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Home My WebLink About03042013 City Council Work Session Notes - Budget WS Part III i 1 . WORK SESSION NOTES ON (I -c4-1 - Et)\ —11:. • Purpose: ". _::iiThcac_L,2_e_ ii,,,..\) • • — : 'r.epnt:.-Iva_qi2,,<L_ Council Members PresentNYAA--io4 • , .,..g.As .-7,,,,y ,,L....u.., , v,„....„.„,s\r,-,,t_, .1,) ...2_._ ,, „ 5, - L.--\-- . ,,-. ,e. - • - • Called by: ,Th s,4 ,„„) Time .700?tvi Date „,,,,,,*******.„********* *********4-_***************** • z.,0 vik a e_trIc_C-LsileSe nA.c.,,c_ 4,-)\4__ . . Roto‘,A)-(0 ---- ,0_p,,,--i, ,s. -)b,--1',.696°:);_v_o- ‘ -' • —7 ryA„A. ..J.• v‘Adve,›___---,--z-7----- . o tv.-Ns___ ____,,,.-5,\... -,e,,(0 L...1.- -,..5- cyt..et-L_ ‘‘...c-_-- • 7 • -- ,:i..._& -\)44rtkl 1.--1 x.)01(-Lt._ 9''' „, ,..v- • ( .....),...) .),VN.N1- \ c_..-t-0/ .-- c)C . `\.A.-t-ri.k 45 )- • v..„ - ‘ w . , -\--;. zi\-•oz— vioLs. . , . . . , . ..:, ., .• 1,-. Ki-or2- • . ol) Pt- & c,6(2.&7” S --1-)A&--0 vio v,.(;_1/2-_:-I.,.(L_____ s - }e.,e _p_o.. :. . e . . . . . , ad ri e_e,... 3 c" -Lk)ai ---91,Lausa LON) Tm-P_Pc-cAPt-5" c(- • -WE-?_4, \- -t:4- Ltweie_e_A--t-e__ • ...1-0.") kAINk -y4_,Th ....___i,.___----i-)-8:r-4 - - • le,3.4____ • `� lJ�� 1s1sS�, 3 U rn - -T_--/ti' c-i Q loC o & r � 11\/\A-a_ Ga-P Q_Artcz To cu � � . • }-1. N MEMORANDUM Meeting Date: September 24, 2013 of sets. ,015 Through: James Hunt, City Manager tip,; ' From: Kristin Erchinger,Finance Director i( ' Agenda Item: 2015 Future Budget Adjustment related to PERS Liability BACKGROUND.&JUSTIFICATION: In 2008, Senate Bill 125 was passed by the Alaska State Legislature, capping the annual PERS contribution rates for employers at 22%, and creating a cost-sharing plan in which all employers pay the same employer contribution rate. This was a departure from the previous plan in which every employer was assigned a different employer cost rate, depending on their individual experience. Since 2008, the State has covered Seward's costs in excess of the 22% employer contribution rate for the public employees' retirement system, amounting to $2,215,821 through June 30, 2013 (excludes $186,026 paid by the State in 2006). The Government Accounting Standards Board (GASB) has recently promulgated two new Standards which will change the way governments report — and possibly fund — retirement system liabilities. GASB Statements No. 67 and No. 68 will result in the allocation of the Public Employee's Retirement System unfunded liability amongst all employers within the system.!A decision has not yet been made by the State of Alaska as to how it will allocate the liability. Employers will not necessarily be required to utilize the same methodology as that used by the State, although the use of a different methodology would require difficult—and potentially costly —additional audit-related work to justify. There is a case to be made in favor of the suggestion that the State should not allocate the entire $7.46 Billion unfunded liability to employers in the State(note that the State itself is the system's largest single employer), since Alaska State Statutes currently require the State to cover the amount by which annual contribution rates exceeds 22%. The State is more likely to argue however, that since the State legislature can change the amount it agrees to contribute on behalf of municipalities (known as State Assistance) the State should not consider this assistance payment as part of the State's liability, but should instead consider it as a liability of the employers (including municipalities). Once the State has made an initial determination as to the proposed treatment of the liability, the Departments of Administration and Law intend to draft a white paper on this topic, seeking input from political subdivisions. Since the City of Seward is currently preparing its biennial budget for the period 2014/2015, this issue is relevant, as the City will be required to book its share of the unfunded pension liability in its financial statements in 2015. Since a decision on the allocation of the liability has not yet been made, it is difficult to estimate with any degree of certainty,what the City's liability might be. However, one reasonable allocation method' would result in an allocation of approximately $17,365,692 of the current PERS Unfunded Liability to the City of Seward. Under this scenario, the General Fund would garner 76% of the liability ($13.1 Million), the Harbor Fund, 11.7% ($2.0 Million), the Electric Fund 6.0% ($1.0 Million), the Water Fund, 3.5% ($611,000) and the Wastewater Fund, 3.3% ($578,000)2. It is not yet clear whether the addition of these liabilities to the balance sheet of the enterprise funds will have an impact on the perceived creditworthiness of the enterprises, or how enterprise funds may be expected to account for these liabilities in the rate-setting process. The administration will continue to keep apprised of this situation and will inform the City Council once the State of Alaska has made a decision as to their recommended allocation methodology, as that will assist in computing the potential impact of the PERS unfunded liability on the City of Seward's financial statements. 1 This allocation methodology utilizes FY15 Projected Pay for all PERS employers (as estimated by the State of Alaska DRB), and a PERS unfunded liability as of June 30, 2012 of$7,460,000,000. 2 This allocation is based on the 2012 actual allocations between City funds, based on covered payroll. MEMORANDUM Meeting Date: September 24, 2013 t', of seww Through: James Hunt, City Manager ' From: Kristin Erchinger,Finance Director ` qi sKP Agenda Item: 2015 Future Budget Adjustment related to PERS Liability BACKGROUND &JUSTIFICATION: In 2008, Senate Bill 125 was passed by the Alaska State Legislature, capping the annual PERS contribution rates for employers at 22%, and creating a cost-sharing plan in which all employers pay the same employer contribution rate. This was a departure from the previous plan in which every employer was assigned a different employer cost rate, depending on their individual experience. Since 2008, the State has covered Seward's costs in excess of the 22% employer contribution rate for the public employees' retirement system, amounting to $2,215,821 through June 30, 2013 (excludes $186,026 paid by the State in 2006). The Government Accounting Standards Board (GASB) has recently promulgated two new Standards which will change the way governments report — and possibly fund — retirement system liabilities. GASB Statements No. 67 and No. 68 will result in the allocation of the Public Employee's Retirement System unfunded liability amongst all employers within the system. 'A decision has not yet been made by the State of Alaska as to how it will allocate the liability. Employers will not necessarily be required to utilize the same methodology as that used by the State, although the use of a different methodology would require difficult—and potentially costly —additional audit-related work to justify. There is a case to be made in favor of the suggestion that the State should not allocate the entire $7.46 Billion unfunded liability to employers in the State(note that the State itself is the system's largest single employer), since Alaska State Statutes currently require the State to cover the amount by which annual contribution rates exceeds 22%. The State is more likely to argue however, that since the State legislature can change the amount it agrees to contribute on behalf of municipalities (known as State Assistance) the State should not consider this assistance payment as part of the State's liability, but should instead consider it as a liability of the employers (including municipalities). Once the State has made an initial determination as to the proposed treatment of the liability, the Departments of Administration and Law intend to draft a white paper on this topic, seeking input from political subdivisions. Since the City of Seward is currently preparing its biennial budget for the period 2014/2015, this issue is relevant, as the City will be required to book its share of the unfunded pension liability in its financial statements in 2015. Since a decision on the allocation of the liability has not yet been made, it is difficult to estimate with any degree of certainty,what the City's liability might be. However, one reasonable allocation method' would result in an allocation of approximately $17,365,692 of the current PERS Unfunded Liability to the City of Seward. Under this scenario, the General Fund would garner 76% of the liability ($13.1 Million), the Harbor Fund, 11.7% ($2.0 Million), the Electric Fund 6.0% ($1.0 Million), the Water Fund, 3.5% ($611,000) and the Wastewater Fund, 3.3% ($578,000)2. It is not yet clear whether the addition of these liabilities to the balance sheet of the enterprise funds will have an impact on the perceived creditworthiness of the enterprises, or how enterprise funds may be expected to account for these liabilities in the rate-setting process. The administration will continue to keep apprised of this situation and will inform the City Council once the State of Alaska has made a decision as to their recommended allocation methodology, as that will assist in computing the potential impact of the PERS unfunded liability on the City of Seward's financial statements. This allocation methodology utilizes FY15 Projected Pay for all PERS employers (as estimated by the State of Alaska DRB), and a PERS unfunded liability as of June 30, 2012 of$7,460,000,000. 2 This allocation is based on the 2012 actual allocations between City funds, based on covered payroll.