CHICAGO - Wisconsin Gov. Jim Doyle is expected to soon sign legislation that enables Milwaukee County to issue bonds to restructure its $330 million unfunded pension liability - a move aimed at easing the fiscal strain of rapidly growing payments, a state spokeswoman said yesterday.
The Legislature approved the bill that authorizes the sale late last week.
"Issuing pension obligation bonds could save Milwaukee County property taxpayers up to $90 million in future pension costs," County Executive Scott Walker and board chairman Lee Holloway said in a joint statement.
The bill received bipartisan support in both the state Senate and Assembly and was crafted to reflect the 2006 recommendations of a task force appointed by Doyle following reports of the county's growing pension funding burden and resulting fiscal crisis.
The bill gives the county authority to extend to 30 years the final maturity on the bonds for the purpose of paying down its unfunded pension liability. Current state laws limit the county to a 20-year maturity. The county could issue bonds to fund a portion or all of its unfunded liability, which is estimated at $330 million.
The figure could change based on a 2007 actuarial review not yet published. The county board's fiscal and budget analyst, Steve Cady, said the report is expected this spring and it will help the county determine the size of the potential deal. Milwaukee County so far has worked on the proposed plan with financial adviser Public Financial Management Inc. and bond counsel Chapman and Cutler LLP.
Under preliminary proposals, the county could save $90 million based the assumption that it could borrow at an interest rate of about 6% and garner investment returns of 8%. Its annual debt service payment would be $21 million in future years. The county would be required under the legislation to establish a reserve to help cover unexpected pension costs in the future, and the state could cut its aid to the county if it fails to make its full annual required contribution to the pension fund.
The county's $1.3 billion 2008 budget anticipates about $10 million in savings from the deal to reduce its annual payment to about $39 million. The pension fund is funded at about 70%, and without any action annual payments will continue to rise. The county was not required to make payments to the once flush system in 2000, made a $2.4 million payment in 2002, a $2.1 million payment in 2003, a $15 million payment in 2003 then jumping to more than $35 since 2004
A working group made up of various legislative, county board, and county administration officials will decide whether to proceed with a financing and if so, would conduct a competitive search for underwriters. The deal's possible timing will ultimately depend on interest rates, according to Cady.
Any deal would still require the approval of the county board and some members have raised concerns over the risk associated with taking on debt to pay off another debt and one that requires a certain level of investment earnings to work in the county's favor. Supporters have argued that both the city of Milwaukee and the state of Wisconsin have taken similar steps in recent years to address their unfunded pension liabilities.
Moody's Investors Service cited the escalating pension costs as a factor in its decision in 2006 to assign a negative outlook to the county's credit. Moody's rates Milwaukee County Aa3, while Fitch Ratings and Standard & Poor's rate it AA.
The pension liability has skyrocketed in large part because of a series of enhanced pension benefits approved in 2001 by the board and former county executive F. Thomas Ament, which prompted a wave of early retirements. Prior to 2000, the plan was fully funded and did not require an annual contribution.
Separately, the county faces an unfunded liability of $1.4 billion for other post-employment benefits, such as health care, although officials want to first shore up the pension fund before addressing how best to deal with the OPEB liability.