All about risk
Link: https://content.naic.org/research_moody.htm
Historical record: https://docs.google.com/spreadsheets/d/1Sgi6XVzK0_sCtAWuCnUD02eObOTC3S4xlQgMep32OeU/edit?usp=sharing
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Publication Date: accessed 9 Dec 2022
Publication Site: NAIC
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In at least some states and school districts, the share of pension costs now amounts to nearly a third of payroll, concludes a new analysis from Moody’s Investors Service, a credit-rating firm.
The gradually increasing burden of retirement costs on districts isn’t a new phenomenon. But the latest analysis is a good reminder of how pensions act as the third rail of district and state school finance—even if the average educator, parent, and principal doesn’t know a ton about their complexities.
Retirements don’t directly have much to do with the instructional quality students receive, but indirectly, they have a lot of impact. Cash going into these systems generally means it’s not going toward building improvements, teacher pay, learning materials, or programs.
Author(s): Stephen Sawchuk
Publication Date: 12 Sept 2022
Publication Site: Education Week
Excerpt:
The city of Jacksonville is about to enjoy the benefits of a credit rating boost. Moody’s Investors Service moved the Florida city’s credit rating to Aa2 from Aa3, citing pension reform among the main reasons for the upgrade. The credit rating increase will allow the state to borrow funds at a lower interest rate and invest in more infrastructure and public services.
Five years ago, the Jacksonville City Council approved a pension reform package while enacting innovative changes, reducing debt by more than $585 million and adding over $155 million to pension reserves. A key element of the pension reform that led to reduced debt was closing the city’s three pension plans to new public employees in 2017. Since that change was put in place, over $715 million has been used to grow Jacksonville’s economy and invest in public services for its population. In addition, credit rating agencies, such as Moody’s, assign “grades” to governments’ ability and willingness to service their bond obligations, taking into consideration the jurisdiction’s economic situation and fiscal management. Since the pension reform reduced budgetary pressure, it improved the chances of the city getting a credit upgrade.
Author(s): Jen Sidorova
Publication Date: 1 Jun 2022
Publication Site: Reason
Excerpt:
Citing a “material improvement in state finances,” Moody’s Investor Services recently raised the state’s bond rating by one notch — up to Baa2 from Baa3.
Ordinary mortals won’t know what that means. But Illinois has climbed the ladder from being one notch above junk bond status to two notches.
It’s the first time Illinois’ bond rating has been raised in 20 years. The improvement comes after a steady spiral downward.
Author(s): Editorial Board
Publication Date: 4 July 2021
Publication Site: The News-Gazette
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The ratings firm Moody’s Investors Service this week upgraded Illinois’ credit rating one notch to Baa2, a level two notches above junk. It’s a major turnaround given that just one year ago Illinois faced the prospect of becoming the first state to ever be rated junk. In mid-2020, shutdowns ravaged the state’s tax base, Sen. Don Harmon asked for a $42 billion bailout from Congress and the state projected billions in multi-year budget shortfalls.
What changed so dramatically in such a short period of time? Ignore the claims by Illinois lawmakers of their heroic acts of “balanced budgets,” “fiscal discipline” and the like. Even if those claims were true – and they are not – they couldn’t by themselves create such a swing in Illinois’ short-term fortunes.
Credit, instead, the massive $138 billion in federal funds from the multiple COVID relief and stimulus packages – as compiled by the Committee for Responsible Federal Budget – that are now flooding Illinois’ public and private sectors. Those billions have significantly reduced the probability of a bond default – which is ultimately what Moody’s really cares about.
Author(s): Ted Dabrowski, John Klingner
Publication Date: 1 July 2021
Publication Site: Chicago Tribune
Link: https://capitolnewsillinois.com/NEWS/moodys-upgrades-illinois-credit-rating#new_tab
Excerpt:
Illinois received its first credit rating upgrade in 23 years on Tuesday when Moody’s Investors Services raised the state’s rating one notch, citing “material improvement in the state’s finances.”
Although the upgrade still leaves Illinois bonds rated just two notches above so-called “junk” status, Gov. JB Pritzker said it marked a turning point for the state, and he credited the General Assembly and members of his own administration for bringing greater fiscal discipline to the state’s budget.
Author(s): PETER HANCOCK
Publication Date: 29 June 2021
Publication Site: Capitol News Illinois
Link: https://capitolfax.com/2021/04/12/moodys-new-chicago-firefighter-pension-law-is-credit-negative/
Excerpt:
House Bill 2451 eliminates a formula based on birth date that provided lower pension COLAs to certain retired firefighters. As a result of the new law, all retirees that are considered “Tier 1” members of the FABF will now receive a 3% COLA annually on their pension, with no cumulative cap. Before House Bill 2451, retired firefighters in Tier 1 would have received a 1.5% COLA, subject to a 30% cumulative cap, if born on or after January 1, 1966. Members of the FABF receive Tier 1 benefits if hired before January 1, 2011, while those hired on or after January 1, 2011 receive less generous Tier 2 pension benefits.
One potentially advantageous effect of House Bill 2451 is that it forces immediate recognition of 3% COLAs for Tier 1 members. The state law governing Chicago firefighter pension COLAs has been amended on several occasions in the past to alter the birth date that would determine eligibility of a Tier 1 retiree for a 3% COLA versus a 1.5% COLA. The most recent such change occurred in 2016, when the law was updated to provide a 3% COLA to all Tier 1 firefighters born before January 1, 1966, compared to January 1, 1955, before the change. That change, in addition to several other provisions, triggered a roughly $227 million (4.5%) increase to the actuarial accrued liability reported by the FABF as of the December 2016 actuarial snapshot.
Author(s): Rich Miller
Publication Date: 12 April 2021
Publication Site: Capitol Fax
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Anybody who’s been following Chicago knows the last thing the city needs is more debt. Chicagoans are being swamped by pension debts, already the biggest per-capita burden of any major city in the country. By signing the new legislation into law, Pritzker has shoved more debt onto ordinary Chicagoans.
Not surprisingly, Moody’s has called the action “credit negative…because it will cause the city’s reported unfunded pension liabilities, and thus its annual contribution requirements, to rise.”
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Two important facts to note about the city’s pension shortfalls. First, Chicago officially says its four city-run pension funds – police, fire, municipal and laborers – are short by some $31 billion. But Moody’s puts the number at nearly $47 billion using more realistic, market-based assumptions.
Second, those debt numbers don’t include the Chicago Public Schools. When you add its $23 billion (Moody’s, 2018) pension shortfall, the total burden on Chicagoans for Chicago-only debts jumps to $70 billion. Divvy that between Chicago’s 1.04 million households and you’re talking about $67,000 in debt each. And that number far underestimates the real household burden considering nearly 20 percent of the city’s population don’t have the means to contribute a dime to that pension shortfall.
Publication Date: 10 April 2021
Publication Site: Wirepoints
Excerpt:
The recently signed American Rescue Plan designated about $7.5 billion of new money directly for the state’s government. Tens of billions of more federal dollars indirectly help the Illinois budget by assisting higher education, K-12 schools and municipalities. Direct aid to people and businesses also kept tax revenue flowing at far higher rates than initially projected.
In fact, federal money from the American Rescue Plan alone dwarfs the revenue lost to the state because of COVID and the lockdowns by a stunning 1665%, according to a Tax Foundation estimate.
It should be noted, however, that federal cash has been showered on the entire nation, where it needs it and not. The State of Wisconsin, for example, is getting $3.2 billion in direct money from the American Rescue Plan even though the state has a budget surplus. We are still waiting for a comprehensive analysis of all recent federal aid to determine whether Illinois got more than its fair share. Surprisingly, nobody seems to have offered one yet that includes all units of government and private sector assistance.
Author(s): Mark Glennon
Publication Date: 17 March 2021
Publication Site: Wirepoints
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The state assumes the pension funds will continue to earn an average of nearly 7 percent a year, while Moody’s lowered its assumptions for 2020 to just 2.7 percent: “the FTSE Pension Liability Index, a high-grade corporate bond index Moody’s uses to value state and local government pension liabilities, fell to 2.70% as of June 30, 2020, from 3.51% the prior year.”
Moody’s also reported that the asset-to-payout ratio for the state’s funds are now equal to about seven years’ worth of payouts.
That’s down compared to Wirepoints’ report on asset-to-payout ratios we released last year in this report: COVID-19 pushes nation’s weakest public pension plans closer to the brink: A 50-state survey.
Author(s): Ted Dabrowski and John Klingner
Publication Date: 4 March 2021
Publication Site: Wirepoints
Link: https://www.illinoispolicy.org/hidden-pension-tax-costs-each-illinoisan-more-than-1400-per-year/
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Despite the record increase in pension expenditures in the past several decades, Illinois’ pension system remains the nation’s worst by multiple measures. According to Moody’s Investors Service, Illinois’ pension debt was equal to 500% of the state’s revenues in fiscal year 2018 and almost 30% of the entire state economy, both the highest rates in the nation. At the same time, Illinois’ credit rating has been in precipitous decline and now sits at the lowest credit rating in the nation.
As pension debt continues to increase, so do required pension contributions. Pension contributions now consume 26.5% of the state’s general funds budget, up from less than 4% during the years 1990 through 1997.
Author(s): Orphe Divounguy, Bryce Hill
Publication Date: 2 March 2021
Publication Site: Illinois Policy Institute
Excerpt:
State and local government pension systems are increasingly dependent on investment returns, and at risk of increasingly volatile results, as funding levels remain depressed and systems increasingly start to pay out more than they take in, according to a new report from Moody’s.
The credit-ratings agency anticipates higher volatility and lower returns across asset classes in 2021 compared to 2020, even as many pension sponsors have spent the past few years lowering their assumed returns from previous loftier targets that they rarely hit.
“With persistently low interest rates for high-grade fixed-income securities, public pension systems continue to rely on highly volatile equities and alternatives to meet return targets, posing a material credit risk for some governments,” the Moody’s analysts wrote.
Author(s): Andrea Riquier
Publication Date: 25 February 2021
Publication Site: MarketWatch