The town of Longboat Key may not ask registered voters to approve a bond to pay off more than $25 million in pension liabilities.
That’s because town staff and the town’s Investment Advisory Committee both say it doesn’t make financial sense to pay off all the debt at once through a bond because of rising bond market interest rates.
The Investment Advisory Committee met Oct. 11, at Town Hall, to discuss how to fund pension liabilities now that the general employees and firefighters pension plans are frozen. The town is also seeking to freeze the Police Department pension plan.
“We don’t have to borrow any money or pay any interest,” said Town Manager Dave Bullock. “What we have to do every year is continue to make our annual required contributions.”
Bullock noted at the meeting the town can continue to budget for the annual required contributions and plan for making more than the required amounts to pay down the debt over time.
Investment Advisory Committee member Armando Linde and other committee members think it’s the right approach at this time.
“No one is saying we have to pay it all now and fund the burden all at once,” Linde said. “The bond market is in disarray, and interest rates will continue to rise. I suggest we forget about the bond.”
The Longboat Key Town Commission already has $1.6 million set aside in its budget to pay for rising pension costs, and Vice Mayor David Brenner also suggested the town could continue to budget properly to pay down the debt.
The committee agreed to take the approach to the commission, along with a plan that forces future commissions to continue to address the issue annually.
“How about a policy statement that forces future commissions to reassess the debt every year and vote on the process?” said Commissioner Jack Duncan. “It forces them to understand what we’re doing and how we should keep going.”
That plan, Duncan said, should include flexibility to obtain a bond if the market becomes an appealing option to pay off the remaining debt.
Bullock explained that, as part of the town budget process, staff could set aside money for pension costs and use a percentage of approximately 20% on top of that amount “to buy down the unfunded liability.”
“As part of this plan, we’re hoping to continue to have increases in property values to generate more revenue to mitigate tax increases and pay down the debt,” Bullock said.
Bullock said he’s comfortable with a budget policy to pay off pension liabilities, but warned if state actuaries ever request the town close the plans and pay off the liabilities, “then that’s what we’ll have to do and a bond would come back into play.”
But, for now, town officials are satisfied with being in control of paying off their own pension debt without paying for interest and agreed to have town staff craft a pension liability-reduction policy for the commission to review.
Last week, PFM Asset Management LLC investment adviser Steven Alexander confirmed he thought that strategy was the right approach for the town at this time.
“I like the idea of paying the debt down each year without having to pay the interest that comes with a bond,” Alexander said. “That approach instills a culture to put extra cash against that obligation and sets the stage for the commission to address it very directly.”
Duncan praised the work of staff and the direction the town is heading to pay off the pension debt.
“The work this committee is doing is exceptional and it’s work that should have been done years ago to stop some of this debt from occurring in the first place,” Duncan said.
Click here to view a PDF document of longterm liabilities.
Contact Kurt Schultheis at [email protected]