Moline City Council members on Tuesday heard their options for considering pension obligation bonds and how they may save the city money.
Finance Director Carol Barnes gave a presentation during Tuesday's committee of the whole meeting on the concept of issuing bonds to address the city’s unfunded pension obligation of more than $129 million to police and fire retirees. No action was taken.
Barnes began with a 10-year overview of the city's pension funds.
"City contributions have increased from $6.2 million to $12.7 million over that 10-year period," Barnes said. "It has a little more than doubled in that 10-year period."
Barnes said pension assets during the same period grew from $59.3 million to $87.2 million and that the city's unfunded liability was $67 million 10 years ago before growing to the current level of $129.6 million.
"That's nearly doubled over that 10-year period," Barnes said. "It's based upon the number of officers we have, the wages we pay our officers, the age of our census of police and firefighters, the mortality rate and the officers that are active and retired. It's all those things we take in from an actuarial standpoint to calculate those numbers.
"But the increased contributions are not keeping pace with the growth of the total liabilities that we just went over."
Barnes said the state mandated that by 2040, all municipal police and fire pension funds were required to be 90% funded. She said Moline's pension funds were at the 45% funding level.
Anthony Miceli, senior vice president of Speer Financial, Inc., led council members through the process.
"The idea of a pension bond is one that's been around for a while," Miceli said. "The city of Moline would be borrowing money via a bond issue and taking the proceeds of that money and investing it into the pension fund. So you replace your unfunded liability that you currently have with a bond liability."
Miceli said the payments for the city's unfunded liabilities was expected to increase from about $11 million in 2022 to more than $18 million by 2037.
He said proceeds from pension obligation bonds were taxable general obligation bonds issued by the city. The proceeds of those bonds are used to replace the unfunded liability.
"The goal is to lower that rate you charged on the liability," Miceli said. "In your case, right now, your assumption is a 7% rate on your unfunded liability."
Miceli said the city could have a "total, all-in bond interest rate, with all costs included, of about 2.34%. You would be lowering your liability, which is charging you interest at 7%, to a liability of 2.34%."
Miceli said the city could save up to $71 million in "assumed savings" through the bonds.
"These savings assume all assumptions are met."
In order to achieve that savings level, "the pension fund would have to earn 7% return rate over the life of this bond issue in order to achieve this savings."