ATTACHMENT 2
EXPENDITURES
The 5-Year Projections for Salaries and Benefits are shown below. The Town has one bargaining unit, the Atherton Police Officers Association. There are annual adjustments associated with this Memorandum of Understanding based on an agreed upon CPI range. The amounts below do not represent any assumed contractual labor adjustment (i.e. CPI or negotiated benefit increases). For purposes of the forecast, staff used assumptions between 3% and 4%.
Salaries & Benefits
FY 2024/25 FY 2025/26 FY 2026/27 FY 2027/28 FY 2028/29
Administration $923,409 $960,345 $993,957 $1,023,776 $1,054,489 Finance $625,456 $650,474 $673,241 $693,438 $714,241
Building $254,524 $264,705 $273,970 $282,189 $290,655
Police $7,149,963 $7,435,961 $7,696,220 $7,927,106 $8,164,919 DPW $655,682 $681,909 $705,776 $726,949 $748,757
Total $9,609,034 $9,993,394 $10,343,164 $10,653,458 $10,973,061 Because the Town uses a wide variety of contract services, the most significant portion of expenditures within the department budgets are Professional Services and Other Technical Services. These expenditure categories represent a variety of contract services, software licensing, and basic operational costs. These are built into the projection table below and represent services such as building and safety services, maintenance services, park event services, tree maintenance, legal services, planning services, IT services, and animal control services. Services provided under contract are not Town staff. Basic budget assumptions for the General Operations expenditure budgets are 3% to 4.5% year to year in the forecast. FY 2024/25 and FY 2025/26 forecast 4.5% increases; FY 2026/27 projects 3.5%; and FY 2027/28 and FY 2028/29 projects 3%.
Operational Expenditures
FY 2024/25 FY 2025/26 FY 2026/27 FY 2027/28 FY 2028/29
Council 72,121 75,366 78,004 80,344 82,754
Administration 408,158 426,525 441,454 454,697 468,338
Attorney 323,950 338,528 350,376 360,888 371,714
Finance 229,722 240,214 248,187 255,633 263,302
Planning 1,426,813 $1,168,886 1,215,642 1,264,267 1,314,838 Building 1,312,997 1,372,081 1,420,104 1,462,707 1,506,589 Inter-department 1,152,156 1,204,003 1,246,144 1,279,622 1,311,379 Police 1,908,571 1,994,457 2,064,263 2,126,191 2,189,977 DPW 3,026,045 3,162,217 3,272,895 3,371,082 3,465,582
Total Amount $9,860,420 $9,982,277 $10,337,069 $10,655,431 $10,974,473 Pension Liabilities
In November 2021 the CalPERS Board adopted a new investment return assumption of 6.8%. This was triggered by CalPERS Funding Risk Mitigation Policy (FRMP) which sets thresholds to be used when investment returns outperform the discount rate. In FY 2020/21 the investment return of the pension funds was 21.3%. It was during this time the CalPERS Board selected a portfolio ATTACHMENT 2
that would provide a projected rate of return of 6.8% while balancing risk and reward on investments. The new discount rate took effect July 2022 and is set for the next several years at
6.8%. The effect of these changes is a gradual increase in the required contributions for UAL and Normal Cost increases. In FY 2023/24 the Normal Cost increased 1.57% for Miscellaneous Employees (non-sworn) and 3.45% for Public Safety Employees (sworn). There was a reduction in the UAL for FY 2023/24 that also reflected the 21.3% investment return in FY 2020/21. The FY 2023/24 UAL decreased $45,242.
• The employer contribution rate set by CalPERS for Miscellaneous Employees (non-sworn) is 12.63% in FY 2023/24 and in FY 2024/25 the rate changes to 12.67%. • The employer contribution rate set by CalPERS for Public Safety Employees (sworn) is
29.09% in FY 2023/24 and in FY 2024/25 the rate changes to 29.30% in FY 2024/25.
The UAL for the Town in FY 2024/25 increased $330,084 compared to last year’s estimates. It is important to note that rates of return are reflective in CalPERS actuary reports two years after occurrence. The 2022/23 investment return was 6.2% and will first impact employer contribution rates for public agencies in fiscal Year 2025/26.
In April 2022, the City Council directed staff to allocate $5 million toward the Town’s Unfunded Accrued Liability (UAL) for the Public Safety Classic Plan. CalPERS allows employers to make Additional Discretionary Payments (ADP’s) at any time and any amount. Optional ADP payments serve to reduce the Town’s UAL and future required contributions. This can result in significant long-term savings. Prior to the ADP of $5 million, the FY 2022/23 current minimum required employer contribution towards the UAL for this plan was $1,172,082. The estimated UAL was as follows:
CalPERS UAL Contribution UAL FY
2022/23
UAL FY
2023/24
UAL FY
2024/25
UAL FY
2025/26
UAL FY
2026/27
Public Safety UAL $1,172,082 $1,235,697 $1,323,634 $1,380,442 $1,434,332 Public Safety UAL w/$5m ADP $815,591 $817,530 $797,300 $748,300 $696,300 Difference – Savings $356,491 $418,167 $526,334 $632,142 $738,032 Making the $5m contribution reduced the Public Safety UAL for FY 2022/23 to $815,591 and a net savings of $356,491. The updated UAL payments at the time showed that the savings over time were estimated at $2.67m. CalPERS’ updated Actuarial Report (6/30/2022) reflects a different savings projection.
CalPERS UAL Contribution UAL FY
2022/23
UAL FY
2023/24
UAL FY
2024/25
UAL FY
2025/26
UAL FY
2026/27
Public Safety UAL $1,172,082 $1,235,697 $1,323,634 $1,380,442 $1,434,332 Public Safety UAL w/$5m ADP Actual &
Projection Updated
$815,591 $813,210 $1,019,974 $1,116,000 $1,208,000
Difference – Savings $356,491 $422,487 $303,660 $264,442 $226,332 This recent CalPERS Actuary report as of June 30, 2022, reveals updated UAL payments showing above that the savings are now estimated at $1.57 million over time. The reduction is due to CalPERS Actuarial changes to the rate of return and CalPERS’ actual returns. While the contribution to the Town’s UAL was a prudent financial decision, the impact was not as significant ATTACHMENT 2
as anticipated due to actuarial changes by CalPERS. The investment return was a negative 6.1% FY 2021/22 and in FY 2022/23 the return was 6.2% combined with a reduction of discount rate from 7.0% to 6.8%. The Town’s estimated Unfunded Actuarial Liability (UAL) payments (minimum annual payments to CalPERS) for Classic and PEPRA members combined look as follows:
Unfunded Accrued Liability Payments
Plans FY 2024/25 FY 2025/26 FY 2026/27 FY 2027/28 FY 2028/29 Miscellaneous $536,074 $578,600 $620,200 $654,000 $728,000 Public Safety $1,034,310 $1,137,000 $1,236,000 $1,317,000 $1,495,000 Total $1,570,384 $1,715,600 $1,856,200 $1,971,000 $2,223,000 With CalPERS’ discount rate of 6.8% and this year’s preliminary return of 6.2%, the estimated overall funded status CalPERS Pension stands at 72%. The Town’s FY 2022/23 net pension liability is $17.8m (local miscellaneous and public safety). This is an increase of $5.62m from the previous year. Staff will continue to present the CalPERS Actuarial Reports to the Finance Committee and work with CalPERS actuary to continue to review and discuss pension liabilities.
Debt Service Lease Payments
The Town issued COP Lease Financing of $7.68m for cash flow purposes for the Town Center Project. The COP is a ten (10) year financing tool with a five (5) year call option and average annual debt service of approximately $861,871. The first semi-annual payment began in December 2020. Including FY 2023/24 the Town has made $3.42m in payments on the COP Lease. If desired, the Town can exercise the call option in June 2025 and pay off the COP. However, current Council direction is to retain the 2.1% interest rate on the lease payments and continue making the semiannual payments until conclusion in FY 2029/2030. The call option estimated payment amount is $4.3m. Through term, the total lease financing payments is $8.6m of which includes interest of $915k.
Capital Projects
Capital Projects will be addressed in detail at Meeting #3 – May 1. Capital projects focus on streets & transportation, drainage, and Town Buildings & Park Facilities. Staff is still reviewing priority projects from the various Master plans for Council review and discussion. Master plans were last completed approximately ten years ago and some of the priority projects have been completed.
Funding sources for capital projects are the following:
General Fund Library Funds
Capital Improvement Fund Channel Funds
Measure A, Measure W, & Measure M Surface Transportation Funds Gas Tax Donations (Town Center)
MTC transportation Funds Remaining Parcel Tax