We pension nerds at voiceofsandiego.org aren’t the only reporters looking at pension obligation bonds — that is, when governments borrow money and invest it to shore up their pension funds.

Bloomberg’s David Evans recently wrote an article chronicling problems with pension bonds nationwide, including Puerto Rico and New Jersey. His article said government agencies have borrowed more than $50 billion in the past 25 years.

He highlighted the Chicago Transit Authority, which was facing a $1.5 billion pension deficit in 2007.

From the story:

“We’ve identified the problem and a solution,” said CTA Chairman Carole Brown on April 16, 2007. The agency decided to raise money from a bond sale.

A year later, it asked Illinois Auditor General William Holland to research its plan. The state hired an actuary, did a study and, on July 17, concluded that the sale of bonds would most likely result in a loss of taxpayers’ money.

Thirteen days after that, the CTA ignored the warning and issued $1.9 billion in bonds. Before the year ended, the pension fund was paying out more to bondholders than it was earning on its new influx of money. Instead of closing its funding gap, the CTA was falling further behind.

Evans writes that CTA’s own actuarial firm said there was just a 30 percent chance that the bonds would earn the expected rate of return, 8.75 percent. The transit authority issued the bonds anyway, paying 6.8 percent and holding the proceeds in a money market fund earning 2 percent.


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