101

City Council
Agenda Item Summary
Meeting Date: October 2, 20 I 2
Prepared by: Jason Stilwell
Name: Update and direction on refunding options for the City's CalPERS Retirement Side
Fund.
Description: On July 3, 20I2 the City Council directed the City Administrator to begin the
process of analyzing refinancing options for the City's CalPERS Side-Fund. This
item pertains to one of the Key Projects adopted by the City Council on January I 0,
20I2 as part ofthe City Administrator 20I2 Goals.
On September II , 2012 the City Council provided direction to staff in four primary
areas: to determine payoff amounts; to prepare options for two terms - a I 0-year
term and a payment relief term with each having a level amortization; to prepare
documents to enable both a private or public placement to assure the City is able to
attain the most advantageous cost of funds; and to prepare a Request for
Qualifications (RFQ) for an underwriter. Then direction given was to return to the
City Council with a selection recommendation based on the lowest rate, expertise,
and with the best ability to sell the City's pension obligation bonds to investors.
Overall Cost: The City can restructure the two outstanding Side-Fund obligations for
significant interest and cash flow savings. The City has the option to restructure its
Side-Fund obligations via a public offering (with an underwriter) or a private
placement (with a bank).
Staff Recommendation: Receive presentation and provide direction.
Important Considerations: At the November 6, 20I2 meeting, the City Council will be
asked to take a formal action on the final POB bond documents (resolutions,
Preliminary Official Statement and forms of financing documents). NHA Advisors
and Jones Hall commenced drafting the appropriate legal documents, credit review,
rating agency interaction. This process will be able to be completed following
selection and engagement of an underwriter. Once formal approval of the POB is
complete, the City will be prepared to issue the POB shortly after the conclusion of
the November election. This schedule should enable the City to lock in interest rates
in mid-November 20I2. Staff and the financing team will be researching new
pension legislation signed by Governor Brown and will provide more information at
the November City Council meeting.
Decision Record: On July 3, 2012 the City Council directed the City Administrator to
begin the process of analyzing refinancing options for the City's CalPERS Side-
Fund. This item pertains to one of the Key Projects adopted by the City Council on
January IO, 20I2 as part of the City Administrator 20I2 Goals.
Reviewed by:
Jason

CITY OF CARMEL-BY-THE-SEA
STAFF REPORT

TO: MAYOR BURNETT AND COUNCIL MEMBERS

FROM: JASON STILWELL, CITY ADMINISTRATOR

DATE: OCTOBER 2, 2012

SUBJECT: UPDATE AND DISCUSSION OF PENSION OBLIGATION
BOND PROGRAM AND DESIGNATION OF
UNDERWRITER
_______________________________________________________________
RECOMMENDATION: Receive presentation and provide direction.

DISCUSSION: On July 3, 2012 the City Council directed the City Administrator
to begin the process of analyzing refinancing options for the Citys CalPERS Side-
Fund. This item pertains to one of the Key Projects adopted by the City Council
on January 10, 2012 as part of the City Administrator 2012 Goals.

On September 11, 2012 the City Council provided direction to staff in four
primary areas:
1) Determine payoff amounts: begin the payoff process with CalPERS for an
effective date of December 15, 2012,
2) Level Payment Schedule: prepare options for two terms a ten-year term
and a payment relief term with each having a level amortization,
3) Public offering: prepare documents to enable both a private or public
placement to assure the City is able to attain the most advantageous cost of
funds,
4) RFQ for underwriting: Prepare a request for qualifications for an
underwriter and return to the City Council with a selection recommendation
based on the lowest rate, expertise, and with the best ability to sell the
Citys pension obligation bonds to investors.

Side-Fund Background In 2003, when the Citys pension plans were pooled with
other small cities and agencies, CalPERS reviewed the contributed assets and
estimated liabilities of the Citys pension plans. CalPERS determined that the
pension liabilities for the two plans exceeded the asset values by roughly $6
million. At the time, CalPERS found that other small cities also had assets that
were not equal to their liabilities. As a result, CalPERS sought to realign the
assets and liabilities creating what it calls a Side-Fund. The Side-Fund is treated
as a loan from CalPERS to the City. As of June 30, 2011 the Side-Fund balance
for the Citys two pension programs totaled over $6.2 million. CalPERS adjusted

102
the actuarial investment return rate to 7.50% in March 2012. The two Side-Fund
program balances will be verified through the Lump Sum Payoff Amount letter
that the City has requested from CalPERS. The Citys two Side-Funds have
amortization schedules that anticipate a final payoff in FY 2033-34 for the safety
fund and FY 2022-23 for the miscellaneous Fund.

The issuance of a pension obligation bond (POB) requires a validation
procedure in the local Superior Courts. For a validation, the City Council
provided initial authorization to issue the bonds and then staff filed a court action,
publicly noticing the Citys intent to issue bonds to refund its existing CalPERS
obligation. The City Council initiated this action at its July 3, 2012 meeting. The
time period for challenging the issuance of the POBs in the validation action has
expired, and the City has petitioned the Court to provide a final judgment in favor
of the POBs. Bond counsel expects that a final judgment will be received in mid-
October. There is a 30-day appeals period from the date of the final judgment, and
the POBs will not be issued until such 30-day period has expired.

At the November 6, 2012 meeting, the City Council will be asked to take a formal
action on the final POB bond documents (resolutions, Preliminary Official
Statement and forms of financing documents). NHA Advisors and Jones Hall
commenced drafting the appropriate legal documents, credit review, rating agency
interaction. This process will be able to be completed following selection and
engagement of an underwriter. Once formal approval of the POB is complete, the
City will be prepared to issue the POB shortly after the conclusion of the
November election. This November process (selling the POB to an underwriter)
would lock in the term and interest rates. This schedule should enable the City to
lock in interest rates in mid-November 2012.

Recent pension legislation signed by the governor may impact the way CalPERS
treats the Side-Fund program and calculates the amortization of each public
agencys outstanding pension obligations. Staff and the financing team will be
researching this legislation and provide more information at the November City
Council meeting.

It is anticipated that at the October 2
nd
City Council meeting, staff will be
presenting a summary and recommendation of the RFQ process for the
underwriter selection. A response from each firm is not expected until September
28
th
with the review completed by the October 2
nd
meeting.

FISCAL IMPACT: The City has the ability to restructure the two outstanding
Side-Fund obligations for significant interest and cash flow savings. The City has
the option to restructure its Side-Fund obligations via a public offering (with an
underwriter) or a private placement (with a bank).


103
City of Carmel-by-the-Sea
CalPERS Side-Fund Analysis

Summary of Most Recent CalPERS Side Fund Report (from DBC)

Safety Misc. Total
Side Fund Balance $3,376,278 $2,750,158 $6,126,436
Fiscal Year in which UAAL is Fully Amortized 6/30/2034 6/30/2023
Side Fund Amortization Payment for FY 2011-2012 $232,851 $308,301 $541,152
Side Fund Amortization Payment for FY 2012-2013 $240,419 $318,321 $558,740
Report Amortization Period 22 11

Public Offering (Original Amortization)

Summary Results Safety Misc. Total
Proposed Bond Par Amount $3,495,000 $2,850,000 $6,345,000

CalPERS Amortization at 7.50%
Total Debts Service $5,547,540 $3,362,526 $8,910,066
Total Side Fund Amortization $7,391,050 $4,081,273 $11,472,323
PV Savings $951,145 $94,832 $1,545,977
PV Savings as % of Payoff 28.17% 21.63% 25.23%

Private Placement (10-Year Amortization)

Summary Results Safety Misc. Total
Proposed Bond Par Amount $3,445,000 $2,805,000 $6,250,000

CalPERS Amortization at 7.50%
Total Debts Service $4,289,620 $3,492,960 $7,782,580
Total Side Fund Amortization $7,391,050 $4,081,273 $11,472,323
PV Savings $1,119,261 $384,084 $1,503,346
PV Savings as % of Payoff 33.15% 13.97% 24.54%



104