Montclair OKs revenue bonds to raise $108 million for infrastructure and pension debt

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The city of Montclair approved the issuance of two separate revenue bonds Monday night, Sept. 20, one for funding up to $98 million in infrastructure projects and the other to pay off its unfunded employee pension debts.

Combined, the bonds will provide the city about $108.6 million, making the two actions by the City Council historic and possibly the largest amount of money authorized by the council in a single meeting.

“These are two very important measures that will benefit the future of this community,” announced City Manager Edward Starr.

Under separate actions, the council authorized issuing $49 million in revenue bonds to pay for street paving, parks upkeep, broadband, a parking garage in North Montclair, trails in San Antonio Creek and many other suggested projects. In summary, a project list includes $29 million for streets, $13 million for parks and $55.3 million for a wide array of infrastructure projects, Starr said.

A second action authorizes the go-ahead to pay retirement debts owed to the California Public Employees’ Retirement System using pension obligation bonds, a financing method that lowers the interest rate on the amount owed.

In May, the council began the process of issuing pension obligation bonds. On Monday, the action was finalized so that bonds could be issued by the end of October. The city originally owed about $82.6 million in unfunded pension liability but due to stock market rallies, that dropped to $59.6 million as of June 30, 2021, Starr reported.

The actual amount owed could fluctuate again. Still, Montclair intends to issue bonds to pay off 100% of what it owes. City payments would pay off the bonds instead of paying CalPERS. The city entered a “sweet spot” in bond sales, Starr said. “This is the right time and the right opportunity to act on consideration of pension obligation bonds,” he said.

Cities across Southern California have experienced rising CalPERS costs. Montclair’s payments rose from about $1 million a year in 2012 to more than $5 million this year. Mayor John Dutrey said this has taken away from city services.

Using pension bonds, the city’s long-term unfunded liability would drop from about $96 million to $79 million, Starr said. Also, bond payments have a “much lower interest rate than CalPERS,” he added.

“We feel this is a very stable policy decision,” Dutrey said.

The infrastructure bonds are made possible by the voters, who approved a 1% sales and transactions tax increase in November, which will generate about $7.5 million per year. That money is leverage for about $50 million in capital funds raised by the bond sale; part of it will be used to pay back the bonds’ principal and interest for the next 30 years — about $2.6 million annually.

In October, the council will hold a workshop asking residents to suggest capital projects to be added to the list or deleted.

“Last November the voters gave us confidence — residents want good services and infrastructure,” Dutrey said. “We are now here; we will soon have the $50 million. So we will hear from the community on how this will be allocated. It’s what I call quality of life improvements.”

The tentative project list includes repaving of streets and medians on various sections of Central Avenue, Benson Avenue, Arrow Highway, Mills Avenue, Holt Boulevard, Mission Boulevard, Monte Vista Avenue, Moreno Street, Palo Verde Street and Richton Street.

The city has used revenue bonds to pay for capital projects in the past.

In May 2005 the city issued $31.3 million in lease revenue bonds to build the new police department headquarters and the senior and youth centers. The bonds were issued following voter approval in November 2004 of Measure F, establishing a 0.25% transactions and use tax, according to the city staff report.

“This is the only way we have (to pay for capital projects),” said Mayor Pro-Tem Bill Ruh. “And this seems to be a pretty significant list.”

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