Orange County, Calif., may borrow as much as $320 million from itself to pay pension costs.
The plan is to sell taxable pension-obligation notes maturing in about 16 months to the Orange County Investment Pool, county CFO Robert Franz said.
The county’s $6 billion investment pool is managed by the county treasurer.
Orange County, which sought protection from creditors in 1994 in the biggest municipal bankruptcy in U.S. history, is facing a shortfall of $3.7 billion in the $8.16 billion Orange County Employees Retirement System, Santa Ana, after benefit increases and investment losses during the recession. The system’s funded status was 68.77% as of the end of 2009, spokesman Robert Kinsler wrote in an e-mail.
“When you think of the concept of borrowing from ourselves, we ask, ‘Why not?’” Supervisor John Moorlach, a former county treasurer, said in a telephone interview. “Who’s a better credit than yourself?”
Proceeds from the sale would pay for one year’s worth of the pension’s unfunded liability as well as the county’s annual employer contribution to the system, Mr. Franz said.
The proceeds would allow the county to make its annual pension fund payment ahead of schedule, qualifying for a discount of as much as 7.75%, according to county Board of Supervisors documents. The pension fund offers the county a discount for paying in a lump sum at the start of the period, rather than monthly installments.
The note sale could come in March, if supervisors approve, Mr. Franz said.
Arleen Jacobius contributed to this report.