CHICAGO - The Milwaukee County board will vote Thursday on whether to give preliminary approval to a long-planned $400 million general obligation bond issue with the goal of smoothing out over the long term the growing burden of its unfunded pension liability.
The Finance Committee last week advanced the plan in a 6-to-1 vote to the full county board for a vote at its meeting Thursday. To pass, the measure must receive a majority of the 19 votes. If the full board approves, finance officials would need to return closer to the pricing for final approval.
The committee's approval came as officials disclosed that the unfunded liability had risen to $700 million from $406 million. The increase is based on the latest market valuation as of the end of September, and not a formal actuarial analysis that is completed once a year in January, according to county budget director Steve Kreklow.
The fund had an unfunded liability of $406 million based on the Jan. 1, 2007, actuarial assessment, with liabilities of $1.93 billion and assets of $1.52 billion, for a funded ratio of 79%. The $400 million pension bond issue was to bring the county's funded pension ratio up to about 95% based on the last actuarial study. County finance officials decided to stick with the $400 million borrowing level as the most affordable even though the market study shows a significant spike in the unfunded ratio.
"We didn't feel it would be prudent to go ahead and borrow more," Kreklow said. "Because there are market uncertainties and we don't know if we will see a significant downturn or upturn, this seemed the wisest course of action."
If the board approves the deal first proposed in 2004 by County Executive Scott Walker, the county hopes to enter the market sometime next year. "We don't have a firm timetable in mind. We do have some flexibility," Kreklow said.
JPMorgan is the senior manager and Citi and Loop Capital Markets LLC are also serving as underwriters. Public Financial Management Inc. is the county's financial adviser on the deal. Bond counsel is Chapman and Cutler LLP. The underwriting team was selected from firms that submitted proposals to the county this past spring.
The 25-year taxable bonds would save the county more than $200 million in payments owed to the pension system over the term of the bonds. In the near term, the county would actually increase its pension payments allocated in its annual budgets.
Earlier this year, Wisconsin lawmakers approved and Gov. Jim Doyle signed into law legislation that paved the way for the bond sale. Under the measure, Milwaukee County was able to issue debt with a final maturity of up to 30 years for the purpose of paying down its pension liabilities. Current state laws limit the county to a 20-year maturity.
If the bonds are issued, the county's pension-related payments in the 2009 budget total about $48 million, a figure that would rise to $60 million in 2010 when principal repayment begins. If the bonds were not issued, the county would pay $39 million in the 2009 budget.
Milwaukee County's pension costs have been rising steeply in recent years, due in large part to a series of enhanced benefits approved in 2001 under the administration of 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.