Bond-rating agency praises Montana pension-fix bills

2013-05-20T21:31:00Z 2013-05-21T00:22:55Z Bond-rating agency praises Montana pension-fix billsBy CHARLES S. JOHNSON Gazette State Bureau The Billings Gazette

HELENA -- A leading credit rating agency has described the two pension overhaul bills signed into law by Gov. Steve Bullock as “credit positive” for the state of Montana.

Moody’s Investors Service highlighted the Montana pension law changes in the latest edition of its U.S Public Finance Weekly Credit Outlook, published Thursday.

The article, headlined, “Montana Improves Pension Funding, Credit Positive for State and Local Governments,” was the lead story in the newsletter.

“Under our methodology for adjusting reported pension data, the credit positive changes will reduce Montana’s net pension liability by about $1.5 billion,” the article said. “The state’s share of that is approximately 46 percent or $697 million. As a percentage of fiscal 2012 revenues, the state’s (net pension liability) will be reduced to 69.7 percent from 83.4 percent.”

Moody’s declaration of “credit positive” or “credit negative” doesn’t connote a ratings change, company spokesman David Jackson.

“We are stating what the potential impact of these actions could be on an issuer’s credit rating,” he said.

Montana’s current bond rating with Moody’s is Aa1 stable, which is the company’s second highest rating, Jackson said. Moody’s last upgraded Montana’s rating in April 2010.

The higher a state’s bond rating, the lower the interest rate is charged for borrowing money.

Montana’s eight public pension funds had a combined potential shortfall of $4.4 billion as of mid-2012, the funds’ actuaries reported. The pension funds’ investments lost about one-fourth of their value during the 2008 national recession.

Bullock hailed the Moody’s article.

“I’m pleased, but not necessarily surprised that national organizations are looking favorably on our commitment to address our long-term liabilities and commitments,” he said. “Going into the session, when we introduced this proposal to shore up the retirement system, we knew it wouldn’t be that easy to pass.”

Bullock said the administration built “an incredible coalition” and asked “everyone to give a little bit more to make it happen.”

“I think Montana is the first state to fix its pension system without raising taxes or dismantling the system,” he said.

The governor said he looks forward to talking more to Moody’s and other bond-rating agencies about upgrading the state’s ratings.

Bullock called the Moody’s article one more reason for businesses to look at Montana. He also cited the state’s balanced budget, its top 10 business tax climate, its entrepreneurial climate and its reduced business equipment taxes and elimination of that tax on 11,000 businesses.

The recently adjourned Legislature passed two pension bills from the Bullock administration. They were House Bill 454, by Rep. Bill McChesney, D-Miles City, to address the Public Employees’ Retirement System, and HB377, by Rep. Tom Woods, D-Bozeman, to focus on the Teachers’ Retirement System.

Both bills provided for additional contribution rates to be paid by both employees and employers and pumped in additional infusions of money from the state general fund or natural resources revenues.

The PERS bill would reduce the annual cost of living raise, known as Guaranteed Annual Benefit Adjustment (GABA) to 1.5 percent from the former 3 percent for active and retired members.

“Based on the reform package, the state expects that the PERS liability will be completely paid down in just over 15 years,” Moody’s said. “By comparison, at the current contribution and benefit level, the liability was not on a fully amortizing path.”

As for TRS, the GABA benefits will be reduced for new members hired after July i.

“The state expects these measures will reduce TRS’ unfunded liability by $331 million and reduce the amortization period from an infinite horizon to within 22 years,” Moody’s said.

A group representing retired Montana public employees has voted to challenge the GABA reduction in court, but has not yet filed a lawsuit.

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