The City of Tucson, Ariz., decided last year to pay rent on five golf courses and a zoo \u2014 to itself. In California, West Covina agreed to pay rent on its own streets. And in Flagstaff, Ariz., a new lease agreement covers libraries, fire stations and even City Hall.<\/p>\n
They are risky financial arrangements born of desperation, adopted to fulfill ballooning pension payments that the cities can no longer afford. Starved of cash by the pandemic, cities are essentially using their own property as collateral of sorts to raise money to pay for their workers\u2019 pensions.<\/p>\n
It works like this: The city creates a dummy corporation to hold assets and then rents them. The corporation then issues bonds and sends the proceeds back to the city, which sends the cash to its pension fund to cover its shortfall. These bonds attract investors \u2014 who are desperate for yield in a world of near-zero interest rates \u2014 by offering a rate of return that\u2019s slightly higher than similar financial assets. In turn, the pension fund invests the money raised by those bonds in other assets that are expected to generate a higher return over time.<\/p>\n
If they can pull off the strategy, cities issuing these bonds can reduce their pension bills by an amount that\u2019s the difference between what they earn and what they pay out. But as with any strategy based on long-term assumptions, there is risk.<\/p>\n
Read it all<\/a>.<\/p>\n The City of Tucson, Arizona decided last year to pay rent on five golf courses and a zoo \u2014 to itself. Starved of cash by the pandemic, cities are essentially using their own property as collateral of sorts to raise money to pay for their workers\u2019 pensions. https:\/\/t.co\/RWGt2IqHoc<\/a><\/p>\n — NYT Business (@nytimesbusiness) February 16, 2021<\/a><\/p><\/blockquote>\n \n