A steep rate hike by California’s largest public pension fund will force cities to tighten their belts, but will make the state more financially stable, according to Moody’s Investors Service.
“Despite the near-term pressure, in the long run, the increased contributions are likely to benefit both local governments and the state of California,” Moody’s said today, according to Reuters.
The California Public Employees Retirement System (CalPERS) raised pension fees paid by California local governments by as much as 50 percent on Wednesday to help pay its own liabilities.
Some cities are still struggling with budget gaps, but Moody’s said most will be able to afford the higher payments, according to Reuters.
“The state of California will face the same increased contribution pressures that the local governments face,” Moody’s said. “Because the state’s liquidity position and financial condition are significantly better at this time than they have been in recent years, the increase in contributions should be manageable, and will serve to improve the funding status of the plan.”
Moody’s did warn that some cash-strapped cities could have a hard time paying more, according to Reuters. Pension debt was a major factor in both Stockton and San Bernardino, which have become test cases for what happens to pensions when cities go into bankruptcy.
CalPERS handles retirement and health care benefits for more than 1.6 million retired public employees.