HomeMy WebLinkAboutAdopt City Council Resolution No. 2019-89 Providing for the /___1
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City of Huntington Beach
File #: 19-1167 MEETING DATE: 11/18/2019
REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Oliver Chi, City Manager
PREPARED BY: Dahle Bulosan, Interim Chief Financial Officer
Subject:
Adopt City Council Resolution No. 2019-89 Providing for the Possible Issuance of One or
More Series of City of Huntington Beach Taxable Pension Obligation Bonds and Authorizing a
Trust Agreement, A Validation Action and Other Matters Relating Thereto
Statement of Issue:
It is requested that the City Council adopt a resolution authorizing the possible issuance of taxable
Pension Obligation Bonds ("POBs") to refund all or a portion of its California Public Employees'
Retirement System ("CaIPERS") Unfunded Accrued Liability ("UAL"), and authorizing a judicial
validation proceedings related to the issuance of the POBs.
Financial Impact:
The issuance of pension obligation bonds for the refinancing of certain pension obligations of the City
of Huntington Beach will likely reduce the annual costs related to the UAL the City currently is
obligated to pay CaIPERS. As of June 30, 2018, the most current actuarial valuation available from
CaIPERS, the City's UAL for all citywide employees and retirees is approximately $436.2 million.
Approximately 62% of the UAL is related to public safety (police and fire) employees, and 38% is
related to non-safety employees.
Currently, annual UAL payments to CaIPERS will range from approximately $32.5 million for the 2020
21 fiscal year, up to approximately $46 million in the peak year of 2030-31. It is highly likely that the
increase will impact the ability of the City Council to adopt future balanced budgets. It may also
impact the high level of services currently provided to Huntington Beach's residents and businesses.
The issuance of pension obligation bonds will allow the City of Huntington Beach to prepay up to
100% of the projected UAL, based on the most recent valuation report recently released by
CaIPERS. By issuing pension obligation bonds, the City will be contractually obligated to make
annual debt service payments to the bondholders. One option would be to structure the annual debt
service payments to be level-dollar amount payments over the course of the life of the bonds. With
potentially lower interest rates paid on the bonds as compared to the current 7% interest rate
charged by CaIPERS, and an estimated 24 year bond repayment schedule (presuming call
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File #: 19-1167 MEETING DATE: 11/18/2019
provisions are not exercised), the City could potentially achieve budgetary savings of $173 million
over the life of the bond financing. It reduces the potential UAL payment by $5 million for fiscal year
2020-21 from $32.6 million to approximately $27.6 million. Annual savings will continue to increase,
up to approximately $18.4 million in FY 2030/31, before decreasing in the last part of the debt service
schedule. Of note, all of these estimated cost savings are subject to market conditions at the time of
our actual bond issuance.
Recommended Action:
A) Adopt Resolution 2019-89, "A Resolution of the City Council of the City of Huntington Beach
Providing for the Issuance of One or More Series of City of Huntington Beach Taxable Pension
Obligation Bonds and Authorizing a Trust Agreement, A Validation Action and Other Matters Relating
Thereto" and,
B) Authorize the City Manager and City Clerk to take all administrative and budgetary actions
necessary to perform the bond issuance, including the negotiation and execution of agreements with
Orrick Herrington and Sutcliffe LLP for judicial validation proceedings, bond counsel, and disclosure
counsel services; KNN Public Finance to act as municipal advisor; and US Bank to act as trustee.
Alternative Action(s):
Do not approve the recommended actions and direct staff accordingly.
Analysis:
Over the last several years, CaIPERS has made significant changes to the assumptions used in the
calculations of local agencies' pension liabilities. These changes have resulted in (1) an increased
overall unfunded pension liability as the discount rate has been reduced from 7.5% to 7.0%, and (2)
sharp increases in annual payments due to CaIPERS in earlier years followed by declining payments
in later years due to the method of amortizing the UAL payments.
The City has two CalPERS plans - a Public Safety plan and a Miscellaneous Employee's plan. Each
plan's UAL is comprised of multiple "amortization bases," which are positive and negative amounts
generated each year based on the performance of the CaIPERS Investment Fund and changes in
the actuarial assumptions. Each amortization base has a separate payment schedule over a fixed
period of years. Because of the CalPERS methodology, some of the payments continue to increase
each year while others will drop off. This creates a significant increase in UAL payments in the next
10 years from $32.6 to $46 million and significant decreases in UAL payments in the subsequent 14
years, from $46 million down to $10 million.
The difficulty that lies with the City of Huntington Beach, as well as many other local agencies, is the
ability to pay these large payments to CalPERS over the next 10 to 15 years, while still trying to
maintain a balanced budget. The City of Huntington Beach is focused on trying to minimize the
annual increases in the payments to CalPERS, so that balanced budgets can be maintained, and
there are manageable impacts to the services offered to the residents and businesses of Huntington
Beach. On October 21, 2018, a Study Session entitled, "An Existential Threat- Pension Cost
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Increases," was presented to City Council, which discussed options for addressing the City's growing
UAL payments. This presentation was also given during the October 30, 2019, Finance Commission
meeting. Both City Council and the Finance Commission unanimously provided staff with direction to
begin the process to refinance the City's current UAL through a Pension Obligation Bond.
Through the issuance of pension obligation bonds to prepay the existing UAL, the City has better
control over the level of payments required to pay debt service on the bonds. These payments are
anticipated to be level each year so that the City can better plan its pension expense for budgeting
purposes.
The first step in the bond issuance process is a judicial validation by the court. The only issue that
the courts will consider is the legal ability of the City to issue pension obligation bonds, and whether
the sale of the bonds meets the State of California constitutional requirements. Any potential
financial impacts are not part of the court's analysis.
At the conclusion of the validation process, the court will enter a judgment in favor of the City that the
obligation of the City (the liability owed to CaIPERS), legally represents an "obligation imposed by
law". Numerous prior court cases have determined that pension liabilities are obligations imposed by
law, and therefore are exempt from the debt limitation requirements set forth in Article XVI, Section
18, of the California Constitution. Many other cities have followed this same process for the issuance
of pension obligation bonds.
The resolution being presented to the City Council authorizes staff and bond counsel to submit the
necessary documents to the Orange County Superior Court to start the judicial validation process as
well as approve the following: (1) the issuance of bonds in an amount not-to-exceed: (a) the
aggregate principal amount of the Initial Series of Bonds shall not exceed the City's unfunded
accrued actuarial liability under the PERS Contract pursuant to the Retirement Law as of the date of
issuance of the Initial Series of Bonds ($436.2 million as of June 30, 2018, as set forth in the
Actuarial Reports), as determined by PERS, plus the underwriter's discount on the Initial Series of
Bonds, plus any original issue discount on the Initial Series of Bonds, plus the costs of issuance of
the Initial Series of Bonds, (b) the true interest cost to the City on the Initial Series of Bonds shall not
exceed 5.00%, and (c) the Initial Series of Bonds shall mature not later June 30, 2043 (the current
PERS final amortization of the City's unfunded accrued actuarial liability as set forth in the Actuarial
Reports) and (2) a draft form of the Trust Agreement for the bonds. The total bond issuance is
currently estimated to be $444.4 million, based on the most current information available from PERS
and the City's financing team. The Trust Agreement identifies the duties and responsibilities of the
trustee, establishes the terms and conditions which the bonds are to be issued, and the security for
the payment of the principal and interest on the bonds.
If the City Council approves staff's recommendations, two concurrent processes will begin. The first
is the validation process referred to above, which is expected to take at least 90 days. At the same
time, staff and consultants will prepare other required financing documents and submit the financing
to credit agencies for a credit rating on the bonds.
The final actions to be taken by the City Council will be presented in March or April 2020, near the
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conclusion of the validation proceedings. Specifically, the actions include approval of the Preliminary
Official Statement, identifying a not-to-exceed interest rate for the bonds, as well as the underwriting
discount. The estimated savings from issuing the bonds will be updated at that time based on
changes in market conditions and an updated actual bond size, if both of the City's CalPERS plans'
UAL are 100% paid. A financial analysis of the cost-effectiveness of prepaying both of the City's
CalPERS plans' UAL is underway and will be presented to the City Council when complete to support
the staff recommendation of which plans to fund (and if the plans should be funded at 100% of the
UAL or some lesser amount). The action recommended at this meeting is to validate the maximum
amount that could be required to pay both plans in full.
Environmental Status:
Not applicable.
Strategic Plan Goal:
Enhance and maintain infrastructure
Strengthen long term financial and economic sustainability.
Enhance and maintain City service delivery.
Attachment(s):
1. Resolution No. 2019-89,"A Resolution of the City Council of the City of Huntington Beach
Providing for the Issuance of One or More Series of City of Huntington Beach Taxable Pension
Obligation Bonds and Authorizing a Trust Agreement, A Validation Action and Other Matters
Relating Thereto".
2. Trust Agreement.
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RESOLUTION NO. 2019-89
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON
BEACH PROVIDING FOR THE ISSUANCE OF ONE OR MORE SERIES OF
CITY OF HUNTINGTON BEACH TAXABLE PENSION OBLIGATION
BONDS AND AUTHORIZING A TRUST AGREEMENT, A VALIDATION
ACTION AND OTHER MATTERS RELATING THERETO
WHEREAS, pursuant to Sections 20000 et seq. of the California Government Code (the
"Retirement Law"), the City of Huntington Beach (the "City") has established two pension
plans, a Safety Plan (the "Safety Plan") and a Miscellaneous Plan (the "Miscellaneous Plan"),
with the California Public Employees' Retirement System ("Ca1PERS"); and
The Retirement Law obligates the City (a)to make annual payments to Ca1PERS to fund
pension benefits for City employees who are CaIPERS members, and (b)to make annual
payments to Ca1PERS to amortize the unfunded accrued actuarial liability with respect to such
pension benefits over a period not exceeding 30 years; and
The obligation of the City to make such payments is evidenced by a contract between the
City and CaIPERS (collectively, as heretofore and hereafter amended, the "CaIPERS Contract");
and
As of June 30, 2018, based upon the actuarial reports of pension liability as calculated by
CaIPERS with respect to the Safety Plan and the Miscellaneous Plan (together, the "Actuarial
Reports"), the City had an obligation in the amount of $436.2 million (consisting of $270.1
million for the Safety Plan and $166.1 million for the Miscellaneous Plan) pursuant to the
Retirement Law as an unfunded accrued actuarial liability, based on the market value of assets;
and
In order to refund a portion of the CaIPERS Contract by paying all or portion of such
unfunded accrued actuarial liability, the City desires to issue taxable pension obligation bonds to
be designated the "City of Huntington Beach Taxable Pension Obligation Bonds," with such
series and other designations as may be approved as herein provided, in one or more series
(collectively, the "Initial Series of Bonds"), in an aggregate principal amount not to exceed the
sum of(a)the City's unfunded accrued actuarial liability under the CaIPERS Contract pursuant
to the Retirement Law as of the date of issuance of the Initial Series of Bonds ($436.2 million as
of June 30, 2018, as set forth in the Actuarial Reports), (b)the costs of issuance of the Initial
Series of Bonds (including underwriter's discount), and (c)any original issue discount on the
Initial Series of Bonds;and
The City desires to authorize the issuance of additional bonds (the "Additional Bonds"),
in one or more series and on one or more sales dates, payable on a parity with the Initial Series of
Bonds (the Initial Series of Bonds and any such Additional Bonds being collectively referred to
herein as the "Bonds"), for the purpose of refunding additional obligations under the CaIPERS
Contract (as of the date of issuance of such Additional Bonds) to pay to CaIPERS, to the extent
consistent with the City's then existing local debt policy, the City's annual contribution to
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RESOLUTION NO. 2019-89
Ca1PERS to fund pension benefits for its members and their beneficiaries and the City's
unfunded accrued actuarial liability pursuant to the Retirement Law; and
In order to provide for the authentication and delivery of the Initial Series of Bonds and
to establish and declare the terms and conditions upon which the Initial Series of Bonds and
Additional Bonds are to be issued and secured, the City proposes to enter into a Trust Agreement
with U.S. Bank National Association, as trustee (such Trust Agreement, in the form presented to
this meeting, with such changes, insertions and omissions as are made pursuant to this
Resolution, being referred to herein as the"Trust Agreement"); and
There has been prepared and submitted to this meeting a form of the Trust Agreement;
and
The City has levied and continues to levy an ad valorem property tax override at the rate
of$0.01500 per $100 of the assessed value of all taxable property within the City (the "Pension
Tax Override") to pay for the pension obligations of the City to employees approved by the
voters prior to July 1, 1978 (collectively, the "Prior Approved Pension Obligations") as
permitted under Article XIIIA, Section 1(b)(1)of the California Constitution; and
The City may, upon the advice of its financial advisor and municipal advisor under
Section 15B of the Securities Exchange Act of 1934 (collectively, "Municipal Advisor"),
determine to pledge the Pension Tax Override in an amount not to exceed the Prior Approved
Pension Obligations to the payment of the Bonds; and
The City has adopted a local debt policy (the "Debt Management Policy") that complies
with Government Code Section 8855(i), and the City's issuance of the Initial Series of Bonds as
contemplated by this Resolution is in compliance with the Debt Management Policy; and
California Government Code Section 5852.1 requires that the City Council obtain from
an underwriter, financial advisor or private lender and disclose, prior to authorization of the
issuance of bonds with a term of greater than 13 months, good faith estimates of the following
information in a meeting open to the public: (a) the true interest cost of the bonds, (b) the sum of
all fees and charges paid to third parties with respect to the bonds, (c)the amount of proceeds of
the bonds expected to be received net of the fees and charges paid to third parties and any
reserves or capitalized interest paid or funded with proceeds of the bonds, and (d) the sum total
of all debt service payments on the bonds calculated to the final maturity of the bonds plus the
fees and charges paid to third parties not paid with the proceeds of the bonds; and
In compliance with Government Code Section 5852.1, the City Council has obtained
from KNN Public Finance, A Limited Liability Company, as Municipal Advisor to the City, the
required good faith estimates with respect to the Initial Series of Bonds and such estimates are
disclosed and set forth on Exhibit A attached hereto; and
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RESOLUTION NO. 2019-89
NOW, THEREFORE, the City Council of the City of Huntington Beach does hereby
resolve as follows:
Section 1. All of the recitals herein contained are true and correct and the City Council
of the City(the "City Council") so finds.
Section 2. The City Council hereby finds and declares that the issuance of the Initial
Series of Bonds and the Additional Bonds and the other actions contemplated hereby are in the
best interests of the City and are expected, based on investment and other assumptions, to result
in significant savings to the taxpayers of the City.
Section 3. The issuance of the Initial Series of Bonds, on the terms and conditions set
forth in, and subject to the limitations specified in,the Trust Agreement, is hereby authorized and
approved. The Initial Series of Bonds, in substantially the form set forth in the Trust Agreement
submitted to this meeting and made a part hereof as though set forth herein, be and the same are
hereby approved. The Initial Series of Bonds may be issued as fixed rate, current interest bonds,
may have applicable call features, authorized denominations, payment dates and other variable
items related thereto, and may have series and other designations as appropriate; provided,
however, that (a)the aggregate principal amount of the Initial Series of Bonds shall not exceed
the City's unfunded accrued actuarial liability under the CalPERS Contract pursuant to the
Retirement Law as of the date of issuance of the Initial Series of Bonds ($436.2 million as of
June 30, 2018, as set forth in the Actuarial Reports), as determined by Ca1PERS, plus the
underwriter's discount on the Initial Series of Bonds, plus any original issue discount on the
Initial Series of Bonds, plus the costs of issuance of the Initial Series of Bonds, (b)the true
interest cost to the City on the Initial Series of Bonds shall not exceed 5.00%, and (c)the Initial
Series of Bonds shall mature not later June 30, 2043 (the current Ca1PERS final amortization of
the City's unfunded accrued actuarial liability as set forth in the Actuarial Reports). The Mayor
of the City, and such other member of the City Council as the Mayor may designate, the City
Manager, the Assistant City Manager and the Chief Financial Officer of the City, and such other
officers of the City as the City Manager may designate (collectively, the "Authorized Officers")
are, and each of them is, hereby authorized and directed, for and in the name of the City, to
execute and deliver the Initial Series of Bonds in the form attached to the Trust Agreement, with
such changes, insertions and omissions as the Authorized Officer executing the same may
require or approve, such requirement or approval to be conclusively evidenced by the execution
of the Initial Series of Bonds by such Authorized Officer. The Initial Series of Bonds shall
constitute an obligation imposed by law, pursuant to the Constitution of the State of California
and the Retirement Law, and an obligation of the City not limited as to payment from any special
source of funds; provided, however, that the Initial Series of Bonds shall not constitute an
obligation of the City for which the City is obligated to levy or pledge any form of taxation or for
which the City has levied or pledged or will levy or pledge any form of taxation, except that the
City may, and this Resolution gives the City the authority to, upon the advice of its Municipal
Advisor, pledge the Pension Tax Override in an amount not to exceed the Prior Approved
Pension Obligations to the payment of the Bonds, as determined and approved by an Authorized
Officer, such determination and approval to be conclusively evidenced by the execution of the
Trust Agreement by such Authorized Officer as herein provided.
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RESOLUTION NO. 2019-89
Section 4. The Trust Agreement, in substantially the form submitted to this meeting and
made a part hereof as though set forth herein, be and the same is hereby approved. The
Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name
of the City, to execute and deliver the Trust Agreement, with such changes, insertions and
omissions as the Authorized Officer executing the same may require or approve, such
requirement or approval to be conclusively evidenced by the execution of the Trust Agreement
by such Authorized Officer; provided, however, that any such changes, insertions and omissions
shall be consistent with the authority, and limitations thereon, granted to the Authorized Officers
in Section 3 hereof.
Section 5. The issuance of the Additional Bonds, on the terms and conditions set forth
in, and subject to the limitations specified in, the Trust Agreement, is hereby authorized and
approved. The Additional Bonds, in substantially the form of the Initial Series of Bonds set forth
in the Trust Agreement submitted to this meeting and made a part hereof as though set forth
herein, be and the same are hereby approved. The Additional Bonds may be issued in one or
more series and on one or more sales dates, and may be issued as fixed rate, current interest
bonds, may have applicable call features, authorized denominations, payment dates and other
variable items related thereto, and may have series and other designations as appropriate;
provided, however,that (a) the aggregate principal amount of each issuance of Additional Bonds
shall not exceed, to the extent consistent with the City's then existing local debt policy, the sum
of the unpaid amount of the City's obligation to make an annual contribution to Ca1PERS to fund
pension benefits for its members and their beneficiaries in the fiscal year such Additional Bonds
are issued plus the estimated unfunded accrued actuarial liability of the City to Ca1PERS
pursuant to the Retirement Law as of the date of issuance of such Additional Bonds, as
determined by Ca1PERS,plus the underwriter's discount on such issue of Additional Bonds,plus
any original issue discount on such issue of Additional Bonds, plus the costs of issuance of such
series of Additional Bonds, (b) the true interest cost to the City on such series of Additional
Bonds shall not exceed the true interest cost of the interest rate established by CalPERS on the
unfunded accrued actuarial liability of the City, and (c)the Additional Bonds of each series shall
mature not later than 30 years from the date of issuance thereof. The Authorized Officers are,
and each of them is, hereby authorized and directed, for and in the name of the City, to execute
and deliver the Additional Bonds in substantially the form of the Initial Series of Bonds set forth
in the Trust Agreement, with such changes, insertions and omissions as the Authorized Officer
executing the same may require or approve, such requirement or approval to be conclusively
evidenced by the execution of the Additional Bonds by such Authorized Officer. The Additional
Bonds shall constitute an obligation imposed by law, pursuant to the Constitution of the State of
California and the Retirement Law, and an obligation of the City not limited as to payment from
any special source of funds; provided, however, that the Additional Bonds shall not constitute an
obligation of the City for which the City is obligated to levy or pledge any form of taxation or for
which the City has levied or pledged or will levy or pledge any form of taxation, except that the
City may, and this Resolution gives the City the authority to, upon the advice of its Municipal
Advisor, pledge the Pension Tax Override in an amount not to exceed the Prior Approved
Pension Obligations to the payment of the Bonds, as determined and approved by an Authorized
Officer, such determination and approval to be conclusively evidenced by the execution of the
Trust Agreement by such Authorized Officer as herein provided.
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RESOLUTION NO. 2019-89
Section 6. The Authorized Officers are, and each of them is, authorized and directed, for
and in the name of the City, to do any and all things, including bringing a validation action under
Section 860 of the California Code of Civil Procedure, and to execute and deliver any and all
documents which they or any of them deem necessary or advisable in order to consummate the
transactions contemplated by this Resolution and otherwise to carry out, give effect to and
comply with the terms and intent of this Resolution.
Section 7. With the passage of this Resolution, the City Council hereby certifies that the
Debt Management Policy complies with Government Code Section 8855(i) and that the Initial
Series of Bonds authorized to be issued pursuant to this Resolution are consistent with such
policy.
Section 8. All actions heretofore taken by the officers, employees and agents of the City
with respect to the financings set forth above are hereby approved, confirmed and ratified.
Section 9. This Resolution shall take effect immediately upon adoption.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 18th day of November 2019.
Mayor
WED AND APPROVED: INITIATED AND APPROVED:
r y Manager CIRETTinanciaTDITicer
APPROVED AS TO FORM:
Ci Attorney
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RESOLUTION NO. 2019-89
EXHIBIT A
GOOD FAITH ESTIMATES
The good faith estimates set forth herein are provided with respect to the Initial Series of
Bonds in compliance with Section 5852.1 of the California Government Code. Such good faith
estimates have been provided to the City by KNN Public Finance, A Limited Liability Company,
the City's financial advisor and municipal advisor under Section 15B of the Securities Exchange
Act of 1934 (the"Municipal Advisor").
Principal Amount, The Municipal Advisor has informed the City that, based on the City's
financing plan and based on market conditions prevailing at the time of preparation of such
estimate, its good faith estimate of the aggregate principal amount of the Initial Series of Bonds
to be sold in a public offering is $444,380,000(the "Estimated Principal Amount").
True Interest Cost of the Initial Series of Bonds. The Municipal Advisor has informed the
City that, assuming that the Estimated Principal Amount of the Initial Series of Bonds is sold,
and based on market conditions prevailing at the time of preparation of such estimate, its good
faith estimate of the true interest cost of the Initial Series of Bonds, which means the rate
necessary to discount the amounts payable on the respective principal and interest payment dates
to the purchase price received for the Initial Series of Bonds,is 3.436%.
Finance Charge of the Initial Series of Bonds. The Municipal Advisor has informed the
City that, assuming that the Estimated Principal Amount of the Initial Series of Bonds is sold,
and based on market conditions prevailing at the time of preparation of such estimate, its good
faith estimate of the finance charge for the Initial Series of Bonds, which means the sum of all
fees and charges paid to third parties (or costs associated with the Initial Series of Bonds), is
$1,261,341.
Amount of Proceeds to be Received. The Municipal Advisor has informed the City that,
assuming that the Estimated Principal Amount of the Initial Series of Bonds is sold, and based on
market conditions prevailing at the time of preparation of such estimate, its good faith estimate
of the amount of proceeds expected to be received by the City for sale of the Initial Series of
Bonds, less the finance charge of the Initial Series of Bonds, as estimated above, and any
reserves or capitalized interest paid or funded with proceeds of the Initial Series of Bonds, is
$443,118,659.
Total Payment Amount. The Municipal Advisor has informed the City that, assuming that
the Estimated Principal Amount of the Initial Series of Bonds is sold, and based on market
conditions prevailing at the time of preparation of such estimate, its good faith estimate of the
total payment amount, which means the sum total of all payments the City will make to pay debt
service on the Initial Series of Bonds, plus the estimated finance charge for the Initial Series of
Bonds, as described above, not paid with the proceeds of the Initial Series of Bonds, calculated
to the final maturity of the Initial Series of Bonds, is $661,808,168.
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RESOLUTION NO. 2019-89
The foregoing estimates constitute good faith estimates only and are based on market
conditions prevailing at the time of preparation of such estimates. The actual principal amount of
the Initial Series of Bonds issued and sold, the true interest cost thereof, the finance charges
thereof, the amount of proceeds received therefrom and total payment amount with respect
thereto may differ from such good faith estimates for a variety of reasons, including, without
limitation, due to (a)the market conditions prevailing on the actual date of the sale of the Initial
Series of Bonds being different than the market conditions prevailing at the time of preparation
of the estimates contained herein, (b) the actual principal amount of Initial Series of Bonds sold
being different from the Estimated Principal Amount, (c)the actual amortization of the Initial
Series of Bonds being different than the amortization assumed for purposes preparing the
estimates contained herein, (d)the actual interest rates at which the Initial Series of Bonds are
sold being different than those estimated for purposes of preparing the estimates contained
herein, (e)other market conditions, or (0 alterations in the City's financing plan or changes to
the City's unfunded accrued actuarial liability under the CalPERS Contract, or a combination of
such factors. The actual date of sale of the Initial Series of Bonds and the actual principal amount
of Initial Series of Bonds sold will be determined by the City based on various factors. The
actual interest rates borne by the Initial Series of Bonds will depend on market conditions at the
time of sale thereof. The actual amortization of the Initial Series of Bonds will also depend, in
part, on market conditions at the time of sale thereof. Market conditions, including, without
limitation, interest rates are affected by economic and other factors beyond the control of the
City and the Municipal Advisor.
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Res. No. 2019-89
STATE OF CALIFORNIA
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, ROBIN ESTANISLAU, the duly elected, qualified City Clerk of the
City of Huntington Beach, and ex-officio Clerk of the City Council of said City, do
hereby certify that the whole number of members of the City Council of the City of
Huntington Beach is seven; that the foregoing resolution was passed and adopted
by the affirmative vote of at least a majority of all the members of said City Council
at a Regular meeting thereof held on November 18, 2019 by the following vote:
AYES: Brenden, Carr, Semeta, Peterson, Delgleize , Hardy
NOES: Posey
ABSENT: None
RECUSE: None
City Clerk and ex-officio Clerk of the
City Council of the City of
Huntington Beach, California
CITY OF HUNTINGTON BEACH
INTER-DEPARTMENTAL COMMUNICATION
' FINANCE DEPARTMENT
TO: Oliver Chi, City Manager
FROM: Dahle Bulosan, Acting Chief Financial Officer
DATE: November 15, 2019
SUBJECT: Late Communication for Council Meeting Administrative Item #23 (19-
1167) - Adopt City Council Resolution No. 2019-89 Providing for the Possible Issuance
of One or More Series of City of Huntington Beach Taxable Pension Obligation Bonds
and Authorizing a Trust Agreement, A Validation Action and Other Matters Relating
Thereto
Attached are the final documents to replace the draft attachments#1 and #2. The draft
documents were updated after review by the City's staff, bond counsel, and financial
advisor to ensure that the necessary language and signatures are incorporated into the
Resolution and Trust Agreement.
The final attachments are as follows:
1. Resolution No. 2019-89,"A Resolution of the City Council of the City of Huntington
Beach Providing for the Issuance of One or More Series of City of Huntington
Beach Taxable Pension Obligation Bonds and Authorizing a Trust Agreement, A
Validation Action and Other Matters Relating Thereto"
2. Trust Agreement by and between the City of Huntington Beach and U.S. Bank
National Association as Trustee for the City's Taxable Pension Obligation Bonds
SUPPLEMENTAL
COMMUNICATION
MNft Date:
Agenda H+em No..
RESOLUTION NO. 2019-89
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON
BEACH PROVIDING FOR THE ISSUANCE OF ONE OR MORE SERIES OF
CITY OF HUNTINGTON BEACH TAXABLE PENSION OBLIGATION
BONDS AND AUTHORIZING A TRUST AGREEMENT, A VALIDATION
ACTION AND OTHER MATTERS RELATING THERETO
WHEREAS, pursuant to Sections 20000 et seq. of the California Government Code (the
"Retirement Law"), the City of Huntington Beach (the "City") has established two pension
plans, a Safety Plan (the "Safety Plan") and a Miscellaneous Plan (the "Miscellaneous Plan"),
with the California Public Employees' Retirement System ("CaIPERS"); and
The Retirement Law obligates the City (a) to make annual payments to CaIPERS to fund
pension benefits for City employees who are CaIPERS members, and (b) to make annual
payments to CaIPERS to amortize the unfunded accrued actuarial liability with respect to such
pension benefits over a period not exceeding 30 years; and
The obligation of the City to make such payments is evidenced by a contract between the
City and CaIPERS (collectively, as heretofore and hereafter amended, the "CaIPERS Contract");
and
As of June 30, 2018, based upon the actuarial reports of pension liability as calculated by
CaIPERS with respect to the Safety Plan and the Miscellaneous Plan (together, the "Actuarial
Reports"), the City had an obligation in the amount of $436.2 million (consisting of $270.1
million for the Safety Plan and $166.1 million for the Miscellaneous Plan) pursuant to the
Retirement Law as an unfunded accrued actuarial liability, based on the market value of assets;
and
In order to refund a portion of the CaIPERS Contract by paying all or portion of such
unfunded accrued actuarial liability, the City desires to issue taxable pension obligation bonds to
be designated the "City of Huntington Beach Taxable Pension Obligation Bonds," with such
series and other designations as may be approved as herein provided, in one or more series
(collectively, the "Initial Series of Bonds"), in an aggregate principal amount not to exceed the
sum of(a) the City's unfunded accrued actuarial liability under the CaIPERS Contract pursuant
to the Retirement Law as of the date of issuance of the Initial Series of Bonds ($436.2 million as
of June 30, 2018, as set forth in the Actuarial Reports), (b)the costs of issuance of the Initial
Series of Bonds (including underwriter's discount), and (c) any original issue discount on the
Initial Series of Bonds; and
The City desires to authorize the issuance of additional bonds (the "Additional Bonds"),
in one or more series and on one or more sales dates, payable on a parity with the Initial Series of
Bonds (the Initial Series of Bonds and any such Additional Bonds being collectively referred to
herein as the "Bonds"), for the purpose of refunding additional obligations under the CaIPERS
Contract (as of the date of issuance of such Additional Bonds) to pay to CaIPERS, to the extent
consistent with the City's then existing local debt policy, the City's annual contribution to
19-8203/218078 1
RESOLUTION NO. 2019-89
Ca1PERS to fund pension benefits for its members and their beneficiaries and the City's
unfunded accrued actuarial liability pursuant to the Retirement Law; and
In order to provide for the authentication and delivery of the Initial Series of Bonds and
to establish and declare the terms and conditions upon which the Initial Series of Bonds and
Additional Bonds are to be issued and secured, the City proposes to enter into a Trust Agreement
with U.S. Bank National Association, as trustee (such Trust Agreement, in the form presented to
this meeting, with such changes, insertions and omissions as are made pursuant to this
Resolution, being referred to herein as the "Trust Agreement"); and
There has been prepared and submitted to this meeting a form of the Trust Agreement;
and
The City has levied and continues to levy an ad valorem property tax override at the rate
of$0.01500 per $100 of the assessed value of all taxable property within the City (the "Pension
Tax Override") to pay for the pension obligations of the City to employees approved by the
voters prior to July 1, 1978 (collectively, the "Prior Approved Pension Obligations") as
permitted under Article XIIIA, Section 1(b)(1) of the California Constitution; and
The City may, upon the advice of its financial advisor and municipal advisor under
Section 15B of the Securities Exchange Act of 1934 (collectively, "Municipal Advisor"),
determine to pledge the Pension Tax Override in an amount not to exceed the Prior Approved
Pension Obligations to the payment of the Bonds; and
The City has adopted a local debt policy (the "Debt Management Policy") that complies
with Government Code Section 8855(i), and the City's issuance of the Initial Series of Bonds as
contemplated by this Resolution is in compliance with the Debt Management Policy; and
California Government Code Section 5852.1 requires that the City Council obtain from
an underwriter, financial advisor or private lender and disclose, prior to authorization of the
issuance of bonds with a term of greater than 13 months, good faith estimates of the following
information in a meeting open to the public: (a) the true interest cost of the bonds, (b) the sum of
all fees and charges paid to third parties with respect to the bonds, (c) the amount of proceeds of
the bonds expected to be received net of the fees and charges paid to third parties and any
reserves or capitalized interest paid or funded with proceeds of the bonds, and (d) the sum total
of all debt service payments on the bonds calculated to the final maturity of the bonds plus the
fees and charges paid to third parties not paid with the proceeds of the bonds; and
In compliance with Government Code Section 5852.1, the City Council has obtained
from KNN Public Finance, A Limited Liability Company, as Municipal Advisor to the City, the
required good faith estimates with respect to the Initial Series of Bonds and such estimates are
disclosed and set forth on Exhibit A attached hereto; and
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RESOLUTION NO. 2019-89
NOW, THEREFORE, the City Council of the City of Huntington Beach does hereby
resolve as follows:
Section 1. All of the recitals herein contained are true and correct and the City Council
of the City (the "City Council") so finds.
Section 2. The City Council hereby finds and declares that the issuance of the Initial
Series of Bonds and the Additional Bonds and the other actions contemplated hereby are in the
best interests of the City and are expected, based on investment and other assumptions, to result
in significant savings to the taxpayers of the City.
Section 3. The issuance of the Initial Series of Bonds, on the terms and conditions set
forth in, and subject to the limitations specified in, the Trust Agreement, is hereby authorized and
approved. The Initial Series of Bonds, in substantially the form set forth in the Trust Agreement
submitted to this meeting and made a part hereof as though set forth herein, be and the same are
hereby approved. The Initial Series of Bonds may be issued as fixed rate, current interest bonds,
may have applicable call features, authorized denominations, payment dates and other variable
items related thereto, and may have series and other designations as appropriate; provided,
however, that (a) the aggregate principal amount of the Initial Series of Bonds shall not exceed
the City's unfunded accrued actuarial liability under the CalPERS Contract pursuant to the
Retirement Law as of the date of issuance of the Initial Series of Bonds ($436.2 million as of
June 30, 2018, as set forth in the Actuarial Reports), as determined by CalPERS, plus the
underwriter's discount on the Initial Series of Bonds, plus any original issue discount on the
Initial Series of Bonds, plus the costs of issuance of the Initial Series of Bonds, (b)the true
interest cost to the City on the Initial Series of Bonds shall not exceed 5.00%, and (c)the Initial
Series of Bonds shall mature not later June 30, 2043 (the current CalPERS final amortization of
the City's unfunded accrued actuarial liability as set forth in the Actuarial Reports). The Mayor
of the City, and such other member of the City Council as the Mayor may designate, the City
Manager, the Assistant City Manager and the Chief Financial Officer of the City, and such other
officers of the City as the City Manager may designate (collectively, the "Authorized Officers")
are, and each of them is, hereby authorized and directed, for and in the name of the City, to
execute and deliver the Initial Series of Bonds in the form attached to the Trust Agreement, with
such changes, insertions and omissions as the Authorized Officer executing the same may
require or approve, such requirement or approval to be conclusively evidenced by the execution
of the Initial Series of Bonds by such Authorized Officer. The Initial Series of Bonds shall
constitute an obligation imposed by law, pursuant to the Constitution of the State of California
and the Retirement Law, and an obligation of the City not limited as to payment from any special
source of funds; provided, however, that the Initial Series of Bonds shall not constitute an
obligation of the City for which the City is obligated to levy or pledge any form of taxation or for
which the City has levied or pledged or will levy or pledge any form of taxation, except that the
City may, and this Resolution gives the City the authority to, upon the advice of its Municipal
Advisor, pledge the Pension Tax Override in an amount not to exceed the Prior Approved
Pension Obligations to the payment of the Bonds, as determined and approved by an Authorized
Officer, such determination and approval to be conclusively evidenced by the execution of the
Trust Agreement by such Authorized Officer as herein provided.
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RESOLUTION NO. 2019-89
Section 4. The Trust Agreement, in substantially the form submitted to this meeting and
made a part hereof as though set forth herein, be and the same is hereby approved. The
Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name
of the City, to execute and deliver the Trust Agreement, with such changes, insertions and
omissions as the Authorized Officer executing the same may require or approve, such
requirement or approval to be conclusively evidenced by the execution of the Trust Agreement
by such Authorized Officer; provided, however, that any such changes, insertions and omissions
shall be consistent with the authority, and limitations thereon, granted to the Authorized Officers
in Section 3 hereof.
Section 5. The issuance of the Additional Bonds, on the terms and conditions set forth
in, and subject to the limitations specified in, the Trust Agreement, is hereby authorized and
approved. The Additional Bonds, in substantially the form of the Initial Series of Bonds set forth
in the Trust Agreement submitted to this meeting and made a part hereof as though set forth
herein, be and the same are hereby approved. The Additional Bonds may be issued in one or
more series and on one or more sales dates, and may be issued as fixed rate, current interest
bonds, may have applicable call features, authorized denominations, payment dates and other
variable items related thereto, and may have series and other designations as appropriate;
provided, however, that (a) the aggregate principal amount of each issuance of Additional Bonds
shall not exceed, to the extent consistent with the City's then existing local debt policy, the sum
of the unpaid amount of the City's obligation to make an annual contribution to CalPERS to fund
pension benefits for its members and their beneficiaries in the fiscal year such Additional Bonds
are issued plus the estimated unfunded accrued actuarial liability of the City to Ca1PERS
pursuant to the Retirement Law as of the date of issuance of such Additional Bonds, as
determined by Ca1PERS, plus the underwriter's discount on such issue of Additional Bonds, plus
any original issue discount on such issue of Additional Bonds, plus the costs of issuance of such
series of Additional Bonds, (b) the true interest cost to the City on such series of Additional
Bonds shall not exceed the true interest cost of the interest rate established by Ca1PERS on the
unfunded accrued actuarial liability of the City, and (c)the Additional Bonds of each series shall
mature not later than 30 years from the date of issuance thereof. The Authorized Officers are,
and each of them is, hereby authorized and directed, for and in the name of the City, to execute
and deliver the Additional Bonds in substantially the form of the Initial Series of Bonds set forth
in the Trust Agreement, with such changes, insertions and omissions as the Authorized Officer
executing the same may require or approve, such requirement or approval to be conclusively
evidenced by the execution of the Additional Bonds by such Authorized Officer. The Additional
Bonds shall constitute an obligation imposed by law, pursuant to the Constitution of the State of
California and the Retirement Law, and an obligation of the City not limited as to payment from
any special source of funds; provided, however, that the Additional Bonds shall not constitute an
obligation of the City for which the City is obligated to levy or pledge any form of taxation or for
which the City has levied or pledged or will levy or pledge any form of taxation, except that the
City may, and this Resolution gives the City the authority to, upon the advice of its Municipal
Advisor, pledge the Pension Tax Override in an amount not to exceed the Prior Approved
Pension Obligations to the payment of the Bonds, as determined and approved by an Authorized
Officer, such determination and approval to be conclusively evidenced by the execution of the
Trust Agreement by such Authorized Officer as herein provided.
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RESOLUTION NO. 2019-89
Section 6. The Authorized Officers are, and each of them is, authorized and directed, for
and in the name of the City, to do any and all things, including bringing a validation action under
Section 860 of the California Code of Civil Procedure, and to execute and deliver any and all
documents which they or any of them deem necessary or advisable in order to consummate the
transactions contemplated by this Resolution and otherwise to carry out, give effect to and
comply with the terms and intent of this Resolution.
Section 7. With the passage of this Resolution, the City Council hereby certifies that the
Debt Management Policy complies with Government Code Section 8855(i) and that the Initial
Series of Bonds authorized to be issued pursuant to this Resolution are consistent with such
policy.
Section 8. All actions heretofore taken by the officers, employees and agents of the City
with respect to the financings set forth above are hereby approved, confirmed and ratified.
Section 9. This Resolution shall take effect immediately upon adoption.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 18th day of November 2019.
Mayor
7:WWEDaAPPROVED: INITIATED AND APPROVED:
i y Manager Cie inancia icer
APPROVED AS TO FORM:
Ci Attorney
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RESOLUTION NO. 2019-89
EXHIBIT A
GOOD FAITH ESTIMATES
The good faith estimates set forth herein are provided with respect to the Initial Series of
Bonds in compliance with Section 5852.1 of the California Government Code. Such good faith
estimates have been provided to the City by KNN Public Finance, A Limited Liability Company,
the City's financial advisor and municipal advisor under Section 15B of the Securities Exchange
Act of 1934 (the "Municipal Advisor").
Principal Amount. The Municipal Advisor has informed the City that, based on the City's
financing plan and based on market conditions prevailing at the time of preparation of such
estimate, its good faith estimate of the aggregate principal amount of the Initial Series of Bonds
to be sold in a public offering is $444,380,000 (the "Estimated Principal Amount").
True Interest Cost of the Initial Series of Bonds. The Municipal Advisor has informed the
City that, assuming that the Estimated Principal Amount of the Initial Series of Bonds is sold,
and based on market conditions prevailing at the time of preparation of such estimate, its good
faith estimate of the true interest cost of the Initial Series of Bonds, which means the rate
necessary to discount the amounts payable on the respective principal and interest payment dates
to the purchase price received for the Initial Series of Bonds, is 3.436%.
Finance Charge of the Initial Series of Bonds. The Municipal Advisor has informed the
City that, assuming that the Estimated Principal Amount of the Initial Series of Bonds is sold,
and based on market conditions prevailing at the time of preparation of such estimate, its good
faith estimate of the finance charge for the Initial Series of Bonds, which means the sum of all
fees and charges paid to third parties (or costs associated with the Initial Series of Bonds), is
$1,261,341.
Amount of Proceeds to be Received. The Municipal Advisor has informed the City that,
assuming that the Estimated Principal Amount of the Initial Series of Bonds is sold, and based on
market conditions prevailing at the time of preparation of such estimate, its good faith estimate
of the amount of proceeds expected to be received by the City for sale of the Initial Series of
Bonds, less the finance charge of the Initial Series of Bonds, as estimated above, and any
reserves or capitalized interest paid or funded with proceeds of the Initial Series of Bonds, is
$443,118,659.
Total Payment Amount. The Municipal Advisor has informed the City that, assuming that
the Estimated Principal Amount of the Initial Series of Bonds is sold, and based on market
conditions prevailing at the time of preparation of such estimate, its good faith estimate of the
total payment amount, which means the sum total of all payments the City will make to pay debt
service on the Initial Series of Bonds, plus the estimated finance charge for the Initial Series of
Bonds, as described above, not paid with the proceeds of the Initial Series of Bonds, calculated
to the final maturity of the Initial Series of Bonds, is $661,808,168.
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RESOLUTION NO. 2019-89
The foregoing estimates constitute good faith estimates only and are based on market
conditions prevailing at the time of preparation of such estimates. The actual principal amount of
the Initial Series of Bonds issued and sold, the true interest cost thereof, the finance charges
thereof, the amount of proceeds received therefrom and total payment amount with respect
thereto may differ from such good faith estimates for a variety of reasons, including, without
limitation, due to (a)the market conditions prevailing on the actual date of the sale of the Initial
Series of Bonds being different than the market conditions prevailing at the time of preparation
of the estimates contained herein, (b) the actual principal amount of Initial Series of Bonds sold
being different from the Estimated Principal Amount, (c) the actual amortization of the Initial
Series of Bonds. being different than the amortization assumed for purposes preparing the
estimates contained herein, (d)the actual interest rates at which the Initial Series of Bonds are
sold being different than those estimated for purposes of preparing the estimates contained
herein, (e) other market conditions, or (f) alterations in the City's financing plan or changes to
the City's unfunded accrued actuarial liability under the Ca1PERS Contract, or a combination of
such factors. The actual date of sale of the Initial Series of Bonds and the actual principal amount
of Initial Series of Bonds sold will be determined by the City based on various factors. The
actual interest rates borne by the Initial Series of Bonds will depend on market conditions at the
time of sale thereof. The actual amortization of the Initial Series of Bonds will also depend, in
part, on market conditions at the time of sale thereof. Market conditions, including, without
limitation, interest rates are affected by economic and other factors beyond the control of the
City and the Municipal Advisor.
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Res. No. 2019-89
STATE OF CALIFORNIA
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, ROBIN ESTANISLAU, the duly elected, qualified City Clerk of the
City of Huntington Beach, and ex-officio Clerk of the City Council of said City, do
hereby certify that the whole number of members of the City Council of the City of
Huntington Beach is seven; that the foregoing resolution was passed and adopted
by the affirmative vote of at least a majority of all the members of said City Council
at a Regular meeting thereof held on November 18, 2019 by the following vote:
AYES: Brenden, Carr, Semeta, Peterson, Delgleize , Hardy
NOES: Posey
ABSENT: None
RECUSE: None
City Clerk and ex-officio Clerk of the
City Council of the City of
Huntington Beach, California
TRUST AGREEMENT
by and between
CITY OF HUNTINGTON BEACH
and
U.S. BANK NATIONAL ASSOCIATION
as Trustee
Dated as of 192020
City of Huntington Beach
Taxable Pension Obligation Bonds
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19-8203/218092
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; EQUAL SECURITY ............................................................3
Section1.01. Definitions............................................................................................3
Section 1.02. Trust Agreement Constitutes Contract............................................... 10
ARTICLE II GENERAL BOND PROVISIONS; SERIES 2020 BONDS......................... 12
Section 2.01. Nature of Obligation under Bonds..................................................... 12
Section 2.02. Authorization and Terms of the Series 2020 Bonds.......................... 12
Section 2.03. Procedure for the Issuance of Series 2020 Bonds; Application
of Series 2020 Bond Proceeds ........................................................... 13
Section 2.04. Form of Bonds ................................................................................... 14
Section 2.05. Execution of Bonds............................................................................ 14
Section 2.06. Transfer of Bonds .............................................................................. 14
Section 2.07. Exchange of Bonds............................................................................ 15
Section 2.08. Bond Registration Books................................................................... 15
Section 2.09. Mutilated, Destroyed, Stolen or Lost Bonds...................................... 15
Section 2.10. Temporary Bonds............................................................................... 15
Section 2.11. Book-Entry System for the Series 2020 Bonds ................................. 16
Section 2.12. Validity of Bonds............................................................................... 17
ARTICLE III REDEMPTION OF SERIES 2020 BONDS.................................................. 18
Section 3.01. Redemption of Series 2020 Bonds..................................................... 18
Section 3.02. Selection of Series 2020 Bonds for Redemption............................... 19
Section 3.03. Notice of Redemption........................................................................ 19
ARTICLE IV ADDITIONAL BONDS................................................................................21
Section 4.01. Conditions for the Issuance of Additional Bonds..............................21
Section 4.02. Procedure for the Issuance of Additional Bonds ...............................22
ARTICLE V PLEDGE; FUNDS.........................................................................................23
Section 5.01. Pledge of Amounts in Bond Fund......................................................23
Section5.02. Bond Fund..........................................................................................23
Section 5.03. Pledge of Pledged Tax Revenues.......................................................23
Section 5.04. Pension Tax Override Fund...............................................................24
Section 5.05. Pension Liability Management Fund.................................................24
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1 9-8203/2 1 8092
TABLE OF CONTENTS
(continued)
Page
Section 5.06. Redemption Fund...............................................................................24
Section 5.07. Deposit and Investments of Money in Funds ....................................25
ARTICLE VI COVENANTS OF THE CITY......................................................................26
Section 6.01. Punctual Payment and Performance ..................................................26
Section 6.02. Extension of Payment of Bonds.........................................................26
Section 6.03. Additional Debt..................................................................................26
Section 6.04. Power to Issue Bonds.........................................................................26
Section 6.05. Accounting Records and Reports.......................................................26
Section 6.06. Prosecution and Defense of Suits ......................................................26
Section 6.07. Continuation of Pension Tax Override..............................................26
Section 6.08. Continuing Disclosure .......................................................................27
Section 6.09. Waiver of Laws..................................................................................27
Section 6.10. Further Assurances.............................................................................27
ARTICLEVII THE TRUSTEE.............................................................................................28
Section7.01. The Trustee ........................................................................................28
Section 7.02. Liability of Trustee ............................................................................29
Section 7.03. Compensation and Indemnification of Trustee..................................30
ARTICLE VIII AMENDMENT OF THE TRUST AGREEMENT....................................... 32
Section 8.01. Amendment of the Trust Agreement.................................................32
Section 8.02. Disqualified Bonds.............................................................................33
Section 8.03. Endorsement or Replacement of Bonds After Amendment ..............33
Section 8.04. Amendment by Mutual Consent........................................................33
Section 8.05. Attorney's Opinion Regarding Supplemental Trust Agreements......33
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES ................................................34
Section 9.01. Events of Default...............................................................................34
Section 9.02. Institution of Legal Proceedings by the Trustee; Remedies ..............34
Section9.03. Non-Waiver........................................................................................ 34
Section 9.04. Remedies Not Exclusive....................................................................35
Section 9.05. Limitation on Owners' Right to Sue..................................................35
Section 9.06. Absolute Obligation of City............................................................... 35
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19-8203/218092
TABLE OF CONTENTS
(continued)
Page
ARTICLEX DEFEASANCE..............................................................................................36
Section 10.01. Discharge of Bonds............................................................................36
Section 10.02. Unclaimed Money..............................................................................36
ARTICLEXI MISCELLANEOUS ......................................................................................38
Section 11.01. Benefits of the Trust Agreement Limited to Parties.......................... 38
Section 11.02. Successor Is Deemed Included in All References to
Predecessor ........................................................................................ 38
Section 11.03. Execution of Documents by Owners .................................................38
Section 11.04. Waiver of Personal Liability..............................................................38
Section 11.05. Acquisition of Bonds by City ............................................................ 38
Section 11.06. Destruction of Cancelled Bonds ........................................................38
Section 11.07. Notice to Owners ...............................................................................39
Section 11.08. Content of Certificates.......................................................................39
Section 11.09. Accounts and Funds; Business Days .................................................39
Section11.10. Notices ...............................................................................................39
Section 11.11. Article and Section Headings and References...................................40
Section 11.12. Partial Invalidity.................................................................................40
Section 11.13. Execution in Several Counterparts.....................................................40
Section 11.14. Governing Law ..................................................................................41
EXHIBIT A FORM OF SERIES 2020 BOND ................................................................A-1
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19-8203/218092
TRUST AGREEMENT
THIS TRUST AGREEMENT(this"Trust Agreement"),dated as of 1,2020,
is by and between the CITY OF HUNTINGTON BEACH (the "City"), a municipal corporation
and charter city duly organized and existing under and by virtue of the Constitution and laws of
the State of California and its Charter, and U.S. BANK NATIONAL ASSOCIATION, a national
banking association organized and existing under the laws of the United States of America, as
trustee (the "Trustee").
WITNESSETH:
WHEREAS, the City is obligated by the Public Employees' Retirement Law, Section
20000 et seq. of the California Government Code (the "Retirement Law"), to make payments to
the California Public Employees' Retirement System (the "System") relating to pension benefits
accruing to City employees who are System members; and
Tthe City has entered into a contract with the System with respect to the City's Safety Plan
and the City's Miscellaneous Plan, effective October 1, 1945, witnessed October 27, 1945, and as
amended effective January 1, 1950, March 1, 1952, November 1, 1957, March 1, 1958, October
1, 1961, January 1, 1971, January 12, 1974, April 18, 1975, February 21, 1976, August 7, 1976,
September 17, 1977, September 30, 1978, June 6, 1981, March 18, 1982, February 24, 1983,
December 4, 1986, March 18, 1988, November 4, 1999, April 20, 2000, June 30, 2001, October
5, 2001, February 6, 2003, May 8, 2003, March 11, 2006 and June 14, 2008, and as heretofore and
hereafter amended from time to time (the "Ca1PERS Contract"), evidencing the City's obligation
to pay the City's unfunded accrued actuarial liability and its normal annual contribution to the
System; and
The City is authorized pursuant to Articles 10 and 11 (commencing with Section 53570)
of Chapter 3 of Division 2 of Title 5 of the California Government Code(the"Act")to issue bonds
for the purpose of refunding any evidence of indebtedness of the City; and
For the purpose of refunding the City's obligations to the System evidenced by the
Ca1PERS Contract,the City has determined to issue from time to time its City of Huntington Beach
Taxable Pension Obligation Bonds (the "Bonds"); and
For the purpose of refunding a portion of the City's obligations to the System evidenced
by the Ca1PERS Contract, the City has determined to issue its City of Huntington Beach Taxable
Pension Obligation Bonds, Series 2020 (the "Series 2020 Bonds"), in the aggregate principal
amount of$ ; and
In order to provide for the authentication and delivery of the Bonds,to establish and declare
the terms and conditions upon which the Bonds are to be issued and to secure the payment of the
principal thereof, premium, if any, and interest thereon, the City has authorized the execution and
delivery of this Trust Agreement; and
To further secure the payment of principal of and interest and redemption premiums, if
any, on the Bonds, the City has elected to pledge certain Pension Tax Override Revenues (as
19-8203/218092
hereinafter defined), said pledge to be made and perfected in accordance with Section 5450 of the
California Government Code; and
The City has determined that all acts and proceedings required by law necessary to make
the Bonds, when executed by the City and authenticated and delivered by the Trustee hereunder,
valid, binding and legal obligations of the City payable in accordance with their terms, and to
constitute this Trust Agreement a valid and binding agreement of the parties hereto for the uses
and purposes herein set forth in accordance with its terms, have been done and taken, and the
execution and delivery of this Trust Agreement has been in all respects duly authorized;
NOW, THEREFORE, THIS TRUST AGREEMENT WITNESSETH, that in order to
secure the payment of the principal of, premium, if any, and the interest on all Bonds at any time
issued and outstanding under this Trust Agreement, according to their tenor, and to secure the
performance and observance of all the covenants and conditions therein and herein set forth, and
to declare the terms and conditions upon and subject to which the Bonds are to be issued and
received, and in consideration of the premises and of the mutual covenants herein contained and
of the purchase and acceptance of the Bonds by the owners thereof, and for other valuable
considerations, the receipt whereof is hereby acknowledged, the City does hereby covenant and
agree with the Trustee, for the benefit of the respective owners from time to time of the Bonds, as
follows:
2
19-8203/218092
ARTICLE I
DEFINITIONS; EQUAL SECURITY
Section 1.01. Definitions. Unless the context otherwise requires,the terms defined in this
Section shall for all purposes hereof and of any certificate, opinion, request or other document
herein or therein mentioned have the meanings herein specified.
"Act" means Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of
Division 2 of Title 5 of the California Government Code.
"Additional Bonds" means Bonds other than Series 2020 Bonds issued hereunder in
accordance with the provisions of Article IV hereof.
"Authorized Denominations"means(a) $5,000 principal amount or any integral multiple
thereof, and (b) any other principal amount or integral multiple thereof as provided in a
Supplemental Trust Agreement.
"Authorized Officer" means, with respect to the City, the City Manager of the City, the
Assistant City Manager of the City, the Chief Financial Officer of the City and the Assistant Chief
Financial Officer of the City and any other person designated as an Authorized Officer of the City
in a Written Certificate of the City filed with the Trustee.
"Beneficial Owner" means the beneficial owner of a Bond, determined under the rules of
DTC.
"Bond Fund" means the fund by that name established and held by the Trustee pursuant
to Section 5.02 hereof.
"Bond Insurer" means any issuer or issuers of a policy or policies of municipal bond
insurance obtained by the City to insure the payment of principal of and interest on a Series of
Bonds issued under the Trust Agreement, when due otherwise than by acceleration, and which, in
fact,are at any time insuring such Series of Bonds. For the purposes of this definition,all consents,
approvals or actions required by the Bond Insurer shall be by action of a majority of all Bond
Insurers (based upon the aggregate principal amount of Outstanding Bonds insured by each such
Bond Insurer) if there is more than a single Bond Insurer.
"Bonds" means the Series 2020 Bonds and all Additional Bonds.
"Business Day" means any day other than (a) a Saturday or a Sunday, (b) a day on which
banking institutions in the city in which the Corporate Trust Office of the Trustee is located or
banking institutions in New York, New York, are authorized or required by law to be closed, or
(c) a day on which the New York Stock Exchange is closed.
"City" means the City of Huntington Beach, a municipal corporation and charter city duly
organized and existing under and by virtue of the Constitution and laws of the State and its Charter.
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"Closing Date" means the date on which the Series 2020 Bonds are delivered to the
original purchaser of the Series 2020 Bonds.
"Continuing Disclosure Certificate" means, as applicable, the Continuing Disclosure
Certificate of the City, dated the Closing Date, as originally executed and as it may be amended
from time to time in accordance with the terms thereof.
"Corporate Trust Office" means the corporate trust office of the Trustee, which at the
date of execution of this Trust Agreement is that specified in Section 11.10 of this Trust
Agreement, provided, however, that for transfer,registration, exchange,payment and surrender of
Bonds such term means the office or agency of the Trustee at which, at any particular time, its
corporate trust operations business shall be conducted, or such other office designated by the
Trustee from time to time.
"Costs of Issuance" means all items of expense directly or indirectly payable by or
reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds,
including but not limited to printing expenses,rating agency fees,bond insurance premiums, filing
and recording fees, initial fees, expenses and charges of the Trustee and its counsel (including the
Trustee's first annual administrative fee), fees, charges and disbursements of attorneys, municipal
advisors, actuaries, accounting firms, consultants and other professionals, fees and charges for
preparation, execution and safekeeping of the Bonds and any other cost, charge or fee in
connection with the original issuance of the Bonds.
"Costs of Issuance Fund"means the fund by that name established and held by the Trustee
pursuant to Section 2.03 hereof.
"County" means the County of Orange.
"Defeasance Securities" means any of the following to the extent then permitted by
applicable laws of the State:
(a) U.S. Treasury Certificates,Notes and Bonds (including State and Local Government
Series -- "SLGs").
(b) Direct obligations of the Treasury of the United States which have been stripped by
the Treasury itself, CATS, TIGRS and similar securities
(c) Resolution Funding Corp. (REFCORP). Only the interest component of REFCORP
strips which have been stripped by request to the Federal Reserve Bank of New
York in book entry form are acceptable.
(d) Pre-refunded municipal bonds rated "Aaa" by Moody's or"AAA" by S&P. If
however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the
pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S.
guaranteed obligations, or AAA rated pre-refunded municipals to satisfy this
condition.
(e) Obligations issued by the following agencies which are backed by the full faith and
credit of the U.S.
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(i) U.S. Export-Import Bank (Eximbank)
Direct obligations or fully guaranteed certificates of beneficial ownership
(ii) Farmers Home Administration (FmHA)
Certificates of beneficial ownership
(iii)Federal Financing Bank
(iv)General Services Administration
Participation certificates
(vi)U.S. Maritime Administration
Guaranteed Title XI financing
(vii)U.S. Department of Housing and Urban Development (HUD)
Project Notes
Local Authority Bonds
New Communities Debentures - U.S. government guaranteed debentures
U.S. Public Housing Notes and Bonds - U.S. government guaranteed public
housing notes and bonds
"DTC" means The Depository Trust Company and any successor thereto or any nominee
thererof.
"Event of Default" means an event described as such in Section 9.01.
"Fiscal Year"means the twelve-month period ending on June 30 of each year, or any other
annual accounting period hereafter selected and designated by the City as its Fiscal Year in
accordance with applicable law.
"Fitch" means Fitch, Inc., a corporation organized and existing under the laws of the State
of New York, and its successors and assigns, except that if such entity shall be dissolved or
liquidated or shall no longer perform the services of a municipal securities rating agency,then the
term"Fitch"shall be deemed to refer to any other nationally recognized municipal securities rating
agency selected by the City.
"Interest Payment Date" (a) with respect to the Series 2020 Bonds, means June 15 and
December 15 of each year,commencing 15,20_,and(b)with respect to any Additional
Bonds,the dates specified in the Supplemental Trust Agreement pursuant to which such Additional
Bonds are issued.
"Moody's"means Moody's Investors Service, a corporation organized and existing under
the laws of the State of Delaware, and its successors and assigns, except that if such entity shall be
dissolved or liquidated or shall no longer perform the services of a municipal securities rating
agency, then the term "Moody's" shall be deemed to refer to any other nationally recognized
municipal securities rating agency selected by the City.
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"Opinion of Counsel"means a written opinion of counsel of recognized national standing
in the field of law relating to municipal bonds, appointed and paid by the City.
"Outstanding" means, when used as of any particular time with reference to Bonds
(subject to the provisions of Section 8.02 hereof), all Bonds theretofore or thereupon executed by
the City and authenticated by the Trustee, except (a) Bonds theretofore cancelled by the Trustee
or surrendered to the Trustee for cancellation in accordance herewith, (b) Bonds paid or deemed
to have been paid within the meaning of Section 10.01, and (c) Bonds in lieu of or in substitution
for which other Bonds shall have been executed, issued and delivered by the City pursuant hereto.
"Owner" means, with respect to any Bond, the registered owner thereof, as shown on the
registration books maintained by the Trustee hereunder.
"Participant" means any entity which is recognized as a participant by DTC in the book-
entry system of maintaining records with respect to book-entry bonds.
"Participating Underwriters" has the meaning ascribed thereto in the Continuing
Disclosure Certificate.
"Pension Liability Management Fund"means the fund by that name established and held
by the Trustee pursuant to Section 5.05 hereof.
"Pension Tax Override" means the ad valorem tax override annually levied at the rate of
$0.01500 per $100 of the assessed value of all taxable property within the City pursuant to Article
XIIIA, Section 1(b)(1) of the California Constitution.
"Pension Tax Override Authorization" means City Charter Section 607, adopted and
ratified by the City Council on January 17, 1966.
"Pension Tax Override Fund" means the Pension Tax Override Fund established
pursuant to Section 5.04 hereof.
"Pension Tax Override Revenues" means all of the revenues received by or payable to
the City from the Pension Tax Override, [less amounts attributable to such Pension Tax Override
allocated to the Huntington Beach Redevelopment Successor Agency as property tax revenues
(formerly tax increment revenues)pursuant to the Community Redevelopment Law of the State of
California in connection with the Merged Redevelopment Project Area].
"Permitted Investments" means any of the following to the extent then permitted by
applicable laws of the State:
(a) Direct obligations of the United States of America(including obligations issued or
held in book-entry form on the books of the Department of the Treasury, and CATS and TIGRS)
or obligations the principal of and interest on which are unconditionally guaranteed by the United
States of America.
(b) Bonds,debentures,notes or other evidence of indebtedness issued or guaranteed by
any of the following federal agencies and provided such obligations are backed by the full faith
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and credit of the United States of America(stripped securities are only permitted if they have been
stripped by the agency itself):
(i) U.S. Export-Import Bank (Eximbank)
Direct obligations or fully guaranteed certificates of beneficial ownership
(ii) Farmers Home Administration (FmHA)
Certificates of beneficial ownership
(iii) Federal Financing Bank
(iv) Federal Housing Administration Debentures (FHA)
(v) General Services Administration
Participation certificates
(vi) Government National Mortgage Association (GNMA or"Ginnie Mae")
GNMA - guaranteed mortgage-backed bonds
GNMA - guaranteed pass-through obligations
(vii) U.S. Maritime Administration
Guaranteed Title XI financing
(viii) U.S. Department of Housing and Urban Development (HUD)
Project Notes
Local Authority Bonds
New Communities Debentures - U.S. government guaranteed debentures
U.S. Public Housing Notes and Bonds - U.S. government guaranteed
public housing notes and bonds
(c) Bonds,debentures,notes or other evidence of indebtedness issued or guaranteed by
any of the following non-full faith and credit U.S. government agencies (stripped securities are
only permitted if they have been stripped by the agency itself):
(i) Federal Home Loan Bank System
Senior debt obligations
(ii) Federal Home Loan Mortgage Corporation (FHLMC or"Freddie Mac")
Participation Certificates
Senior debt obligations
(iii) Federal National Mortgage Association (FNMA or"Fannie Mae")
Mortgage-backed securities and senior debt obligations
(iv) Student Loan Marketing Association(SLMA or"Sallie Mae")
Senior debt obligations
(v) Resolution Funding Corp. (REFCORP) obligations
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(vi) Farm Credit System
Consolidated systemwide bonds and notes
(d) Money market funds registered under the Federal Investment Company Act of
1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating if
rated by S&P of AAAm-G; AAA-m; or AA-m and if rated by Moody's of Aaa, Aal or Aa2,
including funds for which the Trustee, its parent holding company, if any, or any affiliates or
subsidiaries of the Trustee or such holding company provide investment advisory or other
management services.
(e) Certificates of deposit secured at all times by collateral described in (a) and/or (b)
above. Such certificates must be issued by commercial banks, savings and loan associations or
mutual savings banks, which may include the Trustee and its affiliates. The collateral must be held
by a third party and the bondholders must have a perfected first security interest in the collateral.
(f) Certificates of deposit, savings accounts, deposit accounts or money market
deposits which are fully insured by FDIC, including BIT and SAIF, which may include those of
the Trustee and its affiliates.
(h) Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A-
1" or better by S&P.
(i) Bonds or notes issued by any state or municipality which are rated by Moody's and
S&P in one of the two highest rating categories assigned by such agencies.
0) Federal funds or bankers acceptances with a maximum term of one year of any bank
which has an unsecured, uninsured and unguaranteed obligation rating of"Prime - 1" or "A3" or
better by Moody's and "A-l" or "A" or better by S&P, which may include the Trustee and its
affiliates.
(1) Any state administered pooled investment fund in which the City is statutorily
permitted or required to invest including, but not limited to,the Local Agency Investment Fund in
the treasury of the State.
(m) Investment Trust of California (Ca1TRUST).
(n) Repurchase agreements which have a maximum maturity of 30 days and are fully
secured at or greater than 102% of the market value plus accrued interest by obligations of the
United States Government, its agencies and instrumentalities, including limited to the following:
(i) the Federal Home Loan Bank Board ("FHLB"); (ii) the Federal Home Loan Mortgage
Corporation ("FHLMC"); (iii) the Federal National Mortgage Association (FNMA); (iv) Federal
Farm Credit Bank ("FFCB"); and (v) guaranteed portions of Small Business Administration
("SBA").
(o) Investment agreements and guaranteed investment contracts with issuers having a
long-term debt rating of at least "AA-" or"Aa3" by S&P or Moody's, respectively.
(p) Deposits with the Local Agency Investment Fund (LAIF) of the State.
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(q) Corporate obligations issued by corporations organized and operating within the
United States or by depository institutions licensed by the United States or any state and operating
within the United States having a long-term debt rating of at least "AA-" or "Aa3" by S&P or
Moody's, respectively.
"Pledged Tax Revenues" means an amount of Pension Tax Override Revenues sufficient
to pay debt service on Bonds representing the Secured Amount.
"Pre-Proposition 13 Pension Liability"means employee retirement benefits at a level not
in excess of the retirement benefits in existence prior to July 1, 1978 under the Ca1PERS Contract.
"Principal Amount" means the principal amount thereof.
"Principal Payment Date" means each June 15 on which principal is due on the Bonds.
"Rating Agencies" means Fitch, Moody's and S&P, but in each case only to the extent
that such Rating Agency is then rating the Bonds at the request of the City.
"Record Date" means the first day (whether or not such day is a Business Day) of the
month of each Interest Payment Date.
"Redemption Fund" means the fund by that name established and held by the Trustee
pursuant to Section 5.06 hereof.
"Refunding Fund" means the fund by that name established and held by the Trustee
pursuant to Section 2.30 hereof.
"Representation Letter" means the Letter of Representations from the City to DTC, or
any successor Securities Depository for the Bonds,in which the City makes certain representations
with respect to issues of its securities for deposit by DTC or such successor depository.
"Retirement Law" means the Public Employees' Retirement Law, commencing with
Section 20000 of the California Government Code.
"Secured Amount"means debt service on an amount of Bonds(including a pro rata share
of Costs of Issuance) the proceeds of which have been used to fund Pre-Proposition 13 Pension
Liability. The Secured Amount shall be determined at the time of issuance of any Series of Bonds
hereunder; and if less than all of the proceeds of a Series of Bonds issued hereunder are used to
fund Pre-Proposition 13 Pension Liability, then the Secured Amount shall be amortized on a pro
rata basis with respect to the payment of debt service on such Series of Bonds.
"S&P" means S&P Global Ratings, a division of Standard & Poor's Financial Services
LLC, a corporation organized and existing under the laws of the State of New York, and its
successors or assigns, except that if such entity shall be dissolved or liquidated or shall no longer
perform the functions of a municipal securities rating agency, then the term "Standard & Poor's"
shall be deemed to refer to any other nationally recognized municipal securities rating agency
selected by the City.
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"Securities Depository"means DTC and its successors and assigns or any other securities
depository selected by the City which agrees to follow the procedures required to be followed by
such securities depository in connection with the Bonds that are in book-entry form.
"Series" means all of the Bonds designated as being within a certain series, regardless of
variations in maturity date, interest rate,redemption and other provisions,and any Bonds thereafter
issued in transfer or exchange for such Bonds pursuant to this Trust Agreement.
"Series 2020 Bonds" means the City of Huntington Beach Taxable Pension Obligation
Bonds, Series 2020, issued hereunder.
"State" means the State of California.
"Supplemental Trust Agreement" means any supplemental trust agreement amendatory
of or supplemental to this Trust Agreement, but only if and to the extent that such supplemental
trust agreement is specifically authorized hereunder.
"System" means the California Public Employees' Retirement System.
"Term Bonds"means Bonds which are payable on or before their specified maturity dates
from sinking fund payments established for that purpose and calculated to retire such Bonds on or
before their specified maturity dates.
"Trust Agreement"means this Trust Agreement, dated as of 1, 2020, by and
between the City and the Trustee, as originally executed and as it may from time to time be
amended or supplemented by one or more Supplemental Trust Agreements.
"Trustee" means U.S. Bank National Association, a national banking association
organized and existing under the laws of the United States of America, or any successor thereto as
Trustee hereunder, appointed as provided herein.
"Written Certificate" and "Written Request" of the City mean, respectively, a written
certificate or written request signed in the name of the City by an Authorized Officer. Any such
certificate or request may, but need not, be combined in a single instrument with any other
instrument,opinion or representation,and the two or more so combined shall be read and construed
as a single instrument.
Section 1.02. Trust Agreement Constitutes Contract. In consideration of the
acceptance of the Bonds by the Owners thereof, the Trust Agreement shall be deemed to be and
shall constitute a contract among the City, the Trustee and the Owners from time to time of all
Bonds authorized, executed, issued and delivered hereunder and then Outstanding to provide for
the payment of the interest on and principal of and redemption premiums, if any, on all Bonds
which may from time to time be authorized, executed, issued and delivered hereunder, subject to
the agreements, conditions, covenants and provisions contained herein; and all agreements and
covenants set forth herein to be performed by or on behalf of the City shall be for the equal and
proportionate benefit, protection and security of all Owners of the Bonds without distinction,
preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of
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the number or date thereof or the time of authorization, sale,execution,issuance or delivery thereof
or for any cause whatsoever, except as expressly provided herein or therein.
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ARTICLE II
GENERAL BOND PROVISIONS; SERIES 2020 BONDS
Section 2.01. Nature of Obligation under Bonds. The obligations of the City under the
Bonds, including the obligation to make all payments of interest and principal when due, are
obligations of the City imposed by law and are absolute and unconditional, without any right of
set-off or counterclaim. Except to the extent of the Pension Tax Override as provided herein, the
Bonds do not constitute an obligation of the City for which the City is obligated to levy or pledge
any form of taxation. Neither the Bonds nor the obligation of the City to make payments on the
Bonds constitute an indebtedness of the City, the State, or any of its political subdivisions within
the meaning of any constitutional or statutory debt limitation or restriction.
Section 2.02. Authorization and Terms of the Series 2020 Bonds. (a) The City has
reviewed all proceedings heretofore taken relative to the authorization of the Series 2020 Bonds
and has found, as a result of such review, and hereby finds and determines that all acts, conditions
and things required by law to exist, to have happened and to have been performed precedent to
and in the issuance of the Series 2020 Bonds do exist, have happened and have been performed in
due time, form and manner as required by law, and that the City is now duly authorized, pursuant
to each and every requirement of the Act, to issue the Series 2020 Bonds in the form and manner
and for the purpose provided herein and that the Series 2020 Bonds shall be entitled to the benefit,
protection and security of the provisions hereof.
(b) The Series 2020 Bonds shall be designated "City of Huntington Beach
Taxable Pension Obligation Bonds, Series 2020." The aggregate principal amount of Series 2020
Bonds that may be issued and Outstanding under this Trust Agreement shall not exceed
$ , except as may be otherwise provided in Section 2.09 hereof. The Series 2020
Bonds shall be dated the date of original delivery, shall be issued only in fully registered form in
Authorized Denominations, and shall mature on the dates and in the principal amounts and bear
interest at the rates as set forth in the following schedule:
Maturity Date Principal Interest
June 15 Amount Rate
The Series 2020 Bonds shall bear interest at the rates (based on a 360-day year of twelve
30-day months) set forth above, payable on the Interest Payment Dates for the Series 2020 Bonds.
The Series 2020 Bonds shall bear interest from the Interest Payment Date next preceding the date
of authentication thereof, unless (i) a Series 2020 Bond is authenticated on or before an Interest
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Payment Date and after the close of business on the preceding Record Date, in which event it shall
bear interest from such Interest Payment Date, or (ii) a Series 2020 Bond is authenticated on or
before the first Record Date, in which event interest thereon shall be payable from the dated date
thereof, provided, however, that if at the time of authentication of any Series 2020 Bond interest
is then in default on the Outstanding Series 2020 Bonds, such Series 2020 Bond shall bear interest
from the Interest Payment Date to which interest has previously been paid or made available for
payment on the Outstanding Series 2020 Bonds. Payment of interest on the Series 2020 Bonds
due on or before the maturity or prior redemption thereof shall be made to the person whose name
appears in the registration books kept by the Trustee pursuant to Section 2.08 hereof as the Owner
thereof as of the close of business on the Record Date for an Interest Payment Date, whether or
not such day is a Business Day, such interest to be paid by check mailed on the Interest Payment
Date by first-class mail to such Owner at the address as it appears in such books; provided that
upon the written request of an Owner of $1,000,000 or more in aggregate principal amount of
Series 2020 Bonds received by the Trustee prior to the applicable Record Date, interest shall be
paid by wire transfer in immediately available funds. Any such written request shall remain in
effect until rescinded in writing by the Owner.
The principal of the Series 2020 Bonds shall be payable in lawful money of the United
States of America at the Corporate Trust Office of the Trustee. Payment of the principal of the
Series 2020 Bonds shall be made upon the surrender thereof at maturity or on redemption prior to
maturity at the Corporate Trust Office of the Trustee.
Section 2.03. Procedure for the Issuance of Series 2020 Bonds; Application of Series
2020 Bond Proceeds. At any time after the sale of the Series 2020 Bonds in accordance with the
Act, the City shall execute the Series 2020 Bonds for issuance hereunder and shall deliver them to
the Trustee, and thereupon the Series 2020 Bonds shall be authenticated and delivered by the
Trustee to the purchaser thereof upon the Written Request of the City and upon receipt of payment
therefor from the purchaser thereof. Upon receipt of payment for the Series 2020 Bonds from the
purchaser thereof, the Trustee shall set aside and deposit the proceeds received from such sale in
the following respective accounts or funds or with the following respective persons, in the
following order of priority:
(a) The Trustee shall deposit $ of the Series 2020 Bond proceeds in
the Refunding Fund, which fund is hereby established. On the Closing Date, the Trustee shall
promptly transfer all amounts in the Refunding Fund to the System. Thereafter, except as may be
provided in a Supplemental Trust Agreement, the Refunding Fund shall be closed.
(b) The Trustee shall deposit $ in the Costs of Issuance Fund, which
fund is hereby created and which fund the City hereby agrees to maintain with the Trustee until
six months following the Closing Date. All money in the Costs of Issuance Fund shall be used
and withdrawn by the Trustee to pay or reimburse the Costs of Issuance of the Series 2020 Bonds
upon receipt of a Written Request of the City filed with the Trustee, each of which shall be
sequentially numbered and shall state the person to whom payment is to be made, the amount to
be paid,the purpose for which the obligation was incurred and that such payment is a proper charge
against said fund. On the date which is six months following the Closing Date for the Series 2020
Bonds or upon the earlier Written Request of the City, any remaining balance in the Costs of
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Issuance Fund shall be transferred to the Bond Fund. Thereafter, except as may be provided in a
Supplemental Trust Agreement, the Costs of Issuance Fund shall be closed.
Section 2.04. Form of Bonds. The Series 2020 Bonds and the authentication endorsement
and assignment to appear thereon shall be substantially in the form set forth in Exhibit A attached
hereto.
Section 2.05. Execution of Bonds. The Mayor of the City is hereby authorized and
directed to execute each of the Bonds on behalf of the City and the City Clerk of the City is hereby
authorized and directed to countersign each of the Bonds on behalf of the City. The signatures of
such officers of the City may be by printed, lithographed, engraved or otherwise reproduced by
facsimile reproduction. In case any officer whose signature appears on the Bonds shall cease to
be such officer before the delivery of the Bonds to the purchaser thereof, such signature shall
nevertheless be valid and sufficient for all purposes as if such officer had remained in office until
such delivery of the Bonds.
Only those Bonds bearing thereon a certificate of authentication in the form hereinbefore
recited, executed manually and dated by the Trustee, shall be entitled to any benefit, protection or
security hereunder or be valid or obligatory for any purpose, and such certificate of the Trustee
shall be conclusive evidence that the Bonds so authenticated have been duly authorized, executed,
issued and delivered hereunder and are entitled to the benefit, protection and security hereof.
Section 2.06. Transfer of Bonds. Any Bond may, in accordance with its terms, be
transferred in the books required to be kept pursuant to the provisions of Section 2.08 by the person
in whose name it is registered, in person or by such person's duly authorized attorney, upon
surrender of such Bond for cancellation at the Corporate Trust Office of the Trustee accompanied
by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee;
provided, however, that the Trustee shall require the payment by the Owner requesting such
transfer of any tax or other governmental charge required to be paid with respect to such transfer
as a condition precedent to the exercise of such privilege; and provided further, that the Trustee
may refuse to transfer any Bonds during the 15 day period prior to the date established by the
Trustee for the selection of Bonds for redemption, or to transfer any Bonds selected by the Trustee
for redemption. Whenever any Bond shall be surrendered for transfer, the City shall execute and
the Trustee shall authenticate and deliver to the transferee a new Bond or Bonds of the same Series
of Bonds and maturity of Authorized Denominations equal to the Principal Amount.
The City and the Trustee may deem and treat the Owner of any Bond as the absolute owner
of such Bond for the purpose of receiving payment thereof and for all other purposes, whether
such Bond shall be overdue or not, and neither the City nor the Trustee shall be affected by any
notice or knowledge to the contrary; and payment of the principal or redemption price of and the
interest due on such Bond shall be made only to such Owner, which payments shall be valid and
effectual to satisfy and discharge liability on such Bond to the extent of the sum or sums so paid.
The cost of preparing the Bonds and any services rendered or expenses incurred by the
Trustee in connection with any transfer of the Bonds shall be paid by the City.
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Section 2.07. Exchange of Bonds. Any Bond may, in accordance with its terms, be
exchanged at the Corporate Trust Office of the Trustee for a new Bond or Bonds of the same Series
of Bonds and maturity of Authorized Denominations equal to the Principal Amount of the Bond
surrendered; provided, however, that the Trustee shall require the payment by the Owner
requesting such exchange of any tax or other governmental charge required to be paid with respect
to such exchange as a condition precedent to the exercise of such privilege; and provided, further,
that the Trustee may refuse to exchange any Bonds during the 15 day period prior to the date
established by the Trustee for the selection of Bonds for redemption, or to exchange any Bonds
selected by the Trustee for redemption.
The cost of preparing the Bonds and any services rendered or expenses incurred by the
Trustee in connection with any exchange shall be paid by the City.
Section 2.08. Bond Registration Books. The Trustee shall keep at its Corporate Trust
Office sufficient books for the registration and transfer of the Bonds which shall during normal
business hours with reasonable notice be open to inspection by the City, and upon presentation for
such purpose the Trustee shall, under such reasonable regulations as it may prescribe, register or
transfer the Bonds in such books as hereinabove provided.
Section 2.09. Mutilated, Destroyed, Stolen or Lost Bonds. If any Bond shall become
mutilated,the Trustee, at the expense of the Owner, shall thereupon authenticate and deliver a new
Bond or Bonds of the same Series of Bonds and maturity of Authorized Denominations equal in
aggregate Principal Amount to the Bond so mutilated in exchange and substitution for the Bond
so mutilated, but only upon surrender to the Trustee of the Bond so mutilated, and every mutilated
Bond so surrendered to the Trustee shall be cancelled.
If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft
may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity
satisfactory to the Trustee shall be given,the Trustee, at the expense of the Owner, shall thereupon
authenticate and deliver a new Bond of the same Series of Bonds and maturity of authorized
denominations equal in aggregate Principal Amount to the Bond so lost,destroyed or stolen in lieu
of and in substitution for the Bond so lost, destroyed or stolen.
The Trustee may require payment of a reasonable sum for each new Bond delivered under
this Section and of the expenses which may be incurred by the City and the Trustee in the premises.
Any Bond delivered under the provisions of this Section in lieu of any Bond alleged to be lost,
destroyed or stolen shall be equally and proportionately entitled to the benefits hereof with all other
Bonds secured hereby, and neither the City nor the Trustee shall be required to treat both the
original Bond and any replacement Bond as being Outstanding for the purpose of determining the
principal amount of Bonds which may be issued hereunder or for the purpose of determining any
percentage of Bonds Outstanding hereunder, but both the original and replacement Bond shall be
treated as one and the same.
Section 2.10. Temporary Bonds. The Bonds issued hereunder may be initially issued in
temporary form exchangeable for definitive Bonds when ready for delivery, which temporary
Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be
determined by the City, shall be in fully registered form and may contain such reference to any of
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the provisions hereof as may be appropriate. Every temporary Bond shall be executed and
authenticated as authorized by the City in accordance with the terms hereof. If the City issues
temporary Bonds it will execute and furnish definitive Bonds without delay and thereupon the
temporary Bonds may be surrendered, for cancellation, in exchange therefor at the Corporate Trust
Office of the Trustee, and the Trustee shall deliver in exchange for such temporary Bonds
definitive Bonds. Until so exchanged, the temporary Bonds shall be entitled to the same benefits
hereunder as definitive Bonds delivered hereunder.
Section 2.11. Book-Entry System for the Series 2020 Bonds. (a) Except as otherwise
provided in subsections (b) and (c) of this Section, the Series 2020 Bonds shall initially be issued
in the form of a single authenticated fully registered bond for each Principal Payment Date of the
Series 2020 Bonds, and shall be registered in the name of Cede & Co., as nominee for DTC, or
such other nominee as DTC shall request pursuant to the Representation Letter. Payment of the
interest on any Series 2020 Bond registered in the name of Cede & Co. shall be made on each
Interest Payment Date for such Series 2020 Bonds to the account, in the manner and at the address
indicated in or pursuant to the Representation Letter.
(b) The Trustee and the City may treat DTC (or its nominee) as the sole and
exclusive owner of the Series 2020 Bonds registered in its name for the purposes of payment of
the principal or redemption price of and the interest on such Series 2020 Bonds, selecting the Series
2020 Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given
to Owners hereunder, registering the transfer of the Series 2020 Bonds, obtaining any consent or
other action to be taken by Owners of the Series 2020 Bonds and for all other purposes whatsoever,
and neither the Trustee nor the City shall be affected by any notice to the contrary. Neither the
Trustee nor the City shall have any responsibility or obligation to any Participant (which shall
mean, for purposes of this Section, securities brokers and dealers,banks, trust companies, clearing
corporations and other entities, some of whom directly or indirectly own DTC), any person
claiming a beneficial ownership interest in the Series 2020 Bonds under or through DTC or any
Participant, or any other person which is not shown on the registration records as being an Owner,
with respect to (i) the accuracy of any records maintained by DTC or any Participant, (ii) the
payment by DTC or any Participant of any amount in respect of the principal or redemption price
of or the interest on any of the Series 2020 Bonds, (iii) any notice which is permitted or required
to be given to Owners of Series 2020 Bonds hereunder, or (iv) any consent given or other action
taken by DTC as Owner of Series 2020 Bonds. The Trustee shall pay the principal or redemption
price of and the interest on the Series 2020 Bonds only at the times,to the accounts,at the addresses
and otherwise in accordance with the Representation Letter, and all such payments shall be valid
and effective to satisfy fully and discharge the City's obligations with respect to the Series 2020
Bonds to the extent of the sum or sums so paid. Upon delivery by DTC to the Trustee of written
notice to the effect that DTC has determined to substitute a new nominee in place of its then
existing nominee, the Series 2020 Bonds will be transferable to such new nominee in accordance
with subsection (f) of this Section.
(c) In the event that the City determines that it is in the best interests of the
Beneficial Owners of the Series 2020 Bonds that they be able to obtain definitive Series 2020
Bonds,the Trustee shall, upon receipt of a Written Request of the City, so notify DTC, whereupon
DTC shall notify the Participants of the availability through DTC of definitive Series 2020 Bonds,
and in such event the Series 2020 Bonds shall be transferable in accordance with subsection(f) of
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this Section. DTC may determine to discontinue providing its services with respect to the Series
2020 Bonds at any time by giving written notice of such discontinuance to the Trustee or the City
and discharging its responsibilities with respect thereto under applicable law, and in such event
the Series 2020 Bonds shall be transferable in accordance with subsection (f) of this Section.
Whenever DTC requests the Trustee or the City to do so, the Trustee and the City will cooperate
with DTC in taking appropriate action after reasonable notice to arrange for another Securities
Depository to maintain custody of all certificates evidencing the Series 2020 Bonds then
Outstanding, and in such event the Series 2020 Bonds shall be transferable to such Securities
Depository in accordance with subsection (f) of this Section, and thereafter, all references in the
Trust Agreement to DTC or its nominee shall be deemed to refer to such successor Securities
Depository and its nominee, as appropriate.
(d) Notwithstanding any other provision hereof to the contrary, so long as all
Series 2020 Bonds Outstanding are registered in the name of any nominee of DTC, all payments
with respect to the principal or redemption price of and the interest on each such Series 2020 Bond
and all notices with respect to each such Series 2020 Bond shall be made and given, respectively,
to DTC as provided in the Representation Letter.
(e) The Trustee and the City are each hereby authorized and requested to
execute and deliver the Representation Letter and, in connection with any successor nominee for
DTC or any successor depository, enter into comparable arrangements, and shall have the same
rights with respect to its actions thereunder as it has with respect to its actions hereunder.
(f) In the event that any transfer or exchange of Series 2020 Bonds is authorized
under subsection (b) or (c) of this Section, such transfer or exchange shall be accomplished upon
receipt by the Trustee from the registered owner thereof of the Series 2020 Bonds to be transferred
or exchanged and appropriate instruments of transfer to the permitted transferee, all in accordance
with the applicable provisions of Sections 2.08 and 2.09 hereof. In the event that definitive Series
2020 Bonds are issued to Owners other than Cede & Co., its successor as nominee for DTC as
Owner of all the Series 2020 Bonds, another Securities Depository as holder of all the Series 2020
Bonds, or the nominee of such successor Securities Depository, the provisions of Sections 2.06
and 2.07 hereof shall also apply to, among other things, the registration, exchange and transfer of
the Series 2020 Bonds and the method of payment of the principal or redemption price of and the
interest on the Series 2020 Bonds.
Section 2.12. Validity of Bonds. The recital contained in the Bonds that the same are
issued pursuant to the Act and pursuant hereto shall be conclusive evidence of their validity and
of the regularity of their issuance, and all Bonds shall be incontestable from and after their
issuance. The Bonds shall be deemed to be issued, within the meaning hereof, upon delivery of
the definitive Bonds (or any temporary Bonds exchangeable therefor) and the proceeds of sale
thereof received.
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ARTICLE III
REDEMPTION OF SERIES 2020 BONDS
Section 3.01. Redemption of Series 2020 Bonds. (a) Optional Redemption. The Series
2020 Bonds are subject to optional redemption prior to their maturity at the option of the City, in
whole or in part, on any date on or after June 15, 20_, from any source of available funds, at a
redemption price equal to 100% of the principal amount of the Series 2020 Bonds to be redeemed,
plus unpaid, accrued interest thereon to the date of redemption, without premium.
The City shall give the Trustee written notice of its intention to redeem Series 2020 Bonds
pursuant to this subsection not less than 45 days prior to the applicable redemption date, unless
such notice shall be waived by the Trustee.
(b) Mandatory Sinking Fund Redemption. The Series 2020 Bonds maturing on
June 15, 20_ shall be subject to mandatory sinking fund redemption, in part (as described in
Section 3.02), on June 15 in each year, commencing June 15, 20_, at a redemption price equal to
100% of the principal amount of the Series 2020 Bonds to be redeemed, without premium, plus
accrued interest thereon to the date of redemption, in the aggregate respective principal amounts
in the respective years as follows:
Sinking Fund
Redemption Date Principal Amount
(June 15) to be Redeemed
20_(Maturity)
(c) The Series 2020 Bonds maturing on June 15, 20_ shall be subject to
mandatory sinking fund redemption,in part(as described in Section 3.02),on June 15 in each year,
commencing June 15, 20_, at a redemption price equal to 100% of the principal amount of the
Series 2020 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of
redemption, in the aggregate respective principal amounts in the respective years as follows:
Sinking Fund
Redemption Date Principal Amount
(June 15) to be Redeemed
20 (Maturity)
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Section 3.02. Selection of Series 2020 Bonds for Redemption. Redemption payments
on the Series 2020 Bonds being redeemed in part will be made in Authorized Denominations from
among maturities as the City shall direct the Trustee in writing or on a pro rata basis to each Owner
in whose name such Series 2020 Bonds are registered on the Record Date immediately preceding
a redemption date. "Pro rata" is determined, in connection with any mandatory sinking fund
redemption or any optional redemption, in part, by multiplying the principal amount of the Series
2020 Bonds of such maturity to be redeemed on the applicable redemption date by a fraction, the
numerator of which is equal to the principal amount of the Series 2020 Bonds of such maturity
owned by an Owner, and the denominator of which is equal to the total amount of the Series 2020
Bonds of such maturity then Outstanding immediately prior to such redemption date, and then
rounding the product down to the next lower integral multiple of$5,000, provided that the portion
of any Series 2020 Bonds to be redeemed shall be in Authorized Denominations and all Series
2020 Bonds of a maturity to remain outstanding following any redemption shall be in Authorized
Denominations.
So long as there is a Securities Depository for the Series 2020 Bonds, there will be only
one registered Owner and neither the City nor the Trustee will have responsibility for prorating
partial redemptions among beneficial owners of the Series 2020 Bonds.
Section 3.03. Notice of Redemption. Notice of redemption shall be mailed by first-class
mail by the Trustee, not less than 20 nor more than 60 days prior to the redemption date to the
respective Owners of the Bonds designated for redemption at their addresses appearing on the
registration books of the Trustee. Each notice of redemption shall state the date of such notice,
the redemption price, if any, (including the name and appropriate address of the Trustee), the
CUSIP number(if any) and ISIN number(if any) of the maturity or maturities, and, if less than all
of any such maturity is to be redeemed, the distinctive certificate numbers of the Bonds of such
maturity, to be redeemed and, in the case of Bonds to be redeemed in part only, the respective
portions of the principal amount thereof to be redeemed. Each such notice shall also state that on
said date there will become due and payable on each of said Bonds the redemption price, if any,
thereof and in the case of a Bond to be redeemed in part only, the specified portion of the principal
amount thereof to be redeemed, together with interest accrued thereon to the redemption date, and
that from and after such redemption date interest thereon shall cease to accrue, and shall require
that such Bonds be then surrendered at the address of the Trustee specified in the redemption
notice; provided, however, that any such notice of redemption may be cancelled and annulled by
a Written Request of the City given to the Trustee at least five days prior to the date fixed for
redemption, whereupon the Trustee shall forthwith give appropriate notice of such cancellation
and annulment to all the recipients of such notice of redemption. The failure of any Owner to
receive notice pursuant to this Section or any defect therein shall not invalidate any of the
proceedings taken in connection with such redemption.
If notice of redemption has been duly given as aforesaid and money for the payment of the
redemption price of the Bonds called for redemption is held by the Trustee,then on the redemption
date designated in such notice Bonds so called for redemption shall become due and payable, and
from and after the date so designated interest on such Bonds shall cease to accrue, and the Owners
of such Bonds shall have no rights in respect thereof except to receive payment of the redemption
price thereof.
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All Bonds redeemed pursuant to the provisions of this Section shall be cancelled by the
Trustee and shall be destroyed with a certificate of destruction furnished to the City and shall not
be reissued.
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ARTICLE IV
ADDITIONAL BONDS
Section 4.01. Conditions for the Issuance of Additional Bonds. The City may at any
time issue Additional Bonds on a parity with the Series 2020 Bonds, but only subject to the
following specific conditions, which are hereby made conditions precedent to the issuance of any
such Additional Bonds:
(a) The City shall be in compliance with all agreements and covenants
contained herein.
(b) The issuance of such Additional Bonds shall have been authorized pursuant
to the Act and shall have been provided for by a Supplemental Trust Agreement which shall specify
the following:
(i) The purpose for which such Additional Bonds are to be issued; provided
that such Additional Bonds shall be applied solely for (i) the purpose of satisfying any
obligation of the City to make payments to the System pursuant to the Retirement Law
relating to pension benefits accruing to the System's members, and/or for payment of all
costs incidental to or connected with the issuance of Additional Bonds for such purpose,
and/or (ii) the purpose of refunding any Bonds then Outstanding, including payment of all
costs incidental to or connected with such refunding;
(ii) The authorized principal amount and designation of such Additional Bonds;
(iii) The date and the maturity dates of and the sinking fund payment dates, if
any, for such Additional Bonds;
(iv) The interest payment dates and principal payment dates for such Additional
Bonds;
(v) The denomination or denominations of and method of numbering such
Additional Bonds;
(vi) The redemption premiums,if any,and the redemption terms, if any,for such
Additional Bonds;
(vii) The amount, if any, to be deposited from the proceeds of sale of such
Additional Bonds in the Bond Fund;
(viii) Any repayment provisions including, without limitation, for reasonable
expenses, including attorneys' fees and expenses, and proportionate consent rights,
proportionate or Series specific rights with respect to the direction of remedies, rights of
subrogation to the rights of such Owners to receive the amount of principal of and interest
on such Additional Bonds from the City, and notice provisions required in order to secure
municipal bond insurance for such Additional Bonds as the City determines will be
advantageous to the City; and
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(ix) Such other provisions (including the requirements of a book-entry Bond
registration system, if any) as are necessary or appropriate and not inconsistent herewith.
Section 4.02. Procedure for the Issuance of Additional Bonds. At any time after the
sale of any Additional Bonds in accordance with the Act, the City shall execute such Additional
Bonds for issuance hereunder and shall deliver them to the Trustee, and thereupon such Additional
Bonds shall be delivered by the Trustee to the purchaser thereof upon the Written Request of the
City, but only upon receipt by the Trustee of the following documents or money or securities, all
of such documents dated or certified, as the case may be, as of the date of delivery of such
Additional Bonds by the Trustee:
(a) An executed copy of the Supplemental Trust Agreement authorizing the
issuance of such Additional Bonds;
(b) A Written Request of the City as to the delivery of such Additional Bonds;
(c) An Opinion of Counsel to the effect that (i) the City has executed and
delivered the Supplemental Trust Agreement, and the Supplemental Trust Agreement is valid and
binding upon the City, and (ii) such Additional Bonds are valid and binding obligations of the
City;
(d) A Written Certificate of the City stating that all requirements of this Article
have been complied with and containing any other such statements as may be reasonably necessary
to show compliance with the conditions for the issuance of such Additional Bonds contained
herein; and
(e) Such further documents, money or securities as are required by the
provisions of the Supplemental Trust Agreement providing for the issuance of such Additional
Bonds.
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ARTICLE V
PLEDGE; FUNDS
Section 5.01. Pledge of Amounts in Bond Fund. In order to meet the City's obligations
under the Retirement Law, the City shall deposit or cause to be deposited with the Trustee for
deposit into the Bond Fund on or before the dates specified in Section 5.02 (or such other dates as
provided in a Supplemental Trust Agreement)the amount which,together with moneys transferred
and deposited pursuant to Section 5.04(c) hereof, is sufficient to pay the City's debt service
obligations on the Bonds. Subject only to the provisions of this Trust Agreement permitting the
application thereof for the purposes and on the terms and conditions set forth herein, all of the
amounts held in the Bond Fund are hereby pledged by the City to secure the payment of the
principal or redemption price of and interest on the Bonds in accordance with their terms, the
provisions of this Trust Agreement and the Act. Said pledge shall constitute a first lien on such
assets.
Section 5.02. Bond Fund. (a) The Trustee shall establish and maintain in trust a special
fund designated the "Bond Fund."
(b) The City agrees and covenants that, not later than 10 days prior to each
Interest Payment Date, it will transfer to the Trustee an amount which, together with amount
simultaneously transferred to the Trustee for deposit in the Bond Fund pursuant to Section 5.04(c)
and the amount then on deposit in the Bond Fund, will equal the amount of the principal of and
interest on the Bonds coming due on such Interest Payment Date. The Trustee shall, upon receipt
of the amount required to be transferred by the City pursuant to this subsection, deposit such
amount in the Bond Fund.
(c) In the event that, on the first Business Day of the month of each Interest
Payment Date,amounts in the Bond Fund are insufficient to pay the principal,if any,of and interest
on the Bonds due and payable on such Interest Payment Date,the Trustee shall immediately notify
the City and the Bond Insurer, if any, of the amount of such insufficiency. Upon being so notified,
the City shall, prior to the close of business on the Business Day immediately preceding such
Interest Payment Date, deliver or cause to be delivered to the Trustee immediately available funds
in an amount equal to the amount of such insufficiency. Immediately upon receipt thereof, the
Trustee shall deposit such funds in the Bond Fund.
(d) On each Interest Payment Date, the Trustee shall withdraw from the Bond
Fund for payment to the Owners of the Bonds the principal, if any, of and interest on the Bonds
then due and payable. If there are insufficient funds in the Bond Fund to pay the principal, if any,
of and interest on the Bonds, the Trustee shall apply the available funds first to the payment of
interest on the Bonds, then to the payment of principal of the Bonds.
Section 5.03. Pledge of Pledged Tax Revenues. Subject only to the provisions of this
Trust Agreement permitting the application thereof for the purposes and on the terms and
conditions set forth herein, all of the Pledged Tax Revenues are hereby irrevocably pledged by the
City to secure the payment of the principal or redemption price of and interest on the Bonds in
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accordance with their terms, the provisions of this Trust Agreement and the Act. Said pledge shall
constitute a first lien on the Pledged Tax Revenues.
Section 5.04. Pension Tax Override Fund. (a) The City agrees and covenants that the
City shall establish and maintain so long as any Bonds remain outstanding hereunder a special
fund designated the "Pension Tax Override Fund."
(b) The City agrees and covenants that all Pledged Tax Revenues,together with
any interest earned thereon, when and as received by the City, will be immediately deposited and
held in the Pension Tax Override Fund. The City further agrees and covenants that all such Pledged
Tax Revenues shall be accounted for separately and apart from all other money, funds, accounts
or other resources of the City.
(c) The City agrees and covenants that, not later than 10 days prior to each
Interest Payment Date, it will transfer from the Pension Tax Override Fund to the Trustee an
amount which, together with amount simultaneously transferred to the Trustee for deposit in the
Bond Fund pursuant to Section 5.02(b) and the amount then on deposit in the Bond Fund, will
equal the amount of the principal of and interest on the Bonds coming due on such Interest Payment
Date. The Trustee shall, upon receipt of the amount required to be transferred by the City pursuant
to this subsection, deposit such amount in the Bond Fund.
(d) Each year, after making the transfer required for the June 15 Interest
Payment Date by subsection (c) of this Section, the City may, but no later than the immediately
succeeding June 30, transfer all or a portion of the remaining funds then on deposit in the Pension
Tax Override Fund to any other fund or account of the City and the City shall apply such
transferred funds as provided in the Pension Tax Override Authorization.
Section 5.05. Pension Liability Management Fund. (a) The Trustee shall establish and
maintain in trust a special fund designated the "Pension Liability Management Fund."
(b) At its sole option, the City may make deposits into the Pension Liability
Management Fund at any time. Amounts in the Pension Liability Management Fund shall, as
specified in a Written Request of the City(i) be transferred by the Trustee to the Bond Fund to pay
principal of and interest on the Bonds, (ii) be transferred by the Trustee to the Redemption Fund
to pay the redemption price of Bonds optionally redeemed pursuant to the provisions hereof, or
(iii) be transferred to the City and applied by the City to pension funding costs; amounts in the
Pension Liability Management Fund shall not be used for any other purpose.
Section 5.06. Redemption Fund. (a) The Trustee shall establish and maintain in trust a
special fund designated the "Redemption Fund."
(b) The Trustee shall deposit in the Redemption Fund amounts received from
the City in connection with the City's exercise of its rights to optionally redeem Bonds pursuant
to the provisions hereof.
(c) Amounts in the Redemption Fund shall be disbursed therefrom for the
payment of the redemption price of Bonds redeemed pursuant to the provisions hereof.
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Section 5.07. Deposit and Investments of Money in Funds. All money held by the
Trustee in any of the funds established by the Trustee pursuant hereto shall be invested in Permitted
Investments at the Written Request of the City. If no Written Request of the City is received, the
Trustee shall invest funds held by it in Permitted Investments described in paragraph (d) of the
definition thereof. Such investments shall, as nearly as practicable, mature on or before the dates
on which such money is anticipated to be needed for disbursement hereunder. All interest,profits
and other income received from any money so invested shall be deposited in the Bond Fund. The
Trustee shall have no liability or responsibility for any loss resulting from any investment made or
sold in accordance with the provisions of this Article, except for any loss due to the negligence or
willful misconduct of the Trustee. The Trustee may act as principal or agent in the acquisition or
disposition of any investment and may impose its customary charge therefor. Amounts deposited
in the Pension Tax Override Fund may be invested in Permitted Investments or in any investment
permitted by law for City funds and in accordance with the City's Investment Policy then in effect.
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ARTICLE VI
COVENANTS OF THE CITY
Section 6.01. Punctual Payment and Performance. The City shall punctually pay the
principal or redemption price of and interest on every Bond issued hereunder in strict conformity
with the terms hereof and of the Bonds, and will faithfully observe and perform all the agreements
and covenants to be observed or performed by the City contained herein and in the Bonds.
Section 6.02. Extension of Payment of Bonds. The City shall not directly or indirectly
extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any
claims for interest on the Bonds, and in case the maturity of any of the Bonds or the time of
payment of any such claims for interest shall be extended, such Bonds or claims for interest shall
not be entitled, in case of any default hereunder, to the benefits of this Trust Agreement, except
subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all
claims for interest thereon which shall not have been so extended. Nothing in this Section shall
be deemed to limit the right of the City to issue bonds for the purpose of refunding any Outstanding
Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.
Section 6.03. Additional Debt. The City expressly reserves the right to enter into one or
more other agreements, trust agreements or indentures for any of its purposes, and reserves the
right to issue other obligations for such purposes.
Section 6.04. Power to Issue Bonds. The City is duly authorized pursuant to law to issue
the Bonds and to enter into this Trust Agreement. The Bonds and the provisions of this Trust
Agreement are the legal, valid and binding obligations of the City in accordance with their terms.
The Bonds constitute obligations imposed by law.
Section 6.05. Accounting Records and Reports. The City shall keep or cause to be kept
proper books of record and accounts in which complete and correct entries shall be made of all
transactions relating to the receipts, disbursements, allocation and application of moneys on
deposit in the funds and accounts established hereunder.
Section 6.06. Prosecution and Defense of Suits. The City shall defend against every
suit, action or proceeding at any time brought against the Trustee upon any claim to the extent
involving the failure of the City to fulfill its obligations hereunder; provided that the Trustee or
any affected Owner at its election may appear in and defend any such suit, action or proceeding.
Section 6.07. Continuation of Pension Tax Override. The City hereby covenants that,
so long as any Bonds remain outstanding hereunder, the City will comply with the following
requirements:
(a) The City will, or cause the County to, annually levy and collect the Pension
Tax Override;
(b) The City will take such steps as are lawfully permitted by the City to enforce
the collection of the Pension Tax Override; provided, that so long as the County acts as the
collection agency for property taxes in the City (including the Pension Tax Override), the City
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shall be deemed to be in compliance with this subsection (b) unless the County fails to perform its
duties to collect the Pension Tax Override;
(c) The City Council will not amend, or permit the amendment by initiative of,
any legislative action heretofore taken by the City Council in respect of the levy of the Pension
Tax Override to reduce the rate at which the Pension Tax Override is levied or reduce the property
or classes of property against which it is levied; and
(d) The City Council will not repeal, or permit the repeal by initiative of, the
Pension Tax Override Authorization.
Section 6.08. Continuing Disclosure. The City shall comply with and carry out all of the
provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this
Trust Agreement, failure of the City to comply with the Continuing Disclosure Certificate shall
not be considered an Event of Default;provided,however,that the Trustee may(and,at the written
direction of any Participating Underwriter or the holders of at least 25% aggregate principal
amount of Outstanding Series 2020 Bonds, and upon indemnification of the Trustee to its
reasonable satisfaction, shall) or any holder or beneficial owner of the Series 2020 Bonds may,
take such actions as may be necessary and appropriate to compel performance, including seeking
mandate or specific performance by court order.
Section 6.09. Waiver of Laws. The City shall not at any time insist upon or plead in any
manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or
at any time hereafter in force that may affect the covenants and agreements contained in this Trust
Agreement or in the Bonds,and all benefit or advantage of any such law or laws is hereby expressly
waived by the City to the extent permitted by law.
Section 6.10. Further Assurances. Whenever and so often as reasonably requested to do
so by the Trustee or any Owner,the City will promptly execute and deliver or cause to be executed
and delivered all such other and further assurances, documents or instruments, and promptly do or
cause to be done all such other and further things as may be necessary or reasonably required in
order to further and more fully vest in the Owners all rights, interests, powers, benefits, privileges
and advantages conferred or intended to be conferred upon them hereby.
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ARTICLE VII
THE TRUSTEE
Section 7.01. The Trustee. The Trustee shall, prior to an Event of Default, and after the
curing or waiver of all Events of Default that may have occurred, perform such duties and only
such duties as are specifically set forth in this Trust Agreement. The Trustee shall, during the
existence of any Event of Default that has not been cured or waived exercise such of the rights and
powers vested in it by this Trust Agreement, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in the conduct of such
person's own affairs.
The City may at any time, unless there exists any Event of Default, remove the Trustee
initially appointed and any successor thereto and may appoint a successor or successors thereto by
an instrument in writing; provided, however, that any such successor shall be a bank or trust
company doing business and having a corporate trust office in Los Angeles or San Francisco,
California, having a combined capital (exclusive of borrowed capital) and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state authority. If such bank
or trust company publishes a report of condition at least annually, pursuant to law or to the
requirements of any supervising or examining authority above referred to, then for the purpose of
this Section the combined capital and surplus of such bank or trust company shall be deemed to be
its combined capital and surplus as set forth in its most recent report of condition so published.
The Trustee may at any time resign by giving written notice of such resignation to the City and by
mailing to the Owners notice of such resignation. Upon receiving such notice of resignation, the
City shall promptly appoint a successor Trustee by an instrument in writing. Any removal or
resignation of a Trustee and appointment of a successor Trustee shall become effective only upon
the acceptance of appointment by the successor Trustee. If, within 30 days after notice of the
removal or resignation of the Trustee no successor Trustee shall have been appointed and shall
have accepted such appointment, the removed or resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee, which court may thereupon,
after such notice, if any, as it may deem proper and prescribe and as may be required by law,
appoint a successor Trustee having the qualifications required hereby.
Any company into which the Trustee may be merged or converted or with which it may be
consolidated or any company resulting from any merger, conversion or consolidation to which it
shall be a party or any company to which the Trustee may sell or transfer all or substantially all of
its corporate trust business, provided that such company shall meet the requirements set forth in
the preceding paragraph, shall be the successor to the Trustee hereunder and vested with all of the
title to the trust estate and all of the trusts,powers, discretions, immunities,privileges and all other
matters as was its predecessor hereunder, without the execution or filing of any paper or further
act, anything herein to the contrary notwithstanding.
The Trustee is hereby authorized to pay or redeem the Bonds when duly presented for
payment at maturity or on redemption prior to maturity. The Trustee shall cancel all Bonds upon
payment thereof or upon the surrender thereof by the City and shall destroy such Bonds and a
certificate of destruction shall be delivered to the City. The Trustee shall keep accurate records of
all Bonds paid and discharged and cancelled by it.
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Section 7.02. Liability of Trustee. The recitals of facts,agreements and covenants herein
and in the Bonds shall be taken as recitals of facts, agreements and covenants of the City, and the
Trustee assumes no responsibility for the correctness of the same or makes any representation as
to the sufficiency or validity hereof or of the Bonds, or shall incur any responsibility in respect
thereof other than in connection with the rights or obligations assigned to or imposed upon it
herein, in the Bonds or in law or equity. The Trustee shall not be liable in connection with the
performance of its duties hereunder except for its own negligence, willful misconduct or breach of
duty.
The Trustee shall not be liable for any error of judgment made in good faith by a
responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts.
The Trustee shall not be liable with respect to any action taken or omitted to be taken by it
in good faith in accordance with the direction of the Owners of not less than a majority in
Aggregate Principal Amount of the Bonds at the time Outstanding, relating to the time, method
and place of conducting any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee under this Trust Agreement.
The Trustee shall be under no obligation to exercise any of the rights or powers vested in
it by this Trust Agreement at the request, order or direction of any of the Owners pursuant to the
provisions of this Trust Agreement unless such Owners shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby. The Trustee has no obligation or liability to the Owners for the payment of
interest on, principal of or redemption premium, if any, with respect to the Bonds from its own
funds; but rather the Trustee's obligations shall be limited to the performance of its duties
hereunder.
The Trustee shall not be bound to ascertain or inquire as to the performance or observance
of any of the terms, conditions, covenants or agreements herein or of any of the documents
executed in connection with the Bonds, or as to the existence of a default or event of default
thereunder. The Trustee shall not be responsible for the validity or effectiveness of any collateral
given to or held by it.
The Trustee may execute any of the trusts or powers hereunder or perform any duties
hereunder either directly or by or through attorneys-in-fact, agents or receivers, shall not be
answerable for the negligence or misconduct or any such attorney-in-fact, agent or receiver
appointed by it in accordance with the standards specified above. The Trustee shall be entitled to
advice of counsel and other professionals concerning all matters of trust and its duty hereunder,
but the Trustee shall not be answerable for the professional malpractice of any attorney-in-law or
certified public accountant in connection with the rendering of his professional advice in
accordance with the terms of this Trust Agreement, if such attorney-in-law or certified public
accountant was selected by the Trustee with due care.
Whether or not therein expressly so provided, every provision of this Trust Agreement, or
related documents relating to the conduct or affecting the liability of or affording protection to the
Trustee shall be subject to the provisions of this Article.
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The Trustee shall be protected in acting.upon any notice, resolution, requisition, request
(including any Written Request of the City), consent, order, certificate, report, opinion, bond or
other paper or document believed by it to be genuine and to have been signed or presented by the
proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the
City, with regard to legal questions, and the opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken or suffered by it hereunder in good faith
and in accordance therewith.
Whenever in the administration of its rights and obligations hereunder the Trustee shall
deem it necessary or desirable that a matter be established or proved prior to taking or suffering
any action hereunder, such matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by a Written Certificate of the City, which certificate shall be
full warrant to the Trustee for any action taken or suffered under the provisions hereof upon the
faith thereof, but in its discretion the Trustee may in lieu thereof accept other evidence of such
matter or may require such additional evidence as it may deem reasonable.
No provision of this Trust Agreement shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the performance or exercise of any of its duties
hereunder, or in the exercise of its rights or powers.
The Trustee shall have no responsibility or liability with respect to any information,
statement or recital in any offering memorandum or other disclosure material prepared or
distributed with respect to the issuance of the Bonds.
All immunities, indemnifications and releases from liability granted herein to the Trustee
shall extend to the directors, employees, officers and agents thereof.
Any company into which the Trustee may be merged or converted or with which it may be
consolidated or any company resulting from any merger, conversion or consolidation to which it
shall be a party or any company to which the Trustee may sell or transfer all or substantially all of
its corporate trust business, provided that such company shall meet the requirements set forth in
Section 7.01, shall be the successor to the Trustee hereunder and vested with all of the title to the
trust estate and all of the trusts, powers, discretions, immunities, privileges and all other matters
as was its predecessor hereunder, without the execution or filing of any paper or further act,
anything herein to the contrary notwithstanding.
Section 7.03. Compensation and Indemnification of Trustee. The City shall pay to the
Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all
services rendered by it in the exercise and performance of any of the powers and duties hereunder
of the Trustee, and the City will pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in accordance with any of
the provisions of this Trust Agreement (including the reasonable compensation and the expenses
and disbursements of its counsel and of all persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence, default or willful misconduct,
including the negligence or willful misconduct of any of its officers, directors, agents or
employees. The City, to the extent permitted by law, shall indemnify and save the Trustee
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harmless against any liabilities, costs, claims or expenses, including those of its attorneys, which
it may incur in the exercise and performance of its powers and duties hereunder, including the
enforcement of any remedies and the defense of any suit, and which are not due to its negligence,
default or willful misconduct. The duty of the City to indemnify the Trustee shall survive the
termination and discharge of this Trust Agreement.
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ARTICLE VIII
AMENDMENT OF THE TRUST AGREEMENT
Section 8.01. Amendment of the Trust Agreement. (a) This Trust Agreement and the
rights and obligations of the City and of the Owners may be amended at any time by a
Supplemental Trust Agreement which shall become binding when the written consents of the
Owners of a majority in aggregate principal amount of the Outstanding Bonds, exclusive of Bonds
disqualified as provided in Section 8.02 hereof, are filed with the Trustee. No such amendment
shall (i) extend the maturity of or reduce the interest rate on or amount of interest on or principal
or redemption price of, or extend the time of payment of, any Bond without the express written
consent of the Owner of such Bond, or(ii)reduce the percentage of Bonds required for the written
consent to any such amendment.
(b) The Trust Agreement and the rights and obligations of the City and of the
Owners may also be amended at any time by a Supplemental Trust Agreement which shall become
binding without the consent of any Owners, for any one or more of the following purposes:
(i) to add to the agreements and covenants required herein to be performed by
the City other agreements and covenants thereafter to be performed by the City, to pledge
or assign additional security for the Bonds (or any portion thereof), or to surrender any
right or power reserved herein to or conferred herein on the City;
(ii) to make such provisions for the purpose of curing any ambiguity or of
correcting, curing or supplementing any defective provision contained herein or in regard
to questions arising hereunder which the City may deem desirable or necessary and not
inconsistent herewith;
(iii) to provide for the issuance of any Additional Bonds and to provide the terms
of such Additional Bonds, subject to the conditions and upon compliance with the
procedure set forth in Article IV hereof,
(iv) to modify, amend or add to the provisions herein to permit the qualification
thereof under the Trust Agreement Act of 1939, as amended, or any similar federal statutes
hereafter in effect, and to add such other terms, conditions and provisions as may be
permitted by such statute or similar statute; and
(v) to modify, amend or supplement this Trust Agreement in any manner that
does not materially adversely affect the interest of Owners of Bonds.
Notwithstanding anything to the contrary in this subsection (b), the City shall not modify, amend
or supplement this Trust Agreement in any manner that materially adversely affects the rights of
any Bond Insurer without the consent of such Bond Insurer(provided,that,the consent of the Bond
Insurer shall not be required in connection with modifications, amendments or additions pursuant
to (iii) above). The Bond Insurer, if any, shall receive written notice of any proposed amendments
pursuant to this subsection (b).
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Section 8.02. Disqualified Bonds. Bonds owned or held by or for the account of the City
shall not be deemed Outstanding for the purpose of any consent or other action or any calculation
of Outstanding Bonds provided in this Article, and shall not be entitled to consent to or take any
other action provided in this Article.
Section 8.03. Endorsement or Replacement of Bonds After Amendment. After the
effective date of any action taken as hereinabove provided,the City may determine that the Bonds
may bear a notation by endorsement in form approved by the City as to such action, and in that
case upon demand of the Owner of any Outstanding Bonds and presentation of his Bond for such
purpose at the Corporate Trust Office of the Trustee a suitable notation as to such action shall be
made on such Bond. If the City shall so determine, new Bonds so modified as, in the opinion of
the City, shall be necessary to conform to such action shall be prepared and executed, and in that
case upon demand of the Owner of any Outstanding Bond a new Bond or Bonds shall be exchanged
at the Corporate Trust Office of the Trustee without cost to each Owner for its Bond or Bonds then
Outstanding upon surrender of such Outstanding Bonds.
Section 8.04. Amendment by Mutual Consent. The provisions of this Article shall not
prevent any Owner from accepting any amendment as to the particular Bonds held by such Owner,
provided that due notation thereof is made on such Bonds.
Section 8.05. Attorney's Opinion Regarding Supplemental Trust Agreements. The
Trustee may obtain an opinion of counsel that any Supplemental Trust Agreement complies with
the provisions of this Article and the Trustee may conclusively rely upon such opinion.
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ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.01. Events of Default. If one or more of the following events (herein called
"Events of Default") shall happen, that is to say:
(a) if default shall be made by the City in the due and punctual payment of the
interest on any Bond when and as the same shall become due and payable;
(b) if default shall be made by the City in the due and punctual payment of the
principal or redemption price of any Bond when and as the same shall become due and payable,
whether at maturity as therein expressed or by proceedings for redemption;
(c) if default shall be made by the City in the performance of any of the
agreements or covenants required herein to be performed by the City, and such default shall have
continued for a period of 60 days after the City shall have been given notice in writing of such
default by the Trustee or the Owners of not less than 25% in aggregate Principal Amount of the
Bonds at the time Outstanding, specifying such default and requiring the same to be remedied,
provided,however, if the default stated in the notice can be corrected,but not within the applicable
period,the Trustee and such Owners shall not unreasonably withhold their consent to an extension
of such time if corrective action is instituted by the City within the applicable period and diligently
pursued until the default is corrected; or
(d) if the City shall file a petition or answer seeking arrangement or
reorganization under the federal bankruptcy laws or any other applicable law of the United States
of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed
with or without the consent of the City seeking arrangement or reorganization under the federal
bankruptcy laws or any other applicable law of the United States of America or any state therein,
or if under the provisions of any other law for the relief or aid of debtors any court of competent
jurisdiction shall assume custody or control of the City or of the whole or any substantial part of
its property.
Section 9.02. Institution of Legal Proceedings by the Trustee; Remedies. If an Event
of Default shall occur and be continuing, the Trustee may, and upon the written request of the
Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding, and upon
being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the
rights of the Owners of the Bonds under this Trust Agreement by a suit in equity or action at law,
either for the specific performance of any covenant or agreement contained herein, or in aid of the
execution of any power herein granted, or by mandamus or other appropriate proceeding for the
enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in
support of any of its rights and duties hereunder.
Section 9.03. Non-Waiver. Nothing in this Article or in any other provision hereof or in
the Bonds shall affect or impair the obligation of the City, which is absolute and unconditional,to
pay the principal or redemption price of and the interest on the Bonds to the respective Owners of
the Bonds on the respective Payment Dates as provided herein, or shall affect or impair the right
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of such Owners, which is also absolute and unconditional,to institute suit to enforce such payment
by virtue of the contract embodied herein and in the Bonds.
A waiver of any default or breach of duty or contract by the Trustee or any Owner shall
not affect any subsequent default or breach of duty or contract or impair any rights or remedies on
any such subsequent default or breach of duty or contract. No delay or omission by the Trustee or
any Owner to exercise any right or remedy accruing upon any default or breach of duty or contract
shall impair any such right or remedy or shall be construed to be a waiver of any such default or
breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon
the Owners by the Act or by this Article may be enforced and exercised from time to time and as
often as shall be deemed expedient by the Trustee or the Owners.
If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned,
the City,the Trustee and any Owner shall be restored to their former positions,rights and remedies
as if such action, proceeding or suit had not been brought or taken.
Section 9.04. Remedies Not Exclusive. No remedy herein conferred upon or reserved to
the Owners is intended to be exclusive of any other remedy, and each such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise and may be exercised without exhausting and
without regard to any other remedy conferred by the Act or any other law.
Section 9.05. Limitation on Owners' Right to Sue. No Owner of any Bond shall have
the right to institute any suit, action or proceeding at law or equity, for any remedy hereunder,
unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence
of an Event of Default, (b) the Owners of at least a majority in aggregate Principal Amount of all
the Bonds then Outstanding shall have made written request upon the Trustee to exercise the
powers herein granted or to institute such suit, action or proceeding in its own name, (c) such
Owners shall have tendered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities to be incurred by it in compliance with such request, and (d) the Trustee
shall have refused or omitted to comply with such request for a period of 60 days after such request
shall have been received by, and said tender of indemnity shall have been made to, the Trustee.
Such notification,request,tender of indemnity and refusal or omission are hereby declared,
in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder;
it being understood and intended that no one or more Owners of Bonds shall have any right in any
manner whatever by his or their action to enforce any right under this Trust Agreement, except in
the manner herein provided, and that all proceedings at law or in equity to enforce any provision
of the Trust Agreement shall be instituted, had and maintained in the manner herein provided and
for the equal benefit of all Owners of the Outstanding Bonds.
Section 9.06. Absolute Obligation of City. Nothing contained herein or in the Bonds
shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the
principal or redemption price of and the interest on the Bonds to the respective Owners of the
Bonds on their respective Payment Dates as herein provided.
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ARTICLE X
DEFEASANCE
Section 10.01. Discharge of Bonds. (a) If the City shall pay or cause to be paid or there
shall otherwise be paid to the Owners of all Outstanding Bonds the interest thereon and the
principal thereof and the redemption premiums, if any, thereon at the times and in the manner
stipulated herein and therein, and shall pay or provide for the payment of all fees and expenses of
the Trustee then due,then all agreements,covenants and other obligations of the City to the Owners
of such Bonds hereunder shall thereupon cease, terminate and become void and be discharged and
satisfied. In such event, the Trustee shall execute and deliver to the City all such instruments as
may be necessary or desirable to evidence such discharge and satisfaction, the Trustee shall pay
over or deliver to the City all money or securities held by it pursuant hereto which are not required
for the payment of the interest on and principal of and redemption premiums, if any, on such
Bonds.
(b) Any Outstanding Bonds shall prior to the maturity date or redemption date thereof
be deemed to have been paid within the meaning of and with the effect expressed in subsection(a)
of this Section if(i)in case any of such Bonds are to be redeemed on any date prior to their maturity
date, the City shall have given to the Trustee in form satisfactory to it irrevocable instructions to
provide notice in accordance with Section 3.03 hereof, (ii) there shall have been deposited with
the Trustee either (A) money in an amount which shall be sufficient or (B) Defeasance Securities,
the interest on and principal of which when paid will provide money which, together with the
money, if any, deposited with the Trustee at the same time, shall be sufficient, in the opinion of an
Independent Certified Public Accountant(addressed to the City and the Trustee),to pay when due
the principal or redemption price of and the interest on such Bonds to become due on such Bonds
on and prior to the maturity date or redemption date thereof,as the case may be, (iii)there shall be
delivered to the Trustee an escrow agreement entered into by the City and the Trustee or other
fiduciary or escrow agent, (iv) there shall be delivered to the Trustee an opinion of nationally
recognized bond counsel to the effect that such Bonds have been paid within the meaning of this
Section addressed to the Trustee, and (v)the City shall have given the Trustee in form satisfactory
to it irrevocable instructions to mail to the Owners of such Bonds in accordance with Section 11.07
hereof notice that the deposit required by clause (ii) above has been made with the Trustee and
that such Bonds are deemed to have been paid in accordance with this Section and stating the
maturity date or redemption date upon which money is to be available for the payment of the
principal or redemption price of and interest on such Bonds.
Section 10.02. Unclaimed Money. Anything contained herein to the contrary
notwithstanding, any money held by the Trustee in trust for the payment and discharge of any of
the Bonds or the interest thereon which remains unclaimed for two years after the date when such
Bonds or interest thereon have become due and payable, either at their stated maturity dates or by
call for redemption prior to maturity, if such money was held by the Trustee at such date, or for
two years after the date of deposit of such money if deposited with the Trustee after the date when
such Bonds and interest shall have become due and payable, shall be repaid by the Trustee to the
City as its absolute property free from trust, and the Trustee shall thereupon be released and
discharged with respect thereto and the Owners shall not look to the Trustee for the payment of
such Bonds; provided, however, that before being required to make any such payment to the City,
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the Trustee may, and at the request of the City shall, at the expense of the City, mail to the Owners
in accordance with Section 11.07 hereof a notice that such money remains unclaimed and that,
after a date named in such notice, which date shall not be less than 30 days after the date of the
mailing of such notice, the balance of such money then unclaimed will be returned to the City.
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ARTICLE XI
MISCELLANEOUS
Section 11.01. Benefits of the Trust Agreement Limited to Parties. Nothing contained
herein, expressed or implied, is intended to give to any person other than the City, the Trustee, the
Bond Insurer, if any, and the Owners any right, remedy or claim under or by reason hereof. Any
agreement or covenant required herein to be performed by or on behalf of the City or any member,
officer or employee thereof shall be for the sole and exclusive benefit of the Trustee, and the
Owners.
Section 11.02. Successor Is Deemed Included in All References to Predecessor.
Whenever herein either the City or any member, officer or employee thereof or the Trustee is
named or referred to, such reference shall be deemed to include the successor or assigns thereof,
and all agreements and covenants required hereby to be performed by or on behalf of the City or
the Trustee, or any member, officer or employee thereof, shall bind and inure to the benefit of the
respective successors thereof whether so expressed or not.
Section 11.03. Execution of Documents by Owners. Any declaration, request or other
instrument which is permitted or required herein to be executed by Owners may be in one or more
instruments of similar tenor and may be executed by Owners in person or by their attorneys
appointed in writing. The fact and date of the execution by any Owner or such Owner's attorney
of any declaration, request or other instrument or of any writing appointing such attorney may be
proved by the certificate of any notary public or other officer authorized to make acknowledgments
of deeds to be recorded in the state or territory in which such person purports to act that the person
signing such declaration, request or other instrument or writing acknowledged to such person the
execution thereof, or by an affidavit of a witness of such execution duly sworn to before such
notary public or other officer. The ownership of any Bonds and the amount,maturity, number and
date of holding the same may be proved by the registration books for the Bonds maintained by the
Trustee pursuant to Section 2.08 hereof.
Any declaration, request, consent or other instrument or writing of the Owner of any Bond
shall bind all future Owners of such Bond with respect to anything done or suffered to be done by
the Trustee or the City in good faith and in accordance therewith.
Section 11.04. Waiver of Personal Liability. No member, officer or employee of the
City shall be individually or personally liable for the payment of the principal or redemption price
of or the interest on the Bonds by reason of their issuance, but nothing herein contained shall
relieve any officer of the City from the performance of any official duty provided by the Act or
any other applicable provisions of law or hereby.
Section 11.05. Acquisition of Bonds by City. All Bonds acquired by the City shall be
surrendered to the Trustee for cancellation.
Section 11.06. Destruction of Cancelled Bonds. Whenever provision is made for the
return to the City of any Bonds which have been cancelled pursuant to the provisions hereof, the
Trustee shall destroy such Bonds and furnish to the City a certificate of such destruction.
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Section 11.07. Notice to Owners. Any notice required to be given by the Trustee
hereunder by mail to any Owners shall be given by mailing a copy of such notice,first class postage
prepaid, or by giving such notice by telecopy or by an overnight delivery service, to such Owners
at their addresses appearing in the registration books maintained by the Trustee pursuant to Section
2.08 hereof not less than 30 days nor more than 45 days following the action or prior to the event
concerning which notice thereof is required to be given; provided, however, that receipt of any
such notice shall not be a condition precedent to the effect of such notice and neither failure of any
Owner to receive any such notice nor any immaterial defect contained therein shall affect the
validity of the proceedings taken in connection with the action or the event concerning which such
notice was given.
Section 11.08. Content of Certificates. Every Written Certificate of the City with respect
to compliance with any agreement, condition, covenant or provision provided herein shall include
(a) a statement that the person or persons making or giving such certificate have read such
agreement, condition, covenant or provision and the definitions herein relating thereto, (b) a brief
statement as to the nature and scope of the examination or investigation upon which the statements
contained in such certificate are based, (c) a statement that, in the opinion of the signers,they have
made or caused to be made such examination or investigation as is necessary to enable them to
express an informed opinion as to whether or not such agreement,condition,covenant or provision
has been complied with, and (d) a statement as to whether, in the opinion of the signers, such
agreement, condition, covenant or provision has been complied with.
Any Written Certificate of the City may be based,insofar as it relates to legal matters,upon
an Opinion of Counsel unless the person making or giving such certificate knows that the Opinion
of Counsel with respect to the matters upon which his certificate may be based, as aforesaid, is
erroneous, or in the exercise of reasonable care should have known that the same was erroneous.
Any Opinion of Counsel may be based, insofar as it relates to factual matters information with
respect to which is in the possession of the City, upon a representation by an officer or officers of
the City unless the counsel executing such Opinion of Counsel knows that the representation with
respect to the matters upon which his opinion may be based, as aforesaid, is erroneous, or in the
exercise of reasonable care should have known that the same was erroneous.
Section 11.09. Accounts and Funds; Business Days. Any account or fund required
herein to be established and maintained by the Trustee may be established and maintained in the
accounting records of the Trustee either as an account or a fund, and may, for the purposes of such
accounting records,any audits thereof and any reports or statements with respect thereto,be treated
either as an account or a fund; but all such records with respect to all such accounts and funds shall
at all times be maintained in accordance with sound accounting practice and with due regard for
the protection of the security of the Bonds and the rights of the Owners. Any action required to
occur hereunder on a day which is not a Business Day shall be required to occur on the next
succeeding Business Day.
Section 11.10. Notices. All written notices to be given hereunder shall be given by mail
to the party entitled thereto at its address set forth below, or at such other address as such party
may provide to the other party in writing from time to time, namely:
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If to the City:
City of Huntington Beach
2000 Main Street
Huntington Beach, California 92648
Attention: Chief Financial Officer
If to the Trustee:
U.S. Bank National Association
633 West Fifth Street, 24th Floor
Los Angeles, California 90071
Attention: Global Corporate Trust
Telephone: 213-615-
Facsimile: 213-615-6197
Section 11.11. Article and Section Headings and References. The headings or titles of
the several articles and sections hereof and the table of contents appended hereto shall be solely
for convenience of reference and shall not affect the meaning, construction or effect hereof, and
the singular and plural forms of words shall be deemed interchangeable, and words of any gender
shall be deemed and construed to include all genders, and all references herein to "Articles,"
"Sections,"subsections or clauses are to the corresponding articles, sections, subsections or clauses
hereof; and the words "hereby," "herein," "hereof," "hereto," "herewith," "hereunder" and other
words of similar import refer to the Trust Agreement as a whole and not to any particular Article,
Section, subsection or clause hereof.
Section 11.12. Partial Invalidity. If any one or more of the agreements or covenants or
portions thereof required hereby to be performed by or on the part of the City or the Trustee shall
be contrary to law, then such agreement or agreements, such covenant or covenants or such
portions thereof shall be null and void and shall be deemed separable from the remaining
agreements and covenants or portions thereof and shall in no way affect the validity hereof or of
the Bonds, and the Owners shall retain all the benefit, protection and security afforded to them
under the Act or any other applicable provisions of law. The City and the Trustee hereby declare
that they would have executed and delivered the Trust Agreement and each and every other Article,
Section,paragraph, subdivision, sentence, clause and phrase hereof and would have authorized the
issuance of the Bonds pursuant hereto irrespective of the fact that any one or more articles,
sections, paragraphs, subdivisions, sentences, clauses or phrases hereof or the application thereof
to any person or circumstance may be held to be unconstitutional, unenforceable or invalid.
Section 11.13. Execution in Several Counterparts. This Trust Agreement may be
executed in any number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original; and all such counterparts, or as many of them as the City and the Trustee
shall preserve undestroyed, shall together constitute but one and the same instrument.
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Section 11.14. Governing Law. This Trust Agreement shall be governed by and
construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the City has caused this Trust Agreement to be signed in its
name by its representative thereunto duly authorized, and the Trustee, in token of its acceptance
of the trusts created hereunder,has caused this Trust Agreement to be signed in its corporate name
by its officer thereunto duly authorized, all as of the day and year first above written.
CITY UN 6TONCP
By:
U.S. BANK NATIONAL ASSOCIATION, as
Trustee
By:
Authorized Officer
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EXHIBIT A
FORM OF SERIES 2020 BOND
CITY OF HUNTINGTON BEACH
TAXABLE PENSION OBLIGATION BONDS
SERIES 2020
No. R- $
Interest Maturity Original
Rate Date Issue Date CUSIP ISIN
, 20
REGISTERED OWNER: CEDE & CO.
PRINCIPAL SUM: DOLLARS
The City of Huntington Beach, a municipal corporation and charter city duly organized
and existing under and by virtue of the Constitution and laws of the State of California and its
Charter (the "City"), for value received, hereby promises to pay to the registered owner identified
above or registered assigns, on the maturity date specified above (subject to any right of prior
redemption hereinafter provided for) the principal sum specified above, together with interest on
such principal sum from the Interest Payment Date (as hereinafter defined)next preceding the date
of authentication of this Bond (unless this Bond is authenticated as of an Interest Payment Date or
during the period from the first day of the month of an Interest Payment Date to such Interest
Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless this
Bond is authenticated prior to the first Interest Payment Date, in which event it shall bear interest
from the original issue date specified above) until the principal hereof shall have been paid at the
interest rate per annum specified above, payable on 15, 20_, and semiannually
thereafter on each 15 and December 15 (each an"Interest Payment Date"). Interest due
on or before the maturity or prior redemption of this Bond shall be payable only by check mailed
on the Interest Payment Date by first-class mail to the registered owner hereof; provided that upon
the written request of a registered owner of$1,000,000 or more in aggregate principal amount of
Bonds received by the Trustee (as hereinafter defined) prior to the applicable record date, interest
shall be paid by wire transfer in immediately available funds. The principal hereof is payable in
lawful money of the United States of America at the Corporate Trust Office of the Trustee.
This Bond is one of a duly authorized issue of bonds of the City designated as its"Taxable
Pension Obligation Bonds, Series 2020" (the"Series 2020 Bonds") in aggregate principal amount
$ all of like tenor and date (except for variations, if any, as may be required to
designate varying numbers, maturities and interest rates), and is issued under and pursuant to the
provisions of Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Division 2 of
Title 5 of the California Government Code (the "Act") and under and pursuant to the provisions
of a Trust Agreement, dated as of 1, 2020 (the "Trust Agreement"),between the City
and U.S. Bank National Association, as trustee (the "Trustee") (copies of which are on file at the
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Corporate Trust Office of the Trustee). Capitalized undefined terms used herein shall have the
meanings ascribed thereto in the Trust Agreement.
Under the Trust Agreement, Additional Bonds may be issued on a parity with the Series
2020 Bonds, but subject to the conditions and upon compliance with the procedures set forth in
the Trust Agreement. The Series 2020 Bonds and any such Additional Bonds are collectively
referred to as the "Bonds." The Bonds are obligations imposed by law payable from funds to be
appropriated by the City pursuant to the Public Employees' Retirement Law, commencing with
Section 20000 of the California Government Code (the "Retirement Law"). Reference is hereby
made to the Act and to the Trust Agreement and any and all amendments thereof and supplements
thereto for a description of the terms on which the Series 2020 Bonds are issued, the rights of the
registered owners of the Series 2020 Bonds, security for payment of the Series 2020 Bonds,
remedies upon default and limitations thereon, and amendment of the Trust Agreement (with or
without consent of the registered owners of the Bonds); and all the terms of the Trust Agreement
are hereby incorporated herein and constitute a contract between the City and the registered owner
of this Bond,to all the provisions of which the registered owner of this Bond,by acceptance hereof,
agrees and consents.
The obligations of the City under the Bonds, including the obligation to make all payments
of interest and principal when due, are obligations of the City imposed by law and are absolute
and unconditional,without any right of set-off or counterclaim. Except to the extent of the Pension
Tax Override as provided herein, the Bonds do not constitute an obligation of the City for which
the City is obligated to levy or pledge any form of taxation. Neither the Bonds nor the obligation
of the City to make payments on the Bonds constitute an indebtedness of the City, the State, or
any of its political subdivisions within the meaning of any constitutional or statutory debt
limitation or restriction.
The Series 2020 Bonds are subject to redemption on the dates, at the redemption prices and
pursuant to the terms set forth in the Trust Agreement. Notice of redemption of any Series 2020
Bonds or any portions thereof shall be given as set forth in the Trust Agreement.
This Bond may be transferred or exchanged pursuant to the terms set forth in the Trust
Agreement. The City and the Trustee may deem and treat the registered owner of this Bond as the
absolute owner of this Bond for the purpose of receiving payment hereof and for all other purposes,
whether this Bond shall be overdue or not, and neither the City nor the Trustee shall be affected
by any notice or knowledge to the contrary.
The rights and obligations of the City and of the owners of the Bonds may be modified or
amended by a Supplemental Trust Agreement entered into by the City and the Trustee, as provided
in the Trust Agreement.
This Bond shall not be entitled to any benefit, protection or security under the Trust
Agreement or become valid or obligatory for any purpose until the certificate of authentication
and registration hereon endorsed shall have been executed and dated by the Trustee.
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19-8203/218092
It is hereby certified that all acts, conditions and things required by law to exist, to have
happened and to have been performed precedent to and in the issuance of this Bond do exist,have
happened and have been performed in due time, form and manner as required by law.
Unless this Bond is presented by an authorized representative of The Depository Trust
Company to the Trustee for registration of transfer, exchange or payment, and any Bond issued is
registered in the name of Cede & Co. or such other name as requested by an authorized
representative of The Depository Trust Company and any payment is made to Cede & Co., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest
herein.
IN WITNESS WHEREOF, the City of Huntington Beach has caused this Bond to be
executed in its name and on its behalf by the manual or facsimile signature of the Chair of the City,
and the Clerk of the Board of Supervisors of the City has caused the seal of the City to be affixed
hereto.
CITY OF HUNTINGTON BEACH
By:
Mayor
Countersigned:
APPROVED A5 TO RM
City Clerk
By:,
tL a GAT
CITY ATTOR
CITY OF HUR—s iN' - LEACH
A-3
19-8203/218092
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds described in the within-mentioned Trust Agreement which has
been authenticated on
U.S. BANK NATIONAL ASSOCIATION, as
Trustee
By:
Authorized Officer
A-4
19-8203/218092
FORM OF ASSIGNMENT
For value received the undersigned hereby sells, assigns and transfers unto
(Taxpayer Identification Number: ) the
within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to
transfer the within bond on the books kept for registration thereof, with full power of substitution
in the premises.
Dated:
Note: The signature to this Assignment must correspond with the name as written on the face of
the Bond in every particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:
Notice: Signature(s) guarantee should be made by a guarantor institution participating in the
Securities Transfer Agent Medallion Program.
A-5
19-8203/218092
In
•
Re LInancing Our Pension Debt
Addressing HBs Greatest FiscalThreat
Huntington Beach City Council
November18, 2019
CaIPERS Pension Cost Increases
• The greatest challenge to Huntington Beach's long-term fiscal
sustainability — and the fiscal sustainability of government
agencies in California — relate to unfunded CalPERS pension cost
obligations
• CalPERS methodology changes that have been implemented
during the past several years have created a pension cost
structure that is requiring all California governmental agencies to
rethink their operations or face insolvency
Refinancing Our Pension Debt
• A plan to address our ballooning pension debt costs was presented
to both the City Council and Finance Commission in October for
consideration
• City Council Review —October 21, 2019
• Finance Commission Review —October 30, 2019
• The City Council directed that staff bring back a plan that would
allow HB the opportunity to refinance our existing pension debt
• The Finance Commission voted unanimously to recommend that
the City Council move forward with the proposed plan
Pension
Cost Backgroun
Unfunded Accrued Liabilities Driving Cost Increases
How Do Pension Costs Work?
• On an annual basis, the City and employees make contributions
toward CalPERS to pay for future retirement benefits
• In total, the City's account at CalPERS has a balance of around $gi3.96
million in assets to pay for promised retirement benefits
• Our annual payment to CaIPERS includes three components:
s.. Employer Normal Cost
2. Employee Normal Cost
3. Unfunded Accrued Liability (UAL) Cost
Three Different Pension Cost Areas
• Employer Normal Cost (FY 2018/19 actuals - $13.03 million)
• Employer pension costs are determined by CalPERS and paid by the City(with a portion
being paid by some employees)
• Misc.employer costs are currently 9.211.%of payroll
• Safety employer costs are currently ig.8i6%of payroll
• Employee Normal Cost (FY 2018/ig actuals - $7.6o million)
• Employees also contribute towards pension related costs
• Misc.employees contribute 8%(Classic)or 6.25%(PEP RA)of payroll costs
• Safety employees contribute 9%(Classic)or ii%(PEPRA)of payroll costs
• UAL Cost TY 2018/Zq actuals - $24.gJ million)
• UAL costs are assessed to makeup for valuation lost and costs incurred from prior years
• Lower than projected investment returns
• Changes in actuarial assumptions
City of Huntington Beach
Pension Cost Areas
FY 2018/19 Actuals
Data Employer Employee UAL TOTAL
Category Cost Cost Cost
Total Contribution $ 13,031,511 $ 7,603,098 $ 24,930,996 $ 45,565,605
Percentage of Total 29% 17% 55% 100%
UAL Payments Driving Pension Cost Increases
• CalPERS pension "Normal Cost" are fairly consistent
• Public Safety Normal Cost are projected to hover at around zo%- 21% of payroll
• Misc. Normal Costs are projected to hover at around io%-11% of payroll
• Primary driver of increased pension costs are unfunded liabilities
• HB currently has sg'3.g6 million in assets in our CalPERS account, however, the
value of the retirement benefits that have been promised is currently estimated
at $i.3S billion in liabilities
• This means that the City currently has a projected UAL of $416.17
million
• The entire CalPERS portfolio has an estimated UAL of$3.51.7 billion
• CalPERS has instituted aggressive funding schedules in an attempt to
reach i00% funded status within the next 20-30 years
UAL Structure SimilarTo A Mortgage
• Accelerated UAL payments mandated by CaIPERS have been the
cause of our current pension crisis
• Of note, UAL payments will end when the overall accrued debt load has
been paid off
• In some ways, UAL payment is similar to a mortgage payment
• For HB specifically, our UAL "mortgage" includes the following key
terms:
• We're being charged an interest rate of 7%to service our UAL debt load
• We have 25 years left on the term of our current "mortgage"
• Final payment scheduled for June 30, 2044
• ARMs stink... our annual payments will increase through FY 2030/31
UAL Cost Increase Impact On HB
• HB's annual UAL payment costs (i.e., our mortgage payments) have
increased dramatically during the past decade, and will continue to
increase until 2031
• FY 2oo8/o9 UAL Payment - $4.58 million
• FY 2018/19 UAL Payment - $24.93 million
• FY 2030131 UAL Payment - $46.o2 million
• In the past 10 years (from 2009 — 2019), our annual UAL payment has
increased a staggering 444%, from $4.58 million to $24.93 million
• By FY 2030/2031, our UAL payment is projected to increase by 85%
over FY 2018/19, from $24.93 million to $46.02 million
• This equates to a $21.0g million annual cost increase!!!
City of Huntington Beach
UAL PaymentAmounts
FY 2008109-FY 2030131
$50,Do0,000
$45,000,000
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,D00,D00
$15,000,000
$10,D00,000
$5,000,000
FY 08/09 FY D9/10 FY 10/11 FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 FY 29/30 FY 30/31
■ UAL Payment Amount $4,581, $5,238, $6,257, $10,664 $11,409 $12,920 $14,472 $16,477 $18,500 $21,291 $24,930 $29,892 $32,567 $35,873 $38,573 $40,247 $42,107 $41,221 $42,389 $43,555 $43,588 $44,787 $46,019
$21 . 09 Million / Year
Moving forward, the challenge we face on the pension front is that
by 2031, our annual UAL payment will increase by $21.09 million
year over • • costs
CaIPERS
How the heck did we get here?
Has CalPERS Always Been Underfunded?
• No! In fact, 20 years ago, CalPERS was 128% funded
• Also, during the sggo's, and again during the mid-2000's, the
CalPERS portfolio was consistently funded at above 8o%
• Throughout that period, on multiple occasions, CalPERS was
superfunded, meaning that it had more than s00% of the assets
needed to cover all liabilities
CalPERS Historical Funded Status
Funded ratio M
$300
Actuarial liabilities
Assets(S)
2002 20030 0
000 00 009 Increased li fe Additional
Strong economy .0
from State
PEPRAla. Steps to
lfrr unlundwl liability Iruni
strengthen
Discount Dscount the Fund
rate lowered rate lowered Discount rate
56400 has been paid off.
D.
So What Happened ?
• Our current pension crisis in California began in September of iggg, when
then Governor Gray Davis signed SB 400 into law
• SB 400 instituted significantly enhanced retirement benefits for CalPERS
members
• Public safety personnel were provided with the "3@a 5o" retirement benefit
• Non-public safety personnel were offered enhanced pension plans as well
• These enhanced retirement plans are now near universally provided as standard
benefits for public sector employees in California
• SB 400 significantly increased pension benefits for public sector employees
• Prior to SB 400, a California Highway Patrol officer who retired with 3o years on the job
collected a CalPERS pension averaging $62,218/year
• After SB 400,California Highway Patrol officers with 30 years on the job began
collecting a pension averaging $96,270/year
CaIPERS Investment Returns Tanked
• When SB 400 was instituted, CaIPERS projected that the enhanced
benefits could be provided at no additional cost
• The CaIPERS board assumed ongoing annual investment returns of 8.25%
• According to actuaries, if investment returns of 8.25%were achieved, then the
enhanced retirement benefits would not have added any additional costs
• Unfortunately, we have had two major stock market collapses since 1999
• In 2000, the dot.com bubble burst
• The Dow Jones Industrial Average dropped 6%in z000,7%in zoos,and 17%in 2002
• In 20o8, the Great Recession hit
• CaIPERS investments lost 3%in 2008,and then, lost an unbelievable 24%in 2009
• Today, the overall CaIPERS portfolio is estimated to be funded at around
70%
CaIPERS Cost Increases Enacted
• In response to deteriorating financial conditions, CaIPERS has enacted
a series of pension cost increases
• March 16, 201.2—Change in Discount Rate From 7.75% - 7.So%
• Designed to more accurately reflect investment return earnings
• Impacted employer rates beginning in FY 2013/14
• April 17, 2011 —Change in Amortization & Rate Smoothing Policy
• Designed to pay down unfunded liabilities faster
• Impacted employer rates beginning in FY 2oi5/i6
• February A, 2014—Change in Actuarial Assumptions & Asset Allocations
• Designed to account for demographic and mortality adjustments
• Impacted employer rates beginning in FY 2016/17
Additional Increases Enacted In zoi6
• On December zs, 203.6. the CalPERS Board voted to enact two
substantial new changes
i. Lower the discount rate from 7.5%to 7.0%
2. Enact an accelerated payback schedule for all unfunded accrued liabilities(UAL)
• The net effect of the two changes includes the following:
• Discount Rate Reduction
• Designed to more accurately reflect investment return earnings
• Impacted employer rates beginning in FY 2018/19
• UAL Payment Acceleration
• Designed to accelerate payments to fully fund existing unfunded liabilities over a z0-30
year period
So . . . W at Do W Do Now?e
Refinancing our UAL debt, coupled with stronger pension funding
policies, are two recommended areas of analysis.
HB's UAL Cost Increase Scale
• 2009 Vs. 201 yq s. 2030/31
• FY 2oo8/o9 UAL Payment - $4.58 million
• FY 2018/19 UAL Payment - $24.93 million
• FY 2030131 UAL Payment - $46.02 million
• From 2009 — 2019, we saw an annualized 444% cost increase
• From $4.58 million to $24.93 million
• From 2019 — 2031, we will see an annualized 85% cost increase
• From $24.93 million to $46.02 million
• That's a cost increase of$21.09 million / year in 2031
Scale of Pending Budget Problem
• If we do nothing, by 2-031, we will need to find an additional $21.09
million / year to address escalating UAL cost payments
• Eliminating our Library, Community Services, and IT Departments
would result in $20.81 million in savings, which isn't enough to cover the
UAL cost increase
• Eliminating 25% of our entire Police Department operation (-91
positions) would achieve $19.64 million in savings, which wouldn't be
enough to cover the UAL cost increase
• Eliminating 40% of our entire Fire Department operation (-79
positions) would net $1g.62 million in savings, which wouldn't be
enough to cover the UAL cost increase
What Are Our Options?
• Our pension problem is really a UAL cost problem
• To solve the problem, we can either...
1. Find the funds needed (either through cuts and / or revenue increases) to
pay for the increasing UAL costs
2. Refinance our current UAL costs via a pension obligation bond (POB)
Refinancing Seems Like A Good Idea
• Current CaIPERS UAL Balance — $436 million
• If we do nothing, our UAL payments to CaIPERS during the next 24-year
period will cost the City the following amounts:
• Annual cost: Fluctuates (avg. $34.79M /year, high of$46.02M/year)
• Total payments: $834.90 million
• Total interest costs: $391.78 million
• Refinancing with a POB could result in the following cost structure during
the next 25-year period (assuming a conservative interest rate of 3.28%):
• Annual cost: Fixed at -$27.6 million/year
• Total payments: $661.8 million
• Total interest costs: $23.7.4 million
CaIPERS UAL vs . POB Refinance
CalPERS UAL Payment Costs vs. POB Refinancing Costs
CalPERS POB Refinancing
UAL Payment Refinancing Savings
Annual Payment(average) $ 34,787,631 $ 27,575,340 $ 7,212,291
Total Payments $ 834,903,132 $ 661,808,168 $ 173,094,964
Totallnterest $ 391,784,473 $ 217,428,168 $ 174,356,305
Why Is Refinancing Cheaper?
• One of the primary cost saving drivers when assessing the POB
option is the current municipal bond market
• We currently live in a low-interest rate world, with certain governmental
entities (Germany, Japan, and the EU) offering negative savings rates
• These global market conditions have created a scenario where municipal
borrowing rates are currently near the lowest levels ever recorded
• For the proposed POB, preliminary research indicates that we
could refinance our UAL debt at somewhere around --3%
interest
• By comparison, CaIPERS is currently assessing an interest rate of
7% on our UAL debt
Why Shouldn't We Refinance?
• In order to more fully vet the POB option, staff has been asking
ourselves one key question...
• What are the reasons why we SHOULD NOT issue a POB?
Reasons Why Refinancing Could Be Bad Idea
• Issuing a POB now does nothing to address future
possible unfunded actuarial liabilities growth
• Returning our UAL to zero now does nothing to keep it at zero
in the future
• CaIPERS could underperform from an investment
perspective, and our POB funds could lose value
• If CalPERS does not earn at least a -3% return (i.e., the cost of
refinancing our UAL debt), then our POB funds will cost more
than the benefit we are receiving
Reasons Why Refinancing Could Be A Bad Idea
• CaIPERS could over-perform from an investment
perspective, and we wouldn't have had to issue such a large
POB
• If CaIPERS over-performs and beats 7% investment returns (6.7%
return earned in FY 2018/1.9), then our UAL amount will decrease
• Unknown possible State legislative /judicial changes in the
future
• The State and / or the Courts could make pension rule changes to
reduce our UAL amounts
Reasons Why Refinancing Makes Sense
• Despite the reasons identified as to why we shouldn't
consider refinancing our UAL debt, there continue to be
compelling reasons why we should consider the
strategy
• Refinancing removes an unknown cost variable and replaces
UAL cost increases with a stable fixed payment amount
• Similar to transitioning from a variable rate ARM loan into a fixed-rate
loan
• Interest rates are at historic lows, and given HB's current fiscal
situation, we will likely be able to refinance our UAL debt load at
an interest rate of --3%
Reasons Why Refinancing Makes Sense
• More than likely, CaIPERS will be able to earn an investment return of at least
(and likely greater than) 3%, which makes refinancing an attractive option
• CalPERS actual investment return performance (for FY ending 6/30/19):
• Last year(FY 20i8/i9)—6.7%
• Last 3 years—6.7%
• Last 5 years—8.1%
• Last so years—5.6%
• Last zo years—6.1%
• Last 30 years—8.4%
• Even if the State /courts make pension program changes (which is unlikely), HB could
still take advantage of those options if we refinance
• Refinancing our UAL debt does not preclude the City from taking part in future State/
court decisions related to pension program changes
Reasons Why Refinancing Makes Sense
• If our pension fund becomes over-funded (at +i00%), those
funds stay in the City's CaIPERS account and can be used to cover
future UAL shortfalls
• By refinancing, the City's CaIPERS pension fund will have a larger
pool of assets to invest with, and given compounding interest,
that larger asset pool gives HB a better chance to earn more
significant returns
• 7% return on $93.3.96 million (current CaIPERS balance) = $63.98 million
• 7% return on $1.35 billion (CaIPERS balance if fully funded) = $94.51 million
Additional Refinance Consideration
• Staff has spent significant time researching why some state
pension funds are currently better funded than CaIPERS, and why
certain local jurisdictions in California have lower UALs than others
• NewYork vs. California
• In 2oi9, NY = 96%funded//California =70%funded
• State of California—Brown + Newsom = $9 billion "POB"to pay down State UAL
• California city examples
• Newport Beach—$8M - $9M extra per year to pay down UAL
• Santa Monica—Paid down UAL by $77.5M from 2010 - 2oi8 with cash on hand
• Ontario/Simi Valley—Considering refinancing w/ POB option to pay down UAL
Savings From Refinancing UAL Debt
Should Be Conservatively Managed
• If we do move forward with refinancing our existing UAL debt,
staff would recommend that we conservatively manage any
realized savings
• Fiscal threats are on the horizon
• CalPERS will almost certainly look to lower their assumed rate of return
from 7% down to 6% within the next few years
• We are currently in our i25tr, consecutive month of economic expansion,
making this current period the longest growth cycle in the history of our
nation
• Growth cycles in the US have historically averaged 56 months in length
• We are overdue for a recession, which is looming over the world
Development Of A CalPERS UAL Policy
• In addition to using our Section 115Trust, if we do move forward with
refinancing our UAL debit, staff also would recommend that a new City
UAL policy be adopted
• Such a policy could require that as part of our budget process, we
annually identify any new UAL debt that has accrued, and that the
City develop a pay-off plan for the new debt within a set time period
• For example, a policy framework could be as follows:
• UAL of$o - $5 million - paid off within 0-5 years
• UAL of $5 - sio million - paid off within 5-10 years
• UAL of$10 - $15 million - paid off within 10-15 years
• UAL of$15 - $20 million - paid off within 15-20 years
Requested City Council Action
1. Approve the resolution and trust agreement necessary to initiate the judicial
validation process to allow HB the opportunity to refinance our UAL debt
• Refinancing would be achieved through a pension obligation bond (POB)
• In California, POBs require ajudicial validation action, which requires around go-days to
coordinate
• To proceed,the City must adopt a non-binding resolution authorizing the pension
obligation bond process
2. If the resolution and trust agreement are approved by City Council, the following
will take place:
• Judicial validation process will be initiated
• City financing team will prepare all required financial documents necessary to bring the
item back for City Council consideration in March/April 2020
Questions?