CHICAGO -- Bloomfield township, a triple-A rated town located 10 miles from Detroit, hopes to become one of the first municipalities in Michigan to take advantage of a new law allowing certain local governments to issue bonds to cover pension liabilities.
The township took the first step Monday by publishing a legal ad in a local paper announcing plans to issue as much as $85 million of 20-year general obligation bonds to cover the liability.
Officials plan to ask the state for its permission to do the deal over the next few weeks and enter the market with the bonds by the end of the year.
“This is something we’ve wanted to do for over 10 years,” Bloomfield treasurer Dan Devine said. “It’s a perfect mechanism for a municipality that’s triple-A rated.”
The Detroit suburb is one of the first local governments in the state to consider the borrowing option after the Legislature passed the law allowing it last year. It requires that governments meet certain criteria to be eligible to bond for their obligations. Issuers have to be rated in the double-A category, for example, as well as have a closed defined-benefit plan and prove that they can cover debt payments with general fund dollars.
Saginaw County also plans to take advantage of the law, as does top-rated Oakland County. Oakland issued $570 million of taxable certificates in 2007 to cover its pension liability, and plans to restructure those into long-term bonds later this year.
For Bloomfield, there is virtually no downside to the borrowing, Devine said.
“It’s a win-win-win,” he said. “There’s a guaranteed accuracy per year as to what our obligation is and ultimately we’re saving $4 million a year for 20 years. That’s $80 million in savings for the taxpayers.”
The town’s pension liability totals about $80 million. Its annual payments currently are $10 million, out of a total all-funds budget of $40 million. Other post-employment benefits cost roughly $3 million annually.
Devine said the town’s pension payments jumped from $5 million annually three years ago to $10 million now due to changes in mortality and interest-rate assumptions, and could climb higher.
“Even if we were to say from this day forward we won’t pay any future retirees, we’ll still save more by doing a bond payment for 20 years,” he said.
The town has 41,000 residents and is run by a seven-member board of trustees, which approved the plan last week.
Michigan-based Bendzinski & Co. is the town’s financial advisor and Dickinson Wright is bond counsel. Officials have not yet decided how to select underwriters for the deal, and are waiting state approval before setting a date to enter the market.