Lebanon County commissioners contribute $10 million to pension fund

(Undated) — In an effort to improve the county’s bond rating with an eye on future borrowing, the Lebanon County Board of Commissioners on Thursday voted to transfer $10 million from the proceeds of the sale of Cedar Haven nursing home into the employee pension fund.

The commissioners have already transferred more than $7 million to the pension fund from last year’s $25.5 million sale of Cedar Haven to Complete HealthCare Resources. Thursday’s action will leave the county with about $8 million, which will be added to the reserve fund.

It will also set off a financial chain of events.

By adding $10 million to the pension fund, it will bring it to more than $118 million, which is over 80 percent of the county’s total obligation of $135 million needed to cover the current pensions of its past and present employees.

That 80 percent figure should satisfy lenders enough to raise the county’s bond rating from Triple B+ to A, said financial consultant Jay Wenger.

“We think at that point, if not ready to receive an A rating, you are very very close to it,” Wenger said. “We think the infusion of cash into the pension plan and the reserves and a structurally balanced 2016 budget will get you back to that A category.”

Having an A bond rating will, in turn, lower the interest the county will receive when borrowing and set up the likelihood that the commissioners will soon borrow the estimated $17 million needed to fully fund the employee pension fund.

Having a fully-funded pension fund will benefit the county by reducing its Annual Recommended Contribution to the pension fund from $3 million to $1 million, and qualify it to receive state reimbursement for some of the contributions, Wenger explained. The county is in a good position to borrow, he added, because its current debt is low and short term.

Also at the meeting was Mike Battistelli, a financial advisors for Stifel investment firm, who oversees the management of the employee pension fund.

The county has always held a mix of stocks, fixed-income investments, and cash in its pension fund portfolio with an asset allocation of about 65 percent in stocks, 35 percent in bonds, and 5 percent in cash.

Battistelli recommended, and the commissioners agreed, that the $10 million contribution should be split evenly with $5 million invested in stocks and $5 million in fixed income investments.

“In doing that we get to the very top range of our stock allocation (and) the very lower level of our fixed income (allocation),” Battistelli said.

The commissioners’ decision to sell Cedar Haven was made so the county could stop paying $2 million a year in operating costs and stem the tide of its rising pension fund obligation.

Commissioner Bob Phillips remarked that both goals have been accomplished in a relatively short time.

“The public has to appreciate the position that the county is in fiscally by doing these things,” he said. “This is a great moment for the county to have 80 percent funded. We were below 70 (percent) not too many months ago and having our bond rating reduced.”

The vote to make the $10 million pension fund contribution that will trigger the financial chain of events explained by Wenger was not unanimous.

While stating she supported making the $10 million contribution to the pension fund, Commissioner Jo Ellen Litz voted against it because she favored giving property owners a rebate of about $200 with the $9 million remaining from the sale of Cedar Haven, which she also opposed.

“The money from Cedar Haven is really their (taxpayers) money, it’s not ours,” she said. “We have a responsibility to make sure the pension fund is secure. But we also have a responsibility to those taxpayers who entrusted us with their money. And if it’s their money they should get it back — anything over what we really need — and I think that that last $9 million should be returned to the people.”

Litz’s idea was quickly panned by both Phillips and Chairman Bill Ames.

The two Republicans — who are running for reelection, as is the Democrat Litz — said giving back the $9 million reserve fund would put the county in a perilous situation, especially as it continues to operate without a state budget.

To protect the county’s position would then require a tax hike, they said, which would essentially wipe out any benefit of the tax rebate.

The alternative of not replenishing the reserve fund, Ames noted, would jeopardize the county’s chance of receiving the A bond rating necessary to borrow the money, which would prevent it from achieving the benefits of a fully-funded employee pension fund.

“Not to be disrespectful,” Ames said addressing Litz, “but I can’t imagine many taxpayers in this county that would welcome a $200 check and would jeopardize our financial rating for a $200 rebate. So, I feel confident that we’ve made the right decisions up to this point and we’ve also made the right decision this morning.”

Litz disagreed.

“Respectfully, 80 percent will get our rating up and so, therefor, any borrowing that we do would be at an appropriate rate. So that would not make a difference,” she said.

This article comes to us through a partnership between the Lebanon Daily News and WITF.