Oceanside council to consider bonds

OCEANSIDE —— The City Council on Wednesday will vote on whether to issue up to $49 million in bonds to help pay rising pension costs of Oceanside employees, a move that could save the city hundreds of thousands of dollars a year, interim Finance Director Paul Bussey said Friday.

While the city expects it will only need $36.8 million in bond money to pay the pension system, city staff is asking for authorization to issue up to $49 million in bonds to cover closing costs, other expenses and unexpected shortfalls, Bussey said.

The bonds would allow the city to forgo part of its monthly payment to a state-run pension system by giving the city enough money to pay the system upfront. By doing that, Bussey said, the city could save roughly $400,000 annually for the next 20 years.

The city would repay the bonds with money it otherwise would have given to the pension system. But because the bond market offers lower interest rates than the pension system, the city would pocket hundreds of thousands of dollars a year, Bussey said.

The finance director said the city would pay an annual interest rate in the neighborhood of 5.2 percent on bond payments, compared with annual interest rates of at least 7.5 percent on Oceanside's outstanding debts to the pension system.

The pensions of retired Oceanside employees, as well as the future benefits of the city's nearly 1,000 current workers, are managed by the California Public Employees' Retirement System, which handles the retirement benefits of 1.4 million public workers.

Oceanside makes annual payments of millions of dollars to the system, which then invests the money and pays city employees their pensions when they retire. The amount of an individual's pension is based on years of service, age at retirement, highest salary and the terms of the city's agreements with employee unions.

The pension system's rates rise and fall based on the performance of its investments. When the retirement system's investments lose money, the premiums of public agencies that pay into the system increase. When the system makes financial gains, the contributions required of public agencies decrease.

Even if the City Council votes to issue the bonds, Oceanside will continue to cut monthly checks to the pension system, Bussey said. But those checks would no longer include payments for what's called an "unfunded accrued actuarial liability," or the "extra" amount of money it would take to pay the retirement benefits of Oceanside employees if all of them stopped working at a time that maximized their pensions, Bussey said.

Oceanside's "unfunded accrued actuarial liability" payments are expected to total about $36.8 million over the next two decades if the city pays upfront, Bussey said. Under the current arrangement, Oceanside expects to pay $3.7 million in that unfunded category in the fiscal year that starts July 1.

The city would also minimize its risk by paying the money upfront, Bussey said. While the city's pension obligations now rise and fall inversely with the performance of the retirement system's $182 billion investment portfolio, paying a lump sum would negate the city's risk in the unfunded pension payments, Bussey said.

Bussey said that even if the pension system performed poorly in the stock market, the city wouldn't be on the hook for higher payments because it would have already paid off its debt.

However, if the system's investments made booming gains, lowering interest rates for the city in the process, Oceanside would end up having paid more through bonds than if it had continued with the current arrangement, Bussey said.

But for that to happen, the pension system would have to sustain huge annual investment gains for two decades, he said.

"(It's a) reasonably safe judgement that (the bonds) will always be better," the finance director said.

The meeting begins 5 p.m. Wednesday in council chambers, 300 N. Coast Highway.
