Gambling on the stock market to get out of financial troubles. It’s a fool’s game, but that’s exactly what some politicians in Illinois are considering now to address their cities’ growing pension crises. Lawmakers want to borrow money from the bond market to pay down pension debts by issuing what are known as pension-obligation bonds.
The borrowing scheme is a bit more complicated than the household example, but in essence, pension-obligation bonds are all about taking out a loan, then investing that money and hoping the returns beat out the costs of the loan.
It’s a lose-lose game for taxpayers. If politicians get it right, governments will have extra money to spend and grow even bigger. And if politicians get the bets wrong, they’ll come after taxpayers to pay off their gambling losses.
That’s one of the reasons why national organizations like the Government Finance Officers Association say “state and local governments should not issue POBs.”
Author(s): Ted Dabrowski and John Klingner
Publication Date: 12 September 2021
Publication Site: The News-Gazette