Pensions could affect borrowing
Reporting rules that will go into effect for 2016 audits could damage credit ratings in municipalities with pension problems, making it more expensive to borrow for capital projects, according to the auditor who delivered Altoona’s 2013 audit report last week.
Dan Bradley of Young Oakes Brown & Co. reported $7 million in operational debt for 2013, adding in side notes that the city also has about $25 million in unfunded pension liabilities.
If this were 2016, that $7 million in operational debt and $25 million in pension liabilities would be added together and posted upfront, so the city would be listed with $32 million debt, Bradley told council.
“Would that affect our bond rating?” asked Councilman Bruce Kelley. “Even though [the pension liability] was always there?”
It depends on which expert you talk to, Bradley replied.
Some say it will have no effect; some say it will be detrimental, he said. He sides with those who think it could be detrimental, he said.
Currently, pension liability is “supplementary” in the audits.
For the 2016 audit, “It will be staring you in the face,” he said.
It could get even worse, if there is an additional rule change requiring municipalities to add liabilities for retiree health insurance, Bradley said.
That would mean adding another $15 million, he said.
A lower bond rating means that municipalities pay higher interest to borrow.
City Controller A.C. Stickel takes a middling view between the optimists and the pessimists.
Most pension funds in the state are underfunded, he said.
Many are in far worse shape than Altoona’s, Kelley said.
And none of that has been a secret, Stickel said.
But it will be showing up “a little more directly,” he said.