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CITY OF COLTON <br />AGENDA REPORT <br />FOR COUNCIL MEETING OF APRIL 2, 2007 <br />TO: HONORABLE MAYOR AND CITY COUNCIL <br />FROM: DILU DE ALWIS, FINANCE DIRECTOR ice"\ <br />ITEM #17 <br />SUBJECT: APPROVE A RESOLUTION PROVIDING FOR THE ISSUANCE OF ONE <br />OR MORE SERIES OF CITY OF COLTON TAXABLE PENSION <br />OBLIGATION BONDS, AND APPROVING THE FORMS OF AND <br />AUTHORIZING THE EXECUTION AND DELIVERY OF AN INDENTURE <br />RELATING THERETO AND AUTHORIZING A VALIDATION ACTION <br />AND AUTHORIZING CERTAIN OTHER ACTIONS PERTAINING <br />THEREWITH INCLUDING THE AUTHORIZATION TO SELECT A <br />FINANCING TEAM <br />DATE: MARCH 26, 2007 <br />BACKGROUND: <br />The City of Colton has been a member of the Public Employees Retirement System (PERS) since <br />1945 to provide retirement benefits to its employees. The city maintains three separate contracts <br />with PERS for Police, Fire and Miscellaneous employees with two levels of benefits. <br />DISCUSSION/ANALYSIS: <br />The City Council of the City of Colton adopted a retirement plan pursuant to the Public Employees' <br />Retirement Law commencing at Section 20000 of the Government Code of the State of California <br />(the "PERS Law") and entered into a contract with the State of California Public Employees' <br />Retirement System with respect to pension benefits for its employees in 1945. One of the <br />obligations of the City under the PERS Law and pursuant to the contract with PERS is to pay its <br />unfunded accrued actuarial liability to PERS <br />An Unfunded Accrued Actuarial Liability ("UAAL" or "Unfunded Liability") occurs when an <br />employer's pension system balance is determined to be insufficient to meet the future pension <br />payment obligations of the employer. One way for the City to meets its UAAL (subject to CalPERS <br />and actuarial valuation) is to issue taxable Pension Obligation Bonds. By doing so in a favorable <br />interest rate environment the City has the potential to achieve substantial savings. However, in <br />order to proceed with the issuance of such bonds a Validation Process as mandated by Section <br />860 of the California Code of Civil Procedure is required. <br />The UAAL primarily occurred due to significant losses in the PERS investments coupled with an <br />increase in retirement benefits approved in fiscal year 1999/2000 for safety and fiscal year 2003/04 <br />for miscellaneous employees. The most recent data from PERS indicates the following UAAL <br />amounts; Police $7,558,661, Fire $5,845,135 and Miscellaneous $14,582,593 with amortization <br />periods of 17 years, 9 years for Police and Fire respectively and currently it is estimated that the <br />Miscellaneous UAAL is facing a potential negative amortization condition at the current normal <br />contribution. <br />In order to move forward with the necessary financial analysis and legal requirements associated <br />with such a bond issue, the City will need to select bond/disclosure counsel in addition to the <br />financial advisor and underwriter. The firm of Best Best & Krieger, LLP has excellent qualifications <br />and a very strong desire to provide a high level of service and attention to the City, as they have <br />