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Home My WebLink About04.c. (Handout) Presentation from meeting Item 4.c. (Handout) PENSION OVERVIEW AND FUNDING FINANCIAL STRATEGIES: INITIAL RESOLUTIONS RELATED TO FINANCING April 27, 2021 Finance Committee Presentation Phil Leiber, Director of Finance and Administration CEN TRALSAN 1 PENSION COSTS HAVE BEEN A SIGNIFICANT FACTOR AFFECTING OUR O&M BUDGET IN PAST DECADE • Labor related costs are about 75% of the O&M Budget • Pension UAAL costs most volatile component Budgeted salaries and BenOitsWL E in millions 100 80 U 60 HE T zm 0 2am2onz 2nzi6 2oT72nzo2uo 2 1 PENSION AND OPEB FUNDING STATUS ($MILLIONS) o PensionNOPEB $lso tw9: $90 Loos Sao $12o mfc $70 (Nt 'm` 56v tox $100 wss 5so box $80 m $6o 3 530 Boz $40 $zo mx zox $z0 10% SID $o ox $o os V/ L —Funded% _u_L —Fended% Pension Assets in OPEB Prefunding CCCERA Trust(1) Trust11) Trust(2) Reserves-Start of Year(6/30/20)(1) $69.8 $10.3 $338.3 Anticipated Increases $99 $1.6 $22,.1 Projected Ending Balances ZZ9. 1L. JafiQA (1) OPEB and Pension Prefunding Trust balances as of 6/30/20 and 12/31/20. (2) Initial actuarial value of assets per December 31,2018 CCCERA valuation and ending balanceis per 2019 CCCERA Valuation. 3 3 rUnfunded UAAL UPDATE ..ctuarially Accrued Liability("WAL") Progress: AAL has been reduced by 50%since 2012 (Pension funded status up from .8%) • Each year, layers are added to the UAAL,which are then amortized over 18 years. • We are on track to pay off UAAL this decade. • Board's commitment to directing additional funding has helped make this happen faster. Anticipated UAAL with Scheduled Amortization(Blue) and with Additional UAAL Payments to Pension Prefu nding Trust to Date and at$1.25 million through 2025(Red) 540 Net Asset 520 ® —� Isfinl (580) 2019 2818 2021 2822 2823 2824 2025 282fi 2821 2028 •VML(29[9 Yaoaionl 1510151 t552I (553) (544) (Smn (53]1 (523) (514) (54) 52 p Ne[l1ApL[1819 Vauananl (62) (51) (411 1381 (22) 1131 0) 1 19 26 wiF,Person p0uraing Tn6 MST • Years above are CCCERA"valuation date". Lag of 2 years for Central San for FY Impact.` CENTRALSAN 4 2 HISTORY OF ADDITIONAL UAAL PAYMENTS ($MILLIONS) Pension Date of CCCERA Prefunding OPEB FY Payment Trust Trust Trust Total Source of Funds 2013-14 Dec 2013 $5.0 Budgeted 2014-15 Dec 2014 5.0 Budgeted 2015-16 Dec 2015 2.5 Budgeted Budgeted-Board Decision 2016-17 Feb 2017 $2.5 Funded by FY 2015-16 variances 2017-18 Aug 2017 $3.4 Budgeted-Board Decision 2017-18 Various 2.5 Funded by FY 2016-17 variances 2017-18 Various 2.0 2018-19 Various 2.5 Budgeted-Board Decision 2019-20 Various 1.25 1.25 Budgeted$1.25M to OPEB Trust,and$1.25M variance from FY 2018-19 to Pension Prefunding Trust Subtotal 12.5 9.15 6.25 27.9 20-216 1.25 1.25 Budgeted$1.25M to Pension Prefunding Trust al $12.5 $10.4 $6.25 $29.15 Totals 5 WIRT-72TV"MM 5 UAAL REDUCTION STRATEGIES AIML 7- Central San has taken many proactive steps manage pension costs including adopting a pension funding strategy with goal of a fully funded pension • Borrowing for CIP,freeing up funds for UAAL - paydown and reducing interest cost is a strategy for consideration. Measure Status —� -- f• Pension Reform Change in benefit levels Q Pensionable Compensation Lawsuits,PEPRA • Establish new tiers for new employees M 2013 PEPRA Establistl Pension- Pension Payment Stabilization Reserve Fund Q can use SeOion 115 Pension Trustfor this purpose if Board elects.Also have Rate Stablllz flan Account Designated Reserves Section 115 Frust Established in 2017 Prepayment of annual contribution to Retirement Q Have teen doing this for years Prepayment of UAL System for discount(year-to-year strategy) • Partial prepayment of total Retirement UAAL Q Addrl paymerdsannuairytocccERA and (longer-term strategy) to Pension Trust Pposed for Reallocating capital reserves and issuing tax-exempt Croonslderatlbn Now infrastructure financing in-lieu of Taxable POB Issuance of DebFefunding saved int—tcwisDi _ d nal • Targeted returtdings for budget relief Q 2018 R tlafer pnnclpai • Pension Obligation Bonds(POB) Explored.FY2012-13 ` r 6 CENTRAL SAN 6 3 W-AVAN(40-4 0 UAAL REDUCTION STRATEGY: INTEREST EXPENSE REDUCTION • Strategy: • Debt financing for CIP and free up SSC revenue that have would gone towards Capital Spending, then use it to pay down pension UAAL. • Goal: • Replace 7% interest cost for Pension "debt"with —1% interest on debt for CIP • Term of debt would be same as schedule for payoff of UAAL • Net Savings of--$9.4 million: Interest Costs on Pension Debt vs.CI P Debt a,000,aoo 3,500,00o 3.000,000 2,500.000 z,000,000 i,soo,000 i,00a,000 ,500,000 ■ ' 1�1 L ■ cr zz-u cv zz-za cv z�za Fr z4zs cv zs zs Fr z�z> Fr zz zs cv zaz9 CENTRAL SAN Y i11[Cf C4 Cos As u� �flttelea Cos To Be 7 UAAL STRATEGY: MW 104 MORE BORROWING FOR CIP Steps: • 1. Allocate more SSC($58 million)to Running Expense (O&M)fund in FY 2021-22 that is sufficient, along with Pension Prefunding Trust($12 million), to pay down UAAL of$70 million. • 2. Collect SSC next year and transmit it and Pension Funding Trust balance to CCCERA. • 3. Borrow(Revenue Bond offering)$58 million to fund CIP that would have been funded with SSC. • 4. Maturity schedule for$58 million debt matches the original UAAL amortization schedule so that overall (Debt&Liability) burden is no different than status quo. Money that would have gone to UAAL payment in those upcoming years goes to pay down loan. • 5. "Debt'remains well within limits specified in the 2017 Debt Management Policy(BP 029),whereby not more than 60% of 10 year CIP is debt financed • ($173MM SRF loan+$58MM for CIP for UAAL payoff= $231 MM/$939MM CIP =24.6%) • 6. Result: Lower financing costs by--$9.4 million over the next decade. 8 CENTRAL SAN 8 4 UAAL STRATEGY: INTEREST EXPENSE REDUCTION 7- RWii s: • Actual savings could vary depending on pension asset earnings • PFM Analysis Completed to assess this • Interest rates for CIP Borrowing may change until issuance [ • Rates still favorable; • Moving expeditiously, while rates are low,and to remit funds to CCCERA prior to 7/1 to get credit for UAAL payments in FY 2021-22. iga` 9 CENTRAL SAN 9 - KEY TRANSACTION STEPS • Create proposed financing calendar 0 • Assemble Financing Team 0 • Select key structuring details p • Negotiated vs.rompetitive sale • Revenue bonds or Certificates of Participation • Assemble documents including Preliminary Official statement ❑ • Underway; major effort in first 3 weeks of May • Finalize issuance amount and maturity schedule ❑ • Around $58 million; maturities match UAAL payments • Financing Authority/Board adoption of documents-June 3 ❑ • Bond Competitive Sale-June 16 ❑ • Closing Date-June 29 ❑ r 10 CENTRAL SAN io 5 RESOLUTIONS FOR 7� UPCOMING BOARD MEETINGS • District: Appoint Financing Team • District: GM, Director of Finance and Board officers authorized to deliver documents to effectuate purpose of resolution • District : Adopt reimbursement resolution • Financing Authority: Rescind dissolution decision of January 2021 CENTRAL SAN 11 BACKGROUND MATERIALS CENTRALSAN 12 6 RISK CONSIDERATIONS IN MULTI-EMPLOYER PENSION PLANS • Question from March 2020 Financial Workshop: Can Central San contributions to CCCERA be paid to other agencies' retirees? • Answer: •CCCERA CEO/General Counsel: all assets are available to fulfill all benefit obligations. Plan is de-pooled in the accrued liability for each agency&certain assumptions used to set contribution rates. •Offsetting factors: -CCCERA is a very healthy plan. Valuation shows plan has an overall funding status over 90%on both an actuarial valuation basis(90.6%)and market value basis(91.9%) •CCCERA has payment remittance policies that monitor and assess penalties for late payments. •If an agency doesn't pay,or goes into bankruptcy,CCCERA would initiate legal action. Central San exposure would be on a pro rata basis,likely as a percentage of payroll(Central San is about 3.6%of total). -We have some other financial exposure outside the Pension System. Example: Central San provides$27+M in services to Concord/Clayton throughout the year without any installment payments. This could be a greater liability than our CCCERA exposure. Bottom Line:Risk exists but is minimal ` 13 CENTRAL SAN 13 OTHER CCCERA PARTICIPANTS • CCCERA is administered by the CCCERA Board of Retirement to provide service retirement, disability, death and survivor benefits for county employees and 16 other participating agencies under the California State Government Code,Section 31450 et.seq. (CERL) and Section 7522 et.seq. (PEPRA). eeeeRA mwcl..N.M cpAa WAUkIf 359 LOCAL AGENCY FORMATION COMMISSION[LAFCOI AAA SOB IN-HOME SUPPORTIVE SERVICES AUTHORITY IiHSS] AAB 5901 CC MPSOVITOABATEMENT DISTRICT AAC 9405 CENTRAL CONTRA CD$TA$ANITARY DISTRICT AAD ]414 ROOEO$ANITARYDI$TRICI AAE 34&9 DELTA OIABLO SANITATION DISTRICT PAF 3501 IRONHOIISE SANITARY DISTRICT AAG 380.7 BYROHBRENTWOOD CEMETERY AAH $770 BETHEL 131-AND MUNICIPAL DISTRICT AAI ]914 DIABLOWATERDISTRICT AA3 4161 CHILDREN A FAMl1ES COAAMISSION APl[ 49W CONTRA COSTA COUNTY EMPLOYEES RETIREMENT ASSOCIATION AAL 7035 CCC FIRE PROTECTION DISTRICT AAM 7060 EAST CONTRA COSTA FIRE PROTECTION DISTRICT AAN M74 MORACA-ORINDA FIRE DISTRICT AAo 7300 CCC FRE PROTECTION DI$TRICT AAP 76W RODEO-HERCULES FIRE PROTU DISTRICT PAC} 7930 SAN RAMON VALLEY FIRE DISTRICT AAfi 9®90 HOIISINGAUTHORTY AAS 9991 r4wo"ITTSOURG Mi 9992 OFFICE OF EDUCATION JAAIJ -- CONTRAOO$TACODNTY IAAV CENTRALSAN I� 14 7 OTHER CCCERA PARTICIPANTS • CCCERA is administered by the CCCERA Board of Retirement to provide service retirement, disability, death and survivor benefits for county employees and 16 other participating agencies under the California State Government Code, Section 31450 et.seq. (CERL) and Section 7522 et.seq. (PEPRA). ' Fngdn.rr%,,wJ[ndr.}-rld,if,-nur.11 CCCERA Employer N•III• CPA$ Dt,ftt• COd• 9600 SUPERIOR COURT'S AAX 3011 ROCEO FIRE DIST 88A 3306 DWBLO VALLEY MOSQUITO CIST OBS 3618 STEGE SANITARY DIST OBC 3501 AGAMD.LAFAYETTE CEMETERY DIST BBC TOb3 BEWEL ISLAND BBE 7013 EAST WELD FIRE DISTRICT BBF 7050 MORAGA FIRE DISTRICT BBG 7090 ORMAFIRE BBH 7126 CONS&IDATED FIRE BBI 7200 WEST COUNTY FIRE DISTRICT 66] 7250 MORAGA FIRE DISTRICT 68K 7250 WEST COUNTY FIRE 018TRICT 68L 7280ORINDAFIRE OBM 7002 RODEOIHERCULES FIRE WN 7860 1 KENSINGTON FIRE SBO https://www.cccera.org/sites/main/files/file- atLach ments/partici pating_em ployers_ha nd book.pdf?1575413348 15 CENTRAL SAN 15 8