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Saturday, July 5, 2014

So what is a pension bond ? Why should you care ? And what City Commission should do about it.

At the City Commission meeting on Tuesday July 8th City Commission will consider a $17 million dollar pension bond, which will be the biggest investment in City History.  The $17 million  amount is a equivalent to 2 years of the City's  $9 million dollar budget.

So what is Pension Bond ?

A Pension bond  is a  complicated financial strategy that sells bonds  to pay legacy costs promised to past employees. These legacy costs are enormous and a drag on cities and states across the nation. Results of Pension Bonds  elsewhere are mixed. Connecticut seems to like theirs. Oregon, California, and New Jersey have not been as successful. In California the failures have been cataclysmic bankrupting the Cities of Stockton and San Bernadino. 

Pension Bonds are not without consequence or controversy and should as any investment be approached with caution and consideration.

The  track record of Pension Bonds is heavily dependent on timing and conditions beyond the control of the investor such as the stock market, and the international scene. Study's that chart the entry point  of municipalities in the pension bond market,in the first decade of this Century come away with the conclusion that timing is everything but not predictable. Risk is always a factor.  They also caution against believing in promised future savings or return on investments which are so variable dependent they may not materialize.

Thus it is unrealistic to assume you can, in any market, collect 8% and pay back 4%. The assumption itself implies one is smart and the rest of the world is stupid.

In addition our City Commission has provided a few more red flags.
Should you care ? The Commision thinks not.

Based on a  March cloak room conversation between two Commissioners discussing the viewing and sharing of videos relating to the Bloomfield Township Board of Trustees, $80 million Pension Bond, The City has been considering a Pension Bond in some form for four months. Yet City residents are just now learning of it.

It is no secret that City Commission has a low a regard of  the importance of it's Citizens opinions.  

For he last two years City Commission has relied more on  City staff opinion than that of their constituents.  

That may be why on three recent issues that threaten to change the very basis of our City, residents are consulted last. Examples include decisions concerning police out sourcing last summer, an advisory only, waste haulers  vote to be held this November and now the Pension Bond.

That said,  it is editorial policy of this Publication and it's editor who has on occasion  run for local office, not to categorically rule out any possible solution to City problems or resident wishes until the matter is being properly discussed and explored.

What City Commission Should Do.

Proper exploration is not however a Pension Bond vote this Tuesday July 8th. Such a vote would be preclude any participation by a large percentage of our citizenry. That is because  residents who disagree with the Pension Bond issue have 45 day period  to petition for a public referendum or vote. In July and August many of  our City's residents are out of town and can not sign a petition. There is no such thing as an absentee petition signatures.

We suggest  that on Tuesday July 8th the City Commission start a dialogue with its citizens on why  the commission believes a Pension Bond  to be the answer to its legacy obligations.

A vote can be taken at the September City Commission meeting when most citizens will be back in town. The legally required Pension Bond notice of a quarter page that the City  is required to publish by law should be placed in Eagle newspaper which is delivered every household in the City's only, 48304 zip code. Currently the City "fulfills" it's  obligation by running legal notices is the Eccentric which has very small number of subscribers in the 48304 zip code.

If residents should get a enough signatures for referendum vote, a November vote, would not require a separate election. It would also meet the Dec 31st deadline mentioned in the City's power point presentation.
In addition since City Commission would not be deciding factor City Commissioners, as residents would  be free to campaign for the Bond if they choose to.

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