Officials Discourage Bonds To Fund Retiree Liabilities
The Government Finance Officers Association's debt committee on Thursday approved a recommendation that advises its members not to sell bonds to cover the future costs of providing health benefits to retirees, Bloomberg/Los Angeles Times reports. GFOA represents 16,800 finance officers for state and local governments.
Under a new accounting rule that took effect last month, state and local governments must disclose future liabilities for any retiree health benefits they have promised employees. According to estimates by Standard & Poor's, state and local governments face $500 billion to $1 trillion in unfunded liabilities for retiree health benefits.
The debt committee's recommendation states that the group "urges governments to exercise considerable caution" in considering borrowing to fund liabilities because of the risk that benefit expenditures will be different than projected and because of the need to establish a trust to invest the borrowed money with the goal of earning returns that would cover the costs.
Patrick Born, chair of the debt committee and CFO for the city of Minneapolis, said, "State and local governments should not use bonds to solve the problem," adding, "They have to address what is driving costs, and that is hard to do." The debt committee's recommendation will be considered by GFOA's full board in March (Bloomberg/Los Angeles Times, 1/19).