(Reuters) — Illinois’ ability to manage growing retiree benefit costs will determine future action on the state’s relatively low A3 credit rating, Moody’s Investors Service said on Monday.

The state, which on Tuesday begins a third month without an enacted fiscal 2016 budget, has been hamstrung by state Supreme Court rulings that unilateral cuts to pensions and retiree health care violate the state constitution.

“Given the state’s ironclad protection of benefits for current workers and retirees, Illinois requires a long-term plan to ensure it can at least comply with statutory funding requirements,” Moody’s analyst Ted Hampton said in a statement.

If the state does not have a plan by the time the next legislative session ends on May 31, 2016, credit deterioration will accelerate, the rating agency said in a report.

Illinois has the worst-funded pension system and the lowest credit ratings among the 50 states.

Retiree benefits account for about 24% of Illinois’ general fund expenditures, according to Moody’s.

As for the budget impasse between Republican Gov. Bruce Rauner and Democrats who control the House and Senate, Moody’s said Illinois runs the risk of turning a projected deficit of about $5 billion into an actual deficit if there is no budget deal by the end of September.

“A possible approach to eliminating the deficit would be a combination of expenditure cuts and reversing some of the year’s income tax reductions,” the report said, noting the state’s flat tax rate is low compared with other states’, and an increase could be applied retroactively.

A 2011 temporary hike in Illinois’ income tax rate was partially rolled back on schedule on Jan. 1. Democratic lawmakers have called for a mix of cuts and revenue to balance the fiscal 2016 budget, but Gov. Rauner has insisted the legislature adopt his reform agenda before he considers a tax hike.

“So far, the standoff has had limited effects on our view of the state’s credit position,” Moody’s said. “Provided that the two sides reach a consensus soon, the nature of their eventual agreement will matter more than the long delay that has already occurred.”