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Finance and Management Services <br />www.santa-ana.org/finance <br />Item # 21 <br />City of Santa Ana <br />20 Civic Center Plaza, Santa Ana, CA 92701 <br />Staff Report <br />February 2, 2021 <br />TOPIC: Consider Pension Debt Refinancing and Policy <br />AGENDA TITLE: <br />Consider refinancing the city's employee pension debt and adoption of the proposed <br />Unfunded Employee Pension Liability Cost Reduction Policy <br />RECOMMENDED ACTION <br />1. Determine whether to proceed with refinancing any portion of the pension debt. If City <br />Council wishes to proceed with pension debt refinancing: <br />a. Direct staff to propose a contract for bond counsel services to prepare a <br />resolution for City Council consideration authorizing the sale of pension <br />obligation bonds, which is necessary to begin the court validation process to <br />refinance the pension debt; and <br />b. Adopt the proposed Unfunded Employee Pension Liability Cost Reduction <br />Policy. <br />EXECUTIVE SUMMARY <br />The City's contributions to the employee pension plan continue to grow faster than the <br />City's revenue sources. On April 21, 2020, City Council directed staff to return with a <br />feasibility analysis for refinancing the employee pension liability to save money. Exhibit <br />1 to this report includes the feasibility analysis prepared by our Financial Advisor Urban <br />Futures Inc. (UFI) in cooperation with staff. Although we considered many different <br />methods for reducing pension debt costs, the most realistic strategy follows. <br />1. Refinance up to 90% of the pension debt by issuing taxable pension obligation <br />bonds, which could produce annual savings of up to approximately $3.8 million. <br />2. Use accumulated cash in the Water Enterprise fund to pay its $13.5 million pension <br />debt for water employees, and obtain less expensive tax-exempt debt financing for <br />planned water infrastructure projects. <br />There is a risk to refinancing the pension debt. If the employee pension plan consistently <br />outperforms CaIPERS assumptions over the next 20+ years, the City may pay more for <br />its pension debt, as discussed later in this report. <br />