If a state or local government’s public pension funds have large unfunded liabilities, those liabilities accrue at the assumed rate of return on the assets that should have been there to cover that liability.
The point is this: if it makes sense to pay down the pension unfunded liability with muni bonds, thus creating new liabilities and thus new leverage, it makes even more sense to take a “windfall” of cash and pay down the pension debt, which creates no new state/local government liabilities
Author(s): Mary Pat Campbell
Publication Date: 26 March 2021
Publication Site: STUMP on Substack