By Alison Knezevich, The Baltimore Sun
8:29 PM EDT, October 15, 2012
Baltimore County will borrow up to $260 million for its pension system and pay off the debt over the next 30 years, under legislation approved Monday by the County Council.
The council's 7-0 vote will let the county invest the borrowed funds in the stock market, a move that carries risk but that county officials say will close a gap in pension funding while saving money in the long run.
County Executive Kevin Kamenetz's administration proposed the move, contending the county is financially stable enough to withstand the risk. Administration leaders project that the transaction could save the county $250 million over the next few decades because the county would receive funds now at a low interest rate to pay for pension liabilities.
"The county's situation is different from many of the other jurisdictions" that have issued pension obligation bonds, budget director Keith Dorsey told the council Monday.
Those local governments have been fiscally stressed and, unlike Baltimore County, unable to cover current operating costs, Dorsey said. He said the county's AAA bond ratings will allow it to borrow money at very low interest rates.
If the county's long-term earnings on investments is higher than interest rates on the borrowed money — which are projected at 4.25 percent to 4.5 percent — it will save money. If not, it will lose.
The legislation would allow the county to issue up to $260 million in bonds, though the administration plans to issue about $255 million.
The county must contribute an additional $15 million annually to the system starting next year because the retirement board voted this summer to lower projections on its assumed investment earnings. The plan to issue the bonds is meant to fill that gap.
Costs associated with the transaction include more than $1.1 million for the bond underwriter, as well as about $475,000 in other fees, such as payments to bond lawyers and financial advisers.
The county's current fiscal stability was the key reason members approved the legislation, Council Chairwoman Vicki Almond said.
"We felt that our questions were properly addressed and explained in detail [by the administration]," said Almond, a Reisterstown Democrat.
Council members also approved companion legislation proposed by Kamenetz that will make several changes related to the pension system. That measure will create a death benefit for adult children of retirees who die with at least 15 years of service to the county. It also will require corrections officers hired after July 1, 2011, to increase their contributions to their pensions from 8 percent to 10 percent, a change that was negotiated during the officers' labor talks with the county this year.
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