Mackenzie Ryan of the Statesman Journal (Salem, Ore.) recently investigated a new and controversial financial strategy in Oregon that attempts to lower a public agency's pension system. The arbitrage strategy - where cities, school districts and the state issued bonds and then invested the money - made pension costs more volatile because "an agency's pension costs are much smaller after good economic times and much larger after tight economic times." Despite years of success, last year $1.9 billion was lost during the economic meltdown. This may result in layoffs or service cuts to local agencies and the state when pension rates reset in 2011 to reflect investment losses.
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