DATE: April 19, 2022
TO: Mayor and City Council
FROM: Director of Public Works
SUBJECT: Rockaway Lane Width Realignment: Public Hearing Pursuant to Article 4, Chapter 10 of the Hayward Municipal Code and Introduction of an Ordinance to Amend the Precise Plan Line for Rockaway Lane from “A” Street to Russell Way, Reducing the Right-of-Way Width Requirement from 68 feet to 56 feet; Applicant/Owner: William Frankel, 22422 Rockaway LLC, Application No. 202105041
RECOMMENDATION
That the Council holds a public hearing as required by Article 4, Chapter 10 of the Hayward Municipal Code and introduces an Ordinance to amend the Precise Plan line for Rockaway Lane (Attachment II) based on the analysis in this report.
SUMMARY
The Council adopted Resolution 22-060 (Attachment III) on March 22, 2022 setting the date and time for a public hearing pursuant to Article 4, Chapter 10 of the Hayward Municipal Code to be held on April 19, 2022 at 7:00pm. During this public hearing, the Council shall afford persons an opportunity to be heard prior to the amendment of the precise plan line. Notice of the resolution has been published in a newspaper of general circulation and posted on Rockaway Lane as required by the Municipal Code.
The current precise plan line for Rockaway Lane requires a 20-foot-wide dedication on the east side of the roadway to create a 68-foot-wide right of way. Rockaway Lane is a short street extending north approximately 2 blocks from the intersection with A Street as shown on the Vicinity Map (Attachment IV). The precise plan line affects a total of three properties, two of which have been previously developed as apartments. William Frankel, the owner of 22422 Rockaway Lane (APN 415-0230-078-00) has a current planning application to develop the remaining vacant property and has requested the City amend the precise plan line and increase the developable area of the property (Attachment V). Staff has reviewed the request and supports a reduction in the precise plan line requirement from a 68-foot right-of-way to a 56-foot right-of-way consistent with Standard Street Sections for a Residential Public Street (Attachment VI).
Planning Commission Review
The Planning Commission reviewed this request as part of a public hearing held on February 10, 20221 and recommended the reduction in width of the Rockaway Lane Precise Plan Line from 68 feet to 56 feet.
This project is categorically exempt from environmental review pursuant to Section 15301(c) of the California Environmental Quality Act (CEQA) guidelines as an existing facility.
BACKGROUND
Chapter 10, Article 4 of the Hayward Municipal Code grants Council the authority to establish precise plan lines for the reservation of future rights-of-way to provide a definite plan of development for the City and to guide, control, and regulate future growth in the City in accordance with the Hayward 2040 General Plan. Precise plan lines provide clarity to property owners and prospective developers regarding any dedication requirements and guides the City for the use of any capital expenditures for street and highway improvements.
The current precise plan line requirements for Rockway Lane from A Street to Russell Way is specified as a minimum 68-foot width in Municipal Code Section 10-4.56 and was approved with Ordinance No. 64-026 C.S., adopted July 21, 1964. The existing precise plan line is shown on drawing number H-116 included as Attachment VII, and the proposed amended precise plan line included as Attachment VIII.
Rockaway Lane was used as a roadway as early as 1888 and formally identified as a 48-footwide street in 1911 as part of the San Lorenzo Terrace subdivision. Today, it remains 48 feet wide in front of 22422 Rockaway Lane. The original precise plan line for Rockaway was adopted with Ordinance 208 C.S. on March 10, 1959 and required a 68-foot width with a tenfoot dedication required on each side of the street. The 1959 precise plan was consistent with a zoning amendment approved in 1958 for the development of the neighboring property at 22412 Rockaway, which required a ten-foot dedication as condition of development.
In June 1961, the California Highway Commission formally adopted a preferred location for the Route 238 Bypass through Hayward. The proposed bypass alignment, shown on Attachment IX includes Rockaway Lane and all parcels to the east of Rockaway Lane in the future proposed State right-of-way. In preparation for the new freeway, the City realigned 4th Street between A Street and B Street to align with Rockaway at the A Street intersection.
Beginning in the late 1960s and early 1970s, the State began acquiring properties within the proposed right-of-way and acquired 22422 Rockaway Lane during this time period.
In 1964, Council adopted the current precise plan line, amending the 1959 line, requiring the entire 20-foot dedication to create a 68-foot roadway be taken from properties on the east side of the street, and burdening properties only on the east side of the road. The Route 238 bypass alignment likely influenced Council’s determination since these properties were to have been part of the future freeway right-of-way. In 1992, Council adopted the “Upper B
1 https://hayward.legistar.com/LegislationDetail.aspx?ID=5446508&GUID=89C7A74C-AB90-49A6-A7C1-175D32F478E6&Options=&Search=
Street Plan” with Resolution 92-264. The plan maintained the Route 238 bypass around downtown Hayward as an alternative and identified 22422 Rockaway as a freeway off-ramp and connection to A Street.
Several groups and members of the public opposed the Route 238 bypass shortly after the alignment was identified in the 1960s and 1970s. In November 2010, following many years of lawsuits, the California Transportation Commission formally rescinded the freeway adoption for the Route 238 bypass. Caltrans has sold many of the properties acquired for the freeway bypass, including 22422 Rockaway Lane.
Policy Context and Code Compliance
Hayward 2040 General Plan. The Hayward 2040 General Plan designation for the properties on Rockaway Lane fronting A Street is Commercial / High Density Residential and High Density Residential for the other properties on Rockaway Lane. The existing development includes a commercial use fronting A Street and a mixture of single family and multi-family development on Rockaway Lane and nearby Russel Way which provides a connection to 2nd Street.
San Lorenzo Creek is a prominent geologic feature east of Rockaway Lane and the approximate creek centerline forms the eastern property line of the three developable properties on the east side of Rockaway Lane. Rockaway Lane ends approximately 300 feet north of Russell Way due to a sharp bend in San Lorenzo Creek and the creek flows in a westerly direction adjacent to Russell Way. The creek is a natural barrier to development and essentially isolates the neighborhood with a total of about thirty properties served by the Rockaway Lane and the Russell Way roadways.
Rockaway Lane is identified as a local street within the Hayward 2040 General Plan and there are no plans for expansion of the roadway or extension of the roadway across San Lorenzo Creek. Additionally, the Hayward Bicycle & Pedestrian Master Plan2, adopted in 2020, does not identify either Rockaway Lane or Russell Way for a bicycle route or an area with enhanced pedestrian improvements.
The City has developed Standard Details for street sections based on predominant use, i.e., residential, commercial, or industrial, and local, collector, or arterial classifications. The current 68-foot precise plan width for Rockaway Lane is consistent with the street standards for a major residential or commercial collector street. While this designation may have been appropriate when Rockaway Lane was adjacent to the Route 238 Bypass and envisioned as a potential freeway off ramp, it is no longer consistent with the Hayward 2040 General Plan.
Zoning Ordinance. Per HMC Section 10-4.213, before any action can be taken by the City Council concerning proposed precise plan lines for future rights-of-way, the project needs to
2 Hayward Bicycle and Pedestrian Plan (2020)
https://www.hayward-ca.gov/sites/default/files/Hayward%20BPMP_Final%20Plan.pdf 3 Precise Plan Lines. Planning Commission Review and Recommendation
be referred to the Planning Commission and Department of Public Works for a report and recommendation. Per HMC Sections 10-4.25 – 10-4.32the Council is required to publish and post notice, and hold a public hearing regarding adoption of a proposed precise plan line. At the conclusion of the public hearing, the Council may order the introduction/adoption of an ordinance to establish the precise plan line.
Upon receipt of a report and recommendation from the Planning Commission, and whenever the public peace, safety, comfort, convenience, interest, or welfare may require, Council has the authority to determine the minimum distance back from the street line for the erection of buildings or structures along any portion of any street or planned street in the City and to order the establishment of a line to be known and designated as a precise plan line, between which line and the street line no building or structure shall be erected or constructed.
Staff recommends reducing the precise plan width on Rockaway Lane from 68 feet to 56 feet based on the following discussion and consistent with a standard residential street providing a travel lane in each direction and parking and sidewalks on both sides of the street.
The existing right-of-way in front of 22422 Rockaway Lane is 48 feet wide and the paved roadway is only 28 feet wide; too narrow to allow parking on both sides of the street. The improvements on the west side of Rockaway Lane include a 10-foot-wide sidewalk, which has already been constructed between A Street and Russell Way. A 56-foot precise plan width would still require an 8-foot dedication from 22422 Rockaway Lane when the property is developed along with frontage improvements. When improved, the new 36-foot-wide roadway on the 56 foot right of way would provide parking on both sides of the street and room for up to a 10-foot-wide sidewalk. The final improved roadway would also align with 4th Street which is located across the A Street intersection.
As previously noted, the existing Rockaway Lane Precise Plan Line affects three properties on the eastern side of road, two of which have already been developed into apartments. One of these properties dedicated 10 feet of right-of-way at the time of development which would satisfy the requirements of a 56-foot-wide precise plan width. The reduced precise plan line would affect the development potential of two properties, the existing developed site at 22400 Rockaway Lane and the currently vacant parcel at 22422 Rockaway Lane. Dedication requirements would be satisfied with the development of the vacant 22422 Rockaway Lane property or the redevelopment of the 22400 Rockaway Lane property.
Environmental Review
The proposed Amendment to the Precise Plan Line is categorially exempt from CEQA pursuant to Section 15301, Existing Facilities. The Amendment would reduce the dedication requirement and not result in any expansion of use or create additional vehicular travel lanes.
ECONOMIC AND FISCAL IMPACT
https://library.municode.com/ca/hayward/codes/municipal_code?nodeId=HAYWARD_MUNICIPAL_CODE_CH10PLZOSU_ART4PRPLLIST_S10 -4.21PRPLLIPLCORERE
Amendment of the precise plan line, by itself, will not have a fiscal or economic impact. The additional development potential created an amended precise plan line and will improve commerce, provide needed housing, and employ construction workers. Property tax revenues received by the City and several other local agencies will incrementally increase if a development at 22422 Rockaway Lane is constructed and occupied.
STRATEGIC ROADMAP
Approval of the Amended Precise Plan Line supports the Preserve, Protect, & Produce Housing priority in the City’s Strategic Roadmap, by increasing the development potential of 22422 Rockaway Lane and providing a mix of housing stock for all Hayward residents and community members, including the expansion of affordable housing opportunities and resources. Approval and the possible future development of 22422 Rockaway Lane would support the Improve Infrastructure priority by completing frontage improvements, widening and rehabilitating the existing pavement and improving sidewalk access.
SUSTAINABILITY FEATURES
The proposed action would reduce the future width and street section of Rockaway Lane resulting in less pavement and impervious surface area and a decreased impact on the environment.
NEXT STEPS
If the Council introduces the ordinance establishing the new precise plan after holding the public hearing, the ordinance will be brought back to the Council for adoption at a subsequent meeting. The ordinance and new precise plan line will become effective 30 days after adoption. Adoption of the precise plan line amendment will increase the developable area for 22422 Rockaway Lane; however, any development of this property would follow standard planning entitlement process.
Prepared by: Scott Wikstrom, Development Services Engineer Recommended by: Alex Ameri, Director of Public Works
Approved by:
Kelly McAdoo, City Manager
ATTACHMENT II
ORDINANCE NO. 22-___
AN ORDINANCE OF THE CITY OF HAYWARD, CALIFORNIA AMENDING ARTICLE 4, CHAPTER 10 OF THE HAYWARD MUNICIPAL CODE BY
AMENDING SECTION 10-4.56 RELATED TO PRECISE PLAN LINES FOR ROCKAWAY LANE FROM “A” STREET TO RUSSELL WAY
THE CITY COUNCIL OF THE CITY OF HAYWARD DOES ORDAIN AS FOLLOWS:
Section 1. Article 4 of Chapter 10 of the Hayward Municipal Code is hereby amended by amending Section 10-4.56 related to precise plan lines for Rockaway Lane from “A” Street to Russell Way to read as follows:
SEC. 10-4.56 – ROCKAWAY LANE FROM “A” STREET TO RUSSELL WAY The precise plan line requirements for Rockaway Lane from “A” Street shall be a minimum width of fifty-six (56) feet, as indicated on that certain drawing entitled, “City of Hayward, Department of Public Works, Engineering Division, Precise Plan Lines, Rockaway Lane, “A” Street to Russell Way, being drawing number H-116, which drawing is on file in the office of the City Clerk and hereby referred to, incorporated herein and made part hereof as if set forth in full. Drawing number H-116, amended in March 2022 supersedes and replaces drawing number H-116, dated December 11, 1958 and amended May 11, 1964 in full.
Section 2. The City Council finds and determines that this action is categorically exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 of the CEQA guidelines as an existing facility. The exemption applies in this instance because the proposed amendment would reduce the dedication requirement and not result in any expansion of use or create additional automobile travel lanes.
Section 3. This Ordinance shall become effective thirty (30) days after adoption by the City Council.
ATTACHMENT II
INTRODUCED at a regular meeting of the City Council of the City of Hayward, held the _________ day of ___________ 2022, by Council Member ____________________ ADOPTED at a regular meeting of the City Council of the City of Hayward, held the __________ day of ____________ 2022, by the following votes of said City Council.
AYES: COUNCIL MEMBERS:
MAYOR:
NOES: COUNCIL MEMBERS:
ABSTAIN: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:
APPROVED: ______________________________________
Mayor of the City of Hayward
DATE: ______________________________________
ATTEST: ______________________________________
City Clerk of the City of Hayward
APPROVED AS TO FORM:
__________________________________________
City Attorney of the City of Hayward
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D St
B St
B St
Belle St
Dolores St
Knox St
Castille Ln
Ruby St
Rex Rd
Earl Dr Orange Ave
Dole Way
Hazel Ave
A St
A St
Shadyspring Rd
Mission Blvd
Rockford Rd
Hotel Ave
Clay St
Maple
Ct
N
4th St
2nd St
3rd St
Kipling St
City Center Dr
Rockaway Ln
5th
St
Foothill Blvd
Main St
Hennings Ct
4th St
Jeffer St
High St Terrace Ave
1st St
Stafford Ave
7th
St
A St
Prospect Ter
Ward St
Grove Way
Grove Way
Kings Ct
6th
St
Alley
5th
St
Sevilla Rd
Foothill Blvd
N 6th St
Crescent Ave
Gail Dr
C St
C St
Mc Keever Ave
Leila St
N 5th St
Dahill Ln
Bellina St
Valley St
Baywood Ave
Russell Way
Knoll Way
E St
Charlene
Way
Vestal Ave
East Ave
Douglas Morrisson Theatre
All Saints School
Faith
Ringgold &
Key Academy
Newman Park
Carlos Bee Park
Japanese Garden
Hayward
Historical
Society
Hayward Area Senior Center
I
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Feet
Vicinity Map
January 2022
Attachment III
Precise Plan Adjustment 202105031
Address:
22422 Rockaway Lane
Applicant:
William Frankel
ASFIFTEECTED
PARCELS
Scott Wikstrom
Development Services Department
City of Hayward
777 B Street, Hayward, CA. 94540
Mr. Wikstrom,
I am working on an apartment development at 22422 Rockaway Lane in Hayward.
The Hayward Municipal Code (HMC) Section 10-4.56 has established a certain plan line (Drawing Number H-116) for Rockaway Lane north of A Street. This plan line prescribes a 68-ft. right-of-way (ROW) width for Rockaway Lane.
I believe this right-of-way is not warranted for traffic circulation or other needs of the area. Rockaway Lane north of A Street serves only a few residences and traffic volumes are anticipated to remain low. I am requesting a reduction to a 56 foot wide ROW which would satisfy the Fire Departments requirements and be sufficient for the low volume of traffic in the area. I believe the City of Hayward Development Staff would support this amendment.
Thank You,
William Frankel
22422 Rockaway LLC
650-573-7333
CITY OF HAYWARD Hayward City Hall
777 B Street
Hayward, CA 94541
www.Hayward-CA.gov
File #: RPT 22-043
DATE: April 19, 2022
TO: Mayor and City Council
FROM: Director of Finance
SUBJECT
CalPERS Pension Unfunded Accrued Liability (UAL) Update and Analysis of Restructuring Concepts
RECOMMENDATION
That the Council receives this report and considers whether a future agenda item is desired to direct staff to continue exploring pension restructuring options.
SUMMARY
The City has been diligent about monitoring changes at CalPERS over the last several years, providing regular updates to the Council Budget and Finance Committee (Committee) and Council, as well as factoring these changes into the City’s budget and projections. With interest rates at historically low levels, many agencies (>85) in California have recently restructured a portion of their UAL at significantly lower interest rates (vs. the 6.8% that CalPERS is charging the City on this debt) to achieve financial savings, enhanced budgetary predictability, and future fiscal sustainability. This presentation was originally presented to the Committee on March 16th, with unanimous guidance from the Committee to bring it forward to the full Council.
ATTACHMENTS
Attachment I Staff Report
CITY OF HAYWARD Page 1 of 1 Printed on 4/15/2022
powered by Legistar™
DATE: April 19, 2022
TO: Mayor and City Council
FROM: Director of Finance
SUBJECT: CalPERS Pension Unfunded Accrued Liability (UAL) Update and Analysis of Restructuring Concepts
RECOMMENDATION
That the Council receives this report and considers whether a future agenda item is desired to direct staff to continue exploring pension restructuring options.
SUMMARY
The City has been diligent about monitoring changes at CalPERS over the last several years, providing regular updates to the Council Budget and Finance Committee (Committee) and Council, as well as factoring these changes into the City’s budget and projections. With interest rates at historically low levels, many agencies (>85) in California have recently restructured a portion of their UAL at significantly lower interest rates (vs. the 6.8% that CalPERS is charging the City on this debt) to achieve financial savings, enhanced budgetary predictability, and future fiscal sustainability. This presentation was originally presented to the Committee on March 16th, with unanimous guidance from the Committee to bring it forward to the full Council.
BACKGROUND
In spite of making CalPERS required contributions over the last 8 years, the City’s UAL for its CalPERS Miscellaneous and Safety Plans has grown 75%, from approximately $282 million to $493 million. This UAL represents the shortfall/gap between what is needed to pay retiree benefits versus how much in current assets the City actually has in its accounts with CalPERS.
The UAL has rapidly increased primarily due to CalPERS investment underperformance and changes to its actuarial assumptions, primarily the discount rate. The discount rate is what CalPERS expects to earn annually, as well as the interest rate that it charges its member agencies on this UAL debt. That discount rate was over 8% in the early 2000s and has been reduced several times over the last 15 years. In November 2021, CalPERS reduced the discount rate from 7.0% to 6.8%. Lowering of the discount rate results in increases to the City’s contributions to its CalPERS retirement plans given that less is expected from earnings on the investments.
As shown in the chart below, the City’s annual UAL payments have increased from about $17 million in FY 2017, to over $34 million in FY 2022. Based on the most recent report, they are projected to grow to $50 million by FY 2030.
Historical and Projected UAL Payments
Projected based on CalPERS 21.3% Returns & New 6.8% Discount Rate While not yet reflected in the recent actuarial report, the City’s overall UAL is expected to decrease to about $414 million (from $493 million) once the new reports are released late this year as the strong 21.3% investment gains from FY 2021 and the new 6.8% discount rate get incorporated. Based on this projected UAL reduction, it is anticipated that the increase in annual UAL payments will be less rapid (projected new peak of $38 to $41 million over the next decade). However, the reduction in the discount rate to 6.8% will also increase the City’s Normal Cost, which is separate from the UAL, and relates to the annual pension costs for current employees. These costs are expected to rise from the current annual level of $15 million, to $17 million by FY 2023/24, offsetting a portion of the expected reduction in UAL payments resulting from the 21.3% investment gain.
Additionally, it is possible that CalPERS will underperform its target of 6.8% earnings for FY 2022 based on the recent stock and bond market declines, meaning that the City’s UAL could potentially jump back up to previous levels (or higher). As of the first week of April, it is estimated that CalPERS is only at about 1% earnings for FY 2022. Rising pension costs are a widespread issue facing all municipalities nationally and developing a multi-pronged cost management strategy is highly recommended by staff and NHA. $0.0
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Current UAL Payments Projected UAL Payments (6.8% Discount Rate)
DISCUSSION
Several cost management strategies will be discussed in the presentation. However, the focus will be on the concept of restructuring the UAL given the complexity associated with this strategy and longer timeline to fully explore in a more comprehensive way if the Committee and Council desires to. A UAL Restructuring would entail converting higher interest rate debt with CalPERS (6.8%) to lower interest rate debt (current market rates between 4.00% and
4.75%). While a significant amount of additional due diligence and analysis (including a thorough risk assessment) needs to be completed, the primary benefits of this option include:
● Fiscal Sustainability Tool: Ability to “re-shape” the City’s overall pension repayment in a way that creates enhanced long-term fiscal sustainability, budgetary predictability, and enhanced resiliency to future economic shocks.
● Financial/Budgetary Savings: By reducing the City’s pension payments to lower levels, a significant amount of cash flow savings is projected for the City’s General Fund and other utility funds that could be used to address other City priorities (e.g., continue critical services to the community, sustain reserves, and funding capital and infrastructure needs).
● Interest Rate Savings “Arbitrage”: City can borrow at rates much lower (currently ≈
4.00% to 4.75% depending on term and credit) than the current CalPERS rate (6.80%).
Similar to refinancing a higher interest rate mortgage or credit card, a UAL Restructuring would allow the City to convert higher interest rate debt to lower interest rate debt and create a significant amount of projected savings on its debt payments. ● Increase Funding Ratio: Current funding levels (investments to liabilities) for the City’s CalPERS retirement plans are only about 60% to 64%; issuing a Public Obligation Bond (POB) could increase the ratio to healthier levels (85% to 100%), helping to ensure the long-term viability of the retirement program. ● Modify Maturity: Shorten or lengthen repayment period as deemed most fiscally appropriate.
● Leverage Savings through Improved Policies: Council and staff can memorialize the intended uses of potential savings through new adopted policies if desired.
Recent UAL Restructurings: With interest rates dropping to historically low levels in the last couple years, combined with strong investor interest, pension bond issuance has significantly increased (since 2020) with over 85 CalPERS members (mostly cities) having restructured their UAL for a total estimated UAL refinanced of about $8 billion. Examples include San Ramon, Corte Madera, Poway, La Habra, Oroville, Fort Bragg, National City, Paramount, Bellflower, Lakeport, Montclair, Corona, Santa Ana, Orland, Commerce, San Anselmo, Sanger, San Fernando, Buena Park, Redondo Beach, Covina, Whittier, El Segundo, Auburn, Willows, Corte Madera, Manhattan Beach, Orange, Ukiah, Chula Vista, Downey, El Cajon, Coachella, Gardena, Arcadia, Placentia, Torrance, Azusa, Larkspur, Marysville, Grass Valley, Riverside, Pomona, West Covina, Ontario, Carson, Pasadena, Glendora, Hawthorne, La Verne, Maywood, El Monte, San Fernando, Montebello, Huntington Beach, Monrovia, and Inglewood.
Interest rates for these recent financings ranged from 2.54% to 4.25%, with rates dictated by market conditions at the time of pricing, credit rating of the issuer, and length of term of the bonds. Unfortunately, interest rates for these types of bonds have risen by about 1.50% over the last 4 months given inflationary fears, federal reserve interest rate hikes, and volatility from the Ukraine/Russian war. Interest rates are projected to continue to be volatile for the
next couple of years and something that the City and NHA would consistently monitor to better assess the potential benefits of this restructuring concept.
Reinvestment Risk: Actual savings from the restructuring will be dependent on two factors:
(1) actual interest rates at the time of pricing and (2) future CalPERS returns, which is unknown at the time of bond issuance. Generally speaking, the City will be better off if CalPERS earnings rate exceeds the pension bond interest rate (4.00% - 4.75%) over the term of the financing. While past performance doesn’t guarantee future results, CalPERS average historical returns are 6.9% (last 20 years) and 8.4% (last 30 years).
Assessing and mitigating reinvestment risk would be a key objective as the City and its financing team evaluate and refine restructuring options for the Committee and Council’s consideration if this evaluation process were to continue. A preliminary stress-testing (risk assessment) has already been conducted and was shared during the Committee workshop presentation. More robust stress testing could be conducted during a more comprehensive evaluation process this Spring/Summer and could quantify several downside scenarios. This includes modeling out impacts if there were to be another 2008-like recession, or other CalPERS underperformance scenarios where they consistently underperform their target returns. Based on this risk assessment, or changing market conditions (i.e., rising interest rates), it may be recommended that the City not pursue a restructuring at that time. Given the recent rise in rates, combined with the increased likelihood of a recession in the next couple of years, some agencies are considering delaying their UAL restructuring transactions or even staggering them out over several years to mitigate risk. All these types of considerations would be evaluated during the judicial validation process, which is explained in more detail below.
A UAL restructuring is most often executed using a Pension Obligation Bond (POB) structure.
POBs are a particular kind of taxable bond where the proceeds are dedicated entirely to the government's pension obligations. The goal is that the return on the proceeds that they have invested in the pension system will be higher than the interest cost on the related debt over the long run. The issuance of a POB is viable only after a judicial validation process is completed (in Alameda County Superior Court). The validation process typically takes three to four months to complete. This process does not lock the City into issuing a POB, but it does provide the City with the option to do so at anytime in the future (subject to future Council approvals). Given the recent upward pressure on interest rates, and the ability to continue a robust financial evaluation process and investigation of all cost management strategies concurrently with this validation process, initiating a validation process soon is something that the City may want to consider in order to make a POB a viable option in the future.
ECONOMIC IMPACT
Based on preliminary analysis, a restructuring of the UAL could produce significant savings for the City. As outlined in the graphic below (dark blue line), payments could be smoothed out at a lower level. Based on this preliminary option, projected cash flow savings are shown in the table at the bottom of the page, which total about $75 million (over $8 million annually for next 14 years).
Metrics 22-Year POB
UAL Funded ($) $413,980,000
% UAL Funded (Current Asset Valuations) 84%
Funded Ratio (Current Asset Valuations) 94%
% UAL Funded (Projected After FY 2021 Returns & 6.8% Discount Rate) 100% Funded Ratio (Projected After FY 2021 Returns & 6.8% Discount Rate) 100% Maturity 22 Years
Average Life 13 Years
All-In Interest Rate 4.33%
PV Savings (%) 16.96%
PV Savings ($) $70,226,988
Cumulative Savings* $74,592,521
Savings (2023-2036)* $117,540,918
Potential Average Annual Savings (2023-2036)* $8,395,780 *The amounts shown are estimates
As noted in the Committee presentation, there are a myriad of structuring options for a potential POB. All sizes could be explored (as small as 25% of the City’s UAL, up to 100%), as well as varying terms (lengths of repayment) and repayment shapes (i.e. level vs. escalating) that are tailored to the City’s budgetary goals and constraints. This “base case” option above is included in order to provide the potential benefits of the UAL restructuring, while not $0.0
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$45.0 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 Millions Projected UAL Payments (6.80% Discount Rate)
22-Year POB
Preliminary UAL Restructuring Option for City of Hayward 22-Year Term with Level Payments
Note: Preliminary estimates shown for illustration and assume current market rates – actual rates to be determined at pricing; assumes CalPERS earns 6.8% investment earnings.
Note: Preliminary estimates shown for illustration and assume current market rates – actual rates to be determined at pricing; assumes CalPERS earns 6.8% investment earnings.
overcomplicating the initial discussion with too many options.
NEXT STEPS
If Council wishes for staff to initiate a validation process, it is estimated that this could happen at a Council meeting in the coming weeks, which would start the validation process timeline.
While that process runs its course (estimated to be 3-4 months), City staff would recommend a robust evaluation process for developing a multi-pronged cost management strategy to address these rising pension costs. Options would be evaluated in more detail this spring and summer, with the pros, cons, and risks illuminated in greater detail. Once the validation process is completed, the City would have the opportunity to issue a POB if it desired to; however, market conditions may be significantly different at that time and a UAL restructuring may not be recommended.
Potential Timeline:
Prepared by: Mike Meyer, Vice President, NHA Advisors
Recommended by: Dustin Claussen, Director of Finance
Approved by:
Kelly McAdoo, City Manager
Spring 2022
April 19: Education Workshop to Full
City Council
Q&A with City Council and Stakeholders
Engage Bond Counsel
May 3: City Council approval of basic
legal documents and parameters of
transaction (i.e. not to exceed interest
rate) and Initiate validation process
•Does not lock City into issuing bonds; starts legal
process required to preserve future flexibility
Late Spring/Early Summer 2022
More Educational Workshops, if needed
Continued Q&A with City Council and
Stakeholders
Legal documents and Preliminary
Official Statement (“POS”) drafted
Stress testing analysis & restructuring
options refined
Credit rating process
Summer/Fall 2022
Validation proceedings completed
Reassess market and potential interest
rates and recommend/not recommend
POB
City Council approval of POS and
preferred option, IF ANY
Sell and close bonds and pay off portion
of UAL with CalPERS