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City Manager Bell made opening remarks about the upcoming budget direction but tonight staff will report on requirements and how it impacts liabilities. Also, the Council would hear about pension reforms: what it is and what it is not. Finance Director Brian Ponty presented and explained in the report (presentation on file) on the agency's new guidelines regarding reporting practices of pensions. He mentioned that GASB does have a potential of significant impact concerning pensions. GASB cannot direct pension plans on how to conduct business; but, it does say what to place on the balance sheet, what to recognize as costs, and how to calculate them. Mr. Ponty further provided the major changes of the GASB, such as disclosing the unfunded liabilities on the balance sheet that adds $174 million liability to the balance sheet. Mr. Ponty further stated that the impacts of the GASB are in budgeting, credit ratings, and ability to borrow money. He said that it's the Council's discretion on how to budget and we need to continue to budget on a cash basis. With regards to Credit Ratings, he said that the City doesn't have any general fund obligation and the enterprise funds are outstanding. He looked at other cities such as South San Francisco, San Mateo, and Daly City unfunded pension liabilities and determined that Redwood City is going to be in a similar situation like them. One Council Member asked if other Finance Directors are getting together to discuss this issue and if so what are they doing about it. Mr. Ponty said he hadn't heard a lot of discussion from his colleagues, and that this report is really being studied by CaIPERS. He will be working with the auditors for the 2014-2015 Budget to address this matter. She thanked him for the update and wondered if the City needed to find a way to pay down the outstanding debt in terms of the pensions. Another Council Member said he appreciated the report and he said that it will be interesting once we see this matter reflected on the balance sheet. Furthermore, he feels that this is an important item to share with the community, particularly the unions and employees, and how to solve this issue together. Vice Mayor Foust said that it will be helpful if the Department keeps studying the issue and how this impacts the State level and how the rating develops and find out the credit worthiness. She thanked Mr. Ponty for the update. Mayor Gee asked if every part of the country will be affected by this, and Mr. Ponty confirmed. He believes that as the transparency shows on the reports then credit agencies will start to participate, thus impacting the City's credit. Dr. Bell made a small correction that it would be himself and the new Finance Director that would have to research and determine how this matter will impact the City since Mr. Ponty will be retired in a few months. He also mentioned to the Council a letter the Mayor sent to the CaIPERS Board about the support of certain guidelines regarding the mortality table. CITY COUNCIL February 10, 2014 MEETING MINUTES PAGE 9 MINUTE BOOK NO. 65 Page No. 81