SPRINGFIELD, Ill. (AP) – Illinois edged closer to having its worst-in-the-nation credit rating lowered even further as a rating agency declared Thursday that failure to address massive pension problems is a “credit negative” for the state.

“Inaction on the state’s pension liabilities will further strain this lowest-rated U.S. state’s finances,” Moody’s Investors Service warned in its weekly update.

Another agency, Standard & Poor’s Ratings Services, also says it is evaluating the state’s status. S&P warned in June that it considers the pension deadlock a negative for the state.

The lower its rating, the more interest a state must pay when it borrows money by selling bonds.

Illinois retirement systems have a huge gap between the money available and what they’ll eventually pay out in pensions. The roughly $85 billion shortfall is the largest in the country.

Trying to close that gap costs the state more and more money each year, leaving less for other government needs. Moody’s noted pension payments this year will make up 20 percent of state government’s general spending, compared to 13 percent three years ago.

Gov. Pat Quinn called legislators into special session last week, but they couldn’t agree on what to do, largely because of a dispute about whether to transfer some pension costs to school districts.

Lawmakers meet again after the election, but Moody’s warned the problem may be allowed to drag on until next year.

“In the meantime, the funding challenge will keep growing,” the rating service said.

© Copyright 2012 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.


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