Another Southern California City Looking at Pension Obligation Bonds: Whittier, CA

I've discussed my concern around pension obligation bonds since 2018. Pension obligation bonds work under the hope that the cash raised by these bonds can be invested and earn a higher rate of return than the interest paid on the bonds. As discussed in this 2019 blog post, research indicates that two-thirds of these bonds end up losing money. Considering that we haven't really had a bear market in years (we did have one in March 2020, which has to be one of the quickest bear markets in world history) one has to be concerned that the next one isn't that far away.

Well, the city of Whittier, CA has decided that it will be one of the one-thirds that doesn't end up losing money. Whittier Daily News (Jan 27) reports:

Facing rising pension costs, Whittier City Council members on Tuesday, Jan. 27, voted to consider issuing a $143 million bond issue that would pay off its unfunded portion of the city’s pension liabilities and stabilize ongoing costs.

The city now spends about $10 million a year on unfunded retirement costs — about the same amount that would be required for debt service on the bond — but that figure is expected to increase to as much as $16 million in the coming years, city officials said.

The bond is expected to save the city nearly $69 million over the next 20 years.

Nothing in the article discusses the possibility of getting pension costs under control.

I wonder if the savings is based on a specific rate of return on the pension obligation bonds. Per the article, the process of being able to issue these types of bonds is 6 months. I would say the best thing that could happen to the city of Whittier is if we have a significant bear market by sometime in late July (note that the article was written in late January and not when this blog is posting).