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Politics & Government

Lawmaker Floats Idea of Outlawed Bond for State Pension Debt

One state lawmaker is raising the controversial idea of borrowing money to help put a dent in the state's $47 billion unfunded pension liability.

Rep. Glen Grell (R-Cumberland), who's been working on pension overhaul proposals, has suggested one way to pay down some of the state's pension debt would be to issue a pension obligation bond - not as a way to cover required state contributions to the two pension plans, but as a way to borrow money at a better rate and produce some savings.

The pension obligation bond is both a heralded and maligned instrument. It presents enough risk that lawmakers outlawed it in their last pass at a pension overhaul in 2010. A portion of the law would have to be repealed to issue such a bond.

But Grell said such a bond wouldn't mean taking on additional borrowing, because the commonwealth already owes money to its pension systems.

"In the eyes of credit rating agencies, I think it would be a serious step on the part of the state to address the unfunded liability," he said.

A pension obligation bond isn't any part of the governor's overhaul plan.

Budget Secretary Charles Zogby said it's not out of the question, but he's not sure such a move would produce enough savings. He noted it's also a bit of a gamble.

"The costs are real and those will definitely hit the books," Zogby said. "Whether the payoff is actually there or not is really a guess, and I would suggest at least the odds are probably not good that it is a net positive at the end of the day."

One conservative economic analyst advised lawmakers in September against such bonds, arguing any savings depends on the market being strong, and cautioned that whatever savings are generated are often used irresponsibly. For example, instead of paying down debt, they're used to boost benefits.