Bold moves pays off for Kamenetz

The holiday season started early for Baltimore County Executive Kevin Kamenetz with a present county taxpayers can appreciate - savings of $343 million (over 30 years) on an unusual bond issue that funds future county pension payments.

Kamenetz has taken criticism for this scheme to pre-fund a chunk of the county's long-term retirement obligations by issuing what's called a Pension Obligation Bond.

The $256 million raised last month from the bond sale should grow to $759 million over the next 30 years in the county's pension account. This lump-sum payment means local government won't have to increase its contribution to the pension fund due to lower than expected earnings in the future.

It's a gamble. But given today's historically low interest rates - the county's pension bonds sold at a rate of just 3.43 percent - it won't take much for Baltimore County to cover its large bet.

Indeed, financial experts anticipated a rate for the county bond of 4.25 percent but the bids came in significantly lower. If the pension system's investments continue to return 7.4 percent- as has been the case for the past 10 years (which included the Great Recession) - the county could see its required contributions fall.

Even better news is that Kamenetz' move gives county workers and teachers peace of mind their pension funds will be there when they retire.

This step defies traditional orthodoxy, especially in Baltimore County, which historically has been very conservative in its budgeting practices.

But minuscule interest rates in today's bond market means it was worth the risk to seize this rare opportunity.

Selling pension bonds at 3.43 percent was a smart move. It removes a 30-year IOU for the county and fortifies the county's pension account. As long as the pension board finds investments that earn more than that amount, Baltimore County comes out ahead.

Some hard-strapped cities and counties around the country have turned to pension bonds out of desperation. But in Baltimore County's case it was an illustration of the financial acumen of local leaders.

After bond rating houses last month reaffirmed the county's triple-A bond ranking, Kamenetz was in a position of strength in floating those unusual pension bonds.

The response from the financial markets indicated broad agreement with Kamenetz' strategy.

The question now is whether other counties and even the state will follow his lead. Given the likelihood of continuing low interest rates in 2013, other governments may try to cash in by selling cheap bonds, too.

Maryland's transportation agency, for instance, desperately needs cash for its expensive transit projects. Issuing more bonds at low interest rates seems a natural step.

The county executive deserves credit for taking a chance. Too often in politics, elected leaders shy away from risky moves, but this time it paid off both for Kamenetz and for county taxpayers.

Barry Rascovar of Reisterstown is a political columnist and a communications consultant. His email address is brascovar@hot


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