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Page 9 of 16 <br />investments for health and safety related projects such as emergency backup generator <br />replacements, near- and long-term improvements for water supply, projects that address <br />pipeline deficiencies or improve fire system flow, and tank and booster station rehabilitation <br />or replacement. These are capital investments required to meet mandates and compliance <br />requirements. Years of low rates resulted in a lack of available resources to fund critical <br />infrastructure, which leaves current and future water rate customers having to pay more to <br />maintain the existing system. The Sewer Management Plan is expected to be completed <br />soon ,and is expected to show a similar significant funding gap. <br /> <br />Damages from the 2023 winter storms resulted in significant unexpected costs. As noted, <br />more than $18 million in capital project funding was diverted to fund safety-related storm <br />drain projects by the City Council in March 2024 because other funding sources were not <br />available. With the deferral/defunding of capital projects to fund critical storm drain projects, <br />the City is further behind in maintaining and replacing its aging infrastructure. The City’s <br />infrastructure will continue to age and deteriorate without a significant infusion of new <br />revenue resources, especially with capital costs continuing to grow. <br /> <br />Unfunded Retiree Medical and Pension Liabilities <br />As shown in the tables below, the City’s unfunded retiree medical and pension liabilities <br />remain significant at more than $200.0 million. As noted in the soon to be published FY <br />2023/24 Annual Comprehensive Annual Financial Report (ACFR), the unfunded pension <br />liability is expected to increase slightly because CalPERS did not meet its 6.8% discount rate <br />in FY 2022/23. The FY 2024/25 unfunded pension liability is expected to be lower due to a <br />greater than 9.0% investment return in FY 2023/24. There is a one-year lag in adjusting <br />unfunded pension liability impacted by investment gain/loss. Fluctuations are expected from <br />year to year as impacted by investment return/loss and demographic data used by CalPERS <br />to project pension costs. The discount rate set by CalPERS has decreased over the years <br />from 7.5% to 6.8%. As a result, high pension contributions are required from member <br />agencies. <br /> <br /> <br />Page 11 of 109