LOS ANGELES — An Oregon Supreme Court decision striking down pension cost-of-living adjustment reductions is credit negative for both the state and its municipalities, Moody's Investors Service said in a May 5 report.
In 2013, Oregon passed pension reforms affecting the state and local government participants in the Oregon Public Employees Retirement System.
The court's decision reverses approximately $5 billion in combined pension liability reductions and eliminates ongoing savings that were already incorporated into state and local government budgets, including $131 million, or approximately 1% of Oregon's budget, in the current fiscal 2013-15 biennium that ends June 30, according to Moody's.
The 2013 reforms lowered COLAs for retirees and current employees, but found that pension benefits associated with work already performed, including COLAs, are contractually protected in Oregon.
Beyond the increase to liabilities, the court's decision will also increase state and local governments' contribution rates, according to Moody's.
The state must increase its employer contributions to 17.1% of payroll, starting in the 2017-19 biennium, from approximately 10.6%. The contribution increase translates to around $319 million for the state, according to its projections, an amount Moody's analysts said they expect to grow by 3.75% annually in line with the OPERS payroll growth assumption.
Based on projected revenue growth, Moody's analysts said they estimate pension costs will increase slightly from current levels of 4% to approximately 5% of governmental revenues in the 2017-19 biennium. Local government contribution rates will increase to an average of 16% of payrolls system-wide starting in the 2017-19 biennium from approximately 11% for the 2015-17 biennium, according to the state's projections.
Moody's declaration of "credit positive" or "credit negative" does not connote a rating or outlook change.
