WatchSonoma Watch

County borrows $291 million to refinance pension debt


Sonoma County has begun selling roughly $291 million in bonds to refinance debt owed to its pension system.

The sale started Tuesday and is set to close Sept. 1. The bonds are selling at an secured interest rate of 5.91 percent, less than the 6 percent the county set as the maximum rate it was willing pay on the bonds.

The transaction caps a controversial move by the county to borrow more money to pay off mounting pension costs, including $289 million of the $402 million in unfunded obligations currently owed to the Sonoma County Employees’ Retirement Association.

The county has twice before refinanced pension-fund debt through bonds. The new bond package will double the county’s pension-related debt and push its current $30 million annual debt payment to a peak of about $57 million in 2023.

County officials say the new borrowing is better than leaving the unfunded liability on the books, which would require the county to significantly increase its contributions to meet the pension plan’s annual projected returns of 8 percent, which is the basis for promised benefits.

Savings from paying the lower interest rate on the new bonds are expected to be about $99 million over the bonds’ 20-year term, according to County Auditor Rod Dole.

The bond sale involves about $1.7 million in fees to a number of legal and financial advisors, including JPMorgan Chase, Bank of America Merrill Lynch and Goldman Sachs.

The bonds are rated AA- by Standard & Poor’s and AA by Fitch Ratings, the fourth- and third-highest rankings, respectively.

16 Responses to “County borrows $291 million to refinance pension debt”

  1. john bly says:

    My issue is the fact that the public and the professional community had no “vetting” process here. The single biggest SOCO bond issue ever was put on the agenda, no advance warning, and then voted on in the same day. I am all for efficiency in government, and I have lots of respect for our Supes, but this was not very transparent to all of us folks out here in “private land”.

  2. Robert Shaw, bear,

    Historically, the reliable rate of return is the rate of inflation + 3%. It’s been higher than that, and it’s been lower, but for several centuries that has been what can reliably be achieved, year in and year out.

    Bernie Madof ran the biggest Ponzi scheme in history, stole tens of billions that will never be returned, and will spend the rest of his life in prison over a promise to deliver a 10% return.

    The Republicans may have had hold of the steering wheel, but the Democrats were running the gas and brakes.

    8% return is a stupid assumption rooted in a stupid decade.

  3. Robert Shaw says:

    Do your research people. If my broker didn’t get me 8% I would fire him in a heartbeat. I would expect better. If you set it and forget it, you risk a lesser return. If you manage it properly, it isnt that hard. Do your research.

  4. bear says:

    An 8% return on long-term investments was perfectly reasonable not so long ago. That would be before the republicans ran the economy off a cliff.

  5. Luke says:

    Basing the pension plan on an annual return of 8 percent is flat out irresponsible. At the beginning of this decade, the Dow Jones was at 11,500. Today, the Dow closed at 10,150.

  6. John says:

    This is smart because when governments formally go bankrupt, Sonoma CoOunty included, the bondholders can be stiffed while the SEIU and other public employee unions will be paid IN FULL. Even if it means closing schools and disbanding the police and fire dept. The more of the pension obligation that can be hoisted on those foolish enough to trust gov’ts the better for us.

  7. Robert says:

    They should cut all their wages by 40%. Then they will only be able to hire rejects out of the East Bay who can’t work anywhere els. Then workers comp doubles with disability claims since they won’t be able to live on their retirement, they will bilk SSI. California is massively screwed up with it’s class warefare. Arizona, I am 2 years away, thank goodness.

  8. Scott P says:

    8% Return!

    Who are the criminals that negotiated a guaranteed 8% return? Only Public Union employees would think that having $100 removed from their pay checks to get $200 back in retirement, and expecting the rest of us tax payers to guarantee their insanity, makes sound financial sense.

  9. Beef King says:

    Bear, the fact that you blame government is a red flag warning of the failures of big government.
    The lesson to be learned is one that was already known; you can’t trust the government to handle financial affairs correctly and certainly not efficiently.
    Sorry Bear, you can’t blame one party for the financial mess. Both parties have conspired to produce this mess.
    The way to avoid the unhappiness of failed and reduced pension assets is to establish a retirement fund that is under your control, not one controlled by your big government.
    The next time a political candidate promises you a rosy future if only they had more tax dollars, remember your complaint.

  10. bear says:

    So smart. Financing pensions based on an 8% return? This is the direct result of republican deregulation of financial markets. And the failure of Obama or anyone else to prosecute the people responsible and throw their miserable asses in jail. Life sentences would be appropriate. Only because I want them to suffer before God gets them.

    Do not blame public employees. We paid hundreds out of every paycheck because we thought it would support us in our old age.

    How many others are in the same situation?

    I know a pilot at United Airlines who got screwed even worse.

    When is anyone going after the persons responsible???

  11. NOTUTOO says:

    @jdonegan, So, you want 75 year-old cops showing up at your door when you have a problem? It’s cheaper to retire a cop at 55 years-old than it is to pay for the Workmans’ Comp claim that will soon follow if he or she stays to your projected retirement age of 70-75

  12. Dan says:

    Another opportunity flushed. As long as the looming pension collapse can be pushed a bit further down the road, so too goes the will to do anything about it.

  13. jdonegan says:

    I was just asked why California is in such a financial mess, well borrowing to make your house payments is one way to pass the problem onto your children and live high on the hog today. Money transfers do nothing to stimulate economic growth and in fact impede it. Paying people to retire twenty plus years ahead of normal retirement age is just absurd.

  14. 5.91% is very nice and I’d be tempted to put a chunk on that, but the looming (some would say almost inevitable) risk of default dampens my enthusiasm. I’d rather take less, with less risk, or take more risk for more return. But of course, it’ll all get packaged into a CDO and sold off to someone, somewhere, thereby contributing to the next bubble, meltdown, and bailout.

    I wonder what the county could do with the $30-57M/year interest payments, not to mention almost $2M in fees to JPChase (not my favorite people)? But I suppose the Supervisors are making the best decision under the circumstances, and given the lack of will to actually face the underlying problems. I do have one actual question: how much of this debt will the SEIU and other government unions buy and hold?

    Just wonderin’….

  15. fallingdown says:

    Wow – what a great idea! NOT!!!

  16. Tracy says:

    You could have saved more by negotiating with the unions. What just happened, especially considering that the board just last year reclassified 29 million in employee compensation as pensionable earnings, needs to be looked into. This is just more of the same; protect the unions and strap the debt onto the taxpayers back.