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Resolution authorizing the issuance and refinancing of the City’s Pension obligations with <br />CalPERS <br />August 17, 2021 <br />Page 6 <br />1 <br />9 <br />9 <br />3 <br />Compliance with City Council Policy <br />On February 2, 2021, the City Council adopted the Unfunded Employee Pension Liability <br />Cost Reduction Policy. The proposed refinancing is compliant with the City Council <br />policy. Specifically, staff will direct CalPERS to apply the bond proceeds to the layers of <br />unfunded liability (loss bases) with the longest amortization periods to maximize overall <br />savings. In addition, the Policy requires the City to consider issuing pension obligation <br />bonds only if the following criteria exist. <br />Policy Criteria Compliance <br />The City Council must conduct a public <br />meeting to consider the results of an <br />analysis quantifying the risk probability of <br />the City paying more over the life of the <br />bonds. <br />Public meeting conducted on February 2, <br />2021 including review of the <br />comprehensive analysis. <br />To maximize potential savings, the bond <br />interest rate must be at least 30% less <br />than the plan’s current discount rate. <br />The estimate bond rate is approximately <br />2.9%, which is 57% less than the new <br />6.8% discount rate effective June 30, <br />2021. <br />To ensure the City benefits from the <br />possible scenario of actual plan results <br />exceeding CalPERS assumptions shortly <br />after issuing debt, the bonds must not <br />exceed 90% of the unfunded liability. <br />The CalPERS estimate of the unfunded <br />liability as of September 2021 is $570 <br />million, factoring in the recent investment <br />returns and the corresponding reduction of <br />the discount rate to 6.8%. The bond issue <br />will not exceed $513 million (90% of the <br />estimated $570 million unfunded liability). <br />The bond structure must not extend the <br />life of the debt. <br />The current CalPERS amortization <br />includes payments through 2046. Bond <br />debt service payments will end no later <br />than 2046. <br />The City must not use bond proceeds to <br />pay the normal cost of the pension plan. <br />Staff will direct CalPERS to apply bond <br />proceeds only to the unfunded liability. <br />The current year budget includes full <br />funding for the City’s normal cost <br />contributions. <br />Next Steps <br />Staff will report final actual results to the City Council at least twice, as follows. <br />Bond issue results with the September 21, 2021 agenda. <br />Fresh Start results and an updated 10-Year Outlook for the General Fund with the <br />Midyear Report scheduled for February 15, 2022.