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

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”): The Soquel Creek Water District’s total Unfunded Liability (UL) for pension and OPEB as of June 30, 2013 was $9 million. Required employer contributions are estimated at $682,000 for the 2015/16 fiscal year and projected to rise over four more years before flattening out. If the District pays according to CalPERS amortization schedule, the pension UL costs would total $14.9 million over 30 years. This is the first year that small employers in the mandated CalPERS risk pools have the ability to effectively manage their pension liabilities. The Fiscal Year 2015/16 Budget adopted by the Board on June 16, 2015 includes funding for accelerated payment of the UL. The smaller liability associated with the Second Tier plan will be paid off and the District intends to pay down the liability for the First Tier plan in ten years instead of thirty in order to achieve significant long term savings. Retirement costs certainly contribute to the District’s financial pressures. However, as noted in the 2015 Ten-Year Finance Plan (Attachment 1), the District faces financial challenges on a number of fronts that combined, put significant upward pressure on future water rates. Future anticipated projects and costs include:  $80 million (in escalated $) to develop a supplemental water supply project. New and ongoing annual maintenance costs to operate the project once it’s placed into service are estimated to be $1.3 million starting in 2022/23.  $70 million (in escalated $) of water system capital needs in the current and next ten years, along with $1 million to $2 million each year for capital outlay, studies, and planning efforts.  The District will be required to issue additional debt, which will increase debt service payments, in order to fund the supplemental supply project.  $875,000 for Conservation Program expenses in 2015/16 increasing annually to $1.3 Million in 2024/25 depending upon the degree of implementation.  $350,000 starting in 2017/18 in ongoing annual operational costs for hexavalent chromium treatment. The District is currently operating in an environment of declining water sales and will need to raise rates to meet its financial obligations and ensure long term financial stability. Retirement costs must be acknowledged and properly managed but are not the District’s sole source of financial pressure. To state that these costs alone put services and projects at risk is not a fair and accurate assessment of the District’s overall financial outlook.

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. AGREE X PARTIALLY DISAGREE - explain disputed portion below DISAGREE - explain below Response explanation (required for responses other than “Agree”): At the April 21, 2015 regular meeting of the Board of Directors, Staff presented an informational report on California Public Employees’ Retirement System (CalPERS) Risk Pool Changes (Attachment 2). The report provided an overview of the District’s retirement benefits under its contract with CalPERS and information regarding revisions to the risk pool that affect benefits costs. A clear and complete statement of pension retirement costs and obligations was presented. The report was intended to serve as a resource for the discussion and development of funding strategies during May’s budget discussions. Staff released the information ahead of the budget discussions to allow time for the Board (and public) to digest the information and formulate questions. The 2015-16 Budget contains information regarding OPEB expenses but does not address the unfunded liability. More complete information regarding retirement costs and obligations (pensions and retiree health or OPEB) is appropriately located in the District’s annual audited financial statements.