Credit Presentation of the City of Los Angeles Richard H. Llewellyn Jr., City Administrative Officer
Presentation by Ben Ceja, Assistant City Administrative Officer
March 19, 2018
This Investors Presentation is provided as of March 15, 2018 as part of the Los Angeles 4th Regional Investors Conference 2018 organized by the City of Los Angeles (“City”). If you are viewing this presentation after March 15, 2018, there may have been events that occurred subsequent to such date that may have a material adverse effect on the financial information that is presented herein, and the City has not undertaken any obligation to update this Investor Presentation. All financial data and other information provided herein are not guaranteed as to completeness or accuracy and are subject to change without notice. This presentation is for general information only. This Investors Presentation does not constitute a recommendation or an offer or solicitation for the purchase or sale of any security or other financial instrument, or to adopt any investment strategy. Any offer or solicitation with respect to the purchase or sale of any security will be made solely by means of an Official Statement, which describes the actual terms of such securities. This Investor Presentation is not an Official Statement. In no event shall the City be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction mentioned herein. The City makes no representations as to the legal, tax, credit or accounting treatment of any transaction mentioned herein, or any other effects such transactions may have on you and your affiliates or any other parties to such transactions and their respective affiliates. You should consult with your own advisors as to such matters and the consequences of the purchase and ownership of any security. Nothing in this Investors Presentation constitutes a commitment by the City. This Investors Presentation contains certain forward-looking statements. The achievement of certain results or other expectations contained in any forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the City believes that such expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The City is not obligated and has not undertaken any obligation to issue any updates or revisions to the forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur.
1
Disclaimer
• Overview of the City of Los Angeles
• 2017-18 Adopted Budget Summary and Update
• Focus on Infrastructure
• Policy Initiatives and Priorities
• Budget Outlook Considerations
• Debt Management
Executive Summary
2
Overview of the City of Los Angeles
• Founded in 1781, second largest City in the US • Population of approximately 4.04 million as of January
2018, approximately 39% of the County • 15 Council Districts within the City with average population
of 260,000 residents • Area of 470 square miles
3
City Governance Structure
• Elected Officials o Mayor: Elected at-large to 4 year
term; eligible for 2 terms o City Council: Full-time Council
consisting of 15 members elected to 4 year terms; eligible for 3 terms
o Controller o City Attorney
• 38 City Departments manage public safety, sanitation, public works, homelessness, cultural, and recreational issues
o In addition, 3 independent Proprietary Department: Airports, Harbor, and Water and Power; and
o 2 pension departments, Los Angeles City Employees’ Retirement System (LACERS) and the Fire and Police Pension System (LAFPP)
• Major financial policy targets o Appropriated 1.28% of General Fund to capital
improvements, exceeding target of at least 1%
o Reserve Fund at 6.08% of General Fund revenues, above the 5% policy level
o Nominal deposits to the Budget Stabilization Fund, but $75 million of growth in economically sensitive tax revenues are budgeted for capital improvements
o Applied all one-time revenues ($65 million) for one-time expenditures ($108 million)
2017-18 Adopted Budget Summary
Source: City of Los Angeles, Office of the City Administrative Officer 4
Budget ($ Millions)
Budget Component Adopted 2016-17
Adopted 2017-18
Percent Change
General Fund $ 5,576.4 $ 5,826.5 4.5%
Special Funds $ 3,200.6 $ 3,465.6 8.3%
Total $ 8,777.0 $ 9,292.1 5.9%
3.64% 3.49% 4.23%
4.52%
5.31%
8.41% 9.11%
10.46%
7.92% 8.05%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
$Mill
ions
Budget Reserves (Reserve Fund, Budget Stabilization Fund, and UB Reserves)
As of July 1 Actuals
Emergency Reserve Contingency Reserve Budget Stabilization FundUB Reserves Total Percentage of General Fund
Staffing Remains Below Peak Levels
Source: City of Los Angeles, Office of the City Administrative Officer 5
Revenue Trends and Growth
6
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
-6%
-3%
0%
3%
6%
9%
12%
15%
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
$ Billions %
Cha
nge
from
Prio
r Yea
r
Fiscal Year Ending
Seven General Fund Taxes
% change -- Left Scale 7 General Fund Taxes ($Billions) -- Right Scale
Property (including VLF), Utility, Business, Sales, Hotel, Documentary and Parking Taxes
7 Major General Fund Revenues, 71.4% Licenses, Permits, Fees and Fines,
18.0%
Power Revenue Transfer, 5.0%
Parking Fines, 3.0%
Miscellaneous Revenue, 2.0% Transfers from Special and
Reserve Funds, 1.0%
Sources of General Fund Revenue for Fiscal Year 2017-18
• Actual General Fund revenues in 2016-17 exceeded the adopted budget by $52.4 million and prior year revenue by $294.7 million
• Total General Fund Revenue for 2017-18 through 2021-22 is forecast to increase at an average of 3.4% annually
2017-18 Adopted Budget Update
7
Strong Reserves • Began 2017-18 with Reserve Fund of 6.08% and total reserves of 8.05%, both above budget
• At Mid-Year, the Reserve Fund totals 6.24%, with total reserves of 7.95%
• Committed to maintaining a Reserve Fund above 5% Revenues • Based on data through January 2018, revenue is $28.3 million above plan due to Property Taxes,
ex-CRA remittances, Business Taxes, Sales Taxes, and Transient Occupancy Tax
• Potential shortfalls in Utility Users’ Taxes and Documentary Transfer Taxes exist that may bring total revenues closer to plan
Expenditures • Fire emergencies caused cash-flow shortfalls in Fire Department due to delayed
reimbursements
• Workers Compensation expenses above budgeted amount
• Based on Mid-Year adjustments and recommended future actions, remaining 2017-18 “over-expenditures” are under $30 million
Focus on Infrastructure
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• Sidewalk Repair o $1.4 billion over 30 years; $31 million a year with 15.3% increase every 5 years o 60.5 sidewalk miles repaired since March 2015
• Street Reconstruction o Annual pavement preservation program aimed at maintaining the Pavement Condition Index o Recommending $80 million for first Complete Streets Projects that incorporate reconstruction, with
Vision Zero goals, sidewalk improvements, and Green Streets elements
• Clean Water o Proposition O (GO Bonds): 43 projects of which 26 have been completed and 17 active o Several Stormwater Projects to address Total Maximum Daily Load (“TMDL”) limits initiated in 2017-18
• Affordable Housing o Estimated need is approximately 4,000 units a year:
o Linkage Fee adopted to create a funding mechanism to increase the supply of affordable workforce housing in the City
o Leveraging Federal funds and Tax Credits, CA Cap and Trade competitive grant awards, and new state $75 fee on mortgage refinances and other real estate transactions
o Commitment to invest $200 million over 10 years to produce 4,000 units of Accessible Rental Housing
Homelessness • City voters approved $1.2 billion in bonds to build Permanent Supportive Housing over 10 years • First bond issuance in 2017 • County voters approved $355 million for homeless services • City and County signed historic MOU to provide services in housing built by City
Vision Zero • Mission is to end all traffic deaths and serious injuries by 2025 • Focus on High Injury Network of streets accounting for the majority of deaths
Policy Initiatives and Priorities
9 Source: City of Los Angeles, Office of the City Administrative Officer
HOLLYWOOD & HIGHLAND PEDESTRIAN SCRAMBLE
Public Safety • Ongoing recruitment and hiring of Fire and Police personnel reflecting the diversity and values of Los
Angeles residents • Process underway for selection and appointment of new Police Chief to lead Department of over 10,000
Sworn Officers and approximately 3,000 civilians Transit • County voters approved Measure M for $860 million annually; City share is approximately $42 million,
gradually increasing based on sales tax growth within the County • New State Gas Tax legislation (SB1) provides additional funds for City transportation needs
2028 Summer Olympics • International Olympic Committee selected the City to host the 2028 Summer Olympic and Paralympic
Games
Policy Initiatives and Priorities
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• Both pension systems reduced their investment rates to 7.25%, which will impact City contributions beginning in 2018-19; LACERS may consider further reduction in 2018-19 to 7.00%
• Impact to the General Fund will be based on the Contribution Rates that include the investment rate as well as other factors such as economic and demographic assumptions
Budget Outlook Considerations: Pensions and OPEB
Source: City of Los Angeles, Office of the City Administrative Officer 11
• City fully funds both pension and OPEB Annual Required Contributions
• Funding for OPEB began in 1989-90
Budget Outlook Considerations: Labor Relations Labor Contracts • 41 individual MOUs covering 36,400 full-time City employees (including Airports & Harbor) • 22 Labor Unions/ Employee Associations • 800 non-represented employees
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Organization Full-Time
Employees Represented
Number of Bargaining
Units
Status of Memorandum of Understanding
Los Angeles Police Protective League (LAPPL) 9,896 1 Current Contract expires
6/30/18 New Contract expires
7/31/2019 United Firefighters of Los Angeles City 3,231 1 Contract expires 6/30/19
Coalition of LA City Unions 15,653 17 Contracts expire 6/30/18
Engineers and Architects Association 4,937 4 Contracts expire 6/22/19
Municipal Construction Inspectors Association 866 1 Contract expires 6/22/19
Contract Status • New LAPPL MOU certified by Union and expected to be considered by Council next month • Beginning negations for Coalition MOU, which expire June 30, 2018
Disciplined, Policy-Driven Debt Management
• Over a third of the City’s direct debt is supported by property and special tax receipts
• 74.8% of the City’s net direct debt will be retired over the next 10 years
Source: City of Los Angeles, Office of the City Administrative Officer 13
General Obligation Bonds
31%
Judgment Obligation Bonds
1% MICLA Real Property Leases
49%
MICLA Equipment Leases
19%
Outstanding Direct Debt as of January 1, 2018 Total: $2.25 Billion (Voter-Approved in Blue)
Debt Category Ratings (F/K/M/S&P)* Outstanding*
General Obligation Bonds AA/AA/Aa2/AA- $ 700,210,100
Judgment Obligation Bonds A+/- -/A1/AA 22,545,000
MICLA - Real Property A+/AA-/Aa3/AA- 1,103,236,203
MICLA - Capital Equipment A+/AA-/Aa3/AA- 426,234,731
MICLA - Commercial Paper Program F1+/- -/P-1/A-1+ 282,200,000
Solid Waste Resource Revenue Bonds AA-/AA/Aa2/A+ 178,720,000
Wastewater System Senior Revenue Bonds AA+/AA+/Aa2/AA+ 1,050,760,000
Wastewater System Subordinate Revenue Bonds AA/AA/Aa3/AA 1,629,370,000
* Outstanding as of January 1, 2018. Ratings as of February 23, 2018.
By policy, debt service is limited to 15% of general revenues for all direct debt and 6% for non-voter approved debt Current ratio of Voter
& Non-Voter Approved Debt is 5.70%
Current ratio of Non-
Voter Approved Debt is 4.02%
Debt Charts
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Voter Approved and Non-Voter Approved Debt
Non-Voter Approved Debt
Source: City of Los Angeles, Office of the City Administrative Officer
3.95% 4.02%
4.32% 4.18% 3.93% 3.77%
3.11% 2.67% 2.67%
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
2017 2018 2019 2020 2021 2022 2023 2024 2025
Deb
t Ser
vice
Am
ount
(000
's)
Fiscal Year Convention Center Current MICLAs & Other Leases Commercial PaperFuture MICLAs (CP Refundings) Judgment Obligation Bonds
6% General Revenues
5.95% 5.70% 6.47% 6.42% 6.18% 6.00% 5.24% 4.71% 4.65%
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025
Amou
nt (0
00's
)
Fiscal Year General Obligation Bonds** Remaining General Obligation Authorization** 15% of GF Rev.
15% General Revenues
Debt Calendar
Proposed Schedule of Bond Issuances as of March 13, 2018
Expected Estimated Bond Issuance Sale Date Amount
Solid Waste Resources Revenue Bond, Series 2018-A May 2018 $87 million General Obligation Bonds, Series 2018 June 2018 $100 million Tax and Revenue Anticipation Notes 2018 June 2018 $1.6 billion
Other Transactions
The City’s Wastewater System Commercial Paper program letters of credit expire in December 2018
A request for proposal for credit providers and remarketing agents
The City’s MICLA Convention Center Commercial Program letter of credit expires in November 2018
A request for proposal for credit providers and remarketing agents
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Investor Relations
Contact Information
200 N. Main Street City Hall East, Room 1500 Los Angeles, CA 90012-4137 (213) 473-7500 Email: [email protected] Web: www.cao.lacity.org
Richard H. Llewellyn, Jr. City Administrative Officer
Ben Ceja Assistant City Administrative Officer
Natalie R. Brill Chief of Debt Management
• The CAO’s investor relations website is a centralized source of information that aggregates useful materials for ease of access, including links to other information
http://cao.lacity.org/debt/
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Source: City of Los Angeles, Office of the City Administrative Officer