UPDATE: On June 7th, S&P Global Ratings “affirmed and revised the outlook to stable from negative on its ‘AA’ issuer credit rating (ICR) on the state of Colorado, its ‘AA-‘ long-term rating on its lease debt and certificates of participation (COPs) outstanding, and its ‘A+’ long-term rating on the state’s moral obligation debt outstanding. We have revised the outlook on all our ratings to stable following the state’s adoption of pension reform in its 2018 legislative session, which, in our view, should be sufficient to prevent further decline of the funded ratios in the current outlook period.”
As the Colorado General Assembly debated Senate Bill 18-200 during the recently concluded legislative session, one of the primary reasons cited for needing to pass the legislation this year was the possible negative effect Colorado PERA’s unfunded liability could have on the State’s credit rating.
The Standard & Poor’s (S&P’s) credit rating agency last fall issued a warning that a potential downgrade to Colorado’s credit rating could occur, due in part to the State’s long record of underpaying its share of the PERA fund costs. If a downgrade should occur, it would cost more for governmental entities to borrow money for capital projects. (For more information on the sources of PERA underfunding, see this PERA on the Issues post.)
But the passage of SB 200 on the final day of the legislative session may already be paying dividends. On May 21, S&P issued a release stating that the agency would review the new law after Governor Hickenlooper signs it, which is expected in early June. The note’s authors added that if the new law credibly appears to be improving PERA’s funding ratio it should forestall a downgrade of the State’s credit rating. The agency remains open to upgrading the credit rating if the bill “will sustainably improve funded ratios over the long term.”
Read the full text of Standard & Poor’s release.
Unfunded liabilityThe difference between the projected amount of money needed to pay benefits earned to date and the amount of money currently available to pay those benefits.
