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File #: 19-471 MEETING DATE: 5/20/2019
REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Lori Ann Farrell Harrison, Interim City Manager
PREPARED BY: Gilbert Garcia, Chief Financial Officer
Subject:
Adopt Resolution No. 2019-25 authorizing the City to levy the Annual Retirement Property Tax
For Fiscal Year 2019/20 to pay for Pre-1978 Employee Retirement Benefit Levels
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
public employee retirement benefit levels. On July 16, 2012, the City Council adopted Chapter 3.07
of the Municipal Code, the Retirement Tax Cap. The Retirement Tax Cap 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 2019/20
assumes the continuation of the Retirement Tax Cap of$0.01500 per $100 of assessed value. As of
the most recent audited financial statements, this tax rate resulted in $5.6 million in General Fund
revenue in Fiscal Year 2017/18. This recurring revenue source is included in the Proposed FY
2019/20 Budget; hence, any reductions in the tax rate would potentially result in proportionate
ongoing General Fund budget reductions.
Recommended Action:
Adopt Resolution No. 2019-25, "A Resolution of the City Council of the City of Huntington Beach
Levying a Retirement Property Tax for Fiscal Year 2019/20 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 tax rate included in the current Fiscal Year 2018/19 Adopted Budget.
Alternative Action(s):
Do not approve the recommended action and direct staff accordingly.
Analysis:
On July 16, 2012, the City Council adopted an ordinance to permanently cap the tax rate at $0.01500
City of Huntington Beach Page 1 of 3 Printed on 5/15/2019
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File #: 19-471 MEETING DATE: 5/20/2019
per $100 of assessed valuation. Therefore, the requested tax levy for FY 2019/20 reflects the same
tax rate of$0.01500 per $100 of assessed valuation effective in FY 2012/13 pursuant to Chapter 3.07
of the Municipal Code. Fiscal Year 2019/20 will represent the eighth year of the application of the
permanent cap.
As background, on June 25, 2012, the Registrar of Voters of the County of Orange certified a
measure to be placed on the ballot to repeal the Employee Tax Override in its entirety. However, on
November 6, 2012, the ballot measure, known as Measure Z, was defeated by a majority of
Huntington Beach voters.
The current capped Employee Tax Override results in an approximate $75 annual tax levy for a
property assessed at $500,000. Revenue generated from this property tax helps the City fund
employee pension costs associated with pre-1978 retirement benefit levels. As such, the tax can
only pay for the estimated costs associated with the pension benefit formulas in place prior to the
enactment of Proposition 13 on July 1, 1978. Hence, the tax can only pay for retirement benefits for
all retired, current, and future City employees that were contracted for prior to July 1, 1978 (such as
the 2% at 50 benefit formula for Safety employees in place before enactment of Proposition 13).
Please note that even before the adoption of a permanent cap, this assessment has not been
increased since Fiscal Year 2009/10, and can now 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. Based on the most recent CaIPERS actuarial valuations the cost of pre-1978
retirement benefit levels for Safety personnel total $24.8 million. As such, the proposed tax rate is
recouping only 24 percent of eligible Safety personnel 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 helps the City maintain essential General Fund services in the Fiscal Year 2019/20
budget.
Environmental Status:
Not applicable
Strategic Plan Goal:
Strengthen long-term financial and economic sustainability
Enhance and Maintain Public Safety
Attachment(s):
1. Resolution No. 2019-25 "A Resolution of the City Council of the City of Huntington Beach
Levying a Retirement Tax for Fiscal Year 2019/20 to Pay for Pre-1978 Public Employee
Retirement Benefits."
2. Ordinance No. 3954 "An Ordinance of the City of Huntington Beach Amending the Huntington
Beach Municipal Code by Adding Chapter 3.07 Relating to Capping the Retirement Property
Tax at Fiscal Year 2012/13 Rates."
City of Huntington Beach Page 2 of 3 Printed on 5/15/2019
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File #: 19-471 MEETING DATE: 5/20/2019
City of Huntington Beach Page 3 of 3 Printed on 5/15/2019
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RESOLUTION NO. 2019-25
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF HUNTINGTON BEACH LEVYING A RETIREMENT
PROPERTY TAX FOR FISCAL YEAR 2019/2020 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,
1978 and 2010 City 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 both
the 1978 and 2010 Charters provide 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,
§1(b)); and
In the case entitled Carman v. Alvord, 31 Ca1.3d 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 the 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
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
19-7503/200588 1
RESOLUTION NO. 2019-25
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 2019/2020, CalPERS is requiring the City to contribute 57.341% 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 57.341% to set the override tax at the
equivalent of 52.741% of safety employee payroll. The cost to the City of 52.741% of safety
employee payroll for 2019/2020 will be $24,807,457 and pursuant to Proposition 13 and
Revenue and Taxation Code Section 96.31(a)(4), the City could have set the override tax for
2019/2020 at $0.04930 per $100 of assessed value; and
In August 2012, the City Council added Chapter 3.07 to the Municipal Code which sets
the future retirement tax rate to the Fiscal Year 2012/13 rate of $0.01500 per $100 of assessed
value, which amount is less than the otherwise permitted retirement tax per Revenue and
Taxation Code Section 96.31(a)(4) of$0.04930 per $100 of assessed value. For the Nine-Month
Period 2017/2018, the most recent year available, the levied retirement tax of$0.01500 per $100
assessed value generated $5,614,777.
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 2019/2020.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 20th day of May , 2019.iREVIE D AND APPROVED: _
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City Manager INITIATED AND APPROVED:
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Chief 'nancialOfficer
APPROVED A
City orney mkr
19-7503/200588 2
Res. No. 2019-25
STATE OF CALIFORNIA
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, ROBIN ESTANISLAU, 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 May 20, 2019 by the following vote:
AYES: Brenden, Carr, Posey, Delgleize, Hardy
NOES: Semeta, Peterson
ABSENT: None
RECUSE: None
941/41Z14,144d
City Clerk and ex-officio Clerk of the
City Council of the City of
Huntington Beach, California
ORDINANCE NO. 3954
AN ORDINANCE OF THE CITY OF HUNTINGTON BEACH
AMENDING THE HUNTINGTON BEACH MUNICIPAL CODE BY
ADDING CHAPTER 3,07 RELATING TO CAPPING
THE RETIREMENT PROPERTY TAX AT
FISCAL YEAR 2012/13 RATES
The City Council of the City of Huntington Beach does hereby ordain as follows:
SECTION 1. The Huntington Beach Municipal Code is hereby amended by adding new
Chapter 3.07 thereto, to read as follows:
3.07 Retirement Tax Cap. 'Fhe tax sufficient to meet all obligations of the City for the
retirement system in which the City participates, due and unpaid or to become due during the
ensuine, fiscal year as provided in Huntington Beach Charter Section 607 (b) 2, shall be set at the
rate adopted for Fiscal Year 2012/13, which is $0.01500 per $100 of assessed valuation.
SECTION 2. In the event this ordinance is held invalid by a court of competent
jurisdiction, the tax shall automatically be reinstated as it existed prior to adoption of this
ordinance.
SECTION 3, This ordinance shall become effective 30 days after its adoption.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 20th_ day of August , 2012.
Mayor
ATTEST: APPROVED AS TO FORM:
_7/II 17,00,
•1 City Clerk f--City Attorney CI-NV- 7 ; -
INITIAl 0
, VIEWED AND APPROVED:
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12-3407 S'1687
Item 10. - 5 HB 97
Ord. No. 3954
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 ordinance was read to said City Council at a regular
meeting thereof held on July 16, 2012, and was again read to said City Council at a
regular meeting thereof held on August 20, 2012, and was passed and adopted by the
affirmative vote of at least a majority of all the members of said City Council.
AYES: Shaw, Carchio, Bohr, Boardman
NOES: Harper, Hansen
ABSENT: Dyer
ABSTAIN: None
I,Joan L.Flynn,CITY CLERK of the City of Huntington
Beach and ex-officio Clerk of the City Council,do hereby
certify that a s)n3psis of this ordinance has been
published in the Huntington Beach Fountain Valley
Independent on August 30 2032
in accordance ix ith the C1N Charter of said City
LJoan L. Flynn,City Clerk Cit(. lerk and ex-officio Irk IU Joan
S,Senior Deputy City Clerk of the City Council of the City
of Huntington Beach, California
1 I -97- Ion 10. - 6