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HomeMy WebLinkAboutFiscal Year 2013/14 Year-End Budget Adjustments and PreliminY j � Dept. ID FN 15-004 Page_ 1 of 3 Meeting Date: 2/17/2015 ljt5�oed �7 �)- MEETING DATE: 2/17/2015 SUBMITTED TO: Honorable Mayor and City Council Members SUBMITTED BY: Fred A. Wilson, City Manager PREPARED BY: Lori Ann Farrell, Director of Finance SUBJECT: Fiscal Year 2013/14 Year -End Budget Adjustments and Preliminary Unaudited General Fund Balance Designations Statement of Issue: At the January 23, 2015, Strategic Planning Session, the Finance Department provided an update regarding the preliminary, unaudited Fiscal Year 2013/14 General Fund Budget performance for the year ended September 30, 2014. City Council authorization is requested to allocate the currently estimated available General Fund Balance of $5.9 million in order to finalize the City's Comprehensive Annual Financial Report (CAFR), subject to final certification by the City's independent, external auditors. Financial Impact: This action approves the following: 1) The deposit of $1.0 million into the City's Economic Uncertainties Reserve; 2) The transfer of $1.0 million into the Workers' Compensation Fund; 3) The deposit and appropriation of $1.0 million for the "CaIPERS 1=5" Plan; 4) The transfer and appropriation of $2.7 million to the Retiree Medical Insurance Fund (comprised of $2.0 million from estimated year-end available fund balance and $698,000 from existing General Fund reserves); and, 5) The creation of a CaIPERS Rate Increase Reserve with the remaining Fund. Balance (currently estimated at $900,000) to help mitigate the fiscal impact of future projected pension rate increases. Recommended Action: A) Approve the assignment of preliminary FY 2013/14 year-end General Fund Balances in the amounts and for the purposes indicated in Attachment 1; and, B) Approve FY 2013/14 year-end inter -fund transfers and FY 2014/15 appropriations as indicated in Attachment 2 to payoff and/or reduce the City's Workers' Compensation, Pension and Retiree Medical unfunded liabilities. Alternative Action(s): Do not approve the recommended action. and direct staff accordingly. Analysis: For Fiscal Year 2013/14, which ended on September 30, 2014, preliminary, unaudited figures reflect a total of approximately $202.2 million in recurring General Fund revenue and $1.9 million in one-time revenue for a total of $204.1 million in total estimated General Fund revenue. Of this amount, $198.2 million is needed to fund actual General Fund expenditures ($194.5 million), a required set -aside for the Cityview replacement project ($0.7 million), and increased encumbrances for public safety vehicles, equipment, and the LED Street Lighting Project ($3.0 million). Item 4. - 1 HB - - Dept. ID FN15-004 Page 2 of 3 Meeting Date: 2/1712015 General Fund Balance Designations After accounting for actual expenditures, required set -asides, and increased encumbrances, there is a preliminary, unaudited available fund balance of $5.9 million, or 2.9 percent of the General Fund. At the City Council's Strategic Planning Retreat on January 23, 2015, several recommendations were made regarding the allocation of this available Fund Balance as follows: Economic Uncertainties Reserve The City's Financial Policies have a stated goal of saving up to two months of General Fund budgeted operating expenditures, currently estimated at $35.0 million, in the Economic Uncertainties Reserve. Currently, this reserve has a balance of $24.0 million, or $11.0 million less than the stated goal. The deposit of an additional $1.0 million will help the City move closer to its stated goal by increasing the existing reserve level. This action may also assist in helping the City maintain its high credit ratings (i.e. AAA from the Fitch Rating Agency and a AA+ from Standard & Poors). 2. "10 in 10" Plan to Eliminate Worker's Compensation Liability On January 20, 2015, the City Council authorized the transfer of $1.3 million from various Funds citywide to fund actual operating and claims costs incurred in the Self Insurance Workers' Compensation Fund and to account for an increase in the final, actual unfunded liability of the Workers' Compensation program. While this transfer balanced the Fund's budget for the fiscal year, and allowed for the transparent reporting of the Fund's outstanding liabilities, the Fund still contains a significant negative Fund Balance. As one of the City Council's Strategic Planning Goals is to Strengthen Economic and Financial Sustainability" staff recommends the implementation of a 10-year plan to reduce the Fund's $10.5 million unfunded liability, or a °10 in 10" plan. The transfer of $1,054,000 from the General Fund (Fund 100) to the Workers' Compensation Fund (Fund 551) represents one year's worth of the proposed payoff plan. 3. CalPERS Safety Pension Plan In FY 2013/14, the City Council authorized an award -winning strategy to reduce the City's $187.8 million unfunded liability in the Safety Pension Plan. This strategy, the 01=5" plan proposes the annual deposit of an additional $1.0 million into the Safety Plan's coffers in order to expedite the payment of the Plan's unfunded liability. As per Bartel Associates, the City's independent actuaries, this plan would allow the City to payoff the liability in 25 years, instead of the original 30 years, saving taxpayers $54 million over the long-term. Staff recommends the deposit of $1.0 million into the CalPERS 1=5 reserve for the fiscal year ended September 30, 2014, and the subsequent appropriation of these funds in the FY 2014/15 Revised Budget to make the payment to CalPERS and expedite taxpayer savings. 4. Retiree Medical Unfunded Liability In FY 2013/14, the Adopted Budget also contained a new program to eliminate the City's unfunded liabilities for its Retiree Medical program in 10 years, versus the original 25 years, thereby shaving off 15 years of payments and saving taxpayers $9.2 million over the long- term. We are pleased to report that the City's efforts have yielded very positive results, making a complete payoff of the Miscellaneous employees' portion of the plan a viable option. City Council authorization is requested to transfer $2,698,000 from the General Fund (Fund 100) to the Retiree Medical Insurance Fund (Fund 702) to eliminate the Miscellaneous portion of the unfunded liability and continue the 10-year paydown of the Safety employees' unfunded liability estimated at $11 million, subject to stock market performance. This payment is comprised of $2,000,000 from estimated available General Fund balances and $698,000 from the existing Retiree Medical Unfunded Liability Reserve. HB -- Item 4. - 2 Dept. ID FN15-004 Page 3 of 3 Meeting Date: 2/17/2015 5. CalPERS Rate Increases The CalPERS Board of Administration has implemented numerous changes to its actuarial methodologies and practices in order to improve the funded status of the pension plans for its member agencies statewide. In order to accomplish this goal, localities will experience significant increases in their future Employer contribution rates starting in FY 2015/16 and FY 2016/17 and into the foreseeable future. While the City has built these projected rate increases into its Long Term Financial Plan projections, more still needs to be done to prepare for these increased pension costs. Staff recommends the creation of a CalPERS Rate Increase Reserve with the remaining year end General Fund balance, currently estimated at $900,000, to help shield the City's budget from the increased volatility that will likely result from the Board's most recent changes. Lastly, please note that the preliminary, unaudited $5.9 million available General Fund Balance that is the basis for these recommendations is an estimate and is still subject to potential change. It is recommended that any required reductions to this number (or additions), be reflected in the CalPERS Rate Increase Reserve to help ensure the implementation of the above recommendations aimed at reducing the City's unfunded liabilities. The City's final audited figures for the fiscal year ended September 30, 2014, will be available on or before March 31, 2015, pursuant to Generally Accepted Accounting Principles and Governmental Accounting Standards Board requirements. Environmental Status: Not Applicable. Strategic Plan Goal: Improve Quality of Life. Enhance and Maintain Infrastructure. Strengthen Economic and Financial Sustainability. Enhance and Maintain Public Safety. A tachrnent(s): 1. Recommended FY 2013/14 General Fund Balance Designations and Transfers. 2. Fiscal Year 2013/14 and Fiscal Year 2014/15 Budget Adjustments by Fund. Item 4. - 3 HB -54- ATTACH M ENT 1 Recommended FY 2013/14 General Fund Balance Designations* (in thousands) Fund Balance Category FY 2012/13 Audited FY 2013/14 Recommended Year over Year Change Economic Uncertainties 24,011 25,011 1,000 Litigation Reserve 900 900` - Redevelopment Dissolution 1,323 1,323 - Equipment Replacement 8,295 8,990 695 Retiree Medical Unfunded Liability" 698 - (698) CalPERS Rate Increase - 900" 900 General Plan Maintenance 720 720 - Capital Improvement Reserve (CIR) 7,136 7,136.- Senior Center 2,000 2,000 - CalPERS "One Equals Five Plan" 500 1l500' 1,000 Other Fund Balance/Encumbrances^^ 8,924 11,892` 2,968 Total..Fund Balance. 54,5071 60,372 1 5,865 Notes: * These recommended fund balance designations maybe subject to change upon further review and certification by the City's external independent auditors. ** Retiree Medical Unfunded Liability Reserve balance of $698k will be expended to help payoflYreduce unfunded liabilities in the Retiree Medical Insurance Fund (Fund 702) as of September.30, 2014. ^ Any required adjustments, either positive or negative, will be made to the CialPERS Rate Increase Reserve. ^^ Other Fund Balance -includes Pre paid Insurance, Encumbrances,. Non -Spendable and Other Restricted Items .. which may also be subject to further change as per auditor review and GAAP rules. TB -- Item 4. - 4 ffl T. FIflAEIVT 2 Fiscal Year 2013/14 Year -End Budget Adjustments by Fund TRANSFERS OUT Fund No Fund (dame Appropriation Dept 100 General Fund $ (1,054,000) 100 General Fund $ (2,000,000) 100 General Fund Retiree Medical Reserve $ . (698,000) $ (3,752,000) TRANSFERS lid Fund No Fund Blame Appropriation Non -Departmental Non -Departmental Non -Departmental Dept 551 Workers' Compensation $ 1,054,000 Human Resources 702 Retiree Medical Insurance Fund $ 2,000,000 Finance 702 Retiree Medical Insurance Fund $ 698,000 Finance $ 3,752,000 Fiscal Year 2014/15 Revised Budget Adjustments by Fund Fund No Fund Name Appropriation Dept 100 General Fund $ 1,000,000 Non-Departmental/CaIPERS Payment Item 4. - 5 HB -5-