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Moody's - Pension liabilities will remain the largest liability for many US local governments

·24 min read

<!DOCTYPE html> <html lang="" xml:lang=""> <head> <title>/nwsys/www/images/PBM_1257734</title> <meta http-equiv="Content-Type" content="text/html; charset=UTF-8"/> <meta name="generator" content="pdftohtml 0.36"/> <meta name="date" content="2020-12-17T16:35:23+00:00"/> <style type="text/css"> <!-- .xflip { -moz-transform: scaleX(-1); -webkit-transform: scaleX(-1); -o-transform: scaleX(-1); transform: scaleX(-1); filter: fliph; } .yflip { -moz-transform: scaleY(-1); -webkit-transform: scaleY(-1); -o-transform: scaleY(-1); transform: scaleY(-1); filter: flipv; } .xyflip { -moz-transform: scaleX(-1) scaleY(-1); -webkit-transform: scaleX(-1) scaleY(-1); -o-transform: scaleX(-1) scaleY(-1); transform: scaleX(-1) scaleY(-1); filter: fliph + flipv; } --> </style> </head> <body bgcolor="#A0A0A0" vlink="blue" link="blue"> <!-- Page 1 --> <style type="text/css"> <!-- p {margin: 0; padding: 0;} .ft00{font-size:18px;font-family:Times;color:#000000;} .ft01{font-size:18px;font-family:Times;color:#1257c7;} .ft02{font-size:13px;font-family:Times;color:#0d0c0c;} .ft03{font-size:13px;font-family:Times;color:#000000;} .ft04{font-size:13px;font-family:Times;color:#1b62b7;} .ft05{font-size:13px;line-height:30px;font-family:Times;color:#0d0c0c;} --> </style> <div id="page1-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PBM_1257734001.png" alt="background image"/> <p style="position:absolute;top:155px;left:108px;white-space:nowrap" class="ft00"><b>Research Announcement:&#160;</b></p> <p style="position:absolute;top:155px;left:364px;white-space:nowrap" class="ft01"><b>Moody's - Pension liabilities will remain the</b></p> <p style="position:absolute;top:180px;left:108px;white-space:nowrap" class="ft01"><b>largest liability for many US local governments</b></p> <p style="position:absolute;top:244px;left:108px;white-space:nowrap" class="ft02">New York, December 17, 2020 --</p> <p style="position:absolute;top:274px;left:108px;white-space:nowrap" class="ft03">»&#160;Low interest rates and below-target investment returns will cause adjusted net pension liabilities</p> <p style="position:absolute;top:294px;left:127px;white-space:nowrap" class="ft03">to rise significantly in fiscal 2020 and 2021</p> <p style="position:absolute;top:324px;left:108px;white-space:nowrap" class="ft03">»&#160;A majority of the 50 largest local governments’ pension contributions fell short of ”treading water”</p> <p style="position:absolute;top:344px;left:127px;white-space:nowrap" class="ft03">in fiscal 2019</p> <p style="position:absolute;top:379px;left:108px;white-space:nowrap" class="ft02">Adjusted net pension liabilities (ANPLs) decreased for 27 of the 50 largest US local governments,</p> <p style="position:absolute;top:399px;left:108px;white-space:nowrap" class="ft02">ranked by debt outstanding, in fiscal year 2019, Moody’s Investors Service says in research</p> <p style="position:absolute;top:418px;left:108px;white-space:nowrap" class="ft02">published today. Nonetheless, persistently low interest rates and below-target investment returns will</p> <p style="position:absolute;top:438px;left:108px;white-space:nowrap" class="ft02">cause ANPLs to rise significantly in fiscal 2020 and 2021. The credit quality of local governments</p> <p style="position:absolute;top:457px;left:108px;white-space:nowrap" class="ft05">has never been more tied to pension contribution levels.<br/>“Despite recent declines, unfunded pensions remain the largest balance sheet liability for many local</p> <p style="position:absolute;top:507px;left:108px;white-space:nowrap" class="ft02">governments,” said Thomas Aaron, a Moody’s VP-Senior Credit Officer. “For many, falling interest</p> <p style="position:absolute;top:527px;left:108px;white-space:nowrap" class="ft05">rates will cause ANPLs to grow by double-digit percentages in both fiscal 2020 and fiscal 2021.”<br/>The fiscal 2019 decline in ANPLs for 27 of the 50 largest local governments in many cases reflected</p> <p style="position:absolute;top:576px;left:108px;white-space:nowrap" class="ft02">calendar year 2018 pension measurements due to reporting lags, Aaron says. But the 50 largest</p> <p style="position:absolute;top:596px;left:108px;white-space:nowrap" class="ft02">governments still had in aggregate $478 billion in ANPLs, compared with $235 billion in debt and</p> <p style="position:absolute;top:615px;left:108px;white-space:nowrap" class="ft02">$185 billion in adjusted net retiree healthcare (OPEB) liabilities. Pensions remained the most</p> <p style="position:absolute;top:635px;left:108px;white-space:nowrap" class="ft05">significant liability for 31 of the 50.<br/>Discount rates have fallen significantly in the past two years and, along with below-target investment</p> <p style="position:absolute;top:685px;left:108px;white-space:nowrap" class="ft02">returns, will push ANPLs up again. Moody’s uses the FTSE Pension Liability Index as a discount rate</p> <p style="position:absolute;top:704px;left:108px;white-space:nowrap" class="ft02">to value pension and OPEB liabilities. The index, which reflects prevailing market interest rates for</p> <p style="position:absolute;top:724px;left:108px;white-space:nowrap" class="ft02">high-quality fixed-income securities, stood at 2.70% at the end of June 2020, down from 3.51% a</p> <p style="position:absolute;top:743px;left:108px;white-space:nowrap" class="ft05">year earlier.<br/>Meanwhile, despite the use of discount rates ranging from 6.4% to 8.1%, a majority of the 50 largest</p> <p style="position:absolute;top:793px;left:108px;white-space:nowrap" class="ft02">local governments’ pension contributions did not “tread water” in fiscal 2019. Among pension</p> <p style="position:absolute;top:813px;left:108px;white-space:nowrap" class="ft02">systems whose total adjusted liabilities were at least 100% of a government's revenue, non-</p> <p style="position:absolute;top:832px;left:108px;white-space:nowrap" class="ft02">investment cash flow (NICF), which reflects incoming contributions, minus outgoing benefits of a</p> <p style="position:absolute;top:852px;left:108px;white-space:nowrap" class="ft05">pension system, averaged about -3% of assets.<br/>Among large local governments, fiscal 2019 long-term liabilities were highest for Chicago, at 829%</p> <p style="position:absolute;top:901px;left:108px;white-space:nowrap" class="ft02">of revenues, followed by Houston, at 642% and Honolulu, at 612%, Moody’s says. Conversely, they</p> <p style="position:absolute;top:921px;left:108px;white-space:nowrap" class="ft05">were lowest for King County, WA, at 157% and the District of Columbia, at 191%.<br/>Subscribers can access this report, “Local Government – US: Pensions still driving liability</p> <p style="position:absolute;top:971px;left:108px;white-space:nowrap" class="ft02">growth of 50 largest governments as interest rates fall,” at:&#160;</p> <p style="position:absolute;top:971px;left:518px;white-space:nowrap" class="ft04">http://www.moodys.com/</p> <p style="position:absolute;top:990px;left:108px;white-space:nowrap" class="ft04">researchdocumentcontentpage.aspx?docid=PBM_1255748.</p> <p style="position:absolute;top:1020px;left:108px;white-space:nowrap" class="ft02">NOTE TO JOURNALISTS ONLY: For more information, please call one of our global</p> <p style="position:absolute;top:1040px;left:108px;white-space:nowrap" class="ft02">press information hotlines: New York <PhoneNo>+1-212-553-0376</PhoneNo>, London <PhoneNo>+44-20-7772-5456</PhoneNo>, Tokyo</p> </div> <!-- Page 2 --> <style type="text/css"> <!-- p {margin: 0; padding: 0;} .ft06{font-size:13px;line-height:23px;font-family:Times;color:#0d0c0c;} --> </style> <div id="page2-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PBM_1257734002.png" alt="background image"/> <p style="position:absolute;top:114px;left:108px;white-space:nowrap" class="ft02"><PhoneNo>+813-5408-4110</PhoneNo>, Hong Kong <PhoneNo>+852-3758-1350</PhoneNo>, Sydney <PhoneNo>+61-2-9270-8141</PhoneNo>, Mexico City</p> <p style="position:absolute;top:133px;left:108px;white-space:nowrap" class="ft02"><PhoneNo>001-888-779-5833</PhoneNo>, São Paulo <PhoneNo>0800-891-2518</PhoneNo>, or Buenos Aires <PhoneNo>0800-666-3506</PhoneNo>. You can also email</p> <p style="position:absolute;top:153px;left:108px;white-space:nowrap" class="ft05">us at mediarelations@moodys.com or visit our web site at www.moodys.com.<br/>This publication does not announce a credit rating action. For any credit ratings referenced in this</p> <p style="position:absolute;top:202px;left:108px;white-space:nowrap" class="ft02">publication, please see the ratings tab on the issuer/entity page on&#160;</p> <p style="position:absolute;top:202px;left:574px;white-space:nowrap" class="ft04">www.moodys.com</p> <p style="position:absolute;top:202px;left:701px;white-space:nowrap" class="ft02">&#160;for the most</p> <p style="position:absolute;top:222px;left:108px;white-space:nowrap" class="ft05">updated credit rating action information and rating history.<br/>Thomas Aaron</p> <p style="position:absolute;top:272px;left:108px;white-space:nowrap" class="ft02">VP-Sr Credit Officer</p> <p style="position:absolute;top:291px;left:108px;white-space:nowrap" class="ft02">US Public Finance</p> <p style="position:absolute;top:311px;left:108px;white-space:nowrap" class="ft02">Moody's Investors Service, Inc.</p> <p style="position:absolute;top:330px;left:108px;white-space:nowrap" class="ft02">JOURNALISTS: 1 <PhoneNo>212 553 0376</PhoneNo></p> <p style="position:absolute;top:350px;left:108px;white-space:nowrap" class="ft05">Client Service: 1 <PhoneNo>212 553 1653</PhoneNo><br/>Timothy Blake, CFA</p> <p style="position:absolute;top:399px;left:108px;white-space:nowrap" class="ft02">MD-Public Finance</p> <p style="position:absolute;top:419px;left:108px;white-space:nowrap" class="ft02">US Public Finance</p> <p style="position:absolute;top:438px;left:108px;white-space:nowrap" class="ft02">Moody's Investors Service, Inc.</p> <p style="position:absolute;top:458px;left:108px;white-space:nowrap" class="ft02">JOURNALISTS: 1 <PhoneNo>212 553 0376</PhoneNo></p> <p style="position:absolute;top:477px;left:108px;white-space:nowrap" class="ft05">Client Service: 1 <PhoneNo>212 553 1653</PhoneNo><br/>Releasing Office:</p> <p style="position:absolute;top:527px;left:108px;white-space:nowrap" class="ft02">Moody's Investors Service, Inc.</p> <p style="position:absolute;top:547px;left:108px;white-space:nowrap" class="ft02">250 Greenwich Street</p> <p style="position:absolute;top:566px;left:108px;white-space:nowrap" class="ft02">New York, NY 10007</p> <p style="position:absolute;top:586px;left:108px;white-space:nowrap" class="ft02">U.S.A.</p> <p style="position:absolute;top:605px;left:108px;white-space:nowrap" class="ft02">JOURNALISTS: 1 <PhoneNo>212 553 0376</PhoneNo></p> <p style="position:absolute;top:625px;left:108px;white-space:nowrap" class="ft02">Client Service: 1 <PhoneNo>212 553 1653</PhoneNo></p> <p style="position:absolute;top:714px;left:108px;white-space:nowrap" class="ft02">© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their</p> <p style="position:absolute;top:734px;left:108px;white-space:nowrap" class="ft06">licensors and affiliates (collectively, “MOODY’S”). 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However, MOODY’S is not an auditor and cannot</p> <p style="position:absolute;top:768px;left:108px;white-space:nowrap" class="ft02">in every instance independently verify or validate information received in the rating process or in</p> <p style="position:absolute;top:787px;left:108px;white-space:nowrap" class="ft06">preparing its Publications.<br/>To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,</p> <p style="position:absolute;top:830px;left:108px;white-space:nowrap" class="ft02">representatives, licensors and suppliers disclaim liability to any person or entity for any indirect,</p> <p style="position:absolute;top:849px;left:108px;white-space:nowrap" class="ft02">special, consequential, or incidental losses or damages whatsoever arising from or in connection</p> <p style="position:absolute;top:869px;left:108px;white-space:nowrap" class="ft02">with the information contained herein or the use of or inability to use any such information, even if</p> <p style="position:absolute;top:888px;left:108px;white-space:nowrap" class="ft02">MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers</p> <p style="position:absolute;top:908px;left:108px;white-space:nowrap" class="ft02">is advised in advance of the possibility of such losses or damages, including but not limited to:</p> <p style="position:absolute;top:927px;left:108px;white-space:nowrap" class="ft02">(a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant</p> <p style="position:absolute;top:947px;left:108px;white-space:nowrap" class="ft06">financial instrument is not the subject of a particular credit rating assigned by MOODY’S.<br/>To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,</p> <p style="position:absolute;top:989px;left:108px;white-space:nowrap" class="ft02">representatives, licensors and suppliers disclaim liability for any direct or compensatory losses</p> <p style="position:absolute;top:1009px;left:108px;white-space:nowrap" class="ft02">or damages caused to any person or entity, including but not limited to by any negligence (but</p> <p style="position:absolute;top:1028px;left:108px;white-space:nowrap" class="ft02">excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt,</p> <p style="position:absolute;top:1048px;left:108px;white-space:nowrap" class="ft02">by law cannot be excluded) on the part of, or any contingency within or beyond the control of,</p> </div> <!-- Page 4 --> <style type="text/css"> <!-- p {margin: 0; padding: 0;}--> </style> <div id="page4-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PBM_1257734004.png" alt="background image"/> <p style="position:absolute;top:114px;left:108px;white-space:nowrap" class="ft02">MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers,</p> <p style="position:absolute;top:133px;left:108px;white-space:nowrap" class="ft02">arising from or in connection with the information contained herein or the use of or inability to use</p> <p style="position:absolute;top:153px;left:108px;white-space:nowrap" class="ft06">any such information.<br/>NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,</p> <p style="position:absolute;top:195px;left:108px;white-space:nowrap" class="ft02">COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF</p> <p style="position:absolute;top:215px;left:108px;white-space:nowrap" class="ft02">ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE</p> <p style="position:absolute;top:234px;left:108px;white-space:nowrap" class="ft06">BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.<br/>Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s</p> <p style="position:absolute;top:277px;left:108px;white-space:nowrap" class="ft02">Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and</p> <p style="position:absolute;top:296px;left:108px;white-space:nowrap" class="ft02">municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s</p> <p style="position:absolute;top:316px;left:108px;white-space:nowrap" class="ft02">Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s</p> <p style="position:absolute;top:335px;left:108px;white-space:nowrap" class="ft02">Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from</p> <p style="position:absolute;top:355px;left:108px;white-space:nowrap" class="ft02">$1,000 to approximately $2,700,000. MCO and Moody’s Investors Service also maintain policies</p> <p style="position:absolute;top:374px;left:108px;white-space:nowrap" class="ft02">and procedures to address the independence of Moody’s Investors Service credit ratings and credit</p> <p style="position:absolute;top:394px;left:108px;white-space:nowrap" class="ft02">rating processes. Information regarding certain affiliations that may exist between directors of MCO</p> <p style="position:absolute;top:413px;left:108px;white-space:nowrap" class="ft02">and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and</p> <p style="position:absolute;top:433px;left:108px;white-space:nowrap" class="ft02">have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted</p> <p style="position:absolute;top:452px;left:108px;white-space:nowrap" class="ft02">annually at&#160;</p> <p style="position:absolute;top:452px;left:188px;white-space:nowrap" class="ft04">www.moodys.com</p> <p style="position:absolute;top:452px;left:315px;white-space:nowrap" class="ft02">&#160;under the heading “Investor Relations — Corporate Governance —</p> <p style="position:absolute;top:472px;left:108px;white-space:nowrap" class="ft06">Director and Shareholder Affiliation Policy.”<br/>Additional terms for Australia only: Any publication into Australia of this document is pursuant to the</p> <p style="position:absolute;top:514px;left:108px;white-space:nowrap" class="ft02">Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited</p> <p style="position:absolute;top:534px;left:108px;white-space:nowrap" class="ft02">ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136</p> <p style="position:absolute;top:553px;left:108px;white-space:nowrap" class="ft02">972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale</p> <p style="position:absolute;top:573px;left:108px;white-space:nowrap" class="ft02">clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access</p> <p style="position:absolute;top:592px;left:108px;white-space:nowrap" class="ft02">this document from within Australia, you represent to MOODY’S that you are, or are accessing</p> <p style="position:absolute;top:612px;left:108px;white-space:nowrap" class="ft02">the document as a representative of, a “wholesale client” and that neither you nor the entity you</p> <p style="position:absolute;top:631px;left:108px;white-space:nowrap" class="ft02">represent will directly or indirectly disseminate this document or its contents to “retail clients” within</p> <p style="position:absolute;top:651px;left:108px;white-space:nowrap" class="ft02">the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as</p> <p style="position:absolute;top:670px;left:108px;white-space:nowrap" class="ft02">to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or</p> <p style="position:absolute;top:690px;left:108px;white-space:nowrap" class="ft06">any form of security that is available to retail investors.<br/>Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency</p> <p style="position:absolute;top:732px;left:108px;white-space:nowrap" class="ft02">subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc.,</p> <p style="position:absolute;top:752px;left:108px;white-space:nowrap" class="ft02">a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating</p> <p style="position:absolute;top:771px;left:108px;white-space:nowrap" class="ft02">agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization</p> <p style="position:absolute;top:791px;left:108px;white-space:nowrap" class="ft02">(“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-</p> <p style="position:absolute;top:810px;left:108px;white-space:nowrap" class="ft02">NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated</p> <p style="position:absolute;top:830px;left:108px;white-space:nowrap" class="ft02">obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit</p> <p style="position:absolute;top:849px;left:108px;white-space:nowrap" class="ft02">rating agencies registered with the Japan Financial Services Agency and their registration numbers</p> <p style="position:absolute;top:869px;left:108px;white-space:nowrap" class="ft06">are FSA Commissioner (Ratings) No. 2 and 3 respectively.<br/>MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including</p> <p style="position:absolute;top:911px;left:108px;white-space:nowrap" class="ft02">corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated</p> <p style="position:absolute;top:931px;left:108px;white-space:nowrap" class="ft02">by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to</p> <p style="position:absolute;top:950px;left:108px;white-space:nowrap" class="ft02">MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging</p> <p style="position:absolute;top:970px;left:108px;white-space:nowrap" class="ft06">from JPY125,000 to approximately JPY250,000,000.<br/>MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory</p> <p style="position:absolute;top:1012px;left:108px;white-space:nowrap" class="ft02">requirements.</p> </div> </body> </html>