Item 23 - Pension Debt Refinancing Update and Underwriter Selection

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RFP No. 21-025 EXHIBIT B Evaluating the Opportunity Cost requires you to decide whether to continue to fund/increase reserves or to pay down the UAL. Currently, the City's pension liability is accruing at 7.00% rate, while the City's investments are earning 1.016% as of October 2020. Under these investment parameters, the City should seek to pre -pay its UAL when excess reserves or 1-time monies become available. The City should consider making $13.5 million in Additional Discretionary Payments (ADPs) to Ca1PERS. The Water Enterprise share of the unfunded liability is $13.5 million and is staffed by non -sworn personnel. To maximize overall savings, the ADP should target Miscellaneous Base #16 (amortized over 27 years) = $37.9 million. By making $13.5 million in ADPs (from Water Fund reserves) and selecting Base #16 the City would eliminate $31 million in UAL payments (Net savings = $17.5 Million)and would fully fund the Water Enterprise's current UAL. $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 ADP Base #16 - $13.5 Million Water Fund ■ Original Payments O O O O O O O O O O O O O O O O O O O O O O O O O O O N N N N N N N N N N N N N N N N N N N N N N N N N N N • Pro-Rata reduction in balance & payments • $31 Million Total Savings / $17.5 million Net Savings Leveraged Refunding The City will be presented with opportunity to refund its outstanding bonds periodically. In such instances, the City should consider a "Leveraged Refunding". A leveraged refunding structures the refunding bonds with "up -front" savings in the first few years, then applies these savings to pay for a portion of the City's UAL. When applied to a long-term base, the saving from the bond refunding could be leveraged in 2.0 — 2.5X times greater pension cost savings.