CHICAGO — The fiscal strain of deteriorating pension funding levels on local and state governments could contribute to downgrades in the next several years, especially among those governments that entered the recession with poor funding ratios or have little flexibility in their funding requirements, a new report from Moody’s Investors Service warns.

In the near term, the impact of dwindling investment returns as a result of the market downturn is broad and adds yet another layer of fiscal stress on governments already faced with faltering tax revenues, heightened demand for social services, and pressure to scale back pension contributions to balance their budgets.

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