Should the city pay CalPERS with reserve funds or by issuing bonds? That’s one of the questions facing Pleasant Hill City Council’s Budget Committee Friday morning.
The answer is a bet on the interest the city will earn on its cash reserves, according to an analysis provided by an investment banking firm seeking the city’s business. It would cost nearly $7 million to pay off two side funds this month.
Some agencies that have contracts with CalPERS are required to keep side funds, an account equal to the amount of unfunded pension liability. In some cases, getting rid of the side fund and replacing it with debt can save the agency money. That's what Pleasant Hill is considering.
Brandis Tallman, which specializes in bond underwriting for public agencies, wrote in a memo to the city’s finance manager that if the money earns 2.50 percent or less on interest, the city would save money by paying CalPERS now with reserve funds. If the reserves earn more than 2.50 percent, paying the side funds early would come with a cost.
If Pleasant Hill opted to get a new loan to pay CalPERS, it could offer public bonds, or it could place bonds with an institutional investor who would sell the bonds privately. Martinez recently secured a new loan to pay CalPERS.
What do you think the city should do?