Pensions: Chicago and $10 billion bond for pensions

Earlier this year, a recommendation was made that Illinois should borrow $107 billion to help deal with their pension problems. It now looks like Chicago is mulling a similar option via what is called pension obligation bonds (POB). Per Marketwatch:

Chicago is contemplating a bond sale of $10 billion to help pay down its $28 billion of unfunded pension liabilities. Its exploration of such a deal speaks to the city’s dire financial straits. Chicago’s general obligation bond ratings range from junk, in large part because of the pension burden, to single-A among the major credit ratings agencies, and it has struggled to fill budget gaps beyond pensions.



The article goes on to explain that POBs were related to municipal bankruptcies in San Bernardino, CA; Stockton, CA; and Detroit.

The argument, of course, is that a city can get a higher rate of return versus the interest paid on the POB.

The problem, in my opinion, with that belief is that at some point we're going to get a bear market.

The decision on this bond issuance will occur towards the end of September.