This past July, the Arizona Fire & Medical Authority (AFMA) governing board voted unanimously to refinance the authority’s Public Safety Personnel Retirement System (PSPRS) pension debt, creating a projected benefit for AFMA residents of approximately $22.72 million over 23 years and further stabilizing the authority’s financial future.
The Arizona Fire & Medical Authority provides fire suppression and emergency medical care to the residents of Sun Lakes, Sun City West, Wittmann, Coldwater Ranch, Corte Bella, Cross River, Dos Rios, Pinnacle Peak County Island, Rancho Silverado, Rio Sierra, and Tonopah. The Sun Lakes area currently has an ISO “Class One” (superior) property protection rating from the Insurance Services Office.
The Authority had an unfunded PSPRS debt of approximately $32 million, which was accumulating interest at the rate of 7.3%. In August, the authority priced Certificates of Participation (COP) to refinance the PSPRS shortfall and was able to lock in a better-than-expected interest rate of 2.906% which included refinancing its existing debt and funding a new pension liability reserve fund.
“This refinancing is a historic event that addresses the single largest financial liability for AFMA over the next 23 years. It creates a sustainable payment structure to meet the promises made for our firefighter retirements while saving the taxpayers over $22 million dollars. On behalf of the entire governing board, I want to thank the Authority staff who pulled together this amazing event in an incredibly short timeframe,” said Governing Board Chairman David Wilson.
Recent changes to Arizona law allowed fire districts to refinance their pension debt by utilizing Certificates of Participation. Since the enactment of the new law, AFMA staff worked tirelessly with financial experts to develop a plan to fund 100% of the Authority’s firefighter pension plan. They engaged Stifel, Nicolaus & Company as the underwriter, and Greenburg Traurig LLP as counsel to assist with developing the plan and selling the COP this month, allowing the Authority to take advantage of historically low interest rates.
“Over the last several years, it became clear that our financial future was at stake if we did not quickly take action to address the Authority’s PSPRS liabilities,” said AFMA Fire Chief Robert Biscoe. “The Authority governing board’s unanimous action shows a clear commitment to our firefighters and the communities who rely on the essential emergency services they provide. Refinancing the previously-unfunded PSPRS liability provides the Authority with significant projected savings and a clear path forward financially.”
Unfunded pension liabilities are essentially a debt. It represents the difference between the amount of money in a pension fund today and the amount needed in the pension fund today (as calculated by an actuary) to make future promised benefit payments.
In the case of the Arizona Fire & Medical Authority, the unfunded pension liabilities refer to the PSPRS plan, which is Arizona’s fire and police personnel pension program administered and managed by the state. Refinancing AFMA’s PRSPS unfunded liabilities allows for more predictable and feasible annual debt payments at lower interest rates. This saves taxpayers money and preserves the retirement system for authorities’ public safety employees.
Chief Biscoe reflected on the funding process. “We had an amazing team working on the refinancing, and I want to thank them for the hundreds of hours of hard work to meet our governing board’s pension funding goals. Their hard work will assist in stabilizing the Authority’s financial future for generations to come.”