Metropolis of Yuma Saves $72.7 Million
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After swift action, the City of Yuma saved Yuma residents over $72.7 million by refinancing its Arizona Public Safety Personnel Retirement System (PSPRS) liabilities (debt) on Tuesday.
The City had an unfunded PSPRS debt of approximately $140,000,000, which was accumulating interest at a rate of 7.3%. On Tuesday, the City issued obligations to refinance the PSPRS shortfall and was able to lock in a better than expected true interest cost of 2.38% on this debt, as well as refinance the remaining debt of approximately $11,790,000 from a prior bond issuance. This action results in a long term savings of $72,793,473 (net present value) and over $1 million (net present value), respectively.
At the City Council’s Vision and Goal-setting event in October 2020, the City Council identified their number one priority being the issuance of bonds to meet the PSPRS shortfall. The Mayor and City Council’s clear direction and the City Administrator’s decisive action resulted in the City saving millions of dollars.
“This is a historic event! The refinancing addresses the single largest financial liability for the City over the next 20 years. It creates a sustainable payment structure to meet the promises we made for retirement of our police and fire personnel while saving the taxpayers $73 million dollars. On behalf of the entire Council, I want to thank the City staff and administration who pulled together this amazing feat in an incredibly short time frame,” said Mayor Douglas J. Nicholls.
Since October, staff and their financial advisors have been working non-stop developing a plan to fund 100% of the City’s fire and police pension plan. The City engaged Stifel, Nicolaus & Company as the Underwriters and Greenburg Traurig, LLP as Bond Counsel to assist with developing the plan and issuing the obligation sale this month, allowing the City to take advantage of very low-interest rates.
“Over the last several years, it became clear that our financial future was truly at stake with respect to the City of Yuma’s PSPRS liability, and that urgent action was needed,” said City Administrator Philip Rodriguez. “As the first major highlight of the City’s new strategic plan, this action is a clear commitment to our past, current, and future public safety employees and to the essential services, they provide and continue to provide our community. Refinancing the PSPRS unfunded liability not only provides huge savings, but it provides the City with a clear path forward financially and ensures that our police and fire pension plans are 100% funded. Saving taxpayers nearly $73 million is a huge win for our entire community. ”
Unfunded liabilities are debt obligations that do not have sufficient funds set aside to pay for them. In the case of the City, the unfunded liabilities refer to the PSPRS, which is Arizona’s fire and police personnel pension program administered and managed through the State. Unfunded liabilities can have a far-reaching and negative impact on the City’s economic condition. For several years the payouts have greatly exceeded the performance of the fund, resulting in a significant shortfall in the fund.
The growing PSPRS shortfall requires greater annual payments shifted back onto Arizona municipalities and counties as well as state public safety divisions. The City of Yuma’s debt to the State PSPRS exceeded $140 million. With interest, the City was expected to make annual debt payments through 2039 totaling over $274 million.
Refinancing the City’s PRSPS unfunded liabilities allows for more predictable and feasible annual debt payments and at current interest rates, saves taxpayer money and preserves the retirement system for the City’s hard-working public safety employees. Today’s action will allow the City to continue providing premier services without the burden of exponentially increasing PSPRS liabilities that if left undone, could have significantly altered future City services.
When reflecting on the funding process, City Administrator Rodriguez shared, “We had an amazing team working on the refinancing and I want to thank them for their hundreds of hours, even over the holidays, in order to meet today’s timelines. The City Council’s clear direction and support of staff’s hard work paid off and will make a difference for our community’s financial future for generations to come. ”