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1/15/2026 4 RiversideCA.gov 19 STRESS TESTING/SENSITIVITY ANALYSIS Bartel Analysis – POB Option 2 ($431M) 19 Present Value Benefit (Total, $ millions)Summary of Results Expected Benefit Average benefit of $83.8 million 5th Percentile 5% probability losses greater than $117.8 million 25th Percentile Break-even (75% probability POB yield benefit to City) Median 50% probability benefit will be higher or lower than $78 million 75th Percentile 25% probability of benefit greater than $154.2 million 95th Percentile 5% probability of benefit greater thank $297.9 million •Probability of Present Value (PV) Savings: 75% •Expected PV Benefit: $83.8M –Safety Plan: $43.7M; Miscellaneous Plan: $40.2M •If successful (75%), average benefit is $133.7M •If not successful (25%), average loss is $68.1M •Why lower than $120M PV savings estimated in Section III? –Actuary assumes more conservative CalPERS investment returns; 6.4% for next 9 years and 6.9% over 20 years –Savings in Section III assumes 7% CalPERS returns RiversideCA.gov 20 •Even under extremely distressed scenarios (20% market crash right after POB with no recovery or prolonged 5% annual CalPERS returns), the City is better off with a POB than without •More conservative 3rd party actuarial analysis projects expected PV savings at $84M, or 20% of refunded UAL –Typically, City’s minimum target for refundings is 5% PV savings STRESS TESTING/SENSITIVITY ANALYSIS Takeaways V. GFOA CONSIDERATIONS AND ADDRESSING OTHER POB CONCERNS RiversideCA.gov 22 •Yes. Instead of CalPERS’s expected earnings rate of 7.0%, lower actual returns could occur. The chances of returns below the est. borrowing cost (3.0 – 3.5%) are low, but they do exist. Bartel and Associates evaluated reinvestment risk and calculates a 75% - 80% likelihood of success. Invested POB proceeds might earn less than the borrowing costs •No. These are fixed rate bonds and no swaps are used. “POBs are complex instruments that carry considerable risk…and may include swaps or derivatives…” •No. The Validation Proceeding will exclude POBs from any debt limit. The proposed POBs merely replace a portion of the City’s payments to PERS with debt service. Anticipated to reduce the cost of servicing the City’s UAL by over $150M . “Issuing taxable debt to fund the pension liability increases the jurisdiction’s bonded debt burden and potentially uses up debt capacity…” •No. These bonds will be issued with a call feature, allowing the City to refinance them in the future. POBs are “typically issued without call options” making it more difficult to refund bonds if interest rates fall or a different debt service structure is desired in the future. •No. Term of proposed POBs matches term of UAL being refinanced. City is amortizing principal immediately under all options. “POBs are frequently structured in a manner that defers the principal payments…” •Not Likely. Recent rating reports on other CA city POBs indicate that the rating agencies understand the merits of using POBs to lower the issuer’s cost of carry and to create a more affordable pension cost profile. “Rating agencies may not view the proposed issuance of POBs as credit positive…” THE GFOA VIEW – AND HOW THE PROPOSED POBS DIFFER RiversideCA.gov 23 CRITICISM OF POBS FALL INTO 4 CATEGORIES Financial impacts of borrowing and investing in risky assets •The presentation addresses the first issue at length – stress tests and the City’s own experience with POBs demonstrate that this risk is manageable, and that the City has carefully evaluated and mitigated it POBs exchange a “soft” liability for “hard” bonded debt •The City’s liability to CalPERS is already debt: it is legally enforceable and has a mandatory payment schedule •Rating agencies treat unfunded pension liabilities as debt in calculating liability and fixed expense ratios •It is expensive debt -CalPERS charges 7% interest on the UAL POBs have sometimes contributed to or enabled unsound policy decisions •One-shot budget relief & Contribution holidays •Benefit enhancements –improved funded status leads to granting of increased pension benefits •City’s proposed POBs DO NOT finance current year obligations nor provide any sort of benefit enhancements POBs are “kicking the can down the road” •The City’s proposed strategy DOES NOT include an extension of maturity or deferral of payments POBs should be part of a plan that fully addresses the pension liability VI. IMPACTS OF RECENT MARKET DEVELOPMENTS 19 20 21 22 23 24 Docusign Envelope ID: BB80A86F-2853-4F40-B02D-18F5B9DD615F