ANALYSIS
Like many other Cities, City of Patterson was impacted by COVID-19 pandemic since March 2020. Cost cutting measures were adopted for FY 2020-2021 in the amount of $1.3 million. The set-aside Pension and OPEB reserves remain intact throughout the pandemic. As the City of Patterson continues to bring in new residential and commercial developments, both property taxes and sales tax have increased at an unexpected rate. City of Patterson, is fortunate to see significant increase in sales tax in the fiscal year 2020-2021, a combine effect of growth in developments and the change in sales tax reporting of one of the top sales tax producers. Based on the sales tax exceptional performance, there are available fund that could be channel to increase the Pension and OPEB reserve. Hence, staff developed OPEB Funding Policy see (“Exhibit A”).
The proposed OPEB Funding Policy would:
• outline goals to get pensions 80% funded by 2040
• stabilize future pension outlays from General Fund by setting aside money in Section 115 OPEB Trust
Upon adoption of the OPEB Funding Policy, City staff would like to move the General Fund unassigned reserve amount of $750 thousand to the Section 115 OPEB Trust Fund administered by PARS. On an ongoing basis, the City would contribute $250 thousand to the Section 115 OPEB Trust Fund each year.
FISCAL IMPACT
In the short term, adoption of this policy would increase the amount paid from the General Fund toward the City’s current OPEB liability, as shown in the graph below. In this graph, the amounts in purple are the payments for Benefit Payments made by the City, and the amounts in red are the additional contributions made to the Section 115 OPEB Trust Fund.
$0
$200
$400
$600
$800
$1,000
$1,200
2020-2021 2025-2026 2030-2031 2035-2036 2040-2041
Thousands
Benefit Payments
Over time, we would expect some future savings for the City due to the difference in investment income on the money in the Section 115 OPEB Trust, as opposed to returns on internal reserves. The City Unfunded OPEB Explicit Liability is projected to decrease from $8 million in 2020 to $2 million in 2040, as shown in the graph below.
If this policy is adopted and implemented, the Funded Percentage for the City’s OPEB Explicit Liabilities is projected to increase from 0% in 2021 to 80% in 2040, as shown in the graph below.