The Oro Valley Town Council voted 6-0 ( Council Member Greene abstaining) on a plan to fully fund the towns public safety pensions by 2036. It is a plan that will need to be implemented by the council if it chooses to include it in the annual budget.
Plan combines general fund money and bond funds
The plan will have the town issue $17 million in pension obligation bonds and earmark $10 million in general fund monies towards the pension obligation. According to consulting firm CBIZ, this option is the least costly to the town.
Pension obligation bonds do not require voter approval
It is the expectation that the interest rates that the town will pay on these bonds will be far less than the rate of return the funds will earn on that money. The consultant assumed that the town could borrow the funds at 2.75% and invest them at 5.25%. The difference, according to Council Member Nicolson, is, in and of itself, sufficiently significant to warrant borrowing as a solution because Interest rates are at historically low levels. Indeed, that seemed to be the motivation of others on council to support a July implementation of the measure.
Both the Hiremath and Winfield councils recognized the need to increase funding of the plans. Both contributed $1M annually for the past three years in addition to the required annual contribution. The result was a small dent in the unfunded liability total of $24 million.
Plan implementation requires that it be included in 2021-22 budget
According to Town Manager Jacobs, the motion that the council approved directed her to “...incorporate into the recommended budget the capacity to move forward with this type of an option in the budget.” It did not direct her to implement the plan. As a consequence, the efficacy of implementing the plan will undergo much vetting over the next two months as the council and the public opine on the budget.
Plan implementation in July if it is included in budget
If it is included in the budget, the town will deposit $10 million from the general fund into the PSPRS in July. Bonding will require a council resolution in July. The town will then issue $17M in pension obligation bonds in July, the proceeds of which will be contributed to the PSPRS.
According to Jacobs, there is some urgency to move forward with the plan in order to take advantage of low interest rates. “I think the Vice Mayor is correct. If we’re going to do this the sooner that we can take advantage of the interest rates and shoot for as early in July as possible or sometime in that timetable. I think would be the best.”
Council Member's Green and Solomon question wisdom of implementing the plan
Council Member Mo Greene abstained from voting on the plan. He had asserted that there is no urgency to fund the plan. Greene stated that he had met with police union officials. They told him they were not concerned about the underfunding and that none of their member payments have been impacted by it.
Council Member Solomon said that the plan must be considered in light of other town needs; that it should not be considered in isolation. He referenced other needs such as upgrades and improvements to town facilities and funding that may be required for parks and recreation. He also felt that obligating future councils to pay interest on and to pay off pension bond debt principal was a statement that future councils were not capable of dealing with the underfunding problem.
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