— But if the interest rate is around 6 percent and the rate of return is 8 percent, then the pension-obligation bonds are a winner, Frazier told the commission. Boling says that the claimed 7.95 percent five-year rate of return and the 8 percent actuarial assumption are both being audited. "If it turns out that something is not being correctly characterized, that should surface in the audit," says Boling.

"It's very clear that she [Frazier] does not believe in pension-obligation bonds," Boling continues. But Jim Gleason, a city retiree who is a plaintiff in the lawsuit and who heard Frazier's talk, says it's clear to him that the city is seriously considering the move.

In her presentation, Frazier said that Fitch, a bond-rating service, says that "a funded ratio at less than 60 percent is a cause for a significant rating concern." If Wall Street does its homework, it should not be fooled by the phony accounting that has pushed San Diego's ratio to 67.

Frazier also told the commission that the pension deficit is a "soft" internal liability, while the bonds would be a "hard" external debt obligation. Basically, what that means is that the current pension deficit is out of sight, out of mind, and off the balance sheet. If the city sells pension-obligation bonds, the matter would be on the balance sheet, front and center.

Says Shipione, "Pension bonds would take hugely expensive off-balance-sheet debt hidden from the budget and put it on the city's balance sheet so it would have to be dealt with every year." But, she warns, because of last year's actions by Murphy and the council, the city could become insolvent "even if pension bonds are issued. The only answer is to recognize that the pension problem is in the billions and be willing to deal with it at that level. There's no suggestion that will happen under this mayor and council."

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