed to cover its obligations, according to data compiled by Bloomberg. Illinois also has about $8 billion in unpaid bills.

“Every day that goes by without action, the pension problem gets worse,” Abdon Pallasch, Illinois’s assistant budget director, said in a statement. “Skyrocketing pension costs are eating up critical services like education and public safety more and more every day.”

Democratic Governor Pat Quinn said this week that the battle to control employee pension costs “is our fiscal cliff and we need to deal with it” or ratings companies would lower the state’s grade again.