The Impact of Pensions on State Borrowing Costs

Source: Alicia H. Munnell, Jean-Pierre Aubry, and Laura Quinby, Center for Retirement Research at Boston College, SLP#14, February 2011

From the abstract:
Municipal bond prices are tumbling and rates rising just as public borrowers face pressure to refinance deals cut during the financial crisis. At the same time, the funded status of public pension plans has declined, and states and localities will have to come up with more money to meet future benefit payments. In the private sector, numerous studies have shown that pension underfunding affects corporate bond ratings. And Moody’s just announced that it would combine unfunded pension liabilities with outstanding bonds when evaluating a state’s leverage position. These developments raise the question of how future pension commitments affect today’s borrowing costs in the public sector…

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