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<br />"normal"cost of the benefits contracted for. However, in years that the portfolio <br />underperforms, rates rise above the "normal" cost (with a three year time lag). <br />Conversely, in years that the portfolio outperforms expectations, rates fall below the <br />"normal" cost. <br /> <br />For most of the last decade public agencies have been paying rates that were far below <br />their normal cost, even 0%. As can be expected, the savings were used for other things. <br />Pleasanton was one of a very few agencies that continued to budget for its "normal" <br />PERS costs, even though the rates paid were much lower. The dollars were then directed <br />for other one-time items, so the City could easily return to paying normal costs without a <br />negative impact on future budgets. What Pleasanton and almost every other public <br />agency did not do, was set the dollars aside to be used in future budgets when the rates <br />again climbed above the normal cost. And so, when the PERS portfolio had losses Qr <br />under performed in 2001, 2002 and 2003, PERS spread the losses over rnultiple years <br />starting in 2004, whereby it will need to pay above normal rates for several years. While <br />the budget can accommodate the portion up to the normal rates, the balance has had to <br />come from belt tightening, in particular since the City is simultaneously dealing with <br />local economic impacts and revenue takeaways by the State to help balance its budget. <br />While the City has still been able to prepare balanced budgets and not reduce service <br />levels, this is not an ideal situation. <br /> <br />Staff recommends that the City adopt a program that requires funding of at least the <br />"normal" PERS costs each year, and setting the dollars aside in a reserve in years that <br />rates are less than normal. The reserve can then be used in later years when the usual up <br />and down economic cycles result in rates being above normal. Such a policy is consistent <br />with Goal 5 of the Fiscal and Economic Element. It would help ensure an understanding <br />and recognition of the full cost of retirement benefits, simplify long-term financial <br />forecasting, and help guarantee a stable and balanced budget. <br /> <br />The Economic Vitality Committee recommends that the City require funding of at least <br />the "normal" P ERS costs each year, and set money aside in a reserve in years that rates <br />are less than normal. This reserve can then be used in later years when the usual up and <br />down economic cycles result in rates being above normal. <br /> <br />35 <br />