FY 2020 Budget Update

June 9, 2020

City of Arlington, Texas 2

• Approach will be similar to residents and small businesses

• Reduce current expenditures

• Use savings

• Suspend purchases

• Find alternatives

• Make difficult choices

City of Arlington, Texas 3

Phase:

1 Initial Citywide Efforts2 Initial Financial Restructuring3 Departmental Expenditure Reductions4 Reserves5 Furlough/Layoff Procedures

Fed

eral

/Sta

te G

ran

ts

City of Arlington, Texas 4

The revised sales tax estimate for FY 2020 is $55.3M, which is $13.1M below budget. Through March, actual receipts are $54,040 above the revised monthly estimates.

• Current year estimates under budget by $1.3M in GF, $550k in Debt Service

• FY21 preliminary assessed values indicate 2% growth• Collection rate decrease from 96.75% to 95%• FY 21 AV revenues lower than current year budget by

$1.4M in GF, $500k in Debt Service

City of Arlington, Texas 5

FY 20 Budget FY20 Estimate FY21 Preliminary

General Fund Revenue 118,832,717 117,526,745 117,424,459

Debt Service Fund Revenue 50,219,975 49,668,057 49,726,883

Total 169,052,692 167,194,802 167,151,342

Jobless Claims • A total of 43 million people

have filed initial claims for unemployment benefits in the last 11 weeks.

• However, the national unemployment rate declined to 16.3% in May, down from 19.7% in April, as partial re-opening led to unexpected job growth (both figures are as revised by BLS on June 6).

• Per the US Bureau of Labor Statistics, the unemployment rate in Fort Worth/Arlington was 13.1% in April. May data are not yet available by city. https://www.bls.gov/eag/eag.tx_fortworth_md.htm

City of Arlington, Texas 6

0.22 0.21 0.28

3.31

6.87 6.62

5.24

4.44

3.87

3.18

2.69 2.44

2.12 1.88

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Feb 29 Mar 7 Mar 14 Mar 21 Mar 28 Apr 4 Apr 11 Apr 18 Apr 25 May 2 May 9 May 16 May 23 May 30

Weekly Initial Jobless Claims, in MillionsSource: US Bureau of Labor Statistics

• $400 million from DOJ awarded nationwide for law enforcement hiring to advance community policing

• Arlington would require $1.4M General Fund commitment in FY21

• Recommend declining grant

City of Arlington, Texas 7

Source FY21 FY22 FY23 Total

Grant 625,000 625,000 625,000 1,875,000

Cash 1,424,391 1,272,850 1,311,338 4,008,579

Total 2,049,391 1,897,850 1,936,338 5,883,579

JUNE 9, 2020

• System is a “hybrid” cash-balance defined benefit plan, rather than a traditional, formula-based defined benefit plan.

• Each participant city has local control to choose from a menu of benefit options.

• Each city stands on its own by having its own actuarial assets, liabilities and funded ratio.

• Each city’s unfunded liability is amortized over a closed period of no more than 30 years (Arlington was 25 years)

• Benefit is funded through mandatory employee deposits, city contributions, and investment income.

• Benefits are based on a member’s account balance at retirement.

City of Arlington, Texas 11

Year End (as of 12/31) 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009

Employee Accounts* 174,316 167,577 162,612 157,601 149,073 145,448 142,883 141,532 141,372 141,983

New Employee Members 17,117 15,771 15,094 15,476 14,457 11,093 13,176 11,619 10,303 12,158

Retired Members 66,051 62,776 59,611 56,481 48,576 45,580 42,931 40,534 38,260 36,098

New Retirements 3,669 3,550 3,456 3,302 3,675 3,317 2,995 2,874 2,754 2,384

Payments to Retirees $1.3B $1.3B $1.2B $1.1B $1.0B $946.5M $864.9M $810.3M $743.5M $685.7M

Total Cities 887 883 872 866 860 850 849 847 842 837

*Total active and inactive plan member accounts

City of Arlington, Texas 12

61.3% 60.6% 60.2%64.6%

82.7% 84.8%87.1%

83.9%

89.9%

84.7% 85.0%

90.9% 86.8% 86.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

TMRS Funded Ratios

City of Arlington, Texas 13

Funded Ratio

Texas Counties and Districts 89%

Texas Municipal Retirement System (TMRS) 87%

Texas Teachers Retirement System (Texas TRS) 74%

Austin Employees Retirement System (Austin ERS) 62%

Texas Employees Retirement System (Texas ERS) 58%

Texas Law Enforcement and Custodial Officers System (Texas LECOS) 45%

Dallas Police and Fire 45%

Source: Wirepoints Reports, April 2020. Ratios as of December 2018.

City of Arlington, Texas 14

• 12/31/19 Unfunded Actuarially Accrued Liability (UAAL) - $174M

• TMRS assumes a 6.75% return, which is not being earned on unfunded liability

• Current market conditions indicate True Interest Cost (TIC) of 2.5-3.0%

• Proposal is to issue debt sufficient to retire 12/31/19 UAAL and 2021 UAAL contribution

• Net Present Value (NPV) Savings ≈ $50M

City of Arlington, Texas 15

• Pension funding is not an issue, City makes full contributions annually

• Similar to refinancing a mortgage at a lower rate

• City refunds outstanding bond obligations regularly

• Two issuances in 2020 for $2.6M in NPV savings

City of Arlington, Texas 16

• Interest rates low• Proposal results in an estimated NPV of 16%• Financial Policies require 4.25% NPV Savings• Tax Rate Maintained• Savings accelerate in future years

17

‘AAA’ MMD History Since 2000

Maximum

Minimum

As of 05/29/2020

Current

Average

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

(%)

Year

Current 'AAA' MMD

Average since 2000

Maturity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

% of time above

current MMD 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99%

City of Arlington, Texas 18

City of Arlington, Texas 19

Normal Cost

Prior Service

Debt

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

TMRS Funding Options

Normal Cost Debt / Unfunded

City of Arlington, Texas 20

City of Arlington, Texas 21

• Chapter 107 of TLG:

• “A municipality may issue obligations to fund all or any part of an unfunded liability.”

• Defines unfunded liability: “An unfunded, accrued liability of a municipality to a public pension fund as determined by actuarial analysis.”

• Election not required because pension obligation

City of Arlington, Texas 22

• Pension obligation bonds (POBs) are taxable bonds

• Bond proceeds paid at lower interest rate than TMRS assumed rate of return

City of Arlington, Texas 23

• Contribution 2:1• City Contribution = 17.01%• Employee Contribution = 7%

• Amortization period = 17.4 Years• Updated Service Credit• COLA 50% of CPI • Supplemental Death

• Actives: 1 Year’s Salary• Retirees: $7,500

• Average Pension - $35,300• City does not participate in Social Security• Average Social Security - $18,036

City of Arlington, Texas 24

• TMRS Contribution % of Payroll – 17.01%

• 9.56% Normal Contribution

• 7.26% Prior Service

• .19% Supplemental Death Benefit

• Total Base Contribution All Funds -$32,007,165

• $18.0M Normal

• $13.7M Prior

• $ 0.4M Death Benefit

City of Arlington, Texas 25

• ≈$187M Debt issued level payment

• Amount necessary to retire UAAL sent to TMRS

• Escrow amount necessary to make FY 2021 UAAL contribution

• Debt issued for 18 years

City of Arlington, Texas 26

• Maintains status quo of current program• Advantages

• Eliminates 2019 Unfunded Actuarially Accrued Liability

• $50M NPV Savings

• Disadvantages

• Debt Ratio limits

• Debt ratios would be reported as including, and also net of POB

City of Arlington, Texas 27

Limit FY20 W/POB FY 2021 W/POB FY 2021 W/POB & Self Support

Debt per Capita 1,245 1,642 1,626 1,528

Debt per Valuation 2.00% 2.19% 2.16% 2.03%

DS Exp to Total Exp 20.00% 16.09% 21.76% 20.88%

City of Arlington, Texas 28

• May - Review by Texas AG Office• Late June–Request approval to deposit funds

with TMRS• June 23 – Council consider parameters

ordinance• July– Sell POBs• September 3 - Close

City of Arlington, Texas 29

QUESTIONS