HomeMy WebLinkAboutResolution 2011-44 authorizing the City to levy the annual R Council/Agency Meeting Held:_
Deferred/Continued to:
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Council Meeting Date: July 5, 2011 Department ID Number: FN 11-011
CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
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. 2011-44 authorizing the City to levy the annual
Retirement Property Tax for Fiscal Year 2011/2012 to pay for pre-
1978 Public Employee Retirement Benefits
Statement of Issue:
The retirement property tax has been levied each year 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 employee retirement benefits. Staff recommends the continuation of the existing
tax rate of $0.0150 per $100 of assessed value to maintain revenue neutrality in the FY
2011/2012 General Fund Budget.
Financial Impact:
The continuation of the existing tax rate will preserve approximately $4,100,000 in annual
revenue to the City's FY 2011/2012 General Fund Budget.
Recommended Action: Motion to:
Adopt Resolution No. 2011-44, "A Resolution of the City Council of the City of Huntington
Beach Levying a Retirement Property Tax for Fiscal Year 2011/12 to Pay for Pre-1978
Employee Retirement Benefits" in the arnount of $0.01500 per $100 of Assessed Valu tiV-11.
Th;, tax rate of $0.01500 would continue the existing tax rate adopted for Fiscal Year
2010/11.
Alternative Action(s):
Do not approve the recommendation and direct staff accordingly.
1113 - ; Item 8. - 1
REQUEST FOR COUNCIL ACTION
MEETING DATE: 7/5/2011 DEPARTMENT ID NUMBER: FN 11-011
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 of Huntington Beach to recover costs related to
pre-1978 employee retirement benefits that can be legally collected in accordance with court
cases, state law and the City Charter.
Please note that the City is currently collecting only a portion of the public safety pre-1978
retirement costs. For Fiscal Year 2011/12 staff is recommending the City Council adopt the
same assessment rate as Fiscal Year 2010/11 of $0.01500 per $100 of assessed valuation,
which represents only 31% of the total cost that could legally be collected for pre-1978 public
employee retirement costs.
The $0.01500 per $100 of assessed valuation results in an approximate $75 assessment for
a property assessed at $500,000. Revenue generated from this property tax helps the City
address CalPERS retirement costs. This assessment rate has not been increased since
Fiscal Year 2009/2010.
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 an existing revenue stream of approximately
$4,100,000 annually.
Environmental Status:
Not Applicable
Strategic Plan Goal:
Maintain financial viability and our reserves
Attachment(s):
o Det.dfloti6h,
717 Resolution Number 2011-44 "A Resolution of the City Council of the City of
Huntington Beach Levying a Retirement Property Tax for Fiscal Year 2011/2012 to
pay for Pre-1978 Employee Retirement Benefits' in the amount of $-01500 per $100
of Assessed Valuation
Item 8. - 2 - _
ATTACHMENT # 1
RESOLUTION NO. 2011-44
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH
LEVYING A RETIREMENT PROPERTY TAX FOR FISCAL YEAR 2011/2012 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 this
11-2954/66965 1
Resolution No. 2011-44
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 4.61/o
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 2011/2012, CalPERS is requiring the City to contribute 34.196% 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 34.1960/0 to set the override tax at the
equivalent of 29.596% of safety employee payroll. The cost to the City of 29.5961/o of safety
employee payroll for 2011/2012 will be $12,673,743 and consequently, the City may set the
override tax for 2011/2012 at$0.04833 per$100 of assessed value;and
Notwithstanding this authority, the City Council chooses to set the override tax rate for
2011/2012 at $.01500 per $100 of assessed value, which will yield approximately $4,100,000 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 0.01500/100th Dollars($0.01500)per$100
of assessed value shall be levied for employee retirement costs for Fiscal Year 2011/2012;
BE IT FURTHER RESOLVED that the remainder of the Zero and 0.04833/100th Dollars
($0.04833)per $100 of assessed value levy authorized under Revenue & Taxation Code Section
96.31(a)(4) is suspended for Fiscal Year 2011/2012;
BE IT FURTHER RESOLVED that the City Council declares that although it is
suspending a portion of the retirement property tax for Fiscal Year 2011/2012, it retains the
authority to levy the tax in future years up to the rate of$0.0493 per$100 of assessed value.
11-2954/66965 2
Resolution No. 2011-44
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 5 th day of July , 20 11.
r
REVIE APPROVED: INITIATED AND APPROVED:
v( - avy,
City er Finance Director
APPROVED AS TO FORM:
City Attorney My
11-2954/66965 3
Res. No. 2011-44
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 July 5, 2011 by the following vote:
AYES: Shaw, Carchio, Bohr, Boardman
NOES: Harper, Hansen, Dwyer
ABSENT: None
ABSTAIN: None
Ci Clerk and ex-officio Vierk of the
City Council of the City of
Huntington Beach, California