HomeMy WebLinkAboutResolution 2013-36 - Authorizes the City to Levy the Annual �. Dept.ID FN 13-010 Page 1 of 2
Meeting Date:8/5/2013
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CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
MEETING DATE: 8/5/2013
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. 2013-36 Authorizing the City to Levy the Annual
Retirement Property Tax for Fiscal Year 2013/14 to Pay for Pre-1978 Employee
Retirement Benefits
Statement of Issue:
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. On July 16, 2012, the City Council adopted Chapter 3.07 of the
Municipal Code, the Retirement Tax Cap, which states that the tax rate "shall be set at the rate
adopted for Fiscal Year 2012/13, which is $0.01500 per$100 of assessed valuation."
Financial Impact:
Pursuant to Chapter 3.07 of the Municipal Code, the Proposed Budget for Fiscal Year 2013/14
reflects the maximum tax rate of $0.01500 per $100 of assessed value. This tax rate is expected to
maintain revenue neutrality in the General Fund Budget of $4.1 million in FY 2013/14. Hence, any
proposed reductions to this tax rate would likely result in budget reductions to the FY 2013/14
Proposed Budget recommendations.
Recommended Action: Motion to:
Adopt Resolution No. 2013-36, "A Resolution of.the City Council of the City of Huntington Beach
Levying a Retirement Property Tax for Fiscal Year 2013/14 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 2012/13.
Alternative Action(s):
Do not approve the recommendation and direct staff accordingly.
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.
Staff is recommending that the City Council adopt the same assessment rate for FY 2013/14 as in
FY 2012/13 of $0.01500 per $100 of assessed valuation pursuant to Chapter 3.07 of the Municipal
Code. On July 16, 2012, the City Council voted to permanently cap the tax rate at $0.01500 per
$100 of assessed valuation. This tax rate results in an approximate $75 assessment for a property
assessed at $500,000. Revenue generated from this property tax helps the City fund CalPERS
Item 8. - I HB -134-
Dept. ID FN 13-010 Page 2 of 2
Meeting Date:8/5/2013
employee retirement costs. This assessment has not been increased since Fiscal Year 2009/2010
and can only be modified by a vote of the electorate as the adoption of the Retirement Tax Cap
contained in Chapter 3.07 of the Municipal Code established a permanent cap. Please note the
City is currently collecting only a portion of the pre-1978 employee retirement costs. As of the most
recent CalPERS actuarial valuation, pre-1978 employee retirement costs total $14.2 million. As
such, the proposed tax rate is recouping 29 percent of previously eligible retirement costs.
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 approximately $4.1 million in the General
Fund for Fiscal Year 2013/14.
Environmental Status:
NIA
Strategic Plan Goal:
Improve the City's long-term financial sustainability.
Attachment:
1. Resolution No. 2013-36, "A Resolution of the City Council of the City of Huntington Beach
Levying a Retirement Tax for Fiscal Year 2013/14 to pay for Pre-1978 Public Employee
Retirement Benefits" of$0.01500 per $100 of assessed valuation.
HB -135- Item 8. - 2
ATTACHMENT # 1
RESOLUTION NO. 2013-36
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH
LEVYING A RETIREMENT PROPERTY TAX FOR FISCAL YEAR 2013/2014 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, 1978 and 2010 Charters, 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 2010 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" (Cal.
Const. Art. 13A, §I(b)); 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 Huntington Beach 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 2003, the Court of Appeal in Howard Jarvis Taxpayers Ass'n v. County of
Orange (2003) 110 Cal.App.4th 1375 held that the City may levy a separate property tax to
pay for retirement benefits for all retired, current, and future city employees contracted for
prior to July 1, 1978, but not enhancements to retirement benefits contracted for after July
1, 1978; 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
13-3827/99652 1
Resolution 2013-36
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 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
For 2013/2014, CalPERS is requiring the City to contribute 38.841% 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 38.841% to set the
override tax at the equivalent of 34.241% of safety employee payroll. The cost to the City
of 34.241% of safety employee payroll for 2013/2014 will be $14,241,032 and
consequently, pursuant to Proposition 13, the City may set the override tax for 2013/2014
at $0.04921 per $100 of assessed value; and
Pursuant to Ordinance No. 3954, the City Council added Chapter 3.07 to the
Municipal Code which provides that the maximum retirement override tax rate for
2013/2014 shall be set at the rate adopted for Fiscal Year 2012/13, which is $0.01500 per
$100 of assessed valuation, which amount is less than the otherwise permitted retirement
override tax of$0.04921 per$100 of assessed value.
13-3827/99652 2
Resolution 2013-36
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 2013/2014.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at
a regular meeting thereof held on the S th day of August , 2013.
s
Mayor
REVI D ND APPROVED: INIT ATED AND APPROVED:
Ctkanqker Finance Director
APPROVED AS TO FORM:
,;-, City Attorney w
13-3827/99652 3
Res. No. 2013-36
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 5, 2013 by the following vote:
AYES: Sullivan, Hardy, Boardman, Carchio, Shaw, Katapodis
NOES: Harper
ABSENT: None
ABSTAIN: None
Citjklerk and ex-officio Wlerk of the
City Council of the City of
Huntington Beach, California