HomeMy WebLinkAboutResolution 2009-48 to levy a retirement property tax for Fis Council/Agency Meeting Held: O
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Council Meeting Date: 8/17/2009 Department ID Number: FN 09-004
CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: HONORABLE MAYOR AND CITY COU MEMBERS
SUBMITTED BY: FRED A. WILSON, CITY ADMINIST
PREPARED BY: BOB WINGENROTH, DIRECTOR OF INANCE
SUBJECT: ADOPT A RESOLUTION TO ESTABLISH FISCAL YEAR 2009/2010
TAX RATE
Eement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s)
Statement of Issue:
Should the City of Huntington Beach adopt a tax rate to fund the portion of employee
retirement costs that can be legally collected in accordance with court cases, state law, and
City Charter?
Funding Source:
Not applicable.
Recommended Action: Motion to:
Adopt Resolution Number 2009-48 , "A Resolution of the City Council of the City of
Huntington Beach Levying a Retirement Property Tax for Fiscal Year 200912010 to pay for
Pre-1978 Public Employee Retirement Benefits" of $.01500 per $100 of assessed valuation.
The tax rate of$.01500 would increase general fund revenue approximately $1,525,000.
Alternative Action(s):
1) Adopt a tax rate of$.01200, increasing general fund revenue approximately $765,000.
2) Adopt a tax rate of$.01900, increasing general fund revenue approximately $2,550,000.
REQUEST FOR CITY COUNCIL ACTION
MEETING DATE: 8/17/2009 DEPARTMENT ID NUMBER: FN 09-004
Analysis:
The retirement property tax has been levied each year since 1966. The retirement property
tax is collected on all real property in the City to recover costs related to pre-1978 employee
retirement benefits. The City is currently collecting only a portion of the public safety
employee pre-1978 retirement costs.
Staff is recommending the City Council adopt a tax rate of $.01500 per $100 of assessed
valuation ($.006 higher than the tax rate in FY 2008/2009) for FY 2009/2010. This new rate
would generate approximately $3,811,000 in revenue, which is $1,525,000 more than would
be generated using last year's rate. With this increase, the recommended rate would result
in the City collecting 44% of the total that could legally be collected for pre-1978 public safety
employee retirement costs.
The additional revenue will help the City address the upcoming increases in the CalPERS
payment over the next several years. The CalPERS annual cost will increase from $20
million in FY 2009/2010 to over $26 million in FY 2013/2014. The additional $1.5 million
generated by this recommendation will not address the $6 million increase by itself. Staff will
be exploring other strategies, including working with the City's employee associations, to
address the negative impact that increasing CalPERS costs will have on City services.
Staff's recommendation is higher than that originally discussed at the August 3, 2009, Study
Session discussion on the budget. We have increased our recommendation from a rate of
$.01200 to $.01500 in light of the recent analysis presented in our draft Long Term Financial
Plan and the magnitude of the impact that the CalPERS costs have on future budgets.
The table below illustrates the impact of different tax rates on a home with an assessed value
of$500,000, as well as the additional amount of revenue that would be generated.
Increase for Parcel with Assessed Increased Revenue to
Retirement Property Tax Rate Valuation of$500,000 the City
$0.01200 $15 $765,000
$0.01500 $30 $1,525,000
$0.01900 $50 $2,550,000
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 City has
increased the tax rate incrementally each year, for the last several years, in order to maintain
and enhance public safety services. The recommended action will allow the city to continue
to maintain public safety services without creating an undue burden upon residents.
-2- 8/5/2009 4:36 PM
REQUEST FOR CITY COUNCIL ACTION
MEETING DATE: 8/17/2009 DEPARTMENT ID NUMBER: FN 09-004
Strategic Plan Goal:
Maintain and enhance public safety
Maintain and enhance our financial reserves
Environmental Status:
N/A
Attachment(s):
City Clork's
1. Resolution Number 2009-48 "A Resolution of the City
Council of the City of Huntington Beach Levying a Retirement
Property Tax for Fiscal Year 200912010 to pay for Pre-1978
Public Employee Retirement Benefits" of $.01500 per $100 of
assessed valuation.
-3- 8/5/2009 4:36 PM
ATTACHMENT # 1
RESOLUTION NO. 2009-48
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH
LEVYING A RETIREMENT PROPERTY TAX FOR FISCAL YEAR 2009/2010 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) 110
Cal.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
CalPERS 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
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
09-2167/ 1
Resolution No. 2009-48
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, 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, CalPERS required the City to contribute 9% of safety employee payroll as
the City's employer's contribution. In order to set the tax override, the City subtracted the 4.6%
normal cost of 3% @ 50 from the 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
$1,279,113, 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 2009/2010, CalPERS is requiring the City to contribute 27.9690%of safety employee
payroll as the City's employer's contribution. In order to set the tax override, the City may
subtract the 4.61/o normal cost of 3% @ 50 from the 27.9690% to set the override tax at the
equivalent of 23.3690% of safety employee payroll. The cost to the City of 23.36901/o of safety
employee payroll for 2009/2010 will be $8,664,000 and consequently, the City may set the
override tax for 2009/2010 at$0.03399 per $100 of assessed value; and
Notwithstanding this authority, the City Council chooses.to set the override tax rate for
2009/2010 at $.01500 per$100 of assessed value, which will yield approximately $3,811,000 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 0.01500/100t'Dollars ($0.01500) per$100
of assessed value shall be levied for employee retirement costs for Fiscal Year 2009/10;.
BE IT FURTHER RESOLVED that the remainder of the Zero and 0.03399/100th Dollars
($0.03399) per $100 of assessed value levy.authorized under Revenue & Taxation Code Section
96.31(a)(4) is suspended for Fiscal Year 2009/2010,
BE IT FURTHER RESOLVED that the City Council declares that although it is
suspending a portion of the retirement property tax for Fiscal Year 2009/2010, it retains the
authority to levy the tax in future years up to the rate of$0.0493 per$100 of assessed value.
09-2167/ 2
Resolution No. 2009-48
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 17 th day of August , 2009.
Mayor
REVpAstrator
PPROVED: IMTIATE AND APPROVED:
City Finance Director
APPROVED AS TO FORM:
Jff r
Attorney rY)v 8_5_cn
09-21571 3
Res. No. 2009-48
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 17, 2009 by the following vote:
AYES: Carchio, Green, Bohr, Coerper, Hardy
NOES: Hansen
ABSENT: Dwyer
ABSTAIN: None
CiU Clerk and ex-offici lerk of the
City Council of the City of
Huntington Beach, California
RCA ROUTING SHEET
INITIATING DEPARTMENT: IFinance
SUBJECT: ADOPT A RESOLUTION TO ESTABLISH FISCAL YEAR
2009/2010 PENSION TAX RATE
COUNCIL MEETING DATE: August 17, 2009
RCA ATTACHMENTS STATUS
Ordinance (w/exhibits & legislative draft if applicable) Attached ❑
Not Applicable
Resolution (w/exhibits & legislative draft if applicable) Attached
Not Applicable ❑
Tract Map, Location Map and/or other Exhibits Attached ❑
Not Applicable
Contract/Agreement (w/exhibits if applicable) Attached ❑
(Signed in full by the City Attorney) Not Applicable
Subleases, Third Party Agreements, etc. Attached ❑
(Approved as to form by City Attorney) Not Applicable
Certificates of Insurance (Approved by the City Attorney) Attached ❑
Not Applicable
Fiscal Impact Statement (Unbudgeted, over $5,000) Attached ❑
Not Applicable
Bonds (If applicable) Attached ❑
Not Applicable
Staff Report (If applicable) Attached ❑
Not Applicable
Commission, Board or Committee Report (If applicable) Attached ❑
Not Applicable
Findings/Conditions for Approval and/or Denial Attached ❑
Not Applicable
EXPLA ATUGH FOR �liv S&MG ATTACHfiUvdEWS
REVIEWED RETURNED FORWARDED
Administrative Staff ( ) )
Deputy City Administrator (Initial) ( ( )
City Administrator (initial) ( ) ( )
City Clerk ( )
EXPLANATION FOR RETURN OF ITEM.
- •
RCA Author: Josh Brooks
Page 1 of 1
Esparza, Patty
From: Surf City Pipeline [noreply@user.govoutreach.com]
Sent: onday, August 17, 2009 10:51 PM� b '9
To: CITY COUNCIL; agendaalerts@surfcity-hb.org
Subject: Surf City Pipeline: Comment on an Agenda Item (notification)
Request# 1602 from the Government Outreach System has been assigned to Johanna
Stephenson.
Request type: Comment
Request area: City Council - Comment on Agenda Items
Citizen name: Anonymous
Description: I attended the Aug 17, 2009 meeting, I found it to be pretty interesting.
The vote to increase the property tax to help pay CALPERS was a little
confusing. Councilman Hansen brought up some good reasons not to increase,
but then he voted yes, at least Ms Hardy voted her views on the Senior center,
although it passed. Have you ever thought of adding a city car tag for residents
of HB similar to states such as Illinois ?Maybe that would add revenue or give
more tickets for illegal parking...such as on the corner of Allport and Marvale,
cars parks on the curve and it obstructs cars coming around the corner. It should
be painted red.
Expected Close Date: 08/18/2009
Click here to access the request
Note: This message is for notification purposes only. Please do not reply to this email. Email replies are
not monitored and will be ignored.
17
8/18/2009