NEW YORK Jan 17 (Reuters) - A partial windfall from a $500 million payment Google made in 2011 to Rhode Island will be used by the towns of North Providence and East Providence to reduce significant unfunded liabilities in their pension funds, Moody's Investors Service said on Thursday.
Each city received $60 million in the settlement in which Google admitted to have improperly assisted Canadian online pharmacy advertisers to run ads that targeted the United States, according to Rhode Island officials.
The U.S. Department of Justice on January 11 granted permission to use the funds for public pensions.
"This is credit positive for both municipalities because the settlement funds will alleviate pension underfunding and reduce annual pension contributions," Moody's said.
The cost of funding public pensions is a controversial issue in many U.S. states and cities struggling with low revenue.
Rhode Island enacted far-reaching pension reform, but it left untouched dozens of independent local pension plans that often are heavily underfunded.
North Providence will deposit $20.6 million from the settlement into its police pension fund, which will eliminate most of the town's estimated $22.5 million unfunded liability, Moody's said. The funded ratio stood at 45 percent as of the 2011.
East Providence will put $49.2 million of the settlement money into its public safety pension fund, which will eliminate close to half of its $105.8 million unfunded liability. The funded ratio of the city's pension fund was 33.6 percent.