Is it worth a punt on pensions? A case study of three municipalities’ use of pension obligation bonds

Cities now commonly engage with financial actors, tools, and markets to manage their budgets and associated activities. The growing significance of finance within urban governance is connected by some scholars to the latter’s increasingly speculative character. One area of urban governance where financial tools are now commonly used for speculative ends are public pensions. Across the United States, many state and local governments face large unfunded pension liabilities. In some cases, this has led them to issue pension obligation bonds to reduce their unfunded liabilities. This paper examines the extent of recent pension obligation bond issuance and develops a comparative case study of three Massachusetts municipalities. The research results show that the speculative content of pension obligation bonds varies, even across three Massachusetts municipalities. By using pension obligation bonds, all three case study cities have exposed themselves to different levels of financial risk and have given themselves a long-term governance challenge by installing a speculative financial tool within their budgeting.