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File #: 2022-2100   
Type: Joint Agenda Item
Body: City Council
On agenda: 6/21/2022
Title: Adoption of Resolution to Adopt the One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy. [City Council] (Finance 10024051)
Attachments: 1. Exhibit 1 - One-Time Revenue and General Fund Surplus Policy, 2. Resolution, 3. Presentation, 4. Correspondence

Title

Adoption of Resolution to Adopt the One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy.  [City Council]  (Finance 10024051)

 

 

Body

 

To: Honorable Mayor and Members of the City Council

 

EXECUTIVE SUMMARY

 

Staff proposes to replace the 2017 Pension and Other Post-Employment Benefits (OPEB) Funding Policy with the draft 2022 One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy in an effort to continue to address the City of Alameda’s (City) unfunded liabilities while balancing the City’s other short and long-term funding needs.

 

BACKGROUND

 

The City, in partnership with its employees, has taken several steps to manage and reduce its pension and Other Post-Employment Benefits (OPEB) liabilities and costs. These actions represent responsible financial management that have lowered the City’s annual pension costs and positioned the City to achieve savings into the future. 

 

The concept of identifying and setting aside funds for long-term liabilities (pension and OPEB) was first discussed in September 2015, when the City Council approved dedicating General Fund surplus funds to be used for pension and OPEB liabilities. In March 2017, City Council adopted a Pension and OPEB Funding Policy (2017 Policy) for funding current and future costs associated with the City’s contractual obligations to provide pension and retiree medical benefits. Pursuant to the 2017 Policy, the City makes minimum annual contributions of $250,000 to the Pension Stabilization Fund and $100,000, or as required in the labor agreements, to the OPEB Trust. In addition to the minimum contributions, the 2017 Policy calls for contributing one-half of the fiscal year-end General Fund surplus into a Trust Fund or direct pay down of CalPERS unfunded liability for either pension or OPEB.

 

Since adoption of the 2017 Policy, the City has made a total of $37.5 million in CalPERS advance payments and pension and OPEB trust contributions in accordance with the policy, and is scheduled to make an additional FY 2021-22 payment of $7.8 million as shown in the table below.

 

Fiscal Year

CalPERS Advance Payment

Pension (721) Trust Contributions*

OPEB (810 &811) Trust Contributions

Total

2016-17

 $                          -  

 $            250,000

 $              250,000

 $              500,000

2017-18

 $        10,695,052

 $        3,325,016

 $          3,000,000

 $        17,020,068

2018-19

 $           6,142,000

 $        2,047,172

 $              500,000

 $          8,689,172

2019-20

 $                          -  

 $            733,998

 $              250,000

 $              983,998

2020-21

 $            7,546,500  

$          2,515,500

 $              250,000

 $          10,312,000

Subtotal

 $        24,383,552

 $        8,871,686

 $          4,250,000

 $        37,505,238

2021-22 Scheduled

 $           5,659,000

 $        1,886,000

 $             250,000

 $          7,795,000

Total

 $        30,042,552

 $       10,757,686

 $          4,250,000

 $        45,300,238

* Net of CalPERS Advance Payment

 

While City Council continues to support identifying funding sources to pay down the City’s liabilities in order to mitigate future pension and OPEB costs, the City Council has raised concerns about the suitability of the funding formula in the 2017 Policy. Each year since 2020, the City Council has taken action to deviate from the funding formula in the 2017 Policy.

 

Staff proposes to repeal and replace the 2017 Pension and OPEB Funding Policy with the draft 2022 One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy.

 

DISCUSSION

 

Unfunded pension liability is the gap between the amount of future benefits a pension is expected to pay out and the assets presently in the pension fund. The City’s latest CalPERS actuarial reports from July 2021 show an unfunded liability of $204.4 million for the safety (Police and Fire) plan and $92.4 million for the miscellaneous (all other employees) plan. 

 

In an effort to continue to address both the City Council’s concerns with the 2017 Policy and the City’s unfunded liabilities, while balancing the City’s other short and long-term funding needs, staff proposes repealing the 2017 Policy and replacing it with the One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy (Proposed Policy) that establishes a methodology for allocating annual General Fund surplus funds due to receipt of one-time revenues, such as excess Property Transfer Tax (PTT), to unfunded liabilities.

 

The City’s PTT rate on residential and commercial real property sales is 1.2% of value of each real estate transaction. PTT is a volatile revenue source that is subject to fluctuations based on market demand for real property within the city, as well as a handful of high value property transfers in any given year. Due to this volatility it is prudent to identify a way to define “Excess PTT” and direct those revenues to fund one-time expenditures. The Proposed Policy defines “Excess PTT” as any amount of actual PTT revenues that exceed 14% of General Fund tax revenues (inclusive of PTT) at fiscal year-end.

 

In addition, the Proposed Policy defines surplus revenues as the difference between the current year and the prior year General Fund “Residual fund balance in excess of policy or fund balance deficits,” found under the Net Position and Fund Balances footnote of the Annual Comprehensive Financial Report (ACFR).

 

At the end of the fiscal year, staff will determine whether a General Fund surplus exists. If so, staff will calculate one-time revenues, including Excess PTT, received. City staff would then propose allocations of the one-time revenues, up to the amount of the General Fund surplus. Of the one-time revenues identified for allocation, 75% would be used to reduce CalPERS unfunded liability and 25% would be contributed into the City’s Public Agency Retirement Services (PARS) Section 115 Irrevocable Trust. Staff would report these potential allocations to the City Council as part of the mid-year budget update each year.

 

ALTERNATIVES

 

                     Adopt the One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy as proposed.

                     Provide direction to staff for changes to the draft 2022 One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy.

                     Take no action. The 2017 Pension and OPEB Funding Policy would remain in place.

 

FINANCIAL IMPACT

 

There is no financial impact from the adoption of the One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy. However, the proposed policy will guide future allocations of funding for addressing unfunded liabilities, which will affect the availability of funding in future budget cycles.

 

MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE

 

This action does not affect the Alameda Municipal Code. This action will repeal the 2017 Pension and OPEB Funding Policy.

 

ENVIRONMENTAL REVIEW

 

This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378 (b)(4) of the CEQA Guidelines, because it involves governmental fiscal activities, which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.

 

CLIMATE IMPACTS

 

There are no climate impacts from adoption of the One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy.

 

RECOMMENDATION

 

Adopt a resolution to adopt the One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy.

 

 

Respectfully submitted,

Margaret L. O’Brien, Finance Director

 

By:

Ross McCarthy, Controller

Jennifer Tell, Budget Manager

 

Exhibit:

1.                     One-Time Revenue, Excess Property Transfer Tax, and General Fund Surplus Policy