Moody’s Investors Service is changing the way it assesses local government pension liabilities “to reflect the rating agency’s view that pension obligations are a significant source of credit pressure for governments and warrant a more conservative view of the potential size of the obligations.” The new ratings rules could lead to downgrades for some cities, counties, and school districts.
Moody’s has placed 29 local government ratings from across the country under review, a possible precursor to downgrades. The list includes City of Minneapolis General Obligation (GO) bonds and City of Virginia GO bonds and Health Care Facilities Lease Revenue bonds. The new Moody’s rules, as well as new accounting standards adopted by the Governmental Accounting Standards Boards, should be a wake up call for Minnesota policymakers.
Instead of forcing state taxpayers to repeatedly bail out local governments that made promises they could not keep, it is time to make public pensions more transparent, account for them honestly, and stop assuming an unreasonably high rate of return on pension fund investments. Finally, to protect taxpayers and prevent pension liabilities from overwhelming government budgets, the state needs to follow the private sector’s lead and shift to defined contribution pensions.