Fiscal Strategies
LONG -TERM FINANCIAL POLICY AND
AUDIT SUBCOMMITTEE
MARCH 8, 2022
ALAN ALTON
CHIEF FINANCIAL OFFICER
Fiscal
Strategies
2 Overview
Pension Stabilization
Capital Replacement
Next Steps
Overview – Fiscal Strategies
Develop proactive approaches to pay for known significant expenditures ◦ Pension Unfunded Liability Costs
◦ Capital Replacement
◦ Deferred Infrastructure – Specifically City Facilities Develop funding mechanisms
◦ Fiscal Stability Funds
◦ Annual Budget
◦ Year End Surplus (if available)
Formalize with City Council policy
3 CalPERS Funding
CURRENT PRACTICE
◦ Monthly “Normal Cost” Payment =
~$20M/YR
◦ Annual UAL Payment = ~$30M
◦ Projected to grow to $34M for all funds
◦ Existing POB Debt Service =$3.7M/YR
◦ Paid off in FY 24
PROPOSED
◦ Still Pay Normal Cost, UAL, and Debt
Service
◦ Use Section 115 Trust to Help Pay Down
Unfunded Liability
◦ Fund Trust Via 3 Methods:
◦ Initial Funding from Fiscal Stability Funds
◦ Annual Budgeted Amount to Trust
◦ Percentage of Year-End Surplus (if available)
◦ Set Funding Goals
◦ Goal to Achieve 100% Funded Status
4 Forecasted UAL Payment
5 City’s CalPERS Funded Status –
2006 - 2021
6 City’s UAL – 2006 - 2021
7 Section 115 Trust Strategies
Purpose for Trust
◦ Build Trust Balance to = 1 Year UAL Payment (~$34M for all Funds) ◦ Achieve 100% Funded Status
Benefits
◦ Increased generational equity by the City reaching 100% funded status as early as possibly
◦ Would not burden future taxpayers for the pension of current employees ◦ Establishes a clear goal for the fund tied to pension stabilization Risks
◦ Will require additional funding, as either annual budget line item, year-end budget surplus, or both
◦ How to fund during economic downturn – does funding Trust take priority over other GF needs?
8 Sec. 115 Trust – 100% Funded Model
Build Trust Balance to = 1 Year UAL Payment (~$34M for all Funds)
Once at 100% Funded, Trust can be used to make UAL
payments to CalPERS
City would re-fund the Trust to offset future losses and act as true Pension Stabilization Fund
Use of funds could occur if UAL payments went higher than $34M
9 Sec.115 Trust – Funding Strategies
Initial funding could come from Fiscal Stability Funds
◦ Fiscal Stability Funds = $40M
◦ If use $10M, Need Additional $24M to Meet 1 Year Payment Goal ($34M) Determine annual budget amount
◦ e.g., at $3M per year, would reach funding goal in approximately 8 years ◦ PFM recommends minimum of $500K per year
◦ Use of year end surplus/investment returns can accelerate time frame Strategy for use of funds
◦ Once at 100% funded, may use balance to supplement payments to CalPERS
10 100% Funding Model
• Fiscal
Stability
Funds
• Up to $40M
Initial
Funding
• Annual
Budget
Appropriation
• % of Year
End Surplus
Ongoing
Funding
• 1 Year UAL
Payment
• 100% Funded
Status
Final
Goal
11 Capital Replacement
CURRENT PRACTICE
Most City vehicles and equipment are
included in the City’s replacement fund
Fire Apparatus, equipment under $5K,
generators, busses, special revenue and
grant-funded vehicles are NOT included
Cost to replace asset is prorated over the
asset’s useful life
Department’s budget their assets’ annual
replacement cost, send funds to
Replacement fund
PROPOSED
Add Fire apparatus and engines to the
Replacement Fund
This would help the GF to avoid large and
unplanned purchases as the fleet ages
Would require substantial initial funding to
bring fire assets replacement funds up to
date
Would result in annual increase to GF
budget for annual replacement costs all
Fire assets
12 Funding Procedure
◦Initial funding required to bring replacement costs for fire assets up to date are approximately $6M -$7M
◦Each asset will be assigned in the fund with a
corresponding replacement cost
◦Ongoing replacement costs budgeted annually in Fire
Department budget
◦ Would not require additional funds from Year End surplus ◦Estimated ongoing additional cost is $1.5M
13 Next Steps
Developing strategy for funding Deferred Maintenance
for City Facilities
◦Return to LTFPA with that in April
Assuming Section 115 Strategy is acceptable, develop
formal policy
◦Bring to LTFPA in April, to Council for adoption in
May/June – goes into effect on July 1, 2022
14 Questions?
15