GTC gets OK to move ahead on bonding pension debt

Jun. 3—TRAVERSE CITY — Grand Traverse County commissioners gave their informal nod to the sale of bonds to cover the county's unfunded pension debt of about $40 million.

The move is expected to save the county between $8 million and $15 million over the next 13 to 14 years because of historically low interest rates, said Dean Bott, county finance director.

"Interest rates are extre- mely low, the lowest I've ever seen them in my professional career and those rates would be reflected in the bond," said Bott, who gave a presentation at Wednesday's regular comm- ission meeting.

In addition to cashing in on low interest rates, selling general obligation bonds to cover that debt will give the county a larger asset base to increase investment returns, as well as lower the annual payments on the debt.

About 60 percent of the pension debt is currently paid, and the remaining amount must be paid by 2034, according to state law.

This will be the third year the commissioners agreed to make an annual payment of $7 million toward the debt, which is more than the minimum payment calculated by the Municipal Employees Retirement System of Michigan, the Lansing-based nonprofit that manages the pension fund.

The board also has a policy in place that puts 25 percent of anything over the county's targeted fund balance toward the pension debt. This year an extra $850,000 payment will be made.

The payment on the bond will be lower, though the county will continue to make extra payments to hit a target of 110 percent funding.

County Administrator Nate Alger said the county has been talking about bonding for about a year and now is the right time to move ahead.

"The landscape upon which we are standing currently, Grand Traverse County has so many opportunities to blossom," Alger said. "I think we're in the right place at the right time to move forward on the pension bond."

Before bonds can be sold a Comprehensive Financial Plan must be completed, approved by the board and posted on the county's website for 45 days for possible petition for referendum.

The plan must then be approved by the Michigan Department of Treasury. Alger anticipates the county being in position to sell bonds by November.

Under state law, 95 percent of the pension liability can be bonded. The county has the ability to pay the difference, Bott said.

A condition of bonding is that the county must close its defined benefit plans, something it has already done as it has moved to a defined contribution plan with employees paying into their retirement and the county making a match.

In December the board, in a 3-3 vote, declined a $6.3 million bonding proposal that would have paid down pension debt for non-union employees at the Grand Traverse Pavilions.

The proposal would have included a plan by the Pavilions to close defined benefits to new non-union employees, who would instead be offered a 401k, with no change for existing employees. That facility's plans are about 76 percent funded, with $5.9 million in unfunded liability for its 100 non-union employees and $4.7 million for its 300 union employees.

Board members are supportive of the county's plan, even those who had been skeptical in the past.

Much of what's being paid into the pension fund now is from employee benefits earned a long time ago, which is a bad position to be in, said board Chairman Rob Hentschel.

"I've certainly been against bonding for a long time," Hentschel said. "I have changed my tune on this because I think the stars have aligned for bonding this pension. Money will never be cheaper ... This really gives our finance team, our HR team the flexibility they're going to need to stay competitive moving forward."

Commissioner Bryce Hundley said he has also been resistant to bonding.

"I doubt that there will ever be another opportunity to have as positive a financial impact on our county with one action as we have right now with this bonding," Hundley said.

Vice Chairman Ron Clous said he knows many members of the public will have questions and he wants to make sure they have the opportunity to speak out. Alger said a special meeting could be scheduled to address their concerns.