On March 2, 2021, NHA Advisors, one of the City of El Cerrito’s financial consultants, presented a critical financial update to the city council. The presentation highlighted the City’s projected $70.3 million Unfunded Accrued Liability (UAL) as of June 30, 2021. During this session, NHA pointed out that other cities had successfully issued pension obligation bonds at favorable interest rates, ranging from 2.54% to 3.75%.
Despite this information, El Cerrito failed to act.
A Missed Opportunity
Had the city issued $70.3 million in pension obligation bonds at 4% interest over 30 years, taxpayers would have faced annual payments of approximately $4 million. This figure is substantially lower than the payments El Cerrito now faces. This year, for example, the city celebrated a prepayment of $7 million, and by next July, the payment is expected to increase to nearly $8 million.
This raises an important question: Was Measure G tax money needed to make up for the extra financial burden resulting from this inaction? Some believe that annual CalPERS payments may continue to rise.
Here’s a simplified breakdown:
- Principal: $70,300,000
- Interest Rate: 4.00%
- Loan Term: 30 years
- Annual Payment: ~$4,065,456
Tools like Microsoft Excel can confirm this calculation.
Interest Rates Dropped Even Lower
What makes this missed opportunity even more glaring is that interest rates eventually dropped further. According to NHA Advisors:
“Spreads to taxable Treasury rates have lowered significantly in recent months, resulting in 2.54% to 2.85% interest rates for the four most recent transactions.”
If El Cerrito had acted, the city might have saved approximately $2.7 million annually—funds that could have been used to support essential services, infrastructure, or other taxpayer priorities.
For context, you can view NHA’s detailed presentation here and the meeting recording here.
A Call for Action in 2021
A concerned resident wrote to the city council on March 27, 2021, calling for greater scrutiny of El Cerrito’s financial situation:
“It has been over 800 days since the first ‘going concern’ statement. It is time for the council to take action. What will happen when the CalPERS discount rate is lowered? Should the city consider issuing revenue bonds based on the transfer tax? Have you looked closely at the yield curve and the spread over Treasuries?
If management does not have the expertise to solve this multi-million dollar issue, the council should look to the city’s most financially savvy residents or bring in additional expertise. This deserves far more attention.”
The letter urged the council to consider:
- Issuing revenue bonds tied to the city’s transfer tax.
- Exploring ways to stabilize the city’s bond rating, currently at BBB+.
- Considering financial strategies that address CalPERS obligations before rates rise further.
At a time when cities across California are grappling with pension liabilities, El Cerrito had an opportunity to reduce its financial burden significantly. The cost of inaction is clear, and as CalPERS rates potentially increase, this issue will only become more urgent.
Now, more than ever, residents deserve transparency and proactive solutions from their city leaders. Financial challenges like these require expertise, initiative, and a commitment to fiscal responsibility.
For those interested in understanding the details, the NHA presentation remains an essential resource.
The conversation about pension liabilities is far from over. El Cerrito’s future depends on leadership willing to explore bold, practical solutions.
El Cerrito Committee for Responsible Government (ECCRG) 