Kane County again eyeing borrowing to reduce pension debt
Kane County officials will revive a plan to pay off unfunded pension debt with a controversial bond sale that some government experts have warned against.
The idea stirred enough nervous thoughts last fall that Chairman Chris Lauzen had to cast a rare tiebreaker vote after a 12-12 split on the board. Though Lauzen's vote pushed the plan forward in October, an unexpected rise in interest rates stymied the actual bond sale.
Lauzen announced Wednesday he will press the board to try the bond sale again now that markets are more stable.
This time around, there are two new wrinkles.
For one, the terms of the deal are different. The original plan involved issuing $52 million in pension obligation bonds. The proceeds from the bonds would pay off the county's current unfunded Illinois Municipal Retirement Fund pension debt. The county pays about 7 percent interest to IMRF on the unpaid balance. The bonds, however, were expected to carry a 3.5 percent interest rate, saving about $15 million for the county during the next 28 years. That 3.5 percent rate did not materialize as county headed to the bond sale last November.
The new deal will involve saving a couple of million dollars less, Lauzen said, and a different interest rate. The board will get the full details at an upcoming meeting with its bond counsel, R.W. Baird. That meeting is where the second wrinkle comes into play.
The county board has four new members since the last vote on the bonds. Joe Haimann, a "yes" vote on the plan, was replaced by Jared Sanchez. Three "no" votes, Cristina Castro, Brian Pollock and Maria Vazquez, were replaced by Penny Wegman, Angela Thomas and Barbara Hernandez.
The new board members have not yet weighed in on the pension plan. However, the risky part of the deal that drove the 12 "no" votes the last time around remains.
Once the county takes on the new bond debt to fund the pension obligation, the proceeds of the bonds go to IMRF. Once the cash is in IMRF's hands, it must realize a 7.5 percent rate of return. Any lower rate of return and the county's savings shrink.
If the rate of return drops below the interest rate on the bonds the county issues, local taxpayers will be on the hook for more money than if the county never issued the bonds. IMRF's investment returns have seesawed in recent years from a high of 20 percent in 2013 to actually losing 0.5 percent in 2011, according to an annual financial report.
Lauzen said all 13 of the "yes" votes last fall were "great votes."
"If it's done right, it's a very positive thing," Lauzen said. "It's when government does it wrong by using some of what's borrowed to cover current expenses that you get into trouble. That was the trouble with the state of Illinois pension bond. That's not what we're going to do in Kane County."