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City of San Leandro Notes to Basic Financial Statements For the year ended June 30, 2012 88 NOTE 15 –OTHER POST EMPLOYMENT BENEFITS, Continued D. Actuarial Methods and Assumptions, continued The unfunded actuarial accrued liability (UAAL) is being amortized as a level percentage of projected payroll over a 30 year closed amortization period. There is no assumed post retirement benefit increase. Healthcare costs trends utilized actual rated for 2009 and a 9.5% increase for HMO and 10% increase for PPO plans. Future years were reduced to an ultimate rate 5% for both HMO and PPO plans by 2021. The CPI was assumed to be a constant at 3% per year. Assets in the plan are invested in a moderately conservative portfolio that will provide current income with capital appreciation as a secondary objective. 5.25% Investment rate of return (net of administrative expenses). NOTE 16 –SUBSEQUENT EVENTS A. International Church of the Foursquare Gospel Dispute Case was filed on July 12, 2007 in federal court, challenged a denial, by the City Council of an application from plaintiff, International Church of the Foursquare Gospel (“ICFG”) and Faith Fellowship Church (FFC) to rezone two parcels of property in the City, from Industrial Part to “Industrial Park/Assembly Use Overlay,” in order to allow FFC to relocate its operations to those two parcels. ICFG and FFC sought injunctive and declaratory relief to its use property for religious assembly purposes and also economic damages. On December 2009, US Dis trict Court granted the City’s motion for summary judgment and rejected all of ICFG and FFC claims and found that the City had acted fairly and lawfully in all actions. The Church files and appeal an on February 2011, the Court reversed and directed the matter to be remanded to the District Court for further proceedings. On March 2011 the City filed a petition for rehearing and multiple petitions were filed, denied, and were sent back to US Supreme Court for trial. The Plaintiffs claimed monetary damage s in excess of $20,000,000 for the loss of the value of the property that they purchased without first obtaining the proper zoning clearances from the City, out of pocket expenses and costs, and for loss of contributions from anticipated membership growth and attorney’s fees. The City asserted that monetary damages are not permitted and that they are not entitled to any monetary damage, if the City was found liable. Because the law is unsettled in this area, it was anticipated that litigation, including anticipated appeals, will continue for several years. On September 14, 2012 the parties entered into Court ordered settlement discussion before a Magistrate Judge. A settlement of all claims and actions was mutually agreed upon and approved by the City council on September 24, 2012 in the amount of $2.3 million. B. 2012 Pension Obligation Bond Rating On October 9, 2012, Moody’s Investors Service announced that the City’s 2012 Pension Obligation Bonds (POB) have been downgraded from Aa3 to A1 and that the A1 rating is under review for downgrade. San Leandro was part of a larger review of approximately 100 California cities that began in August. One of the findings of Moody’s review was that pension-obligation bonds should be rated no higher than certain other forms of debt, such as certificates of participation and general obligation (GO) bonds. San Leandro’s POB was originally rated Aa3 while the GO rating is Aa2 thus downgrading the POB to A1 meets Moody’s new rating criteria. Although the decision to downgrade the POB was based on an analysis that determined California cities’ pension obligation bonds carry more risk than previously thought, it was part of a broader move to downgrade eight pension bonds. Standard and Poor’s continues to rate the POB an “A+”.