HomeMy WebLinkAbout14 2011 Side Fundenda Item #
To: Board of Directors
From: Jeremy Popov
Date. August 03, 2016
Subject: Consideration of Evaluating Refunding of the 2011 Side Fund
1. VVHY THIS MATTER IS BEFORE THE BOARD
This workshop item concerns evaluating the potential savings of refunding the Taxable
Pension Obligation Bonds, Series 2011 (the "Side Fund").
2. HISTORY
In 2004, the District joined the California Public Employees' Retirement System
("CalPERS") pooled pension plan.
In 2010, the District and its employees elected to increase the CaIPERS benefit
effective January 2011, The District employees agreed to pay the increased costs.
Initially this agreement resulted in District employees contributing through payroll
deductions. Over the years the employees have elected to relinquish other benefits in
order to eliminate payroll deductions while maintaining net zero additional expense to
the District.
As a participating CaIPERS agency with fewer that 100 employees, the District was
moved into an enhanced benefit risk pool known as the Side Fund. The Side Fund
created a pension obligation of the District to pay an amount to catch up to the rest of
the existing participants' contributions in the pension pool. In 2011, the District was
paying an interest cost of 7.75% on the CalPERS Side Fund.
In 2011 the District exercised our ability to refund the Side Fund by issuing pension
obligation bonds (POBs) at a taxable interest rate of 5%. The 5% rate is fixed through
June 30, 2021 at which time it resets based on the prime rate. Final maturity of the
side fund is achieved in 2022. This refunding saved $100,000 per year, or over $1
million in total.
Although the POBs are callable on any date after June 29, 2016, the District would be
required to pay a call premium. The call premium depends on when the bonds are
called, and from now to June 2018 the call premium is 3%.
3. NEW INFORMATION
Current interest rates for POBs with a final maturity in 2022 are lower than 5%.
Although the District would be required to pay a 3% call premium, it may be worth
evaluating potential savings through issuance of an RFP to eligible lenders to fully
explore potential savings through a private placement (existing POBs were issued
through private placement with Umpqua Bank).
For illustration, with a current indicative taxable interest rate of 2.50% the District may
achieve a NPV savings near 2.7%. A further improved interest rate may increase the
NPV savings.
As a general rule of thumb a 3% NPV savings is the threshold to support a refunding.
Issuance of an RFP to lenders for a refunding of the POBs is a non binding activity.
Further, there is no cost associated with submitting the RFP other than allocation of
staff time. Brandis Tallman, the District's full service investment banking firm and
broker/dealer, who assisted the District to refund in 2011, has agreed to support the
District in exploring opportunities to achieve additional savings.
4. FISCAL IMPACT
The District may be able to achieve 2.7% or greater NPV savings, which equates to
annual savings of approximately $28,000, or $154,000 in total.
Any potential savings are not yet included in the 10 year Financial Master Plan.
5. RECOMMENDATION
Direct staff to continue evaluating the potential to refund the 2011 Side Fund pension
obligation bond
Jeremy Popov Michael D. Holley
Administrative Services Manager General Manager