The city of Glendale recently completed the sale of $252.8 million of its Public Safety Retirement System Certificates of Participation.
The proceeds from the sale will be used to pay a portion of the city’s PSPRS unfunded liability. The Glendale City Council authorized the sale of the COPs at the April 13 meeting.
On June 23, the city’s COPs went on the market in extremely favorable conditions.
Historic low treasury rates, combined with the city’s positive credit ratings, resulted in high demand from investors who placed more orders than the number of certificates being offered. This demand resulted in an even more favorable final interest rate.
The city took advantage of historic low interest rates in the marketplace, achieving a net-interest cost of 2.461%. This represents an estimated total net present value savings of more than $116 million over 17 years. This is an average savings of $6.8 million per year or $570,482 per month, resulting in significant savings to Glendale taxpayers.
The city’s unfunded PSPRS liability was expected to grow to over $290 million this year.
These are benefits the city owes to its current and retired public safety employees. The legacy costs associated with these funds have placed a large financial burden on employers like Glendale. Nearly all Arizona cities, as well as counties and the state, have large unfunded pension liabilities. The Glendale police pension was funded at only 49.4%, with the Glendale Fire Department pension at only 58.8%.
Funding options to address these growing liabilities are very limited; however, the market conditions provided a unique and historically unprecedented opportunity to stabilize Glendale’s pensions funds.
The sale of the COPs allows the city to accomplish several strategic goals:
• 90% funding of the city’s public safety pension plans.
• Reduce annual pension debt payment significantly, thereby easing the burden on the city’s general fund.
• Smooth out future pension debt payments that were scheduled to grow significantly in future years.
• Set up a reserve fund to address changing market conditions and future pension and unfunded liability needs.
• Pay off the pension debt in the same 17-year timeframe as the original debt the city of Glendale received a favorable credit rating for the COPs. Fitch Rating provided a AA rating, and S&P Global rated them A-plus. The latest rating reports cited the city’s economic growth, budget stability, very strong reserve levels and liquidity, supported by a strong framework of financial management, among its credit strengths.
“The sale of the COPs allows the city to provide significant savings to Glendale taxpayers, and stability to the city’s debt obligations” Budget and Finance Director Lisette Camacho said. “Even more importantly, it demonstrates the city’s commitment to honoring its financial obligations to its dedicated public safety employees.”
RBC Capital Markets served as Glendale’s financial adviser and underwriter.