Moody’s Revises Pittsburgh Outlook to Negative, Citing Pension Risks

Moody’s Investors Service Tuesday revised Pittsburgh’s outlook to negative from stable as Pennsylvania’s second-largest city may face large pension contribution increases if its retirement fund falls under state oversight.

Moody’s rates Pittsburgh A1. The city has approximately $697 million of outstanding debt.

Mayor Luke Ravenstahl and the City Council have yet to agree on a way to boost the pension fund to at least a 50% funded level from its current 30% funding level.

The state will place any municipal retirement fund that is not at least 50% funded on Jan. 1 into the state-run Pennsylvania Municipal Retirement System. That would increase the city’s minimum annual pension contribution, since the PMRS uses a lower assumed rate of return on pension-fund investments.

“Assignment of the negative outlook reflects concerns of potential significant increases to the city’s required pension contributions over the near- to medium-term, driven by the city’s possible entrance into the PMRS pension program, as [Pittsburgh’s] current funding level is currently well below the required 50% under the Pennsylvania State Act 44 of 2009,” according to Moody’s.

Pittsburgh must also work out a strategy to deal with expenditure increases or face a potential downgrade. Moody’s could lower the rating if the city is unable “to implement [a] comprehensive plan that addresses expenditure increases over the near to medium term,” a Moody’s report reads.

According to a PMRS report compiled by the Cheiron actuarial consulting firm, Pittsburgh’s minimum contribution under the retirement system would increase by $41 million to $86 million in 2013 from this year’s $45 million minimum payment. The minimum contribution would grow to $127 million and $160 million in 2017 and 2030, respectively.

Ravenstahl proposed leasing city parking assets to a private operator in return for an up-front payment. The City Council rejected that plan last month. The mayor does not support the council’s proposal for the Parking Authority to issue bonds to purchase city-owned parking assets from the city. Pittsburgh would then use those sale proceeds to strengthen its pension system.

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