The Impact of Pensions on State Borrowing Costs

Alicia H. MunnellJean-Pierre Aubry Laura Quinby

SLP#14

The brief’s key findings are:

  • Both public pensions and municipal bonds are in the headlines.
  • An important question is how pensions affect municipal bond rates.
    • Our analysis of 37,500 bond issues found that pensions raise rates by a modest 3-7 basis points.
    • However, if pension costs rise as a share of state budgets, this impact could increase in the future.
  • Interestingly, pensions do not appear to have an impact on bond ratings.