City Council votes to refinance pension bonds to save $75 million
El Paso City Council on Tuesday voted to refinance pension bonds in an effort to save nearly $75 million.
City Representatives unanimously voted to refinance about $110 million for the police and fire pension fund. The decision stems from a 2004 decision by voters who approved a city charter amendment authorizing a one time contribution to the fund.
The City negotiated with the police and fire unions and agreed on a $210 million contribution allocated in two installments. A state statute required the city to deliver the funds by July 2009.
The first installment of $100 million was delivered to the pension fund in July 2007. The debt was issued over a 25- year period with a 6% interest rate.
But there were some complications with the second installment of $110 million issued in 2009. Interest rates were too high to issue the debt over a 30-year period, said Carmen Arrieta Candelaria, the City’s Chief Financial Officer. She said financing the debt in 2009 over 30 years at 7% interest would have cost the City about $159 million.
Instead, the City in 2009 took a risk. Council at that time approved issuing the debt over a 5-year period at a 3.4% interest rate with the intent of refinancing at the end of the 5 years, which would be in August 2014.
Arrieta Candelaria said interest rates are favorable now to refinance the $110 million over 20 years with a 4.83% interest rate. “By financing over a short period when conditions were not favorable and jumping on this opportunity of good market conditions now, we can save a lot of money,” said Arrieta Candelaria.
The Council unanimously gave the City staff the green light to refinance the debt. According to market data presented by Arrieta Candelaria, the City is slated to save $74,646,720 by refinancing now.
