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Case Study: Gustine- Bond Validation Action

The City of Gustine (the "City") engaged Weist Law to develop a pension liability management policy and prepare for a taxable debt offering in order to mitigate unfunded accrued liability (the "UAL") costs associated with their CalPERS pension plans.

Transaction Highlights

In an effort to ensure that any future pension liabilities do not grow to unmanageable levels, Weist Law worked with California Municipal Advisors, LLC (“CalMuni Advisors”) to develop an Pension Management Policy (the “Pension Management Policy”) for the City. The Pension Management Policy requires that any new increase or decrease in the UAL resulting from the annual CalPERS actuarial valuation be explicitly identified each year during the budget cycle and that the City consider making discretionary contributions with City resources (or other legally available resources) with the objective of increasing each of the pension plans funded status by reducing the UAL and ongoing pension costs. The Pension Management Policy provides guidance in making annual budget decisions, demonstrates prudent financial management practices, assists in creating fiscally sustainable budgets for pensions in future years, and helps reassure bond rating agencies and investors that the City is being proactive in the management of its fiscal affairs. After developing the Pension Management Policy, the City set a preliminary intention to proceed with financing to prepay its UAL obligations in order to jumpstart its plan to obtain a healthy funded status of around 90-95%.

For pension obligation bonds to be legally financed, the bonds must either be "validated" through a judicial validation proceeding or some other alternative legal theory arranged in compliance with the California Debt Constitution Limits. The team at Weist Law prepared and filed a validation action in the Superior Court of Merced County. The validation proceeding was then published in a local newspaper, the Gustine-Standard Press, to put the public on notice of the upcoming transaction. The validation action did not receive challenges from the public or any third-party agencies and the bonds were validated through a default judgment entered on March 1, 2022.

Successful Outcome

After the appeal period for the bond validation judgment was completed, Weist Law worked diligently to secure the funding in a timely manner. The team reached out to several banks that regularly invest in municipal debt obligations to get their indicative rates. One bank in particular that Weist Law works with frequently, was able to offer a competitive rate of 3.5% for a 20-year term and a 60-day rate lock. The 60-day rate lock was a crucial part of the financing plan. Due to recent market headwinds including rising interest rates and the war in Ukraine, Weist Law wanted to do everything possible to protect the funding from market volatility. A few of the highlights are as follows:

  • The robust Pension Management Plan allows for an annual proactive approach to mitigating pension costs.

  • The transaction resulted in significant projected cash flow savings to the City .

  • The City was able to successfully navigate through the bond validation process with the help of Weist Law without any challenges to the action.

  • The financing structure created level debt service to enhance budget predictability.

  • The Financing Team was able to achieve a favorable interest rate (3.50%) in the midst of rapidly rising interest rates (rates had increased to over 4.40% at the time).

For a downloadable version of this Case Study, click here. If you are interested in learning more about this transaction and how we could assist your agency, please feel free to schedule a free consultation with our team by clicking here.


The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact a designated Weist Law representative. This material may be considered advertising under certain rules of professional conduct.

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