5 18'20 State c0.u5 Executive Branch Marl Very Draft and Not Proofcd ELTERZEO Sobanet - GovOffice, Henry Very Draft and Not Proofed 3 messages Sobanet - GovOffice Hen Mon, Apr 13. 2015 at 11:59 AM To: Dan Pabon Rep food for for incompleteness. Why this bilt this year? Interest rates are at historic lows. At the present time. ?nancial experts think that we could issue bonds at interest rates between Compared with investment returns in the PERA portfolio, overtime borrowing at a low cost now could shorten the time to amortize PERA's unfunded liability by 6 to 8 years. How does this work? Using the AEDISAED catch up payments that the State and other PERA employers make every year as collateral, the State would issue bonds and then give PERA a large lump sum payment to invest now rather than over time. The AEDISAED payments would then be used to pay off the bonds. What is the reasoning behind Pension Obligation Bonds? Because interest rates are so low, the investment returns that PERA makes are very likely to exceed them. So overtime, even though we are paying interest on the bonds, the money invested will return more and then shorten the time to pay off the unfunded liability. What accounting changes relate to this option? The Government Accounting Standards Board is changing how pension liabilities are counted. Starting this year, they will be added to the State's balance sheet for the ?rst time. So, adding these pension bonds as debt will have no affect on the State's balance sheet. How is this different from other POB deals like the one Denver Public Schools did? In this transaction, existing payments will be made "covenants" of the bond deal, meaning that if the State doesn't make a payment, there will be a default event, which would hurt the State's credit rating. This transaction will not allow for any exotic debt tools like derivatives or swaps. These were features of other unsuccessful pension obligation bond transactions. How much will be borrowed? The legislation will allow for potentially $6 billion to $12 billion in bond proceeds. PERA's unfunded liability is $22 billion. There is not agreement if there should be a minimum size. I thought debt was illegal in Colorado? The legislation calls for a "validation" proceeding in District Court. This proceeding wilt con?rm if the bonding is allowed or not. No debt wiil be issued prior to the validation. How does this affect pension bene?ts? PERA bene?ts will neither be enhanced or diminished as a result of the transaction. Is there any risk of these bonds on the State budget? .. 548(2015 State .cnm Executive Branch Mail Vcry Draft and Not Prnofcd The State is already making the AED and SAED payments to PERA. As part of the transaction. the State will be committed to the continuation of these payments for the duration of the bonds. How will PERA invest the money? PERA will invest these proceeds in a manner similar to but likely not identical to the rest of the $44 billion portfolio. Who decides to issue the bonds and in what amounts? The legislation speci?es that the decision to bond and the amount to bond is jointly determined by the State Treasurer and the Governor. Henry Sobanet 05? ICOLORADO Office of State Planning 8 Budgeting 111 State Capitol Denver, CO 80203 Phone: 303?866-3317 Email: WM Sobanet-GovOffice Hen are my very draft thoughts at an [Quoted text hidden] Sobanet-GovOf?ce, Hen To: Bob Rankin Just to give you an rough. Fonvarded message From: Sobanet - GovOf?ce, Henry Date: Mon. Apr 13. 2015 at 11:59 AM Subject: Very Draft and Not Proofed To: Dan Pabon [Quoted text hidden] [Quoted text hidden] .us&as . . Mon. Apr 13. 2015 at 5:59 PM Mon. Apr 27, 2015 at 5:54 PM Ell