Finance Highlights 2011 1202 - Laserfiche WebLink

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Resolution Authorizing Inter -Fund Loan Page 2 of 2 December 2, 2011 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 San Leandro's Safety causes the required employer contribution rate to be increased by the amortization of the side fund. The safety side fund is distinct from the City's other Ca1PERS plans and liabilities. 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. In addition to issuance of the pension obligation bonds recommended for City Council approval in a separate resolution, staff evaluated the opportunity to utilize a loan from Wastewater Pollution Control Plant Fund reserves to partially cover the side fund refinancing. The amount of the bond financing could be prudently reduced by $6,000,000. A loan in this amount from the Wastewater Fund would 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 the loan from the Wastewater Fund will result in the overall greatest benefit and savings to the General Fund. Additional savings from using a combination of an inter -fund 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. On October 21, 2011, the Finance Committee discussed, approved, and directed the refinancing of the Ca1PERS Public Safety Retirement Plan Side Fund. The 13 -year amortization period for the City's side fund frames the savings opportunity being considered. Staff recommended and the Finance Committee approved that the pension obligation bond amount to approximately $19,000,000, with the remainder of the obligation pay -down come from the Water Pollution Control Plant Fund reserves. The loan of $6,000,000 from the WPCP will be paid by the General Fund, with a long term adjustable rate, initially set at 3 %, during the amortization term of the loan. A combination of refunding the pension fund through the pension obligation bond and a loan from the WPCP will result in the overall greatest benefit and savings to the General Fund. CONCLUSION Staff recommends that the Finance Committee recommend City Council approval of an inter - fund loan from the Water pollution Control Plant Fund to the General Fund and appropriation of $6,000,000 to pay -down the Ca1PERS Public Safety Side Fund with an adjustable interest rate loan, with an initial rate of 3 %.