Item 23 - Pension Debt Refinancing Update and Underwriter Selection

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RAMIREL i' Provide a brief summary of your specific structuring ideas including the assumptions of which CalPERS UAL bases to fund the maximize savings based on the two scenarios described above. Describe how proposer would lead the transaction as a senior manager. Specifically, provide your strategies and approaches to help ensure the transaction is executed efficiently. A Word on Credit. Prior to the COVID-19 shutdown, the City's financial profile was on an upward trajectory. General Fund revenues were increasing with the approval of the Measure X sales tax, new cannabis related tax revenues and online sales revenues (Bradley -Burns). Then, COVID-19 brought significant financial uncertainty. However, due to the City's proactive management and conservative budgeting, the financial impacts were not as severe as originally anticipated. The City's FY2020 audit shows that strong liquidity was maintained with an unassigned General Fund balance of $74 million or 24% of expenditures. These factors will be a critical component of the rating process. The City's approved FY2021 budget projected a structural deficit in the "Ten -Year General Fund Financial Outlook" and significant revenue decreases in FY2021 resulting from COVID-19. However, the City's Mid - Year Budget Update (February 16, 2021) indicated the City's financial results are stronger than anticipated by $13.1 million. Downward adjustments, to the Hotel Visitors Tax, Utility Users Tax, Paramedics Service Charge and Parks and Recreation revenues, were mitigated by stronger than expected Sales Tax revenues ($12.5 million higher than prior estimates) that included Bradley -Burns online sales taxes and Measure X. One very significant new revenue source is the Score Rating City's Adult -Use Retail Cannabis tax, which is projected to produce $16.9 1.00-1.64 AAA million in revenue ($7.25 million increase from approved budget). One 1.95 - 2.34 AA 2.35 - 2.84 AA - additional credit positive is the 3% decrease in General Fund expenditures. 2.85 - 3.24 A+ The Ramirez & Co. team includes Peter Block, a former 14-year S&P State & 3.25-3.64 3.65 - 3.94 A A - Local Gov't Rating Analyst. With Peter's help, we developed a credit model to 3.95 - 4.24 BBB+ provide an indicative rating for the City's upcoming POB transaction. 4.25 - 4.54 BBB 4.55 - 4.74 BBB - The adjacent tables detail S&P's Local Government Score Card, which 4.75-4.94 BB we used to calculate an indicative 'AA' category rating. 4.95-5.00 B Weight Category Score Comments 30% Economy 2.5 Weak per capita income, strong MSA 20% Management 2 Financial policies & budget monitoring/reporting 10% Budgetary Flexibility 1 Available GF Balance is 25% of expenditures 10% Budgetary Performance 1 Operating surplus in the GF and total gov't funds level 10% Liquidity 1 Available Cash well above 15% of Gov't Fund Expenditures Net direct debt below 3%, but high as a percentage of total 10% Debt & Contingent Liability 5 governmental funds revs; driven by pensions and OPEB 10% Institutional Framework 3 Standard score for all California cities Notably, we assign the highest rating to the City's Budgetary Flexibility, Budgetary Performance and Liquidity. However, like most California cities, the City's debt and contingency liability is weak due to large unfunded pension/OPEB liabilities. Institutional Framework is based on the legal environment of the issuer and cannot be controlled by the City. Given this, our focus will be to articulate the strengths of the City's Management Team and the local/regional Economy. K