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Ayes: Councilmembers Brown, Cook-Kallio, Pentin, Mayor Thorne Noes: None Absent: One Vacancy 15. Accept the Comprehensive Annual Financial Report (CAFR) and other related audits for the year ending June 30, 2012 Finance Director Wagner presented the staff report, stating that the Comprehensive Annual Financial Report (CAFR) is prepared annually by City staff and audited by an independent accounting firm. Vavrinek, Trine, Day & Co. is a local firm in the second year of a 3 year contract with the City. The CAFR, prepared following the guidelines recommended by the Governmental Finance Officers Association (GFOA) and the standards adopted by the Governmental Accounting Standards Board (GASB), is dated June 30, 2012. It contains an unqualified clean opinion, which means the auditors took no material exceptions to the City's financial reports. For the 15th consecutive year, the City's CAFR has met the highest standard in government accounting and financial reporting, for which the GFOA has issued the City a certificate of achievement of excellence. Ms. Wagner reviewed the highlights of the financial statement. She reported that total assets exceeded liabilities by $872.4 million at the close of the fiscal year. Of this, $157.8 million is unrestricted funds and of this amount, $101.5 million is contained in governmental funds to be used mainly for operating purposes. The City's total outstanding debt is $25.7 million, the majority of which relates to the Callippe Golf Course. She discussed unfunded pension and other post retirement benefit (OPEB) obligations, which are disclosed in the notes to the financial statements. Proposed legislation known as GASB 68 would change this current practice so that pension liabilities are recorded against net assets. If The City were to implement this new rule today, an additional $119.7 million in liabilities would be recorded against assets, thereby reducing unobligated, uncommitted and available assets to $38.1 million. The proposed change however does not take effect until the June 30, 2015 financial statements. She noted that the pension obligations disclosed in the CAFR are prepared on an actuarial basis, as of June 30, 2011, and are based on CaIPERS assumptions about life expectancy, reinvestment rates, salaries, and benefit packages. "Entry age normal accrued liability" represents the total outstanding pension liability for all those who have retired and those currently employed, separated by bargaining unit. Less the value of assets paid into the pension program, which again are based on an actuarial value that assumes a reinvestment rate of 7.5%, the unfunded actuarial liability including retiree medical is $131 million. The financial statements also provide a market value alternative to the CAFR disclosure. Using the same accrued liability determined by PERS, the net present market value of unfunded liability is $162.2 million due to the decreased market value of assets. Ms. Wagner reviewed changes to the pension and OPEB obligations over the last three years. In an actuarial basis, the unfunded liability grew from $120 to $135 million and then decreased by 4% this past year to a net total of $131 million. Using market value, the liability grew from $180 to $185 million but decreased by 13.8% this past year to $162 million. In examining the funding ration, the actuarial value has remained near the benchmark of 80% since 2006. However the market value, which was almost 100%, has decreased to an average of approximately 70% within specific categories. The Council has expressed significant concern about the present and future pension liability and in 2011 adopted a fiscal policy aimed at reducing the liability by at least 10% over the next 5 years. In order to achieve this policy, $1 million has been set aside annually into a PERS Stabilization Fund used to pay down the liability. As labor agreements have expired, the City has negotiated the pickup of the PERS employer rate by the employee and reduced retirement benefits for future hires. The City also City Council Minutes Page 6 of 9 February 5,2013