Item 40 - Refinancing City’s Pension Obligations with California Public Employees Retirement System

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22 4826-7904-2280v7/200434-0005 economies. In addition, financial markets in the United States and globally have experienced significant volatility attributed to COVID-19 concerns. Volatility in the financial markets caused CalPERS’ earnings to fall below its investment targets in Fiscal Year 2020, which could result in increases in the City’s unfunded pension liability and future pension costs commencing in Fiscal Year 2021. See the caption “CITY PENSION PLANS.” The outbreak has resulted in increased pressure on State finances as budgetary resources are directed towards containing the pandemic and tax revenues sharply decline. Identified cases of COVID-19 and deaths attributable to the COVID-19 outbreak continue to occur throughout the United States, including the County. Potential impacts to the City associated with the COVID-19 outbreak include, but are not limited to, increasing costs and challenges to the public health system in and around the City, cancellations of public events and disruption of the regional and local economy with corresponding decreases in general revenues of the City, including as a result of reduced sales which are subject to sales taxes, reduced hotel occupancy, which is subject to hotel visitor’s taxes, fewer business license tax payments and potential declines in property values. See the captions “CITY FINANCIAL INFORMATION—Sales Taxes,” “CITY FINANCIAL INFORMATION— Property Taxes” and “CITY FINANCIAL INFORMATION—Other Taxes.” In response to the COVID-19 outbreak, the City modified its operations to implement remote work opportunities for employees and provide City services online, closed many City facilities to the public, cancelled many programs, rentals and community events. In addition, on-site personnel are wearing masks and practicing social distancing while working. Access to the City’s administrative offices has been restricted and City Council meetings are occurring via teleconference. The City has not experienced and does not at this time foresee a future negative impact on the execution of City services as a result of the COVID 19 outbreak. However, there can be no assurance that absences of employees or City leadership due to COVID-19 will not adversely impact City operations. The COVID-19 outbreak is ongoing, and the duration and severity of the outbreak and the economic and other actions that may be taken by governmental authorities to contain the outbreak or to treat its impact are uncertain. The ultimate impact of COVID-19 on the operations and finances of the City and its general revenue funds, including the General Fund, is unknown. Due to the COVID-19 outbreak, the City initially reduced the estimate for its Fiscal Year 2020 major revenue sources, such as sales tax, hotel visitors’ tax, business license tax, permit and plan check fees, zoo, recreation and library fees and parking fines by $14.1 million in April 2020. However, City revenues experienced a less severe impact due to COVID-19 and as a result General Fund revenues met or exceeded revised budget estimates. See the caption “CITY FINANCIAL INFORMATION— Budget Procedure, Current Budget and Historical Budget Information—Budget History.” The Fiscal Year 2021 budget for the General Fund was developed conservatively, taking the COVID- 19 outbreak into consideration, and reflected: (i) an increase in expenditures of approximately $14.2 million or 4.6% above Fiscal Year 2020 adjusted budgeted expenditures; and (ii) a decrease in revenues of approximately $8.1 million or 2.6% below adjusted Fiscal Year 2020 revenue estimates. Based on available information to date, the City is currently estimating that Fiscal Year 2021 General Fund expenditures will approximate the adjusted budget (and approximately $23.6 million higher than actual Fiscal Year 2020 expenditures), while the Fiscal Year 2021 General Fund adjusted revenue estimates are approximately $16.4 million higher than originally budgeted (and approximately $23.7 million higher than actual Fiscal Year 2020 revenue). The Fiscal Year 2022 for the General Fund was similarly developed conservatively, taking the COVID- 19 outbreak into consideration, and reflected: (i) an increase in expenditures of approximately $19 million or 5.7% above Fiscal Year 2021 adjusted budgeted expenditures; and (ii) an increase in revenues of approximately $17.1 million or 5.3% above Fiscal Year 2021 adjusted estimated revenues. See the captions “CITY FINANCIAL INFORMATION—General Economic Condition and Outlook of the City” and “CITY FINANCIAL INFORMATION—Budget Procedure, Current Budget and Historical Budget Information—Fiscal Year 2021 Budget” and “—Budget Procedure, Current Budget and Historical Budget Information—Fiscal Year 2022 Budget.”