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Item 40 - Refinancing City’s Pension Obligations with California Public Employees Retirement System
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08/17/2021 Regular
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Item 40 - Refinancing City’s Pension Obligations with California Public Employees Retirement System
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8/17/2023 4:15:55 PM
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Agenda Packet
Agency
Clerk of the Council
Item #
40
Date
8/17/2021
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<br />55 <br />4826-7904-2280v7/200434-0005 <br />The amount by which a Bond Beneficial Owner’s original basis for determining loss on sale or exchange <br />in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier <br />call date) constitutes amortizable bond premium, which the Beneficial Owner of a Bond may elect to amortize <br />under Section 171 of the Code; such amortizable bond premium reduces the Bond Beneficial Owner’s basis in <br />the applicable Bond (and the amount of taxable interest received with respect to the Bonds), and is deductible <br />for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result <br />in a Bond Beneficial Owner realizing a taxable gain when a Bond is sold by the Beneficial Owner for an amount <br />equal to or less (under certain circumstances) than the original cost of the Bond to the Beneficial Owner. The <br />Beneficial Owners of the Bonds that have a basis in the Bonds that is greater than the principal amount of the <br />Bonds should consult their own tax advisors with respect to whether or not they should elect such premium under <br />Section 171 of the Code. <br />In the event of a legal defeasance of the Bonds, such Bonds might be treated as retired and “reissued” <br />for federal tax purposes as of the date of the defeasance, potentially resulting in recognition of taxable gain or <br />loss to the applicable Beneficial Owner generally equal to the difference between the amount deemed realized <br />from the deemed prepayment and reissuance and the Beneficial Owner’s adjusted tax basis in such Bond. <br />The tax discussion set forth above is included for general information only and may not be applicable <br />depending upon a Bond Owner’s particular situation. The ownership and disposal of the Bonds and the accrual <br />or receipt of interest on the Bonds may otherwise affect the tax liability of certain persons. Bond Counsel <br />expresses no opinion regarding any such tax consequences. BEFORE PURCHASING ANY OF THE BONDS, <br />ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR INDEPENDENT TAX ADVISORS WITH <br />RESPECT TO THE TAX CONSEQUENCES RELATING TO THE BONDS AND THE TAXPAYER’S <br />PARTICULAR CIRCUMSTANCES. <br />A copy of the proposed form of opinion of Bond Counsel with respect to the Bonds is set forth in <br />Appendix D. <br />VALIDATION <br />On March 17, 2021, the City, acting pursuant to the provisions of Section 860 et seq. of the California <br />Code of Civil Procedure, filed the Validation Petition in the Court seeking judicial validation of the transactions <br />relating to the CalPERS Contract and the Bonds and certain other matters. On June 25, 2021, the court entered <br />the Validation Judgment to the effect, among other things that: (i) the Trust Agreement will be a valid, legal and <br />binding obligation of the City and the approval thereof was in conformity with applicable provisions of law; and <br />(ii) the City has the authority under State law to provide for the refunding of its Pension Liability by issuing the <br />Bonds and applying the proceeds of the Bonds to the retirement of its Pension Liability. Pursuant to Section 870 <br />of the California Code of Civil Procedure, the last day to timely file a notice of appeal to the Validation Judgment <br />was July 25, 2021. On July 25, 2021, the judgment became binding and conclusive in accordance with State <br />law. <br />The City is unaware of any threatened challenge to the Validation Judgment. In issuing its approving <br />opinion, Bond Counsel will rely, among other things, upon the Validation Judgment. <br />CERTAIN LEGAL MATTERS <br />The validity of the Bonds and certain other legal matters are subject to the approving opinion of Bond <br />Counsel. A complete copy of the proposed form of Bond Counsel opinion is set forth in Appendix D. Certain <br />additional matters will be passed upon by Stradling Yocca Carlson & Rauth, a Professional Corporation, as <br />Disclosure Counsel to the City. Certain legal matters will be passed upon for the City by the City Attorney, for <br />the Underwriters by their counsel, Hawkins Delafield & Wood LLP, and for the Trustee by its counsel. Bond <br />Counsel has not undertaken any responsibility to the owners of the Bonds for the accuracy, completeness or
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