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HomeMy WebLinkAboutPower Point Truckee Donner PUD Calpers Deck 8-11-21 [Final] August 18, 2021 PENSION MANAGEMENT OPTIONSCOSTS ANDPENSION CALPERSOF TRUCKEE DONNER PUBLIC UTILITY DISTRICT Underwriter 2 OTICE 17 N-MSRB G.capacitythatinservetoadvisormunicipalaengagetofreeisIssuerthethenIssuer,thetodutiesfiduciarylegalhasthattransactionthisinadvisormunicipalalikewouldIssuertheIf.appropri atedeemsitextentthetoapplicable,asadvisors,otherandtaxaccounting,legal,municipal,and/orfinancialownitswithconsultshouldIssuerThe.1934ofActExchangeSecuritiestheofB15Sectionofmeaningthewithin“advice”as construedbenotshouldandbetointendednotisprovidedinformationThe.IssuerthebysecuritiesmunicipalofissuancethewithconnectioninentityorpersonotheranyorIssuerthetofiduciaryoradvisorfinancialadvisor,municip alaasnotandprincipalaasactingisOppenheimer.IssuertheofthosefromdifferthatinterestsotherandfinancialhasOppenheimerandOppenheimer,andIssuerthebetweentransactioncommerciallength-arm’sanininvestors,tores aleforsecurities,purchasetoisunderwriter,anasOppenheimer,ofroleprimaryThe.“Issuer”)(theDistrictUtilityPublicDonnerTruckeethetounderwriterasservingofanticipationinonlypurposesdiscussionfordocumentthis incontainedinformationtheprovidingisOppenheimer Notice17-G CalPERS Costs Are Trending Higher Then:Now:growing. liabilities are rapidly District’s unfunded •)Mortality rates (people living longerachieving 7.0% returns over 10 years is 39%CalPERS estimates that the probability of lower in 2021in 2020; Changing to 6.80% or 2013; 7.00% 8.25% → 7.75% in 2003; 7.75% → 7.50% in Expected returns: Assumptions are changing•Sluggish investment growth (<6%)•bear all investment risk•71% funded•investment losses (approx. 30%)Great Recession caused significant •Funded status-Loss of Super•7%-6% and -investment returns to com crash in early 2000s dropped -Dot•benefits retroactivelyIn 2000 SB 400/ AB 616 increased •the 1990sFunded” through -%+) and “Super(10PERS investment returns were robust •3 Recent Rise in Miscellaneous Plan Unfunded Liability Funded Ratio 20212020201920182017201679.0%78.0%77.0%76.0%75.0%74.0%73.0%72.0%71.0%70.0%73.3%74.4%73.9%75.2%73.1%78.3%Unfunded Accrued Liability 20212020201920182017201618,000,00016,000,00014,000,00012,000,00010,000,0008,000,0006,000,0004,000,0002,000,0000 June 30, 2020Source: CalPERS Annual Actuarial Valuation 4 CalPERS Miscellaneous Plan Repayment Schedule 2,000,0001,800,0001,600,0001,400,0001,200,0001,000,000800,000600,000400,000200,0000 June 30, 2020Source: CalPERS Annual Actuarial Valuation 5 Projected UAL Repayment Schedule Potential Strategies to Mitigate Rising Pension Costs Adopt Pension Funding Policies to Codify Strategies healthfiscalterm -longand smoothing payment enhancedfor Restructure payments •UALreduce CalPERS to proceeds use bond –Bond (POB) Pension Obligation •Debt/Bonds exempt financing for capital projects, and use cash reserves to pay down CalPERS UAL-Use tax•Refinance existing debt obligations and use savings generated to pay down CalPERS UAL•pension/OPEBto dedicated trust solely Separate -Trust 115 Up Section -Set•Available Cash to Periodically Pay Down CalPERS UALUse termnearin payments annual increased +in” -locked“structure : New Cons•paidinterest overallperiod; reduces repayment Shortens : Pros•AmortizationFresh Start Approximately 3%+ discount for paying in beginning of Fiscal Year•Payment Upfront in Fiscal YearAnnual UAL Pay 6 Pension Obligation Bonds years, investor interest in POBs has grown.strong interest in POBs by CalPERS members. Over the last 3 Near record low interest rates in bond market have resulted in •sustainability.fiscal for better budget predictability and payment(s), providing shape” the overall pension liability -Objective is to “re•obligationCalPERS on UAL by 7.00% (soon to be 6.80% or lower) charged Interest rate is lower than •)requiredUtility Revenue Bond (revenue pledge a Alternative option is •POB)Pension Obligation Bond (a Taxable Typical method is through •” money to pay off some or all UAL with CalPERSDistrict “borrows•7 Rise in Popularity of POBs of POBs have been brought to market.so far in 2021. Since 2020, over $7 billion 20 were 32 POB issuances in 2020, and There Source: Bloomberg$3.3B$4.2B$737M$472M$598MEst. CA Pension Transactions (# of Deals and Par Size)2021202020192018201735302520151050 Recent Issuers 8 Pension Obligation Bonds objectives.budgetary the District’s to best meet of options an array can explore eam tstructures. The financing variety of POB Preliminary analysis solely meant to communicate potential benefits of a •scenarios reshape the pension repayment by creating level debt service. year Pension Obligation Bond models. Both -year and 15-We have provided 20•Plan. We did not include the Miscellaneous PEPRA Plan, as the outstanding We analyzed Pension Obligation Bonds to pay off the District’s Miscellaneous •9 Numerical Analysis Numerical Analysis 29.31%25.52%NPV Savings %$4,550,229$3,961,579NPV Savings$6,990,541$4,806,488Total Savings$19,973,047$22,157,095Total Debt Service$1,331,536$1,107,855Debt ServiceFYAverage3.49%3.78% In TIC-All3.20%3.55%Arbitrage YieldJuly 1, 2036July 1, 2041Final Maturity$15,840,000$15,840,000Par AmountYear Term-15Year Term-20Metrics15-Year Term POBs20-Year Term POBsCalPERS Repayment Schedule2,000,0001,800,0001,600,0001,400,0001,200,0001,000,000800,000600,000400,000200,0000 Source: Oppenheimer 10 1. Reinvestment Risk Addressing GFOA Concerns 11 The proposed POBs merely replace a portion of the District’s payments to PERS with debt service. •debt limit entity, such as a utility district, is not subject to any debt limit. -A non•Jurisdiction’s Bonded Debt Burden and Reduces Debt Capacitythe 3. Increases or derivatives are used or are being proposed.swaps No complex financial instruments such as •bonds, similar to that of a typical general obligation bond. rate are Current POBs •risk”that carry considerable instruments are complex 2. “POBs These chances are minimal, but they do exist. •%). ≈3.50 CalPERS’s could potentially earn less than the estimated borrowing cost (•Projected savings are directly affected by CalPERS’s future investment performance. • 4. Inflexible Prepayment Terms12 affordability.term -an enhancement to longas being proactive and as POBs viewed generally As a result, rating agencies have •consider pension and OPEB liabilities as hard debt that must be repaid. agencies Rating •Interest rate differential is what creates significant savings, not principal deferment.•Typically this results in either the same term or a shortened term. •. being refinancedMost POBs are structured in way that mirrors the amortization of the UAL •5. Principal Deferment or Payment Extension calls. year par -POBs have been issued with standard 10Almost all recent •year call option. -Our proposed financing structure calls for a 10• UAL After a POB Issuance CalPERS.way a means of eliminating the risk of future underperformance by save money in the future by reducing interest expense. Eliminating today’s UAL is in no entities to pay down liabilities presently owed, with the ability to allow Payoff solutions •. underperformance of CalPERS without exiting the CalPERS system entirelyThere is no possible way to eliminate the potential for future UAL to accrue due to •UAL caused by subsequent underperformance in a given year.credited to the employer’s fund and thus available to offset any future increases in the expected returns, the excess would be -than-Conversely, should CalPERS achieve higher•projected rate of return, the shortfall will cause the creation of a new UAL. Should CalPERS fail to achieve the created. determine whether additional UAL is If the current UAL is paid in full, future CalPERS investment performance will •13 Market Rates Current Day-. 1991 Jan 1/2/20211/2/20201/2/20191/2/20181/2/20171/2/20161/2/20151/2/20141/2/20131/2/20121/2/20111/2/20101/2/20091/2/20081/2/20071/2/20061/2/20051/2/20041/2/20031/2/20021/2 /20011/2/20001/2/19991/2/19981/2/19971/2/19961/2/19951/2/19941/2/19931/2/19921/2/19919.00%8.00%7.00%6.00%5.00%4.00%3.00%2.00%1.00%0.00%Source: Bloomberg 14 30 Year Treasury History– Broad POB Month 4Month 1Month 3Month 2 General Financing Timeline 15 ClosingPricing POBs and estimatesPOS and final Board Approval for Rating Credit packageDrafting of Rating StatementPreliminary Official Detailed analysis of DocumentsDrafting of Legal Financing TeamEngagement of Board EducationDiscussions and Questions?16 All 17 1RM090711PF.portfolioinSecuritiesMunicipalofsuitabilitytheregardingadvisortaxwithconsultshouldInvestors.advicetaxorprovidenotdoesemployees,orofficersaffiliates,itsofanyincluding,.Inc.Co&Oppenh eimer.OppenheimerofpermissionwrittenthewithoutmanneranyinreproducedbemaypresentationthisofpartNo.reservedrightsAll.SIPCMemberandExchangesPrincipalAllonBusinessTransacts.Inc.Co&Oppenheimer2021©.youfor appropriateorsuitableistransactionanythatrepresentationanorpositionortransactionparticularamaintainorintoyouthatrecommendationaneitherconstitutesyoutoavailablematerialsanyormaterialsthemadehasOppenhe imerthatfactThe.therewithconnectioninactionanytaketoormaterialtheofusethetorespectwithpartiesorOppenheimerbyexperienceddifficultiesanyofusertheinformtoresponsibilitynohavewillOppenheimer.damagessucho fpossibilitytheofadvisedbeenhasOppenheimerifevenmaterial,thisorhereinprovideddatatheusertheofaccountonexperiencedorincurredbemaydamagesconsequentialorincidentalindirect,special,anyforliablebeOppenhei merwillnoIn.materialthisofperformancetheofaspectanyfororhereinprovidedformulaeordatatheofcompletenessorperformancereliability,pricing,timeliness,accuracy,quality,correctness,theforwhatsoever,responsi bilityanyorparties,tooruserthetootherwise,orcontingentliability,nohaveOppenheimer.kindanyoflimitationanyimposingOppenheimerwithoutbenefits,taxincomefederal.S.Uanysupporttonecessaryarethathereindescri bedstructureortransactionpotentialanyofaspectsallandanydisclosemayyoulaw,applicabletosubjectmutuallyweaddition,In.purposesoraccounting,tax,anyfororrecordsandyourofmaintenancetheforuponreliedbenotshou ldmaterialsThe.counselorandadvisorsyourwithdiscussedbeshouldthatimplicationsortax,accounting,havetransactionindicativeproposedanythatbeshouldyouhowever,;adviceortaxaccounting,providenotdoesOppenheime r.strategytradinganyinparticipatetoorinstrumentorsecurityanysellorbuytoanofsolicitationaorsellorbuytoannotisandpurposesinformationalforsolelypreparedbeenhashereincontainedinformationThe.informationor opinionsupdatetoobligationnoareWe.indicateddatetheofasonlyalsoarevalue(s)orprice(s)historicalAny.indicateddatetheofasonlyopinionscurrentarehereinexpressedOpinions.madeishereincontainedinformationanyo fcompletenessoravailabilitycontinuedtimeliness,performance,accuracy,quality,toaswarrantiesto,limitednotbutincludingwhatsoever,warrantynoimplied,orexpressregulation,orlawapplicablewithcomplytosodotore quiredasfarsoinExcept.prohibitedisinorininformation,thisofreproductionAny.anytoinformationsuchanydivulgenotwillandpurposenoforandhereindescribedstrategiestheininterestpotentialitsevaluatetoonlyinform ationtheusetorepresentativesandemployeesofficers,partners,directors,itswillitanditthatagreesrecipienttheinformation,thisacceptingBy.confidentialishereincontainedinformationThe.noticefurtherwithoutcha ngetosubjectareandonlyopinionspresentourareexpressedOpinions.agreementformalabyevidencedbewillandnegotiationanddiscussionfurthertosubjectareconditionsandFinalized.onlypurposesdiscussionforandindicati veareconditions,andproposedincludingmaterials,