When financial markets tanked earlier this decade, governments were facing huge increases in the amounts they would have to contribute to their employee’s PERS accounts to fill the defined benefit gap. The Oregon economy was in recession and the electorate had little or no tolerance for increased taxes. In response, the state and some local governments issued pension obligation bonds.

The plan carried some risks: While it would make high returns higher, it could make low returns disastrous. At the time, the stock market was about to begin a four-year run of double digit annual returns, the housing market was taking off and interest rates were nearing record lows. These factors caused state and local governments to determine that the benefits of issuing bonds outweighed the downside risks. The governments that used the bonds have moved themselves toward the back of the train, but they nevertheless remain on the train.

Read the entire op-ed at the Statesman-Journal, or download a PDF.

In addition to typical annual capital investments, the report concludes that beginning in 2011, additional investments of $475 billion a year would be required to keep global temperatures 2 degrees Celsius below pre-Industrial temperatures. By 2026, the cost would rise to $1.2 trillion a year.

The net present value today of the additional expenditures between 2011 and 2030 would be approximately $7.3 trillion. That is bigger than China’s economy today and equivalent to the economies of Japan and India combined.

Citation:
Dinkel, J., Enkvist, P.-A., Nauclér, T., and Pestiaux, J. (2009). Pathways to a low-carbon economy: Version 2 of the global greenhouse gas abatement cost curve. McKinsey & Company.

A municipal bond issuer has a choice in how its debt is issued. With negotiated issuance, one or more underwriting firms acting together  purchase the bonds from the issuer. The issuer and the underwriter negotiate many of the terms of the issuance. With competitive issuance, bidders buy all the bonds according to take-it-or-leave-it terms proposed by the issuer in a widely circulated prospectus.

Some observers believe they have seen systematic differences in the costs to the issuer under the two methods. These perceived differences have, in turn, led to research to evaluate whether–or under what conditions–one method is superior to another.

Our research indicates a strong tendency for issuers to select the method of issuance that best suits the nature of the issue at hand, such that policies to mandate one type of issuance over the other will likely increase, rather than decrease, issuance costs.

Citation:

Fruits, E., Pozdena, R., Booth, J., and Smith, R. (2008). A comprehensive evaluation of the comparative cost of negotiated and competitive methods of municipal bond issuance. Municipal Finance Journal, 28(4):15-41.