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Posted on: July 29, 2020

City’s Public Safety Pension Retirement System Certificates of Participation available for investors

On July 23, 2020, the city of Flagstaff put its Public Safety Retirement System (PSPRS) Certificates of Participation (COP) on the market and successfully sold to investors from across the country. The Flagstaff City Council authorized the transaction at the June 23, 2020 meeting.   


Since 2003, the city’s unfunded actuarial liability has grown to $112 million, a debt owed by the city to its active and retired first responders. The plans for the city were less than 40% funded.  The city’s public safety pension is managed by the Public Safety Pension Retirement System (PSPRS), a statewide program. This year, staff engaged Stifel, Nicolaus & Company (Stifel) as the Underwriters, Greenburg Traurig, LLP as Bond Counsel, and PSPRS staff as advisors, to discuss opportunities to address the City’s continually growing debt. This team developed a plan to have a 100% funded pension plan for the city’s fire and police staff.


The transaction was built on several key objectives: 

  • 100 percent funding of the city’s public safety pension plan;  
  • Reduce annual debt payments substantially, thereby easing the burden on the city’s general fund;
  • Level off future payments (the previous debt schedule had significant increases in annual debt payments in future years); 
  • Set up a reserve fund to mitigate the risks of changing markets and actuarial assumptions;
  • Pay off the debt in 20 years versus the original 28-year plan.


The team presented this transaction plans to rating agencies. The city of Flagstaff received a AA- with a stable outlook rating from both Fitch and Standards & Poor on this debt issue. Both rating agencies referenced that these favorable rating were due to strong fiscal management by city leaders such as the city recession plan and having adequate fund balances.


The city of Flagstaff also met with several investors during the last few weeks to explain the plan for successful management of the PSPRS debt. This included becoming 100% funded in its Police and Fire pension plans, setting aside $14 million in a Contingency Reserve Fund, leveling debt service for 20 years, and reducing its amortization period by eight years.


On July 23, 2020 the city’s COPs went on the market under very favorable conditions. Treasury rates were at a historic low, the city had favorable credit rating, many investors had an interest in this transaction and the Stifel Team was ready to sell the city’s certificates. Stifel generated 116 orders from 41 institutional investors as well as several retail orders. The orders amounted to 3.7 times the number of certificates we were offering. This demand made the interest rates more favorable.


The Pension COP issuance resulted in:

  • A significantly lower All in True Interest cost 2.70% versus the April 4.0% projection;
  • Total Present Value Savings of $76 million;
  • Annual debt service payments between $8.6 million and 9.2 million versus our current budget of $10.7 million.


The issuance of COP debt is a novel approach in Arizona to address the pension funding of public safety plans. With the issuance of Certificates of Participation, the city’s PSPRS plans are expected to be fully funded at June 30, 2020, and the Certificates of Participation will be paid off by June 30, 2040.


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