SR 05:174 - Laserfiche WebLink

DISCUSSION After each bi-weekly payroll, staff remits payment to PERS based on the actual payroll and the contribution rate for each of the three groups (Police, Fire, and Miscellaneous). Thus, those City Funds that have payroll (the General Fund, Sewer, Water and Storm Drain Funds), pay their share of PERS as the payroll is incurred throughout the year. The City now has an opportunity to prepay the PERS employer contribution by each group at a discount. In order to do that, the City must identify where the upfront cash will come from (i.e. which Fund(s) have sufficient cash flow to advance the money upfi'ont), and whether the benefits outweigh the costs and risks. In determining the benefit of exercising this prepayment option, the City must also project potential lost interest income that would otherwise be earned if the contributions were paid over time instead of upfront. Thus the benefit of the discount offered is partially offset by potential lost interest income. As an initial estimate, the net benefit of the discount over the lost interest income could be in the range of $180,000 if the City prefunded all the groups. However, up to $30,000 of this benefit would flow to the City of Livermore, if Fire were one of the groups prefunded. Additional bookkeeping costs could also bring this benefit down. City staff requires more time to determine what those added costs might be before being able to estimate the true benefit. In addition, the four Funds that have payroll, might not have the cash flow means to advance all this money up front. For example, the largest source of General Fund revenue is property taxes, the first payment of which doesn't flow to the City until November. Advancing dollars from the General Fund could result in a negative cash flow in the summer/fall months. It may make sense to advance cash from one or more of the City's Internal Service Funds, which have larger cash reserves due to their long-term focus. However, staff needs to analyze the cash flows of different Funds to determine the feasibility and best way of financing this advance. If an advance is made for all three groups, the total required upfront is over $9 million. If the cash needs to be funded from some source other than the Fund that is responsible for the PERS cost, then additional bookkeeping will be needed to make sure the Fund advancing the money is made whole. Lastly, there are some unknowns associated with making this advance. The advance is based on PERS' estimate of the amount due in the coming year. If the actual amount due is more (or less) than the original estimate, no adjustment is made until three years later (FY09) when the rates are updated based on PERS' performance for FY06. Also, if PERS exceeds (or conversely doesn't meet) its investment portfolio assumptions, there is a marginal impact to the City in that the prefunded dollars have been invested with PERS on average six months longer than normal. Any correction for the portfolio results would also show up in the FY09 rates. Obviously these future adjustments could be negative or positive, and presumably would not be significant. However, staff would like to spend a little more time analyzing them, before actually recommending that we proceed. SR 05:174 Page 2