(Reuters) - Moody’s Investors Service said a hike in pension fees by the California Public Employees Retirement System will pressure other spending by local governments but will be a long-term credit positive for the state’s bond issuers.
“Despite the near-term pressure, in the long run the increased contributions are likely to benefit both local governments and the State of California,” the Wall Street credit-ratings group said in a commentary released on Friday.
California is rated A1, with a stable outlook, Moody’s said.
On Wednesday, at a time when many of California’s local governments battle budget gaps, the board of the $255 billion Calpers public pension fund approved accounting changes requiring state agencies, cities and counties to pay rate increases of up to 50 percent.
Moody’s said in its commentary that most governments will be able to adapt to the higher pension contributions but warned that some might find the proposed increases overwhelming. 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.
“The State of California will face the same increased contribution pressures that the local governments face,” Moody’s said. “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.”
Reporting by Michael Connor in Miami; Editing by James Dalgleish