Sonoma County OKs $290 million pension bond

<p>The Sonoma County Board of Supervisors Tuesday approved issuance of $290 million in pension obligation bonds in what amounts to the largest bond borrowing package in county history.</p><p>The 5-0 vote came after about a half-dozen audience members voiced concerns about the county taking on additional debt to help pay uncovered pension obligations and doing so without tackling the rising cost of retirement benefits.</p><p>Supervisors said, however, that the issue of current financial shortcomings in the the pension system, caused in part by large stock market losses in 2008, is a separate issue from revisions to the system itself. The potential benefit of a bond needs to be captured now and pension overhaul dealt with later, they said.</p><p>“I don't disagree that some kind of reform is needed,” said Supervisor Mike Kerns, echoing the comments of several other board members. “However, as to what we're doing today, that is apples and oranges.”</p><p>Bond critics blasted that logic at the meeting.</p><p>“We're refinancing the house. The house is on fire!” said Bob Andrews, a former retirement plan advisor and Sonoma County resident. “Put off this pension obligation bond until you address the problem — unsustainable (retirement) benefits.”</p><p>The new bond will go toward wiping out about $289 million of the $402 million in unfunded liability currently on the books of the Sonoma County Employees' Retirement Association, or SCERA.</p><p>Unfunded liability is the difference between the pension fund's assets, currently at $1.3 billion, and its obligations to more than 3,500 retired members, most of them county government retirees.</p><p>The revised bond sum differs from the number put forward earlier by the county — $300 million — a figure which county officials said was a rough estimate meant to provide for some leeway in discussions.</p><p>The county expects to pay the bond back over 20 years at about 6 percent interest or less. The latest estimate for an interest rate is 5.8 percent, officials said.</p><p>The bond payments potentially are a cheaper alternative than allowing the unfunded liability to remain on the books, county officials said. That's because, without a bond, the county would have to jack up its pension contributions to meet debt service at 8 percent interest, which is equal to the pension fund's assumed rate of return on its assets.</p><p>Officials say the lower interest payments offered by the bond will save taxpayers $3 million to $7 million yearly, or a newly revised figure of $97 million over the life of the bond. </p><p>But municipal finance experts say that pension bonds are a risky tool that can end up costing governments millions if a fund's long-term rate of return on its investment portfolio drops below the interest rate on a bond. In such a scenario, not only would the county be paying the 6 percent bond interest, it would be forced to make up the difference between the projected return on investment and the actual return. </p><p>“Essentially you are gambling,” Laura Williams, a retired local teacher, told the Board of Supervisors.</p><p>The fund's current 20-year average rate of return is 7.8 percent, a historic low. County and SCERA officials said they were confident it would not drop lower than the bond's interest rate over the new bond's 20-year lifetime. </p><p>But the bond will double the county's pension-related debt and push its current $30 million annual debt payment on two earlier pension bonds, in 1993 and 2003, totaling $328 million, to a peak of about $57 million in 2023.</p><p>It also won't staunch the bleeding in the retirement system. Still-unaccounted-for investment losses from 2008 and unfunded liability remaining on the books after the bond could result in unfunded obligations of more than $390 million by 2013, county and SCERA records show. </p><p>Citing those numbers, Supervisor Efren Carrillo was the lone board member to acknowledge some link between the county's continued need to refinance pension debt and the retirement system's mounting costs.</p><p>“We are looking at two different things,” he said, “but they are connected.”</p><p>Carrillo sought assurances from the board that they would take up pension changes “so that we are not here in another five to 10 years.”</p><p>Pension overhaul advocate and Guerneville resident Tom Lynch, who had urged the Board of Supervisors to put off approval of the bond, said the move amounted to “kicking the can for pension costs” to future generations and younger county employees.</p><p>“Ultimately, this bond will be paid for down the line with the loss of rank-and-file workers,” he said.</p><p>The county expects to lock down a final interest rate on the bond package in two weeks and close on the package by the end of the month.</p>