Supervisors approve bonds to pare down pension liabilities


RIVERSIDE (CNS) – A divided Board of Supervisors today approved moving forward with a bond sale capped at $727 million to generate funds to pay down growing pension debts, but the turbulent market conditions cast doubt on the sale happening anytime soon.
The sale of 2020 Series Pension Obligation Bonds was atop the board’s agenda following a lengthy discussion regarding novel coronavirus impacts following the national emergency declared by the president.
“A biological issue has turned into a financial issue, and now a liquidity issue,” county Chief Financial Officer Don Kent told the board. “It’s an economic downturn, and I’ve never seen anything like this before. It’s like 9/11 and the 2008-09 financial crisis has been mashed into one.”
Kent said the county’s interest earnings on assets will drop, along with sales tax receipts and other streams, eating up some discretionary revenue.
“The rug has been pulled out from underneath us all,” the CFO told the board.
Supervisors Jeff Hewitt and Kevin Jeffries opposed authorization of the bond issuance but were outnumbered by the affirmative votes cast by Supervisors Manuel Perez, Karen Spiegel and Chuck Washington.
“With the way things are changing daily, I don’t know where the market’s going to go and where bond rates will go,” Hewitt said. “I don’t think the timing is right for this. Let’s sit back, watch and keep the flexibility to use our assets down the road quickly on other things.”
Jeffries compared selling bonds to pare down unfunded pension liabilities to “using a credit card to pay off a credit card.”
“There’s a potential risk associated with this financing,” he said. “We may do all of this and then not come out ahead, but just be more than $700 million in debt.”
Kent acknowledged that various scenarios could play out that do not favor the county’s accruing more debt to meet pension obligations, but he argued the interest rate environment had been advantageous, with the bonds likely to bear interest costs of less than 3%.
With the cost of servicing the county’s unfunded liabilities maintained by the California Public Employees Retirement System at 7%, the county would net savings of several hundred million dollars over the next two decades by paying a lump sum — $727 million — to CalPERS, according to Kent.
“The markets are very volatile, so we couldn’t issue this (bond debt) today if we wanted to,” the CFO said. “Your vote allows us to move forward. When the dislocation of the financial markets subsides, and there’s demand for the paper, (the sale) is a go.”
Spiegel wanted bond proceeds specifically designated for deposit into the county’s pension trust fund to ensure the revenue does go to CalPERS, but Washington and Perez convinced her that any such move should be deferred until the county’s financial position is better known.
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 current sale.
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 if not addressed, 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.