City Council/Public Financing Authority
October 18, 2022

Year-End Budget Adjustmentsfor City’s Unfunded LiabilitiesCity Council MeetingOctober 18, 2022 1 Presentation Overview•Background & Economy•Workers’ Compensation•General Liability•Retiree Medical•Retirement Supplemental•Section 115 Trust 2 Background & EconomyFinance Department is working on the year-end closing processPreliminary year-end numbers will be presented to City Council on November 15th Year-End Budget Adjustment for FY2021/22 required to close FY 2021/22US economy faced significant challenges in the first half of 2022Rising interest rates – Feds raised rates 5X in 2022 to 3%-3.5%Inflation – 9.1% in June 2022GDP: 1Q2022 -1.6% and 2Q2022 -0.6%City’s retirement plan assets declined in value due to unfavorable market conditionsEstimated Surplus FY2021/22 $17M primarily due to Sales Tax and Transient Occupancy Tax revenues better than anticipatedOpportunity to fund the City’s unfunded liabilities – aligning with the City Council’s Strategic goal of Fiscal Sustainability3 Workers’ CompensationCalifornia Workers’ Compensation law provides state mandated benefits to employees for work-related illness or injuryCity is self-insured up to $1 million per claim for a maximum of $30 million$7.6 million increase in WC liability primarily due to 38 claims that had increases of at least $100K in FY2021/22Factors include rising medical costs and an expanded list of injuries that are presumed to be work related under California law, including cancer and post-traumatic stress4Description Amount / PercentageTotal WC Liability 6/30/2022 $40.7MIncrease in Liability FY 2021/22 $7.6MFunded Status Without Transfer35%Funded Status With Transfer 42%Recommended Transfer $3M Police67%
Fire23%
Public Works9%
All Others1%WC Claims 2018-2022
PoliceFirePublic WorksAll Others
General LiabilityCity is self-insured up to $1 million per claim for a maximum of $30 million$1.5 million increase in General Liability primarily due to 3 large claims incurred in FY 2021/22$2.1 million total legal claims expense in FY21/22 5Description Amount / PercentageTotal General Liability 6/30/2022 $13.7MIncrease in Liability FY 2021/22 $1.5MFunded Status Without Transfer 89%Funded Status With Transfer 100%Recommended Transfer $1.5M

Retiree MedicalThe City administers 2 retiree medical or other post-employment benefit (OPEB) plansSafety employees – Contributions to CalPERS Health Plan for retirementNon-safety employees hired prior to 10/1/2014 – Retiree Medical Subsidy based on years of serviceThe City utilizes CalPERS’ California Employers’ Retiree Benefit Trust (CERBT) to manage the planCERBT discount rate: 5.5%Recommended Transfer: $1M – minimum required to avoid drawing funds from Trust during market low6DateFunded StatusOPEB Liab*OPEB AssetNet OPEB Liab (Asset)6/30/2021 107% $33.9M $36.3M -$2.4M6/30/2022 w/o Trsf 94% $33.9M $31.7M $2.1M6/30/2022 w/Trsf 97% $33.9M $32.8M $1.1MYears Plan ReturnBenchmark Rate1 Year -12.54% -12.66%5 Years 4.66% 4.43%ITD^ (Oct 2011)6.29% 6.02%^ Inception to date* OPEB Liability is estimated due to CalPERS latest report is for 6/30/2020 Retirement SupplementalThe City administers a supplemental single-employer defined benefit retirement plan for employees hired prior to 1997The plan pays a supplemental retirement benefit in addition to benefits from CalPERSInvestment held separately in the Supplemental Retirement Trust (SRT) and is managed by the City’s Investment Custodian and subject to Investment Policy set by the SRT board.Supplemental Retirement discount rate: 5.5%Recommended Transfer: $4.6M – minimum required to avoid drawing funds from Trust during market low7DateFunded StatusSRTLiab*SRTAssetNet SRT Liab (Asset)6/30/2021 92% $76.8M $70.4M $6.4M6/30/2022 w/o Trsf 77% $76.8M $59.0M $17.8M6/30/2022 w/Trsf 83% $76.8M $63.6M $13.2MYears Plan ReturnBenchmark Rate1 Year -15.98% -12.44%5 Years 4.84% 4.51%ITD^ (Oct 2009)6.20% 6.64%^ Inception to date* SRT Liability is estimated due to latest actuary report is for 6/30/2020 Section 115 TrustOn December 21, 2015, City Council authorized the creation of the Section 115 Trust to help address the City’s unfunded pension liabilities.March 2021, City Council adopted an Unfunded Accrued Liability Pension Funding Policy requiring annual Section 115 Trust funding to protect the City from market volatility and unexpected pension rate increases.Section 115 Trust balance as of June 30, 2022: $12.4MCalPERS return FY2021/22: -6.1% (discount rate of 6.8%)Due to unfavorable return, UAL payments will increase by $3.4M each year from $0 in FY23/24 to $17.7M in FY28/29 (assuming CalPERS hits their 6.8% target return going forward)CalPERS returns > 6.8% will reduce future UAL payments and lower returns will increase UAL paymentsRecommended Transfer: $3M (in addition to $1.8M required in FY21/22 per UAL Policy)8DateCalPERS Funded StatusCalPERSLiabCalPERSAssetNet CalPERS Liab (Asset)POB LiabCalPERS w/POBFunded Status 6/30/2020 68% $1,428M $973M $455M N/A 68%6/30/2021 104% $1,513M $1,558M -$46M $364M 83%6/30/2022* 90% $1,513M $1,363M $149M $352M 73%Years Plan Return1 Year -6.1%5 Years 6.7%10 Years 7.7%20 Years 6.9%30 Years 7.7%* CalPERS values as of 6/30/2022 are estimated due to latest actuary report is for 6/30/2021 Recommended ActionApprove the appropriation and transfer of $13.1 million from the General Fund in FY2021/22 to fund the City’s unfunded liabilities (as listed below) – aligning with the City Council’s Strategic goal of Fiscal SustainabilityEstimated FY21/22 surplus after appropriation $3.9 million (subject to change)9 Fund AmountWorkers’ Compensation $3,000,000General Liability 1,488,467Retiree Medical 1,037,740Retirement Supplemental 4,576,489Section 115 Trust 3,000,000Total $13,102,696 Questions?