Massive investment losses sustained by public pension funds are pressuring state lawmakers from New Mexico to New York to spend more taxpayer money to shore up their programs, boost the retirement age for newly hired government workers and seek more from employee paychecks.
The genius part is that tapped-out taxpayers will be forced to pony up to try to close the pension funding gap - and it won't be enough. This kind of drain on states' revenue sources make muni bonds a lot less attractive than they used to be, AAA-ratings aside; more tax revenue filling pension holes instead of potholes raises the default risk on munis as state treasuries empty. My home state of California is in particular trouble. Calpers' bad bets on private equity are exacerbated by its contractual commitments to fully commit uncommitted capital:
The California Public Employees’ Retirement System poured $1.71 billion into Apollo Management LP last year, more than twice as much as it gave any other private- equity manager, betting that the firm could exploit the global credit crisis. So far, the bet is coming up snake eyes.
No way am I buying munis now! I want to see some California munis backed by revenue from real projects, preferably transit infrastructure or energy projects. I'll wait as long as I have to for those issues.
Nota bene: Anthony J. Alfidi does not own any muni bonds at this time.
