65A - RECEIVE AND FILE REVENUE ESTIAMTES RELATED TO COVID-19

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Receive and File — Budget Update — Preliminary Financial Impact related to COVID-19 April 21, 2020 Page 6 • Pay the entire annual contribution in July, rather than monthly, to save approximately 3.5%. The City already did this in FY 2019-20 for the safety plan; and the City is planning to add the miscellaneous plan to this strategy in FY 2020-21, to save an additional $0.5 million. • Issue Pension Obligation Bonds (POBs) to "re -finance" the debt with lower interest cost. Instead of the balance accruing 7% each year, a debt issue may cut that rate in half. The City should consider the following before pursuing Pension Obligation Bonds. 1. The unfunded liability was $681.1 million at June 30, 2018. It's anticipated to increase as of June 30, 2020. Such a large debt issue may not receive a high credit rating, which would result in higher interest costs and decreased savings. A smaller debt issue with a strategic targeted payment to CalPERS may be a better option. 2. CalPERS will receive the bond proceeds. If the CalPERS investment portfolio loses money again, some of the City's bond proceeds will be lost. 3. Any year the CalPERS assumptions are not met (e.g. investments earn less than 7%, employees live longer than expected, etc.), the unfunded pension liability will continue to grow. Issuing Pension Obligation Bonds does not "pay-off" the debt. The City has an analysis that suggests issuing $315 million of debt with a targeted payment strategy could generate annual General Fund savings of $7 million (citywide savings of $8.3 million). The bond market is extremely volatile right now. Any attempt to offer a large debt issue should occur after the market settles. In addition, the legal validation process for POB's usually takes 90 days. Depending on available court services over the next several months, this process could take longer. Santa Ana Regional Transit Center The FY 2019-20 SARTC Enterprise budget includes revenue of $0.8 million and expenditures of $1.9 million. The fund started the year with a fund balance of negative $1.5 million; and staff expects the fund to have a negative balance of $2.6 million at June 30. To continue operating, this fund will need a General Fund subsidy of at least $1.1 million for FY 2020-21, and a plan to cure the negative fund balance. The proposed FY 2020-21 budget will include a General Fund subsidy to SARTC. Hiring Freeze Due to the pandemic, the City implemented a hiring freeze in March. At the time of the hiring freeze declaration, there were 153 full-time vacancies, with 82 paid by the General Fund. We anticipate savings of $7.0 million through June 2020 and an additional $8.6 million (annualized savings) for FY 2020-21. STRATEGIC PLAN ALIGNMENT Approval of this item supports the City's effort to meet Goal #4 - City Financial Stability, Objective #1 (maintain a stable, efficient and transparent financial environment). FISCAL IMPACT A summary of the FY 2019-20 fiscal impact including updated revenue estimates, the hiring freeze, and the transfer of $6.6 million appears as Exhibit 2 of this report.The proposed FY 2020-21 budget will include the expected impact of the pandemic, as well as pre -determined expenditure increases 65A-6