$25M Pension Loan Raises Eyebrows, Questions

Baltimore County officials say the loan for a Cockeysville recycling facility from its underfunded pension system is a "win-win." But some County Council members have questions.

UPDATED (3:16 p.m.)—Some Baltimore County Council members and union officials say a $25 million loan made to the county from its own pension system raises questions.

The loan will be used to pay for a . It's the same facility for which the Baltimore County Council approved $25 million in bond sales last November.

Councilmen David Marks and Tom Quirk say they now have questions about the change in how the project is financed and the lack of independent oversight.

"I don't know any of the details of the arrangement at all," Quirk said. "We definitely have questions."

Marks, a Perry Hall Republican, said he was withholding judgement on the changes but was asking the administration to provide a legal opinion that justifies the legality of the loan.

Don Mohler, a county spokesman, acknowledged the loan Wednesday, nearly one month after the board of directors of the Baltimore County Employees Retirement System approved it.

"This is a win-win for both the pension system and the county," Mohler said Wednesday.

Both Marks and Quirk said they only learned of some of the details this week and are awaiting a more complete briefing.

Council Chairwoman Vicki Almond and members of the council staff as well as the Office of the County Auditor were told of the loan Tuesday in a closed door meeting with County Administrative Officer Fred Homan.

Almond, a Reisterstown Democrat, was not immediately available for comment.

Councilmen John Olszewski Sr. and Todd Huff, and Ken Oliver, a Dundalk Democrat and Timonium Republican and Randallstown Democrat respectively, were also not immediately available for comment.

Cole Weston, president of the Fraternal Order of Police Lodge 4 and a former member of the retirement system board of trustees, criticized the loan and the lack of information provided to the board.

"This is the first time that I know of going back to 1988 and possible longer, that the county has contemplated giving itself a loan from the pension system," said Weston, whose group represents active and retired Baltimore County police officers.

Weston said his concerns "all hinge on the " of the issue by Homan.

"Clearly, the pension system is not a savings and loan institution," Weston said.

Gold In Recycling

Homan and Budget Director Keith Dorsey asked the council last November to approve $25 million in financing through through bonds called certificates of participation.

The plan was to build a new single-stream recycling facility that could handle as much as 100,000 tons of recyclable materials. That capacity would be large enough to handle all of the county's current recycling as well as contracting to process materials from other jurisdictions.

The county estimated in November, based on average rates at the time, that the county could generate as much as $200,000 per month once the facility was fully operational, according to testimony by Dorsey and Homan.

"This is the first case where we're actually going to be able to produce income from the facility," Homan told the council during a November 1 work session.

Homan said he based his estimates at the time on the current average of $100 to $105 per ton.

"Glass isn't worth anything, whereas [paper] and metals are," Homan said at the time. "That's what we're actually looking at here and we're looking at the capacity to take tonnage beyond our own tonnage."

Ultimately the council unanimously approved the special financing less than a week later.

The bonds are different from general government bonds that require voter approval. One significant difference is that the participation notes are sold with a bond rating of double-A plus, a step down from the county's  because the certificates are not backed by the full faith and credit of the county.

The difference means county taxpayers ultimately pay a higher rate of interest.

Pension Board 'Extremely Enthusiastic'

Complete details about the loan from the pension system were not immediately available.

The board, during that same July 10 meeting, voted to lower its assumed rate of return to 7.25 percent on investments made by the nearly $2 billion pension system.

The lower rate will cost the county an additional $15 million in pension contributions starting next July.

But the county is guaranteeing the pension system a nearly 8 percent interest rate on the loan—the old assumed rate of return on investments.

"The board was extremely enthusiastic," Mohler said. "There's no risk involved here. We are a triple-A bond rated county."

Mohler added that the pension system "was getting a higher rate of interest on a facility that will be very successful."

In a breifing document presented to the board of trustees, the term of the loan is to last 15 years but could be repaid faster. The county said it needed alternative financing after it's bond counsel advised that the county would have to pay a higher rate of interest on the bonds because the project would generate a profit, parte of which would go to the Maryland Environmental Service.

"A loan from the Baltimore County Employee Retirement System is a fiscally
prudent action both by the county and on behalf of the ERS," the memo states. "It is a sound investment for the ERS board of trustees because it provides a
guaranteed rate of return of 7.875 percent, a level in excess of current 10-year average of 6.4 percent, but without any risk. lt is a Wise move for the county because the system's failure to achieve a 7.875 percent return is already a budget obligation of the county government."

The memo was obtained through a request made by Patch. [The full memo is attached to this story.]

The county guaranteed the higher rate of interest in order to prevent the appearance that the county was taking advantage of the interest rate change implemented by the board of trustees that same day, Mohler said.

"We didn't want to look as if the timing of the rate change and the loan were in any way connected," Mohler said.

"We're saving the county money," said Mohler on Wednesday. He later added that he could not immediately answer questions about whether the county would have received a better interest rate in the open market.

Information provided to the council last year suggests that the county expected to sell the notes at an interest rate that was less than half the rate guaranteed to the pension fund.

The county was expected to sell the certificates of participation in January at an estimated interest rate of 3.75 percent, according to notes prepared by the Office of the County Auditor, which is an arm of the County Council.

At that rate, the county expected to pay $12.1 million in interest on the project.

Mohler did also not immediately respond to questions about independent oversight of the loan and its approval given that Homan not only controls the development of the project but is also a member of the pension Board of Trustees.

Four of the eight trustees—including Budget Director Keith Dorsey—are heads of county departments, who, by County Charter, directly answer to Homan in his full time capacity as county administrative officer. 

Weston challenged Mohler's assertions that the board enthusiastically supported the proposal.

"I don't know where the chief of staff for the county executive comes up with that analysis," said Weston, who said the document amounted to the county telling the pension system to loan the money based on nothing more than Homan's word that the project would make money.

"I saw one passage that said 'this is a good deal because I'm telling you it's a good deal,'" Weston said.

Weston criticized the document and the lack of information provided to the board of trustees.

"Based on the document that I read, I would not be able to support a vote for that $25 million loan without seeking some independent, third-party review or analysis to see if this is even legal and is it even a good investment," Weston said.

Asking 'Valid Questions'

Weston said the union is seeking advice from its lawyers to determine if the board violated the law or its responsibility to county employees and retirees who are in the pension system.

Quirk, who chairs the council's Spending Affordability Committee and owns his own financial and retirement business, said the deal raises a number of questionsfor him as well.

"We weren't briefed on this," Quirk said. "I think it's very important that the administration and the council work closely and collaboratively in these difficult times."

Quirk said he believes the council should have been informed of the change prior to seeking approval from the pension board.

He added that questions regarding the interest rate and independent oversight "are all valid questions."

"What happens if this facility fails to meet it's expectations?" Quirk asked and then answered his own question by saying he was concerned taxpayers would have to foot the bill—effectively paying the same money to the pension system twice.

"It's definitely something I need to have more details on," said Quirk.

A. Retiree August 03, 2012 at 09:55 PM
And where is the county executive?! Oh, there he is standing in front of the cameras again for another photo op. Maybe someday we will have a real county executive.
Ron Burgundy August 04, 2012 at 12:30 PM
Another "hater" speaks up. I guess you don't want to promote anything positive that's happening in the County. What an idiotic comment. I want our leaders promoting our county and getting the word out why our county is the best. Maybe,just maybe as we promote our positives we keep or entice more businesses to locate here. Keep your head in the sand "hater" or at least make a comment that has some semblance of intelligence.
FIFA August 04, 2012 at 01:40 PM
@Ron Burgundy - sorry, it is not a win-win. It is a loss for the taxpayers. This how the numbers really work. The County is going to pay the pension system 7 7/8% per year or about 4% more than what was available on the open market. Thus the county is going to pay an additional 4% per year on $25,000,000 or $1,000,000 to the pension fund. Gee, where is that money coming from?? A hah! The Taxpayer! Pension Fund might get it's money alright, but call a spade a spade.
Ron Burgundy August 04, 2012 at 02:49 PM
"A loan from the Baltimore County Employee Retirement System is a fiscally prudent action both by the county and on behalf of the ERS," the memo states. "It is a sound investment for the ERS board of trustees because it provides a guaranteed rate of return of 7.875 percent, a level in excess of current 10-year average of 6.4 percent, but without any risk. lt is a Wise move for the county because the system's failure to achieve a 7.875 percent return is already a budget obligation of the county government." Keep your head in the sand- everything gov't does is not bad- another "hater" chimes in-
FIFA August 04, 2012 at 03:10 PM
It is a sound investment for the Pension Fund, it is a poor finance mechanism for the county residents who have to pay the extra 4%. A Triple-A county bond rating does not translate into having to pay 7 7/8% for a loan. That is loan shark rates. "hater" - what kind of crap is that? Who are you? Someone that works for KK?
Ron Burgundy August 04, 2012 at 04:04 PM
Just a person tired of all the gov't bashing-tired of people not realizing how good this county is managed-are there improvements,absolutely but people want to look at everything and see a dark side and I'm sick of it. This is a win win. " because the system's failure to achieve a 7.875 percent return is already a budget obligation of the county government."
FIFA August 04, 2012 at 04:25 PM
Ron you are wrong. This is a $1,000,000 per year payment to the pension fund by the County under the guise of a loan. If you can't call it what it is you are an administration hack. Don't sugar coat it, don't hide it, that is exactly what it is. Everyone now sees you are defending the indefensible. Stop digging, you are in a hole.
Ron Burgundy August 05, 2012 at 02:29 PM
FIFA, when were you dismissed from your job with the county? Either that or you're still upset your guy Joe lost the election, get over it. What is it you don't get? If the system doesn't earn 7.78% the county (taxpayers) are on the hook. Why not just drift away "wilson".
County employee August 05, 2012 at 10:49 PM
The system has earned an average 9% since 1980. The last decade as a whole is lower but everyone knows investments are 30-40 time frames. The question is "Where is the 3rd party oversight?" "Where is a written loan contract with an amortization of the payments?" Even the great Fred would not loan out 25 million without a slam dunk iron clad contract. If he wants to put everyone at ease, then assign an out of county entity to ensure the loan is payed back as promised. Unless, Fred doesn't want to pay it back.
County employee August 05, 2012 at 10:57 PM
Fred has already played with the numbers. He has removed the "corridor". He has increased the "smoothing" from 5 to 10 years which is unheard of in the real world. He also increased the amortization from 25 to 30 years so he could reduce his annual required contribution. He has done all of this to reduce his cost and push it out to future years. But, he doesn't want to pay this delayed money. He wants to have employees increase their contributions to pension and health care to cover his cost that he has postponed paying. By lowering the assumption rate he increased his cost next year by 15 million. But by taking this loan he won't have to pay the 15 million. He will take another 10 million out for his "loan". Don't forget the 21.3 million he lost and then took from the old pension system to cover it. That ruse about putting in that worthless piece of paper in the system because it will have time to grow and recover was a sham. He knows that paper will never be worth anything.
FIFA August 05, 2012 at 10:58 PM
Neither, didn't vote for Joe, made a big mistake voting for KK. My bad. You are a hack or an idiot. Which is it? The county could have obtained a loan for under 4% but decided to overpay the pension fund. You did not answer my question. Who writes your paycheck? I write my own. You are so apparently a hack for KK you should quickly get another screen name.
County employee August 05, 2012 at 11:09 PM
Isn't the attorney for the pension system Suzanne Burger? No wonder there was no paperwork for the loan. HMMMMM...
fred August 06, 2012 at 12:21 AM
the future is the past, dale anderson, spiro agnew, next?
Ron Burgundy August 06, 2012 at 12:36 AM
Suggest County Employee find another place to work or is Baltimore County THE place to work because of no furloughs or layoffs and we're in pretty good fiscal shape compared to every other county. If you're that upset then leave, I'm sure your job could be filled. If you have that much "hate" and the county is so corrupt, leave. Or are you being asked to contribute more to your health and pension fund. Gee, all of America want you to contribute more, you'll get no sympathy from the posters here. Or will you? Buzz, FIFA, do you or don't you want C.Employee to contribute more?
Ron Burgundy August 06, 2012 at 12:39 AM
To FIFA, neither a hack nor an idiot just tired of the "anti-rants" from the likes of you. Everything is bad, everyone is corrupt, the world is going to end if my people don't get elected. Get a life and enjoy the fruits of the best run county in the state.
FIFA August 06, 2012 at 12:55 AM
Not everyone is corrupt, just some. You continue to run from the issue at hand. The actions of the administration in this instance are shirking their fiduciary duty to the residents of Baltimore County by hiding what they really did. You have still failed to acknowledge if you are a county employee or political operative of the Kamentz administration.
Ron Burgundy August 06, 2012 at 08:41 PM
Sorry, "wilson" neither description fits, I will challenge any administration I think is misguided. For example, this special session is totally bogus and shouldn't be taking place. Whys is it taking so long to get an answer to my question. I'll try again. This time I'll put it in caps so you can read it better. PLEASE NAME THE COUNTYS THAT ARE IN BETTER FISCAL SHAPE THAN BALTIMORE COUNTY. This is the 3'rd request. What I believe is you're having trouble finding them. Triple AAA bond rating, no tax increases (past 22 years?), no furloughs, no layoffs, who the heck is running this ship some yo yo???? I know Buzz will chime in with his usual retorts and paste articles of the ship sinking but are these positives or negatives? Does Baltimore County have challenges have issues, of course. Is Baltimore County in better shape than most, you bet. I love it , even when they try and save some money the naysayers put the doom and gloom on it. That's why I write in, because I'm sick and tired of the negativity. I'll give Buzz credit, he put himself out there, got crushed and rejected by the voter but put himself out there. What about you "wilson"? You ready to step into the fray or just stay negative on the sidelines. Same thing w/C.Employee and Buck Harmon. There are those that think they can play, try and play and those that can and do play. Be players and get off the sidelines. Or are you too afraid?
Ron Burgundy August 06, 2012 at 10:51 PM
And another thing, I heard on the radio today the hosts asking for ideas on how to honor Michael Phelps. I'll tell you this if one cent of my hard earned tax dollars go to honor him I'm filling an FOIA request and then taking the state and county to court. How dare the county or the state consider honoring the greatest olympian of all time with my tax dollars. So lets get started, "wilson", Buzz, Buck, JD, Meg, C.Employee, lets join together and stop this before it gets started. Repeat after me, "NO PHELPS CEREMONY,NO PHELPS CEREMONY". I'm sending a note to MOM as we speak. "NO PHELPS CEREMONY,NO PHELPS CEREMONY". If I want to spend my dollars to honor him I can ask him over to my house for dinner. They better not use one dime of my tax dollar, right guys and gals?
Steve August 06, 2012 at 10:54 PM
Fort Howard is surrounded by water. Michael Phelps spends a lot of time in water. You seeing the connection here???
FIFA August 06, 2012 at 11:00 PM
You are a Moron. The financial condition of the County has absolutely nothing to do with the issue at hand. Just because we are healthy you can be corrupt? The end justifies the means? You know it, you ignore it, you are a Kamenetz mole and that is sick. You are paid to post here, but you are making it worse for your boss. You convince no one with your misdirection. We see it for what it is. Most likely a one termer, he himself has caused it. He almost lost the last one. You are a fool.
FIFA August 06, 2012 at 11:22 PM
Well Ron, paid by KK. You are right. I do not want a single dime spent on a multi-millionaire sports figure while we continue to have men and women die in two very suspicious wars? Our soldiers get mangled and killed while you want a frigging parade for a frigging dolphin? Your priorities are seriously misplaced and simply sick. Grow up, mole.
FIFA August 06, 2012 at 11:32 PM
Save the money and give it to the vets. Dolphin has enough money to pay for his own parade.
Ron Burgundy August 07, 2012 at 01:07 AM
"Wilson", you said we were healthy, that's BS, are you on opposite sides of Buzz? That's right, I'm with you "wilson", now lets get Buzz, Buck,C.Employee,JD and Meg and we'll stop the all of the shenanigans. No way we celebrate the greatest olympian of all times, who was born and raised in our backyard. C'mon "wilson" sing it loud and proud, "NO PHELPS CEREMONY, NO PHELPS CEREMONY" Why in the world should we use our good taxpayer dollars to celebrate anything,even if he's one of the most recognizable figures in the world. Let the other suckers pay for it, not us, not Maryland, not Baltimore County. DON'T CELEBRATE SUCCESS, NO WAY. Why would we want anyone feeling good about anything.Why should we use Phelps as a role model and let our young kids get a glimpse and maybe hear something inspirational, not on my dime! Lets be misrable. After all I'm sure "the office of fred" will have a hand in it and they'll just cook the books. And I'm sure KK will have some crony profit by it. I'm with you "wilson". "NO PHELPS CEREMONY,NO PHELPS CEREMONY". Baltimore County does not want to celebrate success.
FIFA August 07, 2012 at 01:20 AM
You are still a mole Ron. You are on the KK payroll. I understand that. But go away, what your employer Kevin is doing with you will cost him reelection. I find it painful to have to call out a democratic mole, but I must. A mole is a mole. You are pathetic and don't hide it. You are costing Kevin votes. So foolish. You make me ill. My conservative haters are laughing at me, but they are right. You make us sick.
Ron Burgundy August 07, 2012 at 02:03 AM
I'm with you "wilson", didn't you know I get paid by the word? I We don't want anyone cutting budgets and employees. We don't want to celebrate success, throw the crooks out, now! "Wilson" let me know if you're the one to run and I'll raise money for you. I'm on your side, why can't you believe me? I've seen the light.
FIFA August 07, 2012 at 10:44 AM
Misdirection, misdirection, stay away from the point of the article, mole. What I hope is that the payment to the Pension Fund will be declared illegal as the extra $1,000,000 payment was done without County Council approval. That is clearly what KK and Homan have intended, increase funding to the pension fund without Council approval. Interesting what the Council will have to say. We will see if they have any at all. The mole doesn't understand he irritates people who voted for KK with his garbage. Keep talking mole, Living underground eating worms is like you. http://en.wikipedia.org/wiki/Mole_%28animal%29 MIght be a self portrait.
g.p. August 13, 2012 at 01:18 AM
What I dont see here, and never see. Is the fact the money in the pension system is put there by the employees. An amount set by the county comes out of every paycheck, from every employee. This is based on the employees gross pay. And for some employees this includes overtime pay. No other local goverment employee I have ever talked to pays their retirement. Not the state, city or any of the surrounding counties.
Buzz Beeler August 13, 2012 at 02:34 AM
Ron, I just finished a 10 question blog pop quiz for you. It should be out soon.. About the charter did you read this section? 5-1-202. ESTABLISHED; NAME. (a) A retirement system is hereby established and placed under the management of the Board of Trustees for the purpose of providing retirement allowances and other benefits under the provisions of this title for employees. The Retirement System so created shall be established as of January 1, 1945. It shall be known as the “Employees’ Retirement System of Baltimore County,” and by such name all of its business shall be transacted, all of its funds invested, and all of its cash and securities and other property held in trust for the purpose for which received. (b) Except as otherwise provided in this title, no part of the corpus or income of the funds of the Retirement System shall be used for, or diverted to, purposes other than for the exclusive benefit of members and other persons entitled to benefits under the Retirement System and paying expenses of the Retirement System not otherwise paid by the employer, before the satisfaction of all liabilities with respect to them. No person shall have any interest in or right in, or to, any part of the assets held under the Retirement System, except as and to the extent expressly provided in this title. (1988 Code, § 23-37) (Bill No. 69-95, § 8, 7-1-1995; Bill No. 32-03, § 1, 7-1-2004; Bill No. 30-10, § 2, 7-1-2010)
Buzz Beeler August 13, 2012 at 02:36 AM
Ron the county will need more of loan when your read my blog I wrote for you in the form of a pop quiz. Don't worry if you don't have the answers I have a follow up blog ready to go with all the goodies.
Arlow August 13, 2012 at 02:57 AM
That's pretty snarky. Stating that FIFA and the others were fired from the County without any proof they ever worked there is childish. It sounds more like you work for the Administration they way you act like they can never do anything wrong.


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