Alaska lawmakers last week weighed Gov. Bill Walker’s plan for a $3.5 billion pension bond, proceeds from which would be used to pay down the state’s pension debt.
Lawmakers were lukewarm on the plan due to the risk involved.
But it may not matter what lawmakers think; in Alaska, an entity called the Pension Obligation Bond Corporation Board can issue a pension bond without a vote from the legislature.
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One week ago, the three-member Pension Obligation Bond Corporation Board voted to borrow up to $3.5 billion from bond markets from Asia. Proceeds from that bond sale would be invested in global markets, and any difference between the interest earnings and the interest paid on the bonds would go toward the state’s unfunded pension debt.
The board is assuming 8 percent average earnings, deputy commissioner of revenue Jerry Burnett told the Senate Finance Committee on Thursday afternoon.
It expects to be able to borrow money from Asian pension funds at 4 percent interest.
“It’s a gamble,” Sen. Mike Dunleavy, R-Wasilla, declared.
“It’s a gamble to have an unfunded pension system and assume we’ll have enough” money when payments come due, Burnett responded.
Several analyses presented Thursday, including one by the independent reporting firm ProPublica, have found pension obligation bonds a risky option.
The nonpartisan Government Finance Officers Association also opposes pension obligation bonds, calling them “complex instruments that carry considerable risk.”
While lawmakers also appeared skeptical, their ability to stop the plan seems limited. The bond corporation board was empowered by a 2008 law and has the authority to issue up to $5 billion in bonds without approaching the Legislature again.