RPVCCA_SR_2010_05_04_14_PensionCITY OF
MEMORANDUM
RANCHO PALOS VERDES
TO:
FROM:
DATE:
SUBJECT:
REVIEWED:
Project Manager:
HONORABLE MAYOR &CITY COUNCIL MEMBERS
DENNIS McLEAN,DIRECTOR OF FINANCE &0
INFORMATION TECHNOLOGY
MAY 4,2010
PENSION LIABILITY PAYOFF
CAROLYN LEHR,CITY MANAGER ~
Kathryn Downs,Deputy Director of Finance &Information
Technology
RECOMMENDATION
1.ADOPT RESOLUTION NO.2010-,A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF RANCHO PALOS VERDES,AMENDING RESOLUTION 2009-40,
THE BUDGET APPROPRIATION FOR FY09-10,TO ADJUST THE BUDGET IN
THE GENERAL FUND AND THE EMPLOYEE BENEFITS FUND.
2.Direct Staff to payoff the City's pension side-fund liability prior to June 30,2010.
BACKGROUND &DISCUSSION
The City provides a defined benefit pension plan for its employees through the California
Public Employees'Retirement System (CaIPERS).Beginning FY05-06,CalPERS required
agencies with less than 100 active members to participate in a risk pool.The City's plan
assets and actuarial accrued liabilities were transferred into the pool,which resulted in a
net liability referred to as the "side-fund liability".The liability is currently being amortized
over 19 years (FY05-06 through FY23-24)at an interest rate of 7.75%.
During FY08-09,the City used the accumulated Employee Benefits fund balance to make
a $700,000 principal payment towards the side-fund liability.An additional principal
payment of $180,000 was made during the current fiscal year,reducing the side-fund
liability to about $1.5 million.
In November 2007,the City Council directed Staff to proceed with restructuring the City's
side-fund liability by using a pooled financing program offered by California Statewide
Communities Development Authority (CSCDA).At that time,it was expected that the
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Pension Liability Payoff
May 4,2010
Page 2 of 2
liability could be refinanced at a lower rate of about 5.8%.Due to 2008 market conditions,
CSCDA determined that the pooled financing was not financially feasible;therefore,the
City was not able to complete the restructuring.The City's Financial Advisor,Tim Schaefer
of Magis Advisors,has recently opined that refinancing in today's market would fail to
produce a meaningful economic advantage.
FISCAL IMPACT
The City's idle cash is currently earning an investment rate of about 0.5%.Considering the
significant interest rate differential between the liability accrual rate of 7.75%and what little
is currently earned with idle cash,Staff recommends using the Excess General Fund
Reserve to retire this debt.
The Estimated Excess General Fund Reserve at June 30,2010 is $3,206,918.If the City
were to payoff the side-fund liability using the Excess General Fund Reserve,Staff
estimates the City would realize annual pension expense savings of $146,950 (a 14%
decrease).The City's FY1 0-11 employer contribution rate of 13.202%would decrease to
10.263%of covered payroll.The FY09-10 Statement of Estimated General Fund
Reserves is attached to this staff report.
Proposed Project Budget 1,500,000
••--.•",-,_"",•.•.•••..•••..-:',"","........'.,'"".''~.'.".......~•••'."••-.-"f"-••-.'--':"."'-,".,,",,/;.;,·-M.·f·-.-·'.·..··"".,........;..........•.•..;.,.....~..·.··."~·.··.·...·.·,,··.·-·.·f·,...··.~r·.·,..,'...........".....-
One-time &initial fiscal year cost 1,500,000
IAmount to add to future ann ual operating budget N/A
Permanent addition to annual staff hours N/A
Potential future savings 146,950
Existin gAp propria tion?No
Outside Fundina Source NlA
Outside Funding Amount N/A
City Fun ding Source General Fund
City Fun ding Amount 1,500,000
IEstlmated fiscal year end avallaDle tund balance
after City Council action (net of reserve level,if
ap plica ble)1,666,918
14-2
RESOLUTION NO.2010-_
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS
VERDES,AMENDING RESOLUTION NO.2009-40,THE BUDGET APPROPRIATON
FOR FY09-10,TO ADJUST THE BUDGET IN THE GENERAL FUND AND THE
EMPLOYEE BENEFITS FUND.
WHEREAS,on June 30,2009,the City Council of the City of Rancho Palos Verdes
adopted Resolution No.2009-40,approving the City's budget for FY09-1 0;and
WHEREAS,The City wishes to retire the employee pension side-fund liability;and
WHEREAS,payment of this debt will require the use of General Fund Reserves;
NOW,THEREFORE,THE CITY COUNCIL OF THE CITY OF RANCHO PALOS
VERDES DOES HEREBY FIND,DETERMINE,AND RESOLVE AS FOLLOWS:
The following adjustments will be made to the FY09-10 budget:
Increase the General Fund Budget as follows:
Transfers Out #101-6000-491-91-00 To Employee Benefits
Increase the Employee Benefits Fund Budget as follows:
Transfers In #685-1015-391-10-00 From General Fund
Employee Benefits #685-1015-499-23-00 Pension Expense
PASSED,APPROVED,AND ADOPTED THE 4th DAY OF MAY 2010.
Mayor
Attest:
City Clerk
State of California )
County of Los Angeles )ss
City of Rancho Palos Verdes )
$1,500,000
$1,500,000
$.1,500,000
I,Carla Morreale,City Clerk of the City of Rancho Palos Verdes,hereby certify that the
above Resolution No.2010-_was duly and regularly passed and adopted by the said
City Council at regular meeting thereof held on May 4,2010.
City Clerk
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FY09·10 Statement of Estimated General Fund Reserves
Beginning
Action Date Reserves
Adjustments:
Revenues
Attachment A
Ending
Reserves
Evaluate Citywide Sewer Fee
Retirement Health Savings Retroactive
Contribution
Lower Hesse Park and Grandview Park
Conceptual Design
Geotechnical Review of Monks Plaintiffs'
Landslide Moratorium Exception Applications
FY08-09 Results
Terranea TOT
Midyear Adjustments -Other
Zone 2 EIR for Landslide Moratorium Ordinance
Revisions
Park Ranger Services (120-day contract)
Lower Hesse Park and Grandview Park
Conceptual Design
11/17/2009
11/17/2009
11/17/2009
12/15/2009
1/19/2010
3/212010
3/2/2010
4/6/2010
4/6/2010
4/20/2010
1,265,382
1,800,000
205,499)
(55,000)
(94,125)
(50,000)
(24,000)
329,400 (91,000)
139,826)
(24,000)
(4,000)
Net Transfers include both operating transfers from and to the General fund.Originally budgeted Net Transfers are adjusted when staff becomes aware that
an additional 0 eratin transfer is needed to satis an unantici ated shortfall within another fund;and that shortfall must be funded with General fund monies.
Ending Reserves are the estimated 6/30/10 General fund reserves at the time of budget adoption.Adjusted Ending Reserves is a calculation based on
subse uent ad·ustments to Be innin Reserves Revenues Ex enditures and Net Transfers.
14-4