FINANCE COMMITTEE AGENDA
November 29, 2022 at 4:00 P.M.
Meeting will be held in the Community Center
33 Church Street
Sutter Creek, CA
1. Call to Order - 4:00 P.M.
2. Public Matters not on the Agenda
This is an opportunity for the public to comment on items that are not on the Committee’s agenda.
3. PARS 115 Trust
Recommendation: For information and discussion. Mitch Barker from PARS will be present with current handouts.
4. General Fund and Capital Fund Reserve Policies
Recommendation: For information and discussion.
5. Adjournment
In compliance with the Americans with Disabilities Act, if you are a disabled person and you need a disability-related modification or accommodation to participate in this meeting, please contact City Hall staff at (209) 267-5647 or (209) 267-0639 (fax).
City of Sutter creek
PARS 115 Trust – Pension Rate Stabilization Program (PRSP) November 29, 2022
City of Sutter creek 2
Contacts
Mitch Barker
Executive Vice President
(949) 310-4876
[email protected]
Fiddletown Resident
Jeff Hermann
Senior Analyst, Consulting
(800) 540-6369 x163
[email protected]
Andrew Brown, CFA
Director, Senior Portfolio Manager
(415) 705-7605
[email protected]
Michael Wiehn, CFA
Institutional Relationship Manager
(415) 705-7181
[email protected]
City of Sutter creek 3
Pars 115 Trust Team
Trust Administrator & Consultant
38 Years of Experience
(1984-2022)
2,000+
Plans under
Administration
1,000+
Public Agency
Clients
$6.0B
Assets under
Administration
Investment Manager
• Investment sub-advisor to trustee U.S. Bank
• Investment policy assistance
• Uses open architecture
• Active and passive platform options
• Customized portfolios (with minimum asset level)
103
Years of Experience
(1919-2022)
$17.4B
Assets under
Management &
Advisement
Trustee
• 5th largest commercial bank and one of the
nation’s largest trustees for Section 115 trusts
• Safeguard plan assets
• Oversight protection as plan fiduciary
• Custodian of assets
159
Years of Experience
(1863-2022)
$9.0T
Assets under
Administration
490+
115 Trust Clients
• Serves as record-keeper, consultant,
and central point of contact
• Sub-trust accounting
• Coordinates all agency services
• Monitors plan compliance
(IRS/GASB/State Government Code)
• Processes contributions/disbursements
• Hands-on, dedicated support teams
500 K+
Plan Participants
City of Sutter creek 4
PARS 115 Trust clients (490+) Updated November 2022
Angels Camp
Atwater
Elk Grove
Galt
Ione
Lodi
Merced
Modesto
Stockton
West Sacramento
Alpine
Amador
Calaveras
Placer
San Joaquin
Regional Client Agencies Include:
CITIES COUNTIES
Calaveras County Water District
Rancho Murieta Community Services District
San Andreas Sanitary District
South Placer Fire Protection District
SPECIAL DISTRICTS
City of Sutter creek 5
Subaccounts
Pension assets can be divided by
dept., bargaining group, or cost
center
Assets in the PARS Section 115
Trust can be used to address
unfunded liabilities.
Financial Stability
Choice of 5 risk tolerance
levels or custom strategy
Flexible Investing
As assets grow, lower fee rates
will be reached on tiered
schedule – saving money
Anytime Access Economies-of-Scale
Trust funds are available
anytime for Pension-related
expenses
No set-up costs, no minimum
annual contribution amounts,
and no fees until assets are added.
No Set Up Cost or Minimums
Pension Rate Stabilization Program
Prefund Pension (PRSP) GASB 68
Pension
Reimburse City; or
Pay retirement system
Assets can be used to: General Fund
PARS IRS-Approved Section 115 Trust
Prefund
City of Sutter creek 6
PARS Pension Rate
Stabilization Program
for prefunding pension obligations
The
City of Sutter creek 7
• Since 2015, GASB 68
has required disclosing
Net Pension Liability on financial
statements as a line item on the
balance sheet
• Before the concept of pension
prefunding, the only way to
reduce retirement system
unfunded liabilities was to send
additional contributions in
excess of annual required
employer contributions
• Pension trust prefunding
assets can be transferred to
the retirement system at the
Agency’s direction, which can
help offset future rate increases
(i.e., pension rate stabilization).
Background – Pension
CalPERS Changes
CalPERS has announced changes directly
affecting unfunded liability amounts and
employer contributions:
Lowering of Discount Rate 1
CalPERS lowered the
discount rate from 7.0% to 6.8%.
The impact is reflected in the
June 30, 2021 valuation reports.
Shortened Amortization Period 2
New actuarial liabilities are
amortized over 20 years instead of
30, increasing required annual
employer contribution amounts*
7.0%
6.8%
30 years
20 years
2 5-year ramp up in payments beginning
FY 15-16 with full impact in FY 19/20.
1 Contributions from policy changes beginning
FY 23-24.
City of Sutter creek 8
Combined Miscellaneous
& Safety Groups *
Valuation as of
June 30, 2020
Valuation as of
June 30, 2021
Change
Actuarial Liability $13.7 M $14.3 M 4.7% ↑
Assets $9.5 M $11.3 M 18.1% ↑
Unfunded Liability $4.1 M $3.0 M 26.5% ↓
Funded Ratio 69.8% 78.8% 12.8% ↑
Employer Contribution Amount $0.4 M $0.5 M 13.9% ↑
(FY 21-22) (FY 22-23)
Employer Contribution Amount – Projected *
---
$0.5 M 3.3% ↓
(FY 28-29)
Pension Funding Status
As of June 30, 2021, City of Sutter Creek’s CalPERS pension plan is funded as follows:
* Data through 2028-29 from Agency’s latest CalPERS actuarial valuation.
City of Sutter creek 9
Why Prefund Pension Obligations?
Complete Local Control over Assets
City has complete control over assets, including contributions, disbursements and the timing, amount, and risk tolerance level of investments
1. Pension Rate Stabilization
Assets can be transferred to the retirement system at the City’s direction, potentially reducing/eliminating large fluctuations in employer contribution amounts
2. Rainy Day Fund
Emergency source of funds when employer revenues are strained in difficult budgetary or economic times
3. Diversification
Allows for investment flexibility and offers the potential for assets to earn greater returns than the general fund; spread the risk vs. sending additional money to CalPERS
4. City of Sutter creek 10
1. Input Phase
– Target discount rate
– Risk tolerance
– Investment philosophy
– Asset allocation
– Timing on use of funds
3. Dedicated Portfolio Manager
– Makes recommendation
– Fiduciary responsibility
– Drafts investment policy
– Annual on-site reviews
– Cell phone access
Simple Investment Approach
2b. Custom Portfolios
or
2. Model Portfolios
Strategy Equity 10-YR Returns*
Capital Appreciation 65-85% 7.03%
Balanced 50-70% 5.93%
Moderate 40-60% 5.10%
Moderately Conservative 20-40% 3.51%
Conservative 5-20% 2.35%
vs. LAIF 0% 0.91%**
*10-Year returns as of September 30, 2022
**Avg. LAIF apportionment rate (released quarterly)
11over the 10-Year period ending September 30, 2022
City of Sutter creek 11
Plan Set-Up Fee: Ongoing Fees:
None 0.35% for assets under $5 million
0.25% for assets $5-10 million
0.20% for assets $10-15 million
0.15% for assets $15-50 million
0.10% for assets over $50 million
Program Fees
Plan Set-Up Fee: Ongoing Fees:
None 0.25% for assets $0-10 million
0.20% for assets $10-15 million
0.15% for assets $15-50 million
0.10% for assets over $50 million
* PARS does not receive any compensation from the investments or any commissions, back-end loads, or any other forms of compensation. ** Subject to change due to rebalancing, as fees are waived for plan assets in First American Funds (money market) Trust Administration/Consulting Fees*
Discretionary Trustee/Investment Management Fees**
As of September 30,2022
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Sample Funding Policies
1. Contribute 50% of a given year’s realized year
end surplus to address pension liability
2. Contribute full amount of annual PERS employer cont., allowing anytime access to trust assets
3. Contribute funds to stabilize PERS employer
Misc. and Safety rates through FY 23-24
4. “One equals five plan” - $1M contribution for 5 years will save taxpayers $5M over 25 years
5. Contribute Employer contribution equal to the 2.8%
discount rate, with difference going into the Section 115 Trust
6. Contribute the annual savings realized from Reduction in UAL payment resulting from Pension Obligation Bonds issuance
7. Earmark a portion of a local sales tax to be set
aside for unfunded pension liabilities
8. Use ongoing savings from prepaying CalPERS
unfunded liability vs. higher monthly payments
9. Use one-time revenue source and lower the
minimum General Fund Reserve level (30% → 20%)
Alameda/Solana Beach
City of Brea
City of Healdsburg
City of Huntington Beach
City of Sausalito
City of Placentia
City of Fountain Valley
City of Pasadena
City of Glendale
City of Sutter creek 13
Why take this step?
1. Smooths out pension rate volatility
2. Offers Hedge against Inflation
3. Provides a fiscal tool in your financial toolbox
4. Prepares today for tomorrow’s pension realities
Questions?
18 Main St., Sutter Creek, CA 95685 • Telephone: (209)267-5647 • Fax: (209)267-0639 • TTY: 711 The City of Sutter Creek is an equal opportunity service provider and employer Item 9
STAFF REPORT
TO: THE MEMBERS OF THE FINANCE COMMITTEE
MEETING DATE: NOVEMBER 29, 2022
FROM: JODI STENECK, ACCOUNTING SUPERVISOR
SUBJECT: GENERAL OPERATING AND GENERAL CAPITAL RESERVE
POLICIES
RECOMMENDATION:
Review and approve the General Operating Reserve fund policy and the General Capital Reserve fund policy.
BACKGROUND:
The City of Sutter Creek does not have a reserve fund policy for General Operating or General Capital.
As the City has been budgeting into a General Operating Reserve fund and a General Capital Reserve fund it was discussed that a policy should be created to determine the process, use of funds, repayment, and a reasonable fund balance.
DISCUSSION:
The General Operating Reserve initial goal is 40% of the GF adopted annual budget revenues. Using the 2022-23 adopted budget with GF revenue of $2,187,545 the Operating Reserve fund goal would be $875,018. This may take several years to reach, but staff is recommending combining the General Saving (Fund 86) which has a fund balance of $50,029 to the General Operating Reserve fund which is currently $248,813 for a total of $298,842. Per the 22-23 budget, 1% ($21,875) of GF revenue will be transferred to the General Operating reserve which will increase the fund balance to $320,717.
BUDGET IMPACT:
None
Item 4
City of Sutter Creek
General Capital Reserve Policy
Section 1: Purpose
The purpose of this policy is for the City of Sutter Creek to formally establish minimum levels and reserve targets of the General Capital Reserve fund balance. The purpose of the capital reserves is to ensure a strong foundation for the financing and completion of capital projects, an important component of capital improvement planning is long-term financial planning for future infrastructure improvements and acquisitions. These funds are reserved specifically for capital needs and are not to be used for generally operating purchases.
Section 2: Policy
The City of Sutter Creek is establishing reserves with the following designations:
General Capital Reserve:
The General Capital Reserve fund is a permanent fund for capital improvements that are critical for the continued operation of municipal services. Capital Reserves are directly tied to planned capital needs, with an estimated allowance for emergency repairs and replacement.
The City Manager will first evaluate the City’s financial condition and make a recommendation to City Council as to the need to makes contributions to the General Capital Reserve. This action will be done annually as part of the budget adoption and will include a capital asset report. The report will include estimated repair and replacement costs for a two-year period as well as the annual reserve funding amounts required to meet these obligations.
Use of Reserve Funds:
Capital Reserve balances are to be used for the repair and replacement of vehicles, equipment, building repair, and land improvements as approved by the City Council. Reserve funds may also be used to repair or replace items deemed necessary for continued public health and safety.
All uses of the General Capital Reserve must be approved by resolution of the City Council with a four-fifths vote. In the event of an emergency, purchases of equipment, materials, supplies or services determined by the City Manager to be necessary to meet an emergency which threatens the public health, safety or welfare, may be made without prior City Council approval, however the purchases will be provided to the City Council at the earliest practicable meeting time.
All Capital Reserve fund uses are to be repaid to the reserve over a period to be determined by the City Council at the time of usage approval, with a target repayment period of no more than three years.
Year-End Excess Revenue
As part of the annual budget adoption process, or at any time the City Manager deems necessary, the City Manager would recommend whether the excess funds could be allocated to other reserves, or used as one-time funding with consideration given to economic development and/or capital projects.
Other Funds
In conjunction with approving the General Capital Fund Reserve Policy, the City Council expresses it intent to evaluate other Special Revenue and Enterprise funds to establish appropriateness of developing formal fund-specific reserve policies.
City of Sutter Creek
General Operating Reserve Policy
Section 1: Purpose
The purpose of this policy is for the City of Sutter Creek to formally establish General Operating Reserve fund balances based on budgeted revenue. The purpose of the operating reserves is to mitigate the effect of unanticipated situations such as natural disasters and unforeseen events.
Reserves also provide the City with stability in times of economic fluctuations that are nonreoccurring and/or unanticipated. Reserves help provide for a smooth, temporary transition to prevent drastic or devasting changes in service levels caused by changes in the City’s financial situation.
Section 2: Policy
The City of Sutter Creek is establishing reserves with the following designations:
General Operating Reserve:
The General Operating Reserve fund helps mitigate the effects of unanticipated situations such as natural disasters and severe, unforeseen events. The General Operating Reserve also serves to mitigate periodic revenue shortfall due to downturn in economic cycles, thereby avoiding the need for service-level reduction within the fiscal year.
The General Operating Reserve goal is 40% of the General Fund’s adopted annual budget revenues.
The City Manager will first evaluate the City’s financial condition and make a recommendation to City Council as to the need to make contributions to the General Operating Reserve. This action is done as part of the annual budget adoption; however, these actions can be completed at any time the City Manager deems necessary.
Use of Reserve Funds:
The following is provided to govern the appropriate use and replenishment of the City’s General Operating Reserve fund. The use of funds from this reserve shall be used to mitigate costs associated with unforeseen emergencies, including natural disasters and to mitigate annual revenue shortfalls due to slowdown in general economic conditions as well as reduction in revenues caused by actions by State/Federal governments. The City Manager must present a report to the City Council to justify the use of the General Operating Reserve and provide the circumstances of the fiscal emergency. All uses of the General Operating Reserve must be approved by resolution of the City Council with a three-fifths vote. Any such uses are to be repaid to the reserve over a period to be determined by the City Council at the time of usage approval, with a target repayment period of no more than two years.
Year-End Excess Revenue
As part of the annual budget adoption process, or at any time the City Manager deems necessary, the City Manager would recommend whether the excess funds could be allocated to other reserves, or used as one-time funding with consideration given to economic development and/or capital projects.
Other Funds
In conjunction with approving the General Operating Fund Reserve Policy, the City Council expresses it intent to evaluate other Special Revenue, Enterprise and Capital funds to establish appropriateness of developing formal fund-specific reserve policies.