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HomeMy WebLinkAbout24-City Administrator CITY OF SAN BERN'CDINO - REQUEST F~ COUNCIL ACTION From: Shauna Clark, City Administrator Subject: Administrative Office Draw down on PERS surplus asset account to cover 186 salary increases Dept: D"e: September 26, 1994 Synopsis of Previous Council ection: June 23, 1994 -- Mayor and Council authorized staff to begin proceedings to refinance PERS unfunded liability for the purpose of reducing budget shortfall by $400,000. Recommended motion: That in lieu of refinancing the PERS unfunded liability, that the City draw down on a PERS surplus asset account as recommended by the Finance Director in her memorandum of August 31, 1994. ~//4'1'2/~ ,/ Signature ::Ontect person: Shauna Clark Phone: 5122 :>upporting dm attached: Yes Ward: FUNDING REQUIREMENTS: Amount: Source: (Acct. No.1 (Acct. DescriDtionl Finance: ::ouncil Notes: '5..0262 Agenda Item No li./ CITY OF SAN BERNODINO - REQUEST FC;7' COUNCIL ACTION STAFF REPORT In the process of applying for a refinance of our PERS unfunded liability as approved by the Mayor and Council on June 23, 1994, new information about the city's accounts with PERS was presented to Finance Director Barbara Pachon. In light of this, it is recommended that the June 23, 1994, action be rescinded and that in lieu thereof, the city draw down on a PERS surplus asset account which will free up funds that would have been paid to PERS. The City had expected to net $400,000 through the refinancing and had designated the $400,000 for closing the budget shortfall. This draw down will save approximately $57,000 per pay period, exceeding the refinance option by $683,000 to $740,000. This savings will allow us to divert money to the 186 account. Charter section 186 raises came in more than $700,000 over the $500,000 budgeted for that purposes. o o &< ... '-" to> rn "" " .... 2: 'P. - Co - .., - .., .... '" "" to. ~ FROM: C I T Y OF SAN B ERN A R DIN 0 INTEROFFICE MEMORANDUM FINANCE DEPARTMENT Shauna Clark, city Administrator~~ /. ,"-" Barbara Pachon, Finance Director August 31, 1994 TO: DATE: SUBJECT: PERS COPIES: Fred wilson, Asst. city Administrator On June 23rd the Common council approved the city's FY 1994-95 budget. As part of balancing the FY 1994-95 budget, the Council approved a refinancing of the $8,171,200 PERS Unfunded Liability for Safety. The refinancing would lower the payments made by the city to PERS but the payments would extend for a longer period of time. It was estimated that the refinance would save the city $400,000 for FY 1994-95. In the process of finalizing the refinancing, PERS notified us on August 22, 1994 that the city has surplus assets available based on the current actuarial valuation. I estimate the City will be able to use about $1,140,000 from the Surplus Asset Account for FY 1994- 95. Based on this new information from PERS, I recommend that we do not refinance the PERS Unfunded Liability for Safety but rather use the surplus Asset Account to balance the FY 1994-95 budget. My recommendation is based on two reasons. First, we found the refinancing; although good for cash flow, is expensive in the long term. Second, 186 salary increases will come in at least twice as high as was anticipated in the FY 1994-95 budget ($500,000 was budgeted for 186). Based on the valuation from PERS for refinancing the Unfunded Liability to year 2011, it would cost $7,030,000. According to the attached detail valuation report, it is estimated the city will pay a total of $11,475,000 to PERS under the current contract to pay off the Unfunded Liability by year 2000. Under the proposed refinancing, the city will pay an estimated $18,505,000 to PERS to payoff the Unfunded Liability by year 2011. PERS estimates the refinancing program would give the city a cash flow savings of $752,000 per year from FY 1994-95 to FY 1999-2000, but then from FY 2000-2001 to FY 2010-2011 the City would pay $7,030,000 more to PERS than we would have paid if the refinancing was not obtained. It is critical to note that these figures are estimates and there are several variables that could drastically change the Unfunded Liability amount from year to year. Some of these variables include interest earnings on funds held by PERS, number of employees and the age of employees, and number of employees who o o Page 2 PERS retire and under what condition they retire. Also if PERS makes a change in the actuarial assumptions or formulas, then the amount of the Unfunded Liability could increase or decrease. The August 22 notice from PERS, regarding the Surplus Asset Account, indicates that the city has a total of $3,004,998 in the account. After PERS deducts $21,667 for audit costs (see attached August 17 letter from PERS) and we deduct $298,300 for the Water Department, there is a remaining balance of $2,685,031 for the city. This money can be used to offset member and/or employer contributions due PERS for service periods after July 1, 1994. By using these Surplus Asset Account funds to offset City contributions for FY 1994-95, we will free up funds budgeted in FY 1994-95 for PERS. The Surplus Asset Account funds can only be used by the City to offset contributions due PERS each pay period. The city can not be refunded the money in a lump sum payment. Since the city sends approximately $57,000 to PERS per pay period for the Miscellaneous Category and there are currently 20 pay periods left in FY 1994-95 to report to PERS, the City can use about $1,140,000 of the available funds in FY 1994-95. The remaining balance of the Surplus Asset Account (approximately $1,545,031 plus interest) will be available for use in future years. These remaining funds will stay in the Surplus Asset Account until the City reports to PERS to use them to offset future contributions. We are in the process of preparing the official budget document. We have delayed preparing the final document until resolution of the city Assessment District 994 and the case of Scott v city of San Bernardino. Since the budget document has not been finalized, I suggest we take to Council a request to amend the FY 1994-95 budget by replacing the PERS refinancing option with the PERS Surplus Asset Account and use the additional savings from the Surplus Asset Account to cover the balance of 186 increases. Please let me know if you have any questions or if you need me to provide any additional information.