TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, City Manager
FROM:
Steve S. Charelian, Finance Director
Julie Bondarchuk, Acting Controller
Libby Bretthauer, Senior Financial Analyst
SUBJECT:Title
Consideration of Pension Obligation Bonds Financing Structure Options and Pension Policy (Finance Director Charelian).
APPROVE
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council approve Pension Obligation Bond (POB) Financing Structure Option #2, with 100% UAL Funding and all plans maturing in 2043, and approve the Unfunded Pension Liability Policy.
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FISCAL IMPLICATIONS:
As of June 30, 2019, the most current actuarial valuation available from CalPERS, the City's Unfunded Accrued Liabilities (UAL) for all citywide employees and retirees is approximately $91.5 million. Approximately 69% of the UAL is related to sworn Police and Fire Department ("Public Safety") employees, and 31% is related to non-safety ("Miscellaneous") employees.
The City's required annual UAL payments to CalPERS were projected to range from approximately $6.7 million in fiscal year (FY) 2021-2022, up to approximately $10.0 million in the peak year of FY 2031-2032. To prevent these variable rising costs from impacting future balanced budgets and essential service levels, staff explored various long-term options to reduce the UAL that would: (1) preserve the City's fiscal integrity; (2) take advantage of current historically low interest rates; and (3) create fixed costs with level-debt payments.
The issuance of Pension Obligation Bonds (POBs) will achieve these goals for the City. When the concept was first introduced last November, a present value savings of $31.8 million was estimated based on interest rates at the time. Since then, interest rates have continued to drop to the City's benefit. At current rates, POBs could potentially save the City over $33.8 million (present va...
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