LOS ANGELES— Moody’s Investors Service affirmed the ratings on $6.5 billion of debt issued by 14 California transit agencies and revised their outlooks to stable after the state legislature approved a bill exempting employees at California’s transit agencies from pension reform laws.

U.S. Department of Labor officials were threatening to withhold more than $3 billion of federal aid if the state did not exempt transportation employees from the California Public Employees’ Pension Reform Act of 2013, saying it violates a 1964 federal law that protects the collective bargaining rights of public transportation employees.

Assembly Bill 1222, which creates a 15-month exemption from the state’s pension reform law, passed the State Assembly on Sept. 11 and now heads to California Gov. Jerry Brown’s office for his signature.

The temporary exemption will become permanent if a federal court decides that the state's pension reform does violates union members' collective bargaining rights by forcing them to contribute more to their retirement funds. That finding would mean that the federal government may not further withhold transit grants from the agencies, according to the Moody’s report, released Tuesday.

Moody’s had placed the credit ratings of 15 California transit agencies on review for downgrade affecting $6.5 billion of rate debt on Aug. 7.

Moody’s said the ratings action was prompted by “the possibility that the agencies will lose federal grants that on average comprise about 13% of their operating revenue and 40% of their capital funding.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.