HomeMy WebLinkAboutCity Council - 2006-51 RESOLUTION NO. 2006-51
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH
LEVYING A RETIREMENT PROPERTY TAX FOR FISCAL YEAR 2006/2007 TO PAY
FOR PRE-1978 EMPLOYEE RETIREMENT BENEFITS
WHEREAS, since 1948, the City has provided for employee pensions through a contract
with the California Public Employees Retirement System (Ca1PERS). Pursuant to the 1966 and
1978 Charter, the voters of the City authorized the City Council to pay for the cost of employee
pensions through a separate retirement property tax. Section 607(b)(2) of the 1978 Charter
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
Proposition 13 was added to the California Constitution in 1978. It limits the local
property tax to 1% of assessed value, except that the City may levy an override tax in excess of
1%to pay"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 determined that under Proposition 13, an override property tax in excess of 1% of assessed
value may be levied to pay for employee pension benefits the voters approved prior to 1978.
Consequently, after Proposition 13, the City Council continued to levy an override tax to pay for
employee pensions. Since 1983-84, Revenue and Taxation Code Section 96.3l(a)(4) has limited
the City to levying a maximum override tax of$0.04930 per $100 of assessed value to pay for its
retirement system; and
In 2001, Proposition 13, as applied to the City Charter, was interpreted in Howard Jarvis
Taxpayers Association, et al., v. County of Orange, and City of Huntington Beach as Real Party
in Interest, Orange County Superior Court Case No. 81-87-80. The Court held that the override
tax may only be levied to pay for retirement benefits the City contracted for before July 1, 1978,
and may not encompass the benefits the City added after the passage of Proposition 13. This
interpretation was upheld in Howard Jarvis Taxpayers Assn v.. County of Orange (2003) 110
Cal.AppAth 1375, 2 Ca1.Rptr.3d 514, Court of Appeal Case No. G029292; and
Prior to July 1, 1978, the City entered into collective bargaining agreements with
employee associations representing its safety employees providing that, effective July 1, 1978,
they would be entitled to a CalPERS retirement benefit known as "2% @ 50." Subsequently, on
June 30, 1999, pursuant to collective bargaining agreements the City had entered into with its
safety employees, the City provided its safety employees with the CalPERS retirement benefit
known as 3% @ 50. Consequently, it is necessary to allocate the employer contribution to
CalPERS for safety retirement between 2% @ 50 and 3% @ 50, because only the employer
contribution for 2% @ 50 may be paid through the override property tax; and
The City has received a report from John Bartel of Bartel Associates, a professional
actuary experienced in pension calculations, entitled, "City of Huntington Beach CalPERS
Actuarial Issues - "Cost" of 3% @ 50," dated August 10, 2004. The Report identified the
additional cost of 3% @ 50 as what CalPERS refers to as the "normal cost"of the benefit, which
represents the present value of future benefits employees earned during the current year. Under
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Reso. No. 2006-51
this approach, the incremental cost of 3% @ 50 is 4.6% of safety payroll, and the remainder of
the employer contribution represents the cost of 2% @ 50; and
In April 2004, Assemblyman Harman formally asked the Attorney General regarding the
correct method of allocating the employer contribution to CalPERS between its pre-1978 and
post-1978 components. In his February 7, 2005, Opinion (Opinion No. 04-413) the Attorney
General opined that "any reasonable accounting method may be used for purposes of
determining which costs are not subject to the 1% property tax limitation of the Constitution";
and
The City Council has determined that the allocation approach presented in the Bartel
Report is a reasonable accounting method for determining which costs are not subject to the 1%
property tax limitation of the Constitution; and
In 2003/2004, CalPERS required the City to contribute 9% of safety employee payroll as
the City's employer's contribution. In order to set the tax override, the City subtracted the 4.6%
normal cost of 3% @ 50 from the 9% to set the override tax at the equivalent of 4.4% of safety
employee payroll. The cost to the City of 4.4% of safety employee payroll for 2003/2004 was
$1,279,113, and consequently, the City set the override tax for 2003/2004 at $0.00696 per $100
of assessed value, which amount was designed to yield $1,279,000; and
For 2006/2007, CalPERS is requiring the City to contribute 28.5560%of safety employee
payroll as the City's employer's contribution. In order to set the tax override, the City may
subtracted the 4.6% normal cost of 3% @ 50 from the 28.5560% to set the override tax at the
equivalent of 23.9560% of safety employee payroll. The cost to the City of 23.9560% of safety
employee payroll for 2006/2007 will be $ 7,488,166, and consequently, the City may set the
override tax for 2006/2007 at $0.03244 per$100 of assessed value; and
Notwithstanding this authority, the City Council chooses to set the override tax rate for
2006/2007 at $0.00700 per $100 of assessed value, the same rate imposed for 2003/2004, which
will yield approximately $1,683,141 in revenues. This amounts to an override tax of
approximately $7.00 per $100,000 of assessed value.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Huntington
Beach that a retirement property tax levy of Zero and 0.00700/100t' Dollars ($0.00700) per $100
of assessed value shall be levied for employee retirement costs for Fiscal Year 2006/07;
BE IT FURTHER RESOLVED that the remainder of the Zero and 0.03244/100th Dollars
($0.0467) per $100 of assessed value levy authorized under Revenue & Taxation Code Section
96.31(a)(4) is suspended for Fiscal Year 2006/2007;
BE IT FURTHER RESOLVED that the City Council declares that although it is
suspending a portion of the retirement property tax for Fiscal Year 2006/2007, it retains the
authority to levy the tax in future years up to the rate of$0.0493%per$100 of assessed value.
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Reso. No. 2006-51
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 1 Gt day of A„�„�t ,2006.
Mayor
REV ED AND APPROVED: APPROVED AS TO FORM:
1
City Administr for 15I ' y Attorne MSS - 09A
INITIATED AND APPROV D:
C-Ierector of Finance
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Res. No. 2006-61
STATE OF CALIFORNIA
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, JOAN L. FLYNN 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 21st day of August,
2006 by the following vote:
AYES: Bohr, Green, Coerper, Sullivan, Hardy, Hansen, Cook
NOES: None
ABSENT: None
ABSTAIN: None
Cit lerk and ex-officio Vrk of the
City Council of the City of
Huntington Beach, California