City to refinance side-fund loan
The Corning City Council approved refinancing a loan that will save the city $35,000 annually as it pays off a $2.5 million CalPERS "side fund" loan over the next 11 years.
The council unanimously OK'd a city resolution and an agreement with Brandis Tallman LLC to serve as placement agents to refinance the CalPERS loan.
Side loans came about in 2003 when the Legislature mandated CalPERS member agencies with fewer than 100 employees, such as Corning, be enrolled in a risk-sharing pool in order to establish less volatile employer contribution rates.
Corning's $2.592 million sideloan was established by CalPERS at an interest rate of 7.75 percent with payments totaling more than $360,834 annually, according to City Manager John Brewer.
City Manager John Brewer said in his opinion the important document is the city resolution.
"In the resolution, it states the loan agreement will not exceed 4.65 percent interest and the loan will not exceed $2.7 million. If either changes as a result of the blanks being filled in on the loan document I would come back to the City Council before signing or agreeing to anything," Brewer stated.
The loan agreement is between the City of Corning and Umpqua Bank with Brandis Tallman facilitating the transaction.
Jeffrey Land of Brandis Tallman LLC presented the City Council with a proposal to refinance the side-fund obligation with the issuance of a "pension obligation bond," at a much lower interest rate that would produce an annual savings of more than $35,000 to the city in October.
To be issued without voter approval, the financing must be "validated" via a superior court action, according to Brewer, a process that could take a minimum of 90 days.
Along with the court validation, the loan refinancing will require credit approval by Umpqua Bank.
Because the court validation is "forever binding and conclusive," filing for judicial action is subject to the city manager's confirmation the potential financial savings to the city are what they have been proposed to be.
According to Land, if Corning stayed with the current loan arrangement, the total debt service would be $3,745,184. If the new loan goes through the at an interest rate of 4.65 percent the total debt service would be $3,371,138 or a total savings $266,092.
Under the new loan, the city's annual payments would be $325,184. That savings would amount to $35,651 annually, Lands explained.
The city manager noted there is an "unknown component to all this," due to the Pension Reform Act.
"Because the reform act CalPERS could rewrite the side-fund rules, but we don't yet know what impact that could have on our side-fund," Brewer stated.
Brandis Tallman's $22,500 fee for service will be rolled over into the new loan, Brewer said.