West Hartford Completes Plan To Drop Unfunded Pension Liability

WEST HARTFORD, CT — West Hartford officials Thursday announced the outcome of the town's "historic" sale of pension funding bonds, considered to be the final step in a "landmark" plan to eliminate its unfunded pension liability.

A much lower interest rate was garnered than anticipated, which will result in "substantial savings to the town," officials said.

Town officials said the plan takes advantage of historically low interest rates for municipal bonds to fund legacy pension debt. The proceeds from the sale of the pension bonds will be deposited in the town's pension fund, where the money will be gradually invested in higher yielding assets, officials said.

The issuance of the bonds made West Hartford's pension plan 100 percent funded for the first time in nearly two decades, officials said.

The West Hartford Town Council established a Pension Bond Reserve Fund as part of the move. That means any funds remaining in the reserve fund at the end of the bond repayment period can be used by the town to address "other liabilities."

In all, the town sold $324.3 million in pension bonds at a 2.539 percent "all-in true interest cost," which is 46 basis points less than the anticipated target rate of 3 percent. The town’s consulting actuary projects a savings of more than $140 million in future pension costs on a present value basis, officials said.

West Hartford Mayor Shari Cantor said the successful outcome reflects positively on the town's plan of finance and economic outlook.

"The results of the bond sale affirm high investor confidence in West Hartford," she said. "I am more certain than ever that West Hartford will come out of the pandemic stronger than before. We have budgeted responsibly while continuing to make strategic investments in the things that make West Hartford so special – our top rated school system, beautiful neighborhoods, well-maintained infrastructure, and community services."

Added town. manager Matt Hart, "This strategic initiative will significantly improve West Hartford’s fiscal position for future generations. It upholds our promises to retirees while reducing a significant long term liability for taxpayers.

Peter Privitera, Director of Financial Services, said he was very pleased with the outcome of this historic bond sale.

"Investor interest was significant with over 60 investors participating in this sale. We received over $1 billion in bond orders or over three times more orders than the $324.3 million in bonds sold," he said. "This very strong response affirms our position that the significant amount of planning, analysis, and due diligence on our part was recognized. The successful execution of this bond sale places the Town in a position of fully funding its pension liability as well as providing future tax relief."

The West Hartford Town Council authorized the issuance of $365 million in pension funding bonds as part of a strategic financing plan to reduce legacy pension costs at its meeting on January 26, 2021. However, due to the excellent performance of the pension fund over the last fiscal year, only $324.3M in pension bonds were necessary to fully fund the town's pension liability

On June 17, Moody's Investors Service and Standard & Poor’s Financial Services, the nation’s largest bond rating agencies, assigned Aaa/AAA top ratings to the Town of West Hartford General Obligation Bonds, Series 2021B. The ratings are used by institutional investors, such a large banks and insurance companies, when bonds are sold. The Aaa/AAA rating allows cities and towns to secure the best possible interest rate because they are considered low risk to lenders.

Moody's report stated, "The Aaa rating reflects the Town's large and growing tax base with strong income indicators. The tax base has grown in each of the last ten years and, despite the economic impact of COVID, is poise to continue to expand. Much of this growth is attributable to a robust local housing market that benefits from being equidistant from New York City and Boston. Residents from each of those cities have helped to drive up housing prices by approximately 11 percent on 16 percent higher sales volume.

The S&P report stated, "West Hartford has a very strong set of financial policies and controls that are institutionalized and embedded into its overall financial management, which, in our view, is a key factor contributing to its ability to sustain budgetary balance, even through a period of economic uncertainty due to the pandemic. Moreover, the Town will likely maintain a steady pace of modest economic growth as construction-related development has been largely unaffected by the pandemic, and the level of economic deterioration in the county is less severe than the national base-case forecasts. The rating also factors the Town's steady operations and proactive management team that has been able to navigate the challenges related to the pandemic and address long-term challenges in a proactive manner."