Item 23 - Pension Debt Refinancing Update and Underwriter Selection

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RFP No. 21-025 EXHIBIT B To offset market risk prior to the issuance of bonds, UFI recommends the City consider the following: • Taxable Bond Interest Rates o The City should only issue POBs in a favorable interest rate environment • Status of CalPERS investment returns historically and year to date; and based on FY 2018- 19 CalPERS data o The 30-year average investment return for CAPERS is roughly 8.1% o The 5-year and 20-year averages are 5.80% (below the 7% discount assumption) o Significant losses (i.e., 20% decline) by CalPERS in the first 12-24 months would impact savings Validation Proceedings In California, POBs do not require voter approval due to a judicially created exception to the State Constitutional debt limitation. However, to obtain authorization to issue POBs, each agency is required to file a validation action with its respective County Superior Court. The judicial proceedings are largely an administrative matter, which is usually handled by a bond counsel firm. Fees typically range between $25,000 to $35,000, plus court filing fees (additional $3,000 to $5,000). Required Legal Documents - Before the validation action is filed, the City Council must first adopt a resolution: 1) authorizing the City to issue Pension Obligation Bonds (POBs) to refund its CalPERS Unfunded Accrued Liability (UAL); and 2) authorizing judicial validation proceedings related the issuance of such POBs. The authorizing resolution must also establish a not -to -exceed par value and maximum interest rate. As part of its approval, the City Council will approve two key legal documents, in substantially final form: Trust Indenture and Bond Purchase Agreement. The Preliminary Official Statement (POS) will be drafted and approved by the City Council, after the validation is approved. Timeline - The validation proceedings require a 7-step sequential process, which under normal conditions can take approximately 90 days or more. This process can be delayed if a protest is made during validation period by any interested person or association and has been extended in some cases by at much as 2-3 months due to COVID impacts on the courts. Because we do not know the impacts of COVID on the court system at the time of a future validation action we are outline the traditionally process and estimated timeline under pre-COVID conditions below: Action Revised Time 1 City Council passes a resolution authorizing the sale of POBs 2 File Validation Action with County Superior Court 3 Receive Order for Publication of Summons from the Court 2-3 weeks 4 Publish notice in local publication of general circulation 21 days 5 Waiting period to file petition- minimum 10 days 3-4weeks