Moody’s Combines Debt and Pensions to Analyze States

Moody’s Investors Service provided a combined measurement of debt and pension liabilities for the first time to analyze U.S. states’ creditworthiness after “rapid” growth of their unfunded retirement obligations.

The joint figures released today make it easier to compare fixed costs among states and with corporate-bond issuers, Moody’s said. The company previously included pension liabilities separately in evaluating states. It revised municipal ratings in April to make them more compatible with corporates.

“Greater comparability and transparency” will come from the new metric, Robert A. Kurtter, managing director for public finances at New York-based Moody’s, said in a telephone interview. “In a corporation, you look at them together. As a government, we would look at them together also as the fixed costs that the government has to pay.”

Less than half the 50 state retirement systems had assets to pay for 80 percent of promised benefits in their 2009 fiscal years, according to data compiled by Bloomberg. Two years earlier, only 19 missed the mark. Illinois covered just 50.6 percent in 2009, the lowest ratio, which actuaries say shouldn’t be less than 80 percent.

Hawaii, Massachusetts and Connecticut are among the states with the largest combined debt and pension obligations relative to their economies and revenue, Moody’s said today.

Parallel Rankings

In general, states’ rankings for debt and pensions combined parallel their rankings for debt alone, it said. Hawaii, Massachusetts and Connecticut also have the largest ratios of bonded debt to personal income, Moody’s said.

“Not all states with large debt burdens also suffer from weak pension funding,” Ted Hampton, a Moody’s analyst, said in the release accompanying the report. New York, Delaware and California -- states with comparatively large debt burdens -- are not among the states with the highest combined long-term liabilities.”

Moody’s said that states may understate their pension liabilities and that pressure to fund retirements will continue to have a “negative impact” on state ratings.

“We’ve become more concerned about the unfunded pension liabilities and the costs they’re creating for governments at a time when they’re already stressed,” said Kurtter, who was among the authors of today’s report.

For some states, such as Illinois, which is rated A1 and has a negative outlook, growing debt and pension burdens have already contributed to rating changes, Moody’s said.

States’ control over revenue and spending may help them address the growth in pension liabilities, the report said. As a group, states are still “highly rated” at A1 or higher, it said, because of their tax and budget powers.

To contact the reporter on this story: Simone Baribeau in Miami at

To contact the editor responsible for this story: Mark Tannenbaum at

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