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Watsonville
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February 8, 2023

Watsonville turns to bonds to meet steep pension costs

WATSONVILLE—The Watsonville City Council gave staff the green light to begin the process of issuing taxable bonds in hopes of paying off steep unfunded pension obligations over the next three decades.

According to a 2020 California Public Employees’ Retirement System (CalPERS) report, the City of Watsonville is facing roughly $98 million in unfunded pension obligations that it hopes it can pay off over the next 23 years. Issuing $40 million of the so-called “refunding” bonds is one tool the City will use to try to slowly dig itself out of debt, and free up general fund dollars for other day-to-day uses.

Refunding bonds are generally considered a low-risk option for municipalities to refinance existing debt at a lower interest rate.

Consultant Urban Futures, Inc. projects that, thanks to current low interest rates, the City will pay roughly $59 million in total on the bonds that it hopes to issue sometime this spring. But projections also show the City could save anywhere between $1.1 million and $1.76 million annually over the next four fiscal years if they do issue the bonds.

The taxable bonds differ from traditional pension obligation bonds—which many cities in California have reluctantly turned to in addressing debilitating retirement costs—in that the latter is typically repaid with general fund dollars and is more volatile. A taxable bond, meanwhile, is repaid by funds generated by a local tax. In Watsonville’s case, the City will use the funds generated annually by a property tax measure approved by voters several years ago that addressed pension costs, also known as the Pension Tax Override.

There will be no new tax associated with this series of bonds, staff said.

Staff will return to the city council for final approval on this year’s bonds and any other bonds it might issue in the future.

Park fees change

The council also approved various changes to the fees it imposes on developers that help the City upkeep and improve its parks system.

Trying to address $20 million in deferred park maintenance, a lack of park space within city limits and projected population growth, the city council reworked its current Quimby Act/Park Land In-Lieu Fee and Park Land Impact Fee and established two new fees that will apply to new residential developments: (1) a Park Improvement Fee and (2) a Community Center and Recreation Facilities Impact Fee.

The fees will replace the previous assessments established in 2008 that brought in some $227,000 annually to help renovate the City’s parks, funds far outpaced by mounting upkeep costs and decades of low revenues.

But staff says the fees approved Tuesday—which will start at 40% of the maximum the municipality can charge and increase by 10% with the adoption of each biennial budget starting in 2023—will not solely solve Parks and Community Services’ funding woes.

Based on the projected population growth through 2045, the city says the fees would generate a modest $465,000 in annual revenue.

The new fee structure moves from a per-bedroom calculation to square footage. In some cases, a developer would pay double what they currently pay. For instance, developers would be assessed roughly $6,601 for a unit between 900-1,200 square feet. Currently, they pay $3,000 for a 2-bedroom unit, the closest comparison to the 900-1,200-square-foot marker.

The variance between the two fee structures lowers as square footage increases.

As was the case with the previous structure, developers can choose to either dedicate parkland or pay the Park Land In-Lieu fee.

Tony Nuñez
Tony Nuñez is a longtime member of the Watsonville community who served as Sports Editor of The Pajaronian for five years and three years as Managing Editor. He is a Watsonville High, Cabrillo College and San Jose State University alumnus.

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