Pinal County will be paying down its entire unfunded public safety pension debt through low-interest bonds, a move financial consultants say could save taxpayers up to $66 million over the next 20 years.
The County Board of Supervisors authorized the move with a unanimous vote Oct. 16, approving a resolution allowing the sale of pension obligation bonds at an interest rate of about 3%. This will enable the county to retire its current $88 million debt to the Arizona Public Safety Personnel Retirement System (PSPRS) with lower, more predictable payments.
“It looks like we can save the county a substantial sum of money over the next 20 years,” District 5 County Supervisor Todd House said. “If it were my own budget, that’s how I look at it, refinancing at an extremely lower rate; it just makes sense.”
Through this vote the county is essentially shifting from financing its liability through the PSPRS at a 7.3% interest rate to the pension obligation bonds at the lower rate. The county will repay the bonds with sales tax, state-shared and vehicle licensing revenues as they mature.
Under the financing, the county is expected to pay about $5.4 million in debt service in fiscal year 2022, rising to $6.68 million in fiscal 2024, and remain at about that level until 2038, when it’s essentially paid off.
If the county were to continue financing through the PSPRS, the annual payments would be about the same for the first few years, then jump to $7 million by 2025 and continue rising until hitting a peak of $19 million in 2038.
The adopted resolution includes an emergency clause declaring the bond sale allowing it to take effect immediately instead of being subject to a 30-day waiting period where it could be subject to a voter referendum. The emergency clause allowed the bonds to go on the market the following week and take advantage of near-historic interest rate lows.
Public financing attorney Michael Capizo said emergency resolutions are made “because it affects the peace, health and safety of the county, and it’s generally interpreted that ‘health’ includes cheaper financing, because it makes it cheaper for you guys to do this, makes it easier for you guys to get these things done.”
Employees of the county sheriff’s and corrections departments, including deputies, guards and dispatchers, pay into the PSPRS system to help fund their pensions. A formula that since has been replaced required cities and counties to pay increasingly exorbitant annual payments into the fund, mostly to make up for underperforming investments.
Other Arizona jurisdictions have been looking at the potential savings from pension obligation bonds. The City of Flagstaff in July approved a bond issue with a 2.69% interest rate, with an expected savings of $76 million. Gila County and the City of Tucson, among others, are considering similar resolutions.