Ridgeline Helps Santa Cruz METRO with Pension Cost Optimization Strategy

Ridgeline Municipal Strategies, LLC (“Ridgeline”), an independent registered municipal advisory and financial consulting firm, recently helped the Santa Cruz Metropolitan Transit District with development of a comprehensive pension cost optimization strategy.

Santa Cruz Metropolitan Transit District (“METRO”) was formed in 1969 to provide bus service in the Santa Cruz County. Today METRO has almost 800 active bus stops serviced by a diverse fleet of buses and paratransit vehicles. It’s annual operating budget is approximately $55 million.

METRO offers its employees pension and post-employment healthcare benefits. The pension benefits are provided through the California Public Employees' Retirement System ("CalPERS"). The healthcare benefits are covered by METRO on the pay-go basis.

With a $68 million unfunded accrued pension liability and a $124 million other post-employment benefit ("OPEB") liability, METRO was looking for ways to manage its future pension and healthcare costs.

METRO retained Ridgeline to help it develop an in-depth understanding of its pension and OPEB liabilities and analyze a variety of strategies to reduce pension costs.

Ridgeline performed a comprehensive analysis of METRO’s pension and OPEB liabilities and prepared extensive educational materials for the METRO’s staff. We then modeled the financial impacts and multiple scenarios for a variety of pension cost optimization strategies, including the following:

• Additional discretionary payments into the METRO’s pension plan;
• CalPERS’ Fresh Start program;
• Section 115 Trust;
• Direct refunding of the Unfunded Accrued Liability (“UAL”) with pension obligation bonds; and
• A rolling equipment leasing program as a tool for accelerated repayment of the UAL.

With the help of our analysis, METRO ultimately decided to pursue issuance of pension obligation bonds and formation of a Section 115 Trust.

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