Orange County City Pension Liabilities – Budget Transparency David J. Shawver Critically Needed*

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 a single search on the word "budget" should immediately link to the current budget. City Response: The recommendation has been implemented. The City's current and prior years' budgets back to 2011 can be found at: http://www.ci.stanton.ca.us/Departments/Administrative-Services-and- Finance/City-Finance-Information Entering "budget" into the search engine reveals the budget documents on the first page of results.

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. City Response: The recommendation has not yet been implemented, but will be partially implemented in the future. The City of Stanton will include five-year projections for revenues and expenditures in the next budget cycle for Fiscal Years 2015- 2017. However, completing a five year projection at the same level of detail as the budget would take a significant amount of resources that the City does not have. In addition, financial information is constantly adjusting. As such, despite approving a two-year budget, the City adjusts the budget for the second fiscal year and even annually approves a mid-year budget adjustment. In our opinion, attempting to continuously update five year budget information at a granular level of detail would be a misuse of precious public resources.

R3

Each city's budget should show separate line items for predicted employee and predicted employer contributions for the city pension system. City Response: The recommendation has not been implemented, but will be implemented in the future. The City of Stanton currently provides one line item depicting the sum total of benefit contributions. While the budget only reflects the costs of the City, a supplemental schedule that breaks down the retirement costs between employer and employee contributions will be implemented in the next budget cycle for FY 2015-2017.

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. City Response: The recommendation has not yet been implemented, but will be partially implemented in the future. The City of Stanton's budgets have previously included a ten-year look-back of Unreserved Fund Balance by fiscal year. A schedule showing trend data for the accumulation/drawdown of reserves will be implemented in the next budget cycle for FY 2015-2017. A policy regarding the size and intended use of the City's reserves will be implemented in the next budget cycle for FY 2015-2017. The City is currently included in a Risk Pool which was implemented by CalPERS effective with the June 30, 2003 actuarial valuations to protect small employers (those with less than 100 active members) against large fluctuations in employer contribution rates caused by unexpected demographic events. As a result of being in a Risk Pool, any contributions the City makes to its Risk Pool to reduce unfunded pension liabilities would be shared with the other members of the pool. As such, at this time the City does not have the ability to dramatically pay down its unfunded liability. The City will be in discussions with CalPERS to determine if a mechanism to reduce its unfunded pension liabilities will be possible in the future. The City does have a side fund in excess of $500,000 with CalPERS that could be paid off directly. A discussion of the advance payoff of the side fund will be included in the next budget cycle for FY 2015-2017.

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. City Response: The recommendation has not yet been implemented, but will be implemented in the future. The City will be including a supplemental schedule that splits the retirement costs between the employer and employee contribution in the next budget cycle for FY 2015-2017. That schedule will also include the names and dates of CalPERS Annual Valuation Reports and separate expenditure line item for predicted city catch-up contributions based on their Annual Required Contributions.

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. City Response: The City of Stanton will request OCFA and OCSD provide five year projections for pension costs and their amortization policies. Risk information associated with these projections will be implemented in the next budget cycle for FY 2015- 2017.

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. City Response: This recommendation has not yet been implemented, but will be partially implemented in the future. The City of Stanton will consult with CalPERS to clarify if this option can be implemented. The City receives an Annual Valuation Report from PERS in October of each year. In the past the City has not posted the report online but based on the Grand Jury's recommendations, the City will begin posting when the October 2014 report is received. The City of Stanton would like to express its appreciation for the efforts of the Orange County Grand Jury. The City of Stanton is committed to public disclosure and transparency in its governmental affairs. Please contact Stephen Parker, Director of Administrative Services at (714) 890-4226 or [email protected] if you have questions or need additional information. Sincerely, James A. Box City Manager