Using pension obligation bonds to fulfill the unfunded liability in state pension system is a risky venture that lawmakers should avoid, State Senator Kenneth Corn said Friday.
Pension obligation bonds are, at best, politically-motivated and risky short-term fixes for long-term problems. It would be like borrowing money from the bank to pay off your credit card debt, Corn said. You just trade one debt for another and in all likelihood youre going to go out and charge up your credit cards again.
Corns comments came after a divided Oklahoma State Pension Commission approved a report Friday entitled Crisis in Oklahoma State Pension Funds.
Corn was one of three members of the Commission to vote against including a recommendation in the report that the Legislature consider the use of pension obligation bonds to make up the unfunded liabilities in the state pension programs.
Unfunded liabilities are the difference between the reserves in a pension fund and the amount needed to fulfill all of the obligations of the fund. Pension obligation bonds are sold to produce a lump sum to fill the unfunded liability, replacing that liability with annual bond payments.
Twice in the last three years, a bill proposing the use of pension obligation funds has been defeated in the Legislature. Two years ago, a pension obligation proposal was defeated on the Senate floor and earlier this year we killed another measure in the Senate Finance Committee, Corn said. The Legislature has considered using pension obligation bonds and has clearly rejected the idea.
Corn said that by using pension obligation bonds to fulfil the unfunded liabilities of state pension systems, Oklahoma would create additional obligations that the state might not be able to meet in difficult financial times.
Just three years ago we faced a $700 million shortfall in the state budget. Pension obligation bonds could require in similar circumstances that future Legislatures dip into the pension reserves to make the debt service requirements, Corn said.
Proponents of pension obligation bonds suggest that lawmakers could identify a dedicated revenue source to make the debt service payments.
If the Legislature can find a funding source for debt payments, the state would be much better off to contribute those funds directly to the pension programs rather than to engage in a risky financing scheme, Corn said.
Corn also voted against approval of the edited report, saying he would have rather waited until a clean copy could be presented to the commission for final approval.