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variation of it to set a long-term conservative goal but still provide some shorter-term flexibility to meet unusual circumstances. For example, Program 12.3 might be amended to say: "Establish a debt ratio goal for debt guaranteed by the General Fund of5% or less, but limit the debt ratio to not more than ten percent, except as otherwise approved by a unanimous ?? or 4/5 vote??? of the City Council." The Economic Vitality Committee recommends that the City prepare policy guidance for what the City would do if it hit the floor in its bond rating. 3. City Retirement Plan This issue is similar on the surface to the above debt limit issue in that it tries limiting a particular expense to a fixed percent of the budget. However, the two are different in a couple of ways. First, there is a benchmark for what the debt ratio should be, as determined at least by bond ratings, but there is no similar benchmark for retirement costs. Second, the debt ratio relates to capital costs whereas the retirement costs are part of the Operating Budget. Personnel costs represent the largest percentage of the Operating Budget (45%). Since the City is primarily a service providing entity. Like the private sector, personnel costs include a number of things not limited to: wages, overtime, leave time, retirement benefits, workers compensation, disability and health benefits. Most public agencies in California participate in PERS (the Public Employees Retirement System). Others contribute to a private pension plan or have both. Still others participate in Social Security as well as PERS or a pension plan. The City of Pleasant on provides only PERS to its employees, and has three distinct groups: Police, Fire and Miscellaneous Employees (non-safety managers). Police and Fire employees are part of unionized groups. The non-management Miscellaneous employees are represented by an association, and the managers are not represented. Employee compensation for all non-managers is determined as part oflabor negotiations which usually result in multi-year contracts. Multi-year contracts are desirable as they lend stability to the organization, provide labor peace, and make the budget more manageable. Factors that the City considers when negotiating compensation include the labor pool, market and compensation levels for similar positions in comparable nearby cities, as well as internal equities. Wages and benefits are negotiated as part of the one package. Much attention has been given to increased PERS benefits and high rates in the last few years, especially in the news media. What is not understood is that the rising costs have been due primarily to poor performance in the PERS portfolio. If PERS meets all of its actuarial assumptions including its 8.25% earning rate, then public agencies pay the 34 I I I I I I I I I I I I I I I I I I I