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Attachment 3Arn Andrews To: Subject: Laurel Prevetti RE: 11_Staff_Report_Town_Pension_Payments_FINAL.pdf From: Phil Koen <pkoen@intermedia.net> Date: April 12, 2018 at 9:56:06 PM PDT To: "lprevetti@a,losgatosca.gov" <lprevettiAlosgatosca.gov> Subject: 11_Staff Report Town Pension_Payments_FINAL.pdf Laurel, I have a question regarding the attached Staff report. In Table 1 in the third section you state "authorized an additional Sim to be placed into the CALPERs/OPEB Reserve in the adopted 2017/2018 budget". When I look at the budget resolution, $3,528,822 was authorized to transfer from the Strategic Priority Reserve. These funds were budgeted to be used as follows: $2,482,227 transferred to GFAR $300,000 transferred to Equipment Replacement Fund $300,000 transferred to Facility Maintenance Fund $446,595 one time use to balance General Fund budget There doesn't appear to be any authorization in the 2017/2018 budget document to add an additional $1m to the CALPERS/OPEB Reserve. Can you please show me where I can find this as part of the 2017/2018 Budget. The Town Council did pass in June, 2017 resolution 2017-027 which was authorization to reassign $2.6m of excess Almond Grove Reserve to various other reserves. This resolution specifically mentions transferring $1 m to the CALPERS/OPEB Reserve. But strangely the 2017 CAFR does not reflect the Implemenation of resolution 2017-027 even though it explicitly was for assigning the 2017 year end general fund reserves. It would be terrific it you could clear all of this up because there appears to be a disconnect between the resolutions passed and the implementation. Thank you. Phil Koen Intermedia 825 E. Middlefield Rd Mountain View, California 94043 https://na01.safelinks.protection.outlook.com/?url=www.intermedia.net&data=01 %7C01 %7Clpr evetti%40losgatosca.gov%7C60ffa70ac8b442ad3a0208d5a0fael ce%7C6d38cb6747eb4d 139e7c 523cd7ccecd5%7C 1&sdata=vM7fl4w%2FYQgg%2F3knrVmYOogAf6hBv92Li7duNSn85J4%3 D&reserved=0<https://na01. safelinks.protection.outlook. com/?url=http%3 A%2F%2Fwww. inter media.net%2F&data=01 %7C01 %7Clprevetti%401osgatosca.gov%7C60ffa70ac8b442ad3a0208d 1 5a0fae 1 ce%7C6d38cb6747eb4d 139e7c523 cd7ccecd5%7C 1 &sdata=G4uBuGFKtOQYXSW9Ve ytJEm1 SltTnz6jRyLs%2B2JKuJg%3D&reserved=0> [J.D. Power] J.D. Power certifies Intermedia for technical support excellence two years running, a first among cloud application providers This message is intended only for the person(s) to which it is addressed and may contain Intermedia.net. Inc. privileged, confidential and/or proprietary information. If you have received this communication in error, please notify us immediately by replying to the message and deleting it from your computer. Any disclosure, copying, distribution, or the taking of any action concerning the contents of this message and any attachment(s) by anyone other than the named recipient(s) is strictly prohibited. 2 Arn Andrews To: Subject: Laurel Prevetti RE: June 2017 resolution From: Phil Koen <pkoen(aintermedia.net> Date: April 12, 2018 at 10:47:14 PM PDT To: "lprevetti@losgatosca.gov" <lprevetti c@i,losgatosca.gov> Subject: June 2017 resolution Laurel, Below is the schedule from the June 2017 resolution. The estimated GF Reserves at June 30, 2017 are materially different than what was reported in the CAFR. You can see the Sim increase to the CALPERS/OPEB Reserve to $2,284,402. But the CFAR shows this balance to be a totally different number. Why is this? Thanks. Phil Koen Intermedia 825 E. Middlefield Rd Mountain View, California 94043 https://na01.safelinks.protection.outlook.com/?url=www.intermedia.net&data=01 %7C01 %7C1pr evetti%40losgatosca.gov%7Cefl 1b6d1470445d4815708d5a1020736%7C6d38cb6747eb4d139e 7c523cd7ccecd5%7C1 &sdata=gZi9iW18dn%2BpLQmrVOK9IRI5JoYdwy8PTzigR%2FNxN%2 Fg%3 D&reserved=0<https://na01.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww .intermedia.net%2F&data=01 %7C01 %7Clprevetti%40losgatosca.gov%7Cefl 1 b6d 1470445d481 5708d5a1020736%7C6d3 8cb6747eb4d 139e7c523cd7ccecd5%7C 1 &sdata=DkthZrM2amhd46K dR4QL6bI%2FA 1 Z5AFMczvKxsZIdDmM%3D&reserved=0> [J.D. Power] J.D. Power certifies Intermedia for technical support excellence two years running, a first among cloud application providers This message is intended only for the person(s) to which it is addressed and may contain Intermedia.net. Inc. privileged, confidential and/or proprietary information. If you have received this communication in error, please notify us immediately by replying to the message and deleting it from your computer. Any disclosure, copying, distribution, or the taking of any action concerning the contents of this message and any attachment(s) by anyone other than the named recipient(s) is strictly prohibited. 1 /•ia raw/ leg ista rwe b-production.s3.amazonaws.co m N JU /0 1' ATTACHMENT 2 reserves for immediate and future use, maintaining the required minimum 12.5% of FY 2017/18 budgeted revenues of $4,969,347 as specified in the Town's General Fund Reserve Policy. This would reduce the Almond Grove Reserve by $2,896,200; and NOW, THEREFORE, THE TOWN COUNCIL OF THE TOWN OF LOS GATOS DOES HEREBY RESOLVE that the following estimated Budget Stabilization, Catastrophic, CaIPERS/OPEB, Almond Grove, Capital Reserve, and Strategic Planning Reserves as of June 30, 2017 as assigned, or formally committed as follows: Committed Fund Balances Budget Stabilization Reserve Catastrophic Reserve CaIPERS/OPEB Reserve Almond Grove Reserve Assigned Fund Balance Capital/Special Projects Reserve Strategic Reserve Estimated General Fund Reserves June 30, 2017 $ 4,637,406 4,637,406 1,284,402 2,896,200 2,822,405 2,600,000 Resolution Approved Increase (Decrease) $ 331,941 331,941 1,000,000 (2,896,200) 703,496 528,822 Estimated General Fund Reserves June 30, 2017 $ 4,969,347 4,969,347 2, 284,402 3,525,901 3,128,822 * Proposed Use of the Strategic Planning Reserve General Fund Use - One Time Traffic Mobility Manager Transfer to Capital Projects (GFA, Transfer to Facilities fund Transfer to Equipment Replacem, Total $ 446,595 217,808 1,864,419 300,000 300,000 $ 3,128,822 PASSED AND ADOPTED at a regular meeting of the Town Council held on the 6th day of June 2017 by the following vote: COUNCIL MEMBERS: AYES: NAYS: ABSENT: ABSTAIN: SIGNED: Arn Andrews To: Subject: Laurel Prevetti RE: General Fund Balance - FY 2017/18 Plan From: Phil Koen <pkoen a,monteropartners.com> Date: April 13, 2018 at 3:36:50 AM PDT To: "LPrevetti(losgatosca.gov" <LPrevetti@.1osgatosca.gov> Subject: General Fund Balance - FY 2017/18 Plan Laurel, Here is the general fund balance schedule that was in the budget. Look forward to hearing your explanation. Thanks. Phil Koen 1 No Sow.* 0 t 35 Am Financial Summanes Section-adopted.pdf Use Of / Addition to CIF Reserves. GENERAL FUND ESTIMATED F UN 0 BALANCE ACT IYtTY Est.mated Kevtrues &pendavres fund R.>iante Es2vnat4d lvry 1. 2017 Sources tune 30, 2018 eatana loses)._ !stance Uwesetwet fold tbtonces tkrdeu6nated Reserves S• S $ • $ • S • Avarlab1e to be As,pOprrated 4,766A37 39324,303 42,641.003 3327A/2 4,777,161 Reserved Fund ftobnOn Reserve for Incur-4y a 'Ices - - Reserve for tone Term Notes - Actvenal Conns#ted to: swot Statulitatl on Reserve 4,637p06 - 332,441 4.969.247 C4tlstrOPhic Reserves 4,637A06 - 132,441 4.969,1147 CalPERSIAPIB Reserve 1.284A07 - 1,000,000 2284,402 Almond Grove Reserve 2,296,200 12.896,200) Aast PI& to: Open Spa ct Reserve 162,000 162.000 Svstursata lrty 14D551 140113 Slrategv Reserve 2.600.000 (2b00»00) • (4p4t4l / Specrel Protects 2,822.405 - 103,496 3.124.901 Autheerted C4rr1forware, 99,284 93184 to tee the of and Addison To Re senses $ 24,446,091 39.124,101 S 42.841,001 $ $ 20,929,1lS Fund Balonct Activity includes: • FY 2017/18 Budgeted revenue and espendaure cpproprntrons, and transfers to and /rcm thr Genera) fund • FY 2016/17 authorized corryrnrcrs reflect operating eppropnations that were brought forward as o funding source. The actual carryover amount will be detrrmsned of FY 2016/17 yearend, with fund:rg offset by undesignoted reserves. • to fY 2011/12, Council odopted o Generor fund Reserve Poky that maintains a minimum of 2S3i of General Fund riglrndeures roue,, drvded between the Budget Stoburtotion Reserve and Catastrophic Reserve. • an fY 2015/16, (ounce established a General Fund Colfomro Public Employees Retarmert System (Ca&PMRS//Other Post Employment Benefits (0P18f Reserve Account. In the same time Council revised the General Fund Reserve Policy to provide for o maximum of $300.000 in General fund Year End Sowings upon year close to be deposited In the CoIPERS Reserve Account or used for lung, sum pay down os authorized by Town Council. • Undrs:voted find Balance is year-end fund balance not prrwousN Identified for a spec%fic purpose; therefore. rt con be reprogrammed os opproprso:ions or designated reserves try Council. Town poky desgnaees a4 yeor-end fund balance to the Budget ROW/action, CopitoVSpeUol Project, and CofPfRS/OPE8 Reserves ef;minottng undrsignated fund balance. However, yearend fund balance wa'l be distnbuted to the Capitol improvement/Special Projects and to the Co1PERS/OPE0 Reserves os the Catastrophic and Budget Stabilization Reserves are fatly funded Sent from my iPhone Gitta Ungvari To: Subject: Laurel Prevetti RE: Comment on Agenda Item 11 From: Phil Koen[mailto:pkoen@monterooartners.com] Sent: Monday, April 16, 2018 10:33 AM To: Laurel Prevetti Cc: jvannada©gmail.com Subject: Comment on Agenda Item 11 Laurel, Please include this letter in the Town Council package for the meeting this coming Tuesday. Thank you. Phil Koen Dear Town Council, The Town Council is currently considering whether or not to accept the recommendation of the Finance Committee to increase payments to the 115 Pension Trust to lower the Town's long term unfunded pension obligations. While any payment which reduces the Town's long term unfunded pension obligation is a positive step forward, we believe the recommendation doesn't go far enough. As we understand it, the Finance Committee is proposing that the Town make an additional discretionary payment of $390,000 per year for 20 years (a total of $7.8m) which would reduce the Town's interest expense on the unfunded accrued liability (UAL). Stated another way, an incremental $390,000 payment every year invested at 7% will grow to $15.9m in 20 years. Let's put this is in proper perspective and in terms so that everyone might understand. Staff is projecting that as of July 1, 2018 the unfunded actuarial liabilities related to both the Miscellaneous and Safety pension plans will total $54.6m. Under the current 30 year amortization schedule in place, the Town will pay principal and interest totaling $118.1m over the 30 year period. That is $63.5m will be paid in interest charges alone over the 30 year period. CALPERS charges the Town approximately 7% on the unfunded actuarial liability and the Town earns roughly 1% on its cash investments. Rather than make a modest annual payment of $390,000 for 20 years, our proposal is to make at least a $7.8m payment today. Let's get the power of compounding interest working for us. In June, 2014 the Town made an additional discretionary payment of $4.5m so we have done this before. If you do this, over a 20 year period the $7.8m will grow to $30.2m. That is almost 2x the amount generated by the $390k annual payment plan. Stated another way, the interest generated at 7 % on an annual payment of $390,000 for 20 years is approximately $8.1m. Compare this to the interest generated at 7% on $7.8m invested today over 20 years which is $22.4m. This shows the power of compounding interest and the benefit of making a payment today versus over time. Now, I know some of you will say we don't have $7.8m. But we think we do and let me give you an example as to how this might be accomplished. As of the end of FY 2017, the Town had $73.6m in cash available for operations. The question is how best to allocate and use this cash. We believe there isn't a better return on investment than to pay down the high cost unfunded actuarial liability. Here is how you can do this: 1) Use the $3.4m currently in the CALPERS/OPEB Reserve — it is already set aside 2) Use the Sim that is to be added during FY 2018, as reported by staff — that gives us $4.4m. 3) Use $1m from the Internal Services Fund which we think can be viewed as excess cash to what is truly needed 4) Use $2.4m or 30% of the Capital Projects Reserve currently in the General Fund. That would still leave $5.8m for capital projects. In summary, the Town has the cash on hand, the only question the Town Council must decide is - is paying down the unfunded actuarial liability the single best use of cash compared to all other possible uses? WE BELIEVE IT IS! Phil Koen Gitta Ungvari Subject: Attachments: FW: For 4-17-18 Council Meeting Item 11 Alternate proposal for paying down pension debt - final.pdf From: jvannada©gmail.com [mailto:jvannada@gmail.com] Sent: Monday, April 16, 2018 10:58 AM To: Laurel Prevetti Cc: Council Subject: For 4-17-18 Council Meeting Item 11 Good morning Laurel Please attach as an alternative approach to paying down Pension Debt. Thank you, Jak VanNada Los Gatos Community Alliance \ "loopy s INVESTORS SERVICE ISSUER COMMENT 30 August 2016 eanNG General Obligation (or GO Re(seed)1 Aaa r;c 0.15,01 Contacts Joseph r4enoleas 212-553.7106 Ass0t6rr Fna(r jose.k.rn.noleasgtmoodya corn Eric Hoffmann 415.274.1702 3etiw Via P,es•Jont er is hnrlmann@amuodys eta Town of Los Gatos, CA Annual Comment on Los Gatos Issuer Profile 1 he town of Los Gatos is located in Santa Clara County in west central California, approximately 10 miles southwest of San Jose. Santa Clara County has a population of 1,894,605 and a population density of 1,469 people per square mile. The county's per capita personal income is 574,883 (1st quartile) and the February 2016 unemployment rate was 3.7% (1st quartile).e The largest private industry sectors that drive the local economy include information, professional/technical services, and wholesale trade Credit Overview The credit position for Los Gatos is extremely strong, and its Aaa rating is well above the median rating of Aa3 for cities nationwide. Key credit factors include a superior socioeconomic profile with a substantial tax base, and a very healthy financial position. The rating also incorporates a sizable pension burden with an exceptionally low debt liability. Economy and Tax Base: The town has an exceptionally strong economy and tax base, which are in litre with the assigned rating of Aaa. los Gatos' total full value (510 billion) is well above the US median and saw an impressive increase from 2012 to 2015. Additionally, the full value per capita (S327,655) is much stronger than other Moody's-rated cities nationwide lastly, the median family income equates to a robust 238.7% of the US level Finances: The financial position of the town is very healthy and is in line with its Aaa rating. Los Gatos' fund balance as a percent of operating revenues �9.9%) is -tar a¢Qyeltl8-US median. In addition, the cash balance as a percent of revenues (77.0%) is far superior to the US median. However, this percentage contracted significantly between 2012 and 2015. Notably, the town also maintains 515.3 million of additional fund balance in its Appropriate Reserves Fund, which is used to for capital projects. Debt and Pensions: The debt and pension burdens of the town are small That said, they are slightly unfavorable with respect to the assigned rating of Aaa The net direct debt to full value (0.2%) is materially below the US median. Los Gatos' Moody's-adjusted net pension liability to operating revenues (2.6x) is materially above the US median and rose from 2012 to 2015. Management and Governance: Balanced financial operations typically exhibit good financial management. From 2012 to 2015, los Gatos' ran surpluses, concurrently, the tax base generally expanded. California cities have an institutional framework score t of ''A," or moderate Revenue predictability is moderate, because the primary sources are property taxes and sales taxes jak vannada Los Gatos Community Alliance I would like for the Council to consider the followin information before a reein to the staff's recommendation in the 4-17-18 Council meetin . My premise is that we pay down the pension debt from excess money in funds. As it is, we have already allocated payments up to $300k if we have a surplus. The Moody's report attached would su est that we have more money than we need in the funds. My su estions below should only be considered once we know: 1. What the town requires for a minimum amount of operatin capital and, 2. The composition of each town fund as well as by we need the amount of capital in that fund. The Moody's report would su est that we are si nificantly over -funded. However, only after knowin these two facts, should we take money from our fund balances In the Finance Committee meetin , I su ested that our "conservatism" seems to be measured by the size of the fund balances and our credit ratin , not by the mana ement of capital. All of this sounds ood until you understand th invested capital, we're losin money faster accrued pension liability, and we haash 6.0%. If the anti-t revenue wh all of this cash as minimally - in it. If we pay 7.0% on unfunded funds earnin 1%, we're losin ey will, why would anyone want to support a sales tax e our existin cash wisely? Staff's proposa is to try to pay $390,000 per year for 20 years if e have the money . The proposed policy says: "staff shall annually appropriate, to the extent possible, the amount of annual discretionary payments necessary to maintain the unfunded pension liability amortization shortenin from 30 to 20 years". Keep in mind that the followin is what is projected for our employer contribution rates as a percenta e of payroll resultin from the dramatic increase in the unfunded accrued liability that has been happenin and will accelerate as the discount rate declines. Pensions and OPEB are Pa e1of5 projected to o up si nificantly as a result of this rate chan e and reducin the amortization period Using official information issued by CaIPERS, the following schedule reflects the Town's actual CaIPERS pension rate for FY 2017/18 and the expected rates for the following fiscal years based on the Town's five-year forecast model which was updated using a CaIPERS employer bulletin in January 2017 that provided a calculation method to estimate rate impacts of the discount rate change approved in December 2016.. 60-40% 50.006 40.00% .111 30.D0% � Safety 3% o. s0 y� Miss 2-5%@ 55 20.i]0% - 10;00% _`.i FY FY FY FY FY FY FY FY rY FY 13/14 14/15 15/16 1647 17/18 18/14 19/20 20/21 21/22 22/23 FY FY FY FY FY FY FY FY PERS Pension Plan 13/14 14/15 15/16 16/17 /18 16/1 19/20 20/21 21/22 22/23 Safety 3% @ 50 46.85% 29.5535 32.36 36.18% 39 45.50 51.7035 58.3035 62.50% 65.70% Mise 2.5% @ 55 21.90% 22. 25.43 96% 30.8O% 345C% 38.40% 41.10% 43.30% Additionally, the follow' table shows our projected bottom line status over the next 5 years to be Tess than $0.00. We want to add $300K of surplus to pay down the pension/OPEB balance; and now we're proposin addin $390K to that for a total of $690K? But for the next 5 years, we're not projectin any surplus. We're totally reliant on passin a sales tax to make these payments. I su est that we take another look at a solution. As backup to my statement above that we are projectin $0 revenues, the followin table can be found in the 2017-18 Bud et Transmittal Letter. It show less than $0 revenues expected over the next 5 years. Pa e2of5 Town of Los Gatos General Fund ('$ millions) 2016717 2017/14 2010719 2019/20 7020121 2021/22 2022/21 Ma7unt Revenue Category Estimated Proposed Forecast Fooreoast. Forecast Forecast Forecast 4100 Pre,/ en., Tax 5 11.1 5 11_4 5 11.7 $ 12.1 5 12.4 5 1.2_8 5 13.2 4110 VLF sacliri1N Properly rex 3-2 3-3 3.3 3.3 3.A 3-4 8.4 4200 sales & use lax 58 8.0 8.0 8.2 SA 8.6 8.6 4250 ciao) Eh55e Fees 2.2 2.3 24 2.4 2.5 26 2.6 4251 Tra4sien/ aeeupartcyTaa 20 21. 2.1 2.2 2.3 23 24 4400 host nets LecelSPTax 15 1.6 1.5 1.5 1.5 15 15 4400 licenses & Perrrai[s 31 29 3-0 3.1 3.2 33 3.4 4 St70 tareegovc rrnne ma 117 0_7 0-7 0.7 0.7 0.7 0_7 4E00 Charge ter Serwues 23 2_5 2.5 2.6 2.7 27 28 4700 Fine & For/en/.res 0.7 0_7 0_7 0.7 15.7 117 0-7 43130 'wares, 113 0-3 0-3 0.3 0-3 113 0.3 4350 Other Sourte5 32 2-9 3.1 3.1 3.2 32 3.2 4300 Fund Trani Pets In 114 0_6 0.6 0.6 0.6 0_6 0-6 TOME REIENINFS $ 39_5 5 39_3 5 19.1 $ 40.8 $ 41.9 $ 427 5 41.4 use et Reserves capital Reserve 7.0 0.4 0.1 0.4 .0.4 0.4 0.4 US a of Ca I PERS/OPER Reserve 1_0 iJie o1 5adgel 51±a [e.0744 mood Gnome Reserve 2.5 TOTAL REVENUES ItTRANSFERS 5 47_5 5 42.2 5 40.3 5 41.2 5 42..3 5 43.1 $ 43_0 2016/17 2017/10 2018/19 2010720 2020721 2021/22 20212/21 Account - Expenditure Category . Estimated Proposed Forecast Forecast forecast I Forecast Forecast 5110 Salary - ReSvlae Eel9t.lnyees 5 14.0 5 15- -7 $ 15.7 $ 15.8 $ 15-8 5 15-8 5120 Salary -Temporary Employees 0.6 0.6 0.6 0.6 0-6 0.6 514+0 Salary -.1:MediMe 0_4 0-4 0.4 0_4 114 0_4 5170 Sala ry-0thersaIary 1 0.1 0.1 0.1 0.1 0..1 0_1 5.200 semen is 0,6 9.0 9.9 10.7 13-4 120 6400 Dose=aline Exi1eod11Llres. I. - 6.0 6.o 6,1 6.2 4.4 6.5 77F10 gams m,awards - B . 0-2 0.2 0.2 0.2 112 0_2 7400 111111de 0_5 0.6 0.6 40.6 0_6 0_7 sow lot: :..r1. _ ' 4.0 4.1 4.1 4.1 4_3 4.4 8900 Dell RE EL L5 1.9 1.9 1.9 1.9 1.9 1.9 TOT - E1nRLJ_ $ 3554 S 38_I 5 38.6 $ 39.6 5 40.8 5 41.7 5 42.6 9900 Cold renders t to, 7.0 22.5 0-4 0.4 0_4 0_4 0.4 9900 Cdisa . ti Qua! Actuarial 26 1.6 1.6 1.6 Ldi 1.6 1.6 1OTALR EIEXPENDITURES _ $ 45-4 $ 42-2 5 40-6 $ 41.6 $ 42.8 $ 43.7 $ 44-6 9900 FY2017/1a Sara ry Al IsCs El ss - TOTAL IXPEHORURES &ALLOCATIONS 5 45,4 5 42.2 5 40.6 5 41.9 $ 42.8 5 43_7 $ 44.6 NET REVENUES- LESS EXPENDITURES $ 21 1 5 - 5 (13} 5 10.4] 5 10.5I 5 (U_6) $ [0_$} I ould like for Council to consider the folio ing alternative. The differences between the proposals is so si nificant that you may want more information and more time to make the decision than you will have toni ht. I believe that we could find another $3.5 million of fund money that could be added to the $4.3 that we are currently committin to pension debt, for a total of $7.8 million. Should we put that $7.8 million to work immediately, payin down CalPERS, and not pay it in over 20 years, the future value of $7.8M invested at 7% for 20 years would be $30.2M. Take away the $7.8M we ave to CaIPERs as a lump sum, and we would have a $22.4M interest savin s vs the $8.1M IF we put in $390K per year, (which is very uncertain). We would almost double the paydown (i.e. $30.1m vs. $15.9m) projected in staff's proposal. Currently the Town's resolution is a "funding methodology". We'll pay down the debt at $390K per year, IF WE HAVE THE MONEY. We'll add $300K to that, IF WE HAVE THE MONEY. Meanwhile, an excess of cash sits in our fund accounts earnin a mea er 1%.. We're cash -rich, Pa e3of5 but perhaps, too conservative for our own ood and costin us money. Please take the time to read the Moody's report of 8/30/2016 also attached to this email. The way it reads, I think we have the money. The proposed resolution is soft in that we make payments IF we have the money. The $7.8M is a hard commitment and you only make that kind of commitment if you have the money in the first place, and accept that you must prioritize your use of cash. The Moody's report basically says that we have lots of cash when compared to the rest of the United States. One critical metric Moody's focuses on is cash balance as a percenta e of operatin revenues. In FY 2017 the Town was 93% as compared to a US Median of approximately 35%. Moody's pointed this out notin that this level was "far superior to other Moody's rated cities nationwide". But are we mana in it wisely by sittin on 1% investment returns? Payin the $7.8m will be a commitment that will pay for itself with a uaranteed rate of return. In 20 years, we would save about $22 million in interest char es. Below is the CaIPERS expected rates of return table that they say will avera e around 6.1% for the next 10 years. Asset Allocation of Preliminary 1 a "'date Por, Asset Class Component ' Q I• ► ' GIoa1Equhy - 1 anALAI lin C? 0 59% MosettonPolicy 0 t7 0 tb ALMPokcy O3 R $0% 48% 47% Privnie Equky _ , ,' 8% 8% 8% 8% B% 12% Fixed Irtacxm ., 38% 28% 19% 19 0 20% 19%. Real Assets _- 13% 13% 13% 13% - - - Real Estate -• 9% 11% 11% Infrasouctureforestland - - 2°6 24° 3% Inflation Assets 0`.0 0% 014 _ - 8 9% 8% Lhquldlly 11e E°s 1% - #°a 4 2°e •.. 56% 5.8% 6.1% 6.4% 6.0% 5.9% 8.2% r . ..,. .....-itiaer..l 7.8% I.0% 1.3% 8.5% 8.1% 8.0% 8.3% 6.50% 6.75% 7.06% 7.25% 6.15% 6.77% 7.9 9.1% 102% 11.4% 11.5% 11.0% 12.0% 3.1% 8A% I 6 CaIPERS 2017 Asset Liability Management Workshop N:'\MGR\Admin WorkFiles\Council Committee - FINANCE\ 20171L12.04-2017j1tem 3 - IRS Sec 115 Trust Asset ANacationLRP FinaLdacx 11/30/20178:36 My su estion is as stated at the be innin of this letter, that the Council and staff do a thorou h analysis of the Town's cash needs. It is clear to Moody's that the Town has built up excess cash over time beyond it operatin needs. If you used Moody's US Median cash balance to operatin revenue ratio of 35%, based on the Town's bud eted 2018 operatin revenue, it su ests a cash balance of $14m for the General Fund is an appropriate level. As of June 30, 2017 there was $36m. Pa e4of5 Cash mana ement decisions may well influence the sales tax vote this November. The staff needs to take a fresh look at what this town absolutely needs to operate; and look at the cash on hand and why it hasn't been deployed to either pay down unfunded pension liabilities or invested in infrastructure. If the additional $3.5M is there, even iven some delayed projects, those decisions have to be wei hed a ainst the cost of money invested at a 6.% loss of revenue. Jak VanNada Los Gatos Community Alliance 4-17-18 Pa e5of5