Agenda Item   



                                                                                                                        ASR Control  19-001230




legal entity taking action:

Board of Supervisors

board of supervisors district(s):

All Districts

SUBMITTING Agency/Department:

County Executive Office   (Approved)

Department contact person(s):

Suzanne Luster (714) 834-3362 



Louis McClure (714) 834-5999



Subject:  Approve Issuance of 2020 Pension Obligation Bonds


      ceo CONCUR

County Counsel Review

Clerk of the Board


Approved Resolution to Form




3 Votes Board Majority




    Budgeted: No

Current Year Cost: See Financial Impact Section

Annual Cost: See Financial Impact Section




    Staffing Impact:


# of Positions:

Sole Source: No

    Current Fiscal Year Revenue: N/A

  Funding Source: Other: 100% (Bond Proceeds)

County Audit in last 3 years: No



    Prior Board Action: 10/08/2019 #19






Adopt the Resolution authorizing the issuance of a Pension Obligation Debenture, the issuance and sale of short-term Taxable Pension Obligation Bonds, 2020 Series A in an amount not to exceed $499 million, the execution and delivery of a Tenth Supplemental Trust Agreement and a Bond Purchase Agreement and authorize the Public Finance Director to execute all documents necessary and related thereto.



Authorize the Auditor-Controller to increase estimated revenue in Fund 100-017-022-5300-7840 in the amount of $100,000 and increase appropriations in Fund 100-017-022-5300-3410 in the amount of $100,000 (Requires 4/5 vote).



Authorize the Auditor-Controller to make retirement prepayments to Orange County Employees Retirement System at the time and in the amounts specified in writing by the County Executive Officer or designee, provided that the pre-payments shall not exceed the following amounts for the following Funds: Fund 115, OC Road, $3,782,857; Fund 120, OC Public Libraries, $5,591,321; Fund 143, Jail Commissary, $662,377; Fund 144, Inmate Welfare, $446,933; Fund 280, John Wayne Airport, $4,579,485; Fund 293, Workers' Compensation ISF, $658,256; Fund 294, Property and Casualty Risk ISF, $319,908; Fund 296, OC Fleet Services, $1,657,943; Fund 299, OC Waste and Recycling, $5,248,490; Fund 400, OC Flood, $6,026,893; Fund 405, OC Parks, $5,840,505.







Authorizing the issuance of short-term Taxable Pension Obligation Bonds will allow the County Executive Office Public Finance staff to issue bonds to prefund the County’s FY 2020-21 contributions with an estimated net savings of $10.2 million.






On July 11, 2019, the Orange County Employees Retirement System (OCERS) Board of Retirement approved the option of allowing plan sponsors to prepay their annual pension contributions at a discount rate of 4.5 percent for the July 1, 2020, to June 30, 2021, fiscal year pension contribution. The discount is based on a January 15, 2020, prepayment date for the following fiscal year retirement expense. In order for the discount rate to apply, such prepayment must occur by January 15, 2020.  Following the action by the OCERS Board of Retirement, County Executive Office (CEO) Public Finance staff analyzed the option of issuing short term taxable bonds to prefund the County’s FY 2020-21 contributions and determined that, given the current interest rate environment, a financing and early payment would provide the County with sufficient savings on its pension costs to execute a financing.


On September 12, 2019, and October 8, 2019, the Public Financing Advisory Committee (PFAC) and your Board of Supervisors (Board), respectively, approved the concept of issuing short-term taxable pension obligation bonds to provide for the early payment of estimated normal retirement expense and estimated unfunded actuarial accrued liability expense of the County’s FY 2020-21 employer contribution.  PFAC considered this item at its December 12, 2019, meeting. CEO Public Finance staff have communicated the result in writing to the Board.


The legal basis for the issuance of the 2020 Series A Bonds by the County is the court validation process previously completed for the 2007 Pension Obligation Bonds pursuant to Section 860 et seq. of the Code of Civil Procedure.  The validation process resulted in a trust indenture created for the 2007 financing which allows for additional annual financings of the County’s pension obligations. 


Taxable Pension Obligation Bonds 2020, Series A Description and Terms


The 2020 Series A Bonds will be issued to refund a Pension Obligation Debenture payable to OCERS in a principal amount not to exceed $499 million at an interest rate not to exceed 4 percent. The County Treasurer has agreed to purchase the Bonds on behalf of the Orange County Investment Fund. It is anticipated that the Bonds will be structured to have four fixed-rate maturities in order to take advantage of favorable market rates along the yield curve.  The estimated true interest cost is 2.87 percent.  If market conditions change prior to issuance in January, the number and timing of maturities may change.  The final maturity, however, will be no later than April 30, 2021. 


The par amount of the bonds is estimated to be $463.8 million plus estimated cost of issuance of $80,000. Total debt service including interest cost is estimated to be $476.2 million. The not to exceed $499 million bond authorization is greater than the expected bond issuance amount because it includes the pre-payment amounts expected to be paid by certain County departments using existing resources. The additional authorization is necessary in the event one or more self pre-paying departments is unable to self pre-pay. The approximately $463.8 million in bond proceeds, combined with the amount from certain departments self pre-paying using existing resources, will be sent to OCERS to prepay the County’s FY 2020-21 pension contribution.  Debt service on the Bonds will be paid from pension contribution amounts collected from County Funds with each bi-weekly payroll. Pledged security for the bonds are any lawfully available funds of the County.




Subject to approval of this item by your Board, the CEO Public Finance staff expects to place the Bonds with the County Treasurer by January 15, 2020.  Assuming the January 15 closing date and current market conditions, the estimated net savings (OCERS discount for prepayment, less interest and cost of issuance) amount for the entire transaction is $10.2 million.


Because certain County departments have sufficient funds available to prepay their pension contribution costs, they have opted out of the proposed financing.  These departments will realize all savings from the discount applied by OCERS.  They will not share in the interest expense and issuance costs related to the Bonds.  The departments that have opted out of the financing are OC Waste & Recycling, John Wayne Airport and certain funds within the County Executive Office, OC Community Resources, Sheriff-Coroner and OC Public Works departments.




Following is a description of the documents attached:


Form of the Resolution of the Board of Supervisors - Document to be adopted by the Board of Supervisors which identifies the legal authority for the issuance of the Bonds, authorizes the maximum amount of the Bonds to be issued, approves the form of the Bond documents and authorizes the Public Finance Director to execute all documents necessary and related thereto.


Pension Obligation Debenture - Represents the obligation of the County to pay the FY 2020-21 annual contribution to OCERS.  The obligation of the County to pay the annual contribution is contained in the County Employees’ Retirement Law of 1937, as amended. Proceeds of the Bonds will be applied to pre-pay the Debenture on the date of issuance of the Bonds.

Tenth Supplemental Trust Agreement - Supplements the Original Trust Agreement dated January 1, 2007, by and between the County and U.S. Bank National Association, as Successor Trustee.  The Trust Agreement is the contract between the County and the Owner of the Bonds and includes the material terms of the Bonds, representations and covenants of the County, events of defaults and remedies relating to the Bonds.

Bond Purchase Agreement - An agreement that defines the terms and conditions under which the County Treasurer will purchase the Bonds.  The Agreement states the principal amount of the Bonds, the interest rate and maturity dates.






Pre-paying the County's FY 2020-21 annual pension contribution could result in a gross savings of approximately $22.4 million and a net savings of approximately $10.2 million.












Attachment A - Resolution
Attachment B - Pension Obligation Debenture, 2020 Series A
Attachment C - Tenth Supplemental Trust Agreement
Attachment D - Bond Purchase Agreement