Dear Judge Sanders: We have reviewed the 2014-15 Orange County Grand Jury Report*

Twenty one out of 32 agencies that provided June 30, 2013, data to the Grand Jury had not put aside funds in an irrevocable trust to help pay for the accrued actuarial liability of retiree healthcare costs in the future. This is an imprudent level of contribution. City Response: Agreed however setting aside a significant amount of funds for this purpose is not currently possible due to the City's financial situation. The City's General Fund is operating with a structural deficit. In addition reserves are at about 3% of its operating budget which is much lower than the recommended level of 17% (two months general fund regular operating revenue or expenditures).

Anaheim, Buena Park, County of Orange, Huntington Beach Lake Forest, and Stanton were in compliance with the requirement to contribute a full 100% or more of their Annual Required Contribution in the FY 2012-13. The remaining 26 agencies were not in compliance. City Response: Do not agree with the statement that the remaining 26 agencies were not in compliance. There is not a requirement for any City to contribute the full 100% of its Annual Required Contribution. The requirement is that an agency's unfunded liability should either be contributed to or recognized as a liability in the entity's financial statements. This liability has been recorded in the City's financial statements. All agencies surveyed (except Anaheim) do not disclose retiree health

benefits as a part of employee compensation per GAAP standards. City Response: This issue is being discussed with the City's audit firm and will be implemented if required by GAAP.