Impact of Funding for State Pensions on State Borrowing Costs

Abstract

This paper studies the impact a state’s funding for their pension obligations has on their borrowing costs. This is measurable by examining the amount it costs for each state to borrow money and comparing it to the level of funding for pensions. States with less funding to cover pension obligations can expect their borrowing costs to increase. This is because states with less funding are perceived as riskier investments. It is important for states to keep their pension funding healthy because it will save them money when they issue debt in the market. This will free up more cash for essential services and the budget.