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Pension obligations weigh on school finances in New Mexico

By MORGAN LEEJune 13, 2019

SANTA FE, N.M. (AP) — Pension burdens are weighing on the financial health of local governments and school districts across New Mexico as contributions to the state’s two major public retirement funds lag behind pension obligations, analysts for a major credit ratings agency told a panel of legislators on Thursday.

Moody’s analysts previously warned that pension reforms this year did not increase contributions sufficiently to reduce the problem of unfunded pension liabilities. On Thursday, they explained to legislators that pension problems are affecting financial burdens and risks for local governments and school districts.

“No one is left untouched in this conversation,” Moody’s Analyst Heather Correia said. “Local government credit ratings have gone down because of this pension burden, the state’s rating has gone down. ... Cities, counties, school districts — it doesn’t matter.”

New Mexico lawmakers this year increased taxpayer contributions to two major pension plans by 0.25% of annual salaries and delayed the accrual of pension benefits for new school workers overseen by the Educational Retirement Board.

Lawmakers are likely to consider further reforms next year to contain multibillion-dollar unfunded pension obligations at the Public Employee Retirement Association for state, local government and judicial employees. Democratic Gov. Michelle Lujan Grisham has convened a pension solvency task force to develop legislation aimed at shoring up that fund.

Correia and Roger Brown of Moody’s noted that most local governments and their workers in the U.S. are not contributing enough to “tread water” and avoid increases in unfunded pension burdens. They said those difficulties — and the risks they pose to credit investors — are much more pronounced across New Mexico.

Democratic Rep. Linda Trujillo of Santa Fe asked whether pension burdens would be eased by statewide increases in teacher salaries and a hiring spree. Lawmakers approved a nearly half-billion dollar increase in annual spending on public education for the fiscal year starting July 1.

Correia responded that addressing pension burdens will require significant increases in contributions, reduced benefits or both.

“We are glad that there is a growing awareness and that a conversation is being had,” she said. “But in terms of really tackling that unfunded liability it will probably have to be increased contributions and reductions to benefits.”

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