Finance Committee - Regular Meeting

M. I might be rescued. That's evening, in person staff. Would you please introduce yourself?

Okay. Sean Murphy from the city attorney's office.

Sean Murphy.

Christy Thomas, finance director.

Sergio Agler, deputy finance director.

Thank you all for being here. If you all would join me in the Pledge of Allegiance, please. I

Pledge allegiance to the flag of The United States Of America and to the republic for which it stands, one nation under God, indivisible, liberty, and justice for all.

Chair Williams, could you turn on your mic?

That would

be helpful. Can we have the inclusion statement read, please?

Pursuant to the city council meeting rules adopted by resolution number two four two five five, members of all boards and commissions and the public are reminded that they must preserve order and decorum throughout the meeting. In that regard, members of all boards and commissions in the public are advised that any delay or disruption in the proceedings or a refusal to obey the orders of the city council or the presiding officer, constitutes a violation of these rules. The city of Riverside is committed to fostering a workplace that provides dignity, respect, and civility to our employees, customers, and the public they serve.

Secretary Elizabeth, would you call roll please?

Commissioner Ira? Commissioner Bello? Commissioner Roton. Present. Commissioner Hutchins.

Present.

Commissioner Thomas. Here. Commissioner Ward. Present. Commissioner Benavides.

Present.

Commissioner Chernikov. Commissioner Lagnar. Vice Chair Vandenberg?

Present.

Commissioner Scott Coe? Present. Chair Williams?

Present.

We have quorum.

We will now open the phone lines for public comment. Public

comment is now open for this item. Call (951) 826-8688 and follow the prompts to access the meeting. To request to speak, press 9. When called to speak, press 6 to unmute. You can also join via Zoom. The meeting ID can be found on the agenda.

Secretary, do we have any callers? No callers. Alright. Can I get a motion and a second to approve the consent calendar?

So moved. Second. Wonderful.

Secretary Elizabeth would you do a roll call vote?

You may now begin voting using your PIN pads. Motion passes unanimously.

Wonderful. Okay moving to item number five, Sean Murphy, Deputy City Attorney. Please take the stage.

All right. Well, thank you everyone. First off, I just want to say how much I appreciate serving on this committee where you guys do so much work. And I wanted to bring this topic up to your attention. And part of it was having a conversation with Commissioner Hutchins.

And we were actually going through some of the rules, and there was a conversation where there was some distinction about what perhaps the rules meant, whether the city council rules had been incorporated or not. And, you know, one of my purposes here is to empower you, right, to empower the Commission. And the truth is, our charter does the same thing. Our charter, Article eight, Section eight zero four, empowers each board and commission. And if we could just go to the next slide.

Might have it here. There we go. So Article eight, Section eight zero four of the City of Riverside Charter empowers the budget Commission to make its own rules, okay? And you should all have a copy of that, but those are our bylaws. Now, if we look at Article eight, Section eight zero four, and I'll bring it to this highlights section, each border commission may prescribe its own rules and regulations, which shall be consistent with the charter and copies of which shall be kept on file in the office of the city clerk, where they shall be available for public inspection. Okay? If you take a look at our charter, right, Article II talks about the rules. And these are the rules that govern, you know, this meeting. Okay? And what it says is these rules shall govern.

So the first place that we look when we're, you know, evaluating how the meeting should proceed, how a vote should be done, or who gets to speak, etcetera, is we go to the rules. Okay? And these rules say that they shall govern. But if you notice, in these rules, they don't have a great amount of detail on how a motion is done, a motion to reconsider, etcetera. Right? And some of those issues come up. And I want everyone to know where we go to find that answer, right? And the what it says here is that Robert's rules of order revised may be used as a guide in the proceedings of the commission. Okay? It's a guide they're not controlling over this commission.

I will always point out that Robert's Rules of Order is not, let's say, the city attorney's parliamentarian function, right? The commission, if it wants to use Robert Rules of Order, could certainly designate parliamentarian to walk through that, right? But they may be used as a guide in the proceedings of the commission unless they are in conflict with these rules, the city charter, the city council rules of procedure and order business, or the laws of the state of California. Now, to the degree that the city council rules of procedure and order of business are incorporated into this meeting, right, it would be through this, right, so that the Roberts rules doesn't trump Resolution 24,255, which I attached with our notice. In which case, that's basically what we've been following, right, which is the rules that prescribe city council.

Okay? And I'll say this. One of the most important things to understand is who makes the determination of what the rules mean? Okay. And our bylaws state that, right? And that's the chair. So Section A, right? And so I'm just going to guide you through it. Article six, section a, the chair, the chair shall preside at all meetings of the commission. The chair is responsible for applying these rules, including speaker time limits, fair and consistent opportunities for the public to speak pursuant to these rules, and recognizing members in the proper order to speak.

But that parliamentary function goes to the chair. Legal counsel, right, myself, I'm here to advise and to help guide interpretation as much as I can be. But the ultimate decision for how these rules are interpreted would come through that chair. Right? So to the degree that there is any ambiguity about whether they've been incorporated or not, or whether this commission would like to do something different, right, would like to actually put them inside the rules to remove any questions or doubts.

You know, I think all those serve to empower you, right, and to empower this commission to function as it wants to function. And so I just thought it was worth kinda having that. We do an annual review of the rules, rules. And this, you know, is kind of a good way to end it. This is not our annual review of the rules, but this is kind of a good way to reflect on the year and give you an opportunity to discuss the Budget Engagement Commission rules and to see whether you want to do any amendments or clarifications just because we have had some of those issues come up. And with that, I'll leave you to your discussion.

Thank you, Sean Murphy. We will now open up the phone lines for public comment.

Public comment is now open for this item. Call (951) 826-8688 and follow the prompts to access the meeting. To request to speak, press 9. When called to speak, press 6 to unmute. You can also join via Zoom. The meeting ID can be found on the agenda. Secretary,

do we have any callers? We have no callers. Okay. Is there any discussion? Oh, there's your name. Commissioner Hutchins.

Thank you madam chair. So first thank you for the presentation and thank you for sticking around when we had that conversation for I think we were just standing outside for like thirty minutes so I'm sorry for keeping you from your family that So that that conversation and then I assume that's what led to putting this your your request on the agenda. And you sort of alluded to madam chair when you started the meeting, can we hold off on motions because of that? And so part of that was kind reviewing of the rules myself. I hadn't looked at the city rules and procedures in a while, so thank you for that.

But also the fact that you are parliamentarian, madam chair, and so when that discussion was going back and forth on like if we had moved on from that motion, you could have ruled that we hadn't. And that's sort of where that came came about. I think that when we do do when we act when we get to an actual review which I think we have to do in the beginning of the year. Don't remember when we have to actually like review. It's it's not the beginning of the year but like it's I think it's around the time that we don't remember. It's usually we have to review the rules. I think we

I can answer that for you.

Sure. Thank you.

I have tears. Okay. So article 12 of your bylaws revision and annual review of rules. These rules may be amended by a two thirds vote of the membership of the commission is present. The amended rule shall be filed with the staff secretary. These rules shall be reviewed annually and adjustments made as needed. So it's just an annual review.

Yeah, but there's no specification on like which one When specifically we actually get to it, some things that we may want to consider, because I've had I know some commissioners have brought up timing and we can impose those rules if we wanted to on ourselves. I don't think we should, at least right now. But then again, don't know how often I talk versus not. But we can impose those that might be the consideration of how long one us talks or do we want to ensure that everyone gets an initial round of a couple of minutes. No no no. Yeah yeah. Madam chair just to make sure your mic just so they can hear it just in case.

That is something that I had spoken with Christy and Sean and Elizabeth with how exactly can because sometimes people get impassioned

Mhmm.

And it happens and I'm not a gavel banger and I don't wanna interrupt anybody and I'm like how do I do this politely? So I got straightened out on that and I appreciate you also looking for that, well asking about that because it has been one of my concerns And I've used this thing to see how many times I have to push three minutes on various commissioners over time but somebody in the back will stop the clock because I do try to keep track so that we can we can keep track. Yeah. No you're not. But I just want

to Oh you're you're you're you're curious to see how long.

I do kinda keep track of how long people do speak about certain topics so that it doesn't go too far for myself.

And so when consider those

No it's not, no it's all of us.

Right.

Me included.

And then when we consider like those kinds of rules if that's something we wanted to do. The other thing that I wanna point out is and this is coming because I used to I used to come from the state legislature a lot. And this this provision is isn't our ability. We can also suspend the rules. So if if we ever do artificially create time limits or things like that, if we all feel that it's an issue, we can always move to suspend them.

I think that's also a two thirds majority. Two thirds. That allows us to sort of suspend the rules and change how we wanna do things in a particular meeting. So I think it's helpful to review it. I don't, again I brought up the idea of putting limitations on ourselves because one, I know that the council is experimenting with that idea now with like limits on living speak and how and I know we've had some Sometimes where conversations have gone on further, sometimes where we've lost the germane ness of a conversation where we've gone off topic and and whoever's in the city attorney's chair, sometimes it's like that's

not what we're supposed to

Or Christy is like trying to interject of like that's not what we're supposed to be talking about. And so those are just maybe things that we can consider of like how do we keep us continue to keep us on track because we are mostly that way but sometimes we have veered and those are just some thoughts I had on it. But again, thank you for the presentation and with that madam chair, yield back the floor.

Thank you so much commissioner Hutchins. Your perspective is always pertinent and lovely. I appreciate it. Commissioner seriously. Commissioner Benavides.

Yeah. Thank you madam chair and I would someday like to have a discussion internally amongst us commissioners in an item that has been on my mind based on a public engagement and folks coming to our meetings to express their thoughts, ideas, request on how the expenditure of future measures fund for us to consider. And and again, I think that in the event that in the future we do get a crop because our efforts in having people come to us to ask us or to express what their thoughts are in regards to z, we we listen intensively. And I would not like to limit public comment to three minutes. Just that's my personal thought.

Because it's not easy to stand before a body of any kind and be concerned with time. And, you know, we don't impose time limits to staff when they present to us. And I think we need to think about in the event we do have guests or speakers that whether on the phone or in person. So those are just my thoughts. Mister Attorney, in the event, let's just say sometime in 2026, we have three people wanting to speak.

We do have, as a collective body, to allow them to speak until they're done within certain reasons, like maybe maximum ten minutes. Can we do such a thing?

Well, the first thing is is that I'm looking through the rules. The three minutes I don't think there's any reason why it could be extended. But if you're extending time, right, it would be extended, you know, across the board. You know, so I think there could be an issue of, you know, it's not just for one person to be able to speak longer. And so I think there's if that's an issue to I'd want to take a look at that, right, and look at are the other implications.

Because I think what you're talking about when you're making public comment is it has to be open to everyone to have the same amount of time. And so if you're going to move those, just understand the implications of that. And it can't just be for one individual person as opposed selectively.

Okay. Because it's not like we get 25 people here. We may get one or two. And I'm not sure if that's even gonna change in the future. Mhmm. But in the event it does, I think we should let we should hear their let them speak their peace without time limitations. But what I don't know and I would like my colleagues to chime in as to what does that mean?

May I say this for one second? Yes. It is the meeting procedures, right, which are meeting procedures section two. So Article seven, section two, subsection c. Following the staff presentation, the chair shall ask for public comment. Public comment shall be limited to three per speaker on each item. No additional public comment shall be taken on an item after the public comment has ended. So the truth is, there are rules, right? And so the rules would be abided by. Suspension of rules is something that, you know, we've also discussed. But I would also understand the, as I've mentioned before, that issue of giving one person more time to speak than another raises other concerns.

Got it. And what happens if one more question. If someone from the community, a taxpayer wants to address something under public comment that's not on our agenda, do the three minutes apply to that?

Well, public comment is open to anything within the board and between this commission's So it can't be outside of the purpose of this of the BEC. As far as an individual item, no, that's a Brown Act issue, right? So that's limited by the agendized item. And that's different than your bylaws. That's kind of Act issues standing over all of

it. Mhmm.

Those are more that's California state law.

That's California. Okay. I yield, man. Thank you.

Thank you, commissioner Benavides. Also, I think a little like in person discretion would be used also if someone is speaking about something that's affecting their neighborhood in a detrimental way and they need five minutes. I think that they should get the five minutes as opposed to someone who's just ranting and not really making a point and is going around in circles. Maybe they just get the three minutes but I think that's discretionary based on topic and who's in front of us and the bridge when we get there to cross it. So Okay.

I'd have to take a look at the issue. My concern is that if if time is different for different people, it creates a disparate right. And so the degree that people have a right to have the same time, I'd wanna look at that before giving you a final answer. That's my instinctual concern.

Could time be changed to five minutes if it was necessary across the board or is that impossible?

No, the rules can be changed through your rule changing procedures, right? They can also be suspended as Commissioner Hutchins pointed out.

Thank you, Sean Murphy. Commissioner Thomas.

I just want to respond to a couple of things. Think suspension would be better than changing the rules. Mean you can make a suspension for that particular meeting or topic but I think that would be better. I just wanted to respond to Commissioner Benavides. Personally, have a problem with the speaking time being changed.

In the example that you gave, the reason why I have a problem with it is I can't compare it to our leaders speaking compared to the public speaking primarily because when the leaders come up to speak, they know they're coming to speak and they're prepared and they're focused and they come and they speak on topic, on subject very pointed about what they're speaking about. Right? And so which is different than if you get somebody who wants to rant knowing that we can't respond. And so that's there's a difference at least in my head in terms of when you have someone coming to the microphone. The three minutes when you know what the rules are and I've spoken to city council and different commissions.

Knowing what the rules are in advance, I have to write my speech or my comment in such a way that the points I wanted to make are made within the time limits that are given. And I'm I'm just one of those people who's a stickler for the rules. If I know what the rules are, then I'll play by the rules. Because I can write and speak in such a way that if I need to be poignant, then I'll be that way. If I need to be comical, I'll be that way.

But I will do so within the guidelines that we've been given. So I'm more of a proponent not to change it. And if we do need to I like what the suspension of the rules as the the preferred method given that particular day or that particular topic only.

If we're successful in fulfilling our one of our responsibilities to help increase civic engagement. I would not, first of all, assume that the folks that come to speak to us to make suggestions are not just gonna rant. I I realize that happens all the time at city council, and therefore, the three minutes often applies. But as the attorney was saying, mister Thomas, that the chair under his or her leadership can, you know, unilaterally suspend the limitation when he or she sees fit.

Quick point of information, I'm sorry. It's not the chair unilaterally can suspend the rule. The chair can like make a ruling on something parliamentary procedure but to eliminate the three minute rule or to suspend it that requires a suspension of the rules. Just a quick clarification. Thank you Commissioner

Hutchinson and

thank you.

But that should be available for the chair to do?

Yes. Commissioner Yes. Okay. Commissioner Rutin. Yes.

Hello. Commissioner Rutin, Ward 3. As we are talking about all of the rules and protocols and bylaws right now, I have a question as I wasn't able to vote on the minutes just now and we moved on to the next topic of discussion. So do I make a point of order now or do I have to wait until January to maybe revise those minutes or how may that go? Because I think it got recorded as not voting.

Okay. So, again, the way that I've generally been operating is to go to the resolution number twenty four thousand two fifty five, right, which would be the motion to reconsider process, okay? And so, you know, that would be so we're not talking about anything specific, right? We're talking about the rules generally. So I'm not talking about, you know yeah, I would go to Resolution 24,255, and I'd look at the motion to reconsider.

And we'd follow the procedures for motion to reconsider. Now, that's a decision for the chairperson, right, to determine whether those are the rules that govern this BDC. And that's kind of the impetus for this conversation today, was to say it's never good when we're there's any ambiguity in law, right? You know, as a commission, I think it's too important that this is the understanding. This is how we've been operating.

To clarify that, the bylaws could be amended to specifically incorporate the rules, right? As they're written right now, it's the rules govern, right, meaning your bylaws. But I don't want to be repetitive. But, yeah, under to the degree that the shareperson believes that the interprets shouldn't say believes, but interprets that Resolution 24,255 has been incorporated, then that's what you do. Motion to reconsider.

Thank you, Commissioner Roton. Commissioner Scott Coe.

Thank you, Madam Chair. On the suspension of rules, the way I read the current bylaws, Article nine, is that the rules may be suspended, and I would assume this includes the three minute limitation on public comment, may be suspended by a two thirds vote of the members present in voting. So, it would have to be a recorded vote of the commission in order to suspend the rules. Which I think is a reasonable provision in the bylaws. I wouldn't recommend that being changed.

If there was a topic where there was where there was knowledge of very strong perspectives, individual situations that would require more than three minutes to relate, I think commission would be open to suspending the rules and providing five, even ten minutes per speaker for that particular topic due to this unique circumstances. But we're required two thirds vote. And I think that's reasonable to my mind. But, you know, that's up to the commission to consider. I would recommend, and I don't know if this has come up in this review of the rules, that and I've noticed I've been only on the commission for three years, and unfortunately, we'll have to leave you on February.

But, you know, the commission does excellent work, really good solid debates under your provisions. There have been moments in the past I've noticed where maybe individual commissioners really, really diving deep in particular topic that might go beyond what the budget engagement commission is really supposed to do and gets operational issues, things like that, not really into the financial aspect of the general fund generally and measure Z in particular. So, the commission may wanna consider for your own rules as you're authorized to do over and above the city council's rules. Some level of limitation or rotation or something like that to kind of break that that impasse that sometimes occurs and that can create, you know, maybe time spent focused on one individual commissioner's interest rather than the subject at hand. I'm not quite sure how that would be done.

I'm sure our attorney would have great advice. But that would be one recommendation from one commissioner.

Thank you commissioner Scott Coe. Anybody else? And do we need a motion for the suspension of rules or we can just implement that whenever is necessary? Well, I think Or just when it's needed.

Right. If you can make it as a motion, it needs a twothree vote and something would have to be articulated. And then remember also, is that suspension of the rules, right? There still is the city charter and other laws that could govern, right? So for example, if there was a suspension that was a rule that goes beyond the scope of the bylaws, right? You can't suspend things that go outside. You can't suspend, you know, a charter provision, right? And that's one of the consistencies that our bylaws, you know, govern, right? But they can't be outside of another scope.

Would the suspension just be for that or can we make it just for that meeting? It wouldn't go for the rest of our meetings, right?

I would take that as a meeting by meeting suspension.

Okay, perfect.

Wonderful. Thank you, Sean Murphy. We will now open the phone lines for public comment.

Public comment is now open for this item. Call (951) 826-8688 and follow the prompts to access the meeting. To request to speak, press 9. When called to speak, press 6 to unmute. You can also join via Zoom. The meeting ID can be found on the agenda.

We can move on to item six. Thank you.

I was like, I don't know we yeah. Usually public comment comes after the presentation. But before we move on to item six, wanna test this out now. Madam chair, can I I would like to move for a motion to reconsider the consent calendar to ensure that commissioner Roton's vote would be recorded?

Is there a second?

Second. Hold on. Second.

It has been moved and seconded for the For

its its a motion to reconsider the consent calendar.

To reconsider the consent calendar so commissioner Rutin may vote. Vote.

You may begin voting. Motion passes with nine yeses and one abstention from commissioner Bello.

And with that motion passing madam chair I move to approve the consent calendar.

Second. Is there a second?

It's on this time. It is. Commissioner Thomas is seconded.

It has been moved and seconded to approve the consent calendar. Secretary may we take a vote.

You may begin voting. Motion passes with nine yeses and one abstention from commissioner Bello. Alright.

Moving on to item number six and this is our last meeting with Christy Thomas.

Mhmm.

This is a CalPERS item.

Yeah. But this is her last time presenting, isn't it? Yeah. This is her last presentation to us. So, welcome to your curtain call. And yay. Everybody pay close attention.

Thank you, Chair Williams. Christie Thomas, Finance Director. So good evening, honorable chair and commissioners. This will be a bit of history and an update on the city's pension plans. So by way of background, city's participation in CalPERS dates back to 1945.

The participation was approved by Riverside voters, it was added to the city's charter. The city has two separate pension plans with CalPERS, one for safety, which covers our sworn police and fire employees, and miscellaneous, which covers all other eligible city employees. CalPERS does require separate pension plans for safety and other employees. All right, so I want to get some definitions out of the way before we dig in. So first of all, there are two employer contributions to the pension plans.

The normal cost is the percentage of payroll we pay for employees who are actively working. Employees also contribute their share, and CalPERS sets the minimum employee contribution required by state law. The employer pays the balance. CalPERS calculates the normal cost using assumptions about future investment returns, salary growth, retirement ages, longevity, COLAs, and payroll. Those contributions are invested with the expectation that investment earnings will help fund a portion of the employee's future retirement benefit earned that year.

But it is important to note that the projections are just estimates, So if that investment return falls short and salary growth is higher than assumed, or if retirees live longer than expected, the actual cost of the benefits that employees have already earned can increase. So when that happens, the plan's assets, which are the contributions made over time, and the investment earnings on those contributions may not fully cover the value of the benefits that the employees have earned to date. And the gap between the plan assets and what CalPERS estimates will need to be paid to employees over their lifetimes is what we call the unfunded accrued liability, or UAL. So I mentioned that the part of the calculation of normal cost is an estimated or target return on investments, and that's true for the UAL as well. And it's referred to as the discount rate.

The discount rate is currently set at 6.8. CalPERS has reduced the discount rate over the years based on the historical interest earnings experience and expectations for future earnings. At one point, it was 8%, and today it is 6.8%. So our UAL is discounted at 6.8%. And again, if that interest assumption was not factored in, our required UAL payment would be higher.

And then lastly, we have the funded status, also referred to as the funded ratio. That's the percentage of our pension liabilities that are covered by our plan assets. So the UAL represents the gap and the funded status represents how much of the liability is already funded. So this chart gives some context for how CalPERS investment earnings line up with the discount rate, which is the rate, again, that they'll assume that will be earned over the long term. And again, right now that discount rate is 6.8%.

And so that's the orange line on the chart. And it's really hard to tell on this chart, but it does start at 8% all the way over on the left and at 6.8% today. The blue bars show what the rate of return that CalPERS actually earned each year. And as you can see, those returns do move around quite a bit. Some years CalPERS will earn above the discount rate, and other years it will come in below the discount rate.

When CalPERS earns above the discount rate, those investment earnings cover more of the pension costs, and the city's required contributions go down. And again, when returns fall short, like that negative year that you see in 'twenty one, 'twenty two, our required contributions go up because the city has to make up that difference. CalPERS, again, periodically adjusts the discount rate to reflect their long expectations. So in the end, investment earnings matter, and higher investment earnings are better for everybody. Okay, so looking at our two periodically plans individually, this one shows the long term trend for our safety plan UAL and the funded status.

The blue bars are the UAL in dollars, and the orange line is the funded percentage. Today, the safety plan stands at $2.00 $7,000,000 for its UAL, and it is 87% funded. So looking at the history a little bit, you can see at the beginning of the chart, this plan was what we call super funded, and that means that the plan assets exceeded the plan liabilities. Then we had a downturn in the early 2000s. We had the .com crash and then the UAL increased.

And so to address that, the city issued a 2004 POB. And so you can see that that brought down the UAL again for a period of time. And then it spiked again. And that's the period. And then you can see that it starts to increase from 2008 and 2009 through 2018 to 'nineteen, and then it came down a bit in 'nineteen-'twenty, and then we issued the 2020 POB.

The difference between the 2004 POB and the 2020 is that in 2004, we intended to fully pay off that UAL. In 2020, we did not intend to fully pay off the UAL, but rather a percentage of that. All right, and then on the miscellaneous side, very much the same story. That first POV was just issued one year later. At its high point, it was 145% funded.

But again, following the same track as the safety plan, UAL increased over time. We issued the 2020 POB. 2021 was fully funded at 104% following CalPERS investment returns of over 21%. Today, the miscellaneous plan has a $240,000,000 UAL and an 86% funded status. So the takeaway here is that the UAL will fluctuate based on market returns, based on payroll costs, and other factors in the actuarial report.

The city launched a CalPERS challenge in twenty seventeen-eighteen. That was a coordinated effort to get ahead of our rising pension costs and to put long term strategies in place that protect the city's stability. And over the years, this has evolved into a comprehensive framework of policy updates, funding actions, and budget stabilization tools. And a big part of that work has involved strengthening our policy and cost management structure, and that includes the city's pension funding policy that was adopted in 2019. And then we implemented various employee cost sharing measures that ensure pension costs are shared appropriately under state law.

And we also took several significant funding actions over the years, including issuing the pension obligation bonds and creating the Section 115 pension trust. That trust allows us to put money aside into an investment account and earn higher investment returns than we are able to on our general dollars. We have fewer restrictions over the Section 115 trust. We still invest really responsibly. We still follow our investment policy, but we are able to earn higher returns there.

And then the 20 let's see. The '20 20 POB, we refinanced about 67% of the UAL at the time. And then also, in our pension policy for the Section 115 trust, we put aside 50% of all land proceeds and other unanticipated revenues. Our policy directs goes into the one hundred fifteen trust. Another key component has been the development of budget stabilization strategies, such as the smoothing strategy.

And that goal is to reduce the year to year volatility of pension payments so that the fluctuation in CalPERS costs don't directly translate into disruptions to city services. So the 2020 pension obligation bond, again, was one of our major CalPERS challenge and cost management actions. And we issued a $432,000,000 POB to pay off about 67% of UAL at that time. And the goal was to replace CalPERS' 6.8% unfunded liability interest rate with a lower fixed rate of 3.69%. And so in this chart, the dark bars represent the POB debt service.

The gray bars show what our CalPERS UAL payments looked like after the bond payoff. And then the purple dashed line above that shows what the city would have paid if we had not issued the POB. So you can see that big climb in that purple line. That would have had a direct impact on the city's operating budget and city services. So by refinancing that liability at a lower rate, we have already achieved about $45,000,000 in savings as of May 2025, and we're projecting $175,000,000 of savings through 2045, assuming CalPERS meets its long term return assumptions.

So again, we didn't eliminate the UAL at that time, but we restructured it in a way that lowers interest costs. And it creates more predictable annual payments, which supports our long term fiscal stability and enables us to manage our budget. The Section one hundred fifteen trust is one of the tools that we use to manage pension volatility and strengthen long term financial stability. We created the trust in 2018, and since then, we've made a series of strategic contributions. We've used surplus reserves, one time revenues, land sale proceeds, and also savings from vacancy rates during and after the pandemic.

And again, the two major advantages to the Section one hundred fifteen trust is allowing us to invest a little bit more aggressively and long term than we can in the city's standard investment pool. And again, it provides that budget stabilization tool. We can make contributions and withdrawals as needed to offset spikes in the CalPERS payments and support consistent service delivery. We can only use the funds in the Section 115 trust to pay our pension obligations. They are not available for any other purpose.

So the chart shows the general fund contributions over time. The pandemic resulted in a significant increase in our sales tax revenue, and we also had experienced a high vacancy rate at the same time. And so we saw some surplus reserves at the end of those years. And so counsel approved placing a portion of those surplus gains into the Section 115 trust. And so you can see in 2024, we actually put twenty one million dollars into the Section one hundred fifteen trust.

As of the November, we have about $90,000,000 in the trust. About 92% of that belongs to the general fund and 18% to enterprise funds. Enterprise funds don't traditionally contribute to the Section one hundred fifteen trust. They made a one time contribution. In one year when the plans were fully funded, we did not have a UAL payment due.

Since we had already budgeted that in the biannual budget, rather than returning that back to the funds and spending that, we simply redirected it to the Section one hundred fifteen trust to help with future spikes. And then it's important to note that the $90,000,000 is a market value, value, so on the date that we actually withdraw any money, the value will be different. Maybe higher, maybe lower. So we've implemented a smoothing strategy to help plan our contributions and withdrawals from the Section one hundred fifteen trust, and we really want to use the monies in the trust responsibly. And so this will help us to do that.

So the purpose of the smoothing strategy is to avoid sudden spikes in the required annual payments that can disrupt the operating budget and city services. So the idea is in the year that we have those spikes, we will withdraw some funds out of the Section one hundred fifteen trust so that we don't have a big impact on our operating budget. This chart compares CalPERS annual required payments shown in gray and blue with the city's smoothing results. So the gray line shows what the prior actuarial report was, and the blue shows what the current actuarial report is. So again, just driving home the fact that that changes with every year's actuarial report.

It will always be different. So we're never going to be able to hit the nail on the head, fully fund the UAL through financing, or say, know, we've smoothed this out at $40,000,000 a year and that's it, we're good to go. It's going to keep changing, and so our smoothing strategy and the results that we see out of that will change as well. So when we originally built that into the 'twenty two-'twenty four budget, the target was about $38,000,000 per year, smooth. And then in the latest budget, we're looking at about $36,000,000 All right.

So our takeaways. As of 06/30/2024, our UAL is about $240,000,000 for the missed plan, $2.00 7,000,000 for the safety plan, so $447,000,000 total. We have funded ratios of 8687%. That is really healthy. Nationwide average for the funded status is between 7580%.

And then CalPERS is funded at 79% right now across all plans. So the city is really healthy in that respect. And the 2020 pension obligation bond, that continues to provide the significant savings, again, 45,000,000 as of May and 175,000,000 projected over the life of the bond. Section 115 trust, again, at 90,000,000. For this fiscal year, we have 9,000,000 budgeted to contribute to the trust, and we do have an additional 18,000,000 available in set aside funds or reserves that we can contribute as well.

And then finally, in our most recent smoothing strategy, it's smoothing out at about 39.6 annually through 2039. So overall, these actions combined with ongoing monitoring and long term planning demonstrate the city's commitment to managing pension obligations responsibly and supporting financial stability for the community. And this is a receive and file report. So I'm available for any questions.

We will now open the phone lines for a public comment.

Public comment is now open for this item. Call (951) 826-8688 and follow the prompts to access the meeting. To request to speak, press 9. When called to speak, press 6 to unmute. You can also join via Zoom. The meeting ID can be found on the agenda.

Secretary, do we have any callers? No callers. Thank you so much. Commissioner Ira.

Thank you, chair. I'm so bummed this is the last time I get to ask you questions, but just a couple of quick ones. So I just wanted to understand the level payments that we're making through 2039, that's us paying down the principal or just paying off the interest on the pension obligations?

So it covers both the pension obligation bond and the UAL that's required, the annual UAL that CalPERS requires us to pay.

Okay. So are there strategies that we can implement that we're not currently to pay it off quicker, Or is this basically like the industry standard of what we're doing to get it paid off as efficiently and quickly as possible?

Yes, we do believe that this is what we can manage at this time. There are a couple of other options. We can look at paying down what's called specific tranches. So every year of a UAL is called a tranche. We can look at the really high ones and pay that one down. But if we were to do that, then we would miss out on our investment earnings, right, in the Section 115 trust. We So would just that would be the present value of our cash. And then there is the opportunity to kind of have what CalPERS calls a fresh start, where you kind of level everything off and you start over. But it's not going to stay level because the UAL changes every year. And that also puts pressure on the front end of our plan, so we would have to pay more upfront.

We continue to look at those pretty much every year to see what our different options are. And we actually did have a call with advisors today on that topic, but ultimately we decided that we are in really good shape with the current strategies that we have.

Fantastic, and then just last question for you. I know we've seen so many cities regionally, you know, go bankrupt or have really serious financial troubles. In layman's terms, we're doing relatively well, as well as we could be financially as a city, like we're fiscally healthy with what you're presenting.

Yes, we are healthy and we have a number of discretionary reserves and we also have our 20% reserve policy intact.

Very good. Awesome. Thank you so much. Appreciate Thank

you, Commissioner Ira. Commissioner Ward.

Thank you and I just wanna give a shout out to you, Ms. Thomas, for your exemplary service. I've only been on the commission since, last year, back in May, and, you've been very helpful with any inquiry that I have. You've been very thorough in your answers that you've given me, and your passion, you know, bleeds through the work that you do. So I really appreciate that.

And thank you for taking this agenda item up that I that I asked for as well. So I just have just a couple questions. I won't keep you long here, and I didn't wanna participate in the last debate because I know that I can go along sometimes. But just a few questions for for clarifications for for CalPERS. I'm not sure if I if I missed this, but what is the threshold percentage for the CalPERS investment that allows us to achieve that 6.8 discount rate? Like, what is what is that threshold? Is it a standard a standardized discount rate that we get from CalPERS in terms of the city's contributions or what what is that threshold?

I'm not sure I'm following. So the discount rate is really a standalone factor and it's what CalPERS thinks that they can earn on their investment returns every year.

Okay. Yeah. And so is that 6.8%, like our contributions, like the city's contributions towards CalPERS or? No. Okay.

No. So, that actually reduces what we would have to pay CalPERS. So if they earn those 6.8% on that, then we get that 6.8% applied towards our obligation.

Got it. Okay.

If they don't earn that, then we've gotta make up the difference.

Right.

Okay. If they earn more than that, we get to pay less because we get them more than that. We get whatever they earn.

Okay. Okay. That makes sense. And and, yeah, I just wanna echo commissioner Ira's comments about just the difficulties that other cities have faced in the past. You know, this is why I brought this up on our agenda.

I understand that we are in good fiscal health at in comparison to some of these other cities. But just for, you know, hypotheticals, you know, if that were to change, if some of the returns for for CalPERS were to dramatically decrease in, you know, the overall sustainability of, you know, our pension obligations were to come into question, Are we required to I was reading that there's a California rule. Does that apply does the California rule apply to what the city does, or can we implement mixed strategies, whether it be a mix of pensions and 401ks or other retirement investment strategies?

So no, the California rule is specific to the pension benefits that the employee has earned and it means that those benefits must stay intact. So the benefits that they were promised, we must live up to those. We are not allowed to reduce those. Going forward, like for example, California implemented PEPRA, where they increased the employee contributions going forward. So there can be legislative changes such as that but we can't go retroactive. What employees earned as a benefit must stay intact.

And so that's for every employee that currently exists. What about for future

For retirees. So for future employees, we could negotiate a change in the pension formula. We can negotiate a change in employee contributions. So there's a number of things that we can do there and we have done that over the years. We have negotiated that employees pay more. When I first started, both employee and employer share was paid by the city. And now I pay my full employee share.

Mhmm. Sorry if I'm misunderstanding but so there can be negotiations for the pensions but in terms of the overall system for future employees, a four zero one k system cannot be legally implemented unless there's legislative changes?

No, I mean we do have 401s, we have 457s, so we have other supplementary plans that we provide to employees. We provide a match on some of those, but very minimal. But those are really more for on the employee side. But on the CalPERS side, we're kind of stuck with what's already legislated.

Okay. Alright, think that answers my questions. You.

Thank you Commissioner Ward. Commissioner Scott Coe.

Thank you Madam Chair and thank you Christie. Excellent presentation as always. We'll miss you. I this this I thought it was a very good overview and shows some some some pretty wise efforts taken by the city. My question is only and it feels like I shouldn't already know the answer since I run a CalPERS agency, but I'll ask it anyways. The unfunded actuarial liability is the UAL. CalPERS charges us for that, for the annual UAL with a percentage interest, is that correct? The 6.8% interest?

Essentially, issuing the POB, we look at that as an interest rate, a cost to us. If CalPERS earns the 6.8, then it's something, it's that 6.8 less than we have to pay.

Oh, so they earn on the UAL? I thought it was a So,

our contributions, everybody's contributions is invested by CalPERS. Sure. And their target for those investments is 6.8%. And so, they take that into account, that assumption, into account when they tell us how much we need to pay towards our UAL every year. So, for example, if they didn't take that into account, our UAL payment would be 6.8% higher.

Ah, okay. So we pay a 6.8 percent discount because they expect that rate of return on the money to get back to a 100%. Yes. So on the when we do a POB, the idea for that to save money, the 45,000,000 is that it earns it's it says it's earning a lower interest or no, it's earning, it's a lower interest rate, right?

So we're paying, so on that side we're paying our 3% interest rate. We look at the delta there. And so, I think Edward's squirming in his seat. Do you wanna come up and talk about your POV? It's his baby. I

am utterly demonstrating my ignorance.

It's his passion. I'm gonna let him take that.

Edward Enrique is assistant city manager. I was actually just telling the deputy to tag me in because I am passionate about this. So to answer your question, the pension bond is an expense but the money that we got to issue the bonds we pay down our debt, our UAL. That UAL was being charged at the discount rate for us at 6.8%. So the delta between what we would have paid CalPERS and the UAL of 6.8% versus what we're paying at 3.8% in terms of the interest for the bond, that's savings to the city.

So as long as Caliper Systems earns more than 3.8% in general, the bonds that we issued are saving us money. So they one year they have a bad year, but it's only 4%, it's still less than what we're paying for the bond that we issued to defee some of that UAL. And the 6.8% is essentially I look at the UAL each year, Christy mentioned their tranches, each year to me they're like new mortgages, we get another new mortgage. Sometimes they're good and sometimes they're bad. But they're amortized over now a twenty year period and the inherent interest rate factor in that is 6.8%.

So if it's an actuary loss that year because they earn less than their 6.8% whatever that number is, has been factored in terms of an interest rate payment at 6.8%. So of course, we want them to earn anytime they can any higher for the UAL higher than 6.8%, it's better for the city. But the bond itself is at a lower interest rate that we're paying. So the delta between those two as long as the returns are higher is positive for the city and that's why at this point, if you've seen the history over the last five years, it's been pretty positive. So, we've saved a lot of money.

Thank you. Appreciate that. Thank you for explaining that to me. We do have a section 115 and that's been a very, very good earner for our agency. It's nice to see it earning here. Good strategies. Appreciate it. Thank you.

Anyone else? No? Okay. Christy Thomas, please stay right there. Going to go to number eight. Finance Director update from Christy Thomas for the last time. Shoot. I said we're skipping over.

I don't think I have any updates today. Just trying to get our audit done. That's where my focus has been.

All right, well have a seat then. Thank you. Number nine, items for future budget engagement commission consideration. For January, we have the police report and the quarter four report. January, February either or we have fire report and the export economy compared to other cities and to be determined we still have the measure z engagement and the cannabis update which stays there for years.

It's been on all four years I've been here And recurring, we have the code of ethics and the selection of chair and vice chair coming up in March. Is there anything else anyone would like to add Point to

of information. Quarter four, is that for quarter four as in last fiscal quarter?

It says Q4.

Quarter four, is that fiscal quarter from like from last fiscal year or is that quarter Yes. Okay, thank you.

It didn't have a year, just said quarter

four.

I assumed it was last because usually we're only one quarter behind, so we're two quarters behind on the presentation.

We are. So that happens at the end of the fiscal year because we need to get our numbers settled the fiscal year and process is very lengthy.

Okay. Thank you. Sorry.

And is there anything else anyone would like to discuss? No? Awesome. Now back to item seven. So for I'm not gonna use my mic. So for the last four years there has been a beacon of light in our commission who keeps things going, keeps things steady, holds not just this meeting but a couple every month with every chair for I don't know how many years, but at least four for myself. How many years have you done this? Yeah. I'm sorry, I should have said yes, Christy. Our beacon of light.

How many years have I done this? I think maybe eight years.

So that's a lot of meanings and I just wanna say on behalf of myself, I'm not gonna speak for the rest of the commissioners because they've shared some of their feelings and they'll get a moment to you in a moment. Thank you for investigating every question. Always coming through with such a happy vibe to figure out the hard stuff and reassure every chair you have ever worked with. Sergio you have massive shoes to fill. And we are excited to work with you.

Christie, I just wanna say thank you for all that you've done for just supporting the Budget and Engagement Commission, for taking all the phone calls and the emails and just helping us figure stuff out along the way. I have. Yay, get to leave and not break form.

You're not allowed to consult for three months.

You need to learn to take a break.

And commissioners, you are free now to give your kind words and whatever else you like to Christie Thomas, the great.

I I would like to second our chairs comments in terms of you being a beacon of light because when we are confused and it obviously shows on our face you don't laugh out loud. And so then when we come to you and we frame our questions as best as we can, you listen to it, reinterpret it and frame it correctly and then you answer it so that we can learn as we go. And for that I am extremely grateful because my time here has been better because of you. So thank you very much.

Yes. Thank you madam chair. Christie, I too would like to ditto my colleagues but I come with a slightly different take. Know and and what I've learned from you and maybe vice versa Because of my visual limitation, sometimes I remember my first time here as a commissioner, and before me was 40 pages of numbers that were truly not accessible. And over the years, I've been able to gather information based on the verbal presentations of folks versus what they present in writing.

And I've learned over the years to train my mind to be a sponge and together what I hear versus what I see. And your ability to provide and speak to us for an hour, which you've done. First of all, it's impressive, And you do it calmly, succinctly, and it helped me a great deal. And so I just wanna thank you and wish you all the best in whatever you're gonna do from this point forward. Thank you.

Anyone else? Meeting is closed. Happy holidays to you in January. Let's take a group picture because I sat so I didn't care

to paint.

You did see that. You

want us to go down there?

Yes, please.

Okay.

That was what?