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AI- 3447   12. B. 1.    
BOC Regular
Meeting Date: 02/04/2021  
Notice of Intent to Issue 2021 Pension Obligation Bonds
Submitted For: Kelli Scott
FROM: Kelli Scott, Administrator/Controller, Administration
Department: Administration  

Information
RESOLUTION:

Resolved the Calhoun County Board of Commissioners does hereby approve the attached Resolution to Approve the County's Comprehensive Financial Plan and Notice of Intent to Issue up to $30,000,000 in General Obligation Limited Tax Bonds to pay the costs of the unfunded pension liability for certain defined benefit retirement programs, as presented.

RECOMMENDATION:
County Administration recommends that the Board of Commissioners approve the attached Resolution to Approve the County's Comprehensive Financial Plan and Notice of Intent to Issue up to $30,000,000 in General Obligation Limited Tax Bonds to pay the costs of the County's unfunded liabilities of two divisions closed to new hires as of February, 2020, within our defined benefit retirement program administered by the Michigan Employees' Retirement of Michigan (MERS).
BACKGROUND:
Section 518 of Michigan's Public Act 34 of 2001, as last amended in 2018, allows local units of government to issue bonds to pay all or part of the costs of unfunded pension liabilities for certain defined benefit retirement programs.

In order to issue such bonds, the County is required to prepare a comprehensive financial plan that shows how these bonds will help mitigate the increase in employee health care costs, among other requirements. 

In addition to the six divisions within our MERS defined benefit plan already closed to new employees (Division 02 COAM Supvrs; and Divisions 03, 10, 11, 12, and 13, which were inherited from the former Road Commission), we negotiated agreement with the countywide Division 01 and Sheriff's Nonsupervisory Division 20 employee groups to close their defined benefit plans to new hires as of Feb.1, 2020.  Since then, all new hires are eligible to participate in the County's 401k program.  These two divisions have a combined Unfunded Liability balance of up to $30,000,000 based on our December 31, 2019 actuarial valuation report and the consideration of new demographic assumptions not yet factored in by MERS to the County's valuation reports.  The bond issuance is expected to generate savings in excess of $10,000,000 in present value, achieved over the life of the bonds.

Our municipal financial advisors, Bendzinski & Co., and our bond counsel, Miller Canfield, Paddock and Stone, P.L.C. have recommended we issue Pension Obligation Bonds as a financially allowable and responsible method to create future savings through leveraging low interest rates and fixed debt structures along with assumed greater returns on investment that this plan is intended to provide.

The legal process to issue Pension Obligation Bonds includes the requirement for this proposed Notice of Intent, and the publication in local newspapers for a 45 day period of Right of Referendum.  County administration will continue to work with our financial advisors to refine the bond issuance plan, which will be brought before the Board of Commissioners for approval of a Bond Authorizing Resolution before the bonds are sold.  The Michigan Department of Treasury must also approve our plan prior to issuance.
ALTERNATIVES:
If the Board of Commissioners does not approve this Resolution, the County will not have the option to issue bonds for the payment of unfunded liabilities for these two defined benefit pension plan divisions in the process of being closed to new hires.  In that case, the County would continue to make ongoing payments to MERS for both the Normal Cost and the Unfunded Liability components until these plans are fully funded.  This alternative would cost an estimated $10 million more than what we would pay if this proposed bond issuance plan is approved, and would be much more unstable from an operating budget perspective.
SUMMARY:
County Administration recommends that the Board of Commissioners approve the attached Notice of Intent Resolution for up to $30,000,000 in General Obligation Limited Tax Bonds to pay the costs of the Unfunded Pension Liability.  The Resolution authorizes and directs the publication of the Notice of Intent, and also approves the required Comprehensive Financial Plan associated with this proposal.

Fiscal Impact
BUDGETARY IMPACT:
The issuance of up to $30,00,000 in bonds is expected to provide sufficient funding to pay unfunded liabilities of the County's MERS DB divisions 01 and 20, together with bond issuance costs, and to provide approximately $10 million in present value savings compared to what the payments would otherwise be to amortize the unfunded liabilities according to MERS' calculations and requirements. Retirement costs are included in the County General Fund as operating expenses.
Attachments
Notice of Intent 2021 POB
2021 POB--CFP
2021 POB size

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