Das Williams First District, Vice Chair Board of Supervisors Gregg Hart County Administration Building Second District

R2

That each city council and the Santa Barbara County Board of Supervisors study and determine by June 30, 2022, whether a Section 115 Trust, Pension Obligation Bond, or Pension Reserve Fund would be an effective hedge against risks to their pension plans for their city. This recommendation has been implemented. The County has previously evaluated whether a Section 115 Trust, POB or reserve fund would be an effective measure to hedge against volatility. The County has opted not to initiate a Section 115 Trust or POB but when prudent, has recommended budgets with set- asides of revenue growth in reserve to offset future year pension increases. In this way the County has been able to hedge against future risks that rising pension costs could negatively impact the delivery of services to residents. Should this budgetary strategy prove insufficient to manage pension contribution volatility in the future, the County will re-evaluate the need to establish a pension reserve fund. Attachment A Regarding Pension Obligation Bonds, during the past decade of rising pension costs in the wake of the Great Recession, and the move towards more conservative actuarial assumptions by SBCERS, the County evaluated, but did not find it necessary to issue Pension Obligation Bonds (POB), which carry many risks of their own. In 2015, the Government Finance Officers Association (GFOA) issued a formal advisory (reaffirmed in February 2021) that state and local government should not issue POBs, due to the risk that the invested POB proceeds might fail to earn more than the interest rate on the bonds, and the fact that increasing a jurisdiction’s debt burden potentially uses up debt capacity that could be used for other needs, among other reasons. For these reasons, the County is not considering POBs in the near future. Similarly, if the County established a Section 115 Trust, it would need to invest in a similar manner, and be exposed to the same market volatility, as SBCERS investments in order to generate strong returns. Section 115 Trusts could end up increasing market risk exposure compared to investments made through SBCERS, which has a much larger investment pool, access to various investment tools, and controls that a 115 Trust wouldn’t have to smooth in impacts in the event of market losses. It is not at all clear that establishing a 115 Trust would be a more effective hedge against pension volatility than simply increasing contributions to SBCERS. For these reasons, the County is not considering establishing a Section 115 Trust in the near future. Attachment A