[email protected]

RISK ASSESSMENT: As the Auditor’s Office is an authoritative source of studies and assessments for the State Legislature, we find that the risk assessment methodology used by the Auditor’s Office is a valid and valuable approach to assessing financial risk for all SCC city jurisdictions and communicating that risk to stakeholders. x AGREE PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree):

RISK ASSESSMENT: All SCC Cities did not fully consider the calculated high- risk indicators from the Auditor’s Office and their potential impacts on city operations, services, and capital assets/infrastructure. x AGREE PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree):

RISK ASSESSMENT: The state of risk determined for all SCC Cities by the Auditor’s Office in 2017 remained largely unchanged through 2019. AGREE PARTIALLY DISAGREE – explain the disputed portion x DISAGREE – explain why Response explanation (required for a response other than Agree): The City of Santa Cruz implemented these items to mitigate risk between 2017 and 2019: 1. Implemented an IRS Section 115 Trust for Pension and Other Post- Employment Benefits (OPEB) for future unexpected increases in these costs. 2. Contributed $8 million to CalPERS to pay down the City’s Miscellaneous Plan unfunded liability, lowering the liability and interest costs for current and future years. 3. Negotiated with all City bargaining units to share in the City’s CalPERS employer cost. 4. Annually reduced the City’s General fund structural operating costs. 5. Did not increase the General Fund position cost/count.

RISK ASSESSMENT: Pension costs contribute a higher level of financial risk to all SCC Cities than is accounted for by city documents. AGREE PARTIALLY DISAGREE – explain the disputed portion x DISAGREE – explain why Response explanation (required for a response other than Agree): The City includes current pension liabilities in the annual Adopted Budget. The City also has a financial model that forecasts over the next 10 years that includes estimated pension costs. Actuarially determined pension liabilities are included in the Comprehensive Annual Financial Report as required by the Government Accounting Standards Board (GASB).

RISK ASSESSMENT: Financial Risk Indicators alone are not adequate to effectively understand the risks facing all SCC Cities. x AGREE PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree):

RISK ASSESSMENT: All SCC Cities do not fully identify, assess, track, and report key risk indicators that reflect the state of strategic, financial, operational, or hazard risk. AGREE x PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): The City does fully identify, assess, and track key risk indicators on a management level, but does not report until there is a plan to mitigate the risk.

RISK ASSESSMENT: All SCC Cities do not adequately evaluate the possible interactions between risks that may inhibit or enhance the objectives of each city. AGREE x PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): Some evaluation of possible interactions between risk are evaluated on a citywide level, but most evaluations are done at the program level.

RISK ASSESSMENT: All SCC Cities either do not maintain or do not publish a report card on the state of key infrastructure that can be used to set funding priorities and manage operational and hazard risk. AGREE x PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): The City tracks the age and condition of its infrastructure and prioritizes annual capital funding in the budget based on that evaluation. The City does not publish a report card on the state of the infrastructure as not all types of infrastructure have the same risk or are valued on the same metric.

RISK MANAGEMENT: Although all of the cities of SCC are preparing for increased pension costs due to current amortization schedules, they are not adequately preparing for risk associated with significant or sustained investment shortfalls in CALPERS due to economic shocks (e.g., caused by Coronavirus) or a recession. AGREE PARTIALLY DISAGREE – explain the disputed portion x DISAGREE – explain why Response explanation (required for a response other than Agree): Along with the City’s CalPERS actuary, the City of Santa Cruz has factored in a risk assessment for CalPERS future investment shortfalls resulting in the unfunded liability pre-payment of $8 million for the miscellaneous pension plan.

RISK MANAGEMENT: Except for the area of hazard (i.e., loss) risk management, in all SCC Cities, there is no formal method to define, track, manage, and communicate risks at the enterprise level of SCC city government. AGREE PARTIALLY DISAGREE– explain the disputed portion x DISAGREE – explain why Response explanation (required for a response other than Agree): The formal method to define, track, manage, and communicate risks at the enterprise level is at the mid-year and annual Council budget meetings.

GOVERNANCE: All SCC Cities do not have a publicly articulated pension Unfunded Actuarial Accrued Liability (UAAL) funding policy that recognizes potential pension cost risks and community expenditure/revenue priorities. AGREE x PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): The UAAL is not publicly articulated but CalPERs provides 5-year forecasts that are used to prepare the City’s long-range forecast. The total unfunded liability is also provided by CalPERS and reported in the Comprehensive Annual Financial Report per GASB requirements.

TRANSPARENCY: All SCC Cities do not adequately meet key requirements for transparency as defined by the GFOA. AGREE x PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): The City’s Comprehensive Annual Financial Report and Annual Adopted Budget meet GFOA standards for communicating financial information. Both documents have received awards from GFOA for the last several years.

TRANSPARENCY: All SCC Cities do not provide standard and understandable reporting with regard to: Pension Costs and Associated Impacts (past, current, and projected); Service Level Performance Metrics; State of Key Infrastructure; Risk Assessments and Mitigation Plans for Finance, Operational, and Hazard Risks. AGREE x PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): The pension information is reported in the Comprehensive Annual Financial Report. Other service level performance metrics are reported in the annual Adopted Budget or other Council presentations regarding the City’s infrastructure. Some of the infrastructure evaluations are required to obtain state funding.