Port Huron City Manager James Freed has announced the city has sold $53 million in pension obligation bonds for a historic low rate. Freed said that the sale results in a nearly $2 million savings in debt service on an annual basis. He said, “In connection with the Comprehensive Financial Plan approved by the State, [the city] used an all-inclusive cost estimate of 3.52%.” Freed said the City is 65 basis points below that. Therefore, savings will be much greater than originally projected.
Freed also said, “This sale was a robust vote of confidence in the well-developed financial plan and the future outlook of the City.” According to the Government Finance Officers Association, “Pension obligation bonds (POBs) are taxable bonds that some state and local governments have issued as part of an overall strategy to fund the unfunded portion of their pension liabilities by creating debt.” There is some risk in the issuance of pension obligation bonds. The risk can be mitigated with higher yields that achieve a rate of return that exceeds the interest rate owed and the debt service. Taking advantage of the historically low interest rates is a step toward reducing the risk of the bonds.