Municipalities, states ring up $3 trillion in unfunded pensions

Today's challenging statistic: According to Moody's Investors Service, state and municipal governments across the nation have racked up a staggering $2 trillion in unfunded pension costs.

The issue, according to Moody's (and as reported by Reuters), is the rather severe extent to which local governments are downplaying the issue and understating their pension liabilities.

According to Moody's estimates, the total liabilities for the 2010 fiscal year were actually three times the amount reported by those government entities. And those investors who actively participate in the $3.7 trillion municipal bond market wonder if state and local governments can continue to provide pension benefits at all - especially in light of recent votes in California and the bankruptcy of the city of Stockton.

The company is also poised to enact some major changes in the way it treats pension liabilities in its ratings, and many cities and counties will likely see downgrades as a result. Liabilites would also jump as Moody's revises the rates used to calcuate public pension funds.

Moody's is taking public comment through the end of August on some of the changes, which include major cuts to discount rates.  


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