San Diego County OKs Pension Bond Issue

April 7, 2004 ( - Faced with a $1.4-bilion deficit in their pension fund, supervisors in San Diego County approved a proposed $400 million bond issue to cover part of the shortfall.

The supervisors said they are saving taxpayers more than $100 million by borrowing money at a lower interest rate than what the county pays on the pension deficit, the San Diego Union Tribune reported.

The county expects to issue the bonds this summer at an interest rate of 6% or lower, a decrease from the 8.25% now paid on the deficit. This is the third time in 10 years supervisors have borrowed money to meet unfunded pension liabilities with a $430 million pension obligation bond issue in 1994 and $737 million in bonds put out in the market in 2002.

Poor investment returns in recent years reduced the retirement system’s funded ratio from 82.5% in October 2002 to 75.5% as of June 30. By issuing the bonds, supervisors hope to boost the ratio back up to 81.8%. Despite the deficit, the pension fund is not in danger of running out of money to pay retirees. Brian White, chief executive officer for the retirement association, said the fund’s assets have reached $5.1 billion since liabilities were last calculated in June, because the stock market has rebounded.

In voting to approve the bonds, supervisors took turns stressing that the county’s pension fund is in much better financial shape than the city of San Diego’s. The city’s pension fund, which is about half the size of the county’s, has a $1.1 billion deficit and more than $1 billion in unfunded retiree health care costs (See  San Diego Approves Pension Reform Committee ). Its funded ratio is 67% .