CPC Study Calculates Impact of New Credit Rating Criteria

CPC Study Calculates Impact of New Credit Rating Criteria


Sacramento, California, January 14, 2013

Contact:  press@calpolicycenter.org

The California Policy Center has just published a new study that examines the impact of the credit rating criteria being considered by Moody’s Investor Services for state and local governments. Moody’s has proposed discounting pension fund liabilities at a rate of 5.5% instead of the official 7.5% rate commonly used by pension fund actuaries. Moody’s has also proposed shortening the amount of time that most pension funds would allocate to “catch up” their asset balances to become 100% fully funded.

This study, authored by John Dickerson, a financial professional living in Mendocino County who is involved in public sector pension analysis and reform, calculated the impact of these changes on the required annual contributions to pension funds. Dickerson focused on analyzing the independent pension funds of six California counties, Alameda, Contra Costa, Marin, Mendocino, San Mateo, and Sonoma. The results were striking.

In order to satisfy Moody’s definition of prudent financial management, Dickerson calculated that each of them would have to more than double their annual pension fund contributions. The amount of money the six counties combined would have to contribute each year to their pension funds would climb to over $1.6 billion, an amount equivalent to 100% of the property tax revenues utilized by these counties.

“Although my focus is County Pension Funds I expect an evaluation of other government pension funds in California, including CalPERS and CalSTRS, would yield similar results,” said Dickerson. “Pension funds need to take a very hard look at whether or not assuming a 7.5% return on investment in the next decade is prudent, They also need to confront the unfairness and additional cost of pushing this generation’s unfunded pensions off to the next generation to pay. They face some very difficult adjustments.”

To read the entire study, go to “The Impact of Moody’s Proposed Changes in Analyzing Government Pension Data,” or download a printable version.

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The California Policy Center is a non-partisan public policy think tank that aspires to provide information that will elevate and enlighten the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at www.CaliforniaPolicyCenter.org.

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