AgdaPkt 2018-09-10 Joint SA PFA - Laserfiche WebLink

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6.1.C. - Page 7 payment directly to CalPERS in June 2018. F10. As a result, among other things, of CalPERS' decreasing its Discount Rate from 7.5 percent to 7 percent by FY 2020-2021, its reduction of future Amortization Periods from 30 to 20 years, and its use of updated mortality assumptions reflecting projected increases in the longevity of Members, each City faces increasing pension contribution payments to CalPERS which are likely to more than double by FY 2024-2025. Response: The City agrees with this finding. A majority of the increase in the pension contribution payments are attributable to the decrease in the discount rate from 7.5 to 7.0 percent. The City's pension contribution payments are expected to double from FY2017-18 to FY2027-28. F11. Principal and interest payments on each City's Unfunded Liabilities will increasingly impair such City's provision of public services, impair the security of employee salary and pension benefits, and/or result in proposals for revenue increases. Paying down Unfunded Liabilities early results in large savings. Every City in the county would save substantial money by paying down their Unfunded Liabilities early. Response: The City agrees with this finding. Although it is true that there are savings that would result in paying down the unfunded liabilities early, there are other approaches to managing pension costs. The City has negotiated with employees to pay more towards their pensions and has implemented a second retirement tier to manage costs. During FY 2017-18, the City began the process of reshaping service delivery for the future in order to fund upcoming costs and long- term liabilities. As previously mentioned, the City's Financial Sustainability Plan seeks to protect essential City services and address fiscal challenges that exist, due in large part to increasing pension costs. Operating cost reductions of approximately $3.7 million will occur in FY 2018-19 and additional reductions of $2.3 million will occur in FY 2019-20. In addition to cost reductions, the City is placing two revenue measures on the ballot in November 2018. The City has also established a Section 115 Pension Trust Account and has funded that account with an initial deposit of $10.5 million. This account acts as a reserve fund and provides greater flexibility and control by the City. It also offers higher investment returns than the City's investment portfolio and does not limit the City's pension investment to one agency (COWERS). The City believes the balanced approach of funding a Section 115 Trust Account, along with supplemental payments directly to CaIPERS, offers the City the greatest flexibility and best opportunity to pay down the unfunded liability early. F12. The financial documents for each City reviewed by the Grand Jury show that no City has adopted a long-term financial plan with at least a 10 -year time horizon to address rising normal costs and amortization costs that includes each of the following: • objectives, such as achieving a target Funded Percentage, eliminating the Unfunded Liabilities over "n" years or maintaining the cities' share of Normal Costs below "n" percentage of payroll, • policies to achieve these objectives, such as making supplemental payments to CalPERS to reduce their Unfunded Liability, keeping salary increases below the actuarially assumed increase rate, capping the cities' share of Normal Costs, reducing operational costs or increasing revenue, • measures to implement such policies, • processes to monitor progress in implementing the measures, and 4