Michigan municipalities are facing a year-end deadline to borrow for retirement costs. Relatively low interest rates are attracting issuers, that will use the funds to invest in financial markets which will then be used to pay future pension and healthcare liabilities.
Pension bonds convert off balance sheet liabilities, that politicians do not have the will service via higher taxes or reduced benefits, into on balance sheet liabilities. The issuer assumes the financial market risk associated with the return on the investments. Will the return on the investments exceed the cost of the debt?
