City Council
May 17, 2022
AGENDA REPORT
TO: Edward D. Reiskin FROM: Erin Roseman
City Administrator Director of Finance
SUBJECT: City of Oakland 2022-2023 Tax and
Revenue Anticipation Notes
DATE: April 18, 2022
City Administrator Approval Date: May 3, 2022
RECOMMENDATION
Staff Recommends That The City Council Adopt An Ordinance Providing For The Borrowing Of Funds And The Issuance And Sale Of 2022-2023 Notes Payable From Revenues Received During The Fiscal Year 2022-2023 In An Amount Not To Exceed $165,000,000 And Approving Certain Related Matters.
EXECUTIVE SUMMARY
Adoption of the proposed ordinance will authorize the borrowing of funds for Fiscal Year 2022- 23 (“FY22-23”) and the issuance and sale of the City of Oakland 2022-23 Tax and Revenue Anticipation Notes (the “Notes”) in an aggregate amount not to exceed one hundred sixty-five million dollars ($165,000,000). The Notes will be issued to finance the prepayment of the City of Oakland’s (the “City”) Employer Unfunded Accrued Liability (“UAL”) contribution to the California Public Employees’ Retirement System (“CalPERS”) for FY22-23. The City will receive a 3.33% prepayment discount from CalPERS for the "pre-funding," which is expected to exceed the cost of borrowing, estimated to be 2.8% as of April 20, 2022. Issuance of the Notes and pre-funding of the City’s annual CalPERS UAL contribution is expected to generate net cost savings of $900,000 for FY22-23. The final savings will be dependent upon interest rates at the time of pricing.
The Notes will be issued in one or more series, to be sold by the City to one or more banks or other lenders (the “Purchasers”), maturing no later than 13 months from the date of issuance.
Debt service on the Notes will be secured by taxes and revenues received by the City for FY22-
23. The terms and provisions, sale, and forms of agreements relating to the Notes, will be brought to City Council in a resolution on June 7, 2022.
BACKGROUND / LEGISLATIVE HISTORY
Pursuant to Section 53850 et seq. of the Government Code of the State of California contained in Article 7.6 thereof, on or after the first day of any fiscal year (being July 1), a city may borrow money by issuing notes for any purpose for which a city is authorized to expend moneys,
Edward D. Reiskin, City Administrator
Subject: City of Oakland 2022-2023 Tax and Revenue Anticipation Notes Date: April 18, 2022 Page 2
City Council
May 17, 2022
including but not limited to current expenses, capital expenditures, and the discharge of any obligation or indebtedness of a city.
Pursuant to Section 219 of the Oakland City Charter, an ordinance is required to authorize the borrowing of money.
ANALYSIS AND POLICY ALTERNATIVES
The Citywide priority advanced by this recommended policy action meets the goal of a responsive and trustworthy government.
Staff recommends issuance of the Notes to fund the prepayment of the City’s FY22-23 UAL contribution to CalPERS for savings. By making a lump sum payment by July 31, 2022 instead of monthly payments throughout the fiscal year, the City will receive from CalPERS a prepayment discount of 3.33% of the required annual UAL contribution. The Normal Cost1 portion of the employer contribution will be made as part of the regular payroll reporting process.
Issuance of the Notes and pre-funding of the City’s annual CalPERS UAL contribution is expected to generate net cost savings of $900,000 for FY22-23. Final savings will be dependent upon interest rates at the time of pricing.
If the transaction does not produce sufficient savings due to an increase in interest costs, the City will not proceed with the financing and will provide an update to Council. A lack of savings will result in an increase to costs as the savings are factored into the City’s budgeted fringe rate.
Staff has explored various alternatives including public offering and private placement of the Notes. Based on current market conditions, the analysis resulted in the private placement option, as in previous years, generating the maximum benefit and flexibility to the City. A private placement allows for more flexibility in amortization structure and sale process than a public offering resulting in lower expected interest costs. A private placement also requires less documentation and no underwriter resulting in lower costs of issuance. Given the rising interest rate environment and continued volatility, the City is exploring options with several prospective Purchasers. The proposed ordinance authorizes the City Administrator, the Director of Finance or City Administrator’s designee to execute all documents which they may deem necessary or advisable in order to consummate the issuance and sale of the Notes including but not limited to entering into a rate lock arrangement or other similar financial agreement with the Purchaser of the Notes. A proposed financing schedule is included in the following Table 1 below.
1 The minimum required employer contribution includes the sum of two components: 1) Normal Cost (“NC”) Rate, which represents the annual cost of service accrual for the upcoming fiscal year, for active employees. Normal cost is shown as a percentage of payroll and paid as part of the payroll reporting process. 2) Annual payment on the Unfunded Accrued Liability (“UAL”) is the amortized dollar amount needed to fund past service credit earned (or accrued) for members who are currently receiving benefits, active members, and for members entitled to deferred benefits, as of the valuation date. If not prepaid, the UAL is billed monthly. As of July 1, 2017, only the UAL portion of the employer contribution can be pre-funded.
Edward D. Reiskin, City Administrator
Subject: City of Oakland 2022-2023 Tax and Revenue Anticipation Notes Date: April 18, 2022 Page 3
City Council
May 17, 2022
Table 1: Proposed Financing Schedule
Date Activities
5/17/2022 1st reading of ordinance at City Council
6/7/2022 2nd reading of ordinance and adoption of resolution by City Council 7/11/2022 Pricing of the Note
7/14/2022 Closing of the Note
7/29/2022 Deadline to submit prepayment of FY22-23 UAL to CalPERS
The principal amount of the Notes, together with the interest thereon (i.e. debt service), shall be payable from taxes, revenues, income, cash receipts and other moneys which are received by the City for FY22-23 and which are available for the payment of current expenses and other obligations of the City.
FISCAL IMPACT
Issuance of the Notes and pre-funding of the City’s annual CalPERS UAL contribution is expected to generate net cost savings of $900,000 for FY22-23. Final savings will be dependent on upon interest rates at the time of pricing. Debt service on the Notes will be secured by taxes and revenues received for FY22-23. Fees associated with issuance of the Notes are estimated to total $150,000, will be paid from proceeds of the Notes, contingent upon closing of the transaction, and are factored into the calculation of net savings.
If the transaction does not produce sufficient savings due to an increase in interest costs, the City will not proceed with the financing and will provide an update to Council. A lack of savings will result in an increase to costs as the savings are factored into the City’s budgeted fringe rate.
PUBLIC OUTREACH / INTEREST
This item did not require additional public outreach other than the required posting on the City’s website.
COORDINATION
This report was prepared by the Finance Department in coordination with the Office of the City Attorney.
SUSTAINABLE OPPORTUNITIES
Economic: This item supports the City’s ongoing operations and ability to serve its constituents.
Environmental: There are no environmental opportunities associated with this item.
Edward D. Reiskin, City Administrator
Subject: City of Oakland 2022-2023 Tax and Revenue Anticipation Notes Date: April 18, 2022 Page 4
City Council
May 17, 2022
Race and Equity: This item supports the City’s ongoing operations and ability to serve its constituents.
ACTION REQUESTED OF THE CITY COUNCIL
Staff Requests That The City Council Adopt:
An Ordinance Providing For The Borrowing Of Funds And The Issuance And Sale Of 2022- 2023 Notes Payable From Revenues Received During The Fiscal Year 2022-2023 In An Amount Not To Exceed $165,000,000 And Approving Certain Related Matters.
For questions regarding this report, please contact David Jones, Treasury Administrator, at (510) 238-6508.
Respectfully submitted,
Erin Roseman
Director of Finance, Finance Department
Reviewed by:
David Jones, Treasury Administrator
Treasury Bureau
Prepared by:
Jacqueline Lee, Principal Financial Analyst
Treasury Bureau