Dixon looking to bond nearly $23 million to refinance pension debt

DIXON - The city has started the process of issuing bonds to refinance the bulk of its unfunded pension debt with the hope of saving north of $5 million across the next two decades.

The council began discussing the idea of pursuing general obligation bonds to cover pension debt about a month or so ago after speaking with Sterling officials, who had finalized bonding its pension debt after starting the process last year.

The city is contracting with Bernardi Securities as the bond underwriter and is looking to issue up to $22.75 million in bonds if they can secure a low enough interest rate.

Bob Vail of Bernardi, in a presentation made to the council earlier this week, said bonds paid back across 18 years would put the city’s fire and police pensions at a 90% funded level.

As of April 2021, fire pensions were at about 64% funded and the police at about 55%. There’s a state mandate in place calling for all municipalities to fund their pension systems at 90% by 2040.

The bonds would fund $10.7 million to police pensions and $7.25 million to fire pensions, while also building in $2 million in reserves as market contingency, Vail said.

There are several steps the city would take to undergo the bonding process, including paying about $25,000 to get a bond rating for the city that represents its creditworthiness.

With low interest rates for governments, many communities are considering this avenue to achieve a higher pension system funding level, capture returns in the market and get a more consistent annual payment, Mayor Li Arellano Jr. said.

The hope is that by refinancing the debt, the city would start to see savings after four years and save $1.5 million a year after 17 years, he said.

“One of the benefits of refinancing is capturing a lower rate,” Arellano said.

Arellano asked for Vail to put together a few different options for the city, including scenarios with the city adding additional funds to the mix.

Vail said they’re looking at an interest rate of 4%, but there will be better estimates once the process moves along.

“This makes so much sense if the rate is right,” City Manager Danny Langloss said.

The City Council approved an initial bond ordinance Monday, will have a public hearing in the next month and will vote on an ordinance to issue the bonds in June.