►
Description
City of San José, California
City Council Study Session - Pension Obligation Financing Options
April 23, 2021
Pre-meeting citizen input on Agenda via eComment at https://sanjose.granicusideas.com/meetings.
This public meeting will be conducted via Zoom Webinar. For information on public participation via Zoom, please refer to the linked meeting agenda below.
Agenda https://sanjose.legistar.com/View.ashx?M=A&ID=790194&GUID=6D7FA4D7-1A63-4C08-A8E8-045DE722CC29
A
C
B
E
A
Okay,
thank
you
very
much.
All
right
appreciate
enormous
amount
of
hard
work
from
julie,
cooper
and
cheryl
parkman,
and
a
lot
of
folks
on
the
team
from
karen
marbuto
and
the
entire
city
attorney's
team.
Thank
you
for
all
the
hard
work
to
get
us
to
this
point
where
we
can
study
and
understand
a
little
better.
What
is
what
the
options
might
be
for
the
council
dave.
Do
you
want
to
take
it
away.
F
F
All
of
this
work
is
in
response
to
council
direction
from
the
december
1st
council
action
and,
as
the
the
mayor
mentioned,
been
a
a
big
lift,
a
big
lift
for
for
the
finance
department,
city,
attorney's
office
budget
office
and
the
office
of
employee
relations
and,
of
course,
our
our
consultants,
the
municipal
advisors
and
bond
council
as
well.
The
the
staff
report
was
was
posted
last
friday
a
week
ago
and
and
the
presentation
that
you're
about
to
to
see
was
was
posted
yesterday.
I
believe
so.
F
F
That's
going
to
be
presented
today,
and
so
the
the
presentation
from
staff
and
team
and
and
consultants
is,
is
gonna,
take
about
two
hours
and
that's
and
then
we'll
that'll
leave
about
an
hour
for
questions,
comments
and
public
commentary.
So
so
certainly
appreciate
the
the
council's
patience
but
important
work
and
a
lot
of
information
to
share
and,
as
I
said,
no
decision
making
today
that'll
come
later,
but
at
least
we'll
have
a
solid
foundation
for
that
decision
making.
So
I'm
going
to
pass
it
off
to
to
julia.
G
Okay,
thank
you
dave.
So,
on
the
next
slide,
we
just
have
a
list
of
the
presenters
today,
as
dave
said,
jim
shannon
and
nikolai
and
cheryl
are
assisting
on
the
city
side.
With
the
presentation
with
the
presentation,
we
have
a
guest
speaker,
gerard
miller,
who
I'll
introduce
a
little
later
on
in
the
presentation,
and
then
the
advisors
to
the
city
include
bond
council,
brian
forbath
from
straddling,
and
then
michael
bush,
julio
morales
and
wing
c
fox
from
urban
futures,
our
municipal
advisor.
G
So
on
the
next
couple
of
slides,
slides
four
through
six,
we
just
kind
of
provide
an
outline
of
the
presentation
and
kind
of
the
page
numbers
just
to
help
with
way
finding,
since
it
is
a
large
presentation
exceeding
100
pages.
So
this
is
just
an
overview
of
what
we
will
be
discussing
over
the
next
couple
of
hours.
So
as
we
head
into
part
one
which
is
a
review
of
yes,
the
problem
and
our
efforts
to
date
and
cheryl-
and
I
will
talk
about
that-
so
I
just
to
kind
of
reiterate
this
is
a.
G
This
is
a
the
presentation
and
the
study
session
today
is
coming
out
of
council's
direction.
On
december
1st,
we
immediately
started
the
process
and
issued
an
rfp
to
find
a
municipal
advisor
with
particular
experience
in
studying
pension
financing
options
and
pension
obligation,
bonds
and,
and
we
selected
urban
futures,
and
then
the
city
attorney
also
was
undergoing
an
rfp
process
and
selected
straddling
as
our
bond
council.
G
It's
really
to
provide
the
mayor
and
the
council
on
information
on
the
risks,
the
rewards,
the
pros
and
cons
with
the
pob
issuance
and
answering
the
questions
that
were
in
that
december
first
referral.
So
on
the
next
slide,
we
can
see
the
challenge.
This
slide
is
probably
familiar
to
you.
The
budget
office
has
repeatedly
cautioned
that
these
escalating
retirement
costs
are
in
the
general
fund
are
constraining
our
ability
to
fund
other
city
priorities.
G
G
The
city
has
been
exploring
ways
to
control
our
retirement
costs,
but
the
amortization
of
that
unfunded
liability
means
that
retirement
pay
payments
are
going
to
continue
to
grow
for
at
least
the
next
eight
years,
and
this
was
a
chart
that
you
saw
back
in
march
when
retirement
services
made
a
presentation
to
the
council
and
then
when
we
look
at
the
next
slide.
This
large
unfunded
accrued
liability,
the
funding
status
for
san
jose,
compares
unfavorably
to
other
plans
and
we'll
talk
about
that
a
little
bit
more
as
well.
G
So,
and
you
will
see
throughout
the
presentation
that
it's
important
for
us
to
kind
of
look
at
the
two
plans
differently
because
of
such
a
disparity
between
those
fundings
and
as
you
can
see
here,
we
have
a
chart
where
we
show
the
funded
ratio
for
and
the
and
the
ual
for
both
plans
on
the
next
slide.
As
I
mentioned,
we've
been
searching
for
solutions
for
the
more
than
a
decade.
G
Former
mayor
reed
formed
the
budget
shortfall
advisory
task
force,
and
in
march
of
that
year,
the
city
manager
formed
the
general
fund
structural
deficit
task
force
to
support
the
work.
There
was
a
stakeholder
group
that
was
formed
to
identify
strategies
to
eliminate
the
general
fund
structural
deficit.
In
november
of
2008,
the
city
manager
released
a
report
on
the
general
fund
structural
elimination
plan.
G
G
G
They
weren't
a
viable
tool
to
address
the
2011
budget
shortfall.
The
stock
market
conditions
weren't
right.
There
was
a
six
to
12
month
process
to
required.
Court
validation
and
brian
will
talk
about
that
at
the
end
of
the
study
session.
Their
significant
caution
was
provided
on
market
volatility
and
the
risk
of
povs,
and
then
further
exploration
needed
to
occur
in
the
context
of
a
comprehensive
look
of
the
pension
system
cost
mitigation
and
who
bears
the
cost
of
any
potential
losses.
G
H
H
H
As
julia
mentioned,
when
we're
looking
at
other
agencies
and
benchmarks,
including
national
surveys,
we
can
see
that
our
federated
plan
is
looking
alarmingly
lower
than
the
funded
status
of,
maybe
where
we
want
to
be,
and
so,
while
this
is
a
low
funded
status,
that
doesn't
mean
that
we
can't
recover.
We
can
still
recover
from
this.
However,
it
is
made
more
difficult
by
the
maturity
of
our
plans.
H
H
H
H
There
she
is
so
sorry
about
that.
My
my
connection
just
went,
of
course,
that
happens
live
during
a
zoom
meeting,
but
to
get
back
to
this
slide.
What
I
would
I
want
to
make
sure
that
we
get
out
of
this
is
that
we
do
have
a
large
unfunded
liability
for
our
pension
plans,
and
our
funding
ratio
is
really
something
that
we
need
to
look
at
in
order
to
to
make
sure
that
we're
getting
this
funded
status
to
to
a
higher
level.
H
So
if
we
go
to
the
next
slide,
what
we
can
see
is
that
this
issue
is
further
compounded
by
the
cost,
sharing
that
we
have
in
our
retirement
plans
for
tier
one.
As
you
can
see,
the
city
pays
the
majority
of
those
unfunded
liability
costs
and
in
fact,
we
pay
100
of
the
unfunded
liability
for
for
tier
one,
which
is
in
the
billions
of
dollars
in
tier
two.
H
So
if
we
go
to
the
next
slide,
what
you
can
see
here
is
that
our
unfunded
liability
can
be
looked
at
like
a
debt
portfolio.
That's
made
up
of
a
series
of
amortization
bases.
So
every
year
the
board's
actuaries
are
going
to
look
at
our
unfunded
liability
and
they're
going
to
determine
a
different
term
or
payment
schedule.
If
there
is
a
different
investment
loss
or
investment
gain
or
if
we
make
actuarial
assumption
changes.
H
So
in
the
federated
plan
we
have
25
bases
for
tier
1
and
17
for
tier
2.,
and
then,
if
we
go
to
the
next
slide,
we
can
see
for
police
and
fire
that
there
are
32
bases
for
fire
and
police.
And
if
you
look
really
closely
at
these
last
two
slides
you'll
see
that
each
we're
paying
them
off
over
different
terms
over
different
years
and
over
different
schedules.
Now.
The
reason
why
this
is
really
important
is
because
we
think
of
the
unfunded
liability
as
a
dynamic
liability
right.
H
It's
changing
every
single
year,
and
even
if
we
paid
off
our
3.5
billion
dollars
in
pension
unfunded
liability,
the
next
year,
amortization
bases
are
still
being
added.
As
the
actuaries
are
continuing
to
value
this
now,
these
last
two
slides
are
going
to
be
really
important
as
we're
going
through
this
pension
study
session
today,
because
we're
going
to
be
talking
about
these
different
bases
and
and
how
what
they're
going
to
mean
to
us
going
forward
this
next
slide.
H
What
we're
seeing
in
our
is
our
scheduled
ual
payments
for
both
our
federated
and
police
and
fire
plans,
and,
as
you
can
see,
our
ual
will
be
going
down,
but
our
payments
are
still
going
to
be
going
up
through
the
next
decade.
Another
thing
that's
really
important
about
this
slide
is
that
all
of
our
actuarial
assumptions
need
to
be
met.
H
So
in
the
next
slide,
what
we
can
see
is
that
in
the
next
decade
we
are
going
to
have
a
cumulative
increase
in
our
ual
payments
of
about
148
million
dollars.
Now
we
we've
made,
you
know
significant
changes
over
the
past
years,
however,
our
ual
payments
are
continuing
to
increase
in
these
significant
amounts,
and
so,
if
we
go
to
the
next
slide,
we
can
see
what
we've
tried
to
do
in
the
past
to
to
reduce
our
significant
unfunded
liabilities
and
reduce
these
significant
retirement
costs.
H
In
2012
we
passed
measure
b,
and
you
know,
after
significant
litigation,
we
did
reach
settlement
frameworks
with
our
bargaining
units
that
preserved
a
lot
of
those
savings
from
measure
b
and
made
us
a
little
bit
more
comparable
to
calpers
agencies,
but
these
had
significant
changes
to
our
pension
and
retiree
health
care
plans
in
2006
that
we
implemented
also
in
17
and
18.
However,
our
unfunded
liability
and
retirement
costs
are
still
increasing
over
this
time.
H
So
that's
why?
If
we
go
to
the
next
slide,
we
can
see
that
in
2019,
the
mayor
put
forth
a
march
budget
message
that
asked
us
to
convene
a
stakeholders
working
group.
So
we
could
continue
to
discuss
this
problem.
We
saw
the
costs
were
still
continuing
to
increase.
So
what
can
we
do?
Is
there
anything
that
we
have
not
explored
yet
or
things
that
we
did
already
explore?
Then
maybe
there
are
some
some
differences
or
some
changes
that
we
can
talk
about,
and
this
group
met
over
the
series
of
a
year.
H
But
we
weren't
ever
going
to
be
able
to
achieve
them
or
there
was
you
know
they.
They
were
too
costly.
But
then,
when
we
looked
at
pension
obligation
bonds,
we
did
find
that
it
was
something
that
could
be
achievable.
It
could
have
a
significant
impact
on
the
ual.
However,
there
is
definitely
some
risk
with
it,
but
when
we're
looking
at
the
pension
obligation
bond
option
in
comparison
to
all
of
these
other
options
that
we
looked
at,
it
was
the
one
that
we
found
to
be.
H
H
So
this
you
know
this
is
something
that
we
should
see
as
we
need
to
continue
to
think
about,
so
that
we
can
decrease
these
costs
in
some
way.
So
we
can
provide
these
services
to
our
community
and
on
the
next
slide,
what
you
can
see
is
that
you
know
we
have
done
a
lot
of
work
to
lower
our
discount
rate
to
make
sure
that
we
know
exactly
what
our
problem
is,
and
we
were
on
the
forefront
of
of
this,
and
so
when
you're
looking
at
okay,
this
s
p.
H
Are
we
second,
second,
only
to
chicago
what
what
else
have
other
what
other
cities
done
to
expose
their
their
pension
debt?
Maybe
they
haven't
done
as
much
as
we
have,
but
that
doesn't
mean
that
our
fixed
cost
in
comparison
to
our
debt
isn't
something
to
still
continue
to
look
at
to
make
significant
and
continual
changes.
I
Good
morning,
mayor
and
council
members,
nikolai
sklaroff
deputy
director
of
finance
responsible
for
dead
treasury
management.
We
wanted
to
start
off
with
a
very
abbreviated
version
of
the
discussion
we
had
in
december
on
what
are
povs
and
how
they
work,
and
then
we're
going
to
try
to
really
address
your
questions
from
the
december
first.
I
Referral
on
povs
we'll
also
address
the
guidance
from
the
government
finance
officers,
association
on
pobs
and
then
we'll
work,
we'll
hear
from
our
guest
speaker
gerard
miller,
before
turning
the
presentation
over
to
our
financial
advisors,
we'll
get
into
the
real
details
with
you,
but
just
to
make
sure
that
everyone
is
on
the
same
page.
Let's
just
take
a
step
back
and
look
at
what
are
those
financing
options?
First
of
all,
there
are
multiple
ways:
pension
obligations
can
be
financed:
finance,
budget,
oer
cio.
I
I
Also
received
attention
in
the
new
york
times,
but
it
quickly
became
apparent,
though,
that
with
a
3.5
billion
dollar
ual,
the
city
will
not
readily
find
unencumbered
assets
that
could
be
leased
for
that
amount.
Some
cities
solve
that
challenge
by
leasing
all
of
their
streets,
and
while
this
allowed
those
pension
financings
to
move
quickly
in
those
cities,
the
approach
is
controversial
and
because
of
the
public
policy
and
legal
concerns.
I
The
last
tool
in
the
toolbox
after
years
of
various
attempts
to
manage
the
city's
ual
and
improve
the
funding
of
the
retirement
plans
to
tame
the
impact
that
retirement
costs
are
having
on
the
general
fund.
That
brings
us
to
the
pension
obligation
bonds
in
the
direction
from
council
on
december.
First,
in
a
sense,
pobs
are
the
last
tool
that
the
city
could
use
that
would
have
a
meaningful
impact
on
a
3.5
billion
dollar
ual
excellent.
I
For
members
who
are
on
the
council
in
december,
the
next
few
slides
should
look
familiar
so
we're
going
to
zip
through
these,
but
we'll
discuss
what
are
pods.
How
do
they
save
money?
What
are
the
benefits?
Who
else
has
issued
them
and
how
those
performed?
What
are
the
risks?
What
are
the
strategies
for
mitigating
those
risks.
I
As
you
know,
the
city
makes
payments
every
year
throughout
the
year
for
pensions
and
op,
basically
retiree
health.
These
payments
include
normal
costs,
as
well
as
amortized
unfunded
accrued
liabilities
that
are
being
paid
out
over
a
defined
schedule
and,
as
cheryl
explained,
those
liabilities
are
determined
based
on
assumptions
from
each
actuary.
I
So
what's
a
pob
on
the
next
page,
essentially,
a
pob
is
a
financing
of
sorts.
We
take
liabilities
that
are
being
amortized
at
the
plan's
discount
rate,
which
is
currently
6.625
and
in
the
current
bond
market
we
can
replace
those
with
taxable
municipal
bonds
that
have
very
low
rates
of
about
200
3.5.
I
Each
fund
has
a
single
discount
rate
and
again
currently,
that's
6.625
and
those
rates
have
been
declining
at
each
board's
discretion,
but
the
ual
is
actually
not.
A
single
number
show
showed
you
how
it's
an
accumulation
over
time
of
different
amortization
schedules
created
for
various
reasons
and
those
are
created
by
the
actuaries
who
help
understand
the
costs
of
the
city's
retirement
benefits
and
funds
that
are
expected
to
be
available
for
those
benefits.
I
But
what's
interesting
is
that,
regardless
of
when
the
amortization
started
or
how
long
the
amortization
is
set,
every
amortization
is
discounted
at
that
same
6.625
percent.
The
bond
market
is
very
different
in
the
bond
market
rates.
Change
all
the
time,
we're
in
a
mark
right
now
with
borrowing
costs
that
are
very,
very
low.
The
cities
benefited
from
that
by
refinancing
our
airport
bonds,
our
city
hall
bonds
or
ice
center
bonds.
I
All
in
recent
months
on
the
next
slide,
the
other
way
that
the
bond
market
is
very
different
is
that
no
investor
in
bond
market
would
accept
the
same
rate
for
a
one-year
bond
as
a
20-year
bond.
The
term
of
the
bond
matters
in
setting
the
rates
and
municipal
bond
market
that
the
city
issues
and
is
even
different
than
the
corporate
market.
Whereas
corporations
issue
bullet
maturities
bonds.
We
serialize
our
bonds,
as
you
can
see
on
this
graph.
I
So
when
we
have
bonds
that
mature
over
30
years,
we'll
have
part
of
the
principal
mature
in
year,
one
and
we'll
pay
an
interest
rate
for
a
one-year
bond
for
those
bonds
and
then
a
little
more
in
year,
two
and
a
little
more
in
year,
three
and
so
on
all
along
that
curve.
So
that
we're
not
actually
paying
even
the
three
point:
three
eight
percent,
but
a
blended
rate
based
on
all
the
bonds
across
the
yield
curve.
I
But,
as
you
can
see
from
the
recent
bond
transaction
that
the
ufi
folks
have
provided
us
here
on,
the
screen
pobs
are
currently
being
issued
at
yields.
Far
far
lower
than
6.625
discount
used
to
calculate
the
city's
payments
on
ual
and
there
therein
lies
the
opportunity
for
for
the
city
on
the
next
slide.
I
As
you
can
see
in
the
analyses
that
the
ufi
folks
are
going
to
present
later
by
refinancing
a
substantial
chunk
of
the
city's
ual,
the
city
can
reduce
the
annual
retirement
payments.
Perhaps
more
importantly,
the
city
can
prevent
the
growth
in
those
payments
that
the
plan's
actuaries
projected
through
2029,
and
we
could
use
those
savings
to
actually
accelerate
the
amortization
of
the
unfunded
liability
and
strengthen
the
position
of
the
two
retirement
plans,
and
there
will
also
be
savings
that
will
ease
the
erosion
of
other
city
services
that
occurred
as
retirement
payments
have
grown.
I
Now
the
next
slide.
So
with
all
that
good
news,
then
why
are
povs
controversial?
We
think
it's
important
that
the
council
understands
both
the
risks
and
rewards
and
the
pros
and
cons
of
bond
issuance,
as
julia
said
at
the
outset,
we're
not
here
to
advocate
for
povs
but
to
educate
when
you
think
about
risks.
It's
also
important
to
understand
that
there
are
risks,
no
matter
what
the
council
decides
today
and
in
the
weeks
ahead,
the
city
already
has
risks.
I
So
if
the
city
does
nothing,
there's
still
risk
risk
that
the
cost
will
continue
to
escalate
and
place
more
pressure
on
the
budget
and
pobs
also
have
risks.
So,
let's
dive
into
those
when
we
met
with
the
council
in
december,
we
told
you
the
government
finance
officers
association
that
we
belong
to
has
recommended
against
issuing
povs,
we'll
get
into
their
specific
concerns
in
a
moment,
but
generally
here's
the
dilemma
with
pobs.
I
As
a
council,
you
have
the
right
to
prepay
your
obligations.
You
can
borrow
to
do
that
and
a
lot
of
smart
people,
some
of
whom
are
joining
us
here
on
this
call,
have
figured
out
how
you
can
do
that
at
very
low
rates
and
we'll
lay
out
the
process
shortly,
but
you'll
pay
off
part
of
your
ual
by
handing
over
the
proceeds
to
the
retirement
boards
and
and
will
refund
part
of
the
ual
that
the
actuary
has
set
up
to
amortize
over
time.
I
But,
unlike
our
airport
bonds
or
city
hall
bonds,
where
we
had
old
bonds
with
high
rates
and
paid
those
off
with
new
bonds
with
low
rates
and
those
old
bonds
were
legally
defeased
or
redeemed,
and
you
were
left
only
with
the
new
bonds
with
the
pob.
Your
fundamental
obligation
to
pay
retirement
benefits
never
goes
away,
and
so,
if
the
retirement
boards
lose
money
or
simply
don't
achieve
returns
on
the
remaining
ual
you'll
continue
to
create
new
ual
in
the
future
and
could
could,
in
the
worst
case
scenario,
be
stuck
paying
bonds
and
higher
uals.
I
I
So
on
the
next
slide,
obviously,
the
stock
market
has
been
growing
for
a
long
time,
and
this
is
something
that
gives
many
issuers
comfort,
that
a
strategy
like
this
can
work,
but
the
council
won't
control
the
investment,
so
we're
not
going
to
be
presenting
an
investment
strategy
to
you
today.
Those
decisions
will
ultimately
be
made
by
the
retirement
boards,
but
a
decision
about
pobs
will
necessarily
need
to
involve
future
discussions
with
the
retirement
boards
about
what
to
do
with
those
funds.
I
But
in
the
end
your
strategy
on
povs
will
depend
on
your
comfort
with
what
the
boards
do
with
the
funds
that
you
hand
over
in
the
context
of
that
last
chart
it's
important
to
understand
that,
while
we
we're
all
used
to
seeing
indices
like
the
s
p
500,
it
really
doesn't
show
you
what
happens
with
a
fixed
static
portfolio
over
30
years.
If
I
can
go
to
the
next
slide,
remember
the
top
stocks
in
the
s
p,
500
looked
very
different
30
years
ago
than
they
look
today
and
that's
the
the
point.
I
I
Let's
show
you
that,
in
a
summary
form
on
the
next
page,
if
we
borrow
today
say
it's
at
a
3.13
bond
rate,
would
you
have
confidence
that
the
board's
earnings
exceeded
that
rate?
If
past
performance
is
a
guide?
Here's
that
that
past
performance,
but
the
future
performance
will
depend
on
decisions
by
the
boards
for
those
funds
for
the
next
20
years
or
more
next
slide.
I
First?
Is
the
investment
risk?
Do
the
retirement
boards
put
the
proceeds
to
work
or
do
they
hold
them
in
cash?
When
the
city
decides
to
borrow,
will
they
happen?
Will
that
happen
to
be
a
time
when
the
managers,
the
funds,
see
investment
opportunities
in
the
market?
Clearly,
the
timing
of
borrowing
investments
will
be
key.
We
don't
want
to
invest
a
large
sum
of
money
in
an
unfavorable
market.
You
don't
want
the
retirement
boards
to
simply
park
cash
on
the
sidelines,
while
you're
paying
interest
and
principal
on
bonds.
I
Another
key
consideration
is
the
loss
of
flexibility.
Actuarial
assumptions
can
be
changed.
Commitments
to
bondholders
are
firm
and
not
easily
changed,
except
through
refinancing,
but
the
key
issue
is
the
one
I
highlighted
earlier.
You
can
refinance
individual
slices
of
the
ual
amortization,
but
the
fundamental
liability,
the
obligation
to
pay
retirement
benefits,
doesn't
go
away
regardless
of
how
well
or
poorly
those
those
funds
perform
next
slide.
Please,
when
we
discuss
these
risks
with
council
in
december,
we
discussed
how
you
never
really
know
your
savings
on
a
pob
until
the
bonds
have
been
repaid.
I
I
They
looked
at
the
borrowing
rates
and
the
timing
of
each
of
these
transactions
and
said
to
compare
apple's
apples
that
if
each
of
these
invested
in
a
portfolio
of
stocks,
bonds
and
cash
equivalents
at
each
of
these
points
in
time
and
assuming
the
rates
they
achieved
on
their
povs,
how
would
they
have
performed
over
time
next
slide?
Please.
I
And
what
you
see
from
this
is
that
the
market
timing
is
key
to
performance
success,
even
though
the
bonds
issued
in
the
early
1990s
had
lower
borrowing
rates
than
later
in
the
90s.
Their
hypothetical
returns
would
be
much
better
than
some
of
the
borrowers
in
the
late
90s
who
borrowed
at
lower
interest
rates
but
had
lower
compound
annual
growth
rates
to
date
on
their
investment
portfolios
on
the
next
slide.
I
Now,
our
advisors
from
ufi
will
be
drilling
down
into
some
specific
case
studies
later
in
our
presentation
to
show
you
specifically
what
is
driving
success
or
failure
on
individual
transactions
next
slide.
Please,
of
course
an
important
consideration.
Anytime,
we
borrow
is
what
do
the
rating
agencies
think
of
what
we're
doing?
How
will
this
affect
our
credit
ratings?
I
I
Of
course,
rating
agencies
are
each
independent
firms
with
independent
views,
and
not
so
it's
not
surprising
that
they
each
actually
rate
individual
bonds
differently.
Currently,
s
p
rates
pobs
in
line
with
the
geo
rating
of
the
entity,
our
highest
rating
fetch
rates,
pobs,
one
notch
below
that,
and
moody's
rates
too,
not
just
below
that.
So
it's
probably
not
surprising
that,
because
s
p
typically
rates
pobs
higher,
they
are
being
asked
to
rate
most
of
the
pobs
right
now.
Our
advisors
from
ufi
will
elaborate
more
on
ratings
later
in
discussing
our
specific
circumstances.
I
First,
they
point
to
investment
risks
that
we've
already
discussed.
The
gfoa
also
points
out
that
pobs
may
be
risky
because
they
may
include
complex
structures
like
derivatives.
They
point
to
the
increasing
issuer's
debt
burden.
They
point
out
that
taxable
bonds
typically
have
less
prepayment
flexibility
than
tax
exempt
bonds.
They
point
to
the
deferred
principal
amortization
that
can
be
used
on
some
past
pobs
and
they
point
out
that
the
rating
agencies
don't
view
them
as
positive.
I
G
Thank
you
nikolai.
So,
just
a
little
bit
I
mean
the
gfoa
is
the
national
organization
that
represents
public
finance
officials
throughout
the
united
states
and
canada.
We
have
over
20
000
members
at
the
federal
state,
local
finance
level,
which
includes
cities,
towns,
counties,
school
districts
and
special
districts,
and
their
overall
mission
is
to
advance
excellent
and
public
finance.
G
So,
as
I
mentioned,
they,
those
best
practices
and
advisories
that
are
developed
at
that
committee
level,
really
are
designed
to
help
provide
advice
and
guidance
while
to
all
municipalities,
also
looking
in
focusing
on
those
small
and
medium-sized
agencies
that
don't
have
the
same
level
of
staffing
resources,
especially
in
specialized
areas
like
debt
management.
So
my
experience
was
that
it
was
a
particular
focus
and
attention
to
provide
those
agencies
with
tools
for
best
practices
in
financial
management.
G
The
gfoa
does
recognize
that
there
are
two
ways
to
look
at
this
topic,
as
shown
as
the
point
counterpart
article
that
was
provided
in
the
supplemental
reading
list.
So,
as
nikolai
discussed
earlier,
their
advice
to
local
governments
is
not
to
issue
povs
so
on
the
next
two
slides
this
starting
with
this
slide
I'll
review
the
cautionary
points
and
how
our
review
and
consideration
of
the
povs
are
mitigated.
G
So,
as
you
mentioned,
you
know
that
pob
proceeds
might
earn
less
than
the
borrowing
cost.
That
is
true,
but,
as
we've
talked
about,
instead
of
earning
6.625,
the
city
might
earn
less
than
the
bond
rate.
But,
as
nikolai
mentioned,
earlier
rates
have
fallen
dramatically
since
the
gfoa
took
this
position
and
borrowing
costs
are
in
the
three
to
three
and
a
half
percent
range.
G
They
also
have
concerns
that
they're
complex
instruments
that
carry
considerable
risk.
That's
and
it
may
include
swaps
and
derivatives-
that's
no
longer,
unlike
earlier
pobs,
which
use
such
products,
the
city's
only
evaluating
pobs.
In
the
context
of
fixed-rate
bonds
and
the
city
does
not
use
swaps
or
derivatives,
their
second
concern
third
concern
is
that
issuing
taxable
debt
to
fund
a
pension
obligation
increases
our
debt
burden
and
potentially
uses
up
debt
capacity.
G
Yes,
it's
true.
The
pob
replaces
that
liability
with
bonded
debt
and
is
expected
to
reduce
those
fixed
payments
and
free
up
financial
resources.
The
credit
analysts
and
gas
b
68
already
factor
pension
liabilities
into
the
debt
capacity
analysis.
As
nikolai
mentioned,
the
credit
agencies
are
already
taking
into
account
our
our
unfunded
liability
in
the
evaluation
of
our
credit
strength
on
the
next
page.
G
One
of
their
concerns
is
they're,
typically
issued
without
call
options
so
that
they're
difficult
to
refund.
That's
really
not
true,
there's
really
there's
been
a
transformation
in
the
taxable
bond
market
and
that
the
option
to
call
bonds
at
par
is
really
now
a
common
feature
and
a
feature
that
was
present
and
the
most
recent
taxable
bonds
we
issued
for
the
city
hall
refunding
the
ice
center
financing
and
the
airport
refunding
next
that
they're
pre,
frequently
structured
in
a
manner
that
defers
principle.
G
That's
not
necessarily
true
and
the
city
would
never
consider
extending
the
term
of
repayment
and
we're
contemplating
ways
of
accelerating
the
funding
of
our
ual
with
savings
and
the
rating
agencies.
The
last
point
here
is:
don't
view
the
proposed
issuance
as
a
credit
positive,
it's
important
to
note
that
a
credit
positive
is
not
a
credit
negative
and,
as
nikolai
showed
in
previous
slides,
that
the
different
ways
that
the
rating
agencies
look
at
it
and,
in
recent
credit
rating
reports,
indicate
that
there's
a
credit
neutral
position
under
certain
circumstances.
G
So
with
that
we're
going
to
move
to
to
to
gerard
miller,
who
is
our
guest
speaker
today
and
I'm
going
to
provide
a
brief
introduction,
his
bio
was
included
as
an
attachment
to
the
staff
report.
Gerard
began
his
career
in
the
public
sector
and
he's
led
investment
in
business
teams
over
three
decades
in
executive
capacities.
As
a
cio,
ceo
and
ceo,
and
three
major
national
investment
management
companies,
which
include
the
orange
county
retirement
employee
retirement
system.
He
worked
for
pfm
as
a
strategic
consultant
with
opeb
and
pension
clients.
G
He
was
a
member
of
gasby
president
and
ceo
of
icma,
to
name
a
few
he's
authored
books
and
articles
in
the
field
of
public
sector
investing
and
financial
management.
He
is
currently
retired,
so
we're
happy
he's
here
with
us
today
and
he
does
write
a
bi-weekly
column
on
state
and
local
government
finance
for
governing
finance.
So
we
really
thank
you
gerard
for
spending
some
time
with
us
today
and
assisting
in
our
presentation
so
with
that
I'll
turn
it
over
to
gerard.
J
Thank
you,
julia.
What
you
didn't
tell
them
is
something
you
didn't
know
which
is.
This
is
not
my
first
rodeo
with
the
city
of
san
jose,
you
paid
in
1984
for
me
to
fly
out
from
chicago
to
meet
with
the
chair
of
your
finance
committee
and
your
staff
to
rewrite
the
city's
investment
policy,
because
the
treasurer
before
then
had
lost
60
million
dollars,
borrowing
money.
J
Today,
I
am
here
before
you
to
discuss
the
concept
of
borrowing
market
money
in
the
capital
markets
in
order
to
invest
in
long-term
securities
in
order
to
make
a
profit
on
the
spread.
At
a
time
when
the
business
cycle
is
moving
from
recovery
to
expansion
g.
What
could
go
wrong
so
with
that
admonition?
I
am
here
with
the
role
of
helping
you
to
avoid
making
the
same
mistake
twice,
and
the
problem
in
this
world
is
that
the
mistake
family
has
many
cousins.
J
So
with
that
preface
I
I
begin
with
the
driver
of
pob
spreads
is
common
stocks.
You
do
not
make
a
profit
by
selling
taxable
bonds
and
investing
in
cash.
You
do
not
make
a
profit
selling
taxable
bonds
and
investing
in
taxable
bonds.
You
make
a
very
small
profit
by
investing
in
real
estate.
You
make
a
questionable
profit
investing
in
commodities,
so
a
good
portion
of
a
pension
fund
portfolio
is
not
a
source
of
the
spread
that
you
are
seeking.
J
J
J
J
The
risk
that
I
have
focused
on
throughout
the
last
20
years
of
my
career
has
been
the
business
cycle
risk,
and
I
mentioned
that
previously.
My
bfm
research
basically
found
that
the
window
occurred
really
at
the
shorter
end,
during
the
contraction
and
early
trough
stage,
and
not
when
you
got
to
the
point
we're
in
and
so
the
issue
today
is
whether
we're
in
the
second
inning
or
the
eighth
inning
of
this
business
cycle
and
the
good
news
is
we're
still
in
probably
the
second
inning
or
third,
maybe,
but
from
that
point
forward.
J
J
The
issue
is
whether
a
thoughtful
and
systematic
approach
to
risk
management
can
still
work,
and
the
good
news
is
if
you
move
to
the
next
slide.
My
conclusion
is:
yes,
you
have
a
whopper
of
a
ual.
How
much
you
should
sell
in
pob.
I
think
is
your
issue
but
relative
to
your
unfunded
liability.
I
think
it
can
be
arguably
prudent
if
you
do
it
cautiously
and
systematically.
J
The
the
good
news
is
that
the
downside
risk
that
I've
pointed
out
of
downside
of
business
cycles
is
partially
balanced
by
the
upside
risk.
If
this
cycle
is
extended
as
the
last
three
of
them
have,
I,
on
the
other
hand,
would
not
bet
the
ranch
on
the
color
black.
I
wouldn't
do
one
issue
at
one
price
today.
I
would
prefer
to
see
you
sell
in
tranches
under
a
standing
authorization,
and
we
can
talk
more
about
that
during
your
q.
A
if
I
had
a
perfect
world.
I
would
use
a
115
trust.
J
Your
bond
council
says:
that's
not
possible.
I'm
going
to
come
back
to
that
point
later
on
a
115
trust
is
a
mechanism
for
feeding
money
to
the
pension
system
as
it
is
needed
in
order
to
cut
off
the
top
of
that
iceberg.
You
saw
before
on
your
ual
that
may
not
be
possible
for
you,
but
I
think
staff
has
some
ideas
for
you
on
that
that
end.
If
I
had
my
choice,
I'd
sell
25
30
now
register
everything
go
through.
J
J
Ideally,
you
would
sell
another
billion
and
the
next
recession
would
hit
bottom.
The
problem
is:
will
that
recession
occur
after
all
of
your
police
and
firefighter
pensioners
are
already
dead,
and
so
we
have
a
dilemma
here
in
terms
of
timing.
I
would
not
be
attracted
to
doing
this
just
because
interest
rates
are
low.
It's
what's
relevant
is
expected
returns
in
the
future,
which
are
somewhat
dampened
now
by
the
fact
we're
trading,
especially
the
stock
market,
at
record
levels.
J
I
would
not
be
happy
to
see
you
sell
taxable
bonds
in
order
to
buy
taxable
bonds
which
constitute
25
of
your
pension
fund,
and
so
clearly,
one
of
the
things
that
needs
to
be
done
here
is
a
pow-wow.
With
your
pension
fund
trustees.
The
good
news
is
they've
got
a
good
consultant.
I
happen
to
think
very
highly
of
makita.
I
know
steve
mccourt,
the
ceo
there
very
well
alan
mkin
came
over
from
pca.
J
J
G
K
K
I
focus
exclusively
on
this
issue
because
it
is
the
most
significant
issue
I
believe,
facing
all
municipalities
in
the
entire
country.
Having
said
that,
we're
going
over
a
real,
quick
primer
just
to
make
sure
we
can
go
over
the
concepts
that
cheryl
already
provided.
We
already
know
your
ual
is
3.5
billion
dollars,
we've
talked
about
being
64
funded
and
the
concept
I
just
want
to
convey
is
this
is
a
past
due
liability.
K
It
is
for
the
benefits
earned
to
date
by
the
retirees
and
your
current
employees
and
that's
an
important
concept,
because
what
the
rating
agents
want
to
know-
and
everyone
else
wants
you
to
understand-
is
that
this
is
a
past
due
bill
and
the
liability
may
be
added
to
or
reduced
sometime
in
the
future.
So
we're
going
to
talk
about
the
significance
of
those
new
bases
tim
next
slide.
K
So
we
looked
at
the
federated
plan
and
that
is
a
1.9
billion
dollar
liability.
You
see
each
of
those
have
a
different
term
or
interest
rate
and,
as
shell
noted,
they
really
operate
like
loans.
So
what
you
really
have
to
take
a
look
at
is
you
have
a
whole
series
of
loans,
25
of
them
on
the
federated
plan
that
accumulate
their
1.9
billion,
and
then
you
have
32
each
in
the
police
and
fire
and
that's
another
1.3
billion.
K
In
addition,
they're
going
to
look
at
the
actual
experience,
what's
that
mean?
Did
people
do
they
live
or
die
longer?
Did
they
retire
longer?
Were
there
more
disabilities?
Were
there
changes
and
benefits?
Was
there
a
change
in
the
payroll
assumption?
Did
you
give
significant
raises
across
the
board
more
than
their
actuarial
assumption,
all
those
get
adjusted?
So
when
you
think
about
it,
every
year
they're
dynamically
changing
your
retirement
plan.
This
would
not
be
any
different
from
any
person's
individual
401k
hey
am
I
going
to
live
longer?
Do
they
make
more?
K
In
my
case,
I
happen
to
have
a
new
one-month-old
baby,
so
my
projections
have
changed
dramatically,
but
those
are
the
kind
of
adjustments
that
you
make
and
that's
the
thing
that
the
rating
agents
want
to
make
sure
is
that
it
we
didn't
fix
it,
we're
addressing
it
and
we
have
a
plan.
So
in
our
report
we
talked
about
coming
up
with
a
long-term,
comprehensive
funding
option
together
with
a
policy.
K
This
is
what
we
call
the
layer
cake
to
visualize
your
ual
and
the
addition
of
new
bases
each
and
every
year,
and
you
see
that
black
line
as
a
credit.
So
each
of
the
plans
have
that
layer
cake
and
when
you
start
thinking
about
it
that
way
and
if
we
can
go
to
the
next
slide
now,
if
and
when
you're
applying
money,
and
it
does
not
matter
the
source
of
money
in
all
honesty,
you're
now,
looking
at
what
type
of
impact
you
can
have
on
the
cash
flow
basis,
we'll
address
the
other
part.
K
That
gerard
had
a
number
of
good
ideas
about
what
you
do
with
the
money
once
you
invested,
but
the
first
part
is
seeing
what
kind
of
cash
flow
impact
you
want
to
have.
So
we
have
a
very
simple
axiom
if
you
want
to
have
a
budgetary
cash
flow
impact.
You
address
in
this
case
the
purple
the
shorter
basis,
and
if
you
want
to
maximize
your
total
savings,
you
address
it
to
a
longer
base.
So,
as
you
see
right
here,
federated
base
number
three,
which
has
a
10
year
term-
that,
for
example,
you
make.
K
If
you
had
a
one
million
dollar
payment,
you
would
make
a
hundred
and
1.4
million
dollars
worth
of
ual
payments
over
the
life
of
the
issue.
You
see
that
ratio
1.42
and
similarly,
if
you
were
to
address
it
to
a
longer
base
or
a
2.1
2.13
ratio,
you
make
twice
as
many
ual
payments
as
the
actual
amount
of
the
ual,
so
you're
saving
a
lot
more,
the
longer
bases,
save
you
more,
the
shorter
bases,
as
you
can
see,
they're
higher,
they
have
a
greater
cash
flow
impact.
K
That
is
the
basis
for
all
of
our
analysis
and
how
to
apply
money
and
taking
the
entire
portfolio
into
account.
Next
slide,
please!
So,
as
you
know,
the
payments
are
going
down.
The
good
note
is
that
your
schedule
is
actually
shorter
than
most.
It
has
a
condensed
10-year
average
life
and
we
go
to
the
next
slide.
K
However,
when
you
look
at
it
between
the
two
plans,
this
is
where
we
get
a
little
bit
more
subtlety
in
thinking
about
the
practicality
of
the
budget
that
jim
kept
us
on
track
with,
which
was
the
federated
plan,
is
larger.
It
is
not
as
well
funded
it's
52,
funded
and
importantly,
only
45
of
the
costs
are
borne
by
the
general
fund.
So
any
dollar
that
you
apply
towards
the
federated
plan,
which
we
think
is
critical
to
fund,
however,
doesn't
have
as
much
of
a
general
fund
impact.
L
Thank
you.
Julio
pension
liability
management
can
be
accomplished
through
a
variety
of
funding
strategies
as
outlined
on
this
slide.
We
have
identified
six
such
strategies
delineated
by
a
two-pronged
approach,
with
the
first
depicting
strategies
which
can
be
implemented
as
part
of
the
city's
budget
process,
and
the
second
is
a
financing
approach
requiring
the
engagement
of
outside
financing
professionals.
L
As
seen
here,
the
city
appropriately
allocates
a
portion
of
its
ual
to
the
federated
plan
to
several
enterprise
funds.
Our
analysis
examined
one-time
budgetary
and
financing
strategies
within
these
specific
funds.
Unfortunately,
current
reserve
levels
and
anticipated
capital
appropriations
prevent
the
allocation
from
these
funds
to
pay
down
the
city's
current
ual.
L
Considering
the
city's
debt
profile
and
staff's
debt
management
sophistication,
we
believe
specific
financing
strategies
could
facilitate
a
cost-effective
approach
to
funding
a
small
portion
of
the
city's
ual.
The
leverage
refunding
strategy
allocates
savings
from
a
bond
refinancing
to
the
city's
ual.
This
is
opposed
to
the
savings
going
back
into
the
specific
fund
using
a
base
election
strategy
that
julio
referenced
savings
from
a
bond
refund
can
target
short
or
long
term
savings
within
the
federated
plan,
while
no
current
opportunities
were
identified,
this
funding
strategy
can
be
useful
as
a
component
of
a
comprehensive
ual
management
plan.
L
The
exempt
exchange
concept
meet
this
meets
this
objective
by
allocating
budgeted
paygo
funds
cash
to
existing
pension
liabilities,
which
are
currently
amortized
at
a
little
more
than
6.6
percent
substituting
those
monies
with
tax
exempt
financing
and
at
a
significant
lower
rate.
This
was
the
concept
nikolai
covered
a
little
bit
earlier
in
the
presentation.
L
Budgetary
strategies
from
one-time
sources
such
as
fund
reserves
and
one-time
cost
savings
should
be
allocated
first
to
meet
planned
funding
objectives
using
the
base
selection
method,
near-term
budget
relief
or
maximized
ual
savings
can
be
targeted.
This
strategy
may
be
considered
as
a
first-tier
funding
of
a
comprehensive
ual
management
plan,
because
budgetary
options
are
limited,
as
presented
by
both
nikolai
and
julio
financing.
Strategies
should
be
considered
to
meet
pension
plan
funding
objectives.
L
L
Unfortunately,
like
most
agencies
considering
funding
options,
tier
one
and
two
funding
strategies
do
not
provide
adequate
funding
to
meet
pension
plan
objectives.
It's
been
our
experience.
These
types
of
strategies
typically
will
fund
anywhere
between
three
to
seven
percent
of
the
unfunded
liability.
L
As
such
many
agencies
are
studying
pension
obligation
bonds
as
they
possibly
the
only
strategy
to
mitigate
against
projecting
projected
increased
ual
payments
and
to
achieve
funding
objectives
within
a
reasonable
time.
I
think,
as
julio
pointed
out,
your
federated
plan
certainly
is
a
little
bit
of
concern
at
a
50
or
so
funding
level.
L
K
A
pob
is
a
refinancing
legally
you're,
taking
a
liability
in
a
series
of
loans
and
you're
refinancing
it
at
a
lower
rate,
and
that
absolutely
makes
sense
what
makes
them
different
from
other
any
other
type
of
refinancing
is
then
you're,
then
taking
the
money
and
investing
it
with
the
fund.
Now
what's
unique
about
the
city
situation
is
you're,
taking
it
with
your
own
fund,
where
every
other,
the
majority
of
other
issuers
in
california
or
agencies
in
california
play
some
money
with
calpers.
K
K
Having
said
that,
we're
going
to
start
with
this
2004
transaction,
which
started
with
capital,
appreciation
bonds
and,
as
was
mentioned
earlier,
there
are
certain
structures,
cabs
and
swaps,
for
example,
that
are
not
benefit
not
beneficial.
To
the
client,
so
you
see
in
this
case
what
the
client
had
done
is
they
asked
for
a
three
year
vacation
from
making
payments
and
they
use
the
zero
coupon,
because
those
are
a
cab
is
a
zero
coupon
that
pays
principal
and
interest
at
the
end,
and
you
can
see
what
the
impact
was:
they're
non-callable.
K
They
defer
these
payments
and
they
end
up
paying
a
great
deal
more
over
time
at
6
37.
At
the
time
they
issued
compared
to
a
normal
current
interest
bond
that
were
accustomed
to
at
six
percent,
and
you
see
the
other
part-
and
this
is
important,
because
this
is
what
povs
used
to
be
issued
like
with
an
escalating.
It
used
to
be
an
estimated
percentage
of
payroll
and
it
was
always
escalating.
And
now
the
structure
is
level
like
your
mortgage.
So
you
see
that's
also
more
costly,
because
you're
always
pushing
back
the
payments
further
and
further.
K
So
you've
seen
that
you'll
see
there
are
some
evolutions
in
what
is
done,
but
this
transaction
in
particular,
you
see
that
they
made
certain
decisions,
as
julia
had
noted
about
deferring
payments
or
pushing
back
payments,
which
is
done
in
both
of
these
cases,
you're
not
going
to
get
an
ideal
outcome
compared
to
even
a
standard
issue.
So
if
you
go
to
the
next
slide,
please
this
is
what
you
would
have
assumed
would
happen
now
that
was
the
discount
rate
at
the
time,
and
this
is
a
calpers
transaction,
so
the
discount
rate
in
2004
was
7.75.
K
What
actually
happened
is
you
returned
5.81
percent
if
they
go
to
the
next
slide
and
there
was
a
recession
shortly
after
when
you
issued
the
bonds,
so
there's
essentially
no
portfolio
ending
differential
in
the
portfolio
balance.
Does
that
mean
it
was
a
bad
deal?
Perhaps
remember
they
did
take
upfront
savings
and
they
had
that
budgetary-
two
million
dollars
in
those
first
three
years,
but
it
didn't
necessarily
work
to
their
advantage.
K
K
This
had
a
lower
return
as
a
lower
rate-
my
apologies
of
5.93,
as
opposed
to
6.37,
so
they
have
a
little
bit
more
cushion.
And
if
you
take
a
look
at
the
interest
rates
here,
they
should
have
had
a
1.8
million
dollar
ending
portfolio
balance.
Now
I
just
want
to
reiterate
that
you
don't
know
whether
you
the
end
result
of
your
pension
obligation
bond
until
the
final
maturity,
so
we
assume
seven
percent
for
the
next
three
or
four
years,
but
for
the
most
part,
they're
going
to
have
a
slightly
positive
output.
K
But
you
see
this
is
a
lower
cost
savings.
One
of
the
things
we
haven't
mentioned,
but
julia
about
pobs
julian
mentioned
about
all
taxable
bonds-
is
that
this
does
not
have
a
call
feature
right,
so
they
could
have
had
another
bite
at
the
apple
to
reduce
the
savings
or
to
reduce
the
interest
cost
and
have
additional
savings,
but
because
they
had
a
swap,
they
locked
in
a
lower
rate
up
front,
but
not
the
opportunity
to
take
advantage
of
lower
interest
rates.
K
K
I
said
today's
borrowing
rates,
as
opposed
to
a
593,
would
be
more
like
293
and
what
would
be
the
end
result
assuming
the
exact
same
interest
rates,
because
you'd
actually
apply
more
savings
is
9.6
million
dollars,
so
you
get
a
better
result
on
one
side.
Of
course,
this
makes
it
static,
and
jared
had
mentioned
it's
all
about
the
cycle
with
with
which
you're
in,
but
you
get
some
sense
that
you
have
more
cushion
when
you
think
about
it.
K
K
K
They
had
a
432
tic,
pretty
attractive
rate,
not
quite
as
good
as
today,
but
they
got
the
benefit
of
an
8.09
return
year
to
date.
So
far,
so
they
had
35
million
worth
of
savings
from
the
bond,
but
if
they
return
7
for
the
next
four
or
five
years,
they're
going
to
end
up
with
147
million
dollar
positive
earnings
in
their
portfolio.
K
So
if
the
timing
works
your
advantage,
just
like
we
saw
the
loss,
it
can
certainly
place
you
in
a
better
position.
Is
there
somewhat
of
a
there?
Is
a
risk
or
a
gamble
as
to
what
the
returns
can
be.
So
there's
always
this
question
of
how
to
mitigate
some
of
that
risk,
but
we
wanted
to
give
you
the
case
studies.
K
There
are
some
positive
results
and
some
negative
results,
but
important
to
note
in
those
case
studies
is
that
you
had
some
past
practices
that
have
now
been
eliminated
or
you
should
eliminate
the
cabs,
the
deferral,
the
non-callable
structure.
If
you
don't
do
that,
if
you
don't
defer
the
payments,
those
place
you
in
a
greater
likelihood
of
success,
I
think
that's
the.
A
A
K
K
M
Thank
you
julio,
so
the
2004
case
studies
that
julio
just
reviewed,
they're
examples
of
prior
generation
pension
obligation,
bonds
and
since
then,
pension
obligation
bonds
have
evolved
into
what
we've
coined
pobs
2.0,
like
all
2.0
versions
of
things,
pobs
2.0
have
the
advantage
of
studying
prior
iterations
fixing
some
of
the
glitches.
While
keeping
elements
that
worked
now,
a
number
of
factors
have
contributed
to
the
evolution
of
povs
as
nikolai
and
julio
julio,
julio
and
julia
mentioned
before.
M
But
the
cities
with
strong
management
and
strong
leadership
like
san
jose,
have
seen
this
coming
and
have
been
creating
meaningful
plans
to
address
rising
pension
costs,
including
implementing
pension
reform
and
now
they're,
recognizing
povs
2.0
as
an
opportunity
to
take
advantage
of
historically
low
taxable
borrowing
rates,
to
increase
funding
for
their
retirement
plans
and
like
san
jose.
These
issuers
are
not
turning
to
pobs
to
kick
the
can
down
the
road
by
extending
ual
payments
or
borrowing
to
pay
for
normal
costs
to
plug
budget
deficits.
M
M
M
Issuers
now
understand
that
the
ual
does
not
disappear
forever.
Once
povs
are
issued,
they
now
expect
future
bases
to
be
added
and
they're
creating
policies
to
manage
these
future
pension
liabilities
with
the
use
of
one-time
monies
or
the
tax-exempt
exchange
and
leveraged
refunding
strategies
that
nikolai
and
mike
discussed
earlier.
M
And
for
these
reasons,
we
do
not
believe
that
the
issuance
of
pobs
would
impact
the
city's
extremely
strong
issue
or
credit
rating
or
geo
rating
of
double
a1.
Double
a
plus
and
double
a
plus
from
the
rating
agencies,
especially
given
that
any
issuance
of
pobs
with
the
city
of
san
jose
would
be
part
of
a
comprehensive
and
thoughtful
pension
management
strategy,
which
should
further
enhance
the
city's
strong
credit
fundamentals.
M
So,
unless
povs
are
issued
purely
for
strong
for
short-term
budgetary
relief
or
to
address
financial
distress,
they
are
generally
considered
as
a
nickel.
I
mentioned
earlier
and
julia
mentioned
earlier.
Credit
neutral,
because
rating
agencies
are
already
incorporating
the
issuer's
pension
liabilities
when
evaluating
debt
and
fixed
cost
burdens.
So
all
three
rating
agencies
already
factor
in
and
in
fact
have
noted
in
san
jose's
rating
reports,
large
pension
and
opeb
liabilities,
retirement
retirement
plans,
with
funding
ratios
less
than
80
percent
warrant,
greater
scrutiny
from
s
p's
perspective,
so
issuing
povs,
essentially
trades.
M
One
liability
for
another,
acknowledging
that
there
is
risk
involved,
but
regardless
of
whether
povs
are
issued
or
not,
the
rating
agencies
really
are
focused
on
the
sustainability
of
pension
plans.
The
continued
ability
for
the
government
agency
to
make
its
pension
cost
payments
and
really
meaningful
plans
to
address
the
pressure
of
rising
pension
costs.
So
developing
this
long-term
comprehensive
plan
and
adopting
a
formal
pension
funding
policy
has
become
the
new
standard
and
can
be
viewed
as
credit
positive
from
the
rating
agency
perspective.
M
Smp
rates
povs
at
the
general
credit
worthiness
or
geo
rating
for
the
issuer,
which
would
be
double
a
plus
for
san
jose
fitch
generally
notches
one
time,
so
that
would
be
double
a
for
the
city
of
san
jose
and
moody's
generally
not
just
two
times.
Pobes
would
be
rated
double
a3
for
the
city
of
san
jose.
M
F
Great
thank
you
winxy
good
morning,
mayor
council,
jim
shannon
city's
budget
director.
So,
as
we
thought
about,
pobs
staff
had
several
goals,
as
we
were
engaging
with
ufi
on
this
work,
and
you
know
they're
listed
here,
but
we
we
wanted
to
reduce
the
annual
burden,
of
course,
of
the
ual
on
all
city
funds,
particularly
the
general
fund,
to
allow
easing
of
budgetary
pressures
and
just
a
reminder.
You
know,
for
the
federated
payroll
about
45
is
in
the
general
fund
versus
nearly
100
percent
for
police
and
fire.
F
So
the
pobs
for
each
of
those
systems
would
impact
the
city's
different
funds
differently,
and
so
that
was
part
of
the
the
thought,
the
thought
process.
We
wanted
to
prevent
the
contributions
from
rising
as
projected
through
2029.
So
when
we
present
our
five
year
for
forecast,
that
has
those
projections
built
in
and
so
to
the
extent
that
we
can
keep
those
from
rising.
That
provides
budgetary
relief
to
us.
F
But
we
also
wanted
to
think
about
using
the
savings
to
potentially
accelerate
the
amortization
of
the
unfunded
liability
and,
importantly,
really
importantly,
is
to
ensure
the
long-term
sustainability
of
the
city's
retirement
systems.
While
we
don't
control,
you
know
the
the
investments
in
the
retirement
system.
We
are
obligated
to
pay
all
of
those
liabilities
which
we
do
every
year,
and
so
we
definitely
have
an
interest
in
maintaining
the
sustainability
of
each
retirement
plan.
F
As
you
know,
but
even
before
we
do
anything
with
pobs
and
even
if
we,
you
know,
don't
issue
pobs,
it
would
be
good
to
have
a
formal
policy
when
it
comes
to
pre-paying
the
ual,
and
so
we
will.
If
we
continue
down
this
process,
we
want
to
come
back
with
some
considerations
of
policies
about
how
budgetary
savings
could
be
used.
Both
to
you
know,
allow
for
more
capacity
to
fund
city
services
which
are
constrained,
but
also
to
potentially
do
some
additional
prepayment
of
uil
to
further
improve
the
funding
status.
F
Finally,
here
so
the
the
the
sample
structures
that
wingsta
and
julio
were
going
to
walk
through
here
were
based
on
some
direction
from
staff
and
again
so
we
wanted
to
eliminate
the
future
projected
increases
in
ual
amortization
cost.
We
were
looking
to
to
to
have
a
big
budgetary
impact
to
see
what
that
looked
like.
F
So
we
were
giving
direction
of
approximately
30
million
dollars
to
achieve
some
annual
budgetary
savings
across
all
city,
all
city
funds
and
then
had
the
conversation
about
selecting
which
ual
to
refund,
recognizing
that
the
savings,
of
course
from
the
police
and
fire
contribute
more
to
general
fund
versus
the
federated
and
the
different
economics
and
the
bases
for
how
those
ual
costs
were
more
ties
and
and
wings.
That
would
get
more
of
that
in
a
second
and
then
what
became
you
know
very
obvious
to
me.
F
M
That
means
that
this
reduces
the
time
needed
to
access
the
market,
which
really
allows
the
city
to
stop
the
clock
on
the
6.625
liability
sooner
and
replace
it
with
lower
interest
rate
debt,
even
though
s
p
would
likely
rate
the
lease
revenue
bonds.
One
notch
lower
than
a
pov
issuance
investors
in
the
market
really
view
these
structures
equally
and
there's
no
expected
pricing
differential.
M
However,
like
the
city's
existing
lease
revenue
bonds
encumbering
city
assets
is
required
with
lease
revenue,
bonds
and
right
now,
the
city
does
not
have
sufficient
unencumbered
assets
to
use
the
structure
without
adding
streets
to
the
least
asset
basket
and
leasing
streets
carries
potential
public
policy,
legal
and
headline
risks.
So
lease
revenue
bonds
are
not
being
considered
for
further
analysis
and
with
that
I'll
turn
it
back
over
to
julio,
which
will
really
get
into
the
pov
structuring
options
that
jim
discussed
and
a
risk
analysis.
K
Thank
you
so
much
winxy,
so
we're
going
to
quickly
talk
about
pob
savings.
I
think
it's
important
because
the
rest
of
the
presentation
we're
going
to
talk
about
really
budgetary
savings,
which
is
that
green
bar
and
then
we
also
break
it
up
and
do
components.
The
green
are
budgetary
savings
and
what
we're
going
to
call
ual
avoidance
costs
and
we're
going
to
break
up
every
scenario
based
on
those
two
notions,
and
one
is
that
next
year
you
have
305
million
dollars
in
ual
payments
due
next
year.
Anything
below
that
line,
we
consider
budgetary
savings.
K
You
actually
can
utilize
anything
above
that
305
million
dollar
level
is
actually
ual
avoidance
costs.
Your
costs
are
expected
to
go
up
because
of
the
projected
payments,
but
it's
not
something
that's
going
to
give
jim
the
flexibility
in
his
operating
budget.
So,
having
said
that,
we'll
go
to
the
next
slide
and
we
started
with
our
kind
of
the
minimum
level
which
is
looking
at
funding
the
federated
plan.
So
we
looked
at
base
number
number
two,
which
is
19
years
out.
K
We
added
50
basis
points
of
current
market
rates
and
we
looked
at
financing
that
base
alone
is
777
million
dollars.
So
you
do
a
780
million
dollar
issue
19
years
now
you
end
up
saving
100
million
108
million
dollars
in
budgetary
savings
total,
but
only
9
million
dollars
per
year.
The
tic
is
about
312..
K
Now,
once
you
take
that
nine
million
dollars
and
you
consider
that
only
45
of
it
goes
towards
the
general
fund.
Now
the
savings
is
only
4.2
million.
Note
your
savings.
Will
your
funding
level
will
go
from
52
to
69
percent
you'll
place
yourself
in
a
much
much
better
funding
position
similar
to
the
average
statewide,
but
it
may
not
be
enough
to
move
the
needle
for
practical
considerations.
So
then
we
get
to
the
other
bookend,
which
is
a
hundred
percent
pob,
which
you're
not
recommending
but
providing
for
illustration
sake.
K
That
would
save
you
80
million
dollars
a
year
in
annual
savings,
and
when
you
take
a
look
at
that
structure,
you're
maximizing
your
total
savings
up
front
today
and
the
gerard
will
tell
you
now:
you're,
doubling
down
or
tripling
down
the
amount
of
market
timing
risk
that
you're
going
to
take.
So
that's
the
real
component
that
you
can
generate
a
certain
amount
of
dollar
cost
savings,
but
you're
now
also
taking
out
greater
risk
at
the
same
time.
So
you're
leveraging
your
position.
K
So
then
we
looked
at
a
midpoint.
The
midpoint
slide
looked
at
the
longest
basis,
because
if
you're
going
to
go
this
far
out,
we
would
have
you
contemplate
locking
in
those
savings
at
this
one
time
level.
This
could
be
done
in
multiple
tranches,
but
we
just
provided
this
as
an
illustration,
and
that
would
save
you
about
30
million
dollars
and
that
gets
you
close
to
what
per
year.
My
apologies
in
that
green
line.
K
What
jim
had
talked
about
a
lot
of
that
would
be
targeted
towards
the
federated
plan
once
again,
because
we
believe
it's
important
to
shore
that
up
and
it
would
generate
a
portion
of
that-
would
once
again
go
towards
the
general
fund.
So
we
also
then
had
in
our
dialogue
with
with
the
staff.
Are
there
another
way
that
we
can
optimize
that?
So
we
looked
at
another,
what
we
call
a
barbell
structure,
and
this
takes
advantage?
Oh,
my
apologies.
Let's
go
to
the
barbell
structure,
I'll
go
back
to
the
interest
rate
tim
okay.
K
So
you
look
at
the
barbell
structure
and
you
can
either
target
short
bases
and
long
bases.
So
in
this
case
that
only
saves
you
25
million
dollars
in
annual
savings
and
we'll
go
back
to
see
which
structure
is
better.
But
let's
go
back
to
the
prior
slide
and
say
we
keep
on
talking
about
interest
rates
previously
what
the
impact
was
on
interest
rates.
So
we
wanted
to
give
you
an
illustration
that
if
you
take
that
first
scenario
at
29
million
dollars-
and
then
you
start
adding
50
basis-
point
increases
over
time.
So
remember.
K
The
first
issue
already
has
50
basis
points
above
current
market
rates.
You
had
100
basis
points
and
your
savings
go
from
29
to
22
million.
You
had
150
basis
points
and
now
you're
at
a
471
tic.
The
savings
is
not
nearly
as
much
not
nearly
as
is
compelling
and
that's
part
of
it.
Someone
will
say:
oh
it's
not
interest
rates.
K
Well,
yes,
interest
rates
have
a
significant
amount
to
do
with
it,
because
the
cushion
the
amount
of
savings
that
you
have
is
not
a
significant,
that's
an
important
part
to
take
it
take
into
account,
because
if
you
do
this
in
tranches
in
multiple
series,
you
now
take
that
risk
of
interest
rate
going
up.
So
this
gets
to
be
kind
of
several
moving
parts.
It
gets
to
be
complex
when
say
oh
issue
in
multiple
tranches,
multiple
series,
then
you
take
on
that
interest
rate
risk
on
the
debt
side.
K
So
let's
go
back
to
the
next
slide.
We
looked
at
this
barbell
structure.
We
looked
at
both
short
bases
and
long
bases.
Now
remember,
we
looked
at
the
short
bases
because
those
are
general
funding
fact
and
what
we
get
is
somewhat
of
a
paradox,
which
is
when
you
actually
look
at
the
impact
on
the
general
fund.
K
You
end
up
saving
more
money
in
the
general
fund
with
the
barbell
structure.
So
even
though
you
save
less
on
a
cash
flow
basis
because
of
the
fact
we're
targeting
those
short
bases
with
police
and
fire,
it
has
a
better
impact
on
the
general
fund.
So
you
compare
the
initial
barbell
of
the
initial
to
the
barbell
and
you're,
going
from
306
million
to
340
million
dollars
in
cash
flow
savings.
So
you
end
up
with
a
far
better
result,
ironically
in
in
that
situation.
K
So
the
last
thing
to
consider
is
this
notion
of
recycling
savings,
and
this
is
remember
mike
had
mentioned
a
long-term
plan
and
we
anticipate
that
you're
going
to
have
multiple
strategies
and
one
of
these
things
that
you
may
implement
in
that
policy.
That
a
number
of
people
have
mentioned
is
that
you
look
at
recycling
a
portion
of
the
savings
that
you
realize
it
is
a
way
to
self-contain
what
you're
looking
at
and
it's
a
policy
direction,
but
it's
one
that
you
save
more
money.
K
K
The
green
was
the
additional
savings,
but
what
happens
once
in
fact
you
recycle
the
savings
as
you
lower
the
payments
down
to
the
orange
kind
of
intuitive
when
you
think
about
it
is
almost
like
a
policy
decision
that
we're
going
to
take
half
of
the
savings
and
make
sure
to
pay
that
off
either
for
new
bases
or
existing
bases
that
you
have
not
paid
off.
So
those
are
the
con
structuring
considerations,
I'm
going
to
turn
it
back.
K
So,
as
gerard
had
mentioned,
this
idea
about
leveraging
or
making
an
investment-
and
I
talked
about
earlier-
a
pob
one
part-
is
the
the
annual
savings.
The
other
part
is
the
investment
side,
and
I
wanted
to
give
you
an
illustration
of
why
it's
so
critical
in
initial
years.
So
if
you
just
take
a
hundred
dollars
and
in
both
cases
I
was
comparing
a
ten
percent
return
over
three
years.
The
fact
that
you
have
to
take
a
look
at
is
that
leverage
factor,
in
other
words,
you
look
at
this
return,
you're
going.
Okay.
K
If,
on
the
other
hand,
you
lose
a
portion
of
that,
you
lose
the
advantage
of
the
power
of
compounding
that's
the
simply
put
concept,
so
the
next
slide,
if
you
will,
is
we're
looking
at
that
same
axiom
that
people
had
purported
in
the
simple
term
if
the
rate
of
return
exceeds
that
on
a
pob
versus
the
market,
return
you're
going
to
end
up
in
a
better
position,
but
what
we
gave
you
is
an
example
of
the
power
of
the
impact
of
timing
and
results.
We
gave
you
two
portfolios
exact
same
result,
basically
464
and
463.
K
I
actually
took
those
numbers
from
our
monte
carlo
model
and
said:
okay,
here
are
two
completely
different
interest
results.
Structures
but
same
end
result
same
average,
but
it's
the
timing,
that's
critical
on
the
left.
You
see
positive
returns
in
the
initial
years
and
on
the
right.
You
see
that
they
had
poor
returns
in
a
few
years
and
then
it
came
out
much
better
note.
What's
the
difference?
Well,
both
of
them
end
up
with
that
same
average,
but
the
end
result
that
portfolio
differential
that
we
talked
about
in
the
case
study.
K
In
the
case
of
the
strong
early
returns,
you
have
a
108
million
differential
in
the
weak
returns
or
they're,
not
losses
but
low
returns
in
the
first
year.
It's
only
20
million,
so
that
axiom
is
very
different
and
that's
part
of
it
and
that
pov
is
1.0.
People
would
say:
oh
it
just
has
to
out
earn
that.
Our
point
is
no
it
really.
The
timing
is
so
critical
as
to
what,
when
you
get
those
returns,
you
see
dramatically
different
results.
So
next
slide
now
gerard
had
talked
about
monte
carlo
simulation,
and
it's
interesting.
K
K
There
are
some
limitations
to
the
model,
but
we
try
to
use
that
to
give
you
a
sense
of
what
these
key
drivers
are
and,
at
the
end
of
the
day,
we're
doing
the
same
thing:
we're
comparing
the
differential
and
the
ending
portfolio
between
a
pob
and
making
regular
scheduled
ual
payments,
in
other
words
pob
versus
normal
state,
the
course,
and
what
is
the
end
result?
You
know
you're
going
to
have
the
cash
flow
savings
with
the
pob.
You
want
to
see
what
happens
at
the
end
of
the
portfolio
at
the
end
of
the
issue.
K
Next
slide
is
so
what
happens
you
get
this
distribution
of
returns,
and
this
is
the
the
downside
to
the
models
you
have.
An
equal
distribution
returns
based
on
what
your
average
return
is,
and
then
you
get
a
certain
probability
of
success
and
we
measure
that
as
having
a
positive
net
present
value
basis,
and
you
get
a
number
and
you
see
the
numbers
in
the
red
versus
the
green
and
you
compare
what
percentage
is
in
green
versus
red,
the
greater
the
percentage,
the
greater
likelihood
of
success?
But
you
see
as
what
are
those
key
drivers.
K
What
are
the
likelihood
of
success
when
we
come
to
the
level
of
savings
which
is
driven
significantly
by
interest
rates
and
volatility?
So
we're
going
to
give
you
those
two
examples
real
quickly.
Next
slide,
too,
on
the
level
of
savings,
I
took
a
500
million
dollar
pob.
This
was
one
of
the
case
studies
we
had
done
or
sorry
one
of
the
samples
we
had
done.
It's
an
11-year
deal.
It
gives
you
80
million
dollars
worth
of
savings
and
16
npv
and
an
ending
balance
of
71
million.
So
that
would
be
the
base
case
you
go.
K
That
gives
you
a
71
probability
of
success.
So
what?
If
interest
rates
rose
if
we
cut
the
savings
in
half
intuitively?
This
follows
exactly
what
you'd
expect
you
see.
It
goes
from
eight
16
npv
to
8
npv,
the
ending
portfolio
balance
is
substantially
lower
and
the
probability
of
success
is
much
less.
So
what
are
we
getting
at?
Obviously,
when
deals
were
done
with
higher
interest
rate
and
less
savings,
your
likelihood
of
success
is
less.
You
have
to
take
a
look
at
how
much
of
a
cushion
you
have
that
interest
rate
differential
is
very
critical.
K
You
will
get
more
positive
and
negative
results
in
that
sense,
and
if
you
see
this
slide,
you
compare
the
green
and
the
red
that
we
showed
you
before,
and
that
has
that
is
based
on
an
8.25
volatility
or
standard
deviation
versus
11.25,
which
is
what
your
portfolio
has
actually
earned,
though
that
also
includes
the
great
recession.
If
you
take
out
the
great
recession,
in
most
cases,
portfolio
volatility
looks
more
like
eight
and
a
quarter.
K
So
what's
the
difference,
you
get
the
same
expected
ending
result,
but
the
probability
of
success
goes
down
because
of
the
variation
caused
by
that
volatility.
You
have
more
factors
on
both
sides
and
your
probability
of
success
goes
from
eighty
percent
to
seventy
percent.
So
what
we're
essentially
stating
in
this
case
is
level
of
savings
is
critical.
Volatility
in
the
market
is
also
critical
to
driving
the
likelihood
of
success
for
your
transaction.
K
So
the
last
part
that
we
talk
about
is
how
to
mitigate
these
risks.
You
kind
of
understand
what
they
are
and
then
what
we've
measured
here
is
a
60
40
portfolio,
60
percent,
equities,
40
bonds
and
then
also
the
s
p
500
versus
the
10-year
treasury,
which
is
kind
of
a
benchmark
or
a
proxy
for
pob
borrowing
rates.
K
K
There
are
other
times
where
you
have
a
low
borrowing
rate
and
then
the
market
goes
through
a
bull
run,
but
it
can
also
be
difficult
to
time,
and
you
can
say
it
is
market
timing
is
a
very
difficult
component,
but
it's
also
a
risk
that
every
individual
takes
and
every
investment
decision
they
made
the
day
my
son
was
born.
I
opened
an
account,
I
put
money
for
his
college
fund.
I
made
an
investment
decision
and
took
on
inherently
market
time
and
risk.
So
how
do
you
mitigate
that?
How
do
you
address
it?
K
There's
really
two
general
strategies
to
him
next
slide.
One
is
this
notion
of
dollar
cost
averaging,
which
is
very
common
in
the
investment
market.
People
make
periodic
investments
over
time
why
they
take
out
some
of
the
impact
of
making
timing
decisions
or
try
to
to
offset
that
and
average
the
return
over
time.
How
could
you
do
that?
Practically
issuing
multiple
tranches,
one
of
the
things
that
gerard
had
mentioned
also,
we
believe
inherently
multiple
strategies
over
time-
will
help
mitigate
because
you're
making
deposits
over
different
time.
Another
concept
is
finding
a
way
to
hedge
now.
K
On
the
other
hand,
if
you're
risk
averse-
and
this
goes
always
to
the
client-
you
want
to
mitigate
the
kind
of
volatility
risk
that
you
take
and
want
to
save
for
investment,
but
by
nature,
if
you're
going
to
buy
a
safer
investment,
you're
handicapping
yourself
and
being
able
to
have
a
certain
return,
now
note
that
hedge
is
most
critical,
as
I
illustrated
in
those
initial
years.
So
it
may
be
something
that
you're
transferring
over
a
certain
portion
or
mitigating
a
certain
portion
of
the
portfolio
and
going
okay.
K
Let's
make
sure
you're
one
two
and
three
and
you
can
make
that
decision
by
the
way.
Each
and
every
year
do
you
feel
strong?
Does
your
retirement
fund
feel
like
oh,
the
market's
going
to
have
positive
returns
and
you're
once
again
in
a
very
unique
position,
because
you
can
have
that
dialogue
with
your
funds?
So
to
sum
up,
in
our
final
comments
and
considerations,
pobs
provide
a
very
compelling
opportunity
for
savings.
K
K
That's
part
of
the
conversation
that
you
have.
They
provide
savings,
but
the
other
alternatives
which
I'm
sure
you've
had
and
had
those
policy
discussions
are
often
not
that
that
tenable,
so
they
provide
an
opportunity
for
savings
and
budgetary
flexibility.
However,
in
all
cases
you
have
to
develop
a
long-term
comprehensive
plan.
It
should
be
documented
in
a
formal
policy.
You
should
look
if
you're
looking
at
total
savings,
budgetary
impact
or
impact
of
the
general
fund.
All
those
should
be
deliberate
discussions
in
the
future.
K
You
should
look
at
how
you
use
one-time
monies
in
surplus,
as
everyone
often
says,
the
best
way
to
eat
an
elephant
is
one
bite
at
a
time.
This
is
a
large
liability.
I
should
not
anticipate
that
you'll
address
it
all
at
one
point,
but
hopefully,
as
we've
been
doing
with
staff
developing
and
looking
at
all
strategies
and
expecting
this
will
take
more
than
one
year,
so
that
comes
to
multiple
solutions
in
the
future.
K
Tax-Exempt
exchange
and
leveraged
refunding,
as
well
as
potentially
additional
issues
of
pobs,
would
make
a
great
deal
of
sense
and
please
strongly
consider
recycling
savings
because
the
best
way
for
you
to
do
that
is
to
almost
have
an
internal,
lock
box
feature
where
you
say:
okay,
a
certain
portion
should
be
recycled.
Those,
I
think,
would
be
viewed
very
favorably
by
the
radiant
agencies.
Important
enough
monte,
carlo
simulation
does
not
guarantee
results.
Is
there
as
a
tool
for
you
to
understand
how
things
look
for
you
might
want
to?
What
did
it
look
like
then
versus
now?
K
What
are
our
probabilities?
It
makes
you
understand
those
key
driving
factors,
level
of
savings
and
volatility,
really
critical.
I
want
to
point
out
that
the
discount
rates
continue
to
go
down
for
all
these
retirement
plans.
It
does
not
have
an
impact
on
the
success
or
outcome
of
a
pob,
and
this
is
important
because
you're
looking
at
the
outcome
of
investments
and
the
discount
rate
basically
lowers
your
ual
on
the
liability
side,
I'm
sorry
increases.
It
lowers
the
discount
that
you're
using
so
a
change
in
discount
rate
may
change.
K
Your
ual
will
not
change
in
any
impact.
What
happens
to
a
pob
we've
stated
before
you
should
address
the
federated
plan.
First,
it
is
not
it's
in
a
risky
position
and
we
believe
it'd
be
best
for
you
to
shore
up
a
bit
more
to
that
appointment
over
time.
That
might
be
different,
but
certainly
look
to
place
more
money
in
the
federated
plan.
K
First
consider
dollar
cost
averaging
with
multiple
strategies
and,
lastly,
I'm
going
to
state
once
again
the
city
is
in
a
unique
position:
you
can
establish
a
dialogue
with
your
investment
boards
and
talk
about
market
timing
risk
hedge,
some
form
of
downside
protection.
That
is
something
that
is
not
afforded
to
any
calpers
agency,
because
there
are
440
billion
dollar
plan.
K
N
Thank
you
so
much
julio
mayor
council
members,
brian
four
bathroom
strategy,
alcohols
and
ralph.
Thank
you
so
much
for
having
me
with
you
this
morning,
so
I'm
here
to
talk
a
little
bit
about
the
legal
theories
and
the
process
for
issuing
pension
obligation
bonds.
I
think,
has
been
highlighted
in
the
discussions
that
we've
had
today.
Povs
are
being
are
issued
to
refund
portions
of
the
city's
existing
unfunded
accrued
liability.
N
N
So
the
traditional
the
constitutional
debt
limit
essentially
says
that
you
know
the
city
of
san
jose
shall
not
incur
it
shall
incur
indebtedness
or
it
shall
not
occur
in
dentists
or
any
liability
in
any
manner
for
any
purpose
exceeding
in
any
year.
The
income
and
revenue
provided
for
such
a
year
without
a
two-thirds
vote
of
the
public.
N
There
are,
however,
certain
judicially
created
exceptions
to
the
constitutional
debt
limit,
which
you,
the
city,
is
very
familiar
with
in
many
of
its
financings.
The
one
of
those
is
the
special
fund
doctrine
and
that's
used
by
enterprise
revenue
financings
for
such
as
the
airport,
water,
sewer
revenue
finances.
N
There's
also
the
lease
exception,
which
the
city's
used
in
many
instances
where
it's
a
contingent
liability.
The
obligation
to
make
lease
payments
each
year
can
be
used
to
finance
at
least
revenue
bonds,
and
then,
thirdly-
and
this
is
where
the
pobs
come
in,
the
fact
is,
bonds
can
be
issued
to
refund
obligations
and
posed
by
law.
N
Next
slide,
please
so,
due
to
the
lack
of
case
law
related
to
pobs
bond
council
generally
requires
a
judicial
validation
to
obtain
a
superior
court
judgment
that
the
unfunded
liability
is
an
obligation
imposed
by
law
underneath
the
city
charter
and
that
the
ual
can
be
refunded
by
pobs
pursuant
to
the
refunding
bond
law,
and
then
the
judgment
that
we
seek
would
also
state
that
the
pension
obligation
bonds
when
issued,
will
be
valid
legal
and
binding
obligations
of
the
city
and
not
subject
to
the
constitutional
debt
limit.
Next
slide.
N
Please
civil
code
of
procedure
860
allows
public
agencies
to
seek
judicial
validations
of
bonds
and
financial
contracts.
So
we
use
that
as
a
tool
to
get
before
the
courts
to
receive
this
validation
judgment.
The
validation
proceedings
are
a
little
different
than
normal
court
proceedings
in
that
they're.
N
So
the
steps
for
a
judicial
validation
process
are
the
initial
step.
Is
the
adoption
of
a
resolution
approving
the
issuance
of
the
pobs
and
the
filing
of
a
judicial
validation
action.
That
is
the
initial
step
by
passing
that
resolution
and
authorizing
the
digital
validation
action
it
in
no
way
obligates
the
city
to
pursue
actually
pursue
the
issuance
of
the
pobs,
but
it
sets
the
tables
and
allows
you
know
bond
council
and
litigation
council
the
authority
to
go
into
court
to
go,
get
a
judicial
validation
judgment.
N
G
Okay,
thank
you
brian.
So
just
a
couple
slides
kind
of
a
summary
summary
comments,
so
I
I
hope
those
council
members
and
the
mayor
are
going
wow.
That
was
really
a
lot
of
information,
and
just
so
you
know
we
had
a
very
timed
agenda
and
we
are
literally
six
minutes
ahead
of
schedule,
so
I'm
so
proud
of
our
team
to
staying
on
that
staying
focused
and
putting
our
presentation
together.
So
I
don't
know
if
your
head's
spinning,
but
my
head's,
spinning
a
little
bit.
G
We've
also
talked
about
using
some
of
those
savings
to
accelerate
the
amortization
of
other
unfunded
liabilities,
the
unfunded
liability
and
also
to
ease
current
budget
pressures,
there's
also
positive
impacts
to
the
retirement
plans,
with
a
large
infusion
of
cash
to
make
new
investments
either
all
at
once
or
over
time.
If
we
were
to
issue
multiple
series
of
bonds,
it
increases
the
funding
level
for
both
the
federated
and
police
and
buyer
plans,
and
it
reduces
their
overall
reliance
on
city
contributions.
G
It's
really
important
if
we
want
to
consider
pension
obligation
bonds
as
an
opportunity
for
us
to
move
forward
in
resolving
and
funding
our
ual
is
that
we
really
do
work
in
a
parallel
process
with
this.
So
we
would
look
to
return
to
council
with
formal
direction
on
may
11
and
during
between
may
and
the
end
of
june,
come
back
with
those
bond
documents
at
the
end
of
june.
So
we
can
start
that
validation
process,
so
we're
seeing
as
a
potential
action
on
may
11th
would
be
to
pursue.
G
Direct
us
to
work
on
a
council
pension
obligation,
funding
policy
work
to
schedule
a
joint
meeting
between
the
city
council
and
retirement
boards.
So
you
can
develop
a
better
understanding
on
how
the
retirement
boards
would
look
at
any
pob
proceeds
and
how
they
would
be
invested
and
how
they
would
utilize
that
to
help
reduce
our
ual
select,
remaining
financing
team
matter
matters
and
use
the
timing
of
the
validation
process
to
continue
to
refine
our
strategy
regarding
bond
sizing,
tranches
timing
and
look
at
that
based
on
prevailing
bond
and
investment
market
conditions.
A
Thank
you,
julia
and
thanks
to
all
of
the
many
people
who
participated
in
this,
I
want
to
say
nick
lydo's
about
the
clearest
explanation.
I've
heard
of
pension
obligation,
bonds
and
I've
heard
many.
So
I
appreciate
what
you
provide
us
and
then
obviously
we
had
a
lot
of
technical
information
that
was
provided
by
many
consultants
and
appreciate
all
their
help
and
insights.
B
Well,
thanks
yeah
this
I
don't
know
if
that'll
help.
I
think
I
think
we're
all,
maybe
at
a
similar
level
in
this
regard
in
this
conversation,
but
I
do
want
to
say
thank
you
to
to
staff.
This
was
a
tremendous
presentation
and
thank
you
to
all
of
our
panel
experts
as
well.
That
joined
us
to
help
us
understand
this,
and
may
I
don't
know
I
did
see
the
public
comment
sign
pop
up.
I
guess
we
don't
have
any
public
comment,
not
that
I'm
seeing
so.
B
That's
kind
of
had
a
prior
education
on
pension
obligation,
bonds
and
understanding
that
maybe
why
the
city
did
not
move
in
that
direction.
Previously,
understanding
this,
this
sort
of
pension
obligation,
bonds,
2.0,
the
second
iteration
that
has
really,
I
think,
allowed
cities
a
little
bit
more
flexibility
and
and
and
being
able
to
manage
the
kind
of
plan
that
you
feel
you
want
or
or
the
risk
that
you
want
to
manage
and
I
think,
eliminating
some
of
the
risks
that
were
denoted
and
I'm
apologize.
B
B
B
I
think
that
the
iterations
that
have
happened
to
with
these
pension
obligation,
bonds,
2.0
and
how
that
body,
I
think,
is
not
necessarily
taking
all
of
that
into
their
decision
making,
as
is
what's
gone
forward,
and
just
more
importantly,
as
you
look
at
where
they
claim
or
risk
or
reasons
why
you
might
not
want
to
utilize
the
pension
obligation
bond
and
how
we
can
minimize
or
even
eliminate
those
those
risks,
as
you
you
laid
out,
and
so
I
appreciate
that
as
well.
I
will
say
that
I've
I've
been
hearing,
I'm
not
no
expert.
B
What
whatsoever
I've
been
hearing
of
this
as
an
option
ever
since
the
the
great
recession-
and
I
do
think
you
know
at
that
point-
obviously
being
a
a
city,
employee,
police
officer
and
looking
at
what
options
were
were
there
when
I
looked
at
the
the
list
of
cities
that
in
that
time,
and
I
think
there
were
a
lot
that
felt
that
that
would
be
rather
risky.
But
there
were
cities
that
undertook
pension
obligation
bonds.
B
B
But
when
you
look
at
the
the
history
and
really
what
it
would
take
for
the
the
realization
of
some
of
the
worst
risks
or
the
worst
outcomes
is,
is
not
what
we're
seeing
happening,
and
certainly
I
don't
think
the
environment
that
we're
seeing
today,
and
I
think
the
other
thing
was.
I
was
always
assuming
when
I
was
hearing
about
pension
obligation,
bonds
that
we
would
be
going
in
with
a
hundred
percent.
B
Really
trying
to
you
know
maybe
tackle
the
entire
unfunded
actuary
liability
but
understanding
through
the
conversations
last
year
and
then
in
the
presentation
today
that
that
doesn't
have
to
be
the
case
that
you
can
sort
of.
You
know
you
can
enter
in
maybe
with
a
billion
dollar
right
bond
or
maybe
even
a
little
more
and
then
and
actually
do
that
again
right
or
or
enter
in
with
more
in
a
future
date
as
you're
weighing
out
the
market
itself,
and
so
I
think,
all
those
strategies
combined
and
really
the
in-depth
analysis
the
staff
has
done.
B
It's
made
me
rather
comfortable
with
moving
forward
with
a
strategy
on
utilizing
a
pension
obligation
bond.
I
did
have
a
question
in
regards
to
that
you
know
sort
of
where
do
we
think
we'll
you
know
would
be
best
for
us
to
land.
I
know
we
heard
the
the
term
or
the
dollar
amount
excuse
me
of
a
billion
dollars
kind
of
being
thrown
out
just
in
scenario
on
well
risk.
B
But
I
wanted
to
hear
from
from
our
city
staff:
was
there
any
thought
there
and
you
know
of
of
some
of
the
strategies
that
were
presented
that
may
be
best
for
us
and
there
was
that
barbell
kind
of
strategy
right
because
there's
obviously
the
two
funds
as
well,
which
I
would
agree
clearly
right,
they're
not
on
par
with
one
another
and
how
we
might
want
to
manage
them.
But
is
there
any
idea
from
from
staff-
and
you
know
in
regards
to
that
dollar
amount?
G
Good
question
member
question:
councilmember,
I
think
at
this
point
we
were
just
bringing
forward
kind
of
what
we
like
to
call
our
bookends
and
then
the
kind
of
in
the
middle-
and
I
think
it's
really
important
before
we
settle
in
on,
like
a
dollar
amount,
that
we
really
spend
some
time
with
developing
that
pension
obligation
funding
strategy
and
that
we
look
at
it
as
a
comprehensive
plan,
not
just
with
pobs.
But
what
do
we
do
with
the
savings?
What
are
we
and
thinking
about
when
we
have
one-time
money?
Part
of
council
policy
1-18?
G
Is
that
we
have
one-time
money.
We
look
at
paying
down
debt
and
the
definition
of
debt
shouldn't
just
call
include
that
bonded
debt,
but
it
should
also
look
including
pension
obligations.
So
I
think,
as
we
talked
about
kind
of
over
these
next
several
months
as
we
work
on
the
bond
documents,
work
through
the
validation
strategy.
Is
we
come
back
with
a
policy
and
then,
in
the
context
of
the
policy
that
will
help
frame
our
kind
of
strategy
on
what
that
funding
level
should
be
and
how
much
is
allocated
to
police
and
fire
versus?
G
How
much
is
allocated
to
the
federated
plan
and
also
having
a
better
understanding
of
the
retirement
boards
and
their
investment
strategy,
so
taking
into
account
all
those
kinds
of
risk
analysis?
So
so
at
this
point
you
know,
as
I
said,
a
meaningful.
A
meaningful
moving
of
the
needle
is
somewhere
in
that
billion
dollar
range,
but
there's
lots
of
other
factors
that
we
need
to
do
an
analysis
before
we
come
with
a
formal
recommendation,
but
there's
an
issue.
B
I've
answered
no
answer.
No,
no!
It's
it's
it's
a
good
answer.
I
was.
I
was
trying
to
fish
for
what
you
know
kind
of
what
where,
where
staff's
heads
at,
but
I
I
respect
it,
you
know
you
want
to
look
at
what
is
the
the
policy
look
like
and
so
I'll
shift
kind
of
my
my
comments,
then
to
that,
and
so
I
would
say,
number
one.
I
definitely
think
we
would
need
to
have
a
policy
that
is
looking
more
long-term.
B
If
we're
going
to
be
doing
this,
I
think
that
we
should
be
doing
things,
for
instance,
on
I
think
it
was
called
recycling
is
the
term
that
it
was
utilized
right,
and
so
you
know
recycling
a
certain
amount
and
I'm
not.
I
don't
necessarily
want
to
weigh
in
on
what
that
percentage
or
something
should
be.
I
think
that
could
take
a
conversation,
but
I
do
think
we
should
have
that
as
a
component.
B
We
should
have
some
recycling
that
we're
so
that
we're
making
it
very
clear
that
we're
you
know
we're
not
just
attempting
to
take
every
single
penny
right.
That's
now
would
make
itself
available
and
then
throw
that
into
some
other
programs
or
or
whatever
other
you
know,
expenses.
We
we
wish
to
expend
that
we
should
right
off
the
top
say
no,
we
want
a
policy
that
does
include
recycling,
and
so
I
think
that
that
that
should
be
a
component.
B
I
I
as
well
think
that
you
know
there
is
something
to
be
said
about
you
know
the
the
the
different
funds
and
and
and
if
we
were
to
kind
of
make
a
difference
within
the
police
and
fire
and
how
that
is
going
to
make
a
big
difference
in
our
general
fund.
I
I
do
think
that
you
know.
Obviously,
that's
not
the
fund,
that's
as
underfunded,
but
at
the
same
time
we
know
that
any
difference
we
make
there.
We
will
realize
some
immediate
savings
within
the
general
fund.
100
of
that
right.
B
So
I
I
think
that
has
to
be
a
component,
and
you
know
that
that
we're
we're
considering-
and
indeed
I
think
you
know
we-
we
want
to
be
wise
with
all
of
that.
For
instance,
why
is
with
the
recycling
of
funds?
Why
is
with
any
of
the
the
you
know,
maybe
one-time
monies
that
we
get
and
and
that
we
should
maintain
the
goal
that
the
idea
here
is
to
ultimately
reduce
that
unfunded
liability.
B
You
know,
and
even
if
it
opened
up
only
you
know
after
recycling
of
the
funds
and
after
a
policy
that
I
think
was
focused
on
long
term.
Even
if
it
opened
up.
You
know
every
single
year
within
the
general
fund,
just
several
million
dollars
right,
even
if
it
wasn't
some
some
extremely
high
number,
that's
a
benefit
as
far
as
I'm
concerned.
B
Overall
right,
it's
a
benefit
if,
at
the
end
of
the
day,
we're
reducing
our
unfunded
actuary
liability,
we're
we're
able
to
put
ourselves
in
a
position
where
we
are
much
better
funded
on
our
obligations
to
our
employees
and
their
future
pensions,
and
at
the
same
time,
if
we
can
realize
even
some
bits
of
of
saving
that
we,
you
know,
we
can
utilize
in
the
general
fund
year
over
year.
Then
in
my
mind,
it's
a
win-win-win
across
the
board
and
that's
what
I
would
really
be.
B
A
Thank
you,
and
I
know
we
have
a
lot
of
questions.
I
just
want
to
remind
everybody.
It's
now
1108
and
we
apparently
now
do
have
members
of
the
public
would
like
to
speak.
So
I
want
to
make
sure
we
as
much
as
possible
focus
our
discussion
on
questions.
I
think
we'll
have
a
lot
of
time
for
debate
and
discussion
as
this
comes
back
to
us
in
the
future,
but
really,
let's
try
to
use
this
time.
While
we
have
these
experts
here,
councilman
cohen.
D
J
J
F
I
I
first
of
all
I
want
to
thank
staff
for
a
really
thorough
presentation.
It
was
great
for
those
of
us
who
have
been
we've
been
dealing
with
pensions
and
at
very
different,
very
different
levels
than
what
we're
dealing
with
here.
It
was
very
helpful
to
see
this
kind
of
detailed
analysis,
probably
the
best
I've
seen
in
all
my
years,
we're
dealing
with
these
kinds
of
issues,
and
I-
and
I
also
want
to
appreciate
gerard's
comments
there,
and
I
wish
that
he
were
with
us
throughout
all
this.
F
F
I
do.
Actually.
I
do
think
that
there's
a
risk
of
overfunding.
If
you
go
100,
you
know
our
our
6.6
or
whatever
it
is
projections.
Are
you
know
if
you
look
back
at
history,
are
fairly
conservative
now
and-
and
you
know,
over
20
years,
you
can
outperform
60
and
if
you
go
100,
then
you
do
have
a
risk.
So,
but
but
I
do
appreciate
that
we
want
to
go
as
big
as
we
can
go.
F
I
I'm,
of
course
I've
always
been
a
very
risk,
tolerant
investor
myself,
so
I'm
I'm
excited
about
this.
I'm
always
willing
to
take
some
risk,
but
I
do
think
that
there's
that
this
sounds
like
a
fairly
low
risk,
given
the
current
interest
rate
environment,
we're
in
I
was,
I
was
appreciative
to
see
all
of
the
the
simulations
that
were
in
there,
the
monte
carlo.
I
was
actually
going
to
ask
whether
those
had
been
done
until
I
saw
them.
So
I'm
glad
that
those
were
done.
K
Yes,
it's
where
you
have
the
differential
between
the
portfolios,
so
what
you're
comparing
is
a
pob
versus
making
your
regular
ual
payments
right?
If
you
discounted
everything
back
to
today's
dollars,
would
you've
been
better
off
in
one
scenario
versus
another
right
in
the
simplest
term?
That
would
be
the
result,
and
if
you
have
one
dollar
advantage
for
the
pob,
then
it's
a
positive
result.
Remember
you're
also
discounting
there's
a
number
of
variables,
but
that's
how
the
model
is
structured
right
and
that's
traditionally
how
the
other
actuaries
and
other
firms
also
do
it.
Okay,.
F
I
appreciate
that.
Thank
you.
You
know,
because
it
occurred
to
me
early
on.
We
talked
about
whether
or
not
you
know
the
risk
is
that
the
ual
grows
lower
than
the
pob
rate,
but
that
risk
also
is
there
from
the
beginning
anyway,
because
that
causes
a
huge
increase
in
your
ual.
If
that
were
to
happen
too
many
times
right
so,
but
but
what?
K
Can
I
elaborate
a
little
bit
on
that
axiom
the
axiom
that
bankers
had
typically
said
the
simple
one
was:
oh,
if
you
out
earn
the
rate
on
your
povs,
let's
say
it's
three
percent
and
you
earn
five
percent
you're
going
to
be
better
off
and
I
think
gerard
are
both
on
the
same
point.
It
isn't
just
the
rate
of
return,
though.
Obviously
an
absolute
positive
rate
of
return
is
important.
It's
when
you
get
those
returns.
K
So
that's
what
we
said
was
really
critical.
We
have
to
look
at
it.
The
pobs
save
you
money
on
your
ual
from
a
debt
savings
perspective,
but
the
real
component
that
makes
it
unique
is
the
fact
that
you're
investing
the
money
at
the
same
time,
so
you're
taking
the
money
and
then
investing
it
where,
in
a
refinancing
for
your
house,
mortgage
you're
going.
Oh,
I
saved
fifty
dollars
a
month
in
my
mortgage.
K
That's
great,
you
know:
pob
you're,
taking
the
money
up
front,
taking
the
savings
and
investing
it
with
your
plan
and
that's
where
you
want
to
see
the
end
result.
So
that's
the
you
know.
I
have
to
contend
this.
I
worked
with
your
on
this,
and
those
market
cycles
are
critical.
He
really
defines
that
the
timing
you
always
want
to
do
buy
you
know,
buy
low,
sell.
High
concept
is
the
exact
same
thing.
The
problem
is
there's
so
many
other
variables.
K
So
when
people
understand
it's
a
changing
balance,
that's
an
important
thing.
Wingsi
talked
about
people
going
in
with
their
eyes
wide
open.
That
is
the
big
difference
that
I
don't
think
years
ago,
you
would
have
had
gerardo
ourselves
run
the
monte
carlo
talk
about
the
market.
Cycling,
it
was
a
good
deal,
you
would
have
structured
it
differently
and
you
would
hope
for
the
outcome
now
you're
in
a
much
different
perspective,
taking
these
three-hour
workshops
and
I
apologize
to
look
at
what
the
potential
outcome
might
be.
F
Okay,
well,
yeah!
No,
no
need
to
apologize.
Actually,
you
know
many
of
these
three-hour
meetings,
sometimes
in
the
very
eye,
but
I
was
very,
I
was
able
to
follow.
It
was
very
well
done
in
terms
of
presentation,
so
I
appreciate
it.
The
things
you're
talking
about
as
far
as
risk
then
do
rely
on
doing
that.
That's
sort
of
what
we
call
dollar
cost
averaging
or
putting
it
in
separate
tranches
over
time.
G
Yeah
yeah,
the
staff
would
expect
to
come
in
with
the
judicial
validation
for
basically
the
entire
ual,
as
it
sits
today
and
then
through
the
policy,
make
individual
recommendations
to
counsel
over
time
how
much
they
would
issue
as
a
pob
to
deal
with
the
ual.
So
so
it's
the
likelihood
that
you
would
only
do
one
pob.
G
Maybe
maybe
you
did.
Maybe
you
do
one
in
2022
and
then
there's
another
one
that
happens
in
2027..
You
know
who
knows
but
but
it
would
be
part
of
that
overall
comprehensive
policy.
But,
as
mr
miller
stated,
you
know
it's
good,
because
you
want
to
make
sure
you
have
that
court
validation
under
your
belt
and
that
it's
there
and
then
you
have
the
ability
to
move
quickly
if
market
conditions,
weren't.
F
G
You
don't
when
you
make,
when
the
council,
when
the
staff
would
bring
forward
a
recommendation
for
approval
of
a
bond
issue.
That
would
be
the
amount
of
the
pob
at
that
particular
point
in
time,
and
it
would
happen
after
the
judicial
process
was
complete.
So
we're
still
months
and
months
away
from
that
that
decision
process.
G
F
G
The
the
latter
paying
down
unfunded
liability-
or
it
could
also
be
used
to
you-
know
where
we
talked
about
that.
We
couldn't
do
a
115
trust
from
the
proceeds
of
the
pob.
We
could
use
a
115
trust
to
put
the
deposit
of
those
recycled
savings,
so
they
wouldn't
necessarily
make
a
decision
to
move
those
over
to
the
pension
plan
immediately,
but
we
could
have
some
additional
opportunity
to
earn
money
interest
on
that
and
maybe
stabilize
the
budget
impact,
so
that
would
be
part
of
kind
of
an
overall
policy
consideration
about.
G
F
A
J
No
worries
I'm
I'm
out
here
in
the
corner.
I
think
your
staff
can
take
a
look
at
orange
county,
which
did
a
pob
issue
and
there
is
a
sub
account
within
the
pension
trust
which
operates
in
a
few
ways,
not
as
many
as
I
would
like
as
a
115
trust,
and
the
county
apparently
has
some
sort
of
discretion
over
using
some
of
those
proceeds
to
offset
part
of
its
annual
contributions
on
a
variable
basis,
and
that
would
be
the
same
idea
of
recycling
in
the
115
trust.
Just
for
you
to
think
about
that.
A
J
If
I
can
just
make
a
quick
comment,
if
you
have
the
the
judicial
approval,
you
may
be
better
off
to
have
some
unused
borrowing
capacity.
If
your
doomsday
scenario
occurs,
you
don't
want
to
have
the
money
already
sunk
in
the
market.
You
would
want
to
be
able
to
then
buy
low,
and
so
this
is
the
reason
that
a
traunching
strategy
may
be
the
superior
long-term
approach
to
give
you
some
dry
powder
that
can
be
used
in
the
event
that
you
have
that
bad
scenario.
K
K
If
you're
going
to
pay
your
250
fee
make
it
the
whole
amount
you're
going
to
pay
the
lawyer
to
file
the
claim
make
it
for
all
of
that,
so
you
can
have
that
dry
powder
in
no
way
have
we
ever
recommend
that
you
do
all
3.5
billion,
but
you
go
to
get
authorization
when
you
do
it
you'll
say
we
need
the
full
authorization.
Then
you
decide
how
to
parse
it.
That's
one
point
the
second,
oh,
go
ahead,
frank,
my
public.
N
I
was
just
gonna-
I
was
just
gonna
have
that
julio,
so
the
judicial
validation
will
will
clearly
seek
the
total
amount
of
the
unfunded
liability
today,
but
it
will
also
seek
future
unfunded
liabilities
so
that
if
the
unfunded
liability
increases
in
the
future,
you'd
have
the
ability
to
issue
povs
in
the
future
to
refund
those
as
well.
The
one
thing
I
I
do
want
to
just
caution
the
council
and
the
city
team
about
is:
it
is
a
judicial
process
in
front
of
judges
that
make
their
own
decisions.
N
I'm
hopeful-
that's
not
the
case
here
in
santa
clara
county
with
our
judge
we
get,
but
I
just
want
to
highlight
that
that
is
a
potential
outcome
that
could
occur
through
the
judicial
validation
process
and
it
will
largely
be
out
of
our
control
just
have
to
work
with
through
the
court
process.
On
that.
A
A
K
If
you
recall,
I
started
out
with
a
minimum
recommendation
and
I
made
it,
and
I
reiterated
it
more
than
one
time
you
have
to
address
the
federated
plan
first
in
some
form,
so
the
general
approach
that
we've
taken
has
not
changed
in.
In
our
report,
I
talked
to
don
boyd,
who
worked
for
the
rockefeller
government
institute,
who
was
kind
of
this
person
who
deemed
this
tipping
point,
and
that's
another
point.
K
If
I
may
take
this
moment,
some
people
say:
what's
that
level
where
it's
dangerous,
certainly
you're,
at
a
precipice
at
50,
something
percent
you're,
absolutely
right
mayor
when
he
came
up
with
the
term.
He
he
added
40
and
we
have
others
somewhere
in
that
range.
What's
important
is
that
those
were
plans
by
the
way
in
other
states
that
had
a
30-year
rolling
average,
which
is
one
of
these
other
changes.
That's
happened
in
your
case.
K
You
have
a
10-year
average
life
and
if
you
keep
with
these
plans-
and
you
make
these
payments,
you
should
not
be
in
in
a
difficult
situation
now
the
pob
is
just
leveraging
your
position.
This
is
what
gerard
is
saying
before
you're
now
putting
more
money
in
and
hoping
to
invest
at
some
point,
but
what
we
hope
this
workshop
is
done.
It
is
opened
everyone's
eyes
to
understand
that
you
have
a
dynamic
liability
regardless.
K
So
even
if
we
put
that
in
there,
you
should
actively
manage
it
and
you'll
probably
get
new
ones,
and
if
I
may
say
so,
it
you've
already
dropped
one
time
with
a
lower
discount
rate
and
it
is
likely
it
will
continue
to
drop
and
increase
your
liability.
So
my
strategy
is
yes,
you
have
to
fund
it.
The
notion
of
recycled
savings.
Wasn't
that
it's
a
solution.
It
really
is
bootstrapping,
but
it's
this
idea
that
every
resource
that
you
now
have
should
look
at
paying
your
most
expensive
liability,
because
it
is
it's
your
liability.
K
Everyone
says
you
can
listen
to
susie
orman,
whatever
pay
off
your
credit
cards
first,
this
is
the
city's
credit
card
and
that
your
perspective
towards
all
financial
management
should
look
at
paying
this
liability
first
very
simple
axiom,
but
I
think
that's
one.
That's
universally
applicable
for
any
of
our
pension
clients.
C
Thank
you.
Thank
you,
staff
and
experts
for
your
presentation.
I've
heard
a
portion
of
this
a
couple
of
times,
but
it
was
really
detailed
from
all
angles
and
I
really
appreciate
the
analysis.
The
risks,
the
pros
the
cons,
what
and
unders
and
have
learned,
or
that
that
recycling
makes
a
lot
of
sense
and
that
these
pension
obligation
bonds
are
a
tool
that
we
should
keep
in
our
toolbox.
C
K
K
Well
I
say
the
upside
to
the
way
that
you're
structured
is
if
inflation
went
up
to
four
percent.
Ideally
you'd
have
higher
returns
and
your
portfolio
would
do
better.
I
don't
know
how
it
would
do
for
the
other
side
of
your
economy,
but
think
of
it.
This
way,
if
you
have
a
one
percent
real
rate
of
return,
what
you
have
to
give
someone
to
make
the
investment
you
say
great.
I
need
that
plus
inflation.
That's
the
way
the
capital
asset
pricing
model
works.
K
I
need
the
real,
the
no
risk
inflation
and
you
get
an
element
for
the
actual
investment.
So
if
right
now,
inflation
is
one
percent
and
it
goes
up
to
four
percent.
Theoretically,
all
of
your
investments
should
go
up
by
three
percent
and
that's
better
for
you,
so
I
don't
think
it's
a
risk,
though
I
would
also
see,
if
gerard
sees
it
that
same
way.
I
Council
member
foia-
I
do
want
to
just
emphasize,
though,
that
once
we
issue
the
bonds,
the
interest
rate
on
the
bonds
will
be
fixed,
so
part
of
the
dynamic
here.
Is
it's
going
to
take
us
some
time
to
be
able
to
issue
the
bonds,
but
once
we
issue
those
bonds,
the
market
will
determine
the
rate
at
that
point
and
then
the
rate
will
be
fixed.
C
J
Yeah,
I
can,
I
can
clarify
here.
The
bonds
that
you
have
sold
will
be
locked
in
yeah.
In
that
case,
if
you
haven't
sold
against
your
authority,
your
future
costs
could
go
higher
and
you
would
end
up
with
the
scenario
that
julio
has
described
where
your
margin
could
go
down,
but
you're
thinking
about
the
problem
wrong.
J
Your
problem,
then,
is
not
the
financial
markets.
It
is
not
the
bonds.
It
is
your
liabilities
because,
as
your
payroll
goes
up,
your
pension
liabilities
are
going
to
go
up
and
to
the
extent
that
you
do
not
have
a
cap
on
your
retiree
cola,
those
liabilities
are
going
to
go
up
and
therefore
your
ual
will
be
increasing,
regardless
of
everything
you
have
done
so
inflation
in
excess
of
the
actuarial
assumption
that's
in
there
today
is
going
to
work
against
you
more
than
anything
having
to
do
with
pobs.
C
C
J
It's
perhaps
a
red
herring,
so
it
is
a
trust,
that's
allowable
under
california
law
that
allows
you
to
put
money
in
to
be
used
irrevocably
for
retirement
fund
purposes,
and
I
had
asked
I
because
I
did
not
coordinate
with
the
other
people.
I
did
not
get
a
chance
until
this
morning
to
discuss
very
briefly
with
your
bond
council,
whether
you
could
use
a
pob,
but
you
could
take
your
savings
that
are
you're
deriving
from
the
budget
and
put
that
into
the
trust
and
use
that
from
the
trust
to
pay
off
future
pension
contributions.
J
At
least,
you
should
proceed
on
the
assumption
that
it's
a
no-go,
but
if,
if
there
is
a
way,
certainly
to
use
your
budgetary
savings,
put
that
into
a
trust
that
trust
can
be
invested
in
long-term
securities,
like
a
pension
fund.
In
ways
that
53601
does
not
allow
you
to
use
for
your
municipal
treasury
and
you
would
then
as
a
board
as
a
council,
have
control
over
the
investments
as
well
as
the
disbursements.
J
So
it's
a
useful
tool
if
you
can
use
it,
but
right
now,
bond
council
is
saying
he's
not
going
to
let
you
put
the
pob
proceeds
in
unless
he
can
get
a
judge
to
approve
that-
and
that's
that's,
maybe
pie
in
the
sky
right
now.
I
don't
want
to
confuse
the
issue,
but
in
my
perfect
world
it's
what
I
would
do
and
in
any
other
state,
not
every
state,
but
in
many
other
states.
That
is
a
vehicle
that
can
be
used
with
a
pob,
but
not
in
california.
Because
of
these
restrictions.
C
Okay,
great,
I
I
appreciate
that
explanation.
Thank
you
gerard
and
I
look
forward
to
our
our
council
discussion
on
may
11th
to
to
move
forward
with
this.
Thank
you
for
the
presentation.
It
was
really
enlightening.
I
I
learned
a
lot
and
it's
very
helpful
in
in
making
a
decision
going
forward.
Thank
you.
D
Thank
you
vice
mayor
jones,
thank
you
mayor
and
thank
you
everyone
for
that
presentation.
It
was
very
in-depth
and
very
informative.
My
head
is
still
spinning.
I
have
probably
a
million
questions,
but
I'll
just
focus
in
on
a
couple.
First
of
all,
julia,
I
know
that
you
alluded
to
the
fact
that
the
gfoa
has
made
made
a
determination,
but
then
a
lot
of
things
have
changed
since
that
time.
D
G
Nothing
nothing's
changed
since
february.
I
think
they
had
put
out
their
initial
advisory
that
was
posted
on
their
website
in
2015
and
because
there
was
all
there
have
been
a
whole
lot
of
issuers
issuing
pob
specif
a
lot
in
california
too,
since
2015
and
most
recently,
I
believe
as
an
organization.
They
wanted
to
reaffirm
that
as
an
organization,
their
position
was
still
that
local
agencies
shouldn't
issue
pension
obligation
bonds.
So
that's
my
understanding
about
why
they
kind
of
reaffirmed
their
position.
G
You
know
there's
a
lot
of
folks
out
there
that
think
that
the
things
have
changed
substantially
since
2015
and
that
maybe
the
advisory
needed
some
updating.
But
that's
not
what
the
organization
chose
to
do.
It's
important
to
remember
that
it's
it's
an
it's
an
industry,
professional
organization.
They
have
no
authority
over
what
the
city
or
other
cities
do
it's.
Basically,
an
organization
of
finance
professionals
across
the
country
whose
their
mission
is
to
make
sure
that
we
do
strong
financial
management
in
all
areas
of
discipline.
D
Great
one
of
the
things
I
try
to
do
is
take
a
very
complex
information
and
try
to
simplify
it.
So
I
want
to
throw
out
the
scenario
and
just
help
just
to
make
sure
and
validate
that
I
understand
the
dynamics.
So
if
we
have
a
rate
of
return
of
6.625
and
say
the
market
returns,
our
portfolio
returns
a
a
rate
of
2
that
would
create
a
gap,
a
negative
gap
of
4.6
4.625
percent.
D
If
we
issued
pobs
and
say
that
we
issued
those
at
3
and
again,
the
market
returned
a
rate
of
2
we'd
have
a
negative
one
percent
gap.
Our
pobs,
which
would
be
a
total
negative
of
5.625
percent,
is
that
is
that
a
good
way
and
that's
you
know,
obviously
a
negative
scenario,
but
is
that
a
good
way
to
kind
of
capture
what
the
potential
outcome
or
possibility
is
and
then
there's
a
second
part
of
that
question
with
that
5.6.
D
J
Start
I'll
start
and
then
maybe
julia,
you
don't
add
the
numbers
that
way,
because
it
depends
upon
the
ratio
of
how
much
you
funded
with
pob
versus
your
existing
assets.
Okay,
so
it's
not
a
one-to-one
relationship,
so
you
can't
add
the
two
together.
All
I
can
tell
you
is
the
hole
that
you're
in
now
will
be
deeper
because
of
the
pob
losing
money,
but
the
original
hole
that
you're
in
is
still
the
same
hole.
J
D
K
Vice
mayor
is
that
correct?
Yes,
you
hit
upon
an
important
point,
so
I'm
going
to
really
divide
this
up.
If
you
remember,
there's
the
liability
side
and
then
there's
the
investment
side
and
on
one
side
the
ual
is
comprised
of
the
difference
between
those
two
but
pobs
work
on
borrowing
money.
What
your
actuary
does
is:
okay,
we
have
3.5
billion
dollars
and
it's
comprised
of
100
amortization
bases
or
loans
and
you're
refinancing
those
loans
right,
but
you
have
to
invest
them
in
order
to
get
that
rate
of
return.
K
K
That's
one
part:
I'm
trying
to
the
other
part
is
still
the
liability
side,
and
this
is
important
because
we're
trying
to
always
emphasize
the
fact
that
your
liability
can
change.
For
example,
the
inflation
question,
your
payroll
going
up,
your
discount
rate,
changing
other
dynamics
can
happen
or,
for
example,
your
cola.
If
that
was
changed
for
some
reason,
you
could
have
no
impact
on
your
investments
if
the
cola
was
reduced
to
two
percent,
as
opposed
to
three,
your
reliability
would
go
down
significantly.
K
So
yes,
and
no
vice
mayor,
you
could
find
a
strategy
if
you
can
adjust
the
benefits
that
would
reduce
your
ual,
but
the
funding
side,
no
you're,
always
taking
some
form
of
investment
risk,
and
I
think
that's
the
critical
thing
that
the
gfoa
does
not
designate
any
dollar
that
you
invest
with.
Your
retirement
plan
is
subject
to
the
exact
same
market
timing
risk,
regardless
of
how
you
fund
it
from
the
lottery.
K
If
you
found
it
on
the
you
know
from
your
neighbor
who
gave
it
to
you
pobs,
you
still
take
that
market
timing
risk
and
that's,
I
think,
the
essential
thing
we've
tried
to
boil
down
to
everyone.
You're
underfunded.
You
need
to
make
additional
deposits
and
when
you
make
those
deposits
are
always
going
to
be
subject
to
investment
risk.
You
you
hit
upon
a
great
point.
Vice
mayor,
which
is
you
still
should
look
at
how
to
reduce
the
liability
to
lower
that
gap
as
well.
K
D
K
Yes,
in,
in
a
simplest
term,
it
is
a
form
of
an
arbitrage
that
has
a
negative
word.
It's
a
it's,
a
it's
a
french
term,
but
it's
an
interest
rate
differential.
But
if
you
told
me
I
can
refinance
my
mortgage,
which
I
did
last
year.
I
did
that
all
day
long,
yes,
so
it
refinances
and
then
you're
looking
at
the
timing-
and
that
is
a
critical
part,
the
pov
part
is
there
it's.
K
The
part
that
gerard
is
here
talking
about
and
the
reason
we
talk
about,
dollar
cost
averaging
is
how
to
mitigate
that
market
timing
risk
of
any
type
of
money.
You
do
you
make
I
hate
to
use
it.
Do
you
double
down?
Do
you
bet
more
now
with
the
investment,
or
do
you
make
larger,
smaller
versus
larger
payments
over
time?
That's
the
real
decision.
G
Okay,
so
we
envision
coming
back
on
may
11
with
asking
you
to
give
us
permission
to
proceed
with
developing
the
bond
documents
and
bringing
them
back
to
you
before
the
end
of
the
fiscal
year.
So
we
can
commence
the
validation
process
and
to
give
us
direction
to
start
conversations
with
the
retirement
boards
schedule.
A
joint
meeting
with
you
in
the
retirement
boards
and
develop
the
council
pension
obligation
funding
policy.
G
All
that
work
is
just
it's
parallel
work
we
won't
be
bringing
back
on
on
may
11th
any
additional
scenarios,
any
refinement
of
anything
it's
just.
Basically,
we
need
now
to
start
on
the
mechanical
stuff
to
get
you
to
that
ultimate
decision,
and
I
think,
and
then
we
hope
that
then
on
june
29th-
and
I
know
you
might
not
want
a
meeting
on
20th-
then
no
29th
of
june,
but
I'm
lobbying
for
one
bring
back
those
documents
which
then
would
allow
us
to
start
the
process
of
going
into
court.
G
G
In
the
august
time
frame,
because
I
think
that
that
will
help
understanding
what
their
strategy
would
be
relative
to
receiving
a
large
infusion
of
cash
with
pension
obligation,
bonds
still
using
part
of
that
conversation
to
help
formulate
what
a
long-term
funding
policy
would
be
for
us
and
then
sometime
in
the
fall
time,
come
back
with
that
policy
that
then
you
would
be
able
to
kind
of
look
at.
Maybe
we
run
some
more
scenarios
and
some
analysis.
G
You
approve
that
funding
policy,
we're
probably
still
stuck
in
court
waiting
for
that
validation,
action
and
then,
once
the
validation
has
been
received,
then
be
ready
to
come
in
and
have
you
actually
make
a
decision
about
issuing
pobs
and
that
dollar
amount?
And
we
might
baby
step
it
in
before?
We
actually
come
with
the
actual
official
statement
that
we'll
kind
of
do
some
fine
tuning
on
that.
G
But
we
wouldn't
expect
you
to
be
saying:
go
issue
pods
in
this
dollar
amount
until
probably
the
early
part
of
calendar
2022,
but
we
want
to
just
make
sure
we
get
all
the
little
tools
in
the
toolbox.
The
hammer,
the
screwdriver,
the
tape
measure
everything
so
that
then
we're
ready
for
you
to
go,
build
that
and
tell
us
to
go
issue.
The
pobs.
D
Great
thank
you
for
that.
I
just
want
to
say
that
gerard
your
opening
statement
about
you
know
what
can
go
wrong.
It's
kind
of
still
stuck
in
my
head
as
well.
I
think
this
is
a
tremendous
opportunity,
but
you
know
I'll
be
long
gone
off
council.
You
know
five
ten
years
from
now.
If
something
does
go,
sideways
and
people
look
back
and
say
what
were
they
thinking?
You
know.
D
E
Thank
you.
I
I
also
want
to
thank
the
staff
and
our
our
guests
and
consultants
for
all
this
work.
It's
it's
really
important
for
me.
I
tend
to
be
more
conservative
with
the
people's
money
than
I
am
with
my
own
and
as
it
is,
I
am
not
someone
who
enjoys
vegas,
so
I
appreciate
us
taking
these
baby
steps,
julia
and
and
spending
the
time
to
really
delve
deeply
to
make
sure
that
we
understand
as
much
as
possible.
E
I
also
share
the
mayor's
concern
with
the
federated
funded
status
and
and
not
only
because
of
what
its
funding
level
is
now,
but
this
funding
level
is
based
on
the
discount
rate,
which
is
6.625
percent,
and
we
saw
that
the
10-year
returns
on
federated,
depending
on
the
time
that
you
cut
off,
that
that
10
years
is
5.5
to
5.8
percent.
That's
below
the
discount
rate,
which
actually
means
the
funded
status
is
lower
than
what
we're
publishing.
E
E
One
julia
appreciate
all
my
colleagues
comments
and
and
questions
as
well,
and
when
you
were
talking
about
the
timing
with
vice
mayor,
I
didn't
catch
when
you
were
going
to
come
back
to
us
with
the
policy,
because
I
know
you
had
said
to
me
yesterday
in
our
briefing
that
there
would
be
a
we
would
have
a
policy
around
kind
of
us.
You
know
our
strategy
on
when
we
would
use
pobs
and
and
all
the
components
that
would
be
included
in
that
policy.
What's
the
timeline
on
that,
you
know.
G
I
I
would,
I
would
expect
it
probably
to
be
sometime
in
the
fall
and
probably
after
that
joint
meeting
with
the
retirement
boards.
Okay,
because
I
think
their
investment
strategy
at
some
level
needs
to
needs
to
formulate
our
funding
policy
right
if
they
tell
us
they're
going
to
put
it
in
cash
in
the
you
know,
under
the
mattress,
I'm
being
extreme
right
right,
we
don't
want
to
do
it.
G
We
don't
want
to
do
it
right
that
our
funding
policy
would
really
just
be
to
use
our
own
cash
to
pay
down
the
ual
and
not
enter
into
the
bond
market.
So
so
I
think
that
those
conversations
at
the
staff
level
and
at
the
board
and
council
level
will
help
formulate
the
ultimate
development
of
the
policy
yeah.
E
I
totally
agree
I
did
want
to
go
back.
There
was
one
thing
that
was
just
kind
of
glossed
over
and
I
think
it
really
gets
at
the
federated
plan.
More
specifically,
which
is
the
the
potential
for
the
tax
exempt
exchanges,
and
I
know
there's
that's
not
something
that
is
available
right
now.
I
know
you
did
a
lot
of
bond
refinancing
already
and
we've
we've
already.
You
know
done
that,
but
is
that
something
that
we're
considering
for
the
future?
Will
that
be
in
your
policy
development,
especially
for
capital
funds
which
can
address
the
federated?
G
Yes,
we
anticipate
that
using
those
making
sure
that
those
other
funding
options
are
included
in
the
policy
so
that
we
every
time
we're
doing
a
refunding.
For
example,
we
stop,
we
look.
Is
there
an
opportunity
here
for
to
do
any
kind
of
tax
exempt
exchange
work
with
the
budget
office
if
they're
funding
a
project
on
a
paygo
basis?
Is
there
a
way
to
do
something
at
that
point,
so
so
making
sure
that
that
looking
at
our
pension
liability
becomes
part
of
our
overall
capital
management
program
and
management
of
the
debt?
So
so?
E
Okay,
thank
you.
I
was
just
I'm
thinking
about.
You
know
all
the
all
the
regional
wastewater
facility
capital
program,
and
I
know
that's
a
little
bit
tough
because
we
jointly
own
that,
but
also
you
know,
we've
got
a
lot
of
sewer
work.
That's
going
on
and
green
infrastructure
that
we're
working
on
so
I
didn't
want
to.
I
didn't
want
to
lose
that
the
the
possibility
for
the
tax
exempt
exchange
while
we're
talking
about
pobs,
which
is
kind
of
the
bigger.
E
I
understand
it's,
it's
the
bigger
chunk,
but
those
little
chunks
help
as
well
right
talking
about
paying
down
the
debt
and
using
like
a
snowball
method.
You
those
little
extra
payments,
really
help
pay
down
and-
and
we
really
really
need
that
for
federated,
because
we
do
have
that
not
only
that
larger
liability
in
in
absolute
terms,
but
the
funded
status
being
so
much
lower,
so
davis,
I'm.
A
E
A
E
That's
all
right,
thank
you.
I
just
I-
and
I
appreciate
also
the
conversation
with
the
with
the
vice
mayor
about
the
the
differential
in
terms
of
the
interest
rates,
we're
likely
to
get
versus
the
the
returns,
and
I
do
think-
and
you
I
think
you
said,
the
borrowing
cost
would
be
about
three
to
three
and
a
half
percent
julia,
or
that
was
in
that
was
somewhere
in
the
presentation.
G
Yeah
that
would
be,
that
would
be.
That
would
be
all
in
kind
of
the
average,
as
nikolai
showed
in
that
one
chart.
You
know
you
have
each
individual
maturity
has
a
different
interest
rate.
It's
important
to
point
out
that's
market
conditions
today
right
and
we're
thinking
that
it
would
be
the
early
part
of
calendar
2022
before
we
would
actually
come
in.
E
E
Are
I
looked
at
the
attendee
list
and
I
hope
they,
the
ones
who
couldn't
watch
in
live
time
are
gonna
watch
this
because
it's
a
big
process
and
we
actually
we
have
to
be
coordinated
because,
just
like
you
said,
if,
if
they
don't
invest
the
the
proceeds
of
the
bonds
that
in
the
right
way,
then
we
have
you
know
it.
Doesn't
it
doesn't
matter
what
we
do
to
mitigate
our
risk?
And
I'm
really
concerned
about
that.
E
I'm
also
sensitive
to
the
fact
that
the
plan
returns
are,
I
think,
more
important
than
the
overall
market
returns.
I
really
want
to
stress
that
I
know
I
understand
that
market
timing
is
important
for
both
the
the
rates
that
we
would
get
on
the
bonds
and
just
how
easy
it
is
to
get
a
return.
But
I
I
do
want
to
stress
again
that
the
plan
returns
that
we've
seen
are
not
commensurate
with
what
we've
seen
stock
market
returns
and
part
of
that
is.
E
E
Can
you
talk
a
little
bit
about
that
and
how
I
it's
so
hard
to
know
where
you
are
in
a
in
a
business
cycle,
while
you're
in
it
and
and
the
fact
that
this
this
requires
market
timing
and
really
savvy.
You
know
savviness
on
on
that
part
and
that
that's
such
a
risk.
I
don't
understand
how
we
can
how
well
we
can
mitigate
that.
J
If
I
can
comment
first
of
all,
I
I
don't
think
it's
a
matter
of
you
trying
to
time
the
market,
it's
a
matter
of
trying
to
dodge
unfavorable
scenarios
and
to
mitigate
market
timing
risks.
My
35
comment
is
that
sort
of
the
average
stock
market
down
draw
down
over
preceding
recessions,
going
back
to
the
last
50
years,
is
in
the
magnitude
of
minus
35.
J
That's
that's
where
that
number
came
from
we've
already
recovered.
In
fact,
35
was
when
I
wrote
my
article
last
march
saying
the
window's
open
go
for
it
and,
of
course
you
guys
are
sitting
there
saying.
Well,
we
need
nine
months
to
go,
see
a
judge
so
and-
and
in
fact
my
experience
is
that
I
cannot
find
a
city
council
anywhere
in
america
that
wants
to
go
out
and
sell
pension
obligation
bonds
at
the
bottom
of
a
recession,
because
everybody's
scared
to
death
that
it's
going
to
get
worse.
J
J
At
least
the
last
three
have
been,
and
it's
more
likely
just
speaking
as
an
economist
that
until
credit
irregularities
get
pronounced,
they
just
run
longer
and
therefore
I
would
say
that
you
know
there's
decent
odds
here,
that
you're
in
the
second
or
third
year
of
an
extended
cycle,
not
in
or
second
or
third
inning,
of
a
business
cycle,
not
the
eighth
or
ninth
in
it.
And
so
that's
the
context
that
I'm
providing.
J
But
I
will
tell
you
that
time
is
now
working
against
you
that
the
longer
you
have
to
wait
to
get
the
judicial
authority
to
sell
the
bonds,
the
more
likely
that
interest
rates
will
track
higher
and
in
fact
that
stocks
will
continue
to
bubble
higher
unless
something
terrible
happens,
and
china
invades
this
or
any
a
number
of
other
uncontrollable,
so-called
exogenous
risks.
So
I
hope
that's
context
for
you.
E
Yeah,
thank
you.
I
appreciate
that,
and
I
see
that
I'm
over
time.
I
just
have
one
more
comment,
which
is,
I
think,
what
what
we're
saying
with
the
timing
is
not
that
we
have
to
hit
it
then
at
the
bottom,
but
that
just
that
we
have
two
or
three
more
years
of
runway
from
whenever
we
we
issue.
The
bonds
is,
that
is
that
fair.
J
O
Thanks
mayor
I'll
I'll,
add
my
colleagues
thanks
to
staff
and
and
our
guests
for
a
really
substantive
presentation
today
I
appreciate
it
and
obviously
there's
a
really
important-
and
I
think
you
know
potentially
quite
risky
decision
for
us.
So
you
know,
as
councilmember
davis
said,
I
appreciate
that
we
are
approaching
it
very
thoughtfully
and
and
kind
of
systematically
talking
through
it
a
bunch
of
questions
I'll
try
to
be
concise
here
on
an
informational
point
to
start.
O
G
O
J
J
What
I'm
saying
is
that
should
not
be
your
only
reason.
Okay,
if
you
had
two
percent
interest
rates
and
we
were
eight
years
into
the
business
cycle
and
stocks
were
trading
at
50
times
earnings,
I
would
be
saying
blatantly
stupid,
even
if
it's
cheap,
but
we're
not
in
that
point.
So
hopefully
that
gives
you
some
context.
O
Yeah
it
does,
but
it
leads
to
my
my
next
question,
which
is
you
know,
maybe
a
difference
of
opinion
on
on
where,
where
we
are
in
the
business
cycle,
so
we're
at
four
we're
at
a
p.
Stocks
are
trading
at
a
p
e
of
about
40..
You
just
said
50
we're
at
40.,
so
I
did
a
little
research
before
the
meeting.
If
you
look
since
the
great
depression
over
the
last
90
hundred
years,
or
so,
our
s
p,
5,
the
current
s,
p,
500
price
to
earnings
ratio
is,
is
nearly
40.
O
It's
the
third
highest.
It's
been
in
the
last
century
and,
given
you
know,
gerard,
you
said
in
your
the
the
counterpoint
essay
again.
It
only
makes
sense
when
you've
got
you're
in
a
recession
and
the
market's
down
25
30.
I
think
you
said
preferably
more
feels
to
me
like
we're
closer
to
the
opposite
end
of
that
spectrum.
So
what
is
the
sort
of
objective
measure
we
ought
to
be
using
in
the
future?
O
O
J
That,
if,
if
there
were
not
all
the
liabilities
in
your
plan-
and
I
was
just
giving
you
advice
based
upon
financial
market
metrics,
that
would
in
fact
be
my
answer.
But
you
have
a
separate
problem
here
now,
and
that
is
the
the
pig
is
going
through
the
python
of
your
liabilities
and
by
the
time
we
can
wait
around
for
the
next
recession.
J
You
know
what
all
of
those
retirees
are
either
going
to
be
deceased
or
only
have
a
couple
years
of
liability
left
and
you
will
have
paid
the
money
down
and
and
your
your
your
actuarial
situation
does
not
get
better.
I
am
very
conscious
of
the
fact
that
you
have
essentially
an
average
amortization
of
about
12
years.
J
The
problem
with
that
is,
you
will
be
burdening
the
future
generation
to
pay
off
those
bonds
and
not
today's
taxpayer.
So,
from
an
intergenerational
equity
standpoint,
an
argument
could
be
made
that
earlier
is
better
despite
financial
market
metrics,
which
is
what
turns
my
normal
logic
right
upside
down.
On
its
head,
I
would
rather
you
not
sell,
19
and
20-year
bonds.
I'd
rather
see
you
sell
12
to
15
and
use
that
to
level
out
your
total
debt
service
cost,
but
we
can
have
that
conversation
two
months
from
now
that
that's
not
the
issue
for
today.
O
Yeah,
I
think
so
what
look
I
mean
look
at
as
the
youngest
member
of
the
council
and
with
a
three-year-old
and
a
one-year-old.
I
am
very
sensitive
to
the
intergenerational
transfer
issue
extremely.
I
think
it's
a
really
important
point
that
we
don't
talk
about
enough.
My
concern
is,
if
anything
goes
wrong.
We
we
issue
these
things
on
on
a
10
12
year,
time
horizon
and
we
have
an
unexpected
recession.
O
O
J
J
I
think
structurally,
that
is
the
correct,
long-term
approach.
Now
you
could
avoid
stock
market
risk
in
that
limited
case,
if
your
pension
board
would
say
we'll
take
that
200
million
and
put
it
in
nothing
but
corporate
bonds,
where
there
is
no
arbitrage,
forget
the
darn
arbitrage
for
that
portion.
Let's
just
stretch
the
liability
structure
for
the
top
of
the
iceberg
and
then
all
of
the
green
stuff
that
julio
wants
you
to
save.
Do
your
conventional
pops
stretch
that
out
over
20
years
or
even
if
you
wanted
to
do
30
for
the
first
200
million?
A
M
Yes,
thank
you.
If
I
may,
mr
mayor
so
julio
mentioned
earlier
right,
there's
two
portfolios
with
the
same
overall
average
turn
over
the
life
of
12
years
can
have
very
different,
ending
portfolio
balances.
So
it's
not
so
much.
You
know
in
the
lifetime
of
the
bonds
will
there
be
a
recession,
but
what
is
going
to
happen
in
the
next
two
to
three
years
is
very
critical.
Part
of
the
analysis.
O
That's
a
great
point,
I
I
guess
my
fear
is
none
of
us
know
and
and-
and
I
would
not
be
at
all
confident
that
any
of
us
could
predict
what
will
happen
in
the
next
two
years.
I
could
have
never
told
you
covid
was
going
to
head
and
while
that
seems
like
a
black
swan
event,
there's
nothing
that
says
we
don't
have
another
black
swan
event
in
the
next
year
or
two.
So
anyway,
okay.
J
J
If
you
keep
doing
what
you're
doing-
and
I
would
be
an
advocate
for
five
years,
at
least
of
rolling-
that
amortization
to
have
an
average
life
of
no
less
than
10
years
in
order
to
stabilize
your
rates,
that
is
a
conversation
that
you
need
to
have
with
your
actuaries.
You
had
the
table.
That
said,
we
looked
at
all
these
options
and
amortization
was
there
and
it
said
it
could
be
significant
and
you've
done
nothing
with
it.
J
K
Gerard,
they
actually
did
change
their
amortization
schedule
in
the
last
year.
It's
kind
of
interesting.
I
think
the
boards
are
having
more
of
a
dialogue
and
if
you
watch
their
presentations,
they
understand
that
the
contribution
rate
is
something
that's
critical
to
the
budget,
so
they
did
it
this
past
year.
It's
an
interesting
what
makes
and
I
think,
keep
on
harping
on
this
point.
I
made
the
same
point
that
this
city
is
in
a
unique
position
and
that
you
have
two
plans,
but
all
it's
an
internal
fund.
K
So
the
term
that
you
use
gerard
is
really
important.
You're
going
to
ultimately
have
a
family
decision.
I
think
right
now,
you're
trying
to
see
is
this
one
of
these
solutions
and
we
think
it's
very
nuanced
and
it
and
we've
said
there
are
risks.
It
is
not.
We
want
you
to
understand
it.
You
may
time
things
and
we
don't
sell
this
as
this
is
your
panacea
for
everything,
but
I
said
the
other
side
is
you
have
to
take
some
action?
K
If
you
don't
put
more
money
into
that
fund,
it's
going
to
get
worse
or
think
of
it.
Then
you
do.
Let's
say
you
do
nothing
and
you
you
have
a
downturn
in
the
market,
then
you're
going
to
feel
either.
Oh
well,
I
can't
take
even
more
risk
or
we
don't
want
it
to
spiral
out
of
control,
so
we're
kind
of
stuck
in
a
solution
where
we
have
to
find
things
to
go
forward
and
try
to
mitigate
that
risk.
K
O
Absolutely
absolutely
I
mean
the
logical
thing
to
do.
If
politics
wasn't
involved
would
be
to
just
say
we
got
to
pay
in
more
upfront
or
we
got
to
reduce
our
obligations
on
the
back
end.
Now,
if,
if
that's
not
politically
possible,
then
we're
talking
about
a
third
way,
but
I
also
want
to
make
sure
that
doesn't
blow
up
in
our
faces.
Much
like
the
vice
mayor
said.
I
don't
want
to
end
up
five
ten
years
from
now
and
say
what
would
we?
What
were
we
thinking?
O
So
that's
kind
of
where
the
the
spirit
of
my
questions
here,
certainly
you
know
good
to
have
more
tools
and-
and
you
know
getting
pre-authorized
may
make
sense,
but
I'm
I'm
not
not
totally
convinced
here
so
another
couple
more
questions
then
I'll
wrap
up,
because
I
know
we
could
talk
all
day
on
this.
What
so,
I'm
not
a
financial,
you
know
analyst
here,
but
what?
What
are
the
low
interest
rates
in
the
bond
market
telling
us?
O
K
K
But
what
you
probably
didn't
we
didn't
have
this
and
it's
in
the
report
is
we
talked
about
something
called
a
pob
spread
so
tim
who
works
on
this
tracks,
every
single
pob,
that's
done
in
california,
and
one
of
the
things
that
happens
when
the
pandemic
started.
Before
that.
I
think
we
we
start,
we
call
gobs
2.0
starting
around
2017..
K
I
recall
we
worked
on
a
deal
with
the
city
of
glendora,
which
is
triple
a
rated.
They
sold
that
bond
at
280
all
in
and
their
spreads
were
pretty
low
and
then,
after
that,
the
market
that
was
in
october,
correct
october
2019
and
around
the
end
of
the
year
in
march,
all
hell
broke
loose
and
spreads
went
up
and
they
went
from
they
are.
They
should
stop
they're
priced
off
the
spread
to
treasury.
K
They've
been
on
record
saying:
we
don't
anticipate
this,
but
they've
also
said
from
different
fred
chairman
in
22
or
23.
So
right
now,
there's
a
good
window
from
the
debt
side
that
goes
back
to
gerard's
question
is
a
good
window
from
the
investment
side.
This
is
what
makes
it
so
hard
because
you
try
to
optimize
two,
and
we
still
said
you
have
to
do
something
or
look
at
multiple
strategies.
K
O
Right
but
but
the
fed's
guidance
is
based
on
an
assumption
or
an
outlook
about
economic
growth
and
and
markets,
and
and
if,
if
the
fed
thought
at
any
point
or
was
seeing
evidence
that
the
economy
was
overheating,
the
markets
were
in
a
bubble,
you
you,
they
would
change
their
guidance.
So
it
just
seems
to
me
the
flip
side
of
low
rates
is.
Is
that
there's
a
baked
in
assumption
that
we
may
not
see
high
growth
in
the
years
ahead
so
that
that
feels
quite
relevant.
A
C
Hi,
thank
you.
I'm
going
to
keep
my
questions
really
short,
one
of
the
things
that
that
I
think
that
I
had
observed
when
I
first
began
as
a
council
member
is,
and
it
has
improved,
because
we've
made
some
real
effort
to
coordinate
with
our
retirement
boards,
and
that
is
the
the
maybe
the
risk
level
that
we
wanted
to
take
with
our
investments
and
and
maybe
some
of
the
fees
that
were
connected
to
some
of
the
financial
advisors
that
we
couldn't
quite
understand.
C
C
C
But
one
of
the
things
that
we've
seen
or
at
least
I've
seen
is
that
there's
also
a
risk
between
what
the
retirement
boards
end
up
doing
and
once
we
make
this
decision,
we
lose
really
control
of
how
this
investment
will
go.
Despite
us.
Maybe
having
this
conversation
ahead
of
time.
Like
you
said
in
a
family
meeting
which
I'd
love,
I
would
love
to
do
it
and
we've
had
these
family
meetings.
J
J
So
you
are
correct
that
you
have
a
policy
risk
that
is
fairly
uncontrollable.
Now
whether
there
is
any
kind
of
grantor
covenant
that
can
be
entered
into
between
the
city
and
the
pension
fund
with
money
that
comes
from
you,
you
know
in
a
in
a
different
way
is
certainly
an
interesting
legal
hypothesis,
but
I've
never
seen
it
done,
and
so
the
idea
would
be
you
know,
can
you
get
a
separate
sub-trust
within
their
fund?
That
would
be
invested
differently
than
everything
else.
J
As
I've
said
before,
there
is
no
arbitrage
between
your
taxable
bond
and
cash
or
corporate
bonds
or
commodities.
Real
estate-
maybe
pays
one
percent
more
so
that
at
least
and
hedge
funds
again
are
a
problem.
So
I
can
argue
very
persuasively
that
30
or
more
of
their
portfolio
is
completely
unresponsive
to
your
objective.
J
C
No,
I
I
I
want
the
generations
to
come
to
be
able
to
eat
a
slice,
so
that
cake
is
what
I
would
love
for
her
to
happen.
Ultimately,
and-
and
I
guess
what
I'm
hearing
you
say-
is
that
you
haven't
seen
a
jurisdiction
really
address
this
question,
but
it's
interesting
that
you
said
that
there's
potentially
something
because
this
is
a
a
new
source
of
funding
that
we
we
could
potentially
put
this
in
a
separate.
I
I
I
forgot,
how
do
you
yeah.
J
The
the
more
interesting
question
is
whether
you
can
get
the
pension
trustees
to
say
look.
We
would
rather
have
the
money
money
in
is
good,
as
we
always
say
in
the
retirement
industry.
Okay,
if,
if
I
as
a
trustee,
deem
it
to
be
better
and
beneficial
to
all
interests,
to
get
the
money
from
the
bond
proceeds,
and
I
am
willing
to
write
an
investment
policy
that
says
whatever
we
get
from
the
plb
we're
going
to
invest
in
this
other
different
way.
C
C
As
this
is,
I
think,
a
huge,
a
huge
decision
that
we're
going
to
make
for
generations
and
generations
of
folks
to
come
to
san
jose
and
as
our
city
grows,
I'm
sure
our
commitment
to
our
residents
will
also
grow
so
that
that
was
my
question.
I
mean
I
have
a
lot
of
other
questions
and
julia
I'd
love
to
meet
with
you
before
or
may
11th,
meaning
just
to
go
over
some
of
these
models.
C
A
Welcome
thank
you.
I
sent
a
few
questions
to
follow
up
and
we'll
go
back
to
counselor
mayhem
in
just
a
moment.
You
know
an
awful
lot
of
the
strategy.
If
we're
going
to
be
doing
it
requires
discipline
requires
that
we
tie
ourselves
to
the
masses
as
a
city
sort
of
like
a
disa
screw,
did
it
and,
and
that
requires
you
know
whether
it's
a
recycling,
the
savings,
whether
it's
around
guidance
on
investment
and
timing,.
A
It
seems
to
me,
since
they
are,
after
all,
the
trustees
for
the
fun
and
I'm
just
wondering
to
what
extent-
and
maybe
this
is
a
legal
issue
for
karen
or
someone
else,
but
can
we,
if
we're
going
to
be
issuing
these
bonds,
can
we
be
issuing
ordinances
approving
ordinances?
At
the
same
time?
That
says,
you
know:
thou
shalt
recycle
in
this
manner,
that
is
say
to
pay
down
on
fund
liabilities
or
whatever
it
might
be.
C
A
J
I
I
would
say
no
in
fact,
actually
having
heard
this
conversation
and
putting
myself
in
your
shoe,
I
could
make
a
good
case
that
said
going
back
to
my
original
25
30
percent
right
off
the
top,
get
it
in
the
get
it
to
the
fund
as
soon
as
possible.
I
would
not
have
heartburn
with
them
investing
that
money
exactly
like
everything
else.
If
it
goes
into
stock
bond
portfolio
that
would
mitigate
some
of
the
stock
market
risk
that
otherwise
you
might
be
fearful
of
it,
doesn't
solve
it
all.
J
J
But
I
want
to
reaffirm
that
if
you
take
a
portion
now
and
give
it
to
the
pension
trustees,
I'm
not
going
to
have
a
heart,
you
know
hurt
attack
over
the
fact
that
it's
it's
a
blended
portfolio,
because
you
get
some
of
that
risk
mitigation
from
what
they
are
doing
in
those
initial
years.
I
might
want
it
to
tilt
more
to
stocks
later
on
after
the
next
recession,
but
that's
a
discussion
to
have
with
them
about
longer-term
policy.
K
Here
you
know,
I
I
don't
disagree
with
jordan,
one
sense,
but
I
think
it
comes
down
to
this
notion
as
your
financial
advisor.
It
comes
on
your
your
capacity
to
take
on
risk
right
yeah.
So
I
get
a
response
that
people
want
to
have
a
positive
outlook
and
if
you
do
do
that,
hedge,
if
you're
concerned
about
the
risk
and
the
outcome,
the
downside
to
that,
of
course,
is
you're
going
to
have
lower
returns.
K
It's
just
how
much
you
this
is
the
standard
investment
decision
that
everyone
has.
Well,
I
don't
want
to
lose
the
corpus
or
I
want
to
have
a
guaranteed
minimum.
You
know,
as
gerard
is
saying,
the
ideal
situation
is
you
you
invest
more
in
equities.
The
downside,
of
course,
is:
if
you
do
that,
and
you
lose
it,
you
lose
all
the
advantage
of
a
pov,
and
I
hear
the
political
flack
that
everyone's
going
to
say
is
like
boy
that
wasn't
good
timing.
K
So
I
can't
make
the
decision
for
the
council
as
to
what
you
should
do,
but
if
you're
more
concerned
about
hey
in
the
first
couple
years,
people
are
going
to
say
it
was
a
bad
decision,
then
that
hedge
is
going
to
be
the
the
better
point
to
kind
of
offset
things
now.
Gerard
is
making
another
comment
like
well,
you're
he's
okay
in
that's
it.
I
can't
determine
what
your
risk
parameter
is.
But
if
you
tell
me,
I
want
to
ensure
that
this
is
successful.
Initially,
then
you
should
look
at
that
type
of
investment.
A
K
K
And
this
is
important,
and
it's
just
something
to
consider-
and
I
don't
want
to
mention
it
after
this,
because
karen
my
apologies,
you
may
we
keep
on
talking
about
this
115
trust,
but
gerard
really
alluded
to
this,
and
I
think
I've
made
the
same
comment.
I
don't
know
if
there's
something
that
you
couldn't
separate,
create
a
separate
account
underneath
your
retirement
funds.
If
that's,
I
think
what
he's
alluding
to
did
you
basically
say
this?
K
Money
is
managed
differently
and
the
corpus
is
here
that
I'm
beyond
my
pay
grade
and
beyond
my
capacity,
I
don't
have
enough
stripes,
but
I
wanted
to
mention
it
because
I
think
that's
really
what
we're
alluding
to
it's
for
another
conversation,
I
do
think
you
should
think
this
is
in
the
toolbox.
It
does
have
its
risks.
We
have
to
think
about
how
to
manage
it
and
there
can
be
a
lot
of
fine
tuning
and
it's
the
hardest
thing.
K
Everyone
once
they're
now,
given
that
investment
decision,
it's
very
difficult
and
that's
probably
the
last
reason
why
people
do
this
kind
of
dollar
cost
averaging
they
go.
Okay,
you
know
I
can
go
over
this
strategy
and
no
one's
going
to
fault
me
for
mitigating
that
risk
or
averaging
it
over
time,
but
that
separate
fund
is
something
that
you
may
consider.
K
A
K
If
I
may,
the
simple
answer
is
because
your
pension
liabilities
are
vested,
and
I
get
this
all
the
time,
as
does
mike,
because
it's
the
second
wave
that
you're
going
to
have
that
conversation
later
on.
So
I
hope
you
don't
get
sick
of
me.
It
is
another
concern,
but
because
it's
not
vested
and
because,
frankly,
the
liability
cash
flows
are
further
out
we're
trying
to
deal
with
your
first
wave
and
then
we
will
deal
with
that.
Second,
one.
A
A
A
I
don't
know
it
was
the
1980s
or
when,
when
we
decided
to
create
a
defined
benefit
plan-
and
we
got
into
this
risk
business
because
we
decided
we
were
going
to
guarantee
payments
to
our
retirees
and
when
we
assumed
that
risk
all
the
other
risks
suddenly
came
on
the
table.
So
I
know
a
lot
of
folks
are
going
to
say
these
there's
a
lot
of
risks,
we're
grappling
with
here
and
that's
absolutely
true,
with
pension
obligation,
bonds
and
we
need
to
be
have
our
eyes
wide
open.
A
But
we
didn't
make
that
decision
to
get
into
that
that
the
challenge
of
assessing
those
risks.
That
decision
was
made
for
us
many
decades
ago
and
now
our
job
is
to
find
a
way
to
mitigate
that
risk
and
to
be
able
to
get
through
this
with
minimal
impact
on
our
taxpayers
and
still
fulfilling
our
legal
obligation.
So
you
know
the
big
question
for
me
in
terms
of
the
go
not
go
is
what
is
the
risk
of
doing
nothing
and
I'm
looking
at
a
federated
plan?
A
O
O
I
didn't
feel
that
the
the
risk
analysis
of
different
scenarios
section
was
quite
sufficient
and
maybe
I
just
didn't
understand
everything
that
was
in
there
frankly.
But
you
know
I'll
just
say
as
we
come
back
to
this
conversation
and
I'm
kind
of
weighing
my
own
perspective
and
how
I
you
know
ultimately
will
vote
on
on
the
series
of
decisions
we'll
have
to
make
about
pobs.
O
If
it's
not
a
big
chunk
of
money,
you
know
hundreds
of
millions,
maybe
billions
of
dollars
worth
so
then,
okay,
let's
let's
look
at
that
year
by
year,
10
15
years
out,
you
know
baseline,
let's
assume,
let's
go
ahead
and
let's
have
a
projection
there.
That
shows
the
pension
fund
earning
that
6.625,
which
is
probably
a
little
too
optimistic
frankly,
but
let's,
let's
show
that
one
and
then
again
how
about
a
downturn
like
oh
102
or
0708.
These
have
happened
recently
right
and
then
maybe
just
a
low
low
return.
That's
that's
steadier!
O
O
If
we
hit
a
recession
for
a
couple
of
years,
what
does
it
actually
mean
for
the
general
fund
at
that
moment,
if
we've
also
taken
on
a
pob,
so
now
we're
in
the
what
could
be
a
very
bad
situation
just
on
the
current
track,
but
we've
maybe
added
to
it
and
I'd
love
to
just
see
those
numbers
year
by
year
and
just
understand
what
is
a?
What
is
a
you
know
worst
case
scenario
here,
what
what
could
be
the
situation
in
four
or
five
years?
O
If
things
don't
go
the
way
that
we
hope
they
do
just
so
we're
truly
going
into
this
eyes
wide
open
and
I
feel
like
we
could
spell
that
out
quite
a
bit
more
clearly.
So
I
guess
you
know,
I
know
we're
not
giving
direction
to
staff
today
and
I'm
not
making
a
motion
here,
but
whether
this
is
for
julia
or
somebody
else,
you
know,
would
you
be
comfortable?
Is
it
possible
for
staff
when
we
come
back
to
this
conversation,
to
to
get
a
little
more
detailed
in
what
some
of
those
scenarios
might
look
like.
G
Yes,
yes,
we
we
can
do
that,
but
I
wouldn't
anticipate
that
we'd
be
doing
that
on
may
11th.
I'd
anticipate
that
we'd
be
doing
that.
You
know
further
into
the
late
summer,
early
fall
when
we're
kind
of
working
around
the
policy
objectives.
Having
had
some
conversations
with
the
retirement
boards
and
really
do
it
within
that
kind
of
time
frame.
Since
the
decision
that
we're
looking
to
put
before
you
for
may
11th
is
really
just
moving
us
along
the
path
to
get
the
tool
in
the
toolbox.
O
Right
right
no-
and
I
appreciate
that
I
think,
having
options
and
having
different
tools
at
our
disposal
could
be
a
good
thing.
Okay,
well
and
thank
you.
I
would
really
look
forward
to
seeing
more
detailed
scenario,
projections
really
breaking
it
down
very
carefully
and
including
the
impact
on
the
general
fund
in
different
scenarios
and
then
just
I'll
close
on
a
final
point
about
arbitrage.
Vice
may
mayor
mentioned,
this
is
an
arbitrage
scheme
potentially
and-
and
you
know-
I
I
just
think
in
reality-
there
are
very
few
true
arbitrage
opportunities
out
there.
O
I
think,
when
they're
out
there
they're
quickly
taken
advantage
of
and
then
kind
of
baked
into
market
rates,
and
I
just
I
would
really
caution
us.
You
know
to
keep
that
in
mind.
I
don't
think
there's
a
free
lunch
out
there.
There's
somebody
on
the
other
side
of
this
bet:
that's
buying
our
debt,
and
if
there
really
was
an
arbitrage,
people
would
have
figured
that
out
and
those
those
rates
would
would
go
up.
So
I
think
they're
reflecting
some
some
real
risk
that
exists
on
the
horizon
so
anyway
I'll
leave
it
at
that.
O
A
Thank
you,
and,
and
just
to
follow
up
on
council
member
may
hence
kind
of
ultimate
question
that
can
we
expect
that
we
would
see
a
model.
Perhaps
that
can
someone
put
together
to
enable
us
to
have
some
do
some
sensitivity,
analysis
understand.
You
know
what
what
are
the
probabilities
look
like
as
returns
rise
or
fall,
for
example,.
A
Okay,
wonderful.
I
think
that
would
be
super
helpful,
particularly
given
what
may
be
varying
objectives.
I
know
that
you
know
one
point.
George
was
talking
about
savings
to
the
the
budget,
and
I
I
think
at
least
for
me.
I
have
a
very
different
objective
and-
and
so
it's
important
for
us
to,
I
think-
to
be
able
to
do
that
in
city
analysis,
understanding
what
the
variable
objectives
are.
A
P
P
A
Thank
you
bill.
I
appreciate
the
comments
any
other
members
of
the
public.
You
see
no
hands
and
I
in
in
terms
of
response.
I
know
this
is
an
issue.
We
have
spent
no
small
amount
of
times
figuring
out.
If
we
can
ever
restructure
those
obligations.
Obviously
we
have
restructured
them
going
forward,
but
it
looks
like
retroactively
nora,
I'm
assuming
the
answer
is
no.
A
We've
got
these
obligations
because
it
we've
heard
that
much
from
courts,
whoever
ruled
against
us
is
that
fair
to
say,
okay,
so
these
obligations
are
ours
and
we
gotta
grapple
with
them,
and
so
I
appreciate
everyone's
hard
work
and
helping
us
figure
that
out.
We
will
be
back
with
more
conversation
and
questions
and
really
appreciate
everyone's
hard
work.
So
thanks
everybody
stay
healthy
means.