Riverside County supervisors are scheduled Tuesday to approve a bond sale capped at $727 million to generate funds to pay down growing pension debts.
The proposed sale of 2020 Series Pension Obligation Bonds is among the top items on the Board of Supervisors’ policy agenda. The county’s last major issuance of pension bonds occurred in 2005 and involved an aggregate amount less than half what would be offered under the pending proposal.
“Pension obligation bonds will reduce the county’s interest cost on a portion of what is due to the California Public Employees Retirement System, thus providing savings which can then be used to make additional discretionary payments to CalPERS,” according to an Executive Office statement posted to the board’s agenda.
Chief Financial Officer Don Kent said that the interest rate environment is optimal, with the bonds likely to bear interest costs of just under 3% under predicted market conditions — not those that have developed in the last several weeks because of the novel coronavirus shock to the financial system.
Most ratings agencies, including Standard & Poor’s and Moody’s, rank Riverside County in the double-A grade category or higher for fiscal responsibility.
The IOUs would be sold in $5,000 tranches or similar denominations, with interest payments paid semiannually over unspecified durations, according to Executive Office documents. The proposed underwriter is St. Petersburg, Florida-based Raymond James & Associates.
The county’s unfunded pension liabilities total slightly more than $3.5 billion. In the next fiscal year, the amount is expected to top $3.7 billion, according to estimates. Executive Office officials said the bond sale would provide a near-term solution to slashing liabilities.
According to a county Pension Advisory Review Committee report published in January, with $8.1 billion in assets, the county’s retirement apparatus is about 70% funded in both the miscellaneous and safety categories.
The safety category covers sheriff’s deputies, District Attorney’s Office investigators, probation agents and others, while the miscellaneous rolls cover clerks, custodians, nurses, social workers, technicians and other employees not involved in any law enforcement function.
The amounts required to fund workers’ nest eggs in CalPERS will escalate over the next decade, topping out close to $1 billion annually, based on recent data, according to PARC.
A major influence on pension costs is CalPERS’ investment performance. County officials said the pension fund behemoth has returned an average 6.5% annually over the last 15 years, well below benchmark indices’ gains in some years.
In order to make up for losses, the county will have to push its contribution rates up in the current fiscal year — to the equivalent of 24.5% percent of payroll for the safety category, compared to 21.6% currently, and the equivalent of 43% of payroll for the miscellaneous category, compared to 37.3% now, according to the PARC report.
Employees across the spectrum in county government generally contribute less than 10% of gross earnings toward their defined-benefit plans with CalPERS, figures showed.
Supervisors Jeff Hewitt and Kevin Jeffries have made reducing the county’s pension liabilities top priorities.