August 11, 1995

South Coast Air Quality

Management District Board

In February 1994 the Board took action to reduce the AQMD's retirement contributions to the San Bernardino County Employees Retirement Association (SBCERA) by approving Resolution 94-5 (attached) authorizing the issuing of bonds to retire the Unfunded Actuarial Accrued Liability (UAAL) due to SBCERA. However, because of increases in long-term interest rates, these bonds were not issued.

The long-term interest rates in the bond market have again reached a level which offers savings to the AQMD. The AQMD currently has approximately 786 employees who are active members of the retirement association. The actuary for SBCERA calculates that the UAAL applicable to AQMD employees at July 1, 1995 was $39,038,837. The AQMD's biweekly retirement contribution reflects the assumption that the interest on this liability will be 8% through June 30, 2022. If market conditions are right, staff recommends issuing bonds to retire this liability, thereby assuming a long-term debt with a lower interest rate.

Staff has been meeting with the County of San Bernardino, SBCERA, the underwriting firm of Smith Barney, and bond counsel. It is proposed that the debt be issued in conjunction with the County under the following approach:

1. The AQMD would issue a pension obligation debenture in an aggregate amount not to exceed $40,000,000 in favor of SBCERA to evidence the AQMD's obligation to pay its UAAL.

2. Under the provisions of the California Government Code commencing in Section 53570 (the "Refunding Bond Law"), the AQMD would issue taxable pension obligation bonds to refund the debenture.

3. The San Bernardino County Financing Authority, a previously established joint powers authority, would purchase the bonds of the AQMD. (It would also purchase the bonds of the County which will have been issued to refund its UAAL.) This joint powers authority will finance its purchase of AQMD and County bonds by issuing revenue bonds.

SCAQMD Board -2- August 11, 1995

4. The AQMD will make periodic debt service payments to the San Bernardino County Financing Authority over the life of its bonds.

Smith Barney calculates that under current market conditions, the AQMD could save approximately $4 to $5 million over the 27 year period. Market conditions are, of course, subject to change. Accordingly, the AQMD will not proceed with the debt issuance unless market conditions indicate a significant economic gain can be realized.

This recommendation was reviewed and approved by the Administrative Committee on July 21, 1995.

THEREFORE, IT IS RECOMMENDED THAT YOUR BOARD

--Adopt the attached resolution reaffirming Resolution 94-5 authorizing the execution of a debenture evidencing a portion of the AQMD's obligations to the San Bernardino County Employees' Retirement Association, authorizing the issuance and sale to the San Bernardino County Financing Authority of bonds of the AQMD to refund the debenture, authorizing and directing execution of a related indenture and bond purchase contract, approving the form and authorizing distribution of a preliminary official statement in connection with the offering and sale by the authority of its revenue bonds to purchase the AQMD's bonds and authorizing official actions related thereto.

Respectfully,

James M. Lents, Ph.D.

Executive Officer

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