The Intertwined Relationship Between Illinois’ Pension Problem And Its Credit Rating

There's a reason analysts say Illinois has the nation's lowest credit rating. It has the nation's largest unfunded pension liability. A 2013 law that’s facing a challenge before the Illinois Supreme Court is intended to help. What affect will a court ruling have on the state's credit worthiness?

Illinois is facing a budget hole in the billions, thanks to a rollback of the state's income tax rate.

If the high court tosses out the pension law, there'll be more fiscal pressure.

You'd think that would knock down the state's credit rating. 

But here's the thing: Moody's, where Ted Hampton is an analyst, already supposes the justices will reject the law.

"Our rating assumes that the constitutional protection is too high a hurdle for the state to get by," he said.

But if the court does uphold the law and its benefit reductions, it's likely Illinois could see a positive effect.  

Of course, ratings are complicated; Hampton says Illinois' score won't be solely based on the courts' decision.  

Amanda Vinicky spoke with Ted Hampton, who analyzes Illinois' credit worthiness as a Vice President at Moody's Investor Service, about how the legal battle over pensions could further affect the state's rating.