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Marin
to use bonds to cover pensions
Marin
Independent Journal 30 April 2003
The
county of Marin is betting it can save taxpayers about $27 million over the
next 24 years by getting the bond market to partially underwrite its
retirement system. County
supervisors voted yesterday to issue $110 million in 24-year bonds to help
finance the retirement system's debt. The offering itself will cost the
county $500,000 to $560,000. "Given
what we know at this time, it makes total financial sense to issue these
pension obligation bonds," Auditor Controller Richard Arrow said. The
county operates under the assumption that its $777 million retirement fund
will earn a yearly investment return of 8.25 percent. If
the fund performs below this target for several years - the figure is
averaged over five years - then the county must increase its contribution.
The fund has suffered net investment losses the past two years - more than
$30 million in 2000-01 and $61 million in 2001-02. In
addition to lower investment earnings, the county's pension debt is a result
of enhancements in the retirement plans of several hundred employees
approved by supervisors this summer. The enhancements increased annual
retirement system costs by $2.8 million. Arrow
estimates that by the end of the year, pension debt will have grown to more
than $110 million. Without
the bond offering, the county would have to retire the debt by making
payments to the Marin County Employees Retirement Association at an 8.25
percent rate. The cash generated by the bond offering will allow the county
to pay the retirement system the money it owes immediately while repaying
the bond debt over time at a much lower interest rate. Arrow
told supervisors yesterday he expects to pay bond buyers only about 5.5
percent interest. Arrow hopes to issue the bonds within the next 10 days. "That
is really important," Arrow said. "Timing is everything with these
kind of things." He
noted that Gov. Gray Davis' revised budget is due out May 14 and, if the
size of the state's budget deficit - already estimated at $35 billion - has
grown since the last estimate, then enthusiasm for California bonds might be
dampened, Arrow said. Earlier
this month, Contra Costa supervisors approved selling $340 million in
20-year bonds to finance that county's pension debt, and a host of other
counties - including San Luis Obispo, Kern and Stanislaus - are planning
similar offerings, Arrow said. Despite
the likely savings to the county, the bond offering does have a potential
down side. If the retirement fund's earnings average below 5.5 percent - or
whatever interest rate the bond buyers agree to pay - over the next 24
years, then the county will be saddled with additional debt. "But
if that happens, then the pension obligation bonds will be the least of our
worries," Arrow said. "If
that happens, we'll have to lease out the Civic Center," Supervisor
Annette Rose said. Copyright ©
2002 Global Action on Aging
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