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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 City of Huntington Beach Page 1 of 2 Printed on 12/12/2018 745 powered by Legistar°^ 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 City of Huntington Beach Page 2 of 2 Printed on 12/12/2018 746 powered by Legistaffl 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. 747