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Supervisors review options to address roughly $129 million in pension liabilities
Summary
Stifel told Yavapai County supervisors the county faces about $45M in PSPRS and nearly $84M in ASRS unfunded liabilities and described trade-offs between using cash, issuing taxable bonds to prepay pensions, or continuing pay-as-you-go funding.
YAVAPAI COUNTY — At the same work study where financing for capital projects was discussed, outside advisors reviewed the county’s unfunded pension liabilities and described options to reduce long-term pension costs.
Grant Hamill of Stifel told supervisors the county participates in the Public Safety Personnel Retirement System (PSPRS) and the Arizona State Retirement System (ASRS) and that those systems’ unfunded actuarial liabilities (UAL) are a moving target. "In the case of PSPRS, [the assumed rate] is 7.2%. ASRS is a little bit lower at 7%," Hamill said, noting the county’s present shares are about $45 million for PSPRS and roughly $84 million for ASRS.
Why it matters: Pension UALs represent legally guaranteed benefits for current and retired employees and are assessed under actuarial assumptions. Hamill said jurisdictions typically address UALs either by using cash to pay down liabilities (more common for PSPRS in wealthier entities) or by issuing taxable debt to prepay the funds in order to replace a higher actuarial charge with a lower borrowing cost when market conditions make that advantageous.
Hamill cautioned the approach can be controversial: issuing debt to prepay a pension converts one liability to another and depends on the borrowing rate relative to the pension funds’ assumed return. "We're gonna borrow it at 5 and a half, and... pay off our old mortgage, which is at 7%," he said, using a mortgage-refinancing metaphor to explain the arithmetic behind a prepay strategy.
Presenters listed recent Arizona examples of entities that issued fixed-rate debt to address pension liabilities — Coconino, Navajo, Pima, Yuma and Pinal counties among them — and noted the results have varied by timing, market rates and the specific structure used.
Board reaction: Several supervisors said they were skeptical of issuing debt to prepay pension liabilities because any future investment shortfall could increase the county’s obligation. No board decision was reached; presenters and supervisors said staff would report back with more detailed analysis if the board wants to pursue options next year.
Next step: Staff will prepare more detailed fiscal analyses and projection scenarios for board review. No formal action or vote was taken during the work study.
