HEALDSBURG TO REFINANCE PENSION DEBT

Healdsburg is moving to refinance some of its employee pension debt in a move that city officials say will save approximately $900,000 over 11 years.

The action taken by the City Council Monday won't reduce another $26 million estimated gap in funding employee pensions, but at least it whittles away at a separate "Side Fund debt" that the city owes to CalPERS, the public employee retirement system.

"The reality is it will save us some money in the end -- almost $900,000," said Mayor Gary Plass. "In today's world, that's something we have to do."

"To save $83,000 a year is a big deal," said Councilman Steve Babb, who said it is an example of what Healdsburg is doing for pension reform as well as for the employees.

"The way you eat an elephant is one bite at a time," he said in reference to the mammoth challenge Healdsburg and other governments face with mounting pension costs that have been exacerbated by poor investment returns for pension funds, along with more generous retirement plans for workers.

The City Council on a 3-0 vote Monday authorized the issuance of pension obligation bonds, which have a lower interest rate than what CalPERS charges the city for its Side Fund -- thus resulting in the savings.

A Sonoma County Superior Court judge also will have to review the deal and validate it in order for the bonds to be issued without voter approval.

When Healdsburg's pension plans were pooled with other small cities and agencies approximately 10 years ago, CalPERS reviewed the city's contributed pension plan assets and estimated liabilities.

"It determined that at that time, the liability values for the two plans exceeded the asset values, creating a liability," said Healdsburg Finance Director Heather Ippoliti.

CalPERS dealt with the difference by creating what it calls "Side Funds," representing the differences between assets and liabilities. Side Fund debts were treated as loans from the state pension agency to Healdsburg, according to Ippoliti.

Currently, Healdsburg owes just under $9 million for the side loan, amounting to $2.6 million for its public safety employees and $6.3 million for its miscellaneous employees.

The Side Fund balance is amortized, and annual payments are applied in a similar manner as a mortgage loan with an interest rate of 7.5 percent.

But now the city intends to issue bonds through "private placement funding" to pay off the side fund obligation to CalPERS.

A private placement is a sale of bonds directly to a single institutional investor such as a bank. The interest rate is fixed for 10 years.

The bonds have a lower interest rate -- 4.6 percent -- so the city will save about $83,000 annually.

The bonds will be authorized in an amount not to exceed $9,025,000.

Brandis Tallman LLC, of one of the few firms that handle such financing, will be paid up to $45,000 in fees and to handle the sale of the bonds.

In order to issue the pension obligation bonds, a judge has to review the plan and validate the process, essentially supporting the legal theory under which the bonds are issued.

Meyers Nave, the city's bond counsel, will be paid an estimated $25,000 to help with the court validation process.

The validation is estimated to take three months or more, and then the City Council will give final approval for the purchase of the bonds by an investor.