HomeMy WebLinkAboutItem 13a - Comprehensive Management Plan Addressing Unfunded Accured Liabilities
DATE: February 18, 2020
TO: Honorable Mayor and Council Members
FROM: Dominic Lazzaretto, City Manager
Hue Quach, Administrative Services Director
By: Shama P. Curian, Human Resources Administrator
SUBJECT: COMPREHENSIVE MANAGEMENT PLAN TO ADDRESS UNFUNDED
ACCRUED LIABILITIES AND BUDGET APPROPRIATION TO BEGIN THE
JUDICIAL VALIDATION PROCESS FOR ISSUANCE OF PENSION
OBLIGATION BONDS
Recommendation: Adopt
RESOLUTION NO. 7294 ADOPTING AN UNFUNDED ACCRUED
LIABILITY FUNDING POLICY
Recommendation: Adopt
RESOLUTION NO. 7295 AMENDING THE FISCAL YEAR 2019-20
GENERAL FUND BUDGET AUTHORIZING A BUDGET APPROPRIATION
OF $30,000 FOR A PROFESSIONAL SERVICES CONTRACT WITH
STRADDLING YOCCA CARLSON & RAUTH TO COMMENCE WITH THE
JUDICIAL VALIDATION PROCEEDING AS THE INITIAL STEP FOR
ISSUANCE OF PENSION OBLIGATION BONDS.
Recommendation: Adopt
SUMMARY
In June 2019, the City Council approved a contract with Urban Futures (“UFI”) to provide
pension advisory services to assist the Citizen’s Financial Advisory Committee
(“Committee”) with developing recommendations to address the City’s rising pension
costs and its unfunded accrued liabilities (UAL) with the California Public Employees’
Retirement System (“CalPERS”).
As of the July 2019, the City had an overall unfunded pension liability equal to $159
million. The City also has an estimated $17.5 million liability to pay for retiree medical
benefits, known as Other Post-Employment Benefits (OPEB). In FY 2019-20, the City
was required to pay a fixed dollar UAL payment of $10.1 million in addition to the annual
normal costs of approximately $5.3 million to CalPERS. The City’s UAL payment is
scheduled to grow until it peaks in FY 2039-31 at $14.8 million. It is important to note that
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
Page 2 of 13
these UAL payments are not a static amount. Each year, CalPERS adds new
Amortization Bases, which either increase the UAL payments if CalPERS underperforms
or changes the discount rate, or decrease the UAL payments if CalPERS investment
returns exceed the discount rate – currently set at 7%.
With CalPERS arguably being the single largest cost driver in municipal organizations
today, the Committee recognized that any one strategy would not comprehensively
address these costs. In order to determine a viable long-term solution, the Committee,
with the assistance from UFI, carefully reviewed multiple strategies and weighed all
available options to best suit the City’s needs. After multiple meetings over a six month
period, the Committee unanimously approved the proposed Comprehensive
Management Plan for submission to the City Council for review and consideration.
The Comprehensive Management Plan provides a detailed pension funding strategy with
six specific recommendations for the City Council to consider. Collectively, the strategies
could save upwards of $85 million, or nearly 53.5%, and create additional capacity to
address any new financial challenges that the City may face in the future. As these
recommendations serve as general strategies for mitigation of long-term liabilities,
periodic review and updates will be necessary to take into account changes in the City’s
financial position and funding status over time. Lastly, the Committee unanimously added
a seventh recommendation for further review: the possibility of leveraging the sale of the
Arcadia Par 3 Golf Course to further accelerate paying down the UAL or provide a cushion
in the event of a recession.
It is recommended that the City Council approve the Comprehensive Management Plan
to address the City’s Unfunded Accrual Liability by adopting Resolution 7294 establishing
Policies for Addressing Unfunded Retirement Costs and Resolution 7295 authorizing an
additional budget appropriation of $30,000 for the purpose of entering into professional
services, as bond counsel, with Straddling Yocca Carlson & Rauth, to commence with the
judicial validation proceeding in anticipation of issuing Pension Obligation Bonds.
BACKGROUND
When the Citizen’s Financial Advisory Committee (CFAC) was first established in
February 2018, their guiding principle was to assess the City’s long-term financial liability
position and provide recommendations with the intent of cost containment without
compromising the quality of City Services. One of their recommendations was to conduct
a comprehensive CalPERS unfunded liability study to assess ways to develop and
implement financial solutions that address the City’s unfunded pension liabilities. In
addition, once Arcadia Measure A was passed in June 2019, which added 0.75% to the
local sales tax, the City Council wanted to ensure that the new revenues were spent in
the most responsible way. Therefore, the City Council voted to extend the Committee’s
mission to address these extremely important questions. On September 26, 2019, the
Committee began the first of six meetings with UFI to address the City’s escalating
CalPERS Pension and UAL costs.
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
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Pension Liabilities
The annual employer contributions are determined by actuarial valuation reports prepared
by CalPERS for each of the City’s plans. The amount the City annually pays to CalPERS
is comprised of two components: the Normal Cost and the UAL Payment. The Normal
Cost represents the retirement benefits earned by employees during the current fiscal
year and is paid as a percentage of payroll. The UAL represents the unfunded portion
of benefits earned by retirees and current employees to date. The UAL is the difference
between the present value of earned benefits for the City’s current and retired employees
and the market value of assets in the City’s CalPERS account. Each year, CalPERS
calculates the difference between these two values: they true-up by adding a new
Amortization Base to adjust for the change in the UAL.
The payment schedules outlined above are primarily the result of CalPERS steadily
implementing rate adjustments to address the unfunded liabilities, across the member
plans of Miscellaneous and Safety, with the intention of the City reaching 100% funded
status. Utilizing the two most recent aggregate actuarial reports from CalPERS for the FY
2018-19, the Miscellaneous Plan is 68% funded and the Safety Plan is 61% funded.
The combined UAL for the City’s Miscellaneous and Safety plans is in excess of $159
million. With the current UAL payment schedules, the City will be required to pay a fixed
dollar amount of $11.1 million in FY 2020-21, in addition to the annual normal costs of
approximately $5.6 million. Furthermore, the City’s UAL payment is expected to increase
steadily until it peaks in FY 2030-31 at $14.8 million, a 34% increase.
Another key variable for the actuarial calculations is the
discount rate, which is the rate of return that CalPERS
assumes it will realize on its investments. Over the past 3
years, CalPERS has changed their investment allocations
and have taken a more conservative outlook by
incrementally reducing its discount rate, or expected rate of
return. Historically, the discount rate was set above 8%.
Because of the lower expected returns, the contribution
rates for local governments have been increased to provide
sufficient assets to pay benefits. CalPERS has intimated
that it may lower the discount rate again in the future, which
would increase the City’s UAL.
Proactive Steps Taken to Date
In 2011, the City successfully negotiated with employees in both the sworn Safety and
Miscellaneous groups to enact sweeping pension reforms. From that date forward, all
employees would pay their fair share of pension costs. Employees have been paying the
employee portion of the normal cost; 8% for the Miscellaneous, and 9% for Sworn
members. In addition, a 2nd Tier was created for those employees who were hired with
%
1992-93 1993-94 8.75%
1994-95 1996-97 8.50%
1997-98 2002-03 8.25%
2003-04 2010-11 7.75%
2011-12 2015-16 7.50%
2016-17 7.375%
2017-18 7.25%
2018-19 7.00%
CalPERS Discount Rate
Time Period
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
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the City on or after October 2011, where those employees will retire later and receive a
lower pension. Both of these will reduce the City’s overall burden significantly over time.
In 2013, the statewide Public Employees’ Pension Reform (PEPRA) went into effect,
which created a differentiation between “classic” and “new” or “PEPRA” CalPERS
members, which receive benefits based on 2% @ 62 formula for Miscellaneous
employees and 2.5% @ 57 formula for Safety employees. PEPRA created a 3rd Tier
(Tier 1 – 2.5% @ 55 / Tier 2 - 2% @ 60 for Miscellaneous), who are required to pay 50%
of the annual Normal Costs. Since PEPRA employees started in the system after 2013,
their plans are 95-100% funded. PEPRA employees comprise 35% of the Miscellaneous
workforce and 18% of the Safety workforce.
In similar fashion, the City enacted an effort to address and manage the long term
liabilities of retiree medical benefit cost, typically referred to under the term of Other Post-
Employment Benefits (OPEB). The City negotiated in good faith a tiered system for
retiree health benefits for all current employees in each of the bargaining groups. This
three-tiered system systematically reduced retiree medical payments for employees
based on their date of hire and their date of retirement. Where once employees received
“lifetime medical” for themselves as well as their spouses, future employees will receive
the mandated state-minimums.
Finally, the City established a Section 115 Trust through the California Employer’s Retiree
Benefit Trust, a division of CalPERS, to begin pre-paying future medical expenses and
reduce overall OPEB costs. Since the creation of the trust, the City has incorporated the
annual required contribution into the City’s annual operating budget. The trust gives the
City the necessary service and investment programs to pre-fund retiree health care
liabilities. It allows for greater local control over assets invested with a more diversified
array of investments to maximize returns and reduce the City’s liabilities.
DISCUSSION
At the City Council study session on January 21, 2020, the City’s pension advisor, UFI,
provided a presentation and discussed the development of a Comprehensive
Management Plan for mitigation of the City’s long-term unfunded accrual liabilities. In
conjunction with the Citizen’s Financial Advisory Committee, over a six month period, UFI
commenced with the development of a customized pension model, which enables the
City to gain an in-depth understanding of the driving factors affecting the City’s UAL and
to run scenario analyses to determine the financial impact of different funding solutions.
For example, the Committee requested the consultant perform various scenarios,
including evaluating the impact of a potential recession and the effects of CalPERS further
reduction of the discount rate. UFI took into consideration the City’s financial position in
developing potential financial solutions and recommendations by first reviewing major
financial documents, including the City’s Comprehensive Annual Financial Report,
Budget, Capital Improvement Plans, labor agreements, and bond documents to
determine the full extent of the City’s long-term financial obligations.
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
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Options Discussed to Meet the Unfunded Pension Liabilities
UFI identified a combination of internal resource allocation and financing mechanism
options that will best suit the City’s needs to address the City’s UAL. The Committee, UFI,
and City staff carefully reviewed each of the options presented:
• Allocation of UAL Among All Funds: The City already maintains, through the
budget process, a consistent practice and methodology of accurately appropriating
and documenting pension costs across special funds. It should be noted that these
special funds can only be used to the extent that they contribute to the City’s
pension obligations; they cannot contribute more than their fair share of the overall
pension obligations and this must be strictly accounted for.
• General Fund Revenues and Surplus: Establishing parameters to pre-pay UAL
when excess reserves or one-time monies become available.
• Fresh Start: CalPERS offers each agency the opportunity to re-amortize their
UAL. This is done by combining all the amortization bases and shortens the
amortization period. Similar to converting two 30-year mortgages into a single 20-
year mortgage but keeping the same interest rate. While the annual payments are
increased, savings are realized due to a shorter amortization period.
• Synthetic Fresh Start: Instead of creating a new amortization period under a
Fresh Start, this strategy sets an annual “target”, but the City retains the flexibility
to adjust the amount of additional payments and is only required to make the
current UAL payments. Using the example above, the two 30-year mortgages
would still exist, but a higher amount would be paid each year to achieve the 20-
year payoff.
• Leveraged Refunding: Refunding outstanding Tax Allocation Bonds to maximize
potential savings upfront, which can then be applied to pre-pay an additional
portion of the City’s UAL.
• Tax-Exempt Exchange: The concept of tax-exempt exchange requires a 5-step
process: 1) Identify pay-go capital projects, 2) Identify UAL base with a matching
asset life, 3) Issue tax-exempt bonds to finance the pay-go projects, 4) Exchange
budget for the pay-go capital projects to pre-pay UAL, and 5) Use budget for UAL
payments to pay the debt service on the tax-exempt bonds.
302 520 521 107 156 165 157
CIP WATER SEWER PARK TRANS Measure M Prop C OTHER TOTAL
1 FY 18-19 4,092,100 4,036,500 1,203,900 1,158,800 1,175,000 900,000 1,826,600 14,392,900$
2 FY 19-20 1,833,500 1,582,500 844,500 6,210,000 300,000 25,000 600,000 950,000 12,345,500$
3 FY 20-21 2,063,000 3,962,500 1,434,500 3,610,000 100,000 - 850,000 800,000 12,820,000$
4 FY 21-22 1,563,000 3,352,500 814,500 274,000 200,000 - 800,000 850,000 7,854,000$
5 FY 22-23 1,863,000 2,712,500 1,164,500 350,000 400,000 - 850,000 800,000 8,140,000$
TOTAL 11,414,600$ 15,646,500$ 5,461,900$ 11,602,800$ 1,000,000$ 1,200,000$ 4,000,000$ 5,226,600$ 55,552,400$
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
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An examination of the City’s CIP reveals that the City has $55 million in capital
projects budgeted over the next 5 years. This concept could be applied toward
General Fund and/or Water & Sewer projects. Similar to the statement above, each
special fund can only be used for a tax exempt exchange up to the limit of that
fund’s fair share of the City’s overall pension obligations.
• Pension Obligation Bonds: In the past, CalPERS did not require agencies to
make annual payments toward their unfunded liabilities. As part of its pension
reform, CalPERS changed its contribution policy toward UAL; now each agency is
required to make Annual Fixed Dollar Payments toward their UAL. Moreover,
Governmental Accounting Standards Board Pronouncement 68 now places the
City’s UAL on the balance sheet, meaning it is seen as a long-term liability similar
to any other debt the City establishes. It is no longer perceived to be a theoretical
indebtedness.
The City’s $159 million UAL is comprised of 42 Amortization Bases with
corresponding Amortization Schedules. These bases represent a series of “loans”,
with a fixed repayment schedule at a 7% interest rate.
Given this context, Pension Obligation Bonds (“POBs”) should be viewed as a debt
“refinancing” a loan due to CalPERS. POBs must be issued on a taxable basis,
because a pension is a benefit to a private individual. Nonetheless, POBs present
a financing tool that can significantly impact the City’s required UAL payment
schedule. This strategy would allow the bond proceeds to pay the unfunded
liability, while receiving an overall savings of the difference between the rate paid
on the debt service and the market returns of the proceeds.
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044POB Savings -100% UAL
POB Debt Service CalPERS UAL Payments
$159 MIllion Par Value @ 3.5%
$79 Million Cash Flow Savings
$46 Million NPV -29%
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
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The Government Finance Officer’s Association (“GFOA”) has provided an advisory
against the issuance of POBs, noting 5 key issues or concerns. The GFOA’s
advisory, which was drafted 10 years ago under different market conditions, was
drafted as a warning and in response to bad practices that were undertaken at that
time.
It is important to note that are a number of issues that the GFOA points to which
all agencies should adhere when issuing POBs. However, as a result of pension
reforms and policy changes by CalPERS in recent years, as well as adaptation in
the POB market, it is UFI’s opinion that these concerns have been addressed and
warrant reconsideration. UFI has provided policy recommendations designed to
address GFOA concerns and reduce overall risk when considering POBs, which
are included in blue below.
1. POBs are complex instruments, which incorporate the use of Guaranteed
Investment Contracts, swaps, or derivatives.
POBs should only be issued as plain vanilla fixed-rate bonds.
2. POBs are structured with “make-whole” calls, which make it more costly or
difficult to refund in the future (than traditional tax-exempt debt).
POBs are now structured with standard call features like traditional tax-
exempt bonds.
3. POBs have been structured to incorporate annual normal costs, or in a
manner that defers principal payments or extends principal payments over
a longer period than the actuarial amortization period.
POBs should not include normal costs (except for annual pre-pay amount),
nor be structured with an extended repayment schedule - final maturity.
Where possible, POBs should be used to reduce the amortization period.
4. POBs increase a municipality’s bonding capacity or turn a soft liability into
a hard liability.
An agency’s CalPERS UAL liability is considered “debt” by the courts in
California. Moreover, UAL payments are fixed dollar payments, like a
traditional loan, which are financed at a discount rate of 7%. POBs simply
“refinance” your CalPERS liability at a lower rate.
5. Invested POB proceeds might fail to earn more than the interest rate over
the term of the bonds, leading to increased liability for the government.
The financial impact of POBs is dependent upon two variables: 1) Borrowing
Rate on the Bonds; and 2) CalPERS Investment Performance. POBs
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
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provide savings by refinancing UAL payments at a taxable fixed rate, as
opposed to a blended rate for a portfolio of assets (50% equities/ 22% fixed
income / 12% real estate / 8% private equity / 6% inflation assets / 3%
liquidity). Invested POBs may lose value if the market declines soon after
issuance. However, POBs are long-term instruments; their financial
success cannot be determined until the end of the issue. POBs may
present a potential risk if CalPERS underperforms or if they are issued just
prior to a market decline.
The savings under POBs are highly dependent upon the investment return
during the initial years. If CalPERS experiences a significant loss (20-30%),
then the savings/advantage of POBs could be reduced.
POBs present significant savings potential (20-30%), which provides a
cushion against these potential negative impacts. Moreover, issuing in
tranches or employing dollar-cost-averaging or other hedging strategies can
mitigate these risks.
We believe that the combination of pension reform legislation, CalPERS’
requirement for fixed dollar UAL payments, and changes in the POB market
make it compelling to consider the issuance of POBs as part of the City’s
pension funding strategy.
Pension Funding Solutions/Recommendations
Recognizing that multiple strategies will need to be in place to address continuing debt
accrual, the Committee, collectively with UFI and City staff, carefully reviewed all options
presented. At the December 2019 meeting, the Committee made its final findings and
recommendations available for City Council consideration. During this discussion,
processes and timelines for implementation, policy options, and additional revenue
enhancements were polished through and considered as part of the recommendations
below.
1. Enterprise Fund Reserves: A comprehensive review of the City’s CAFR reveals
that a small portion of the Enterprise Funds, which are allocated as Special
Revenues, should be used to pay down some of the City’s UAL. Of the entire
Unfunded Accrued Liability, 4.8%, or $7.5 million, belongs to Water Utility, and
1.5%, or $2.3 million, with Sewer Maintenance. Currently, there are salaried
employees who are charged to these funds to accurately reflect the full pension
costs. As such, any additional or unspent revenues can appropriately be used to
pay down that fraction of the UAL. It is recommended that the City Council give
direction to staff to comprehensively review and determine the precise total that
could be used from the respective Enterprise Funds to legitimately pay down their
share of the UAL.
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
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2. General Fund Revenues and Reserves: As part of the proposed strategies to
consider, the Committee discussed use of Reserves or one-time monies to be
used to pay down the UAL. Currently, monies invested in Local Agency Investment
Funds (“LAIF”) are earning around 2.5%, while the City’s pension liability is
accruing at 7% rate. Additional lump sum payments, or Additional Discretionary
Payments, can be made either annually or paid on a monthly basis above the
amounts required by CalPERS. A formal written policy will need to be
implemented to document the consistent methodology and process for how excess
monies and reserves will be used, as well as documenting sound allocation
strategies of additional resources and potential funding solutions. It is
recommended that City Council adopt Resolution 7294, A Resolution of the City
Council of the City of Arcadia, Adopting an Unfunded Accrued Liability Funding
Policy.
3. Leveraged Refunding: The Successor Agency of the City of Arcadia has two
outstanding Taxable Allocation Bonds. The refunding could be structured to
provide “up-front savings” in the first three years totaling $4.2 million, or $1.2 million
on a net present value (NPV) basis. The City receives 10.44% share of residual
cash flows from the excess tax increment revenues, so the City’s share of these
savings would approximately $428,000. These cash flows savings could then be
applied to pre-pay the City’s UAL, which would result in an estimated $1.1 million
in total cash flow savings. – a leverage factor or 2.6x. To maximize the potential
refunding savings, it is recommended that the City utilize leveraged refunding to
push the savings “upfront” to the first few years. This can then be applied to pre-
pay portions of the City’s UAL.
4. Tax-Exempt Exchange: An examination of the City’s CIP reveals that the City
has $55 million in capital projects budgeted over the next 5 years. The Tax-Exempt
Exchange concept could be applied toward General Fund and/or Water & Sewer
projects. As illustrated in the chart below, if the City were to bond finance $14.3
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
202020212022202320242025202620272028202920302031203220332034203520362037203820392040204120422043204420452046204720482049Tax -Exempt Exchange
UAL Payments Safety #14 & #15
Debt Service Tax-Exempt Bonds Amortization Bazses #14 & 15
$14.3 MIllion -Capital Outlay
(GF)&Water Projects
$9.4 million cash flow savings
$6.4 million NPV savings -45%
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
Page 10 of 13
million in CIP projects, a tax-exempt exchange solution could generate $9.4 million
in cash flow savings – 45% savings on NPV basis.
Tax-Exempt Exchange can be viewed as a tax-exempt POB, making it a more
cost-effective alternative overall. To the extent possible, the City should seek to
maximize the use of this vehicle before issuing POBs.
5. Pension Obligation Bonds: CalPERS members are required to make fixed UAL
payments each year. Therefore, the UAL payments should be considered as, and
managed like, any other debt or loan. The Discount Rate used by CalPERS to
amortize each base—or loan—is equal to 7%. In California, Pension Obligation
Bonds effectively “refinance” UAL payments with taxable bonds at a lower rate,
e.g. - 4%. The proceeds from the POBs would be used to make Additional
Discretionary Payments to CalPERS, further reducing the unfunded liability.
It is recommended that the City Council authorize and give direction to pursue this
financing tool as a pension funding possibility. To move forward, the issuance of
POBs requires a judicial validation proceeding prior to issuance, which could take
90 to 120 days. It is recommended that the City Council authorize staff to proceed
with the necessary steps to commence the validation proceeding by approving a
budget appropriation of $30,000 for the purpose of entering into a professional
service contract with Straddling Yocca Calrson & Rauth, as bond counsel, to begin
this judicial validation process. By simply entering the process, the City is not
committed to issuing POB; rather, it will provide further insights into whether this
alternative is a viable option.
Impact of Recession / Scenario Analysis
Through the monthly meetings leading up to the development of a Comprehensive
Management Plan, many different analyses were discussed and reviewed to
ensure that the Plan considered all perceived and known risk. A potential with an
intensive effects to the City’s financial position and service level, especially if POBs
were issued, is the impact of a recession similar to that of 2008. The Committee
requested that UFI prepare various scenarios, including evaluating the impact of a
potential recession. The rationale was that the City could address a significant
portion of its unfunded liability with current resources, but a recession could limit
the City’s ability to address future financial challenges such as additions to the
UAL.
The recession scenarios took into account a downturn in the market (0.0% return)
and a lowering of the discount rate to 6.5%. Under the scenario, the UAL would
increase by another $40 million, or approximately 25%, which would result in an
increase in annual UAL payments from $16 million to $20.7 million (as illustrated
in the chart).
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
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If the City were to issue POBs, CalPERS would also add new bases under a
recession scenario. However, the substantial cash flow savings from issuing
POBs would provide a “cushion”, which would result in lower annual payments.
The solid red line is standard UAL payments under a recession if the City did not
issue POBs; the dotted red line is the original UAL payments before the recessive
incident is added. The bars represent the POB payments (blue) and additional
recession bases (yellow and grey). As shown, even with two major recessive
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
POB Savings (100% UAL): Recession Scenario
POB Debt Service 100% POBs- CalPERS Return = (7.0%)Discount Rate 6.50%CalPERS UAL Payments Recession UAL
CalPERS(7.0%)= $4.1 million Base
Discount 6.50% = $2.6 million Base
UAL Payments = $125 million
POB Savings: $49 to $25 million
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
Recession Scenario: (0.0%) CalPERS Return + 6.50% Discount Rate
Safety Misc. Plans CalPERS Return (0.0%)Discount Rate 6.50%
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
Page 12 of 13
events, with a POB the overall payments are less than what they would have been
otherwise and annual payments are less in almost every individual year. Although
savings would decrease from $49 to $25 million as a result of the recessions, the
annual cash flows savings would still be $2-$3 million lower than without POBs.
6. Employee Cost Sharing: With the passage of PEPRA, local governments are
allowed to agree to further cost share the employer required contributions with their
employees. This recommendation would be revisited through the collective
bargaining process and in the event of significant or unexpected changing events.
7. Other Cost Saving Measures to Consider: In addition to the six
recommendations for City Council consideration outlined above, the Committee
unanimously added a seventh, proposing to leverage City property to further
increase cash flow and pay down the UAL. Specifically, the sale of the City’s Par-
3 Golf Course was proposed, and with the sale, a potential revenue of between
$30-50 million. The Committee recommends that City Council provide direction to
staff for additional review and analysis of a potential sale with the intention of this
to be brought back to City Council in the future for further discussion.
ENVIRONMENTAL ANALYSIS
The proposed actions do not constitute a project under the California Environmental
Quality Act (“CEQA”), and it can be seen with certainty that it will have no impact on the
environment. Thus, this matter is exempt from CEQA.
FISCAL IMPACT
Implementing the solutions outlined could result in substantial savings from each of the
recommended solutions. However, it should be noted that within these recommendations
are detailed processes that will need further analysis and review on a case-by-case basis.
These recommendations serve as general strategies for mitigation of long-term pension
liabilities; periodic review and updates will be necessary to take into account any changes
in the City’s financial position and funding status over time.
Solution Fund Amount/Payment Projected
Savings
Enterprise Fund
Reserves
Water
Sewer
$5.0 million
$1.0 million
$ 9 million
Leverage Refunding /
Refunding Successor
Agency Bonds
Successor
Agency
Cash flow savings
back to the City -
$428,000
$1 million
Annual Surplus
(ADPs)
General Fund $1.0 million x 7 years $10 million
Tax-Exempt
Exchange
Water
General Fund
$22 million
$24 million
$10 million
$10 million
POBs 20+ Years General Fund $77 million $45 million
TOTAL: $85 Million
Comprehensive Management Plan to Address Unfunded Accrual Liabilities
February 18, 2020
Page 13 of 13
Proceeds from the sale of City property are not included in the savings projection above.
With the time-value of money, the proceeds that are invested could save the City as much
as 2.7 times the original investment; therefore, a $30 million sale could save the City not
only the $30 million in payments, but also upwards of another $80 million in interest costs.
RECOMMENDATION
It is recommended that City Council determine that this action does not constitute a
project and is therefore exempt under the California Environmental Quality Act (“CEQA”);
and
• Adopt the Comprehensive Management Plan to address unfunded accrued
liabilities and direct staff to implement the primary recommendations outlined
within the plan;
• Adopt Resolution No. 7294 Establishing An Unfunded Accrued Liability Funding
Policy to Address Unfunded Retirement Cost;
• Adopt Resolution No. 7295 Amending the Fiscal Year 2019-20 General Fund
Budget Authorizing a Budget Appropriation of $30,000 for a Professional Service
Contract with Straddling Yocca Carlson & Rauth to Commence with the Judicial
Validation Proceeding as the Initial Step for Issuance of Pension Obligation Bonds.
Attachments: Comprehensive Pension Management Plan
Resolution No. 7294
Resolution No. 7295
City of
Arcadia
Citizen’sFinancial
AdvisoryCommittee
FinalReport
&ĞďƌƵĂƌLJϭϴ͕ϮϬϮϬ
ArcadiaCA.gov/CFAC
Citizen’sFinancialAdvisoryCommittee
MickeySegal,Chair
HowardUrsettie,ViceChair
JessicaLouie,CommitteeMember
TommyThai,CommitteeMember
RobertMiller,CommitteeMember
CityofArcadia
DominicLazzaretto,CityManager
HueQuach,AdministrativeServicesDirector
ShamaCurian,HumanResourcesAdministrator
HenryChen,FinancialServicesManager
MandyJiang,ManagementAide
UrbanFutures
JoseMorales,Consultant
ComprehensiveManagement
Plan
Memo&Presentation
StudySessiontoCityCouncilonJanuary21,2020
InJune2019,theCityCouncilapprovedacontractwithUrbanFutures,Inc.(UFI)toprovidepension
advisoryservicestoassisttheFinanceAdvisoryCommitteeindeterminingandevaluatingpotential
fundingsolutionstoaddresstheCity’sunfundedpensionandOPEBliabilities.
UnfundedAccruedLiability(UAL)andNetOPEBLiability
TheCity’shasanunfundedpensionliability(UAL)equalto$154million.TheamountoftheUALincreased
by$12.7million,asanticipated,from$141millionwhenwecommencedourprocesslastyear.TheCity
alsohasanestimated$17.5millionliabilitytopayforretireemedicalbenefitsorOPEB(OtherPost
EmploymentBenefits).TheCityhassetaside$2.2milliontopreͲfunditsunfundedOPEBliability.
Collectively,thecity’sunfundedretirementcoststotal$172million.
CalPERSadjuststheUALeachyear,byaddingnewamortizationbasestoaccountforchangessuchas
changeindiscountrate,investmentperformance,newbenefitlevels,changeinmethodologyorlife
expectancy.In2018,CalPERSadded4newbases,whichincreasedtheUALby$17million.
TheCity’spensionliabilityshouldNOTbeviewedassomethingthatrequiresa“oneͲtime”fixor
payment,butratherasadynamicfigurewhichisconstantlychanging.
PensionModel
Theprocesscommencedwiththedevelopmentofacustomizedpensionmodel,whichenablestheCity
togainaninͲdepthunderstandingofthedrivingfactorsaffectingtheCity’sUALandtorunscenario
analysestodeterminethefinancialimpactofdifferentfundingsolutions.
ThepensionmodelenablestheCityto“target”orselectspecificamortizationbasestodetermine
maximumsavingsoroptimizeresources.
EvaluationofFundingSolutions
TheconsultanttookintoconsiderationtheCity’sfinancialpositionindevelopingpotentialfinancial
solutionsandrecommendations.TheCity’smajorfinancialdocuments,includingtheCAFR,budget,CIP,
MOUs,andbonddocumentswerealltakeintoaccounttodeterminethefullextentoftheCity’slongͲ
termfinancialobligations.Thefollowingexpensesweretakenintoaccount:
x UAL+NormalCosts
x OPEBPayͲGocosts
x DebtServiceonexistingbonds
x CapitalImprovementPlan(CIP)
x ProjectedSalaryandRateIncreases
MISCELLANEOUS SAFETY COMBINED OPEB
AccruedLiability(AL)$ 156,969,394$263,455,296420,424,690$$19,707,399
MarketValueAssets(MVA)106,518,485 159,757,550266,276,0352,191,046
UAL=ALͲMVA 50,450,909$ 103,697,746$154,148,655$17,516,353$
68%61% 63%11%
CombinedUnfundedRetirementCosts 171,665,008$
2018UnfundedAccruedLiability(UAL)
TheCommitteerequestedthattheconsultantevaluateandpresentallavailableoptions.UFIpresented
7solutionsforaddressingunfundedpension/OPEBliabilities.Thesesolutionsencompasseither:
budgeting/useofavailableresourcesorafinancingmechanism:
Budgeting/UseofAvailableResources
1. AllocationAmongFunds
2. Reserves&1ͲTimeMonies
3. AnnualDiscretionalPayments(ADPs)
4. PensionStabilizationFund/OPEBTrust
FinancingMechanisms
5. LeveragedRefunding
6. TaxͲExemptExchange
7. PensionObligationBonds(POBs)
ComprehensiveManagementPlan
TheCommitteetakesalongͲtermperspectivetoaddressingunfundedretirementliabilities;and
therefore,recommendsthattheCitydevelopaComprehensiveManagementPlanthatemploysmore
thanone“solution”.Theplanconsidersimplementing5solutions:
1. ImplementtaxͲexemptexchangefor$40millionofwaterandtransportationcapitalprojects
2. $1millionAnnualDiscretionaryPayments(ADPs)toCalPERSfromsurplussalestaxrevenues
3. ImplementLeveragedRefundingof2001&2010TaxAllocationBonds(TABs)
4. UseexistingWater&SewerreservestopreͲpaytheirshareofUAL.
5. Issue$75Ͳ80million(partial)POBs
Collectively,these5solutionswilladdressthemajorityoftheCity’sUALandwouldresultinsubstantial
savings.Inadditiontotakingthese5steps,theCommitteerecommendstheCityCounciladoptaformal
writtenPensionFundingPolicy(seeattached)toprovideguidanceforfutureCityCouncils,andwellas
establisha115TrusttocommencepreͲfundingtheCity’sOPEBliability.
Solution FundAmount/Payment Savings
POBs20+Years General $77million $45million
TaxͲExemptExchange Water $22million $10million
TaxͲExemptExchange General $24million $10million
Existing Reserves Water $5.0million
Existing Reserves Sewer $1.0million $8.8million
AnnualSurplus(ADPs) General $1.0millionx7years
$7.1million $10.5million
LeverageRefunding RDA $420,000 $1.0million
TOTAL $112million$85.3MILLION
TheCitycurrentlyhasa$154millionunfundedliability.ThisfigureisadjustedannuallybyCalPERSeach
year,byaddingnewbasestoaccountforinvestmentperformance,changeinbenefitsorassumptions,
methodology,andlifeexpectancy.Itislikelythattheeconomywillfacearecessioninthenearfuture
(andlowerinvestmentreturns),whichwouldleadtonewbasesorUALbeingaddedtotheCity’sCalPERS
liability,eveniftheCityweretopayoffitsUALinfulltoday.Therefore,theCommitteebelieveditwas
criticaltounderstandandplanforapotentialfinancialeconomicdownturn.
ImpactofRecession/ScenarioAnalysis
TheCommitteerequestedtheconsultantperformvariousscenarios,includingevaluatingtheimpactofa
potentialrecession.TheCitycouldaddressasignificantportionofitsunfundedliabilitywithcurrent
resources,butthiswouldlimittheCity’sabilitytoaddressfuturefinancialchallengessuchasadditionsto
theUAL.
Therecessionscenariostook
intoaccountadownturninthe
market(0/0%return)anda
loweringofthediscountrate
to6.50%.Underscenario,the
UALwouldincreasebyanother
$40million~25%,whichwould
resultinanincreaseinannual
UALpaymentsfrom$16
millionto$20.7million(as
illustratedinthechart).
IftheCityweretoissuePOBs,
CalPERSwouldalsoaddnew
basesunderarecession
scenario.However,the
substantialcashflowsavings
fromissuingPOBswould
providea“cushion”,which
wouldresultinlowerannual
payments.
ThesolidredlineisUAL
paymentsunderarecession
(dottedredlinesisoriginal
UALpayments).Thebars
representadditionalrecession
bases,plusPOBdebtservice.
Althoughsavingswoulddecreasefrom$49to$25million,theannualcashflowssavingswouldstillbe
$2Ͳ$3millionlowerthanwithoutPOBs.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
POBSavings(100%UAL):RecessionScenario
POBDebtService 100%POBsͲCalPERSReturn=(7.0%)DiscountRate 6.50%CalPERSUALPayments RecessionUAL
CalPERS(7.0%) =$4.1millionBase
Discount6.50%=$2.6millionBase
UALPayments=$125million
POBSavings:$49to$25million
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
RecessionScenario:(0.0%)CalPERSReturn+6.50%DiscountRate
Safety Misc.Plans CalPERSReturn(0.0%)Discount Rate6.50%
SaleofGolfCourseͲManybelievethatamarketdownturnwillhappeninthenextfewyears,the
Committeebelievesitisprudentfinancialplanningtotakeintoaccountforsuchanevent.TheCFAC
believethattheCityshouldinvestigatethesaleoftheGolfCourse,duringthetopofthemarket,inorder
toprovidea“rainydayfund”toaccountforthislikelycostincrease.Undercurrentmarketvalues,itis
anticipatedthatthesaleofthecoursecouldgeneratebetween$30Ͳ$50million,plus$30,000to$50,000
inpropertytaxrevenuesthereafter.
TheCommitteeisalsoexploringalternativehedgingoptions,suchasusingacustomizedlifeinsurance
producttohelpoffset/hedgeagainstpotentialmarketriskafterissuingPOBs.
DynamicLongͲTermLiability
TheCity’scombinedunfundedpensionandOPEBliabilitiesexceed$170million,theycannotbesolved
withasinglesolution.TheCommitteebelievesthatthatthebestcourseofactionittoimplementalongͲ
termcomprehensiveplanthatincludesmultiplesresources/solutions.Moreover,theseunfunded
liabilitiesaredynamicandeverͲchanging.TheCityCouncilwillberequiredtocontinuallymonitorthem
andaddressingtheshortfallwillrequire,longͲtermsustainedfinancialdiscipline.
TheCommitteerecommendstheadoptionofformalwrittenpension/OPEBfundingpolicythatoutlines
thefundingtargetsandguidelinesforthemethodsthattheCitywillmeettheseobjectives.
CitizenFinanceAdvisoryCommittee
ComprehensivePension ManagementPlan
January21,2020
Pension/OPEBRecap
AnnualPension/OPEBPayments
Unfundedbenefitsearned
inprioryears by
employees+retirees
Fixed
$Amount
+
Benefitsearnedthis
year byemployees
$5.0Million$11Million
Unfunded
AccruedLiability
(UAL)
Normal
Costs
PastDue
Payment
Current
Payment
+OPEB
NetOPEBLiability+
UnfundedLiability
$850,000
Cash
“PayͲGo”
Increasing
$Amount
UnfundedPension/OPEBLiabilities
MISCELLANEOUS SAFETY COMBINED
AccruedLiability(AL)$156,969,394$263,455,296420,424,690$
MarketValueAssets(MVA)106,518,485159,757,550266,276,035
UAL=ALͲMVA 50,450,909$103,697,746$154,148,655$
68%61% 63%
As ofJune30,2018
OPEB
AccruedLiability(AL)$21,042,152
MarketValueAssets(MVA)3,040,261
UAL=ALͲMVA 18,001,891$
14%
As ofJune30,2019
COMBINEDLIABILIITES 172,150,546$
2018UnfundedAccruedLiability(UAL)
ScheduleofAmortizationBases
5
Year Reason
Ramp
Up Period Balance
6/30/2020
Payment
FY20Ͳ21 Year Reason RampUp Period
Balance
6/30/2020
Payment
FY20Ͳ21
1 2003 AssumptionChange NO 5 2,216,237$496,397$1 2008 FreshStart(30ͲYear) NO 20 (5,939,367)$(439,364)$
2 2004 MethodChange NO 6 (199,869)(38,041)2 2009 AssumptionChange NO 11 2,787,396318,381
3 2007 BenefitChange NO 8 1,506,887223,5733 2009 Special (gain)/loss NO 21 9,386,276672,953
4 2009 Assumption Change NO 11 3,447,464393,7744 2010 Special (gain)/loss NO 22 1,661,356115,688
5 2009 Special (gain)/loss NO 21 3,955,306283,5775 2011 AssumptionChange NO 13 3,476,133348,718
6 2010 Special (gain)/loss NO 22 1,117,44377,8136 2011 Pre ͲRetOption NO 12 220,07323,477
7 2011 BenefitChange NO 13 2,226,308223,3387 2011 Special (gain)/loss NO 23 3,391,834229,846
8 2011 AssumptionChange NO 12 264,93928,2638 2012 Payment(gain)/loss NO 24 30,1581,992
9 2011 Special (gain)/loss NO 23 (183,626)(12,443)9 2012 (Gain)/Loss NO 24 37,948,2442,506,892
10 2012 Payment(gain)/loss NO 24 239,84015,84410 2013 (Gain)/Loss 100% 25 24,238,2761,644,252
11 2012 (Gain)/Loss NO 24 7,113,910469,95111 2014 AssumptionChange 100% 16 12,531,5061,191,611
12 2013 (Gain)/Loss 100% 25 15,962,4041,082,84112 2014 (Gain)/Loss 100% 26 (13,572,745)(897,523)
13 2014 AssumptionChange 100% 16 7,567,286719,56713 2015 (Gain)/Loss 80% 27 12,183,424637,243
14 2014 (Gain)/Loss 100% 26 (12,529,742)(828,553)14 2016 AssumptionChange 60% 18 4,833,385263,153
15 2015 (Gain)/Loss 80% 27 6,737,384352,39315 2016 (Gain)/Loss 60% 28 9,441,448371,036
16 2016 Discount:7.50%Ͳ7.375%60% 18 2,771,936150,91816 2017 AssumptionChange 40% 19 6,319,114230,429
17 2016 (Gain)/Loss 60% 28 6,068,299238,47617 2017 (Gain)/Loss 40% 29 (9,296,820)(247,125)
18 2017 Discount:7.375%Ͳ7.25%40% 19 2,643,76196,40618 2018 Method Change 20% 20
2,152,72440,137
19 2017 (Gain)/Loss 40% 29 (4,892,734)(130,057)19 2018 AssumptionChange 20% 20 9,046,206168,663
20 2018 MethodChange 20% 20 1,231,34422,95820 2018 (Gain)/Loss 20% 30 (4,266,689)(58,274)
21 2018 Discount:7.25%Ͳ7.00% 20% 20 5,040,78693,984TOTALUALSAFETYPLAN106,571,932$7,122,185$
22 2018 (Gain)/Loss 20% 30 (1,371,929)(18,738)
TOTALUALMISCELLANEOUSPLAN 50,933,634$3,942,241$COMBINEDUALJune30,2018 157,505,566$11,064,426$
MISCELLANEOUSPLAN SAFETYPLAN
Targeting Strategies
6
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
123456789101112131415161718192021222324252627282930
$1MillionUALPayments:7Year vs30Year Amortization
Level%ofPayroll
7ͲYearStraight Level%Payroll 30ͲYearStraightLevel%Payroll
7ͲYearAmortization
=$1.275MillionTotal
Payments(127%)
30ͲYearAmortization
=$2.75MillionTotal
Payments(275%)
UAL 2017vs.2018
MISCELLANEOUS SAFETY COMBINED
AccruedLiability(AL)$146,789,743$246,130,775392,920,518$
MarketValueAssets(MVA)101,121,256150,400,045251,521,301
UAL =ALͲMVA 45,668,487$95,730,730$141,399,217$
69%61% 64%
MISCELLANEOUS SAFETY COMBINED
AccruedLiability(AL)$156,969,394$263,455,296420,424,690$
MarketValueAssets(MVA)106,518,485159,757,550266,276,035
UAL =ALͲMVA 50,450,909$103,697,746$154,148,655$
68%61% 63%
CombinedUnfundedRetirementCosts
IncreaseinUAL12,749,438$
2017UnfundedAccruedLiability(UAL)
2018UnfundedAccruedLiability(UAL)
UAL AdjustedEach Year –New
Bases
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
FY20Ͳ21:UALAMORTIZATIONBASEPAYMENTS
June30,2018ActuarialValuation
SafetyPlans
Misc.Plans
2017 UALPayments
$11.0
$12.6
$13.3
$13.5
$14.0
$14.8
UALisLiabilityonCity’sBalanceSheet–FixedDollarPayments
OPEBPay ͲGoCosts
9
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
20182020202220242026202820302032203420362038204020422044204620482050205220542056205820602062206420662068207020722074207620782080ProjectedOPEB"PayͲGo"RetireeMedicalCosts
Tier1(RetiredPriorto2012)
Tier2(Hiredpriorto2012)
Tier3(PEMCHAͲHiredafter Jan12012)
CurrentRetirees
ComprehensivePension
ManagementPlan
10
ProcessTaken
June2019UFIhiredtohelpstudy
pensionfundingsolutions
o 6meetingsw/CFAC&CityStaff
o DevelopedPension Model
o Considered&evaluated
multiplesolutions
o Differentstructures/options
o LongͲtermfinancialprojections
o RecessionScenarios
o Hedgingstrategies
o Drafted10Ͳpagememo
o Developedrecommendations
11
5key Take ͲAways
1. Pension/OPEBdynamic
&everͲchanging
2. MustDevelop
Comprehensive
ManagementPlan
3. No1ͲTimefixͲ Implement
MultipleSolutions
4. AdoptPensionFunding
Policy
5. Willrequireconstant
monitoring
ComprehensiveManagementPlan
12
PensionFundingStrategy:
1. EnterpriseFundReserves
2. GeneralFundRevenues&Surplus
3. LeveragedRefunding
4. TaxͲExemptExchange
5. PensionObligationBonds(POBs)
6. EmployeeCostSharing*
1.EnterpriseFundReserves
EnterpriseFundReserves)
Water UtilityUAL =$7.5million(4.8%)
$13.0millionunrestrictedreserves
$5.0millionfromReservestoPreͲPayUAL
$8.0millionunrestrictedreserves
SewerMaintenanceUAL =$2.3million(1.5%)
$2.0millionunrestrictedreserves
$1.0millionfromReservestoPreͲPayUAL
$1.0millionunrestrictedreserves
13
UAL 6,068,299$
Amort.Type 60%
Amortization 28
FinalYear 2047
1 2021 238,476
2 2022 326,712
3 2023 419,621
4 2024 431,160
5 2025 443,017
6 2026 455,200
7 2027 467,718
8 2028 480,581
9 2029 493,797
10 2030 507,376
11 2031 521,329
12 2032 535,665
13 2033 550,396
14 2034 565,532
15 2035 581,084
16 2036 597,064
17 2037 613,483
18 2038 630,354
19 2039 647,689
20 2040 665,500
21 2041 683,801
22 2042 702,606
23 2043 721,928
24 2044 741,781
25 2045 609,744
26 2046 469,884
27 2047 321,870
28 2048 165,361
29 2049 Ͳ
30 2050
PAYMENT 14,588,730$
EstimatedSavings
ApplytoMisc.Base#17
$6.0million(28Years)
UAL Payments=$14,588,730
Savings=$8,850,431
2.GeneralFundRevenues&Reserves
14
GeneralFundSurplusRevenuesͲ $1.0millionperyearfor7yearsͲ ApplytoSafetyBase#15
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
2021202220232024202520262027202820292030203120322033203420352036203720382039204020412042204320442045204620472048$1millionAdditionalDiscretionaryPayments(ADPs)
#15UALPayments #15Payments ADPsͲAnnualBudgetSurplus
TotalADPs=$7.1million
CashFlowSavings=$10.5million
GeneralFundReserveTarget =20%OperatingExpenses–ConsiderApplyExcessAmount
3.LeveragedRefunding
Arcadia’sshare
ofRDAsavings
10.4%=
$420,000.
Applytoward
#1528Ͳyear
base“leverages”
2.40Xsavings=
$1.0million
cashflows
savings
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
LEVERAGEDREFUNDING(UPFRONTSAVINGS)
OutstandingDebtService RefundingDebtService
ApplyUpͲFrontSavingstoPreͲPayUAL
•2001A+2010Tax AllocationBonds–currentlycallable
•Futurerefundingopportunities
4.Tax ͲExemptExchange
Tax ͲExemptBonds
1. Identify“PayͲGo”
CapitalProject(s)
2. Issue15ͲYear Tax Ͳ
ExemptBondsto
financeProject
BudgetExchange
3. ReallocateCapital
ProjectBudgettoUAL
4. PreͲPayUAL Bases
withsimilarterm
(15+years)
UAL paymentspaybonddebtservice
7.0%UALpaidat~2.0%taxͲexemptrates
$20millionWater CapitalProjects:$7Ͳ$12millionsavings
$20millionTransportationProjects:$8Ͳ$13millionsavings
5.POBs20+Years ~50%UAL
JudicialValidationrequired,butnot voterapprovalforPOBs
17
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
POBSavings:Bases20+Years
POBDebtService UALPayments20&Under UALPaymentsAfterPreͲPaywReserves+ADPs
$76.4millionUAL
$77.2MIllionParValue@3.60%
$45MillionCashFlowSavings
$28MillionNPVͲ 36%
AA Scale+25bps(1/14/2020)
5.POBSavings~50%ofUAL
18
POBPrincipal H.15
AA
Spread Coupon Interest
POBDebt
Service
UALPayments
20+
UALPayments
20&Under Savings NPVSavings
1 2021 2,215,0001.53% 0.35% 2.38%2,588,8654,803,8655,234,6784,230,600430,813415,803
2 2022 2,270,0001.58% 0.40% 2.48%2,536,1484,806,1485,440,4254,656,672634,277590,848
3 2023 2,330,0001.60% 0.50% 2.60%2,479,8524,809,8525,653,5295,102,979843,677758,527
4 2024 2,390,0002.54%0.60% 3.64%2,419,2724,809,2725,874,2405,420,5851,064,968924,123
5 2025 2,470,0001.65% 0.70% 2.85%2,332,3954,802,3956,313,0215,569,6511,510,6261,265,169
6 2026 2,540,0002.58% 0.75%3.83%2,262,0004,802,0006,486,6305,154,3061,684,6291,361,740
7 2027 2,640,0001.76% 0.80% 3.06%2,164,7184,804,7186,665,0125,340,8151,860,2931,451,342
8 2028 2,720,0001.48% 0.85%2.83%2,083,9344,803,9346,848,3005,487,6872,044,3651,539,377
9 2029 2,795,0001.51% 0.90%2.91%2,006,9584,801,9587,036,6285,360,8362,234,6691,624,046
10 2030 2,880,0001.85%0.95%3.30%1,925,6244,805,6247,230,1355,508,2592,424,5111,700,621
11 2031 2,970,0001.57% 1.00% 3.15% 1,830,5844,800,5847,428,9645,659,7362,628,3801,779,384
12 2032 3,065,0001.60% 1.05% 3.15% 1,737,1774,802,1777,633,2604,855,5922,831,0831,849,833
13 2033 3,165,0001.63% 1.10% 3.15% 1,640,7834,805,7837,843,1754,388,1593,037,3921,915,486
14 2034 3,260,0001.66% 1.15% 3.15% 1,541,2444,801,2448,058,8623,151,0043,257,6181,982,790
15 2035 3,365,0001.70% 1.20%3.15%1,438,7174,803,7178,280,4812,477,0413,476,7642,042,444
16 2036 3,470,0001.73% 1.20% 3.61% 1,332,8884,802,8888,508,1941,518,1413,705,3072,100,861
17 2037 3,595,0001.76% 1.20% 3.61% 1,207,6214,802,6218,239,384504,6293,436,7641,880,707
18 2038 3,725,0001.79% 1.20% 3.61% 1,077,8414,802,8417,949,355232,6793,146,5141,661,880
19 2039 3,855,0001.82% 1.20% 3.61% 943,3694,798,3697,637,14478,5502,838,7751,447,102
20 2040 4,000,0002.16% 1.20% 3.61%804,2034,804,2037,301,749 Ͳ2,497,5461,228,797
21 2041 4,140,0002.17% 1.23% 3.77% 659,8034,799,8036,942,132 Ͳ2,142,3291,017,305
22 2042 4,295,0002.19% 1.25% 3.77% 503,8914,798,8914,477,986 Ͳ(320,905)(147,075)
23 2043 4,460,0002.20% 1.28% 3.77% 342,1414,802,1413,886,024 Ͳ(916,117)(405,240)
24 2044 4,625,0002.22% 1.30%3.77%174,1784,799,1783,213,510 Ͳ(1,585,668)(676,974)
25 2045 2.23% 1.33%Ͳ ͲͲ ͲͲ Ͳ
26 2046 2.24% 1.35%Ͳ ͲͲ ͲͲ Ͳ
27 2047 2.26% 1.38%Ͳ ͲͲ ͲͲ Ͳ
28 2048 2.27% 1.40%Ͳ ͲͲ ͲͲ Ͳ
29 2049 2.29% 1.43%Ͳ ͲͲ ͲͲ Ͳ
30 2050 2.30% 1.45% 4.00%ͲͲ ͲͲ Ͳ
38,034,208$115,274,208$160,182,820$74,697,920$44,908,613$29,308,896$
38%
77,240,000$
20+POBs&Tax ͲExemptExchange
19
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
2021202220232024202520262027202820292030203120322033203420352036203720382039204020412042204320442045POB20+Years &Tax ͲExemptExchange
POB20+POBDebtService COMBINEDUALPayments
RecessionScenario
20
RecessionScenario
21
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
RecessionScenario:(0.0%)CalPERSReturn+6.50%DiscountRate
Safety Misc.Plans CalPERSReturn(0.0%)Discount Rate 6.50%
DiscountRate=+$30million
CalPERS(0.0%)=+$19million
POBSavingsprovidecushion
22
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
IMPACTOFRECESSIONUNDERPOB+TAX ͲEXEMPTEXCHANGE
POBs20+Years TaxͲExemptExchange CalPERS0.0%UnderPOBs
DiscountRate 6.50%OriginalUAL RecessionUAL
ConsiderSaleofGolfCourse
SaleofGolfCoursecouldnet:$30Ͳ$50million
Potential Recessioncouldadd$50milliontoUAL
StrongCurrentRealEstateValuations
TimingCritical
•Commenceprocessnowtotakeadvantageof
favorablemarketconditions
•Waitinguntildownturn–lessproceeds
ProceedsretainedinPension StabilizationFund
orpreͲPayOPEB
23
6.EmployeeCostSharing
TheCitywillincorporateamechanismtorevisitemployeecost
sharingintheeventofsignificantorunexpectedchangingevents:
•Structuralchangestotheeconomy
•Effects toactuarialassumptions
•CalPERSpolicyadjustments
24
Recommendations
&
NextSteps
25
SummaryofPlanSavings
*Novoterapprovalrequiredforproposedbondissues.
26
Solution FundAmount/Payment Savings
ExistingReserves Water $5.0million
ExistingReserves Sewer $1.0million $9million
2 LeverageRefunding RDA $420,000 $1million
3 AnnualSurplus(ADPs) General $1.0millionx7years $10million
TaxͲExemptExchange Water $22million $10million
TaxͲExemptExchange General $24million $10million
5 POBs20+Years General $77 million $45million
TOTAL $85MILLION
1
4
Pension/OPEBFundingPolicy
Financialmetrics/targets:
•Levelofreserves
•%fundedtargetlevels
Guidelineshowtousebudgetsurplus,1Ͳtime
monies&reserves
Pension FundingStrategy
1. UseofReserves
2. AnnualSurplus(ADPs)
3. LeveragedRefunding
4. TaxͲexemptExchange
5. POBs
27
POBGuidelines
•Target %Funded
•Maturity
•Structure
•MinimumSavings
•CouponSpread
•CallFeatures
NextSteps
January
CityCouncilStudySession
February
CommenceValidationProceedings(90Ͳ120days)
•TAB LeveragedRefunding
•AllocationMethodology
•DraftPension/OPEBFundingPolicies
•SelectUnderwriter(RFP)
May
•ValidatePOBs&commencePOBissuanceprocess(60days)
•DeterminePOBParameters
•ApplyEnterpriseFundReserves
•Select1st projectsforTax ͲExemptExchange
June/July
•ClosePOBs–2020
28
APPENDIX
29
Equities
49.0%
FixedIncome
22.0%RealEstate
12.0%
Private Equity
8.0%
InflationAssets
6.0%
Liquidity
3.0%
CalPERS2018StrategicAssetAllocation
8.6%
HowareWeDoing
ComparedtoOthers
32
MISCELLANEOUS+SAFETY
City Misc.
Normal
Safety
Normal
Misc.
Normal
Safety
Normal
UAL
Payment Payroll
Pension
Costs%
Payroll
Unfunded
Liability
%
UAL
ALHAMBRA 11.35% 20.42% 1,823,1723,306,1909,544,66932,256,67745.5%117,730,55571.4%
ARCADIA 10.23% 20.43% 1,463,9953,299,87410,078,30830,466,85748.7%142,356,16363.7%
AZUSA 9.74% 26.15% 1,612,3231,688,9594,979,62123,007,26636.0%70,979,18673.8%
BALDWINPARK 10.91% 21.93% 807,6091,402,8083,849,12913,802,13143.9%53,423,15071.8%
CLAREMONT 8.92% 21.93% 837,398706,4623,879,25912,613,96143.0%49,634,18969.7%
COVINA 11.24% 23.65% 843,7221,191,3493,490,43012,540,98844.1%57,852,33271.5%
ELMONTE 10.27% 25.72% 1,323,2783,735,08712,203,81827,410,88763.0%124,499,74872.7%
GLENDORA 9.87% 23.56% 1,026,2941,230,1673,867,54115,614,43939.2%56,080,41972.5%
IRWINDALE 10.87% 23.65% 329,946406,1831,283,1264,753,12642.5%20,154,68872.9%
LAVERNE 11.43% 21.93% 502,0511,600,6463,484,77611,691,51447.8%50,370,57871.4%
MONROVIA 11.67% 25.61% 1,272,8242,259,137 Ͳ19,732,09617.9%52,675,84470.2%
MONTEBELLO 10.51% 20.73% 1,771,6262,477,34410,221,36128,805,17050.2%131,521,68768.9%
MONTEREYPARK 10.84% 18.88% 1,290,6642,478,4896,956,94825,030,89942.9%95,189,34771.3%
POMONA 8.90% 23.53% 2,188,7064,093,42713,322,90542,003,58746.7%187,867,73270.8%
SANGABRIEL 13.95% 23.65% 622,3591,590,4935,307,92411,186,94667.2%64,997,71868.2%
SANMARINO 10.87% 23.65% 321,783734,4311,933,6646,065,71949.3%29,105,15173.3%
SIERRAMADRE 12.14% 21.75% 240,608264,6271,165,1323,198,40952.2%13,203,45971.9%
SOUTHPASADENA 10.87% 19.23% 540,632883,4712,626,4949,568,52642.3%35,512,65073.2%
WESTCOVINA 8.73% 19.95% 921,6333,791,74112,254,96129,562,09157.4%180,178,31465.4%
AVERAGE 10.7% 22.4% 1,038,980$1,954,783$5,813,161$18,911,120$46.3% 80,701,732$70.8%
OPEBTrustsEstablished
33
AgencyType CalPERS PARS TOTAL %
SpecialDistricts 326 74 66760%
Counties 13 23 5862%
Schools 66 46 1,04911%
Cities 144 66 48244%
TOTAL 549 209 2,25624%
SchoolsDistricts:560Elementarry,330USD,87HighSchool,58
County,6Special,8Charter
Source:CERBT/PARS/Wikipedia
OPEBTrust(CERBT)
34
550AgencieshavefundedOPEBTrusts (CERBT)withCalPERS
35
Rank State
%
Funded
10ͲYear
Return Rank State %
10ͲYear
Return
1 Wisconsin 99% 5.20%27 Alabama 67% 5.34%
2 SouthDakota 97% 6.80%28 NorthDakota 66% 4.81%
3 Tennessee 94% 6.03%29 NewMexico 65% 4.62%
4 NewYork 91% 5.69%30 Kansas 65% 6.20%
5 Nebraska 89% 6.00%31 Maryland 65% 4.90%
6 NorthCarolina 88% 5.50%32 Vermont 64% 4.60%
7 Idaho 88% 6.00%33 Michigan 64% 6.10%
8 Utah 86% 5.47%34 Indiana 63% 5.00%
9 Washintgon 84% 6.18%35 Alaska 63% 5.47%
10 Iowa 82% 6.31%36 Arizona 60% 6.00%
11 Delaware 81% 6.50%37 Louisiana 60% 5.90%
12 Oregon 81% 6.00%38 NewHampshire 58% 6.00%
13 Florida 79% 5.85%39 Massachusetts 58% 5.70%
14 Maine 77% 5.20%40 Mississippi 58% 5.90%
15 Arkansas 77% 5.97%41 SouthCarolina 54% 4.49%
16 Missouri 77% 5.90%42 RhodeIsland 54% 4.80%
17 Georgia 76% 6.40%43 Minnesota 53% 6.50%
18 Wyoming 73% 4.10%44 Pennsylvania 53% 4.30%
19 Texas 73% 5.27%45 Hawaii 51% 5.66%
20 Virginia 72% 5.60%46 Colorado 46% 5.20%
21 Nevada 72% 6.30%47 Connecticut 41% 5.14%
22 Ohio 72% 5.11%48 Illinois 36% 5.00%
23 WestVirginia 72% 6.20%49 Kentucky 31% 5.02%
24 Oklahoma 72% 6.20%50 NewJersey 31% 5.92%
25 Montana 71% 5.89%Average 68% 5.59%
26 California 69% 5.10%Source:2016Pension&OPEBFundingStudy
PewCharitableTrustͲ2013PensionFundingStatus
36
FUNDINGSTATUS FUNDINGSTATUS
State
Liability
$Billions
%
Funded
ARC
$Millions
Expenses
$Millions %State
Liability
$Billions
%
Funded
ARC
$Millions
Expenses
$Millions %
1 Arizona 2.2$73% 156$156100%27 California 80.3$1% 6,658$2,196$33%
2 Ohio 24.963% 1,72432919%28 Texas 61.71% 4,6401,27227%
3 Oregon 0.656% 736184%29 Connecticut 22.71% 1,45257039%
4 Wisconsin 2.252% 1909650%30 Pennsylvania 18.91% 1,28183265%
5 Alaska 17.443% 95053556%31 NewHampshire 2.61% 18210156%
6 NorthDakota 0.243% 161484%32 Vermont 1.71% 1132623%
7 Utah 0.437% 4040102%33 NewYork 69.50% 3,3991,44643%
8 Kentucky 6.425% 52938473%34 NewJersey 66.80% 6,3511,83929%
9 Virginia 6.521% 59338064%35 Illinois 56.30% 4,00385621%
10 Idaho 0.121% 131081%36 Hawaii 13.70% 99527828%
11 Indiana 0.419% 321960%37 Louisiana 8.50% 58427146%
12 WestVirginia 3.318% 29017159%38 Florida 7.50% 45312928%
13 Colorado 2.114% 1499564%39 Washintgon 7.40% 68413620%
14 Michigan 24.611% 2,2711,77878%40 Arkansas 2.10% 2285926%
15 Maine 2.111% 14910168%41 Tennessee 1.40% 1527046%
16 Alabama 12.510% 1,05545743%42 Nevada 1.30% 1415942%
17 RhodeIsland 0.88% 5858100%43 Minnesota 1.00% 1176052%
18 SouthCarolina 10.17% 82841650%44 Mississippi 0.70% 452966%
19 Georgia 19.36% 1,68362737%45 Iowa 0.50% 572646%
20 NewMexico 3.96% 35413538%46 Montana 0.40% 45 Ͳ0%
21 NorthCarolina 26.95% 2,08591344%47 Wyoming 0.20% 19947%
22 Delaware 6.04% 48420943%48 SouthDakota 0.10% 8447%
23 Missouri 3.34% 26710740%49 Oklahoma 0.00% 0057%
24 Massachusetts 15.83% 1,25158547%50 Nebraska Ͳ Ͳ Ͳ0%
25 Kansas 0.53% 876676%
26 Maryland 9.02% 70540758%Basedon2013ReportedDataͲ2016Pension&OPEBFundingStudy
ANNUALEXPENSES ANNUALEXPENSES
PewCharitableTrustOPEBFundingStatus
LikelihoodofPolitical
Solution
LocalAgencyUAL
LocalAgency
CalPERSUAL =
($90Billion)
38
Local
Agencies
(PERFA)
$80Billion
70%
OPEB
$9.3Billion
61%
PERFA=$138.7BillionͲ State$58.7
Billion
PERFC(RiskPool)=Misc.$3.8
Billion+Safety=$5.8Billion
OPEBTrusts– includingWater,
Sewer,Cities,Counties,Fire:
$15.2B–$6B=$9.3BNOL
*OnlyforCERBTTrusts (NoPARS)
Pool>100
(PERFC)
$9.6Billion
72%
OPEB
$18.6
Billion
PayͲgo
StatehasGreaterBurdens
Combined
Unfunded
Liabilities=
($300Billion)
39
State
Employee
UAL
$58.7Billion
67%
StateOPEB
$85.6Billion
1%
CalSTRS
$102Billion
66%
2017StateCalPERSActuarialValuation
$6.3BillionAnnualContribution
2018StateOPEBActuarialValuation
DiscountRate=4.25%sincepayͲgo
NOL@7.0%=$56billion
$2.2Billion“PayͲGo”BenefitPayments
2017CalSTRSActuarialValuation
2%@60/62
$325millionMPP(OPEB)payͲgo
2017UniversityCaliforniaRegents
ActuarialValuation27%ofpayrollͲ$3
billionannualcontribution.
UC
Regents
$10.9
Billion
85%
SchoolPool
(PERFB)
$23.6Billion
72%
Ͳ30%
Ͳ20%
Ͳ10%
0%
10%
20%
30%
0%
20%
40%
60%
80%
100%
120%
140%
160%
CalPERS:ImpactofAnnualInvestmentReturnonFundedStatus
FundedRatio CalPERSAnnualReturn
InvestmentPerformance
40
ERAF
RDA
WhyCan’tIJustgetoutofCalPERS?
2013PensionReform(PEPRA)
•Newhires2.0%@62Misc.&
2.7%@57%Safety
•Employeespay50%oftheannual
normalcosts(noEPMC)
PublicEmployeeRetirementLaw(PERL)
•Benefitsfor“Classic”employees
cannotbereduced,evenifagreed
uponbybargainingunits.
CaliforniaRule
•Prohibitsreductionofpensionbenefits
unlesstheyareoffsetby“comparable”
newbenefits.
•PreventedlegislativeandballotͲbased
initiativestoreducepensionlevels.
•Recentdecisionshavemorenarrowly
interpretedtherule.
Marin decisionnotentitledtoanimmutable,unchangingpensionbenefitforthe
entiretyofemployment,butareentitledonlytoa“reasonable”pension.
Alameda decisionapplyingdetrimentalchangestothepensionbenefitsofClassic
employeesisonlyjustifiedby compellingevidencethattherequiredchanges
manifestamaterialrelationtothesuccessfuloperationofthepensionsystem.
OPEB&MedicalInflation
42
$546
$674
$794$766$797
$856
$934
$1,009
$1,074
$1,128
$1,211
$1,306
$1,409
$1,355
$1,414
$1,492
$1,671
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
MEDICALINFLATION
MedicalPremiumsAdjustedbyCPI vsHistoricalFamily Premium
2002FamilyRateAdjustedby CPI Current FamilyMedicalPremium
$768
ImplicitSubsidyofMedicalPremiums
43
WhatAretheAlternatives?
3basicoptionsavailable:
1. ConverttoDefinedContributionPlan/401K(payTerminationPayment)
2. RemaininCalPERS– implementsolutionsandnegotiatecostͲsharing.
3. RetainDefinedBenefit(DB)Plan–ConverttoAlternativeInvestment
Provider(PARS)
PotentialOptions
Investment/
Performance
Risk
Termination
Payment
City
Share
Social
SecurityUALAnnual
Costs
DCplan(401k)EmployeeYes8%6%Ͳ14%
ConverttoPARSCity(PARS)No8%Ͳ14%22%
RemaininCalPERSCalPERSNo8%Ͳ14%22%
ProjectedIncreaseandContributionRates
38.1%
40.3%
44.2%
49.0%
51.6%53.7%55.0%55.2%55.1%
20.0%21.8%23.0%
25.2%26.7%27.9%28.6%28.7%28.7%
0%
10%
20%
30%
40%
50%
60%
2016 Ͳ17 2017 Ͳ18 2018 Ͳ19 2019 Ͳ20 2020 Ͳ21 2021 Ͳ22 2022 Ͳ23 2023 Ͳ24 2024 Ͳ25
RecentandProjectedPublicAgencyTotal EmployerContribution
Ratesasa%ofPayroll
PublicAgencySafety PublicAgencyMiscellaneous
2. CalPERSvs115Trust
CalPERS
• No investment
strategy choice
• Locked In to Higher
Payments
• Likely Higher Long-
Term Return
• Reduces Balance
Sheet pension liability
(GASB) reporting
•CalPERS is “Easier”
•CalPERS assumes
investment risk
115 Trust
• Choose from Range ofinvestment strategies(flexible)
• Flexible PaymentSchedule
• Likely Lower Long-Term Return
• Assets do not counttoward book value ofpension liability
•Entity assumesInvestment Risk
Section115Trust
Canplacemoniesinlegally
restrictedtrust
•Canonlyusemoniesto
payfor(pension)
designatedcosts
•Tool tomanagepension
liabilities
•Alternative
investmentvehicle
toCalPERS
•Managetimingrisk
•PensionCost
stabilizationfund
•Makeadditional
annualpayments
1SFMJNJOBSZ$PNQSFIFOTJWF
.BOBHFNFOU1MBO
0QUJPOT"MUFSOBUJWFTGPS$POTJEFSBUJPO
PG.JUJHBUJPOUP-POH5FSN6"-
0DUPCFS
3FQPSU
To:DominicLazzaretto,CityManager
MembersofFinanceAdvisoryCommittee
From:JulioF.Morales
Date:October3,2019
Thismemorandumhasbeendraftedinconjunctionwiththedevelopmentofacustomized
pensionmodelusedtoanalyzeandevaluatesolutionstoaddresstheCity’spensionliabilities,
basedonthemostrecentactuarialreportsdated,June30,2018.
PensionLiabilities
CalPERSprovidestwo“aggregate”actuarialreports
fortheCity’sMiscellaneousandSafetyemployees,
respectively.Eachgroupofemployeeshasthree
tiers:1stTierorClassic,2ndTierandPEPRA.
Theactuarialreportsgrouptogetherallthreetiers
intoasinglereport.AlthoughtheybreakͲoutthe
annualnormalcostsforeachtier–theyonly
provideasingleunfundedaccruedliability(UAL).
NormalCostsͲTheCity’snormalcostsare
primarilyafunctionofpayroll.Theadjacentchart
summarizestheCityofArcadia’sCalPERSannual
normalcosts:
Giventhecurrentpensionlaw,thereisverylittle
theCitycandotochangeitsannualnormalcosts,
excepttoadjustthesizeofitsworkforceand/or
negotiateforemployeestopaygreatershareof
pensioncosts.
ThefocusofthismemorandumistoaddresstheCity’sUAL.
UnfundedAccruedLiability“UAL”.
TheCityofArcadia(“Arcadia”)hasanUnfundedAccruedLiability(“UAL”)equalto$157.5million
forFY2020Ͳ21,asofJune30,2018actuarialvaluation.TheUALiscomprisedof:
x MiscellaneousPlan:19AmortizationBasesinthetotaling$50,933,636
x SafetyPlan:17AmortizationBasesinthetotaling$106,571,932
TheCitywillberequiredtopayafixeddollarUALpaymentof$11.1millioninFY20Ͳ21,in
additiontotheannualnormalcostsofapproximately$5.6million.ThecurrentUALrepresents
MemorandumͲAddressingCalPERSPensionLiability
MISCELLANEOUS
GroupName Benefit Active
City
Normal
$Annual
NormalCost
Misc.1stTier 2.5%@55 104 11.98% 1,065,537$
Misc.2ndTier 2.0%@60 68 12.06% 424,729
Misc.PEPRA 2.0%@62 17 6.49% 86,098
TOTAL 189 1,576,364$
SAFETY
GroupName Benefit Active
$Annual
NormalCost
Police1stTier 3.0%@50 49 23.76% 1,527,629
Fire1stTier 3.0%@50 40 21.07% 1,115,652
Police2ndTier 3.0%@55 8 26.78% 220,142
Fire 2ndTier 3.0%@55 4 19.17% 98,582
PolicePEPRA 2.7%@57 8 11.94% 99,726
Fire PEPRA 2.7%@57 9 11.94% 933,086
TOTAL 118 3,994,818$
NORMALCOSTS 5,571,182$
UAL Payments 11,064,426
TOTALFY20Ͳ21PENSIONCOSTS 16,635,608$
2018
39%ofthecurrentprojectedpayroll.TheCity’sUALpaymentisscheduledtogrowuntilitpeaks
inFY2030Ͳ31at$14.8million–a34%increase.
Itisimportantto
notethatCalPERS
addsanew
Amortizationbaseto
theexistingliability
eachyear.
Someyearsrepresent
“credits”forpositive
investment
performanceabove
thediscountrateof
7.0%.
CalPERSadded3newAmortizationBasestothe2017UAL,which
wasequalto$147.1million:toaccountforthereductioninthe
DiscountRatefrom7.25%to7.00%,achangeinmethodology,and
acreditforpositiveinvestmentperformanceof8.60%.
CalPERSwillreleasetheupdatedactuarialreportinSeptember–
whichwillhavethenewAmortizationbasefigures.
TerminationPayment
CalPERSroutinelyincludesaterminationpaymentamountinits
actuarialvaluations.ThisamountrepresenthowmuchtheCity
wouldneedtopaytoCalPERStoexitthesystem.Uponreceiving
thispayment,CalPERSwouldassumethefullresponsibilityof
payingallretireesandcurrentemployeesbenefitsearnedtodate.
TheTerminationPaymentiscalculatedusingaconservative
discountrate(USTreasuryBondrate):
Weviewitasarisktransferpayment,sinceCalPERSwillassumetheresponsibilitytopayingthese
annuitantsbasedontheamount.
Wehavebeenrequestedtoevaluate
theviabilityofalternativetothe
CalPERSsystem.Asnotedabove,the
TerminationPaymentiscost
prohibitive;andtherefore,likelyto
limitsthisdiscussion.Nonetheless,
potentialalternativesarelimitedbythelegalandadministrativelandscapethatdefinespension
benefitsintheCalPERSsystemandCalifornia.
CalPERSActuarialValuations
WeuseCalPERS’actuarialdata–sincethe
CityisobligationtomakeUALpayments
directlytoCalPERS.Moreover,wefocuson
cashflows,nottheGASBaccounting
figuresprovidedintheCAFR–thisenables
ustoreflectthetruebudgetimpact.
AlthoughtheCitycouldutilizeanactuary
firmtodevelopadditionalprojections,
whichwillnotchangetheCity’sunderlying
liabilitytoCalPERS.
ObtainingmoredetailedOPEBcashflows
fromMacLeodWatts(i.e.,annualpayͲgo
retireemedicalpremiumsbybenefittier)
wouldbehelpful,however.
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
FY20Ͳ21:UALAMORTIZATIONBASEPAYMENTS
June30,2018ActuarialValuation
SafetyPlans
Misc.Plans
2017 UALPayments
$11.0
$12.6
$13.3
$13.5
$14.0
$14.8
2018 CurrentUAL
7.00%
UnfundedLiability
3.25%
UnfundedLiaiblity
2.50%
MiscellaneousPlan 50,450,909$131,403,557154,493,004
SafetyPlan 103,697,746255,695,285298,890,380
COMBINED 154,148,655$387,098,842$453,383,384$
2.5X2.9X
UnfundedPensionLiabilityͲTermination
Administrative&LegalConstraints
In2013,theCaliforniaLegislaturetookstepstoreducepension
benefitsfornewhiresandrequirednewemployeestopay50%
oftheannualnormalcostsͲPublicEmployees'PensionReform
Act“PEPRA”.However,PEPRALegislationalsoprotectedthe
benefitsforall“classic”employees(hiredbefore2013).
AsaresultofPEPRA,thePublicEmployeeRetirementLaw
(PERL)nowincludesaprovisionthatstatesthatbenefitsfor
“Classic”employeescannotbereduced,evenifagreeduponby
bargainingunits.TheCaliforniaRule,providesfurtherjudicial
protectionofpublicpensions.
AlternativestoCalPERS
Notwithstandingthefinancialandlegalconstraints,wehave
includedbelowabriefdiscussionregardingtheCity’spotentialoptions.
DefinedContributionPlan(DC)–TheCitycouldreduceitsretirementcostsifitconvertedtoa
definedcontribution(DC)plan–effectivelytransferringfutureperformanceandfundingriskto
employees.UnderaDCplan,theCitywouldonlyberequiredtomakeitsshareofannual
contributions;employeeswouldassumetheriskfortheoutcome/fundinglevel.UnderaDCplan,
bydefinition,therearenoUAL(unfundedaccruedliability)payments–theemployeeassumes
generalcontroloverinvestmentdecisionsandassumestheriskofitsoutcomes.However,
potentialsavingsfromaDCplanthateliminatesanyUALpayment,maybecompletely
negated/offsetbytherequiredCalPERSTerminationPayment,whichis2Ͳ3XgreaterthantheUAL.
Undercurrentinterpretation,theCaliforniaRuleeffectivelyrequiresemployerstoprovide
substantiallysimilarretirementbenefitstoitsemployees(ifitmakesaplanchange).Employers
outsideoftheCalPERSsystemarerequiredtopayintosocialsecurity,whichaddsa7.0%payroll
requirement.ItisnotcertainwhethertheCitywouldhavetocontinuetomakethesamelevelof
annualcontributionstothesystem–currentannualnormalcostsrangefrom13%to31%of
payroll.
SplitAgency/MixedPlan(DC)–CalPERSdoesnotallowanagencytocreateasplitormixedplan.
CalPERSprohibitsisparticipantsfromofferingcurrentemployeesparticipationintheCalPERS
systemandnewemployeeparticipateinaDCplan.
AlternativeDefinedBenefitPensionPlan–TheCitycouldretaingreatercontroloverthe
investmentprocessifitweretotransferitsassets($400million)overtoanotherpension
plan/investmentmanager.ThisalternativewillrequirefullapprovalofbothCalPERSandthe
bargainingunits.Moreover,duetotheCaliforniaRule,wewouldassumethatrequiredannual
pensioncontributionswouldessentiallyremainthesame.PARShasnotconvertedaCalPERS
plantodate.Althoughhypotheticallyitappearslegallyandfinanciallyfeasible–itwouldlikely
requireafulltransferofassetsandliabilitiesandthusprovidelimitedsavings.Convertingto
anotherinvestmentmanager,suchasPARs,wouldbeundertakentogivetheCitygreatercontrol
overtheinvestmentmanagementsystem.
TargetingStrategies
The“CaliforniaRule”isastate
courtinterpretationof
constitutionallawthatprohibits
reductionofpensionbenefits
unlesstheyareoffsetby
“comparable”newbenefits.
The“CaliforniaRule”has
preventedbothlegislativeand
ballotͲbasedinitiativestoreduce
pensionlevels,althoughrecent
decisionshavemorenarrowly
interpretedtherule.
TheCaliforniaRule
Beforewecommencethediscussionregardingfinancialsolutions,itisimportantto
understandingtheimpactofusing“targetingstrategies”.WhenmakingAdditionalDiscretionary
Payments(ADPs),CalPERSrequiresthateachagencyspecifytowhichAmortizationBasethe
paymentsshouldbeapplied.
Theprimarypurposeof
developingacustomizedpension
modelistodetermine,with
precision,thefinancialimpactof
eachfundingsolution.
MakingAdditionalDiscretionary
Payments(ADPs),theCityis
principallyprepayingaloan.
TheCityhasatotalof42
AmortizationBases(totaling$157
millionUAL),withtermsranging
from5yearsto30years.
TheCityshouldapplyadditionalmoniestowarditsUALbasedonitsfinancialobjectives:
x MaximizeTotalInterestCostsSavingsͲtargetlongͲtermBases(e.g.,30year).
x MaximizeAnnualCashFlowSavingsͲtargetshorttermBases(e.g.,5Ͳ15year).
Allfuturefundingdecisionswillutilizetheconceptoftargetingstrategiestotailortheapplication
ofadditionalpaymentsinordertomeettheCity’sfinancialobjectives.
FinancialSolutions
CalPERSactivelyencouragesmemberagenciesto“preͲpay”ormakeadditionaldiscretionary
payments.Inordertorealizegreaterinterestcostsavings,youshouldconsideroneofsix(6)
solutions:
1. AllocationofUALamongfunds
2. UseofReserves&1ͲTimeMonies
3. PensionStabilizationFund
4. LeveragedRefunding
5. FreshStart/SyntheticFreshStart
6. TaxͲExemptExchange
7. POBs
AllocationAmongFunds
Thefirststepintheprocesstoreviewifthefullpensioncosts(normalcosts+UAL)arebeing
allocatedtoeachfund.AreviewoftheCity’sCAFRrevealsthattheCityhasplaced$6.6million
and$2.0millionoftheUALontheWaterandSewerfunds,respectively.TheCityhas$7million
inadditionalSpecialRevenueseachyear–primarilylocalshareofTransportationmonies(Prop
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
TARGETING STRATEGIES
$1MillionUAL:10ͲYear vs.30ͲYear Amortization
10Year=$1,413,000Payments
30ͲYear=$2,761,000Payments
A,PropC,MeasureM&MeasureR),aswellaspublicsafetyandothergrants.Thesespecial
revenuefunds,collectively,haveover$12millionfundbalanceorunspentrevenues.TheCity
shouldensurethateachsalariedemployeechargedtothesefundsreflectthefullcost(i.e.,salary
&benefits,normalcosts&UAL).
Itiscriticaltocreateaconsistentmethodologyfortheapplicationofthesepensioncostsacross
funds,andmoreimportant,todocumenttheprocess/methodologyforauditorsandregulatory
reviews.
UseofReservesor1ͲTimeMonies
AsnotedduringtheCity’sbudgetpresentation,theCitydoesnothaveexcessreservesavailable
tofundtheseliabilities.Withthepassingoftherecentsalestaxmeasure,theCitymayhave
excessrevenuesavailable.
WhenfacedwiththedecisionofwhetherincreasereservesortopaydowntheUAL,itiscritical
totakeintoaccountthe“opportunitycosts”.Currently,moniesinvestedinLAIFareearning
~2.00Ͳ2.50%,whiletheCity’spensionliabilityisaccruingat7.00%rate.Giventheseparameters,
theCityshouldseektopreͲpayitsUALwhenexcessreserveor1Ͳtimemoniesbecomeavailable.
PensionStabilizationFund
TheCityshouldstronglyconsiderestablishingaPensionStabilizationFund(115Trust).A115
Trustisavaluabletool,whichcanprovidetheCitywithadditionalflexibility.APension
StabilizationFundshouldbeestablishedfortwoprimarypurposes:
1. ProvideBudgetaryReliefͲastabilizationfundcanbeusedtoprovideadditional
cashflowstomakeUALpaymentswhenrevenueunexpectantlydeclineorUAL
paymentincrease(i.e.,newAmortizationBase)increasemorethanexpected.
2. ProvideInvestmentAlternative/Hedge–Sendingadditionalmoniesdirectlyto
CalPERSimmediatelyextinguishesaliability/loanwitha7.0%interestrate.
However,iftheFinanceAdvisoryCommitteebelievethatastockmarketdecline
isimminent(andbelievesthatagreaterfixedincomedistributionwouldresultin
greaterreturns)orthatiscanoutearnCalPERSbydirectinginvestments,thenit
shouldplacethemoniesina115Trust.
Ifestablishedasa115Trust,whichsegregatesmoniesforaspecificpreͲestablishpurposesuch
asfundingpension&OPEBcosts,themoniesinaRateStabilizationFundcanbeinvestedoutside
tothestandardmunicipalinvestmentguidelinesestablishedinCalifornia.Stateinvestment
guidelinesprohibitsinvestinginequities,realestateandbeyond5years.
LeveragedRefunding
TheSuccessorAgencyoftheCityofArcadiahastwooutstandingTaxableAllocationBonds
(TABs):
x 2001A–TheRDAoriginallyissued$11,655,000inTABs,ofwhich$2,800,000remain
outstanding.Thebondsarecurrentlycallableon,anydate,atpar–100%:theyhavea
finalmaturityof2023andcarrycouponsrangingfrom5.125%to5.50%
x 2010TaxableTABs–TheSeries2010wereissuedtorefundthe2001BTaxableBonds
withaparvalueof$19,830,000.Thereare$13,110,000ofbondsoutstanding,which
maturein2026andcarrycouponsrangingfrom5.50%Ͳ6.625%.Sincethebondsare
taxable,theyareeligibletobeadvancerefundedonthefirscalldate:September1,
2021.
LeveragedRefundingͲTheCityreceives10.44%shareofresidualcashflowsfromRTTPF(i.e.,
excesstaxincrementrevenuesfromROPSorrefundingofoutstandingTABissues).Inorderto
maximizethepotentialrefundingsavings,westructureda“LeveragedRefunding”.Thisstructure
pushesrefundingsavings“upfront”tothefirstfewyears;theCity’sshareofsavingscanthenbe
appliedtopreͲpayanadditionalportionoftheCity’sUAL.
2019RefundingTABs–TherefundingissuewillbeahybridissuethatcombinesboththeTaxable
andTaxͲExemptbonds.Theparvaluewillbe$13,000,000withafinalmaturityonSeptember1,
2026;thebondswerestructuredwithbondinsurance/DSRsuretyand$250,000CostofIssuance.
Therefundedwasstructuredtoprovide“upͲfrontsavingsinthefirstthreeyearstotaling$4.2
million($1.2milliononanNPVbasis).
TheCity’sshareofthesesavingswouldbetotalcashflowsavingsontherefundedissuewillbe
approximately$428,000.ThesecashflowssavingscouldthenbeappliedtopreͲpaytheCity’s
UAL(e.g.,SafetyBase#15),whichwouldresultinestimated$1.1millionintotalcashflow
savings.–aleveragefactoror2.6X.
FRESHSTART
CalPERSofferseachagencytotheopportunitytoreͲamortizetheirUALvia“FreshStart”.AFresh
Startcombinesalltheamortizationbasesandshortenedtheamortizationperiod.Similarto
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
2020 2021 2022 2023 2024 2025 2026 2027
LeveragedRefundingͲ UpFrontSavings
PriorDebtService RefundingDebtService
$986K
in
Savings
$2.34
MM in
Savings
$847K
in
Savings
TotalCashFlowSavings$4.2MM
convertinga30Ͳyearmortgageintoa20Ͳyearmortgage–butkeepingthesameinterestrate.As
aresult,theannualpaymentsareincreased–savingsarerealizedduetotheshorteramortization
period.TheproblemwithaFreshStartisthatthepaymentscannotbeadjustedorextended.
SyntheticFreshStart
InsteadofcreatinganewamortizationscheduleunderaFreshStart,aSyntheticFreshStartsets
anannual“target”;buttheCityretainstheflexibilitytoadjusttheamountofadditionalpayments
andisonlyrequiredtomakethecurrentUALpayments.
ThebenefitoftheSyntheticFreshStartistwoͲfold:1)providesfinancialflexibility,sincethe
additionalpaymentsareoptional,and2)providesgreatersavingssincetheadditionalpayments
areusedtopreͲpayUALbases.
Giventheadditionalsavingsandflexibility–wealwaysrecommendtoutilizeaSyntheticFresh
StartoveraFreshStartwhenattemptingtoacceleratepaymentsormakingadditional
scheduledpayments.
$Ͳ
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
2021202220232024202520262027202820292030203120322033203420352036203720382039204020412042204320442045204620ͲYear FRESHSTART
FreshStart UALPayment
AnnualUALPayments=$14,867,000
CashFlowSavings=$7.8million
NPVSavings=($2.4)million
TaxͲExemptExchange
TheconceptoftaxͲexemptexchangerequiresa5Ͳstepprocess:1)IdentifypayͲgocapital
projects,2)IdentifyUALbasewithamatchingassetlife,3)IssuetaxͲexemptbondstofinancethe
payͲgoprojects,4)ExchangebudgetforthepayͲgocapitalprojectstopreͲpayUAL,and5)Use
budgetforUALpaymentstopaythedebtserviceonthetaxͲexemptbonds.
AnexaminationoftheCity’sCIPrevealsthattheCityhas$55millionincapitalprojectsbudgeted
overthenext5years.ThisconceptcouldbeappliedtowardGeneralFundand/orWater&Sewer
projects.
Asillustratedtinthechartbelow,iftheCityweretobondfinance$14.3millioninCIPprojects,a
taxͲexemptexchangesolutioncouldgenerate$9.4millionincashflowsavings–45%savingson
NPVbasis.
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
SYNTHETICFRESHSTART
Misc.UAL SafetyUALPayments ADPsSafety ADPsMisc.OriginalUAL Payments
302 520 521 107 156 165 157
CIP WATER SEWER PARK TRANS MeasureMPropC OTHER TOTAL
1 FY18Ͳ19 4,092,1004,036,5001,203,9001,158,8001,175,000900,0001,826,60014,392,900$
2 FY19Ͳ20 1,833,5001,582,500844,5006,210,000300,00025,000600,000950,00012,345,500$
3 FY20Ͳ21 2,063,0003,962,5001,434,5003,610,000100,000 Ͳ850,000800,00012,820,000$
4 FY21Ͳ22 1,563,0003,352,500814,500274,000200,000 Ͳ800,000850,0007,854,000$
5 FY22Ͳ23 1,863,0002,712,5001,164,500350,000400,000 Ͳ850,000800,0008,140,000$
TOTAL 11,414,600$15,646,500$5,461,900$11,602,800$1,000,000$1,200,000$4,000,000$5,226,600$55,552,400$
TaxͲexemptexchangecanbeviewedasataxͲexemptPOB.Totheextentpossible,theCityshould
seektomaximizetheuseofthisvehiclebeforeissuingPOBs.Nonetheless,POBsprovidetheonly
opportunitytorefinanceyourfixedUALpaymentsatalowercostanddramatically“reshape”
yourUALpayments.
PensionObligationBonds
Inthepast,CalPERSdidnotrequireagenciestomakeannualpaymentstowardtheirunfunded
liabilities.Apartofitspensionreform,CalPERSchangeditscontributionpolicytowardUAL:
noweachagencyisrequiredtomakeAnnualFixedDollarPaymentstowardtheirUAL.Moreover,
GASB68nowplacestheCity’sUALontheBalancesheet.
TheCity’s$159millionUALiscomprisedof42AmortizationBaseswithcorresponding
AmortizationSchedules.Thesebasesrepresentaseriesof“loans”,withafixedrepayment
schedulewitha7.0%interestrate.
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
202020212022202320242025202620272028202920302031203220332034203520362037203820392040204120422043204420452046204720482049Tax ͲExemptExchange
UALPaymentsSafety #14
DebtServiceTaxͲExemptBonds
AmortizationBazses#14&15
$14.3MIllionͲ Capital Outlay
(GF) & WaterProjects
$9.4millioncashflowsavings
$6.4millionNPVsavingsͲ 45%
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044POBSavingsͲ 100%UAL
POBDebtService CalPERSUALPayments
$159MIllionParValue @3.5%
$79MillionCashFlowSavings
$46MillionNPVͲ 29%
Giventhiscontext,PensionObligationBonds(POBs)inCaliforniashouldbeviewedasadebt
“refinancing”.POBsmustbeissuedonataxablebasis,becausethepensionbenefitsprivate
individuals.Nonetheless,POBspresenttheonlyfinancingtoolavailabletosignificantlyimpact
theCity’srequiredUALpaymentschedule.
TheGFOAhasprovidedanadvisoryagainsttheissuanceofPOBs,noting5keyissuesorconcerns.
TheGOFA’sPOBpolicygeneraladvisory,whichwasdrafted10yearsagounderdifferentmarket
conditions;and,wasdraftedasawarningandinresponsetobadpractices.
ItisimportanttonotethatareanumberofissuesthattheGFOApointsouttowhichallagencies
shouldadheretowhenissuingPOBs(#1Ͳ#3).However,asaresultofpensionreformsandpolicy
changesbyCalPERSinrecentyears,aswellasadaptationinthePOBmarket,webelievethat
theseconcernshavebeenaddressedandwarrantreconsiderationinCalifornia.
1. POBsarecomplexinstruments,whichincorporatetheuseofGICs,swaps,orderivatives.
POBsshouldonlybeissuedasplainvanillafixedͲratebonds.
2. POBsarestructuredwith“makeͲwhole”calls,whichmakeitmorecostlyordifficultto
refundinthefuture(thantraditionaltaxͲexemptdebt).
POBsarenowstructuredwithstandardcallfeaturesliketraditionaltaxͲexemptbonds.
3. POBshavebeenstructuredtoincorporateannualnormalcosts,orinamannerthatdefers
principalpaymentsorextendsprincipalpaymentsoveralongerperiodthantheactuarial
amortizationperiod.
POBsshouldnotincludenormalcosts(exceptforannualpreͲpayamount),norbe
structuredwithanextendedrepaymentscheduleͲfinalmaturity.
4. POBsincreaseamunicipality’sbondingcapacityorturnasoftliabilityintoahardliability.
Anagency’sCalPERSUALliabilityisconsidered“debt”bythecourtsinCalifornia.
Moreover,UALpaymentsarefixeddollarpayments,likeatraditionalloan,whichfinanced
atadiscountrateof7.0%.POBssimply“refinance”yourCalPERSliabilityatalowerrate.
5. InvestedPOBproceedsmightfailtoearnmorethantheinterestrateoverthetermofthe
bonds,leadingtoincreasedliabilityforthegovernment.
ThefinancialimpactofPOBsisdependentupontwovariables:1)BorrowingRateonthe
Bondsand2)CalPERSInvestmentPerformance.POBsprovidesavingsbyrefinancingUAL
paymentsatataxablefixedrate,asopposedtoblendedrateforaportfolioofassets(50%
equities/22%fixedincome/12%realestate/8%privateequity/6%inflationassets/3%
liquidity).InvestedPOBsmaylosevalueifthemarketdeclinessoonafterissuance.
However,POBsarelongͲterminstruments;theirfinancialsuccesscannotbedetermined
untiltheendoftheissue.
POBsmaypresentapotentialriskifCalPERSunderperformsoriftheyareissuedjustprior
toamarketdecline.However,undercurrentmarketconditions,POBspresentsignificant
savingspotential(20Ͳ30%),whichprovidesacushionorhedgeagainstthesepotential
negativeimpacts.
Webelievethatcombinationofpensionreformlegislation,CalPERS’requirementforfixeddollar
UALpayments,andchangesinthePOBmarket,makeitcompellingtoconsidertheissuanceof
POBsarepartoftheCity’spensionfundingstrategy.
Recommendations&Considerations
WehaveanalyzedanumberofpotentialsolutionstoreducetheCity’sUAL.GiventhatCalPERS
addsnewAmortizationbaseseachyear,theCity’spensionliabilitywillbedynamicandeverͲ
changing.Addressingyourpensionliabilitieswillrequiresustained,longͲtermfinancialdiscipline;
andlikelyrequiretheimplementationofanumberofdifferentsolutions.
Therefore,werecommendthattheCityfirstadoptaFormalPension/OPEBFundingPolicy,which
outlines:howtheCityshouldapplyexcessmonies/reserves,identifypriorityorderofBases/Plans
forpreͲpayment,potentialfundingsolutionsthatitshouldconsider,and(savings)guidelinesfor
evaluationandimplementation.
Basedonouranalysis,wewouldrecommendthattheCityconsiderimplementingthefollowing:
x TaxͲExemptExchangeforGeneralFund&EnterprisePayͲGoCapitalProjects
x LeveragedRefundingforSuccessorAgencyBonds(2001B&2010TABs)
x AlwaysuseaSyntheticFreshStartoveraFreshStart
x IssuePartialPOBsforBasesunder20years($35–40million)
x RecycleSavingsbyBootstrapping–usingsavingstomakeadditionalpreͲpayments.
Year Reason
Ramp
Up Period Balance
6/30/2020
Payment
FY20Ͳ21 Year Reason RampUp Period
Balance
6/30/2020
Payment
FY20Ͳ21
1 2003 AssumptionChange NO 5 2,216,237$496,397$1 2008 FreshStart(30ͲYear) NO 20 (5,939,367)$(439,364)$
2 2004 MethodChange NO 6 (199,869)(38,041)2 2009 AssumptionChange NO 11 2,787,396318,381
3 2007 BenefitChange NO 8 1,506,887223,5733 2009 Special (gain)/loss NO 21 9,386,276672,953
4 2009 AssumptionChange NO 11 3,447,464393,7744 2010 Special (gain)/loss NO 22 1,661,356115,688
5 2009 Special (gain)/loss NO 21 3,955,306283,5775 2011 AssumptionChange NO 13 3,476,133348,718
6 2010 Special (gain)/loss NO 22 1,117,44377,8136 2011 Pre ͲRetOption NO 12 220,07323,477
7 2011 BenefitChange NO 13 2,226,308223,3387 2011 Special (gain)/loss NO 23 3,391,834229,846
8 2011 AssumptionChange NO 12 264,93928,2638 2012 Payment(gain)/loss NO 24 30,1581,992
9 2011 Special (gain)/loss NO 23 (183,626)(12,443)9 2012 (Gain)/Loss NO 24 37,948,2442,506,892
10 2012 Payment(gain)/loss NO 24 239,84015,84410 2013 (Gain)/Loss 100% 25 24,238,2761,644,252
11 2012 (Gain)/Loss NO 24 7,113,910469,95111 2014 AssumptionChange 100% 16 12,531,5061,191,611
12 2013 (Gain)/Loss 100% 25 15,962,4041,082,84112 2014 (Gain)/Loss 100% 26 (13,572,745)(897,523)
13 2014 AssumptionChange 100% 16 7,567,286719,56713 2015 (Gain)/Loss 80% 27 12,183,424637,243
14 2014 (Gain)/Loss 100% 26 (12,529,742)(828,553)14 2016 AssumptionChange 60% 18 4,833,385263,153
15 2015 (Gain)/Loss 80% 27 6,737,384352,39315 2016 (Gain)/Loss 60% 28 9,441,448371,036
16 2016 Discount:7.50%Ͳ7.375%60% 18 2,771,936150,91816 2017 AssumptionChange 40% 19 6,319,114230,429
17 2016 (Gain)/Loss 60% 28 6,068,299238,47617 2017 (Gain)/Loss 40% 29 (9,296,820)(247,125)
18 2017 Discount:7.375%Ͳ7.25%40% 19 2,643,76196,40618 2018 MethodChange 20% 20
2,152,72440,137
19 2017 (Gain)/Loss 40% 29 (4,892,734)(130,057)19 2018 AssumptionChange 20% 20 9,046,206168,663
20 2018 MethodChange 20% 20 1,231,34422,95820 2018 (Gain)/Loss 20% 30 (4,266,689)(58,274)
21 2018 Discount:7.25%Ͳ7.00% 20% 20 5,040,78693,984TOTALUALSAFETYPLAN106,571,932$7,122,185$
22 2018 (Gain)/Loss 20% 30 (1,371,929)(18,738)
TOTALUALMISCELLANEOUSPLAN 50,933,634$3,942,241$COMBINEDUALJune30,2018 157,505,566$11,064,426$
MISCELLANEOUSPLAN SAFETYPLAN
Year Reason
Ramp
Up Period Balance
6/30/2019
Payment
FY19Ͳ20 Year Reason RampUp Period
Balance
6/30/2019
Payment
FY19Ͳ20
1 6/30/2003 Assumption Change NO 6 2,548,476$486,910$1 6/30/2008 FreshStart(30ͲYear) NO 18 (5,984,514)$(433,670)$
2 6/30/2004 MethodChange NO 7 (223,443)(37,327)2 6/30/2009 Assumption Change NO 26 2,914,859313,067
3 6/30/2007 BenefitChange NO 9 1,624,603219,5563 6/30/2009 Special (gain)/loss NO 26 9,437,389664,493
4 6/30/2009 AssumptionChange NO 12 3,605,109387,2024 6/30/2010 Special (gain)/loss NO 27 1,667,166114,278
5 6/30/2009 Special (gain)/loss NO 22 3,976,845280,0135 6/30/2011 Pre ͲRetirementOption NO 27 228,56323,095
6 6/30/2010 Special (gain)/loss NO 23 1,121,35276,8656 6/30/2011 Assumption Change NO 17 3,589,272343,196
7 6/30/2011 BenefitChange NO 13 275,16027,8047 6/30/2011 Special (gain)/loss NO 28 3,397,702227,132
8 6/30/2011 AssumptionChange NO 14 2,298,769219,8028 6/30/2012 Payment(gain)/loss NO 28 30,1611,969
9 6/30/2011 Special (gain)/loss NO 24 (183,944)(12,296)9 6/30/2012 (Gain)/Loss NO 29 37,952,8152,478,223
10 6/30/2012 Payment(gain)/loss NO 25 239,86915,66310 6/30/2013 (Gain)/Loss 100% 29 24,281,5051,624,831
11 6/30/2012 (Gain)/Loss NO 25 7,114,767464,57611 6/30/2014 Assumption Change 80% 19 12,649,310938,529
12 6/30/2013 (Gain)/Loss 100% 26 15,990,8731,070,05212 6/30/2014 (Gain)/Loss 80% 30 (13,402,825)(709,759)
13 6/30/2014 AssumptionChange 80% 17 7,638,423566,74113 6/30/2015 (Gain)/Loss 60% 30 11,871,345472,647
14 6/30/2014 (Gain)/Loss 80% 27 (12,372,879)(655,217)14 6/30/2016 Assumption Change 40% 30 4,695,379172,902
15 6/30/2015 (Gain)/Loss 60% 28 6,564,805261,37215 6/30/2016 (Gain)/Loss 40% 30 9,081,720244,765
16 6/30/2016 Assumption Change 40% 19 2,692,79199,15916 6/30/2017 Assumption Change 20% 20 6,029,375113,628
17 6/30/2016 (Gain)/Loss 40% 29 5,837,091157,31817 6/30/2017 (Gain)/Loss 20% 30 (8,827,479)(122,356)
18 6/30/2017 Assumption Change 20% 20 2,522,49547,538TOTALUALSAFETYPLAN99,611,743$6,466,970$
19 6/30/2017 (Gain)/Loss 20% 30 (4,645,729)(64,393)p.16June30,2017ActuarialValuation
TOTALUALMISCELLANEOUSPLAN 46,625,433$3,611,338$
p.16June30,2017ActuarialValuation
MISCELLANEOUSPLAN SAFETYPLAN
Exhibit "A"