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The city of Tucson, Arizona, decided last year to pay rent on five golf courses and a zoo to itself. In California, West Covina agreed to pay rent on its own streets. And in Flagstaff, Arizona, a new lease agreement covers libraries, fire stations and even City Hall.
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’ pensions.
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 who are desperate for yield in a world of near-zero interest rates by offering a rate of return that’s slightly higher than similar financial assets. In
Cities and states issued at least $6.1 billion in pension bonds last year. Novel ways to do so include renting property they already own under dummy corporations.