The downward spiral

State and local governments have had to allocate greater percentages of their payroll expense to pension funds. Local government pension contributions have increased by an average 1.5% annually since 2000, while state government contributions have grown an average 0.7% over the same period. The increased burden on these plans has been noticed by the rating agencies when rating municipal debt. Lower ratings or downgrades compound the problem for state and local governments that consequently see interest expenses grow as investors require higher compensation for their higher perceived risk.