City of Cypress*

R1

Each city should post its current and at least three most recent prior year budgets on the city's web site, and these budgets should be easily located. Each city's web site should have a search engine and single search on the word "budget" should immediately link to the current budget. (F.1) (F.4) Response: This recommendation has been previously implemented by the City of Cypress in regards to having past budgets available on-line. The City of Cypress will not implement the single search recommendation. The current Search on "budget" goes to the site in which the Annual Budget can be accessed easily at the top of page. Since not all searches under "budget" want the current budget, the search that directs the user Honorable Glenda Sanders September 2014 to a page with multi-referenced "budget" items is more appropriate and user friendly.

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 in the current budget. (F.1) (F.2) (F.3) (F.5) (F.8) (F.10) Response: This recommendation will not be implemented. Multi-year budgets/projections beyond two years are notoriously inaccurate and of little value. Most costs are associated with Memorandums of Understanding (MOU) or contract costs which both are limited to a defined time period usually of three years or less. Also, the CalPERS actuarial rates are only given for one year in advance so those costs cannot be accurately determined and incorporated into long-term projections. In addition, revenues fluctuate based on the economy and building development which again cannot be accurately determined multi-years in advance. To put in five years or more of estimates would not represent a true projection and may, in fact, be a disservice to those believing that these estimates represent a credible financial analysis when it's based on "guesstimates".

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) Response: This recommendation will not be implemented. The City of Cypress accounts for its employee benefits in an Internal Service Fund whereby employee costs are determined for individual employees and benefits are allocated based on an internal calculation. The City's budget reflects these costs in a line-item (Fringe Applied) allocated to operational programs. It should be noted that the City of Cypress does currently include a 5% unfunded pension liability cost in the fringe applied calculation, the purpose of which is to smooth out any future large fluctuations in CalPERS ARC that may impact short-term operations. The Honorable Glenda Sanders September 2014

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 discussions of reserves should address possible use of reserves to accelerate amortization of unfunded pension liabilities (F.7) Response: This recommendation has been implemented by the City of Cypress. The City discusses any changes in its reserves.

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 be also be provided by the city. (F.1) (F.2) (F.8) (F.9) Response: The recommendation will not be implemented because the City will continue to pay its required ARC. By budgeting the CalPERS required ARC, the City is assured of the availability of resources to make its required payments.

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 be provided by the agencies and incorporated in the city's budgets. (F.6) (F.12) Response: The recommendation will not be implemented because the City of Cypress is part of the Structural Fire Fund whereby the OCFA receives property tax directly from the residents and the City does not make payments to the OCFA and therefore does not record any liability or expenditures for Fire services. In addition, the City has its own Police Department. Honorable Glenda Sanders September 2014 Each city that has CalPERS as a provider for pensions should

R7

include a provision in their agreements with CalPERS that CalPERS will post their Annual Valuation Reports online (F.11) Response: The recommendation will not be implemented because this information is already available from the CalPERS website. If you have any questions regarding the responses provided in this letter, please contact Mr. Richard Storey, Director of Finance and Administrative Services, at (714) 229-6709 or via e-mail at [email protected]. Sincerely, erov Mayor City of Cypress City Council CC: Peter Grant, City Manager Dave Baker, Foreman, Orange County Grand Jury, 700 Civic Center Drive West, Santa Ana, CA 92701