AgdaPkt 2018-05-21 Joint SA PFA - Laserfiche WebLink

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City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-1000 www.redwoodcity.org Specifically, AB 1912: • Conflicts with Provisions of the California State Constitution: The California constitutional debt limit prohibits an agency from incurring indebtedness beyond the agency’s ability to pay the debt back from revenues received in the same fiscal year without the approval of two-thirds of its voters. These safeguards were placed in the State’s constitution to avoid a situation in which bond issuers might compel an increase in taxes or foreclose on local government assets. By applying retroactive joint and several liability to existing contracts, we have strong concerns that Redwood City will incur significant debts that may exceed our annual revenue without receiving voter approval—thus violating the sighted provision. Further, it can be argued that retroactively incurring debts of another agency violates article XVI, §6 of the California Constitution which prohibits an agency from giving or lending public funds to any person, public or private entity. A JPA is an independent governmental body whereby the City has no legal, statutory oversight or managing authority. Liabilities from such entities retroactively applied to each member agency would constitute a gift of public funds to an individual(s) and/or public entity. • Gives Retirement Agency Authority to Increase the Amount Owed Through Assumption Changes and/or Investment Losses: Retirement obligations are unlike other forms of traditional debts and liabilities. Unfunded retirement liabilities are particularly volatile and can grow to insurmountable costs based on no fault of the agencies who contract with a retirement system for health and pension benefits. It is estimated that in FY 2008-09, the California Public Employee Retirement System (CalPERS) lost approximately $100 billion dollars in assets resulting in a gross loss of 34.75 percent of the fund’s total value. Moreover, CalPERS employer contributions are projected to double by fiscal year 24-25. Additionally, those numbers are poised to grow even more in the short term when factoring CalPERS recent decision to modify its amortization schedule from 30 years to 20. The measure would hold all agencies of a JPA accountable for the investment shortfalls, future discount rate reductions, and other assumptions changes made by the retirement agencies even if the agencies are able to pay the lump sum amount of the current unfunded liability from the JPA. • Creates Funding and Operational Impairments: The Governmental Accounting Standards Board (GASB) issued regulations (GASB 68, 2012 and 76, 2015) that require each state and local agency to report all financial liabilities associated with public pension and OPEB liabilities. These reporting standards play a vital role in assessing the fiscal health and viability of an agency. Incurring retroactive debt would require each originating agency of a JPA to report these liabilities as debts, thus impacting an agency’s net financial position. A drastic spike in liability could contribute to the downgrading of an agency’s credit rating, which in turn would make issuing and servicing future bonds more costly through higher interest costs and additional required insurance. 9.A. - Page 6