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Strapped Governments Revive Pension Bonds

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Philadelphia fell into a similar trap when then-Mayor Edward G. Rendell (D), now Pennsylvania's governor, sold $1.29 billion in pension bonds in 1999. Rendell's successor did not make full contributions to the fund as he tried to balance the budget.

Current Mayor Michael A. Nutter (D) said he wants to borrow as much as $4.5 billion to close the deficit, promising that this time the city would make the necessary annual contributions.

"We're going to be committed to making sure the fund stays well-funded," said Rob Dubow, Philadelphia's finance director.

Illinois Gov. Rod Blagojevich (D) is making similar promises four years after selling $10 billion in pension bonds. The state still faces a $42 billion deficit and the governor asked the legislature to approve $16 billion more of the securities.

A study released last month by consulting firm Greenwich Associates in Greenwich, Conn., found that public pension managers expect to outperform market benchmarks by 1.46 percentage points over the next five years, an outcome it said was "probably not" realistic.

Jeremy R. Cooke contributed to this report.

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