Porterville City Council
June 6, 2022

OPPENHEIMER & CO. INC., as
Underwriter
By
Authorized Officer
Accepted:

CITY OF PORTERVILLE
By
City Manager
Time of Execution:
-15-
Exhibit A

EXHIBIT A

FORM OF SUPPLEMENTAL OPINION OF BOND COUNSEL
[Closing Date]
Oppenheimer & Co. Inc.
580 California Street, Suite 2300
San Francisco, CA 94104
$_______
City of Porterville
(Tulare County, California)
Pension Obligation Bonds, Series 2022
(Federally Taxable)
(Supplemental Opinion)
Ladies and Gentlemen:

This opinion is addressed to you, as underwriter, pursuant to Section 6(f)(2) of the Purchase Agreement, dated _________, 2022 (the “Purchase Agreement”), between Oppenheimer & Co. Inc. (the “Underwriter”) and the City of Porterville (the “City”), providing for the purchase of $_______ aggregate principal amount of the City of Porterville (Tulare County, California) Pension Obligation Bonds, Series 2022 (Federally Taxable) (the “Bonds”). The Bonds are being issued by the City under the provisions of Articles 10 and 11 (commencing with section 53570) of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the “Bond Law”), and a Trust Agreement, dated as of August 1, 2022 (the “Trust Agreement”), by and between the City and U.S. Bank Trust Company, National Association, as trustee. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Trust Agreement, and if not defined in the Trust Agreement, in the Purchase Agreement.

In addition to the opinions set forth in our final legal opinion (the “Bond Opinion”) concerning the validity of the Bonds and certain other matters, dated the date hereof and addressed to the City, and based on and subject to the matters referred to in such Bond Opinion (which are hereby incorporated herein by reference), and in reliance thereon, as of the date hereof, we are of the following opinions or conclusions:

1. The Bonds are exempt from the registration requirements of the Securities Act of 1933, as amended, and the Trust Agreement is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended.

2. The Purchase Agreement and the Continuing Disclosure Certificate have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties thereto, constitute the legal, valid and binding agreements of the City, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights and except as their enforcement may be subject to the application of equitable principles and the exercise of judicial discretion in appropriate cases if equitable remedies are sought and by the limitations on legal remedies against public agencies in the State.

3. The information contained in the Official Statement on the cover and under the captions “THE BONDS” (excluding any information relating to DTC and its book-entry system), “SECURITY FOR THE BONDS,” “VALIDATION,” “TAX MATTERS,” APPENDIX A—SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT, APPENDIX E—FORM OF CONTINUING DISCLOSURE CERTIFICATE and APPENDIX G—FORM OF BOND COUNSEL OPINION, to the extent they purport to summarize certain provisions of the Bonds, the Trust Agreement, the Continuing Disclosure Certificate, the Default Judgment and the form and content of Bond Counsel’s approving opinion with respect to the treatment of interest on the Bonds under State or federal law, are accurate in all material respects.

Exhibit A

This letter is delivered to and for the sole benefit of the above addressees, is issued for the sole purpose of the transaction specifically referred to herein, and is not to be used, circulated, quoted or otherwise referred to or relied upon for any other purpose or by any other person. The provision of this opinion to you shall not create any attorney-client relationship between our firm and the Underwriter.

This opinion may not be relied upon by any other person, firm, corporation or other entity without our prior written consent, and we have no obligation to update this opinion.

Exhibit B

EXHIBIT B

MATURITIES, RATES, YIELDS, PRICES AND REDEMPTION PROVISIONS $_______

CITY OF PORTERVILLE
(Tulare County, California)
Pension Obligation Bonds, Series 2022
(Federally Taxable)

MATURITY SCHEDULE
Maturity Principal Interest
(August 1) Amount Rate Yield Price
T Term Maturity
Optional Redemption. The Bonds maturing on or before August 1, ____, are not subject to optional redemption prior to their respective stated maturities. The Bonds maturing on and after August 1, ____, are subject to optional redemption from any source of available funds of the City, prior to their respective maturities, in whole or in part on any date on or after August 1, ____ (the “Par Call Date”), upon at least forty-five (45) days prior written notice to the Trustee from the City, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium.

Mandatory Sinking Fund Redemption. The Bonds maturing on August 1, 2041, are also subject to mandatory sinking fund redemption on August 1 in the years, and in the amounts, as set forth in the following table, at a redemption price equal to one hundred percent (100%) of the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption:

Exhibit B

Sinking Fund Principal
Redemption Date Amount to be
(August 1) Redeemed
†Maturity
Quint & Thimmig LLP 03/17/22
16008.21

CONTINUING DISCLOSURE CERTIFICATE
This CONTINUING DISCLOSURE CERTIFICATE (the “Disclosure Certificate”) is executed and delivered by the CITY OF PORTERVILLE (the “City”) in connection with the issuance by the City of its $_______ City of Porterville (Tulare County, California) Pension Obligation Bonds, Series 2022 (Federally Taxable) (the “Bonds”). The Bonds are being issued pursuant to a trust agreement, dated as of August 1, 2022 (the “Trust Agreement”), by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The City covenants and agrees as follows:

Section 1. Definitions. In addition to the definitions set forth above and, in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 1, the following capitalized terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Annual Report Date” means the date that is nine months after the end of the City’s fiscal year (currently March 31 based on the City’s fiscal year end of June 30). “Dissemination Agent” shall mean, initially, ____________ or any successor Dissemination Agent designated in writing by the City and a written acceptance of such designation of which has been filed with the then current Dissemination Agent. “Fiscal Year” means any twelve–month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other twelve–month period selected and designated by the City as its official fiscal year period under a certificate of the City filed with the Trustee.
“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. “Official Statement” means the final official statement executed by the City in connection with the issuance of the Bonds.
“Participating Underwriter” means Oppenheimer & Co. Inc. the original underwriter of the Bonds.
“Rule” means Rule 15c2–12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time. “Significant Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.
-2-
Section 2. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.

Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 2023, with the report for fiscal year 2021-22 provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Significant Event under Section 5(c). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder.
(b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City in a timely manner shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (c) With respect to each Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the then–applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.

Section 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following:
(a) The City’s audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.
(b) Unless otherwise provided in the audited financial statements filed on or prior to the annual filing deadline for Annual Reports provided for in Section 3 above, financial information -3-
and operating data with respect to the City for the preceding fiscal year, substantially similar to that provided in the Official Statement, as follows:
(i) general fund revenue sources by type (over $1,000,000); (ii) combined annual contribution (City’s share and employees’ share) to the Public Employees Retirement System; and
(iii) adopted general fund budget.
(c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the City shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
(d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Significant Events with respect to the Bonds:
(i) Principal and interest payment delinquencies;
(ii) Non–payment related defaults, if material;
(iii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit enhancements reflecting financial difficulties; (v) Substitution of credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701–TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; (vii) Modifications to rights of security holders, if material; (viii) Bond calls, if material, and tender offers;
(ix) Defeasances;
(x) Release, substitution, or sale of property securing repayment of the securities, if material;
(xi) Rating changes;
(xii) Bankruptcy, insolvency, receivership or similar event of the City or other obligated person;
-4-
(xiii) The consummation of a merger, consolidation, or acquisition involving the City or an obligated person, or the sale of all or substantially all of the assets of the City or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; (xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material;
(xv) The incurrence of a financial obligation of the City or other obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the City or other obligated person, any of which affect security holders, if material; or
(xvi) A default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the City or other obligated person, any of which reflect financial difficulties. (b) Whenever the City obtains knowledge of the occurrence of a Significant Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Significant Event.

Notwithstanding the foregoing, notice of Significant Events described in subsection (a)(viii) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Trust Agreement. (c) The City acknowledges that the events described in subparagraphs (a)(ii), (a)(vii), (a)(viii) (if the event is a bond call), (a)(x), (a)(xiii), (a)(xiv) and (a) (xv) of this Section 5 contain the qualifier “if material.” The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the City determines the event’s occurrence is material for purposes of U.S. federal securities law. The City intends that the words used in paragraphs (xv) and (xvi) and the definition of “financial obligation” to have the meanings ascribed thereto in SEC Release No. 34-83885 (August 20, 2018) or any further guidance or release provided by the SEC.
(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(xii) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.

Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.

Section 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds. -5-
Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. Any Dissemination Agent may resign by providing 30 days’ written notice to the City.

Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative.

The Dissemination Agent shall not be obligated to enter into any amendment increasing or affecting its duties or obligations hereunder.

A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Significant Event under Section 5(b).

Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Significant Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to -6-
include any information in any Annual Report or notice of occurrence of a Significant Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Significant Event.

Section 11. Default. If the City fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) Article IX of the Trust Agreement is hereby made applicable to this Disclosure Certificate as if this Disclosure Certificate were (solely for this purpose) contained in the Trust Agreement. The Dissemination Agent shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the City hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Bond holders or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
(b) The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. -7-
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and the Owners and Beneficial Owners from time to time of the Bonds and shall create no rights in any other person or entity.

Date: ___________, 2022

CITY OF PORTERVILLE
By
John D. Lollis
City Manger
ACKNOWLEDGED:
__________________, as Dissemination Agent
By
Authorized Officer
Exhibit A

EXHIBIT A

NOTICE TO EMMA OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Porterville
Name of Issue: $_______ City of Porterville (Tulare County, California) Pension Obligation Bonds, Series 2022 (Federally Taxable)
Date of Issuance: ___________, 2022
NOTICE IS HEREBY GIVEN that the Obligor has not provided an Annual Report with respect to the above-named Issue as required by the Continuing Disclosure Certificate, dated __________, 2022, furnished by the Issuer in connection with the Issue. The Issuer anticipates that the Annual Report will be filed by _____________.

Dated: ______________________
_____________, as Dissemination Agent
By
Title
Quint & Thimmig LLP 03/17/22
16008.21

FORM OF FINAL OPINION OF BOND COUNSEL
[Letterhead of Quint & Thimmig LLP]
August __, 2022
City of Porterville
291 North Main Street
Porterville, California 93257
OPINION: $_______ City of Porterville (Tulare County, California) Pension Obligation Bonds, Series 2022 (Federally Taxable)
Members of the City Council:

We have acted as bond counsel to the City of Porterville (the “City”) in connection with the issuance by the City of $_______ principal amount of City of Porterville (Tulare County, California) Pension Obligation Bonds, Series 2022 (Federally Taxable) (the “Bonds”), pursuant to the provisions of Articles 9 and 11 of Chapter 3 (commencing with section 53550) of Division 2 of Title 5 of the California Government Code (the “Act”), a Trust Agreement, dated as of August 1, 2022, by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trust Agreement”), and resolutions adopted by the City Council of the City on April 5, 2022, and ________, 2022 (collectively, the “Resolutions”). We have examined the law and such certified proceedings and other papers as we deemed necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Trust Agreement, the Resolutions and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify such facts by independent investigation.

Based upon our examination, we are of the opinion, as of the date hereof, that:

1. The City is duly created and validly existing as a general law city and municipal corporation with power to enter into the Trust Agreement, to perform the agreements on its part contained therein and to issue the Bonds.

2. The Bonds constitute legal, valid and binding obligations of the City enforceable in accordance with their terms and payable solely from the sources provided therefor in the Trust Agreement.

3. The Trust Agreement has been duly authorized, executed and delivered by the City and constitutes a legal, valid and binding obligation of the City enforceable against the City in accordance with its terms.

4. Interest on the Bonds is includible in gross income for federal income tax purposes.

City of Porterville ___________, 2022

5. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.

Ownership of the Bonds may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds.

The rights of the owners of the Bonds and the enforceability of the Bonds and the Trust Agreement may be subject to the bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity.

Our opinion represents our legal judgment based upon such review of the law and the facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

Respectfully submitted,
Quint & Thimmig LLP 03/17/22
16008.21

FORM OF LETTER OF DISCLOSURE COUNSEL
[Letterhead of Quint & Thimmig LLP]
___________, 2022
City of Porterville
291 North Main Street
Porterville, CA 93257
Oppenheimer & Co. Inc.
580 California Street, Suite 2300
San Francisco, CA 94104
Re: $_______ City of Porterville (Tulare County, California) Pension Obligation Bonds, Series 2022 (Federally Taxable)
Ladies and Gentlemen:

We have acted as disclosure counsel to the City of Porterville (the “City”) in connection with the issuance by the City of $_______ aggregate principal amount of the bonds of the City designated the “City of Porterville (Tulare County, California) Pension Obligation Bonds, Series 2022 (Federally Taxable)” (the “Bonds”), pursuant to the provisions of Articles 9 and 11 of Chapter 3 (commencing with section 53550) of Division 2 of Title 5 of the California Government Code (the “Act”) and other applicable provisions of law, that certain trust agreement, dated of August 1, 2022, by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trust Agreement”), and resolutions adopted by the City Council of the City on April 5, 2022, and _____, 2022 (collectively, the “Resolutions”). This letter is being delivered by us in our capacity as disclosure counsel to the City and not as counsel to any other addressee hereof. Capitalized terms used in this letter and not otherwise defined herein have the meanings given to them in the Trust Agreement.

In connection with this letter, we have reviewed the Resolutions, the Trust Agreement, Preliminary Official Statement, dated _________, 2022 (the “Preliminary Official Statement”), and the Official Statement, dated _________, 2022 (the “Official Statement”), which describe the Bonds, the Trust Agreement and the Resolutions, and such other records, opinions and documents, and we have made such investigations of law, as we have deemed appropriate as a basis for the conclusions hereinafter expressed. In arriving at the conclusions expressed below, we are not expressing any opinion or view on, and with your permission are assuming, the validity, accuracy and sufficiency of the records, documents, certificates and opinions referred to above (including the accuracy of all factual matters represented and legal conclusions contained therein, including (without limitation) representations and legal conclusions regarding the due authorization, issuance, delivery, validity and enforceability of the Bonds).

We have assumed that all records, documents, certificates and opinions that we have reviewed, and the signatures thereto, are genuine.

Based on and subject to the foregoing, and in reliance thereon, we advise that the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and that the City of Porterville __________, 2022
Oppenheimer & Co. Inc. Page 2
Trust Agreement is exempt from qualification under the Trust Indenture Act of 1939, as amended.

We are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Preliminary Official Statement or the Official Statement and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. However, in our capacity as disclosure counsel to the City, we have reviewed certain documents as described above and have participated in conferences during which the contents of the Preliminary Official Statement and the Official Statement and related matters were discussed. Based on our review of documents and our participation in the above-mentioned conferences, and with the assumptions described in the second preceding paragraph, we advise you that, during the course of our assistance in the preparation of the Preliminary Official Statement and the Official Statement, no facts have come to the attention of the attorneys in our firm rendering legal services in connection with such representation that caused us to believe that the Preliminary Official Statement as of its date or the Official Statement, as of July 12, 2022, and as of the date of this letter contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that we express no opinion or belief with respect to: (i) the expressions of opinion, the assumptions, the projections, the financial statements or other financial, numerical, economic, demographic or statistical data contained in the Preliminary Official Statement and the Official Statement, (ii) any CUSIP numbers or information relating thereto contained in the Preliminary Official Statement and the Official Statement, (iii) any information contained in the appendices to the Preliminary Official Statement and the Official Statement, (iv) any information with respect to The Depository Trust Company and its book entry system for the Bonds contained or incorporated in the Preliminary Official Statement and the Official Statement, (v) any information incorporated by reference into the Preliminary Official Statement and the Official Statement, (vi) information with respect to the rating on the Bonds and the rating agency referenced in the Preliminary Official Statement and the Official Statement, and (vii) compliance by the City with its obligations to provide notices of the events described in Part (b)(5)(i)(C) of Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (the “Rule”) or to file annual reports described in Part (b)(5)(i)(A) of the Rule, which compliance we have not reviewed pursuant to your direction).

During the period from the dates of the Preliminary Official Statement and the Official Statement to the date of this letter, except for our review of the certificates and opinions regarding the Preliminary Official Statement and the Official Statement delivered on the date hereof, we have not undertaken any procedures or taken any actions which were intended or likely to elicit information concerning the accuracy, completeness or fairness of any of the statements contained in the Preliminary Official Statement or the Official Statement. We also advise you that the preceding paragraph is not an opinion but, rather, in the nature of negative observations based on certain limited activities performed by specific lawyers in our firm in our role as disclosure counsel to the City. The scope of those activities performed by us for purposes of delivering this letter were inherently limited and do not purport to encompass all activities necessary for compliance with applicable securities laws. In addition, the performance of those activities by us required our reliance upon third-party representations, warranties, certifications and opinions, including and primarily, representations, warranties and certifications made by the City, and are otherwise subject to the conditions set forth herein.

City of Porterville __________, 2022
Oppenheimer & Co. Inc. Page 3
This letter is furnished by us solely for your benefit and may not be relied upon by any other person or entity. We disclaim any obligation to supplement this letter to reflect any facts or circumstances that may hereafter come to our attention or any changes in the law that may hereafter occur, and our engagement with respect to this matter has terminated as of the date hereof.

Very truly yours,
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

PRELIMINARY OFFICIAL STATEMENT DATED ________, 2022
NEW ISSUE—BOOK-ENTRY ONLY RATING:

S&P: “___”
See “RATING” herein.

In the opinion of Quint & Thimmig LLP, Bond Counsel, interest on the Bonds is exempt from California personal income taxes. See “TAX MATTERS” herein. Interest on the Bonds is not excludable from gross income of the owners thereof for federal income tax purposes. $_______*

CITY OF PORTERVILLE
(Tulare County, California)
Pension Obligation Bonds, Series 2022
(Federally Taxable)
Dated: Date of Delivery Due: August 1, as shown on the inside cover The $________* City of Porterville (Tulare County, California) Pension Obligation Bonds, Series 2022 (Federally Taxable) (the “Bonds”), are being issued by the City of Porterville (the “City”) pursuant to Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, a trust agreement, dated as of August 1, 2022 (the “Trust Agreement”), by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), and resolutions of the City Council of the City adopted on April 5, 2022, and ________, 2022.

Interest on the Bonds is payable semiannually on each February 1 and August 1, commencing February 1, 2023. Principal is payable on the dates set forth below. The Bonds are being issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository of the Bonds. Individual purchases of interests in the Bonds will be made in book-entry form only, in the principal amount of $5,000 or any integral multiple thereof. Purchasers of such interests will not receive securities representing their interests in the Bonds. Payments of principal of and interest on the Bonds are payable by the Trustee directly to DTC, which is obligated in turn to remit such principal and interest to DTC Participants for subsequent disbursement to the Beneficial Owners of the Bonds, as described herein.

The Bonds are subject to redemption prior to maturity as described herein.

The Bonds are being issued to (a) finance all or a portion of the City’s unfunded accrued actuarial liability to the California Public Employees’ Retirement System for the benefit of the City’s miscellaneous and safety employees, and (b) pay the costs of issuance of the Bonds, all as more fully described herein. See “FINANCING PLAN” herein
For the purpose of paying the principal of and interest on the Bonds, the City Council of the City is obligated, under the Trust Agreement, to take such actions annually as are necessary or appropriate to cause the debt service on the Bonds due in any fiscal year to be included in the budget for such fiscal year and to make the necessary annual appropriations therefor from any legally available funds, including the City’s General Fund, to ensure that sufficient sums are available to pay the annual principal of and interest on the Bonds as the same shall become due. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein.

A reserve fund will not be funded for the Bonds.

THE BONDS CONSTITUTE THE ABSOLUTE AND UNCONDITIONAL OBLIGATIONS OF THE CITY, PAYABLE FROM ALL LEGALLY AVAILABLE FUNDS OF THE CITY; HOWEVER, NO OTHER SPECIFIC SOURCE OF REVENUES OR OTHER FUNDS OF THE CITY ARE PLEDGED, NOR IS THE CITY OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION TO MAKE PAYMENTS OF PRINCIPAL OF AND INTEREST ON THE BONDS. THE BONDS ARE NOT SUBJECT TO ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE CITY HAS COVENANTED IN

THE TRUST AGREEMENT TO PUNCTUALLY PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS IN STRICT CONFORMITY WITH THE

TERMS OF THE TRUST AGREEMENT AND OF THE BONDS, AND TO FAITHFULLY OBSERVE AND PERFORM ALL THE AGREEMENTS AND COVENANTS TO BE OBSERVED OR PERFORMED BY THE CITY CONTAINED IN THE TRUST AGREEMENT AND IN THE BONDS.

The following firm, serving as municipal advisor to the Town, has structured this issue:

MATURITY SCHEDULE

SEE THE INSIDE COVER
This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

The Bonds will be offered when, as and if issued, and received by the purchaser thereof, subject to the approval as to their legality by Quint & Thimmig LLP, Larkspur, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by Quint & Thimmig LLP, Larkspur, California, Disclosure Counsel, and by the City Attorney. Certain legal matters will be passed on for the Underwriter by its counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California. It is anticipated that the Bonds will be available for delivery through the book-entry facilities of DTC on or about August __, 2022.

Dated: ________ __, 2022
*Preliminary, subject to change.
$________*

CITY OF PORTERVILLE
(Orange County, California)
Pension Obligation Bonds, Series 2022
(Federally Taxable)

MATURITY SCHEDULE
Maturity Principal Interest CUSIP†
(August 1) Amount Rate Yield Price Suffix
$_______ ____% Term Bonds Maturing August 1, ____; Price: ____, to Yield _____%—CUSIP†: _____ ___ *Preliminary, subject to change.
† Copyright 2022, American Bankers Association. CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, operated by Standard & Poor’s. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers have been assigned by an independent company not affiliated with the City and are included solely for the convenience of the registered owners of the Bonds. Neither the City nor the Underwriter is responsible for the selection or uses of these CUSIP numbers and no representation is made as to their correctness on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the delivery of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds.

Quint & Thimmig LLP 03/17/22
*Preliminary, subject to change.
16008.21
$________*

CITY OF PORTERVILLE
(Tulare County, California)
Pension Obligation Bonds, Series 2022
(Federally Taxable)
RULE 15c2-12 CERTIFICATE
The undersigned hereby certifies and represents that he is the duly appointed City Manager of the City of Porterville (the “City”), and as such is duly authorized to execute and deliver this Certificate and further hereby certifies and confirms on behalf of the City as follows:
(1) This Certificate is delivered in connection with the offering and sale of the captioned bonds (the “Bonds”), in order to enable the underwriter of the Bonds to comply with Securities and Exchange Commission Rule 15c2-12 under the Securities Exchange Act of 1934 (the “Rule”); (2) In connection with the offering and sale of the Bonds, there has been prepared a preliminary official statement (the “Preliminary Official Statement”); (3) As used herein, “Permitted Omissions” shall mean the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, ratings and other terms of the Bonds depending on such matters, all with respect to the Bonds; and
(4) The Preliminary Official Statement is, except for the Permitted Omissions, deemed final by the City within the meaning of the Rule.

IN WITNESS WHEREOF, the undersigned has executed this Certificate as of this ____ day of ____________, 2022.

CITY OF PORTERVILLE
By
John D. Lollis
City Manager
Document/Event Estimated Date Comment
Adoption of Bond Resolution
and approval of Trust
Agreement
04/05/22
Resolution adopted prior to
validation action
Summons and Complaint
04/19/22
Beginning of validation proceedings
to occur within 60 days of the
adoption of the Resolution
Application for Order of
Publication 04/19/22 Filed same day as summons and complaint Clerk Declaration in Support of
Application for Order of
Publication
04/19/22
Filed same day as application for
order of publication
Order of Publication
04/29/22
Court will grant after review of
summons, complaint, application
for order of publication, and clerk
declaration in support
1st Publication
05/09/22
Publication to begin once order of
publication is received. Publication
must occur once a week for three
successive weeks pursuant to GC
§6063
2nd publication 05/16/22 Week two
3rd publication 05/23/22 Week three
17 days period after final
publication to answer
complaint 06/09/22
Jurisdiction is complete 17 days
after the completion of publication
of the summons pursuant to GC
§6063
Declaration of Publication 06/11/22 Filed once jurisdiction is complete Attorney Declarations of No
Opposition 06/11/22 Filed once jurisdiction is complete Memorandum of Points and
Authorities in Support of Entry
of Default Judgment
06/11/22
Filed once jurisdiction is complete
Proposed Judgment 06/11/22 Filed once jurisdiction is complete Signed Judgment
06/25/22
Court grants Judgment after review
of memorandum of points and
authorities and a hearing
Approval of POS and BPA and
Final Issuance 06/14/22
Passive Validation 07/25/22 30 days after Judgment is entered Mail POS 07/26/22
Bond Sale 08/05/22
Closing 08/19/22
Pension Obligation Bonds
Pro Forma Validation Timeline as of 3/17/22
City of Porterville
The fundamental financial objective of government employers that offer defined benefit (DB) pensions and other postemployment benefits (OPEB) to their employees is to fund the longterm cost of the benefits promised to participants. It is widely acknowledged that the appropriate way to attain reasonable assurance that benefits will remain sustainable is for a government to accumulate resources for future benefit payments in a systematic and disciplined manner during the active service life of the benefiting employees.

Long-term funding is accomplished through contributions from the employer and employee, and from investment earnings, which typically provide the largest component of funding.

Contributions often are expressed as a percentage of active member payroll, which should remain approximately level from one year to the next. A funding policy for benefits offered codifies the government’s commitment to fund benefit promises based on regular actuarial valuations. Creating a funding policy that embodies this funding principle is a prudent governance practice and helps achieve intergenerational equity among those who are called on to financially support the benefits, thereby avoiding the transfer of costs into the future.

BEST PRACTICES
Sustainable Funding Practices for
Defined Benefit Pensions and Other
Postemployment Benefits (OPEB)
Governments should ensure that the costs of DB pensions and OPEB are properly measured and reported, and that governments sponsor or participate in DB pension plans, or that offer OPEB, to contribute the full amount of their actuarially determined contribution (ADC) each year.

GFOA recommends that government officials ensure that the costs of DB pensions and OPEB are properly measured and reported. Sustainability requires governments that sponsor or participate in DB pension plans, or that offer OPEB, to contribute the full amount of their actuarially determined contribution (ADC) each year. Failing to fund the ADC during recessionary periods impairs investment returns by providing inadequate funds to invest when stock prices are low. As a result, long-term investment performance will suffer and ultimately require higher contributions.

Public officials and associated trustees should, at a minimum, adhere to the following best practices for sustaining DB pension plans and OPEB, as applicable:

1. Adopt a funding policy with a target funded ratio of 100 percent or more (full funding).

The funding policy should provide for a stable amortization period over time,[1] with parameters provided for making changes based on specific circumstances. The amortization period for the unfunded actuarial accrued liability should be consistent with the funding policy.

2. Discuss the funding and amortization methods with the government’s actuary and select the one most closely aligned with the government’s funding policy. The actuarial funding method selected is a key component of the funding policy for the offered benefits. [2] Some funding methods may result in greater variation in the ADC (the portion of the present value of projected benefits that is attributable to the current period) than others.

Governments should take measures to reduce the volatility in the ADC in order to create a more predictable operating budget and enhance their ability to meet their funding obligations.

3. The funding policy should stipulate that employer and employee contributions are to be made at regular intervals, with the contribution amount determined by the results of a recent actuarial valuation of the system. To ensure that this objective can be achieved, the funding policy should be integrated with investment and asset allocation policies.

Reductions or postponements in collecting the ADC would typically be inconsistent with the assumptions made in computing the ADC. When contributions fall below the ADC, the board of trustees should prepare a report that analyzes the effect of the underfunding and distribute that report to all stakeholders.

4. Have a qualified actuary prepare an actuarial valuation [3] at least biennially, in accordance with generally accepted actuarial principles. Each valuation should include a gain/loss analysis that identifies the magnitude of actuarial gains and losses, based on variations between actual and assumed experience for each major assumption.

5. Have an actuarial experience study [4] performed at least once every five years and update actuarial assumptions as needed. Assumptions that should be carefully reviewed include the long-term return on assets, salary growth, inflation, mortality tables, age eligibility, and any anticipated changes in the covered population of plan participants. As part of this review, assess the overall risk of the assumptions to ensure that what may have been determined to be an acceptable level of risk in any one area has not been compounded.

6. Have an independent actuary perform a comprehensive actuarial audit of the actuarial valuations [5] at least once every five to eight years. The purpose of such a review is to provide an independent assessment of the reasonableness of the actuarial methods and assumptions in use and the validity of the resulting actuarially computed contributions and liabilities. Actuarial assumptions should be carefully reviewed, discussed with outside experts (including investment advisors), and explicitly approved by the governing body.

7. Communicate plan status and activities by preparing and widely distributing a comprehensive annual financial report covering the retirement system, and distribute summary information to all plan participants. The comprehensive annual financial report should be prepared following GFOA’s guidance for the preparation of a public-employee retirement system comprehensive annual financial report.

GFOA recommends the following options to reduce ADC volatility:

1. Smoothing returns on assets. Smoothing investment returns over several years recognizes that investment portfolio performance fluctuates, and only by coincidence will it exactly equal the assumed actuarial rate of return for any given year. This approach reduces the volatility within the calculation of the ADC. A smoothing period is used to balance the need for a longer-term investment horizon with the short-term market fluctuations in the value of assets. While the smoothing period is typically about five years, it can be longer, if controls are in place to assure that any variation between the market value and actuarial value of assets does not become too large. A common approach is to establish corridors around the market value of assets that stipulate the maximum percentage by which the actuarially smoothed value will be allowed to deviate from actual market value. Once a smoothing method is established, the governing board should adhere to it and avoid making arbitrary changes to the methodology.

2. Diversifying the investment portfolio to reduce volatility in investment returns.

Diversifying assets across and within asset classes is a fundamental risk management tool that also has the effect of reducing the fluctuations in ADC volatility. Although annual changes in the ADC are affected by numerous factors, the most significant is usually investment return. Retirement systems should periodically conduct assetliability studies for use in reviewing their asset allocation policies. The risk of investment strategies should also be assessed as well as an evaluation of any management fees associated with investment strategies utilized. [7]

3. Managing investment returns long term. Because the investment return assumption is an average long-term expected rate of return, excess earnings in any one year will likely be offset by lower-than-expected rates of return in a future year. Thus, any program that is derived from an excess-earnings concept is detrimental to the funded status of the plan.

4. Managing growth in liabilities. All benefit increases for members and beneficiaries should be carefully considered, appropriately approved, and consistent with applicable Internal Revenue Service requirements. Whether cost of living adjustments (COLAs), benefit formula enhancements, or postretirement benefit increases, a clear strategy should be developed that integrates benefit enhancements with the funding policy. Further, all benefit enhancements and COLAs should be actuarially valued and presented to the appropriate governing bodies before they are adopted so the effect of the benefit enhancements on the fund’s actuarial accrued liability, funded ratio, and contribution rates is fully understood. This step will help ensure that the goals of fully funding member benefits and financial sustainability are achieved. If a benefit enhancement is being considered, a source of funding should be identified that can support the enhancement over the long term.

To further ensure sustainable funding practices, design the plan to prevent calculation abuses of retirement benefit enhancements such as salary spiking, and any other ethical violations.

These violations can create negative public perceptions that are harmful to all participants and can adversely affect the sustainability of the system. Policies to safeguard against ethical violations and benefit calculation abuses should be considered.

Notes:

1. GFOA recommends that a pension funding policy use a fixed (closed) amortization method so that the entire liability would be fully amortized at the end of a set duration, e.g., 25 years. See GFOA Best Practice, Core Elements of a Funding Policy

2. The use of projected unit credit method typically would not be consistent with the goal of level funding.

3. See GFOA’s Best Practice on Procuring Actuarial Services

4. The purpose of an actuarial valuation is 1) to determine the amount of actuarially determined contributions (i.e., an amount that, if contributed consistently and combined with investment earnings, would be sufficient to pay promised benefits in full over the long-term) and 2) to measure the plan’s funding progress.

5. An actuarial experience study reviews the differences between a plan’s assumed and actual experience over multiple years (typically 3 to 5), with the goal of examining the trends related to actual experience and recommending changes to assumptions, if needed.

6. Because the reliability of an actuarial valuation depends on the use of reasonable methods and assumptions, a comprehensive audit of the actuarial valuations is conducted to review the appropriateness of the actuarial methods, assumptions, and their application.

7. See GFOA’s Best Practice on Asset Allocation for Defined Benefit Plans References:

Financing Retirement System Benefits, Richard G. Roeder, GFOA, 1987.

Pension Accounting and Reporting, Second Edition, William R. Schwartz, GFOA, 1995.

Guidelines for the Preparation of a Public Employee Retirement System Comprehensive Annual Financial Report, Stephen Gauthier, GFOA, 1996.

An Elected Officials Guide to Public Retirement Plans, Cathie G. Eitelberg, GFOA, 1997.

A Guide for Selecting Pension Actuarial Consultants: Writing RFPs and Evaluating Proposals, Robert Pam, GFOA, 1999.

Public Pension Systems – Operational Risks of Defined Benefit and Related Plans and Controls Investment Policy Checklist for Pension Fund Assets, GFOA, May 2003.

GFOA Best Practice, Asset Allocation for Defined Benefit Plans Board approval date: Friday, January 22, 2016

Refinancing CalPERS Unfunded Liability
Using Pension Obligation Bonds
Presented by:
1 June 7, 2021
Overview of CalPERS System
➢ Overview
➢ Most public agencies in California participate in the CalPERS retirement system to fund retirement benefits for their employees.
➢ CalPERS is the largest Public Retirement System in the United States. ➢ The City of Porterville participates in this Pooled Retirement System. ➢ The City pays into the system an annual deposit based on a percentage of payroll which, when invested by CalPERS at an assumed rate of return (currently assumed to be 7.00%) and added to the cash deposited, is actuarially designed to provide sufficient funds to pay required retirement benefits to its employees.
➢ Normal Cost CalPERS Payment
➢ The payment to CalPERS consists of two components, the normal cost and (if necessary) a scheduled payment toward the Unfunded Accrued Liability (UAL).
➢ The normal cost is the total amount that a CalPERS actuary has determined should be charged in a given year to all plan participants and its employees to complement the years investment earnings such that all benefits paid, and all administrative costs are covered. ➢ This collected amount is invested by CalPERS.
➢ CalPERS Investment Performance
➢ If actual investment performance does not meet the assumed rate of return needed for an employer to fund its long-term actuarial retiree obligations, or if an employer does not make sufficient contributions to its CalPERS fund, the resulting shortfall is calculated and allocated to the employer in the form of its Unfunded Accrued Liability (UAL).
2 ➢ Unfunded Accrued Liability (UAL)
➢ When a shortfall/UAL is calculated, it becomes an obligation of the City and the City accrues an annual cost on the balance in amount of CalPERS target rate of return (currently 7%), which is added to the existing UAL.
➢ This cost represents the return that CalPERS assumes it could have earned on the additional funds had the agency fully funded its retirement plans.
➢ Schedule of UAL Payments
➢ CalPERS gives each participating employer an amortization schedule to pay down its UAL obligation to CalPERS over a period of years.
➢ The schedule for the City of Porterville’s UAL currently runs through fiscal year 2045-46. ➢ Future Performance
➢ If investment performance exceeds CalPERS’ expected rate, the net benefit is credited to pay down the existing UAL. If the employer has no current UAL, it remains as a credit balance to pay future UAL. ➢ If investment performance is less than the expected rate, the shortfall is added to the UAL or creates a new UAL which is amortized in the payment schedule along with the previously existing balance. ➢ Obligation
➢ The UAL is an obligation similar in many ways to other long-term liabilities. It is legally enforceable and has a mandatory payment schedule, although its terms can be more flexible than those of a bond. ➢ It is effectively a debt with the annual interest cost calculated at CalPERS’ assumed rate of return (7%) on the unpaid balance, plus the amount necessary to amortize the principal over the provided time frame, and the investment community regards it as such.

Overview of CalPERS System
3 Porterville UAL Balance
The City has six retirement plans at CalPERS. The projected UAL balances of the three plans are summarized here:

Bolded plans would be addressed in the proposed financing, non-bolded plans have minimal UAL balances and would not be included in the financing due to the limited benefits to the City. *Projected balances as of June 30, 2022 are taken from CalPERS’ Actuarial Valuation Report to the City of Porterville dated July 2020, based on audited figures as of June 30, 2019 – CalPERS will verify these balances when a closing date is established for the City’s anticipated issuance. 4 Miscellaneous $ 35,544,596*
Safety 19,290,842*
Safety Police Second Tier 57,295*
Safety Fire Second Tier 50,077*
PEPRA Safety Police 119,994*
PEPRA Safety Fire 58,719*
Total $ 55,121,523*
1) Continue to pay CalPERS based on existing 24-year amortization schedule, or other shorter-term schedules, as outlined in the CalPERS report.
2) Pay off the UAL in part or in full with surplus funds of the City and/or participate in and fund a Section 115 Trust Reserve (or other Trust Reserve), as appropriate.
3) Pay off the UAL in part or in full using proceeds from the issuance of either a Lease Revenue Bond (requires collateral in a Leaseleaseback structure) or a General Fund secured Pension Obligation Bond (requires judicial validation).

Solutions to fund CalPERS Unfunded Accrued Liabilities (UAL) 5 Validation
6 Article XVI, Section 18 of the California Constitution (the "debt limit") prohibits Cities, Citys, and certain other government entities from entering into indebtedness or liability that in any year exceeds the income and revenue provided for such year unless the local agency first obtains two-thirds voter approval for the obligation. This obligation to obtain voter-approval can be avoided if it meets any of exceptions listed below:

1. Lease Exception

2. Special Funds Exception

3. Obligation Imposed by Law Exception (Validation Proceeding) Courts have determined that indebtedness to finance an obligation which is imposed by law is not subject to the debt limit. The theory is that the obligation is involuntary, and therefore it would be meaningless to put the question to the voters. Pension obligation bonds payable from an issuer's general fund are based on the theory that the payment of the unfunded liability to the issuer's pension plan is an "obligation imposed by law" which is, therefore, not subject to the constitutional debt limit. Because of limited case law authority on this exception to the debt limit, a judicial validation action is required in order to establish the validity of the obligation.

The validation action generally requires approximately 45 to 60 days from the date of filing and can be run concurrently with other work on the financing so that little additional time is required. Validation also has been considered crucial by the rating agencies, which generally require the 30-day appeal period to run before closing the bond issue. A typical pension obligation financing, including the validation action, takes roughly four to five months.
➢ If the current UAL is paid in full, future CalPERS investment performance will determine whether additional UAL is created in the future. Should CalPERS fail to achieve its projected rate of return, the shortfall will cause the creation of a new UAL.
➢ Conversely, should CalPERS achieve higher-than-expected returns, the excess would be credited to the employer’s fund and is thus available to offset any future increases in the UAL caused by subsequent underperformance in a given year.
➢ There is no possible way to eliminate the potential for future UAL to accrue due to underperformance of CalPERS other than exiting the CalPERS system entirely. ➢ There is investment risk in increasing the funded ratios on CalPERS plans. When CalPERS has additional funds to invest, they have the potential to underperform their projected return on those newly invested funds.

Substantial underperformance by CalPERS after an increase in a plan’s funded ratio could increase the plan’s UAL overall. Conversely, when CalPERS outperforms its projections, the newly invested funds receive that benefit. Pension Obligation Bonds can generate savings for issuers when their cost of funds (projected to be between 3-3.5%) is less than CalPERS targeted performance (calculated by CalPERS to be 7%), over a time horizon that is equal to term of the POBs (e.g., 20 years). Historical CalPERS performance is shown on slide 6. ➢ The anticipated bond structure could create enhanced resiliency for the City to absorb new UAL that may be generated by future CalPERS underperformance. This would be done by setting aside the savings or a portion thereof.
➢ Payoff solutions allows entities to pay down liabilities presently owed, with the potential ability to save money in the future by reducing further interest expense on the obligation. Eliminating today’s UAL is in no way a means of eliminating the risk of future underperformance by CalPERS.

Using Pension Obligation Bonds to Pay Down UAL
7 Overview of CalPERS Recent Investment Performance
8 Source: CalPERS (Facts at a Glance - Investment & Pension Funding, 2019-20 (ca.gov) Porterville – UAL Annual Pay-down
Payments have been made in lump sum for FY2020-21. FY2021-22 payments are anticipated to be made by the City in July of 2021. If no action is taken, future payments will continue annually based on the payment schedules provided by CalPERS.

Shown below are the City’s scheduled UAL payments to CalPERS for FY2022-23 on its Miscellaneous Plan and Safety Plan:
*Estimated per CalPERS for FY 2022-23 in CalPERS’ Actuarial Valuation Report to the City of Porterville dated July 2020, based on audited figures as of June 30, 2019. 9 Miscellaneous Plan $ 3,262,541*
Safety Plan 1,581,693*
Total $ 4,844,234*
CalPERS debt service projections are as provided to
the City by CalPERS in July 2020 based on the June
30, 2019 actuarial valuation. CalPERS actuarial
valuations are public information and figures were
obtained directly from CalPERS. Moreover,
CalPERS’ projected amortization schedules assume
that there are no future plan changes, no further
changes in assumptions other than those recently
approved, and no liability gains or losses. Such
changes can have a significant impact on required
contributions. CalPERS projections are subject to
change and significant uncertainty. For further
information about this uncertainty and the
associated risks, please refer to the CalPERS
Annual Valuation Report.

Payment schedules shown are the current CalPERS
amortization schedules for the Miscellaneous Plan
and Safety Plan.
10 Current CalPERS Amortization Schedule
Fiscal Year Safety Miscellaneous Totals
2021-22 -
2022-23 1,581,693 3,262,541 4,844,234
2023-24 1,686,621 3,388,669 5,075,290
2024-25 1,792,952 3,545,714 5,338,666
2025-26 1,847,482 3,643,221 5,490,703
2026-27 1,896,434 3,235,328 5,131,762
2027-28 1,946,732 3,324,300 5,271,032
2028-29 1,998,413 3,415,718 5,414,131
2029-30 2,051,515 3,509,653 5,561,168
2030-31 2,106,079 3,606,162 5,712,241
2031-32 2,162,139 3,258,603 5,420,742
2032-33 2,128,654 3,225,065 5,353,719
2033-34 2,091,743 2,983,468 5,075,211
2034-35 2,017,644 2,885,575 4,903,219
2035-36 1,893,369 2,733,504 4,626,873
2036-37 1,678,080 2,475,363 4,153,443
2037-38 1,003,208 2,324,236 3,327,444
2038-39 855,834 2,162,925 3,018,759
2039-40 738,119 2,048,153 2,786,272
2040-41 664,377 1,978,730 2,643,107
2041-42 467,025 1,494,321 1,961,346
2042-43 462,545 1,636,257 2,098,802
2043-44 374,180 713,359 1,087,539
2044-45 190,439 190,439
2045-46 12,959 12,959
Total 33,648,236 60,850,865 94,499,101
# of Payments 24 22
Current CalPERS Amoritzation Schedule The City of
Porterville
To be Paid in July '21
11 Numbers were run on May 19, 2021 at current
market rates.

All figures are preliminary, estimated, and
subject to change.

POB proceeds will be used to prepay the City’s
unfunded actuarial liability to PERS for its
Miscellaneous Plan and Safety Plan.

Delivery Date Expenses are budgeted numbers
that will be updated as the transaction
progresses. Any funds remaining in the Delivery
Date Expense Fund six month after closing will be
applied to the Debt Service Fund
Estimated Sources and Uses of Funds
21-year POB
Sources
Par Amount 55,515,000
Total Sources 55,515,000
Uses
Project Fund Deposits
Miscellaneous Plan 35,544,596
Safety Plan 19,290,842
Total Project Fund 54,835,438
Delivery Date Expenses
Estimated Cost of Issuance 318,715
Underwriter's Discount 360,848
Total Delivery Date Expenses 679,562
Total Uses 55,515,000
Dated Date 9/22/2021
Delivery Date 9/22/2021
Debt Service Potential Savings Analysis
The City of Porterville
Taxable Pension Obligation Bonds, Series 2021
Estimated Sources & Uses
POB proceeds will be used to prepay the City’s
unfunded actuarial liability to PERS for its
Miscellaneous Plan and Safety Plan.

Refunding POB debt service projections were
prepared by Wulff, Hansen & Co. and are
estimated based on current market conditions
as of May 19, 2021 and are subject to change.
12 Estimated POB Debt Service
Fiscal
Year
Principal Interest Rate Interest
Estimated Debt
Service
2021-22 - - -
2022-23 2,035,000 0.50% 1,751,395 3,786,395
2023-24 2,700,000 0.60% 1,318,583 4,018,583
2024-25 2,985,000 0.80% 1,298,543 4,283,543
2025-26 3,165,000 1.25% 1,266,821 4,431,821
2026-27 2,850,000 1.50% 1,225,665 4,075,665
2027-28 3,040,000 1.95% 1,174,650 4,214,650
2028-29 3,250,000 2.20% 1,109,260 4,359,260
2029-30 3,475,000 2.45% 1,030,941 4,505,941
2030-31 3,715,000 2.60% 940,078 4,655,078
2031-32 3,520,000 2.70% 844,263 4,364,263
2032-33 3,550,000 2.85% 746,155 4,296,155
2033-34 3,370,000 2.95% 645,860 4,015,860
2034-35 3,300,000 3.05% 545,828 3,845,828
2035-36 3,125,000 3.15% 446,284 3,571,284
2036-37 2,745,000 3.25% 352,459 3,097,459
2037-38 1,995,000 3.35% 274,436 2,269,436
2038-39 1,750,000 3.60% 209,520 1,959,520
2039-40 1,580,000 3.60% 149,580 1,729,580
2040-41 1,490,000 3.60% 94,320 1,584,320
2041-42 850,000 3.60% 52,200 902,200
2042-43 1,025,000 3.60% 18,450 1,043,450
Total: 55,515,000 15,495,288 71,010,288
Debt Service Potential Savings Analysis
The City of Porterville
Taxable Pension Obligation Bonds, Series 2021
Estimated New Bonds Debt Service
21-year POB
13 CalPERS debt service projections are as provided to the City by CalPERS in July 2020 based on the June 30, 2019 actuarial valuation. Moreover, CalPERS’ projected amortization
schedules assume that there are no future plan changes, no further changes in assumptions other than those recently approved, and no liability gains or losses. Such changes can have a significant impact on required contributions. CalPERS projections are subject to change and significant
uncertainty. For further information about this uncertainty and the associated risks, please refer to the CalPERS Annual Valuation Report.

Refunding bond debt service projections are estimated based on market conditions as of May 19, 2021. If refunding bonds are issued, their future debt service requirements will be fixed as of the date of issuance and will not be subject to change during the life of the bond issue.

Potential Savings from POB
2021-22 Paid in July '21 - -
2022-23 4,844,234 3,786,395 1,057,839
2023-24 5,075,290 4,018,583 1,056,708
2024-25 5,338,666 4,283,543 1,055,124
2025-26 5,490,703 4,431,821 1,058,882
2026-27 5,131,762 4,075,665 1,056,097
2027-28 5,271,032 4,214,650 1,056,382
2028-29 5,414,131 4,359,260 1,054,871
2029-30 5,561,168 4,505,941 1,055,227
2030-31 5,712,241 4,655,078 1,057,164
2031-32 5,420,742 4,364,263 1,056,480
2032-33 5,353,719 4,296,155 1,057,564
2033-34 5,075,211 4,015,860 1,059,351
2034-35 4,903,219 3,845,828 1,057,392
2035-36 4,626,873 3,571,284 1,055,589
2036-37 4,153,443 3,097,459 1,055,984
2037-38 3,327,444 2,269,436 1,058,008
2038-39 3,018,759 1,959,520 1,059,239
2039-40 2,786,272 1,729,580 1,056,692
2040-41 2,643,107 1,584,320 1,058,787
2041-42 1,961,346 902,200 1,059,146
2042-43 2,098,802 1,043,450 1,055,352
2043-44 1,087,539 - 1,087,539
2044-45 190,439 - 190,439
2045-46 12,959 - 12,959
Total 94,499,101 71,010,288 23,488,813
Fiscal Year
Potential Cash Flow Savings (24-years)

CALPERS
Current
Amortization
Schedule
21-year POB
Proposed Debt
Service
Potential
Savings
Net Present Value Savings ($) $17,074,030
Net Present Value Savings (%) 31.14%
14 Questions?
Recent
California
POB
Issuances
15 Approximately
$5.9 billion in par
amount of
pension obligation
bonds have been
issued or are in
process of being
issued in
California since
the beginning of
2020 .

Issuer Sale Date Issuer County Principal Amount Debt Type Central Marin Police Authority 6/11/2021 Marin 30,000,000 Pension obligation bonds Oceano Community Services District 5/19/2021 San Luis Obispo 1,100,000 Public enterprise revenue bond San Benito County Water District 5/17/2021 San Benito 3,016,000 Public enterprise revenue bond Willows 5/13/2021 Glenn 10,380,000 Pension obligation bonds Corte Madera 5/7/2021 Marin 25,000,000 Pension obligation bonds Manhattan Beach 4/2/2021 Los Angeles 90,000,000 Pension obligation bonds Palos Verdes Library District 4/1/2021 Los Angeles 6,100,000 Pension obligation bonds Huntington Beach 3/17/2021 Orange 363,645,000 Pension obligation bonds Orange 3/3/2021 Orange 286,485,000 Pension obligation bonds Chula Vista 2/11/2021 San Diego 350,025,000 Pension obligation bonds Downey 2/9/2021 Los Angeles 113,585,000 Pension obligation bonds Monterey Park 2/2/2021 Los Angeles 106,335,000 Pension obligation bonds Bonita Sunnyside Fire Protection District 2/1/2021 San Diego 5,127,000 Public enterprise revenue bond El Cajon 1/13/2021 San Diego 147,210,000 Pension obligation bonds Orange County 1/5/2021 Orange 484,800,000 Pension obligation bonds Lake Valley Fire Protection District 1/1/2021 El Dorado 10,952,522 Public enterprise revenue bond Coast Community College District 12/15/2020 Orange 2,280,000 Pension obligation bonds La Puente 12/3/2020 Los Angeles 8,517,708 Certificates of participation/leases Penn Valley Fire Protection District 12/1/2020 Nevada 1,037,884 Certificates of participation/leases Ukiah 12/1/2020 Mendocino 49,875,000 Certificates of participation/leases Coachella 11/19/2020 Riverside 17,590,000 Pension obligation bonds California Earthquake Authority 11/12/2020 State of California 300,000,000 Public enterprise revenue bond Gardena 11/10/2020 Los Angeles 101,490,000 Pension obligation bonds Butte County 11/6/2020 Butte 9,160,000 Pension obligation bonds Placentia 10/29/2020 Orange 52,950,000 Certificates of participation/leases Arcadia 10/27/2020 Los Angeles 90,000,000 Pension obligation bonds Torrance 10/14/2020 Los Angeles 349,515,000 Certificates of participation/leases Borrego Springs Fire Protection District 10/1/2020 San Diego 1,874,111 Public enterprise revenue bond Azusa 9/17/2020 Los Angeles 70,075,000 Pension obligation bonds Town of Fairfax 9/16/2020 Marin 9,402,000 Certificates of participation/leases Pomona 8/13/2020 Los Angeles 219,890,000 Pension obligation bonds San Bernardino 7/15/2020 San Bernardino 19,850,000 Pension obligation bonds Kensington Police Protection and Community Services District 6/18/2020 Contra Costa 4,544,000 Pension obligation bonds El Monte 6/18/2020 Los Angeles 21,000,000 Certificates of participation/leases North County Fire Protection District 6/11/2020 Monterey 20,305,000 Pension obligation bonds Carson 6/10/2020 Los Angeles 108,020,000 Pension obligation bonds El Monte 6/9/2020 Los Angeles 118,725,000 Pension obligation bonds Riverside 6/4/2020 Riverside 432,165,000 Pension obligation bonds Inglewood 6/2/2020 Los Angeles 101,620,000 Pension obligation bonds Grass Valley 6/1/2020 Nevada 18,311,000 Pension obligation bonds Montebello 5/27/2020 Los Angeles 153,425,000 Pension obligation bonds Ontario 5/12/2020 San Bernardino 236,585,000 Pension obligation bonds Larkspur 4/30/2020 Marin 18,295,000 Pension obligation bonds Riverside County 4/22/2020 Riverside 719,995,000 Pension obligation bonds Richardson Bay Sanitary District 2/28/2020 Marin 2,383,000 Pension obligation bonds Pasadena 2/5/2020 Los Angeles 131,800,000 Pension obligation bonds Orange County 1/7/2020 Orange 463,895,000 Pension obligation bonds Source: State Treasurer’s Office
Presentation on CalPERS
Unfunded Accrued Liabilities
November 3, 2021
Audit Committee Meeting
Table of Contents
➢ Overview of CalPERS System
➢ Review of Porterville Retirement Plans
➢ CalPERS Performance
➢ Pension Optimization Strategies
➢ Pension Obligation Bond

Overview of CalPERS System
Overview
➢ Most public agencies participate in the CALPERS retirement system to fund retirement benefits for their employees.
➢ CalPERS is the largest Public Retirement System in United States. ➢ The City of Porterville participates in this pooled retirement system. ➢ The City pays into the system an annual deposit based on a percentage of payroll. When invested by CalPERS at an assumed rate of return (6.8% as of Oct. 1, 2021, was 7% before that) and added to the cash deposited, is actuarially designed to provide sufficient funds to pay required retirement benefits to its employees.

Normal Cost CalPERS Payment
➢ The payment to CalPERS consists of two components, the normal cost and (if necessary) a scheduled payment toward the Unfunded Accrued Liability (UAL).
➢ The normal cost is the total amount that a CalPERS actuary has determined should be charged in a given year to all plan participants and its employees to complement the years investment earnings such that all benefits can be paid, and all administrative costs are covered. ➢ This collected amount is invested by CalPERS.

Overview of CalPERS System
CalPERS Investment Performance
➢ If actual investment performance does not meet the assumed rate of return needed for an employer to fund its long-term actuarial retiree obligations, or if an employer does not make sufficient contributions to its CalPERS fund, the resulting shortfall is calculated and allocated to the employer in the form of its Unfunded Accrued Liability (UAL).

Unfunded Accrued Liability (UAL)
➢ When a shortfall/UAL is calculated, it becomes an obligation of the City and the City accrues an annual cost on the balance in amount of CalPERS target rate of return (currently 6.8%), which is added to the existing UAL.
➢ This cost represents the return that CalPERS assumes it could have earned on the additional funds had the agency fully funded its retirement plans.

Schedule of UAL Payments
➢ CalPERS gives each participating employer an amortization schedule to pay down its UAL obligation to CalPERS over a period of years.
➢ The schedule for the City of Porterville’s UAL currently runs through fiscal year 2045-46.

Overview of CalPERS System
Future Performance
➢ If investment performance exceeds CalPERS’ expected rate, the net benefit is credited to pay down the existing UAL. If the employer has no current UAL, it remains as a credit balance to pay future UAL. ➢ If investment performance is less than the expected rate, the shortfall is added to the UAL or creates a new UAL which is amortized in the payment schedule along with the previously existing balance.

Debt-like Obligation
➢ The UAL is an obligation similar in many ways to other long-term liabilities. It is legally enforceable and has a mandatory payment schedule, although its terms can be more flexible than those of a bond. ➢ It is effectively a debt with the annual interest cost calculated at CalPERS’ assumed rate of return (6.8%) on the unpaid balance, plus the amount necessary to amortize the principal over the provided time frame. ➢ UALs are treated as a debt-like obligation by the investment community.

Review of Porterville Retirement Plans
Definitions:
• Total Accrued Liability –> What You Need
• Market Value of Assets –> What You Have
• Unfunded Accrued Liability –> What You Owe
Pension Plan Total Accrued
Liability
Market Value of
Assets
Unfunded Accrued
Liability % Funded
Miscellaneous $ 108,421,112 $ 71,067,927 $ 37,353,185 65.5% Safety 78,107,079 57,271,166 20,835,913 73.3%
Safety Police Second Tier 825,752 746,912 78,840 90.5%
Safety Fire Second Tier 684,366 616,378 67,988 90.1%
PEPRA Safety Police 1,448,729 1,290,281 158,488 89.1%
PEPRA Safety Fire 705,776 629,340 76,436 89.2%
Total $ 190,192,814 $ 131,622,004 $ 58,570,850 69.2%
Source: CalPERS July 2021 Actuarial Valuation Report -
Figures shown are the latest available audited figures
for FYE 2020

Review of Porterville Retirement Plans
Source: CalPERS July 2021 Actuarial Valuation Report -
Figures shown are the latest available audited figures
for FYE 2020

69.2%

30.8%

PENSION PLANS
Market Value of Assets (What You Have)
Unfunded Accrued Liability (What You Need)
Total Pension Obligations $ 190.19 million
Pension Assets $ 131.62 million
Shortfall (UAL) $ 58.57 million
Shortfall (UAL) = DEBT
➢ Owed to CalPERS
➢ Amortized over time (currently 26 years)
➢ Accrues interest at CalPERS assumed rate of return
(currently 6.8%)
➢ Total interest to be charged on Shortfall through FY2045- 46 is estimated by CALPERS to be $44,124,053
➢ UAL is the City’s most expensive debt by a wide margin

Review of Porterville Retirement Plans
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019 FYE 2020 Shortfall (UAL)
For the Six Porterville CalPERS Plans
UAL Growth Over Time:
➢ Principal Amount of
Shortfall (UAL) has
grown by $22.3 million
since FYE 2011
➢ This liability grew
despite the City making
its annual UAL payment
in the amount indicated
by CalPERS
Source: CalPERS July 2021 Actuarial Valuation Report

Review of Porterville Retirement Plans
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
FYE 2018 FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023
Growth of UAL Payments
For the Six Porterville CalPERS Plans UAL Payment Growth Over Time:
➢ Annual UAL payments are growing
rapidly and are projected to
continue to grow
➢ From FYE 2018 to FYE 2023, annual
UAL payments are projected to
grow by $2.3 million (an increase of
88%)
➢ As a comparison, Normal Cost
Payments are based on a
percentage of payroll and are thus
relatively level on annual basis,
which produces a predictable cash
flow
Source: CalPERS July 2021 Actuarial Valuation Report

CalPERS Performance
*Time-weighted rate of return net of investment expenses Returns were calculated by CalPERS as of fiscal year 2019-20 Source: CalPERS Facts at a Glance - Investment & Pension Funding, 2019-20 (ca.gov)
**Source: July 2021 CalPERS Actuarial Valuation Report
In FYE 2021, CalPERS achieved a
return of 21.3%
• CalPERS manages pension investments
• City bears all investment risk
• Failure by CalPERS to achieve target
investment returns does not relieve the City
from pension benefits guarantees to
employees and retirees
• City’s cash (UAL payments) makes up
investment return shortfalls
Annualized Investment Returns*
(for FYE 6/30)
Total Fund Market Value &
Fund Returns by Fiscal Year*
(for FYE 6/30)
CalPERS Asset Allocation**

CalPERS Performance
Pension Cost Increase Drivers
❑ Retroactive Pension Benefit Increases (Senate Bill 400 / Assembly Bill 616) ❑ Investment Performance vs Overly Optimistic Return Expectations ❑ People Living and Drawing Pensions Longer
❑ Fewer Active Workers for Each Retiree
❑ CalPERS Assumption Changes (7% -> 6.8%)
❑ Discount Rate Reduction
❑ Mortality Rates
❑ Compensation Increases Above Plan Assumptions (2.75% per year)

Pension Optimization Strategies

1. Annual Prepayment

2. Additional Discretionary
Payments (ADPs):
a. Reserves, one-time
revenues, fund surpluses

3. General Fund Revenue
Increases
a. Current fees
b. Voter-approved new
assessments / taxes

4. Fresh Start / Informal Fresh
Start

5. Lease Revenue Bond /
Certificates of Participation

6. Direct Refunding / Pension
Obligation Bonds

7. Labor Practices

8. Pension Rate Stabilization
115 Trust / Other Pension
Trusts & Reserves

9. Sale of Surplus Property

PAY DOWN REFINANCE OTHER

Pension Optimization Strategies
Pension Obligation Bonds
➢ City borrows money to pay off some or all of the UAL at CalPERS. ➢ Typical method is through a Pension Obligation Bond (requires judicial validation). ➢ Alternative option is a Lease Revenue Bond (collateral required). ➢ Interest rate is lower than 6.8% charged by CalPERS on UAL obligation (typically between 3.0% - 4.0%). ➢ Objective: “re-shape” overall pension liability payment(s) – paid to CalPERS and investors – in an effort to provide better budget predictability and fiscal sustainability. ➢ Near record low interest rates in bond market have resulted in strong interest in POBs by CalPERS members. Over last 3 years, investor interest in POBs has grown.

Pension Optimization Strategies
➢ Issuing POBs in California is the past few years has become very popular due to the accommodative low interest rate environment and related factors.
➢ California POB issuance in 2019 exceeded $700 million in par amount (per CDIAC). ➢ California POB issuances in 2020 exceed $4 billion in par amount (per CDIAC).

Pension Obligation Bonds
More than $4.5
billion in par
amount of Pension
Obligation Bonds
have been issued in
California since
January 2021
Source: CDIAC
Issuer Principal Amount Sale Date Issuer County
California Earthquake Authority 700,000,000 9/28/2021State of California Rancho Abode Fire Protection District 5,750,000 9/22/2021Sonoma Corona 300,000,000 9/15/2021Riverside
Santa Ana 465,000,000 9/3/2021Orange
Santa Cruz County 140,000,000 9/2/2021Santa Cruz
San Anselmo 10,000,000 9/1/2021Marin
Commerce 30,235,000 8/31/2021Los Angeles
Buena Park 115,000,000 8/19/2021Orange
Whittier 144,000,000 8/1/2021Los Angeles
Ebbetts Pass Fire Protection District 3,518,500 7/29/2021Calaveras Sanger 21,595,000 7/27/2021Fresno
San Fernando 40,500,000 7/27/2021Los Angeles
San Fernando 6,000,000 7/27/2021Los Angeles
Covina 62,795,000 7/14/2021Los Angeles
Redondo Beach 226,180,000 7/1/2021Los Angeles
Red Bluff 18,540,000 6/29/2021Tehama
Turlock Mosquito Abatement District 1,576,731 6/24/2021Stanislaus Placer Hills Fire Protection District 676,270 6/24/2021Placer Orange Unified School District 33,520,000 6/9/2021Orange Montecito Fire Protection District 8,263,240 6/7/2021Stanislaus Oceano Community Services District 906,000 6/1/2021San Luis Obispo El Segundo 144,135,000 5/26/2021Los Angeles
Auburn 17,165,000 5/26/2021Placer
Willows 8,510,000 5/13/2021Glenn
Central Marin Police Authority 26,505,000 5/11/2021Marin Corte Madera 18,955,000 4/29/2021Marin
Manhattan Beach 91,275,000 4/28/2021Los Angeles
San Benito County Water District 3,016,000 4/1/2021San Benito Palos Verdes Library District 5,924,000 4/1/2021Los Angeles Huntington Beach 363,645,000 3/17/2021Orange
Orange 286,485,000 3/3/2021Orange
Chula Vista 350,025,000 2/11/2021San Diego
Downey 113,585,000 2/9/2021Los Angeles
Monterey Park 106,335,000 2/2/2021Los Angeles
Bonita Sunnyside Fire Protection District 5,127,000 2/1/2021San Diego El Cajon 147,210,000 1/13/2021San Diego
Issuer Principal Amount Sale Date Issuer County
Orange County 484,800,000 1/5/2021Orange
Lake Valley Fire Protection District 10,952,522 1/1/2021El Dorado Coast Community College District 2,280,000 12/15/2020Orange La Puente 8,517,708 12/3/2020Los Angeles
Ukiah 49,875,000 12/1/2020Mendocino
Penn Valley Fire Protection District 1,037,884 12/1/2020Nevada Coachella 17,590,000 11/19/2020Riverside
Gardena 101,490,000 11/10/2020Los Angeles
Butte County 9,160,000 11/6/2020Butte
Placentia 52,950,000 10/29/2020Orange
Arcadia 90,000,000 10/27/2020Los Angeles
Torrance 349,515,000 10/14/2020Los Angeles
Borrego Springs Fire Protection District 1,874,111 10/1/2020San Diego Azusa 70,075,000 9/17/2020Los Angeles
Fairfax Financing Authority 9,402,000 9/16/2020Marin
Town of Fairfax 9,402,000 9/16/2020Marin
Pomona 219,890,000 8/13/2020Los Angeles
El Monte 21,000,000 6/18/2020Los Angeles
Kensington Police Protection and Community
Services District 4,544,000 6/18/2020Contra Costa
North County Fire Protection District 20,305,000 6/11/2020Monterey Carson 108,020,000 6/10/2020Los Angeles
El Monte 118,725,000 6/9/2020Los Angeles
Riverside 432,165,000 6/4/2020Riverside
Inglewood 101,620,000 6/2/2020Los Angeles
Grass Valley 18,311,000 6/1/2020Nevada
Montebello 153,425,000 5/27/2020Los Angeles
Ontario 236,585,000 5/12/2020San Bernardino
Larkspur 18,295,000 4/30/2020Marin
Riverside County 719,995,000 4/22/2020Riverside
Richardson Bay Sanitary District 2,383,000 2/28/2020Marin Pasadena 131,800,000 2/5/2020Los Angeles
Orange County 463,895,000 1/7/2020Orange
Monterey County Regional Fire District 20,250,000 12/5/2019Monterey Orange Unified School District 33,595,000 12/4/2019Orange Pacifica 9,685,000 10/9/2019San Mateo
Recent Issuer of
Pension Obligation
Bonds in California

Pension Obligation Bonds
*CalPERS debt service projections are as
provided to the City by CalPERS in July 2021
based on the June 30, 2020 actuarial valuation.

CalPERS actuarial valuations are public
information and figures were obtained directly
from CalPERS. Moreover, CalPERS’ projected
amortization schedule assumes that there are no
future plan changes, no further changes in
assumptions other than those recently approved,
and no liability gains or losses. Such changes can
have a significant impact on required
contributions. Furthermore, such assumption
changes have been announced by CalPERS in its
July 12, 2021 Press Release. The assumptions
changes announced on July 12, 2021 have not
been accounted for in the calculation of the
Projected UAL Amortization Schedule by
CalPERS.

CalPERS projections are subject to change and
significant uncertainty. For further information
about this uncertainty and the associated risks,
please refer to the CalPERS Annual Valuation
Report.
**Refunding bond debt service projections were
prepared by Wulff, Hansen & Co. and are
estimated based on market conditions as of
October 22, 2021. Refunding bond debt service
projections contain a significant interest rate
buffer to offset forthcoming assumption changes
at CalPERS not included in the 2020 Actuarial
Valuation Report, including the 21%+ earnings in
FY2020-21 and the reduction of the discount rate
to 6.8% from 7.0%.

Refunding bond debt service projections assume
the City will payoff 100% of its Classic Safety and
Miscellaneous CalPERS Plans in the amount of
$57.55 million. This payment amount does not
equal the UAL amount shown on slides 6 and 7
because this figure is forward looking to
6/30/2022 and does not contain the non-Classic
Plans, such as PEPRA.

If refunding bonds are issued by the City, their
future debt service requirements will be fixed as of
the date of issuance and will not be subject to
change during the life of the bond issue.
2022-23 4,911,323 4,023,279 888,044
2023-24 5,235,243 4,347,502 887,741
2024-25 5,571,486 4,683,219 888,267
2025-26 5,806,390 4,917,709 888,681
2026-27 5,521,977 4,638,024 883,953
2027-28 5,661,247 4,773,293 887,954
2028-29 5,804,348 4,918,242 886,106
2029-30 5,951,380 5,064,775 886,605
2030-31 6,102,460 5,217,540 884,920
2031-32 5,810,956 4,922,964 887,992
2032-33 5,743,931 4,858,721 885,210
2033-34 5,465,423 4,580,723 884,700
2034-35 5,293,433 4,407,687 885,746
2035-36 5,017,088 4,130,334 886,754
2036-37 4,543,655 3,655,386 888,269
2037-38 3,717,657 2,830,174 887,483
2038-39 3,408,975 2,521,099 887,876
2039-40 3,176,485 2,292,315 884,170
2040-41 3,033,321 2,147,759 885,562
2041-42 2,270,716 1,384,779 885,937
2042-43 2,098,801 1,209,821 888,980
2043-44 1,087,538 199,339 888,199
2044-45 190,439 - 190,439
2045-46 12,959 - 12,959
Total 101,437,231 81,724,684 19,712,547
Net Present Value Savings ($) $12,962,080
Net Present Value Savings (%) 23.64%
Potential Cash Flow Savings (24-years)
Fiscal Year

CALPERS
Current
Amortization
Schedule
22-year POB
Proposed Debt
Service
Potential
Savings

Pension Obligation Bonds
➢ If the current UAL is paid in full, future CalPERS investment performance will determine whether additional UAL is created in the future. Should CalPERS fail to achieve its projected rate of return, the shortfall will cause the creation of a new UAL. ➢ Conversely, should CalPERS achieve higher-than-expected returns, the excess would be credited to the employer’s fund and is thus available to offset any future increases in the UAL caused by subsequent underperformance in a given year. ➢ There is no possible way to eliminate the potential for future UAL to accrue due to underperformance of CalPERS without exiting the CalPERS system entirely.
➢ There is unavoidable investment risk in increasing the funded ratios on CalPERS plans. When CalPERS has additional funds to invest, they have the potential to underperform their projected return on those newly invested funds. Substantial underperformance by CalPERS after an increase in a plan’s funded ratio could increase the plan’s UAL overall. Conversely, when CalPERS outperforms its projections, the newly invested funds receive that benefit. Pension Obligation Bonds can generate savings for issuers when their cost of funds (projected to be between 3.0% - 4.0% at present) is less than CalPERS’ future performance (projected by CalPERS to be 6.8%), over a matching time horizon (e.g., 20 years). ➢ Payoff solutions allow entities to pay down liabilities presently owed, with the potential ability to save money in the future by reducing further interest expense on the obligation. Eliminating today’s UAL is in no way a means of eliminating the risk of future underperformance by CalPERS.

Summary
➢ CalPERS UAL has been growing rapidly for most CalPERS employers. The growth is predominantly attributable to investment performance not meeting CalPERS assumed rate of return, as well as changes in actuarial assumptions. ➢ There are a variety of strategies and tools available to manage growing pension liabilities including prepayments, one-time additional payments, the use of pension reserves and trusts, and the use of proceeds from a financing (POB). ➢ The best way to manage growing pension liabilities is to create a plan and a policy that outlines the City’s strategy and parameters for using a combination of the available tools. A Pension Funding Policy provides guidelines for how and when to implement available pension funding strategies.
➢ Due to recent economic factors, pension obligation bonds have become a very popular strategy for CalPERS employers in managing their unfunded accrued liability.
➢ Pension Obligation Bonds can potentially generate substantial savings in pension related interest expense for California issuers and when combined with a sound Pension Funding Policy, give CalPERS employers a robust framework for managing pension liabilities into the future.