Last week, S&P Global Ratings announced that it was revising Colorado’s credit outlook from “negative” to “stable” in light of the passage of major reform of the Public Employees’ Retirement Association (PERA) — the state’s pension system for teachers, state government workers and municipal employees.
Citing a pattern of underpayment of employer contributions to PERA and growing pension debt, the ratings agency adjusted the state’s credit outlook to negative in November 2017, which confirmed the fears of state policymakers who had been expressing concern about pension solvency for years. Policymakers took these warnings seriously and worked to pass a bipartisan bill which, among many other things, significantly increases the annual contributions into the system.
The enacted reform appears to have assured S&P for the moment that Colorado’s elected leaders are committed to ensuring PERA’s solvency, reducing the possibility of a future credit downgrade. While it is much too early to truly gauge the effectiveness of Colorado’s reform, S&P’s improved outlook is an early signal that state policymakers took a step in the right direction.