Item 23 - Pension Debt Refinancing Update and Underwriter Selection

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STIFEL B. Given current market conditions and interest rate environment, please recommend the optimal POB structure, including any structuring ideas that may be appropriate for refinancing the UAL. Please discuss any specific structuring considerations that may pertain to POBs in general including the specific bases to be funded with POB proceeds. In your discussion of any alternative financing ideas that the City should consider, please be clear as to the risks and/or considerations involved with the potential structure. We understand that the City has been working with its advisor in identifying all the 'tools in the toolbox' to combat rising pension costs, including POBs. POBs are an important financial decision and can be a valuable tool to help stabilize costs; however, they should be considered as just one component of a more comprehensive pension management plan. Our recommendations below fit within 4 specific objectives designed to address the immediate concerns of rising costs while preparing the City for long-term fiscal sustainability. Objective Recommendation 1. Achieve Long -Term —Refinance $385 million of UAL with 2021 POBs Fiscal Sustainability —Target Short/Long-Term Safety Bases 2. Mitigate Market Timing Risks —Given Risks, Target 85% Funded Ratio with 2021 POBs (Funding a Higher % May Limit Available Tools in the Future) 3. Design Optimal Structure —'Modified Level' Repayment Schedule (Present -Forward Thinking) —Modest 'Upfront' Savings to Bolster Reserves —Shorten UAL Payments by 3 Years to 2044 —Evaluate Use of Insurance from BAM 4. Ongoing Liability Management —Earmark Surplus Revenues for Contributions —Dedicate Deferred UAL/POB Savings to Pay Down Liabilities —Future POBs Dictated by Pension Policy 1. Achieve Fiscal Sustainability Refinance $385 million of Safety Plan Bases; Balanced Approach (Short and Long -Term) to Targeting Bases. It is our understanding that the City is considering refinancing anywhere from 50% ($372 million) to 90% ($671 million) of its unfunded liabilities. Over the past few years, most POB issuers have opted to refinance 100% and while an attractive prospect given the historic low interest rate environment, market timing vis-a-vis CalPERS investment performance merits careful consideration and analysis, as we further explain in the second step of our 4-step pension management plan ('Mitigate Market Timing Risks'). In short, a dollar -cost -average strategy to issuing and investing can help address these concerns. We believe the most prudent approach is for the City to target a payoff amount of $385M, or roughly half of the City's outstanding pension liabilities, which would result in a funded ratio of 85%. As explained below, after a few years, the City could evaluate the need to refinance the remaining half. Please see the chart below for estimated savings for each of the considered funding scenarios. Assuming a partial refinancing, issuers have the discretion to apply POB proceeds either on a pro-rata basis or toward specific amortization bases. Given our objective of long-term fiscal sustainability, we recommend targeting both short and long-term bases. This approach is designed to achieve long-term savings while providing near -term flexibility to proactively manage future pension costs. Addressing solely long-term bases will limit near -term flexibility and targeting only short- term bases would not address long-term fiscal sustainability. Since our primary concern is the General Fund, and because the General Fund is financially responsible for 100% of the Safety Plan and only 72% of the Miscellaneous Plan, we focus our analysis on the Safety Plan. As illustrated on the following page, we have carefully selected short and long-term Safety Plan bases that aggregate to roughly $385M, which if prepaid, would bring the City's UAL funded ratio to 85%. Scenario Recommended Alternative Funded Ratio 85% 97% Par Amount $387,190 $638,790 TIC 2.76% 2.75% UAL Savings $176,311 $291,242 $ NPV $139,152 $240,479 % NPV 36% 38% Primary Benefit Mitigates Higher Timing Risks PV Savings Both scenarios incorporates our structure recommendations (Step 4: 'Design Optimal Structure') on the following page. City of Santa Ana I Proposal to Provide Underwriting Services Page 9