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

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24 4826-7904-2280v7/200434-0005 See the caption “—City Financial Statements” for a discussion of the City’s audited financial statements for Fiscal Year 2020. The General Fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund. All general revenues collected by the City are accounted for in the General Fund or in one of twelve other self-restricted funds maintained by the City (the “Self-Restricted Funds”). Historically, the Self-Restricted Funds have represented approximately 6% of total general revenues. Amounts in the General Fund are available to pay debt service on the Bonds. In addition, amounts in the Self-Restricted Funds are available to pay debt service on the Bonds upon action by the City Council to unrestrict any or all of such funds. Though certain portions of the information set forth in this Official Statement relate only to the General Fund, the tables below set forth certain historical and current Fiscal Year budget and audited information for the General Fund and the Self-Restricted Funds. Additional information on the General Fund and the Self-Restricted Funds of the City as of June 30, 2020 is set forth in Appendix A. The information presented in Tables 9, 10, and 11 below combines the activity for both the General Fund and the Self-Restricted Funds, with the General Fund encompassing over ninety five percent (95%) of both the revenues and expenditures. Beginning with the audited financials for the Fiscal Year ending June 30, 2021, the City will be presenting the General Fund separately from the Self-Restricted Funds. Furthermore, the City’s annual continuing disclosure filing due March 31, 2022 and going forward will also include the General Fund presented separately from the Self-Restricted Funds. See “CONTINUING DISCLOSURE” for a discussion of the continuing disclosure undertaking to be entered into by the City in connection with the issuance of the Bonds. Fiscal Policies The City has adopted several financial policies in order to provide financial stability. Reserve Policy. In 2021, the City updated a formal budget and reserve policy (the “Reserve Policy”), which provides guidelines for a balanced budget approach, use of one-time funds, and appropriate reserve levels as recommended by the Government Finance Officers Association. During Fiscal Year 2021, the City continued to maintain a reserve for the General Fund, which totaled approximately $58.2 million, totaling approximately 18% of annual recurring revenue required by the Reserve Policy. Debt Management Policy. The City’s Debt Management Policy is intended to comply with the Senate Bill 1029 Amendment to the California Government Code Section 8855(i), effective on January 1, 2017, and governs all debt undertaken by the City, including debt issued by the City on behalf of third parties. Third-party debt includes assessment districts and community facilities districts, as well as conduit debt. Pension Funding Policy. The City’s Unfunded Employee Pension Liability Cost Reduction Policy outlines cost reduction strategies such as the targeted application of additional discretionary payments, as well as acceptable parameters for issuing pension obligation bonds. Budget Procedure, Current Budget and Historical Budget Information General. The City’s budgetary process is guided by the City Council’s priorities, with input from residents, neighborhood groups, boards, commissions and businesses following neighborhood meetings and various year-round opportunities for suggestions and comments. Annual budgets are adopted on a basis that is consistent with generally accepted accounting principles for governmental funds, except that encumbrances are shown in the year incurred for budgetary purposes. All annual appropriations lapse at fiscal year-end. The City uses the following procedures in establishing the annual budget: In November, budget instructions and budget assumptions are distributed to all departmental budget liaisons to incorporate within their