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DISCUSSION The City's unfunded pension liabilities are currently at approximately $160 million. This figure is expected to grow over the next several years which will impact the City's annual contribution into the system. As the chart below illustrates, the City's annual CaIPERS contributions are projected to grow from $14.2 million in FY 2017/18 to $21.6 million in 2021/22, and continue increasing to $28.5 million in 2026/27. Total Annual Estimated Pension Contributions (in millions) $24.6 $26.0 $27.4 $28.5 $23.3ii1lI 7 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 This illustration provides the basis for tonight's discussion. In order to sustain services at current levels, including operations (police, fire, library etc.), plan for new capital (e.g. an expanded library, new community center, etc.) and set aside funds for the ongoing repair and replacement of existing assets (e.g. street maintenance, fire station improvements, replacement vehicles, etc.), the City must take a proactive approach to address this matter in advance of the estimated impacts. Fortunately, the City currently has approximately $22 million3 available to prefund the City's pension liabilities. The manner in which these funds are utilized can either impact the City's overall unfunded liability and/or smooth the annual impact of the pension payments to minimize service level disruptions. There are essentially two policy approaches to affect these outcomes: (1) prepay pension liabilities directly to CaIPERS and/or (2) establish a Section 115 Supplemental Pension Trust Fund (Trust Fund) to, ease the budgetary pressures resulting from higher annual pension contributions. Each of these options are described below. Use of Funding Sources: 1. Send available funds directly to CaIPERS to prepay the City's unfunded pension liabilities. a. Pros — Reduces the City's unfunded liability. 3$20.3 million in the City's Retiree Medical Reserve and $1.8 million allocated to prefund pension liabilities from the FY 2016/17 year-end General Fund surplus. Page 4 of 6