Huntington Beach, among a recent wave of Orange County cities proposing to issue bonds to alleviate the city’s looming pension debt woes, is set to vote to issue those bonds next week.

Like other cities staring down the barrel of the same crisis, Huntington Beach officials see the bonds as a way to “refinance” the debt — to issue bonds, pay off the existing unfunded pension liability, and repay the private bondholders at lower interest rates.

Though critics of the strategy warn it’s a risky gamble and that unfunded pension liability pressures remain in the future.

Read: Will Some OC Cities’ Proposed Pension Gamble Save Public Money or Risk Greater Losses?

City Council members are set to vote on issuing the bonds at their Monday meeting.

The proposal comes as the state’s public employee retirement system — CalPERS — has changed the way it calculates the amount of money cities must pay into the agency over the last few years, so it can administer pensions and benefits to those cities’ retired employees.

The changes have increased cities’ unfunded pension liability, which occurs when the total amount of obligations to future retirees exceed the funds that a city has set aside for those payments over the next few decades.

Specifically, city staff in a report attached to Monday’s agenda estimate the city’s unfunded liability payments to CalPERS will “significantly increase” in the next 10 year period, from $28.9 to $45.5 million.

The city’s current unfunded liability for all citywide employees and retirees is approximately $436 million, with 63% of that coming from the city’s obligations to its police officers and firefighters.

Currently, staff say the city’s yearly payments to CalPERS could increase to as much as $45.5 million in the 2030-31 fiscal year — a scale that staff say could drastically impact the city’s ability to balance its budget and pay for vital services. 

“The difficulty that lies with the City of Huntington Beach, as well as many other local agencies, is the ability to pay these large payments to CalPERS over the next 10 to 15 years, while still trying to maintain a balanced budget,” staff wrote in the report. 

Should the city issue the bonds and “prepay” 100% of its current projected unfunded liability — with an estimated 23-year bond repayment schedule — staff say it could save at least $170.1 million over the life of the bond financing.

Both Santa Ana and Orange looked at this strategy in February, largely making the same arguments that issuing the bonds as a “refinancing” measure would net some savings. 

Critics of the idea like Republican Orange County Supervisor candidate John Moorlach, who spoke to Voice of OC for a previous story on the issue, say the strategy amounts to a gamble.

Moorlach pointed to the official stance on pension obligation bonds taken by the Government Finance Officers Association, which argues the bonds “involve considerable investment risk, making this (savings) goal very speculative.”

Moorlach said that if the cities stay with CalPERS, they at least are in a flexible position with their “soft” debt to where they could renegotiate future payments should they find themselves in a fiscal predicament.

Huntington Beach officials have been exploring the idea for some time. 

Staff noted in their report that “while the City expects to refinance 100% of its current UAL, it is important to note this action addresses past UALs and does not eliminate future liabilities.”

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