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Item 21 - Consider Pension Debt Refinancing and Policy
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Item 21 - Consider Pension Debt Refinancing and Policy
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Agenda Packet
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Clerk of the Council
Item #
21
Date
2/2/2021
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Consider Pension Debt Refinancing and Policy <br />February 2, 2021 <br />Page 7 <br />2. It shall be the City's policy to consider an additional discretionary payment to <br />reduce the unfunded pension liability during each annual budget process, when <br />staff identifies accumulated fund balance in excess of reserve policy requirements. <br />3. It shall be the City's policy to propose reductions of the City's normal cost <br />contribution during labor negotiations, based upon the plan funding ratio and the <br />City's current and forecasted financial position. <br />4. It shall be the City's policy to consider paying down the unfunded pension liability <br />when there is at least $20 million of cash available for capital projects, and it is <br />feasible and economically prudent to issue tax-exempt debt for the projects. <br />5. It shall be the City's policy to consider adding money to the Section 115 Trust <br />account during each annual budget process. <br />6. It shall be the City's policy to consider issuing pension obligation bonds only if the <br />following criteria exist. <br />a. The City Council must conduct a public meeting to consider the results of <br />an analysis quantifying the risk probability of the City paying more over the <br />life of the bonds. <br />b. To maximize potential savings, the bond interest rate must be at least 30% <br />less than the plan's current discount rate. <br />c. To ensure the City benefits from the possible scenario of actual plan results <br />exceeding Ca/PERS assumptions shortly after issuing debt, the bonds must <br />not exceed 90% of the unfunded liability. <br />d. The bond structure must not extend the life of the debt. <br />e. The City must not use bond proceeds to pay the normal cost of the pension <br />plan. <br />Next steps <br />If the City Council directs staff to move forward with the pension debt refinancing, staff <br />will need to propose a contract for bond counsel services, and the bond counsel will need <br />to write a resolution for the City Council to consider authorizing the sale of pension <br />obligation bonds. <br />After adoption of the resolution, bond counsel can move forward with the court validation <br />process with the Orange County Superior Court, which may take up to six (6) months. <br />During that same time, the City can release a Request for Proposals (RFP) for bond <br />underwriting services to ensure the best pricing and service. Once the City receives its <br />court validation, the bond financing team (staff, bond counsel, financial advisor, and <br />underwriter) will propose a bond indenture, bond purchase agreement, and Preliminary <br />Official Statement for City Council consideration. The City can sell the bonds only after <br />City Council approves these additional documents. <br />A summary of the process follows, and each step requires City Council approval. <br />
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