A hike in required pension fees by CalPERS or the California Public Employees' Retirement System would pressure local governments to limit spending for the short term. In the long term though, this would provide a positive effect on the bond issuers of the state, according to Moody's Investors Service.
The higher fees would also benefit the state government in California as the reitrement system would be fully funded, precluding the possibility of sudden increases in employer contributions in the future.
According to a commentary from Moody's, "Despite the near-term pressure, in the long run, the increased contributions are likely to benefit both local governments and the state of California." WIth the comment was the rating by Moody's of California, which is at A1 stable outlook level.
Moody's added, "While marginal increases in required pension contributions phased in over five years will likely be manageable for the state and most California local governments, the most fiscally challenged local governments could find these proposed increases unmanageable."
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