Cash-strapped local governments are turning to a risky maneuver to cover its pension shortfalls: creating a dummy corporation to hold its assets and rent them back to the municipality, said the New York Times.

The trick works thusly: a municipality with a pension shortfall will create the aforementioned dummy corporation; it then transfers assets to this new entity, which in turn rents them back to the government; the dummy corporation, in turn, issues bonds to investors, who want a piece of the rent payments, and sends the proceeds back to the municipality; and the pension fund then uses the money.

Through this process, a municipality can reduce its penson shortfall by the difference between what these bonds make and what they pay out, provided things work out. If not, such as in the case where the investment returns don't provide as much as first thought, taxpayers can still be on the hook for the shortfall, even if technically the bonds were issued by the corporation. This is what Detroit learned when its own use of dummy corporations came to a head in its 2012 bankruptcy.

And even if it does work out, depending on how the state has its pension system set up, it could still wind up owing money: the Times pointed to the example of one California town that used this technique to generate $200 million to pay the state pension system, CALPERS. While it would appear to have gotten through the ordeal, if CALPERS does not achieve 7 percent growth, the local pension system will still be underfunded and the municipality will need yet more money to over the shortfall.

In general, government finance experts have tended to highly recommend against such maneuvers due to the risk they present the municipality.