Municipal bonds that states and local governments use to pay for some of their public pension obligations rarely improve the issuer’s credit quality, Moody’s Investors Service said on Tuesday.
“If bond proceeds substitute for annual contributions to pension plans or are used to pay pensioners, we consider it a deficit borrowing and would view the financing as credit negative,” Marcia Van Wagner, the senior Moody’s analyst who wrote the report, said in a statement.
Municipal bonds that states and local governments use to pay for some of their public pension obligations rarely improve the issuer’s credit quality, Moody’s Investors Service said on Tuesday.
“If bond proceeds substitute for annual contributions to pension plans or are used to pay pensioners, we consider it a deficit borrowing and would view the financing as credit negative,” Marcia Van Wagner, the senior Moody’s analyst who wrote the report, said in a statement.
Cities and counties in the United States seem to have gotten this message, even though many face big unfunded pension liabilities. Despite some large state pension obligation bond deals in 2012, issuance has declined from 2011.