Letter: Now is Not the Time for Pension Obligation Bonds

Editor's Note: Tonight the Legislative Council is scheduled to vote on whether to bond $125 million to help shore up the town's Pension Fund. The following is from former Legislative Council member Ann Altman, who represented the Fifth District.

To the Editor:

The Town is broke.  We are overextended, with a huge unfunded commitment to our pensioned employees.  Our bond rating is in jeopardy.  And rightly so!

If you had a big credit card bill that you couldn't pay, you might think that you could solve your problem by borrowing more money at, say 5 percent.

But you would still owe the entire amount you'd borrowed PLUS the 5 percent.

We've been discussing Pension Obligation Bonds since 1999 and I warned repeatedly that we would end up with PAY AS YOU GO and a huge tax bill. 

But what was never discussed, ever, was "when is a good time to issue POBs?" 

POBs don't solve the problem, they just kick the can down the road again — and it's a much bigger can, much, much bigger.

In addition to our obligation to pensioners, we will have the obligation to those who bought POBs. That's two major obligations instead of one.

NOW HEAR THIS...

The Center for Retirement Research at Boston University examined 2900 POBs issued between 1986 and 2009 for about $53 billion.

THEY FOUND that ONLY bonds issued before 1997, and those issued during dramatic stock market downturns, produced positive returns.  All others are underwater.

THUS, EVEN IF YOU LIKE THE IDEA OF POBs, NOW IS NOT THE TIME TO ISSUE THEM.  PEOPLE WILL BUY THEM, FOR SURE.

BUT HOW WILL WE REPAY THE PRINCIPAL AND THE INTEREST WHEN WE, TOO, ARE UNDERWATER!!!

SO NOT NOW, PLEASE, NOT NOW!!!  WAIT, AT LEAST, TILL THE NEXT MAJOR DOWNTURN IN THE MARKET.

DOING THE WRONG THING NOW IS WORSE THAN DOING NOTHING!!  WE ARE BROKE NOW. ISSUE POBs NOW and WE'LL END UP BROKER THAN BROKE.

BORROWED MONEY IN OUR POCKETS INCREASES OUR DEBT, IT DOESN'T MAKE US RICHER.