West Covina issued new bonds to pay for its unfunded pension obligations, the city announced.
The city approved to the lease revenue bonds at a July 8 City Council meeting, where council members voted 4-1 to take on over $200 million in debt to pay for city employees’ retirements.
“West Covina residents can rest easier today knowing that meaningful pension refinance is finally in place,” Mayor Tony Wu said in a statement.
A city news release said West Covina will be issuing $204.1 million in lease revenue bonds at a 3.7% interest rate, which is significantly lower than the 7% interest rate the city currently pays CalPERS, which handles the retirements of many public employees in the state.
The bonds were given an A+ rating by Standard & Poors, a national credit rating agency, indicating these bonds are a good investment, the news release says.
According to Assistant City Manager Mark Persico, these bonds are much more affordable for the city than paying a lump sum to CalPERS every year.
“It’s the taxpayers’ money and the taxpayers are saving $52.7 million over 30 years,” he said by phone on Tuesday. “I think that’s significant.”
As a lease revenue bond, the city essentially would pledge its streets to a finance authority and then make lease payments on its own streets. The lease payments pay off the bonds with total repayment due within 25 years, according to the staff report.
Persico said leasing parts of the city’s streets is just collateral for bond investors, which means the city pledges its streets to the lender as security to repay the loan.
At the July 8 meeting, Brian Whitworth, director of Hilltop Securities, the bond’s underwriter who presented the bond to City Council members, said there is no language in the bond agreement that would allow lenders to turn streets into toll roads.
“California municipalities must plan without delay for post-pandemic fiscal realities,” City Manager Dave Carmany said in a statement. “This plan received widespread support from the City Council, and now with the investor community.”