Fitch Ratings has lowered the bonds rating outlook for Connecticut and New Orleans, citing burdensome pension obligations among its reasons.
The general obligation bonds of both governments were assigned a negative outlook from Fitch. The outlook had been stable. Connecticut received a double-A rating on $900 million in bonds. New Orleans' rating was A- on $462 million worth of bonds.
While Fitch noted that Connecticut had instituted policies to improve funding of future pension obligations, it had one of the most poorly funded pension systems in the nation. Fitch said future pension liabilities equal 23.6 percent of 2012 personal income in the state, which has the nation's highest per capita income. Other factors cited in the negative outlook were a state budget that relies on short-term measures to fund it and the slow pace of the economic recovery.
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A diverse economy and high wealth were cited as positives for the state.
In New Orleans, problematic city finances and inadequate pension funding, especially regarding the firefighters retirement system, were cited in Fitch's decision. The firefighters system is funded at about 35 percent. The retirement plan for police officers is funded at 60 percent. A third plan, for municipal employees, is at 71 percent. The first two funds are controlled by the state legislature, while the city has more control over the third.
On the positive side, Fitch noted that New Orleans is ranked the fastest-growing city in the U.S. by the Census Bureau. Its population of 370,000 is 80 percent of the total before Hurricane Katrina in 2005.
Pension liabilities have been of growing concern to governments across the country. Chicago's bond rating was lowered by Moody's last month over a growing funding gap. The Illinois legislature has been haggling over pension reform and the nations' largest public pension fund, in California, has been the object of new laws aimed at lowering future obligations.
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