Illinois’s role model for regaining favor in the $3.7 trillion municipal market may be California, with an S&P credit grade one step higher. The Golden State had its bond ranking raised by S&P and Fitch Ratings this year after voters approved tax increases that produced a projected budget surplus. California’s bonds rallied this year to the most expensive levels since 2008.
Underfunded public pensions have prompted changes in states from California to New York. Since the recession ended in 2009, three-quarters of states have curbed costs through steps such as requiring public employees to pay more into pension funds or cutting benefits for new workers, according to the National Association of State Retirement Administrators.
In Illinois, the proposal passed last week would limit annual cost-of-living allowances and raise the retirement age for some workers. The plan projects $160 billion of savings over the next 30 years.
The agreement extended a two-month rally in tax-exempt Illinois bonds. The extra yield investors demanded on general obligations due in 10 years instead of AAA munis fell to 1.58 percentage points on Dec. 11, the lowest since August. more »