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Description
San Bruno City Council Meeting
December 11, 2012
10b. Authorize the Sale of Pension Obligation Bonds
A
B
B
So
the
first
question
that
I
will
ask
an
answer,
for
you
is
really
to
talk
about
what
is
a
side
fund,
because
this
refinancing
these
pension
obligation,
bonds
that
are
before
you
this
evening-
are
an
issuance
to
refund
a
debt
that
currently
exists
between
the
city
and
the
CalPERS
agency
suicide
fund,
just
to
go
back
in
two
thousand
three
at
CalPERS
merged,
many
of
the
smaller
units
of
that
had
less
than
a
hundred
employees
into
risk
pools.
So
at
that
point
time
they
were
independent.
B
They
each
had
their
own
rates
and
in
an
attempt
to
reduce
the
volatility
of
rates,
they
took
a
lot
of
the
smaller
plans
of
less
than
100
employees
and
put
them
into
risk
pools,
and
so
that
included
both
the
police
and
fire
units
for
the
city.
They
were
merged
into
a
safety
pool
with
other
agencies.
At
that
time,
when
they
went
into
that
pool,
there
was
an
unfunded
liability
at
that
point
in
time
in
2003.
That
basically
said
you've
put
in
this
much
money
to
the
system.
B
This
is
the
difference
between
what
has
been
put
in
and
what
you
theoretically
has
been
determined
that
you
owe
to
CalPERS
to
fund
your
retirement
obligations
at
this
point
in
time.
So
a
side
fund
was
created
at
that
point
time
to
be
paid
by
the
city
over
a
term
of
25
years.
So
this
is
going
back
to
2003.
B
That
side
fund
has
been
paid
by
the
city
and
it
is
paid
through
current
contribution
rates
that
we
pay
for
our
safety
employees.
So
right
now
we
pay
in
excess
of
thirty
six
point:
six
percent
for
our
safety
employees
to
pers
and
have
that
thirty
six
percent,
11.8
percent
of
that
is
to
pay
the
side
flood
obligation.
So
this
is
a
number
that
we
do
pay
as
part
of
our
rates
and
we
will
continue
to
pay
for
the
next
14
years
through
june,
twenty
twenty
seven.
So
it
is
a
it's!
B
A
real
dollar
amount
that
we
know
and
that
we
will
continue
to
pay.
In
addition,
pers
charges
a
discount
rate,
basically
charges
us
interest
on
that
liability
at
a
rate
of
7.5
percent.
Now
that
rate
was
recently
decreased
from
7.7
5%
earlier
this
year,
so
they
reviewed
their
investments
and
decided
that
a
decrease
in
that
rate
was
the
proper
way
to
proceed,
and
so
right
now
it's
seven
point.
Five
percent.
B
This
is
again
a
fixed
dollar
amount
of
fixed
percentage.
Now
what
could
happen
possibility
is
that
purse
could
decide
right
now
we're
paying
seven
point.
Five
percent
purse
could
decide
to
revisit
their
investment
assumptions
and
they
could
possibly
lower
the
rate
down
another
25,
another
notch
27.25
or
something.
So
it
is
a
possibility
that
purse
could
at
some
point
in
the
future,
determine
to
reduce
that
investment
rate.
But,
however,
at
this
point
in
time
we're
using
seven
point
five
percent
as
the
basis
of
our
calculations.
B
So
the
next
question
I
wanted
to
ask
an
answer-
is
really
what
is
a
pension
obligation,
bond
and
I?
Think
you
hear
a
lot
about
them
in
the
media?
They
get
a
bad
rap
because
they're
they
can
be
structured
in
many
different
ways.
Many
agencies
or
some
agencies
have
issued
pension
obligation,
bonds
to
address
a
cash
flow
issue
that
they're
having
they
can't
fund
their
pensions
or
current
pension
costs.
They
have
a
budget
shortfall.
The
answer
might
be
issuing
pension
obligation
bonds.
That's
not
what
this
is.
B
This
isn't
day
we're
not
looking
to
issue
pension
obligation
bonds
because
of
any
of
those
types
of
issues.
We
are
really
looking
at
doing
this
simply
because
the
finances
are
telling
us
that
this
is
what
makes
sense
again
because
we're
paying
the
seven
point,
five
percent
interest
rate
and
we
think
in
the
market.
We
can
get
significantly
lower
interest
rates
and
therefore
pay
this
site
phone
off
that
pers
and
be
done
with
it
and
reduce
our
current
retirement
rates.
B
So
the
next
section
I'm
going
to
walk
through.
Basically
the
terms
of
the
issuance.
You
know,
as
you
know,
we've
been
evaluating
pension
obligation
bonds.
I
think
we
first
spoke
to
the
city
council
about
this
back
in
june
during
the
budget
study
sessions
and
then
proceeded
with
a
judicial
validation
action
and
in
late
june,
which
was
completed
on
September
19th.
B
So
the
early
estimates
at
this
point
in
time
indicate
that
the
city
would
likely
be
able
to
obtain
an
interest
rate
of
somewhere
around
four
percent.
So
that
would
be
a
decrease
in
7.5
percent
to
four
percent
and
based
on
our
current
side,
fun
of
12.6
million
would
be
represent
about
a
twenty
percent
net
present
value
savings
over
the
term
of
the
fourteen
years
to
the
city
in
the
amount
of
the
issuance
would
be
at
this
point
in
time.
It's
still
an
estimate
as
we're
waiting
for
our
final
payoff
number
from
pers.
B
However,
the
power
mount
would
be
just
over
13
million
dollars
and
would
include
all
the
costs
of
issuance,
so
that
would
include
the
fees
for
the
bond
counsel,
financial
advisor
and
all
the
underwriting
fees,
which
would
be
just
about
three
hundred
thousand
dollars.
So
should
the
city
council
decide
to
move
forward
with
the
issuance
of
these
bonds?
B
This
is
the
agreement
that
exists
between
the
city
and
its
trustee,
and
in
this
case
that
would
be
Union
Bank.
That
basically
highlights
the
rules
and
responsibilities
of
each
party
and
for
the
city
includes
our
requirement
to
make
the
bond
payments
annually
as
well
as
to
include
those
bond
payments,
the
debt
service
in
our
budget.
B
Finally,
the
next
document
is
the
bond
purchase
agreement.
So
this
is
the
agreement
that
it
would
exist
between
the
city
and
the
underwriter,
which
is
prey
or
ceiling
company
to
basically
purchase,
accept
delivery
and
pay
for
the
bonds,
and
it
also
includes
the
underwriters
compensation
of
not
to
exceed
1
percent,
which
is
included
in
those
issuance
costs.
I
talked
about
earlier.
B
The
resolution
also
provides
assurance
that
the
bonds
will
not
be
issued
if
market
conditions
were
to
change.
Interest
rates
were
to
go
up.
It
provides
the
assurance
that,
unless
the
net
present
value
savings
is
the
nexus
of
5%,
we
would
not
issue
the
bonds,
so
it
assures
in
minimum
savings
of
five
percent
and,
as
I
indicated
earlier,
early
estimates
say
that
it
could
be
in
excess
of
twenty
percent.
B
However,
we
won't
know
until
we
get
to
the
market
and
also
when
we
get
our
final
credit
rating,
so
assuming
city
council
approval
of
these
items,
next
steps
would
be
to
get
the
credit
rating.
The
city
provided
a
presentation
to
Standard
&
Poor's
last
week
and
is
awaiting
a
crab
rating
sometime
later
this
week,
and
once
we
have
the
rating,
then
the
underwriter
can
work
towards
identifying
potential
investors
and
have
an
order
period,
so
we
would
hope
to
enter
the
market
on
or
before
December
twentieth.
B
And
finally,
we
would
close
the
bonds
and
pay
off
the
current
side
fund
with
purse
on
December
28th,
which
is
before
the
end
of
the
year
and
at
that
time
of
payoff.
Calpers
would
therefore
reduce
our
pers
rate
for
safety
members
going
forward
by
an
amount
of
roughly
eleven
point.
Eight
percent
currently
at
the
city's
bond
payments
going
forward.
Should
we
do
this
would
come
from
the
city's
general
fund.
It's
a
it's
a
debt
of
the
general
fund
and
it
would
be
offset
while
the
debt
service
would
be
paid
from
the
general
fund.