NEW YORK (Reuters) - Illinois has the worst ranking among the U.S. states in terms of credit quality, according to a report by Conning, an investment manager for the insurance industry, as options for the embattled Midwestern state to fix its finances are running out.
Illinois fell to the bottom of Conning's ratings system when it published its biannual report six months ago. It remains there according to its updated State of the States report issued on Tuesday. That is a four-notch drop from this time a year ago.
"It is getting to the late innings to find a sustainable solution, as years of short-term fixes have reduced remaining options," Conning said in the report.
The ranking system uses a model that takes into account various metrics, including economic debt to personal income, expenditure burden, unemployment and house prices.
Illinois has the worst-funded pension system of all 50 states. On Friday, the Illinois Supreme Court threw out the state's landmark pension reform, putting the onus on its new governor to find a solution.
That ruling "makes us even more concerned" about the state's ability to achieve long term structural balance, said Paul Mansour, Conning's head of municipal research.
"What I'm looking for is some form of increased revenues to help them achieve a structural balance going forward," Mansour said.
Conning, which has assets under management of $95 billion, of which around $11 billion are municipal bonds, has some exposure to Illinois via general obligation bonds and other bonds of entities in the state.
Illinois is an outlier among the states. Conning said in the report that credit quality in general improving, boosted by employment growth, economic expansion and rising house prices, which are helping state revenues.
Western states have been leading with personal income growth concentrated there. The 10 highest-ranked states in the survey were in the west, with the exception of Florida.
North Dakota, which benefits from agriculture and natural resources, was the top ranked state.
Still, Conning said it was concerned that, despite five years of economic recovery, many states have not yet built back reserves to a safe level, which it quantifies as 5 percent of general fund expenditures. The United States was mired in recession from 2007 to 2009.
(Reporting by Megan Davies)