CITY COUNCIL AGENDA REPORT. DEPARTMENT: Administrative Services MEETING DATE: November 7, 2017

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1 CITY COUNCIL AGENDA REPORT DEPARTMENT: Administrative Services MEETING DATE: November 7, 2017 PREPARED BY: Buffy Bullis, Administrative Services Director AGENDA LOCATION: AR-2 TITLE: Authorize the Issuance of City of Monrovia Pension Obligation Bonds, Series 2017, and Approve and Authorize the Execution and Delivery of Certain Documents and Certain Other Related Actions Through Adoption of Resolution No OBJECTIVE: To authorize the issuance of pension obligation bonds and approve all necessary bond documents related to a bond financing that will secure the funds necessary to refund, in full, the City of Monrovia Taxable Pension Obligation Bonds, Series 2010, and also pay the City s California Public Employees Retirement System (CalPERS) unfunded accrued liability (UAL). BACKGROUND: The City is a member of the CalPERS retirement system, which is a multiple agency public employee retirement system that acts as an investment and administrative agent for participating entities within the State of California. As such, the City and its employees make annual contributions to CalPERS to fund pension benefits and to amortize a portion of the CalPERS UAL. The City is authorized to issue bonds for the purpose of refunding certain obligations of the City, including obligations resulting from its contract with CalPERS. Because of the favorably low interest rate market, staff has been researching various funding options to determine if there is an opportunity to realize savings related to the City s outstanding CalPERS obligations. To that end, based on extensive research and analysis performed by staff, the City has identified an opportunity to realize significant cost savings by utilizing pension obligation bonds to raise money to pay off two existing retirement obligations, as follows: City of Monrovia 2010 Pension Obligation Bonds. The 2010 Pension Obligation Bonds were issued to pay off a portion of the City s public safety UAL in The current outstanding principal and interest on the bonds through the next call date is $12.6 million, with an average remaining interest rate of 6.32%. The new 2017 Pension Obligation Bonds that will pay off the 2010 Pension Obligation Bonds are expected to have an average interest rate of 3.06%, resulting in a savings of approximately $920,171. CalPERS Outstanding UAL Balance. The current outstanding UAL balance is approximately $99.7 million, which is comprised of $53.8 million for the public safety plan and $45.9 million for the miscellaneous plan. The current interest rate on this obligation is 7.37%, compared to an average interest rate on the corresponding pension bonds of 4.03%. This results in a savings of approximately $42.1 million over the life of the bonds. ANALYSIS: Staff has reviewed different financing options in an effort to achieve maximum savings for the City. Currently, taxable pension obligation bonds are being issued at rates ranging between 1.7% and 4.5%. Based on an estimate provided by the City s bond financing team, the City can potentially save approximately $43.2 million over the next 30 years by refinancing our existing UAL and pension liability debt (which equates to a $27.1 million savings over the next 30 years on a net present value basis) through the issuance of a pension obligation bonds. In addition, issuing pension bonds will allow AR-2

2 the City to better manage its cash flows for budgetary purposes because it will replace fluctuating CalPERS annual payments with structured, consistent debt service payments. If approved, the 2017 Pension Obligation Bonds will be issued under the judicial validation proceeding completed for the 2010 Pension Obligation Bonds issued in December 2008 (Resolution No ). The Preliminary Official Statement, the Bond Purchase Agreement, the Escrow Agreement, the First Supplemental Trust Agreement, and the signed Certificate of the City Manager Pursuant to Resolution are all on file with the City Clerk s office. ENVIRONMENTAL IMPACT: There is no environmental impact related to approving the bond financing and the related documents. FISCAL IMPACT: The proposed bond financing will generate enough funds to refund, in full, the City of Monrovia Taxable Pension Obligation Bonds, Series, 2010, and also pay off the City s entire UAL to CalPERS. The estimated savings over the life of the bond issue is $43.2 million on a cash basis, or $27.1 million on a net present value basis. OPTIONS: The following options are presented for consideration: 1. Approve the issuance of the City of Monrovia 2017 Pension Obligation Bonds and authorize the execution and delivery of the related bond documents, or 2. Reject the issuance of the bond financing and direct staff to reevaluate the options of trying to pay the City s outstanding pension obligations. RECOMMENDATION: Staff recommends that the City Council authorize the issuance of City of Monrovia Pension Obligation Bonds, Series 2017, and approve as to form and authorize the execution and delivery of certain documents in connection with the sale and issuance of a series of additional bonds authorized pursuant to Resolution No to refund certain pension obligations of the City and authorize certain other related actions through adoption of Resolution No COUNCIL ACTION REQUIRED: If the City Council concurs, the appropriate action would be a motion to adopt Resolution No

3 RESOLUTION NO A SUPPLEMENTAL RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MONROVIA APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION WITH THE SALE AND ISSUANCE OF A SERIES OF ADDITIONAL BONDS AUTHORIZED PURSUANT TO RESOLUTION NO TO REFUND CERTAIN PENSION OBLIGATIONS OF THE CITY, AND AUTHORIZING CERTAIN OTHER RELATED ACTIONS RECITALS: WHEREAS, the City of Monrovia (the City ) is a member of the California Public Employees Retirement System ( PERS ) and, as such, is obligated by the Public Employees Retirement Law, constituting Part 3 of Division 5 of Title 2 of the California Government Code (the Retirement Law ), and the contract between the Board of Administration of PERS and the City Council of the City, effective September 1, 1950 (as amended, the PERS Contract ), to make contributions to PERS to (a) fund pension benefits for its employees who are members of PERS, (b) amortize the unfunded actuarial liability with respect to such pension benefits, and (c) appropriate funds for the purposes described in (a) and (b); and WHEREAS, the City is authorized pursuant to 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 Refunding Law ) to issue bonds for the purpose of refunding certain obligations of the City, including the obligations evidenced by the PERS Contract; and WHEREAS, for the purpose of refunding the City s obligations to PERS evidenced by the PERS Contract, to pay the City s unamortized, unfunded accrued actuarial liability with respect to pension benefits under the Retirement Law (the Unfunded Pension Liability ), and to pay the costs of issuance, including underwriter s discount and any original issue discount, and pursuant to its Resolution No adopted on August 5, 2008, the City Council of the City (the City Council ) authorized and approved a Trust Agreement, dated as of June 1, 2010 (the Master Trust Agreement ), by and between the City and U.S. Bank National Association, as Trustee, and the issuance of bonds in one or more series to refund the Unfunded Pension Liability or such portion thereof as the City Council shall determine from time to time; and WHEREAS, pursuant to Resolution No , California Code of Civil Procedure Section 860 et seq., and California Government Code Section 53511, the City Attorney filed a judicial validation proceeding in the Superior Court of the State of California, and on December 17, 2008, the court in the validation proceeding entered a judgment in the City s favor to the effect, among other things, that Resolution No is in all respects lawful, valid, and proper and is not subject to further legal challenge; that the City has the authority under California law to issue bonds in one or more series to refund the Unfunded Pension Liability or such portion thereof as the City Council shall determine from time to time as authorized by Resolution No ; and that any such bonds, the Master Trust Agreement, and all contracts and agreements enacted pursuant thereto, including supplemental trust agreements relating to additional series of such bonds, are valid, legal and binding obligations of the City under California law; and

4 WHEREAS, on July 29, 2010 and pursuant to the Master Trust Agreement and Resolution No , the City issued its Taxable Pension Obligation Bonds, Series 2010 (the Series 2010 Bonds ), in the initial aggregate principal amount of $12,750,000 to refund a portion of the Unfunded Pension Liability consisting of the side fund unfunded liability for the sole pension plan for the City s safety employees then in effect; and WHEREAS, as authorized by Section 4 of Resolution No , the Master Trust Agreement, and the Refunding Law, the City desires to issue additional refunding bonds designated as the City of Monrovia Taxable Pension Obligation Bonds, Series 2017 (the Series 2017 Bonds ), pursuant to and secured by the Master Trust Agreement, as amended and supplemented by the First Supplemental Trust Agreement (collectively, the Trust Agreement ), for the purposes of refunding the present Unfunded Pension Liability for all or a portion of the City s current pension plans established with PERS under the PERS Contract, advance refunding the Series 2010 Bonds, and to pay the costs of issuance, including underwriter s discount and any original issue discount, with respect to the Series 2017 Bonds; and WHEREAS, pursuant to Section 4 of Resolution No , the City Manager has certified to the City Council in writing that the issuance of the Series 2017 Bonds subject to, and in accordance with, the parameters set forth in Section 4 of Resolution No will result in cost savings to the City; and WHEREAS, in furtherance of Section 8855(i) of the California Government Code, as amended by SB 1029, enacted as Chapter 307, Statutes of 2016, the City Council on January 17, 2017 pursuant to its Resolution No approved a debt management policy, which the City Council has amended on this same date for clarifying changes by adoption of Resoultion No (as amended, the Debt Management Policy ); and WHEREAS, in order to effect the issuance of the Series 2017 Bonds, the City Council, desires to approve the form of a Preliminary Official Statement for the Series 2017 Bonds and to approve the forms of, and authorize the execution and delivery of, a First Supplemental Trust Agreement, an Escrow Agreement, a Bond Purchase Agreement, and a Continuing Disclosure Certificate for the Series 2017 Bonds, the forms of which are on file with the City Clerk; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MONROVIA DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2. Debt Management Policy. The City Council hereby determines that (a) the Debt Management Policy is consistent with the requirements of Government Code Section 8855(i), and (b) the proposed Series 2017 Bonds to be issued in accordance with the parameters set forth in Resolution No and this Resolution are consistent with the Debt Management Policy. Section 3. First Supplemental Trust Agreement. The City Council hereby affirms its approval of the issuance of the Series 2017 Bonds pursuant to Resolution No , subject to, and in accordance with, the parameters set forth in Resolution No , including without limitation Section 4 thereof. The First Supplemental Trust Agreement (the First Supplemental Trust Agreement ), proposed to be entered into by and between the City and the Trustee (defined in Section 4 below), in the form presented and on file in the office of the City

5 Clerk, is hereby approved. Each of the Mayor (or in his absence, the Mayor Pro Tem) and the City Manager (or in his absence, the Deputy City Manager) (each, an Authorized Officer ), acting singly, is hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the First Supplemental Trust Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer s execution and delivery thereof). Section 4. Appointment of Trustee. The appointment of U.S. Bank National Association as trustee (the Trustee ) under the First Supplemental Trust Agreement is hereby confirmed. Section 5. Continuing Disclosure Certificate. The Continuing Disclosure Certificate (the Continuing Disclosure Certificate ), proposed to be executed by the City and appointing U.S. Bank National Association as the initial Dissemination Agent, in the form appended to the Preliminary Official Statement (defined in Section 7 below) on file in the office of the City Clerk, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Continuing Disclosure Certificate in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer s execution and delivery thereof). Section 6. Bond Purchase Agreement. The form of the Bond Purchase Agreement by and between the City and Hilltop Securities Inc. (the Underwriter ), presented at this meeting, on file in the office of the City Clerk and incorporated herein by reference (the Bond Purchase Agreement ), is hereby approved, and any one of the Authorized Officers, acting singly, is hereby authorized to execute the Bond Purchase Agreement in substantially the form hereby approved, with such additions thereto and changes therein as may be approved by such officer upon consultation with Bond Counsel. Approval of such additions and changes shall be conclusively evidenced by the execution and delivery of the Bond Purchase Agreement; provided, however, that the Bond Purchase Agreement shall be signed only if the terms of the agreement meet the parameters set forth in Section 4 of Resolution No Each of the Authorized Officers is authorized, on behalf of the City, to establish and determine (i) the final principal amount of the Series 2017 Bonds, provided the aggregate initial principal amount of the Series 2017 Bonds shall not be greater than the sum of the City's remaining unpaid obligation to PERS for fiscal year , as evidenced by the PERS Contract, and the Unfunded Pension Liability as calculated by PERS or other actuary selected by the Authorized Officer, together with the costs of issuing the Series 2017 Bonds (including original issue discount) as approved by such Authorized Officer; (ii) the final interest rates on various maturities of the Series 2017 Bonds, provided that the net present value savings achieved through refunding the Unfunded Pension Liability and the Series 2010 Bonds by issuing the Series 2017 Bonds shall be at least 3%, expressed as a percentage of the Unfunded Pension Liability or as a percentage of the aggregate principal amount of Series 2010 Bonds, as applicable, and that the maturity date of the Series 2017 Bonds shall not be later than the last date through which PERS currently amortizes of the Unfunded Pension Liability of the City (i.e., June 30, 2047); and (iii) the Underwriter's discount for the purchase of the Bonds, not to exceed 0.75% of the principal amount of the Bonds. The net present value savings with respect to the Unfunded Pension Liability shall be calculated by comparing present value of the payments required to amortize the Pension Liability at the actuarial rate assumed by PERS to the present

6 value of the principal and interest payments on the Series 2017 Bonds at the same actuarial rate. Section 7. Preliminary Official Statement. The Preliminary Official Statement relating to the Series 2017 Bonds (the Preliminary Official Statement ), in the form on file with the City Clerk, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the City, to cause the Preliminary Official Statement in substantially said form, with such additions or changes therein as such Authorized Officer may approve, to be deemed final for the purposes of Rule 15c2-12, promulgated pursuant to the Securities and Exchange Act of 1934, as amended ( Rule 15c2-12 ). The Underwriter is hereby authorized to distribute the Preliminary Official Statement to prospective purchasers of the Series 2017 Bonds in substantially the form hereby approved, together with such additions thereto and changes therein as are determined necessary by any one of the Authorized Officers to make the Preliminary Official Statement final as of its date for purposes of Rule 15c2-12, including, but not limited to, such additions and changes as are necessary to make all information set forth therein accurate and not misleading. Section 8. Official Statement. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the City, to cause the Preliminary Official Statement to be brought into the form of a final Official Statement (the Official Statement ), and to execute the same for and in the name and on behalf of the City, with such additions or changes therein as such Authorized Officer may approve (such approval to be conclusively evidenced by such Authorized Officer s execution and delivery thereof). The Underwriter is further authorized to distribute the final Official Statement for the Series 2017 Bonds and any supplement thereto to the purchasers thereof upon its execution on behalf of the City as described above. Section 9. Escrow Agreement. The Escrow Agreement (the Escrow Agreement ), proposed to be entered into by and between the City and U.S. Bank National Association, as Escrow Agent, in the form on file in the office of the City Clerk, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the Escrow Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer s execution and delivery thereof). Section 10. Appointments of Financing Team. The appointments of Richards, Watson & Gershon, A Professional Corporation, as Bond Counsel, Stradling, Yocca, Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, and Urban Futures, Inc., as Municipal Advisor, in connection with the issuance of the Series 2017 Bonds are hereby approved and affirmed. Section 11. Other Acts. The Mayor, the Mayor Pro Tem, the City Manager, the Deputy City Manager, the Administrative Services Director, and other officers of the City are hereby authorized and directed, jointly and severally, to do any and all things (including negotiating with respect to obtaining a municipal bond insurance policy or debt service reserve surety bond), to execute and deliver any and all documents that they may deem necessary or advisable in order to consummate the sale, issuance and delivery of the Series 2017 Bonds, or otherwise to effectuate the purposes of this Resolution and Resolution No , and any such actions previously taken by such officers are hereby ratified and confirmed.

7 Section 12. Effective Date. This Resolution shall take effect immediately upon adoption. PASSED, APPROVED AND ADOPTED this 7th day of November, Tom Adams, Mayor City of Monrovia ATTEST: APPROVED AS TO FORM: Alice D. Atkins, CMC, City Clerk City of Monrovia Craig A. Steele, City Attorney City of Monrovia