Grand Traverse Pavilions seeks bonds to cover pension debt
"It would be like taking out a second mortgage on your home to invest in the stock market," said
La Pointe is the county board's liaison to the local
McNally and Soffredine voted to approve a resolution to authorize the bonds at their meeting
Rizzo, McNally and Soffredine did not return calls seeking comment.
"They've really studied the risk, studied the savings of combining the two pension divisions and closing them," Burke said. "Because general interest rates continue to be at all-time lows, that makes these bonds attractive when you go out 20 years."
Burke said the state requires a "stress test" to ensure a cost savings if rates of return are at the current 7.35 percent, but also at 6.35 and 5.35 percent. In each of these scenarios, the Pavilions would save money, he said.
As much as
While county oversight of the Pavilions is minimal -- La Pointe is not a voting member of the DHHS board, for example -- the nursing home is still a component unit of county government.
County Finance Director
That approval may be difficult to come by, he said.
"I think our board's position has been to say that a safer path is to pay a little bit more in, and not issue another type of debt to fully fund the obligation," Bott said.
There are other advantages to the Pavilions of bonding the debt, Bott said.
A bond payment, which tends to stay the same over the life of the debt, is more predictable than a pension debt payment, which vacillates from year to year, he said.
The Pavilions also receives a majority of its funding from Medicare reimbursements, which may also offer to reimburse anywhere from 50 to 75 percent of the bond debt, under a federal program.
That federal program, however, has posted repeated changes, may ultimately reimburse nothing and could be eliminated altogether after the first of the year, La Pointe and Bott said.
"Before COVID, the Pavilions would get reimbursed by Medicaid for this," Burke said. "If nothing changes, they still may get reimbursed 52 percent of the bond. But the DHHS board made the calculation that the bonds stand on their own in terms of the savings."
La Pointe said he'd met with Pavilions staff on the Medicaid reimbursement possibility.
"That makes this an interesting wrinkle," La Pointe said. "It was a sweetheart deal, a win-win. Then a month ago or so it changed and what I've learned is the whole program is up in the air. There's no guarantee. It could be zero."
La Pointe said he was looking forward to learning more details Wednesday. Both Commission Chairman
"You're supposed to pay for a service when you get that service," Clous said. "Not kick the can down the road."
"I plan to let them present their case and listen to what they have to say," Hentschel said. "There are a lot of opinions surrounding bonding out of a pension debt. My stance is, it's a very risky thing."
"There are communities that bonded their pensions, the market dropped and now they have a bond payment in addition to the pension payment," Hentschel said. "That's the risk."
Some officials have compared bonding municipal pension debt to paying off one credit card with another -- its a gamble, a debt is still a debt and the strategy will net winners and losers, La Pointe said.
In
Burke said his firm was involved in the
But in 2005,
Burke said
"You close the funds," Burke said. "That's how you stop the bleeding."
Still, nothing is certain about future liability, Bott said.
"One of the issues you have is the liability can change," Bott said. "So even if you issue pension obligation bonds, there's always a chance that those divisions don't stay at 100 percent funded. That's when problems arise. That's when you suddenly have the bond payment and the pension payment."
Wednesday's commission meeting begins at
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