Bloomfield Township approves bond language to fund pension liabilities
June 12, 2013
BLOOMFIELD TOWNSHIP — Township officials are hoping to save residents at least $80 million over the next 20 years by issuing bonds to fund the costs of its unfunded pension liabilities.
The Board of Trustees approved a notice of intent to issue the bonds at its May 28 meeting, as well as to amend its defined benefit pension plan investment policy.
Treasurer Dan Devine said that after two study sessions, the board decided to follow a law signed by Gov. Rick Snyder last October that allows townships with better than a AA bond rating to sell bonds in order to satisfy pension obligations.
“We’ve been trying to get that law passed for the past 10 years,” he said.
“We’re very proud of the efforts we’re undertaking.”
Devine said the obligations to pay for the pensions are set in contracts that were negotiated in the 1960s — and will not go away.
“So the discussion is, how do we best and most cost-effectively pay for the obligations?” he said.
“By selling bonds for $80 million, we will be able to pay back the bonds at approximately $6 million per year, whereas if we did not sell the bonds, our very same pension obligation would be in excess of $10 million per year. By selling the bonds and funding the pension obligation fully, we in essence are saving $4 million a year for 20 years.”
Devine said that as the defined benefits plan was closed in 2005, “there are no new people coming into the plan, so this will fully satisfy that obligation for the future.”
Terence Donnelly, of law firm Dickenson Wright, said that prior to issuing the pension obligation bonds, the new law requires the township to first publish a notice of intent in a local newspaper “to afford electors of the township 45 days within which to gather a petition requesting referendum if they are so inclined.”
The statute also requires the township to prepare a comprehensive financial plan, including an analysis of existing pension benefit programs.
“We will anticipate that to be presented and approved, assuming you decide to go ahead,” he said.
Speaking during public comment, resident Bill McMaster asked the board how the bonds would be charged to the taxpayers, and how the township expects to pay for the bonds.
“The legislation makes it very clear that these are what’s known as limited tax general obligations. These bonds would be a first budget obligation of the township, payable from its general funds, but you are not permitted to levy any taxes to satisfy the debt service on these obligations beyond any existing constitutional, statutory or charter limitations,” Donnelly said.
Devine said later that issuing the bonds will not cost residents any more than they already pay in taxes.
“We are utilizing the tax money in a more cost-effective manner and satisfying the pension obligations. Some people think if you’re selling bonds, it must be increasing taxes, and that’s not how this works. It’s actually decreasing our costs over time,” he said.
“The obligation will not go away; it’s just a more cost-effective way of satisfying the obligation. Some other communities handle their pension obligations by eliminating positions and reducing salaries. And what happens is, that reduces services to the public. The way we’ve done it, we can maintain an excellent work force and provide sustainable benefits in a cost-effective manner.”
Devine said he welcomes the opportunity to address any questions or concerns residents may have.
“I’m glad people are paying attention. They should have questions, and we’re more than happy to answer them,” he said.
“We’re very proud of this opportunity, and the fact that we have a great team put together to make it work.”
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