HomeMy WebLinkAboutSpecial Meeting, City Council, City of Huntington Beach, Str ® ' City of Huntington Beach
e.
2000 Main Street o Huntington Beach, CA 92648
(714) 536-5227 ® www.huntingtonbeachca.gov
fFa. 17,1909.P office of the City Clerk
® � 1
Robin Estanislau, City Clerk
CALL FOR HUNTINGTON BEACH CITY COUNCIL
SPECIAL MEETING
TUESDAY, FEBRUARY 13, 2018
Mayor Posey
Mayor Pro Tern Peterson
Councilmember Brenden
Councilmember Delgleize
Councilmember Hardy
Councilmember O'Connell
Councilmember Semeta
You are hereby notified that a Special Meeting of the City Council is called for and will be held
in the Talbert Room at the Huntington Central Library, 7111 Talbert Avenue, Huntington
Beach at the hour of 8:00 a.m., Tuesday, February 13, 2018 in order to allow discussion on
the following item:
1. Strategic Planning Retreat led by facilitator Marilyn Snider of Snider and Associates
Dated: February 9, 2018
/s/ Robin Estanislau /s/ Mike Posey
ATTEST: City Clerk Mayor
I hereby certify that I received the above notice, "Call for Huntington Beach City Council Special
Meeting" prior to 8:00 A.M. on Monday, Februaryl2, 2018.
/s/ Mike Posey
Mayor
Sister Cities: Anjo, Japan s Waitakere, New Zealand
.1
STRATEGIC PLANNING
RETREAT
FEBRUARY 13, 2018
Finance Update
Overview
■ FY 2016/17 General Fund Year-End Update (Preliminary/Unaudited)
■ FY 2017/18 General Fund Overview
❑ FY 2017/18 Adopted Budget Recap
❑ FY 2017/18 Budget Amendment
❑ Challenges
■ FY 2018/19 Preliminary Overview
■ Pensions and Unfunded Liabilities
■ Long Term Financial Plan Preliminary Forecast
■ Preliminary General Fund Balance Recommendations
■ Budget Balancing Ideas
z
STRATEGIC PLANNING RETREAT
n FY 2016/17 Year-End Update(Preliminary/Unaudited)
1 � f
f
Expenditures
..x
I WIN"
# 1?l �ttures $21i{1
-One Tune FY 2016/17 Year End Payroll Adjustment ($0.9)
/ 1oj tIS eCtti?n' l TL1St - ,,tea / x.., y E p
-increase in Workers'Compensation Claims and Legal Costs $0.9
Total Estimated Expenditures $219.0
General Fund Recurring Revenue $2172
j $0.9Clgn incgtrttrl
/i .
General Fund One-Time Revenue $0.7
Tot 1 ti ia�€ yea ; 21$
Estimated Available Year-End Fund Ba[anee(Unaudited) ($0.2) 4
FY 2017/18 GENERAL FUND BUDGET
OVERVIEW
FY 2017/18 General Fund
Budget Overview
FY2017/18
Adopted Budget
Description (in millions)
Total Sources of Funds $224.0
General Fund Expenses 224.0
SIN
FY 2017/18 Adopted Budget
General Fund Revenue
Sales Tar 22% FrRnchireR
3%
Transient Occupancy Tax
6%
Utility Users Tax
ID°e
Liccnsc&Pccmits
4%
Property Tax./ F.-
i &Forfeitures
48% 2%
Fund Balance
Ga�o
7
FY 2017/18 Adopted Budget
General Fund by Department
Public Safety Represents 55%of General Fund
Cunmwrit�'Develo p'1 1 7^a Iic Works City-Tuas,ucr
$25,629,960 � 5234,30Z
$'^$S•'6^ 11.49b 0.14'� Fi�a
v9u-DcuaRm�wal ?:3a5 I k�6,S3-,F93
329,63fi 990 q,-� 20.9"e
t3.,%
bro—lion S—n—
$6955.642
.31?b
Library Smien
$4.992.413
2.2`b
Hi:nwn Reun:¢a_
SS 888,360
20 b
Fu:au.e
35,955,-10 ,.....-- o1ir.
2.6% / 37i,761 318
/ Cd"blavas� 3.;.R"b
Community 5crciccs 580 693 C$3 5 111 City 02.105 S2,524.042
58,4107110 $80i,698 $385,111 $2,60'_,105 t.l'vn
0.2% 1.29i $
FY 2017/18 General Fund Highlights
• FY 2017/18 is a"Taking Care of Business" Budget
• Balanced Adopted General Fund Budget
• A slight General Fund revenue increase of 1.6% was projected at budget
adoption
➢ This is being monitored closely given sales tax slow growth
• More than half of the budget is for Public Safety
• 15% Charter requirement for Infrastructure is met
• Strong financial and emergency reserves of$62.8 million
• Lean budget and culture of fiscal conservatism have allowed the City to retain
its underlying "AAA" Fitch Rating
• Multiple plans to reduce unfunded liabilities contained in budget
• Restored Sunday hours at the Central Library
9
FY 2017/18 Budget Amendment
■ On December 18, 2017, City Council approved to:
■ (1) change the fiscal year from October 11t through September 30t"to
July 1 St through June 30th;
■ And (2) recognizing the escalating CalPERS costs and to ensure timely
implementation of the new fiscal year, a status quo FY 2018/19 General
Fund budget.
■ Prepayment of the Ca1PERS unfunded liability.
■ Annual cost savings to begin at $900k and to $1M+ in succeeding years.
■ Savings will be partially offset by approximately $100k in reduced
investment earnings.
10
FY 2017/18 Challenges
■ FY 2017/18 Revised Budget:
■ Funds October 1st to June 30t',essentially a 9-month budget
■ Departments have received their targets
■ Adjustments were implemented to Equipment Replacement and Capital
Improvement Projects
■ Revenues and Expenditures are being monitored closely; minimal
surplus/deficit anticipated
■ Cash Flow is being analyzed closely
■ Holiday Sales Tax revenues are expected by mid-March
■ FY 2017/18 update in April 2018; will be "Tight!"
FY 2018/19 BUDGET OVERVIEW
Fiscal Year 2018/19 Budget
■ As per City Council Direction, the FY 2018/19 is essentially a status quo
budget, but includes uncontrollable fiscal impacts:
■ Increasing Ca1PERS costs
■ Ongoing Debt Payments/Internal Transfers
■ Maintains Equipment Replacement budgeted amount
■ Meets the 15% Charter Infrastructure Requirement
■ Status Quo Payroll
■ Temporarily Suspends the Section 115 Trust Transfer (Pension Rate
Stabilization Program)
■ May have to revisit departmental vacancy savings
■ Budget cuts may be needed
13
PENSIONS AND UNFUNDED
LIABILITIES
Key Findings: League of California Cities Report
1. City pension costs will dramatically increase to unsustainable levels.
• Between FY 18/19 and FY 24/25,cities'dollar contributions will increase by more than 50%
2. Rising pension costs will require cities to nearly double the percentage of the
General Fund dollars they pay to CalPERS.
• On average,from FY 06/07 to FY 24/25,cities will nearly double the percentage of the General Fund
dollars that goes to CalPERS.
3. Cities have few options to address growing pension liabilities.
✓Develop and implement a plan to pay down the City's Unfunded Actuarial Liability
• Consider local ballot measures to enhance revenues
✓Create a Pension Rate Stabilization Program(Section 115 Trust)
✓Change service delivery methods and levels of certain public services
✓Use procedures and transparent bargaining to increase employee pension contributions
• Issue a pension obligation bond(this is strongly discouraged)
15
Projected Increases to City CaIPERS Costs
(All Funds)
t-oG 113%
550.0
$400 .....__._.. ____ _.. .......... ... ...__... .... _. ___ - ___ _...... ____.
■td:sc
Safety.
FY 13/14 FY 14/15 FY 15/16 FY 15,''17 FY 17/18 FY 16/19 FY 19;`20 FY 20;21 FY 21/22 FY 22,'23
NOTE'A�ttu�ates �uae no c Actual
in,j�.teat' Estimate =stima a Estimate Esti—te Est!-. is Estimate
Sf).A" �� (3 r'f�2.5 E36.9 540.0 5453 550.1 E54.6 $58.5
No salary increases are included in these projections.These estimates are not final and subject to change. 16
"STRATEGIC PLANNING RETREAT
Long Term Financial Plan
Preliminary Forecast
Five-Year Financial Plan
(in thousands)
Projected1
„5
Ca1PERSCost* 33,280 33,M84 36,175 41,076 45,718 49,733
Y C" W„Gixti3 j; 95 CE E• 40t5 ,, ,
�.�... ... .
Prepayment Discount (900) (950)';, (1,000) (1,040) (1,050)
.. ':' "........ .. 54
Operating 40,368 41556 41,700 41,291 42,896 43,517
E ,
Equipment ;4,500 5000 5,000 5,000 5,000 5,000
Total Expenditures 221,930 226,369 231,955 237,592 245,110 251,300
3
K
w St
GF Recurring Revenue 221,930 226,369 230,896 235,514 240,224 245,029
,
(Challenge)/Surplus - (1,059) (2,078) (4,886)
"UAL and Employers Payroll Costs an;included. 18
•'Baud on an estimate for an October to September fiscal year.
MIIPM
FY 2016/17 GENERAL FUND BALANCE
RECOMMENDATIONS
FY 2016/17 Year End
General Fund Balance Options
■ Recommended Option
■ Reassign the estimated$1.7 million one-time available from the Animal Control Shelter
Designation to:
■ Police Department Facilities Enhancements;and/or
■ Set-aside funding to improve one-time capital improvements(parks,streets,roads)
■ Financial Policies Alternative
■ Use entire one-time Animal Control Shelter to fund Economic Uncertainties Reserve
■ Policy: Two months ofAdopted FY 17118 Expenditures=$37.3 million
■ Current Economic Uncertainties Reserve =$25.0 million
■ This option assists in the retention of AAA credit ratingfrom Fitch
20
General Fund Balance
(in thousands)
Litigation Reserve 900 900 -
-15
Redevelopment Dissolution 1,323 1323 1,080 1,080
y
,mot �; I1t[ puiYs3C / :�\ €. ,
Capital Improvement Reserve(CM) 7,136 7,936 8,046 9,046
�Ct3l�/ �
CalPERS"One Equals Five Plan" 1,500 506
...../ L€.. . . ' of•r ;,,;.
Cityview Replacement 695 889 1,028 1,028
E ."i f5� It or N, E€E�.l¢
City Facility Security Enhancements 350
E
Parka a :,
Section 115 Trust 1000 500 500
Police Facility Enhancements 1,685
y
M„K
Total Fund Balance $61,054 $64,792 $62,847 $61,046 21
BUDGET BALANCING IDEAS
Budget Balancing Ideas
SUCCESSFUL MEASURES OF OTHER CITIES
■ '/a cent to 1 cent general sales tax rate increase:8 of 10 cities passed
■ 1/8 cent of sales tax for libraries (sunsets in 12 years): 1 of 1 city passed
■ Cannabis—8%to 10%of gross receipts plus$5-$25/sf:7 of 7 cities passed
NEW FEES/FINES
• Parking Meter Fees and Fines
• Commercial Franchise Fees
• PEG(Public,Educational,and Government Access)and Franchise Fees
• Dark Fiber Leasing Fees,Storm Drain,Public Safety Special Tax
INCREASING CURRENT FEES/FINES
• Increase Cost Recovery Fees(Currently at 72%)
• Increase Animal Licensing Fees to the County rates
• Business License/TOT Tax
BUDGET CUTS
■ 1%to 3%Across the Board
■ Negotiate additional employee CalPERS Pick Up
23
QUESTIONS
LEAGUE®
OF CALIFORNIA
CITIES
League of California Cities®
Retirement System
Sustainability Study
and Findings
� x
da
n
JANUARY 2018 ..X . .,.
�1 .
K
3
q �
i
`� ':l _
TABLE OF CONTENTS
League of California Cities Retirement System
Sustainability Study and Findings Executive Summary ................................. 1
KeyFindings............................................................................................................... 2
1. City pension costs will dramatically increase to unsustainable levels..................... 2
2. Rising pension costs will require cities to nearly double the percentage of
their General Fund dollars they pay to CalPERS................................................... 4
3. Cities have few options to address growing pension liabilities ............................. 5
What Cities Can Do Today........................................................................................ 5
Methodology and League Member Survey......................................................... 6
Appendices
Appendix 1 — League of California Cities Retirement System Sustainability:
CompleteFindings.........................................................................11
Appendix 2 — Primary Factors Contributing to CalPERS Funded Status...............29
Appendix 3 — League of California Cities Retirement System
Sustainability Principles..................................................................30
Appendix 4 — Figure SWE-01 State Retirement and Health Care Contributions ....31
Appendix 5 — 2017 Asset Liability Management Workshop..................................32
Appendix 6 — Pension Obligation Bonds..............................................................33
ii League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org
r
a, 4�.
"i. `"`
Executive SummaryLEAGUE®
OF CALIFORN[A
`CITIES
The League of California Cities® supports and continues to advocate for secure defined benefit pension
plans and the reforms that will allow them to flourish through the next century of public service. Defined
benefit plans have proven to be an effective vehicle to provide pension benefits to employees and
support California's public servants throughout their lifetimes. Local governments wish to continue to use
these pension plans to attract and retain a highly skilled workforce.
The California Public Employee Retirement System The findings of this study reveal the following:
(CalPERS), however, is underfunded. As of January 1. Rising pension costs will require cities over the next
2018, CalPERS had only 68 percent of the funds
required to pay estimated retirement benefits — in other seven years to nearly double the percentage of
their General Fund dollars they pay to CalPERS;
words, only 68 cents for every dollar needed to fund
retiree pension commitments. Several factors have 2. For many cities, pension costs will dramatically
contributed to unsustainability of the CalPERS system increase to unsustainable levels; and
— and as a result, the contributions paid by all public 3. The impacts of increasing pension costs as a
employers to CalPERS are dramatically increasing. percentage of General Fund spending will affect
California cities are feeling the effects of growing cities even more than the state. Employee costs,
budgetary pressure more than other public employers. including police, fire and other municipal services,
To better understand the cost drivers behind increasing are a larger proportion of spending for cities.
local employer contribution rates and impacts on cities, The results of this study provide additional evidence
the League commissioned Bartel Associates, LLC, that pension costs for cities are approaching
a leading California actuarial firm serving only public unsustainable levels. While the state budget has
sector agencies to: recovered significantly since the Great Recession
�►Analyze anticipated pension contribution rates for with the assistance of substantial voter-approved tax
cities as a percentage of payroll; and increases, some cities have yet to recover. With local
Determine how those future contribution rates pension costs outstripping revenue growth, many
»
cites face difficult choices that will be compounded
would impact cities' General Funds. in the next recession. Under current law, cities have
This study was limited only to pension liability. two choices — attempt to increase revenue or reduce
It does not reflect costs to cities associated services. Given that police and fire services comprise a
with active or other post-employment benefits large percentage of city General Fund budgets, public
such as health care. Bartel Associates based its safety, including response time, will likely be impacted.
analysis on CalPERS' June 30, 2016, public agency
actuarial valuation data and results of the League's Cities are looking for sustainable solutions that provide
near-term relief while broader impacts from pension
October 18, 2017, City Survey'.2
1 A more detailed summary of methodology can be found at the conclusion of this report.
2 Bartel Associates used the existing CalPERS'discount rate and projections for local revenue growth.To the extent CaIPERS market return
performance and local revenue growth do not achieve those estimates,impacts to local agencies will increase.Additionally,the data does not take
into account action pending before the CaIPERS Board of Administration(Board)to prospectively reduce the employer amortization schedule
from its current 30 year term to a 20 year term.Should the Board adopt staffs recommendation,employer contributions are likely to increase.
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org 1 1
reform enacted by the Legislature in the Public CalPERS City Safety Dollar Increase
Employees' Pension Reform Act (PEPRA) [applying FY 2024-25 over FY 2018-19 by County (�
to employees hired after January 1, 2013] materialize.
Color
However, tangible savings resulting from PEPRA will not Nociues i
�zo%
have a substantial effect on city budgets for decades. 2u% 40%
40% 50%
50% 60%
The League has created an online resource >60°
(www.cacities.ora/pensions)to provide additional
background and information for cities on this issue.
Consistent with it's adopted Pension Sustainability
Principles, the League looks forward to working with
employees, CaIPERS, the Legislature and the Governor
to achieve meaningful options for cities to address
growing unfunded pension liabilities that will ensure cities rl,.�•ry".=�B 17
remain solvent and able to provide services to residents
while continuing to offer employees sustainable pension
and health benefits. �FY 2024-25 Contribution Rates -- i
I I
Key Findings' Cities/Towns
ty
Percentile Miscellaneous Safe
90th 18.8% 35.2%
1 City pension costs will dramatically increase 75th 25.2 44.8
• to unsustainable levels. 50th 30.8 54.0
Between FY 2018-19 and FY 2024-25, cities' dollar 25th 37.7 63.8
contributions will increase by more than 50 percent. loth 43.0 76.0
For example, if a city is required to pay$5 million in FY I Ca1PERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA.
2018-19, the League expects that it will pay more than
$7.5 million in FY 2024-25. Percentile means x%of cities have results that are higher than shown
44i` 11;
lii=..,ryu.=oIs 20 �c I
Ca1PERS City Miscellaneous Dollar Increase
n FY 2024-25 over FY 2018-19 by County� Miscellaneous Employees: In FY 2024-25, half of
Color cities are anticipated to pay over 30.8 percent of their
N°�°20,,- payroll towards miscellaneous employee pension costs,
40% a with 25 percent of cities anticipated to pay over 37.7
50'' 160. percent of payroll.This means that for every$100 in
s
pensionable wages(generally base salary),the majority of
cities would pay an additional$31 or more to CaIPERS
for pensions alone.This amount does not include active
or retiree healthcare.
i
m.a..e.nvNz.
'In figures 9, 17, 18, and 19 the grey color representing"No
Cities"displays that there are no cities in that specific county
with CaIPERS as their public retirement system.
3 Complete findings can be found at the conclusion of this summary.
2 1 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 Phone:(916)658-8200 www.cacities.org
y .4
CaIPERS City Safety
F--{FY 2024-25 Contribution Rates 2024-25 Projected Rates by County
Mature Cities/Towns Color
No Cities &-
Percentile Miscellaneous Safety <ao%
� ao% so%
90th 26.5% 49.0% 50% 60%
60% 65%
75th 31.2 54.1 >65%
50th 37.9 62.3
l; --
25th 42.9 72.8
1Oth 48.4 78.7
CaIPERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA.
Mature means retirees comprise 60%or more of the Miscellaneous and
65%or more of the Safety plan Actuarial Accrued Liability. -...
Percentile means x°/a of cities have results that are higher than shown.
21 �:,il—, It}jllaoo.ryte.lo�e 17l l_
CaIPERS City Miscellaneous
24-25 Projected Rates by County n nFY 2024-25 Contribution Rates I
1 20 1 1 1
Color Cities/Towns F
No Cities
<22si Percentile Miscellaneous Safety
275% 27
32.5°/ 90th 18.8% 35.2%
27.5% 32.5%
32.5% 37.5% €
>37.s% 75th 25.2 44.8
50th 30.8 54.0
25th 37.7 63.8
1Oth 43.0 76.0
1 CaIPERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA.
}
Percentile means x%of cities have results that are higher than shown
l}'�/J.nu..y e.la19 9 y `i.11 € I}'I J..u.n•�e,xo�6 20
For"mature cities"with larger numbers of retirees, the Public Safety Employees: Contributions are
percentages are even higher. Half of those cities are projected to be much higher for cities that employ
anticipated to pay 37.9 percent or more of payroll and safety personnel (police officers and firefighters). By
25 percent are anticipated to pay 42.9 percent or more FY 2024-25, a majority of these cities are anticipated
of payroll.These findings are not specific to one region of to pay 54 percent or more of payroll, with 25 percent
the state.The data shows that cities throughout California of cities anticipated to pay over 63.8 percent of payroll.
are dealing with these challenges. In other words, for every$100 in salary, the majority of
cities would pay an additional $54 or more to CaIPERS
for pensions alone. As with miscellaneous employees,
for cities with a large number of retirees, these
percentages are even higher. The cities paying the
highest percentages of payroll are spread throughout
the state.
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org 1 3
Unsustainable Costs: For FY 2024-25, the average
projected contribution rate as a percentage of payroll n Contribution % GF Budgets
is 34.6 percent for miscellaneous employees and 60.2
percent for safety employees. For cities with a large Cities/Towns
percentage of retirees,the averages are 39.4 percent Percentile 2006/07 2017/18 2024/25
and 67.5 percent. 90th 2.0% 2.5% 6.1%
75th 3.8 4.6 8.5
50th 7.6 9.1 13.7
��FY 2024-25 Contribution Rates 25th 9.8 13.2 18.2
I 10th 12.8 15.5 21.5
CaIPERS Average Projected Rates-Cities/Towns Average 8.3% 11.2°/n 15.8%
Fiscal Year Miscellaneous Safety
FY 2018-19 27.3% 47.3%
Percentile means x%of cities have results that are higher than show°.
FY 2024-25: `
-I z....rr la,zms 33
All Cities/Towns 34.6 60.2
Mature Cities/Towns 39.4 67.5
Enhanced Classic Formulas 36.7 60.3 CaIPERS City FY 2006-07 Contributions
as%GF Budget by County
I CalPERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA. "'"'.�..
Color
Mature means retirees comprise 60%or more of the Miscellaneous and No`Ines
65%or more of the Safety plan Actuarial Accrued Liability.
`l� " 10.0% 12.5%
l4 111.eo.ry 18,1018 23 `t I I ` _•
12.5% 15.0%
2 Rising pension costs will require cities
• to nearly double the percentage of their .`-
General Fund dollars they pay to CalPERS.
The League surveyed its members regarding the -`
proportion of their General Fund budget devoted to
paying pension costs to CaIPERS. These percentages 1n' °'°'° 34
are for CalPERS costs only, over and above the cost
of salaries and do not include the cost of active and CaIPERS City FY 2017-18 Contributions
r n as%GF Budget by County
retiree health care.
On average, from FY 2006-07 to FY 2024-25, cities rya NoCmes Co1ar
7.5%
will nearly double the percentage of the General Fund - z
tr .y�sd 7.5% 10.0%
10.0% 12.5%
dollars that goes to CalPERS. In FY 2006-07, the F 12.5% 15.0%
+^� >15.0,
average city spent 8.3 percent of its General Fund
budget on CaIPERS pension costs. That average
increased to 11.2 percent in FY 2017-18 and it is �Yr
anticipated to increase to 15.8 percent in FY 2024-25.
In FY 2024-25, 25 percent of cities are anticipated to
spend more than 18 percent of their General Fund on ,.,
CaIPERS pension costs with 10 percent anticipated to 35
spend 21.5 percent or more. These cities are located
throughout the state. "In figures 34, 35, and 36 the grey color representing"No Cities"
displays either that there are no cities in that specific county
with CaIPERS as their public retirement system or there was not
valid survey data from the cities in those counties.
4 1 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento, California 95814 1 Phone: (916)658-8200 1 www.cacities.org
�> ° ,
Ca1PERS City Projected FY 2024-25 Contributions Despite the significant changes made through PEPRA,
F--- As%GF Budget by County local governments will continue to face the financial
v _ x conundrum of meeting their pension obligations.
Color
NO<i 7.5 PEPRA, with all of its positive changes, does little to
.. 7.5% 1U.011 address the more immediate and near-term pension
10.0% 12.5% r
12.5% 15.0% funding problems facing local governments. The
>15.0%
anticipated benefits of PEPRA reforms are applicable
only to new CalPERS employee members, and
4 therefore it will take decades for these savings to be
reflected in city budgets.
Under current law, there are only two sources to
address the growing unfunded liability at CalPERS
e.z... 36 L, , that cities face: higher than expected investment
returns or increased employer contributions. Although
The state also faces increasing pension costs. CalPERS recently reduced its discount rate to 7
According to Governor Brown's proposed FY 2018— percent, the Fund projects a 6.1 percent return over
19 budget° introduced in January, $3.2 billion of the the next 10 years.5 It is highly probable that public
state's General Fund will be allocated to pay down agencies will be expected to pay more to make up the
CalPERS pension liabilities. This is approximately 2.75 difference — this is unsustainable.
percent of the total $131 billion proposed General
Fund budget. Furthermore, when all state-related What Cities Can Do Today
retiree costs, including teachers in CaISTRS and
state contributions for retiree health care are taken Many cities have already exercised their limited options
into account, that number increases to 8 percent of under current law to address the fiscal challenges
the state's General Fund. While these amounts are attributed to growing pension liabilities, which include:
significant and affect the state's ability to fund other 1. Develop and implement a plan to pay down
priorities, cities' pension cost impacts alone — without the city's Unfunded Actuarial Liability(UAL):
considering any obligations for active and retiree health Possible methods include shorter amortization
care — are significantly higher as a percentage of periods and pre-payment of cities UAL.This
cities' General Funds. option may only work for cities in a better financial
condition.
3 Cities have few options to address growing
• pension liabilities 2. Consider local ballot measures to enhance
revenues: Some cities have been successful in
Under the California Constitution, a city's options for passing a measure to increase revenues. Others
revenue raising are strictly limited. Any increase in local have been unsuccessful. Given that these are voter
taxes requires voter approval and voter tolerance for tax approved measures, success varies depending on
increases is waning. Much of a city's budget is dedicated location.
to employee salaries and benefits to provide fire
protection, law enforcement, parks services and other
municipal services. If new revenues are unavailable,
as contributions rise, local agencies are forced to
significantly reduce or eliminate critical programs.
4 See page 16 Figure SWE-01 State retirement and Health Care Contributions
5 Seepage 5,expected compound return(1-10 years)candidate portfolio C.
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento, California 95814 1 Phone: (916)658-8200 1 www.cacities.org 1 5
3. Create a Pension Rate Stabilization Program Methodology and
(PRSP): Establishing and funding a local Section
115 Trust Fund can help offset unanticipated League Member Survey
spikes in employer contributions. Initial funds still This section summarizes the methodology Bartel
must be identified. Again, this is an option that Associates used to prepare our analysis of CaIPERS'
may work for cities that are in a better financial June 30, 2016, public agency actuarial valuation data
condition, and results of the League of California Cities' October
4. Change service delivery methods and levels 18, 2017, City Survey.
of certain public services: Many cities have
already consolidated and cut local services during The CalPERS June 30,2016 data included,
the Great Recession and have not been able to separated by rate plan(miscellaneous,safety and
restore those service levels. Often, revenue growth further by benefit level for those in a risk pool):
from the improved economy has been absorbed » Basic demographic information
by pension costs. The next round of service cuts „ FY 2018-19 required contributions detail
will be even harder.
5. Use procedures and transparent bargaining
�► Present value of projected benefits, separated by
to increase employee pension contributions: member category(active, transferred, terminated,
Many local agencies and their employee receiving benefits)
organizations have already entered into such s> Entry age normal accrued liability, separated by
agreements. member category(active, transferred, terminated,
6. Issue a pension obligation bond (POB): receiving benefits)
However, financial experts including the » Market value of assets, including the plan's share
Government Finance Officers Association (GFOA) of the risk pool's market value of assets for those
strongly discourage local agencies from issuing in a risk pool
POBs. Moreover, this approach only delays and
compounds the inevitable financial impacts. » Projected employer contributions for fiscal years
FY 2019-20 through FY 2024-25, with normal
cost and UAL payment separated
» Discount rate sensitivity under 6 percent,
7 percent and 8 percent discount rates
» Schedule of amortization bases
�► Scheduled payment for FY 2018-19 by
amortization base
6 1 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org
Summary of the major benefit options: The adjustments slightly lowered the projected
» Benefit Formula contribution rates provided by CalPERS.However,
it is important to note that contribution rates
�► Social Security Coverage Full/Modified were not adjusted for two issues:
» Employee Contribution Rate » CalPERS' Board has established a risk
» Final Average Compensation Period mitigation strategy. This policy is designed to
reduce investment return volatility by changing
» Sick Leave Credit the investment mix over time to a more
» Non-Industrial Disability conservative mix.
» Industrial Disability » CalPERS' outside investment advisors along with
» Pre-Retirement Death Benefits CalPERS' internal investment staff have said they
believe investment returns over the next decade
• Optional Settlement 2W will be below 7 percent(6.1 percent in the latest
• 1959 Survivor Benefit Level Wilshire projections).
• Special Slides 27-36 provide city results using combined
• Alternate (firefighters) CalPERS and League survey data. The League survey
data was reviewed for consistency with the CaIPERS-
» Post-Retirement Death Benefits provided data and, with few exceptions, was found
• Lump Sum to be consistent. To ensure consistency not all survey
• Survivor Allowance (PRSA) cities were included in the analysis due to incomplete
data. Out of 229 total survey respondents, the
» COLA following numbers were included in the General Fund
Inactive plans were excluded from the analysis. Once budget analysis:
the CalPERS data was reviewed for completeness, >, FY 2006-07: 159
CalPERS contribution projections were adjusted by
accounting for: FY 2017-18: 175
» New hires going into Tier 2 Classic and/or » FY 2024-25: 194
PEPRA formulas
For purposes of projected future General Fund
» June 30, 2017 CalPERS' actual investment return budgets,the following assumptions were applied:
(11.2 pee rcent)
Projected provided FY 2017-18 budgets forward
assuming 3 percent annual growth.
»Assumed 100 percent of Safety contributions were
paid from the General Fund.
>►Assumed the portion of miscellaneous General
Fund contributions remained constant after
FY 2017-18.
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org 1 7
League of California Cities 2017 Pension Survey 4. Please Provide the following information regarding
The City Managers' Department of the League of pension Information Re General Fund: (Employer
California Cities has established the Pension Stability contributions only. Exclude employee share.
Working Group to inform the development of League Exclude healthcare costs).
policy related to growing pension liabilities facing a. General Fund Budget: FY 07-08,09-10,14-
municipalities. The League of Cities in conjunction 15,17-18
with Bartel Associates developed this survey to gather b. General Fund Payroll: FY 07-08,09-10,14-
historic and projected financial information related 15,17-18
to pension obligations and city budgets. This survey c. Public Safety General Fund Budget:
was used in conjunction with CaIPERS June 30, 2016 FY 07-08,09-10,14-15,17-18
public agency actuarial valuation data in order to detail d. Public Safety General Fund Payroll:
the magnitude of the issue. Responses were submitted FY 07-08,09-10,14-15,17-18
through the Qualtrics platform and aggregated by
Bartel Associates. City Managers, Assistant City e. General Fund Full Time Employees (FTE):
Managers, Finance Directors and/or Human Resources FY 07-08,09-10,14-15,17-18
Directors were instructed to respond. f. Percentage of General Fund Public Safety
Note:Questions that were not used for purposes of Employees: FY 07-08,09-10,14-15,17-18
this study have been omitted. g. General Fund PERS Contribution (dollars)
Safety Employees: FY 07-08,09-10,14-15,17-
The information required for this survey can be 18
found in each jurisdiction's' h. General Fund PERS Contribution (dollars)
Misc. Employees: FY 07-08,09-10,14-15,17-
�► Most recent CaIPERS Actuarial Valuation 18
(Most information on Page 5 of reports).
i. Total Budget Funds (dollars)All Funds:
»Annual Budget Documents. FY 07-08,09-10,14-15,17-18
Comprehensive Annual Financial Report(CAFR) j. Payroll (dollars) all Funds:
for the most recently complete fiscal year. FY 07-08,09-10,14-15,17-18
k. Public Safety all Funds Payroll:
Survey Questions FY 07-08,09-10,14-15,17-18
1. CaIPERS Employer ID Number I. All Funds Full Time Employees (FTE):
2. City name and County Location FY 07-08,09-10,14-15,17-18
3. City Population (persons) m. Percentage of all fund public safety
employees: FY 07-08,09-10,14-15,17-18
a. 0-25K n. All Funds PERS Contribution Safety
b. 25-50K Employees: FY 07-08,09-10,14-15,17-18
c. 50-100K o. All Funds PERS Contribution Misc. Employees:
d. 100-250K FY 07-08,09-10,14-15,17-18
e. 250K+
8 1 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org
5. City's Projected Payroll—General Fund and B. If so, what percentage and for which employees?
All Fund (For years not budgeted yet, use 3% 9. Does your city require employees to contribute
annual increases to align with CaIPERS Payroll toward any of the "EMPLOYER" CalPERS
Assumptions) contribution (i.e. Has your city negotiated
a. Total Misc. Payroll (dollars) General Fund: employee cost sharing in addition to the required
FY 19-20,21-22,23-24,24-25 CaIPERS member contribution)?
b. Total Safety Payroll(dollars) General Fund: a. Yes
FY 19-20,21-22,23-24,24-25
b. No
c. Total Misc. Payroll (dollars)All Funds:
FY 19-20,21-22,23-24,24-25 10. Does your city pay any portion of the required
d. Total Safety Payroll (dollars)All Funds: member contribution for Classic employees
FY 19-20,21-22,23-24,24-25 (EPMC)?
6. Which benefit tiers are established in Your City? a. Yes
(Check all that apply) b. No
>► Misc. PEPRA 2% @ 62 11. If so, has the city negotiated a reduction or end to
the Employer Paid Member Contribution (EPMC)
» Misc. 1.5% @ 65 or intend to make any changes in EPMC?
» Misc. 2% @ 60 a. Yes
» Misc. 2% @ 55 b. No
» Misc. 2.5% @ 55 12. Does your city anticipate budget and/or service
» Misc. 2.7% @ 55 cuts as a result of growing pension obligations?
» Misc. 3% @ 60 a. Yes
» Safety PEPRA 2% @ 57 b. No
» Safety PEPRA 2.5% @ 57 13. Is your city making additional payments towards
unfunded pension liability? (Check all that apply)
» Safety PEPRA 2.7% @ 57 a. No
►� Safety 2% @ 55 b. Pension Stabilization Fund/Section 115 Trust
» Safety 2% @ 50 c. Additional payments to CalPERS beyond
» Safety 3% @ 55 Annual Required Contributions(ARC)
» Safety 3% @ 50 d. Other
» Other
7. Does your city require employees to cover their
statutory"EMPLOYEE" CalPERS contribution?
a. Yes, 100 % *End of Document*
b. Yes, partially(less than 100%)
c. No, City covers entire employee contribution
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org 9
�, t' ice• _; A
Appendices
Appendix 1 — League of California Cities Retirement System Sustainability:
CompleteFindings ................................................................................11
Appendix 2 — Primary Factors Contributing to CalPERS Funded Status.......................29
Appendix 3 — League of California Cities Retirement System
Sustainability Principles .........................................................................30
Appendix 4 — Figure SWE-01 State Retirement and Health Care Contributions............31
Appendix 5 — 2017 Asset Liability Management Workshop..........................................32
Appendix 6 — Pension Obligation Bonds......................................................................33
10 League of California Cities 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org
F---L____jC�a!1�PERSProjected Rates
■ Generally higher if:
• Mature City with large retiree liability
• Enhanced formulas for Classic employees
■ Generally lower if
• Younger City with small retiree liability
• No enhanced formulas for Classic employees
■ Implementation of an unenhanced 2nd benefit tier
before PEPRA has very little impact on projected
rates
LE!tiGUC
m January 18,2018 1
Ca1PERS City Miscellaneous
F---L FY 2024-25 Projected Rates
erage= 34.6%
<13% 14%-18% 19%-23% 24%-28% 29%-33%34%-38% 39%-43%44%-48% >49%
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
LEAGUE-
January 18,2018 2 l I T I E tS
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org 11
CalPERS City Miscellaneous
�� FY 2024-25 Projected Rates
I I
Mature Cities (Retirees > 60% Actuarial Liability)
Average= 39.4%
<13% 14%-18% 19%-23% 24%-28% 29%-33%34%-38% 39%-43% 44%-48% >49%
FY 2024-25 CalPERS Projected Contribution as%of Projected Payroll
LEAGUE'
January 18,2018 3 g� CITIES
CalPERS City Miscellaneous
F--L FY 2024-25 Projected Rates
Less-Mature Cities (Retirees < 60% Actuarial Liability)
Average=32.7%
.01 2
<13% 14%-18% 19%-23% 24%-28% 29%-33%34%-38% 39%-43% 44%-48% >49%
FY 2024-25 CalPERS Projected Contribution as%of Projected Payroll
LEAGUE'
QJanuary l�18,2018 4 `l I T I E'ti
12 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org
Ca1PERS City Miscellaneous
FY 2024-25 Projected Rates
Cities With Enhanced Classic Formula
Avera e= 36.7%
0 _-
<13% 14%-18% 19%-23% 24%-28% 29%-33%34%-38% 39%-43% 44%-48% >49%
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
LEAGUE'
QjJanuary 18,2018 5 C I T I E 5
Ca1PERS City Miscellaneous
F--7� FY 2024-25 Projected Rates
Cities Without Enhanced Classic Formula
Average= 28.1%
02
<-N, -I. 19°0-23% 2 %-2 °0 29%-33%34%-38% 39%-43% 44%48% >
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
LEAGUE'
l�
January 18,2018 6 `C I T I E S
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org 13
CalPERS City Miscellaneous
FY�202�4-25 Projected Rates
I I
Cities With Unenhanced Second Tier
Average= 3-5.7%
0 2 0 MEW&= 2
<13% 14/ 19/0-23/0 24/0-28/0 29/0-33/0 34/0-38/0 39/0-43/0 44/0-48/o >49/o
0 o a ° o" o 0 0 0 0 0 0 0 0 0 0
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
l` LEAGUE'
January 18,2018 7 `G I T I E 1 . 5
Ca1PERS City Miscellaneous
FY 2024-25 Projected Rates
Cities Without Unenhanced 2nd Tier
Overage=34.1%
1". o- o o- 0 4 0- 0 29%-33°0 %-38% 39%-43% 440 >49%
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
LEAGUE'
January 18,2018 8 C I T I E 5
14 1 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org
Ca1PERS City Miscellaneous
F77L FY 2024-25 Projected Rates by Co I
Color
No Cities $ , >>
<22.5%`
22.5% 27.50
27.5% 32.50
32.5% 37.5%
>37.5%
ti
LEAGUE'
January 18,2018 9 C I TIE y
Ca1PERS City Safety
F---LFY4-25 Projected Rates
I
Aversge= 60.2%
ME
31%-40% 41%-50% 51%-60% 61%-70% 71%-80% 81%-90% >91%
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
)January 18,2018 10 C[T f E 5
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org 15
Ca1PERS City Safety
F--L� FY 2024-25 Projected Rates
Mature Cities (Retirees > 65% Actuarial Liability)
Average= 67.50/So
MEMO
<=0% 31% N 51%-60% 61%-70% 71%-80% 81%-90% >91%
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
LEAGUE'
B,=1 January 18,2018 11 �L��'�E
Ca1PERS City Safety
FY 2024-25 Projected Rates
Less-Mature Cities (Retirees < 65% Actuarial Liability)
AYE'I aae= ti2.3%
NLW 0 0
<30% 31%-40% 41%-50% 51%-60% 61%-70% 71%-80% 81%-90%0 >916/o.
FY 2024-25 CalPERS Projected Contribution as%of Projected Payroll
LEAGUE'
January 18,2018 IZ �C IT]ES
16 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 www.cacities.org
Ca1PERS City Safety
�� FY 2024-25 Projected Rates F7
Cities With Enhanced Classic Formula
Average=60.31fo
<30% 31%-40% 41%-50% 51%-60% 61%-70% 71%-80% 81%-90% >91%
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
LE`GUI'
B, 1 January 18,2018 13 L C I T I E
Ca1PERS City Safety
FY 2024-25 Projected Rates
Cities Without Enhanced Classic Formula
Average= 37.0%
0 0 0 1
<30% 31%-40% 41%-50% 51%-60% 61%-70% 71%-80% 81%-90% >91%
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
LEAGUE-E
B,a January 18,2018 14 C I T I E 5
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.eacities.org 17
Ca1PERS City Safety
F--L FY 2024-25 Projected Rates
I
Cities With Unenhanced Second Tier
V.'erage= -57.5%
0 2 2 1 0
31%-40% 41%-50% 51%-60% 61%-70% 71%-80% 81%-900/. >91%
FY 2024-25 Ca1PERS Projected Contribution as%of Projected Payroll
LEAGUE'
{� January 18,2018 15 C I T I E ti i 1 �-
Ca1PERS City Safety
FY 2024-25 Projected Rates
Cities Without Unenhanced 2° Tier
Average= 60.4%
ME IN- mwm
<30% 31%-40% 41%-50% 51%-60% 61%-70% 71%-80% 81%-90% >91%
2024/25 CaiPERS Projected Contribution as%of Projected Payroll
LEAGUE*
January 18,2018 16 C f T I E S
18 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org
Ca1PERS City Safety
F---LX)YL2O�24-25 Projected Rates by County
Color
No Cities ` 1
<40%
40% 50%
50% 60%
60% 65%
>65%
ti
t
B
o LEAGUE'January 18,2018 17 j M E C
Ca1PERS City Miscellaneous Dollar Increase
FY 2024-25 over FY 2018-19 by County
Color
No Cities
<20%
20% 40 0
40% 50%
50% 60%
>60%
ti
LEAGUE'
January 18,2018 18 (T I E S'
-
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 Phone: (916)658-8200 www.cacities.org 19
Ca1PERS City Safety Dollar Increase
FY 2024-25 over FY 2018-19 by County
I I
Color_
No Cities
200
`~ 20% 40%
40% 50%
50% 60%
>60%
`\l`� LE!tiGUE'
�1JJanuary 18,2018 19 `t I T I E
Y 2024-25 Contribution Rates
Cities/Towns
Percentile Miscellaneous Safety
90th 18.8% 35.2%
75th 25.2 44.8
50th 30.8 54.0
25th 37.7 63.8
1 Oth 43.0 76.0
1 Ca1PERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA.
Percentile means x%of cities have results that are higher than shown
LEA L-E
j January 18,2018 20 l_I T I E 5
20 League of California Cities 1400 K Street,Suite 400 Sacramento,California 95814 1 Phone:(916)658-8200 www.cacities.org
F--fY 2024-25 Contribution "�RatesF7
Mature Cities/Towns
Percentile Miscellaneous Safety
90th 26.5% 49.0%
75th 31.2 54.1
50th 37.9 62.3
25th 42.9 72.8
1Oth 48.4 78.7
1 CalPERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA.
Mature means retirees comprise 60%or more of the Miscellaneous and
65%or more of the Safety plan Actuarial Accrued Liability.
Percentile means x%of cities have results that are higher than shown.
LEAGUE'B, January 18,2018 21 � C I T I E
F---fY 2024-25 Contribution Rates
Cities/Towns with Enhanced Formulas
Percentile Miscellaneous Safety
90th 25.4% 39.9%
75th 29.4 48.1
50th 35.0 56.0
25th 40.5 65.9
1 Oth 45.3 76.2
1 CalPERS projected rates adjusted for June 30, 2017 actual investment
return and PEPRA.
Percentile means x%of cities have results that are higher than shown
l� LEAGUE'
January 18,2018 22 C I T I E ti
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org 1 21
Y 2024-25 Contribution Rates
CalPERS Average Projected Rates — Cities/Towns
Fiscal Year Miscellaneous Safety
FY 2018-19 27.3% 47.3%
FY 2024-25:
All Cities/Towns 34.6 60.2
Mature Cities/Towns 39.4 67.5
Enhanced Classic Formulas 36.7 60.3
1 CalPERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA.
Mature means retirees comprise 60%or more of the Miscellaneous and
65%or more of the Safety plan Actuarial Accrued Liability.
LEAGUE'
January 18,2018 23 1'
. 1,1.
B� CITiE�
Y 2024-25 Contribution Rates
Special Purpose Districts
Percentile Miscellaneous Safety
90th 12.4% 22.7%
75th 16.1 30.3
50th 21.5 40.6
25th 28.0 48.7
1 Oth 35.0 56.3
1 CalPERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA.
Percentile means x%of districts have results higher than shown.
l� LE.AGUE'
B,q January 18,2018 24 `L[T I E ti
22 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org
F--fY 2024-25 Contribution Rates
Counties
Percentile Miscellaneous Safety
90th 24.0% 40.7%
75th 26.2 42.2
50th 28.7 48.1
25th 32.4 54.5
loth 36.4 58.4
1 Ca1PERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA.
Percentile means x%of counties have results higher than shown.
l�LEAGUE'
January 18,2018 25 `C I T I E 5
F---FY 2024-25 Contribution Rates�7
All Public Agencies
Percentile Miscellaneous Safety
90th 13.5% 28.7%
75th 18.1 39.7
50th 24.8 50.2
25th 31.9 59.3
1 Oth 39.3 70.5
1 CaIPERS projected rates adjusted for June 30,2017 actual investment
return and PEPRA.
Percentile means x%of Agencies have results higher than shown.
L,E:'tiGUE'
January 18,2018 26 L C f T I E
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org 23
City General Fund Projection Assumptions
■ FY 2006-07 and FY 2017-18:
• General Fund (GF) budgets and CaIPERS
contributions from League survey data
■ FY 2024-25 Projection:
• GF budgets projected from 2017-18 assuming 3%
annual growth
• Ca1PERS contributions from Ca1PERS data adjusted
for new tiers and FY 2016-17 investment gain
• Assumes 100% of Safety contributions paid from GF
• Misc GF contributions allocated on Misc % of GF
payroll x projected positions/actual positions
L,EAGUP
QJanuary ls,zola 27 � C I TI F
1
Ca1PERS Total City
�—� FY 2006-07 Contribution % GF Budget
1 0
<2% 3%-6% 7%-10% 11%-14% 15%-18% 19%-22% >23%
Projected FY 2006-07 CalPERS Contribution as%of 2006/07 Projected General Fund Budget
� LEAGUE'January 18,2018 28 L[� (E ti
24 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org
Ca1PERS Total City
F--L2017/18 Contribution % GF Budget
0
<2% 3%-6% 7%-10% 11%-14% 15%-18% 19%-22% >23%
Projected 2017/18 Ca1PERS Contribution as%of 2017/18 Projected General Fund Budget
LE?11 UI -
January 18,2018 29 �L I T I 1.E Iy
Ca1PERS Total City
FY 2024-25 Contribution % GF Budget
<2% 3%-6% 7%-10% 11%-14% 15%-18% 19%-22% >23%
Projected 2024/25 Ca1PERS Contribution as%of 2024/25 Projected General Fund Budget
, I. IE'
QjJanuary 18,2018 30 I T I E ti
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone: (916)658-8200 1 www.cacities.org 25
Percentage Point Increase in CaIPERS Contribution as % of
GF Budget from FY 2006-07 to FY 2024-25
I I
0
<0% 1%-4% 5%-8% 9%-12% 13%-16% >17%
�m LE'sGUE'
Januar 18,2018 31
y CITIES
Percentage Point Increase in CaIPERS Contribution as % of
GF Budget from FY 2017-18 to FY 2024-25
� I
1 2
<0% 1%-4% 5%-8% 9%-12% 13%-16% >17%
LEAGUE'
NJanuary 18,2018 32 C[T I E 5
26 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org
F-I Contribution % GF Budgets
Cities/Towns
Percentile 2006/07 2017/18 2024/25
90th 2.0% 2.5% 6.1%
75th 3.8 4.6 8.5
50th 7.6 9.1 13.7
25th 9.8 13.2 18.2
1Oth 12.8 15.5 21.5
Average 8.3% 11.2% 15.8%
Percentile means x%of cities have results that are higher than shown.
LEAGUE'
January 18,2018 33
y �i:lTl1€5
CaIPERS City FY 2006-07 Contributions
as % GF Budget by County
Color
No Cities
7.5% 10.0%
.�, 10.0% 12.50
4 12.5% 15.0%
> 15.0%
'yam
.4"v +xu'�'
LEAGUE'
R January 34
C[T` Ii€5
League of California Cities 1 1400 K Street,Suite 400 Sacramento,California 95814 Phone:(916)658-8200 1 www.cacities.org 27
Ca1PERS City FY 2017-18 Contributions
as % GF Budget by County
Color
No Cities
assr �,: " o < o
: e3�w�k ,,f 4. 7.5/0 10.0/0
10.0% 12.5%
�^
12.5% 15.00
T■ >15.0%
77,
4 ¢
-yLs
1 � _
LEAGUE'
January 18,2018 35 (TIE S
Ca1PERS City Projected FY 2024-25 Contributions
As % GF Budget by County r�
x
Color
No Cities
< 7.5%
�++ *'` x� 7.5% 10.0%
».
10.0% 12.5%
s 12.5% 15.0%
>15.0%
4 l�
4..
-ram
l�LE,GUl
(N)' January18,2018 36 `CITIES
28 League of California Cities 1400 K Street,Suite 400 Sacramento,California 95814 Phone:(916)658-8200 1 www.cacities.org
n,
Primary Factors Contributing f
1.7"'I.,
CaIPERS Funded Status-
LEAGUE* `
OF CALIFORNIA '._ .. ... • •�. ,„,..:'y",vz w+1#,us;,, .
CITIES f R
Several factors have contributed to unsustainability of the CaIPERS system.
CaIPERS
While such factors should be acknowledged, it remains far more important
that all stakeholders work collaboratively to craft a path forward to ensure a sustainable public pension
system that also recognizes the public's need for reliable and adequate services. Based on the League of
California Cities° Retirement Sustainability Study Findings, anecdotal evidence, and in consulatation with
Bartel Associates, the League has identified five primary factors.
1. Enhanced Benefits: The most prominent source 7 percent assumption. Under the current statutory
of the pension system's cost escalation began paradigm, public employers will assume the liability
with enhanced pension benefits granted by state associated with this shortfall.
and local government employers following the 3. Cost of Living Adjustments: Automatic Cost
passage of SB 400 and AB 616 in 1999 and of living adjustments (COLA) have continued to
2000. Cities throughout California followed the hamper CaIPERS' ability to compound investment
state's lead in providing enhanced benefits and, earnings, hampering growth.A Sept. 27, 2017
when negotiated, statute required those enhanced Sacramento Bee article states "CaIPERS in the
benefits apply to both prior and future service. past has looked at how suspending COLA's would
These enhanced benefits have caused a ripple affect the pension fund. Freezing them would
effect that have fundamentally altered the way in improve pension plans for public safety employees
which local agencies can retain employees and by up to 18 percent and for other employees by
provide basic and critical services to the public. up to 15 percent, according to CaIPERS."This
2. Investment Losses: Fallout from the Great potentially significant gain in funded status should
Recession played a pivotal role in CaIPERS' not be overlooked.
lackluster investment returns. In 2008, CaIPERS 4. CaIPERS Contribution Policy: CaIPERS
suffered a negative 27 percent return on contribution policy, most notably after the Great
investment — factoring in the 2008 discount rate Recession, did not require agencies pay interest on
(7.75 percent) results in a gross 34.75 percent accrued unfunded liability. While this shift in policy
impact to the fund. Moreover, CaIPERS' outside was an attempt to ease the burden on employers,
investment advisors expect returns over the next the policy resulted in pushing unfunded liability
decade will also be below anticipated returns. payments to future taxpayers.
CaIPERS projects that the projected market rate
assumptions will yield a 6.1 percent return for 5. Demographics:The liability for retirees at most
the fund over the next decade. While it is widely cities significantly exceeds that of actives. This
known that CaIPERS determines its discount creates more volatility and led to having a much
rate, using a 60-year blended return to calculate bigger impact funded status (and ultimately
its discount rate — 6.1 percent is well below the contributions) than any prior downturn.
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.eacities.org 1 29
- ;
Retirement System Sust ih_
A SECURE FUTURE FOR CALIFORNI� CITIES
L
.LEAGUE®`OF CALIFORNIA _
` CITIES k
Pension Sustainability Principles
(As Adopted by the League of California Cities Board of Directors,June 30,2017)
» Public compensation systems programs should be sustainable, fair to taxpayers
and employees, and provide long-term financial stability[Existing Policy placed in
new section].
»The League believes that solutions towards realizing pension system sustainability
should be the result of inclusive stakeholder collaboration at both the local and state
level (retirees, employees, employers, CaIPERS).
»The League supports legal or legislative remedies that facilitate options to restore
sustainability to CaIPERS benefit plans. As appropriate to each city, such actions
could include one or more of the following:
•A single benefit level for every employee.
• Converting all currently deemed "Classic" employees to the same provisions
(benefits and employee contributions) currently in place for"PEPRA" employees
for all future years of service.
• Temporary modifications to retiree Cost of Living Adjustments (COLA) that
are automatically added to a retiree's pension benefit payment regardless of
compensation level or CPI.
»The League supports expanded flexibility for cities regarding their contract
agreements with CaIPERS, which could include additional mechanisms for exiting
CaIPERS and renegotiating UAL amortization terms.
Existing General Pension Principles (Modified)
(As Adopted by the League of California Cities Board of Directors,June 30,2077)
The League supports a change in state law or judicial precedent to allow employers
to negotiate plan changes with classic CaIPERS members.
This League supports legislative solutions to address increasing costs associated
with Industrial Disability Retirement (IDR).
30 I League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org
STATEWIDE ISSUES AND VARIDUS DEPARTMENTS
Figure SWE-01
State Retirement and Health Care Contributions "
(Dollars in Millions)
X
Actitra„ Retirtl14., CSLj', Em)olOyer.
w CSU fHeaflth 8 Wealth Retire 4AE8.
CsIPEiR$ CaIPfER Cttifr8` RS JRI� JRS U FLRS DetlrEal'" ®coital Healtlti iPhefundln
2008-09 $3,063 $1,133 $189 $40 $2,146 $1,183
2009-10 2,861 1,191 184 32 2,120 1,182 $3
2010-11 3,230 1,200 166 54 2,277 1,387 2
2011-12 3.174 1,259 195 58 2,439 1,605 0
20U-13 2,948 sr $4495' 1,303 160 51 2,567 1,365 ar $222s' 0
2013-14 3,269 474 1,360 188 52 $1 2,697 1,383 225 22
2014-15 4,042 543 1,486 179 63 1 2,797 1,462 256 38
2015-16 4,338 585 1,936 190 67 1 2,968 1,556 283 63
2016-17 4,754 621 2,473 202 68 1 3,104 1,623 272 342'r
2017-18 5,188 661 2,790 197 76 1 3,252 1,771 291 189
2018.1901 5,522 686 3.077 195 80 1 3,435 1,891 311 373
v The chart does not Include coryrtbutions for UNversity of California pension or red"health care costs,and does not reflect the
$6 billion supplemental pension payment in 2417-18 authorized by Chapter 50,Statutes of 2017(SB 54).
b In addition to the Executive Branch,this includes Judicial and Legislative Branch employees. Contributions for judges and elected
officials are included In JRS,JRS II,and LRS.
s+Time amounts include health,denial,and vision contributions for employees within state civil service,the Judicial and Legislative
Branches,and Callfamia Stale University(CSU
y Amount reflads the employer contribution to pay down the Other Post-Employment Benefits(OPEB)unfunded flabbily.
d Beginning in 2012-13.CSU pension and health care costs are displeyed sep®reley.
a Estimated as of the 2018.19 Govemoes Budget. ZD18.10 General Fund costs are estimated to be$2.901 million for
CaIPERS,$686 million for CSU CaIPERS,$2.198 mlllon for Retiree Health&Dental.$1,613 million for Active Health and Dental,and
$194 million for OPEB.Pmfunding. The remaining totals are all General Fund.
71 Amount includes a one-time prelunding contribution of$240 million pursuant to Chapter 2,Statutes of 2016(AB 133).
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org 1 31
w
ro
ro
2017 Asset Liability Management Workshop Attachment 1, Page 5 of 55
C
Candidate Portfolios
Allocation Interim Policy ALCM Policy
FH
CD rCand8idatie A Candidate B Candidate C Candidate[? 9134J2017 9C3tl1Zu7s 2073
EME
0 L� Q ❑ ❑ ❑
a Global Equity 34% 42% 50% 59%° 50% 46% 47%°
Private Equity 8% 8%m 8% 8% 8% 8% 12%
Fixed Income 44%m 36%m 28%m 19% 19%fl 20%m 19%
G.
Real Assets 13% 13% 13% 13%° - - -
Real Estate - - - - 9% 11% 11%m
Cn
Infrastructure/Forestland . . - 2% 2% 3%
CD
Inflation Assets 0% 0%° 0%m 0%° 8% 9% 6%
Liquidity 1% 1% 1%m 1% 4% 4% 2%
o
` 5.6%m 5.$°/m 6.1DO/6 6.4% 6.0°lm 5.9°Im 6.2°l0
i # 7.8% 8.0% 8.3%m 8.5% 8.1% 8.0%m 8.3%
n .+ 6.50%m 6.75% 7.00% 7.25% 6.85% 6.77%m 7.09%
w 9.1%m 10.2% 11.4% 12.8%m 11.5% 11.0%m 12.0%m
c°n 3.1% 3.0% 2.9% 2.7%m - - -
CO
ti
b
• With the 2013 Capital Market Assumptions,the ALM Policy Portfolio had an expected compound return of 7.15%for years 1 through 10,
expected compound return of 8.39%for the long term(i.e.,years greater than 10),blended return of 7.56%,and expected volatility of 11.76%.
h P Blended Return is the weighted expected compound rate of return of years 1 though 10 and the longterm,minus 15 bps for admin fees.EDIRS
• Circles correspond to Candidate Portfolios A,B,and D. Squares correspond to Current Allocation,Interim Policy,and ALM policy Portfolios.
Triangle corresponds to Candidate Portfolio C which is most similar to Current Allocation.Symbols illustrated on pages 6 and 7.
Government Finance Officers Association
ADVISORY
Pension Obligation Bonds
Advisory:
GFOA Advisories identify specific policies and procedures necessary to minimize a
governments exposure to potential loss in connection with its financial management
activities.it is not to be interpreted as GFOA sanctioning the underlying activity that gives
rise to the exposure.
BACKGROUND:
Pension obligation bonds(POBs)are taxable bondsl that some state and local governments have
issued as part of an overall strategy to fund the unfunded portion of their pension liabilities by
creating debt. The use of POBs rests on the assumption that the bond proceeds,when invested
with pension assets in higher-yielding asset classes,will be able to achieve a rate of return that is
greater than the interest rate owed over the term of the bonds. However, POBs involve considerable
investment risk, making this goal very speculative.2 Failing to achieve the targeted rate of return
burdens the issuer with both the debt service requirements of the taxable bonds and the unfunded
pension liabilities that remain unmet because the investment portfolio did not perform as anticipated.
In recent years, local jurisdictions across the country have faced increased financial stress as a
result of their reliance on POBs,demonstrating the significant risks associated with these
instruments for both small and large governments.
RECOMMENDATION:
The Government Finance Officers Association(GFOA)recommends that state and local
governments do not issue POBs for the following reasons:
1.The invested POB proceeds might fail to earn more than the interest rate owed over the term
of the bonds, leading to increased overall liabilities for the government.
2. POBs are complex instruments that carry considerable risk. POB structures may incorporate
the use of guaranteed investment contracts,swaps,or derivatives,which must be intensively
scrutinized as these embedded products can introduce counterparty risk,credit risk and
interest rate risk.3
3. Issuing taxable debt to fund the pension liability increases the jurisdiction's bonded debt
burden and potentially uses up debt capacity that could be used for other purposes. In
addition,taxable debt is typically issued without call options or with"make-whole"calls,which
can make it more difficult and costly to refund or restructure than traditional tax-exempt debt.
4. POBs are frequently structured in a manner that defers the principal payments or extends
repayment over a period longer than the actuarial amortization period,thereby increasing the
sponsor's overall costs.
5.Rating agencies may not view the proposed issuance of POBs as credit positive, particularly if
the issuance is not part of a more comprehensive plan to address pension funding shortfalls.
League of California Cities 1 1400 K Street,Suite 400 1 Sacramento, California 95814 1 Phone: (916)658-8200 1 www.cacities.org 33
Notes:
1 The Tax Reform Act of 1986 eliminated the tax exemption for pension obligation bonds.
2 Alicia H. Munnell,Jean-Pierre Aubry,and Mark Cafarelli,"An Update on Pension Obligation
Bonds,"Center for Retirement Research at Boston College,July 2014.
3 See GFOA Advisory—Using Debt-Related Derivatives and Developing a Derivatives Policy(2015)
203 N.LaSalle Street-Suite 2700 1 Chicago,IL 60601-12101 Phone:(312)977-9700-Fax:(312)977-4806
34 1 League of California Cities 1 1400 K Street,Suite 400 1 Sacramento,California 95814 1 Phone:(916)658-8200 1 www.cacities.org
1/17/2018 Edit/Add Request Information QL 3/ ,f 7/
Dear Council Members,
I have owned my home in our Downtown neighborhood for more than ten years.
During that time, including the most recent years, the crime rates in the two major police reporting districts for Downtown Main Street
have been a substantial multiple of the Citywide average. Although Police Chief Handy has made great strides in improving the public
safety of Downtown Main Street, the crime rates in this area are still unacceptably high. One district has the worse crime rates in the
City by far, and the second district is almost as bad.
As well, Police Chief Handy has made solid progress in trying to reduce DUI accidents throughout the City. Even so, Huntington Beach
continues to have one of the worst DUI accident rates for midsize cities in the entire state. As former Police Chief Small stated it, DUI
accidents are our City's number one public safety problem.
For these reasons, I urge you to include two new items in the Public Safety portion of the City's Strategic Plan. The first item should
address Downtown Main Street's disproportionate share of crimes in our City. And the second item should address the continuing
epidemic of DUI accidents throughout all of Huntington Beach.
Thank you for considering my views.
Richardson Gray
415 Townsquare Lane#208
Huntington Beach, CA 92648
714-348-1928(cell)
richardson.gray@yahoo.com
SUPPLEMENTAL
COMMUNKATION
Meeting Date:
Agenda Item NO.•
http://user.govoutreach.com/surfcity/editcase.php?id=3584072&cmd=edit&pagewhendone=reports.php%3fsub%3d http://user.govoutreach.co m/su rfcity... 1/1