By Lisa Lambert
WASHINGTON, April 17 Moody's Investors Service
has placed the ratings of 29 U.S. local governments and school
districts under review as part of its new approach to analyzing
public pension liabilities, it said on Wednesday.
Chicago was put under review - rating agencies have already
downgraded Illinois over a yawning pension gap - as were
Cincinnati, Minneapolis and Portland, Oregon.
Altogether, the reviews affect $12.5 billion of debt. Fewer
than half the reviews involve school districts and schools.
There was no immediate impact on state ratings but the rating
agency said that pension liabilities have been a factor in their
credit rating downgrades and outlook changes over the last few
In July, the agency announced it would change how it looks
at pension data out of concern that the liabilities created by
retirement promises have been underreported. Now it will adjust
the data provided by U.S. state and local governments to create
"greater transparency and comparability."
"Pension obligations represent a growing source of budgetary
pressure for many governments. However, the manner in which
these obligations are reported varies widely, and we believe
liabilities are underreported from a balance sheet perspective,"
Timothy Blake, a Moody's managing director, said in a
Blake added that those placed on review were "determined to
be significant outliers in their current rating category."
Some of the communities currently have high ratings - for
example, Evanston, Illinois, is rated "Aaa."
Chicago's general obligation bonds are rated "Aa3".
PENSION BATTLE STILL RAGES
The United States is in the grips of a fierce battle over
public pensions after the 2007-09 recession exacerbated problems
that had dogged public employee retirement systems for years.
States and cities had frequently shortchanged their public
pensions, and when their revenues crumbled during the longest
and deepest economic downturn since the Great Depression they
cut back even more.
Meanwhile, the financial crisis wrecked the chief revenue
source for public pensions, investment returns.
Pension funds' holdings have slowly recovered, but the
debate over the size of their gaps remain. The Pew Center on the
States estimates U.S. cities combined are short at least $99
billion and states $757 billion.
Many conservative lawmakers and economists say the pensions
project rates of return that are too high, making their
shortfalls appear smaller by using overly optimistic
expectations for investments. Meanwhile, many question if their
methods of "smoothing" expenses over time mask the extent of the
Last month, the U.S. Securities and Exchange Commission
rapped Illinois for its pension accounting maneuvers and on
Wednesday the largest pension fund, Calpers, voted to change its
Moody's said it is re-adjusting data reported by state and
local governments and is also considering many of the reforms
under consideration across the country.
Last week, Fitch Ratings said that for some of the more than
1,000 local governments it rates underfunded retirement systems
would create budgetary pressure.
Moody's rates more than 8,000 local governments in the
United States, which means it has put less than 1 percent of
those it evaluates under review.
The local governments under review were spread across just
eight states. The highest concentration is in Ohio, with 12
cities, counties and school districts affected.
The agency expects any rating changes from the reviews will
be downgrades of one notch or two.