North Marion staff outline pension-obligation bond roadmap as PERS credits wind down

District finance staff presented a multi-session roadmap exploring pension-obligation bonds (POBs) as a tool to address the district's unfunded actuarial liability and looming PERS cost increases.

Kim explained the mechanics plainly: "The district issues a pension obligation bond. This is literally the district selling a bond on the municipal bond market. The bond proceeds are received by bond counsel, and they are deposited with PERS." The proceeds create a PERS side account intended to produce a variable rate credit on the district's PERS bill; the goal is that investment earnings and contribution savings exceed the district's bond cost. Staff warned that the strategy carries market risk: early downturns can be difficult to recover from and POB outcomes are not guaranteed.

Staff reviewed prior local experience: a 2003 bond ($11,600,000 at 5.73%) produced a rate credit that expires on 06/30/2027 while bond payments continue through 06/30/2028; a 2021 bond ($15,200,000 at 2.46%) remains in place with a projected credit through 06/30/2040. Kim reported that collectively "we have received rate credits from HERS of $33,000,000 since 2003" and that the district has paid about $22,700,000 in bond payments, producing a net reported taxpayer saving of roughly $10,400,000 through 12/31/2024, while emphasizing historical performance is no guarantee of future results.

Staff noted timing matters: with an expiring rate credit the district faces a temporary spike in PERS costs (staff estimated roughly $800,000 in increased PERS costs in the coming year) and said the board would need to set parameters by Nov. 9 if it wanted to pursue a potential 2027 bond sale. Staff recommended further actuarial, legal, and market analysis, and said the district is coordinating with municipal advisors and bond counsel to prepare a careful assessment.