City Council Pension Obligation Bond Workshop

July 13, 2005

City of Oceanside

Citigroup Global Markets Inc. 444 South Flower Street 27th Floor, Los Angeles, CA 90071

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Issuing Pension Obligation Bonds (“POBs”)

The issuance of POBs refinances the City’s unfunded liability with CalPERS

Savings based on the anticipated difference between actuarial rate (7.75%) and All-in True Interest Cost (All-in TIC) of bonds issued (currently estimated at 5.43%)

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How Do Pension Obligation Bonds Work?

Proceeds of bonds are deposited with CalPERS and invested according to CalPERS’ investment policy

Oceanside CalPERSUAAL

Amortization Payments at

7.75%

$

Current Status

ProceedsPOB

Oceanside One-Time Deposit to CalPERS

$

Investors

POB Transaction

Semi-Annual Debt Service

Payments at 5.43%

CalPERS

City’s UAAL amortization payments are replaced with principal and interest payments to bondholders

Net effect is to lower the City’s annual budgetary payments

Projected “Reduction” = Difference between actuarial requirement at 7.75% and bond payments at 5.43%

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Why are Issuers Using POBs?

Low Interest Rates Drive POB Issuance  

0

400

800

1,200

1,600

1985 1988 1991 1994 1998 2001 2004

S&P 500

1985-Present

S&P 500 Index

Benchmark Treasuries vs. Typical Pension Fund Investment Rate

7.75%

0%

3%

6%

9%

12%

1985 1987 1990 1993 1996 1999 2001 2004

30-Yr. Treasury 10-Yr. Treasury 7.75% UAAL

2nd Waveof POBs

3rd Waveof POBs

1st Waveof POBs

1985-Present

Market declines in recent years reduce chances that new deposits will be invested at market highs.

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Who Has Used POBs to Refinance Their UAAL?

Since 2000, nearly $2.6 billion in taxable POBs have been issued in 190 transactions.

POB Issuance By California Cities Since 1995

SaleDate Issuer Issue Description

Par Amount($ mils)

7/28/1995 Santa Rosa-California Pension Obligation Bonds 8.67 10/25/1995 Long Beach City-California Pension Obligation Bonds 108.64 2/14/1997 Oakland-California Pension Obligation Bonds 436.29 5/19/1998 Berkeley-California Pension Obligation Refunding Bonds 12.42 7/29/1999 Pasadena-California Pension Obligation Bonds 101.94 11/3/1999 Richmond City-California Pension Obligation Bonds 36.28 7/11/2000 Fresno-California Pension Obligation Refunding Bonds 211.30 6/13/2001 South Gate City-California Taxable Certs of Participation 8.50 10/3/2001 Oakland-California Pension Obligation Bonds 195.64 1/23/2002 Fresno-California Pension Obligation Bonds 205.34 8/9/2002 Long Beach City-California Pension Obligation Refunding Bonds 87.95 7/9/2003 Santa Rosa-California Pension Obligation Bonds 50.67 6/17/2004 Union City-California Pension Obligation Bonds 23.00 6/29/2004 Pomona City-California Pension Obligation Bonds 38.00 1/20/2005 Fairfield City-California Pension Obligation Bonds 29.92 3/1/2005 South Gate City-California Pension Obligation Bonds 24.40 4/13/2005 Fairfield City-California Pension Obligation Bonds 11.83 6/13/2005 Huntington Park City-California Pension Obligation Bonds 23.05

Source: SDC Thomson Financial

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City’s Pension Obligation Bonds

20-year Taxable Pension Obligation Bonds

Fixed Rate with 10-year Call Option

Par Value $36,820,000*

All-in Total Interest Cost 5.43%*

Net Present Value Savings $6,844,105 (19%)*

Estimated annual savings $583,000*

*Preliminary, Subject to Change

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Benefits of Issuing POBs

Interest Rate Savings

Assumed CalPERS interest rate at 7.75% versus current bond rate of 5.43% produces cash flow savings

Interest Arbitrage

Proceeds from POBs will be invested by CalPERS at higher rate of return than the interest cost on the bonds. Benefit of higher return credited to City in lower normal annual contributions.

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Benefits of Issuing POBs

CURRENT AMORTIZATION - SAFETY PLAN(1) FRESH START-SAFETY PLAN(1) PENSION OBLIGATION BONDS-SAFETY PLAN(2)

Amort. 20 Year Debt Service 20 YearYear Period $ Payment % Pay Period $ Payment % Pay Payment Period Annual Savings

2005/06 32,668,442$ 20 2,467,485$ 12.8% 32,668,442$ 20 2,467,485$ 12.8% 1,995,879$ 20 471,607$ 2006/07 32,638,930 30 1,960,000 9.9% 32,638,930 19 2,547,679 12.8% 2,017,781 19 529,898 2007/08 33,133,915 30 1,989,724 9.7% 32,523,888 18 2,630,478 12.8% 2,103,510 18 526,968 2008/09 33,636,406 30 2,019,899 9.5% 32,313,982 17 2,715,969 12.8% 2,184,457 17 531,512 2009/10 34,146,518 30 2,050,532 9.4% 31,999,067 16 2,804,238 12.8% 2,275,703 16 528,535 2010/11 34,664,366 30 2,081,629 9.2% 31,568,120 15 2,895,375 12.8% 2,366,518 15 528,857 2011/12 35,190,067 30 2,113,198 9.1% 31,009,172 14 2,989,475 12.8% 2,461,637 14 527,838 2012/13 35,723,741 30 2,145,246 8.9% 30,309,227 13 3,086,633 12.8% 2,554,967 13 531,666 2013/14 36,265,508 30 2,177,779 8.8% 29,454,184 12 3,186,949 12.8% 2,656,219 12 530,730 2014/15 36,815,491 30 2,210,806 8.6% 28,428,745 11 3,290,524 12.8% 2,760,050 11 530,475 2015/16 37,373,815 30 2,244,334 8.5% 27,216,319 10 3,397,466 12.8% 2,870,624 10 526,842 2016/17 37,940,607 30 2,278,370 8.3% 25,798,922 9 3,507,884 12.8% 2,980,368 9 527,516 2017/18 38,515,994 30 2,312,923 8.2% 24,157,060 8 3,621,890 12.8% 3,090,080 8 531,810 2018/19 39,100,107 30 2,348,000 8.0% 22,269,613 7 3,739,602 12.8% 3,209,232 7 530,370 2019/20 39,693,078 30 2,383,608 7.9% 20,113,700 6 3,861,139 12.8% 3,331,768 6 529,371 2020/21 40,295,042 30 2,419,757 7.8% 17,664,546 5 3,986,626 12.8% 3,456,896 5 529,730 2021/22 40,906,135 30 2,456,453 7.7% 14,895,323 4 4,116,191 12.8% 3,588,824 4 527,367 2022/23 41,526,496 30 2,493,707 7.5% 11,776,993 3 4,249,967 12.8% 3,721,496 3 528,471 2023/24 42,156,264 30 2,531,525 7.4% 8,278,129 2 4,388,091 12.8% 3,859,120 2 528,971 2024/25 42,795,584 30 2,569,917 7.3% 4,364,727 1 4,530,704 12.8% 4,000,640 1 530,064 2025/26 43,444,599 30 2,608,891 7.1% - 0 - 0.0% - 0 - 2026/27 44,103,456 30 2,648,456 7.0% - 0 - 0.0% - 0 - 2027/28 44,772,306 30 2,688,621 6.9% - 0 - 0.0% - 0 - 2028/29 45,451,299 30 2,729,395 6.8% - 0 - 0.0% - 0 - 2029/30 46,140,589 30 2,770,787 6.7% - 0 - 0.0% - 0 - 2030/31 46,840,332 30 2,812,808 6.6% - 0 - 0.0% - 0 - 2031/32 47,550,688 30 2,855,465 6.5% - 0 - 0.0% - 0 - 2032/33 48,271,816 30 2,898,770 6.4% - 0 - 0.0% - 0 - 2033/34 49,003,881 30 2,942,731 6.2% - 0 - 0.0% - 0 - 2034/35 49,747,048 30 2,987,359 6.1% - 0 - 0.0% - 0 - 2035/36 50,501,485 30 3,032,663 6.0% - 0 - 0.0% - 0 - (1) Source - Bartell Associates, LLC(2) Preliminary, Subject to Change.

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Possible Disadvantages of Issuing POBs

Possibility the assumed interest rate by CalPERS will drop below the bond interest rate, or CalPERS will have negative earnings for a sustained period of time

Lump sum payment to CalPERS is invested at one time versus over a period of time which could concentrate market timing risks

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CalPERs Annual Returns (%)

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Annual Return(1) 7.75% Assumed Earnings RateOne Standard Deviation - Low Range One Standard Deviation - High Range12.0% 20 Year Avg. Return

Historical PERs Rates of Return

Notes:(1) Year end 6/30/85-6/30/04 as reported by CalPERs: beginning 6/30/02 performance figures are reported as gross of fees

One Standard Deviation – High Range

12% 20 year Avg Rate

7.75% Assumed Earnings Rate

One Standard Deviation – Low Range

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