Tag: Michigan

Lawmakers Want to Be More Careful With Pension Funds

Mary Pat Campbell

Link: https://www.mackinac.org/lawmakers-want-to-be-more-careful-with-pension-funds

Excerpt:

One of the most important assumptions built into pensions is the guess at how much investments will grow over time. If investments provide high returns, then lawmakers don’t need to set aside as much money today to pay for pensions to be paid out in the future. If investments do not return as much as assumed, a gap develops between what has been promised and what has been saved. The bills cap the rate at which administrators can assume their investments will grow, allowing them to be no more risky than current policy allows. They also let administrators use less risky assumptions if they think it is prudent.

This is a smart approach. Much of the current pension debt exists because administrators overestimated investment returns. Taxpayers now owe more to the pensioners than they do to the lenders and bondholders who willingly lent the state money. Putting a cap on the assumptions administrators make can prevent future pension debt.

Author(s): James M. Hohman

Publication Date: 1 March 2021

Publication Site: Mackinac Center for Public Policy

To Plug a Pension Gap, This City Rented Its Streets. To Itself.

Mary Pat Campbell

Link: https://www.nytimes.com/2021/02/16/business/dealbook/pension-borrowing-retirement.html

Graphic:

Excerpt:

That hasn’t deterred governments. Nationwide, cities and states issued $6.1 billion in pension obligation bonds in 2020, more than in any year since 2008, according to data compiled by Municipal Market Analytics, a research firm. States with significant new pension borrowings last year included Arizona, Florida, Illinois, Michigan and Texas. In California, cities borrowed more than $3.7 billion to squirrel away at various public pension funds, breaking the old state record of $3.5 billion, set in 1994.

It’s a major comeback for this type of debt, said Matt Fabian, a partner at Municipal Market Analytics who has been writing about the deals for years. “They’re borrowing money and basically putting it into the market and gambling,” he said.

Mr. Fabian said his firm’s tally almost certainly missed the borrowing by municipalities that took West Covina’s approach, because those bonds used different names. Flagstaff rented its City Hall, libraries and fire stations last year to back a pension deal marketed as “certificates of participation.” In January, Tucson did the same, leasing two police helicopters, a zoo conservation center, five golf courses and the bleachers at its rodeo grounds, among other things. And a Chicago suburb, Berwyn, used “conveyed tax securitization bonds” to help fund police pensions.

Author(s): Mary Williams Walsh

Publication Date: 16 February 2021

Publication Site: New York Times