Is your politician telling you that he’ll “refinance” your city or state’s pension debt? Time for skepticism.
Forbes post, “No, Pension Obligation Bonds Aren’t A Form Of ‘Refinancing'”
Is your politician telling you that he’ll “refinance” your city or state’s pension debt? Time for skepticism.
Excellent piece, Jane! The Government Finance Officers Association, a group of nearly 20,000 municipal finance professionals, advises AGAINST issuing POBs. See https://www.gfoa.org/pension-obligation-bonds
Jane – I love this series.
My biggest issue with POBs is that they transform unfunded pension obligations into actual municipal debt. The only leverage municipalities have for the renegotiation of pension & OPEB obligations is the threat that the insolvency events caused by overgenerous benefit promises will curtail the payment of those benefits. If POBs are issued and the plans become fully funded, the plan recipients become insulated from the financial devastation they are causing. If Chicago and Illinois issue POBs to fully fund their DB plans, it will hasten the deterioration of their financial condition, credit rating and economic viability. Taxes will be raised across the board to service the debt pushing more taxpayers to leave the state until a death spiral becomes inevitable. Retirees sitting on a beach in Florida must retain skin in the game. The best solution is sharp reductions in current and future benefits (3%+ COLA and other features) upon the plans reaching specified funding levels.
Lower payments in exchange for higher certainty of payment. Social Security will face the same dilemma.