At the same time that Moody's concluded that retirement costs have been vastly underreported, the Government Accounting Standards Board (GASB) was introducing new accounting rules for municipalities to increase transparency and reduce that underreporting. Significantly, last September, a report by the U.S. Senate's Joint Economic Committee (JEC) estimated that underfunding to be as high as $3.5 trillion. Artificially low interest rates have a lot to do with pension underfunding. If actual pension plan investment returns are lower than the actuarial return assumptions, there won't be sufficient assets to pay the retirees. In July, Moody's reduced the return assumptions for CALPERS from 7.5% to 5.5%, causing the funding status of CALPERS to fall from 82% to 64%. As you can imagine, the new studies and reporting rules are playing havoc with the interest rates that municipalities must pay. Much of the recent rise in rates in the muni markets have been blamed on Federal Reserve Chairman Ben Bernanke's "tapering" pronouncements, which had a huge impact on the Treasury yield curve. But there can be little doubt that much of the recent increase in Muni-Treasury spreads was the result of the Moody's study and the new GASB rules. Although a financial meltdown was avoided in 2009, the crisis clearly isn't over. State and local budget issues are going to have a significant impact on economic policy going forward. Their recognition may even delay the start of the Fed's "tapering" program. Muni investors, be forewarned: There is volatility ahead in the marketplace. As it turns out, the much maligned pronouncements on the health of state and local government finances by Meredith Whitney in late 2010 were actually prescient. Even the JEC agrees with her conclusions, as they reported that "some state pension funds will run out of assets in as little as five years." This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.