A bill that convincingly passed through Colorado's House of Representatives authorizing up to $12 billion in Pension Obligation Bonds failed to make it out of that state's Senate Finance Committee this week.
It was the latest of a recent surge in POB interest, as state sponsors of underfunded pension plans rush to consider the controversial funding strategy before an imminent rise in interest rates.
In Colorado, proceeds from the issuance would have gone to close the $23 billion funding gap in Colorado's Public Employee Retirement Association plan. Proponents included Gov. Jon Hickenlooper, a Democrat, and his Treasurer, according to the Denver Business Journal.
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They argued the bonds could have raised the plan's funding ratio up to 80 percent, from 64 percent.
As has been the case in states like Kentucky, Pennsylvania and Kansas, POBs have proven to be a thorny matter with state lawmakers, union advocates and champions for fiscal responsibility.
So much so in Colorado that Ben Valore-Caplan, a former trustee of the PERA plan, resigned in opposition to the proposed bond issuance. Valore-Caplan is the founder and CEO of Syntrinsic, a Denver-based investment consultancy to non-profits.
"I am definitely concerned about the financial merit of the bill and the bonds itself and the structure," he said before the Senate Committee vote, as reported in the Denver Business Journal. He could not be reached for additional comment.
Ultimately, a Republican co-sponsor of the bill backed out, saying the complexity of the bill was too much to digest in such short time. The legislative session closed Wednesday.
Kentucky also voted down $3.3 billion in PBOs at the end of its legislative session.
Lawmakers in the Bluegrass state said they would take the matter up again next year.
But that could be costly for taxpayers if the state were to decide to issue the bonds. Gary Harbin, executive director of the Kentucky Teachers Retirement System, has said the each time the Federal Reserve raises interest rates 25 basis points, the cost of Kentucky's POBs goes up $166 million over a 30 year period.
A 1 percent rise in interest rates would mean $600 million more in costs to taxpayers, he said.
Kansas recently authorized $1 billion in POBs, less than the $1.5 originally sought by Republican Gov. Sam Brownback.
In Pennsylvania, Democratic Gov. Tom Wolf has called for $3 billion in POBs, against the strains of that state's Institute of Certified Public Accountants.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
