Pension Funding Has Modest Muni Bond Cost Impact

February 15, 2011 ( – A new study analyzing 37,500 state and local government bond issues found that pension funding raises rates by a modest 3 to 7 basis points.

The study, released by the Center for State and Local Government Excellence, said that while rating agencies consider pensions when judging state and local governments’ economic fitness, pension funding does not have a statistically significant effect on governments’ bond ratings.

Pointing out a flurry of state and local government activity dealing with pension funding since the economic downturn began, the study contends: “Government officials recognize the importance of strengthening pension assets, not only because of their obligations to employees and retirees, but also because they want to retain good bond ratings.

Researchers pointed out that pension expense accounted for only 3.8% of state budgets in 2008.

The study report is here.