When I became your Mayor, I learned from our Town financial department that the Town had a $24 Million debt in our police pension account, which grew to $27 Million with officers living longer. This liability had grown enormously under prior councils and town managers and had been largely ignored, with the Town typically paying only the minimum required annual payment.
This was money that we owed, and the liability was constantly growing. This liability threatened the financial future of the Town and grew each year. Projections showed that at a future date our obligation could rise to 100% of payroll costs. Doing nothing but pay the minimum as prior councils did could have led to a future sales tax or property tax.
Rather than kick the can down the road, I led the council in making this a priority. Our Budget and Finance Commission, staff, and professional consultants, Stifel Public Finance, presented a conservative recommended approach that was adopted by Council and will save the Town up to $30 Million over the next 20 years (full details) and improve our financial outlook. This approach will save the Town $700k this year alone. It will also not require any new taxes.
The Council allocated $11 Million of excess cash reserves as a lump sum payment towards the Police Pension. We had achieved these excess reserves through prudent, conservative budgeting and financial management.
In addition to the cash we put towards this debt, we took out a $17 Million ultra-low 2.4% pension bond to pay for the remainder of the liability. If the market returns more than $2.4%, the Town will come out ahead. The Police Pension Board predicts 7.3% returns, which would save the Town $30 Million over the life of the bond. 59 municipalities in Arizona also took advantage of these record low interest rates to address this problem.
This is analogous to taking a high interest credit card debt and paying it down with both cash and an ultra-low interest re-financing solution.
The $28M we have paid towards this liability is NOT new debt for the Town. It is paying off an existing liability, and has improved the Town’s ratings and financial position, as confirmed by the bond market and the Town’s independent auditors.
This solution has helped protect the fiscal future of the Town of Oro Valley, save taxpayers millions of dollars, and free up future budget capacity while paying our obligation to our Police Officers.
“We consider the town’s finances well managed, and we note as additional credit positives the town’s high available fund balances and liquidity, and manageable overall debt burden.”S&P Global Ratings
Mayor Winfield, and councilmembers Barrett, Jones-Ivey and Nicolson wisely chose to save the town up to $30 Million over the next 20 years to ensure stable, low-cost funding for our public safety employees. Other Arizona cities and counties did the same thing, to take advantage of historically low interest rates while they were available. Source: https://www.leagueaz.org/e/21ac/documents/psprs_combined_pres.pdf