CITY OF SIMI VALLEY MEMORANDUM

Transcription

1 CITY OF SIMI VALLEY MEMORANDUM AGENDA ITEM NO. Consent (2) January 12, 215 TO: FROM: City Council Department of Administrative Services SUBJECT: APPROVAL OF A SUPPLEMENTAL BUDGET REQUEST TRANSFERRING S FROM THE RETIREE MEDICAL BENEFITS TO THE CITY S OTHER POSTEMPLOYMENT BENEFITS (OPEB) TRUST S STAFF RECOMMENDATION It is recommended that the City Council approve a Supplemental Budget Request (Attachment A, page 4) allocating $45, from the Retiree Medical Benefits Fund to the City s OPEB Trusts. CITY MANAGER S RECOMMENDATION The City Manager requests consideration and approval of the transfer of $45, from the Retiree Medical Benefits Fund for the purpose of funding OPEB liabilities in the future. BACKGROUND AND OVERVIEW The Governmental Accounting Standards Board (GASB) Statements 45 and 67 require public agencies to identify and recognize in their financial statements any unfunded earned retiree medical liabilities incurred for both retired and current employees. The City has taken a threepronged approach to address its retiree medical benefits liability. First, the City budgets each year to pay retiree medical costs as required by agreements and resolutions with the four employee groups. The budget for FY retiree medical costs is $1.8 million. Second, the City established irrevocable trusts for each group in 29 to be used as a sinking fund to address the long term actuarial liability of the retiree medical benefits. Finally, the City has worked to reduce the overall liability, first by eliminating defined retiree medical benefits for employees hired after August 21, then by moving to CalPERS health to reduce health care costs for employees and retirees.

2 2 FINDINGS AND ALTERNATIVES The City s Retiree Medical Benefits Fund has a fund balance component, whereby the unused annual budget rolls over to fund balance. The current accumulated fund balance is approximately $1,,. Staff has prepared a Supplemental Budget Request to allocate $45, of the fund balance to two employee group OPEB trust accounts based on past Memoranda of Understanding/Agreement. This will increase the overall funding in the OPEB trust accounts to $3.35 million (in addition to the $1.8 million budgeted in the Retiree Medical Benefits Fund for FY actual retiree medical costs). It should be noted that any reduction in the fund balance for the Retiree Medical Benefits Fund also impacts the overall General Fund balance, as a portion of the Retiree Medical Benefits Fund balance rolls up into the General Fund balance for reporting purposes. It should be noted that the rules governing OPEB (GASB 45 and 67) are disclosure requirements, not funding requirements. If the City does not fully fund its Annual Required Contribution (ARC) in any given year, the City is required to disclose this unfunded liability in its Consolidated Annual Financial Report and any disclosure documents prepared for bond investors and rating agencies. While such a disclosure could potentially impact the City s AAA bond issuer rating, in the current economy many cities continue to take a multiyear approach to fully funding their ARC. Therefore, building up to the ARC amount over time is a viable option for the City. In their comments regarding the City s AAA bond issuer rating, the Standard & Poor s analysts specifically indicated that the City s progress in meeting its pension and OPEB liabilities would be a key factor in maintaining its bond rating. It is important to note that the money set aside in the OPEB trusts can only be used for retiree medical benefits and cannot be used to meet any other City needs that may arise, including disasters or other emergencies. Alternatively, the City Council could direct staff to allocate additional fund balance in the Retiree Medical Benefits Fund to each of the four OPEB trusts, based on the most recent actuarial studies; further reducing the City s longterm retiree medical liability as reported under GASB 45 and 67 rules. While up to $4, in additional Retiree Medical Benefits fund balance could be allocated to the OPEB trusts, it should be noted that these allocations would further impact the City s overall General Fund balance. An alternative Supplemental Budget Request (Attachment B, page 5) has been prepared for approval should the City Council select this alternative. The following alternatives are available to the City Council: 1. Approve a Supplemental Budget Request (Attachment A, page 4) allocating $45, from the Retiree Medical Benefits Fund to two of the City s four OPEB Trusts; 2. Approve a Supplemental Budget Request (Attachment B, page 5) allocating $8, from the Retiree Medical Benefits Fund to the City s four OPEB trusts;

3 3 3. Elect not to approve a Supplemental Budget Request; 4. Provide staff with alternative direction. Staff recommends Alternative No. 1. SUMMARY The Governmental Accounting Standards Board (GASB) Statements 45 and 67 require public agencies to identify and recognize in their financial statements any unfunded earned retiree medical costs incurred for both retired and current employees. Since 29, the City has made progress in addressing its long term retiree medical liability as well as budgeting for annual actual costs. It is recommended that the City Council approve a Supplemental Budget Request allocating $45, to two of the four employee group OPEB trusts based on past Memoranda of Understanding/Agreement. This will increase the overall funding in the OPEB trusts to $3.35 million (in addition to the $1.8 million budgeted for actual FY retiree medical costs). Continued progress in addressing this liability is a key factor in maintaining the City s AAA bond issuer rating. An alternative Supplemental Budget Request has been prepared should the City Council elect to allocate additional funds to the OPEB trusts. James Purtee, Assistant City Manager INDEX Page Attachment A Supplemental Budget Request... 4 Attachment B Alternative Supplemental Budget Request... 5

4 4 ATTACHMENT A CITY OF SIMI VALLEY SUPPLEMENTAL BUDGET REQUEST REQUESTING DEPARTMENT (S) AMENDED City Manager's Office 297 REVENUES AMENDMENTS TOTAL $ $ $ $ EXPENDITURES AMENDMENTS* Retiree Medical Benefits Fund $1,8, $45, $2,25, *Additional expenditure funds from Fund 297 fund balance TOTAL $ 1,8, 45, $ $ 2,25, PURPOSE To allocate fund balance in the Retiree Medical Benefits Fund to the expenditure budget to allow for allocation of funds to the General Unit Other Post Employment Benefits (OPEB) Trust fund ($34,) and the Police Managers Association OPEB Trust fund ($65,) in compliance with prior Memoranda of Understanding/Agreement. DEPARTMENT HEAD DATE ADMINISTRATIVE SERVICES DATE CITY MANAGER DATE ENTERED BY DATE REV 9/14

5 5 ATTACHMENT B CITY OF SIMI VALLEY SUPPLEMENTAL BUDGET REQUEST REQUESTING DEPARTMENT (S) AMENDED City Manager's Office 297 REVENUES AMENDMENTS TOTAL $ $ $ $ EXPENDITURES AMENDMENTS* Retiree Benefits Fund $1,8, $8, $2,6, *Additional expenditure funds from Fund 297 fund balance TOTAL $ 1,8, $8, $ 2,6, PURPOSE To allocate fund balance in the Retiree Medical Benefits Fund to the expenditure budget to allow for allocation of funds to the General Unit Other Post Employment Benefits (OPEB) Trust fund ($34,) and the Police Managers Association OPEB Trust fund ($65,) in compliance with prior Memoranda of Understanding/Agreement and to allocate additional funds to each of the four OPEB trusts based on actuarial studies (General Unit $21,, PMA $115,, POA $22,, Management $122,). DEPARTMENT HEAD DATE ADMINISTRATIVE SERVICES DATE CITY MANAGER DATE ENTERED BY DATE REV 9/14