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Dear County of San Diego,

Over here in the city, we had a visitor on Tuesday … a fellow by the name of Arthur Levitt. His credentials are impressive.

He had some pretty disparaging remarks about pension obligation bonds. Apparently he believes they indicate that the issuer is not willing to face up to its current obligations and would rather push them off onto future generations.

Well, I took a look at your financial statements and discovered that you have pension obligation bonds. In fact, you have $1.1 billion of pension obligation bonds in addition to the $1.4 billion unfunded liability in your pension plan. So that means that while your pension system has $6.4 billion in assets, you are carrying $2.5 billion in pension related debt.

The city hasn’t issued pension obligation bonds. Its retirement system has $3.7 billion in assets and (coincidentally) a $1.4 billion unfunded pension liability.

When I take a look at those ratios (6.4/2.5 and 3.7/1.4), it appears that both the city and the county are in about the same shape. The difference is that you have funded around half of your liability with bonds. That is pretty much what Mayor Sanders had proposed for the city.

I also noticed on your June 30, 2005 statements that you haven’t made any principal payments on either your 2002 or your 2004 bond issuances yet…or at least not as of that date. Do you think that may have been the type of thing Levitt was talking about when he referred to pushing the debt onto future generations?

Anyway, since you have experience with pension obligation bonds, I was just wondering what you thought of Mr. Levitt’s comments?

April Boling

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