| Sept 26
Sept 26 The city of Chicago and a couple of
nearby municipalities top the list of U.S. public pension
burdens as measured by Moody's Investors Service's revised
Chicago, which Moody's downgraded to A3 in July because of
pension concerns, is struggling under pension liabilities that
were an outsized 678 percent of the city's operating revenues as
of fiscal 2011, Moody's said in a report published on Thursday.
Cook County, Illinois, which Moody's downgraded to A1 in
August, had unfunded pension obligations that were 382 percent
of its revenues. The Chicago suburb has a median household
income of about $54,600 and a population of about 5.2 million,
making it the second-largest county in the United States behind
Los Angeles County.
But the pain is shared among cities, counties and towns in
pockets of financial distress across the United States. Denver
County School District, in Colorado, has the third biggest
adjusted pension liability in Moody's study, of 342 percent.
As the nation begins to grapple with growing retirement
costs for state and city employees, Moody's has revamped the way
it examines public pension liabilities to use tougher accounting
measurements similar to those approved by the Governmental
Accounting Standards Boards.
The rating agency applied that revised methodology to the
pension burdens of the 50 cities, towns, counties and school
districts with the most outstanding debt in the nation.
In June, the credit rating agency applied the revised
methods to state retirement systems. But it came under some
criticism for applying lower, corporate-style rates to public
pensions, which typically use much longer time-horizons and
higher investment return assumptions.
"Our goal is to have our ratings be comparable, whether
we're talking about a municipality or a corporate rating," said
Moody's analyst Tom Aaron. "We want to make sure that our
measurements of liabilities are comparable across sectors."
Most municipalities tie their assumed rates of return on
assets to the rates they use to discount liabilities in the
But Moody's methodology separates the two and arrives at
lower discount rates than those usually used by the local
governments themselves, which usually range between 7 percent
and 8 percent.
Chicago, for example, reported an 8 percent discount rate
that Moody's adjusted to 4.40 percent, its lowest rate for all
50 funds it examined.
The lower the rate, the bigger an unfunded liability appears
and the more money a city might have to contribute to make up
New York City got Moody's highest adjusted discount rate, of
6.20 percent. The city also uses 8 percent for its own
calculations. It ranked 28th on Moody's list of pension
liabilities as a percentage of revenues.
Some funds were doing well by Moody's new measurements.
Washington, D.C.'s adjusted net pension liability was just 11
percent of its revenues. Mecklenburg County in North Carolina
was the second lowest, at 14 percent of revenues.
"It varies to such a large degree that you have to take a
look at each individual case," said Moody's Aaron. "There's such
a wide range of circumstances, where you have a city like
Chicago, which has contributed less than its actuarial
requirement for years, and the problem has continued to
Rounding out the top five most problematic are Jacksonville,
Florida, and the country's second-largest city, Los Angeles.
Chicago's Metropolitan Water Reclamation District is also among
Jacksonville's high net pension liability arose not because
of underfunding, but because of benefit accruals and poor asset
performance, Moody's said.
Houston and Dallas in Texas ranked seventh and eight.
In April, Moody's identified 29 outliers among local
governments with disconcerting pension liabilities. The credit
rating agency has finished reviewing all of those, cutting its
rating on 18 - including Chicago - and confirming the other 11.
Moody's is accepting comments on new proposed methodology
for how it rates general obligation debt. It's planning to
essentially double the weight it puts on outstanding debt,
giving pension obligations equal footing with all other
The comment period closes on Oct. 14.