The Moody’s Investors Service, Inc. downgraded the Illinois bond rating from an A1 to an A2 making it the lowest in the nation, and institutions like Eastern are tied to the rating.

Three primary companies, which are Moody’s, Standard & Poor’s, and Fitch Ratings, determine the level of assurance that entities like Illinois will pay its debts.

According to the Moody’s rating action report from Jan. 6, part of the reasoning to downgrade Illinois from an A1 to an A2 was because of the “severe pension-funding shortfall.”

“The downgrade of the state’s long-term debt follows a legislative session in which the state took no steps to implement lasting solutions to its severe pension under-funding or to its chronic bill payment delays. Failure to address these challenges undermines near- to intermediate-term prospects for fiscal recovery,” according to the report.

William Weber, the vice president for business affairs, said an entity’s bond rating affects the interest rate that it has to pay when issuing bonds.

“A lower bond rating yields a higher interest rate because it is more risky to lend money when there is a lower probability of getting paid back,” Weber said.

According to the report, the Illinois bond rating could go up with the “adoption of a credible, comprehensive, long-term pension funding plan,” and a “substantial progress in reducing payment backlog, and legal framework or plan to prevent renewed buildup of late bills.”

According to a report from the Civic Federation based in Chicago on Monday, the Illinois unpaid bills backlog is estimated to reach $9.2 billion during the summer, and if action is not taken by the Illinois General Assembly and Gov. Pat Quinn, the backlog could increase to about $34.8 billion by fiscal year 2017.

Treasurer Paul McCann said public institutions that receive appropriated funds are connected to the state’s bond rating, but the effect on Eastern is limited because the university does not have plans to issue bonds at the moment.

However, in the long-term scheme of things, the rating could affect the amount Illinois appropriates to Eastern, Weber said.

The University of Illinois has a better rating than the state because the state appropriated funds are a lesser portion of the University of Illinois’ budget, McCann said.

The fiscal year 2012 operating budget for the University of Illinois is about $5 billion, and about $693 million of the budget is paid through state appropriation for operating costs.

Rachel Rodgers can be reached at 581-2812 or [email protected].