Report cautions cities on use of pension obligation bonds
The use of Pension Obligation Bonds (POBs) to cover a city’s required pension contribution obligations may benefit some cities in some circumstances, but the bonds are not ideal for every city, according to a new brief from the Washington-based Center for State and Local Government Excellence (CSLGE).
“Pension Obligation Bonds: Financial Crisis Exposes Risks” found that POBs allow governments to avoid increasing taxes in bad times and could reduce pension costs. But, cities that issue POBs are often fiscally stressed and not well-positioned to handle the investment risk. “Analyzing data since 1992, the authors raise a number of red flags,” CSLGE President and CEO Elizabeth Kellar says in the brief’s introduction. “In fact, just 10 states are major players in the POB market, with California and Illinois leading the pack.”
The Center for Retirement Research at Boston College generated the report for CSLGE. Read the full brief.