CCMIN090407 - Laserfiche WebLink

The new accounting rule, GASB 45 (Governmental Accounting Standards Board), determines what generally acceptable accounting principles are which the City must comply with in order to receive a clean opinion on the financial statements. The new rule does not require full funding of total liability; however, the City must disclose the overall total liability on the financial statement notes. It also requires an annual amount be set aside, which is referred to an ARC (Annual Required Contribution) in an irrevocable trust as employees earn the benefit. If this is not done, then the City must record a liability equal to that amount of the ARC on the balance sheet. He said the LPFD Retiree Medical Reserve Fund accumulates the assets over the last 10 years and the annual contribution is $1.4 million and is split 50/50 with the City of Livermore. In June 2007 the City had accumulated $10.8 million. The recommended benefit changes will reduce that liability by $600,000 to $800,000. The LPFD Retiree Medical Reserve benefit liability at June 2007 was $42 million and the annual contribution would range from $3.2 to $3.7 million, depending upon whether it was amortized over 20 or 30 years. The liability would go down to $26 million if we took that $10.8 million and put it in a reserve and invest it in an irrevocable trust, which would bring down the annual contribution down to $1.7 to $2 million depending upon a 20 or 30 year amortization. Next steps include setting up the trust. He said CaIPERS has also set up a trust for public agencies that contract for health which Pleasanton does not. However, there is pending state legislation that would open up this trust to all public agencies. He noted staff would monitor this and should know in October as to the status of that legislation. The City will also need to finalize the actuarial report and other necessary documentation and then bring back recommendations to the Council for pre-funding investment options in early 2008. Councilmember McGovern referred to the $42 million with apay-as-you-go approach and asked if this was calculated over the 20 or 30 years. Mr. Culver said the liability remains whether it is 20 or 30 years and the annual contribution is what changes depending upon the funding horizon. Currently, it would be $1.7 to $2 million annual contribution if the City were to place the money in an irrevocable trust and earn 7.75% interest. Otherwise, it would be $3.2 to $3.7 million as the annual required contribution. Councilmember McGovern questioned the difference between $26 million and $42 million. Mr. Culver said if $10.8 million were invested in the trust it would reduce the $42 million down to $26 million. The City would then have to pay the $26 million off over a 20 or 30 year period. Councilmember McGovern confirmed with the City Manager that Livermore would need to agree to an irrevocable trust and that staff has discussed this with them. Councilmember McGovern questioned whether the City could do GASB 45 as a dry run to see where the community was headed, and City Manager Fialho said this could be done to reflect the liability in the 2008 statement and said staff could reflect it in the notes specifying what the long-term liability is and what the City's projected ARC was over the next several years. The Mayor opened the item for public comment. Steve Brozosky voiced concerns regarding future liabilities, said the City's liability for all employees' retiree medical is $101 million but was only currently funded at $49 million. He felt the money put aside for this year was not enough, asked the Council to begin proper City Council Minutes 5 September 4, 2007