The Employees' Retirement System of Baltimore County will lend the county $25 million, one of the first deals of its kind--but perhaps not the last.
(August 3, 2012) – Trustees of Baltimore County’s employee pension system have voted unanimously to lend the county $25 million for a new recycling facility, to be repaid at roughly 7.88% interest over 15 years.
“It’s an outstanding deal for the pension,” Don Mohler, the county’s chief of staff for communications, told aiCIO. “Where else can you get 7.88% guaranteed return right now? Baltimore County has a AAA rating, and it would be hard to find a more secure investment.” Mohler said he expects the loan will be repaid “much faster” than the 15-year term allows. The pension system is 78% funded at present, and recently lowered its annual return target from 7.88% to 7.25%. According to Mohler, the board of trustees insisted on the former target for the loan’s interest rate to avoid appearing as if they had lowered the rate in connection with the project.
This is the first loan the $2.1 billion fund has issued to the county, but may not be the last. “This is one project, and the money is earmarked specifically to build a state-of-the-art facility that will bring in $5 million or $6 million gross profit per year when it’s up and running,” said Mike Day, one of the fund’s eight trustees. “But in the future, if another project came up and it was a good fit, I think we would consider it.”
A handful of other governments have asked for loans from their pension funds in recent weeks. The mayor of recession-clobbered Scranton, Penn., has asked the Scranton Composite Pension Board to purchase $16 million of municipal bonds with a 10-year duration, offering a yield of 8%. The municipality is facing a shortfall on its current year obligations for payroll and debt service, and awaits the board’s decision. Across the pond, a public fund in Cyprus rejected the state’s request for a €200 million loan in the form of a treasury bill. The head of the fund’s managing committee, Giorgos Pistentis, told the CyprusMail the decision was unanimous. “The committee had to take into account the future of the pension fund, meaning the pensions of the workers of the organization, and the view is shared by the workers and all unions without exception,” he said.