Adoption of Resolution Authorizing the Issuance of One or More Series of Pension Obligation Bonds (POB) to Refinance Outstanding Obligations of the City to the California Public Employees’ Retirement System, Authorizing the Initiation of a Judicial Validation Action by the City Attorney, and Approving and Directing Related Matters. (Finance 10024051)
The issuance of one or more series of pension obligation bonds to refinance outstanding obligations of the city to the California Public Employees Retirement System, authorizing the initiation of a judicial validation action by the city attorney in approving and directing related matters. Thank you. And at this time, I would like to introduce our city manager, Eric Levitt, who is going to tell us how this item will proceed. Mr. Levitt. Thank you, ma'am. Mayor and City Council. I'm just going to briefly say that we have several staff members here, including the finance director and assistant city manager for questions. And the person that will be doing the presentation is Mr. Julio Morales, who's on the screen, and he'll be doing the presentation and then we'll be available for questions . Thank you so much. And well, welcome to all of you. All right. Mr. Morales, the floor is yours. Thank you very much. Good evening, Madam Mayor, and members of the City Council. I'm going to quickly go over your pension liability, discussed a little bit about pension obligation bonds and the risks all within your timeframe allotted. So I'm going to go real quickly to your pension liability. If I can go to slide number four, if that's okay. Great. So we're going to start out with your annual pension cost. It's broken up into two components. And I apologize if some of you know this already. There's the normal cost. Some of these have new acronyms and terms, but that really is the current year's payment, what employees earn this year. And you pay that as a percentage of payroll and there's a past due amount of pass through payment. And that's what we're here to discuss, the unfunded accrued liability or past due amount. These are fixed dollar payments. So on the normal cost as the percentage of payroll, the other, you're on a payment plan with CalPERS, with fixed dollar payments, you and every other agency in California, it is a little bit different from any other agencies in the country. But every agency that participates in CalPERS as both a percentage of payroll and a fixed dollar fuel costs. Next slide, please. So your liability. As of the most recent actuarial report released this August, which is dated June 30, 2020, is $96.7 million. And that essentially comes up with the difference of the actuaries estimate that the liabilities that you have, the present value of liabilities is $822 million, both current employees and retirees. So they project out what the cost will be. They're going to have to pay in the future for all of these retirement benefits. And you have $525 million effectively in the bank with CalPERS. The difference is your net funding position. Now, the overall average net funding position is between 69 to 70%. So you're a little bit underfunded compared to some of your other agencies, but still within a modest range. Next slide, please. This is a little bit of detail, but I think it's very important to understand because that night, 296 or $1,997 million is comprised of a series of amortization bases. And if you were to think of it differently, I should say this is a series of loans, so you have to plan those for miscellaneous employees and those for sworn safety employees. Each plan is separate. The employees don't crossover between one and the other, though you are collectively responsible for both sets of plans, they each have a different adjustment. So the two subclans underneath the overall city of Alameda Plan and as you can see, there are a series of bases. So for the miscellaneous class 26 and for the safety plan it's 21, you can see the term is how long these are. So essentially these are adjustments that CalPERS makes every year. And if you want to look at it differently, that is a series of loans all at 7%. So I'm going to introduce a concept to you called the discount rate. And the discount rate really is their investment target and the rate at which you are charge these payments. So they essentially create a series of loans or if you want to see it, 47 loans all all factor it at 7% over time. The difference is they have different rates. So if you can go to the next slide. What we have done is created a model for you for each one of your bases. And this gives you an illustration of what your bases look like. For the miscellaneous plan. We call it the layer cake. So each one of the bases actually has a payment schedule. This is a graphical illustration, and then you receive net credits because if we knew a prior prior page, once again certain years, you actually when CalPERS outperforms the market, you get a credit. I will note that's a store credit. You don't get cash back from CalPERS, which you get a credit against your liability. So you can see, for example, in 2019, you had a credit for about $1.7 million. So if you can go forward to slides. What we're looking at and why we're here is that almost every agency in California. Has increased annual payments. Remember their fixed dollar? Next slide, please. Fixed dollar payments. So this is a combination of both your miscellaneous and your safety plan. And as you can see, your payment last year was 20 million. This upcoming budget year is 22 million and it's going to continue to rise up to 29 million. Now, I should also state a couple of things. These are fixed dollar payments, but they are adjusted every year. A little bit up and a little bit down. Some years can be more significant. But this is what the current picture looks like. So that totals $557 million. Or if we go to the next slide for really looking at is I cut off the mountain above $20 million and you can see this is the increase in payments for the next 27 years and that total $75 million. So as a former finance director, the way I look at it is those are resources are being cut or crowded out of your budget because those are fixed dollar payments. And as my colleague Jim Moore showed you before, in your long range financial planning model, in many cases, your revenues may keep pace with increasing revenues and expenses. However, regardless of whatever adjustments you make, these are fixed dollar increases. Similar, like saying your mortgage goes from 2000 to 20 200 to 2500 2900. And that makes it far more difficult to match on a budgetary perspective. So from there, what we've done and we've done with city staff is we look at possible solutions, how to address that 75 million overall $557 million, because once again, it's a it's a debt. It's a long term liability that you want to get hold of. So next slide, please. We looked at some funding strategies. These are fairly basic strategies. We take the same approach next. For every city. But the answers are very different depending on your underlying economics and policy objectives. The first thing we always look at is allocation between funds. The liability does not pertain solely to the general fund, but the super fund and the powerful also have that liability. So we will look at strategies there. The first and best thing that anyone can do if available is use reserves and one time money because there's no interest costs associated with you borrowing money. In fact, the opportunity cost is just the laugh rate. So it's the most efficient method of paying down your liability. Another method is looking at establishing the Pension Stabilization Fund, which is known as a 115 trust. We highly recommend that. And then those are just general budgeting approaches. How you think about each time you have this $550 million debt that you got to pay off, how are you going to get to it? And it usually involves multiple steps over a multi-year period, but there are also some financing approaches, leveraged funding, which is a financing mechanism, but unfortunately no current opportunities. Tax exempt exchange, which we think is a great idea but unfortunately is always limited in scale. You may be able to do 20, $30 million, but not address a $300 million liability. And that leaves you with pension obligation bonds. Which is a way to refinance your 7% liability with a bond at, say, three and a half percent. And finally, this notion of taking all of these options and recycling the savings from all of these to take over time. So those are the funding strategies that we've gone over. We're here today to discuss specifically pension obligation bonds, because it is the most it is the one action that can really significantly reset the table. So we've given you an illustration on two slides forward, please. Of of what a potential pension obligations would be. This is a 25 year pension obligation bond. And what we illustrate is really two components. So the the red line is what your fuel payments or your fixed payments to CalPERS look like. And the the blue line is what the payments would be like under a pension obligation bond. And one of the things we did is we kind of broke up your savings between true budgetary savings, where your level would go down from that 22 million that we're talking about today versus foregone or avoided fuel costs if you go to the next slide. Please. You can see that you can save about $2.7 million a year. That's actually true. Budgetary cash flow saving in the yellow is something that, as the city managers noted, this is savings to the city, but it's not one that you can reprogram day to day or from your current baseline of $22 million . It's very important to note that these is an illustration you can do any portion. We can model out a half, $20 million. You can do a five year POB. This is just an illustration of the full potential savings and we don't necessarily recommend to do that, but it is something as a baseline to establish the conversation. So next slide, please. It is really important to have a conversation, I think, and I have to hit it a couple of times. So all these components to talk about the GF advisory, the GF ways, the Government Finance Officers Association of which I actually served on the National Debt Advisory Committee and helped write this policy several years ago. However, I believe a number of these things are not germane to California and have not kept pace with the changes that have happened recently in the market. So you're going to have to hit it a few times to get all these things to show up. Hit enter, I think. There we go. So the first comment is that these are complex instruments that have swaps, cabs, derivatives and gigs. A lot of acronyms. I. That they increase. Mr.. Mr.. MORALES. If I'm reading the clock right. Madam Clerk. With that time. That was 10. Minutes. Now, I will say that this is a very important topic to the council, to the city. And so with a motion approved by four council members, we could extend you more time. About how much time do you think you need to finish your presentation? Two or 3 minutes. To 3 minutes. And is anyone else on this screen also going to want to chime in, Mr.. For Minsky or anyone else? No. The main discussions, Hulu and everyone else's. For Mr. Morales, everyone else is here just for answering questions. How about motion for five more minutes for our presenter? Councilor Knox, why are you making that motion? Thank you. In his second year, Vice Mayor Val Seconding. Let's have a roll call vote if we could, please. Councilmember Jay. Shacknai. Her sponsor, now. Knocks. Right. By the fella. I know. I see Ashcraft High. That carries 4 to 1. Please proceed, Mr. Morales. Thank you. Thank you very much. Just to make it a little easier. So there are six items, five of which have been addressed. The first is they're complex instruments. And now now every issue in California of the 77 have been done in the past few years. All are plain fixed rate bonds. So these complex structures are no longer done, that they increase the debt burden or take a soft to a hard liability. As the finance director will tell you, the Government Accounting Board now place the liability on a balance sheet and CalPERS has you on a fixed dollar payment schedule. So really just refinancing a loan with a loan. They used to have these make hole calls which made them non callable. They're now issued with standard ten year calls. In the past you have a number of agencies that are extending repayment do in a number of features due to financial difficulty. We always recommend that you do that all within the same term. Rating agencies read this as a credit negative back in the day. Now it's a credit positive and it comes to the one and only thing that we think you have to be aware of is the fact that if you actually take the proceeds, you now have some risk to market timing risk and its inherent risk to pension obligation bonds. However, it is also a risk for any type of investment that any individual makes over time is market timing risk. So it's not specific to pension obligation month, but is a risk. Next slide, please. Okay. So when you when you take a look at this, it's really important to say one part is the refinancing. You can refinance from a 7% to three and a half percent. You get this great savings. However, you have to take a look at. The second component of it is once you take that money, let's say 300 million and you give it to CalPERS. You will not know whether it is a truly successful financing until the end of the financing 20 years from now. So it makes it a little more difficult than the standard mortgage refi. And there are some things that you can do to mitigate that risk. Namely, dollar cost averaging. But I think it's important for you to understand that risk. And I'll get to the last slide, if that's okay. Which is we believe in studying and thinking through these things. You already have a plan which is fantastic. We believe that plan should look for some additional edits as you go through this process. Looking at financial targets and metrics, how to use one time money, how to potentially use excess money, and lastly, potential funding solutions that you might contemplate. Thank you very much for the time. Thank you, Mr. Morris. Okay. Counsel, do we have clarifying questions for staff before we go to Madam Clerk? I'm assuming we have public speakers. We do. All right. So, Councilor Harry Spencer. So you can go up. Go ahead and thank you for the presentation. My understanding is Mr. Rouse is a consultant for the city. Can someone tell us how much he's being paid today, how much he's been paid, and if there's an issuance, if he gets paid additional money, what is the structure of payments to him? Who would like to answer that, Mr. LeVay. Or. Yes, whoever you can have it. I can I can answer ma'am there. And Councilmember Herrera Spencer, for our pension analysis, it's been about $32,000. And I think there was a second part to your question for her, Spencer, which was if there is an issuance, is it go ahead and finish. The issuance on the way. And the agreements tend to work. They would be a financial advisor for their component of an issuance. It would be a flat fee that would be somewhere around 90 to $100000. And I just like clarification. So I'm trying I'm going to try again. City Manager, the 32,000 that is in full at this point, correct. For the coaches for that. It's an analysis that doesn't include the financial planning that you had earlier this year. Okay. But then the next step to go, going to the judge to get approval. Is there any if that is approved or for that work, is there any additional moneys to Mr. Rouse or his firm? Is that included in the 32,000? Where does that come from? I would defer to someone else on that question. Is there a question for the city attorney? Mr. Chan, if this we go forward with the validation action. Oh, I'll try, Madam Chair. So the validation action is a legal action, and obviously we share what legal fees might be like that confidentially with you in close session. And it is attorney client privilege with respect to legal fees. Those legal fees do not cover Mr. Morales's fees. And so I defer to the city manager or his team on whatever fees that might be paid to Mr. Morales. Thank you, Mr. Sand and Mr. Morales. Go ahead. You have your hand up. I believe the services that I've read to date will provide what you'll need through validation. I was supposed to provide a good faith estimate, which is included. So essentially at this point, unless you want to do additional workshops, study through validation, yes, my fees are covered in the quote that he provided. Thank you. And if there's multiple issuances of the bond over the 20 years or 30 years, whatever, what I'm hearing is 20 years at this point. But could there be additional issuances and then would there be additional money paid to his firm? Each time you do a bond financing, you have to pay the people in the suits lawyers, financial advisors, underwriters for each transaction that you issue. Okay. And then how many transactions are you anticipating and what would be the total cost at the end of all, say, 20 years? What is your best estimate? Typically council member you issue one bond, say, for example, with a 20 year financing timeline and often you have the opportunity to refinance it for cost savings within a ten year because you have a ten year call feature. So this would be like doing a mortgage and then refinancing your mortgage for savings five, ten years down the line. So at least one, possibly two is what would be a reasonable estimate. I'm sorry. What? Dollar amount for each one? I can tell you what. The current market is now approximately 90 to $100000. In ten years, I anticipate that the costs will go up given the cost of inflation. Thank you. And then my question to staff is, will we be hearing from the city's elected auditor and treasurer in regards to their recommendations and any feedback we have from them? Mr. Levitt, you're still muted. Yes. I've been talking with the city's treasurer about how they would be involved in the in that as we move forward and as we start to refine whether or not we would do a plan B if you approve this first phase. But in addition to that, I believe he's got his hand raised to speak tonight also. So though they being a lot of 3 minutes or 2 minutes, or are they being treated like Mr. Rouse, who is a paid consultant. A council member who are expensive, will proceed, as we do according to council rules, will take a vote like we just did to give them extra time if they needed. It will take four affirmative votes. So I appreciate that, Mayor, because it is my understanding would be hearing from them tonight. Thank you. Somebody has a way of looking at speakers coming up. I'm just just trying to connect the meeting, but whatever the clerk tells me. Okay, who else has the hand up? Councilmember de. Just a quick question. If both are outside consultants, Mr. O'Hara's in the act. And Mr. Morales, if they can kind of diss each other for no more than one minute, talk about themselves and their certifications, are they financial planners? Are they CPAs? What are they? What's their background with regard to to to to this line of work? Thank you. Who'd like to begin? Mr. Morales. My name is William Morales. Summit Director, Urban Futures, Inc.. I have over 30 years of public and corporate finance experience. I have a degree from the city of Michigan, from Harvard University, a master's in public policy, and then be in finance and real estate as being fellow from UCLA. I have worked at Transamerica Corporation, where I learned a great deal as actuarial math. I also worked abroad, most recently at the U.S. Treasury, working as the technical adviser for the country of Paraguay. I have extensive derivative, mathematical and quantitative experience doing complex financial transactions, including P threes, travel transactions and complex valuations and workouts. Thank you. And good evening, Madam Mayor. Members of the Council and the public. James was in the act here. Bond Council to the city from the law firm Jones Hall. We are a Bond Council only firm. Which means we represent public agencies such as the city in public finance transactions, pension obligation bonds, lease revenue bonds, other kinds of municipal financings. Our offices in San Francisco and we have been a bond council firm for 50 years there and represented literally hundreds of cities and other local agencies throughout the state. Personally, I've been working in multiple cities around the Bay Area for the last five years, and before that practice, corporate law. Before that, graduated from Harvard Law School. And it's nice to be with you tonight. Thank you. Appreciate it. All right. Those were your only clarifying questions. Councilmember de SAC, any other clarifying questions from the council? Okay. So we will hear from our public speakers and then we'll come back for council deliberation. Madam Clerk. So far, we have three speakers. The first is Kevin Kennedy. All right. Good evening, Speaker Kennedy. Good evening. Can you guys hear me okay? We can. Excellent. I'm going to try to keep this quick. My 3 minutes here. I do think this idea may have some merit, but obviously it carries a lot of risk. So I think we owe it to the public to really give this a thorough vetting before we actually issue any bonds at all. And prior to this appearing on the agenda tonight, the auditor and I have not been involved in any discussions recently on this issue, and I haven't seen any public discussion. I do see in the appendix of this presentation on page 34. There's a what I think is a great outline of an outreach program. It includes council workshops, community meetings, and I really think we need to follow that outline before taking any final action. I would also say a lot of cities have put this issue on the ballot so the voters can weigh in and we might think about doing something like that. The other point is the resolution, as I read it, indicates that you're not only going for the judicial approval, but also to some degree approving the issuance. And I've spoken to the city manager about this. I think maybe get some clarification on that section for that resolution even seems to hire a finance team, but that seems a little bit premature if all we're doing right now is is is looking for judicial approval and then coming back to council and preferably doing the public outreach in the in the workshops before we actually decide on doing any bonds. So with those two issues, you know, I would say I am in favor of of getting judicial approval. I think it puts us in a position to make an educated decision. But I do think this requires a lot more discussion publicly and among council. And I think we really need to understand this thoroughly before we take a risk of this magnitude. And I will hang on if anybody has any questions. But that's the end of my comment. Thank you. Speaker Kennedy. Thank you. Our next speaker. Jay Garfinkle. Good evening. Speaker Garfinkle. Good evening again. This is great presentation. I'm not sophisticated at all in these issues. So I would ask one how the payments are made on the bond. Does this come from property taxes or the taxes, or would the payment include just property owners or would renters be charged this? If renters are not charged for this, would their landlords be allowed to add the payments to their rent? You know, I think that since the current generation of residents ran up this bill, we should be the ones paying it. On the other hand, if we could pay it using money of RDF, such as the $29 million windfall that we received from the feds recently. On the other hand, I like the idea that if we pay it over time, it will be paid by all the NIMBYs moving to these apartments that they're pushing for. So anyway, the question for me really is how is this going to be paid? Thank you. Thank you. Our next speaker. Kearney. Good evening, Speaker Kearney. Good evening. Can you hear me? We can. Welcome. Fantastic. Nice to see everybody. I too, like the Treasurer. I'm hoping that we can follow that that plan on page 34 of the presentation. I think this is a very important decision. The plan that was outlined by Amy to rename streets in Parks, I thought was very thoughtful, and I'd like to see us have an equally thorough analysis of this, considering the fact that the dollar amounts are significant. The issue that I have a little bit with, though, is if we undertake this type of an obligation, how does that affect our our possible borrowings in the future for, say, for example, an infrastructure bond to repair our streets? We talked about that maybe several years ago, and that amount was $300 million. That didn't seem to. Go anywhere. And so if we add this other borrowings, how does this, again, impact our ability to borrow in the future? The other thing that that I'm a bit concerned about is once the proceeds from the bonds, if if if you guys decide to go forward or whatever the mechanism is, how is the allocation of the funds going to be among the two groups? I would hope that it would be pro-rata. That seems to be the fairest in my mind. But I think that's something to be considered. And I would like to hear your thoughts on that if this actually does go through. I would also like to see that in your discussion on whatever you decide, the possibility that the voters be involved in this, this is a significant undertaking. If it works out, it's great. If it doesn't, it's not good. The city of Oakland had that experience where it didn't work out, and Mr. Morales certainly indicated that time in the market is one of the crucial elements of this. And so in light of the current circumstance where our markets are and where we seem to be going, I'm not 100% sure that you know where we're going, and I don't think anybody knows that. But I would hope that all of you would consider that. And so I just would like to close by saying, I think there's a long ways to go before you actually make this decision. I think the public needs to be involved. I think there needs to be further communication to everyone, you know, city council, to the public, just to convey the, you know, the ins and outs of this so you guys can make a good decision because after all, once you pull the switch, the future generation is stuck with it . And we got here because of some bad decisions. So let's hope this isn't a bad one. Thank you. Thank you. Speaker Kennedy, our next speaker. That was our final speaker. Oh, okay. So with that, we will close public comment on item seven E and we will bring it back to the council. And I, I would appreciate one of our one of our speakers clarifying a question that was asked by one of our speakers about how are the payments made on on how does how does a pension obligation bond work? And, and what implications are there for, say, property owners? So if I if I may, I think I'm. Well. Well, please. Please. Payment on the pension obligation bond is paid exactly the way your unfunded liability is paid to CalPERS. That is through the city's general fund. So the general funds of the city, the property taxes, sales tax that's collected by the city is available for all purposes currently is paying. CalPERS would be available instead of paying CalPERS, which would be received. The proceeds of the bonds would be available to make debt service payments on the bonds, and accordingly, no new additional taxes would be levied. Thank you. Okay, council members. Your thoughts? Councilmember Herrera Spencer. So there was a comment from the public. And I want to thank all the members of the public who spoke in regards to this is the result of the current generation or the former generation, and that we're somehow, you know, now moving forward, though, and it's is it's from pensions that were promised and not paid for as we went along, is my understanding. And so speaking so today are are recovering for the pensions that we have contracted for as we go along, or are we continuing to accrue more unfunded pension liabilities today today to recover all the pensions we promised? Who'd like to take that one? I think that's probably more on the city side of things. Mr. Levitt. I can start. And then I think Mr. Morales could actually probably go a little bit further in. But so what this is paying for is is the unfunded liability. It's paying for liabilities and accrued over time. Are unfunded as far as current liabilities moving forward. The person actually sent out a schedule and a cost per employee for current and future liabilities. Now, whether those will stay up to pace or not, that's the way it's formatted to do that. But there's no guarantee. But that is the way the first form formula is. So as you hire more employees, then you actually pay that extra current percentage per employee that you hire at their rate. But I don't know. Mr. Morales may be able to give a more technical answer on that, too. Thank you. If I may, if we go back to Slide four, that's exactly where I would start is with your normal cost is really your current bill. So as long as you have the minimum pay your normal cost. And then that orange part that we went to a while ago, if you recall, that usually is a pass through amount. The good and the bad about that pass to amount is it's $300 million. So you really have this big mountain that you have to climb that eventually is going to go from $22 million all the way up to $30 million, approximately. So you have your normal cost and as the city manager mentioned, as you increase or make raises or other adjustments, that will fluctuate a little bit. But as long as you make these other payments, I hear the 20 million plus to $6.7 million in normal cost. Remember, this 20 will grow to 30 in the next 10 to 15 years. Then yes, you should be able to pay it off. With one last caveat, if I may, which is each and every year CalPERS makes adjustments. So this is a dynamic, an ever changing life. If you keep pace with those adjustments, then you should be able to keep pace with your liabilities. If, however you don't, then each year, for example, if I may, one last slide. The next slide shows you two slides from that. If you go to slide six that each year CalPERS makes adjustments. These are essentially truing up your account. CalPERS actually is kind of like a like a bank. They whatever you deposit into the system, they go in, they manage, they manage the investments, but they throw up every single year. So you could fall behind. And what they do, for example, you may have a 30 million base, $30 million liability, and you can't pay $30 million in cash in one at once. So it would be your 6.7 plus your $20 million payment, plus that new base of 33 million. So they they spread that out typically over 20 years. So it's important for you to know and this is the most important thing the rating agencies have to know is this is not a static amount. This is a changing and ever dynamic liability. Thank you. Councilor Spencer, you're speaking about your muted. I'm not so good at reading that picture. Thank you. So I wanted to get back to currently and someone knows how much money the city has in reserves. So someone can answer the question, does the city have enough money in the reserves to pay as we go? And I'll say for the next five years or ten years, when I look at the numbers, I don't think so. But you are you know, I'm hoping that someone has sent, you know, overlay that. Do we have enough money in reserves to pay for the ongoing moving forward? Mr.. Are you two? Are you meeting to speak, please? Finance Director. Hi. Good evening, everybody. I just want to clarify that the normal cost is based on a percentage of payroll. So each budget cycle we do budget for that. So right now we are good with the normal cost because as a percentage of payroll and the Council has adopted the budget and that that budget is sufficient to cover the next current year and next year. Councilmember Harry Spencer. So there was a thank you there. So there's a chart that shows what the current payments are. And I think like a year, ten or 15, it does start dropping. Can we see that? And then can you show me where the lines are going to be of what this is going to I know, balance it out. So in those last years, are they paying will we be paying more than currently? And without doing this. You're talking about slide I believe, slide eight, the overall dual payment schedule, is that correct? I'm not sure if it has. I know. That. We have. Is that the orange slice? The next one is the orange slide. It's one in the same. So many cities have a profile that looks like that. And this is just chopping off the mountain council member. So it is the same part. If you went to the prior slides, just cut it off with 22 million. This is the increase in costs. But the way that the base is and your payment schedule is structured, it has to peak many cities. Almost every agency has a peak from 30 to 33, and then it goes down some some more precipitously than others. Now it is important, and we can we can talk about this, that there are credits and liabilities added each and every year. So the structure of this may change as it has in the past. Maybe. Mr. LEVITT Yes. And maybe go to the previous slide so you can see what the, what the. Yeah. And so that is the current uel if you do not finance right now. Is that correct. That's correct. You have $557 million of the payments that you expect to make over the next 25 plus years. And then you have a slide that you show what the current what the payments are for the real over the years versus if you borrowed under the current interest rate. Yes, that's the one. That is slide number. 13. So that might be helpful. So. Thank you. Thank you. City manager. So. So this is under the current interest rate. So it appears. Right. The red line. That's the current. Yeah. The blue is under this plan. So that's an illustration of the 25 year of pension obligation bond in approximately 3.8%. Yes. Okay. So the blue doesn't is not higher than the or the red isn't really higher than the blue until you get to the farther out years. How how does it drop like that at 2044, 2043. The red is the current. I know. So it does drop at some point. But your yours, the blue lines lower all the way across until you get to 2044 counts. Remember, I structured it to match the final year. That's the same dollar amount. Graphically. If you look at the actual numbers, go to the next slide, you'll see that they're a couple thousand dollars difference. Okay. So after 20 years, they you know, by the way, bonds are done in $5,000 increments. So that's that's essentially as close as we can get mathematically. Okay. So you said you used current interest rates to do this. Yes. That's a scale based on the current interest rate. Okay. And what what is the number that used? Well, if you. One of the things that's different is municipal bonds are a series of bonds. And as you see, each year has a different interest rate. So there is the coupon rate inside. There are also prices, a spread to Treasury, which is different from a tax exempt month. So when you price them on the day of, you're going to have the two year Treasury rate. And the underwriter who sells and buys your bonds to investors is going to say these the market rate for this is 25 basis points above the two year Treasury rate. And then they price it up the three year Treasury rate, the five year Treasury rate, the seven year Treasury, the 20 year and the 30 year, they're all indexed. So these are all indexed off of the spread. And we use that on a scale that we provided. And the scale was that's what is kind of current interest rates. We use it off a pension obligation bond. I priced it off of the city Manhattan Beach based on current interest rates, plus a spread of 75 basis points. So there's an interest rate cushion here. In fact, the bonds that we've done recently have all been below 3% on the back end. But there's a significant cushion, given the 4 to 6 month validation period that's required. Okay. So if you have fluctuation the other way, then what happens to your numbers? Well, you're saying if interest rates go down. And you just said, I think that used 3%. So if it goes down or if it goes higher. Well, if it goes down, obviously the borrowing rate is lower. Household. But I did say you don't use one interest rate. You use multiple. All of these are the different interest rates for the year and the term. But I gave you a gross spread of the average rate is 3.33. If it goes up, obviously the cushion or the savings down, but there is a 75 base or three quarters of a percentage point. Question from somewhat current market rates. So we believe by that time that should be a pretty conservative cushion, but whenever certain. So. So essentially you put in a 70. You put in three quarters of 1% higher than what the current rate is that we would be borrowing at. That's correct. Okay. So then just one more question. So the cities that did lose money on doing this. Do you want to explain why they did it wrong and why this would be right? Certainly. First, we talk about when you go. We talk about jobs. They did it in a much higher interest rate environment and the timing was not ideal. So I've done a number of case studies. You might have seen them publicly available. If you issued bonds, for example, in 2008, that would have not been a good time. You would have been borrowing at 6%. And also they used cab structures which are deferred or zero coupon bonds. They extended the payments and took payment holidays. So there are a number of things that I believe when you look at the old issues, they did not use the most prudent financial management practices. Nonetheless, in no way do we guarantee the financial outcome. But if you study and understand your risk, then it's something substantially different. But in many cases, you'll see there is timing, high interest rates and then deferred payments, all of which are financial dominoes. Okay. Other Council comments. Questions. I'm going to jump in with a thank you for all the good information. I really appreciate hearing all this and and that I'm intrigued, but I'm also mindful of what our city treasurer and auditor raised in their comments. And I feel like we we should make sure we have as much information as possible and, you know, a little more public information and outreach. What are the things that I noted in the staff report? It came right at the end on page. This is Page. Not a good time for the iPad to freeze. Okay, it's vitamins. Page five, where the city manager manager makes the recommendation and there was no reference to this in the body of the staff report. But it says city manager recommends authorization of the issuance of pension obligation bonds. The city manager anticipates if authorized, there will be further steps taken with City Council prior to a final decision to issue papers in the future. I'd like to know what those further steps would be, but it's this sentence that I'd like a little more flesh on the bones. Further part of the strategy recommended would be to set 50% of the savings through the PBE on an annual basis to create a sinking fund to be able to stabilize any risks in the future, as well as to pay down future pension obligations. I mean, that sounds smart and prudent, but I would have liked a little more information about how do we go about doing that. And and anyway, I it's just struck me as well that I just would have liked to have seen more information. It was just in the very end and your city manager's recommendation. But I feel like I, for one, would like to know more about this before voting to authorize issuance of pension obligation bonds, I'm intrigued, you know that I've been preaching for a long time about how we needed to take a portion of all an anticipated revenues and set it aside once we pay down the debt to make sure we had our reserves for the general fund, but to take it in a sign it to pay down this unfunded liability. But I before we embark on this step, which might be a great next step for the city, I would like a little more information on that. So if someone wants to provide that tonight or and and that's that's my field. I don't know how the rest of the council feels and what information they might like. Cal seven KNOX Right before we hear from staff writer Cecily. I just wanted to ask a clarification. My understanding is the recommendation is for us to authorize the moving forward of starting to put together the information to return through through the process. That is on page 41 of the report that that that I believe City Treasurer Kennedy remarked it's a 4 to 6 process month process and that at the time we could give that direction. Because I agree there are some questions I would like to come back and including policy recommendations for how we would create that sinking fund. But my, my, I just want to make sure that what we're being asked is to start the process and and give direction on what we would like to come back for conversation as a part of that process before we vote to authorize any bonds. Well, I'm reading the first line of the staff report, which describes the adoption of resolution authorizing the issuance of one or more series of pension obligation bonds to refinance outstanding obligations. And then I'm reading literally in the first sentence of the city manager recommendation. At the bottom of page five, the city manager recommends authorization of the issuance of pension obligation bonds. The city manager authorizes anticipates that if authorized, there will be further steps taken with the City Council. I'm wondering if that might not be putting the cart before the horse, and I'd like to know what those additional steps and further steps and additional information would be. So I'm reading it literally as that. Look at City Manager Levitt. That was your recommendation. So why don't you go ahead and. I can start right. Now. Thank you. I can start. And then I think Mr. Morales could probably fill in some of the some of it. So as far as the first, when you go to the first paragraph of my recommendation, which was that there will be further steps taken, that that is correct, that this issue is the first step in the issuance, but we would have to come back with the any final issuance before we can issue bonds that you would not be able to issue bonds based on this alone. For instance, the official statement would have to come back as one step. Also, if the council wants to go with the process as it I think it's on page, someone said 34 or 41 as put on that page, then there would be other steps. But this step tonight is actually the first step. So if we delay this everything, it's a critical path item. So this step needs to be taken before we can. Do the other steps to the next 4 to 6 months. So if we delayed this a couple of months, that would delay everything out another 4 to 6 months. And that's fine. You can do that. It just creates more interest rate risk as the economy goes forward. The second part of it, the 50%, there's a chart, the chart where the savings is, it's just a different way of saying the same thing that that chart said. And I can't read what page that was, was that page eight or ten in the policy? Now, the chart that showed the savings between the budget savings and the other, that is chart page number 14. But we're talking about the presentation. Yeah, it's a different way of saying the same thing that Mr. Merrill said, and that is when you look at it, or at least I believe it is. So if we can pull that off, that might help. While we're playing it up, if I could ask. So is it correct to say that the city treasurer and city auditor were not consulted on any of this process? So that there have been brief discussions, but now they haven't been fully involved in that would be correct. Mr. Morales, I see you have your hand up. Why don't we hear from you? So typically I've done about 22 of these in the past four years. And a number of the pension advisories that don't involve pension obligation bonds of like. So it's not the only solution. But because of the 4 to 6 month waiting period due to the delay in court and even in the best case, you're talking 60, 90 days for the validation process. Often what we do is we if you're contemplating it, I say this is similar to applying for a building permit. You know, you're contemplating doing this and you know, the building permit takes quite a bit of time and every day of delay is costing about $30,000 a day. Given your $300 million liability, then obviously accelerating this process and knowing that it doesn't really improve anything. As the city manager noted, you legally have to come back to council to approve the offering document known as the official statement. It certainly will save the city money and you have plenty of time to put on workshops, ask questions or analysis of, you know, I have 50 slides right here. I wrote a 50 page report for the city of San Jose. I have done up to 18 sessions for certain cities, so I have more than enough time and ability to answer almost every question you have. I don't know if they come to the satisfaction of the risks that people have, but we certainly can provide the type of analysis that you're looking for. Thank you, Mr. Rawls. Actually, that was helpful. So what you're saying is we would proceed on more than one front at the same time. It's best practice. Yes, ma'am. Okay. Okay. And city attorney. Give me a second, Mr. Levitt. City attorney san, is are you in agreement with the 4 to 6 months for the validation process to go through the courts? It's always difficult to predict litigation timelines, so I don't want to do that in open session. And we're happy to talk with you privately in closed session. Well. Okay, I'm well. Okay. But argue with the attorney. Mr. Levitt, you were trying to say something. I was asking her to keep the chart up because I was going to refer you to the chart. So when you go to the chart and you see the blue, that's water current, or that's what the estimated debt service would be if under the assumptions provided tonight. When you go to the white next to it, that's what the well, we're currently we lost it. We were trying to make it bigger because it was an issue. I'm so glad I don't have to do that. Oh. Let's hear. 13. There now or it's the next one is 14. Okay. We were having trouble getting rid of the side panel. I'm sorry about that. Just to say that's okay. Let's not worry about it. Talk me through it. Mr. Morales. You've got your hand up. Yeah. No, I mean. Oh, there it is. Look at that. Well, it's. Eight, 14, 14. There you go. I think that's big enough. So you have the blue, which is the the debt service that projected under the interest rate of 3.3. On average, you have the CalPERS payments, which is what we're projected through the CalPERS actuarial, what we're going to be paying per year. If you do nothing, that's a do nothing approach. And then you have the budgetary savings, which is true savings in the budget in the green, and then you have the fuel cost, which when you add which would be what we would be paying in additional unfunded liability if we do nothing. So you add those two, you have the savings over on the side, which is about which goes from six to 8 to 9 million. And my recommendation would be you would not spend all that money, but you would you would put aside up to 50% of our money and we would have to bring back a process to do it that if you did that over the first two or three years, that any volatility, any risk that we're talking about would practically be solved at that point, because if you were setting aside 4 to 5 million per year, you would have about 10 to 15 million in your first three or four years that would be set aside to mitigate against any risk of downsides of investment risk. And that's what I was talking about, because that would actually resolve the biggest or the greatest risk as far as the interest rate risk of this of this option. Thank you. Mr.. So I'm going to go back to Mr. Morales on page four of the staff report. There is the sentence in the middle of kind of in the middle of the page that talks about rating agencies have taken a neutral position on PBIS. More importantly, agencies are taking the time to study their pension liabilities and understand the risks. I'm reading that to mean the risks of policies. Is is that is that what it means? And what what are the risks that we should be aware of? Mr. Morales. I mean, Mr. Levitt just talked about market timing and trying to predict interest rates and that sort of thing. Is there anything else we should be aware of? No. If I can go to the next slide, slide 15. And you're going to recall that there were a number of things that were being done. And now we deem this PDBs 2.0. And we said that most of them have been addressed if you take this systematic process. What is that risk of investment? And this is once again not germane to pension obligation bonds. You could just ARPA money cannot be used for pension and specifically written in the guidelines that say there was a pension money and you got $100 million, you now would have the same risk. Is now the right time to invest regardless of the source of money, whether it's from pension bonds, your reserves? Another kind of financing you now have to say, is this the right time to invest in the market? And that is a risk or a component of everyday investing that anyone in this room would invest. Any type of money has to think about if you put $20 into a savings account as opposed to the stock market or vice versa, you've made a decision as to when is the right timing. This, if I may say one thing, is the most difficult part about pension obligation. Bonds and pensions in California, or almost every system in the United States is that municipalities are not inherently designed to take on equity risk. If you really think about the suitability of investment, when we changed over from all bonds, fixed income investments to equities and fixed income, everyone was looking for that game that we got. But note, equities are a roller coaster ride and government. Now I'm speaking as a former city manager is not designed to take that inherent risk and everyone wants a risk free option, but that doesn't come with the gain in the benefit of equities. So we're kind of all pregnant in taking equity risk. We do it every day with CalPERS. The pension component is an added part. So if you have $500 million in CalPERS and you give them another 50 million, your first 500 million is still at risk. It's just whether I'm going to place that 50 million in the market now or later. This will take a bit of time. And I think people have to start to understand that it's one, a liability we all have to live with. And the risk is very difficult to address. So you can take some systematic methods, but it is that market time that is the primary risk that you're dealing with. And all the others have been pretty much addressed. And the only thing you can do is dollar cost averaging easily. Thank you. I appreciate that. I just. And then I just want to raise this is something to consider. And this is for mostly for the city manager, but also for the council. Because we vote on these decisions, which is what I wrote in my notes, that simultaneously, as we consider this way to pay down our obligations and in a manner that costs the city less, we also need to be looking at ways to keep our pension obligations from increasing unreasonably. For example, hiring contractors rather than salaried benefit, you know, fully loaded employees, doing things like perhaps using actual inspectors to do code compliance. And, you know, we had a discussion about our fees for building inspections and just those really need to be firefighters that go out do that. And I and this is what I look to the city manager to help us manage, because we we can't keep digging out of a hole with one shovel while we're filling it with another. So I just want us to realize, as we make decisions about adding folks, you know, that there's there's an obligation that we're going to have to pay. I mean, some of these will continue long after any of us are working here. But but we owe that to to our city. Okay. You know, for me, who else can sort of desert has his hand up? We can probably go back to the the gallery view. And that's all you want to do. You want to keep this up? Counselor Desa. Put up the slide where city manager Levitt pointed out the blue column. The savings and the different. Yeah, yeah. Page four, page 1403. Sorry, that's 14. So it's before that. They tried before you 14. So wait a minute. Are there to page 1414. What do you know? Okay. Everyone's right. Councilmember A thank you. You know, I think for the public, I think we need to understand the magnitude of the decision that's before us. And on the one hand, we talk about the possibility of issuing a pension obligation bond of 200 roughly $298 million to cover our unfunded liabilities. But as you see in the blue column, when you add in the interest, it comes out to almost be a total of $420 million. Now, yes, I understand the net present value depending on the discount rate that you use, the net present value of that stream of dollars in the blue column, net present value of this technical term of trying to take into account inflation, etc., etc.. It doesn't really come out to be $420 million will probably come out to be $298 million. So the value of $419 million as expressed in current dollars, is probably $288 million. But still, you know, we're not just talking about a $298 pension obligation bond, but we are talking possibly of $420 million, as indicated in this in this blue chart. So the residents really have to understand the magnitude of the decision that's before us. I think given kind of the technical aspects of this, I'm just going to try to focus on four, four areas. I think the first thing that I that that that I want to draw attention to is that. Councilmember Desai, I'm so sorry. I don't mean to be rude, but I just looked at that time and it is 1051 and we're getting to that magical 11 p.m. hour. So what we need is. A. City clerk help me out. So I get this right. We need to take a vote on what, if anything, we are going to consider after we finish this item, sir. Correct, madam? Correct. And there's six remaining referrals are the agenda items. Okay. And we need four votes to go past 11. You need to consider the items after 11 going past. Yeah, it's just okay that she has to. Consider any items. Okay. Okay, so time for a motion and we can't take too long or it'll just become 11 p.m. and it'll be commitment. So he would want to make a motion to go past 11. And if we don't, then we finish this item and we we go home. So I see Councilmember DeSantis got his hand up. I'll move to go past 11 and complete at least until the second council referral. So at the 80, the second council referral is completed then and work will be complete for the night. Okay. Is there a second to that? Cast over her. Spencer, you're certainly. Yes. Thank you. Thank you. May we have a roll call? Vote, please, Madam Clerk. Celebrity. I have our Spencer I. Knox. Wait now. The villa now. Mayor, as the Ashcraft know, that motion fails. Two, two, three. Okay. Any further motion or we're going to end this when it ends. Cats are not sweet. But my understanding is we will still be able to have council communications and what not because those are not items. Is that correct? It's just no new business items to turn around. Correct. Is that correct? Or do we decide. How much it so? So it's new items that are actually agenda items. But those sections that were mentioned or communications canceled, vacations, city manager previous is already done. So you don't need to go back to that with those two. Okay. Okay. So we would still hear oral communications and council communications bracketing. Okay. So set a motion council member or not quite. Are you just saying to let it go? Yeah. Doesn't need a motion. Okay. All right. Okay, everyone, then. I'm not saying hands up for another motion. It's 1054. Let's move along. I'm sorry. I totally forgot five f you guys had delayed five f, and I think. You're so right. Thank you, guys. Producer, director, just being means and thank you. So thank you. Thank you. So I think if you want to hear that. Yeah, actually, what I think we need is, is that well that that is actually part of the agenda is next. We just. Moved. Yes. Yes. So it's out there. So if you want to hear that, you need to vote to hear that Councilmember Knox. Right. I move to I move to continue the meeting past 11:00 in order to hear five F and the regular business. No items for now. All right. And do I have a do I have a second to that motion? Second. Vice Mayor Vela, seconds. May we have a roll call vote, please. On de SAC. No, her. Spencer. No, not quite. Yes, but it doesn't matter. Yes. There is, Ashcroft. Yes. But I would say what's going to happen is it's going to roll over to be item six on the next agenda. Would that be correct? Yes. If you want to continue to that section or we can just bring it back on the content. It's it's up to council's discretion if you want to take a motion to continue it specifically to Section six. So we could put it back on consent for the next meeting? Yes, staff could, but then it would probably be pulled again. Why don't we? My preference is we make it item six. So it's actually heard at the next meeting because I don't want to to this dance too many times. Okay. So you just get a motion on that and it only takes three votes. All right. May we have a motion to bring item current item five. Help me out, madam. Circling, move five, Frank. Okay. The move by the vice mayor to have a second councilor. And that's why. 8 seconds. Maybe we have a roll call vote, please. I really. Know. Her, Spencer. I'm not quite all right. I may as the Ashira. Yes. That carries by 4 to 1. Okay. Thank you. Okay. We've gotten housekeeping out of the way. So, Councilmember De Saag, again, apologies for the interruption. The floor is yours again. So just to recap, the first point that I made, that the magnitude of this is beyond the initial $298 million pension obligation bond. But when you take into account the interest, as you can see in this blue column, the sum of which is roughly $420 million. Again, yes, I understand that the net present value of that is different. So let me just be clear that I do understand that. I think the second point that I want to make is that, you know, I don't think we should take lightly the GFA and what they have to say with regard to pension obligation bonds. The GFA is the Government Finance Officers Association and we you know, we all know who the Government Finance Officers Association is, by the way. They're the people who every time we do our biannual budgets, they're the people who we slap on that certification at the beginning that says you did an excellent budget or you did an excellent Kaffir. So they're a reputable organization who we ourselves turn to for validation. And what the GSO has to say about pension obligation bonds is is specifically this. State and local governments should not issue pension obligation bonds. That's their advisory. So I think we I think we need to frame this discussion from that vantage point again. JF Okay, state and local governments should not issue pension obligation bonds. Now. Let me talk about four points. We talked you heard earlier about pension obligation bond. Version one, we're not. Pension obligation bond version. When we're now pension obligation bond. Version two. And that's good because just by way of background, the way that pension obligation bonds used to work with with that was that cities would issue pension obligation bonds. And they would take those proceeds and save $300 million. And they would actually invest it in the market. So they would hope that, you know, that the return on the $300 million that they invested in the market would be above the 3.5% interest rate that they're paying. But we are not doing pension obligation bond version one. We're doing instead pension obligation bond version two. And what this is, is basically, again, we would generate we would issue with a $300 million pension obligation bond, and we would then basically take that 300 million or $298 million and that we would prepay our our unfunded liability. In other words, we'd give it to CalPERS now. So that's good that we're not doing pension by obligation bond version one, but we're doing a pension obligation bond version two. But that's not to say that version two. Is without its risks. And this is what is meant by timing risks, for example. So you see this this chart where it says our unfunded liability is $298 million with a $298 million. Unfunded liability is a function of the 7% return rate that CalPERS expects. So if next year. CalPERS is return is not 7%, but instead it's 4.5% or 5%. What that would do is that would then recalibrate, you know, what our unfunded liability is, because suddenly CalPERS said, oh, you know what? We didn't get as much money as we anticipated, but we're going have to make up for that shortfall. And by the way, that shortfall is going to come from you. And if it comes from you, I in the cities in this pension obligation bond version number two, what that means is that the budgetary savings that would that that's in the green chart would not suddenly be $2.7 million. It would be something south of that. The concern, though, is that if CalPERS is return falls. To the same amount of interest that you're paying. Or even less. That basically eliminates the the savings. So that's the timing. One of the timing risks that we're talking about. So that's why I'm very I think we need to be very concerned about that. Now, another thing that we need to be concerned about is do you take a look at the the the the green column here and you look at the series of $2.7 million, $2.7 million, $2.7 billion of budgetary savings. Now, think about it. If you hire. Roughly 13 people. Who were not expected. Well, you know, you hire these people who you did not expect to hire, but for whatever reason, you do. You know, 13 times a fully loaded average of $200,000, you've you've basically eliminated the budgetary savings. So you would have eliminated the very purpose of having done the pension obligation bonds. That's why city manager Eric Levitt is correct in saying that if you're going to pursue this, you have to have a strict fiscal strategy to make sure to lockbox the budgetary savings that you're seeing there. So. So I think, yeah, that's an important point. I think the fourth point I want to get to is a scenario of, well, what if CalPERS has a return rate? That's higher than 7%. Suppose CalPERS has a higher return rate of eight or 9%. Well, guess what? CalPERS doesn't suddenly give you a refund. You know, whatever excess that you ended up paying, CalPERS won't do that. You're still going to pay the the the the annual debt service that you've you've agreed to. So there's really no real upside to that. I mean, certainly if CalPERS has a greater return for four new payments, it will be it will be lower than what you've been. But but for for what you've already prepaid, you're not going to get any money back from CalPERS and saying, hey, you know, you get to you get to share in the upside the fact that, you know, we got a 9% return instead of 7% return. So. My recommendation is, is to go very slow on this. I know there's a lot of Southern California cities doing this, but then again, there was a lot of Southern California cities doing the Orange County deal way back in the early 1990s, if we remember what happened then. So so I'll leave it at that and not support this. I thank you, Councilmember. And Mr. Morales has your hand up to run to address some of this points. Yes, Mayor, I can give you an illustration because I think there's some good news and this is far more complex as we're trying to do. Remember, the suggestion was to kind of move forward on building permit. But if the clerk could go to slide number 23 in the appendix, it would be helpful to give the Council an understanding of how this operates. So as you may know. CalPERS returned excessive 21.3 or 21.4% return this past fiscal year that's been announced. That means you're going to get a credit of $73.3 million. However, at the same time, according to the funding risk mitigation policy, they have announced that the discount rate has to go down to 6.8% . So you would actually increase your liability and net that by $20.4 million. What's that mean? You're $295 million liability would likely be somewhere closer to $241 million. However, there's always a non or a demographic adjustment that comes into this. So if you if you're starting really oh my God, there is a lot of numbers and a lot of estimation. It is because this is a $300 million liability. It moves each and every year and there are a number of component parts. So even then, we would never borrow or I would recommend 295 million because I already know about this adjustment. You don't have to borrow the full amount, but there is a lot of mathematics involved to this and a lot of moving parts. But I do know a couple. Desai said, Hey, you wouldn't get the share in it. The next slide, actually, we'll show you kind of what the credits and the cash flows come out with. Next slide, please. So you can see what your payments are currently, what the credit would be with the offsetting reduction in the discount rate and the net impact. So your payments will actually go down. Now, these are the type of projections that I have been sharing with city staff and obviously given a ten minute time frame. This takes about 4 minutes just to explain. But there's a lot of process to go through. And it's a refined concept. It's not not a recommendation issue, the full amount, but rather what you're paying your attorneys. The dollar value might as well ask for the full amount at that day and then decide what amount, what structure and when you're going to do it in the future. Okay. Thank you. How can you address what Councilmember Desai raised about the DOJ FOIA saying state and local governments shouldn't issue poppies? Yeah, it's an obligation. Bonds. Yeah. I certainly can. The Government Finance Officers Association has a big yellow warning sign on there on their website says do not issue pension obligation months. And as I disclosed upfront, I was on the National Debt Advisory Committee for the way, as was Julian Cooper, who the finance director at the same time for the city of San Jose . I can tell you specifically when I've written a number of policies, how they're designed to be written, they are written for the entire country. So the city of Alameda, city of New York or anyone, its financial sophistication is very different from a very small place on the plain fog in Illinois that does not know what Poppy stand for. Do not have the kind of sophisticated staff or council that can analyze this. So their policies are written for that measure and then written nationwide. The reason I say that's important is because each plan is different. The laws in each single state and the funding levels are completely different. So what you have in the CalPERS system is completely different from what you have. A county are very different from Alameda and very different, for example, what happens in New Jersey, Illinois or Minnesota, which is well funded. So you have to write this one universal policy. I think that's important for people understand, because the financial circumstances of each agency in the entire country are very different. We believe we've addressed a number of these, and probably what's most disconcerting about the Geoffroy is they basically say don't do it, provide no alternative options. In other words, you have this $300 million liability and we don't give you this. We take the tool out of the Senate and recommend nothing as far as alternatives outside of using reserves. And if cities had $300 million in reserves to pay off their liability, you would not be you would not be talking to me at this time, but. You should feel free to listen to that. And you should also read the points and counterpoints that the GOP has actually mentioned. My my mentor also wrote a counterpoint, Juror Miller. That's a very interesting one because he says you don't throw the baby with the bathwater. These are complex. They do have some downside I mentioned. Part of the downside is you're always you're stuck with equity risk. This is not an easy answer. Someone can say, I don't want to do it because the risk involved. The problem is you're facing the risk one and two, doing nothing has a detrimental impact on your operating budget going forward. If you recall the projected operating deficit that my colleague showed you, all of that, if you did the math and back ended it. All of that has to do with the increase in pension costs. If you recall, there was that shortfall for the next four or five years. If you did the math, you'll see that increase in our payments is primarily due. Are that deficit is due to increased annual payments. I've got a question for you, Mr. Masters. Does the current economy, the the stock market that's been doing amazingly well, even though that's not necessarily reflected, you know, across the board and, you know, among the American people, the the very low interest rates. Do do you think that's sustainable? Do you see that? I mean, no one's got a crystal ball, but how are you feeling about that? How are you factoring this? I think rather unusual time, maybe it doesn't seem so unusual to you, but sure, you know. If you're. Exceptionally unusual, rates are at historic lows. And that's what makes it very compelling, too. I do not believe and that's why they are lowering the discount rate. And so the state in New York lowered their discount rate from 6.9% down to 6%. I personally do not believe that on a long term basis that we continue that growth due to various factors. One, we've had kind of what I call the second industrial revolution. When you look at the Facebooks and Amazon's of the world that have and the Teslas have had tremendous economic growth, you have to look for that continue to sustain growth. So can we continue at 21.3% growth? Can we outperform this problem? No. And that's what the actuaries are doing. They're taking more measured steps and saying, let's see what's realistic at the end of the day, most of the time, as the finance professional people love one end of what we call fat tails, everyone loves the gain and no one likes the downside. But as we know, they're typically parallel. So you have to think about that downside. I really do believe some are based on is correct. That is the risk and there are things that you can do to prepare themselves. Note I am not the one. I've done a number of pension obligation bonds. The President is on the line listening to the same time we say the same thing. This is this is not a panacea. It is not without risk. There are some steps you should take. But the most important thing is you should take the time to understand and then really think what alternative options are. What we don't think in both of us have been city government executives doing nothing is probably also the other part. That's not. You can't say it's too risky. And I'd rather do nothing because this has been growing for 20 years. So there has to be some type of plan to address it. And you have taken some steps already. Thank you. Council members. Others want to weigh in. Make a motion. Councilmember Spencer So I also do not plan to support this at this time. We did hear from our elected treasurer and auditor very, very briefly. I would have liked them to have had more time and to actually be able to answer questions and receive fresh answers to their questions. I think it's premature to proceed at this time. I have serious concerns of the fact, Mayor, you raised some points about what can we be doing at the same time to reduce our expenditures and so on versus non sworn officers or just really what are we doing moving ahead? And I don't hear that side of the equation and I think that is really a serious part of the equation. And so that also goes to I personally am not ready to proceed at this time. I think we do have to look at both sides of the equation. And I do want to hear more from including our community members. I would really like to have more back and forth workshop, if you will, something like that, to hear from them. This is a huge risk. I really appreciate Member De Sykes comments. I think that that helps for. That helped me a lot to understand really what we're talking about do pointed out so clearly and I just feel like we were rushing through a huge risk here that doesn't need to be. So I would like this to come back if we're going to entertain it and have more information and really give us the risk. I'm sorry. Just that there have there are cities out there that have lost a lot of money over this and they're minimized in this report is what I would say is where are the examples of the cities that have lost a lot of money? I don't see them in here. Thanks. Thank you. And Mr. Levitt, if I could just ask and I thought it right to you afterwards, Councilman. That's why I bet. Mr. Levitt, if I could just ask you, give us that overview. You I think you touched on it briefly a little earlier when I asked. So the way you envision this going forward, if we're to take the recommendations to tell us how we're going to be moving forward on several different fronts to allay some of our concerns. Or so I can live. So what we would do is we would start the process of the court process. At the same time, I think one of our concepts was that we would come back with a work session with the council and we would also include public meetings. So similar to what the lawyer and Treasurer had agreed with the Treasurer's ideas of having some public meetings and public engagement as well as those meetings, and we'd be able to refine those policies as we go forward so that when we come back after the court decision, we'd be able to come back and bring back a full recommendation to the city council. I think the timing, I guess from my perspective there, there is risk with it. The risk of not doing anything is you're looking at it was shown when we were looking at the site and customer base. I was talking about the 290 million or 290 million being 420 million. When you look next to it, doing nothing was about 530 million. And so I think that's the risk you're talking about by not moving forward with some solution. And this solution, if it goes even half of the savings that we're showing, the programs the council's wanting to initiate and we're trying to find funding for this would be a solution to help you with some of those funding options. And then just briefly, the timeline. If if you you know. Yeah, the timeline is about 4 to 6 months. I mean, everything I've heard from other cities, obviously, when you go into to the courts and especially during COVID, that can delay things. But 4 to 6 months is what I've been hearing, has been what's typically occurred in other communities. And when would you expect this to next? Come back to the council? Well, I think in that period, the first thing we would do is and hopefully in the next couple of months, we would have a workshop to continue to have this educational period, and then we would be doing other steps during that 4 to 6 months. So you would be prepared if you want to make a decision whether to go for it or not. You would be able to do that in about 4 to 6 months from that. Well, thank you, Councilor. And that's why it's been waiting patiently. For you to ask, can we pull up page 41? Side 41. It just because it helped me a lot and this is the side of the city trigger referred to in thinking this was a good process. I just want to confirm this is the process we're talking about in general that the dates are clearly from when we thought this was coming forward to 2020, just right around the beginning of COVID. So not paying attention to the is this the as the general process that we're thinking the part a six month process. Yeah. City manager. That's what you're referring to. Correct. Or is it. Yes. No, that's correct. But Mr. Morales. Because this chart might be able to help to. Yeah. I just wanna make sure I mean, because from what I see, it's like in February, it's sometime between now and February we'll have a workshop and then we're going to come into a bunch of meetings in March, April, and sometime around May or June we might be back for that. These two council approvals at the end. No, I would agree that that is correct. Okay. So from from my standpoint, I know, and I'd be happy to make a motion, but I would. I have been doom and gloom on the economy for a couple of years now, and I continue to be proven wrong and I will be happy to be proven wrong again. But I think that if we're going to if we decide we want to take advantage of this, taking advantage of it earlier rather than later is going to be a big is going to be important because that the bond rates are going to most likely only be going up. And every couple of months we wait. Chances are it's going to cost us more to do this and whatnot. I think that there have been some reasonable concerns and raised and I think we have you know, I appreciate council member disagree asking for everybody's bona fides because it's clear that we have people who really know this stuff that we can listen to to at least provide an understanding. And then we can make decisions about what makes sense for Alameda based on the information we get. And clearly there will be a role for our city auditor and treasurer to provide their input and opinions as well. And they've both said that they generally approve moving forward, at least with starting the conversation, so that we can actually have this tradeoffs conversation and risk conversation and whatnot. And so tonight I'd like to move approval of the staff recommendation, which is to start the process with direction to ensure that there are, I'm going to say, two workshops, and I think they should not be council meetings. I think they should be workshops so that we are not stuck in this. It's 11:00 and we're trying to get out of here then to workshops between now and that first council approval whereby we can have Mr. Morales and staff and the necessary people here to really have a deep dove conversation with the council and our community . Thank you. Well said. Council Member Vice Mayor, will I see your hand that. I'd like to second the motion and I haven't spoken on this so it's. Always yours. You've got 9 minutes to a lightness. I'm not going to use all 9 minutes. I think we owe it to the city, to our constituents to have the conversation and explore. This is an option. As the experts have said, now is the time to to have this conversation based on the bond ratings. And, you know, yes, there have been other jurisdictions who have maybe done things at less less opportune moments. I don't want to be in a situation where we are making decisions out of desperation. I want to be in a position where we are making decisions based off of the best possible set of facts, knowing that we are acting in a fiscally responsible manner because doing nothing is frankly fiscally irresponsible, because we know what awaits us. And so I'm not I hope we can we can take a step forward in giving direction to come back to look at this as an option that has been allowing for a vetting process that allows for a number of different folks to weigh in, for us to have a work session as a council, and then to make an informed decision of if this is the right thing at the right time for our city. This does not exclude the ability to to look at other options and to have parallel tracks out there. I think we need to do all all of those things to make sure that we are placing our city finances in a position that is responsible. So that's why I think we should move forward tonight. I didn't hear any opposition from our our city auditor or treasurer to exploring this as a possibility and allowing for full vetting . I think that this timeline laid out gives us exactly that opportunity. So I hope we can move forward. I look forward to supporting this. Thank you. And sorry, I just want to say that it's almost double. If we do nothing, we are looking at hundreds of millions of dollars that we are going to have to pay, which really we all know creates a bigger problem. So I just I really hope that we can we can take a positive step forward. Thank you. And for the maker and center of the motion, I, I don't know how exactly to incorporate it, but I, I do think it's important that we consider steps to make sure we're not. Creating even more unnecessary liability that we move very carefully forward. Or ask city manager to explore ways to minimize getting further into debt as we're judiciously paying off. Where. We are already. So it's okay to include staff direction as well. I mean, as long as the direction is not that we should look at how we can outsource public positions, I'm happy to look at solutions. When I when I hear contractors and not hiring staff, I get a little nervous. It's a broader conversation to be had, but I think it's necessary to look at alternative ways or just, you know, to explore that not to. Pretend doesn't exist. I'm happy to have direction. That does not include looking at contracting out public employee jobs, but looking for other solutions to make sure that we do not increase pension liabilities. To look at ways that we not raise public public liability. Public pension liabilities. Perfect. Carl Zimmer. Spence, raise your hand up. Thank you, Mayor. So I want to ask for clarification, I think, from the maker of the motion, because there's a proposed resolution, and if I'm hearing correctly them, the motion is not to approve this resolution, but to approve this timeline. And I might be able to clarify it, which is full of the staff recommendation, which was the adoption of the resolution. Yeah, that's the way I interpreted the motion. I think it was it was certainly sorry. Yeah. Go ahead, counselor. That's right. I was going to say, I mean, the city manager's recommendation is specifically that that they will start the process and come back for future votes before anything moves forward. And I believe we had earlier staff corroboration that that is the that that the resolution itself does include a step for council approval. So we are not approving the issuance of anything. We are just approving the beginning step and giving direction that this that we are committing to this timeline and process, which includes two of two future council approvals, one for the underwriter and pension funding policy in the second one following that of the the I'm going to say process , I don't actually don't know what that stands for. And I don't want to guess at this time of night and the amount of the permits. Thank you. I'm asking I just want to make sure that the city clerk. Do you is that your understanding of the motion that's being made? From what city manager Levitt had said and council were not quite right. Yes, I. I understand the resolution is part of the motion and with the additional direction. Yes. And we want to hear from Mr. Morales, who's got his hand up. And then I'm going back back to Councilor Spencer. Go ahead. This was. Council member. But I think it's important to note that on the left is the process and two workshops don't pertain to the actual bonding process that we do kind of hand-in-hand. So the workshops would be, for example, a community stakeholder meeting and a council workshop and or one on one, for example. So and we do this for almost all of my clients and you know that. But it's actually, I think the direction you should be to provide to workshops, for meetings, to address this topic and not specifically as an underwriter. Those are kind of internal. Just wanted to be clear. It reminds me I was just questioning them as things would be improving in the future. It's still okay, Madam Clerk. I believe so. Okay. Is there anything we can clarify? Because I don't want to put you on the spot. I think I think the motion is clear. And I think that, you know, the resolution will be certified based on the motion, which is the first step that you guys are taking tonight. Okay. Councilor Harry Spencer. Thank you, Mayor. Well, the reason I'm asking is the resolution begins. Authorize is issuance of one or more series of pension obligation bonds. And that is, in fact, the first section. Council hereby authorizes the issuance of one or more series of bonds. And I actually think that that contradicts what we're talking about here. I think that this resolution has a lot more legal significance than is being suggested tonight. Either Mr. Levitt or Mr. Morales. Do you want to just agree with the city attorney? He was the one who actually gave me so and I see him chomping at the bit. Oh, you can me and Mike any time. Mr. Shannon, just raise your hand. Yes, go ahead. Mr. Mayor. Mr. Wozniak and I might tag team this, but the reason why section one of the resolution exists is that we cannot validate, we cannot bring a judicial action for a bond that don't exist. So if you are asking us to go file a judicial validate action validation action bonds actually have to exist. And that's a requirement under state law. Staff is giving you assurances verbally and in Section five of the resolution that they will come back to you before they're finalized. But if we take out Section one, there will be nothing for us to validate. Yeah. I actually was going to reiterate that probably not as eloquently as you just did, but it is that process has to take place for getting started on it. But there's still some checkpoints, if you will, in the in the the timeline. But go ahead. And even Mr. Resnick, do you want to add it now? Mr. City attorney said it perfectly. Section one and Section five, I think, accomplish what the council's looking to accomplish if they want to move forward. Okay. Thank you. Okay. Anything further? Mr. Morales, go ahead. Just want to clarify. The city manager really noted you cannot sell municipal bonds securities without approving the offer authorizing sale. Right. That is actually the one that designates what you talk about in your full disclosure, and it's your legal and fiduciary duty to review that. So in no way could Bond be sold without you authorizing that. And that document has not and isn't currently been generated. So there is no way legally you can issue or sell bonds without coming back to council and authorizing that specific document at minimum, as well as the amount and the size. It's just a number of things that have to be done. I believe the city attorney basically said you need to have a bond to exist in order for the judge to say, hey, I actually have this to to finance. Thank you. That was helpful. Okay. I think we're ready to have a real cover. Right. We've had a motion has been seconded. We've had a discussion. And. Clark Councilwoman Patricia Herrera. Spencer, no. Knox, right. Yes. Vela. Yes. Mayor, is he Ashcraft? Yes. That carries 3 to 2. All right. Thank you, everyone. Staff are consultants, our public speakers, council members. Good discussion. This is. It's complicated, it's big, it's important. And I'm glad we're moving forward on this important next steps. Thank you all. And, well, we'll be seeing more of each other, I think. All right, everyone. Goodnight. Well, not council and not, of course. Yeah. The consultants and Ms. to you can go head home. Or hopefully, maybe you're there. Okay, so now let's see. Madam Clerk, we've had signature communications, so we go to oral communications. Non agenda items. Do we have any? I his hand was up for the last item. But Jay Garfinkle I guess is not for this. Yes. Speaker Garfinkel. Four items. Not on the agenda, correct? Right. Thank you. I want to acknowledge that I understand the responsibility of being the only member of the public sufficiently interested or concerned to ask questions or make comments during these meetings. And I accept it humbly. This is a touchy situation. You know, please. I brought this up in a meeting a few weeks ago. Police departments across the country have learned that it was much better to be forthright immediately rather than delay giving out details when there's a police incident, even though there would be litigation expected down the road.