| NEW YORK
NEW YORK Aug 22 Debt ratings agency Moody's has
warned that Huntington, Long Island, could lose its top credit
rating if the town funnels more money away from public pensions
to meet short-term spending needs, a controversial practice that
has skyrocketed among New York's cash-strapped municipalities.
The announcement on Wednesday is a warning to around 200
other municipalities in the state that have deferred more than
$2 billion in pension payments over the last three years.
"Deferring current operating expenses to (a) future period
is inconsistent with our view of strong financial management,"
Moody's Investors Service said in a statement. "Continued
amortization of annual pension payments could result in a
Moody's current Aaa rating for Huntington is the highest
investment grade, but the negative outlook means the rating
could be cut to Aa1, potentially pushing up the town's borrowing
costs. The outlook affects $112 million in outstanding debt and
a previously unrated $13.4 million of public improvement bonds.
Municipalities pay contributions for their public employees
into a $160 billion system that is administered by the state.
Moody's and Huntington did not respond to requests for
Reuters reported earlier this year that public pension
system deferrals by New York's municipalities had quadrupled
since 2011 and could accelerate under new rules introduced this
year that allow municipalities to divert even more pension
Public employers deferred $1.1 billion in the fiscal year
ended in March 2013, up from $293.2 million in 2011, a near
fourfold increase, according to data from the New York state's
The number of public employers using deferrals jumped to
nearly 200 in the fiscal year just ended from around 50 two
years earlier. About 3,000 employers pay into the system.
The Comptroller's office, which signed off on more liberal
deferral rules introduced by state Governor Andrew Cuomo for the
current fiscal year, declined to comment.
The Moody's report said Huntingdon had deferred about
one-third of required contributions last year. The required
payments are determined by actuaries who match future pension
obligations with current payment needs.
The deferral program, known as amortization, is designed to
help municipalities bridge a spike in contribution rates
following the financial crisis. Contributions are expected to
fall after 2015, following years of strong market performance.
This year the amounts that the state's municipal employers
are required to pay by actuarial formulas are 20.5 percent of
the annual wage bills for the Employees Retirement System (ERS)
and 28.9 percent for the Police and Fire Retirement System
In 2001, the year after the bubble in technology stocks had
peaked, the rates were 0.9 percent for the ERS and 1.6 percent
for the PFRS.
Critics say deferring payments risks undermining the
integrity of public pensions by creating unfunded liabilities in
the system while simply pushing the financial burdens faced by
municipalities further into the future.