HomeMy WebLinkAboutCity Council - 2012-41 KEY
INSERTIONS: Underlined
DELETIONS c*..:'.
RESOLUTION NO. 2012-41
A RESOLUTION'OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH
LEVYING A RETIREMENT PROPERTY TAX FOR FISCAL YEAR 2012/2013 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 96.31(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) 120 Cal.App.4th 1375, 2 Cal.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 Ca1PERS 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 Ca1PERS 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
12-3375.001/82000 1
Resolution No. 2012-41
KEY
INSERTIONS: Underlined
DELETIONS S keth k
The City has received a report from John Bartel of Bartel Associates, a professional
actuary experienced in pension calculations, entitled, "City of Huntington Beach Ca1PERS
Actuarial Issues—Cost of 3% @ 50," dated August 10, 2004. The Report identified the
additional cost of 3% @ 50 as what Ca1PERS refers to as the "normal cost" of the benefit,
which represents the present value of future benefits employees earned during the current
year. Under 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, then Assemblyman Harman formally asked the Attorney General
regarding the correct method of allocating the employer contribution to Ca1PERS 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, Ca1PERS 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 $1,279,123, 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 2012/2013, Ca1PERS is requiring the City to contribute 35.012% of safety
employee payroll as the City's employer's contribution. In order to set the tax override,
the City may subtract the 4.6% normal cost of 3% @ 50 from the 35.012% to set the
override tax at the equivalent of 30.412% of safety employee payroll. The cost to the City
of 30.412% of safety employee payroll for 2012/2013 will be $13,729,724 afid however
the City may not set the override tax for 2012/2013 at $0.05002 above
0.04930 per$100 of assessed value; and
Notwithstanding this authority, the City Council chooses to set the override tax rate
for 2012/2013 at $.01500 per $100 of assessed value, which will yield approximately
$4,200,000 in revenue. This amounts to an override tax of approximately $15.00 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 0.01500/100th Dollars
12-3375.001/82000 2
Resolution No. 2012-41
KEY
INSERTIONS: Underlined
DELETIONS gtpik�
($0.01500) per $100 of assessed value shall be levied for employee retirement costs for
Fiscal Year 2012/2013;
BE IT FURTHER RESOLVED that the remainder of the Zero eaid
03430/1001h Dollars ($0.05002) $.03430 per $100 of assessed value levy authorized
under Revenue & Taxation Code Section 96.31(a)(4) is suspended for Fiscal Year
2012/2013;
BE IT FURTHER RESOLVED that the City Council declares that although it is
suspending a portion of the retirement property tax for Fiscal Year 2012/2013, it retains the
authority to levy the tax in future years up to the rate of$0.05002 $0.04930 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 2 0 t h day of August , 2012.
Mayor
REVI ND APPROVED: INITI. TED AND APPROVED:
Cit ger Finance Director
OVED AS TO FORM:
ity Attorney M V _
12-3375.001/82000 3
Res. No. 2012-41
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 a regular meeting thereof held on August 20, 2012 by the following vote:
AYES: Shaw, Carchio, Bohr, Boardman
NOES: Harper, Dwyer, Hansen
ABSENT: None
ABSTAIN: None
o ,
Cit Jerk and ex-officio (Mrk of the
City Council of the City of
Huntington Beach, California
RESOLUTION NO. 2012-41
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTING ON BEACH
LEVYING A RETIREMENT PROPERTY TAX FOR FISCAL YEAR 20/12/2013 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 theltity 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 whichethe 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 tha�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, arer Proposition 13, the City Council continued to
levy an override tax to pay for employee pensions. Since 1983-84, Revenue and Taxation
Code Section 96.31(a)(4) has limited the City to levying a maximum override tax of
$0.04930 per $100 of assessed valueto pay for its retirement system; and
In 2001, Proposition 13, a's 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, OrangeCounty 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 16. This interpretation was upheld in Howard Jarvis Taxpayers
Assn v. County of Orange (2003) 120 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 associptions representing its safety employees providing that, effective July 1,
1978, they would be entitled to a Ca1PERS 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
Ca1PERS r tirement benefit known as 3% @ 50. Consequently, it is necessary to allocate
the emplo,r contribution to Ca1PERS 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 Ca1PERS
12-3375/80851 1
Resolution No. 2012-41
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 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, then 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 I'% property tax
limitation of the Constitution;" and
The CityCouncil has determined that the allocation a roach resented in the
pp , p
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 0/o 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 $1,279,123, 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 2012/2013, CalPERS is requiring.�the City to contribute 35.012% of safety
employee payroll as the City's employer's contribution. In order to set the tax override,
the City may subtract the 4.6% normal cost of 3% @ 50 from the 35.012% to set the
override tax at the equivalent of 30.412%of safety employee payroll. The cost to the City
of 30.412% of safety employee payroll for 2012/2013 will be $13,729,724 and
consequently, the City may set the o erride tax for 2012/2013 at $0.05002 per $100 of
assessed value; and
Notwithstanding this authority, the City Council chooses to set the override tax rate
for 2012/2013 at $.01500 per/ 100 of assessed value, which will yield approximately
$4,200,000 in revenue. This amounts to an override tax of approximately $15.00 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 0.01500/100th Dollars
($0.01500) per $100//f assessed value shall be levied for employee retirement costs for
Fiscal Year 2012/2013;
BE IT FURTHER RESOLVED that the remainder of the Zero and .05002/100th
Dollars ($0.05002) per $100 of assessed value levy authorized under Revenue & Taxation
Code Section/96.3I(a)(4) is suspended for Fiscal Year 2012/2013;
12-3375/80851 2
Resolution No. 2012-41
BE IT FURTHER RESOLVED that the City Council declares that although it/is
suspending a portion of the retirement property tax for Fiscal Year 2012/2013, it retains/he
authority to levy the tax in future years up to the rate of$0.05002 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 2 n d day of July / , 2012.
r'
it
Mayer
REVIE D APPROVED: IN TIATED AND APPROVED:
City g r Finance DIrector
AP ROVED AS TO FORM:
C y Attoi4ey Vao-/a
12-3375/80851 3
Res. No. 2012-41
,xa
N`
s
STATE OF CALIFORNIA
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH
r:
r
t
I, JOAN L. FLYNN the duly elected, qualified City Clerk of the City
a
of Huntington Beach, and ex-officio Clerk of the City.,,&uncil of said City, do
hereby certify that the whole number of members/ f 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 July 02, 2012 by the
following vote: +
F`
d
AYES: Shaw, Dwyer, chio, Bohr, Boardman
NOES: Harper, Hansen
ABSENT: None
ABSTAIN: None
Ci Clerk and ex-officicalerk of the
City Council of the City of
Huntington Beach, California