HomeMy WebLinkAboutAuthorization to appropriate, transfer and deposit one-time f�pi2)VED 7-0
City of Huntington Beach
1.
File #: 18-602 MEETING DATE: 12/17/2018
REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Fred A. Wilson, City Manager
PREPARED BY: Gilbert Garcia, Chief Financial Officer
Subject:
Authorization to appropriate, transfer and deposit one-time FY 2017118 year-end revenue and
budgetary savings of $1.0 million into the Internal Revenue Code Section 115 Trust
administered by the Public Agency Retirement Systems (PARS) to Pre-Fund Pension
Liabilities
Statement of Issue:
The City created a tax-exempt, Internal Revenue Code Section 115 Trust as authorized by the City
Council on December 21, 2015, to help pay down the City's unfunded pension liabilities. To further
this goal, on May 2, 2016, the City Council authorized the Public Agency Retirement Services
company (PARS) to administer the Trust's assets and ensure the tax exempt status for the Trust.
City Council authorization is requested to appropriate, transfer and deposit $1.0 million in one-time
FY 2017/18 year-end savings into the Section 115 Trust to help mitigate unfunded pension liabilities.
Financial Impact:
This action approves the appropriation, transfer and deposit of $1.0 million from estimated, unaudited
FY 2017/18 year-end budgetary savings and one-time property tax accruals resulting from the
change in the City's fiscal year, to the Section 115 Trust Fund. This action will help the City manage
its long-term pension obligations and help reduce the City's Net Pension Liability by paying liabilities
off sooner. The City's total Net Pension Liability is $433.5 million for its CalPERS and Retiree
Supplemental pension plans combined. This contribution will reduce the Net Pension Liability by $1.0
million. The City's PARS Section 115 Trust currently has $4.9 million set-aside for this purpose. This
action will bring the total to $5.9 million.
Recommended Action:
Approve the appropriation, transfer and deposit of $1.0 million into the Section 115 Trust from one-
time FY 2017/18 year-end savings and revenue to reduce the City's unfunded pension liabilities.
Alternative Action(s):
Do not approve the recommended action and direct staff accordingly.
Analysis:
In August 2013, the City Council amended its Financial Policies to include an additional $1 .0 million
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File #: 18-602 MEETING DATE: 12/17/2018
contribution in each year's budget to address the City's unfunded liabilities. Additionally, in
December 2015, the City Council adopted a Pension Rate Stabilization Plan, otherwise known as a
Section 115 Trust, to provide an alternative investment vehicle outside of CalPERS. Due to projected
financial constraints in the City's annual operating budget, the $1 .0 million annual contribution to the
Section 115 Trust was suspended in the current year FY 2018/19 Adopted Budget. However, since
inception of the Trust in 2015, a total of$4.5 million has been deposited into the Section 115 trust,
administered through PARS. With accrued interest and earnings, the balance has grown to $4.9
million as of June 30, 2018.
The City's Retiree Supplemental Benefit has an unfunded liability of$9.6 million, not including the
amount deposited in the Section 115 trust. The proposed deposit of $1.0 million, plus the current
Section 115 balance of$4.9 million, effectively reduces the Retiree Supplemental unfunded pension
liability to $3.7 million resulting in a funded status of 94.4% as shown in Attachment 1. The actions
that the City Council has taken, such as establishing the Section 115 Trust, and pre-paying the
CalPERS actuarial liability at the beginning of each fiscal year, among other actions, has put the City
on strong footing to manage its long-term retirement obligations.
In FY 2017/18, there was a one-time gain in property tax revenues due to the change in the City's
fiscal year and the timing of certain property tax payments from the County to the City pursuant to
Governmental Accounting Standards Board (GASB) rules for the modified accrual of revenues. In
addition to the accrual change, each department's budget was prorated down to nine-months. FY
2017/18 did not include the months of July, August and September when demand for many City
services peak. The fact that FY 2017/18 did not include the summer season meant that several
departments avoided their most expensive quarter resulting in one-time budgetary savings.
At the City Council Study Session related to Budget Balancing Options on May 7, 2018, the City
Council expressed an interest in making additional future deposits to the Section 115 Trust, if funds
permit. The preliminary unaudited figures in the General Fund indicate that $1 .0 million in one-time
funding is potentially available for deposit into the City's Section 115 Trust essentially bringing the
funded status of that plan to 94.4%.
Staff recommends the use of one-time funds in FY 2017/18 to appropriate, transfer and deposit an
additional $1.0 million into the Section 115 Trust to help reduce the City's unfunded liabilities and/or
to help mitigate future pension cost increases. This action is consistent with the Financial Policies
adopted by the City Council and with the City Council's Strategic Planning Goal to Strengthen
Economic and Financial Sustainability.
Environmental Status:
Not applicable.
Strategic Plan Goal:
Strengthen economic and financial sustainability
Attachment(s):
1. Draft Net Retiree Supplemental Benefit Balances
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Draft Net Retiree Supplemental Benefit Balances
Draft Unaudited CAFR Balances as of 6/30/2018
Balances Prior to $1 million Recommended Contribution to Section 115 Trust
Type of Liability Assets Liabilities Net Liability % Funded
Retiree Supplemental 56,271 65,827 9,556
Section 115 Trust 4,896 - (4,896)
Total Retiree Supplemental Unaudited* 61,167 65,827 4,660 92.9%
Balances with 1 million Recommended Contribution to Section 115 Trust
Type of Liability Assets Liabilities Net Liability %Funded
Retiree Supplemental 56,271 65,827 9,556
Section 115 Trust 4,896 - (4,896)
Recommended Contribution to Section 115 Trust 1,000 - (1,000)
Total Retiree Supplemental Unaudited* 62,167 65,827 3,660 94.4%
*The Retiree Supplemental Plan as of 6/30/2018 will show a lower funded status due to the GASB
Implementation Guide 2017-1 that requires the $4.9 million in Section 115 assets be reported as a restricted
asset in the City's General Fund rather than as a fiduciary asset of the City's Supplemental Retirement
Plan as it has shown in previous CAFRs.
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