consulted your own legal, accounting, tax, financial and other advisors, as applicable, to the extent deemed appropriate in connection with the transaction contemplated herein.
Termination. You or we may terminate our engagement under this agreement, with or without cause, upon ten days’ written notice to the other party provided that the provisions the section entitled Fees and the obligations thereunder shall not be affected by such termination.
Survival of Certain Representations and Obligations. The respective agreements, covenants, representations, warranties and other statements of the Issuer and its officers set forth in or made pursuant to this Agreement shall survive delivery of and payment for the Securities and shall remain in full force and effect, regardless of any investigation, or statements as to the results thereof, made by or on behalf of the Placement Agent.
Section Headings. Section headings contained herein are for convenience of reference only and are not part of this agreement.
Amendment. This agreement may be amended only by a written instrument executed by each of the Parties. The terms of this agreement may be waived only by a written instrument executed by the party waiving compliance.
Entire Agreement. This Agreement embodies the entire agreement and understanding between you and us and supersedes all prior agreements and understandings relating to the subject matter of this Agreement.
No Assignment. This agreement has been made by the Issuer and HilltopSecurities, and no other person shall acquire or have any right under or by virtue of this agreement.
Governing Law. This agreement, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this agreement or the negotiation, execution or performance of this agreement, will be governed by and construed in accordance with the laws of California.
Effectiveness. This agreement shall become effective upon its execution by duly authorized officials of all parties hereto and shall be valid and enforceable from and after the time of such execution.
Severability. In the event any provision of this agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. You and we will endeavor in good faith negotiations to replace the invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid or unenforceable provisions.
Counterparts. This agreement may be executed in several counterparts (including counterparts exchanged by email in PDF format), each of which shall be an original and all of which shall constitute but one and the same instrument.
Notices. Any notice required or permitted to be given under this agreement shall be given in writing and shall be effective from the date sent by registered or certified mail, by hand, facsimile or overnight courier to the addresses set forth on the first page of this agreement with a copy sent to the General Counsel of such Party.
Sincerely,
_________________________________
Mike Cavanaugh Managing Director
Hilltop Securities Inc.
Acknowledgment and Approval of Engagement
___________________________________
Kimberly McKinney, City of Woodland, CA
Date: _____________________________
A-1
APPENDIX A
FORM OF PURCHASER LETTER
[Address to Issuer and Placement Agent]
Re: [Name of securities]
We will use the actual form that the Bank will sign.
B-1
APPENDIX B
FORM OF ISSUER CLOSING CERTIFICATE
Pursuant to the Placement Agent Agreement, dated [date of Agreement] between [name of Issuer] and [name of the Placement Agent] (the “Agreement”), as [title] of the Issuer duly authorized to execute this Certificate on behalf of the Issuer, I hereby certify:
The representations and warranties of the Issuer contained in the Agreement are true and correct as if made on the date hereof;
The Issuer has complied with and fully satisfied all of its agreements with and obligations to the Placement Agent under this Agreement; and
As of its date and the date hereof, the information contained in the Placement Materials is complete, true, and accurate and such information does not contain any untrue statement of a material fact or state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. [Name]
[Title]
[Date]
Annex A-1
[ANNEX A]
CERTAIN DISCLOSURES
The Placement Agent hereby further provides the Issuer with certain disclosures relating to the Securities, as required by the Municipal Securities Rulemaking Board (MSRB) Rule G-17 as set forth in MSRB Notice 2012-25 (May 7, 2012).
The Placement Agent intends to serve as a placement agent, and not as a financial advisor or municipal advisor in connection with the issuance of the Securities. As part of our services as the Placement Agent we may provide advice concerning the structure, timing, terms, and other similar matters concerning the issuance of the Securities.
Concerning our role as the Placement Agent:
Municipal Securities Rulemaking Board Rule G-17 requires us to deal fairly at all times with both municipal issuers and investors;
our primary role in this transaction is to facilitate the sale and purchase of your Securities between you and one or more investors for which we will receive compensation; unlike a municipal advisor, we do not have a fiduciary duty to you under the federal securities laws and are, therefore, not required by federal law to act in your best interests without regard to our own financial or other interests;
we have a duty to use our commercially reasonable efforts to arrange the purchase of the Securities from you by investors at a fair and reasonable price, but must balance that duty with our duty to arrange the sale to investors at prices that are fair and reasonable; and we will review the Placement Materials for your Securities in accordance with, and as part of, our responsibilities to investors under the federal securities laws, as applied to the facts and circumstances of the transaction.
Concerning our Compensation as Placement Agent:
We will be compensated pursuant to the terms set forth in this Agreement; a portion of our compensation may be based in whole or in part upon the principal amount of the Securities sold in the Placement; and
while this form of compensation is customary in the municipal securities market, it presents a conflict of interest because the Placement Agent may have an incentive to recommend to you a transaction that is unnecessary or to recommend that the size of the transaction be larger than is necessary.
TO: THE HONORABLE MAYOR AND CITY COUNCIL
AGENDA: City Council Regular Meeting
DATE: May 17, 2022
ITEM #: H.19
SUBJECT: Authorize Appropriations for an Extra Payment of Unfunded Liability to CalPERS
Recommendation for Action: Staff recommends that the City Council adopt Resolution No. ____, authorizing amendments to the budget totaling $6,123,367 for extra unfunded liability payments to CalPERS.
Staff Contact:
Kim McKinney, Director of Administrative Services, (530) 661-5849, [email protected]
Fiscal Impact:
Based on the most recent actuarial reports provided by CalPERS, the City's combined unfunded actuarial liability (UAL) for the Safety and Miscellaneous Plans totals $119,069,628. The annual contribution toward this UAL, as determined by CalPERS, is expected to be $9,270,851 for FY2022/23.
The proposed extra payment of $3,060,077 to the Safety Plan UAL will decrease the ongoing annual contribution by $296,478 in FY2022/23, increasing to a savings of $421,848 by FY2036/37. The proposed extra payment of $3,063,290 to the Miscellaneous Plan UAL will decrease annual contributions by $225,405 in FY2022/23, increasing to a savings of $329,541 by FY2037/38. The one-time extra payments totaling $6,123,367 will ultimately reduce future UAL payments over 16 years by $9,097,064, an overall savings of $2,973,697 in interest costs that will not be incurred.
The extra payments will be made by contributions from multiple funds, with the largest portion coming from the General Fund reserves ($4,162,988). All funds that pay for full-time employees will benefit from reduced future UAL contributions.
At the end of the current fiscal year, the General Fund is projected to have an unreserved fund balance of $21.3 million, or 38%. Use of $4.16 million for the extra payment will leave the fund balance at $17.1 million, or
30.6%, which is still in excess of the Council policy of 20% reserves.
Background:
The City participates in the California Public Employees Retirement System (CalPERS) to provide pension benefits for full-time employees. The pension program is pre-funded, rather than pay-as-you-go like Social Security. In a pre-funded plan, contributions are made to a pension trust over the working life of an employee, those contributions earn interest over time, and eventually the accumulated funds are available to pay benefits when an employee retires. To the extent that sufficient assets are not available to pay for the benefits earned to date, an unfunded actuarial liability (UAL) will exist in the plan.
Over the last several years, the City's UAL has been steadily increasing (as has been the case with most other CalPERS agencies) as a result of several factors.
Investment Returns: Especially in 2008-2010, investment returns fell well short of the expected return of 7.75% that CalPERS expected and planned for at that time. In part because of this, and to correct unrealistic expectations of long-term investment returns, CalPERS lowered its expected investment earnings (or discount rate) from 7.75% to 7.00%. The shortfall in returns and the change in discount rate has had a significant impact (increase) on unfunded liabilities.
Actuarial reports that are completed to determine the City's annual contribution rely on several significant assumptions. CalPERS periodically reviews these assumptions, and over the last few years has made corrections to account for people retiring earlier and living longer than previously anticipated. Changing these assumptions also increases the UAL.
Beginning in 2013, CalPERS made some administrative changes that required agencies to pay more money on a faster schedule to improve the funded status of the plan. Although these changes are necessary to ensure the continued viability of the CalPERS system, the increased contribution rates put significant strains on agency budgets, including Woodland.
The City has made significant progress over the last several years, working with employee bargaining groups, to share the cost of benefits and to mitigate the rising costs of pensions. Because the UAL is generated by previous service of current and retired employees, the City has limited options available to address this component of pension contributions.
Discussion:
The City's General Fund five-year forecast consistently shows that the expected growth in City revenues is outpaced by the growth in City expenditures. The largest component of the City's operating budget is the costs associated with employees, including salary and benefits. There are few ways to lower the overall costs without reducing service levels; an extra payment towards the UAL is one way to manage future costs of the benefits. Due to prudent financial management in the General Fund and a few internal funds in particular, one- time money is available to assist in this effort.
Two options were considered by staff to reduce the budget impact of CalPERS contributions: contribution to a Section 115 Trust, or an extra payment toward the CalPERS unfunded liability.
A Section 115 Trust is an irrevocable trust that allows the City to set aside money for future pension payments, earning interest at a rate higher than would be possible in the City's pooled investments. Funds from this trust could be used to offset the annual impact of CalPERS contribution rates for the City, but would not have an impact on the actual UAL for the CIty.
An extra payment to CalPERS directly impacts the City's UAL, improves the funded status of the plans, saves significant money from compounding interest over time, and provides an immediate reduction in required annual contributions. An extra payment to CalPERS is similar to making an extra payment on your mortgage, where the payment is applied to principal owed, future payments are adjusted and you pay less interest overall. Based on staff analysis, the proposed extra payments totaling $6,123,367 will result in reduced contributions of $9,097,064 over the next sixteen years; a total savings of $2,973,697.
Conclusion:
Staff recommends that the City Council adopt Resolution No. ____, authorizing amendments to the budget totaling $6,123,367 for extra unfunded liability payments to CalPERS.
Prepared by: Kim McKinney, Director of Administrative Services
Attachments:
1. Resolution FY22 PERS UAL Extra Payment
2. Attachment 1 - Appropriations by Fund
RESOLUTION NO: __________________
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WOODLAND AUTHORIZING AMENDMENTS TO THE FISCAL YEAR 2021-2022 ANNUAL
BUDGET FOR PAYMENT OF UNFUNDED PENSION LIABILITIES
WHEREAS, the City provides pension benefits to full time employees through the California Public Employees Retirement System (CalPERS); and
WHEREAS, the City contributes to CalPERS to pay for the cost associated with employee service for the upcoming year (“Normal Cost”) and toward shortfall in funding provided for employee services that occurred in the past (“Unfunded Liability”); and WHEREAS, the Safety Plan with CalPERS has an expected unfunded actuarial liability (UAL) of $62,084,582 and the Miscellaneous Plan has a UAL of $58,415,640; and WHEREAS, the annual contribution to CalPERS for FY2022/23 is calculated to include payments toward the UAL of $9,270,851; and
WHEREAS, an extra payment to CalPERS can be used to pay down specified amortized bases of the UAL; and
WHEREAS, an extra payment to CalPERS will result in reduced future annual contribution amounts and overall savings in interest accrual; and
WHEREAS, a balanced annual budget for the City of Woodland was prepared for fiscal year 2021-2022 and adopted by the City Council on June 15, 2021; and WHEREAS, additional appropriations are required to make an extra payment toward the UAL;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF WOODLAND HEREBY RESOLVES:
Section 1. The 2021-2022 Annual Revised Budget is hereby amended to include supplemental appropriations totaling $6,123,367 shown in Attachment 1.
Section 2. The City Manager and Finance Officer are hereby authorized to make extra payments to CalPERS in the amount of $3,060,077 for the Safety Plan and $3,063,290 to the Miscellaneous Plan.
PASSED AND ADOPTED by the City Council this 17th day of May, 2022, by the following vote:
AYES:
NOES:
ABSENT:
RESOLUTION NO: __________________
ABSTAIN:
Mayra Vega, Mayor
ATTEST:
Ana B. Gonzalez, City Clerk
Fund Title
010 EQUIP SERVICES 98,563
015 INFORMATION SYSTEMS FUND 116,450 091 SELF INSURANCE 9,514
099 DISBURSE FUND-PR 250,000 101 GENERAL FUND 4,162,988
210 WATER ENTERPRISE FUND 472,764 220 SEWER ENTERPRISE FUND 472,534 222 WASTEWATER PRE-TREATMENT 35,577 250 RECYCLING 16,941
354 TRANS DVLP (SB325) 106,258 355 GAS TAX-2106 (SELECT) 71,906 381 GIBSON RANCH L&L 21,569
389 SPRINGLAKE L&L 66,774
391 SPORTS PARK O&M CFD 14,426 392 GATEWAY L&L 3,049
507 MEASURE F 194,389
601 SPRINGLAKE ADMINISTRATION 9,666 6,123,367
CITY OF WOODLAND
FISCAL YEAR 2022/23
APPROPRIATIONS FOR CALPERS EXTRA PAYMENT
ATTACHMENT 1