Adjusted net pension liabilities for the 50 largest local governments totaled $481 billion at the end of fiscal year 2017, up 9% from the previous year, a report from Moody's Investors Service said.
Adjusted net pension liabilities are the biggest source of balance sheet leverage for the 50 largest local governments, almost tripling the $166 billion in unfunded liabilities for other post-employment benefits for the 50 largest local governments reported in fiscal 2017. Of those same 50 local governments, 19 saw net direct debt exceed adjusted net pension liabilities.
The five entities with the highest adjusted net pension liabilities as a percentage of operating revenue were:
- Chicago, 782%.
- Dallas, 562%.
- Los Angeles, 424%.
- Phoenix, 397%.
- Houston, 367%.
Meanwhile, local governments reporting the lowest adjusted net pension liabilities as a percentage of operating revenue were:
- Wake County, N.C., 39%.
- Washington D.C., 43%.
- Philadelphia Schools, 64%.
- Frisco (Texas) Independent School District, 73%.
Moody's reported that the combination of debt service, pension and retiree health-care payments consumed more than 30% of some governments' revenues, but less than 15% for others. In measuring government pension contributions, only 10 of the largest 50 exceeded Moody's "tread water" indicator in fiscal 2017.
Moody's predicts that favorable investment returns and revenue growth will drive lower adjusted net pension liabilities and leverage ratios through many governments' fiscal 2019 reporting. Pension reforms in such cities as Dallas and Houston are causing liabilities to fall in those cities.
Moody's report also looked at the probability of pension investment losses in a given year amounting to 25% or more of a government's operating revenue. For nine of the 50 entities reviewed, the probability of this happening was 10% or greater in fiscal year 2017 due to the size and estimated volatility of their pension assets, the report said. Houston and Los Angeles faced the highest probability of losses.