State and Local Governments Facing Mounting Pension Losses

State and local government pension fund losses upwards of 35 percent so far in 2008 will likely trigger increased funding requirements in the next few years, said Moody’s Investors Service in a special comment this week.

But the ratings agency sees little near-term impact on the credit ratings of public issuers as a result of pension losses.

As is often the case in the downside of the economic cycle, the additional funding requirements will hit at the worst possible time for state and local governments – just as budgets are constrained by the deteriorating economy, Moody’s said.

As public pension systems’ investment losses are phased in, they will put upward pressure on state and local governments’ contribution requirements. For governments required to make the full actuarially determined annual required contribution, or ARC, the losses will exacerbate the fiscal stress caused by weakened revenues.

Moody’s emphasizes that long-term “smoothing” of pension fund losses, which are phased in over a period of time, usually five to seven years, means that municipal and state government budgets won’t be affected until at least fiscal 2011.

In some cases, Moody’s said states may eventually need to issue pension obligation bonds ((POBs)) to deal with pension funding shortfalls. Research Recap has written before about the likely need for more state debt issuance as tax revenues slow during the economic downturn.

Moody’s said some states, such as Illinois and Massachusetts, may successfully push back part of their required annual contributions, as they did in the 2001 recession.

Comments

[notsosmart:]

not to worry. the state workers are well taken care of.taxes can be & will be raised if needed.the sheeples will be fleeced some more.our current leader"im the decider" is busy deciding who to put on his pardon my cronies list as he moves this country towards socialism(mostly for the rich).you wanted him 2x,you got him.LOL

2008 Nov 13 10:57 AM