The Morning Report
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Thursday, March 12, 2009 | Sounds like San Diego is about to make the same blunder as my home of Cook County, Illinois (which includes Chicago) did. Cook sold pension obligation bonds on the advice of consultants probably connected to the bond operator that it would earn more than it paid in interest. Well, investors wanted a bit more than anticipated due to shaky county finances. The end result is that Cook County pays out more than 6 percent and earns maybe 2 percent on the money. I think everyone knew that would be the result.

The bond sale probably went forward to generate fees for government favorites, which ultimately make their way back to the politicians. San Diego probably has a bit or a lot of that. Also, the fantasy accounting rules of government pension plans may allow the plan to show the bond proceeds as a net increase to the plan and therefore postpone tax increases to make up a funding shortfall. The bond proceed may allow the pension plan to delay selling good assets to pay current benefits.

I suspect plan finances are as opaque in San Diego as they are here, so good luck. The only thing I am certain of is that the retirees will get their money because their numbers keep increasing and the politicians need their support for re-election.

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