A major credit-rating agency said that if Illinois lawmakers don't address the state's budget impasse this fall, they could set the state up for another downgrade.
Credit-rating agency Fitch said Illinois lawmakers have a history of making big decisions, such as raising taxes, during lame-duck sessions following elections. Analysts said that if they do not take significant steps to address the out-of-control spending, the agency will downgrade Illinois' credit rating again.
University of Illinois finance professor George Pennacchi said this means more costs on the backs of taxpayers.
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"If there is no progress, the price that investors are willing to pay for Illinois’ bonds will fall, meaning that interest costs to taxpayers will go up even further."
Pennacchi said that if the state raises taxes without enacting meaningful reforms to curb spending, Illinoisans will leave.
"While the state legally has the ability to raise revenues through higher taxes, the concern is that if it did so, there may be further out-migration of businesses and population," Pennacchi said. "To prevent a vicious downward spiral, a comprehensive set of reforms are needed to make it worthwhile for businesses and people to want to stay despite the higher taxes."
Fitch analysts also said a major factor in Illinois' budget imbalance is its poor record of paying down pension obligations.
"Illinois has chronically underfunded its pension system based on a statutory formula that permitted a slow incremental buildup to higher pension funding and targeting only 90 percent of full actuarial funding."
That's an apparent reference to former Gov. Jim Edgar's plan to put off paying the full amount of pensions on an incrementally lessening level as years pass.
The report added that the state's budget gap has ballooned since lawmakers failed to enact a spending plan within revenues reflecting the sunset of the 2011 income tax increase at the end of 2014.