Especially during a period of positive economic growth--and leaves the state less equipped to deal with the next economic downturn. Although we view the commonwealth's decision to lower its pension system's rate of return assumption down to be more in line with national averages, we recognize that required contributions will also increase. The state's ability to structurally balance its budget and build its reserves is especially important in light of relatively high and rising fixed costs related to debt and retirement funding. Continued pension underfunding together with declines in the state's funded ratios could also lead us to lower the state rating over the outlook horizon.
Should the commonwealth reverse the trend of reserve reductions, we could revise the outlook to stable.