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County OKs $2-Billion Bond Deal to Pay Off Pension Debt : Finances: The move is intended to strengthen a shaky budget position. It has tentative approval of retirement officials.

TIMES STAFF WRITER

The Los Angeles County Board of Supervisors approved a nearly $2-billion bond deal Tuesday that is expected to strengthen the county’s huge pension system and produce immediate earnings that will be used to bolster this year’s fragile budget.

The deal calls for the county to sell $1.96 billion in bonds to pay off virtually all its debt to the Los Angeles County Employee Retirement Assn., or LACERA, through 2010.

In essence, county officials are betting it will be cheaper to pay off the bonds over the long term than to make yearly contributions to the retirement system, as has been its practice. The bond deal is expected to aid the pension fund in its ability to cover future retirement costs.

Officials estimate that the bond sale will generate about $265 million more than the county needs to meet its pension obligation this fiscal year. Much of those funds will be used to fund library, fire and flood control services and other programs that might otherwise face cuts.

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Retirement association officials have tentatively approved the deal.

The agreement is welcome news for the county because the county’s delicately balanced $14.5-billion budget already includes about $150 million in pension fund monies.

“I think this will stabilize the situation between the (county) and LACERA because they don’t have to come back to us for contributions each year,” said Supervisor Ed Edelman, who has long pushed for an agreement between the association and the county.

In June, retirement association officials rejected another proposal to use pension funds to help balance the county’s budget when they determined that such a deal might harm their own finances.

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This deal is more attractive because it will virtually eliminate the county’s $2-billion pension debt. The agreement also calls for the two parties to split any higher-than-expected earnings from the bond sale over the next four years, with 75% going to the county and 25% to the retirement association.

“This is going to help maintain services for taxpayers--it’s a win-win situation,” said Robert Hermann, head of the association’s Board of Retirement.

County officials say the bond sale is dependent on a fluctuating bond market that currently is not offering the most favorable rates. But rates are expected to improve, officials say.

“We will be able to find a market,” said Assistant Chief Administrative Officer Sandy Davis. “We will begin meeting immediately to talk about structure and we will move forward.”

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