Pension obligations will play a larger role in credit rating of state and local governments by Moody's Investors Service, which announced its new approach Wednesday.
“We believe liabilities are underreported from a balance sheet perspective,” said managing director Timothy Blake in a statement. “The purpose of the adjustments is to provide greater transparency and comparability in pension liability measures for use in credit analysis.”
The first move under the new approach was to place the general obligation bond ratings of Chicago, Cincinnati, Minneapolis, Portland and 25 other governmental units on review for possible downgrade, due to large net pension liabilities relative to their rating category.
David Jacobson, spokesman for Moody's public finance group, said those reviews could take up to 180 days before any actions are taken, and that downgrades are likely to be limited to one or two notches.
Public pension fund officials are concerned about the potential for confusion over the new ratings. The new methodology “undoubtedly will be used as a flawed rationale by those trying to reduce the retirement security of hard-working public employees,” said New York City Comptroller John C. Liu, custodian and trustee of the $127.5 billion New York City Retirement Systems, in a statement after the announcement.