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projected to increase 6.7%. A considerable portion of Property Tax revenue increases relate to the 2% increase from Proposition 8 reversals, which are expected to disappear in FY 2017-18. General Fund expenditures are comprised of Police (27%) and Fire (16%), followed by General Government, Community Development and Community Services. Expenditure categories include Personnel at 75% followed by Materials and Supplies which includes contractual services, Repairs and Maintenance, Transportation and Training. Personnel costs are dominated by salaries ($44.2 million) followed by CaIPERS, Other Postemployment Benefits (OPEB), other medical benefits and miscellaneous expenses. Total General Fund expenditures are projected to increase 4.8% in FY 2015-16 and another 3.6% in FY 2016-17. Part of this relates to wage increases in the Pleasanton Police Officers Association and Fire MOUs and the anticipation of a new MOU for miscellaneous labor in FY 2015-16. CaIPERS employer contribution rates continue to increase an estimated 1.6%-2.2% ($613,000) in FY 2015-16 and 1.7%-3% ($1.3 million) in FY 2016-17, although medical insurance premiums are projected to decrease 2% in FY 2015-16. Staff is recommending restoring 7 new positions throughout the city, while eliminating 3 limited-term positions, for a net of 4 new positions in the next budget year. Staff has already recommended an increase of$215,000 to the Livermore Pleasanton Fire Department Worker's Compensation Reserve. Councilmember Narum asked if the Worker's Compensation Reserve is in line with what one would expect based on the number of employees. Ms. Olson candidly stated that the reserve does need to be even better funded but explained that this is what they could agree to with the City of Livermore. In closing out the FY 2014-15 Budget, both cities will come together to identify how much more needs to be put into that reserve to fully fund worker's compensation expenses. Ms. Olson continued her presentation, briefly reviewing the non-personnel expenses which comprise approximately 25% of General Fund expenditures. She noted a transfer of approximately $4.5 million to the Repair and Replacement Fund, which increases that allocation to prerecession levels. She stressed that the non- personnel side of the budget has remained fairly constant, with relatively small increases to account for increased insurance premiums and anticipated MOU negotiations, and noted that many departments have actually managed to reduce expenditures. Overall, staff is projecting an additional $2.9 million operating surplus for FY 2014-15 over what was projected at mid-year. FY 2015-16 anticipates a $3 million operating surplus followed by a similar surplus of$3.5 million in FY 2016-17, for a net projected surplus of almost $9.5 million. As Mr. Fialho indicated earlier staff is recommending the prefunding of a portion of the city's CaIPERS ($4 million) and OPEB ($1.2 million) obligations as well as directing some of the surplus towards capital ($3.3 million)and reserves ($1 million). With regards to prefunding, Ms. Olson explained that the city's Retiree Medical Reserve currently contains about $25.7 million with the city's investments on those reserves earning approximately 0.6%. CaIPERS California Employers' Retiree Benefit OPEB Trust has been earning between 1.8% and 18.4% over the past 3 years, with a 5-year blended average rate of return of 3% and 30-year rate of return of 9.4%. In looking at the city's eaming potential versus the CaIPERS', CaIPERS is clearly the winner even at its absolute worst. The combined unfunded liability, excluding the city's share for LPFD, totals $157.7 million and the Council has adopted the goal to reduce that by 10% by June 30, 2018. $102.4 million of that is paid on a 30-year amortization schedule at 7.5%while the OPEB portion of$55.3 million is paid through FY 2037-38 at 7.61%. Staff is proposing to use $12.5 million from the Retiree Medical Reserve and $4.4 million of the budget surpluses for a total contribution of $16.9 million, which would save the city $37.9 million over 30 years. The annual savings of approximately $1.5 million in reduced payments would then be allocated to the CIP to address infrastructure and facility expansion needs. If supported by the Council, staff will prepare an item for the June 16, 2015 meeting to appropriate these funds and send to CaIPERS, which has indicated that the city will receive credit in the FY 2015-16 budget if paid by June 30th. Ms. Olson briefly reviewed General Fund reserves. This includes the 10% Reserve for Economic Uncertainty which is proposed to increase both years of the budget as well as Operating Reserves, for a combined reserve total of$17.5 million or 17% of the operating budget. Ms. Olson provided a concise summary of the city's remaining funds. Water Fund revenues are expected to decrease by 2.8% in FY 2015-16 due to water reductions followed by an increase the following year due to Zone 7 rate increases. Expenses are similarly expected to decrease 3.5% the first year due to reduced consumption City Council Minutes Page 11 of 15 June 2,2015