HomeMy WebLinkAbout12 Debt Workshop
AGENDA ITEM #12
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MEETING DATE: August 18, 2021
TO: Board of Directors
FROM: Michael Salmon, Chief Financial Officer
SUBJECT: Long-Term Debt, Pension Update, and Pension Obligation Bonds
presentation
APPROVED BY______________________________
Brian C. Wright, General Manager
RECOMMENDATION:
Receive the information from this workshop and provide feedback to staff.
DISCUSSION:
Long-term debt, typically comprised of loans and certificates of participation bonds, is a common
capital improvements financing mechanism. The District’s long-term debt as of December 31,
2020 was $18,182,336 and represented 38% of Total Liabilities and 14% of Capital Assets, net.
Electric’s annual debt service (principal and interest) payments are only for electric’s
portion of current pension obligation bonds (side fund debt) and are $656K in 2021 and
$341K in 2022, with debt paid off in 2022.
Water’s Annual Debt Service (Principal and Interest) payments, excluding Donner Lake
Assessment District related SRF Loan debt is $2.29M in 2021 and falls to $1.25M in
2022, and runs as $1.04M per year thereafter through 2034.
Both Electric and Water utilities currently maintain what is generally viewed or interpreted
as a low level of debt.
Net Pension Liability reflects the pension liability net of pension assets. The District’s net pension
liability as of December 31, 2020 was $14,023,172 and represented 29% of Total Liabilities.
This liability grew from $13.3M as of December 31, 2019.
Both of the above liabilities represent material financial obligations of the District, and one of the
primary motivations for agendizing this item for Board review.
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Long-Term Debt:
In July 2021, the District paid off the SRF Loan long-term debt ahead of schedule. The debt was
scheduled through 2026, however, due to related funds available in 2021, the outstanding $3.4M
in principal was paid off in full in July 2021. This loan’s debt service was funded by Donner Lake
Assessment District assessments of approximately $800,000 per year, closely aligned with the
annual debt service. The 2020/2021 tax year was the last year of 20 years of assessment,
which started earlier than the SRF loan debt payments. Refer to June 2, 2021 Board Meeting
item 18 for further information Link (starts page 661).
Regarding refinancing opportunities of existing long-term debt, the Water Utility’s 2015 refunding
of 2006 Certificates of Participation bonds have a coupon interest rate range of 2.0% to 4.0%,
with the majority at 4.0%, and a final maturity in 2035. However, due to bond covenants, the 1 st
refinancing opportunity for these bonds is in 2025.
As indicated in the background information on long-term debt (LTD), currently there is nominal
Electric LTD and the Water Utility LTD decreases by approximately $1m in 2023. The District
has identified significant capital needs, as indicated by capital improvement plans for water and
electric. A briefing from the District’s bond advisor (Fieldman Rolapp & Associates) and bond
underwriter (Brandis Tallman, a Division of Oppenheimer & Co. Inc) will outline various bond
debt scenarios as a funding alternative for funding capital expenditure projects.
Net Pension Liability:
The District’s net pension liability as of December 31, 2020 was $14.0M. This liability is 99%
related to the Traditional/Classic Miscellaneous Plan, not the newer PEPRA Miscellaneous Plan.
The July 2021 CalPERS valuation report (the Report, Attachment 1) increases this liability to
$15.4M, an increase of $1.4M or 10%. The funded ratio is now at 73.3% from 74.3% last year.
The Report also indicates the CalPERS required annual Unfunded Liability Payment (ULP) of
$1.071M in 2021 increased to $1.234M in 2022, an increase of $163,000 or 15%. This annual
required payment is in addition to the employer’s 13.35% of applicable payroll wages. The ULP
has increased from $440K in 2016 to $1.2M in 2022, which equates to a 19% compounded
annual growth rate.
Footnote 9 – Employee Benefit Plans in the 2020 Comprehensive Annual Financial Report
provides additional pension financial information (starts on page 49).
Today, District’s bond advisor and underwriter will provide additional information regarding the
District’s pension financial situation and the potential option of refunding of pension via the
issuance of Pension Obligation Bonds, which places funds in the pension (improving % funded
and lowering net pension liability) and generally replaces the current UAL annual payment with a
bond payment.
FISCAL IMPACT:
No direct financial impact on this informational workshop item today.
ATTACHMENTS:
1 – CalPERS July 2021 Annual Valuation Report – Classic/Traditional Miscellaneous Plan