Alaska Governor Bill Walker has put forward a complex plan to overhaul how state government is financed. One of the components of that plan includes “the issuance of $2.5 billion in pension obligation bonds, also known as POBs. POBs are a debt instrument that essentially let local governments pay unfunded pension liabilities by betting that the investment will earn a higher return than the interest costs of the state’s pensions,” CNBC Reports.
“If this feels slightly familiar, it might be because Detroit did its own $1.4 billion pension bond deal in 2005. Ultimately, the bet was a disaster. Not only was the move labeled by the Detroit Free Press as “the last straw” that led to Detroit filing for Chapter 9 bankruptcy, the deal became a controversial focal point of the city’s 2014 bankruptcy trial and was held up as epitomizing the reckless risk taking municipalities should avoid. “