Title
Ordinance Authorizing the Issuance of Obligations to Finance Airport Improvements (Ordinance S-46107)
Description
An ordinance authorizing the City Manager, or his designee, to cause the issuance no more than $180 million of obligations of or by a municipal property corporation or by a private leasing company as short-term and/or long-term obligations and to issue long-term obligations to refund short-term obligations, including execution and delivery of all leases and other agreements necessary or appropriate for the financing of costs of expanding and improving airport facilities of the City and to refund currently outstanding obligations issued for such purposes and in each case, related financing costs; and authorizing the City Controller to expend all necessary funds therefor.
The issuance of the bonds to finance Aviation projects will free up cash that was allocated for such projects in order to pay down nearly all of Aviation’s City of Phoenix Employee Retirement System (COPERS) net pension liability, thus reducing the airport's operating expenditures.
Report
Summary
The City plans to issue obligations this fall to fund various airport improvements related to the Comprehensive Asset Management Plan as presented at the City Council Policy Meeting on June 11, 2019. As part of the financial planning process, the Finance and Aviation departments evaluated the possibility of issuing an additional amount, not to exceed $180 million, to fund aviation projects that were originally budgeted to use pay-as-you-go funds. By issuing an additional $180 million in obligations, the City would be able to use the pay-as-you-go funds to pay down Aviation’s portion of the COPERS net pension liability of approximately $184 million. This trades one type of debt obligation for another and will only be implemented if there are no negative financial or operational impacts to the enterprise funds. This would help the City’s overall financial position and will reduce expenses to the airport.
This methodology is part of the pension strategy approved by City Council on May 15, 2019 and demonstrates the City is resolute in solving pension liability issues. The City needs to continue to find ways to decrease the liability while still providing budget flexibility allowing the City to provide necessary services to its citizens. The City has always and will continue to pay 100% of the annual required contribution for the pension systems, has established a Pension Reserve Fund, and is actively monitoring changes in the financial stability of the system. As with all pension systems, this is a long-term issue and solutions from pension reform will take time to eventually ease financial burdens.
Financial Impact
It is estimated that this could save the Aviation Enterprise Fund approximately $700,000 to $1 million per year depending on the financial markets and will increase the funded percentage of COPERS from 60.82 percent to 63.84 percent.
Department
Responsible Department
This item is submitted by City Manager Ed Zuercher and the Finance Department.