US states and cities plan to use pension bond proceeds to help fill their retirement fund deficit and also generate a higher return than their interest payments. Officials may sell a record $35 billion of the securities this year after offerings declined since 2003, according to data compiled by Bloomberg. Connecticut issued $2.2 billion of pension debt last month, paying an average rate of 5.88 percent on money state officials project will earn 8.5 percent when invested. With the economy slowing and states facing budget deficits that Standard & Poor's says will top $30 billion next year, officials are turning to borrowing. New Jersey sold $2.8 billion of the debt in 1997 and its pension gap has since increased to 10 times that amount.

“It's the dumbest idea I ever heard,'' said New Jersey Governor Jon Corzine, former chairman of Goldman, Sachs & Co. “It's speculating the way I would have speculated in my bond position at Goldman Sachs.” There are over 100 public retirement systems in the U.S. managing a combined $2.3 trillion. The amount is $380 billion short of the funds needed to pay pensions over the next 30 years, according to the National Association of State Retirement Administrators in Louisiana.