Tea Party activist locates fleeing Wisconsin congressmen in Illinois. (DUDE YOU'RE SUPPOSED TO CALL THE POLICE! )
By Nicole Bullock in New York
Published: February 17 2011 05:01 | Last updated: February 17 2011 05:01
Cash-strapped US states and cities face the prospect of downgrades after Fitch Ratings changed the way it analyses their burgeoning pension bills.
In a report published on Thursday, Fitch warns the new approach could lead to “limited negative rating action”, particularly for local governments with big wage bills. The changes to the way it assesses pension liabilities come amid growing concern over the scale of municipal debt problems and the effect on state and city finances of generous, unfunded public sector pension schemes that will run for many years. Sharp falls in equities and other risky assets during the financial crisis reduced the funding levels of nearly all these pension plans, increasing the pressure on states and local governments when they have even less cash because of dwindling tax revenues to make up the shortfall. Revenues have tumbled while spending has been rising.
“The key questions are whether states and local governments are funding their pensions, how much it is taking up of their general fund and concern about the crowding out of spending for other needs,” said Laura Porter at Fitch.
The rating agency, which used data from 2009, said there was cause for near-term concern about “a number of” pension plans and pointed to the “considerable pressure that these obligations will place on many government budgets”. The greatest risk would come at the local level since labour-related costs were a higher percentage of local government budgets, Fitch said.
In Miami, Florida, a quarter of the city’s operating budget pays for pensions. Among states, Illinois stands out for setting aside 12 per cent of its budget for its chronically underfunded pension.
