The Impact of Pensions on State Borrowing Costs

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.