A nearly $127 million bond sale – intended to eliminate unfunded legacy costs – was met with enthusiasm at a Royal Oak City Commission meeting earlier this week.
Commissioner Kyle DuBuc described the bond sale as a way of insuring the city fulfills its obligations to it retirees in a way that it expects will be “cash-flow positive for the city and avoid fiscal calamity.”
Four years ago, the city commission made it a strategic goal to take steps to deal with growing legacy costs. Approximately 26 percent of the city’s personnel budget goes to pay for contractually obligated pensions and retiree healthcare. Last year these legacy costs amounted to $23 million.
“I feel this is a big deal that we got this done,” DuBuc said.
City Manager Don Johnson told the city commission he expects the negotiated sale of $20.6M of pension bonds and $106.1M of retiree health care bonds will ease the strain that skyrocketing legacy costs have placed on the city’s budget for decades.
"It will fully fund our retiree health care obligations and our general employee pension obligations and the debt service will be less than we would have to pay otherwise," Johnson said, adding Royal Oak’s strategy is similar to the bond sale Oakland County’s administration did in 2013.
Following the real estate crash of 2008, the city reevaluated its financial viability. A series of cuts were made, including major reductions in staff and services, and great effort was made to assure fee supported activities covered their full cost. In recent years, voters have supported both a public safety and road millage.
“The city has been financially strategic,” Johnson said. “Addressing retiree benefit costs is one just more step.”
Royal Oak’s recent AA+ bond rating from Standard and Poor’s affirms the city is in strong shape.
“This is the single most important thing on tonight’s agenda,” said Mayor Michael Fournier. “This commission had a goal and we accomplished it. Certainly there is always risk with every plan you have, but there is also a lot of risk, in my opinion, by remaining stagnant.”