SPRINGFIELD -- Standard and Poor’s assigned an A+ rating to the state’s latest bond issue, but warned the rating could be lowered this year if the state doesn’t come to grips with its financial problems.

SPRINGFIELD -- Standard and Poor’s assigned an A+ rating to the state’s latest bond issue, but warned the rating could be lowered this year if the state doesn’t come to grips with its financial problems.


For the $500 million general obligation issue, the ratings service used the A+ rating with a negative outlook that it assigned to the state in early December.  It is the second-lowest rating of any state, ahead of only California.


The highest S&P rating is AAA. An “A” rating indicates an entity has “strong capacity to meet financial commitments, but (is) somewhat susceptible to adverse economic conditions and changes in circumstances,” according to the S&P website.


Moody’s Investors Service gave the state an A2 rating in early January, below even California.


Quinn’s budget office said Monday said it believes Illinois’ low credit rating should not hurt the bond sale.


“We have received strong interest to date, and we are looking forward to another successful sale in light of our last issuance in January, which received the lowest interest rate Illinois received in over 40 years,” budget office spokeswoman Kelly Kraft said in a statement.


Despite the 67 percent income tax increase enacted last year, the state continues to have more than $9 billion in unpaid bills.  That doesn’t include an $83 billion debt to the five state-funded pension systems.  Both of those issues were factors in S&P’s decision to give Illinois a negative outlook.


“The negative outlook reflects what we view as Illinois’ large accumulated deficit and improved, but still elusive structural budget balance despite significant revenue enhancement for the current financial plan period,” S&P said in a release.  “If Illinois does not implement meaningful changes to further align revenue and spending and address its accumulated deficit ... for fiscal 2013, we could lower the rating this year.”


Moreover, “a downgrade could also be triggered if pension funding levels continue to deteriorate and there is not credible progress in addressing the liability,” it said.


The ratings agency also warned that it could downgrade Illinois’ rating by more than one notch if the issues aren’t addressed.


Although S&P said it could revise Illinois’ ratings upward if the state addresses its deficit and pension problems, it concluded, “We do not believe there is an upside potential to the rating in the next year given the range of budget and liability challenges the state faces.”


State lawmakers are just beginning to hold hearings on state agency budgets.  Both the House and Senate adopted a conservative revenue estimate that is $221 million below the amount Gov. Pat Quinn used to craft his budget.  Republicans in particular are pushing to make even deeper cuts to state spending.


In a separate S&P report, the agency agreed that “spending is significantly constrained” under Quinn’s budget proposal for the fiscal year that begins July 1.  However, it went on to say that “much of the detail on how it will be accomplished (is) left to legislative deliberation, which has had an uneven track record of consensus on key budget-balancing initiatives in our view.”


Quinn has convened working groups of lawmakers to come up with money-saving changes to state pensions and to cut $2.7 billion from the Medicaid program.  S&P said it believes both spending cuts and pension reform will be difficult to achieve.


Doug Finke can be reached at (217) 788-1527.