This is a big deal because Moody�s is changing the way they view public employee union pension obligations. What Moody�s is saying is that they will no longer use CalPERS numbers (CalPERS outlier smoothing policies that hide the true cost of the massive debt they believe taxpayers are obligated to pay) to compute state & local governments debt load. The formula CalPERS uses hides the TRUE cost by spreading debt over 20 -30 years, thereby only recognizing a fraction of their TRUE unfunded liabilities.
The Government accounting Standards Board (GASBy) has spent the past five years trying to provide a fair framework that would accurately account for pension debt. They made great progress in what is known as an �Exposure Draft� (rough draft) that would have provided increase transparency for public pension funds and especially public pension like CalPERS who like to make their own rules. They did make significant progress in that we are less than two years from municipalities disclosing pension debt on their balance sheet, as opposed to footnotes. Unfortunately, when you have the political muscle of the unions, as well as the 230 billion dollars worth of muscle (lawyers & lobbyists & control of politicians) CalPERS was able to water down the recommendations of what is supposed to be an independent agency.
But, NOW, both Fitch and Moody�s are picking up where GASBy fell down. They are saying that the California Bond ratings will be impacted by California�s unfunded pension liabilities - at both the state and local level. The headlines are that pension debt under the new rating model, as opposed to the CalPERS model, will at least double.
If the rating agencies double our debt load then increased bond rates are sure to follow. If increased bond rates are sure to follow then the cost of projects like the High Speed Rail are sure to increase. Just one more reason to pay attention to unfunded pension obligations.
Moody�s Triples Pension Debt Estimates Web Link
