Finance Highlights 2011 0909 - Laserfiche WebLink

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Authorizing Pension Obligation Bonds Indenture of Trust September 9, 2011 The bonds will be issued under an indenture of trust between the City and the trustee, U.S. Bank. The final form of the indenture of trust will be approved by the City Council following the conclusion of the validation proceedings. The indenture of trust provides for the authorization and terms of the bonds, the deposit and application of the bond proceeds, the security of the bonds and investment of the proceeds, the role of the trustee, and other provisions. Other Refunding Source In addition to issuance of the pension obligation bonds, staff is analyzing the opportunity to utilize a loan from the Wastewater Pollution Control Plant Fund reserves to partially cover the side fund refinancing. Potentially, the amount of the bond financing could be reduced by up to $6,000,000. A loan in this amount from the Wastewater Fund potentially could be made at a lower rate than dictated by the bond market and yet higher than the rate reflected by the City's current investment portfolio return. Ultimately, the Wastewater rate payers also would benefit from this approach. A combination of refunding the pension side fund through the pension obligation bond and a loan from the Wastewater Fund may result in the overall greatest benefit and savings to the General Fund. Any additional savings from using a combination of an interfund loan and a public bond issuance may be mitigated if taxable bond interest rates continue to fall, providing a more favorable borrowing cost on the pension obligation bonds. Staff is continuing to evaluate the feasibility of this approach. CONCLUSION Staff recommends that the Finance Committee recommend that the City Council authorize issuance of pension obligation bonds and filing the required validation actions to refinance the outstanding CalPERS side letter fund obligations of the City. The bond transaction would refinance the existing side fund obligation over the same term in the same amount, plus issuance costs, and take advantage of lower bond interest rates. The validation action is required whereby the superior court determines the validity of this pension obligation.