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Ms. Wagner stated that department directors would present individual budgets to the Council on June 7'h. On June 21s`, the Council will be asked to adopt the Two Year Operating budget, hear the CIP and adopt year one of the CIP. Mayor Hosterman invited public comment on the item. Bart Hughes said he was a bit disappointed that personnel costs decreased only 1% over the current fiscal year. The price paid for these out of control personnel costs is less money spent on maintenance, materials, supplies and the CIP, all of which are what the citizens see most. He questioned the assumptions built into the proposed budget and hoped that going forward, a certain degree of contingency could be built into employee costs. He cautioned that the monies borrowed from medical funds in order to pay off the Police Pension should be repaid as quickly as possible. He noted that the proposed budget fails to address the issue of unfunded liability and hoped that would be a significant part of discussions moving forward. Mr. Fialho stated that the Council has adopted a priority to address long-term unfunded liabilities and other post-retirement benefits. Staff is structuring a conversation to consider a number of methods, and hopes to return for a preliminary discussion in July. Mr. Hughes said he hoped that concepts such as shared or reconfigured services are under consideration. Councilmember McGovern noted that while revenues are projected to reach previous levels, those dollars no longer buy what they used to. Ms. Wagner concurred and said that was the focus taken in meeting with department managers. BREAK: Mayor Hosterman called a brief break and, thereafter, reconvened the workshop. 2. Review of prepayment of the CALPERS side fund unfunded liability for the Police Group Director of Finance Wagner stated that in 2003, the California Legislature mandated that all public agencies participating in CaIPERS with less than 100 active members be placed in a risk sharing pool with other member agencies. In the case of Pleasanton, the Police Group was the only group with less than 100 active members. The Police Group's unfunded pension liability at that time was $9.2 million, which became a side fund obligation and then loan to be repaid over 20 years, at an interest rate of 7.75%. Some ten years later, the loan is $7.84 million with 10 years remaining on repayment. Over the remaining 10 years, the City would pay $11.35 million with interest. In 2011/12, the Safety Police PERS Employer rate is proposed to be 33.35%. The side fund repayment is 9.241% of the employer rate. That rate, times payroll, is how loan payments are generated. Ms. Wagner reviewed the City's options, which are to continue paying annually or to pay off the loan. CaIPERS allows members to pay off the loan at any time but in order to do so, the City must find $7.84 million of available funds. During the early 2000s, the City set aside excess monies into the Retiree Medical Reserves to fund the retiring medical obligation before it was a requirement. Currently, the non-Fire Retiring Medical Reserve is $30.9 million in a reserve as well as $9.6 million in a trust, for a total of$40.5 million. The Council approved investment of the Retiring Medical Trust into the California Employee Retirement Benefit Trust through CaIPERS at the PERS rate. The remaining $30.9 is with the $224 million investment portfolio that the City Council Minutes Page 7 of 10 May 17, 2011