HomeMy WebLinkAboutLevy the Annual Retirement Property Tax for FY 2012-2013 to Council/Agency Meeting Held: o�
Deferred/Continued to:
A proved ❑ Conditionally A ved ❑ Denied UtAboa y Ier s Sigryure
Du
Council Meeting Date: August 6, 2012 Department ID Number: CA 12-015
CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Jennifer McGrath, City Attorney
PREPARED BY: Jennifer McGrath, City Attorney
SUBJECT: Clarification to Resolution 2012-41 Regarding the City's Statutory
Maximum Tax Override
Statement of Issue: Staff would like to correct a number erroneously added to Resolution
2012-41.
Analysis: The maximum allowable override tax in Huntington Beach pursuant to State law
is $10.04930 per 100 of assessed value. That number was incorrect in the prior resolution
setting the tax rate for this year. This resolution clarifies the number pursuant to State law.
Financiallmpact: N/A
Recommended Action: Motion to:
Adopt Clarification to Resolution 2012-41 Regarding the City's Statutory Maximum Tax
Override.
Alternative Action(s): To not adopt Clarification to Resolution 2012-41 regarding the
City's Statutory Maximum Tax Override.
Analysis: N/A
Environmental Status: N/A
Strategic Plan Goal: Improve the City's infrastructure
Attachment(s):
r -
1. Corrected Resolution No. 2012-41
Item 16. - 1 HB -382-
ATTACHMENT # 1
KEY
INSERTIONS: Underlined
DELETIONS e1l�reagl}
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
Ca1PERS 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 Stfi 13
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 and however
eensequen#y, the City may not set the override tax for 2012/2013 a4$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 &riles
($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 ''ere an .05002n 0
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: INITIATED AND APPROVED:
Ci �/ger Finance Director
� PROVED AS TO FORM:
kity Attorney m V — 3-4
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
Cit , Jerk andfex-officio rk of the
City Council of the City of
Huntington Beach, California
CITY OF HUNTINGTON BEACH
City Council Interoffice Communication
To: Honorable Mayor and City Council ers
From: Keith Bohr, City Council Member
Date: August 13, 2012
Subject: CITY COUNCIL MEMBER ITEM FOR THE AUGUST 20, 2012,
CITY COUNCIL MEETING— RECONSIDERATION OF TWO
COUNCIL ACTIONS
STATEMENT OF ISSUE:
On August 6, 2012, 1 voted on the prevailing side of two Council actions and am
requesting that City Council reconsider both items to ensure all Council Members are
given the opportunity to participate in the final determination of each item.
RECOMMENDED ACTION:
I am making the following recommended actions:
Motion to:
1) Vote to reconsider the action to Adopt Clarification to Resolution 2012-41
Regarding the city's Statutory Maximum Tax Override.
2) Vote to reconsider the adoption of Ordinance No. 3954, "An Ordinance of the
City of Huntington Beach Amending the Huntington Beach Municipal Code By
Adding Chapter 3.07 Relating To Capping The Retirement Property Tax At Fiscal
Year 2012l13 Rates" to pay for pre-1978 Employee Retirement Benefits.
xc: Fred Wilson, City Manager
Paul Emery, Deputy City Manager
Bob Hall, Deputy City Manager
Joan Flynn, City Clerk
Lori Ann Farrell, Director of Finance
Jennifer McGrath, City Attorney
CITY OF HUNTINGTON BEACH
Finance Department
Lori Ann Farrell
Director of Finance
August 7,2012
Frank Davies,Auditor-Controller
County of Orange—Property Tax Unit
P.O.Box 567
Santa Ana, CA 92702-0567
SUBJECT: CITY OF HUNTINGTON BEACH TAX RATE—FISCAL YEAR 2012/13
Dear Mr. Davies:
On July 2, 2012, the City of Huntington Beach adopted the Fiscal Year 2012/2013 Tax Rate by
Resolution Number 2012-41, which levies a retirement property tax for Fiscal Year 2012/2013 to
pay for pre-1978 employee retirement benefits. Enclosed are the executed Resolution and staff
report.
Please note this rate has not changed from Fiscal Year 2011/2012. Please continue to incorporate
the retirement tax levy of Zero and 0.01500/100th Dollars ($0.01500)per $100 of assessed value for
the City of Huntington Beach.
If you have any questions or need additional information,please do not hesitate to contact my office.
Sinferely,
rA
Lori Ann Farrell
Director of Finance
LAF/klw
Enclosures:
1) City of Huntington Beach Resolution Number 2012-41
2) Request for City Council Action Agenda dated July 2,2012,item 13
3) Action Agenda,item 13
cc: Fred A. Wilson, City Manager
Paul Emery,Deputy City Manager
Joan Flynn, City Clerk
Carol Molina-Espinoza,Budget Manager
2000 Main Street, California 92648-2702 *Phone 714-536-5630 *Fax 714-374-5365 4
www.huntingtonbeachca.gov
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(CalPERS),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 Ca1.AppAth 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 CalPERS retirement benefit known as "2% @ 50."
Subsequently, on June 30, 1999,pursuant to collective bargaining agreements the City had
entered into with its safety employees, the City provided its safety employees with the
CalPERS retirement benefit known as 3% @ 50. Consequently, it is necessary to allocate
the employer contribution to 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 CalPERS
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 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, 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 override 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 0.01500/104th Dollars
($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 and .05002/100th
Dollars($0.05002)per $100 of assessed value levy authorized under Revenue &Taxation
Code Section 96.31(a)(4) is suspended for Fiscal Year 2012/2013;
12-3375/80851 2
J '+
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 the
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.
Mayor
REV IE APPROVED: INI IATED-SAND APPROVED:
ov..'
Cityya,,Igt Finance Director
APPROVED AS TO FORM:
�C
12-3375/80851 3
Res. No. 201241
STATE OF CALIFORNIA
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, JOAN L. FLYNN the duly elected, qualified City Clerk of the City
of Huntington Beach, and ex-officio Clerk of the City Council of said City, do
hereby certify that the whole number of members of the City Council of the City
of Huntington Beach is seven; that the foregoing resolution was passed and
adopted by the affirmative vote of at least a majority of all the members of said
City Council at an regular meeting thereof held on July 02, 2012 by the
following vote:
AYES: Shaw, Dwyer, Carchio, Bohr, Boardman
NOES: Harper, Hansen
ABSENT: None
ABSTAIN: None
Ci Clerk and ex-offic lerk of the
City Council of the City of
The foregoing instrument Is a correct Huntington Beach, California
aopy of the original on file In this office,
Attest �.I.�
AMU
—
and e c an x- clo e
Council of the City of Hun Ington Beach,
Caitfornia.
By Dlfputy
Council/Agency Meeting Held:
Deferred/Continued to:
i]Approved ❑ Conditionally Approved ® Denied City Clerk's Signature
Council Meeting Date: July 2, 2012 Department ID Number: FN 12-015
CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Fred A. Wilson, City Manager
PREPARED BY: Lori Ann Farrell, Director of Finance
SUBJECT: Adopt Resolution No. 2012-41 Authorizing the City to Levy the Annual
Retirement Property Tax for Fiscal Year 2012/13 to Pay for Pre-1978
Employee Retirement Benefits
Statement of Issue: The retirement property tax has been levied each year since 1966.
The retirement property tax is collected on all real property in the City of Huntington Beach to
recover costs related to pre-1978 public employee retirement benefits. The continuation of
the existing rate of $0.01500 per $100 of assessed value will maintain revenue neutrality in
the FY 2012/2013 General Fund Budget.
Financial IrMRac$: The continuation of the existing tax rate will preserve approximately
$4,200,000 in annual revenue to the City's FY 2012/2013 General Fund Budget.
Recommended Actin: Motion to:
Adopt Resolution No. 2012-41, "A Resolution of the City Council of the City of Huntington
Beach Levying a Retirement Property Tax for Fiscal Year 2012/13 to Pay for Pre-1978 Public
Employee Retirement Benefits" of$0.01500 per $100 of assessed valuation. The tax rate of
$0.01500 would continue the current tax rate from Fiscal Year 2011/12.
Alternative Action(sl:
Do not approve the recommendation and direct staff accordingly.
REQUEST FOR COUNCIL ACTION
MEETING DATE: 7/2/2012 DEPARTMENT ID NUMBER: FN 12-015
Analysis:
The retirement property tax has been levied since 1966. The retirement property tax is
collected on all real property in the City of Huntington Beach to recover costs related to pre-
1978 public employee retirement benefits that can be legally collected in accordance with
court cases, state law and the City Charter.
Please note that the City is currently collecting only a portion of the public safety pre-1978
employee retirement costs. For Fiscal Year 2012/13, staff is recommending the City Council
adopt the same assessment rate as Fiscal Year 2011/12 of$0.01500 per $100 of assessed
valuation, which represents only 30% of the total costs that could legally be collected for pre-
1978 public employee retirement costs.
The $0.01500 per $100 of assessed valuation results in an approximate $75 assessment for
a property assessed at $500,000, Revenue generated from this property tax helps the City
fund CalPERS retirement costs. This assessment rate has not been increased since Fiscal
Year 2009/2010.
Due to the County of Orange's timeline for approving the tax rate and the city's budget cycle,
the rate must be set before the City Council takes action on its annual budget. The
recommended assessment rate would maintain a revenue stream of $4,200,000 for Fiscal
Year 2012/13.
Environmental Status: N/A
Strategic Plan Goal: Maintain Financial Viability and our Reserves
Attachment(si:
o DescrijYtion,
7Resolution No. 2012-41, "A Resolution of the City Council of the City of Huntington Beach
ying a Retirement Tax for Fiscal Year 2012/13 to pay for Pre-1978 Public Employee
rement Benefits" of$0.01500 per$100 of assessed valuation.
Ito cr di r ArMAONY 7v wises L..
—�-- m-b V 4 4AO wig acc "
Al4q6M f`1 04104 7® W4606 *U
Council/Agency Meeting Held: Y
Deferred/Continued to:
'.Ap v d d tlon=ved Q Denied o i CIA's Si attire
Council Meeting Date: July 2,2012 Department ID Number: FN 12-015
CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Fred A. Wilson, City Manager
PREPARED BY: Lori Ann Farrell, Director of Finance
SUBJECT: Adopt Resolution No. 2012-41 Authorizing the City to Levy the Annual
Retirement Property Tax for Fiscal Year 2012/13 to Pay for Pre-1978
Employee Retirement Benefits
Statement of Issue: The retirement property tax has been levied each year since 1966.
The retirement property tax is collected on all real property in the City of Huntington Beach to
recover costs related to pre-1978 public employee retirement benefits. The continuation of
the existing rate of $0.01600 per $100 of assessed value will maintain revenue neutrality in
the FY 2012/2013 General Fund Budget.
Financial Impact: The continuation of the existing tax rate will preserve approximately
$4,200,000 in'annual revenue to the City's FY 2012/2013 General Fund Budget.
Recommended Action: Motion to:
Adopt Resolution No. 2012-41, "A Resolution of the City Council of the City of Huntington
Beach Levying a Retirement Property Tax for Fiscal Year 2012/13 to Pay for Pre-1978 Public
Employee Retirement Benefits" of$0.01600 per$100 of assessed valuation. The tax rate of
$0.01500 would continue the current tax rate from Fiscal Year 2011/12.
Alternative Action(s):
Do not approve the recommendation and direct staff accordingly.
I
I
I
HB-167- Item.13. - 1
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o 1 r r� $/oD / -�.cs Q7l V 44-9&6 &l#'7*
6 S
Council/Agency Meeting Held: Y
Deferred/Continued to:
�.Ap v d o dition II A prpved ❑ Denied i CIA's SicOature
Council Meeting Date: July 2, 2012 Department ID Number: FN 12-015
CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Fred A. Wilson, City Manager
PREPARED BY: Lori Ann Farrell, Director of Finance
SUBJECT: Adopt Resolution No. 2012-41 Authorizing the City to Levy the.Annual
Retirement Property Tax for Fiscal Year 2012/13 to Pay for Pre-1978
Employee Retirement Benefits
Statement of Issue: The retirement property tax has been levied each year since 1966.
The retirement property tax is collected on all real property in the City of Huntington Beach to
recover costs related to pre-1978 public employee retirement benefits. The continuation of
the existing rate of $0.01500 per $100 of assessed value will maintain revenue neutrality in
the FY 2012/2013 General Fund Budget.
Financial Impact: The continuation of the existing tax rate will preserve approximately
$4,200,000 in annual revenue to the City's FY 2012/2013 General Fund Budget.
Recommended Action: Motion to:
Adopt Resolution No. 2012-41, "A Resolution of the City Council of the City of Huntington
Beach Levying a Retirement Property Tax for Fiscal Year 2012/13 to Pay for Pre-1978 Public
Employee Retirement Benefits" of $0.01500 per $100 of assessed valuation. The tax rate of
$0.01500 would continue the current tax rate from Fiscal Year 2011/12.
Alternative Action(s):
Do not approve the recommendation and direct staff accordingly.
xB -167- Item 13. - 1
REQUEST FOR COUNCIL ACTION
MEETING DATE: 7/2/2012 DEPARTMENT ID NUMBER: FN 12-015
Analysis:
The retirement property tax has been levied since 1966. The retirement property tax is
collected on all real property in the City of Huntington Beach to recover costs related to pre-
1978 public employee retirement benefits that can be legally collected in accordance with
court cases, state law and the City Charter.
Please note that the City is currently collecting only a portion of the public safety pre-1978
employee retirement costs. For Fiscal Year 2012/13, staff is recommending the City Council
adopt the same assessment rate as Fiscal Year 2011/12 of $0.01500 per $100 of assessed
valuation, which represents only 30% of the total costs that could legally be collected for pre-
1978 public employee retirement costs.
The $0.01500 per $100 of assessed valuation results in an approximate $75 assessment for
a property assessed at $500,000. Revenue generated from this property tax helps the City
fund CalPERS retirement costs. This assessment rate has not been increased since Fiscal
Year 2009/2010.
Due to the County of Orange's timeline for approving the tax rate and the city's budget cycle,
the rate must be set before the City Council takes action on its annual budget. The
recommended assessment rate would maintain a revenue stream of $4,200,000 for Fiscal
Year 2012/13.
Environmental Status: N/A
Strategic Plan Goal: Maintain Financial Viability and our Reserves
Attachment(s):
1. Resolution No. 2012-41, "A Resolution of the City Council of the City of Huntington Beach
Levying a Retirement Tax for Fiscal Year 2012/13 to pay for Pre-1978 Public Employee
Retirement Benefits" of$0.01500 per$100 of assessed valuation.
Item 13. - 2 HB -168-
ATTACHMENT # 1
ha -169- Item I3. - 3
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 (CaIPERS), 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 Ca1.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 CaIPERS 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 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
The City has received a report from John Bartel of Bartel Associates, a professional
actuary experienced in pension calculations, entitled, "City of Huntington Beach CaIPERS
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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 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, 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 override 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 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 and .05002/100th
Dollars ($0.05002) per $100 of assessed value levy authorized under Revenue & Taxation
Code Section 96.31(a)(4) is suspended for Fiscal Year 2012/2013;
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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 the
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.
Mayor
REVIE APPROVED: IN TIATED�A,,ND APPROVED:
A xp ' 6"'�—
City g r Finance Director
APPROVED AS TO FORM:
C A�ey
12-3375/80851 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 an regular meeting thereof held on July 02, 2012 by the
following vote:
AYES: Shaw, Dwyer, Carchio, Bohr, Boardman
NOES: Harper, Hansen
ABSENT: None
ABSTAIN: None
o
Ci Clerk and ex-officioVierk of the
City Council of the City of
Huntington Beach, California