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Home My WebLink AboutCity of Huntington Beach Long - Term Financial Plan Update t r � n Summary General Fund Five-Year Projections Revenue Assumptions Expenditure Assumptions Five-Year Budget Performance Scenarios Annual Pension Cost Review Unfunded Liabilities Review Recommendations for One-Time Funds Recap SUPP -EME TAT 0 COMMUNICATION Meeting Date: IL Agenda Item No. SS7 Benefits of a Five-Year Plan Builds a financially resilient government through long-term financial planning Improves long-term financial sustainability as required through the Strategic Plan Provides time to effect change and adapt to changing conditions Adds transparency and encourages involvement Creates methods to determine the costs/benefits of decisions over the long-term Implements a tool to help leaders balance competing demands for enhanced or new services, additional staff, infrastructure needs and financial reserves 5-Year Plan Highlights The City's personnel costs comprise approximately 72% of the General Fund Budget As such, fixed cost increases related to the existing payroll base will largely consume projected revenue increases The most significant cost increases projected over the next 5 to 10 years are the City's pension costs New Ca1PERS Volatility Reduction Plans will increase costs Hence, projected revenue increases will primarily assist in funding increased pension costs Please note these are estimates for discussion purposes only and are subject to change 0 I^Ab�mddkh. LONG-TERM FINANCIAL PLAN EXPENDITURE ANALYSIS 0 Expenditure Assumptions Al The projections do not reflect any staffing increases ❑ Except for the addition of 5 Police Officers over three fiscal years Equipment Replacement increases by $500K annually until $7M is reached Infrastructure spending increases by $lM in FY15/16, and thereafter, to help meet the 15% infrastructure Charter requirement Funding of$1M is included for financing of 800 MHz project each year LeBard School site acquisition funding of$333K per year through FY 18/19 Reflects projected CalPERS cost increases based on PERS rates Includes projected impact of Ca1PERS Volatility Reduction Plans ($7M full annual after multi-year phasing if discount rate goes to 6.5%) Does NOT include an annual ongoing plan to reduce the Workers' Compensation liability of$9.4 million 0 REVENUE ASSUMPTIONS In depth review of the City's General Fund revenue over the past 10 years was conducted (2004 through 2014) One-time revenues were removed to isolate growth patterns for recurring revenue streams The smoothed, average annual rate of return for recurring revenue for the past 10 years is approximately 2.77% The 2.77% historical annual rate of growth is included in the "Base Case" assumptions for out-year growth Other assumptions are also included such as a Stress Testing scenario 0 5-YEAR PROJECTION SCENARIOS 0 0 Base Case in thousands ProFY t t t t t t Salaries' 97,711 98,465 99,446 99,846 100,296 CaIPERS 28,693 31,551 34,174 36,011 37,460 CalPERS Volatility 1,400 2,800 4,200 Other Benefits 26,613 25,054 24,757 25,040 24,719 Operating 43,601 44,429 44,977 45,841 46,143 Infrastructure 3,244 4,000 5,000 6,000 7,000 Equipment 5,190 5,500 6,000 6,500 7,000 Debt Service 8,464 7,070 6,386 6,382 4,963 Budget Set Aside" 2,969 3,013 - - 3,149 Other Recurring Expenses - 2,969 5,982 5,982 5,982 Total Expenditures 216,485 222,051 228,122 234,402 240,912 Total Revenues 216,485 222,481 228,644 234,977 241,486 Challenge)/Surplus 0 430 522 575 574 *Amounts shown above for Salaries do not reflect the potential impacts,if any,of vet to be negotiated labor contracts. -'Budget Set Aside amounts reflect the only projected funding estimated to be available to support increased spending in any category listed above. Base Case Great Recession Modified Total Expenditures 216,485 222,051 228,122 234,402 240,912 Total Revenues 216,485 228,326 239,948 230,878 226,999 (Challenge)/Surplus $6,275 $11,826 ($3,524) ($13,913) UNFUNDED LIABILITIES v a m _ F Unfunded Liabilities Overview as of CAFR for 9/30/2014 Plan to Eliminate Ca1PERS (Safety) 187,796 67.2% "1=5" Plan 25 years CalPERS (Misc) 120,431 73.0% Standard PERS Plan 30 years Subtotal 308,227 69.7% Retiree Medical (Misc) 5,900 100.0% Payoff as of 9/30/14 Now Retiree Medical (Safety)" 8,924 TBD "25 to 10" Plan 10 years Retiree Supplemental 21,563 62.7% "16 to 10" Plan 10 years Workers' Compensation 9,205 46.3% "10 in 10"Plan 10 years TOTAL 353,819 l3wed on 2013 Data* -Total unfunded liability amounts are not constant and are subject to change for market conditions,demographics and actuarial changes. •*Retiree Medical PEHMCA unfunded liability will be recognized in FY 2014/15 CAFR as per new requirement of ASOP No.6. CaIPERS Increases Revised Ca1PERS costs will increase from $25.1 million in FY 2013/14 to $47.5 million by FY 2021/22 (eight years), a 73.4% increase Safety rate increases from 38.8% to 50.9% in eight years Misc rate increases from 21 .4% to 30.6% in eight years These estimates DO NOT include the cost of recently negotiated or yet to be negotiated contracts Recent Ca1PERS discussions regarding portfolio "Volatility" will increase employer costs If the assumed earnings rate changes from 7.5% to 7.0%, that 50 bps change will cost an additional $3.5 million per year, and double that amount, or $7.0 million, if down to 6.5% 8-Year Ca1PERS Employer Rate Increases* All Funds with Volatili Reduction Plan (In Millions) 73.4% sso.o $45.0 $a.b ;7,p 59.2 $40.0 S2B .9 $35.0 S30.0 volatility Cost $25.0 •PERS Con $ .0 b1515.0 0 $10.0 $5.0 a- FY 13/14 FY 14/15 FY 15/I6 FY 16/17 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 *Projections have been updated to reflect most recent CalPERS actuarial valuation as of 6/30/13. Funded FTE vs. YOY PERS Costs (Without Volatility) 4,600.00 �PERS Com 4,100.00 — Funded FM $40.8M $37.2M 31600.00 $U.3M $31.TM 0 c 3,100.00 27.4M —o e- 7N O� V x �3 2,600.00 — $20.8M c 2,100.00 $19.2M $19.9M 1,600.N 1,143.00 1,141.30 1,100.00 1,000.30 972.00 923.00 937.75 948.25 936.75 950.73 961.75 961.75 961.75 �� It-------IF�1��11 600.00 uY. LL �i LL LL u W W u W W W Plan to Expedite Paydown of Liabilities The City will be facing additional significant increases in PERS Employer contribution rates starting in FY 15/16 The Five-Year Plan reflects the $1.0 million annual payment to the "One Equals Five" Safety Plan to pay off the unfunded liability five years ahead of schedule saving taxpayers $54 million The Ca1PERS Volatility Reduction Plans, while very expensive, will likely improve the funded status of the plans over the long term The City should consider funding a new Section 115 Trust to further expedite the pre-payment of unfunded liabilities, with one-time funds A Section 115 Trust offers an alternative to CalPERS to pre-fund liabilities with more conservative plan options Use of One-Time Funds Recommendations FY 2014/15 Funds $1.6 million Perform outright purchase of Fire Ladder Truck and equipment This will free up $295,000 in annual debt service over the next 4 years Plan was to originally finance the truck over a 5-year period (including the current year) FY 2015/16 Funds $4.5 million* Utilize up to $3.0 million for the $9.0 million Citywide Streetlight Retrofit project (as a result, only $6 million would need to be financed) Perform an outright purchase of the Fire Engine for Emergency One ($775k) and reduce annual debt service by $165,000 Use the remainder of$725k for a Section 115 Trust to further expedite the pre-payment of unfunded liabilities, or Workers' Compensation liabilities *Final amounts remitted to the City for the Triple Flip are subject to change. Funding will be appropriated after receipt from the State. Recap The City will be facing significant increases in PERS Employer contribution rates starting in FY 15/16 The Five-Year Plan is a tool to determine how current and future decisions will impact the City's General Fund budget The CalPERS Volatility Reduction Plans will likely improve the funded status of the plans but will be very costly If the City uses one-time funds to make certain purchases, it can reduce annual debt service costs providing greater flexibility at a time when PERS rates are rising The economy is cyclical; hence, it is prudent to examine the impacts of a potential future economic downturn and remain vigilant All of these scenarios are estimates only and are subject to change for factors completely beyond the City's control Budget Calendar July 6, 2015 FY 2015/16 Proposed Budget Delivered to City Council July 13, 2015 FY 2015/16 Strategic Planning Retreat Budget Update July 20, 2015 FY 2015/16 Proposed Budget Presentation August 17, 2015 Long Tenn Financial Plan September 8,2015 FY 2015/16 Budget Adoption City Council Public Hearing September 21, 2015 FY 2015/16 Budget Adoption(Alternate) October 1, 2015 Fiscal Year 2015/16 Begins 1' L - AUGUST 17, 2015 7 - 1 �