WILLCOX— During the special meeting of the Willcox City Council of Willcox on Thursday July 29, the biggest discussion was about how the city can resolve being 65% underfunded in their 2021 contribution to the Public Safety Pension Retirement fund.

Two consultants from Stifel, Mark Reader and Omar Daghestani, made a presentation to the council via Zoom. Stifel is a full service brokerage and investment banking company.

According to Reader and Daghestani, “Willcox’s pension payments are among the fastest escalating costs on the district’s budget; the city of Willcox (was) 34.8% funded as of June 30, 2020; the plan’s unfunded liability accrues an assumed rate of 7.30%, well above what the city might pay on its debt.

“About 10 years ago it was announced that the funds throughout the state were all underfunded. There are many reasons for that. They weren’t accounting for officers living as long as they do. They weren’t accounting for fluctuations of people going on disabilities. They weren’t accounting for overtime, either. Things of that nature. So this is a statewide issue. It’s not just Willcox.”

Crystal Hadfield, Willcox city clerk, said, “The way it’s going to work is once we get the pension bond we would be 100% funded with PSPRS, because they would wire the funds to PSPRS directly. Once we’re 100% funded we would start earning interest on those funds ... Which would lower our rate every year based on how well the market does.

“We would have a contingency reserve fund. If we were under one year or over one year we could fully use that contingency reserve fund.

“The pension fund deposit would be $4.8 million. That’s the unfunded portion that we owe PSPRS.”

Reader and Daghestani had the following initial recommendations for the Council before providing them with three solutions for solving their underfunding problem:

Refinance pension liabilities using other debt obligations to:

Achieve 100% funding levels (top 2.5% percentile nationally); greater assets will also allow the pension funds to improve investment efficiency and liquidity for paying benefits

Lower borrowing rate on $4.5 million unfunded liability from 7.30% to approximately 3.05% (depending on market conditions)

Generate budgetary stability and projected savings to address other needs and prevent crowding out of other priorities by escalating pension expenses.

The council was given three possible options by Reader and Daghestani to solve the PSPRS problem.

The first option was to “do nothing — continue to pay accelerating payments to PSPRS resulting in possible tax increase in the future, need to cut expenses or potentially a combination of both.”

The second option was to “amend current PSPRS policy and budget more dollars toward the unfunded liability — separate tax policy on other revenue increase, and/or cuts to essential city services.

Hadfield said the third option was to take out the (pension) bond with a contingency reserve fund.

“If we don’t believe PSPRS will return a rate higher than 3% then we should not move forward with a pension bond,” Reader added.

City Manager Caleb Blaschke said, “One of the things that Crystal and I had talked about was using our reserve as a reserve fund, so that we didn’t have to borrow more money. We also talked about during the first five years, so 2022, 23, 24, 25, any savings that we can get from that by paying this off we put it into a reserve fund specifically for PSPRS. So any immediate tax savings we get we put it aside so we borrow as little as possible.”

Mayor Mike Laws asked Reader if there was any wiggle room in this deal in the next year or five years down the road.

“Is there any wiggle room to move something around that wouldn’t jeopardize the city’s finances?” Laws asked.

Councilman Carl Hestand asked for clarification and Daghestani said they prefer a “traditional fixed rate” bond option for Willcox.

Blaschke asked about the process if council decided to move forward with option three by having Reader and Daghestani search for a pension bond on behalf of the city.

The city went with the third option.

The ball is in Stifel’s court.

“They have to go out to bet and find the banks that will fund (a pension bond). They are a bonding company, but they’re not the actual lender,” Hadfield said.

Reader said they could come back to the council with the next moves during the meeting Sept. 9.

Willcox is striving to lower the rate of interest they have with PSPRS from 7.3 to 3%.

Daghestani said the highest interest rate he has seen for a city in Arizona is 8%.

Daghestani said they want to work with Laws and the council to beat the numbers while being 100% funded.

“They’re projecting (that) it’s going to be about 2.3% (interest that will be earned on the pension bond),” Hadfield said. “It’s all going to depend on how the banks come in.

“Basically we’re lowering our interest rate, so we’ll be saving money in the end. Plus earning interest on being 100% funded.”