How to resolve AdBlock issue? At its May 18 meeting, the Lakeport City Council unanimously approved a resolution to direct the future issuance of one or more series of pension obligation bonds, approve a form of indenture of trust pursuant to which the bonds would be issued and authorize the commencement of a judicial validation action related to the issuance of pension obligation bonds.
During the same meeting, the council approved the appointment of Mayor Kenny Parlet and Councilman Michael Green to the Unfunded Accrued Liability Policy and Restructuring Ad Hoc Committee, which city staff said will make policy recommendations and evaluate restructuring options with regard to the bonds.
City Manager Kevin Ingram told the council that the matter was not about approving the bonds themselves but the process to move forward, which could last four to six months.
During that time, Ingram said they will start to dig into the specifics about how the bonds will work for the city. “It does offer us quite a few advantages moving forward.”
Ingram said a primary objective of the bonds is to “smooth” the budget, helping with predictability, sustainability and resilience to future economic shocks.
It’s also an opportunity to take advantage of low interest rates, he said.
Another key reason for the bonds is that they will allow the city to refinance a lease action the council approved in 2015 that used as collateral City Hall, the Lakeport Fire Protection District’s downtown fire station and Westside Community Park. The new funding would remove those encumbrances, Ingram said.
Mike Meyer of NHA Advisors, a city adviser on the bonds, said the city has $10.4 million in pension liability on its balance sheet.
Of that amount, $8.4 million is for unfunded accrued liabilities with the California Public Employees’ Retirement System, or CalPERS, plus $2 million remaining on the 2015 lease.
Meyer said that unfunded pension liability has increased from $4.9 million to $8.4 million over the last seven years, primarily due to CalPERS’ investment assumption changes.
The resolution also approved the city’s contract with Jones Hall, a bond counsel firm.
James Wawrzyniak of Jones Hall said they are working with other cities across California on similar actions.
Once the resolution was approved, Wawrzyniak said the firm planned to commence the validation action on May 21.
He said a workshop to review the unfunded accrued liability restructuring options will be held in June or July. At that point, the council would determine whether to proceed with the pension restructuring transaction.
If the council moved forward, Wawrzyniak said a credit rating process would take place during the summer, and then in the summer or fall the valuation process would end. Formal council approvals would be needed at that time.
Ahead of the vote to approve the resolution, Parlet noted that the council’s 2015 attempt at “lowering the curve” of its obligations was an effort to balance the annual expenses so the city could maintain its service levels.
He faulted CalPERS for the “unpredictable nature” of the organization’s investments.
Dealing with obligations
In 2015, Dan Buffalo, then the city’s finance director, took to the council a proposal to reduce the cost of its unfunded pension costs to the general fund.
Over the course of several months, the council and staff looked at issuing new, unsecured debt to replace its existing CalPERS obligations, but by August of that year changes to the bond market ruled out pursuing a pension obligation bond at that time.
That led to staff and the city’s finance committee coming back in August 2015 with a proposal the council unanimously accepted, to pursue new debt through a bank to securitize new debt.
In order to do that, the city had to use City Hall — listed as the city’s “most essential” asset, which would allow for more aggressive bidding from banks and a lower interest rate — along with the Lakeport Fire Station and Westside Community Park to secure the debt.
The city eventually would choose Umpqua Bank for a lease plan. The final lease for the pension obligations was dated Dec. 1, 2015, and notarized on Dec. 28, 2015, Ingram told Lake County News.
Ingram said in an interview this week that the process the city followed for its lease agreement in 2015 wasn’t standardized for cities as it is now, with collateral no longer being required.
He said the lease did work to help the city with its pension liabilities. Had the city not taken the action, the city would have had to use almost its entire general fund to pay for the liabilities.
“Then CalPERS didn’t meet their obligation again,” he said. “It looks like we’re in the exact same position.”
Ingram said CalPERS has “shown over and over again that we can’t trust them.”
CalPERS’ handling of retirement investments is further complicated by parameters set out for it by the Legislature, which Ingram said means that CalPERS’ investments don’t get the same returns as the rest of the market.
“They like to use it as a little bit of a political weapon,” he said of the Legislature.
He pointed to CalPERS divesting from tobacco and certain gun stocks.
The bonds will, like the lease, smooth the city’s budget and make it more predictable, Ingram said.
Before making a final decision on pursuing the bonds, the council will get information on CalPERS’ annual investment returns, Ingram said. All indications are that this year’s returns are good.
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