BISBEE — Rather than watch the city’s Public Safety Personnel Retirement System unfunded liability continue to grow, the city council voted Tuesday night to move ahead through the sale of $24 million in municipal bonds.

When state coffers were filled with an additional $1 billion in revenue, some cities and counties had hoped the state would step in and help. That did not happen, so city officials decided it was time to take action and pay down the liability.

The mayor and council unanimously approved the emergency resolution authorizing brokerage and investment banking firm Stifel, Nicolaus & Company Inc., “immediately to secure the best, available economic terms” and it will override the 30-day waiting period for a resolution to go into effect.

Come November, it will be up to the registered voters to approve the continuation of a 1-cent sales tax that will be split between the streets and infrastructure fund and the bond payments.

After a recent work session with Stifel, Nicolaus & Company Inc., finance advisor Mark Reader provided discussion on how the city might be able to remove its debt. Mayor Ken Budge and council members Leslie Johns, Anna Cline, Frank Davis, Joni Giacomino and Juanetta Hill decided to take the plunge and pursue bonds.

A number of cities and counties have moved forward on similar plans, Reader said. A few have managed to pay the unfunded liability faster than expected. He noted the faster the sum borrowed is paid back, the less it will cost the city.

Reader appeared Tuesday night in a special session and presented the council with the plan to move forward on the bond issuance of $24 million. The PSPRS unfunded liability would be paid in full, as will SNC for the work done on Bisbee’s behalf, and the city would have a little extra left over as a hedge against future problems.

In his interest rate forecast, Reader aired concerns of another economic downturn due to a Goldman Sachs prediction of a 38% chance of a recession in the next 24 months.

Issuing pension bonds to fully fund the unfunded pension liabilities would reduce the cost and life of the expensive pension liability, said Reader. The expected interest the city will pay on the $24 million bond will be less than the interest charged by the PSPRS on the unfunded liability.

“We expect the level debt amortization in particular would be well-received by rating agencies,” he said.

City Manager Steve Pauken explained a separate account would be established for the funds for the bond payment.

He said the referendum was discussed at a recent Ward 1 (Old Bisbee) meeting with council members Johns, Davis and Budge. He felt confident after the reaction of the people who attended that voters will pass the continuation of the 1-cent sales tax.

About PSPRS

PSPRS, an investment fund for public safety pensioners for the fire and police departments, hit a bad patch twice — once in the dot.com bubble burst in 2001-02 and again in the housing market crash of 2008-09. More than $1.7 billion was lost and the cities and counties in Arizona were required to cover the losses, creating extreme distress for the smaller cities and rural counties, according to Pauken.

When the dust settled, Bisbee owed a whopping $21.5 million to make up for the losses. The former mayor and council members approved a 30–year payment schedule at the lowest rate possible. While it allowed the city some time to determine how to dig out of the hole, it added to the unfunded liability.

In addition, PSPRS decided to establish a statewide Permanent Benefit Increase, which gave a raise to those who made less than the state average and put the city even more in debt. In one year, Bisbee Fire Department’s retirees saw a 120% rise in their pensions as fewer staff paid into the system. The city was on the hook to make up the difference there as well.

While well–intentioned, the PBI could not withstand both market collapses. It created a higher pension cost increase for small cities like Bisbee that offered lower wages. This effect compounded over time.

For many years, Bisbee did not require a large fire department. Back in 2000, there were 22 firefighters paying in to PSPRS, which supported 16 pensioners. Everything flipped by 2016 as 17 firefighters were supporting 22 pensioners. Four pensioners were on disability prior to serving the full-term limit for retirement of 20 years, according to a report compiled by the city’s finance department.

It stated, “On average, these firefighters have been retired for almost 30 years after serving for 11 years. Combined, these employees contributed less than $50,000 toward their retirements. The retirees, who each average more than 70 years of age, have to date collected pension payments totaling $2.5 million.”

Registered voters will receive information on the ballot initiative in August, said Pauken.