Oregon Court’s Pension Decision Will Have Ripple Effect on State Finances, Says Moody’s

The Oregon Supreme Court last week overturned a series of pension cuts enacted in 2013, paving the way for public employees and retirees to see their COLAs restored.

Moody’s weighed in on the fiscal impact of the ruling in a report on Tuesday, saying the ruling was a “credit negative” for the state.

Moody’s explanation, from Business Insurance:

A recent decision by the Oregon Supreme Court overturning cuts to public pensions is a “credit negative” that will hurt the budgets of both the state and its cities, Moody’s Investors Service Inc. said in a report Tuesday.

Moody’s said the ruling wiped out roughly $5 billion in pension savings and eliminated ongoing savings already incorporated into state and local budgets, including $131 million, or about 1%, of Oregon’s current state budget.

The ruling will also increase pension contribution rates, Moody’s said. The state will have to raise employer contributions to 17.1% of payroll from roughly 10.6%, starting in 2017, while local governments’ contribution will rise to an average of 16% from 11%.

“Many of Oregon’s local governments have outsized pension burdens,” Moody’s said.

The ratings agency said its “credit negative” declaration does not connote a rating or outlook change, but rather indicates a distinct event among many credit factors affecting the debt issuer.

Other reports have indicated current state lawmakers have little appetite for further pension changes.

Photo by Joe Gratz via Flickr CC License