NORFOLK, VA – Norfolk leveraged low interest rates to sell $211 million in taxable General Obligation Bonds to increase funding for the already healthy Norfolk Employees’ Retirement System (NERS).
The true interest rate of 1.94%, which is the lowest rate in the city’s history, has the potential to save more than $100 million for taxpayers over the next nearly two decades and further solidify the health of the retirement system by creating a sustainable payment structure. The sale will also immediately reduce the city’s existing $320 million unfunded liability, which was accumulating interest at a rate of 7.0%, by a projected $120 million.
Through this generational decision, Norfolk City Council proactively addresses one of the single largest financial liabilities for the city over the next 20 years. The strategy continues Council’s commitment to remain financially strong in the long-term.
“This proactive step is an incredible act that will ensure the health of our employee benefits system. We should continue to applaud the remarkable fiscal management of our city government,” said Mayor Kenneth Cooper Alexander, Ph.D.
Norfolk funds retirement benefits for employees using contributions from the city and individual employees to NERS. With the addition of funds, the retirement system can continue to be opportunistic, taking advantage of diverse investment opportunities and lowering its liability rate for the benefit of its members.
Norfolk will use a portion of the bond proceeds to immediately improve the pension funded ratio of NERS from 77% to approximately 89% and fund the newly created pension funding Trust, which provides the city with a tool to help offset potential pension contribution volatility. Leading up to the sale, the city and its financial advisor, PFM Financial Advisors LLC, reviewed over 100 different scenarios to test the volatility of the savings potentially derived from this bond sale. Through this analysis, they were able to determine that the chances of success are extremely high.
The Bonds are rated “AAA” by S&P Global Ratings (S&P), which is their highest possible rating. S&P noted in their report the financial benefits of the city managing its unfunded pension liability, the existing healthy pension funded ratio, the city’s history of fully funding the retirement systems' annual actuarially determined contributions and the benefits associated with the establishment of the Trust. Disciplined and prudent fiscal management continue to provide measurable benefits to the City and are a testament to high investor confidence in the health and stability of the city.
The Bonds were sold by an underwriting team led by BofA Securities, and two co-managers J.P. Morgan and Siebert Williams Shank & Co., LLC (a woman and minority-owned firm). Norfolk had a solid showing from investors, including attracting several investors new to the city’s credit, in large part because of Norfolk’s strong triple-A credit rating on the Bonds.