Riverside County could borrow $727M via bonds to cut pension debt

Pension Obligation Bonds  (POB) are like getting a new credit card, to pay off the old card.  We are told that we save money by buying bonds—to pay off the trillion dollar unfunded liability of CalPRS.  City after city is cutting back on law enforcement, roads and libraries—just to pay CalPRS to keep their doors open.

“Riverside County could issue almost $730 million in bonds to whittle down its $3.5 billion pension debt, a move meant to save money while tackling a massive, growing and chronic expense that looms over county finances.

The Board of Supervisors last week voted 3-2 go to the bond market to pay 20% of the county’s unfunded pension liability. The Tuesday, March 17, vote doesn’t mean the county will sell bonds right away, but it sets the wheels in motion to get to that point.

Even before the novel coronavirus pandemic upended the global economy and everyday life, county government faced another challenge – how to address a $3.5 billion debt that threatens to grow and consume already scarce dollars for police, fire protection, and other public services for the county’s 2.3 million residents.

It should be noted that in the first three weeks of the virus, CalPRS lost $69 billion in stock equity.  What to gamble with $730 million?  Riverside is going to do it.  A good time to leave before the County goes belly up getting a new credit card to pay off the old one.

Calpers headquarters is seen in Sacramento, California, October 21, 2009. REUTERS/Max Whittaker

Riverside County could borrow $727M via bonds to cut pension debt

By Jeff Horseman,| The Press-Enterprise, 3/24/20 

Riverside County could issue almost $730 million in bonds to whittle down its $3.5 billion pension debt, a move meant to save money while tackling a massive, growing and chronic expense that looms over county finances.

The Board of Supervisors last week voted 3-2 go to the bond market to pay 20% of the county’s unfunded pension liability. The Tuesday, March 17, vote doesn’t mean the county will sell bonds right away, but it sets the wheels in motion to get to that point.

Even before the novel coronavirus pandemic upended the global economy and everyday life, county government faced another challenge – how to address a $3.5 billion debt that threatens to grow and consume already scarce dollars for police, fire protection, and other public services for the county’s 2.3 million residents.

That debt, and what the county pays to the California Public Employees’ Retirement System, or CalPERS, was projected to grow through 2030 – and that was before COVID-19 sent markets into a free fall.

The county executive office, which oversees day-to-day affairs, suggested the bond sale as a way to help tackle that debt more efficiently. By locking in a lower bond interest rate that CalPERS’ 7% interest rate for unfunded liabilities, the county could save $268 million over 17 years, officials said in a memo to supervisors.

It wouldn’t be the first time the county sold bonds to pay down its pensions. Bonds issued in 2005 have saved the county $138 million as of Feb. 15, officials said.

Given the current market upheaval, “we couldn’t issue (bonds) today if we wanted to,” County Finance Officer Don Kent told supervisors. But an actuarial analysis put the likelihood of the county saving money by issuing $727 million in bonds at 85%, according to the memo to supervisors.

“I believe that (selling the bonds) would put us in a better position down the road with the savings,” Kent said, “because we owe the debt anyway.”

Supervisor Jeff Hewitt was skeptical.

“We’re making all kinds of assumptions here … that’s just on top of the fact that we’re paying a credit card with another credit card,” Hewitt said. “I think there’s way too much to give up for maybe a little bit of gain down the road … this is not kicking the can down the road. This is kicking it off in the weeds.”

Given the uncertainty caused by COVID-19, it’s not wise for the county to tie up its assets with the bond sale, Hewitt added.

“Looking at the coming days, we may need these (assets) just for … paying for necessary services,” he said.

Supervisor Kevin Jeffries also was opposed.

 “I have this feeling that we may do all this and not come out ahead other than being in debt $700 million,” Jeffries said. “I get there’s a business reason to do this … I just wonder where it goes south on us.”

Supervisor Chuck Washington compared the bond sale to refinancing a mortgage. The savings realized from selling the bonds, he said, could be used to address Hewitt’s concerns about paying for services.

Supervisor Karen Spiegel wants any savings from the bond sale to go toward paying down pension debt. But she supported the sale.

“I see it as buying low and selling high,” she said. “This is an all-time low and then in turn, selling high.”

Spiegel, Washington, and Supervisor V. Manuel Perez voted to move ahead with the bond sale. Hewitt and Jeffries voted no.

About Stephen Frank

Stephen Frank is the publisher and editor of California Political News and Views. He speaks all over California and appears as a guest on several radio shows each week. He has also served as a guest host on radio talk shows. He is a fulltime political consultant.

Comments

  1. Really??? says

    If you ran your personal daily and yearly budgets the way government runs theirs you would be in bankruptcy court in just a few years.

    Look in the mirror every one of you government employees. YOU are the problem. YOU demand more and more benefits instead of planning and saving.

    Look in the mirror every one of you voters who voted for “any” politician that stated Government Employees need to be paid more then the private sector. YOU voters who seemed to ignore the fact the money is coming out of your pay check. YOU the voter that has allowed stupid planning and operation for “POLITICAL CORRECTNESS” are the ones who are now faced with a State and Local tax base that is unsustainable.

    Like what you see? Have you voted Democrat? Why?

  2. tomsquawk says

    borrow to reduce debt? let me light up a cigar and blow some smoke at some mirrors.

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