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NEW YORK May 3 Puerto Rico's credit rating
might be cut due to its "deeply underfunded" pension system,
Moody's Investors Service said on Tuesday, in a reminder of the
one of the biggest threats to state and local finances.
Puerto Rico now is rated A3 by Moody's; about $28 billion
of debt issued by the Commonwealth was affected by the warning
from the credit agency. The current A3 rating is four notches
above a non-investment grade or junk rating. The conclusion of
the review could result in a rating change of one or more
Credit agencies increasingly are focusing on the difficulty
states will have paying their public workers the benefits they
have promised. While many states have billions of dollars of
shortfalls in their pension systems, Puerto Rico is the worst.
Puerto Rico's financial problems are not only deep but
long-standing. Moody's cited years of over-estimating revenues,
underestimating expenses and relying on deficit borrowing.
Much of Puerto Rico's debt is widely held throughout the
United States because investors do not have to be residents of
the Commonwealth to capture its tax-free returns.
The credit agency estimated Puerto Rico's unfunded pension
liability at $24 billion. The Commonwealth also must repay $42
billion of debt backed by taxes. Adding those two liabilities
together produces an amount that is seven times the annual
budget, Moody's said, calling this "a combined burden that will
exert significant budgetary pressure for many years to come."
(Reporting by Joan Gralla; Editing by James Dalgleish)