Finance Highlights 2011 1021 - Laserfiche WebLink

Home

CITY OF SAN LEANDRO MEMORANDUM DATE: October 21, 2011 TO: Finance Committee FROM: Lianne Marshall, Interim City Manager BY: Jim O'Leary, Interim Finance Director SUBJECT: Continued Discussion Regarding Plan for Refinancing Ca1PERS Public Safety Retirement Plan Side Fund RECOMMENDATION Staff recommends that the Finance Committee continue discussion on refinancing the Ca1PERS Public Safety Retirement Plan Side Fund and review and approve directing the financing team to proceed with factoring in that the Side Fund will be paid -down with a loan from the City Water Pollution Control Plant. BACKGROUND Effective June 30, 2004, Ca1PERS created risk pools by pooling assets and liabilities across groups of employers to produce large risk sharing pools intended to dramatically reduce or eliminate large fluctuations in employers' contribution rates caused by unexpected demographic events. Ca1PERS combined the retirement plans for all public agencies with less than 100 active members to reduce the volatility of employer contribution rates. Ca1PERS also created for each member a side fund to amortize each agency's June 30, 2003 unfunded liability over a fixed term at a fixed interest rate. A negative side fund, like the San Leandro's Safety Plan causes the required employer contribution rate to be increased by the amortization of the side fund. Side funds are retired over a fixed term with a fixed amortization schedule based on Ca1PERS actuarial earnings assumption rate (7.75 %). The City's plan has the side fund scheduled to be fully amortized by June 30, 2024. The City's actuary has estimated the outstanding side fund balance at $24.4 million as of June 30, 2011. For pension obligation bonds to provide the City cost savings, the interest rate, including the cost of issuance, must be significantly less than the interest rate the Ca1PERS charges to amortize the side fund. These bonds are not tax exempt under Federal regulations. Therefore, the taxable bonds must be placed at a rate significantly less than the 7.75% charged by Ca1PERS to realize savings. The 13 -year amortization period for the City's side fund frames the savings opportunity being considered. U.S. Treasury yields have been recently volatile, yet continue to be low because of