Page 503 - FY 2020-21 Blue Book Volume II

2020 TAX AND REVENUE ANTICIPATION NOTES

DEBT SERVICE FUND

BASIS FOR THE PROPOSED BUDGET

The 2020-21 Proposed Budget for the 2020 Tax and Revenue Anticipation Notes (TRAN) Debt Service Fund relates
to current year funding as follows:

2019-20 2020-21
Adopted Budget Proposed Budget % Change

Debt Service – Pension Fund $ 721,229,337 $ 767,232,291 6.4%
Debt Service – Retirement Fund 568,301,837 543,298,868 -4.4%
Debt Service – Cash Flow (Interest Only) 12,765,413 13,004,870 1.9%

Total Debt Service $ 1,302,296,587 $ 1,323,536,029 1.6%

The 2020 TRAN Debt Service Fund is a special purpose fund established to pay debt service on notes issued to
fund both the City’s annual contribution to the Fire and Police Pension Fund (Pension Fund) and the Los Angeles
City Employees’ Retirement System Fund (Retirement Fund) as well as to alleviate the short-term cash flow deficits
occurring early in the fiscal year when certain taxes and revenues have not yet been received.

Part of the 2020-21 appropriation to the TRAN Debt Service Fund includes the payment of the entire debt service
on notes issued in relation to the Pension and Retirement Funds. Issuance of these notes will permit the City to
make the entire annual contribution to the Retirement Fund and the Pension Fund in July 2020. This early payment
will allow both the Pension and Retirement Funds to earn additional interest that will be used to discount the required
City contribution without reducing the Funds’ annual receipts.

The appropriation of $767.2 million in the Debt Service Fund is the estimated cost of repaying the entire principal
and borrowing costs on the notes issued for the Pension Fund contribution for 2020-21.

The appropriation of $543.3 million in the Debt Service Fund is the estimated cost of repaying the entire principal
and borrowing costs on the notes issued for the Retirement Fund contribution for 2020-21. The special fund portion
of the Retirement Fund contribution ($113.3 million) will be paid by the proprietary departments (Airports and
Harbor) and the pension systems (Los Angeles City Employees’ Retirement System and Los Angeles Fire and
Police Pensions). The contribution also reflects the true up adjustment for the prior fiscal year resulting from the
reconciliation of budgeted covered payroll with actual covered payroll.

The Controller’s Office has requested $450 million in temporary cash flow borrowing. The issuance of these notes
will permit the City to provide effective cash flow management for the City’s General Fund. The principal portion of
the TRAN for cash flow purposes has not been appropriated in the Budget, since this principal is treated as
temporary borrowing rather than as expenditure. The cash flow appropriation of $13.0 million is only for the interest
portion of the debt service on the notes.

The principal and interest on the TRAN will be paid from the City’s General Fund revenues set aside during the
fiscal year. Issuance of the TRAN for the prepayment of the Pension Fund and Retirement Fund, and for cash flow
is combined to achieve efficiencies and will not contribute to the overall indebtedness of the City. The total savings
from the Pension Fund and Retirement Fund prepayment is approximately $43.4 million. After incorporating costs
of issuance, the total net savings to the General Fund of issuing the TRAN is approximately $18.8 million.

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