Marysville officials issued low-interest pension obligation bonds this week to reduce the burden of the city’s CalPERS unfunded pension liability and its B Street property debt. The move is expected to save the city approximately $9.8 million over the term of the bonds, or $385,000 annually.
Currently, the city’s annual CalPERs interest rate for its unfunded pension liability is around 7 percent. Under the new financing structure, it will lock in an interest rate of 3.75 percent, resulting in annual savings of an estimated $260,000. The bond will be paid off in 2046 and is estimated to save the city a total of $7.1 million.
On top of that, the city’s current B Street property bond has a variable interest rate that fluctuates between 6.25-7.25 percent. With this week’s refinancing, the interest rate will be locked in at 3.08 percent, saving the city an estimated $2.7 million over the term of the bond, which will be paid off in 2036.
The B Street property was purchased by the city years ago – the intent was to clean up the property and market it for development. That was before the real estate market crash and Great Recession. The city has been underwater with the property since.
“Financing and refinancing these bonds is just further evidence that the city is taking care of its ‘fiscal house’ – seeking cost savings, not ‘leaving money on the table’ when it should go to the general fund, rebuilding the city’s reserves and being strategic in how we spend scarce resources,” said Councilman Bruce Buttacavoli, in a press release.
On top of low interest rates, the city was able to capitalize on the savings because of its improved bond ratings. For the second year in a row, the city increased its S&P rating from “A-” to “A/Stable” and Moody’s bond ratings from “BAA3” to “BAA2,” according to the press release.
City Manager Marti Brown said the city has been preparing for months to issue the pension obligation bonds, and because of the improved bond ratings was able to get an even lower interest rate than anticipated.
“The savings will go into the general fund for reallocation each year via the budget process and council’s policy direction,” she said.
Brown said the general fund savings will be instrumental in continuing to bring infrastructure improvements to the city, rebuild reserves and deliver on the promise of Measure C.