Item 23 - Pension Debt Refinancing Update and Underwriter Selection

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RFP No. 21-025 EXHIBIT B Consider Pension Debt Refinancing and Policy February 2, 2021 Page 7 2. It shall be the City's policy to consider an additional discretionary payment to reduce the unfunded pension liability during each annual budget process, when staff identifies accumulated fund balance in excess of reserve policy requirements. 3. It shall be the City's policy to propose reductions of the City's normal cost contribution during labor negotiations, based upon the plan funding ratio and the City's current and forecasted financial position. 4. It shall be the City's policy to consider paying down the unfunded pension liability when there is at least $20 million of cash available for capital projects, and it is feasible and economically prudent to issue tax-exempt debt for the projects. 5. It shall be the City's policy to consider adding money to the Section 115 Trust account during each annual budget process. 6. It shall be the City's policy to consider issuing pension obligation bonds only if the following criteria exist. a. The City Council must conduct a public meeting to consider the results of an analysis quantifying the risk probability of the City paying more over the life of the bonds. b. To maximize potential savings, the bond interest rate must be at least 30% less than the plan's current discount rate. c. To ensure the City benefits from the possible scenario of actual plan results exceeding Ca/PERS assumptions shortly after issuing debt, the bonds must not exceed 90% of the unfunded liability. d. The bond structure must not extend the life of the debt. e. The City must not use bond proceeds to pay the normal cost of the pension plan. Next steps If the City Council directs staff to move forward with the pension debt refinancing, staff will need to propose a contract for bond counsel services, and the bond counsel will need to write a resolution for the City Council to consider authorizing the sale of pension obligation bonds. After adoption of the resolution, bond counsel can move forward with the court validation process with the Orange County Superior Court, which may take up to six (6) months. During that same time, the City can release a Request for Proposals (RFP) for bond underwriting services to ensure the best pricing and service. Once the City receives its court validation, the bond financing team (staff, bond counsel, financial advisor, and underwriter) will propose a bond indenture, bond purchase agreement, and Preliminary Official Statement for City Council consideration. The City can sell the bonds only after City Council approves these additional documents. A summary of the process follows, and each step requires City Council approval.