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HomeMy WebLinkAbout2006-07-19 e-packet ~'t\l 5::1# ~g (0 n >-0 - ~ ri v 0 ~I.IFO-p..~"'~ - SPECIAL MEETING CITY COUNCIL OF THE CITY OF SOUTH SAN FRANCISCO P.o. Box 711 (City Hall, 400 Grand Avenue) South San Francisco, California 94083 CITY HALL CONFERENCE ROOM 400 GRAND AVENUE WEDNESDAY, JULY 19,2006 6:00 P.M. NOTICE IS HEREBY GIVEN, pursuant to Section 54956 of the Government Code of the State of California, the City Council of the City of South San Francisco will hold a Special Meeting on Wednesday, the 19th day of July 2006, at 6:00 p.m., in the City Hall Conference Room, 400 Grand Avenue, South San Francisco, California. Purpose of the meeting: 1. Call to Order 2. Roll Call 3. Public Comments - comments are limited to items on the Special Meeting Agenda 4. Study Session a. Red light photo enforcement b. New accounting ruling on post retirement health benefits and actuarial study results for South San Francisco 5. Adjournment ~01a jn.t.?~ Ci Clerk ~'t\\ s~ S o ('l >- ~ ~ t') " ~lJ!#'~" Staff Report SP. AGENDA ITEM 4A DATE: TO: FROM: SUBJECT: July 19, 2006 Honorable Mayor and City Council Mark Raffaelli, Chief of Police RED LIGHT PHOTO ENFORCEMENT RECOMMENDATION To increase public safety through the enforcement of traffic laws associated with red light traffic signal violations by adding red light photo enforcement to our most dangerous intersections. BACKGROUND/DISCUSSION Our Police Department, like most across the country, is struggling with safety enforcement issues including budgetary concerns and the human resources available to accomplish the increased demands from the citizenry. Community growth has added immeasurable traffic loads on city roadways. Heavy traffic, congestion, and harried drivers contribute to greater road rage and risk taking. One of the greatest areas of need is intersection safety management. Intersection traffic violations and accidents grow yearly and remain the most difficult area for an Officer to control and manage. To meet these growing demands, it is prudent for cities to investigate the use of existing and emerging technologies. Red light photo enforcement is now seen by law enforcement agencies across the country as a viable solution to the growing intersection traffic problem. Currently about 150 U.S. cities have red light photo enforcement programs. According to the Federal Highway Administration, "Automated Enforcement Systems can be effective and reliable tools to help reduce the number of red-light running violations and associated crashes." Unlike random camera surveillance, photo enforcement is specific and detailed in photographing intersection violations, providing photographic evidence of: (1) the vehicle behind the violation line with the red light on clearly in the photo; (2) completion of the vehicle traveling through the intersection with the red light in view; (3) a photo of the license plate of the vehicle; (4) a clear shot of the face (only) photo ofthe driver; and (5) a 12 to 14 second video clip ofthe full violation sequence. This photo system is not indiscriminate in nature, but captures only the specific vehicles and drivers as a result of specific illegal actions. Staff Report Subject: Red Light Photo Enforcement Page 2 Once the violations are captured and processed, the violation photos and video, along with DMV ownership information, is provided to the police department in a pre-designated format, allowing a police officer to view the images and make the violation determination. An authorized representative of the City must approve all violations. The viewing officer verifies the violation and authorizes the vendor to print and mail the citation. The citation includes four color photos; two ofthe actual violation, the plate and the driver's face. These photos and the video clip can be viewed by the violator on-line, thus there are few challenges for the courts to handle. If court action is necessary, the judge has access in court to all violation images and the video sequence. Most Red Light camera technology is large and bulky, requiring extensive street and sidewalk demolition plus the erection of large camera support standards and large adjoining equipment cabinets. Not only were the old style systems aesthetically unacceptable by many cities, but they also had low violation confirmation rates. The camera system we are recommending has eliminated all of these drawbacks. SUPPORTING ISSUES RELATING TO THIS PROGRAM Research on photo enforcement programs elicited the following data: 1. Intersections are dangerous and costly to the City: . Nationally 44% of injury crashes occur at intersections (National Highway Traffic and Safety Administration data) . The Insurance Institute of Highway Safety (IlliS) research shows that motorists are more likely to be injured in crashes involving red light running than in other type of crash. Occupant injuries occurred in 45 percent of the red light running crashes, compared with 30 percent for other crash types. . Intersection accidents take up a disproportionate amount of police department staffhours. . Intersections are the most difficult traffic problem for the police department to manage. . Our records indicate that from March 2005 through May 2006 a total of 378 intersection accidents occurred in South San Francisco. During this same time period we issued a total of 667 citations for red light violations. 2. Photo enforcement programs work: . New York City, since 1994 (the longest running program in the U.S.) reports a 72% reduction in violations; 41 % reduction in collisions; and a 35% reduction in fatalities . San Francisco, Los Angeles, Dayton, Albuquerque and dozens of other cities across the U.S. report substantial drops in violations and serious intersection accidents . U.S. Department of Transportation's Federal Highway Administration reports: Red light running violations decreased by as much as 60 percent at intersections where cameras automatically enforce the law. Staff Report Subject: Red Light Photo Enforcement Page 3 3. The public has demonstrated support for these programs: . A National Harris Poll in 2001 reported that 78% of the public wanted greater intersection safety . The Insurance Industry for Highway Safety reported that Cities with red light programs scored between 77% & 84% consumer approval ratings . Local polls in Texas (2), California, Arizona and Ohio confirm that the public is supportive of creating safer intersections. 4. Red light programs are cost effective: . There is no installation or start up fees, service or maintenance costs - one flat monthly service fee per monitored approach only. . New digital technology has made the systems smaller and less unattractive and 2uaranteed to be cost neutral or better for the City. At $140, the City's portion of the violation fee, it only takes 1.3 paid violations per day pay for the entire program. . The Transportation Research Board ofthe National Academies researched a series of cities that have had red light programs for several years, and reported: The average red- light camera location in the u.s. results in $38,000 a year in reduced societal costs, not to mention the number of lives and grief saved from fewer right-angle crashes (Leslie Blakey, Exec Director). COMMITTEE SELECTION American Traffic Solutions (ATS) was selected unanimously based on the following factors: a. Prima Facie Evidence - Extraction of violation license plate from a single digital image, avoiding the wrong vehicle being identified for violation. b. 12.4 Mega-pixel Digital Still Camera - The photos were the clearest we viewed. c. Unobtrusive intersection equipment - No large multiple camera boxes and roadside cabinets requiring cement bases at our intersections. d. Live video - The violation includes 14-second violation confirmation video clip. Also the video is live, allowing 24 - 7 viewing by the Police Department or Engineering of the intersection to view accidents, or other traffic problems. This data is stored for review for a minimum of 90 days, which allows for reconstruction of an accident or other questions regarding the violation. e. Court data - An exact daily balance of citations mailed with a confirming electronic file. A TS has met with the San Mateo County courts, and their data transfer has been approved. f. Pre-analysis of problem intersections to confirm need - A TS provides a day's video evaluation of each potential red light site to confirm that a red light problem exists. They recommend using the program only ifthe intersection approach has ten (10) or more Staff Report Subject: Red Light Photo Enforcement Page 4 violations per day. The intersections recommended will be analyzed prior to signing a final contract. g. Performance data reports - Direct, on-line, monthly reports including the disposition and result for each violation or potential violation. h. Violation detection - The ability to provide either in-ground loop or non-intrusive detection, to be worked out with our City Engineer. ATS has a minimum ofthree (3) references of both approaches. PILOT PROJECT ATS has offered the City a Pilot Project for one year. The City has the right to terminate the program at the end of the pilot program. There are no restrictive conditions and ATS provides an offer to extend the program for an additional four (4) years with the pricing to remain the same and a continued guarantee that the program will be cost-neutral. INTERSECTION EVALUATION It is important to the City and the vendor that the intersections identified by the PD and Engineering as problem intersections actually have significant red light running violators. As a part of the program, ATS provides a video evaluation of each selected intersection approach, and provides the City with a written report showing the number of violators, time of day, and violation lanes. ATS suggests that if there are not ten (10) or more violations per day on any specific intersection approach, the approach may not be in need of an automated program. FISCAL IMP ACT There are no up front, installation or maintenance costs for the City. The monthly flat service fee would be covered with 1.3 paid violations per day, per camera. All approved intersections will be selected by the City then electronically evaluated by ATS. Only intersection approaches with ten (10) or more violations per day will be chosen, thus there is little chance the camera installations will not be self supporting or better. Although the City of San Mateo uses a different vendor, they indicated that it takes about 40 hours a week of support to process the citations. They currently have cameras watching four (4) directions at two (2) intersections. The additional cost to cover a part time support person, as well as on duty time by some full time employees, would be approximately $5,400 per month. This equates to an additional 1.3 citations per day irrespective of the number of cameras. In order to off set the additional cost to the department, we would ask that our budget be increased appropriately with the funds from the citations. We would also like to look at a portion of this funding to go into a special replacement equipment fund for the traffic unit. Individuals will be able to go on-line and view themselves going thought the red light. However, we Staff Report Subject: Red Light Photo Enforcement Page 5 would have to provide access to a computer in the lobby of the Police Department, for those who do not have access to one. We would ask that the fines earned from the enforcement also cover this cost. By: Approved: - ~'t\\ 5~ g ~ . ~~\ o n,\ >-0 ~I ~ t') v 0 ~l~. Staff Re120rt SP. AGENDA ITEM 4B DATE: July 19, 2006 TO: Honorable Mayor and City Council FROM: Jim Steele, Director of Finance SUBJECT: NEW ACCOUNTING RULES FOR RETIREE HEALTH BENEFITS RECOMMENDATION: This staff report and accompanying materials are being forwarded to the Council in advance of the study session on July 19,2006. No Council action is requested at this time. The attachments were provided by Bartel Associates, an actuarial consulting company based in San Mateo. John Bartel will be presenting a summary of his findings to the Council on July 19th. BACKGROUND/DISCDSSION: Summary: The Government Accounting Standards Board (GASB) governs public sector accounting. GASB issues rulings or statements from time to time that governmental entities are required to implement. One such ruling, Statement No. 45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions, will have a significant impact on the City's financial reporting beginning in 2007-08. GASB 45 requires the City to report the actuarial value of its retiree health care obligations in its financial statements beginning in fiscal year 2007-08. Currently, the City (like most other public sector entities) only reports the annual cash payments actually made for health costs, not the true cost of incurring the liability over the time period while employees are working and providing services. The City will not be required to actually pre-fund those obligations. However, there will be implications if the City does not at least have a plan for funding retiree health obligations over time. Rationale for GASB Ruling: The accounting profession maintains a standard that costs should generally be recognized in the period in which the services are provided to the community which correspond to those costs, not necessarily when the cost is paid. Therefore, the true cost of paying for the services of a police officer or librarian or streets worker includes the post-retirement health costs that accrue to those employees while they are working and providing services to the community. The impact of not funding those costs while the employee is working is that the costs become an obligation of a future taxpayer, who will not be benefiting from the services rendered by that employee. This Staff Report Subject: New Accounting Rules for Post-Retirement Health Benefits Page 2 of 3 raises a policy issue of equity or fairness: should future taxpayers bear the costs of services being provided to, and enjoyed by taxpayers today? The City pays for health insurance premiums over the life of qualifying retirees. The Memorandums of Understanding (MODs) with the various bargaining groups provide for this benefit for employees who retire from the City of South San Francisco with the following stipulations: Group Age Years of Service All except Operating 50 5 Engineers Operating Engineers 65 10 Note that while 50 is the age for all units except Operating Engineers, Miscellaneous employees (i.e., non-Safety employees) other than Operating Engineers (i.e., AFSCME, Confidential, Mid Management, and Executives) typically work until at least age 55, when they can fully take advantage of the PERS retirement benefit. The City, like most municipalities that pay for retiree health premiums, currently recognizes these expenditures on the books when the health premiums are paid, that is, after an employee retires. GASB 45 requires that cities also disclose the following on their financial statements in footnote format: . the actual liability for retiree health premiums, not just the annual expense of the current health premiums; and . the annual required contribution to fund that liability over an actuarially sound time frame. This is similar to the way PERS charges cities for annual retirement premiums. Furthermore, GASB 45 will require the City to book the difference between what the City actually pays and what the annually required contribution is in the financial statements. This entry will not affect the reserve balances of the General Fund because of how accounting standards state where this will get booked. However, it will affect the reserve balances of the City's three Proprietary (Enterprise) Funds, i.e., the Sewer, Stormwater, and Parking Funds. GASB 45 will not require that the City fund those costs, either in the General Fund or in the Proprietary Funds (such as the Sewer Fund). For example, if the City did not fund these costs, it would have to book an expense in the Sewer Fund. Because, by not funding these costs, it would not be paying cash out the door, over time the Sewer Fund would build up a larger and larger negative fund balance, while having a positive cash balance. It is likely, therefore, that under those circumstances, the Sewer Fund will have an increasingly difficult time selling bonds after 2007-08 unless it has made an effort to fund those costs. The true impact on how bond markets react to the Sewer Fund's financial statements will not be known for several years, however, and will depend in large part on how other agencies deal with this issue. Staff Report Subject: New Accounting Rules for Post-Retirement Health Benefits Page 3 of 3 FISCAL IMP ACT: The Bartel actuarial analysis, included in the attachments to this report, estimates that South San Francisco's actuarial accrued liability is $30.3 million1. If those costs were amortized over 30 years, the City would need to add $1.6 million * to its budget over and above the $1.3 million it currently pays annually for health premiums in order to fully fund the obligations over 30 years. Approximately $1.2 million of this extra expense would be in the General Fund. Again, GASB does not require that cities fund these costs, but Proprietary Funds' reserve balances (but not cash) will decline over time as these liabilities accumulate. If these costs are not funded, the liability will also increase dramatically over time, which is shown on one of the attachment pages from Bartel Associates. CONCLUSION: A policy decision on how to fund the City's retiree health liability is not needed at this time. The financial impact of funding GASB 45 will, however, be significant. In the next 2-5 years, as other cities deal with this issue, and as the rating agencies and bond markets give specific feedback, the City's choices will become clearer. In the meantime, how to fund GASB 45 will be another aspect of the City's longer-term budget strategy that will need to be addressed. Prepared by: Attachments: Samples of Financial Statement Changes Presentation by Bartel Associates J * Assuming the City participated in a third party trust fund, similar to PERS, in which the funds could be invested in higher yielding securities than what is appropriate for the City's operating funds. Attachment A SAMPLE OF CURRENT FOOTNOTE DISCLOSURE FOR PERS RETIREMENT BENEFIT WILL BE SIMILAR FOR RETIREE HEALTH BENEFIT: INOTE 8 - RETIREMENT BENEFITS I . (Continued) . Actuarially required contributions for fiscal years 2005, 2004 and 2003 were, $6,111,498, $3,437,093, and $1,346,316, respectively. The City made these contributions as required, together with certain immaterial amounts required as the result of the payment of overtime and other additional employee compensation. The Plans' actuarial value (which differs from market value) and funding progress over the most recent three years available is set forth below at their actuarial valuation date of June 30: Miscellaneous Plan: Actuarial Unfunded Entry Age Actuarial Unfunded Annual (Overfunded) Valuation Accrued Value of (Overfunded) Covered Liability as % Date Liability Assets Liability Funded Ratio Payroll of Payroll 2001 $62,920,438 $75,216,691 ($12,296,253 ) 119.5% $15,781,106 (77.9%) 2002 76,715,527 70,448,463 6,267,064 91.8% 17,234,400 36.4% 2003 86,507,167 71,542,391 14,964,776 82.7% 17,712,950 84.5% Safety Actuarial Unfunded Entry Age Actuarial Unfunded Annual (Overfunded) Valuation Accrued Value of (Overfunded) Covered Liability as % Date Liability Assets Liability Funded Ratio Payroll of Payroll 2001 $126,284,689 $124,710,216 1,574,473 98.8% $11,627,281 13.5% 2002 134,289,454 116,580,908 17,708,546 86.8% 12,534,389 141.3% 2003 142,291,013 117,856,207 24,434,806 82.8% 12,881,111 189.7% Sample of Statement of Net Assets: Attachment B-1 CITY OF SOUTH SAN FRANCISCO STATEMENT OF NET ASSETS JUNE 30, 2005 Cash will not be affected unless the City funds the liability Primary Governme:/t Governmental Activities $81,543,165 ASSEfS Cash and investments Receivables: Accounts Accrued interest Due from other governments Due from Conference Center Internal balances Loans Deposit Inventory Bond issuance costs Prepaid items Restricted cash and investments Capital assets: Nondepreciable Depreciable, net accumulated depreciation Total Assets 2,232,737 594,233 1,920,483 82,328 1,476,864 10,704,615 171,010 37,551 26,464 24,642,206 90,033,335 50,796,386 264,261,377 LIABILITIES Current liabilities: Accounts payable Accrued salaries and benefits Accrued interest payable Due to Primary Government Other payable Deposits Deferred revenue Long-term liabilities due within one year: Compensated absences obligation Debt and capital lease obligations Matured bonds and interest payable Noncurrent liabilities: Accrued insurance losses Compensated absences obligation Noncurrent portion of long-term debt 3,577,042 1,564,601 7,044,660 123,419 2,751,757 11,095,109 598,885 Non-Current Liabilities 1,814,391 will go up 5,700 / 4,917,657 / 4,230,256 53,844,641 T otalliabilities 91,568,118 NET ASSEfS Invested in capital assets, net of related debt Restricted for: Special revenue projects Debt service Capital projects 100,135,849 11,930,020 20,468,683 30,630,451 Total Restricted Net Assets 63,029,154 Unrestricted 9,528,256.... Unrestricted Net Assets will go down, but will not affect reserve balances This does not tie to Reserves now, and still won't. Total Net Assets $172,693,259 See accompanying notes to financial statements SAMPLE General Fund ISalance Sheet will not Change: ASSETS Cash and investments Receivables: Accounts Accrued interest Due from other governments Due from other funds Due from Conference Center Loans Inventory Prepaid items Restricted cash and investments Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Accrued salaries and benefits Other payable Deposits Deferred revenue Due to other funds Matured bonds payable Matured interest payable Total Liabilities Fund Balances: Reserved for: Encumbrances Advances, inventory and prepaid Loans receivable Future loan obligation Restricted assets Unreserved, reported in: General fund Special revenue funds Debt service funds Capital projects funds Total Fund Balances Total Liabilities and Fund Balances CITY OF SOUTH SAN FRANCISCO GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 200S--Attachment B-2 General Fund $13,234,501 1,090,217 139,326 1,559,026 82,328 37,551 2,749 $16,145,698 $840,035 1,564,601 62,051 2,000 642,587 3,111,274 381,400 40,300 12,612,724 13,034,424 $16,145,698 No Change to General Fund Reserves Will Result See accompanying notes to basic financial statements Sample of Proprietary Funds Net Assets: Attachment C CITY OF SOUTH SAN FRANCISCO PROPRIETARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2005 Sewer Rental Business-type Activities - Enterprise Funds Parking Storm District Water Cash will not be affected unless the City funds the liability TOWl ASSETS Current assets: Cash and investments Receivables: Accounts Accrued interest Due from other governments Due from other funds Deposit Prepaid Items $706,214 $487,217 $1,193,431 4,372 3,118 1,211,699 7,490 2,258,497 $1,211,699 2,258,497 8,042 8,042 Total current assets 3,478,238 710.586 490,335 4,679,159 Noncurrent assets: Capital assets: Nondepreciable Depreciable, net accumulated depreciation 27.936,383 71,592,811 878,703 234,468 29,158 28,815,086 71,856,437 Total non-current assets 99,529,194 1,113,171 29,158 100,671,523 Total Assets 103,007,432 1,823,757 519,493 105,350,682 LIABILITIES Current liabilities: Accounts payable Accrued interest payable Other payable Due to other funds Compensated absences obligation Current portion of long-term debt Total Net Assets 2,288,805 159 7,219 2,296,183 1,525,012 1,525,012 3,246 3,246 1,476,864 1,476,864 59,166 799 7,914 67,879 2,520,907 2,520,907 7,874,000 958 15,133 7,890,091 250,000 250,000 376,023 23,022 418,446 68,731,032 68,731,032 69,357,055 69,399,478 77,231,055 20,359 But, liabilities will go up 28,277,255 1,113,171 29,158 29,419,584 and Net Assets 1,935,907 I,Ql3,987 (Reserves) will (4,436,785) ..... 690,227 452,180 (3,294,378) go down in the $25,776,37~ Proprietary Funds $1 80"\ ~og ;J>4lS1,338 $28,061,113 only, not General Fund. Total current liabilities Noncurrent liabilities: Accrued insurance losses Retiree Liabilities will go up: Compensated absences obligation Noncurrent portion of long-term debt Total noncurrent liabilities Total Liabilities NET ASSETS: Invested in capital assets, net of related debt Restricted Umestricted See accompanying notes to financial statements Note: The Actuarial Results that follow contain a lot of material. The Council may want to focus on the Executive Summary and the following slides in the Preliminary Results Report: Slides 1- 2 Slides 7-10 Slides 25-26 Slide 29 Executive Summary City of South San Francisco January 1, 2006 Retiree Healthcare Actuarial Study On June 21, 2004, the Governmental Accounting Standards Board approved Statement No. 45 (GASB 45), Accounting Standards for Other (than pensions) Post Employment Benefits (OPEB). This report is based on the fmancial reporting standards established under GASB 45. We understand the City was a Phase IT government under GASB 34. Accordingly GASB 45 will be effective for the City's fiscal year beginning July 1,2008. Historically the City has accounted for retiree healthcare benefits as they were paid, with current cash cost of approximately $1 million per year. GASB 45 will require the City account for this promise on an accrual basis (as benefits are earned). Funded Status: The plan funded status is equal to Actuarial Liability (see defmitions and assumptions section below) less plan assets. When assets equal liabilities, a plan is considered on track for funding. To consider a retiree healthcare plan funded for GASB 45 purposes, assets must be set aside in a trust that cannot, legally, be used for any purpose other than to pay retiree healthcare benefits. The City's retiree healthcare plan is not currently funded. This has important implications on the discount rate assumption used to calculate plan liabilities (see definitions and assumptions section below). We have prepared valuation results under 2 scenarios: . No Funding - Benefits paid from City general fund which is assumed to earn a 4.5% long term rate of return . Funding - Contributions made to a trust with diversified assets which are assumed to earn a 7.0% long term return. Ultimately the long term return assumption will be based on the plan's investment mix. The following table summarizes the plan's January 1,2006 funded status (OOOs omitted): No Funding Funding 4.5% 7.0% . Actuarial Liability (AL) . Actives $ 20,899 $ 14,235 . Retirees 20,897 16,052 . Total $ 41,796 $ 30,287 . Plan Assets . Unfunded AL (VAL) $ 41,796 $ 30,287 . Reserve (Net OPEB Obligation) . Unreserved and Unfunded Actuarial Liability $ 41,796 $ 30,287 Annual Required Contribution (ARC): GASB 45 doesn't require an agency make up any shortfall (unfunded liability) immediately, nor does it allow an immediate credit for any excess assets. Instead, the difference is amortized over time. An agency's Annual Required Contribution is nothing more than the current employer Normal Cost, plus the amortized unfunded liability or less ow Executive Summary City of South San Francisco January 1, 2006 Retiree Healthcare Actuarial Study Page 2 the amortized excess assets. Simply put, this contribution is the value of benefits earned during the year plus something to move the plan toward being on track for funding. For the City's valuation we calculated the ARC as the Employer's Normal Cost plus a 30-year amortization (as a level percent of pay amortization) of the Unfunded Actuarial Liability. This results in the following (OOOs omitted): No Funding Funding 4.5% 7.0% . Normal Cost $ 1,880 $ 1,102 . UAL Amortization 1.687 1.671 . Annual Required Contribution 3,567 2,773 . Estimated 05/06 payroll $ 29,220 $ 29,220 . Annual Required Contribution as a 12.2% 9.5% percentage of payroll Net OPEB Obligation (NOO): An agency's Net OPEB Obligation is the historical difference between actual contributions made and the Annual Required Contributions (note that benefits paid for current retirees are considered contributions). If an agency has always contributed the required contribution, then the Net OPEB Obligation equals zero. However, an agency has not "made" the contribution unless it has been set aside and cannot legally be used for any other purpose. Initially, at transition to the new standard, the City's Net OPEB Obligation will equal zero. Annual OPEB Cost (AOC): GASB will require the Annual OPEB Cost equal the Annual Required Contribution, except when an agency has a Net OPEB Obligation at the beginning of the year. When that happens an agency's Annual OPEB Cost will equal the ARC, adjusted for expected interest on the Net OPEB Obligation and reduced by an amortization of the Net OPEB Obligation. This results in the following (OOOs omitted): No Funding 4.5% Funding 7.0% . Annual Required Contribution . Interest on Net OPEB Obligation . Amortization of Net OPEB Obligation . Total Annual OPEB Cost $ 3,567 $ 2,773 $ 3,567 $ 2,773 ~B.'" ~[)A } Executive Summary City of South San Francisco January 1, 2006 Retiree Healthcare Actuarial Study Page 3 Using the City's July 1,2005 retiree healthcare reserve ($0) as the City's Net OPEB Obligation, following illustrates the City's June 30, 2006 Net OPEB Obligation ifGASB 45 were in effect (OOOs omitted): No Funding Funding 4.5% 7.0% . July 1,2005 Net OPEB Obligation $ $ . Annual OPEB Cost 3,567 2,773 . Contributions 1J641 2.7732 . June 30, 2006 Net OPEB Obligation $ 2,403 $ The City's actual June 30, 2006 budgeted reserve will differ slightly from the above because actual benefit payments will be different from estimated. Projected Benefit Payments: Following are 10-year benefit payout projections (OOO's omitted): Benefit Benefit Year Payment Year Payment 2005/06 $1,164 2010/11 $2,053 2006/07 1,312 2011/12 2,177 2007/08 1,502 2012/13 2,399 2008/09 1,659 2013/14 2,600 2009/10 1,842 2014/15 2,789 Sensitivity: The above results are based on the following: . 30-year amortization of the unfunded liability . No plan assets Following illustrates the impact of changing the amortization to a 20-year period and addition of each $1 million to July 1,2005 plan assets (OOOs omitted). Estimated benefit payments, including implied subsidy. Assumes full ARC is contributed. ~.B./l " 9lfJ Executive Summary City of South San Francisco January 1, 2006 Retiree Healthcare Actuarial Study Page 4 Amortization No Funding Funding 4.5% 7.0% . 30-year amortization . Total ARC $ $ 3,567 $ 2,773 . Total ARC % 12.2% 9.5% . 20-year amortization . Total ARC - $ $ 4,269 $ 3,255 . Total ARC - % 14.6% 11.1% Decrease in ARC for Additional $1 Million in Assets No Funding 4.5%3 Funding 7.0% . 30-year amortization . Total ARC $ $ 40 $ 55 . Total ARC % .14% .19% . 20-year amortization . Total ARC - $ $ 57 $ 71 . Total ARC - % .20% .24% Present Value of Benefits: When an actuary prepares an actuarial valuation, (s )he first gathers participant data (including active employees, former employees not in payment status, participants and beneficiaries in payment status) at the valuation date (for example January 1,2006). Using this data and actuarial assumptions, (s)he projects future benefit payments. (The assumptions predict, among other things, when people will retire, terminate, die or become disabled, as well as what salary increases, general (and healthcare) inflation and investment return might be.) Those future benefit payments are discounted, using expected future investment return, back to the valuation date. This discounted present value is the plan's present value of benefits. It represents the amount the plan needs as of the valuation date to pay all future benefits - if all assumptions are met and no future contributions (employee or employer) are made. The City's January 1,2006 retiree healthcare Present Value of Benefits is $63.4 million using a 4.5% interest rate ($40.5 million using a 7% interest rate), with $20.9 million ofthis for former employees who have already retired ($16.1 million using a 7% interest rate). 3 For illustrative purposes. 6MJ Executive Summary City of South San Francisco January 1, 2006 Retiree Healthcare Actuarial Study Page 5 Actuarial Liability: This represents the portion of the present value of benefits that participants have earned (on an actuarial, not actual, basis) through the valuation date. The City's January 1, 2006 retiree healthcare Actuarial Liability is $41.8 million using a 4.5% interest rate ($30.3 million using a 7% interest rate), with $20.9 million of this for former employees who have already retired ($16.1 million using a 7% interest rate). Normal Cost: The Normal Cost represents the portion of the present value of benefits expected to be earned (on an actuarial, not actual, basis) in the corning year. The City's (Employer portion) January 1,2006 retiree healthcare Normal Cost is $1.9 million (6.4% of base payroll) using a 4.5% discount rate and $1.1 million using a 7% discount rate (3.8% of base payroll). Actuarial Cost Method: This determines the method in which benefits are actuarially earned (allocated) to each year of service. It has no effect on the Present Value of Benefits, but has significant effect on the Actuarial Liability and Normal Cost. The City's January 1,2006 retiree healthcare valuation was prepared using the Entry Age Normal cost method. Actuarial Assumptions: Under GASB 45, an actuary must follow current actuarial standards of practice, which generally call for explicit asslllllptions - meaning each individual asslllllption represents the actuary's best estimate. GASB 45 requires that the discount rate is based on the source of funds used to pay benefits. This means the underlying expected long-term rate of return on plan assets for funded plans. Furthermore, since the source of funds for an unfunded plan is usually the general fund and California law restricts agencies' investment vehicles, this valuation uses a relatively low, 4.5%, discount rate. If the City sets up a Trust (that could only be used to pay plan benefits), and diversifies Trust assets, then the discount rate would be based on the Trust's expected long-term investment return. This might result in a higher (such as a 7%) discount rate. However, the appropriate discount rate will be determined based on the plan's actual asset diversification. Another key asslllllption is future healthcare inflation rates. Actual premiums for fiscal year ending 2006 were used. The inflation rate for HMO's starts at 11 % (the increase in 2007 premiums over 2006) and grades down to 4% (2017 premillllls over 2016) and remains at 4% into the future. The inflation rate for PPO's starts at 12% (the increase in 2007 premiums over 2006) and grades down to 5% (2017 premiums over 2016) and remains at 5% into the future. This asslllllption means healthcare is assllllled to increase, on the average, 7.5% for HMO's and 8.5% for PPO's a year for the next 10 years. Furthermore, since the valuation's general inflation asslllllption is 3%, it also means healthcare is assllllled to level off at 1 % to 2% over general inflation. (i}V Executive Summary City of South San Francisco January 1, 2006 Retiree Healthcare Actuarial Study Page 6 The following table summarizes medical benefits: IUOE, Other Local 39 Units . Eligibility Age 65 and lO years of service Age 50 and 5 years service or Rule of75 . Medical Benefit . Retiree Blue Shield HMO Blue Shield HMO Single Premium Single Premium + + Medicare Part B Medicare Part B . Spouse Participation Participation4 . Dental, Vision, and None None Life Insurance 4 Surviving spouse covered 2 months following retiree death for AFSCME Local 1569, Mid-Management, lAFF (4) . CITY OF SOUTH SAN FRANCISCO RETIREE HEALTH CARE PLAN GASB 45 Actuarial Valuation Preliminary Results John Bartel and Doug Pryor 11 I p! L 1 '\ ; "'\" I t i - '"--l l' i; ", i !.,' July 19,2006 Topic Benefit Summary Premiums Data Summary Actuarial Assumptions Definitions i\c~al11ethods Simplified Example Results Other Issues ~l . 7/19/06 o:IdiIllllI\l;il)'oflDUtil"n~\0pft\2005Y~\rqIorb\Qlyor-"'lllh.rFCIimrwslll..Q6.07.19.doc: Agenda Page I 3 7 11 15 17 19 23 34 . BENEFIT SUMMARY IUOE, Other Local 39 Units . Eligibility Age 65 and 10 Age 50 and 5 years of service years service or Rule of75 . Medical Benefit · Retiree Blue Shield HM:O Blue Shield HMO Single Premium Single Premium + + Medicare Part B Medicare Part B . Spouse Participation Participation I . Life Insurance None None . Dental & Vision None None I Surviving spouse covered 2 months following retiree death for AFSCME Local 1569, Mid-Management, 1AFF (Rj) I 1/19/06 . BENEFIT SUMMARY Subsidies . Implied Participating retirees pay the premium rates rather than the Subsidy actual medical cost. $600 $550 .. $500 ,/' , $450 . .' , $400 / / .' . . . . , . . $350 ,. , / $300 , , - , .... 5250 ,.... ' , -' $200 .." ' I Age 35 , Age 40 Age 45 i Age 50 Age 55 Age 60 --- Premium Rate , $369 , $369 $369 , 5369 i $369 i $369 i-.-.EstimatcdCostl 5205 5233 $269 i $339 $438 I $558 (&D I 7/19/06 2 . (iLO I 7/19/06 PREMIUMS 2005/06 Active Premium Rates Plan EE EE+1 Blue Shield HMO $414.97 $828.92 Blue Shield PPO 421.84 843.88 Kaiser 332.96 665.92 3 . ~ 1 7/19/06 PREMIUMS 2005/06 Retiree Premium Rates (Non Medicare Eligible) Plan EE EE+l Blue Shield HMO $530.38 $1,061.02 Blue Shield PPO 549.03 1,098.27 Kaiser 361.38 722.76 4 . PREMIUMS 2005/06 Retiree Premium Rates2 (Medicare Eligible) Plan EE EE+l Blue Shield PPO $220.14 $440.28 Kaiser Senior 249.47 498.94 Advantage Kaiser No Medicare 920.92 1,841.84 Medicare Part B 88.50 177.00 2 Rates effective 1/1/2006 (fiD ! 7/19/06 5 . ~!.., \!, j) 1 7/19/06 PREMIUMS 2005/06 Single Coverage Premium Rate Comparison Early Plan Active Retiree Ratio Blue Shield HMO $414.97 $530.38 1.29 Blue Shield PPO 421.84 549.03 1.30 Kaiser 332.96 361.38 1.09 6 . DATA SUMMARY Medical Coverage Active Grand Sin2le 2-Party Family Unknown Total Active Blue Shield HMO 25 23 82 - 130 Blue Shield PPO 16 7 27 - 50 Kaiser 51 42 68 - 161 No City covera2e - - - 56 56 Total 92 72 177 56 397 (RD I 7/19/06 7 . DATA SUMMARY Medical Coverage Retiree Grand Sin2le 2-Party Family Total Early Retirement (<65) Blue Shield HMO 14 8 2 24 Blue Shield PPO 18 4 - 22 Kaiser 36 21 3 60 Total 68 33 5 106 Medicare (>=65) Blue Shield PPO 22 14 - 36 Kaiser 51 39 - 90 Total 73 53 - 126 Retiree Grand Total 141 86 5 232 <q, 7/19/06 8 . DATA SUMMARY Participant Statistics 7/1/2005 Miscellaneous Safety Total . Actives . Count 255 142 397 . Ave Age 46.1 38.9 43.5 . Ave Service 10.6 11.2 10.8 . Ave Pay $64,700 $89,500 $73,600 · Total Payroll $16,507 $12,713 $29,220 (OOO's) . Retirees . Count 126 106 232 . Ave Ret Age 59.8 51.3 56.0 (incl. IDR) . Ave Age 70.7 62.8 67.1 (iW 'I. 7/19/06 9 . DATA SUMMARY Actives - Age/Service/Pay Service Al!e Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 & Over Total Under 25 Count 7 - 7 A veral!e Salary - 60,921 60921 25 to 29 Count 3 17 8 28 A veraae Salarv 67,886 67,399 76,461 70 040 30 to 34 Count 9 19 28 4 60 A veraae SalarY 60,034 65,816 76,775 75,759 70,726 35 to 39 Count 7 19 21 13 4 64 A vera"e Sal.rv 70,771 68,356 71,019 71,308 72,270 70,338 40 to 44 Count 1 9 12 10 9 4 45 A veral!e Salarv 72,779 56,172 67,486 74,149 90,660 82,665 - 72,805 45 to 49 Count 3 7 20 4 13 18 8 73 A veraae Salarv 66,914 53,869 69,590 95,573 80,624 96,593 91,497 80420 50 to 54 Count 3 12 8 7 10 18 15 73 A veraae SalarY 58,399 64,707 66,191 69,267 74701 88 III 81,862 75 713 55 to 59 Count 1 7 9 8 3 3 5 36 A vera!!e SalarY 30,867 66,013 77.982 72,829 57,748 61,665 102,220 73,521 60 to 64 Count I - 3 I 2 7 A vera!!e SalarY 135,637 73,244 66,560 41,808 72,221 6S & Over Count - 1 I I 1 4 A vera!!e SalarY - 27,955 45,282 76,419 11l,530 65,296 Total Count 28 98 110 47 40 43 31 397 A vera!!e SalarY 66,235 63,986 72,280 74,420 78,499 89,310 86,005 73,602 0.,.., \ 1)j ) 7/19/06 10 . ACTUARIAL ASSUMPTIONS Assumption 1/1/2006 . Valuation date . 1/1/06 valuation used to determine 05/06 cost . Interest rate . 4.5% (not pre-funded & assets invested in General Fund) . 7.0% (pre-funded & assets diversified in separate trust) . Medical Trend HMO PPO Initial 11% 12% Ultimate 4% 5% Years 10 yr 10 yr . Aggregate Payroll 3.25% . Inflation 3.0% (G"D I 7/19/06 11 . ACTUARIAL ASSUMPTIONS Assumption 1/1/2006 . Retirement CalPERS 1997-2002 Experience Study: -Miscellaneous 2.7% at 55, ERA=59 -Police 3% at 50, ERA=54.5 -Fire 3% at 50, ERA=55.0 . Mortality, Turnover, CalPERS 1997-2002 Experience Study Disability . Participation . Currently covered: 100% . Not currently covered: 95% . Spouses . Actives Currently covered - actual marital status Not currently covered - 80% married . Retirees - actual marital status (G"0 1 7/19/06 12 . ACTUARIAL ASSUMPTIONS Assumption 1/1/2006 . Dependents . No dependent coverage . Medical Plan at . Currently covered - same as current election Retirement . Not currently covered - weighted average active premmm . Medicare eligible . 100% rate · Everyone eligible for Medicare will elect Part B coverage . Implied subsidy . Kaiser valued . Blue Shield not valued ~ I 7119/06 13 . ACTUARIAL AsSUMPTIONS This page intentionally blank. 0., ~ [) P 7/19/06 14 . DEFINITIONS Present Value of Projected Benefits (PVPB) Without Assets With Assets Current Normal eo", Curreat Nonnal Con . PVPB - Present Value of all Projected Benefits: . Discounted value, at measurement (valuation date - 111106), of all future expected benefit payments . Expected benefit payments based on various (actuarial) assumptions ~ 7/19/06 15 . DEFINITIONS . AAL - Actuarial Accrued Liability: . Discounted value, at measurement (valuation date - 1/1/06), of benefits "earned" (based on actuarial cost method) through measurement ~ Service. at measurement ~ Salary, inflation, etc. projected same as PVPB calculation . Portion of PVPB "earned" at measurement . Normal Cost: . Value of benefits "earned" during current year . Portion of PVPB allocated to current year . Actuarial Cost Method: . Determines how benefits are "earned" (or allocated) to each year of service . Has no effect on PVPB . Has significant effect on AAL and Normal Cost (i:L0 ,) I ill 9/06 16 . ACTUARIAL METHODS Method Comments . Cost Method . Choice of 6 methods: Entry Age; Frozen Entry Age; Attained Age; Frozen Attained Age; Projected Unit Credit; & Aggregate . Entry Age Normal consistent with CalPERS and acceptable to GASB. . Initial Unfunded . Amortized as level percentage of pay over 30 Liability years Amortization . < 30 years acceotable to GASB . "Implied Subsidy" . Employer cost for allowing retirees to participate, irrespective of employer contribution . Community rated plans not required to value implied subsidv (f\1) . I 7/19/06 17 . ACTUARIAL METHODS GASB Terminolo . AnnualRequrred Contribution (ARC) Definition . Actuarially determined contribution, using funding method, amortization period, assum tions, etc. Similar to GASB 27 Annual Pension Cost ARC, adjusted for: :, Interest on NOO and :, Amortization ofNOO . Historical difference between ARC and AOC . NOO (end of year) = NOO (beginning of year) + AOC (for year) - actual contributions made durin . Annual Other Post · Employment Benefit . (OPEB) Cost (AOC) . Net OPEB Obligation (NOO) ([CD I 7/19106 18 . Simplified Example - Active (Assumes 0% Interest and Other Simplifying Assumptions) If: PERSable Age Service Wages . At Hire: 28 0 . Current: 40 12 $ 60,000 . At Retirement: 58 30 Then: . PVPB40 = . AAL40 = . Assets = . UAAL = . NC4O/41 = (1130) x 100,000 = $ 100,000 40,000 o 40,000 3,350 (12/30) x 100,000 = 0..., \ 1>1) 7/19/06 19 . Simplified Example - Active . Normal Cost = $ 3,350 . VAAL Amortization (1/1 0) x 40,000 = 4.000 . ARC - $ = 7,350 . ARC-% 7,350/60,000 = 12.3% . Pay as You Go Cost 0 Net OPEB Obli~ation Without Trust With Trust . BoY NOO = $ 0 $ 0 . + ARC = 7,350 7,350 . - Payments 0 0,350) . Eo Y NOO 7,350 0 ~ 7/19/06 20 . Simplified Example - Retiree If: Annual Age Service Payment . At retirement: 60 25 . Current Age: 62 25 $ 6,000 Then: . PVPB62 = $ 100,000 . AAL62 (25/25) x 100,000 = 100,000 . Assets = 0 . UAAL = 100,000 . NC62/63 = (0/25) x 100,000 = 0 0j \1") I} 7119/06 21 . Simplified Example - Retiree . Normal Cost = $ 0 . UAAL Amortization = (1/10) x 100,000 = 10.000 . ARC-$ = 10,000 . ARC - % = N/A . Pay as You Go Cost 6,000 Net OPEB Obligation Without Trust With Trust . BoY NOO = $ 0 $ 0 . + ARC = 10,000 10,000 . - Payments (6.000) (10.000) . Eo Y NOO 4,000 0 1;7"":\. r \ nO"f} , ! 7/] 9/06 22 . RESULTS Liabilities (000'5 omitted) 4.5% Interest Rate Miscellaneous Safety Total . Present Value of Benefits . Actives $25,364 $17,161 $42,525 . Retirees 9,358 11,539 20,897 . Total 34,722 28,700 63,422 .AAL . Actives $13,120 $7,779 $20,899 . Retirees 9,358 11,539 20,897 . Total 22,479 19,317 41,796 . Normal Cost 1,212 669 1,880 . Benefit Payments 601 564 1,164 (llJ). I. 7/19/06 23 . RESULTS ARC (000'5 omitted) Miscellaneous 4.5% Interest Rate Safety Total . ARC - $ . Normal cost $1,212 $669 . VAL Amortization3 907 779 . Total ARC 2,119 1,448 . Total Payroll 16,507 12,713 . ARC - % . Normal cost 7.3% 5.3% . VAL Amortization 5.5% 6.1% . Total ARC 12.8% 11.4% $1,880 1,687 3,567 29,220 6.4% 5.8% 12.2% J 30-year level percent of pay amortization (iW I 7/19106 24 . RESULTS Liabilities (OOO's omitted) 7.0% Interest Rate Miscellaneous Safety Total . Present Value of Benefits . Actives $15,164 $9,323 $24,486 . Retirees 7,352 8,700 16,052 . Total 22,515 18,023 40,538 .AAL . Actives $9,082 $5,153 $14,235 . Retirees 7,352 8,700 16,052 . Total 16,434 13,853 30,287 . Normal Cost 736 367 1,102 . Benefit Payments 601 564 1,164 ~.p...l \. r),,~t) . 7/19/06 25 . RESULTS ARC (OOO's omitted) Miscellaneous 7.0% Interest Rate Safety Total . ARC - $ . Normal cost $736 $367 . VAL Amortization4 907 764 . Total ARC 1,643 1,131 . Total Payroll 16,507 12,713 . ARC - % . Normal cost 4.5% 2.9% . VAL Amortization 5.5% 6.0% · Total ARC 10.0% 8.9% $1,102 1,671 2,773 29,220 3.8% 5.7% 9.5% 430-year level percent of pay amortization (K1) I 7/19/06 26 . RESULTS Alternative Amortization ARC 4.5% Interest Rate 7.0% Interest Rate . 30-year amortization . Normal cost . UAL Amortization . Total ARC 6.4% 5.8% 12.2% 3.8% 5.7% 9.5% . 20-year amortization . Normal cost . UAL Amortization . Total ARC 6.4% 8.2% 14.6% 3.8% 7.4% 11.1% 1]0 \ l \I} 7/19/06 27 . RESULTS Projected Benefit Payments (closed group) (000'8 omitted) $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 I. Cunen! Plan I. $500 c~ with increases 10 $500 Cap no Inc...... 1 (K"D I 7/19/06 28 . (RD , . [ 7/19/06 RESULTS Net OPEB Obligation Projection (000'5 omitted) 40 Year Projection 545.000 . ~! \ l)1 } 7/1 9/06 540.000 535.000 $30.000 525.000 520.000 515.000 510.000 55.000 5. 05-06 10-11 15-16 20-21 25-26 30-31 35.36 4041 4546 I ~OpenGroupBenefiLPayments .....-AOC I 29 RESULTS Results Comparison GASB 45 Retiree Medical Benefits Survey Sample Percenole Graph ..... ...... ,..~ 30% ~ 2!'" J 111% ,... 111% .... .... -ltJftthPen:en1ile - 75th Percmtik 50% of ......,,, ... within .." ...... 100% of ....Its ... within .." ...... - 50th PerceutUe - 25th Percentile - 8th Pel'Cftltile 30 . RESULTS GASB 45 Retiree Medical Benefits Comparison Normal Cost - As % of Payroll 25% 20% >. = 15% =- ... Q - 10% = ~ l:: 5% ~ =- 0% -5% 100th Percentile 75th Percentile 50th Percentile 25th Percentile Oth Percentile Miscellaneous 16.2% 10.3% 7.5% 3.5% 0.7% Safety 22.0% 10.1% 5.3% 2.4% 0.8% City of South San Francisco Percentile 7.3% 47% 5.3% 50% (G) , .).[ 7/19/06 31 . RESULTS GASB 45 Retiree Medical Benefits Comparison Annual Required Contribution - As % of Payroll 50% .... 40% = =- ... 30% Q ... = 20% .. ;I .. 10% =- 0% 100th Percentile 75th Percentile 50th Percentile 25th Percentile Oth Percentile Miscellaneous 33.2% 22.4% 17.1% 7.8% 1.5% Safety 42.0% 23.7% 13.3% 6.0% 1.4% City of South San Francisco 12.8% Percentile 43% 11.4% 47% ([q) 7/19/06 32 . RESULTS GASB 45 Retiree Medical Benefits Comparison Actuarial Accrued Liability - As % of Payroll 600% 100% 500% ~ 400% .... = -= 300% ... '" .. ~ 200% 0% 100th Percentile 75th Percentile 50th Percentile 25th Percentile Oth Percentile Miscellaneous 396% 205% 143% 79% 11% Safety 491% 247% 152% 65% 11% City of South San Francisco 136% Percentile 47% 152% 50% 0.,., \ !)! } . I 7/19/06 33 . OTHER ISSUES Timing . . . . Methods & Assumptions Present preliminary results Revised results City Council December 16, 2005 January 30, 2006 February 22,2006 July 19,2006 (&0 I 7/19/06 34 .