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Moody’s downgrades New Mexico on ‘large pension liabilities’

Moody's Investors Service announced on Monday it downgraded the state of New Mexico's general obligation bonds to Aa2 from Aa1 and revised its outlook to stable from negative.

The credit rating agency attributed its downgrade of approximately $260 million in outstanding general obligation bonds to the "state's extremely large pension liabilities," including its direct obligation to the $15.4 billion New Mexico Public Employees Retirement Association, Santa Fe. According to PERA's most recent actuarial valuation report, as of June 30, 2017, the actuarial value of assets was $15.124 billion, while the actuarial accrued liability was $20.195 billion, for a funding ratio of 74.9%.

The agency also cited the state's "indirect obligation to the Educational Employees' Retirement System" in the downgrade. The $12.8 billion Santa Fe-based New Mexico Educational Retirement Board's most recent actuarial valuation reported its actuarial value of assets at $12.5 billion and actual accrued liability of $19.9 billion, for a funding ratio of 62.8% as of June 30, 2017.

Moody's said the Aa2 rating "also incorporates a number of strengths, including the state's history of taking timely action to maintain budgetary balance, the rapid restoration of general fund reserves, which had been depleted as a result of declining oil- and gas-related revenue, and the expectation that the state will maintain adequate reserves in the future."

In a statement sent by Jan Goodwin, executive director, the Educational Retirement Board cited future steps it is taking to maintain retirement benefits and sustainability of the Educational Employees’ Retirement System, which include developing a “framework to review benefits and will propose appropriate benefit levels and funding methods to improve sustainability;” a stakeholder group developing a proposal of plan design changes for board consideration; and the board submitting a legislative proposal for consideration to the 2019 legislative session.

Jodi Trujillo, New Mexico PERA spokeswoman, could not be immediately reached to provide comment.