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Pension Debt Refinancing Update <br />September 21, 2021 <br />Page 2 <br />2 <br />1 <br />0 <br />3 <br />Exhibit 1 includes the following items: <br />Sources and Uses of Funds <br />Final bond pricing (transaction summary statistics) <br />Debt service schedule. <br />Next Steps in the Overall Strategy <br />The CalPERS Board will meet in November 2021 to set the discount rate for the next four <br />years. The discount rate is CalPERS investment earnings assumption and the interest <br />rate charged on employer pension debt. CalPERS recently decreased its discount rate <br />from 7.0% to 6.8% due to the FY20-21 investment return of 21.3%, in accordance with <br />CalPERS policy. In November 2021, the Board could choose to reset the discount rate <br />back to 7.00%, leave it at 6.80%, or reduce it to 6.75% or 6.50%. <br />Prior to issuing refinancing bonds, the estimated debt to CalPERS was $570,011,000, <br />based upon the new 6.80% discount rate. After sending the bond proceeds, the estimated <br />debt to CalPERS decreased to $145,379,983. If CalPERS reduces the discount rate <br />below 6.80% in November, the City’s debt to CalPERS will grow. <br />As reported on August 17, 2021, after the CalPERS Board makes its decision in <br />November 2021, the financing team will analyze the best way to apply the remaining <br />$40,604,672, currently held in the City’s Section 115 trust, of current-year spending <br />authorization to the CalPERS debt and request a Fresh Start to pay-off the remaining <br />debt faster. <br />The analysis and Fresh Start process may take a couple months to complete. Therefore, <br />staff expects to provide an estimate of long-term savings and introduce a future budget <br />strategy to the City Council with the February 15, 2022 City Council meeting agenda, <br />along with a final housekeeping adjustment to move the current-year spending <br />authorization into the correct accounts to reflect the first bond payment. <br />FISCAL IMPACT <br />Estimated net present value savings from the overall strategy including the refinanced <br />bonds is $138,021,063. Additional savings will be generated from the $40,604,672 <br />payment and request to CalPERS for a Fresh Start on the City’s existing liability after <br />November 2021. Approximately 86% or $118,698,000 is attributable to the General Fund. <br />EXHIBIT(S) <br />1. Bond Final Pricing Numbers: Sources and Uses of Funds; Final Bond Pricing and <br />Debt Service Schedule <br />Submitted By: Kathryn Downs, Executive Director Finance and Management Services <br />Approved By: Kristine Ridge, City Manager