Colorado’s credit rating could tumble
A downgrading is possible without meaningful financial reforms.
A major credit rating agency on Thursday warned that the Colorado pension fund’s deteriorating finances have put the state’s creditworthiness at risk, and announced that it had changed the state’s rating outlook to negative.
If the state’s pension fund doesn’t adopt meaningful financial reforms with the next year or two, S& P Global Ratings’ analysts said, the state’s strong AA credit rating could be downgraded.
“The negative outlook on all ratings reflects the state’s long trend of annually contributing less than ( actuaries say are needed) to its retirement systems, aswell as decreasing pension funded ratios that have fallen well below those of similarly rated states,” S& P credit analyst Oladunni Ososami said in the report.
The advisory from Standard& Poorswon’t immediately increase the state’s borrowing costs, but if a formal downgrade occurred, it could cost the state down the road.
The state legislature this year approved nearly $ 2 billion in mortgagelike certificates of participation on state- owned buildings to pay for transportation projects, whose long- term interest costs will depend greatly on how rating agencies view Colorado’s financial stability.
The prospect of a downgrade— which S& P’s analysts said had a 1- in- 3 chance of occurring — could ramp up pressure on state lawmakers to fix the pension’s $ 32 billion unfunded liability sooner than later.
In a statement, state Treasurer Walker Stapleton — who has warned of the possibility of a credit downgrade — said “we must put politics aside” to find a solution.
“For a number of years now, I’ve been speaking about the dangerous potential of a negative outlook and eventual downgrade of Colorado’s credit as a result of our growing pension liability, and now we’re staring that reality in the face,” said Stapleton, a Republican.
“This negative outlook is the first step toward a downgrade of the state’s credit rating, which has the potential to raise the cost of borrowing across all state agencies.
“That would make it harder to pay for things our state needs, like new roads and schools.”
The Colorado Public Employees’ Retirement Association manages the retirement benefits of more than 566,000 current and former public employees. But its financial health has been deteriorating for years. Lackluster stock market returns, insufficient contributions and longer employee lifespans have combined to push the pension to 58.1 percent funded, under PERA’s projections.
Under a more conservative accounting method sometimes prescribed by the Governmental Accounting Standards Board, Colorado’s pension fund would owe $ 50.8 billion in unfunded benefits to current and future retirees, leaving it only 46 percent funded.
The PERA board and Gov. John Hickenlooper have offered competing plans to shore up its funding, but it remains unclear what — if anything — will pass political muster at a divided statehouse next year.