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HomeMy WebLinkAboutAgenda BOC 032207CITY OF PALM BEACH GARDENS 10500 N Military Trail Palm Beach Gardens, F133410 BUDGET OVERSIGHT COMMITTEE NOTICE OF MEETING AND AGENDA Please take notice that the Budget Oversight Committee of the City of Palm Beach Gardens will conduct a meeting of the committee on March 22, 2007 at 8:30 am in the Council Chambers. I. Roll Call H. Approval of minutes from the February 22, 2007 meeting III. Update on Proposed Legislation IV. 2007/2008 Budget Status V. Initial Results of OPEB Study VI. Update on Self- Insurance Program DISABILITY INFORMATION In accordance with the Disabilities Act and F.S.S 286.26, persons with disabilities needing special accommodation to participate in this proceeding should contact the Human Resource Department no later then seven days subsequent to the proceeding at (561) 799 -4223 for assistance, if hearing impaired, telephone the Florida Relay Service Number at 800 - 955 -8770 (voice) for assistance. APPEAL NOTICE If a person decides to appeal any decision made by the board, with respect to any matter considered at such meeting or hearing, he will need to ensure that a verbatim record of the proceedings is made, which record includes the testimony and evidence upon which the appeal is to be based. 1� Introduction As the result of our reporting that the city's pension plans were under funded, the Council authorized the engagement of a consulting actuary, independent from the two plans. His report led the two plan committees to a review their respective situations. While considerable financial strengthening, in the eyes of this committee, now has been made with the Fire Fighters' Pension Plan (The police plan is still to be heard from), more ultimately will be needed and furthermore the nature of the issues needs to be better explained to the Council and taxpayers. Even though the calculations used to determine the funding of a plan are, among other things, based on "Death and Taxes" there is no certainty involved. Rather the establishment of a defined benefit pension plan, particularly a final pay plan, is an event which unleashes the "Law of Unforeseen Consequences." Competing Interests The three involved groups, plan members, the elected representatives and the taxpayers have both mutual and competing goals. All favor having secured benefits. In theory from that point interests diverge. Plan members want to keep the contribution levels near to the lowest amount reasonable, to "reduce" the cost of benefit increases and employee contributions (if a plan is co- contributory). Taxpayers need predictability, not wanting to be "nuked" at a later date with news of a significant under funding. Legislative bodies are conscious of current budgets and tax rates so they frequently defer increases in costs. The role of actuarial assumptions The amounts of contributions necessary to support funding are derived from a set of "actuarial assumptions." The selected actuary makes recommendations which are in turn approved by the plan committee. The actuary under current national guidelines is granted discretion within a range of reasonableness. The reasonable assumptions previously used in the fire fighters plan recently were changed to another set of reasonable assumptions and the annual contribution was increased by $600,000 (27 %). Our committee appreciates the improvement but also believes it would be more prudent to further increase the contribution by as much as an additional $300,000. Why the difference in views? There are several reasons why this committees' opinion differs from those of the respective plan actuaries and even from those of the consulting actuary. (1) Standards for governmental plans are less conservative than those mandated for private sector plans. (2) Governmental plan actuaries tend not to see both sides of the coin equally. 1' In the appendix to his report, the City's actuarial consultant noted in reference to the very important discount rate, that the more conservative rate applied in the private sector is not recommended because governmental bodies have the resources [taxing authority] , using our language, to bail out a troubled plan. Our recommendation We believe more attention should be given to avoiding a future major sharp increase in funding —which would present a major budgetary surprise to taxpayers. We prefer that the problem should be eliminated by taking a conservative approach, still within the range of "reasonable ". Two of the actuarial assumptions warrant immediate attention;(1) The period of time to amortize adjustments should be reduced (from 25) to about 12.5 years, which will be about one -half the expected period of remaining service for an average employee; (2) The discount rate should be close to that required in the private sector. If these two changes are made there will be a more timely correction for any assumptions which proved to be inaccurate. Our third immediate recommendation is for those in authority to consistently monitor the plans and their administration. We do not doubt the integrity and competence of the plans' respective auditors. But, these plans are an important and significant part of the City's financial structure and the City's appointed auditor should be the auditor for the plans. Council will increase its awareness because the city auditor reports directly. The City ultimately is responsible for funding the plans and it should insist on its choice of auditors. The cost is about the same. Preliminary Results GASB 45Actuarial Valuation- Other Post Employment Benefits (OPEB) Budget Oversight Committee March 22. 2007 Other Post Employment Benefits (OPEB) —What is it? June 2004 GASB issued Statement 45 requiring other post employment benefits other than pensions, be accounted for on accrual basis Includes cost of providing postemployment healthcare Retirees currently pay the same rate as employees, but use healthcare at a much higher rate These blended rates create an implicit subsidy for the retiree group Background GASB Statement 45 is effective for period starting after 12/15/07 for Phase 2 governments (annual revenues at least $10 M but less than $100 M) Must implement for year beginning 10/1/08, but early implementation is encouraged Report prepared by Bolton Partners calculates initial expense for year beginning 10/1/07 Annual Required Contribution (ARC) If we decide to fund, the ARC for FYE 9/30/08 is approximately $320,000, vs. the estimated pay -as -you go cost for OPEB benefits of $83,500 In order to fund, payments must be made to a trust (similar to pension trust) One incentive to fund is the discount rate used in trust vs. general government assets If we decide not to fund, the ARC for FYE 9/30/08 increases to approximately $420,000 Subtracting the pay -as- you -go cost of $83,500, the end of year balance sheet liability is estimated to be $336,500 (this liability increases each year by the difference between ARC and pay -as- you -go cost) Even if all assumptions materialize, the ARC is expected to increase 4 % -5% per year (due to healthcare inflation) If we decide to fund, the UAL as of 10/1/07 is approximately $2.1 M Amortization of this liability is approximately $120,000 annually over 17 years GASB 45 requires the $2.1 M be disclosed as a footnote to the financial statements If we decide not to fund, the UAL as of 10/1/07 increases to approximately $3.24 M Amortization of this liability is approximately $115,000 annually over 29 years GASB 45 requires the $3.24 M be disclosed as a footnote to the financial statements Balance sheet liability to be booked is the ARC, less the expected pay -as- you -go cost ($420,000 - $83,500 = $336,500) Summary GASB 45 does not require OPEB be funded; however a liability would continue to accrue (consider funding) City of PBG not required to implement until FY beginning 10/1/08 (consider implementing 10/1/07) Unfunded liability not required to be funded (consider designating $2.1 M from undesignated fund balance as of 9/30/06) Summary Report is still being finalized by Bolton Partners, but numbers will not change significantly Will distribute to committee after release; schedule presentation by Bolton at next committee meeting Questions? Preliminary Results GASB 45Actuarial Valuation- Other Post Employment Benefits (OPEB) Budget Oversight Committee March 22. 2007 Other Post Employment Benefits (OPEB) —What is it? June 2004 GASB issued Statement 45 requiring other post employment benefits other than pensions, be accounted for on accrual basis Includes cost of providing postemployment healthcare Retirees currently pay the same rate as employees, but use healthcare at a much higher rate These blended rates create an implicit subsidy for the retiree group Background GASB Statement 45 is effective for period starting after 12/15/07 for Phase 2 governments (annual revenues at least $10 M but less than $100 M) Must implement for year beginning 10/1/08, but early implementation is encouraged Report prepared by Bolton Partners calculates initial expense for year beginning 10/1/07 Annual Required Contribution (ARC) If we decide to fund, the ARC for FYE 9/30/08 is approximately $320,000, vs. the estimated pay -as -you go cost for OPEB benefits of $83,500 In order to fund, payments must be made to a trust (similar to pension trust) One incentive to fund is the discount rate used in trust vs. general government assets If we decide not to fund, the ARC for FYE 9/30/08 increases to approximately $420,000 Subtracting the pay -as- you -go cost of $83,500, the end of year balance sheet liability is estimated to be $336,500 (this liability increases each year by the difference between ARC and pay -as- you -go cost) Even if all assumptions materialize, the ARC is expected to increase 4 % -5% per year (due to healthcare inflation) If we decide to fund, the UAL as of 10/1/07 is approximately $2.1 M Amortization of this liability is approximately $120,000 annually over 17 years GASB 45 requires the $2.1 M be disclosed as a footnote to the financial statements If we decide not to fund, the UAL as of 10/1/07 increases to approximately $3.24 M Amortization of this liability is approximately $115,000 annually over 29 years GASB 45 requires the $3.24 M be disclosed as a footnote to the financial statements Balance sheet liability to be booked is the ARC, less the expected pay -as- you -go cost ($420,000 - $83,500 = $336,500) Summary GASB 45 does not require OPEB be funded; however a liability would continue to accrue (consider funding) City of PBG not required to implement until FY beginning 10/1/08 (consider implementing 10/1/07) Unfunded liability not required to be funded (consider designating $2.1 M from undesignated fund balance as of 9/30/06) Summary Report is still being finalized by Bolton Partners, but numbers will not change significantly Will distribute to committee after release; schedule presentation by Bolton at next committee meeting Questions?