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finance staff handles, at a current rate of return of 1.8%. The City's current borrowing rate would be 4.23%. Staff prepared a net present value analysis, which identified a net payoff savings, even with borrowed funds at 4.23%, of $1.5 million. Net present value of that payoff is $1.3 million. The net present value rule states that any time the net present value savings exceeds $1 the alternative should be undertaken. Therefore, the overwhelming recommendation is for the City to pay off the unfunded liability. Benefits of paying off the side fund are that the employer rate would immediately drop to 24.112% from the 33.35%, which represents approximately $1 million savings in annual PERS costs. Additionally, an early payoff would result in a potential savings of up to $3.5 million in future interest costs. Ms. Wagner noted that the budget presented does not reflect this savings, which staff would recommend adding to the $3 million already proposed for transfer into the Retiring Medical Reserves. Over the two-year budget cycle, the City would have paid back $5 million of the $7.8 million borrowed. The Finance Committee has reviewed the proposal and recommended that the Council review and approve the item. Staff will return for Council action on June 7th, with the payment to occur no later than July 1, 2011. Councilmember Thorne asked Ms. Wagner to speculate on the costs if the City had not been required to join the risk pool. Ms. Wagner said it is near impossible to determine the City's exact unfunded liability since it is accounted for on a pool basis. Vice-Mayor Cook-Kallio asked if there are any benefits to the risk pool. Ms. Wagner stated that the purpose was to make the administration easier and arguably, to reduce costs. Vice-Mayor Cook-Kallio questioned and confirmed that the fire department, as sworn officers, could not have been pooled with police. Councilmember McGovern questioned and confirmed that the employer rate of 33.35% does not include the 9% employee portion. Councilmember McGovern noted this equals an extraordinary combined rate of roughly 41% and asked if it has ever reached this level before. Ms. Wagner said "no." Mr. Fialho expanded on this, stating that rates have increased from the 20s since 2007/08, which is why the City is now in this position of having employees pick up their incremental share. 3. Review updated user fees for development related services Ms. Wagner provided a brief overview of development relate services. She stated that the City's fiscal policy is that development is to pay 100% of its cost of services. In 2009, the City hired Public Resource Management and completed a study of the development related user fees, which have not been reviewed since 1992. At that time, the economy was in a similar depression and it was determined that a majority of the fees should remain at their 1980s levels. The results of the latest study found that the City achieved approximately 45% cost recovery in 2007/08. The study recommendation was to increase the fees to achieve an 80% cost recovery, an annual construction cost index increase, and a biannual review and update of the fees as well as to work towards 100% cost recovery. City Council Minutes Page 8 of 10 May 17, 2011