Partially because interest rates are less than half of what they were five years ago, Oakland County Executive L. Brooks Patterson is requesting that the Board of Commissioner refinance the county’s outstanding certificate of participation balance of $438.2 million in an effort to save an estimated $100 million on the county’s retiree health care obligations.
The certificates of participation, which were issued in July 2007 in a total of $557 million to fully fund the county’s retiree health care obligations, are expected to be refinanced using limited taxable general obligation bonds.
“Oakland County consistently retains its AAA bond rating because of our prudent fiscal management,” Patterson stated in a press release. “My Budget Task Force says now is the time to take advantage of a new state law and low interest rates to save taxpayers tens of millions of dollars.”
The principal on the outstanding certificate of participation balance will be whittled back by at least $75 million due to increased investment value of the county’s two retiree health care funds.
For the next 13 fiscal years, from 2014 to 2027, a savings of $8.1 million for all county operations would be realized if the certificates of participation are refinanced using general obligation bonds, according to the county. Of that $8.1 million, $6.5 million would be for General Fund operations.
Prior to issuance of the certificates of participation five years ago, the county had been paying about $60 million annually over 30 years, while the current annual debt service obligation for the certificates is about $48.5 million per year over 20 years.
“Given the new (state law, Public Act 329 of 2012), favorable bond interest rates, and current market value of the investments in the two retiree health care trusts, responsible fiscal management dictates that the county should refinance the outstanding balance of the COPs,” said Deputy County Executive Robert Daddow in the press release.
PA 329, which was sponsored by state Sen. Patrick Colbeck (R-Canton), allows counties, cities, villages and townships to issue general obligation bonds instead of certificates of participation under certain circumstances.
If approved, the general obligation bonds would be issued in August 2013 and December 2013.
All county employee groups’ new hires are now under a defined contribution plan for retiree health care; the county moved away from defined benefit health care plans several years ago.