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Home My WebLink About _ 4.10(a)--Approve internal loan between City funds to prepay the CalPERS Unfunded Liability GI �" Y C� F � � �- ' � ° � � i � CITY OF REDDING �� REPORT TO THE CITY COUNCIL MEETING DATE: July 15, 2025 FROM: Greg Robinett, Director of ITEM NO. 4.10(a) Finance/City Treasurer ***APPROVED BY*** �� ` � i��* c3 a t,I3 � tt�e �^ins�nci,'Catyr`�'ri�sure,r 7,+3r2�)25 t�S�B c1 �, 5S �F 1��l�Q�v,`+ grobinett@cityofredding.org btippin@cityofredding.org SUBJECT: 4.10(a)--Approve internal loan between City funds to prepay the CaIPERS Unfunded Liabilit Recommendation Authorize and approve the following: (1) Authorize a City of Redding (City) internal loan for prepayment of the Ca1PERS unfunded liability (UAL) payment for Fiscal Year 2025-26 in the amount of$20,221,123 between Redding Electric Utility, Water, and Wastewater as funds allow to the following City Funds: General, Airports, Information Technology, Fleet Maintenance, Building Maintenance, Records Managements, Redding Municipal Utilities Administration, Geographic Information Systems, Communications, Reprographics, and Volunteer Services; and (2) Authorize City Manager and Director of Finance in future years to prepay UAL utilizing internal loans that will be repaid within each fiscal year. Fiscal Impact The prepayment of the Ca1PERS unfunded liability (UAL) for Fiscal Year 2025-26 must be paid on or before July 31, 2025. The prepayment required for the Miscellaneous Plan is $16,574,998 and $13,050,809 for the Safety Plan. The total Ca1PERS UAL is $29,625,807 compared to $30,616,519 if monthly payments were made on the two plans, which would result in a savings of $990,712 for both plans. In order to prepay the Ca1PERS LTAL, the City of Redding (City) does not have adequate cash in some of the affected funds. This requires a loan from the funds who have adequate cash balances to absorb the prepayment. There ar� various funds requiring a loan in order to prepay the respective portions of the UAL. Each of these funds will begin repaying the loans to the lending funds on July 31, 2025, and will repay the loans with interest in its entirety by June 30, 2025. Interest on the loans will accrue at the same rate the City earns on its pooled cash. This rate is the same rate that would have been earned on the respective reserve balances and, th�refore, will have no fiscal impact on the lending funds. The average pooled cash interest rate for Fiscal Year 2024-25 was approximately 2.64 percent. Total interest for the loans is projected to be approximately $214,810 using the Report to Redding City Council July 9, 2025 Re: 4.10(a)--Approve internal loan between City funds to prepay the Ca1PERS Unfunded Liability Page 2 average pooled cash interest rate for Fiscal Year 2024-25. Because the pooled cash rate adjusts monthly, actual results wi11 vary. For Fiscal Year 2025-26 the savings to the General Fund will be approximately $591,167. After factoring the projected interest cost for the loan of $187,795 the projected net savings to the General Fund would be $403,372. Organization wide, which includes the General Fund, the City will save $990,712 in amounts paid to Ca1PERS. After factoring the projected interest cost for the loan from Redding Electrical Utility (REU), Water, and Wastewater of $214,810, the projected net savings organization wide would be $775,902. Alter�native Action The City Council has the option to not approve the loan between the utility funds and several of the City's other funds, including the General Fund. If the loan is not approved, the City would instead begin making monthly UAL payments to CaIPERS which would ultimately incur additional cost to the City. If the City Council elected not to approve the loan for prepayment of CaIPERS UAL, it would negatively impact the budget for all funds for Fiscal Year 2025-26. Background/Analysis Since Fiscal Year 2017-18 the City has prepaid the Ca1PERS UAL. The prepayment was made possible each year through a loan from REU to the various funds throughout the City. Those funds were unable to prepay the amount due without the loan. The loans received from REU beginning in Fiscal Year 2017-18 were repaid in full with interest. For Fiscal Year 2025-26, the City is again seeking an internal loan for the fiscal year that will be repaid with interest. Due to the fact that REU is currently utilizing reserves for a variety of capital and deferred capital maintenance they are in the midst of a cash cycle where the reserves are decreasing. As a result, staff is recommending continuing the loan process to utilize other enterprise/utility funds to provide the loan to the departments that cannot prepay their portion of the UAL. Staff will separate the loan based on available cash and ability to fund the loan for the duration of the fiscal year. The internal loans are dependent upon available cash and distributed based on the ability of each fund. Staff has now performed the internal loan process and analysis for nine years and this has become a routine business item. The results of the prepayment are a net positive for all City funds and departments benefitting the departments who are able to prepay their own portion of the UAL and those who would not be able to prepay. Envir�onmental Review This item is not a project as defined under the California Environmental Quality Act, and no further action is required. Council Pr�ioNity/City Manager Goals • Budget and Financial Management — "Achieve balance and stable 10-year Financial Plans for all Funds." � Communicafion and Transparency — "Improve the quality and quantity of communication with the public and City employees to enhance knowledge and increase transparency to improve public trust."