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Monday, September 19, 2011

San Leandro Aiming to Refinance Its Public Employee Pension Obligations

Sept. 18, 2011 | While cities in Alameda County with less union legacies push to reduce obligations to public employee pensions by asking employees to pay more toward its costs, such a tactic is failing to gain traction in San Leandro and leading to somewhat creative ways to save money.

The San Leandro City Council Monday will discuss a proposal to bypass a fight with its public employee union by proposing to pay down payments to a CalPERS side fund. To do this, the Council will need to refinance its debt to the risk pool shared by other state municipalities. The city is essentially betting it can get a better interest rate than 7.75 percent paid to CalPERS.

Poor planning from city governments a decade ago coupled with a chronically poor economy has increased stress on municipalities to provides services. According to a staff report written by the recently appointed Interim Finance Director Jim O'Leary, San Leandro could save up to $480,000 annually on interest payments through 2024 by refinancing the side fund. Earlier this year, an expert on CalPERS urged the city council to lower its debt obligations as a way of weathering rising pension costs and instability in the markets.

The city's underwriter believes the city could procure a loan at more favorable terms to the city. According to the staff report, a loan in the area of 4.61 percent could potentially be secured on the bond market, which is more than three percent less than the current rate.

Because the dollars the city may used to refinance come from publicly available funds, an Alameda County Superior Court judge would first need to validate the proposal before the city council could approve it. Approval could take up to 120 day asbsent any pushback from the public, according to the report. In addition, city staff is also evaluating whether a loan can be secured from the city's Water Pollution Control Plan Fund. Any potential bond, according to staff, could have its debt obligation lowered with the addition of a loan from the city fund.

The proposal is similar in its aims as Pleasanton's recent successful attempt at paying off its pension side fund, but differs in its execution. Last June, the Pleasanton City Council approved to remove $7.8 million in debt oblgations from its books. Instead of refinancing the debt similar to what San Leandro appears to be attempting, Pleasanton moved dollars from its non-fire retiree medical reserve fund to pay its side fund debt. The risk pool was initially set aside in 2003 for the city's police officer pension plan. Because of Pleasanton's small police force, its law enforcement employees were placed in the CalPERS risk pool. Pleasanton's police officers pay nearly 10 percent toward their pensions.

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