State pension fund loses $8 billion
By Matt Viser, Globe Staff
State Treasurer Timothy P. Cahill reported today that the state pension fund has lost nearly $8 billion this year, mostly because of the collapsing financial markets.
The fund has fallen since January from $53.7 billion to $45.7 billion, or 14.9 percent, and could take years to recover. The fund has seen similar declines during past financial downturns.
Cahill announced the losses during a pension board meeting this morning and urged board members not to panic, saying the markets will bounce back over the long term. The pension fund pays retirement benefits to state employees and retirees.
Cahill said that the fund relies on long-term growth – and not on short-term market fluctuations.
“It doesn’t put any more pressure on us. Anyone who has retired or is about to retire doesn’t have to worry about us making our payments,” Cahill said in an interview. “We could be up $3 billion from this by the end of the month. We’ve been fluctuating being down $8 billion and up $3 billion in the last three weeks.”
Cahill also said today he had good news to announce: The state was finally able to sell $750 million in revenue bonds at favorable interest rates, averting potentially dire financial problems and securing enough money to keep the state afloat until late November.
“The deal was a home run,” Cahill said. “It was much better than we had, even in our best estimates, hoped for.”
Cahill on Tuesday had delayed, for the second time in a week, issuing the bonds because of continued uncertainty in national credit markets.
Rather than auction the bonds themselves, state treasury officials this week hired two New York-based banks, Goldman Sachs and Citigroup, to help it sell the $750 million in bonds.
Cahill said that he was afraid that if the state sought bids on its own and there were no takers for its bonds, it could hurt the state's image in the credit market.
The state got a 2.2 percent interest rate on the bonds, which will have to be paid back in April and May, largely using income tax revenues that will come in next year.
“The market received it very, very warmly.” Cahill said. “It’s a really good sign, not only for us but for other states across the country.”
Credit markets have been frozen in recent weeks, making even the most routine borrowing virtually impossible to carry out. Cahill said the state would likely not need to go back to the markets until late November or early December.
