* Pensions & Investments…
Moody’s Investors Service is seeking comments from market participants on proposed changes to its methodology for states’ general obligation credit ratings, which would include an increased emphasis on states’ debt and pension obligations.
Under the proposed changes, debt and pension obligations will have a 25% weight on state credit ratings, up from 20% currently. The individual state’s economy, another factor in Moody’s ratings, will also have a 25% weight, up from 20%. Governance will fall to 20% from 30% and finances will be maintained at 30%.
The debt and pension factor “is critical because debt and pension obligations are the primary long-term liabilities that states have,” Moody’s said in an announcement on the proposed changes Tuesday. “As these liabilities grow, states face rising expenses to pay debt and pension benefits. High fixed debt service and pension costs can crowd out other budgetary priorities and force states to raise taxes in order to meet them. Debt and pensions can curtail a state’s budgetary flexibility and heighten the risk that it will seek to deleverage through a debt restructuring.”
The Illinois Policy Institute’s news service notes this potential change and concludes it “could make Illinois the first state whose bonds fall to junk status.”
Fitch Ratings agency put out their 2017 State Pension Update this week. It shows that Illinois’ pension crisis is the worst in the nation at more than $151 billion. That’s $60 billion more than second worst New Jersey’s liability.
“Six states have long-term liability burdens that Fitch considers elevated [in excess of 20 percent of personal income],” the report said, “with Illinois carrying the highest liability burden at 28.5 percent of personal income.”
Fitch Senior Director Doug Offerman said taxpayers should care because the burden takes up more than 28 percent of all personal income in Illinois, “which is essentially a proxy for the wealth level, the resource base of a given government.” […]
“For the last several years the [pension] increases did grow faster, and I would say do crowd out other spending that might have otherwise taken up organic revenue growth,” [Fitch Ratings Senior Director Karen Krop] said.