Lodi Finance Committee Meeting - February 4, 2026
City of Lodi Finance Committee Meeting
February 4, 2026 Special Meeting
Comprehensive Summary and Detailed Analysis
Executive Summary
The City of Lodi Finance Committee convened a Special Meeting on February 4, 2026, at the Police Department's Rick Cromwell Community Room to address three principal agenda items: approval of prior meeting minutes, a comprehensive presentation from Public Agency Retirement Services (PARS), and an introduction to the Annual Comprehensive Financial Report (ACFR) process.
This meeting represents a continuation of critical financial oversight discussions initiated at the January 27, 2026 meeting, where committee members approved proposed Budget and Fiscal Policy revisions—including a significant modification to the Pension Stabilization Policy funded ratio threshold from 80% to 70%.
Key Highlights:
- PARS pension trust assets reached $31.1 million with 7.76% annualized returns
- OPEB trust assets totaled $2.9 million with 13.49% annualized returns
- Combined pension funded ratio projected to reach ~81% by FY 2031-32
- City faces $4.8 million structural deficit over next five years
- CalPERS employer contributions projected to rise to $24.6 million by FY 2031-32
Meeting Structure and Participants
Committee Composition
The Lodi Finance Committee operates as an advisory body to the City Council on fiscal matters, consisting of three Council members serving in oversight capacity:
| Role | Member |
|---|---|
| Chair | Mikey Hothi |
| Vice Chair | Ramon Yepez |
| Member | Gary Woehl |
The Committee leadership was established at the January 27, 2026 meeting, where Chair Hothi and Vice Chair Yepez were reappointed to their positions through a motion carried by the present members.
Staff Support
The meeting agenda was prepared under the direction of Interim City Manager James Lindsay, who assumed leadership in May 2025 following the departure of Scott Carney. Lindsay brings 30 years of local government experience, including a decade as City Manager for the City of Saratoga. Key staff participants at the prior January meeting included:
- Christina Jaromay – Interim Internal Services Director
- Jennelle Baker-Bechthold – Budget Manager
- Chia Lor – Accounting Manager
- Jennifer Howell – Budget Analyst
- Amardeep Kaur – Budget Analyst
- Monica Calderon – Administrative Assistant-Confidential
Agenda Item B.1: Approval of January 27, 2026 Minutes
The first substantive action item requests approval of the Special Meeting minutes from January 27, 2026—a meeting that addressed several consequential policy matters.
Key Actions from January 27 Meeting
Mid-Year Budget Overview
Interim City Manager Lindsay presented an update on mid-year budget adjustments and informed the Committee of a budget gap related to labor commitments. The presentation covered employee cost-sharing for CalPERS pension contributions, health benefits structures, and escalating costs driven by Memorandum of Understanding (MOU) obligations with city employee bargaining units.
Budget and Fiscal Policy Revisions
The Committee reviewed and approved significant policy modifications, including:
- Pension Stabilization Policy Amendment: Reduction of the liability funded ratio threshold from 80% to 70%—the level at which PARS fund distributions may be recommended
- Distribution Framework: Establishment of a formal process whereby the City Manager may recommend PARS disbursements to offset qualified pension expenses when fund assets exceed 70% of combined liability, subject to City Council approval
- Non-Material Updates: Various technical and administrative policy clarifications
Vice Chair Yepez specifically requested that charts and graphs illustrating revenue sources, reserve levels, and investment funding scenarios be included in the Mid-Year Budget presentation to the full City Council on February 4, 2026.
Agenda Item B.2: PARS Presentation
Understanding the Section 115 Trust Structure
Public Agency Retirement Services (PARS) administers Section 115 trusts—IRS-approved irrevocable trusts that enable local governments to prefund pension and Other Post-Employment Benefits (OPEB) liabilities. The City of Lodi established its PARS 115 Combination Trust on October 19, 2016, utilizing a discretionary trustee approach with the City Manager designated as Plan Administrator.
The trust structure provides several strategic advantages:
| Feature | Benefit |
|---|---|
| Financial Stability | Assets address unfunded liabilities outside the CalPERS system |
| Flexible Investing | Separate investment strategies for OPEB and pension subaccounts |
| Economies of Scale | Combined OPEB and pension assets reach lower fee tiers faster |
| Anytime Access | Trust funds available when needed for qualified expenses |
| No Minimums | No set-up costs or minimum annual contribution requirements |
PARS Trust Partnership Entities
The PARS trust involves three principal parties working collaboratively:
Trust Administrator & Consultant (PARS): With over 40 years of experience administering more than 2,300 plans for 1,100+ public agency clients representing $10.8 billion in assets, PARS serves as record-keeper, consultant, and central point of contact. PARS monitors compliance with IRS, GASB, and State Government Code requirements.
Investment Manager (PFM Asset Management): A division of U.S. Bancorp Asset Management, Inc., PFM manages $247.5 billion in assets with 41 years of investment experience. The firm provides strategic blend and index platform options with customized portfolio capabilities.
Trustee (U.S. Bank): As the nation's 5th largest commercial bank with 163 years of experience and $11 trillion in assets under administration, U.S. Bank safeguards plan assets, provides fiduciary oversight, and serves as custodian.
City of Lodi Pension Plan Performance
The City's PARS pension plan demonstrates substantial growth since its March 2017 inception:
| Metric | Value |
|---|---|
| Total Contributions | $18,975,058 |
| Net Investment Earnings | $12,137,359 |
| Account Balance (Dec 2025) | $31,112,416 |
| Disbursements | $0 |
| Annualized Return (Inception) | 7.76% |
PARS Pension Plan Asset Growth (FY 2017-2026)
Investment returns have been robust, though volatile, reflecting broader market conditions. The plan experienced strong returns of 23.98% in June 2021, followed by a -11.56% decline in June 2022, before recovering with returns of 8.18% (2023), 11.58% (2024), and 12.57% (2025).
City of Lodi OPEB Plan Performance
The City's OPEB (Other Post-Employment Benefits) trust, established to prefund retiree healthcare obligations, shows strong performance since its February 2024 initial contribution:
| Metric | Value |
|---|---|
| Initial Contribution | $2,279,620 |
| Additional Contributions | $0 |
| Net Investment Earnings | $597,157 |
| Account Balance (Dec 2025) | $2,876,777 |
| Annualized Return (Inception) | 13.49% |
The OPEB actuarial liability as of June 30, 2023 totaled $20.35 million, with a fiduciary net position of $2.17 million, yielding a funded ratio of 10.65%. With current assets at approximately $2.88 million, the estimated funded ratio has improved to approximately 14.13% assuming no change in the Total OPEB Liability.
CalPERS Pension Funding Status
The PARS presentation provides critical context regarding the City's primary pension obligation through the California Public Employees' Retirement System (CalPERS). As of June 30, 2024, the combined Miscellaneous and Safety pension plans showed the following status:
| Metric | June 30, 2023 | June 30, 2024 | Change |
|---|---|---|---|
| Actuarial Liability | $502.6M | $524.7M | +4.4% |
| Assets | $317.4M | $343.2M | +8.1% |
| Unfunded Liability | $185.2M | $181.6M | -2.0% |
| Funded Ratio | 63.1% | 65.4% | +3.6% |
| Employer Contribution | $19.5M (FY24-25) | $20.9M (FY25-26) | +7.2% |
CalPERS projections indicate employer contributions will rise to $24.6 million by FY 2031-32—a 17.7% increase from current levels. This escalation reflects the ongoing challenge municipalities face in managing pension obligations, as the City's annual pension costs are projected to consume an increasingly larger share of the General Fund budget.
Projected Funded Ratio Models
The PARS presentation includes two projection scenarios extending through FY 2031-32:
Scenario 1: With Distributions (1/3 of Projected Annual Net Earnings)
Under this model, where distributions equal one-third of projected annual net earnings beginning in FY 2027-28:
| Fiscal Year | Actuarial Liability | CalPERS Assets | Net PARS Assets | Total Funded Ratio |
|---|---|---|---|---|
| 2025-26 | $548.8M | $366.5M | $29.1M | 72.07% |
| 2027-28 | $600.3M | $418.0M | $32.1M | 74.98% |
| 2029-30 | $656.7M | $476.8M | $34.7M | 77.89% |
| 2031-32 | $718.3M | $543.9M | $37.4M | 80.93% |
Projected Pension Funded Ratio: CalPERS + PARS (FY 2025-2032)
Scenario 2: Without Distributions
Retaining all investment earnings in the PARS fund would yield slightly higher total assets by 2031-32, with PARS assets reaching $41.4 million versus $37.4 million under the distribution scenario—a difference of approximately $4 million.
The projections assume actuarial liability growth of 4.59% annually (based on historical CalPERS actuarial valuations), CalPERS asset growth of 6.8% (the current discount rate), and PARS asset growth of 6.5% (PFM Asset Management's 5-year expected return).
Investment Performance Context
The PFM Asset Management quarterly market summary accompanying the presentation provides macroeconomic context for the investment results:
- Domestic Equity: The S&P 500 returned 2.66% for Q4 2025 and 17.88% year-to-date, with Healthcare (11.7%) and Communication Services (7.3%) leading sector performance.
- International Equity: Markets outside the U.S. outperformed domestic equities, with the MSCI ACWI ex-U.S. Index returning 32.4% year-to-date—its highest return since 2009.
- Fixed Income: The Bloomberg U.S. Aggregate Index returned 7.30% for the year as Federal Reserve rate cuts brought the target range to 3.50%-3.75%.
- Economic Indicators: U.S. GDP accelerated to 4.3% annualized growth in Q3 2025, while inflation cooled to 2.7% year-over-year in November.
The City's PARS portfolio utilizes a Balanced-Index investment strategy with the following target allocation:
| Asset Class | Target Allocation | Actual Allocation | Variance |
|---|---|---|---|
| Domestic Equity | 36.0% | 36.7% | +0.7% |
| International Equity | 18.0% | 18.5% | +0.5% |
| Other Growth | 6.0% | 5.6% | -0.4% |
| Fixed Income | 38.0% | 36.3% | -1.7% |
| Cash Equivalent | 2.0% | 2.9% | +0.9% |
Agenda Item B.3: Introduction of ACFR to Committee
What is an ACFR?
The Annual Comprehensive Financial Report (ACFR) is a comprehensive set of government financial statements that complies with accounting requirements promulgated by the Governmental Accounting Standards Board (GASB). Unlike a basic annual report that presents only fundamental financial statements, the ACFR provides a wider variety of information intended to help readers properly understand the government's financial position and activities.
The ACFR consists of three principal sections:
- Introductory Section: Orients and guides readers through the report, typically including a letter of transmittal from management
- Financial Section: Presents basic financial statements, notes to the statements, and the independent auditors' report
- Statistical Section: Provides additional financial and statistical data, including trend information that contextualizes the government's activities over time
GASB 68 and GASB 75 Standards
Two GASB standards are particularly relevant to the Finance Committee's oversight responsibilities:
GASB Statement No. 68 (Pensions)
Issued in 2012, this standard fundamentally changed pension accounting by requiring employers to recognize a net pension liability on their financial statements. Under previous standards, pension obligations were only disclosed in footnotes. GASB 68 requires governments to report their proportionate share of pension expenses and liabilities, enhancing transparency around unfunded pension obligations.
GASB Statement No. 75 (OPEB)
This 2015 standard mirrors GASB 68's approach for Other Post-Employment Benefits (primarily retiree healthcare). It requires governments to report a net OPEB liability and OPEB expense on their financial statements, breaking the prior link between funding and financial reporting.
City of Lodi ACFR Context
The City published its FY 2023-24 ACFR with several notable findings relevant to the Finance Committee's work:
| Category | Amount | Change |
|---|---|---|
| Long-term Debt | $167.0M | -$7.7M (-4.4%) |
| Net Pension Liability | $182.3M | +$62.0M (CalPERS valuation) |
| OPEB Liability | $25.6M | -$2.5M |
The FY 2023-24 report included modified opinions on certain enterprise funds due to past underreporting of unused holiday cash-outs to CalPERS affecting up to 11 former employees. City staff are working with CalPERS to resolve this reporting gap, with full resolution expected in the next reporting cycle.
Policy Context: Budget and Fiscal Policy Framework
Pension Stabilization Policy
The Budget and Fiscal Policy revision approved at the January 27, 2026 meeting establishes a critical framework for managing PARS fund distributions. The key policy provisions include:
- Funding Threshold: The liability funded ratio trigger was reduced from 80% to 70%, meaning distributions may be considered when the value of PARS assets exceeds 70% of combined pension liability.
- Distribution Authority: Only the City Manager may include recommendations for PARS disbursements, and only as part of the Annual or Mid-Year Budget reports—ensuring distributions align with broader fiscal planning.
- Council Approval Required: No disbursements may be made without explicit City Council approval, maintaining elected official control over trust fund utilization.
Structural Fiscal Context
The City faces a projected $4.8 million structural deficit over the next five years, prompting service maintenance rather than enhancement strategies in the FY 2025-26 budget. Key budget characteristics include:
- General Fund Budget: Approximately $89.7 million proposed for FY 2025-26
- Measure L Revenue: Approximately $10 million annually from the half-cent sales tax approved in 2020
- Police Department: 37% of General Fund budget
- Fire Department: Nearly 22% of General Fund budget
- Pension Costs: Rising from approximately $6 million to projected $13 million over five years (115% increase as previously estimated)
Analytical Assessment and Strategic Implications
Investment Performance Evaluation
The PARS trust investments have performed well relative to benchmarks, with the pension plan's 7.76% annualized return since September 2020 inception comparing favorably to the blended benchmark's 8.09% return. The strong 2025 performance (14.14% total portfolio return versus 13.46% benchmark) demonstrates the effectiveness of the balanced index strategy.
However, several considerations warrant Committee attention:
- Market Concentration Risk: The S&P 500's P/E ratio of 27.5 exceeds the five-year average of 23.3, suggesting elevated equity valuations that may limit future returns.
- Interest Rate Sensitivity: With the Federal Reserve cutting rates to 3.50%-3.75% and guidance for only one additional cut in 2026, fixed income returns may moderate from 2025 levels.
- Geopolitical Uncertainty: U.S. military action in Venezuela and potential government shutdown risks could introduce volatility.
Funded Ratio Trajectory
The projected path to approximately 81% combined funded ratio by 2031-32 represents meaningful progress, though several assumptions merit scrutiny:
- Actuarial Liability Growth (4.59%): Based on historical trends, but demographic changes or benefit enhancements could alter this trajectory
- CalPERS Return Assumption (6.8%): CalPERS recently achieved 11.6% returns in FY 2025, but long-term averages hover around 7.1-7.6%
- Zero Net Cashflow Assumption: Does not account for potential additional contributions or unexpected benefit payments
OPEB Funding Gap
The OPEB funded ratio of approximately 14.13% remains substantially below pension funding levels, with an $18.2 million unfunded liability (as of June 30, 2023 measurement date). The City's 628 total OPEB participants (312 active employees electing coverage, 107 inactive members entitled to benefits, and 209 retirees) represent ongoing obligations that merit continued attention.
Recommendations for Committee Consideration
Based on analysis of the agenda materials and referenced documents, the following considerations emerge:
- Policy Threshold Monitoring: The newly established 70% funded ratio threshold for distributions should be paired with clear metrics for evaluating when distributions serve the City's best interests versus allowing continued asset accumulation.
- OPEB Funding Strategy: With OPEB funded at only 14% compared to the combined pension funded ratio of 72%, the Committee should consider whether additional OPEB contributions should be prioritized. The City of Lodi's OPEB structure—centered on a closed sick leave conversion program for pre-1994 employees—positions it to see declining liabilities over time without requiring dramatic benefit cuts. However, the pay-as-you-go funding approach creates long-term financial reporting challenges and foregoes the investment returns available through prefunding vehicles like CERBT. More information is available here
- Contribution Planning: Given the $4.8 million structural deficit and rising pension costs, the timing and amount of future PARS contributions will require careful balancing against operational needs.
- ACFR Findings Resolution: The Committee should monitor staff progress in resolving the CalPERS reporting discrepancies identified in the FY 2023-24 ACFR.
Conclusion
The February 4, 2026 Finance Committee meeting addresses foundational elements of the City of Lodi's long-term fiscal sustainability. The PARS presentation demonstrates prudent management of supplemental pension and OPEB reserves, with combined trust assets exceeding $34 million and investment performance broadly tracking benchmarks. The projected path to approximately 80% combined pension funded ratio by 2031-32 represents achievable progress, though dependent on market performance and continued fiscal discipline.
The Committee's prior action to reduce the distribution threshold to 70% provides flexibility for using PARS funds to offset pension costs during challenging budget years—a tool that may prove valuable given the City's structural deficit projections. As the Committee receives the ACFR introduction, understanding the interplay between GASB reporting requirements, CalPERS obligations, and PARS supplemental funding will be essential for informed oversight of the City's financial position.
References and Sources
- City of Lodi Finance Committee Meeting Agenda and Materials, February 4, 2026 - City of Lodi Official Website
- Public Agency Retirement Services (PARS) - Section 115 Trusts Overview
- CalPERS Fiscal Year 2025 Returns - AI-CIO.com Report
- Annual Comprehensive Financial Report Overview - ACFR Information
- PARS Trust Municipal Solutions - PARS Website
- CalPERS Official Announcement - CalPERS Newsroom
- GASB Standards Information - Governmental Accounting Standards Board
- City of Lodi FY 2023-24 ACFR Press Release - City of Lodi
- Lodi Budget Highlights - Stocktonia Report
- City of Lodi Acting City Manager Announcement - LinkedIn
For questions or additional information, please contact:
City of Lodi Finance
Department
Email: jlindsay@lodi.gov
Phone: (209) 333-6700