TRAVERSE CITY — Grand Traverse County officials have taken the first step toward selling $52 million worth of bonds to pay off unfunded employee retirement and health care costs.
The county commission voted during a committee meeting Wednesday to publish a notice of intent to issue bonds. The vote was the first step in a complex process that some officials said could save the county millions while fully funding its unfunded accrued retirement and health care liabilities.
But several members of the county board expressed reservations about the proposed bonding plan, including Commissioner Christine Maxbauer, who cast the only vote against publishing the notice.
“We’re going to borrow our way out of debt,” Maxbauer said. “That’s what the county board voted on.”
The county owes nearly $45 million to its employees’ pension fund and approximately $6 million in employee healthcare liabilities, though the healthcare total is based on figures from 2010.
Under the bond proposal the county would use the $52 million to pay off those debts. It could either pay off its unfunded liabilities directly to the Michigan Employee Retirement System and a retiree healthcare trust in lump sums or establish a trust with the bond money, invest it, and pay unfunded pension and health care costs from there.
Maxbauer compared the bond proposal to gambling with public money during the Wednesday committee meeting.
“Isn’t this a considerable risk with taxpayer money?” she said. “I view this as financial roulette.”
County Administrator Dave Benda said that’s not the case.
The county already owes almost $52 million in unfunded pension and healthcare costs with the vast majority of that promised to MERS. The bond proposal would equate to transferring that debt to bond holders, and would allow the county to flatten out annual debt payments while collecting investment returns from the whole $52 million over the life of the bonds, he said.
“We have a debt, we have to pay it,” Benda said. “The question is how do we pay it.”
Officials estimated the bonding would save the county about $17.5 million over a 15-year bond schedule.
The final decision on whether to sell the bonds is still a long way off despite the commission’s affirmative vote Wednesday. Officials still need to produce detailed financial plans, including a debt amortization schedule, and apply to the Michigan Department of Treasury for permission to issue the bonds, among other requirements.
Commissioner Larry Inman said he wants more information presented to the county board, including MERS officials’ reaction to the bond proposal, and an update on unfunded healthcare costs.
“I don’t want to end up like the next septage plant, saying ‘we thought we were going to get a return on this. We thought interest rates would be this way,’” Inman said. “I want to see worst-case, middle-case and best-case analysis done.”
Commission Chair Herb Lemcool admitted there are risks involved in the bond proposal. But the county faces other risks based on its unfunded retirement and healthcare costs, he said.
“If we don’t do this we are definitely going to be cutting major jobs and major services to our constituents in order to keep paying for this,” Lemcool said.
Citizens will have 45 days to weigh in on the bond question through referendum petitions after the intent to issue is published. The bond issue would go before voters if petitioners collect more signatures than 10 percent of the number of registered voters in the county, or about 7,000 signatures.
The county currently spends close to $4 million annually on pension costs. Officials estimated about a $1 million shortfall in the county’s 2014 budget.