The city of Oxnard is taking steps to issue a bond that would help pay down $323 million it owes in pension debt but taxpayer advocates say the risky decision should go before the voters.

The Ventura County Superior Court is in a validation period to determine whether or not the city can move forward with the bonding.

The Ventura County Taxpayers Association, Howard Jarvis Taxpayers Association and Oxnard resident Aaron Starr have responded to the city's request prior to the June 6 deadline, according to court documents. The three parties are now a part of the litigation process and will make arguments during the process, city spokesperson Katie Casey said.

If the court supports Oxnard's ability to issue a pension obligation bond, the City Council will take public comments before it takes additional action, Casey said. 

City staff estimates the validation process, which was initiated by the City Council on March 1, to take about four months or longer. 

Each year, the city makes a payment on its unfunded accrued liability, the shortfall of money the city needs to fully pay out pensions. However, in the last 11 years, that debt has increased from about $94 million to about $323 million, according to a presentation by NHA Advisors.

The unfunded liability now makes up approximately 28% of Oxnard's pension debt.

The city needs about $1.12 billion to fully fund retiree benefits, according to NHA Advisors. Oxnard can currently cover about $805 million in costs to CalPERS, the California Public Employees’ Retirement System.

Annual payments to CalPERS have doubled in the last five years from $12 million to $24 million, according to NHA Advisors. Eleven years ago, those payments were about $5 million.

City Manager Alex Nguyen said earlier this month that other cities in the state are also in a similar situation due to CalPERS' poor investment returns. 

"Being on the CalPERS program is like being on an adjustable mortgage interest rate," Nguyen said. 

By issuing a bond, the city could lower interest rates on the debt, resulting in lower, consistent payments. 

Nguyen declined to speculate on the terms of the bond and its repayment shape and amount because the city can't predict what the market conditions will be in the future. If the court allows the city to move forward with the bond, city staff will conduct a full analysis, he added.

David Grau, president of the Ventura County Taxpayers Association, said a pension obligation bond essentially gambles taxpayer money.

The bond would pay off the unfunded liability, but the debt transfers to a private lender.

Because CalPERS invests in the stock market on behalf of Oxnard, Grau said the city is betting on a rate of return year after year that is greater than the interest rate owed over the term of the bond. If the market falls short, taxpayers are stuck with the difference. 

"A reasonable person would not accept that as a viable way to solve your pension problems, to borrow money and invest it in the stock market," Grau said. "All the risk if something goes wrong goes back to the taxpayer."

Should Oxnard choose to issue a bond, Grau said voters — not the City Council — should decide whether or not to issue a bond. 

The Howard Jarvis Taxpayers Association agreed.

Citing the California Constitution, Laura Dougherty, Jarvis senior staff attorney, said in March residents should make the final decision on incurring any new debt with a two-thirds majority vote.

She said the state tried issuing a bond to cover its pension debt about 20 years ago, but the 3rd District Court of Appeal determined it needed voter approval. 

A precedent has not been set at the local level yet, she said. 

“It seems like it would be better to get the voters' approval anyways, even if I didn’t believe the constitution required it,” Dougherty said. 

In April 2020, the Simi Valley City Council reversed course on issuing a pension obligation bond in light of a lengthy legal battle with taxpayer associations. At the time, the city was eyeing a $150 million bond to refinance most of its $158 million pension debt

A pension obligation bond is just one of several options Oxnard is looking at to address the growing debt.

The city can make larger payments to pay down the principal sooner. Using cash reserves and surplus funds, the city can invest in a trust dedicated to pension costs to pay it down. 

If the city pays its pension liability payment early, it receives a 3.3% discount. The city already takes advantage of this discount. 

Grau said Oxnard should focus on sending larger payments to CalPERS from the general fund to pay down the debt. However, the city would have to make some tough decisions. It would have to cut services or raises taxes, he said. 

Should the court validate the bond in the coming months, Nguyen said the bond would use interest rates available at that time. City staff would then make a recommendation on whether or not the council should pursue a bond. 

"We would only recommend this if it made sense,” Nguyen said. "The only reason to do this is to smooth out the payments and hopefully get some savings.”

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