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Ms. Ayala noted that the City of Pleasanton has been extremely conservative in budgeting for the increase in the PERS rates. She did not have a problem with the City, but with the PERS system as a whole. She believed that the retirement benefits people are receiving are excessive. She also pointed out that people are retiring at a younger age. She noted that the medical tables are showing that people are living longer and that the excessive amount of medical costs in the last few years make up about 60 percent of the medical costs, which is another cost that agencies are carrying. She believed that eventually, these excessive costs will catch up with public agencies. Ms. McKeehan noted that staff focuses on trying to ensure that it can conservatively and as realistically as it can manage the City's money. She pointed out that the City is able to move $5 million dollars annually to the Capital Improvement Program because staff budgets very conservatively. Ms. Ayala referred to page 27 of the Operating Budget, which shows the Retirees Medical Reserve Fund at $19 million dollars. She asked staff to provide an explanation as to what this amount reflects and what the City is predicting due to what is occurring with medical costs. Ms. Rossi noted that the $19 million dollars represents a fully funded liability on a current basis as it is accrued. Staff took advantage of the time period at which the City was paying zero PERS rates by taking some of the savings and paying down the City's liability, which came close to funding at 100 percent. The City is currently undergoing an actuarial rate update and that number may change and is likely to increase because of the current low imerest rate earnings. The City has met its earning objectives, and staff will then be evaluating the medical costs. Ms. Rossi continued her presentation on the 2004-05 Midterm Operating Budget. Ms. Hosterman asked if there was a preclusion included in the LOCAL Initiative that would prohibit the State from being able to swap sales tax with property tax? Ms. Rossi said yes but it is still being negotiated. Mr. Brozosky noted that there was a strong statement made with respect to the Temporary Recession Reserve, as noted on page 18 of the 2003-04/2004-05 Midterm Budget, which concerned him. The statement made was that the skyrocketing housing market will inevitably face a correction. The possibility of falling housing prices, combined with continued commercial vacancies, could result in property reassessments that adversely impact the City's revenue. Ms. Rossi said that this is a normal cycle and, ultimately, there will be some correction in housing costs. Pleasanton City Council 21 06/15/04 Minutes