Bond, Consulting or Both:
NHA Contributions: NHA provided a transparent 6 month educational process aimed at educating staff, council and residents on the pros and cons of pension bonds, using guidance from the council to craft options that meshed with the City’s policy and financial objectives, while developing strategies to mitigate CalPERS reinvestment risk. NHA provided the structuring options analysis, credit rating analysis and helped manage the underwriting process during a volatile time in the market.
Project Completion: May 2020
NHA Contact: Mike Meyer, Eric Scriven and Craig Hill
Unique Characteristics of Project:The City issued $440 million of pension obligation bonds as part of a well-crafted and stress-tested UAL restructuring. The City maintained its “AA – Stable” rating during the height of the COVID-19 pandemic and used this UAL restructuring as a tool to enhance short- and long-term fiscal sustainability. The City also updated its pension funding policy to ensure that future savings from the restructuring would continue to be used to address pension and OPEB costs. Evaluation Process Including Evaluation, Stress Testing & Community Outreach.
Executive Summary: In 2018, NHA was hired by the City to assist with pension funding strategies, and in the fall of 2019, was hired to manage a POB evaluation process and to develop a POB funding plan that balances risks/rewards while addressing a portion of the City’s projected deficits. Mike Meyer and the NHA team began the process by conducting several staff workshops in the fall. After presenting a “POBs 101” workshop focused on benefits and risks to the Finance Committee in January and to City Council in February, NHA quarterbacked a very detailed and thorough POB evaluation process that involved working with the City’s actuary, Bond Counsel and Underwriting team to evaluate over 25 structuring options.
NHA then worked with the team to refine and stress test the top options for staff and City council to evaluate potential savings under more pessimistic future CalPERS return assumptions. The structure was then further refined with the first year of savings being used as a tool to address COVID-19 revenue impacts. The final structure targeted a smoothing-out the City’s “peaking” payment shape without extending any payments relative to the current CalPERS schedule. The 2020 POBs achieved a “AA Stable” rating, a testament to the City’s carefully evaluated POB structure and prudent financial management and adopted policies, including a pension funding policy.