Moody’s calls pension settlement failure ‘credit negative’ for R.I.
MOODY'S INVESTORS SERVICE said the failure of a proposed settlement of Rhode Island's pension lawsuit is a "credit negative" for the state. R.I. General Treasurer Gina M. Raimondo is one of the primary defendants in the case, along with Gov. Lincoln D. Chafee. The lawsuit is scheduled to go to trial Sept. 15.
Calling the development a “credit negative” for both state and local governments, Moody’s said this “latest twist in the legal fall-out” stemming from the Rhode Island Retirement Security Act to contain retiree pension costs prolongs uncertainty over the “bellwether” pension reforms and risks an estimated $400 million in annual pension savings.
Moody’s analysts Marcia Van Wagner and Vito Galluccio wrote that the “range in projected annual state costs between the most favorable legal outcomes to the most unfavorable poses a considerable risk” to the state’s fiscal stability.
According to actuarial estimates by the Employee Retirement System of Rhode Island, the state’s projected fiscal 2016 required pension contributions would be $280 million if the current reforms are upheld in court, a savings of about 45 percent. Conversely, a complete reversal of the 2011 pension overhaul would result in state annual required contributions of $500 million for the fiscal year ending June 30, 2016, or about 14 percent of the $3.55 billion in state revenue projected for that year, Moody’s said.
In addition, municipal governments would lose $178 million in savings to pension contributions if the reforms were overturned, Moody’s said, placing increased financial pressure on cities like Woonsocket and Providence “that already are financially stressed” by high pension costs.
“Rhode Island is challenged by narrow liquidity and sluggish economic growth, and faces increasing competition from Massachusetts for critical gaming revenues,” Moody’s said. “An unfavorable court decision will result in extremely difficult budgetary choices and considerable credit pressure.”
Faye Zuckerman and Joy Fox, spokeswomen for Gov. Lincoln D. Chafee and R.I. General Treasurer Gina M. Raimondo, issued the following statement in response: “While we acknowledge Moody’s concern, Governor Chafee and General Treasurer Raimondo remain confident that the state has a strong case [in the pension litigation].”
On Monday, Bloomberg News reported that Rhode Island is selling $79.5 million in bonds this week, following the pension settlement failure.
Rhode Island is selling the general-obligation munis to retire older bonds and save $3.3 million, according to Standard & Poor’s. The ratings company ranks the securities AA, its third-highest level of investment grade.