BOARD MEETING DATE: June 4, 2004
AGENDA NO. 37

Recommendation to Adopt a Resolution to Issue Bonds to Retire the Unfunded Liability for Employees Participating in the San Bernardino County Employees’ Retirement System

SYNOPSIS:

The Board, at its April 2, 2004 meeting, authorized the preparation of legal and disclosure documents necessary to permit the AQMD to issue Pension Obligation Bonds to retire the Unfunded Actuarial Accrued Liability due to the San Bernardino County Employees’ Retirement Association. This action is to adopt a resolution authorizing the necessary actions required to issue the 2004 AQMD Pension Obligation Bonds.

COMMITTEE:

Administrative, May 14, 2004, Reviewed

RECOMMENDED ACTIONS:

Adopt the attached resolution authorizing the issuance of a pension obligation debenture and the issuance and sale of taxable pension obligation bonds to refund such debenture, and authorizing the execution and delivery of a first supplemental indenture, a contract of purchase and a continuing disclosure agreement and the preparation of an official statement and other matters related thereto.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

On April 2, 2004, the Board approved agenda item #11 authorizing staff to proceed with the preparation of legal and disclosure documents necessary to permit the AQMD to issue Pension Obligation Bonds (POBs) to retire its Unfunded Actuarial Accrued Liability (UAAL) as of June 30, 2003. Over the past several months staff has been in contact with the San Bernardino County Employees’ Retirement Association (SBCERA) regarding the growing retirement system costs and has participated in several meetings with representatives of SBCERA and the County of San Bernardino regarding the UAAL of the retirement system and the County’s decision to go forward with the issuance of POBs to retire a substantial portion of the County’s UAAL to the Retirement Association. In 1995 AQMD joined with the County to issue approximately $420.5 million in POBs of which $34.3 million were associated with AQMD. These were taxable, non-callable bonds that for AQMD have a level debt service schedule of $3.1 million annually to 2022.

Proposal

The options for funding the AQMD’s $46.4 million UAAL are limited. AQMD is obligated under statute to amortize the UAAL over the currently agreed 20-year period. Since SBCERA’s assumed investment rate of 8.16% is several hundred basis points higher than current market interest rates, AQMD could save money by issuing POBs. The underwriting firm Goldman, Sachs calculates that under current market conditions, AQMD could realize net present value savings of approximately $9 million over the 20-year period.

Staff is recommending that the Board adopt the attached resolution which authorizes the issuance of a pension obligation debenture, the issuance and sale of taxable pension obligation bonds to refund the debenture, and authorizes the execution and delivery of a first supplemental indenture, a contract of purchase and a continuing disclosure agreement. This resolution would also approve the preparation of an official statement and other related matters.

Attachments

Resolution
Pension Obligation Debenture
First Supplemental Indenture of Trust
Contract of Purchase
Continuing Disclosure Agreement
Preliminary Official Statement

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