Analysis of April’s vote against a new firefighters millage in New Orleans showed its most concentrated opposition came from voters in the 7th and 9th wards, homeowners who in the month after Christmas are pressed to come up with another stocking stuffer, a lump of property tax for the city.

The city pitched the firefighters tax at these voters in the dim light of a low-turnout election. Eyes peeled like young Gentilly Warriors at bat against their archrival team from Hardin Park, they read the stitching on the city’s pitch and pulled it foul.

They were right to do so; the firefighters tax can be made unnecessary. Premised on a plan presented as undebatable by the Firefighters Pension Reform Working Group, the need for the tax arose from the budget strain of the plan’s $35 million per year cost to repair a $362 million unfunded liability in the firefighters pension fund.

Alternatively, if the city were to bond-finance the money needed to pay the $362 million liability, using existing sales taxes as security and structuring the bond issue as Ochsner Clinic Foundation did theirs last summer, the $35 million annual payment can be reduced to about $17 million, saving the city $18 million per year, and $180 million present value when compared with the plan’s cost.

These huge savings gained by paying off the unfunded liability immediately and with low-interest rate bonds provide enough to also pay the $75 million court judgment on firefighters’ back pay with $100 million leftover.

The Reform Group dismissed this no-new-taxes alternative without review. Members of the Reform Group have explained privately, “We don’t want to take on debt,” and “We can’t trust the firefighters to manage $362 million.”

And a more discerning, “I’d rather have a soft debt with the firefighters than a hard debt with the bond market.” At least this reformer recognized that the city’s choice is between two debt alternatives, dragging out the debt with the firefighters at 7.5 percent — the actuarial return used to calculate the unfunded liability — or paying off the $362 liability with 4.5 percent to 5 percent taxable bonds, which saves about $180 million.

The Ochsner bond structure, 29 years interest-only, refinanced in year 30, is de rigueur in the taxable bond market because it minimizes budgetary impact and maximizes present value savings. DC Water, among others, has sold 100-year interest-only bonds.

The concern about competent management of the firefighters pension fund is legitimate, but it’s not a reason to drain the fund. The bigger the fund, the better chance to attract top professional managers. Locking in low interest rates is an investment opportunity of the city. Rates won’t sit at these low levels forever.

Keith Butler

investment banker

New York