Fitch Ratings and Moody’s Investors Service said this week that the decision by the Florida Supreme Court upholding legislation requiring that employees contribute to the Florida Retirement System is a positive for the credits of the state and its local governments.
The high court released its ruling — overturning a lower court — on the pension reform plan last Thursday, which requires that participating employees contribute 3% of their salaries toward pension costs. It also eliminated cost-of- living adjustments for those receiving pensions.
The pension measures were instituted on July 1, 2012, to help close a nearly $4 billion budget gap.
The Florida Supreme Court ruling, if not reconsidered, would mean that the state would not have to reimburse employees and those already taking pensions.
The state estimated that it could have been required to pay an estimated $530 million to reimburse employees for fiscal 2012 contributions, and that the state’s actuarial liability could have increased by an estimated $473 million due to the reinstatement of the cost-of-living adjustment.
“The budget relief for Florida local governments will be significant at a time when weakened property valuations continue to negatively affect fiscal operations,” said Moody’s analyst Nicole Johnson.
Fitch analyst Larry Levitz said his agency does not plan on taking any imminent rating actions as a result of the Supreme Court decision since Florida’s pension reform measure had already been considered.
“With this decision, Fitch expects that the state Legislature may propose additional reforms, possibly including a measure requiring new employees to participate in a 401(k)-type pension plan rather than the current defined-benefit plan,” Levitz said. “Fitch will continue to monitor situation for any new developments.”
Standard & Poor’s said last week that it also considered the high court’s judgement to be a positive credit factor.
Florida carries implied general obligation bond ratings of AAA by both Fitch Ratings and S&P, and Aa1 by Moody’s Investors Service.
Fitch has a negative outlook on its rating while Moody’s and Standard & Poor’s have stable outlooks.