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HomeMy WebLinkAboutReso 167-2018 (18-877)City of South San Francisco P.O. Box 711 (City Hall, 400 Grand Avenue) South San Francisco, CA City Council Resolution: RES 167 -2018 File Number: 18 -877 Enactment Number: RES 167 -2018 RESOLUTION APPROVING AND AUTHORIZING THE CITY MANAGER TO SIGN A RESPONSE TO SAN MATEO COUNTY GRAND JURY REPORT "SOARING CITY PENSION COSTS - TIME FOR HARD CHOICES." WHEREAS, the City of South San Francisco has contracted with the California Public Employees' Retirement System (Ca1PERS) to provide pension benefits to its employees since 1945; and WHEREAS, over the past twenty years, the economy has endured severe volatility due to the Dot Corn boom/bust and Great Recession, which placed significant stress on the Ca1PERS pension trust and its participating members; and WHEREAS, the Ca1PERS Board of Administration's efforts to address economic volatility and ensure sustainability have resulted in a number of policy and assumption changes, including amortization, or how gains and losses are recognized over time, and the discount rate, or the anticipated return on investment over a long period of time; and WHEREAS, on July 17, 2018, the San Mateo County Grand Jury issued a report titled "Soaring City Pension Costs - Time for Hard Choices "; and WHEREAS, the City of South San Francisco is required to provide a response within 90 days of the Grand Jury report, which is attached herein as Exhibit A; and WHEREAS, the City is committed to holding a public meeting for the City Council and the South San Francisco community to better understand and prepare for escalating pension costs, which complies with Recommendation RI of the Grand Jury report; and WHEREAS, consistent with Recommendation R3, the City Council has already implemented a number of strategies to address rising pension costs, including establishment of a Ca1PERS Stabilization reserve in FY 2015 -16, which has a current balance of $4.5 million; and WHEREAS, the City could consider investing accumulated operating surplus with a pension trust fund, however, assets within a pension trust fund are recorded as a restricted asset on the Comprehensive Annual Financial Report (CAFR), and not netted directly against the net pension liability; and WHEREAS, the City could consider contributing additional funds to Ca1PERS to accelerate amortization of existing pension liabilities. City of South San Francisco Page 1 File Number: 18 -877 Enactment Number: RES 167 -2018 NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of South San Francisco does hereby authorize the City Manager to sign the City's response to the San Mateo County Grand Jury Report "Soaring City Pension Costs - Time to Make Difficult Decisions." At a meeting of the City Council on 9/26/2018, a motion was made by Mark Addiego, seconded by Pradeep Gupta, that this Resolution be approved. The motion passed. Yes: 5 Mayor Normandy, Mayor Pro Tern Matsumoto, Councilmember Garbarino, Councilmember Gtq5f`a, and Councilmember Addiego Attest by City of South San Francisco Page 2 DRAFT CITY COUNCIL 2018 EXHIBIT A PO BOX 711 400 GRAND AVENUE SOUTH SAN FRANCISCO, CA 94083 September 27, 2018 Hon. V. Raymond Swope Judge of the Superior Court c/o Charlene Kresevich Hall of Justice 400 County Center; 2nd Floor Redwood City, CA 94063-1655 Dear Hon V. Raymond Swope LIZA NORMANDY, MAYOR KARYL MATSUMOTO, MAYOR PRO TEMPORE MARK ADDIEGO, COUNCILMEMBER RICHARD A. GARBARINO, COUNCILMEMBER PRADEEP GUPTA, PH.D., COUNCILMEMBER MIKE FUTRELL, CITY MANAGER On September 22, 2018, the City Council of the City of South San Francisco (“City”) approved the response contained in this letter to the San Mateo County Grand Jury Report “Soaring City Pension Costs – Time for Hard Choices” dated July 17, 2018. Response to Findings The City agrees with Findings F1, F2, F3, F4, F5, F6, F8, F9 and F11. The findings are accurate, and reflect information that is included in publicly available documents, including the City of South San Francisco’s Comprehensive Annual Financial Statement (CAFR) and annual actuarial valuations from the California Public Employees’ Retirement System (CalPERS). The City disagrees partially with Finding F7. While Finding F7 is mathematically accurate, comparing annual pension contributions relative to General Fund total expenditures is not consistent with the City’s method for allocating employee costs, which include the cost of pension contributions. Employee costs are allocated based on the scope of each employee’s job duties. For example, the costs associated with a Laboratory Chemist from the City’s Water Quality Control Plant are fully allocated to the Sewer Enterprise Fund. As such, of the $92 million in total appropriations for payroll in the Fiscal Year (FY) 2018-19 Adopted Budget, $80 million are allocated to the General Fund, $9 million to the Sewer Enterprise Fund, and the remaining $3 million to other operating funds. The City disagrees partially with Finding F10. Based on independent actuarial analysis estimates, by 2024-25, a 6.0 percent investment juxtaposed against a 7.0 percent discount rate with the shorter amortization period, pension contributions are projected to increase by 57 percent, rather than 100 percent over the same period. At a cost of $33 million, pension contributions are projected to reach their apex in FY 2032-33, a 96% increase compared to the current cost. DRAFT The City disagrees partially with Finding F12. The City has utilized a long-term financial forecast to support its decision-making processes since 2013, and expanded the forecast to a 10-year time horizon in 2017. However, given the sensitivity of labor negotiations, the model has been kept confidential. The City is amenable to establishing a pension funding strategy and policy to achieve funding targets, and committing to appropriating funds based on availability and priority. The City is also amenable to implementing processes to monitor the City’s pension funding efforts, and establishing alternative financial strategies. While the City agrees with Finding F13, past, present, and future pension contribution costs are available on publicly available documents. The City’s Comprehensive Annual Financial Report (CAFR), available at http://www.ssf.net/departments/finance/financial-reports/comprehensive-annual- financial-reports-cafr, discloses pertinent pension plan information in Note 7 and the Required Supplemental Information section, including employer pension contributions and net pension liabilities. The actuarial valuation for any participating entity is available on CalPERS’ website at https://www.calpers.ca.gov/page/employers/actuarial-services/employer- contributions/public-agency-actuarial-valuation-reports. The actuarial report provides projected pension contribution rates and sensitivity analysis. Response to Recommendations All Grand Jury recommendations will be timely implemented, specifically a public meeting will be held, engaging and informing residents; all available options will be evaluated; and a long-term plan to address rising pension costs will be developed. All staff reports and supporting information will be published in a highly visible and prominent area on the City’s website. Sincerely, Mike Futrell City Manager City of South San Francisco