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$25M Pension Loan Raises Eyebrows, Questions

Baltimore County officials say the loan for a Cockeysville recycling facility from its underfunded pension system is a "win-win." But some County Council members have questions.

UPDATED (3:16 p.m.)—Some Baltimore County Council members and union officials say a $25 million loan made to the county from its own pension system raises questions.

The loan will be used to pay for a . It's the same facility for which the Baltimore County Council approved $25 million in bond sales last November.

Councilmen David Marks and Tom Quirk say they now have questions about the change in how the project is financed and the lack of independent oversight.

"I don't know any of the details of the arrangement at all," Quirk said. "We definitely have questions."

Marks, a Perry Hall Republican, said he was withholding judgement on the changes but was asking the administration to provide a legal opinion that justifies the legality of the loan.

Don Mohler, a county spokesman, acknowledged the loan Wednesday, nearly one month after the board of directors of the Baltimore County Employees Retirement System approved it.

"This is a win-win for both the pension system and the county," Mohler said Wednesday.

Both Marks and Quirk said they only learned of some of the details this week and are awaiting a more complete briefing.

Council Chairwoman Vicki Almond and members of the council staff as well as the Office of the County Auditor were told of the loan Tuesday in a closed door meeting with County Administrative Officer Fred Homan.

Almond, a Reisterstown Democrat, was not immediately available for comment.

Councilmen John Olszewski Sr. and Todd Huff, and Ken Oliver, a Dundalk Democrat and Timonium Republican and Randallstown Democrat respectively, were also not immediately available for comment.

Cole Weston, president of the Fraternal Order of Police Lodge 4 and a former member of the retirement system board of trustees, criticized the loan and the lack of information provided to the board.

"This is the first time that I know of going back to 1988 and possible longer, that the county has contemplated giving itself a loan from the pension system," said Weston, whose group represents active and retired Baltimore County police officers.

Weston said his concerns "all hinge on the " of the issue by Homan.

"Clearly, the pension system is not a savings and loan institution," Weston said.

Gold In Recycling

Homan and Budget Director Keith Dorsey asked the council last November to approve $25 million in financing through through bonds called certificates of participation.

The plan was to build a new single-stream recycling facility that could handle as much as 100,000 tons of recyclable materials. That capacity would be large enough to handle all of the county's current recycling as well as contracting to process materials from other jurisdictions.

The county estimated in November, based on average rates at the time, that the county could generate as much as $200,000 per month once the facility was fully operational, according to testimony by Dorsey and Homan.

"This is the first case where we're actually going to be able to produce income from the facility," Homan told the council during a November 1 work session.

Homan said he based his estimates at the time on the current average of $100 to $105 per ton.

"Glass isn't worth anything, whereas [paper] and metals are," Homan said at the time. "That's what we're actually looking at here and we're looking at the capacity to take tonnage beyond our own tonnage."

Ultimately the council unanimously approved the special financing less than a week later.

The bonds are different from general government bonds that require voter approval. One significant difference is that the participation notes are sold with a bond rating of double-A plus, a step down from the county's  because the certificates are not backed by the full faith and credit of the county.

The difference means county taxpayers ultimately pay a higher rate of interest.

Pension Board 'Extremely Enthusiastic'

Complete details about the loan from the pension system were not immediately available.

The board, during that same July 10 meeting, voted to lower its assumed rate of return to 7.25 percent on investments made by the nearly $2 billion pension system.

The lower rate will cost the county an additional $15 million in pension contributions starting next July.

But the county is guaranteeing the pension system a nearly 8 percent interest rate on the loan—the old assumed rate of return on investments.

"The board was extremely enthusiastic," Mohler said. "There's no risk involved here. We are a triple-A bond rated county."

Mohler added that the pension system "was getting a higher rate of interest on a facility that will be very successful."

In a breifing document presented to the board of trustees, the term of the loan is to last 15 years but could be repaid faster. The county said it needed alternative financing after it's bond counsel advised that the county would have to pay a higher rate of interest on the bonds because the project would generate a profit, parte of which would go to the Maryland Environmental Service.

"A loan from the Baltimore County Employee Retirement System is a fiscally
prudent action both by the county and on behalf of the ERS," the memo states. "It is a sound investment for the ERS board of trustees because it provides a
guaranteed rate of return of 7.875 percent, a level in excess of current 10-year average of 6.4 percent, but without any risk. lt is a Wise move for the county because the system's failure to achieve a 7.875 percent return is already a budget obligation of the county government."

The memo was obtained through a request made by Patch. [The full memo is attached to this story.]

The county guaranteed the higher rate of interest in order to prevent the appearance that the county was taking advantage of the interest rate change implemented by the board of trustees that same day, Mohler said.

"We didn't want to look as if the timing of the rate change and the loan were in any way connected," Mohler said.

"We're saving the county money," said Mohler on Wednesday. He later added that he could not immediately answer questions about whether the county would have received a better interest rate in the open market.

Information provided to the council last year suggests that the county expected to sell the notes at an interest rate that was less than half the rate guaranteed to the pension fund.

The county was expected to sell the certificates of participation in January at an estimated interest rate of 3.75 percent, according to notes prepared by the Office of the County Auditor, which is an arm of the County Council.

At that rate, the county expected to pay $12.1 million in interest on the project.

Mohler did also not immediately respond to questions about independent oversight of the loan and its approval given that Homan not only controls the development of the project but is also a member of the pension Board of Trustees.

Four of the eight trustees—including Budget Director Keith Dorsey—are heads of county departments, who, by County Charter, directly answer to Homan in his full time capacity as county administrative officer. 

Weston challenged Mohler's assertions that the board enthusiastically supported the proposal.

"I don't know where the chief of staff for the county executive comes up with that analysis," said Weston, who said the document amounted to the county telling the pension system to loan the money based on nothing more than Homan's word that the project would make money.

"I saw one passage that said 'this is a good deal because I'm telling you it's a good deal,'" Weston said.

Weston criticized the document and the lack of information provided to the board of trustees.

"Based on the document that I read, I would not be able to support a vote for that $25 million loan without seeking some independent, third-party review or analysis to see if this is even legal and is it even a good investment," Weston said.

Asking 'Valid Questions'

Weston said the union is seeking advice from its lawyers to determine if the board violated the law or its responsibility to county employees and retirees who are in the pension system.

Quirk, who chairs the council's Spending Affordability Committee and owns his own financial and retirement business, said the deal raises a number of questionsfor him as well.

"We weren't briefed on this," Quirk said. "I think it's very important that the administration and the council work closely and collaboratively in these difficult times."

Quirk said he believes the council should have been informed of the change prior to seeking approval from the pension board.

He added that questions regarding the interest rate and independent oversight "are all valid questions."

"What happens if this facility fails to meet it's expectations?" Quirk asked and then answered his own question by saying he was concerned taxpayers would have to foot the bill—effectively paying the same money to the pension system twice.

"It's definitely something I need to have more details on," said Quirk.

FIFA August 07, 2012 at 10:44 AM
Misdirection, misdirection, stay away from the point of the article, mole. What I hope is that the payment to the Pension Fund will be declared illegal as the extra $1,000,000 payment was done without County Council approval. That is clearly what KK and Homan have intended, increase funding to the pension fund without Council approval. Interesting what the Council will have to say. We will see if they have any at all. The mole doesn't understand he irritates people who voted for KK with his garbage. Keep talking mole, Living underground eating worms is like you. http://en.wikipedia.org/wiki/Mole_%28animal%29 MIght be a self portrait.
g.p. August 13, 2012 at 01:18 AM
What I dont see here, and never see. Is the fact the money in the pension system is put there by the employees. An amount set by the county comes out of every paycheck, from every employee. This is based on the employees gross pay. And for some employees this includes overtime pay. No other local goverment employee I have ever talked to pays their retirement. Not the state, city or any of the surrounding counties.
Buzz Beeler August 13, 2012 at 02:34 AM
Ron, I just finished a 10 question blog pop quiz for you. It should be out soon.. About the charter did you read this section? 5-1-202. ESTABLISHED; NAME. (a) A retirement system is hereby established and placed under the management of the Board of Trustees for the purpose of providing retirement allowances and other benefits under the provisions of this title for employees. The Retirement System so created shall be established as of January 1, 1945. It shall be known as the “Employees’ Retirement System of Baltimore County,” and by such name all of its business shall be transacted, all of its funds invested, and all of its cash and securities and other property held in trust for the purpose for which received. (b) Except as otherwise provided in this title, no part of the corpus or income of the funds of the Retirement System shall be used for, or diverted to, purposes other than for the exclusive benefit of members and other persons entitled to benefits under the Retirement System and paying expenses of the Retirement System not otherwise paid by the employer, before the satisfaction of all liabilities with respect to them. No person shall have any interest in or right in, or to, any part of the assets held under the Retirement System, except as and to the extent expressly provided in this title. (1988 Code, § 23-37) (Bill No. 69-95, § 8, 7-1-1995; Bill No. 32-03, § 1, 7-1-2004; Bill No. 30-10, § 2, 7-1-2010)
Buzz Beeler August 13, 2012 at 02:36 AM
Ron the county will need more of loan when your read my blog I wrote for you in the form of a pop quiz. Don't worry if you don't have the answers I have a follow up blog ready to go with all the goodies.
Arlow August 13, 2012 at 02:57 AM
That's pretty snarky. Stating that FIFA and the others were fired from the County without any proof they ever worked there is childish. It sounds more like you work for the Administration they way you act like they can never do anything wrong.

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