Loading...
HomeMy WebLinkAboutResolution 2000-73 - Adopting 2000/2001 Tax Rate ($.04930 pe CITY OF HUNTINGTON BEAVH MEETING DATE: July 17, 2000 DEPARTMENT ID NUMBER: AS 00-030 Council/Agency Meeting Held: 47'_ 7" Deferred/Continued to: `X roved ❑ Conditio II Approved ❑ Denied * y C s Signature Council Meeting Date: July 17, 2000 Department ID Number: AS 00-030 CITY OF HUNTINGTON BEACH REQUEST FOR COUNCIL ACTION SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS SUBMITTED BY: RAY SILVER, City Administrator We PREPARED BY: John Reekstin, Director of Administrative Services, SUBJECT: Adoption of Tax Rate for 2000/2001 Alo. dodo 73 Fstatement of Issue,-Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s) Statement of Issue: Should the City adopt a tax rate consistent with the City Charter which states that "There shall be levied....., if no other provision for payment thereof is made,... a tax sufficient to meet all obligations of the City for the retirement system in which the City participates, due to be paid, or to become due during the ensuing fiscal year." The 2000/2001 proposed budget includes estimated property tax revenue of $7,900,000 to fund the City's employee pension obligations for the fiscal year. Funding Source: Not applicable. Recommended Action: Adopt resolution .��fixing the tax rate for the City of Huntington Beach at $.04930 per $100 of assessed valuation. Alternative Action(s): 1. Do not adopt a tax rate in which case the City Council will have to make General Fund budget reductions / RCA Tax Rate 2000-2001 2 7/13/00 6:05 PM 1 Unfunded Liabilities . Council has directed staff to address the City's unfunded financial liabilities: . Liability Insurance - $1 .6 million . Workers' Compensation - $5.3 million . Equipment Replacement - $26.9 million . Supplemental Retirement - $24.4 million • The second year of the of the two-year budget (FY 00/01) begins to deal with these unfunded liabilities for the first time, including Supplemental Retirement. Property Tax Override ,.Rate — FY 00 / 01 . In 1978,, Huntington Beach residents approved a City Charter Amendment providing for property tax levy above 1% to fund City retirement obligations . Since 1983-84, California Revenue and Taxation Code has limited the levy to 4.93 cents per property tax dollar City Retirement Costs .... ....... . Retirement Program benefits for City employees include Public Employees' Retirement System (PERS) and the City's Self- Funded Supplemental Retirement Benefit . From FY 1983/84 to 1997/98., the 4,93 cent override was insufficient to cover the City's annual PERS costs . Total General Fund expended to pay for remaining retirement program costs during this time was $41 , 5 million Current Retirement Costs ......... ..... . PERS employer rate for public safety and miscellaneous employees is zero (0) as of July 1, 2000 . Employee PERS rate picked up by the City is 9% for public safety and 7% for miscellaneous employees, with an annual cost of $5 million in FY 00/01 . Anticipated property tax override revenue for FY 00/01 will be $7.9 million at 4.93 cents/dollar KEQUEST FOR COUNCIL ACl iON MEETING DATE: July 17, 2000 DEPARTMENT ID NUMBER: AS 00-030 2. Adopt a lower tax rate in which case the City Council will have to make General Fund budget reductions equal to the amount of the reduced revenue To be consistent with Charter requirements, alternative 1 or 2 can be selected only if the City makes "... other provisions for payment ..." of the retirement obligations. The proposed budget for 2000/2001 makes no provision for payments of these obligations other than the use of the $7,900,000 in estimated revenue from a continuation of this levy. Therefore, if either of the above alternatives is selected, action needs to be taken to determine how to make provision to pay the City's estimated retirement costs in 2000/2001 and in future years. Analysis: The City receives a pro-rata portion of the one-percent basic levy of all real property (15.6% of the basic levy). During the past eight years, the City's share of the basic levy for property taxes has been reduced by the State of California from 19.5% to 15.6%. General Fund property tax revenue from the basic levy has therefore been reduced by approximately $5.5 million per year. In addition, the California Constitution allows- cities to levy additional taxes for voter- approved indebtedness. The City has, since voter approval in 1966, levied an additional tax that has paid for a portion of City retirement costs, which include payments to the Public Employee Retirement System (PERS) as well as the City's Self-Funded Supplemental Retirement Plan (SRP). The levy currently covers all of the City's PERS retirement costs for 2000/2001, since the current employer rate for PERS retirement benefit is zero for both public safety and miscellaneous employees. The reason for the zero employer rate is that on July 1, 2000 the City began benefiting from a PERS' "superfunded" status for both safety and miscellaneous employees. The superfunded status is a reserve caused by PERS retirement investment returns being greater than accrued retirement costs over the past several years. The PERS actuarial evaluation is done annually and may change each year. When the reserve is depleted, the City will have to pay the full employer rate of 12.478% of salaries for safety employees and 5.461% of salaries for miscellaneous employees. Consequently, currently, the City is paying the 9% safety employee and 7% miscellaneous employee contributions, amounting to $5,000,000. In addition, the remaining $2.9 million appropriation in FY 2000/2001 will be to the SRP Fund to begin to reduce the Unfunded Actuarial Liability (by $1.9 million), as well as pay for the ongoing costs ($1 million). (The SRP fund carried an Unfunded Actuarial Liability of$24.4 million as of September 30, 1999.) Under State law, the levy may not exceed the amount levied in 1984/85. In our case, continuing the 1984/85 levy of $.04930 per $100 of assessed valuation results in the following summary of the City's 2000/2001 retirement costs and estimated revenue from the tax levy: RCA Tax Rate 2000-2001 3 7/13/00 6:05 PM KEQUEST FOR COUNCIL AC) iON MEETING DATE: July 17, 2000 DEPARTMENT ID NUMBER: AS 00-030 Estimated 2000/2001 Retirement Costs (PERS) $ 5,000,000 Estimated.2000/2001 Retirement.Supplement Costs 2,900,000 Total Retirement Costs 7,900,000 Estimated Revenue from a Continuation of Levy $ 7,900,000 One question that may arise in connection with the levy is compliance with Proposition 13. Proposition 13 limits the total property tax to 1% of assessed value, subject to certain exceptions. One exception is any "indebtedness" the voters approved prior to the effective date of Proposition 13. In Carman v. Alvord (1982) 31 Cal.3d 318, the California Supreme Court interpreted "prior indebtedness" to include property taxes to fund retirement systems that local voters approved as part of the City Charter. And in fact, in 1978, the electorate of the City of Huntington Beach approved a City Charter revision authorizing the City to provide retirement benefits to-its employees, and-further directing the City Council to levy a property tax in excess of 1% of the full cash value of property "sufficient to meet all obligations of the City for the retirement system in which the City participates." The City is currently litigating the constitutionality of the 1999/2000 levy in a case entitled Howard Jarvis Taxpayers Association (HJTA) v. City of Huntington Beach. HJTA contends the City cannot provide any retirement benefits the City was not actually provided in 1978. The City contends that it can continue the levy because it was authorized in the 1978 Charter Revision for the following reasons:.. 1. The voters in 1978 authorized a tax levy for a retirement system, not any specific system or benefits. This meant the City Council had the authority to modify benefits and continue the tax levy to.fund those benefits. 2. HJTA argues that the City should disregard the Charter language and be limited to those benefits the City was offering in 1978. In 1978, the City only offered PERS, not the SRP. Further, in July 1978, the City was responsible only for the employer contributions, plus 2% of the fire employee's contribution. Since then, the City has agreed by way of contract with PERS. and the memorandum of understanding with-employee organizations, to pay all of the employees' contributions. However, in 1978, as of the effective date of the City Charter revision, the City was paying employer cost of PERS retirement benefits at 8.695% of payroll for miscellaneous employees, 18.827% of payroll for safety employees, plus 2% of fire payroll. Because these percentages are greater than the 7% miscellaneous and 9% safety the City currently pays, the City is financially providing no greater retirement benefits today than it did in 1978; only the form of benefits have changed. Consequently, even if Proposition 13 prevents the City from paying greater benefits after 1978 than it paid before 1978, in fact, the current retirement benefits which the City is legally responsible for represent a lesser percentage of employee payroll than the RCA Tax Rate 2000-2001 4 7/13/00 6:05 PM REQUEST FOR COUNCIL AC1 ION MEETING DATE: July 17, 2000 DEPARTMENT ID NUMBER: AS 00-030 benefits that the City was legally responsible for prior to the effective date of Proposition 13. Environmental Status: Not applicable Attachment(s): City Clerk's Page Number No. Description Resolution oDU-73 Adopting 2000/2001 Tax Rate. RCA Author: John Reekstin RCA Tax Rate 2000-2001 5 7/13/00 6:05 PM r (17) July 17, 2000 - Council/Agency Agenda - Page 17 F-2. (City Council) Adopt Resolution No. 2000-73—Fixing the Tax Rate for the City of Huntington Beach for Fiscal Year 2000/2001 (340.90) Communication from the Administrative Services Director Reekstin transmitting for Council consideration Resolution.No. 2000-73 fixing the tax rate for the City of Huntington Beach at $.04930 per$100 of assessed valuation. Recommended Action: Motion to: Adopt Resolution No. 2000-73- "A Resolution of the City Council of the City of Huntington Beach Fixing the Fiscal Year 200012001 Tax Rate"at$.04930.per$100 of assessed valuation. (1) Motion Fails to Adopt Res. No. 2000-73 as amended as follows: That the City Council declare that if the city loses the lawsuit filed by Howard Jarvis Assn. that the city will refund the amount to the taxpayers with the appropriate interest [3-4 (Garofalo, Green, Dettloff, Bauer NO)] (2) Adopted Res. No. 2000-73 [5-2 (Harman, Sullivan NO)] ; � y � , a . - - � � © ^ ���°�� �� , m. n: a. � . - : — �2 � 3 � � , �< �` / � «»\« , �-© ® . >y �. � .. >j� . \ �\���y�\ �m. - � :. � * » � e � � 5�§ � + ° « � . < ��/ . . a w . . . �> .� e . �y, � . � . . « � » - « � � � : � � /� � �J ^ ` ` - � �,\ : . y � : < .� \ \ - - � �} . . e . . . r �� - �© � « y � : �y w � -®. �\�\�� < : . © >_�.�? �r . �. -! �y ° _ RESOLUTION NO. 2000-73 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH FIXING THE FISCAL YEAR 2000/2001 TAX RATE WHEREAS, the City of Huntington Beach will be receiving a pro-rata portion of the one dollar($1.00)Basic Property Tax Rate levied by the County Board of Supervisors as a means of providing revenue for the operation and support of various City departments, offices and activities; and ,. In 1978,the electorate of the City of Huntington Beach approved a City Charter revision authorizing the City to provide retirement benefits to its employees, and further providing that the City levy a property tax in excess of 1% of the full cash value of property"sufficient to meet all obligations of the City for the retirement system in which the City participates"; and In Carman v. Alvord(1982) 31 Cal.3d 318,the California Supreme Court held that a tax such as that mandated by the City Charter to fund a city's employee retirement obligations is exempt from Proposition 13 (Article XIIIA of the California Constitution) as voter-approved prior indebtedness; and Since 1983-84, Revenue and Taxation Code Section 96.31(b)has limited the City to levying a maximum rate of property taxation at Zero and 0.4930/1001h Dollars ($0.4930)per $100 of assessed value in the City to pay for employees retirement cost, notwithstanding the fact that this rate has only generated a portion of the funds necessary to pay for retirement benefits. Consequently, each year since 1983-84,the general fund has had to pay for a substantial portion of retirement benefits, although the City Charter mandated that it be paid entirely with a property_ tax levy; and The City currently provides retirement benefits through a contract with the Public. Employees Retirement System (PERS) at the rates of 7% of miscellaneous employee payroll, :and 9%of safety employee payroll. By comparison, in July 1978, as of the effective date of the City Charter revision, the City was paying PERS retirement benefits at the rate of 8.695% of payroll for miscellaneous employees, 18.827%of payroll for safety employees, and an additional 2% for fire employees; and In addition,the City provides a Supplemental Retirement Program(SRP)offering survivor's benefits. According to the actuarial valuation of the SRP for the Fiscal Years ending June 30, 1999, it carries an unfunded liability of$24,438,000; and The City retirement program today costs the City no more than the program in effect in 1978; and 1 SF/s:SF-2000 Resolution:2000/2001 Tax Rate 7/13/00-#1 Res. No. 2000-73 The estimated revenue to be generated from the property tax levy for 2000/2001 is $7,900,000. The estimated cost of PERS to the City is $5,000,000 for 2000/2001 and the estimated operating cost of the SRP is$1,000,000 for 2000/2001. The-estimated total cost of the two programs is $6,000,000. The remainder of the$7,900,000 generated from the property tax levy will be applied to reducing the $24,438,660 unfunded liability of the SRP; and The tax levy established pursuant to this Resolution is authorized under Proposition 13, because it was authorized under the 1978 Charter Revision adopted prior to the effective date of Proposition 13. Since the 1978 Charter authorizes a tax levy to fund the retirement system, it authorizes the levy to be used to pay for all the retirement_benefits the City is required to pay as part of its current retirement system; and The tax levy is exempt from Proposition 13's 1%limitation under Article XIIIA, Section 1(b)(1) of the California Constitution, and does not constitute an extension of an existing tax requiring voter approval under Proposition 218 (Articles XIIIC-D of the California Constitution) because Section 3(a)(1) of Proposition 218 exempts from the voter-approval requirement any tax already valid under Proposition XIIIA; and The tax rate herein is levied pursuant to Section 96.31(a)(4) of the Revenue and Taxation Code for the purpose of paying voter approved prior indebtedness of the City of Huntington Beach; NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Huntington Beach that the rate of taxation for said city for fiscal year 2000/2001 be fixed at zero and .04930/100ths dollars $.04930)per$100 of assessed property value in said city. The said rate shall be applied as employee retirement costs. PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a regular meeting thereof held on the 17th day of July , 2000. Mayor ATTEST: APPROVED AS TO FORM:_ City Clerk c 1—Iq- oo City Attorney REVIEWED AND APPROVED: INITIATED AND APPROVED: Q.CL Ci y Administrator Direc r of Administrative Services 2 SF/s:SF-2000 Resolution:2000/2001 Tax Rate 7/13/00-#1 Res. No. 2000-73 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss: CITY OF HUNTINGTON BEACH ) I, CONNIE BROCKWAY, 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 the 17th day of July, 2000 by the following vote: AYES: Julien, Garofalo, Green, Dettloff, Bauer NOES: Harman, Sullivan ABSENT: None ABSTAIN: _ None ex o City Clerk and .off rk of the - - -City Council of the City of Huntington Beach; California Supplemental Retirement Benefit x � . City's Self-Funded Supplemental Retirement Benefit was established in the early 1980s . The program bridges the gap between the PERS modified and unmodified retirement allowance . Current unfunded actuarial liability (UAL) is $24.4 million for the Self-Funded Supplemental Retirement Benefit . Ongoing annual cost for this benefit is approximately $ 1 million . This benefit is offered by all Orange County agencies Use of FY 00 / 01 Property , . Tax Override Funds PERS Employee Rate Pick-Up $ 5,000,000 Supplemental Retirement Cost L0001000 Supplemental UAL Amortization 11900,1000 Total Retirement Obligations : $ 7,F9001000 Supplemental Retirement ....... Unfunded Liability . $ 1 ,9 million appropriation towards UAL will begin reducing $24.4 million deficit . UAL would be eliminated in approximately 22 years at that rate Future PARS Costs . If PERS employer rate was not super-funded, cost would be approximately $6.6 million per year . Coupled with 5 million PERS employee pick- up, total PERS retirement costs world be $ 11 .6 million, or $3. 7 million more than the property tax override amount . Difference has been and will be paid from the General Fund when the City's fund balance at PERS no longer has a X'superfunded" or overfunded status ................ Recommendation . Adopt a resolution fixing the tax rate for the City of Hunting ton Beach at $ , 0493 per $ 100 of assessed valuation for FY 2000/2001