Santa Cruz County Grand Jury • 2015-2016

Santa Cruz County Civil Grand Jury 2014­2015 Response Packet Funded for the Future?

Published: ∼ June 30, 2015 8 pages
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Findings and Recommendations 2 findings

F1
Continually rising retirement costs and obligations put funding of ​ jurisdictions' services and projects at risk. AGREE ​ x PARTIALLY DISAGREE ­ explain disputed portion below ​ ​ DISAGREE ­ explain below ​ ​ Response explanation (required for responses other than “Agree”): As with any projected expenditure increase, the City agrees that rising pension costs will either have to be offset with future revenue increases or reductions in services or projects. The City partially disagrees with the finding as the City has taken a number of proactive steps to address this issue. For example this fiscal year the City established a PERS Contingency Fund. The Fund was set up to help stabilize the City’s finances and to help manage future increases in PERS contributions. In addition, current long­term projections show the City with a balanced budget position in future years, due to current fiscal policies, increased revenue, and the payoff of Pension Obligation Bonds. However, given the potential for an economic downturn or other revenue contractions, these projections must be consistency analyzed and monitored and City services levels evaluated in the face of changing economic conditions.
Related Recommendations (1)
R1
To prevent reductions in public services, each of the six public ​ agencies studied in this report should increase, and make public, their efforts to manage and reduce retirement costs and obligations. HAS BEEN IMPLEMENTED ​ HAS NOT BEEN IMPLEMENTED BUT WILL BE IMPLEMENTED IN THE FUTURE ​ ­ indicate timeframe below x REQUIRES FURTHER ANALYSIS ­ explain scope and timeframe below (not to ​ ​ exceed six months) WILL NOT BE IMPLEMENTED ­ explain below ​ ​ Response summary, timeframe or explanation: The City of Capitola has been proactive in addressing retirement obligations. The City issued a Pension Obligation Bond in 2007 to pay off the CalPERS side fund that CalPERS established in 2003. The POB allowed the City to reduce the interest rate charged on the side fund from 7.75 percent that CalPERS charges to 6.01 percent. The City also implemented a cap on the City’s contribution to CalPERS. The cap required that employees pay all pension costs above the cap. The City was one of very few jurisdictions in the state with essentially fixed pension costs as a percentage of payroll. The cap allowed for a predictable expenditure stream into future years. In 2012, the City also implemented a Tier II retirement plan for new hires that required an additional five percent employee contribution towards retirement. Unfortunately the recent changes in the CalPERS risk pooling formulas have had a significant negative impact on the City. In fact, the scale of the impact effectively made the City’s cap on employer CalPERS contributions unsustainable, as it would have required employees to contribute more than 25 percent of their salary toward pension costs in coming years. The amended employee agreements establish increasing employee retirement contributions rates, projected to be over 15 percent for safety and over 14 percent for miscellaneous upon the end of the term of the existing contracts. The City believes these employee contribution rates are among the highest in the State. To address the larger actuarial unfunded pension liability requires further analysis. There are several possibilities the City will evaluate in Fiscal Year 2015/16. Some of the possibilities include increased payments to CalPERS to reduce the Unfunded Liability and become fully funded in fewer years, a Pension Obligation Bond to reduce, and lock in, interest rates, and a new idea to set up an irrevocable trust fund for future CalPERS payments. Lastly, CalPERS continues to examine their long term funding challenges. The City will follow these potential changes closely, and should changes occur, develop plans to address the impacts as quickly as possible.
F2
A clear and complete statement of the total retirement costs and obligations ​​ has not been provided in the budget narrative for either the public or elected officials. x AGREE ​ PARTIALLY DISAGREE ­ explain disputed portion below ​ ​ DISAGREE ­ explain below ​ ​ Response explanation (required for responses other than “Agree”): The City agrees with this finding. The City believes we have previously included detail of pension costs in several different areas of the budget but the City agrees that having the information in one section would improve the transparency of the City’s Budget. A new chart showing the total retirement costs, along with funding ratios and funded status will be included in the Final Fiscal Year 2015­16 Budget and all future budget documents.
Related Recommendations (1)
R2
Each of the six public agencies studied in this report should ​​ provide, in language understandable to the public, the totality of retirement obligations in their annual budget narratives beginning with the fiscal year 2015/16 budget. HAS BEEN IMPLEMENTED ​ x HAS NOT BEEN IMPLEMENTED BUT WILL BE IMPLEMENTED IN THE ​ FUTURE ­ indicate timeframe below ​ REQUIRES FURTHER ANALYSIS ­ explain scope and timeframe below (not to ​ ​ exceed six months) WILL NOT BE IMPLEMENTED ­ explain below ​ ​ Response summary, timeframe or explanation: This recommendation will be included in the Final Fiscal Year 2015/16 Budget Document. The City agrees that the City’s Budget document should provide readers with the totality of the retirement obligations. The City will include the below chart in its Final Fiscal Year 2015/15 Budget Document:

No Responses Found 1

Government entities assigned to respond to this report. No response documents have been linked in our database.

Santa Cruz County Board of Supervisors Elected County Office