HomeMy WebLinkAboutCity Council - 2003-62 RESOLUTION NO. 2003-62
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF HUNTINGTON BEACH
LEVYING A RETIREMENT PROPERTY TAX FOR
FISCAL YEAR 2003/2004 TO PAY FOR PRE-1978
EMPLOYEE RETIREMENT BENEFITS
WHEREAS, Article XIII A, Section 1(a) of the California Constitution, which was
enacted by Proposition 13 in 1978, Iimits the basic property tax to 1% of assessed value,but
Section 1(b)provides that the 1%property tax limitation"shall not apply to ad valorem taxes . . .
to pay the interest and redemption charges on . . . any indebtedness approved by the voters prior
to July 1, 1978;" and
In the case entitled Carman v. Alvord, 31 Cal. 3d 318 (1982), the California Supreme
Court held that the"interest and redemption charges on . . . indebtedness"covered by Section
1(b) includes employee retirement obligations of the City; and
Since 1948, the City has provided retirement benefits through a contract with the Public
Employees Retirement System(PERS). Pursuant to the 1966 Charter,the City has levied a
separate retirement property tax to fund the City's employer retirement obligation to PERS; and
Prior to 1978, the City was responsible for the employer's portion of PERS contributions,
which typically fluctuated from year to year. Employees paid the employee's portion of the
PERS contribution(7% for miscellaneous employees and 9% for safety employees). However,
after 1978, the City agreed to pay the employee's portion of the PERS contribution; and
Proposition 13 was adopted on June 6, 1978. On the same date, Huntington Beach's
voters approved a new City Charter, which contains several provisions regarding retirement
benefits for City employees. Section 403 of the Charter requires the City Council to "establish
such reasonable compensation and fringe benefits as are appropriate by ordinance or resolution"
for City officials and employees. Section 404 of the Charter requires the City to "participate in a
retirement system," and Section 607(b)(2)provides that the City may impose a retirement tax
"sufficient to meet all obligations of the City for the retirement system in which the City
participates;" and
Pursuant to these Charter provisions, the City Council continued to levy after 1978 a
retirement property tax above the 1% limit of Proposition 13. Since 1983-84, Revenue and
Taxation Code Section 96.31(b) has limited the City to levying a maximum retirement property
tax of Zero and 0.04930/100"Dollars ($0.04930)per$100 of assessed value to pay for its
retirement system; and
For many years after 1978,there was no question of which retirement-related benefits the
City could pay for with the retirement property tax because the employer's contribution to PERS
consumed all of the retirement property tax proceeds; and
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Resolution No- 2003-62
As a result of the declining employer's contributions to PERS, during the several years
prior to and including FY 2000/01, for the first time, the retirement property tax was used to pay
for retirement-related benefits first offered after 1978 in addition to the City's employer's
contribution to PERS; and
Although the City has participated in PERS since 1945, it has modified its retirement
programs since July 1, 1978. For example, effective April 20, 2000 the City amended its PERS
miscellaneous employee contract from 2% @ 60 to 2% @ 55 for all miscellaneous employees.
Further, effective June 30, 2 00 1, the City amended its PERS firefighters retirement contract from
2% @ 50 to 3% @ 50, and effective October 5, 2001,the City amended its remaining safety
employees (police and lifeguards) PERS contract to 3% @ 50; and
In December 1999, the Howard Jarvis Taxpayers Association("HJTA") filed suit
challenging whether the City's retirement property tax violates Proposition 13, in a case entitled
Howard Jarvis Taxpayers Association, et al., v. County of Orange, and City of Huntington Beach
as Real Parry in Interest, Orange County Superior Court Case No. 81-87-80 ("Case No.
818780"). At issue was whether the retirement tax is limited to only those retirement benefits
the City paid for as of July 1, 1978, or for all City-paid retirement benefits, including those
benefits authorized after July 1, 1978; and
Case No. 818780 was tried on February 26-27, 2001 in the Orange County Superior
Court. On April 2, 2001,the Court issued a final judgment. The Court held that under
Proposition 13,the retirement property tax is unconstitutional "to the extent it exceeds the City's
employer contribution for PERS retirement benefits that were in existence prior to July 1, 1978."
The judgment was affirmed in Court of Appeal Case No. G029292. Consequently, the
retirement property tax may only be levied to pay the employer's contribution to PERS for
retirement benefits the City contracted for before July 1, 1978; and
For fiscal year 2003/2004, PERS is requiring the City to contribute 8997% of safety
employee payroll as the City's employer's contribution. The City may levy a retirement
property tax sufficient to pay this contribution provided that the employer's contribution is
attributable only to the pre-1978, 2% @ 50 PERS contract,but not the 3% @ 50 PERS contract;
and
There is no exact means to precisely calculate what the PERS safety employer
contribution would be in 2003/04 had the City not amended its PERS contract to provide 3% @
50 benefits. However,there is a reasonable actuarial method to identify the incremental cost of
changing the safety employee retirement plan from 2% @ 50 to 3% @ 50; and
In December 2000, PERS provided a"Contract Amendment Cost Analysis"for the 3%
@ 50 safety employee retirement plan. The PERS Analysis indicated that according to special
rules PERS has applied to all plans with a then-employer contribution rate of zero,no short-term
cash flow impact of the contract amendment would be experienced for 8 years. Consequently,
this portion of the Analysis suggests that all of the 8.997%employer contribution should be
allocated to pre-1978 benefits and none of the contributions should be allocated to post-1978
benefits; and
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Resolution No. 2003-62
However,based upon historical averages, the PERS Analysis also identified 4.589%of
safety payroll as the change in the "Normal Cost" of safety retirement plan due to the Contract
Amendment. Normal Cost represents the value of retirement benefit earned in the current year.
Further,page 3 of the PERS Analysis states that "the change in normal cost. . . may be much
more indicative of the long-term change in the employer contribution rate due to the plan
amendment." Accordingly, going forward, the City Council will allocate 4.589%of any safety
employer's rate PERS imposes to the cost of the 3% @ 50 contract amendment, and the
remainder of the employer's rate to the pre-1978 safety benefits. Consequently, the retirement
property tax for Fiscal Year 2003/04 will be used to pay 4.408% of safety employee payroll
(8.997% -4.589%); and
The estimated cost to the City of 4.408% of safety employee payroll for 2003/04 is
$1,279,113. A retirement property tax levy sufficient to raise this amount of money is $0.00696
per$100 of assessed value. This amounts to a retirement tax of approximately$7.00 per
$100,000 of assessed value; and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Huntington
Beach that a retirement property tax levy of Zero and 0.00696/100t' Dollars ($0.00696)per $100
of assessed value shall be levied for employee retirement costs for Fiscal Year 2003/04, and the
remainder of the $0.04930 per$100 of assessed value levy authorized under Revenue &
Taxation Code Section 96.3(b) is suspended.
BE IT FURTHER RESOLVED that to the extent the 2003/04 levy actually produces
more or less revenues than the actual cost of 4.408% of safety employee payroll, then the
2004/05 retirement property tax shall be adjusted accordingly to recover the shortfall or refund
the excess.
BE IT FURTHER RESOLVED that the City Council declares that although it is
suspending a portion of the retirement property tax for Fiscal Year 2003/2004, it retains the
authority to levy the tax in future years up to the rate of$0.0493%per$100 of assessed value.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 18 day of August , 2003.
1
Mayor
ATTEST: APPROVED AS TO FORM:
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City Clerk1 ity Atto ey �-
REV WED AN APP O D: INITiAT APP VED:
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City Administrator Directo of Administrative Services
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Res. No. 2003-62
STATE OF CALIFORNIA
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, CONNIE BROCKWAY, the duly elected, qualified City Clerk
of the City of Huntington Beach, and ex-officio Clerk of the City Council of
said City, do hereby certify that the whole number of members of the City
Council of the City of Huntington Beach is seven; that the foregoing resolution
was passed and adopted by the affirmative vote of at least a majority of all the
members of said City Council at an regular meeting thereof held on the 18th
day of August, 2003 by the following vote:
AYES: Coerper, Green, Boardman, Cook, Houchen, Hardy
NOES: Sullivan
ABSENT: None
ABSTAIN: None
d%4�. 6RWZZWA4t=
City Clerk and ex-officio lerk of the
City Council of the City of
Huntington Beach, California