The State Worker

Credit firm says California pension measure’s demise bad for local governments’ credit

A Wall Street firm cautioned Thursday that the failure to put a pension measure before California voters has negative implications for local governments facing higher retirement benefit bills.

Moody’s Investors Service said Mayor Chuck Reed’s decision to suspend his pension-change campaign is a “credit negative” for California agencies facing rapidly growing retirement benefit costs “with few tools to address them.” Moody’s declaration calls out pensions as one of many factors affecting agencies’ creditworthiness, but it’s not a ratings downgrade or change in the firm’s outlook.

Reed’s measure would have asked voters to change California’s constitution so that state and local agencies, under certain circumstances, could freeze accrued pension benefits and the cut them going forward. He ended efforts to put the proposal on the ballot last week after losing a court fight over the official description of the measure, but plans to bring it back in 2016.

The Weekly Credit Outlook on public finances notes that pension costs among Moody’s-rated local agencies in California increased an average 14 percent from fiscal 2011 to fiscal 2012. “(A)bsent pension reform, we expect this rate of increase to continue for the next several years,” the firm predicted.