(Bloomberg) -- Alaska may double this year’s supply ofpension obligation bonds as itconsiders borrowing $1.6 billion to help fund its cash-strapped retirement trust.

As of 2013, Alaska had the fourth-worst funded pension among U.S.states, reporting it had 52.3 percent of the moneyneeded to pay retirees, better than only Illinois, Connecticut, andKentucky, data compiled by Bloomberg show.

Since then, the state has done some one-time fixes--like a $1billion cash injection into the trust last year--but hasn’t madestrides to permanently fix the fund, said Deven Mitchell, thestate’s debt manager at the Alaska Department of Revenue.

Prompted by Governor Bill Walker, Alaska is looking into thepossibility of a $1.6 billion general obligation pension bond,Mitchell said.

"It appears that this interest rate environment provides anopportunity for us to get in on the leveraging side at a low rate,"Mitchell said. "We’re thinking it’s not a bad time to consider thisalternative."

The state’s plan isn’t new. Alaska almost issued pensionobligation bonds in 2008, back when its funded ratio was at 75.7percent, Mitchell said. At the time, the state legislature createdthe Pension Obligation Bond Corporation, a conduit that thesecurities could be issued through, and approved up to $5 billionof debt, Mitchell said.

The deal team published a preliminary offering statement, gaverating company presentations and was in the process of picking asale date when the stock market started to crash. The pensionobligation bond dreams were over.

"The funny thing is, if we had bitten the bullet and ate thehigh interest rates [in early 2009], we would have been doing greatnow," Mitchell said. For a pension obligation bond to be "in themoney," the eventual investment returns made with the proceeds haveto exceed the initial borrowing rates.

This time around, Governor Walker has asked Mitchell to pick upfrom where they left off in 2008 and see if the economics stillmake sense.

Mitchell said the deal will be ready to come to market ifGovernor Walker gives the green light. Because of the work done in2008, the governor won’t need legislative approval to issue thepotential bonds.

Selling bonds to pay back other debts may not seem intuitive,but it’s becoming a regular occurrence for those struggling to fundtheir pension systems. This year, state and local governments havesold the most GO pension obligation bonds since 2008 even assentiment against them has grown.

The Government Finance Officers Association recommended, in aJanuary advisory, that state and local governments refrain fromissuing the bonds, reminding its 17,500 members that the proceedsfrom the deal might not return as much as the interest rate on thebond itself.

"People really don’t know what’s going to happen in the market,a lot of folks in the market don’t know what’s going to happen inthe market," said Dustin McDonald, a director at the federalliaison division of the GFOA. "Ultimately you’re betting onpositive market outcomes that you may or may not see."

Fitch reiterated the concerns in an Aug. 13 report, tellinginvestors the debt "won’t fix U.S. public pensions" and theissuance of these types of bonds will only ever be neutral ornegative for a credit.

According to Matt Fabian, a partner at Municipal MarketAnalytics, "they’re always a bad idea."

If Alaska goes through with its deal, this year’s total pensionobligation bonds issues will be more than $3 billion, almost tentimes last year’s supply, according to data compiled byBloomberg.

Issuers have argued that not all pension obligation bonds areequal. If the bond proceeds go directly to the pension trust andjust reduce rather than replace annual payments, then there’snothing for investors to be concerned about, said Kansas StateTreasurer Ron Estes. Kansas sold $1 billion of pension obligationbonds in August, raising its funded ratio to 65 percent from 62,Estes said.

"There are risks in doing this, but the biggest risk is notfunding your pension," Estes said.

Mitchell said he’s framing Alaska’s potential deal to mimicKansas’s. So far Mitchell has arranged an underwriting syndicateand put together a "shell" of a preliminary offering statement.

As Alaska considers ways to repair its pension system, it alsofaces a $3.5 billion structural budget deficit, equal to about 55percent of general fund expenditures, according to a note fromStandard & Poor’s from Nov. 2.

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