AgdaPkt 2018-09-10 Joint SA PFA - Laserfiche WebLink

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6.1.C. - Page 10 sick leave, purchases of "air time," and the like. Response: The City has already implemented a number of the recommendations above. Options implemented by the City are discussed in the FY 2018-19 Adopted Budget and include: • Negotiating cost-sharing agreements where employees pay between 8 and 18 percent of salary towards their pension benefit • Maintaining COLAs at or below the CalPERS rates • Making supplemental payments to CaIPERS in FY 2016-17 and FY 2017-18, budgeting for additional supplemental payments to Ca1PERS in the City's 5 -year forecast. • Establishing and funding a Section 115 pension trust account in January 2018 with an initial deposit of $10.5 million. Also included in the Five Year Forecast are supplemental contributions to the City's Section 115 Pension Trust Account in annual amounts ranging from $1.1-1.6 million. • Reducing operating expenditures by an estimated $3.7 million in FY 2018-19 and an additional $2.3 million in FY 2019-20. • Maintaining a General Fund reserve of 15%. It should be noted that these reserves provide one-time funding to be used in case of a crisis, such as an economic crash or a catastrophic event (earthquake or other natural disaster) that would require emergency funds to rebuild critical infrastructure. Reserves should not be used for ongoing obligations such as rising pension costs and/or accelerating amortization of unfunded liabilities. • Seeking additional General Fund revenues through a half -cent sales tax increase and a cannabis excise tax on the ballot for the November 2018 election. The recommendation to issue Pension Obligation Bonds will not be implemented because the City does not believe that issuing Pension Obligation Bonds would be in the best interest of the City. The Governmental Finance Officers Association has issued an Advisory recommending that state and local governments do not issue pension obligation bonds for the following reasons: • The invested proceeds might fail to earn more than the interest rate owed over the term of the bonds, leading to increased overall liabilities for the government. • Pension obligation bonds (POB) are complex instruments that carry considerable risk. POB structures may incorporate the use of guaranteed investment contracts, swaps, or derivatives, which must be intensively scrutinized as these embedded products can introduce counterparty risk, credit risk, and interest rate risk. • Issuing taxable debt to fund the pension liability increases the jurisdiction's bonded debt burden and potentially uses up debt capacity that could be used for other purposes. In addition, taxable debt is typically issued without call options or with "make -whole" calls, which can make it more difficult and costly to refund or restructure than traditional tax-exempt debt. • POBs are frequently structured in a manner that defers the principal payments or extends repayment over a period longer than the actuarial amortization period, thereby increasing the sponsor's overall costs. • Rating agencies may not view the proposed issuance of POBs as credit positive, particularly if the issuance is not part of a more comprehensive plan to address pension funding shortfalls. R4: The Grand Jury recommends that, by June 30, 2019, each City develop and publish a long-term financial plan to deal with rising pension costs, and update that plan annually. Such a plan should 7