Courtesy of Moody's Investor Services

At least one of the four Wall Street credit rating agencies is saying the proposed changes to the state employees pension system approved last week by Gov. Dannel P. Malloy and the unions is “credit positive.”

The report from Moody’s Investors Service can’t be viewed as a credit upgrade, according to the disclaimer, but it’s a positive sign for a state with the highest fixed costs in the nation.

In a report released Thursday, Moody’s Investors Service noted that the new agreement “sacrifices the goal of amortizing the unfunded pension liabilities over a shorter period, but allows for more affordable pension contributions and a more conservative investment return assumption.”

Without a deal in place, the annual state contribution to the pension fund would have to exceed $6 billion. In order for the state to meet those obligations, it would have to drastically cut services and/or increase taxes to unprecedented levels. The state’s annual contribution to the pension fund is already $1.5 billion. Under the new agreement it would increase at the most to around $2.3 billion annually.

So even though it’s extending the agreement and contributing a little more, Moody’s said those changes are outweighed by other parts of the deal.

The agreement extends the pension amortization window from 2032 to 2046, which results in higher overall payments over the life of the debt, but those changes are outweighed by other changes, such as lowering the assumed rate of investment return from 8 percent to 6.9 percent, according to Moody’s analysts.

On Thursday the State Employees Retirement Commission unanimously voted to lower the assumed rate of return for the State Employee Retirement System.

Office of Policy and Management Secretary Ben Barnes said the “unnecessarily optimistic 8 percent assumed rate of return was creating significant growth in the unfunded liability – as much as $4.2 billion from 2001 to 2014.”

The decision to lower it to 6.9 percent puts Connecticut on a “much better path,” Barnes said.

According to Moody’s fewer than 19 percent of state pension plans employ investment rate of return assumptions less than 7 percent. The lower assumed investment rate of return enables the pension system to take less investment risk and reduce the chances of unexpected contribution hikes due to worse-than-assumed investment performance, analysts said.

Although the lower investment return assumption and level dollar funding approach work to increase employer contributions, the state anticipates that the agreement will, on net, result in budgetary savings.

Last week, Malloy’s administration suggested that the state could save in the vicinity of $200 million to $300 million annually in coming years, an amount that would grow through 2032. After that point, however, the state’s pension contributions will be much greater under the new approach.

The credit rating agency pointed out that Connecticut has struggled to balance its budget as revenue growth has failed to keep up with fixed cost growth. The pension and retiree health insurance contributions were eating up about 30 percent of the state’s revenue in fiscal 2015, which was the highest of all 50 states and a “significant credit weakness,” Moody’s said in its report.

The agreement is like a labor contract and will automatically go into effect 30 days after the first day of the 2017 legislative session. The General Assembly is being encouraged by Republican leadership to take a vote on the deal, but so far Democratic leadership is non-committal.