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Councilmember McGovern asked how many years this equates to causing negative amortization. Mr. Bartel stated in short, the asset smoothing gets the City to an amortization if it is looking at unfunded liability on a market value basis. Ignoring smoothing, negative amortization is almost too big to think of. Mayor Hosterman asked if 20 years or less will get the City where it needs to be. Mr. Bartel said yes; the City should be diligent in continuing to look at this. Councilmember Sullivan questioned what this means in terms of what the City needs to contribute. Mr. Bartel said if the City were contributing 6.5% for safety and higher than CaIPERS asks the City to pay, while not perfect, this is roughly correct. Mr. Bartel said the City could set up its own City service fund to allow for the increase in the contribution. Mr. Fialho likened it to the principal and interest payment. The City could direct the organization to come up with annual, 5-year benchmarks, evaluate them annually and to the degree that would be satisfied and reported out or why extra payments could not be made. 2. Reduce the City's unfunded liabilities by a minimum of 10% - Mr. Bartel said this is a benchmark which is one of the more interesting ones to have; the City's unfunded liability is directly related to what CaIPERS on their assets. The City should be careful in measuring its benchmark. It could meet that benchmark by doing nothing, it could fall short of it despite significant efforts to do something, and the City should think of it in terms of what would have happened if it had done nothing. Eliminating the negative amortization in and of itself helps with the unfunded liability. Councilmember McGovern questioned if the City could determine what savings there would be if it were able to reduce unfunded liabilities by 10%. Mr. Fialho noted that it also depends on how unfunded liability is calculated. Vice Mayor Cook-Kallio said eliminating negative amortization might go concurrently with reducing the liability by 10%, and she confirmed they are not independent. 3. Reduce personnel related cost as a percentage of payroll to about 70% of the operating budget - Mr. Fialho stated this objective could be overwritten by specific Council action, as well as others, to support short term policies and objectives like adding a new program that adds staffing and resources associated with it. He said the Council does not have to do objectives or benchmarks, and could adopt the paper as it is presented, make modifications, adopt it and adopt benchmarks, or invite public comment and have that influence the parameters the Council provides the negotiating team in closed session. Councilmember McGovern asked if the number of consultants is taken into account with the 70% of the budget. Mr. Fialho stated no; however, the exact number the City spends annually is about $1.2 million out of a $150 million operating budget, which is miniscule. It is also not skewed by the CIP. In response to Councilmember Thorne, Mr. Fialho said the 70% would also include any set asides for the amortization reduction if the Council chooses to go in this direction. Mayor Hosterman opened the public hearing. Public Comments: David Miller recognized the problem of the City's need to address unfunded liabilities and said SB 400 is killing the state. He is part of California United for Fiscal Reform and they are currently tracking the new GASB rules which will change the way cities report their financials. Overall, he asked that serious progress be made and he looks forward to a positive outcome with negotiations. Bart Hughes emphasized that the more spent on expensive retirement plans the less the City spends on critical services. He urged that the Council agree to a personnel cost pension reform framework and thinks the League's paper is a great starting point. Other elements also include reduction of personnel costs down to 65% to 70%, the pay down of the current unfunded liability which is $180 million based on market value MVA for services already consumed, controlling the escalating employee medical costs, increased built-in flexibility, shorter timeframes to deal with future uncertainty, and he asked to establish a City Council Minutes Page 10 of 18 August 16, 2011