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[ CALL TO ORDER: Council Chamber INVOCATION: City Attorney Jones PLEDGE OF ALLEGIANCE: Councilmember Gomez ROLL CALL: Mayor Espinoza Mayor Pro Tem Medrano Councilmember Gomez Councilmember Shaw Councilmember Simonian]

[00:00:03]

GOOD AFTERNOON.

I WILL NOW CALL TO ORDER THE SPECIAL MEETING OF THE CITY COUNCIL OF APRIL 8TH, 2021.

LET THE RECORD REFLECT THAT IT IS 3:00 PM.

THE INVOCATION WILL BE GIVEN BY ASSISTANT CITY ATTORNEY KEITH COLLINS FOLLOWED BY THE PLEDGE OF ALLEGIANCE LED BY COUNCIL MEMBER GOMEZ.

DEAR GOD, WE HUMBLY PRAY THAT YOU WILL GRANT WISDOM TO THE CITY COUNCIL AS IT CONSIDERS CITY BUSINESS SET FORTH IN THE MEETING AGENDA.

TODAY, WE ASK THAT YOU PROVIDE THE CITY COUNCIL WITH INSIGHT AND UNDERSTANDING OF THE RESPONSIBILITIES AND CHALLENGES CONFRONTING OUR COUNCIL, STAFF, AND CITIZENS SO THAT TOGETHER WE CAN STRIVE TO SOLVE THESE ISSUES WITH COMMUNITY SPIRIT AND PARTNERSHIP IN MIND, PLEASE BLESS THE COUNCIL IN ITS DECISION-MAKING TONIGHT SO THAT WE MAY ACT PRUDENTLY AND RESPONSIBLY FOR THE GOOD OF THE LAHABRA COMMUNITY.

AMEN.

THANK YOU, KEITH.

WE ALL, PLEASE JOIN ME IN REPEAT AFTER ME.

I PLEDGE ALLEGIANCE TO THE FLAG OF THE UNITED STATES OF AMERICA AND TO THE REPUBLIC FOR WHICH IT STANDS ONE NATION UNDER GOD, INDIVISIBLE WITH LIBERTY AND JUSTICE FOR ALL.

OKAY, THANK YOU VERY MUCH.

UH, WHAT THE CLERK CALL ROLE PLEASE? COUNCIL MEMBER SIMONIAN, COUNCIL MEMBER SHAW COUNCIL MEMBER GOMEZ OF STAYING HERE.

MAYOR PRO TEM MAGENTO MERO.

SPINOSA HERE.

THANK YOU VERY MUCH.

WE WILL NOW PROCEED TO PUBLIC COMMENTS.

UH, THE GENERAL PUBLIC COMMENTS SHALL BE RECEIVED AT THE BEGINNING OF THE GOVERNING BODY MEETING AND LIMITED TO THREE MINUTES PER INDIVIDUAL WITH A TOTAL TIME LIMIT OF 30 MINUTES FOR ALL PUBLIC COMMENTS, UNLESS OTHERWISE MODIFIED BY THE MAYOR OR A CHAIR.

SPEAKING TIME MAY BE GRANTED AND OR LAW MAY NOT BE GRANTED AND, OR LOANED IT TO ANOTHER INDIVIDUAL FOR PURPOSES OF EXTENDING SPEAKING TIME, AND COMMENTS MUST BE KEPT BRIEF AND NON-REPETITIVE AND PROFESSIONAL IN NATURE.

THE GENERAL PUBLIC COMMON PORTION OF THIS MEETING ALLOWS THE PUBLIC TO ADDRESS ANY ITEM OF CITY BUSINESS, NOT APPEARING ON THE SCHEDULE, THE AGENDA PER GOVERNMENT CODE SECTION FIVE, FOUR NINE FIVE, 4.38, SUCH COMMON SHALL NOT BE RESPONDED TO BY THE GOVERNING BODY.

DURING THE MEETING.

WE NOW HAVE

[ STUDY SESSION:]

A, UM, THE STUDY SESSION PRESENTATION OF PENSION OBLIGATION, BONDS, POB OPTIONS, ANALYSIS, AND REVIEW.

AND SO WE WILL PROCEED WITH THE STAFF REPORT.

THANK YOU, MADAM MAYOR.

UM, TODAY IS, UH, EXACTLY WHAT YOU JUST SAID IS A STUDY SESSION OF COUNCIL.

UM, WE HAVE STAFF FROM THE FINANCE DIRECTOR OR, UH, FINANCE DEPARTMENT, FINANCE DIRECTOR, UM, L SHANNON TO PRESENT, UH, UH, PORTION OF THIS PRESENTATION TODAY, AS WELL AS SOME OF OUR ADVISORS AND CONSULTANTS THAT ARE, UH, VERSED IN THE PENSION OBLIGATION BOND ISSUANCE FIELD.

UM, THE REASON WE'RE COMING FORWARD TO YOU TODAY WITH THIS IS THAT YOU MAY HAVE READ RECENTLY A NUMBER OF CITIES UP AND DOWN THE STATE HAVE BEEN ISSUING PENSION OBLIGATION BONDS AS A TOOL TO HELP MANAGE THEIR UNFUNDED LIABILITIES IN THEIR PENSION SYSTEMS. UM, WE FELT IT APPROPRIATE TO BRING THIS TO COUNCIL AS A STUDY SESSION ITEM TO REVIEW THE PROS AND CONS OF WHAT PENSION OBLIGATION BONDS CAN DO FOR A JURISDICTION, BUT ALSO THE RISKS ASSOCIATED WITH THOSE, UH, DECISIONS TO ISSUE BONDS.

AND THEN AT THE END OF THE MEETING TO ASK FOR SOME DIRECTION, AS FAR AS WHAT THE NEXT STEPS WOULD BE, UH, I WOULD ENCOURAGE YOU THROUGHOUT THE PRESENTATION AS QUESTIONS ARISE TO ASK THOSE QUESTIONS AT THAT POINT, BECAUSE THAT WAY WE CAN HELP TRY TO ANSWER QUESTIONS AS THEY COME UP.

UM, AND THEN WE'LL GET TO THE END OF THE PRESENTATION.

SO WITH THAT, I'LL HAND IT OVER TO OUR FINANCE DIRECTOR, MEL SHANNON, GOOD AFTERNOON, MADAM MAYOR AND COUNCIL MEMBERS.

WE ARE HERE THIS AFTERNOON TO DO A PRESENTATION ON PENSION OBLIGATION, BOND OPTIONS AND ANALYSIS AND REVIEW CITY STAFF HAS TAKEN SEVERAL OPPORTUNITIES IN THE PAST TO KEEP COUNCIL INFORMED AND AWARE OF THE RISING PENSION COSTS, WHICH CONTINUE TO BE THE NUMBER ONE FINANCIAL CONCERN, EXERTING PRESSURE ON OUR ABILITY TO BALANCE OUR CITY BUDGETS.

THIS POB STUDY SESSION IS ANOTHER OPPORTUNITY FOR US TO PRESENT SOME OPTIONS IN ADDRESSING THIS ONGOING AND ESCALATING PROBLEM DUE TO THE HISTORICALLY LOW INTEREST RATES THAT FINANCIAL MARKETS ARE CURRENTLY EXPERIENCING.

THE CITY HAS AN OPPORTUNITY TO HAS AN OPPORTUNITY TO POTENTIALLY GENERATE FUTURE BUDGETARY SAVINGS AND REDUCE LONG-TERM PENSION COSTS.

THE CITY CAN ACCOMPLISH THIS GOAL BY ISSUING PENSION OBLIGATION BONDS THAT REFINANCE THE CITY'S UNFUNDED ACCRUED LIABILITY WITH THE CALIFORNIA PUBLIC EMPLOYEES, RETIREMENT SYSTEM, CALPERS, THE POB PRESENTATION, HE'LL GO STRAIGHT TO A POTENTIAL TOOL TO ADDRESS THESE CONCERNS.

THIS PRESENTATION WOULD BE DIVIDED INTO FOUR SECTIONS WITH FOUR SPEAKERS.

OUR FIRST

[00:05:01]

SECTION STARTS WITH THE HISTORY OF THE CITY OF LA HARBOR.

PENSIONS WILL BE BY OUR FINANCE MANAGER, JACK BON VAN.

IT NUMBER TWO WOULD BE THE REVIEW OF OUR PENSION OBLIGATION BOND STRUCTURE BY OUR FINANCIAL OR MUNICIPAL ADVISOR.

JIM FABIAN, HE'S A PRINCIPAL WITH PHILBIN ROLLED UP AND ASSOCIATES, A PRIMER ON RISKS, BENEFITS OF PENSION OBLIGATION BONDS BY MARYBETH REDDING.

VICE-PRESIDENT WITH BARTELL AND ASSOCIATES, LLC.

THE COMPANY THAT THE CITY CONTRACTS WITH FOR EXTRA AERIAL SERVICES AND STAFF RECOMMENDATIONS BY MYSELF.

SO I LIKE TO START OFF WITH THE HISTORY OF THE CITY PENSIONS BY JACK PINE BENNETT, OUR FINANCIAL MANAGER, GOOD AFTERNOON, COUNCIL, UH, JACK PAWN, VANTAGE FINANCE MANAGER.

SO THE FIRST SLIDE RIGHT HERE, WE'RE JUST GOING TO GIVE YOU THE BRIEF, UH, HISTORY OF, UM, LAHABRA PENSION PLAN.

SO CW HARBOR PROVIDE, UH, TWO PENSION PLANS TO FULL-TIME PERMANENT EMPLOYEES THROUGH CALPERS.

SO FIRST IS A SAFETY PLAN, UH, FOR SWORN PUBLIC SAFETY EMPLOYEES.

AND THE OTHER PLAN IS MISLEADING HIS PLANS FOR A NON-SWORN EMPLOYEES.

SO EACH PLAN HAS THREE DIFFERENT TIERS, UH, BASED ON MEMBERSHIP DATE.

THE FIRST TIER OR A CLASSIC TIER IS, UM, IS FOR EMPLOYEES WHO BECOME MEMBERS PRIOR TO JANUARY, 2012, AND TIER TWO MEMBERS ARE MEMBERS WHO BECOME MEMBERS OF THE CALPERS IN 2012.

AND THE LAST YEAR, WHICH IS PEPPER, UH, MEMBERS ARE THE MEMBERS THAT, UM, COME INTO THE PLAN AFTER 2012.

SO THE MAIN DIFFERENCES BETWEEN EACH TIER ARE BASICALLY BENEFIT FORMULAS AND FINAL, UH, AVERAGE COMPENSATION CALCULATION THAT CLASSIC MEMBERS OF FINAL AVERAGE COMPENSATIONS ARE CALCULATED OVER 12 LAST 12 MONTHS.

UH, THE OTHER MEMBERS FINAL AVERAGE COMPENSATION ARE CALCULATE OVER 36 MONTHS.

AND THEN AS YOU CAN SEE FROM THIS SLIDE, UM, THE BENEFIT FORMULAS ARE DIFFERENT BETWEEN THESE TIER.

FOR EXAMPLE, THE SAFETY PLAN, THE CLASSIC MEMBERS ARE 3% AT 50.

A TIER TWOS ARE 2% AT 50 AND THE PEPPER MEMBERS ARE TWO, A 2.7% AT 57.

THIS IS AN EXAMPLE.

SO NEXT SLIDE PLEASE.

SO THIS SLIDE RIGHT HERE SHOW YOU ACTUALLY THE BREAKDOWN OF A CITY OF LA HABRA MEMBERS.

SO THE ACTIVE MEMBERS ARE, AS YOU CAN SEE, WE ACTUALLY HAVE FOUR DIFFERENT, UM, MEMBERSHIP TYPE, YOU KNOW, THIS ACTIVE MEMBERS TRANSFER, UH, TERMINATED AND RETIRED MEMBERS.

SO IF YOU DIVE INTO THE NUMBERS, YOU CAN SEE THAT THE MOST OF THE MEMBERS ARE ACTUALLY, UH, CONSIDERED NO LONGER WITH THE CITY.

SO THERE WAS A TRANSFER TERMINATED OR A RETIRED.

SO IF YOU DO THE CALCULATION, YOU'D LOOK AT THE LAST COLUMN.

THE GRAND TOTAL OF THE MEMBERS, UM, NUMBERS IS 1,453.

SO IF YOU ADD UP THE TRANSFER TERMINATED AND RETIRE THAT UP, THAT ADD UP TO 1039 MEMBERS OR 72%.

SO THAT LEFT 28% FOR THE ACTIVE MEMBER THAT'S TO CONTRIBUTE TO THE PLAN.

SO THAT'S A MADE UP OF OUR, OUR CITY, RIGHT.

GO AHEAD AND MAKE ONE QUICK COMMENT.

SO I THINK WHAT'S SO IMPORTANT ABOUT THAT SLIDE IS TO, TO LET COUNCIL KNOW IN THE COMMUNITY NOW, IS THAT WHEN WE TALK ABOUT OUR PENSION SYSTEMS, WE'RE NOT JUST PAYING TOWARDS PENSIONS FOR THE EMPLOYEES THAT YOU SEE WORKING EVERYDAY AT THE CITY, RIGHT? THE, THE POLICE OFFICERS THAT ARE ON THE STREET, PEOPLE IN THE CITY HALL, WE ARE PROVIDING PENSION BENEFITS TO ALMOST 1500 EMPLOYEES.

PEOPLE THAT HAVE RETIRED FROM THE CITY IN THE PAST, PEOPLE THAT ARE NO LONGER WORKING FOR THE CITY, BUT THAT DID AT POINT, BUT MAY STILL BE WORKING.

AND I HAVE NOT STARTED DRAWING ON THEIR PENSION SYSTEMS YET.

SO THAT'S THE REASON, AND THAT'S A VERY COMMON PROBLEM FOR CITIES THAT ARE CONSIDERED LIKE LAHABRA THAT ARE OLDER, MORE ESTABLISHED PER CITIES, IS THAT YOU END UP WITH HAVING QUITE A FEW NUMBERS OF PRIOR EMPLOYEES, PLUS YOUR CURRENT EMPLOYEES THAT ARE PART OF YOUR PURSE CALCULATION.

SO YOU HAVE TO HAVE ENOUGH MONEY, NOT JUST TO PAY FOR YOUR FUTURE RETIREES THAT ARE CURRENTLY WORKING FOR YOU, BUT YOU'RE PAYING FOR TWO, ALMOST TWICE AS MANY EMPLOYEES THAT AREN'T EVEN HERE ANYMORE.

AND THAT'S JUST THE NATURE OF, OF A MATURE CITY PENSION SYSTEM.

AND THAT'S WHAT WE'RE FACING TODAY.

THAT'S PART OF THE DILEMMA.

AND WE ONLY HAD TO WORRY ABOUT PENSION OBLIGATIONS FOR OUR CURRENT EMPLOYEES WORKING FOR US.

WE WOULDN'T BE IN THIS SITUATION, RIGHT, BUT WE'RE PAYING FOR THREE TIMES AS MANY EMPLOYEES.

AND YOU'RE GOING TO SEE SOME SLIDES IN A FEW SLIDES.

THAT'LL TELL YOU THE MAGNITUDE OF THIS PROBLEM IN 10 YEARS AND IT'S IT'S SOBERING.

SO I WANTED TO JUST MAKE THAT ONE POINT.

SO NEXT SLIDE PLEASE.

[00:10:02]

SO THIS SLIDE HERE SHOWS THE, UM, THE CITY GENERAL FUND PROJECTED PENSION CONTRIBUTION.

UH, YOU CAN SEE THE BLUE LINE REPRESENT NORMAL COSTS, WHICH SAY RELATIVELY FLAT THROUGHOUT THE YEARS, AND THE RED LINE REPRESENT THE UNFUNDED PENSION LIABILITY, WHICH IS GROWING VERY RAPIDLY.

SO THE, IN THE CURRENT FISCAL YEAR 2021, UM, THE SEEDED GENERAL FUND IS PAYING APPROXIMATELY 7.1 MILLION TOWARD PENSION.

AND THAT COST WILL GROW TO 13.2 MILLION IN FISCAL YEAR 2033.

AND THAT'S ACTUALLY $6.1 MILLION JUMP OR 85% INCREASE OVER JUST THE NEXT 12 YEARS.

NEXT SLIDE.

SO THIS SLIDE SHOW A SIMILAR PICTURE.

UH, WE JUST LOOK INTO PERSPECTIVE OF THE PENSION CONTRIBUTION AS PERCENTAGE OF PAYROLL FOR MISCELLANEOUS PLAN.

SO AGAIN, THE BLUE LINE REPRESENT NORMAL CLAUS RATE, WHICH THEY, UH, RELATIVELY FLAT APPROXIMATELY I WOULD SAY, UH, NO MORE THAN 10% OF THE PAYROLL, BUT THE UNFUNDED LIBRARY, YOU CAN SEE THE GROWTH, UM, VERY RAPIDLY.

AND THE, UH, IN FISCAL YEAR IN CURRENT FISCAL YEAR, 2021, UM, THE, UH, CITY CONTRIBUTING CURRENTLY 26% OF THE PAYROLL TO WORK, UH, TO WHAT PENSION FOR MISCELLANEOUS.

AND THEN THAT PERCENTAGE WILL JUMP TO 33% IN FISCAL YEAR, 2032, SAME INFORMATION, BUT THIS ONE IS FOR SAFETY PLAN.

SO CURRENTLY THE CITY'S PAYING 81% OF THE PAYROLL TOWARD PENSION.

AND THAT PERCENTAGE WILL JUMP TO OVER 100%, 113%.

IN FACT, IN FISCAL YEAR 2032.

SO ONE THING THAT'S UNIQUE ABOUT THE, THE LAHABRA, UH, SAFETY PLAN IS WE ACTUALLY HAVE WHAT'S CALLED THE SAFETY SITE FUND LIABILITY.

AND THE REASON WHY THERE'S A SITE FUND BECAUSE THE CITY OF LA HABRA USED TO HAVE THE ON, UM, FIRE DEPARTMENT.

AND THAT DEPARTMENT GOT OUTSOURCED BACK IN 2005 AND BASED ON THE RULES AND THE REGULATIONS, UM, THE PLAN THAT HAS THE MEMBERS LESS THAN 100 ACTIVE MEMBERS, UM, CAN, CAN NOT BE ITS OWN PLAN.

SO THE PLAN GOT TERMINATED AND THE WHATEVER LIABILITY AT THAT TIME GOT, UH, CLASSIFIED AS A SITE FUND.

AND CURRENTLY THE SITE FUND FROM BACK IN 2005, UH, THE BALANCE OF THE SIPHON IS 5.9 MILLION.

AND WE STILL HAVE ABOUT 14 YEARS REMAINING ON THE AMORTIZATION AND IS CURRENTLY, UM, ACCRUING A 7% INTEREST RATE, WHICH IS THE DISCOUNT RATE AT THE CALPERS NEXT SLIDE.

SO BEING WELL AWARE OF THE PENSION ISSUE, THE CITY COUNCIL HAS MADE A FEW ACTIONS THROUGHOUT THE YEARS TO ADDRESS THIS ISSUE.

SO FOR EXAMPLE, BACK IN 2010, UH, CITY COUNCIL ESTABLISHED LOWER, UH, PENSION COSTS, WHICH IS A TIER TWO, UH, EVEN BEFORE THE, UH, PEP BRUH, UH, CAME INTO EFFECT IN 2013 AND ALSO IN JUNE, 2018, THE CITY COUNCIL ESTABLISHED SECTION ONE 15 TRUST OR PENSION RATE STABILIZATION IN THE LAST FEW YEARS, THE CITY BEEN SETTING ASIDE SOME MONEY TO, UM, TO THE FUND 15 TRUST THE, UH, THE BALANCE AS OF FEBRUARY, 2021 IS ABOUT, UH, ALMOST $3 MILLION.

AND ALSO IN JULY, 2018, THE CITY ALSO NEGOTIATED THE CONTRACT WITH THE BARGAINING UNIT WHERE THE CITY, UM, WHERE THE EMPLOYEES AGREED TO MAKE CONTRIBUTION TOWARD THE CITY RATE.

UM, RIGHT NOW THE MYSOLINE IS MEMBERS, UH, CONTRIBUTING 1% OF THE CITY CONTRIBUTION AND A SAFETY CONTRIBUTE UP TO 3% OF THE CD CONTRIBUTION.

SO OUR CONSULTANT, UM, JIM FABIAN FOR HUMAN ROLL-UPS AND ASSOCIATE WILL MAKE A PRESENTATION FOR THE NEXT SECTION.

YEAH.

AND THEY ALSO PAYING FULL, UH, EMPLOYEES RATE AS WELL.

SO THE CD'S NOT SUBSIDIZING FOR THAT.

THANK YOU, JACK.

UH, ONCE AGAIN, UH, JIM FABIAN WITH FIELDMAN ROLL-UP AND ASSOCIATES, THE CITY'S MUNICIPAL ADVISOR, I'M GOING TO TALK ABOUT SOME OF THE SPECIFICS RELATED TO PENSION OBLIGATION BONDS TO, OKAY.

IS THAT BETTER? OKAY, GREAT.

SO I'M GOING TO TALK ABOUT SOME SPECIFICS RELATED TO PENSION OBLIGATION BONDS TO PROVIDE YOU MORE INFORMATION ABOUT WHAT THEY ARE, HOW THEY CAN BE USED AS A TOOL TO HELP THE CITY.

[00:15:01]

SO PENSION OBLIGATION BONDS ARE A TAXABLE FORM OF A MUNICIPAL BOND, AND THEY ARE USED TO FUND YOUR UNFUNDED ACTUARIAL LIABILITY OR YOUR UAL.

AND YOU CAN DO THAT TO F TO PAY IT OFF COMPLETELY, OR A PERCENTAGE OF THE UAL.

AND TYPICALLY IT'S ANYWHERE FROM 85 TO A HUNDRED PERCENT THAT YOU WOULD USE TO PAY OFF YOUR UNFUNDED LIABILITY.

AND SO IT'S DESIGNED FOR AN ARBITRAGE OPPORTUNITY, AS MEL MENTIONED, UH, INTEREST RATES HAVE BEEN AT HISTORICAL LOWS, UH, FOR THE LAST, UH, YOU KNOW, YEAR OR SO, UH, RECENTLY HAVE RISEN A BIT.

BUT WHEN YOU LOOK AT THE GRAND SPECTRUM OF INTEREST RATES OVER THE LAST 20 YEARS, THEY'RE STILL VERY, VERY LOW FROM THE STANDPOINT OF, OF WHERE THE BORROWING COSTS ARE.

SO IT DOES PROVIDE CITIES THE OPPORTUNITY TO LOOK AT, UH, ISSUING TAXABLE BONDS AT AN INTEREST RATE, UH, AROUND THREE AND A HALF TO 3.8% AND USE THAT TO PAY OFF THE 7% DISCOUNT RATE OF THE PERS LIABILITY.

SO, UH, THAT'S THE, THE WHAT, THE, IN A NUTSHELL, WHAT, UH, PO BEES DO, UH, THEY ARE, UH, REPLACING YOUR UAL PAYMENT, THAT YOU PAID A PURSE.

YOU REPLACED THAT WITH A PAYMENT TO BOND HOLDERS.

SO LIKE YOUR OTHER DEBT, YOU HAVE PRINCIPAL AND INTEREST PAYMENTS THAT ARE PAID SEMI-ANNUALLY TO BOND HOLDERS, AND THAT'S WHAT WOULD HAPPEN IF YOU ISSUED A PENSION OBLIGATION BOND, UH, YOU WOULD MAKE THOSE SEMI-ANNUAL PAYMENTS TO BOND HOLDERS INSTEAD OF MAKING YOUR, YOUR PAYMENT TO PERS YOU'RE STILL HAVE YOUR, YOUR NORMAL COSTS THAT YOU PAID UPPERS AND ANY UNFUNDED LIABILITY THAT IS NOT PAID OFF, BUT THE OTHER MONEY IS NOW PAID TO BOND HOLDERS.

SO, UH, PERS UH, OR PENSION OBLIGATION BONDS ARE NOT ALLOWED IN THE CONSTITUTION.

UH, THEY'RE THERE SPECIFICALLY REQUIRE YOU TO DO A VALIDATION ACTION IN SUPERIOR COURT TO GET THE ABILITY TO ISSUE THE BONDS VALIDATED BY THE COURT.

AND SO WE'LL TALK ABOUT THAT ON THE NEXT SLIDE HERE IS THAT A YOU'RE ABLE TO DO THAT BECAUSE YOU ALREADY HAVE THIS OBLIGATION AND YOU'RE SIMPLY REFUNDING IT.

SO YOU WOULD HIRE A BOND COUNSEL TO FILE THE DOCUMENTS IN SUPERIOR COURT.

AND THAT'S TYPICALLY DONE FOR MOST PENSION OBLIGATION BONDS.

WE'LL TALK ABOUT THAT A LITTLE BIT LATER.

UH, THE ACTION TO FILE A VALIDATION IN COURT DOES NOT SAY THAT YOU'RE GOING TO DO APPEAL B IT'S JUST THE FIRST STEP OF THE PROCESS THAT YOU NEED TO DO TO BE ABLE TO, EXCUSE ME, ISSUE A PENSION OBLIGATION BOND.

AND SO, UH, IF THERE WAS A DECISION TO DO, TO, TO ALLOW FOR THE VALIDATION, THAT WOULD BE JUST STEP NUMBER ONE, AND THEN THERE WOULD BE FURTHER ACTIONS THAT THE COUNSEL WOULD NEED TO TAKE RELATED TO THE ISSUANCE OF THE POB BONDS, UH, THE, UM, THE TIMEFRAME FOR ISSUANCE OF A VALIDATION ACTION.

IT TYPICALLY TYPICALLY TAKES THE COURTS ABOUT 90 DAYS TO GO THROUGH THE PROCEEDINGS FOR VALIDATION ACTION.

UH, THAT VARIES A LOT, ESPECIALLY IN COVID WHERE, YOU KNOW, SOME OF THE COURTS HAVE BEEN WORKING REMOTELY, LIKE ALL OF US.

AND SO, UH, THAT TIMEFRAME IS TYPICALLY ABOUT 90 DAYS.

AND THEN THERE'S USUALLY A 30 DAY APPEAL PERIOD AFTER THAT TIMEFRAME, UH, THAT, UH, YOU ALSO LET RUN.

SO LIKE, IN YOUR PAST BOND ISSUES, YOU HAVEN'T HAD TO DO THIS, YOU KNOW, YOU COULD SIMPLY BY A VOTE OF THE CITY COUNCIL APPROVE THE DEBT ISSUANCE, AND THEN THAT WOULD GIVE THE ABILITY TO GO FORWARD.

THIS IS A ADDITIONAL STEP THAT IS REQUIRED TO BE ABLE TO ISSUE PENSION OBLIGATION BONDS.

NEXT SLIDE PLEASE.

SO SOME CITIES HAVE DECIDED THAT A VALIDATION ACTION WASN'T THE ROUTE THEY WANTED TO TAKE.

SO THEY DECIDED TO ISSUE, LEASE REVENUE, BONDS, AND A LOT OF HEADLINES IN THE LOCAL PAPERS ABOUT SOME OF THE CITIES THAT HAVE DONE THIS, UH, UH, WEST COVINA GOT A LOT OF HEADLINES ABOUT THEIR, UH, USING THE ROADS AS THE PLEDGED ASSET OR THE ENCUMBERED ASSET TO REPLACE THE, TO, TO SECURE THE ISSUANCE OF THE LEASE REVENUE BONDS.

AND THE REASON THEY DID THIS IS THAT BECAUSE THERE'S BEEN SOME ACTIONS OF VALIDATION ACTIONS FOR THE HOWARD JARVIS TAXPAYER ASSOCIATION HAS CHALLENGED THE VALIDATION PROCEEDINGS, THE CITY OF SIMI VALLEY UP IN VENTURA COUNTY.

THEY HAD THEIR VALIDATION ACTION CHALLENGED, AND IT, AND THEY DROPPED

[00:20:01]

THE ISSUANCE OF POB BONDS.

WEST COVINA ALSO HAD THEIR CHALLENGE.

AND THEN THEY DECIDED TO GO THE, THE LEASE REVENUE BOND ISSUE ROUTE, AND ALSO, UH, UH, ORANGE COUNTY CITY PALENCIA, THEY DID THE SAME THING.

AND THEN, UH, TORRENS ALSO DID THAT, UH, APPROACH TOO.

SO THIS TYPE OF, UH, PROCEEDING WOULD BE SIMPLY A VOTE OF THE CITY COUNCIL TO APPROVE LEASE REVENUE BONDS.

SO IT'S A LITTLE DIFFERENT AVENUE.

UH, TYPICALLY THE CREDIT RATING IS A BIT LOWER AND THE INTEREST RATE IS A LITTLE BIT HIGHER.

NEXT SLIDE, PLEASE, BEFORE WE MOVE ON, THESE CHALLENGES WERE BASED ON WHAT THEORY, WHAT, UH, YOU KNOW, I'M, I'M SORRY, I'M NOT A LAWYER, BUT, YOU KNOW, I THINK THE WHOLE CHALLENGE IS THAT WHETHER YOU HAVE THE CONSTITUTIONAL ABILITY TO ISSUE DEBT FOR THIS PURPOSE AND NOT HAVE IT, FARLAN VOLUNTARILY STOOD DOWN FROM THE ISSUANCE OF THE BONDS OR THE COURT ORDERED THAT THEY COULD NOT, YOU DECIDED TO NOT GO FORWARD.

I WAS NOT DIRECTLY INVOLVED IN THE SIMI VALLEY CASE, BUT FROM WHAT I UNDERSTAND, THEY DECIDED NOT TO GO INTO COURT AND, YOU KNOW, GO THROUGH A PROCESS OF A HEARING.

THEY DECIDED THAT THEY WOULD JUST SIMPLY DROP THE ISSUANCE APPEAL PIECE.

ARE YOU AWARE OF ANY COURT PROCEEDINGS ON A VALIDATION PROCESS THAT WOUND UP IN THE COURT? UM, I'M NOT AWARE OF ANY, I DID SPEAK WITH A BOND ATTORNEY EARLIER TODAY AND ASKED THAT QUESTION.

HE'S NOT AWARE OF ANY, UH, HE, HE, HE BASICALLY SAID THAT, UH, MOST, IF THERE WAS A CHALLENGE LIKE SIMI VALLEY OR WEST COVINA, THEY SIMPLY DROP IT AND EITHER DROP IT ENTIRELY OR LOOK AT ANOTHER WAY OF, OF DOING THE DEBT ISSUANCE.

THANK YOU.

SURE.

SO AGAIN, WHAT ARE THE POTENTIAL BENEFITS OF, OF PENSION OBLIGATION BONDS? YOU KNOW, AS, AS JACK POINTED OUT, YOU HAVE THIS ESCALATING YOU UAL, UH, THAT THE CITY'S FACING, YOU KNOW, THAT PEAKS IN 2033.

SO, UH, ISSUANCE OF CAN BE USED TO PAY DOWN THAT UAL AND, UH, REPLACE IT WITH DEBT SERVICE.

THERE IS SAVINGS.

UH, WE, WE HAVE ESTIMATED, UH, AGAIN ABOUT, UH, YOU KNOW, ANYWHERE FROM THREE 50 TO THREE 80 INTEREST RATE THAT HAS A CONSERVATIVE CUSHION IN THERE, UH, FOR, FROM THE STANDPOINT, BUT IT'S SIGNIFICANTLY LOWER THAN THE DISCOUNT RATE THAT YOU'RE PAYING TO PURCHASE RIGHT NOW AT 7%.

UH, THERE'S ALSO A MARKET TIMING, AS I MENTIONED BEFORE, LONG-TERM RATES ARE, ARE AT, OR NEAR A HISTORIC LOW.

SO THAT'S WHY YOU'VE SEEN A, A RAMP UP IN THE NUMBER OF CITIES THAT HAVE ISSUED A PENSION OBLIGATION BONDS.

AND THEN THERE IS A TIME VALUE OF MONEY BY ACCELERATING THE INVESTMENT OF FUNDS AT PERS.

SO I'M GOING TO TALK A LITTLE BIT ABOUT THE POTENTIAL RISKS ASSOCIATED WITH , UH, MARY BETH WALL.

SO TALK ABOUT THAT BECAUSE WE WANT TO MAKE SURE, YOU KNOW, THAT WE LAY OUT EVERYTHING, UH, IN FRONT OF COUNCIL FOR CONSIDERATION IN THIS MATTER.

SO, UH, FIRST THING IS IN INVESTMENT RISK.

AND SO, AS I MENTIONED, YOU KNOW, THE, THE, THE GOAL IS THAT YOU'RE ISSUING DEBT IN THE HIGH THREES TO REPLACE A DEBT THAT IS IN THE AT 7%.

AND SO IF FOR WHATEVER REASON, PURRS HAD A SITUATION WHERE THEY WERE NO LONGER ISSUING OR, OR ACHIEVING A RATE HIGHER THAN THE POV'S, YOU WOULD BE IN A POSITION WHERE YOU WOULD HAVE SOME RISKS, BUT WE'LL SHOW SOME HISTORIC, UH, RETURN RATES FOR PERS THAT THAT'S PROBABLY UNLIKELY.

UH, THERE'S ALSO THE RISK OF OVER-FUNDING, UH, SO THAT, UH, POTENTIALLY THE BARGAINING UNITS WOULD, WOULD SAY, WELL, YOU KNOW, YOU HAVE THIS EXTRA MONEY, YOU KNOW, COULD, COULD WE HAVE SOME OF IT, SO TO SPEAK, UH, AGAIN ALSO THE FLEXIBILITY.

SO REMEMBER, UH, WHAT YOU PURGE AND MAKE YOUR PAYMENT ONCE A YEAR.

UH, I WOULDN'T CONSIDER IT A SOFT OBLIGATION BECAUSE IT IS A LIABILITY THAT YOU HAVE ON YOUR BALANCE SHEET, BUT WHEN YOU ISSUE DEBT, YOU HAVE A HARD LIABILITY THAT YOU SPECIFICALLY HAVE TO MAKE A DEBT SERVICE PAYMENT TWICE A YEAR.

PRINCIPAL PRINCIPAL WANTS INTEREST TWICE, UH, CREDIT RATE RISK, UH, SMP STANDARD, AND POOR'S, UH, HAS, UH, ISSUED SOME POSITION PAPERS ON PO BS.

UH, THEY ACTUALLY, UH, WE THINK YOU WOULD STILL BE WITHIN, UH, IN THAT, UH, AA CATEGORY IF YOU WENT TO S AND P TO GET A RATING.

SO WE THINK THOSE ARE A LITTLE BIT MINIMAL, UH, IN TERMS OF, UH, CREDIT RATING RISK.

UH, THE OTHER BIG ISSUE IS THE POLITICAL RISK.

UH, WE WE'VE

[00:25:01]

TRIED IN, IN THE INFORMATION THAT WE'VE PROVIDED YOU TO SHOW SOME OF THE ARTICLES THAT HAVE BEEN OUT THERE, UH, IN NOT ONLY LOCALLY, BUT NATIONALLY ABOUT PENSION OBLIGATION BONDS.

UH, THERE, THERE IS SOME STIGMA FOR LACK OF A BETTER WORD ASSOCIATED WITH THOSE.

WHEN YOU THINK ABOUT CITY OF DETROIT STOCKTON, SAN BERNARDINO, WHERE THEY DEFAULTED ON THEIR, THEIR PENSION OBLIGATION BONDS AND, AND PEOPLE HAD TO TAKE CARE OF CUTS IN THEIR, IN THEIR RETURNS.

UH, THERE'S ALSO THE GOVERNMENT FINANCE OFFICERS ASSOCIATION THAT CAME OUT AND SPECIFICALLY SAID, YOU KNOW, A COUPLE OF YEARS AGO THAT, UH, THEY DO NOT RECOMMEND THAT PUBLIC PUBLIC AGENCIES ISSUE PENSION OBLIGATION BONDS.

NEXT SLIDE, PLEASE.

SO, IN, IN LOOKING AT, UH, THE, UM, THE REASON WHEN YOU THINK ABOUT WHAT THE GFR SAID, UH, WHAT WE'VE FEEL LIKE IS THAT, UM, THE PROCEEDS, UH, WHERE YOU'RE ISSUING THE POB IS AT THE HIGH 3% AND YOUR, YOUR PURSE COSTS ARE A 7%.

WE FEEL LIKE THAT, UH, YOU'RE GOING TO BE OKAY.

AND IN THE LONGTERM WITH, WITH THE ISSUANCE OF POB, UH, WE ALSO THINK THAT, UM, WE, WE WOULD NOT RECOMMEND, UH, WHAT IS CONSIDERED A COMPLEX POB THAT, UH, IS DISCUSSED IN THE GFR, UH, PRONOUNCEMENT, WHERE YOU WOULD HAVE SOME DERIVATIVE PROB PRODUCT OR A SWAP.

WE WANT TO TRY TO DO A STRAIGHT VANILLA PENSION OBLIGATION BOND THAT HAS A FIXED AMORTIZATION AND HAS A TEN-YEAR CALL OPTION AT PAR.

SO WE THINK THAT MITIGATES SOME OF THE RISKS THAT ARE, THAT ARE LAID OUT IN THE, UH, GFR WAY, AN ANNOUNCEMENT, UH, YOU KNOW, IT ALSO, ONE OF THE THINGS THEY MENTIONED IS THAT IT INCREASES YOUR DEBT LIABILITY, UH, TAKES AWAY SOME OF YOUR BORROWING CAPACITY, YOU KNOW, THAT THAT COULD BE VIEWED THAT WAY, BUT IT ALSO, YOU KNOW, YOU HAVE TO REMEMBER THAT ON YOUR BALANCE SHEET, YOU ALREADY HAVE AN UNFUNDED LIABILITY FOR YOUR PURSE COST.

SO IT'S JUST REPLACING ONE LIABILITY WITH ANOTHER, AND THEN THE CREDIT RATING ISSUE.

SO WE, WE THINK THAT THERE'S A, YOU KNOW, YOU CAN MAKE A STRONG ARGUMENT TO REALLY LOOK AT THE, WHAT GFR SAYS IN THERE, PRONOUNCED BENNETT AND CRAFT A, A PENSION OBLIGATION BOND THAT REALLY MITIGATES MOST.

SO THOSE ISSUES.

SO, UH, WE'RE, WE'RE THINKING IS THAT ISSUE LESS THAN 100% OF THE CURRENT LIVE ESTIMATED LIABILITY OF, OF THE UAL, UH, THIS, UM, YOU COULD ALSO DO MULTIPLE PENSION OBLIGATION BONDS, UH, WHERE YOU, YOU TRY TO DO A DIFFERENT SERIES OVER DIFFERENT TIME PERIODS RATHER THAN DO IT ALL AT ONCE.

UH, WITH THE SIZE OF YOUR UNFUNDED LIABILITY.

WE THINK PROBABLY ONE ISSUANCE WOULD, WOULD, WOULD WORK, UH, AGAIN, W MITIGATION OF THE MARKET AND CREDIT RISK.

WE THINK THAT WE CAN, UH, PUT TOGETHER A STRUCTURE THAT IS, UH, VERY STRAIGHTFORWARD WITH A SPECIFIC AMORTIZATION THAT IS NO DIFFERENT THAN THE AMORTIZATION THAT YOU HAVE ON YOUR EXISTING LIABILITY WITH PERS, UH, ALSO, UH, TO PUT TOGETHER A STRUCTURE THAT HAS FIXED INTEREST RATES, AND THEN HAS THAT, UH, TEN-YEAR CALL PROTECTION, UH, WHERE YOU COULD CALL IT AT PAR NEXT SLIDE, PLEASE.

SO THIS SLIDE, UH, REALLY TRIES TO SHOW YOU, YOU KNOW, WHAT ARE THE, WHAT ARE HISTORICALLY HAVE BEEN SOME OF THE RETURNS THAT PURRS HAS EARNED ON THEIR LARGE PORTFOLIO? YOU CAN SEE THAT, UM, UH, YOU'VE HAD SOME GREAT YEARS AND YOU'VE HAD SOME BAD YEARS BASED UPON THE OVERALL ECONOMY, BUT WHEN YOU LOOK AT IT HISTORICALLY, AND YOU LOOK AT, UH, AT IT OVER A 30 YEAR PERIOD, YOU CAN SEE THAT, UH, THE AVERAGE RETURN IS 8%.

AS WE MENTIONED EARLIER, THE CURRENT DISCOUNT RATE IS 7%.

SO YOU CAN SEE THAT HISTORICALLY, THEY'VE BEEN ABOVE THAT, UH, THE LAST YEAR, UH, THAT, UH, WE HAVE, UH, THE INFORMATION ON THEY DIDN'T DO QUITE SO WELL WAS FOR 4.7%.

UH, THE EXISTING TREASURIES ARE RIGHT AROUND THE 30 YEAR.

TREASURY IS RIGHT AROUND 2.3, FOUR, AS I MENTIONED, THIS IS A TAXABLE DEBT OBLIGATION.

SO WHAT HAPPENS IS YOU TAKE THAT TREASURY RATE AND THEN YOU ADD A SPREAD TO IT.

AND WHAT YOU SEE, WE'RE ESTIMATING THAT 3.8% GIVE OR TAKE OF THE INTEREST RATE.

[00:30:01]

AND SO THAT'S THE SPREAD BETWEEN WHAT THE CURRENT TREASURIES ARE AND WHAT THE MARKET INVESTORS WOULD WANT.

AND SO WE'RE, AGAIN, BUILDING IN A CUSHION IN THERE THAT WE THINK IS APPROPRIATE BASED UPON THE FACT THAT, UH, YOU KNOW, IT'S AT LEAST FOUR MONTHS BEFORE APPEAL B COULD BE ISSUED BECAUSE OF THE VALIDATION PROCEEDINGS.

NEXT SLIDE, PLEASE.

I WANTED TO MENTION, THESE ARE SOME OF THE CITIES THAT RECENTLY HAVE, HAVE ISSUED PENSION OBLIGATION BONDS.

WE HIGHLIGHTED THE ORANGE COUNTY CITIES FOR YOU ON THIS SLIDE, THE CITY OF ORANGE.

I MENTIONED THE CITY OF PLACENTIA, WHO THAT DID THE LEASE REVENUE, BONDS, THE CITY OF ORANGE AND HUNTINGTON BEACH.

THEY DID VALIDATION PROCEEDINGS.

UH, SO YOU CAN SEE, I THINK THIS IS A THINK, I LOOKED THAT IT'S 30 CITIES OUT OF THE 482 THAT ARE IN THE, IN THE STATE.

UH, SO IT'S STILL A RELATIVELY SMALL PERCENTAGE OF CITIES THAT HAVE ISSUED PENSION OBLIGATION BONDS.

THIS, THIS LOOKS AT THE TIMEFRAME REALLY GOING BACK FROM LATE 20, 19 TO 2020, AND THEN THE CURRENT YEAR OF, OF 2021.

SO YOU HAVE US A SAMPLE OF THE OTHER CITIES THAT HAVE, UH, ISSUED PENSION OBLIGATION BONDS.

NEXT SLIDE, PLEASE.

SO AGAIN, TAKING THE INFORMATION THAT JACK SHOWED YOU EARLIER, AND THEN LOOKING AT IT FROM A STANDPOINT OF, UH, JUST THE, THE NUMBERS.

SO WE HAVE ROUGHLY $91 MILLION OF AN UNFUNDED LIABILITY THAT SHOWN THERE, UH, IN THE, IN THE MIDDLE AS OF JUNE 30, 2021.

AND YOU CAN SEE THAT HAS INCREASED RATHER SUBSTANTIALLY.

UH, AND THEN YOU CAN SEE ALSO BELOW THAT YOUR, YOUR NORMAL COSTS AND YOUR UAL PAYMENTS HAVE INCREASED ROUGHLY 64%, UH, GOING BACK TO 2017, 2018.

SO THAT, THAT, UM, INCREASE IS RATHER LARGE.

AND IT'S GOING TO CONTINUE TO GO UP ON THE NEXT SLIDE.

THIS IS A GRAPHIC, UH, SHOWING, UH, YOUR, YOUR PAYMENTS FOR MISCELLANEOUS AND SAFETY.

AND AS JACK SHOWED EARLIER, YOU KNOW, YOU HAVE THAT PEAK IN 2033, WHERE, UH, YOU, YOU RAMP UP TO THAT POINT AND THEN YOU, YOU HIT, HIT THE TOP, AND THEN YOU START COMING DOWN AS THAT, UH, UH, PETRA EMPLOYEES START TAKING OVER AND THE CLASSIC EMPLOYEES AND OTHERS LEAVE THE SYSTEM.

UH, BUT, UH, YOU CAN SEE GRAPHICALLY WHAT IT, WHAT IT LOOKS LIKE, UH, AS, UH, OVER THE, YOU KNOW, THIS TIMEFRAME THAT WE'RE, WE'RE SHOWING HERE, UH, GOING OUT TO A 20, 44 OR 2043 FOR SAFETY, AND THEN 2045 FOR, SORRY, UH, MISCELLANEOUS 2043 AND FOR SAFETY 2045.

AND THEN WHEN YOU PUT THEM TOGETHER, OVERLAY THEM MISCELLANEOUS AND SAFETY, YOU KNOW, YOU CAN, YOU CAN SEE THERE, YOUR PEAK HERE AGAIN IS 2033, YOU KNOW, ROUGHLY 13 PLUS MILLION DOLLARS, UH, IN, IN THAT YEAR.

SO WHEN YOU THINK ABOUT YOUR UNFUNDED LIABILITY, I THINK WE, WE TALKED ABOUT THIS IN OUR CALLS AND PREPPING FOR THIS.

IT TAKES A LOT OF INGREDIENTS TO MAKE UP THAT UNFUNDED LIABILITY AND THESE INGREDIENTS ARE BASES SO DIFFERENT.

UM, BASES ARE USED TO DETERMINE THE SPECIFIC LIABILITY THAT EACH DIFFERENT TYPE OF EMPLOYEE CLASS HAS.

AND WHEN YOU LOOK AT THE DETAIL OF YOUR MISCELLANEOUS FUND AND YOUR SAFETY FUND, YOU CAN SEE YOU HAVE 70, 71 DIFFERENT BASES.

AND EACH ONE OF THOSE ARE TREATED INDIVIDUALLY.

EACH ONE OF THOSE HAVE A SPECIFIC COST ASSOCIATED WITH THEM.

EACH ONE OF THOSE HAVE A SPECIFIC INTEREST RATE AND TIMEFRAME FOR REPAYMENT.

AND SO WHEN YOU BUNDLE THOSE ALL TOGETHER, YOU KNOW, YOU COME UP WITH THE $91 MILLION UNFUNDED LIABILITY, BUT YOU, WHEN YOU LOOK AT THE DETAIL, WHAT WE TRY TO DO IS WE TRY TO LOOK AT THE BEST PICKING OF THE BASES THAT MAKE THE MOST FINANCIAL BENEFIT TO PAY OFF.

AND THAT'S WHAT WE INCLUDE.

IF A PENSION OBLIGATION BOND WOULD BE ISSUED.

SO YOU TRY TO LOOK AT THE LONGEST AMORTIZATION WITH THE HIGHEST INTEREST RATE AND THE HIGHEST COST AND SAY, LET'S, LET'S CHERRY PICK THOSE TO INCLUDE IN THE PENSION OBLIGATION BONDS AND PAY THOSE OFF.

SO, UH, AGAIN, THIS IS JUST, UH, THE BELOW SCREENS ARE SHOWING THOSE INDIVIDUAL BASES AND, AND AGAIN, MIMICKING THE UNFUNDED LIABILITY THERE IN TERMS OF THE,

[00:35:01]

THE TIME HORIZON.

SO A COUPLE OTHER THINGS TO THINK ABOUT WITH, UH, PAYING OFF THE UAL.

UH, OBVIOUSLY YOU COULD LOOK AT ACCELERATING FUNDING A LITTLE BIT HARD TO DO WITH THE BUDGET CHALLENGES THAT CITIES ARE FACING, UH, NOT ONLY THIS YEAR, BUT IN THE PAST.

UH, SO IT'S, IT'S HARD TO, TO PUT MORE MONEY TOWARDS PAYING OFF PENSIONS WHEN YOU'RE IN A YOU'RE, YOU'RE TRYING TO PROVIDE THE SERVICES TO THE COMMUNITY.

UH, PERSE DOES CREATE LIKE A COUPLE OF PROGRAMS. THEY HAVE A FRESH START PROGRAM AGAIN, WHERE YOU COULD SET UP A NEW AMORTIZATION OF YOUR URL.

THEY ALSO HAVE AN ADVANCED FUNDING PLAN AGAIN, WHERE YOU COULD CREATE A NEW PAYMENT SCHEDULE.

JACK HAD MENTIONED THAT YOU HAD PREVIOUSLY SET UP A SECTION ONE 15 TRUST TO HAVE APPROXIMATELY $3 MILLION IN THERE.

YOU KNOW, THAT'S ANOTHER GOOD TOOL, UH, TO HELP YOU DEAL WITH YOUR PENSION COSTS.

AND THEN THE LAST THING IS THE PENSION THAT POB ISSUANCE.

SO, UH, WHAT WE'RE LOOKING AT IS THE IDEA OF DOING PENSION OBLIGATION BONDS TO FINANCE A PORTION OF, OF THE UNFUNDED LIABILITY, WHERE WE'RE THINKING THAT THE, UH, THE RIGHT AMOUNT WOULD BE TO TARGET ABOUT 80 TO 85% PAYOFF, NOT A HUNDRED PERCENT, UH, MARY BETH.

WE'LL TALK ABOUT THAT A LITTLE BIT LATER, TOO.

UH, WHAT THIS WOULD DO IT, IT ALLOWS US TO, TO SEND MONEY THE, THE MONEY TO, TO CALPERS TO PAY OFF THOSE SPECIFIC BASES THAT I MENTIONED EARLIER.

AND THEN, UH, WHAT IT, WHAT IT DOES IS THEN ALLOWS YOU TO, UH, KEEP THE SAME AMORTIZATION SCHEDULE AS YOU CURRENTLY HAVE, UH, FOR THE REPAYMENT OF THE POV'S THAT YOU HAVE FOR YOUR UNFUNDED LIABILITY.

UH, SO ON THE NEXT SLIDE, UH, AGAIN, THE, THE DETAIL HERE IS THAT WE'RE, WE'RE LOOKING AT THAT, UH, TAKING YOUR EXISTING FUNDING LEVEL, WHICH YOU CAN SEE ON THIS SLIDE IS ABOUT IN AGGREGATE ABOUT 69% FUNDED AND BRINGING THAT UP TO ABOUT 85% OR A LITTLE BIT OVER 85% FUNDING BY BASICALLY SENDING A CHECK TO CALPERS FOR ABOUT $47 MILLION FROM THE ISSUANCE OF THE PO B'S.

SO WHAT THAT DOES IS IT RAISES YOUR, YOUR FUNDING AMOUNT, UH, REDUCES YOUR, YOUR URL.

AND THIS IS BASED UPON, AS I MENTIONED, THE TAXABLE ISSUANCE OF POB, UH, AS I MENTIONED, WE THINK YOU'RE GOING TO BE IN THE DOUBLE A CATEGORY FROM S AND P.

UH, THIS WOULD ALLOW FOR THE BONDS TO BE CALLED AT PAR IN 10 YEARS, YOU WOULD HAVE NO RESERVE FUND, UH, THAT WOULD BE ESTABLISHED TO BENEFIT BOND HOLDERS.

UH, IF THERE WAS NON-PAYMENT OF A PRINCIPAL OR INTEREST, UH, THERE'S NO EXTENSION OF THE FINAL MATURITY.

SO THE TIMEFRAME FOR THE REPAYMENT OF THE UAL IS THE TIMEFRAME USED TO REPAY THE PURSE OR THE POB, EXCUSE ME.

AND I MENTIONED THE 85% FUNDED RATIO.

SO THERE'S THREE WAYS TO LOOK AT THIS PROPORTIONAL LEVEL OR A COMBINATION OF THE BOTH.

AND I WANTED TO WALK THROUGH THESE THREE DIFFERENT APPROACHES FOR YOU.

SO YOU COULD SEE HOW WE COULD STRUCTURE A POB, UH, BASED UPON YOUR DIRECTION, UH, FROM LOOKING AT THINGS.

SO ON THE NEXT PAGE, YOU CAN SEE WE'VE LOOKED AT PROPORTIONAL LEVEL, AND THEN WHAT WE CALL HYBRID, WHERE YOU HAVE LEVEL DEBT SERVICE FOR 16 YEARS, AND THEN A PROPORTIONAL DEBT SERVICE FOR YOUR 17 THROUGH 23.

AND THIS IS, THIS IS LIKE A SNAPSHOT IN TIME BASED UPON OUR BEST GUESS OF WHAT THE MARKET WILL BE.

AND THEN LOOKING AT THESE, THE WAYS OF DOING IT AND PROPORTIONAL, WHAT THAT MEANS IS YOU STRUCTURE THE POB DEBT SERVICE TO MIMIC THE EXISTING PAYMENT OF THE UAL.

SO YOU WILL WE'LL SHOW THAT GRAPHICALLY NEXT, UH, LEVEL DEBT SERVICES, WHERE YOU BASICALLY HAVE A LEVEL PAYMENT FOR EVERY YEAR.

AND IT'S, IT'S FLAT GOING ACROSS FROM YEAR 22 TO YEAR 43.

AND THEN THE, UH, THE HYBRID IS LEVEL FOR THE FIRST 17 YEARS, AND THEN MIMICS THE, UH, UH, UAL PAYMENTS OVER THE LAST SIX YEARS.

SO THE FIRST ONE IS THE PROPORTIONAL.

SO AS WE TALKED ABOUT YOU, YOU HAVE THIS EXISTING DEBT OBLIGATION FOR YOUR UAL, THAT RAMPS UP AND THEN GOES DOWN.

[00:40:01]

AND SO WHAT WE WOULD DO IS, UH, WE WOULD, THE BLUE REPRESENTS THE POB PAYMENTS, UH, AND IT WOULD MIMIC YOUR EXISTING UAL PAYMENTS.

AND YOU CAN SEE THE DIFFERENCE BETWEEN THE CURRENT AMORTIZATION OR THE ORANGE ORANGE LINE, WHICH I THINK THAT IS.

AND, AND THE, UH, TO THE, THE GRAPHS, THE GRAY AND THE BLUE IS YOUR SAVINGS THAT YOU GET BY ISSUANCE OF THE POV'S.

REMEMBER THE, UH, THE GRAY IS YOUR REMAINING UAL PAYMENT.

THAT'S THE NORMAL COST.

AND THEN WHAT IS REQUIRED, UH, THAT YOU DON'T PAY OFF.

SO YOU CAN SEE THERE THAT, YOU KNOW, WE'RE FOLLOWING THE SAME CONTOUR OF THE, THE REPAYMENT OF THE UAL BY ISSUANCE OF THE BONDS.

AND THE NEXT ONE YOU CAN SEE, THIS IS THE, THE LEVEL SAVINGS APPROACH, AND YOU CAN SEE THE BLUE IS FLAT RIGHT, ALL THE WAY ACROSS FOR EVERY YEAR.

UH, WHAT THAT DOES IT, IT DOES PROVIDE YOU A LITTLE BIT MORE SAVINGS.

YOU SEE THE GAP BETWEEN THE ORANGE LINE AND THE GRAY AND THE BLUE IS A LITTLE BIT HIGHER IN THE FRONT OF THE CURVE, BUT THEN IT'S ACTUALLY, UH, GOES ABOVE THE LINE IN THE END.

SO YOU HAVE, UM, MORE PAYMENTS ON THE BACK END THAN YOU CURRENTLY HAVE UNDER THE, THE, THE LEVEL OF DEBT SERVICE APPROACH.

SO WHAT WE THINK IS THE BETTER APPROACH WOULD BE THIS HYBRID OPTION, WHERE AGAIN, YOU'RE, YOU'RE HAVING LEVEL, AND THEN YOU HAVE A ACTUAL RAMP DOWN SO THAT YOU, AGAIN, DON'T HAVE ANY ADDITIONAL PAYMENTS IN THE BACKEND.

UH, IT DOES PROVIDE YOU A LITTLE BIT, UH, UH, SOMEWHAT, UM, A MEDIUM RESULT FROM THE OTHER TWO SCENARIOS AND, UH, FOLLOWS THE SAME DEBT CONTOUR THAT YOU HAVE FOR YOUR, UH, UNFUNDED LIABILITY APPROACH.

UH, LOOKING AT THE TIMELINE FOR APPEAL B, AS I MENTIONED, UH, THE, THE VALIDATION PROCEEDINGS TAKES ROUGHLY 90 DAYS, AND THEN YOU HAVE THAT 30 DAY PERIOD FOR, UH, ANY APPEALS TO HAPPEN.

SO WHAT TYPICALLY HAPPENS IS THE COUNCIL WOULD, UH, PROVIDE DIRECTION TO FILE THE VALIDATION PROCEEDING BOND COUNSEL WOULD DO THAT WHILE THAT'S HAPPENING.

UH, WE WOULD PUT TOGETHER ALL THE BOND DOCUMENTATION REQUIRED, UH, SEEK AN UNDERLYING RATING FROM S AND P.

UH, AND SO AT SOME POINT IN SAY AUGUST, SEPTEMBER, UH, THAT THE TWO LINES WOULD POTENTIALLY MEET, AND THEN WE WOULD BE IN A POSITION, YOU KNOW, SOMETIME IN LATE FALL TO ISSUE , UH, AS WE POINTED OUT EARLIER, THE VALIDATION ACTION, DOESN'T OBLIGATE YOU TO ISSUE PO BS, UH, BUT YOU KNOW, IT, THAT COULD BE A DECISION MADE LATER.

UH, AND AGAIN, WE'RE NOT LOOKING FOR A SPECIFIC REGIMEN RECOMMENDATION TODAY.

WE'RE JUST TRYING TO PROVIDE AS MUCH INFORMATION AS WE CAN RELATED TO THE ISSUANCE OF POB.

SO YOU, YOU UNDERSTAND AND, AND HAVE A GREATER COMFORT LEVEL WITH WHAT THEY ARE AND WHAT ARE SOME OF THE RISKS ASSOCIATED WITH THEM.

SO I'M GOING TO TURN IT OVER TO MARY BETH NEXT, BEFORE YOU, UH, THE PART, I GOT A COUPLE OF QUESTIONS.

WHAT IS THE CURRENT BOND MARKET TREND? I THINK THE OVERALL BOND MARKET TREND IS, IS STRONG WITH A TENANT.

UH, IF, IF YOU WERE SAYING, IS IT, IS IT LOOKING LIKE IT'S GOING TO INCREASE INTEREST RATES? I THINK THERE'S A LIKELIHOOD THAT RATES ARE GOING TO TREND UPWARD VERSUS STAY WHERE THEY ARE.

AND THE REASON I SAY THAT IS BECAUSE THERE'S A LOT OF, UH, EMPHASIS ON INFLATION IN THE ECONOMY, OVERALL CONCERNS ABOUT INFLATION, WHICH ARE, ARE REQUIRING INVESTORS TO GET MORE YIELD OR RETURN ON THEIR INVESTMENTS FOR MUNICIPAL BONDS.

AND THEN THE, UH, I BELIEVE IN SOMETHING THAT I READ THERE'S COST OF $30,000 FOR THE VALIDATION PROCESS.

YES.

SO, UH, THANKS FOR MENTIONING THAT.

SO, YOU KNOW, WE ESTIMATE THAT THAT'S AN ESTIMATE, YOU KNOW, NOT TO EXCEED ESTIMATE.

UH, SO TYPICALLY WE STAFF WOULD NEED TO LOOK AND GO OUT TO DIFFERENT BOND COUNCILS AND ASK FOR QUOTES, UH, FROM, FROM THEM ON A VALIDATION PROCEEDING.

UH, I, I LOOKED AND DID A QUERY OF, UH, VALIDATION PROCEEDINGS, AND THAT WAS ABOUT AN, YOU KNOW, LOOK TO BE, UH, ON THE HIGH SIDE

[00:45:01]

OF WHAT IT WOULD COST, BUT THAT'S AN, THAT'S AN OUT-OF-POCKET EXPENSE THAT YOU WOULD COME OUT OF THE GENERAL FUND, BUT WOULD BE REIMBURSED OUT OF THE, THE, THE COST OF ISSUANCE WHEN POV'S ARE ISSUED.

OKAY.

THANK YOU.

THANK YOU.

I HAVE ONE QUESTION.

IF YOU DON'T MIND, YOU HAD, UH, BROUGHT UP THE, A SLIDE OF THE, UH, THE CITIES IN CALIFORNIA.

HOW WERE, HOW WERE THESE CITIES DOING AS FAR AS THE PENSION OBLIGATION BONDS, MORE, MORE THAN ANYTHING? OUR NEIGHBORING CITIES, I THINK PLACENTIA ORANGE AND ANAHEIM WERE IN THERE.

IT WASN'T, IT WASN'T ANAHEIM, BUT IT WAS HUNTINGTON BEACH.

YEAH.

YEAH.

I, YOU KNOW, I, I THINK IT'S, UH, YOU KNOW, EVERY CITY IS UNIQUE AND, AND IN TERMS OF THEIR PENSION ISSUES THAT THEY'RE DEALING WITH, I THINK, UH, JIM MENTIONED, YOU KNOW, YOU'RE, YOU'RE MORE OF A TRADITIONAL CITY.

THAT'S BEEN AROUND FOR A LONG TIME.

YOU HAVE THAT A LOT OF RETIREES, YOU KNOW, THERE'S SOME NEW CITIES OUT THERE, YOU KNOW, SO EVERYBODY'S UNIQUE IN, IN THEIR OVERALL PENSION SYSTEM, BUT EVERYBODY'S DEALING WITH THE SAME THING.

YOU ARE, YOU KNOW, THE UAL IS RAMPING UP.

THE PURSE COST ARE RAMPING UP THERE.

THEY'RE LOOKING FOR PROGRAMS TO TRY TO FIGURE OUT A WAY TO GET A HANDLE ON IT.

UH, WHETHER IT'S THROUGH A ESTABLISHMENT OF A ONE 15 TRUST OR ISSUANCE OF PENSION OBLIGATION BONDS, OR, OR SOME COMBINATION OF, OF, OF THOSE.

THANK YOU.

THANK YOU.

YOU, YOU MENTIONED IN YOUR PRESENTATION THAT THE, UM, MUNICIPAL FINANCE MANAGERS, UH, ORGANIZATION RECOMMENDED AGAINST P O BS.

CAN YOU TELL ME WHY, WHAT, WHAT, WHAT IS IN THERE? YEAH, I'LL, I'LL, I'LL TRY TO GIVE YOU MY VERSION OF IT.

UH, THE GOVERNMENT FINANCE OFFICERS ASSOCIATION GF AWAY, UH, MEL AND JACK ARE I'M SURE, AND OTHER MEMBERS ARE OTHER CITY STAFF ARE PART OF THAT ORGANIZATION.

AND IT'S A, IT'S A NATIONAL ORGANIZATION THAT REALLY TRIES TO PROVIDE GUIDANCE ON, ON DEBT ISSUANCE, ON BUDGETING, BEST PRACTICES, UH, YOU KNOW, THE WHOLE GAMUT OF WHAT FINANCE OFFICERS NEED TO BE THINKING ABOUT.

AND SO, UH, PROBABLY I'M, I'M NOT QUITE SURE WHAT YEAR IT WAS AT LEAST THREE YEARS AGO.

THEY CAME OUT WITH THIS PRONOUNCEMENT.

AND I THINK IT WAS IN SPECIFIC A RESULT OF BEING CONCERNED ABOUT SOME OF THE PAST WAYS THAT PEOPLE HAD DONE PENSION OBLIGATION BONDS, WHERE THEY TRIED TO HEDGE THE MARKET AND, AND TRY TO REALLY DO TOO MUCH COMPLEXITY AND, AND HAVE LIKE, UH, MAKE WHOLE CALLS AND OTHER THINGS THAT WERE NOT, YOU KNOW, MORE, MORE TRIED AND TRUE IN TERMS OF HOW TO, HOW TO STRUCTURE A DEBT.

AND SO THE CFO WAS VERY CONCERNED ABOUT THAT THOUGHT IT WAS PRUDENT ON THEIR PART TO, TO ISSUE THESE, UM, WARNINGS AND ADVICE TO GOVERNMENTAL AGENCIES.

AND I THINK THAT, UM, WHAT HAS HAPPENED WITH, UM, AS A RESULT OF THAT, THE FINANCIAL MARKETS AND UNDERWRITERS HAVE BEEN IN A POSITION WHERE THEY FEEL LIKE THEY CAN ISSUE MORE STRAIGHTFORWARD PENSION OBLIGATION BONDS THAT HAVE FIXED INTEREST RATES, UH, AND THEN ARE CALLABLE IN 10 YEARS.

SO, YOU KNOW, 20 YEARS AGO, PENSION OBLIGATION BONDS TYPICALLY WERE NON CALLABLE.

AND SO YOU NEVER COULD REFUND THEM.

AND SO NOW, UH, THE ONES THAT WERE MENTIONED IN THE SLIDE, THOSE ARE ALL TENURE PAR CALLS.

SO THEY CAN BE CALLED IN 10 YEARS, IF, IF CIRCUMSTANCES ARE DIFFERENT AT THAT POINT IN TIME, YOU'RE, WE'RE, WE'RE NOT EXTENDING THE TERM.

WE'RE NOT INCLUDING ANY TYPE OF SWAP OR DERIVATIVE.

IT'S A STRAIGHTFORWARD PRINCIPLE AND INTEREST, UH, TYPE OF, UH, BOND ISSUE.

SO I, I THINK THAT THAT WAS ACTUALLY HEALTHY FROM THE STANDPOINT OF WHAT THE GFR DID, BECAUSE IT REALLY PROVIDE GUIDANCE TO, TO REALLY PUT TOGETHER, UH, PENSION OBLIGATION BONDS THAT, UH, ARE, ARE VERY STRAIGHTFORWARD AND TRANSPARENT TO THE PUBLIC ENTITIES.

THANK YOU.

GOOD AFTERNOON.

IS THIS CLEAR ENOUGH? CAN YOU HEAR ME? NO.

OKAY.

IF IT'S A LITTLE BIT CLOSER TO YOU, THEN I THINK WE CAN HEAR A BETTER TAKE OFF THAT ONE SHOULD GO BETTER.

HOW'S THAT MUCH BETTER.

OKAY.

SO I'M MARY BETH REDDING.

I'M AN ACTUARY WITH BARTELLE ASSOCIATES.

WE'VE WORKED WITH THE

[00:50:01]

CITY, UM, IN LOOKING AT CALPERS AND OPEB ISSUES FOR QUITE A WHILE.

UM, AND I'M HERE TODAY TO TALK A LITTLE BIT ABOUT HOW WE EVALUATE, UH, PENSION OBLIGATION BONDS.

UM, SO OUR ROLE IN THIS TRANSACTION WOULD BE TO BE AN ADVISOR TO, TO THE CITY TO HELP YOU UNDERSTAND, UM, IF THIS IS SOMETHING YOU WANT TO GO FORWARD WITH, IF IT'S A GOOD DEAL FOR THE CITY.

AND SO WE MEASURE, UM, WHAT WE DO IS WE MEASURE FOR THE, THE CITY'S FUTURE PENSION CASH FLOWS, UM, WHAT THEY WOULD BE LIKE IF YOU DID A PENSION OBLIGATION BOND.

AND THEN IF YOU DON'T, IF YOU KEEP THINGS THE WAY THEY ARE.

SO WE LOOK AT WHAT WILL YOU OWE TO CALPERS AND WHAT WOULD YOU PAY FOR THE BOND AND SEE, YOU KNOW, ARE YOU COMING OUT AHEAD OR NOT? SO FOR WHEN WE'RE LOOKING AT WITH THE BOND, WE, UH, ANALYZE THE DEBT SERVICE.

SO THE AMOUNT THAT YOU'RE CONTRACTUALLY REQUIRED TO PAY FOR THE BONDS, AND THEN WE ALSO LOOK AT, UM, WHAT YOU WOULD HAVE TO PAY TO CALPERS.

AND SO WE LOOK AT IT, IF NOTHING CHANGES AND YOU JUST KEEP GOING THE WAY YOU ARE.

AND THEN IF YOU WERE TO TAKE A LARGE INFUSION OF CASH FROM THE BOND PROCEEDS AND GIVE THEM TO CALPERS, WHAT WOULD THAT DO TO THE FUTURE AMOUNTS THAT YOU OWE CALPERS? AND THEN WE COMPARE THEM AND WE SAY, ARE YOU BETTER OFF WITH, OR WITHOUT THE BOND? UM, EVERYTHING IN OUR CALCULATIONS IS DISCOUNTED TO TODAY TO TAKE ACCOUNT OF THE, SORRY, THE TIME VALUE OF MONEY.

OKAY.

THAT MONEY NOW IS WORTH MORE THAN MONEY, 30 YEARS IN THE FUTURE.

UM, OF COURSE THE, UH, YOU WANT TO TURN THE SLIDE.

WE DON'T KNOW, KNOW EXACTLY WHAT THOSE FUTURE OBLIGATIONS THAT YOU'RE GOING TO OWE CALPERS ARE BECAUSE THEY DEPEND ON IN CALPERS INVESTMENT RETURN GOING FORWARD.

OKAY.

THEY'RE NOT A FIXED OBLIGATION LIKE THE BONDS.

UM, WE KNOW, WE KNOW THAT CALPERS IS NOT GOING TO EARN 7% EVERY YEAR.

IN FACT, MOST YEARS, THEY'RE NOT GOING TO EARN NEAR 7%.

USUALLY THEY'RE GOING TO BE FAIRLY A LARGE AMOUNT ABOVE SEVEN OR BELOW SEVEN.

UM, AND THERE'LL BE GOOD YEARS AND BAD YEARS.

AND SO THE WAY WE MEASURE THIS IS WE ACTUALLY RUN, UM, A THOUSAND SIMULATIONS WHERE WE'VE, WE'VE GOT SOME PROBABILITY FUNCTIONS THAT TELL US HOW INVESTMENTS ARE LIKELY TO ACT.

AND WE DO A THOUSAND MODELS, AND WE SEE IN THOSE THOUSAND MODELS, DID YOU COME OUT AHEAD OR BEHIND? MOST OF THE TIME WE EXPECT THAT THE CITY'S FUTURE CASH FLOWS, IF THERE IS A POB WILL BE LOWER.

UM, AND THAT'S BECAUSE CALPERS CHARGE ESSENTIALLY CHARGES 7% ON THE DEBT, ON THE UNFUNDED LIABILITY.

AND THE POB IS GOING TO PAY THE INTEREST YOU'RE GOING TO BE PAYING ON THE POB IS GOING TO BE LESS THAN 7% AND HOPEFULLY SUBSTANTIALLY LESS.

UM, THERE ARE SOME SITUATIONS THOUGH IT'S NEVER GUARANTEED.

OKAY.

THERE ARE SOME SITUATIONS WHEN WE DO OUR MODELING, WHERE IT COMES OUT, THAT IT WASN'T A GOOD DEAL TO HAVE THE POB.

AND THEY'RE TWO DIFFERENT CATEGORIES WHERE THAT HAPPENS.

AND THEY'RE REALLY KIND OF INTERESTING.

UM, THE ONE, I THINK EVERYONE GUESSES IS WHAT HAPPENS IF CALPERS HAS REALLY BAD THINGS HAPPEN TO THEM.

WHAT IF WE HAVE A REPEAT OF 2008, NINE, YOU'VE JUST GIVEN A TON OF MONEY TO CALPERS AND THEY TURNED AROUND AND LOST IT, UM, THAT CAN, UM, BE BAD ENOUGH THAT YOU, UM, IT ENDED UP PAYING MORE.

YOU HAVE THE POB THAN IF YOU DON'T.

THE OTHER SITUATION IS A LITTLE HARDER TO SEE, BUT IT'S ALSO, UM, A BAD SITUATION.

AND THAT'S IF CALPERS INVESTMENTS ACTUALLY DO REALLY, REALLY WELL.

UM, SO THAT'S PROBABLY SURPRISING YOU.

I CAN'T SEE YOUR FACES, BUT I WOULD GUESS THAT YOU'RE, YOU'RE LOOKING A LITTLE BIT AMAZED.

SO IF YOU THINK ABOUT IT, WHAT HAPPENS IF YOU DON'T ISSUE A POB AND CALPERS HAS LIKE 25% INVESTMENT RETURN EVERY YEAR, GOING FORWARD.

WELL, REALLY QUICKLY, YOUR PLAN IS GOING TO BE OVERFUNDED EVEN WITHOUT THE POB AND YOU CAN'T STOP CONTRIBUTING TO CALPERS.

YOU HAVE TO CONTINUE TO PAY THE NORMAL COSTS.

WE HAVE A RULE NOW, NO MORE CONTRIBUTION HOLIDAYS.

SO IN THAT SITUATION WHERE CALPERS DOES REALLY, REALLY WELL, YOU, YOU END UP PAYING THE NORMAL COSTS GOING FORWARD.

IF YOU ISSUE A POB, YOU WERE STILL IN THE VERY SAME POSITION WITHIN A COUPLE OF YEARS, THE PLAN IS OVERFUNDED.

YOU'RE PAYING THE NORMAL COST, BUT YOU STILL HAVE YOUR DEBT SERVICE ON THE, ON THE BOUND.

OKAY.

SO YOU'RE WORSE OFF WITH THE BOND.

BOTH OF THOSE SITUATIONS ARE PRETTY UNLIKELY, BUT WHAT OUR MODELING WILL DO IS KIND OF QUANTIFY HOW LIKELY WE THINK THEY ARE TO OCCUR.

UM, WHAT THE GAINS AND LOSSES ARE.

I THINK I WENT ONTO THE NEXT SLIDE, SORRY.

UM, WHAT, YOU KNOW, HOW GOOD OR HOW BAD ARE THESE THINGS? AND WE'LL DO SOME PARTICULAR SCENARIOS TO KIND OF HELP YOU WRAP YOUR HEAD AROUND.

HERE'S A SPECIFIC EXAMPLE OF HOW, HOW IT COULD BE GOOD OR HOW IT COULD BE BAD.

UM, SO THAT'S WHAT WE LOOK AT IN OUR, IN OUR JOB, IN OUR MODELING.

AND TYPICALLY WE'LL COME

[00:55:01]

UP WITH A RESULT THAT WILL SAY SOMETHING LIKE 85% OF THE TIME.

WE THINK THIS IS A GOOD DEAL.

AND ON AVERAGE, YOU'RE GOING TO BE THIS FAR AHEAD IN TERMS OF, OF YOUR CASHFLOW, THIS MANY DOLLARS, UM, WE WILL DO THAT FOR DIFFERENT, UM, LEVELS OF THE BOND, DIFFERENT BOND AMOUNTS.

AND THAT'S ONE WAY YOU CAN CHOOSE HOW BIG OF A BOND YOU WOULD LIKE TO ISSUE BY.

UM, TYPICALLY THE NUMBERS COME OUT A LITTLE BETTER.

IF YOU, IF THE BOND IS NOT FULLY FUNDED FUNDING, THE UNFUNDED LIABILITY, IF IT'S ONLY GOING SORT OF 80 PERCENT-ISH.

OKAY.

UM, I THINK I ACTUALLY COVERED THE NEXT SLIDE TOO.

SO HOW WOULD THE, HOW WOULD THE CITY CHOOSE WHAT LEVEL OF A BOND TO ISSUE, UM, YOU WOULD MOST, MOST COUNCILS CONSIDER THE RISK, YOU KNOW, AS I SAID, THEY'RE NEVER A HUNDRED PERCENT, WHAT LEVEL OF RISK ARE YOU COMFORTABLE WITH? AND THEN WHAT DOES IT DO TO YOUR FUTURE CASH FLOWS IS DO YOU FEEL THAT THERE'S A NEED TO HAVE FUTURE CASH FLOWS AT A CERTAIN LEVEL AND WOULD THAT HELP GUIDE THE AMOUNT OF BOND YOU WANT TO ISSUE? SO THAT'S REALLY A CITY FINANCE DECISION TO BE.

OKAY.

SO THE LAST THING, UM, I WANTED TO TALK ABOUT IS LET'S, LET'S SAY YOU DO ISSUE A PENSION OBLIGATION BOND, AND LET'S SAY AS, AS IS LIKELY YOU END UP WITH SAVINGS, WHAT COULD YOU DO WITH THAT MONEY? UM, WELL, LOTS OF THINGS, UM, ONE OF THE THINGS THAT SOME AGENCIES DO IS TAKE THE SAVINGS FROM THE PENSION OBLIGATION BOND AND PUSH THEM BACK INTO MAKING FURTHER ADDITIONAL CONTRIBUTIONS TOWARDS THE PENSION PLAN.

SO EITHER, UM, SETTING THEM ASIDE IN A SEPARATE TRUST TO USE, TO, TO MITIGATE, UM, UPS AND DOWNS IN THE CONTRIBUTION RATE GOING FORWARD, OR YOU COULD JUST SORT OF CALCULATE THE SAVINGS FOREVER YEAR AND MAKE ADDITIONAL PAYMENTS TO CALPERS.

EITHER ONE OF THOSE WOULD, WOULD GENERATE MORE AND MORE SAVINGS AS YOU GO FORWARD INTO THE FUTURE.

UM, BEING AN ACTUARY, I WOULD LOVE TO SEE THE CITY TAKE SOME OF THE SAVINGS AND FUND THE RETIREE HEALTHCARE LIABILITIES, BUT, YOU KNOW, THAT'S JUST ME.

UM, THERE'S WE KNOW THAT YOU MUST HAVE LOTS AND LOTS OF BUDGET PRIORITIES, AND, UM, IT WOULD REALLY BE, AGAIN, A CITY CITY DECISION.

WHAT HAPPENS TO THE SAVINGS? YOU KNOW, WE'VE SEEN, WE'VE SEEN PEOPLE DO ALL OF THESE THINGS AND, AND TYPICALLY IT'S MORE OF A COMBINATION OF THEM.

THAT WAS THE END OF MY SECTION.

DOES ANYONE HAVE ANY QUESTIONS? YES, MARY BETH, IF YOU WOULD, WHAT ARE THE COSTS OF THE X WARY? WE MODELING? I THINK THAT, UM, IT RUNS ON THE ORDER OF $20,000.

IT DEPENDS A LITTLE BIT ON HOW MANY ITERATIONS WE DO AND HOW MANY DIFFERENT VARIATIONS WE LOOK AT.

THANK YOU.

ARE THERE ANY MORE QUESTIONS? THANK YOU.

THANK YOU VERY MUCH.

THANK YOU.

SO AT THIS POINT, UM, WHAT I GUESS TO, TO CLOSE THE PRESENTATION AND TALK ABOUT NEXT STEPS, I THINK IS IMPORTANT TO REITERATE THAT COUNSEL A LONG TIME AGO, RECOGNIZE THE CHALLENGES WE'RE FACING.

THIS IS NOT SOMETHING NEW.

THIS IS NOT SOMETHING WE'VE BEEN ASLEEP AT THE SWITCH ON.

UM, I WOULD SAY SINCE THE MID TWO THOUSANDS, 2004 OR FIVE, WE STARTED PROVIDING INFORMATION TO COUNCIL.

THEN COUNCIL TOOK ACTION.

UM, WE HAVE, AS WE HEARD TODAY, IMPLEMENTED MULTIPLE LOWER TIERS OF PENSION BENEFITS FOR EMPLOYEES.

UM, WE HAVE OUR EMPLOYEES NOW THAT OUR EMPLOYEES USED TO PAY 0% TOWARDS PENSIONS.

THE CITY PAID THEIR ENTIRE EMPLOYEE RATE THAT THEY'RE NORMALLY WOULD BE PAYING PLUS THE CITY WOULD PLAY, PAY THE EMPLOYER RATE.

NOW OUR EMPLOYEES ARE PAYING ANYWHERE FROM EIGHT TO 12% OF THEIR PAYCHECKS TOWARDS THEIR PENSION COSTS, ALL OF THEIR OWN EMPLOYEE RATE.

AND SOME OF THE EMPLOYER RATE.

THAT'S AN IMPORTANT THING TO KEEP IN MIND.

THAT'S NOT UNIQUE EVERYWHERE TO EVERY CITY.

UH, BUT THIS CITY, UH, HAS A GOOD RELATIONSHIP WITH