Community City of La Habra Administrative Building City of La Habra*

Published: September 15, 2014 6 pages

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Findings and Recommendations 12 findings

(F1): OC cities have large unfunded pension liabilities both in terms of absolute dollar value and on a per capita basis and as a percentage of city General Fund revenues. Based on the information and documentation provided in the study, the City of La Habra agrees with the finding of the Grand Jury.

Related Recommendations (1)

(R1): Each city should post its current and at least three most recent prior year budgets on the city's website, and these budgets should be easily located. Each city's website should have a search engine and a single search on the word "budget" should immediately link to the current budget. (F.1) (F.4) The recommendation had already been implemented The City of La Habra has the current and several prior year budgets posted on its website. The City's website search engine links to the current and prior year budgets using a single search on the word "budget."

(F2): OC cities' unfunded pension liabilities have been increasing on a year over year basis over the past several years as a result of the 2007-2009 Great Recession and as key actuarial assumptions have been changed by CalPERS and OCERS. Based on the data and analysis provided by the Grand Jury, the City of La Habra agrees with the finding of the Grand Jury.

Related Recommendations (1)

(R2): Each city's budget information should contain not only this year/next year budget projections, but should show at least five years of projected revenues and expenditures. Projections should be at the same level of detail and use the same line item structure as information for the current budget. (F.1) (F.2) (F.3) (F.5) (F.8) (F.10) The recommendation has not been implemented by the City of La Habra. The City will review the methodology and format for these extended projections and will assess their accuracy and usefulness.

(F3): There are risks to OC cities of changes to key actuarial assumptions, including revisions downward of expected returns on investment and the likely move by pension funds to using more realistic mortality assumptions, which would increase unfunded liabilities. Based on the data and analysis presented by the Grand Jury, the City of La Habra agrees with the finding that changes to key actuarial assumptions including revisions downward of expected returns on investment and increasing mortality assumptions would likely increase unfunded liabilities of OC cities including the City of La Habra.

Related Recommendations (1)

(R3): Each city's budget should show separate line items for predicted employee and predicted employer contributions for the city pension systems. (F.8) (F.9) The recommendation has already been implemented. The City of La Habra presents the predicted employee and employer contributions in our current fiscal year budget and the seven prior fiscal year budgets on our web site.

(F4): Locating city budget information on a city website is not always straightforward and prior year budgets are sometimes not posted by a city. The City of La Habra disagrees with the finding. The City of La Habra has historically posted its municipal budgets on its website which includes the current fiscal year adopted budget, as well as prior fiscal year budgets.

Related Recommendations (1)

(R4): Each city's budget should provide trend data on the accumulation/drawdown of reserves and provide details on the city's policy for the size of its reserves and on the intended uses of such reserves. In particular any discussion of reserves should address possible use of reserves to accelerate amortization of unfunded pension liabilities. (F.7) The recommendation has not been implemented. The City of La Habra has not included trend data on the accumulation/drawdown of reserves or the city's policy for the size of its reserves and their intended uses in our budget. We will consider implementing this recommendation as part of our FY 2015-16 Budget process.

(F5): City budgets posted online project revenues and expenditures for at most one or two years into the future and sometimes do not show prior year data. The City of La Habra partially disagrees with the finding. Each budget of the City of La Habra identifies revenue and expenditures for: (1) the current fiscal year adopted budget, (2) the prior fiscal year's amended budget; and (3) actual revenues and expenditures data from two years prior. The City also presents a five year General Fund revenue and expenditure projection during budget review but does not include this as part of the adopted budget document.

Related Recommendations (1)

(R5): Each city using CalPERS for one or more of its pension plans should identify the names and dates of the CalPERS Annual Valuation Report(s) which call out Annual Required Contributions (ARCs) for these plans and should provide a separate expenditure line item for predicted city catch-up contributions for the city pension systems based on these ARCs. A discussion of the risks associated with these CalPERS projections should also be provided by the city. (F.1) (F.2) (F.8) (F.9) The recommendation has not been implemented. The City of La Habra's Comprehensive Annual Financial Report (CAFR) includes extensive information on the City's pension plans, as required by governmental accounting standards. This information if found in the Notes to Financial Statement section of the CAFR. Additionally, the City has the audited CAFR's from the past ten years available on the City's website. We will consider making further modifications to our FY 2015-16 budget to include the recommended ARC information and predicted city catch-up projections.

(F6): City budgets often lack footnotes explaining key assumptions, risks, and unusual changes in budgeted amounts or revenues and expenditures. The City of La Habra partially disagrees with the finding. The City of La Habra addresses key assumptions, acknowledges risks, and identifies changes regarding budgeted revenues and expenditures in the transmittal letter that is included in the City Manager's Message section of the budget document.

Related Recommendations (1)

(R6): Each city which outsources fire or police services to OCFA and/or OCSD should require them to provide projections of future costs of service out at least five years into the future and require that these projected costs explicitly show the relationship of projected pension costs including amortization of unfunded liabilities. This level of pension cost information should be provided in budgeted expenditures for outsourced services. A discussion of the risks associated with these projections should also be provided by the agencies and incorporated in the city's budgets. (F.6) (F.12) The recommendation has not been implemented. The City does not outsource fire or police services to either OCFA or OCSD. However, as we do contract with the Los Angeles County Fire Department and we will contact them to determine if this information can be provided.

(F7): City budgets sometimes do not provide trend data on accumulation/drawdown of reserves and lack details on the city's plan for the size of its reserves or their intended uses. The City of La Habra agrees with the finding. The City of La Habra does not provide trend data on accumulation/drawdown of reserves and does not provide details regarding the City's plan for the size of its reserves or their intended uses. The City does; however, present a summary of revenues, expenditures and use of fund balance schedule in each budget. This schedule presents available (spendable) fund balances at the beginning of the fiscal year, projected revenues, transfers and expenditures, and then a projected fiscal year ending balance.

Related Recommendations (1)

(R7): Each city that has CalPERS as a provider for pensions should include a provision in their agreements with CalPERS that CalPERS will post their Annual Valuation Reports online. (F.11) The recommendation has not been implemented. The City of La Habra will consult with CalPERS regarding amending our contract to include a provision to post our Annual Valuation Reports online. We will verify if this option can be implemented before our next year's Annual Valuation Reports are completed. If it cannot be implemented by CalPERS, the City will post CalPERS valuation reports for the City's pension plans on the City's website annually. Thank you for the opportunity to provide comments on these findings and recommendations related to the Grand Jury Report on "ORANGE COUNTY CITY PENSION LIABILITIES-Budget Transparency Critically Needed." If you have any questions or concerns, please contact Melvin Shannon, Director of Finance, at (562) 383- 4052. Sincerely Tom Beamish Mayor, City of La Habra CC: Orange County Grand Jury

(F8): Cities can control most future expenditures by increasing or decreasing budgets for those expenditures as funds are available. However, increases to annual required contributions to their pension systems are imposed externally, change unpredictably, and when they occur, are ramped up over two to five years. The City of La Habra agrees with the finding.