Moody’s Investors Service Tuesday revised Puerto Rico’s general obligation credit to negative from stable, affecting about $29 billion of outstanding debt, as the commonwealth’s pension system is only 9.8% funded and carries a $17 billion liability.

Moody’s rates Puerto Rico’s $9 billion of outstanding GO debt A3. The outlook change also affects appropriation debt and bonds that are based on the island’s GO rating.

The retirement fund will run out of assets by fiscal 2019. It has the weakest funding ratio in the U.S. as the lowest state pension funding ratio is around 50%, according to Moody’s analyst Emily Raimes.

“The pension issue is not an immediate issue in general,” Raimes said. “So it is more of a long-term issue, which is part of the reason for the outlook action and speaks to a little bit of time in front of us. It’s an issue that Puerto Rico and many states need to address at some point, but it really is not a time-sensitive, immediate issue.”

Carlos Garcia, president of the Government Development Bank for Puerto Rico, said that the negative outlook is tied to one specific issue — pension funding — and that the rating agencies and investors have known about this problem for some time.

The GDB is the commonwealth’s fiscal adviser.

“There’s no doubt that there’s a challenge, but the fortunate thing about it is that you have time to be able to deal with the situation,” Garcia said. “If you take action within this year, you still will have nine or 10 years to be able to deal with this situation.”

A special commission is currently reviewing Puerto Rico’s pension issues. Officials anticipate the panel will release by the end of September its recommendations on how the government should strengthen its pension fund ratios.

Gov. Luis Fortuño, who took office in January 2009, announced the special commission in late February.

At that time, the pension fund was 17% funded and had a liability of $14 billion. When combined with the teachers retirement system and the judicial retirement system, the total funded status is 14.5%, according to Moody’s.

Officials are tackling the structural deficits by reducing expenditures, including government layoffs of 13,000, and increasing and implementing new taxes to increase revenues.

The fiscal 2011 deficit is $1 billion and administration plans to end deficits by fiscal 2013. Puerto Rico has been in a recession since 2006 and in June had an unemployment rate of 16.3%, according to preliminary estimates from the U.S. Bureau of Labor Statistics.

“While we acknowledge that the commonwealth is working on a plan to address the retirement system problems, and that the current management has pro-actively and successfully addressed many difficult financial decisions in the past 18 months, we believe that at this time there are a limited number of options the commonwealth has to improve the funded ratio given the commonwealth’s relatively weak finances and economy and high debt,” according to Moody’s.

Puerto Rico has sold $2.9 billion of pension bonds in the local market to help boost the system’s funding levels.

The pension system covers employees hired before 2000 who receive a defined-benefit plan, similar to a traditional pension plan, and workers hired after 2000 who pay into a defined contribution plan, similar to a 401K.

“The unfunded pension liability will not continue to accumulate indefinitely,” Garcia said. “You have a window of about 30 years in which you have the challenges, but the system self corrects because all the new employees are under a defined contribution plan.”

Standard & Poor’s rates the ­commonwealth BBB-minus with a stable outlook.

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