Fitch has previously noted that issuance of POBs is generally neutral to negative for an issuer’s credit quality. If POB proceeds are deposited with a pension trust, while actuarial contributions continue to flow uninterrupted from annual budgetary resources, the issuance of POBs offsets unfunded liability and has little immediate impact on the issuer’s overall long-term liability burden.
CTBA agrees that using POBs to “offset an annual pension contribution”—ie, to replace funding that would normally be coming from tax revenue—is irresponsible. That was one of the upshots of our Crain’s editorial in August.
But I think it’s not right to say the POBs in the reamortization plan are “offsetting an annual pension contribution.” Those POBs are *in addition to* the amounts paid with tax revenue as scheduled under current law. In other words, CTBA’s reamortization plan doesn’t create false savings by substituting tax-funded spending with debt-funded spending; it uses all of the POB proceeds to directly increase contributions to the pension systems as a bridge to the level-dollar amortization contributions.