April 19 A hike in pension fees by the
California Public Employees' Retirement System will pressure
other spending by local governments in the near term, but will
be a long-term credit positive for the state's bond issuers,
Moody's Investors Service said on Friday.
California's state government will also benefit as higher
fees will be used to fully fund the retirement system and reduce
the likelihood of sharp increases in employer contributions to
it in any given year.
"Despite the near-term pressure, in the long run the
increased contributions are likely to benefit both local
governments and the State of California," Moody's said in a
Moody's rates California A1, with a stable outlook.
The $255 billion Calpers board approved on Wednesday
accounting changes requiring state and local agencies, cities
and counties to pay rate increases of up to 50 percent.
Moody's said most governments paying into the pension fund
will be able to adapt to the higher contributions as they are
phased in but warned some might find the increases overwhelming.
"While marginal increases in required pension contributions
phased in over five years will likely be manageable for the
state and most California local governments, the most fiscally
challenged local governments could find these proposed increases
unmanageable," Moody's said.
California's state government and its local governments are
beginning to see their revenue stabilize and improve after
several years of having to contend with weak revenue.
Two sizeable California cities, Stockton and San Bernardino,
last year filed for bankruptcy, citing large bills for pensions
as one of the reasons for their financial distress.
California's state government will face the same pension
contribution pressures as local governments, but "Because the
state's liquidity position and financial condition are
significantly better at this time than they have been in recent
years, the increase in contributions should be manageable, and
will serve to improve the funding status of the plan," Moody's
Fitch Ratings in a report on Friday said it also expects
rising pension contribution rates will strain budgets of
California's state and local government employers.
But Fitch also said accounting changes pushing the rates up
will improve the funding level of California's massive pension
fund, which is the nation's largest U.S. public pension fund.
The revisions are "prudent steps that will improve the
system's funded ratio and the predictability of payments for
employers over the long term," Fitch said.