PHOENIX - Lackluster investment returns reported by some of the nation's largest public pension funds signal intensifying fiscal pressure on U.S. state and local governments, Moody's Investment Service said.

Moody's cited announcements from the California Public Employees' Retirement System and California State Teachers' Retirement System, both of which posted lackluster returns for their fiscal years ended last month. CalPERS said its return was 0.6%, while CalSTRS said its investments returned 1.7%. Those returns followed a similarly unimpressive 0.19% from the New York State Common Retirement Fund for its most recent fiscal year ended in March.

While the fund leaders spun the results as positive in a tough investment environment, Moody's, in its weekly outlook report Monday, interpreted them as bad signs for state and local credit.

All three of these major public pension plans have assumed returns of at least 7%, and have outperformed that in some recent years. Although public pension investment returns in fiscal 2015 were sluggish, Moody's said returns averaged 11.7% in fiscal 2013 and 16.6% in fiscal 2014.

In California, leaders including Gov. Jerry Brown have called for increasing contributions to move away from reliance on high investment returns, but CalPERS and CalSTRS have warned that rapidly increasing contributions could also have negative effects on municipalities.

"For state and local public pensions as a whole, we estimate that a 1% actual investment return would produce a $230 billion shortfall to budgeted investment income," Moody's said. "If amortized over 30 years, which is the conventional amortization period for public pension plan funding, the $230 billion shortfall would require nearly $20 billion of additional annual employer contributions, or 1.5% of fiscal 2016 estimated state and local tax revenue. These dollar amounts will be concentrated in the systems with the largest assets, which in addition to the California and New York systems, include Florida, Illinois, and Texas. However, the shortfalls will also be problematic for the governments already struggling to provide adequate funding to their pension systems, such as New Jersey and Kentucky."

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