Georgia’s pension fund cited in positive light by Moody’s credit analysts
By David Pendered
Georgia’s pension fund is highlighted in a positive light in a recent credit rating action by Moody’s Investors Service. Moody’s issued the rating for about $951 million in debt the state plans to sell for purposes including education and election voting systems.
In explaining the investment grade rating awarded June 10 to the issuance, Moody’s analysts observed:
- ”The Aaa general obligation rating reflects Georgia’s relatively low debt and pension obligations and robust fiscal management and governance.”
The rating action follows two pension-related events the analysts evidently affirm.
First up is a mandatory training program for all trustees of pension systems established by the state. Gov. Brian Kemp signed House Bill 196, which requires the education and was adopted by the General Assembly. The law takes effect July 1 and includes mandates for both existing and future pension trustees.
Second is the state’s recent ranking as 16th in the nation, in terms of meeting its pension obligations, according to a report released March 9 by the non-partisan Independent Institute.
Georgia’s pension fund is funded at 79.2 percent. To meet Georgia’s pension requirements, the amount of $2,199 would have to be paid today by every man, woman and child in the state, according to the report.
In contrast, New Jersey has the lowest pension funding level, according to the Independent Institute. New Jersey’s funding level of 35.8 percent would require that each man, woman and child in that state would have to pay today the amount of $16,099.
The bonds are secured with two mechanisms – the state’s power to levy taxes sufficient to make payments; an unspecified claim on an unspecified portion of the state’s 27.5 cents per gallon motor fuel tax.
The debt is to be sold in three batches. The cumulative sum is to pay for various capital projects, according to Moody’s – higher education, K-12 education, and election voting systems. An unspecified portion of the money is to pay back existing debt, which presumably carries a higher interest rate than is available in today’s market.
Georgia’s fiscal house earned a few acknowledgements in addition to its pension funding levels. They include:
- “The Aaa rating on the guaranteed revenue bonds is based on the general obligation rating of the state, which has pledged its full faith and credit to assure repayment of the bonds. The bonds are proximately secured by a claim on a portion of the state’s 27.5 cents per gallon motor fuel taxes. The state expects the tax to be sufficient to cover debt service on the bonds.
- “A rapidly growing and strong economy mitigates below-average resident income and vulnerabilities that manifested in past recessions, such as a large decline in economically sensitive revenue.
- “The stable outlook recognizes that Georgia has likely built up reserves sufficient to preserve its credit quality at a high level even if the economy were to enter a recession.”
Moody’s analysts evidently expect the state to maintain spending habits that have historically been viewed as conservative. In the category of factors that could prompt a downgrade of the credit rating, analysts observed:
- “A departure from strong fiscal management and governance practices.”