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Santa Rosa plans to refinance $35 million in pension bonds

By KEVIN McCALLUM
THE PRESS DEMOCRAT

Santa Rosa plans to refinance about $35 million in pension bonds in an effort to control costs and prevent the city credit rating from slipping further.

By locking in historically low interest rates and spending about $4 million to pay down debt, the city expects to save about $870,000 in today’s dollars over the next 12 years, according to Chief Financial Officer Lawrence Chiu.

“This will help preserve the city’s credit rating,” Chiu told the City Council on Tuesday.

Credit ratings agency Moody’s has twice reduced the Santa Rosa’s credit rating on the bonds out of concern over the pension debt of cities throughout the state.

PensionIn June 2003, Santa Rosa sold $50.7 million in bonds to finance the increased costs associated with more generous pension benefits for its workers.

The proceeds from the bonds were paid to the California Public Employees’ Retirement System. The idea was that the city could save money by financing the cost of the increased benefits with bonds that paid a lower interest rate than what CalPERS would have charged the city.

Today, $38.3 million in principal is outstanding on the bonds with a maturity date of 2025. Some of the bonds have a fixed rate and some have a variable rate. Because current rates are low and are expected to rise in coming years as the economy improves, the city’s financial advisers recommend that city refinance the bonds now.

The city isn’t extending the term of the bonds, but rather is committed to paying them off by 2025.

“We want to pay this off on schedule,” City Manager Kathy Millison said.

Another reason to move away from the variable-rate bonds is that it is becoming harder and more expensive for the city to find banks willing to guarantee the bonds through something called irrevocable letters of credit. The city’s current letter of credit with Wells Fargo Bank expires in 2014. Fixed-rate bonds require no such letters.

Much of the savings will come from lower rates. The city currently is paying about 1.1 percent on its variable-rate bonds, but that is expected to rise to an average of 3.6 percent for the remaining 12 years of the debt. Its fixed-rate bonds are rising to 4.9 percent in 2014 and 5.4 percent in 2019.

The city expects to get a new fixed rate of about 4.3 percent when it sells the new bonds later this summer.

Additional savings will come from paying down the principal by $4 million. The city had been planning to set up something it called a “pension stabilization fund” with a recent $1.6 million settlement with Sonoma County over property tax administrative fees.

But it changed gears after it recently received higher pension cost estimates from CalPERS for the 2015-16 year. It decided instead to put that settlement money, plus an additional $2.4 million, toward the extra principal payment.

Some council members wondered whether some of that cash might be better spent fixing streets, given how much repair costs increase once the pavement deteriorates past a certain point. But Millison said she was convinced that paying down and refinancing the debt is the wisest option.

“We think this is the better investment in terms of helping the city better manage its cash flow for the general fund,” Millison said.

The measure passed 7-0.

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter@citybeater.





17 Responses to “Santa Rosa plans to refinance $35 million in pension bonds”

  1. GAJ says:

    @David; the truth was bound to get out eventually.

    Here’s your link.

    http://www.reuters.com/article/2013/05/29/us-usa-pensions-sonoma-idUSBRE94S0GP20130529

    Thumb up 3 Thumb down 1

  2. David says:

    If you want to see some real reporting on the mess in Sonoma County, google the following:

    “In California wine country, bumpy roads tell tale of fiscal woe” By Jonathan Weber and Tim Reid

    Tried to post a link with no success.

    Thumb up 2 Thumb down 1

  3. Snarky says:

    Talking about your contributions, etc, isn’t answering the WHY ? :)

    WHY do you think you deserve your own public pensions rather than social security?

    Its amusing to watch these parasites evade the question.

    Thumb up 5 Thumb down 1

  4. GAJ says:

    Gave up “Cost of Living raises”?

    Cry me a freaking river.

    Thumb up 5 Thumb down 1

  5. County Worker says:

    WHY NOT?
    We gave up years of Cost of Living raises in trade for the pension contributions. We made our contributions.
    The government was warned every year for 19 years to put THEIR portion into the retirement fund or it may be underfunded in the future. Nope, they took a “Pension Holiday” and funded pet projects.
    Now it is all OUR fault. Oh well. That’s the name game. Just blame me, it’s all my fault. There. Now get on with your life.

    Thumb up 5 Thumb down 10

  6. Snarky says:

    Lets Be Reasonable:

    Again, you attempt to evade the simple question of WHY should public employees get their own public pension rather than social security like the rest of us.

    Talking about your contributions, etc, has nothing to do with the question of WHY should you get a public pension rather than social security ?

    The beauty of the written word is that people like you can pretend to be answering all you want… but its obvious to every reader you’re evading the WHY.

    Thumb up 11 Thumb down 4

  7. Steveguy says:

    Calm down everybody ! They are only refinancing that unsustainable debt, that doesn’t include others along with other debts that are unsustainable.

    Get my drift ?

    Yet our roads crumble with gravel in the future.

    oh my, when did the cost of government make it 3-10 times more expensive ?

    When ? It’s crazy the expense for projects. Many fingers in the pot, way too many. Follow the money Press Democrat, follow the money please. Be the 4th estate finally. The consultants and administrators should be known and open to review, especially since we are paying MILLIONS . Is the PD afraid of a Pulitzer ?

    Dig and find, I try. Press Democrat. Where is the concept of a “free press” when you have to sue, and then you all at the P{D wanna promote the deceivers and the less than talented.

    Where is the journalistic integrity ? Where ?

    Thumb up 11 Thumb down 2

  8. Lets be Reasonable says:

    Snarky, the private sector does not ONLY get SS, unless they are fools and do not put money away for their retirement. Santa Rosa employees don’t get SS. They get a pension that they contribute towards. A non-safety employee contributes 8% of their salary towards their pension. This is on top of 8% that we gave up in salary to get the current pension plan. So, we are in effect paying 16% towards our retirement. Do you do that in the private sector!? For much of my career at the City, the City paid ZERO towards my pension, since PERS was “superfunded.”

    Thumb up 7 Thumb down 14

  9. Not convinced says:

    Maybe they should turn off all the streetlights in the the city so we can save even more money. Every resident can carry their own flashlight when they need to cross the street. Yes, save more money so they can do a job twice like the downtown parking meters.

    Thumb up 21 Thumb down 5

  10. Snarky says:

    Lets Be Reasonable:

    Uh, yeah. We know about Social Security.

    THE question you refused to answer:
    why should public employees get their own public pensions when the private sector only gets social security?

    Thumb up 18 Thumb down 8

  11. Lets be Reasonable says:

    Wow, you guys are unbelievable – the City pays down its loan, and refinances the rest at a low fixed rate, and you complain!?

    As for public employees being switched to SS like the private sector – that’s flat out rubbish. Anyone planning to retire on just SS is a fool. SS is meant to be a safety net. Everyone should be putting money away into an IRA, or if their company does a matching contribution to a 401k, they should jump on it.

    Thumb up 12 Thumb down 20

  12. Paul says:

    Aaaaaah, another band aid on the cancer patient. Now, don’t you feel better?
    I don’t. I hope the members of our city council cannot sleep, given their history of bad decisions.
    And I don’t want to hear a peep from the current wrecking crew about how, “It’s not our fault, we inherited this mess!” YOU took the job…DO IT!!
    SR CC continues to tread water, all the while doing their darndest to give the APPEARANCE that they are doing something, but it’s PURE WINDOW DRESSING. Out back, the rot continues.

    Thumb up 20 Thumb down 7

  13. Follower says:

    @CW
    Your post reminds me of that billboard with “W”s smiling face and the caption… “Miss me yet”?
    No, as long as the “who’s your Mommy” crowd are running the show, you won’t be making any such decisions for yourself.
    You’re far too stupid to have that level of control over your own life.
    They know what’s best for you…

    Thumb up 18 Thumb down 6

  14. Dave says:

    Get rid of all pensions, turn the money over to the employees and let them figure it out for themselves, let them take it out of their own pay checks just we do in the Private Sector. Save the taxpayers a ton of money.

    Thumb up 19 Thumb down 8

  15. Snarky says:

    Hey County Worker:

    Please explain why you should not be put onto social security.

    As for your contributions, you didn’t contribute the full amount to support your pensions, anyway. So, yeah. Take them back. Big deal.

    Thumb up 11 Thumb down 11

  16. County Worker says:

    I will make you a deal Snooky. Give me my contributions back and let me manage them myself and I will opt out. Like that would happen.

    Thumb up 20 Thumb down 6

  17. Snarky says:

    Too little, too late.

    They’re simply attempting to steal less of our money.

    Eliminate public pensions and put the public employees on social security like the rest of us.

    Thumb up 20 Thumb down 10

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