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Officials fear rising cost of pension and health care costs

Bob Moon Oct 22, 2010
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Officials fear rising cost of pension and health care costs

Bob Moon Oct 22, 2010
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STEVE CHIOTAKIS: State and local officials from coast to coast have been sounding an alarm lately. They’re worried that they might not be able to pay the bill for sky-rocketing pension and health care costs. Now, some regulators are asking new questions aimed at heading off another jolt to the financial system. Our senior business correspondent Bob Moon explains.


BOB MOON: There’s fear of a “domino effect” if too many local governments default on their debt. Insurance companies are some of the biggest buyers of municipal bonds, and regulators who make up the National Association of Insurance Commissioners want to know: Are the credit-rating agencies adequately factoring in the risk?

The firms have issued statements saying they’re aware of the challenges facing the municipal sector, but the “Big Three,” Standard & Poor’s, Moody’s and Fitch, don’t have a great track record:

DAVID REISS: They disappointed with Enron and WorldCom, they disappointed with mortgage-backed securities, and I think that people are kind of hyper-sensitive.

Brooklyn Law School professor David Reiss says the regulators will be asking some important questions at an upcoming hearing. But finding an alternative to the big rating firms could prove costly:

REISS: They are massive organizations that are massively staffed. It’s not so easy as picking up the phone and finding another agency that has the resources of the main rating agencies, and just have them kind of replicate their function.

Still, Reiss says the bond-rating firms need to overcome a reputation for being laggards in predicting trouble.

I’m Bob Moon for Marketplace.

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