Dear Oaklanders:
Today I would like to share with you a special report that evaluates the benefits and challenges of issuing Pension Obligation Bonds (POBs) to fund a one-time contribution to the Police and Fire Retirement System (PFRS) trust fund. I commissioned this report after City staff presented an analysis to the Finance and Management Committee this past spring.
The independent analysis, prepared by nationally recognized Aon Hewitt, illustrates that, while issuing POBs could provide Oakland short-term relief, the City still faces massive, future public safety pension obligations.
If provided a contribution holiday, the City will:
- Not need to fund the PFRS pension liability until 2017
- Need to fund more than $100 million per year from 2017 - 2024
- Need to fund approximately $240 million per year from 2024 - 2026
- Still have to pay from the General Fund approximately $270 million of the $950 million required contribution
Given that we are in an unprecedented time in Oakland's financial history, it is critical that the City Council is armed with the facts so that they can make a fiscally prudent decision regarding POBs. Oaklanders need to know that the Council's decision on this will have financial ramifications for years to come
As a City, we must have a forward looking financial strategy for Oakland to realize its full potential. We must lead, not follow.
Committed to serving you and Oakland with the utmost integrity,
Courtney A. Ruby, CPA, CFE
Oakland City Auditor
Office of the City Auditor
City of Oakland
1 Frank H. Ogawa Plaza, 4th Floor
Oakland, CA 94612
Phone: (510) 238-3378
Email: cityauditor@oaklandnet.com
www.oaklandauditor.com
For Immediate Release: October 21, 2010
Pension Obligation Bonds Could Provide Needed Short-term Relief to Oakland
Oakland City Auditor Ruby's report indicates short-term opportunity if matched with long-term financial strategy to fully fund PFRS.
OAKLAND, Calif. (October 21, 2010): Today, Oakland City Auditor Courtney Ruby issued a special report to inform the City Council and the public on the benefits and challenges of issuing Pension Obligation Bonds (POBs) to fund a one-time contribution to the Police and Fire Retirement System (PFRS) trust fund. Auditor Ruby commissioned this report after City staff presented an analysis to the Finance and Management Committee this past spring, which indicated that the issuance of POBs would result in a five to seven year contribution holiday. The independent analysis, prepared by nationally recognized Aon Hewitt, illustrates that, while issuing POBs could provide Oakland short-term relief, the City still faces massive, future public safety pension obligations.
"The last few years of economic instability and uncertainty have obviously affected public pension plans across-the-board. If POB issuance is to be a viable option, the City must develop and successfully implement a comprehensive, long-term plan for pension obligations. If not, this will just be the City kicking the can down the road," said Auditor Ruby.
If provided a contribution holiday, the City will not need to fund the PFRS pension liability until 2017, at which time the City will need to fund more than $100 million per year through 2024 and approximately $240 million per year through 2026. This leaves total required contributions valued at more than $950 million for the City. Oakland has tax override revenues that can be used to offset the required general fund contribution; however, the general fund will still be on the hook for contributions valued at approximately $270 million at a time when the City is struggling to provide basic City services, such as, fire, police, and road repair.
"Given that we are in an unprecedented time in Oakland's financial history, it is critical that the City Council is armed with the facts so that they can make a fiscally prudent decision regarding POBs. Oaklanders need to know that the Council's decision on this will have financial ramifications for years to come," said Ruby.
The report also includes a retrospective analysis of the City's 1997 decision to issue POBs. The report states that "the key result in this analysis is that the amount still owed by the City is approximately $250 million dollars higher than the scenario where the POBs were not issued in 1997 and payments were made to the pension fund instead." The past performance of POBs should be factored into the Council's decision on how to move forward.
"This report is not intended to second guess decisions of the past; rather, it calls for city leaders to establish a long-term plan that ensures Oakland meets its pension obligations without compromising basic services. As a City, we must have a forward looking financial strategy for Oakland to realize its full potential. We must lead, not follow," Ruby concluded.
In the approaching months, City staff will return to the Finance and Management Committee and present additional information and recommendations on POB issuance and a contribution holiday. This report should inform these discussions.
ABOUT OAKLAND CITY AUDITOR RUBY
City Auditor Courtney A. Ruby, CPA, CFE, took office in January 2007. Earlier audits reviewed the City's hiring practices, public campaign financing, funding for children and youth services, library services fund, emergency medical services and paramedic services funds, Public Works Agency, and the grant management for the Measure Y Violence Prevention Programs. Performance audits of accounts receivable for PWA Illegal Dumping Abatement Program¸CEDA Loans Receivable, the Fox Theater Renovation Project, American Recovery and Reinvestment Act compliance, Accounts Payable, and Measures M and N are also in progress. In March 2010, an Association of Local Government Auditors peer review team found the Office of the City Auditor met the highest government standards in performance auditing. Visit www.oaklandauditor.com to learn more about Oakland's Office of the City Auditor.
ABOUT Aon Hewitt
Aon Corporation (NYSE: AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting and outsourcing. Through its more than 59,000 colleagues worldwide, Aon delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007, 2008 and 2009 by the readers of Business Insurance. Visit http://www.aon.com for more information on Aon and http://www.aon.com/unitedin2010 to learn about Aon's global partnership and shirt sponsorship with Manchester United.
The High Impact Report of Oakland Police and Fire Retirement System (PFRS) Pension Funding Options can be found at: www.oaklandauditor.com
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