California pension reform delay a credit negative

By Alison Vekshin

March 21, 2014 at 07:11 AM

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(Bloomberg) — Postponement of a California ballot measure that could help contain the rising cost of public employee pensions is a "credit negative" for municipalities, Moody's Investors Service said.

Proponents, led by San Jose Mayor Chuck Reed, delayed the measure until 2016 to improve its chances of passage, even as costs are projected to rise for thousands of local governments that participate in the California Public Employees' Retirement System, Moody's said yesterday in a research note.

"Adoption of this pension reform measure would have amended the state's constitution and provided local governments with a significant measure of additional pension cost flexibility," Moody's said.

The measure would give local officials authority to reduce future pension benefits for municipal employees. Reed dropped efforts to put it on this year's ballot after the official summary by state Attorney General Kamala Harris said the plan would eliminate constitutional protections for vested pension and retiree health-care benefits.

Reed challenged Harris's interpretation as inaccurate. He lost a court ruling on the dispute.

Pension costs rose an average of 14 percent from fiscal 2011 to 2012 for Moody's-rated local governments in California and, without pension reform, the increase will continue, the service said.

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