SUPPLEMENTAL MATERIAL
1 Responses to City Council Agenda Items – March 17, 2026
Regular Meeting
Agenda Item #9: Authorize the City Manager to execute License Agreements for the use of Santos Ranch Road
1. Generally, why are we removing the annual fee when we clearly have maintenance obligations?
A. The updated agreement is primarily about risk management: ensuring that anyone using the roadway does so under a current agreement that requires appropriate insurance and indemnification to protect the City.
Removing the nominal annual fee is also intentional. It re-sets the City’s maintenance obligation away from the prior, contractually defined maintenance schedule (under the now-expired agreement) and toward an “as-needed for City operations” standard. The prior fee was inconsistently collected and was far too small to offset the cost of maintaining the roadway to a scheduled standard. Eliminating the fee also helps avoid the expectation that payment guarantees a specific maintenance level.
Going forward, the City’s operational maintenance needs are generally lower than the level of maintenance residents often request or expect. If residents seek a higher maintenance standard, the City will be in a better position to negotiate a separate, realistic cost-sharing arrangement that reflects the actual scope and costs of the requested work. In that scenario, the true cost can be orders of magnitude higher than the historic $100–$150/year nominal fee, potentially reaching the tens of thousands of dollars per year depending on the maintenance standard and frequency requested.
2. Secondly, given EBRPD isn’t complying with Garms, is there any conversation with this access?
A. There have not been any discussions linking Garms to EBRPD’s access or use of Santos Ranch Road. The purpose of this access is to support EBRPD maintenance activities for the park system, and Santos Ranch Road will remain closed to public access.
SUPPLEMENTAL MATERIAL
2 This license is also part of a broader set of agreements between the City and EBRPD that provide for shared, controlled access along the ridge to support maintenance of City water tanks and pipelines and EBRPD facilities.
Overall, the agreement is focused on ensuring that continued use of Santos Ranch Road is governed by updated, City-standard terms, including insurance and indemnification, clear damage/repair responsibilities, and preserving the City’s ability to manage access through executed agreements.
Agenda Item #14: Receive a report and presentation on the City's pension obligation management strategy and adopt the pension funding policy
3. Why/how was each ’smoothing level’ for each option determined? Why was each 'smoothing level’ option not closer to the currently $29M / $31M levels being experienced (or a slight reduction from it) since we’ve been maintaining that cost level?
A. Regarding the $29M/$31M level, that includes $9M of Normal Cost. The actual unfunded accrued liability (UAL) for FY 2026 is $20.2M. All smoothing levels referenced/shown in slides 22 to 28 are compared to the UAL payments only (blue bars) and not inclusive of Normal Cost. This is related to a question below as well, which needs clarification. Because the Normal Cost gets picked up through monthly payroll and doesn’t fluctuate much, the cost management strategy analysis focused on the UAL debt portion of costs.
The decision on the four options was based on where it would leave the 115 Trust balance as a percentage of FY26 annual costs (0%, 50%, 100%, 150%). There are an infinite number of options that could be analyzed, and the goal was to be comprehensive (covering a range of options and cost/benefit) while keeping the analysis digestible for discussion. The metric of “% of annual budget” (as opposed to a $ amount) is part of the new recommended policy target and can be adaptive to changes in UAL.
4. Please clarify, when looking at Option 4, the only reason it ends a fiscal year or two earlier than the others, is it due to the smoothing level being higher than those final years that are falling out/off?
• Option 1: $60M balance => $84M cost savings benefit due to annuity gains • Option 2: $60M balance => $74M cost savings benefit + $14.8M balance remaining = $88.8M total benefit
• Option 3: $60M balance => $64M cost savings benefit + $29.5M balance remaining = $93.5M total benefit
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3 • Option 4: $60M balance => $53M cost savings benefit + $44.3M balance remaining = $97.3M total benefit
A. That is correct. The goal with the modeling was to leverage the 115 balance such that it will level out payments at the lowest level possible for the longest amount of time. Option 4 uses less of the trust, so it can’t level out for as long or as low as the earlier options. Please note that the UAL payments are going to change every year moving forward, so these estimates of lower/ smoothed payments, length of time of smoothing, and savings are the best estimates given today’s situation. Staff intends to bring back updates to the Council periodically, especially when the City experiences larger than expected volatility in the pension situation and/or significant changes to the smoothing objectives.
B. Regarding the reading/understanding of the options, this is a correct interpretation.
5. Please clarify in the Appendix slide, at this time we don’t have policy guidance from CalPers that they’re changing the discount rate. They may, of course, but asking if they’ve announced or indicated that they are planning to (and thus agencies should plan accordingly)?
A. Slide 34 provides a snapshot of changes set to occur from last fall’s Asset Liability Study where the discount rate was discussed. As shown, there is no change to the discount rate (remains at 6.8%), and we don’t believe there was much support for one during the process, which is good news. The only changes to actuarial assumptions were minimal, 0.2% increases on inflation (2.3% to 2.5%) and wage growth assumptions (2.8% to 3.0%).
6. Given our current contribution / cost for CalPERS at $29M for FY25/26,which we have budgeted for ($31M in FY26/27), and Option 4’s smoothing level suggested level will be $18.7M, this would translate into nearly a $10M annual cash need reductions that would not be needed to go to CalPERS? I’m trying to reconcile this to the slide saying that the average was ~$4.4M.
A. As mentioned in the question above, all the analysis excludes Normal Costs (about $9M for FY 2026). The FY 2026 UAL is $20.2M, thus, the new projected smoothing level of $18.7M is $1.5M lower than FY A 2026 levels,
and significantly lower than projected levels (as mentioned in the question), $4.4M lower on average during the next 12 years (FY 2027 – FY 2038).
SUPPLEMENTAL MATERIAL
4 7. What are the risks associated with pension obligation bonds and the assessment required to consider them?
A. Pension obligation bonds (POB) do carry risk and savings is not guaranteed.
Actual savings is dependent on future CalPERS returns. A POB issuer is more susceptible to market downturns, especially in the years following the POB issuance, given that more assets have been invested at one point in the market cycle. Whether an agency issues a POB or not, CalPERS underperformance will drive up the Unfunded Accrued Liability (UAL) in both cases. An agency that issues a POB would see a higher increase in UAL than it would have had it not issued one. This “additional cost” would then offset some of the “projected savings” (the assumed savings of POB interest rate vs. the CalPERS rate).
Whether or not this underperformance (whether sustained over time – for example, 5% over time instead of 6.8%, or all at once, like a 2008 recession type event right after issuance) outweighs the expected savings (thus making an agency worse off after POB issuance) would need to be analyzed.
This type of stress testing or risk quantification requires significant technical rigor.
Scenarios can be analyzed to depict the future impacts of pension costs with and without a POB, under any scenario of future CalPERS returns that one would like to see. Ultimately, this would provide the risk assessment and cost/benefit analysis that a decision maker would need to properly evaluate this complex strategy. This requires significant actuarial and financial analysis.