Moody’s Investors Service lowered Illinois’ bond rating recently, pointing to the state’s inability to address its financial problems, including an unbalanced budget, billions in unpaid bills and faltering revenues. Moody’s said the failure to tackle Illinois’ fiscal issues “underscores a chronic lack of political will that indicates further erosion of an already weak financial position.”

With the new rating, Illinois has now tied California for the worst credit in the nation from Moody’s. It’s also anticipated that the other two major credit rating agencies will soon downgrade Illinois.  

What this means for Illinois? A lower state credit rating usually translates into higher costs when the state tries to borrow money.

Though the bond rating was lowered, Moody’s did note that Illinois possesses several “credit strengths,” including a strong ability to raise revenue and reduce expenditures. It also noted Illinois’ diverse economy with higher-than-average wealth levels is an asset.

However, Moody’s said the state’s reliance on delaying payments to vendors, Illinois’ extremely large unfunded long-term liabilities—including pensions and retiree health care—and its use of non-recurring resources to finance state spending, pose serious risks to the state’s rating.

Moody’s pointed to “infighting between the executive and legislative branches,” as directly contributing to “both the erosion of the state’s finances and the widening of severe pension funding gaps.” It also reinforced, “The longer solutions to the state’s challenges are deferred, the more difficult they will become to implement.”

Despite these issues, Moody’s highlighted progress in certain areas. Specifically, a bipartisan pension reform measure that reduces benefits for new state employees. As a result, the minimum retirement age is increased to 67 (up from as low as 55), employees will no longer be allowed to “double-dip,” or collect benefits from one state plan while accruing benefits under another, and limits were placed on the salary that could be used to calculate benefits. Moody’s also cited new revenue generators related to video gaming, vehicle fees and taxes on alcoholic beverages and other products, which will go to help finance debt related to the state’s capital improvement program.

Illinois has now had 10 “hard” ratings downgrades since Democrats took control of state government in 2003.  Illinois saw its credit ratings drop three times during Rod Blagojevich’s six years in office. In less than 18 months in office, Pat Quinn earned seven credit rating drops, or more than twice as many as his running mate, in less than one-third the time.

In contrast, from 1983 through May 2003, the state was only downgraded six times and several of those were offset by subsequent upgrades. Illinois was last downgraded under a Republican governor in 1995, and that was followed by four subsequent upgrades from 1997 to 2000 under Republicans.

When Blagojevich took over, Illinois had its best credit rating on record with one major rating agency, AA+ (Fitch ratings).