[Budget and Fiscal Affairs on January 13, 2025.]
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I'D LIKE TO CALL THIS COMMITTEE TO ORDER AND WELCOME ALL COUNCIL MEMBERS AND STAFF IN ATTENDANCE.
I'M JOINED BY MY VICE CHAIR, MAYO CASTILLO.
WE HAVE COUNCIL MEMBER TWILA CARTER, COUNCIL MEMBER JOAQUIN MARTINEZ, ALAN WITH COUNCIL MEMBER AMY PECK'S OFFICE.
WE HAVE MAYOR PRO TEM MARTHA CASTEX TATUM.
WE HAVE COUNCIL MEMBER JULIAN RAMIREZ, COUNCIL MEMBER MARY NAN HUFFMAN KATE WITH COUNCIL MEMBER ABBY CAYMAN'S, OFFICE COUNCIL MEMBER FRED FLICKINGER.
AND ANNETTE WITH COUNCIL MEMBER WILLIE DAVIS'S OFFICE.
WE ALSO ARE JOINED VIRTUALLY BY VERONICA STAFFER, COUNCIL MEMBER LETITIA PLUMMER.
UM, YASMIN'S JOINING FROM COUNCIL MEMBER TARSHA JACKSON'S OFFICE.
WE WILL START OFF LIKE WE ALWAYS DO WITH THE MONTHLY FINANCIAL REPORT, UH, CONTROLLER BONDS.
GOOD AFTERNOON, MADAM CHAIR, HONORABLE MEMBERS OF COUNCIL AND STAFF.
UH, ON BEHALF OF THE OFFICE OF THE CITY CONTROLLER, I WANNA WISH EACH OF YOU A HAPPY NEW YEAR AND I SINCERELY HOPE THAT YOUR HOLIDAYS WERE RESTFUL AND REWARDING.
UH, COUNCIL MEMBER FLICKINGER, WE CONTINUE TO KEEP YOU IN OUR THOUGHTS AS YOU BOUNCE BACK FROM, FROM QUITE A SCARE AND WE'RE GLAD THAT YOU'RE HERE.
UH, THE MONTHLY FINANCIAL REPORT FOR THE CITY OF HOUSTON FOR NOVEMBER, 2024 IS AS FOLLOWS IN THE GENERAL FUND, THE CONTROLLER'S OFFICE PROJECTS AN ENDING FUND BALANCE OF $344.2 MILLION FOR FISCAL YEAR 2025.
THAT'S $17.6 MILLION LOWER THAN THE FINANCE DEPARTMENT'S PROJECTION DUE TO A LOWER REVENUE PROJECTION THAN FINANCE.
BASED ON OUR CURRENT PROJECTIONS, THE FUND BALANCE WILL BE $154.8 MILLION ABOVE THE CITY'S TARGET OF HOLDING 7.5% OF TOTAL EXPENDITURES, EXCLUDING DEBT SERVICE AND PAY AS YOU GO IN RESERVE.
AS YOU ALL ARE AWARE, OUR CURRENT BUDGET INCLUDES A $230 MILLION STRUCTURAL SHORTFALL, AND OUR NEXT BUDGET HAS TO MAKE A SIGNIFICANT, HAS TO MAKE SIGNIFICANT PROGRESS IN CLOSING OR ELIMINATING THAT GAP TO AVOID FALLING BELOW THE CITY'S TARGET FOR RESERVES.
I STAND BY MY COMMITMENT TO WORK WITH THE MAYOR COUNCIL AND ANY INTERESTED STAKEHOLDERS TO MAP OUT AN EFFECTIVE AND REALISTIC APPROACH TO ACHIEVING STRUCTURAL BALANCE WITHOUT SACRIFICING THE LEVEL OF SERVICE DELIVERY THE CITY PROVIDES TO HOUSTONIANS THE CONTROLLER'S.
OFFICE'S REVENUE AND EXPENDITURE PROJECTIONS HAVE NOT CHANGED FROM WHAT WE NOTED IN THE OCTOBER 20, 20, 20 24 REPORT IN THE CITY'S ENTERPRISE FUNDS.
WE ALSO PROJECT NO CHANGES FROM THE PREVIOUS MONTH'S REPORT FOR COMMERCIAL PAPER AND BONDS.
THE CITY'S PRACTICE HAS BEEN TO MAINTAIN NO MORE THAN 20% OF THE TOTAL OUTSTANDING DEBT FOR EACH TYPE OF DEBT IN A VARIABLE RATE STRUCTURE.
AS OF NOVEMBER 30TH, 2024, THE RATIO OF UNHEDGED VARIABLE RATE DEBT FOR EACH TYPE OF OUTSTANDING DEBT REMAIN WELL BELOW THAT THRESHOLD.
UH, I WANT TO PUT ON YOU GUYS RADAR.
UH, NEXT WEEK COUNCIL'S GOING TO CONSIDER A CONTRACT FOR THE CITY'S DEPOSITORY BANKING SERVICES.
THIS CONTRACT IS ULTIMATELY RESPONSIBLE FOR OVERSEEING THE CITY'S BANKING, BANK BANKING ACCOUNT SYSTEMS AND HAS A DURATION OF THREE YEARS WITH THE OPTION OF TWO ADDITIONAL YEARS.
WHILE THAT CONTRACT IS LARGELY A CONTINUATION OF THE FANTASTIC SERVICES THAT WE'VE RECEIVED FROM CHASE FOR SEVERAL YEARS, WE'RE STILL HASHING OUT A FEW SPECIFIC TERMS. AND SO IT'S IMPORTANT TO NOTE THAT BECAUSE THE CURRENT CONTRACT EXPIRES ON JANUARY 25TH, UH, WHEN THIS COMES BEFORE YOU NEXT WEDNESDAY, THE ITEM WON'T BE TAGABLE WHEN YOU SEE IT ON THE AGENDA.
MY OFFICE IS WORKING RIGHT NOW WITH PROCUREMENT TO DRAFT A NO TAG MEMO FOR YOU ALL TO THAT EFFECT, AND WE WILL BE SURE TO MAKE OURSELVES AVAILABLE TO YOU TO ANSWER ANY QUESTION THAT YOU OR YOUR OFFICES MIGHT HAVE.
AND SO OF COURSE, WE HOPE THAT WE CAN COUNT ON YOUR SUPPORT FOR THAT IMPORTANT ITEM, BUT ONLY IF YOU WANT YOU AND YOUR STAFF TO RECEIVE PAYCHECKS AFTER JANUARY 25TH.
UM, LAST THING ON THE LIST HERE.
UH, I WANNA NOTE THAT MY OFFICE FILED THE CITY'S ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR FISCAL YEAR 2024, UH, IN MID-DECEMBER.
UH, OF COURSE, AS IS REQUIRED.
UH, IT WAS A TOTAL TEAM EFFORT TO PRODUCE, SO ALLOW ME TO RECOGNIZE AND COMMEND THE CONTROLLER'S OFFICE FINANCIAL REPORTING TEAM, OUR FINANCE DEPARTMENT, UH, OUR OUTSIDE AUDITING TEAM AT THE FIRM OF MCCONNELL JONES AND OTHER MEMBERS OF THE CONTROLLER STAFF FOR THEIR HARD WORK AND DEDICATION.
AND GETTING THIS ACT FOR COMPLETE, UH, AND ON FILE.
THE ACT FOR IS AN IMPORTANT TOOL FOR ACCOUNTABILITY AND TRANSPARENCY, AND IT PROVIDES A DETAILED AND COMPLETE PICTURE OF HOUSTON CITY GOVERNMENT'S FINANCIAL ACTIVITIES, POSITION, AND OVERALL FISCAL HEALTH.
THIS DOCUMENT PROVIDES ALL STAKEHOLDERS, INCLUDING GOVERNMENT OFFICIALS,
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CITIZENS, INVESTORS, AND THE RATINGS AGENCIES WITH A COMPREHENSIVE AND OBJECTIVE VIEW OF HOW OUR FINANCES AND TAX DOLLARS ARE BEING MANAGED.THE STATEMENT OF NET POSITION MEASURES THE CITY'S FINANCIAL HEALTH INDICATING WHETHER OUR POSITION HAS STRENGTHENED OR WEAKENED.
AS OF JAN, AS OF JUNE 30TH, 2024, THE CITY'S GOVERNMENT-WIDE ASSETS AND DEFERRED OUTFLOWS EXCEEDED ITS LIABILITIES AND DEFERRED INFLOWS BY $8.9 BILLION, REPRESENTING A $1.3 BILLION INCREASE IN NET POSITION FROM THE PREVIOUS YEAR.
MOST OF THAT IMPROVEMENT CAME FROM OUR ENTERPRISE FUNDS, UH, THE AIRPORT AND COMBINED UTILITY SYSTEM, WHICH SAW A $931 MILLION INCREASE WHILE THE GOVERNMENTAL FUNDS, INCLUDING THE GENERAL FUND, CONTRIBUTED $357 MILLION.
THE PROBLEM IS THAT THE OVERALL NET POSITION INCLUDES THINGS LIKE ROAD OVERLAYS AND TEMPORARY INFRASTRUCTURE IMPROVEMENTS, AND WE'RE NOT GONNA BE IN THE BUSINESS OF SELLING STREETS OR BRIDGES IN ORDER TO PAY OUR BILLS.
AND SO THE CITY'S UNRESTRICTED NET POSITION IS WHAT'S MOST IMPORTANT AS WE THINK ABOUT HOW WE'LL SUPPORT ONGOING CITY OPERATIONS AND THERE WE'RE OPERATING AT A SIGNIFICANT DEFICIT.
THE UNRESTRICTED DEFICIT IS ONE OF THE MOST IMPORTANT FACTORS THAT SIGNALS THAT WE'RE FACING FINANCIAL CHALLENGES AHEAD WITHIN THE GENERAL FUND.
THE UNRESTRICTED DEFICIT CURRENTLY STANDS AT NEARLY $5 BILLION AND IS BEING FUELED BY OUTSTANDING NET PENSION OBLIGATIONS, UM, PARDON ME, NET PENSION LIABILITIES FOR THE PENSION PLANS, PENSION OBLIGATION BONDS, TOTAL OPEP LIABILITIES, AND COMPENSATED AS ABSENCES.
THESE OBLIGATIONS, ALONG WITH THE DECLINE IN AVAILABLE GENERAL FUND RESERVES AND UNCERTAIN ECONOMIC CONDITIONS, IS WHAT LED RATINGS AGENCIES TO REVISE THEIR OUTLOOKS ON THE CITY OF HOUSTON'S CREDIT RATING FROM STABLE, UH, TO NEGATIVE, UH, IN THE MIDDLE OF LAST YEAR.
THE FULL ACT FOR REPORT IS AVAILABLE ON THE CITY CONTROLLER'S WEBSITE@HOUSTONTX.GOV SLASH CONTROLLER.
UH, THERE YOU CAN CLICK ON THE FINANCIALS TAB TO SEE ACT ERS GOING BACK SEVERAL YEARS.
AND OF COURSE, MY OFFICE, UH, WILL REMAIN AVAILABLE TO YOU TO ANSWER ANY QUESTIONS YOU MIGHT HAVE.
THANK YOU VERY MUCH, CONTROLLER.
AND YES, THANK YOU FOR, UM, ALL THE GOOD WORK THAT CONTROLLER'S OFFICE DID TO GET THAT UM, OUT, AND I ENCOURAGE ALL MY COLLEAGUES TO REALLY GO THROUGH THAT CAFFER.
UM, IT'S, IT'S, UH, GIVES YOU ALL KINDS OF INFORMATION, UH, GIVES YOU A LOT OF HISTORICAL INFORMATION, UM, GOOD NEWS ON THE, THE NET POSITION.
BUT, UM, ALSO HEAR YOU ON THE, ON THE LIABILITIES SIDE AS WELL.
THE UNDER YOU CALLED THAT THE UNRESTRICTED, WHAT DO YOU CALL IT? THE UNRESTRICTED NET POSITION.
UM, DIRECTOR DEBOSKY, GOOD AFTERNOON.
THIS IS THE FIVE PLUS SEVEN FINANCIAL REPORT FOR THE PERIOD ENDING NOVEMBER 30TH, 2024.
FISCAL YEAR 25 PROJECTIONS ARE BASED ON FIVE MONTHS OF ACTUAL RESULTS AND SEVEN MONTHS OF PROJECTIONS FOR THE GENERAL FUND.
OUR REVENUE PROJECTION IS 15.7 MILLION LOWER THAN THE ADOPTED BUDGET, AND REMAINS UNCHANGED FROM THE PRIOR MONTH.
UM, TOUCHING ON SALES TAX PERFORMANCE, THE MOST RECENT, UH, RECEIPTS THAT WE HAVE FOR SALES TAX WERE FOR THE MONTH OF OCTOBER, AND THEY TOTAL ABOUT 5.1%, UM, HIGHER THAN THE SAME PERIOD LAST YEAR, AND ABOUT 3.67% HIGHER THAN BUDGETED.
UH, SO WE'RE STILL MAINTAINING OUR CURRENT ESTIMATE OF 693.4 MILLION, AND WE WILL, UH, MONITOR THOSE REMAINING PERIODS.
ON THE EXPENDITURE SIDE, OUR EXPENDITURE PROJECTION IS 3.9 MILLION LOWER THAN THE ADOPTED BUDGET, AND REMAINS UNCHANGED FROM THE PRIOR MONTH.
UH, SINCE WE'RE NOT MAKING ANY CHANGES, THE CURRENT PROJECTED ENDING FUND BALANCE, UM, WE'RE ESTIMATING TO BE 300 AND AND 61.8 MILLION, WHICH IS ABOUT 47.8 MILLION HIGHER THAN THE PRIOR MONTH'S PROJECTIONS, AND 14.3% OF ESTIMATED EXPENDITURES, LESS DEBT SERVICE AND PAY AS YOU GO.
UM, SO I WANTED TO TO TOUCH ON THAT CHANGE BECAUSE EVEN THOUGH WE'RE NOT PROJECTING ANY CHANGES TO THE REVENUES OR THE EXPENDITURES FROM THE PRIOR MONTH, THE ONE CHANGE IS, UM, AS THE CONTROLLER MENTIONED, SINCE THE, UH, 2024 ACT FOR IS NOW FINALIZED, UM, THE FY 24 ENDING FUND BALANCE IS HIGHER THAN THE PROJECTION FROM THE PREVIOUS, UH, MONTH'S REPORT, WHICH IS WHAT INCREASES THAT FLOWS THROUGH TO THE FY 25, UH, ENDING FUND BALANCE.
SO AGAIN, THAT'S 47.8 MILLION HIGHER THAN WHAT WE WERE PROJECTING IN THE PREVIOUS MONTH, AND THAT'S LARGELY DUE TO THE, UM, THE CHANGE THAT WE TALKED ABOUT WITH METRO.
WHEN WE MADE THE ADJUSTMENTS IN THE MO FFAR FOR FY 25, WE DID THE SAME THING IN FY 24 AS WELL AND HAVE ALREADY RECEIVED THOSE, UM, RECEIPTS FROM METRO.
SO AGAIN, THAT PUTS OUR PROJECTION FOR THE FY 25 ENDING FUND BALANCE AT 14.3% OF ESTIMATED
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EXPENDITURES.LET'S LESS DEBT SERVICE AND PAY AS YOU GO.
THAT REPRESENTS 172.3 MILLION ABOVE THE TARGET OF HOLDING 7.5% OF EXPENDITURES, LESS DEBT SERVICE AND PAY AS YOU GO.
UM, LIKE THE CONTROLLER, WE ARE NOT MAKING ANY CHANGES TO THE ENTERPRISE SPECIAL REVENUE OR OTHER FUNDS.
UM, MOVING ON TO THE DISASTER REPORT, UM, WHICH YOU SEE IN YOUR PRINTED, YOUR PRINTED REPORT AS WELL.
UM, AS OF NOVEMBER 30TH, WE HAVE PAID 89.2 MILLION IN INVOICES RELATED TO DEBRIS REMOVAL, AND WE'VE ALSO RECEIVED 72.4 MILLION IN FUNDING, UM, WHICH INCLUDES 57.3 MILLION OF FEMA FUNDING AND 15.1 MILLION OF STATE REIMBURSEMENT TO COVER OUR LOCAL SHARE.
AND THE, UH, THE LARGE MAJORITY OF THAT FUNDING THAT WE'VE RECEIVED IS FOR THE DEBRIS REMOVAL.
UM, SINCE THIS REPORT REFLECTS THROUGH THE END OF NOVEMBER, UH, JUST A VERBAL UPDATE, ALTHOUGH YOU WON'T SEE IT IN THE PRINTED REPORT, UM, SINCE THAT TIME, WE DID RECEIVE AN ADDITIONAL BATCH OF FUNDING FROM THE STATE TO HELP COVER THE DEBRIS REMOVAL.
UH, WE GOT THAT IN JANUARY, SO YOU WON'T SEE IT REFLECTED FOR A, A FEW MONTHS IN THE REPORT, BUT THAT WAS AN ADDITIONAL 15.2 MILLION.
WE'RE, UH, THINGS ARE MOVING SMOOTHLY WITH THE STATE IN TERMS OF, UH, YOU KNOW, TIME TO ASK, UH, FOR THE CASH FLOW ASSISTANCE FROM THEM AND GETTING THOSE REIMBURSEMENTS BACK TIMELY.
SO DOES THAT MAKE IT 30 MILLION FROM THE STATE SO FAR? UM, YOU SAID 15 AND THEN WE JUST GOT ANOTHER 15.
ON THE, UM, ON PROPERTY TAX REVENUES, I'VE BEEN ASKED ABOUT, YOU KNOW, POSSIBLY THERE'S, THERE'S HIGHER VALUATIONS THAN WE PROJECTED AND WE MIGHT BE ABLE TO ADJUST THAT UPWARDS.
HOW, WHEN DO WE, WHEN DO WE, OR WHAT DO YOU LOOK AT WHEN YOU'RE LOOKING AT PROPERTY TAX REVENUES AND WHAT'S KIND OF THE TIMELINE OF WHEN YOU MAKE ANY ADJUSTMENTS? SURE.
WE DON'T TYPICALLY CHANGE OR MAKE ANY CHANGES TO, UM, PROPERTY TAX REVENUE PROJECTIONS UNTIL, I WOULD SAY APRIL AT THE EARLIEST.
UM, SINCE WE GET THE MAJORITY OF OUR REVENUE, UM, REALLY IN JANUARY AND FEBRUARY AS PEOPLE, UM, UH, DECEMBER, JANUARY, FEBRUARY, IS PEOPLE PAY THEIR BILLS.
UM, SO TYPICALLY WHAT YOU SEE AS WELL, UM, WITH OUR ROLE WHEN WE ADOPT THE TAX RATE, IT'S BASED ON THE CERTIFIED ROLE THAT THE APPRAISAL DISTRICT GIVES US.
UM, AS PEOPLE GO THROUGH THE PROCESS OF PROTESTING THEIR VALUES, UM, YOU MIGHT SEE THE, YOU KNOW, THE ROLE GO UP AND DOWN.
SO WE LIKE TO KIND OF WAIT UNTIL PEOPLE ARE DONE PAYING THEIR BILLS, AND WE KIND OF SEE A LOT OF THOSE, UM, HEARINGS, REFUNDS, DELINQUENT PAYMENTS COME THROUGH TOWARDS THE END OF THE FISCAL YEAR BEFORE WE WOULD MAKE AN ADJUSTMENT.
SO I WOULD SAY APRIL OR MAY AT THE EARLIEST.
UH, THIS QUESTION IS FOR DIRECTOR, UH, CONTROLLER HOLLINS.
UM, IT, IT HAD BEEN REPORTED TO ME THAT THE ER WAS NOT AVAILABLE ONLINE AT THE END OF THE YEAR.
UM, DO YOU KNOW ANYTHING ABOUT THAT? YEAH, SO, UM, WE'RE REQUIRED TO PUT IT ON FILE WITH A, A WEBSITE DATABASE CALLED EMMA, UM, BY A CERTAIN DATE.
AND SO IT WAS PUBLICLY AVAILABLE ONLINE AS OF DECEMBER 17TH.
I THINK WHAT YOU MAY BE REFERRING TO, UH, IS A MISHAP IN GETTING IT UP ON THE CITY'S WEBSITE.
UH, WHICH SOMEONE ALERTED US TO AT SOME POINT LAST WEEK, AND THEN WITHIN LIKE TWO HOURS IT WAS UP ON THE WEBSITE, BUT IT'S BEEN PUBLICLY AVAILABLE SINCE DECEMBER 17TH.
UM, STATE LAW REQUIRES TO BE ON FILE, UH, WITHIN SIX MONTHS OF THE END OF THE FISCAL YEAR, WHICH WOULD'VE BEEN BASICALLY THE END OF THE CALENDAR YEAR IN DECEMBER, AND WE HAD IT UP WELL IN ADVANCE OF THAT.
THE MISHAP, UH, IS UNFORTUNATE, BUT THE EMMA WEBSITE I THINK IS QUITE SPECIALIZED AND THERE ARE NOT A WHOLE LOT OF PEOPLE WHO KNOW ABOUT IT, QUITE FRANKLY.
I DIDN'T KNOW ABOUT IT UNTIL JUST A FEW WEEKS AGO, BUT I'LL THANK YOU FOR THAT CLARIFICATION.
YEAH, NO, WE, YOU KNOW, WE'RE CERTAINLY ON NOTICE THAT, UH, YOU KNOW, GOING FORWARD THERE, THERE WON'T BE SUCH A MISHAP.
I SEE NO FURTHER QUESTIONS ON THE MONTHLY FINANCIAL REPORT.
I DO WANNA MENTION THAT COUNCIL MEMBER, AMY PECK AND COUNCIL MEMBER AMY ABBY CAYMAN ARE BOTH ONLINE, PARTICIPATING ON ONLINE.
WE'LL LOOK FORWARD TO SEEING YOU AGAIN TOMORROW.
OKAY, WE'LL MOVE ALONG TO AGENDA ITEM NUMBER TWO, THREE, UPCOMING FINANCIAL TRANSACTION DIRECTOR, DEBOWSKI.
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OKAY.UM, THIS PRESENTATION, UH, TODAY GOES OVER THE UPCOMING FINANCIAL TRANSACTIONS THAT THE CITY HAS PLANNED.
UM, AND THIS PRESENTATION IS BEING MADE ON BEHALF OF THE FINANCE WORKING GROUP.
SO ON THE NEXT SLIDE, YOU SEE THE AGENDA FOR THE DAY.
SO WE HAVE, UM, A FEW ITEMS WE WANNA GO OVER TODAY, UM, THAT THE FINANCE WORKING GROUP HAS BEEN WORKING ON AND WILL BE COMING, UM, FOURTH TO COUNCIL IN THE NEXT COMING WEEKS AND MONTHS AS WE LAY OUT IN THE PRESENTATION.
SO THE FIRST ITEM WE'RE GONNA COVER TODAY IS RELATED TO THE CONVENTION AND ENTERTAINMENT SYSTEM, THE CNE CREDIT ON AN INTERIM FINANCING FACILITY.
THEN WE'LL MOVE ON TO THE COMBINED UTILITY SYSTEM, UM, AND TALK ABOUT THE FIRST LIEN REVENUE REFUNDING BONDS SERIES 2025 A AND THEN THE VARIABLE RATE DEMAND BONDS SERIES 2004 B THREE, AND 2004 B SIX.
AND THEN WE WILL FOLLOW THAT UP WITH TWO ITEMS FOR THE HOUSTON AIRPORT SYSTEM, THE SUBORDINATE LIEN REVENUE BONDS SERIES 2025, AND THE COMMERCIAL PAPER PROGRAM SERIES A AND B.
SO ON THE NEXT SLIDE, FIRST ON THE CONVENTION ENTERTAINMENT FACILITIES.
UM, SO THE CITY'S CONVENTION ENTERTAINMENT FACILITIES DEPARTMENT, UM, WHICH IS A DEPARTMENT THAT EXISTS REALLY FOR THE SOLE PURPOSE OF DEBT ISSUANCE.
UM, SINCE HOUSTON FIRST HAS TAKEN OVER THE, UH, THE REST OF THE RESPONSIBILITIES THAT THAT DEPARTMENT USED TO HAVE MANY YEARS AGO, UM, THAT THE C AND E CREDIT, UM, AND WORKING IN TOGETHER WITH HOUSTON FIRST, UM, HAS EXPRESSED THE NEED TO FUND CAPITAL EXPENDITURES RELATED TO THE GRB EXPANSION PROJECT.
AND SO THE CITY, THE FINANCE WORKING GROUP, UH, WORKED TOGETHER TO ISSUE A REQUEST FOR TERM SHEETS FROM OUR QUALIFIED POOL OF, UM, BANKS TO ASK FOR INTERIM FINANCING FACILITIES OF UP TO 400 MILLION IN SIZE.
AND WE ISSUED THAT REQUEST FOR TERM SHEETS BACK IN DECEMBER.
UM, SO WE DID RECEIVE THOSE RESPONSES ON THE REQUEST FOR TERM SHEETS, AND THE FINANCE WORKING GROUP REVIEWED THE RESPONSES FROM, AGAIN, FROM THE FIRMS THAT ARE, UH, PRE-QUALIFIED IN OUR POOL.
AND THE FINANCE WORKING GROUP IS MAKING THE RECOMMENDATION TO MOVE FORWARD WITH, UM, NEGOTIATING INTERIM FINANCING FACILITIES WITH HUNTINGTON NATIONAL BANK AND TRUIST BANK.
AND, UM, SEPARATE RCAS ARE EXPECTED TO BE BROUGHT BEFORE COUNCIL IN FEBRUARY OF 2025 SEPARATELY, UM, BUT RELATED A REIMBURSEMENT RESOLUTION, UM, WHICH IS AN ITEM THAT DECLARES THE CITY'S OFFICIAL INTENT TO REIMBURSE ITSELF BACK FOR CAPITAL EXPENDITURES, UM, THAT ARE, UH, INCURRED BEFORE BONDS ARE ISSUED, UM, WILL BE BROUGHT TO COUNCIL, UM, IN JANUARY OF 25 AS WELL.
AND AGAIN, THIS IS, THESE ITEMS ARE ALL RELATED TO THE EXPANSION OF THE GRB THAT HOUSTON FIRST IS UNDERTAKING.
SO ON THE NEXT ITEM NOW WE'RE MOVING OVER TO THE COMBINED UTILITY SYSTEM CREDIT.
THE COMBINED UTILITY SYSTEM FIRST, UH, FIRST LIEN REVENUE AND REFUNDING BONDS, UH, SERIES, UH, 2014 D ARE CURRENTLY CALLABLE.
SO THESE ARE BONDS THAT WERE ISSUED BACK IN 2014, UM, AND THEY'RE COMING, UM, WITH THEIR 10 YEAR CALL FEATURE.
SO THE CITY, UM, TOOK A LOOK AT THOSE BONDS AND THE UNDERLYING INTEREST RATES AND ARE NOW SEEKING TO REFINANCE THESE BONDS TO ACHIEVE PRESENT VALUE AND CASH FLOW SAVINGS FOR THE COMBINED UTILITY SYSTEM.
SO THE NEXT STEPS ARE THAT, UM, THE GROUP WILL WORK TOGETHER TO BRING IN RCA TO COUNSEL FOR APPROVAL OF THAT TRANSACTION SOMETIME IN FEBRUARY.
SO ON THE NEXT SLIDE, UM, YOU CAN SEE THIS IS OUR STANDARD, UM, FORMAT YOU'RE USED TO SEEING WHEN WE DO A BOND TRANSACTION.
THIS GIVES YOU ALL THE PERTINENT, UM, FINANCIAL DETAILS OF THE TRANSACTION.
SO WE'RE EXPECTING THE TRANSACTION TO BE AROUND 350 MILLION IN SIZE.
UM, AND AGAIN, THIS IS RELATED TO THE COMBINED UTILITY SYSTEM.
SO THE SOURCE OF THE REPAYMENT OF THE, UM, BONDS ONCE THEY'RE ISSUED, UH, WILL BE THE COMBINED UTILITY SYSTEM, WHICH IS THE WATER AND WASTEWATER REVENUE.
SO THE CITY, THE, UM, AVERAGE LIFE, ONE OF THE FINANCIAL POLICIES STATES THAT WE CANNOT EXTEND THE AVERAGE LIFE OF THE DEBT WHEN WE REFUND IT.
SO IN OTHER WORDS, NO KIND OF KICKING THE CAN DOWN THE ROAD, UM, RATHER YOU CAN, UM, REFUND AND REISSUE, BUT WITHIN A SAME, WITHIN A ONE YEAR PERIOD.
SO AS YOU CAN SEE, WE'RE NOT, UM, MAKING REALLY ANY MATERIAL CHANGE TO THE AVERAGE LIFE OF THE DEBT.
YOU SEE THE 0.03 YEAR CHANGE, AND WE'RE GOING TO ANTICIPATE, AND AGAIN, THIS IS BASED ON, UM, YOU KNOW, ESTIMATES OF WHAT WE THINK THE INTEREST RATES WILL BE ONCE WE GO TO DO THE PRICING.
WE WON'T KNOW THE FINAL, UM, SAVINGS AMOUNT AND PRICING, UM, UNTIL WE HAVE THAT PRICING DATE, WHICH WILL BE IN THE LATER IN THE SPRING.
BUT WE'RE ANTICIPATING THE SAVINGS TO BE AROUND $30 MILLION ON A NET PRESENT VALUE BASIS, WHICH WILL BE ABOUT AN 8.64% SAVINGS.
AND RIGHT NOW WE'RE ESTIMATING THAT THE ALL IN, UM, INTEREST COST OF THE BONDS WILL BE 3.58%.
AND AGAIN, YOU SEE THE ANTICIPATED TIMELINE COMING TO COUNCIL IN
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FEBRUARY, PRICING IN MARCH, AND CLOSING APRIL IN APRIL.SO, UH, MOVING ON TO THE NEXT SLIDE.
UM, YOU SEE, LET'S GO ONE MORE SLIDE.
SO NOW WE'LL TALK ABOUT THE COMBINED UTILITY SYSTEM VARIABLE RATE EXPOSURE.
UM, SO AS THE CONTROLLER MENTIONED, WE ARE, WE HAVE A TARGET OF, UH, MAKING SURE THAT ONLY A CERTAIN PERCENT OF OUR, UH, DEBT IS IN A VARIABLE RATE MODE.
UM, SO AS YOU CAN SEE WITH THIS SLIDE, UM, THIS GIVES US SNAPSHOT OF ALL OF THE VARIABLE RATE EXPOSURE FOR THE COMBINED UTILITY SYSTEM AND VARIOUS COMMERCIAL PAPER PRODUCTS AND VARIABLE VARIABLE RATE DEMAND BONDS.
SO YOU SEE THE TWO HIGHLIGHTED ITEMS ARE THE ONES WE'RE GONNA FOCUS ON TODAY, THIS SERIES 2004 B THREE, AND THE 2004 B SIX.
UM, SO THESE ITEMS, UH, YOU CAN SEE HAVE AN EXPIRATION DATE OF JANUARY 28TH, 2025, WHICH IS COMING UP.
AND IF WE GO TO THE NEXT SLIDE, I'LL GIVE YOU A LITTLE MORE BACKGROUND ON THESE TWO LINES.
SO IN GENERAL, VARIABLE RATE DEMAND BONDS, UM, ARE LONG-TERM BONDS, BUT ARE IN A VARIABLE RATE MODE.
AND THAT, UM, RATE IS REMARKETED AND RESET ON A WEEKLY BASIS.
IN ORDER FOR THOSE BONDS TO BE MARKETABLE AND REMARKETED ON A WEEKLY BASIS, THEY REQUIRE AN UNDERLYING LIQUIDITY FACILITY BEHIND THE BONDS.
SO IT'S THOSE LIQUIDITY FACILITIES THAT ARE EXPIRING IN JANUARY.
UM, WE HAVE INTERIM EXTENSIONS, UH, IN PLACE UNTIL MARCH, AND WE DID RECEIVE RENEWAL PROPOSALS FROM OUR CURRENT PROVIDER, AND THE FINANCE WORKING GROUP IS RECOMMENDING TO RENEW THOSE FACILITIES WITH THE CURRENT PROVIDER FOR ANOTHER THREE YEARS.
SO WE'LL BE, UH, BRINGING THAT RECOMMENDATION FORWARD TO CITY COUNCIL, UH, HOPEFULLY BY THE END OF JANUARY.
OKAY, AND THE NEXT SLIDE, WE'LL MOVE ON TO THE HOUSTON AIRPORT SYSTEM.
THIS IS FOR THE HOUSTON AIRPORT SYSTEM SUBORDINATE LIEN REVENUE BOND SERIES 2025.
UM, AS PREVIOUSLY PRESENTED, UM, ONE OF THE MAJOR PROJECTS THAT'S UNDERWAY AT THE AIRPORT SYSTEM IS, UM, THE EXPANSION OF TERMINAL B BEING DONE IN CONJUNCTION WITH UNITED AIRLINES, UM, BACK IN NOVEMBER OF 2023.
CITY COUNCIL APPROVED AN MOA, UH, YOU KNOW, GIVING OUR, UM, KIND OF SOME TERMS AND OUTLINES OF THAT PROJECT.
AND PART OF WHAT THE MOA, UM, TALKED ABOUT IS THAT THE PROJECT WOULD BE FINANCE THROUGH, UM, A COUPLE DIFFERENT DEBT MECHANISMS, ONE OF THEM BEING THE SPECIAL FACILITY REVENUE BONDS OR SRBS, AND ANOTHER MECHANISM CALLED THE GENERAL AIRPORT REVENUE BONDS OR GARBS.
AND THE TOTAL OF THOSE TWO, UM, PIECES OF FINANCING IS ANTICIPATED TO BE $2.55 BILLION.
UH, THE SRBS OR THE UNITED SPECIAL FACILITIES BONDS ARE CAPPED AT 1.95 BILLION.
AND THE GENERAL AIRPORT REVENUE BONDS ARE CAPPED AT 624 MILLION.
AND THE DIFFERENCE BETWEEN THOSE, AGAIN, UH, YOU REMEMBER THE CONVERSATION AROUND THE SRBS ARE BACKED WITH UNITED LEASE REVENUES ONLY, BUT THE GARBS, THE GENERAL AIRPORT REVENUE BONDS ARE BACKED BY GENERAL AIRPORT REVENUES.
SO THIS PORTION THAT WE'RE TALKING ABOUT TODAY IS ON THE GENERAL AIRPORT REVENUE BONDS.
SO, UH, WE ARE GOING TO BE UTILIZING THE GENERAL AIRPORT REVENUE BONDS TO FINANCE A PORTION OF THAT UNITED PROJECT.
AND WHAT WE'RE ALSO PROPOSING IS IN THE SAME TRANSACTION FOR EFFICIENCIES TO, UH, ALSO FINANCE A PIECE OF THE ONGOING HOBBY WEST CONCOURSE GATE EXPANSION, WHICH YOU ALL ARE FAMILIAR WITH, AS WELL AS THE CENTRAL UTILITY PLANT UPGRADE AT IAH, WHICH, UM, IS ANOTHER PROJECT THAT'S IN THE CIP AS WELL.
SO ON THE NEXT SLIDE, UM, NEXT STEPS ARE THAT THE ISSUANCE OF THE GENERAL AIRPORT REVENUE BONDS THAT GARBS WILL REQUIRE COUNCIL ACTION, UH, WHICH WE'RE ANTICIPATING HOPEFULLY TO BRING TO COUNCIL SOMETIME IN FEBRUARY.
AND THE CITY IS ANTICIPATING, UM, THAT WE'LL ISSUE THE GARBS AGAIN TO FINANCE THE COMBINATION OF THE TERMINAL B IMPROVEMENTS, THE WEST CONCOURSE GATE EXPANSION AND HOBBY, AND THE, UH, THE CENTRAL UTILITY PLANT.
UM, AND IT, AND THOSE FINANCINGS WILL TAKE PLACE OVER SEVERAL ISSUANCES OVER A PERIOD OF MULTIPLE YEARS.
AND THIS IS JUST, UH, KIND OF THE FIRST, UM, BATCH OF FINANCING TOWARDS THOSE.
SO, OF COURSE, AS A STANDARD COURSE OF BUSINESS, AS WE DID WITH THE COMBINED UTILITY SYSTEM, THE FINANCE WORKING GROUP WILL CONTINUE TO MONITOR ALL THE EXISTING OUTSTANDING DEBT OF THE AIRPORT SYSTEM AND REVIEW IF THERE'S ANY POSSIBILITY TO REFINANCE ANY EXISTING DEBT, UM, WHICH WE COULD DO AT THE SAME TIME AS THIS TRANSACTION FOR EFFICIENCIES.
SO ON THE NEXT SLIDE, AGAIN, YOU SEE THE STANDARD FORMAT.
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THE AMOUNT OF THIS TRANSACTION TO BE APPROXIMATELY 645 MILLION PAYABLE WITH THE GENERAL AIRPORT REVENUES.UM, AT THIS TIME, WE'RE NOT ANTICIPATING ANY REFUNDING DEBT, SO THAT'S WHERE YOU SEE A LOT OF THE NOT APPLICABLES.
AND AGAIN, WE'LL CONTINUE TO MONITOR THAT.
UM, BUT WE ARE ESTIMATING THAT THE ALL IN, UM, TRUE INTEREST COSTS COULD BE AROUND 4.65%.
AND AGAIN, WE WON'T KNOW THAT UNTIL THE DATE OF PRICING AND ANTICIPATING TO, UM, COME TO COUNCIL IN FEBRUARY AND HOPE TO PRICE IN MARCH AND CLOSE IN APRIL.
AND THE LAST ITEM ON THE AGENDA FOR THIS PRESENTATION IS THE HOUSTON AIRPORT SYSTEMS INTERIM FUNDING.
UM, SO THIS IS RELATED TO THE HOUSTON AIRPORT SYSTEMS COMMERCIAL PAPER PROGRAM, UM, THAT WE USE AS INTERIM FUNDING UNTIL THE ISSUANCE OF, UM, LONG-TERM FIXED RATE DEBT THAT WE TYPICALLY DO.
SO YOU CAN SEE THAT THE AIRPORT HAS A COMMERCIAL PAPER SERIES, UM, TOTALING 350 MILLION, AND IT'S EXPIRING IN MARCH.
SO ON THE NEXT SLIDE, AGAIN, JUST AS BACKGROUND, I GUESS I, UM, KIND OF PREVIEWED THAT A LITTLE BIT ALREADY.
UM, BUT WE DO USE THAT COMMERCIAL PAPER AS SHORT-TERM NOTES, UM, UNTIL WE ISSUE THE LONG-TERM FIXED RATE DEBT.
AND THE UNDERLYING FACILITY FOR THAT COMMERCIAL PAPER PROGRAM IS EXPIRING IN MARCH.
UH, SO THE FINANCE WORKING GROUP IS RECOMMENDING TO, UM, UM, AFTER GETTING THE PROPOSAL BACK FROM THE CURRENT PROVIDER IS RECOMMENDING TO, UH, RENEW WITH THE CURRENT PROVIDER FOR THREE YEARS, WHICH WILL COME, THAT RECOMMENDATION WILL COME TO CITY COUNCIL LATER THIS MONTH FOR APPROVAL.
AND THAT CONCLUDES THE UPCOMING FINANCIAL TRANSACTIONS REPORT.
THANK YOU, DIRECTOR COUNCILMEMBER RAMIREZ.
UM, DIRECTOR DEBOSKY, GOOD AFTERNOON.
ON, ON THE, UM, AIRPORT, UH, REVENUE BONDS, SIX 45 MILLION, UM, THAT'S TO BE PAID, UH, WITH AIRPORT REVENUE.
IS THAT RIGHT? REVENUE FROM THE TERMINAL? YES.
DO YOU, DO WE HAVE FIGURES ON EXPECTED REVENUE FROM, UH, FROM THE OPERATION OF THAT TERMINAL.
UM, SO ONE THING THAT BEFORE WE DO THE BOND TRANSACTION, ONE THING THAT WE HAVE TO UNDERGO IS, UM, A FEASIBILITY STUDY.
UM, AND THAT FEASIBILITY STUDY WILL GIVE A PROJECTION OF WHAT THE REVENUES ARE FOR THE DIFFERENT, UM, AIR.
THEY'LL BREAK IT DOWN BECAUSE THIS TRANSACTION IS NOT JUST FOR TERMINAL B, IT ALSO INCLUDES THE HOBBY WEST CONCOURSE GATE EXPANSION.
UM, AND ALSO THE CENTRAL UTILITY PLANT.
SO, UM, THE FEASIBILITY STUDY, WHICH IS STILL CURRENTLY UNDERWAY, WILL LINE OUT THOSE REVENUE PROJECTIONS.
SO, UM, ONCE THAT'S COMPLETED, WE CAN, WE CAN SHARE THAT INFORMATION.
SO, UH, ARE THERE ANY PROFORMAS AVAILABLE AT, AT THIS TIME OR, OR NOT? IT'S STILL UNDER DEVELOPMENT RIGHT NOW.
BUT IT WILL BE, HAVE TO BE COMPLETED BEFORE WE DO THE BOND TRANSACTION.
SO BEFORE WE COME TO COUNCIL WITH THE, UH, ORDINANCE TO AUTHORIZE THE TRANSACTION, WE SHOULD HAVE THAT COMPLETED.
COUNCIL MEMBER FLICKINGER? YES.
THE AMOUNT OF VARIABLE RATE BONDS WE HAVE IS CAPPED.
I ASSUME THAT MEANS THERE'S ADVANTAGES TO THE VARIABLE RATE ALONG WITH RISK IS THAT THERE'S DEFINITELY RISK.
UM, SO YOU CAN, THE CONTROLLER IN THE PRINTED MONTHLY FINANCIAL REPORT, UM, HE DOES OUTLINE AND HE MENTIONS IN HIS REMARKS EVERY MONTH HOW MUCH IS OUTSTANDING IN A VARIABLE RATE MODE.
SO REALLY ALL WE HAVE, UM, AS THE CITY, THE WAY, UH, THAT THE FINANCE WORKING GROUP IS RECOMMENDING IS THAT REALLY OUR VARIABLE RATE AMOUNT OUTSTANDING IS REALLY TIED TO OUR COMMERCIAL PAPER LINES.
AND WE MAKE A REGULAR PRACTICE OF, UH, FIXING OUT THAT VARIABLE RATE DEBT INTO FIXED RATE DEBT, USUALLY ABOUT ONCE A YEAR.
UM, SO THAT IT'S NOT OUTSTANDING IN A VARIABLE RATE MODE FOR VERY LONG.
AND WE EXPECT TO SAVE MONEY WITH THIS REFINANCING, UH, WITH THE COMBINED UTILITY SYSTEM ITEM? YES.
SO, UM, ALTHOUGH I KNOW YOU HEAR INTEREST RATES ARE ARE, YOU KNOW, ARE HIGH, THEY ARE STARTING TO COME DOWN.
BUT THE BONDS THAT WE ARE RECOMMENDING TO REFUND, UM, THE COMBINED UTILITY SYSTEM BONDS, THE ONES THAT WE'RE REFUNDING FROM 2014, UM, THE AVERAGE, UH, INTEREST RATE OF THOSE BONDS THAT WE WERE REFUNDING WAS ABOUT 4.77%.
AND RIGHT NOW WE ARE THINKING WE CAN GET ABOUT 3.58%.
SO SIGNIFICANT SAVINGS, UM, THAT'S A PROJECTION.
WE'LL KNOW MORE ON THE DATE OF PRICING, SO, OKAY.
THAT'S WHAT WE'RE SEEING RIGHT NOW.
THEY DO A GREAT JOB OF SQUEEZING THAT.
THEY, THEY COME WITH THESE TRANSACTIONS TO SQUEEZE THAT MONEY AND GET US SOME SAVINGS.
ON THE, UM, CONVENTION AND ENTERTAINMENT FACILITIES BONDS MM-HMM
UH, SO THAT'S UP TO $400 MILLION FOR THE EXPANSION.
UH, IS SOME OF THAT TO RE BE REPAID FROM LIKE THE NEW, THE, THE LAW THAT THE STATE, WE GET THE STATE HOT TAX? YES.
SO THAT, THAT WILL, THAT WILL BE THE STATE TAX WITH THE STATE, THE PORTION OF THE HOT TAX.
[00:30:01]
ON THE AIRPORT SYSTEM THAT, UM, YOU SAID, I MEAN, OBVIOUSLY WE'LL COME IN DIFFERENT TRANCHES.DO YOU KNOW ABOUT WHAT THE FIRST ONE WILL BE? I MEAN, OUTTA THE 645 MILLION, I, I CAN GET THAT EXACT BREAKDOWN TO YOU.
YEAH, I THINK, AND THE SCHEDULE IS ACTUALLY, UM, LAID OUT IN THE MOA, UM, IT TALKS ABOUT, UH, HOW MUCH WILL BE IN THE FIRST BATCH, THE SECOND AND THE THIRD BATCH.
YEAH, I'LL, I'LL, OKAY, I'LL FOLLOW UP.
ANY OTHER QUESTIONS ON THE UPCOMING FINANCIAL TRA TRANSACTIONS? SEEING NONE, WE WILL MOVE ALONG TO OUR FINAL AGENDA ITEM AND REALLY APPRECIATE, UM, YOU DIRECTOR AND THE ADMINISTRATION WORKING TO GET A LITTLE BIT, UM, MORE OF A EXPLANATION BEFORE WE VOTE ON THESE AUDIT REPORTS.
UM, SO WE'LL BE HEARING FROM FINANCE DIRECTOR MELISSA DUBKE AND DIRECTOR OF ACTUARIAL SERVICES FROM DEFINITY, THE COMPANY THAT DID THE AUDIT.
AND, UM, I WANTED TO THANK, UM, DAVID SAWYER FOR JOINING ME TODAY.
IN CASE YOU GUYS HAVE ANY DETAILED ACTUARIAL QUESTIONS, I'LL KIND OF HIT THE HIGHLIGHTS AND THEN I MIGHT ASK HIM TO, TO JUMP IN IN THE Q AND A SESSION.
UM, SO THE AGENDA FOR THE DAY, WE'LL GO OVER THE, UH, INDEPENDENT ACTUARIAL AUDIT OVERVIEW AND WE'LL TOUCH ON EACH OF THE THREE PENSION SYSTEMS FOR THE CITY, THE HOUSTON FIREFIGHTERS RELIEF AND RETIREMENT FUND, THE HOUSTON POLICE OFFICER'S PENSION SYSTEM, AND THE HOUSTON MUNICIPAL EMPLOYEE PENSION SYSTEM.
SO ON THE NEXT SLIDE, UM, AS BACKGROUND, UM, STATE STATUTE SECTION 8 0 2 0.1012 OF THE TEXAS GOVERNMENT CODE REQUIRES THE CITY TO ENGAGE AN INDEPENDENT ACTUARY TO AUDIT THE MOST RECENT ACTUARIAL VALUATIONS AND STUDIES OF THE PENSION SYSTEMS. SOFINE, LLC, THEY USED TO BE KNOWN AS RHI, IF YOU'VE HEARD US TALK ABOUT RHI IN THE PAST, UM, IS OUR CONTRACTED OUTSIDE ACTUARIAL FIRM FOR THE CITY.
AND THEY PROVIDE, UM, ALL OF OUR PENSION ACTUARIAL CONSULTING AND SERVICES.
SO THEY'RE THE ACTUARY THAT CONDUCTS THE, UH, RISK SHARING VALUATION STUDIES ANNUALLY.
UH, THEY REVIEW THE ACTUARIAL EXPERIENCE STUDIES BY THE PENSION PLANS, AND, UH, THEY HAVE BEEN ENGAGED TO, UH, COMPLETE THE ACTUARIAL AUDITS AS WELL.
UM, THESE ACTUARIAL AUDITS, UM, ACCORDING TO THE, UH, TEXAS STATE GOVERNMENT CODE, THERE'S A SPECIFIED TIMELINE AND PROCESS WE HAVE TO FOLLOW, AND THEY DO REQUIRE COUNCIL APPROVAL, UM, SO THAT WE CAN SUBMIT THEM TO THE TEXAS PENSION REVIEW BOARD, WHICH IS A STATE, UH, OVERSIGHT BODY FOR PENSIONS.
SO THE PURPOSE OF THE THE AUDITS IS TO REVIEW THE ACTUARIAL METHODS AND ASSUMPTIONS THAT WERE USED IN THE VALUATION STUDIES BY THE PENSION SYSTEMS AND COMPARE THEM WITH GENERALLY ACCEPTED ACTUARIAL STANDARDS OF PRACTICE.
SO DEFINIT HAS CONDUCTED THAT INDEPENDENT, UM, REPLICATION OF THOSE VALUATION RESULTS USING DATA THAT WAS RECEIVED FROM THE PENSION SYSTEMS, AND THEY CHECK THE DATA FOR REASONABLENESS AND CONSISTENCY.
UM, THEY ALSO, UH, PROVIDED IN THE REPORTS YOU CAN SEE THAT THEY PROVIDED ANY RECOMMENDATIONS THAT OUR ACTUARY HAS FOR THE SYSTEMS REGARDING FUTURE REPORTS.
AND AGAIN, UM, WE ALREADY, UH, JUST AS A LITTLE BIT MORE BACKGROUND BEFORE WE GET INTO THE DETAILS OF THE AUDITS, UM, ESPECIALLY POST PENSION REFORM, UH, THERE'S A LOT OF, UM, OPPORTUNITIES AND CHANCES THAT THE CITY, UH, THROUGH OUR ACTUARY GETS, UM, WELL, THE ACTUARY REALLY NOT.
THE CITY GETS THE DATA FROM THE THREE DIFFERENT PENSION SYSTEMS. UM, OUR ACTUARY GETS THE DATA THROUGH A CONFIDENTIALITY REPORT.
UM, THEY SEE THE DETAILED CENSUS DATA THAT THE PENSION SYSTEMS USE TO CALCULATE THEIR ACTUARIAL VALUATION REPORTS ANNUALLY.
SO THAT IS SOMETHING DIFFERENT, UM, THAT DID START POST 2017, UM, WHERE ON AN ANNUAL BASIS WE ARE, UH, OUR ACTUARY IS LOOKING AT THAT DETAILED DATA, RUNNING THE ANALYSIS, UM, RUNNING WHAT THEIR CALCULATION OF THE LIABILITY OF EACH OF THE PENSION SYSTEM IS LOOKING, UM, AT THE PENSION SYSTEMS, AUDITED FINANCIALS WHERE THEY CAN SEE WHAT THEIR ASSETS ARE.
AND, UH, USING OUR OWN ASSUMPTIONS AND CONSULTING.
A LOT OF CONVERSATION GOES BACK AND FORTH BETWEEN THE ACTUARIES ON, UM, WHAT ASSUMPTIONS ARE REASONABLE.
AND WITHIN THE ACTUARIAL STANDARDS OF PRACTICE, THERE'S A WHOLE RANGE OF ASSUMPTIONS YOU COULD MAKE ABOUT MORTALITY, DISABILITIES, RETIREMENT PATTERNS.
UM, YOU CAN GO ON AND ON SURVIVING SPOUSES, AND THEY GO POINT BY POINT ON EACH OF THOSE ASSUMPTIONS TO MAKE SURE THAT, UH, THEY'RE IN THE RANGE WITH EACH OTHER.
UM, SO THAT IS SOMETHING THAT IS DEFINITELY DIFFERENT POST PENSION REFORM.
[00:35:01]
AND, UM, I THINK YOU SEE THE RESULTS OF THESE ACTUARIAL AUDITS ARE, YOU KNOW, WE DON'T EXPECT ANYTHING STRANGE TO COME OUT THROUGH THIS SINCE THERE IS THAT SORT OF ANNUAL REPLICATION AND SHARING OF THAT DATA, UM, ALREADY.SO, UM, GETTING INTO THE, UH, RESULTS OF THE AUDITS, UM, WE'LL TALK ABOUT THE FIREFIGHTERS FUND FIRST.
SO, UH, PART OF WHAT THE, UH, STATUTE SAYS IS THAT YOU SHOULD, UM, AUDIT THE MOST RECENTLY AVAILABLE VALUATION STUDY FOR THE PLAN AND THE MOST RECENTLY A AVAIL AVAILABLE ACTUARIAL EXPERIENCE STUDY FOR THE PLAN.
SO EACH OF THE THREE PENSION SYSTEMS DOES A RISK SHARING VALUATION STUDY EVERY YEAR.
SO YOU SEE THAT THIS ONE WAS, UM, FOR THE FIRE, THE, THE DATE IS THE BEGINNING JULY 1ST, 2023.
SO IT'S IMPORTANT TO NOTE THAT THIS IS THE DATE OF THE DATA.
SO SOMETIMES, YOU KNOW, YOU MIGHT THINK, OH MY GOSH, JULY 1ST, 2023, THAT WAS QUITE A LONG TIME AGO.
UM, BUT IN REALITY THAT IS FOR THE YEAR BEGINNING JULY 1ST, 2023.
SO REALLY THAT'S THE YEAR ENDING, UM, JUNE 30TH, 2024.
SO THAT'S THE MOST RECENTLY AVAILABLE THAT WAS AVAILABLE AT THE TIME THESE AUDITS WERE PERFORMED.
AND THEN THE ACTUARIAL EXPERIENCE STUDIES PER STATE LAW HAVE TO BE PERFORMED EVERY FOUR YEARS.
SO YOU MIGHT THINK, OKAY, AGAIN, NOVEMBER 2ND, 2020 WAS QUITE SOME TIME AGO, BUT PER STATE STATUTE, THOSE ONLY GET UPDATED ONCE EVERY FOUR YEARS.
UH, SO THE, YOU'LL SEE THE, THE NEXT ACTUARIAL EXPERIENCE STUDY WE SHOULD BE, UH, GETTING WILL BE FOR FIRE.
AND YOU SEE THAT THERE'S DIFFERENT DATES THROUGHOUT FOR EACH OF THE THREE PENSION SYSTEMS. UM, SO ALL IN ALL, THE FINDINGS OF THE FIRE REPORT, UH, WERE THAT THE ASSUMPTIONS AND THE METHODS THAT WERE USED IN THE EVALUATION REPORTS WERE REASONABLE AND CONSISTENT, UH, WITH THE GENERALLY ACCEPTED ACTUARIAL STANDARDS OF PRACTICES.
AND THAT THE DEMO, UM, THE ONE, UH, THE ONE THING OF NOTE, OR ACTUALLY THERE'S REALLY KIND OF TWO THINGS OF NOTE, UM, THAT'S CONSISTENT WITH EACH OF THE THREE PENSION PLANS, UM, HAS TO DO WITH MONITORING RETIREMENT ASSUMPTIONS, PARTICULARLY FOR, UM, PEOPLE THAT ARE MORE RECENTLY HIRED.
SO, FOR EXAMPLE, WITH THE FIRE PLAN, UM, THE BENEFITS PACKAGE IS DIFFERENT FOR FIREFIGHTERS HIRED AFTER JUNE 30TH, 2017, AND THAT CHANGED WITH THE PENSION REFORMS. WE, OF COURSE HAVE NO DATA ABOUT HOW AND WHEN THOSE PEOPLE ARE GOING TO RETIRE BECAUSE THEY'RE NOT RETIREMENT ELIGIBLE YET.
SO THAT WAS ONE OF THE RECOMMENDATIONS FROM, UM, DEFINIT IS TO, OVER THE COURSE OF THE NEXT MANY YEARS, MONITOR, UM, HOW AND WHEN THOSE, UM, THOSE MEMBERS HIRED AFTER JUNE 30TH, 2017 START TO RETIRE.
AND AGAIN, THAT'S A, YOU KNOW, A LONG, LONG WAYS FROM NOW.
SO SOMETHING TO KEEP AN EYE ON.
AND THEN, UM, THE CITY ACTUARY IS ALSO RECOMMENDING, UM, DISCLOSURE OF AVERAGE DROP ACCOUNTS IN THE AGE SERVICE GRID WHERE THERE'S AT LEAST 20 MEMBERS.
SO I WANNA BE CLEAR THAT OUR ACTUARY IS GETTING THE DETAILED DATA ON THE DROP INFORMATION, BUT IT'S NOT SOMETHING THAT IS PUBLISHED BY THE PENSION SYSTEMS. UM, AND AGAIN, IT'S SOMETHING THAT WE'RE RECOMMENDING COULD ONLY BE PUBLISHED IF IT'S IN A GROUPED FORM SO THAT YOU CAN'T IDENTIFY ANY, UM, PERSONAL INFORMATION.
BUT I DO, UM, I WANNA MAKE IT CLEAR THAT WE ARE GETTING THE DATA THAT WE NEED TO MAKE SURE THAT THE LIABILITIES WE'RE CALCULATING IS ACCURATE.
IT'S MORE OF A DISCLOSURE AND A REPORTING, UM, UH, RECOMMENDATION.
UM, AND SO PART OF THE ACTUARIAL AUDITS, THE PROCESS IS WE DO THE ACTUARIAL AUDIT.
WE SEND THE ACTUARIAL AUDIT TO THE PENSION SYSTEMS FOR THEIR COMMENTS AND, UH, COMMENTS BACK.
AND THE SYSTEM DID RESPOND TO THOSE, UM, UH, FINDINGS OR RECOMMENDATIONS FROM OUR ACTUARY.
AND, UM, THEIR, THE RESPONSE TO THE FIRE SYSTEM IS THAT THEY DO SUPPLY THE DATA REQUIRED TO ASSESS THE REASONABLENESS OF THE LIABILITY, WHICH WE AGREE THEY DO PROVIDE THE DATA.
I THINK THE RECOMMENDATION WAS JUST TO HAVE A LITTLE BIT MORE DISCLOSURE IN THE REPORT.
SO MOVING ON TO THE POLICE SYSTEM, AGAIN, YOU SEE THE DATES, UH, THE, THE DATE OF THE EVALUATION STUDY IS GONNA BE THE SAME JULY 1ST, 2023.
BUT AGAIN, THE EXPERIENCE STUDY IS A DIFFERENT DATE THAN THE FIRES JUST BECAUSE THEY'RE ON A DIFFERENT SCHEDULE FROM EACH OTHER AND AGAIN, NEED TO BE DONE EVERY FOUR YEARS.
UM, SO THE FINDINGS, AGAIN, WERE, WERE THE SAME AS WITH THE FIRE SYSTEM THAT THE ACTUARIAL ASSUMPTIONS AND METHODS USED IN THE VALUATION WERE REASONABLE AND CONSISTENT, UH, WITH GENERALLY ACCEPTED ACTUARIAL STANDARDS AND PRACTICES.
AND AGAIN, UM, WITH THE POLICE OFFICERS, THEIR GROUP THAT NEEDS TO BE MONITORED, UM, FOR RETIREMENT PATTERNS AND ASSUMPTIONS, UH, THEY STARTED EARLIER.
THEY STARTED, UH, THAT CHANGE WAS EFFECTIVE, UM, MANY YEARS BEFORE THE 2017 PENSION REFORM.
SO IT APPLIES TO THE HIRES, UM, HIRED AFTER OCTOBER 9TH, 2004.
SO THOSE PEOPLE ARE GOING TO BE, THERE ARE SOME THAT ARE STARTING TO BE RETIREMENT ELIGIBLE NOW, ACTUALLY ARE COMING UP SOON.
UM, AND SO AGAIN, WE'LL JUST CONTINUE TO MONITOR HOW THEIR RETIREMENT PATTERNS COMPARE TO THE ASSUMPTIONS.
AND, UH, AS WELL THE SAME RECOMMENDATION ON THE DISCLOSURE OF THE DROP
[00:40:01]
AMOUNTS IN THE AGE SERVICE GRID, UM, AND FROM THE PENSION SYSTEM FROM THE POLICE, UH, FROM THE H OS, THEY DID AGREE TO ADD THAT DROP DATA GOING FORWARD IN THEIR REPORTS.SO THE LAST SYSTEM OUT OF THE THREE IS THE HOUSTON MUNICIPAL EMPLOYEES PENSION SYSTEM.
UM, AGAIN, THIS COVERS EVALUATION STUDY FOR JULY 1ST, 2023, AND THE ACTUARIAL EXPERIENCE STUDY, UM, WAS THE, WAS PUBLISHED AS OF, UM, AUGUST 11TH, UH, 2021.
UM, SAME THREE RECOMMENDATIONS THAT THE ASSUMPTIONS AND METHODS USED IN THE VALUATION WERE REASONABLE AND CONSISTENT.
UM, AGAIN, WE NEED TO CLOSELY MONITOR THE RETIREMENT PATTERNS OF THE, UH, OF THE GROUP D MEMBERS.
SO THESE ARE THE PEOPLE HIRED AFTER 2008, UM, AS THEY'RE NOT QUITE TO THE, UM, YOU KNOW, THE POINT OF RETIREMENT ELIGIBILITY YET.
AND THEN SAME RECOMMENDATION WITH THE DISCLOSURE OF THE DROP IN THE AGE SERVICE GRID FORMAT AND THE MUNICIPAL SYSTEM DID NOT HAVE ANY COMMENTS, UM, TO THE RECOMMENDATIONS.
SO THE NEXT STEPS, UM, AS YOU KNOW, IS THAT THIS, THESE THREE AUDITS WERE ON COUNCIL AGENDA FOR APPROVAL LAST WEEK IN TAG, SO WE COULD HAVE TIME FOR THIS PRESENTATION.
UM, AND ANY QUESTIONS THAT, THAT YOU ALL MAY HAVE.
UM, AND THEN THE PLAN WILL BE FOR THE, UM, CITY COUNCIL TO ADOPT THE ACTUARIAL AUDITS AS PRESENTED.
AND THEN WE'LL FILE THEM WITH THE PENSION REVIEW BOARD.
THAT CONCLUDES MY PRESENTATION.
AND, AND ALSO I APPRECIATE WHAT WAS PASSED OUT, UM, EARLIER THAT IT WILL BE ONLINE, WHICH IS A KIND OF A, A STATE OF THE PENSIONS, UM, UM, THAT EVERYBODY SHOULD HAVE AT THEIR DESK.
AND THIS IS, IS IT ONLINE ALREADY NOT, OR WILL BE ONLINE? NOT YET.
THIS IS SOMETHING THAT WE SEEK TO UPDATE ANNUALLY, SO THANK YOU FOR, THANK YOU FOR THAT AND, AND THAT, THAT REALLY HELPS AND ANSWERED SOME OF THE QUESTIONS THAT I HAD ON THE AUDITS.
UM, I, I APPRECIATE YOUR BRINGING UP THE 'CAUSE ALL THREE AUDITS.
THE FINDING WAS ABOUT THE, THE DROP REPORTING.
SO I THINK WHAT I'M HEARING YOU SAYING IS THEY, YOU GUYS GET CONFIDENTIALLY ALL THE DROP INFORMATION, SO THAT'S FACTORED INTO ALL YOUR ACTUARIAL STUFF, ALL THE CITY CONTRIBUTIONS, EVERYTHING.
UM, WHAT THE RECOMMENDATION IS TO HAVE IS TO HAVE, UH, A MORE PUBLIC FACING UNDERSTANDING.
AND, UM, AND, AND TO, WELL, CAN YOU GO AHEAD AND EXPLAIN WHAT DROP IS FOR, FOR EVERYBODY? I MEAN, HOW, HOW IT WORKS IN ALL THREE PENSION SYSTEMS? SO DROP IS, UM, VERY DIFFERENT THAN IT USED TO BE PRE 2017 PENSION REFORM.
SO, UH, DROP STANDS FOR THE DEFERRED RETIREMENT OPTION PLAN.
UM, SO, AND IT'S DIFFERENT FOR ALL THREE PENSION SYSTEMS, SO I'LL TRY TO GIVE A HIGH LEVEL OVERVIEW.
UM, BUT THE BASICS OF IT ARE THAT ONCE, UM, AND IT'S ONLY CERTAIN GROUPS THAT ARE ELIGIBLE FOR DROP, UM, ONLY FIREFIGHTERS HIRED BEFORE 2017, ONLY POLICE OFFICERS HIRED BEFORE 2004 AND ONLY, UM, GROUP A AND B OF THE MUNICIPAL PLAN.
IS GROUP B ELIGIBLE FOR DROP? YEAH, GROUP D IS NOT ELIGIBLE FOR DROP.
SO THOSE WERE HIRED AFTER 2008.
UM, SO FOR THOSE PEOPLE THAT ARE ELIGIBLE FOR THE PLAN, UM, ONCE YOU REACH RETIREMENT ELIGIBILITY AGE, YOU CAN ELECT TO ENTER DROP.
UM, AND AT THAT POINT, YOUR, UM, YOUR PAY THAT'S USED TO CALCULATE WHAT YOUR PENSION CHECK WILL BE IS LOCKED IN AT WHATEVER YOUR, UM, APPLICABLE PAY PERIODS ARE.
IT'S DIFFERENT FOR THE THREE PLANS.
UM, AND THEN, UM, IT'S BASICALLY LIKE, UM, A ACCOUNT THAT'S ESTABLISHED FOR YOU, UM, THAT CAN ACCRUE A BALANCE.
UM, AND IT FUNCTIONS AGAIN, LIKE I SAID, DIFFERENTLY THAN IT DID PRIOR TO 2017, UM, PRIOR TO 2017, UM, WHATEVER THE EMPLOYEE'S CONTRIBUTION.
UM, AND THE, AND I THINK THE EMPLOYER'S CONTRIBUTION USED TO GO INTO THE INDIVIDUAL DROP ACCOUNT IN ADDITION TO WHAT YOUR PENSION CHECK WOULD'VE BEEN, WENT INTO YOUR DROP ACCOUNT.
SO THAT WAS ALL, UM, REFORMED IN 2017.
AND IT IS A, UH, DEFINITELY LESS GENEROUS THAN IT USED TO BE IN THE PAST, WHICH IS WHY YOU SEE THE PENSION SYSTEM IS MORE SUSTAINABLE NOW.
SO, UM, IT'S, IT'S, UH, AND AGAIN, IT'S SOMETHING THAT THE ACTUARY GETS ALL OF THE DETAILED, UH, DATA, UM, BROKEN DOWN IN A DE-IDENTIFIED WAY, AND THE CITY DOES NOT GET TO SEE THAT DATA.
UM, BUT THE ACTUARY HAS EVERYTHING THEY NEED TO CALCULATE WHAT THE LIABILITY WILL BE AS A RESULT OF THAT BENEFIT.
ON THE, ON THE ASSUMPTIONS, UM, I NOTICED, I THINK IT WAS IN THE H MEPS PLAN, UH, 2.25%
[00:45:01]
INFLATION.WHAT'S THE DIFFERENCE IN INVESTMENT NET REAL RETURN ASSUMPTION AND INVESTMENT RETURN PER ANNUM? ONE'S 4.75%, ONE'S 7%.
I'M PRETTY SURE I KNOW WHAT YOU'RE ASKING, BUT YOU LINE IT OUT AS TWO DIFFERENT, I KNOW OUR, OUR, YOU KNOW, WHEN WE DID PEN TO INFORM EVERYTHING, IT WAS ALWAYS THAT 7%.
I KNOW THAT'S LIKE THE ANNUAL RATE OF RETURN.
WHAT'S THE 4.75%? THAT IS, THAT IS THE MIC.
I THINK THERE'S A BUTTON FOR YOUR MIC.
SO THE 7% IS KIND OF THE GROSS RETURN THAT WE EXPECT THE FUND TO EARN.
THE, THE NET RETURN IS WHAT YOU'RE REALLY EARNING AFTER INFLATION.
AND IT LOOKS LIKE ALL OF 'EM, ACCORDING TO THE AUDITS, ALL OF THEM ARE BETTER FUNDED.
I MEAN, H MEPS FROM 59 TO 69% FIRE FROM 83 TO 96%, UH, AND H POPS 82 TO 89%.
AND THEN IN, UM, DIRECTOR OF BASKIN, WHAT YOU PASSED OUT, THEY'RE EVEN A BETTER FUNDING RATIO ON, ON ALL OF THE PENSIONS.
AND THAT IS THAT ATTRIBUTED TO THE REFORMS, BASICALLY, OR, AND, AND HIGH AND A LOT HIGHER INVESTMENT RETURNS OVER THE PAST YEARS.
I MEAN, WE, WE GOT H MEPS, UH, GOT 9.5% IN THIS PERIOD RETURNS, AND, AND, UH, THEN THE OTHER ONES WERE 8.3 AND 8.6%.
SO PRETTY HIGH RETURNS OVER THE LAST FIVE YEAR PERIOD.
SO A COMBINATION OF, OF HIGH RETURNS, IT'S A, IT'S A COMBINATION AND REFORMS. IT'S, IT'S A COMBINATION, I THINK.
AND SIGNIFICANT CONTRIBUTIONS FROM THE CITY.
SIGNIFICANT CONTRIBUTIONS FOR THE CITY.
TO THAT END, UM, ON THE, THE PAGES WHERE YOU LAY OUT COST AS A PERCENT OF PAYROLL WITHIN THE AUDIT, UH, THERE'S BENEFIT PAYMENTS AND ADVANCED FUNDING, YOU KNOW, THE ADVANCED FUNDING, I'M LOOKING AT H MEPS ADVANCED FUNDING, AND THAT'S WHAT THE CITY PUTS IN LIKE EVERY YEAR.
LIKE THE IS AROUND, LOOKS LIKE KIND OF FLAT AT AROUND 20% OF PAYROLL, UH, FOR WHICH SYSTEM H MEPS OR, AND THEN THE, THE BENEFIT PAYMENTS ARE GO UP INTO 2059.
I'M AFRAID THAT IS A THEORETICAL EXHIBIT TO KIND OF SHOW THE CONCEPT.
THEN IT KIND OF FREAKED ME OUT WHEN I SAW THE 50% OF PAYROLL, SORRY, IN 2059.
SO THAT'S A DEMONSTRATION OF WHAT COULD HAPPEN IF YOU DON'T PRE-FUND AND ALL THAT.
SO THAT'S NOT SPECIFICALLY FOR THIS, THIS PLAN.
NO, NO NEED TO PANIC OVER OVER THAT.
I THINK H MAPS IS CONTRIBUTING, YOU'RE CONTRIBUTING LIKE 8% OF PAY, RIGHT? AS A PAYROLL, BUT THEN THERE'S ALSO A FLAT, BIG CHUNK, DOLLAR AMOUNT SCHEDULED THAT'S CALLED THE CITY CONTRIBUTION AMOUNT SEPARATE FROM THAT, THAT IS, GOES INTO THAT SYSTEM AS WELL.
SO I DON'T KNOW WHAT A PERCENTAGE OF PAYROLL THAT IS, SO, OKAY.
MAYBE WE COULD TALK ABOUT THE CORRIDOR FOR A SECOND.
LET'S TALK ABOUT THE CORRIDOR.
'CAUSE THAT'S THE CITY CONTRIBUTION.
WE, WE HAVE TO STAY WITHIN A CERTAIN LEVEL.
RIGHT? SO, AND YOU SEE IT ON THE, THE HANDOUT ON PAGE THREE OF THIS OTHER, UH, THE UPDATE, THE COLORFUL ONE, YOU CAN SEE THE HISTORICAL CONTRIBUTION RATES AND THE CORRIDOR MIDPOINT.
SO, UM, ONE THING THAT CHANGED IN 2017, YOU NOTE ON THE GRAPH IS THAT, UM, STATE STATUTE NOW, UH, HAS SET A CORRIDOR THAT ESTABLISHES THE UPPER AND LOWER BOUNDS FOR THE CITY'S CONTRIBUTION RATE FOR THAT 30 YEAR PERIOD FROM 2017 TO 2047.
UM, SO THE CITY'S CONTRIBUTION RATE CANNOT VARY MORE THAN THIS.
UM, UH, THE CORRIDOR, UH, THE CORRIDOR MIDPOINT WAS ESTABLISHED IN 2017 AFTER DATA SHARING WITH THE PENSION SYSTEMS IN OUR ACTUARY TO, UH, MAKE SURE THAT WE HAVE ALL THE DATA, ALL THE ASSUMPTIONS ARE IN ALIGNMENT.
UM, AND SO FOR THE MUNICIPAL SYSTEM, UH, DAVID MENTIONS ABOUT 8% IS THE NORMAL COST, UH, PLUS THAT DOLLAR AMOUNT THAT WE CONTRIBUTE WHEN YOU, UH, DESCRIBE NORMAL COST.
OKAY,
SO THERE'S, THERE'S TWO COMPONENTS.
THE, THE, THE LEGACY LIABILITY, WHICH IS THE UNFUNDED LIABILITY, AND THEN THE NORMAL COST.
SO I'LL LET YOU GIVE THE DEFINITION OF NORMAL COST.
AND THEN I'LL GO INTO THE NUMBERS.
SO, SO IF YOU THINK OF THE NORMAL COST, THESE ARE PENSION SYSTEMS. IT'S, IT'S THE ANNUAL COST OF THE BENEFITS THAT ARE BEING ACCRUED FOR YOUR MEMBERS.
SO IF WE SAY IT'S AN 8% NORMAL COST, THAT MEANS THE, ON AVERAGE PEOPLE ARE ACCRUING BENEFITS THAT IF YOU CONTRIBUTED, SAY 8% A YEAR OVER THE LONG TERM WOULD FUND ALL THE BENEFITS.
BUT BECAUSE THAT HAS NOT BEEN, BECAUSE THAT HAS NOT BEEN ADEQUATE, THE CONTRIBUTIONS HAVE NOT BEEN ADEQUATE OVER TIME, THERE'S BEEN SOME UNFUNDED LIABILITY THAT HAS BUILT UP OVER THE YEAR.
SO THAT'S THE SECOND PIECE OF THE CONTRIBUTION AND CALCULATION.
SO YOU ALWAYS PAY THE, THE, THE NORMAL COST PLUS YOU AMORTIZE THE UN ANY UNFUNDED
[00:50:01]
LIABILITY THAT EXISTS.THOSE ARE THE TWO PIECES OF THE CONTRIBUTION MM-HMM
AND WHEN YOU LOOK AT THE, WHAT THE NORMAL COST PLUS THE AMORTIZED UNFUNDED RATE, IF YOU GO TO PAGE FOUR OF THIS ONE, YOU CAN SEE WHAT IT IS FOR THE DIFFERENT PENSION SYSTEMS. SO YOU LOOK IN THE ACTUARIAL COLUMN FOR MUNICIPAL, UM, FOR FY 25, IT'S ABOUT 28.5% OF PAY.
SO WITH THE CORRIDOR IN PLACE, UM, THAT THE, THE CALCULATION OF WHAT THE CITY IS GOING TO ACTUALLY CONTRIBUTE COMPARED TO WHAT THE ACTUARIAL, UM, YOU KNOW, CALCULATION ENDS UP TO BE, IT HAS TO STAY WITHIN THAT CORRIDOR.
SO WE CAN'T HAVE WILD SWINGS ANYMORE IN THE CITY'S CONTRIBUTION AS A PERCENT OF PAY.
IF YOU HIT CERTAIN POINTS INSIDE THAT CORRIDOR, THE STATUTE LAYS OUT DIFFERENT THINGS THAT HAVE TO HAPPEN TO BRING THE COST BACK UNDER CONTROL.
AND THEN I NOTICED IN EACH OF THE AUDITS YOU HAVE KIND OF A BREAKDOWN OF WHAT, UM, OF PRESENT VALUE OF FUTURE BENEFITS FUNDED RATIO, ET CETERA, ET CETERA, ALL WITH OUR CURRENT ASSUMPTIONS AND, AND WITH THE PROPOSED ASSUMPTIONS.
AND IT DOESN'T SEEM TO VARY THAT MUCH.
SOME OF IT'S, SOME OF IT'S A LITTLE VARIABLE, BUT YEAH, ANY THAT'S JUST GOING BACK TO WHENEVER THAT, THAT, UM, REPORT WAS DONE AND SAYING WHAT THEY WOULD BE NOW, IF YOU USED THE ASSUMPTIONS, YOU'RE RECOMMENDING IT, IT'S NOT DIFFERENT ASSUMPTIONS, IT'S TWO DIFFERENT ACTUARIES CALCULATING THE LIABILITIES.
AND WHENEVER YOU HAVE, THERE'S SO MANY VARIABLES TO CONSIDER, RIGHT.
WHILE WE HAVE, EVEN THOUGH WE HAVE THE SAME ASSUMPTIONS, THE SAME DATA WORKING OFF THE SAME PROVISIONS, YOU JUST ACTUARIES NEVER GET EXACTLY THE SAME NUMBER.
WHAT WE'RE LOOKING FOR IS WE WANNA MAKE SURE THAT OUR RESULTS ARE WITHIN THREE OR 4% OF WHAT THE OTHER ACTUARIES WAS SAYING.
AND THEN WE FEEL LIKE, OKAY, THEN THEY'RE, THANK YOU FOR THAT'RE CAPTURING IT, THAT I WAS GETTING A LITTLE BOGGED DOWN IN THAT.
UM, COUNCIL MEMBER RAMIREZ, I JUST WANTED TO ADD ONE THING TO THAT.
SO ON THESE ASSUMPTIONS, UM, THIS IS SOMETHING THAT, THIS IS AN AUDIT, RIGHT? SO IT'S NOT THE TIME TO CHANGE AN ASSUMPTION, BUT THAT'S SOMETHING THAT GETS LOOKED AT EVERY FOUR YEARS WITH THAT, UM, ACTUARIAL EXPERIENCE STUDY, UM, WHERE WE'LL TAKE A LOOK AT, FOR EXAMPLE, THE MORTALITY TABLE.
ARE WE USING THE MOST UPTODATE MOST REALISTIC MORTALITY TABLE, UM, RETIREMENT ASSUMPTIONS? SO THAT'S THE POINT IN TIME THAT SOME OF THOSE COULD CHANGE.
SO THESE RECOMMENDATIONS AND CHANGES AND ASSUMPTIONS WILL BE USED THE NEXT TIME YOU, YOU DO IT, YOU DO THAT.
SO THESE ARE LONG TERM ASSUMPTIONS IN THIS MODEL.
SO YOU DON'T WANNA, YOU DON'T WANNA BE UPDATING 'EM EVERY YEAR.
SO YOU KIND OF REVIEW IT EVERY FOUR YEARS OR SO.
UM, SO DIRECTOR DEBOWSKI, YOU MENTIONED YOU WERE TALKING ABOUT DROP AND EXPLAINING WHAT IT WAS LIKE PRE 2017 MM-HMM
UM, IS THERE A DIFFERENCE? UH, WELL, I THINK YOU INDICATED THERE IS A DIFFERENCE NOW.
CAN YOU, CAN YOU TELL US WHAT THE DIFFERENCE IS AGAIN, I MAY HAVE MISSED THAT.
SO, UM, ONE OF THE, I KNOW ONE OF THE MAIN DIFFERENCES IS ON THE, UM, DROP INTEREST CREDIT RATE.
SO, UM, THE DROP ACCOUNTS, THEY, UH, IN THE PAST THEY WOULD EARN A CERTAIN, UM, GUARANTEED PERCENT INCREASE ON THE, ON THE BALANCE EVERY YEAR.
SO NOW THE DROP INTEREST CREDIT RATE IS LIMITED TO, UM, I BELIEVE IT'S THE SAME FOR ALL THREE PLANS, BUT 65% OF THE FIVE YEAR AVERAGE OF THE RETURNS.
SO THAT'S, UM, IT'S NO LONGER UNCA, IT'S NO LONGER UNTIED TO WHAT THE PENSION SYSTEM'S RETURNS ARE.
SO, UM, IN OTHER WORDS, IT'S, UM, IN THE PAST, FOR EXAMPLE, UH, YOU COULD, THE PENSION SYSTEM MIGHT HAVE A YEAR WHERE THEY LOST MONEY, BUT YOU WERE STILL MM-HMM
GIVING A DROP INTEREST CREDIT RATE TO THE ACCOUNT.
NOW IT TAKES A LOOK AT THE FIVE YEAR AVERAGE, AND IT'S A 65% OF THAT BECOMES CREDITED TO THE ACCOUNT.
SO THAT WAS ONE OF THE MAJOR CHANGES.
UM, COLAS ALSO PREVIOUSLY WHEN YOU ENTERED DROP, THAT BENEFIT THAT YOU HAD EARNED WOULD GROW WITH COLAS, AND NOW IT DOESN'T KICK IN UNTIL AFTER YOU ACTUALLY RETIRE.
SO THOSE TWO MAIN DIFFERENCES, BUT IS IT STILL BASICALLY THE SAME SORT OF THE RETIREMENT PAYMENT GOES INTO THAT ACCOUNT DROP ACCOUNT AS WELL AS THE, WHAT CITY'S CONTRIBUTION? DO I HAVE THAT RIGHT? THE, THE MEMBER'S CONTRIBUTION? THE MEMBER'S CONTRIBUTION.
SO THERE'S, THERE IS A DIFFERENCE ON THAT.
UH, IN TERMS OF THE, NOT JUST THE, THE INTEREST CREDIT AMOUNTS, BUT THE, I'M GUESS I'M CALLING THEM PRINCIPAL AMOUNTS THEMSELVES THAT GO INTO THE ACCOUNT.
UM, WE CAN GET YOU A MORE DETAILED DESCRIPTION OF THE DIFFERENCES PRE AND POST REFORM.
I, I WOULD SAY THE BIGGEST DIFFERENCE IS JUST THE ELIGIBILITY.
LIKE SHE SAID EARLIER, SOME PEOPLE JUST AREN'T ELIGIBLE FOR THAT OPTION ANYMORE AT ALL, SO MM-HMM
THAT'S KIND OF THE BIGGEST CHANGE.
AND, AND I THINK I'D HEARD THAT
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IT, YOU, YOU WON'T BE ELIGIBLE UNTIL YOU'VE WORKED A CERTAIN NUMBER OF YEARS.IT'S ONLY FOR, UM, THERE'S DIFFERENT GROUPS OF ELIGIBILITY.
FOR FIREFIGHTERS, YOU HAVE TO BE HIRED BEFORE 2017 FOR POLICE OFFICERS, IT'S BEFORE 2004.
AND FOR MUNICIPALS IT'S BE, YOU HAVE TO BE HIRED BEFORE 2008.
SO ALREADY YOU HAVE TO BE IN ONE OF THOSE ELIGIBILITY GROUPS.
AND THEN IT'S ONLY UPON YOUR DATE THAT YOU'RE ELIGIBLE TO RETIRE THAT YOU CAN BE ELIGIBLE TO ENTER DROP.
SO SOMEBODY HIRED TODAY WITH THE POLICE OR FIRE COULD NOT PARTICIPATE IN DROP.
AND, UM, SO I'VE, I'VE HEARD THE LEGISLATURE'S GONNA TAKE A DROP AGAIN.
I GUESS EVERY SESSION THERE'S A NEW, ANOTHER DROP BILL OR TWO OR THREE FILED.
UM, AND SO, UH, DO YOU KNOW IF THE CITY, THE ADMINISTRATION HAS, HAS A, A POSITION ON, UH, A DROP BILL OR ANY OF THE DROP BILLS THAT YOU MIGHT EXPECT? I HAVEN'T, I HAVEN'T SEEN ANY FILED, UM, YET THIS SESSION.
BUT AS WE DO WITH ALL SESSIONS, WE, UM, YOU KNOW, GET A COPY OF THE BILL AND ANALYZE IT, AND WE'LL DEFINITELY TAKE A LOOK AT ANYTHING THAT'S FILED.
UM, WE DO HAVE SOME PUBLIC SPEAKERS, SO THANK YOU VERY MUCH FOR YOUR PRESENTATION AND FOR YOUR WORK, SIR, ON THE, ON THE AUDIT, I LEARNED A LOT READING THOSE.
NOT SURE I UNDERSTOOD ALL OF IT, BUT I, I READ THROUGH IT.
DOUG SMITH BACK FOR A NEW YEAR.
THE NEW YEAR TO ALL OF YOU, UH, FIRST OF ALL, ON THE MONTHLY FINANCIAL REPORT ON PAGE SEVEN SHOWS A BREAKDOWN OF ALL THE REVENUES AND EXPENSES.
AND, UH, YOU MENTIONED SOMETHING ABOUT PROPERTY TAXES AND THAT CONFUSED ME BECAUSE WHEN YOU LOOK AT THIS, THIS REPORT, UH, THE PROJECTED PROPERTY TAXES ARE $40 MILLION LESS THAN THE BUDGET.
IS THERE AN EXPLANATION FOR WHAT THAT IS? YEAH, THAT WAS, THAT WAS WHEN WE, UM, DID NOT ADOPT, UM, THE TAX RATE THAT WE WOULD'VE ADOPTED UNDER, UH, PROP ONE AND PROP H THE CALCULATION ACTUALLY WOULD'VE YIELDED OF LIKE A 1.70 CENT INCREASED TAXES SINCE WE THAT, AND I THINK THAT WAS, THAT WAS THE CALCULATION THAT WAS GOING WHEN WE DID THE BUDGET.
I MIGHT HAVE THIS WRONG, MELISSA, BUT WHAT WE, BUT WHEN WE DIDN'T, WHEN WE KEPT THE RATE FLAT, THAT WAS THE $46 MILLION DELTA.
OH, SO THE BUDGET ASSUMED YOU WERE GOING TO YEAH, THE BUDGET ASSUMED WE WERE GONNA USE THE CALCULATION AS WE HAD IN THE PAST.
AND THEN ON THAT SAME PAGE, UH, AS I WAS LOOKING AT THIS THIS MORNING, THE LAST COLUMN IS THE CONTROLLER TREASURER VARIANCE.
AND WHAT WOULD BE A LOT MORE MEANINGFUL, AND I MENTIONED THIS TO MELISSA, BUT A LOT MORE MEANINGFUL TO ME, WOULD BE IF PERHAPS YOU SHOWED THE, UH, WHAT THE VARIANCE IS, BUDGET TO WHAT THEY'RE PROJECTING, UH, BECAUSE THAT'S REALLY WHAT I WOULD BE INTERESTED IN.
I DON'T CARE AS MUCH ABOUT THE DIFFERENCE BETWEEN THE, UH, UH, CONTROLLER AND, UH, FINANCE DIRECTOR.
SO, UH, JUST A CONSIDERATION THEN ON THE, UH, UPCOMING FINANCIAL TRANSACTIONS, IF I CAN GET IT UP ON MY PHONE HERE.
UH, ON PAGE THREE, UH, IT MENTIONS TWO BANKS, UH, THAT I NEVER HEARD OF BEFORE.
UH, HUNTINGTON BANK, I THINK IN TRUIST, AND YEAH, TRUIST, I'VE HEARD OF I HADN'T HEARD OF HUNTINGTON YET.
AND I JUST WONDERED HOW THEY DETERMINE, UH, THAT THOSE BANKS ARE, ARE WELL QUALIFIED TO, TO DO THIS.
UH, AND ON PAGE SIX, UH, IT SHOWS, UM, I THINK IT'S ON PAGE SIX.
UH, UH, IT SHOWS A LIST OF ALL OF THE VARIOUS, UH, YEAH, EXCUSE ME.
PAGE SEVEN, UH, VARIABLE RATE EXPOSURE SUMMARY.
AND, UH, ALL OF THE BANKS, EXCEPT MORGAN STANLEY REQUIRE A BANK FACILITY.
AND I WAS CURIOUS, AGAIN, MELISSA EXPLAINED THAT, BUT I DIDN'T QUITE UNDERSTAND WHAT THE NEED FOR THE BANK FACILITY WAS AND ALSO WHY, UH, MORGAN STANLEY DOESN'T REQUIRE THAT.
UH, AND THEN FINALLY, UH, SUMITOMO CAME UP SEVERAL TIMES.
UH, THEY HAVE EXPOSURES WITH THE CITY, AND IT JUST SAYS IN THIS REPORT THAT THE FINANCE WORKING GROUP, UH, RECOMMENDED THEY EXTEND, UH, THE, THE WORK WITH SUMITOMO.
AND THE QUESTION IS DO THEY BID THIS OR HOW DID THEY DETERMINE, UH, THAT IT'S OKAY TO GO AHEAD.
WE CAN FOR SURE GET YOU SOME INFORMATION ON HOW THE FINANCE WORKING GROUP GOES THROUGH THIS.
WHAT WERE YOU SAYING THAT, WHAT WAS THE NAME OF THE SUMITOMO? SUMITOMO SUMITOMO BANK.
IT'S, THEY, I THINK THEY'RE INVOLVED IN THE, UH, AIRPORT BONDS TOO.
THEY, THEY APPEARED THREE TIMES.
WE'VE GOT ALL YOUR QUESTIONS DOWN.
WE'LL MAKE SURE WE GET ANSWERS FOR 'EM.
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AND HAPPY NEW YEAR TO EVERYBODY.ANYBODY ELSE? WELCOME TO COME UP AND ASK SOME QUESTIONS OR MAKE SOME COMMENTS.
WITH THAT, THANK YOU COLLEAGUES.