Oakland County taxpayers will save an estimated $100 million after the board of commissioners approved County Executive L. Brooks Patterson’s request to refinance the county’s outstanding balance on Certificates of Participation (COPs) at a lower interest rate. The COPs were issued in 2007 to fully fund the county’s retiree health care obligation. They will be refinanced through limited taxable general obligation (GO) bonds.
The GO bonds are intended to be issued in two series in August 2013 and December 2013. As part of the board’s resolution, the commissioners enabled the administration to react quickly – before August 2013 – if interest rates were to move in an adverse direction or investment values in the retiree health care trusts were to falter.
“The major bond ratings agencies tell us Oakland County is the best-managed AAA county in the nation,” Patterson said. “Last night’s vote by the board of commissioners enables us to maintain our stellar fiscal reputation.”
The action by the board of commissioners was the first step in the process of refinancing the COPs with GO bonds. There are a number of more steps the county must go through before it is in a position to refinance.
County taxpayers will save $100 million from the refinancing in part because interest rates have dropped since 2007 from 6.2 percent to 2.9 percent now. In addition, because of the growth in investment value of the county’s two retiree health care trust funds, the county will be able to pay down principal on the outstanding COPs balance by at least $75 million. This will leave the combined trust funds 110 percent funded (assets in excess of accrued liabilities).
It is estimated that the issuance of GO bonds for the outstanding COPs balance of $438.2 million would generate a savings of $8.1 million a year for all county operations, $6.5 million of which would be attributed to General Fund operations the annual debt service for Fiscal Years 2014-2027. The county presently pays $48.5 million a year in debt service for the COPs.
Working in conjunction with Oakland County, its bond counsel John Axe, and other interested county and local governments, the State of Michigan recently passed Public Act 329 of 2012 which was effective Oct. 9. The law gives certain local units of government the authority to issue GO bonds in lieu of COPs.
On July 31, 2007, Oakland County issued $556,985,000 in COPs to fully fund retiree health care benefits and pay the cost of closing the defined benefit retirees’ health care plan while shifting newly-hired employees to a health savings account. Under the program, the county achieved huge savings. The retiree health care debt service became roughly $48.5 million annually for 20 years versus the pre-COPs annual contribution of $60.2 million over 30 years. This difference has already saved taxpayers more than $100 million during the funding period. This is in addition to the $100 million taxpayers will save if the commissioners approve Patterson’s request. Today, all county employee groups’ new hires are under a defined contribution plan for retiree health care going forward.