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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 Page 3 of 13 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 Page 4 of 13 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 Page 5 of 13 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 Page 6 of 13 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 Page 7 of 13 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 Page 8 of 13 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 Page 9 of 13 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 Page 11 of 13 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) ƒUAL paymentspaybonddebtservice ƒ7.0%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 ƒSaleofGolfCoursecouldnet:$30Ͳ$50million ƒPotential Recessioncouldadd$50milliontoUAL ƒStrongCurrentRealEstateValuations ƒTimingCritical •Commenceprocessnowtotakeadvantageof favorablemarketconditions •Waitinguntildownturn–lessproceeds ƒProceedsretainedinPension 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 ƒFinancialmetrics/targets: •Levelofreserves •%fundedtargetlevels ƒGuidelineshowtousebudgetsurplus,1Ͳtime monies&reserves ƒPension 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&#15 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"