How do I write a function with output parameters (call by reference)?

In Python arguments are passed by assignment. When you call a function with a parameter, a new reference is created that refers to the object passed in. This is separate from the reference that was used in the function call, so there's no way to update that reference and make it refer to a new object.

If you pass a mutable object into a method, the method gets a reference to that same object and you can mutate it to your heart's delight, but if you rebind the reference in the method (like b = b + 1), the outer scope will know nothing about it, and after you're done, the outer reference will still point at the original object.

So to achieve the desired effect your best choice is to return a tuple containing the multiple results:

def func2(a, b):
    a = 'new-value'        # a and b are local names
    b = b + 1              # assigned to new objects
    return a, b            # return new values

x, y = 'old-value', 99
x, y = func2(x, y)
print(x, y)