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Warren Buffett sounds warning on pensions

NEW YORK — Public pension plans threaten the financial health of cities and states more than taxpayers realize, billionaire investor Warren Buffett says.

‘‘Citizens and public officials typically underappreciated the gigantic financial tapeworm that was born when promises were made,’’ Buffett wrote in his annual report to shareholders of Berkshire Hathaway Inc., released Friday. ‘‘During the next decade, you will read a lot of news — bad news — about public pension plans.’’

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‘‘Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford,’’ Buffett said.

The municipal bond market has defied prior warnings of disaster. Meredith Whitney, a former Wall Street bank analyst, in 2010 incorrectly predicted defaults totaling hundreds of billions of dollars.

Berkshire cut holdings of state and local obligations by half in a five-year period to about $2.3 billion as of Dec. 31. The company also scaled back insuring municipal bonds.

Moody’s Investors Service said a measure of retirement obligations for states deteriorated in fiscal 2012. The median ratio of pension liabilities to revenue was 64 percent, compared with 45 percent a year earlier, Moody’s said Jan. 30. The net liability for all US states stood at $1.2 trillion, though investment gains have probably helped since then, the ratings firm said.

‘‘Warren Buffett is a reasonable man, and he’s pointing out there are still some very visible pension issues among states and cities,’’ said Richard Ciccarone, chief executive of Merritt Research Services. ‘‘But the message shouldn’t be distorted into a panic about municipal bonds. The vast majority of credits in the muni market have manageable debt loads.’’

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