Selling Bonds to Fund OPEB is a Bad Idea

The Michigan Legislature has just passed bill No.1129, which allows municipalities to sell bonds to fund their post-employment benefit obligations. The idea is that in this low interest rate environment municipalities can put aside enough money to cover future obligations for retiree healthcare and reduce the strain on municipal budgets. This well-intentioned law is of dubious value and may be disastrous for Michigan taxpayers in the future.

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The law, which does not require voters to approve the issuance of the bonds, requires that prior to issuance a municipality makes available to the public a comprehensive financial plan that includes Section 518 (1) (b) which states: “Evidence that the issuance of the municipal security together with other funds lawfully available will be sufficient to eliminate the unfunded pension liability or the unfunded accrued health care liability.”

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