PURPOSE

The purpose of this report is to establish a $10 million Pension Obligation Bond (POB) reserve with $6 million from a note repayment by the Redevelopment Agency and $4 million from the BWP UUT and In-lieu set aside account.

BACKGROUND/ANALYSIS

On March 30, 2004, the City Council authorized the issuance of POB to pay the City�s Public Employees Retirement System (PERS)  Police and Fire Unfunded Accrued Actuarial Liability (UAAL).  The result of the transaction reduces the City�s annual pension costs by approximately $530,000.

The City Council directed Staff to establish a 10 million reserve fund within the General Fund to mitigate the future risk of rising interest rates.  Interest associated with the $10 million will be credited to the POB reserve and will increase as interest rates rise. The City also maintains the flexibility to use the $10 million reserve fund to prepay the variable rate POB every 30 days.

The $10 million POB reserve fund was to be funded from the Redevelopment Agency paying the City $6 million (Hilton note proceeds) related to City Centre debt with the General Fund and $4 million from the BWP UUT and In-lieu taxes set-aside fund.

The attached cooperation agreement transfers the $6 million from the Golden State Project Area to the City Centre Project Area.  City Centre contributes the $6 million to the City to be held in the Pension Obligation Bond Reserve Fund.  If the $6 million is ultimately expended by the City, the amount will be applied against outstanding loans between the City Centre Project Area and the City.

FISCAL IMPACT

The establishment of a $10 million POB reserve fund creates an internal hedge against rising interest rates.  The $10 million plus future interest earnings will not be available for other non-recurring General Fund purpose.  Conversely, $6 million contribution by the Redevelopment Agency reduces available resources for redevelopment purposes.

RECOMMENDATION

Staff recommends that the Agency Board approve a resolution entitled;

�A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF BURBANK APPROVING A COOPERATION AGREEMENT BETWEEN THE AGENCY AND THE CITY OF BURBANK RELATING TO THE PENSION OBLIGATION BONDS AND AMENDING THE FISCAL YEAR 2003-2004 ANNUAL BUDGET IN THE AMOUNT OF $6,000,000.�

Staff recommends that the City Council approve a resolution entitled;

�A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK APPROVING THE TERMS AND PROVISIONS OF A COOPERATION AGREEMENT BETWEEN THE CITY AND THE REDEVELOPMENT AGENCY OF THE CITY OF BURBANK RELATING TO THE PENSION OBLIGATION BONDS AND AMENDING THE FISCAL YEAR 2003-2004 ANNUAL BUDGET IN THE AMOUNT OF $10,000,000.�