agenda - tuesday, may 12, 2020 - san ramon, ca

COUNCIL AGENDA

May 12, 2020

WE PROVIDE EFFICIENT DELIVERY OF QUALITY PUBLIC SERVICES THAT ARE

ESSENTIAL TO THOSE WHO LIVE AND WORK IN SAN RAMON.

Bill Clarkson, Mayor Sabina Zafar, Vice Mayor

David E. Hudson, Councilmember Phil O’Loane, Councilmember Scott Perkins, Councilmember

Agenda Questions: Please call the City Clerk (925) 973-2539

Documents received after publication of this Agenda and considered by the City Council in its

deliberation will be available for inspection only via electronic document transfer, due to the

COVID-19 outbreak. See the COVID-19 provisions outlined below. Please call or email the

City Clerk during normal business hours if you require access to any such documents.

TELECONFERENCE WORKSHOP – 3:00 PM

CORONAVIRUS DISEASE (COVID-19) ADVISORY

AND MEETING PROCEDURE

On April 29, 2020, the Health Officer of Contra Costa County issued an Order effective through

May 31, 2020 that directed that all individuals living in the county to shelter at their place of

residence except that they may leave to provide or receive certain essential services or engage in

certain essential activities and work for essential businesses and governmental services.

Under the Governor’s Executive Order N-29-20, this meeting may utilize teleconferencing. As a

precaution to protect the health and safety of staff, officials, and the general public.

Councilmembers will not be physically in attendance, but will be available via video conference.

City Hall is currently closed to the public and will remain closed for the duration of the City

Council meeting. Consequently, there will be no physical location for members of the public to

participate in the meeting. We encourage members of the public to shelter in place and access the

meeting online using the web-video communication application, Zoom. Zoom participants will

have the opportunity to speak during one of the Public Comment periods (for topics not on the

agenda), in addition to each of the agendized items.

If you are submitting public comment via email, please do so by 2:00 p.m. on Tuesday, May 12,

2020 to [email protected]. Please include “Public Comment Workshop 5/12/2020” in

the subject line. In the body of the email please include your name and the item you wish to

speak on. Public comments submitted will be read during Public Comment and will be subject to

the regular three-minute time restriction.

This City Council meeting will be conducted on the web-video communication platform, Zoom.

In order to view and/or participate in this meeting, members of the public will need to download

Zoom from its website, www.zoom.com.

mailto:[email protected]

2 City Council Workshop – May 12, 2020

It is recommended that anyone wishing to participate in the meeting complete the download

process before the start of the meeting.

There will be zero tolerance for any person addressing the Council making profane, offensive

and disruptive remarks, or engaging in loud, boisterous, or other disorderly conduct, that disrupts

the orderly conduct of the public meeting.

HOW TO VIEW THE MEETING REMOTELY:

1. Livestream online at: https://cityofsanramon.zoom.us/j/96960116145

Webinar ID: 969 6011 6145

2. Livestream online at: www.sanramon.ca.gov/YouTube

3. For audio access to the meeting by telephone, use the dial-in information below:

+1 (669) 900-6833 or

(888) 788-0099 (Toll Free) or

(877) 853-5247 (Toll Free)

Webinar ID: 969 6011 6145

HOW TO PARTICIPATE IN THE MEETING REMOTELY:

1. Provide live remote public comments: https://cityofsanramon.zoom.us/j/96960116145

From a PC, Mac, iPad, iPhone or Android device:

Webinar ID: 969 6011 6145

(To supplement a PC, Mac, tablet or device without audio, please also join by phone:

+1 (669) 900-6833)

To comment by video conference, click the “Raise Your Hand” button to request to

speak when Public Comment is being taken on the Agenda item. You will then be

unmuted when it is your turn to make your comment for up to 3 minutes. After the

allotted time, you will then be re-muted.

2. Provide public written comments prior to the meeting by email, to

[email protected].

If you are submitting public comment via email, please do so by 2:00 p.m. on

Tuesday, May 12, 2020 to [email protected]. Please include “Public

Comment Workshop 5/12/2020” in the subject line. In the body of the email please

include your name. Public comments submitted will be read during Public Comment

and will be subject to the regular three-minute time restriction.

https://cityofsanramon.zoom.us/j/96960116145

http://www.sanramon.ca.gov/YouTube

https://cityofsanramon.zoom.us/j/96960116145




1. CALL TO ORDER/ROLL CALL

2. PUBLIC COMMENT

Public Comment at Special Meetings is limited to the item described in the notice.

[Cal. Gov. Code § 54954.3 (a)]. Comments should not exceed three minutes.

Comments from the public under Public Comment may also be submitted by email to

[email protected].

3. WORKSHOP

3.1 City of San Ramon Other Post-Employment Benefits (OPEB) Actuarial

Valuation Report as of June 30, 2019

Introduction by Administrative Services Director Eva Phelps. Presentation by

Steven Diess with Independent Actuaries, Inc.

3.2 General Fund Reserve Policy and Reserve Level Review

Introduction by Administrative Services Director Eva Phelps. Presentation by

Rick Haydon with Management Partners

3.3 Fiscal Year 2020/2021 Budget Workshop

4. ADJOURNMENT

I hereby certify the attached City Council agenda was posted 72 hours before the noted meeting:

Dated: May 8, 2020



The agenda with links to minutes and staff reports is available on the City’s website:

www.sanramon.ca.gov

* * * * *

This Agenda is posted in accordance with Government Code Section 54954.2(a).

NOTE: This meeting is being held in a wheelchair accessible location.

To request a disability-related accommodation(s) to participate in the meeting,

please contact the City Clerk 24 hours in advance of the meeting at 925-973-2539.

* * * * *

Information for public participation at Council meetings,

including the time limits for addressing the Council, is provided on the agenda.

If you have any questions, please contact the City Clerk prior to the meeting.

* * * * *

Regular City Council meetings are broadcast on Contra Costa Television (CCTV)

(Channel 27) on Wednesdays at 7:00 p.m. and Thursdays at 1:00 p.m.

immediately following the meeting.

Regular City Council meetings are also broadcast on AT&T U-Verse (Channel 99).

Regular City Council meetings may also be viewed at

http://sanramonca.iqm2.com/citizens/default.aspx

http://www.sanramon.ca.gov/

http://sanramonca.iqm2.com/citizens/default.aspx

CITY COUNCIL STAFF REPORT

DATE: May 12, 2020

TO: City Council/City Manager

FROM: Eva Phelps, Administrative Services Director

By: Eva Phelps, Administrative Services Director

SUBJECT: City of San Ramon Other Post-Employment Benefits (OPEB) Actuarial

Valuation Report as of June 30, 2019

ATTACHMENT:

San Ramon OPEB Valuation Report 6-30-19

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Z:\G-H\GovInvest\Projects\San Ramon\Reports\San Ramon 2019 GASB 75 Report.docx

CITY OF SAN RAMON

OTHER POST-EMPLOYMENT BENEFITS

ACTUARIAL VALUATION REPORT

AS OF JUNE 30, 2019

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CITY OF SAN RAMON OTHER POST-EMPLOYMENT BENEFITS ACTUARIAL VALUATION REPORT AS OF JUNE 30, 2019

Z:\G-H\GovInvest\Projects\San Ramon\Reports\San Ramon 2019 GASB 75 Report.docx

TABLE OF CONTENTS

Actuarial Certification ................................................................................................................................... 1

Summary of Results ...................................................................................................................................... 2

Discussion and Analysis................................................................................................................................. 3

Outline of Plan Provisions ............................................................................................................................. 5

Participant Statistics...................................................................................................................................... 8

Projected Benefit Payments ......................................................................................................................... 9

Medical Benefit – Accounting under GASB Statement 75 ......................................................................... 10

• Projection of Total OPEB Liability ................................................................................................. 11

• Projection of Net OPEB Liability ................................................................................................... 12

• Sensitivity of Net OPEB Liability to Changes in Discount and Trend Rates .................................. 13

• Schedule of Changes in Net OPEB Liability and Related Ratios ................................................... 14

• Schedule of Collective Deferred Inflows and Outflows ................................................................ 15

• Calculation of Collective OPEB Expense ....................................................................................... 16

• Actuarially Determined Contribution ........................................................................................... 17

Actuarial Methods and Assumptions .......................................................................................................... 18

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Z:\G-H\GovInvest\Projects\San Ramon\Reports\San Ramon 2019 GASB 75 Report.docx Page 1

ACTUARIAL CERTIFICATION

The purpose of this report is to summarize the results of the Actuarial Valuation of the City of San Ramon’s Other Post-Employment Benefits as of June 30, 2019. This report includes a summary of the employee data and financial information through June 30, 2019. This report also provides the actuarial cost requirements of the plan as required under GASB Statement 75 for the fiscal year ending June 30, 2020. All information submitted to us by the Plan Administrator has been reviewed for reasonableness and consistency, but has otherwise been accepted and relied upon without audit. To the best of our knowledge, this report is complete and accurate. The calculations are performed in accordance with generally accepted actuarial principles and practices. Each material assumption is, in our opinion, individually reasonable and falls within the best estimate range, taking into account past experience and reasonable future expectations, and is consistent with each other material assumption. The results presented in this report are based on assumptions that represent our best estimate of anticipated plan experience, within the constraints of currently applicable laws and regulations. The undersigned credentialed actuaries meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. April 30, 2020 Steven L. Diess, EA, MAAA Date April 30, 2020 Joshua Harris, ASA, EA, MAAA Date

Independent Actuaries, Inc. 4500 Kruse Way, Suite 200 Lake Oswego, OR 97035 503.520.0848

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SUMMARY OF RESULTS

As of June 30, 2019

Total OPEB Liability $ 32,681,691

Fiduciary Net Position 31,119,625

Net OPEB Liability $ 1,562,066

Deferred Outflows $ 863,604

Deferred Inflows 238,564

Fiscal Year Ending June 30, 2020

OPEB Expense $ 1,640,779

Actuarially Determined Contribution $ 1,400,270

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DISCUSSION AND ANALYSIS

Overview The City of San Ramon (the City) provides Other (than pension) Post-Employment Benefits (OPEBs) with two main components, as follows: • Explicit Health Benefits - The City provides health benefits to eligible retirees and their spouses in accordance with various labor agreements. The City pays up to the entire cost of health benefits for eligible retirees and their spouses until age 65, subject to the City’s vesting schedule. After age 65, the City pays for health coverage, up to a cap, and subject to the vesting schedule. • Implicit Medical Benefits - In addition to the explicit benefits for eligible retirees, continued medical coverage is offered to the City's eligible retirees and their spouses and dependents. The active premium rate (whether paid by the City or by the retiree) still applies. However, in some cases the premium itself does not represent the full cost of covering these retirees (since they are older than the active population, retirees can be expected to generate higher medical claims and therefore higher premiums for the active population). This additional cost is called the “implicit subsidy” and is required to be valued under GASB Statement 75. Employer contributions are made in accordance with the requirements established by the City Council. The required contributions are based on projected pay-as-you-go financing requirements, with an additional amount to prefund benefit as determined annually by the City Council. GASB Statement 75 GASB Statement 75 prescribes the reporting requirements for sponsors of Other (than Pension) Post-Employment Benefits (“OPEBs”). GASB 75 is first effective for fiscal years beginning after June 15, 2017. Earlier application is encouraged by the GASB. The City first applied the provisions of GASB 75 in the financial statements for the fiscal year ending June 30, 2018. There are three dates to define under GASB 75: The Fiscal Year-End, the Measurement Date, and the Actuarial Valuation Date. The Measurement Date must be no earlier than the end of the prior fiscal year, and the Actuarial Valuation Date must be no earlier than 30 months prior to the Fiscal Year-End. We are using an Actuarial Valuation Date of June 30, 2019 and a Measurement Date of June 30, 2019. This will allow the City to use the results developed in this report in the financial statements for the fiscal year ending in 2020. The results can be projected forward to the fiscal year ending in 2021, so long as there are no significant changes in plan provisions or discount rate indices in the interim.

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DISCUSSION AND ANALYSIS (Concluded) This is our first valuation of these benefits. Liability calculations prior to June 30, 2019, as well as any calculations of expense or deferred inflows and outflows prior to June 30, 2019, were determined by the prior actuary. We have relied on those results without audit. Projected benefit payments are shown on page 9. For explicit health benefits, the payments are the benefits expected to be paid by the City for current and future retirees. For implicit medical benefits, the amounts represent each year’s projected implicit rate subsidy. Under GASB 75, the Total OPEB Liability (TOL) is determined. This is equal to the present value of the portion of future expected benefit payments that is considered to have been already earned by participants. The statements require that the TOL be determined using the Entry Age Normal actuarial funding method. The development of the TOL through June 30, 2019 is shown on page 11. The TOL is then compared to the Fiduciary Net Position, or FNP (basically, the market value of assets held in an irrevocable trust used to pay the benefits). The excess of TOL over FNP is the Net OPEB Liability (NOL). Currently the TOL exceeds the FNP, so there is a Net OPEB Liability. The development of NOL through June 30, 2019 is shown on page 12 of this report. Further, to illustrate the sensitivity of the NOL to changes in the discount rate, GASB 75 requires that the NOL be disclosed in the footnotes to the financial statements using a discount rate 100 basis points lower and higher than the baseline rate. Similarly, the sensitivity of the NOL to changes in assumed healthcare trend rates must also be disclosed. The NOL at the various discount and healthcare trend rates is shown on page 13. Changes in the NOL due to actuarial gains or losses or due to changes in assumptions are amortized over the average expected future working lifetime of participants (eight years as of this valuation), and changes due to investment gains or losses are amortized over five years. Unamortized amounts are treated as deferred outflows or inflows of resources. A summary of deferred outflows and inflows of resources as of June 30, 2020 is shown on page 15. The expense that is recorded on the Statement of Activities is equal to the change in NPL, plus or minus changes in deferred outflows or inflows, plus employer contributions. The development of the expense for the fiscal year ending June 30, 2020 is shown on page 16 of this report, along with a parallel development categorizing expense items as Operating Expenses or Financing Expenses. The Actuarially Determined Contribution (ADC) is developed on page 17 of this report. The ADC is the amount recommended to be contributed to the Trust and is equal to the Normal Cost (the value of benefits earned by active participants during the year) plus an amortized amount of any unfunded liability.

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OUTLINE OF PLAN PROVISIONS

The following is a summary of the major OPEB provisions as understood as of the valuation date. It should not be relied on for the purpose of determining benefits. The OPEB is composed of two components: City-paid health premiums (Explicit Health Benefit), and continued access to the City’s medical plans (Implicit Medical Benefit). Retirement Eligibility The retiree must be eligible for benefits from CalPERS.

The eligibility requirement under PEMHCA is as follows:

PEMHCA Benefits: Age 55 with 5 years of service.

Explicit Health Benefit

Hired Before July 1, 2014 Benefit Amount The City pays for the cost of health benefits for eligible retirees

and their spouses until age 65, subject to the City’s vesting schedule.

Vesting Schedule For miscellaneous employees hired before July 1, 2006, and

safety employees hired on or before July 1, 2007, the City will pay for premiums for the employee and spouse, subject to the following vesting schedule:

Service Vested Percent 0 to 3 0% 4 to 7 50%

8 to 11 75% 12+ 100%

For miscellaneous employees hired between July 1, 2006 and

June 30, 2014, and safety employees hired after July 1, 2007 and before July 1, 2014, the City will pay for premiums for the employee only, subject to the following vesting schedule:

Service Vested Percent 0 to 5 0%

5+ 5% per year up to 100%

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OUTLINE OF PLAN PROVISIONS (Continued) Medicare Coverage After age 65, the City reimburses eligible retirees for Medicare

coverage subject to the vesting schedules above. For 2020, the maximum amount the City pays for coverage is $443.58 for the employee, and an additional $443.58 for the spouse, if eligible for additional City-paid benefits. The reimbursement can’t be lower than the PEMHCA minimum contribution. The maximum reimbursement is subject to a 2% annual increase.

Survivor Benefit Surviving spouses are eligible for the same benefit provided by

the City before the death of the retiree. Hired after June 30, 2014 Benefit Amount For all employees hired after June 30, 2014, the City pays the

minimum employer contribution for health coverage set by PEMHCA. For 2020, the minimum is $139 per month.

Implicit Medical Benefit Eligible Class of Employee All classes of employee are eligible to continue coverage upon

retirement. Dependent Eligibility Qualified spouses, domestic partners, and children may qualify

for coverage. Benefit Amount There is an implicit subsidy with respect to pre-Medicare retired

employees because the medical premium rates charged for coverage typically are less than actual expected retiree claims costs. This is due to medical premium rates being determined by blending both active employee and pre-Medicare retiree experience.

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OUTLINE OF PLAN PROVISIONS (Concluded) Current Premiums Monthly medical premiums were blended to align with the

valuation date, June 30, 2019. The 2020 Dental and Vision rates were reduced with six months of assumed trend to the valuation date.

The CalPERS Region 1 blended medical premiums are as follows:

The Dental and Vision premiums for 2020 are as follows:

Region 1 Basic Subscriber Subcriber & 1 Subscriber & 2+

Anthem Blue Cross Del Norte 864.07$ 1,728.13$ 2,246.57$

Anthem Blue Cross Select 850.21 1,700.42 2,210.55

Anthem Blue Cross Traditional 1,147.99 2,295.97 2,984.76

Blue Shield Access+ 1,049.34 2,098.67 2,728.27

Blue Shield Access+ EPO 1,052.29 2,104.58 2,735.96

Blue Shield Trio 857.01 1,714.01 2,228.22

Health Net SmartCare 951.04 1,902.07 2,472.69

Kaiser Permanente 768.37 1,536.74 1,997.76

PERS Choice 863.73 1,727.45 2,245.69

PERS Select 531.74 1,063.48 1,382.52

PERS Care 1,132.41 2,264.82 2,944.27

PORAC 774.00 1,661.00 2,137.50

UnitedHealthcare 914.40 1,828.79 2,377.43

Western Health Advantage 749.49 1,498.97 1,948.67

Region 1 Medicare Subscriber Subcriber & 1 Subscriber & 2+

Anthem Blue Cross 372.80$ 745.59$ 1,118.39$

Kaiser Permanente 331.59 663.17 994.76

PERS Choice 355.90 711.80 1,067.70

PERS Select 355.90 711.80 1,067.70

PERS Care 389.81 779.61 1,169.42

PORAC 513.00 1,022.00 1,635.00

UnitedHealthcare 313.20 626.40 939.60

Employee Two-Party Family

Dental 59.20$ 102.80$ 170.90$

Employee Two-Party Family

Vision 5.64$ 10.89$ 17.31$

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PARTICIPANT STATISTICS

Miscellaneous Police Total

Participant Statistics

Number of Active Participants 198 63 261

Number of Inactive Participants 99 23 122

Total Number of Participants 297 86 383

Participant Statistics

Active Participants

Average Age 46.9 42.8 45.9

Average Service 10.4 7.7 9.8

Inactive Participants

Average Age 67.3 55.2 65.0

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PROJECTED BENEFIT PAYMENTS

These projections are based on the census data, OPEB provisions, and actuarial assumptions described in this report. For purposes of GASB 75 accounting, this implicit rate subsidy is considered to be the employer’s “contribution”.

Fiscal Year

Ending Miscellaneous Police Total

2020 $ 1,018,031 $ 355,531 $ 1,373,562

2021 1,108,283 391,294 1,499,577

2022 1,186,063 431,139 1,617,202

2023 1,247,412 475,152 1,722,564

2024 1,299,016 532,145 1,831,161

2025 1,346,572 586,856 1,933,428

2026 1,425,227 656,427 2,081,654

2027 1,430,328 714,186 2,144,514

2028 1,482,569 748,537 2,231,106

2029 1,474,735 789,083 2,263,818

Fiscal Year

Ending Miscellaneous Police Total

2020 $ 333,434 $ 126,901 $ 460,335

2021 383,742 150,681 534,423

2022 441,417 174,800 616,217

2023 468,947 207,742 676,689

2024 505,974 248,622 754,596

2025 553,226 294,620 847,846

2026 570,082 347,680 917,762

2027 537,386 384,185 921,571

2028 542,601 400,508 943,109

2029 492,346 461,314 953,660

EXPLICIT BENEFIT

IMPLICIT BENEFIT

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MEDICAL BENEFIT – ACCOUNTING UNDER GASB STATEMENT 75

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MEDICAL BENEFIT - ACCOUNTING UNDER GASB 75

PROJECTION OF TOTAL OPEB LIABILITY

1. Total OPEB Liability at June 30, 2018 $ 29,842,604

Changes for the year:

2. Service cost $ 1,430,642

3. Interest 1,983,605

4. Changes of benefit terms 0

5. Differences between expected and actual experience 185,869

6. Changes of assumptions or other input 751,478

7. Benefit payments (1,512,507)

8. Net changes (sum of 2. through 7.) $ 2,839,087

9. Total OPEB Liability at June 30, 2019 $ 32,681,691

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PROJECTION OF NET OPEB LIABILITY

Total OPEB

Liability

Fiduciary

Net Position

Net OPEB

Liability

1. Balances at June 30, 2018 $ 29,842,604 $ 29,086,366 $ 756,238

2. Changes for the year

a. Service Cost 1,430,642 1,430,642

b. Interest 1,983,605 1,983,605

c. Changes of benefit terms 0 0

d. Differences between expected and actual experience 185,869 185,869

e. Changes of assumptions or other input 751,478 751,478

f. Employer contributions1 1,512,507 (1,512,507)

g. Net investment income 2,047,647 (2,047,647)

h. Benefit payments1 (1,512,507) (1,512,507) 0

i. Administrative expenses (14,388) 14,388

Total changes $ 2,839,087 $ 2,033,259 $ 805,828

3. Balances at June 30, 2019 $ 32,681,691 $ 31,119,625 $ 1,562,066

1 The benefit payments and employer contributions shown above reflect City-paid premiums of $1,047,416 and

estimated implicit subsidy benefits of $465,091.

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MEDICAL BENEFIT - ACCOUNTING UNDER GASB 75 SENSITIVITY OF NET OPEB LIABILITY TO CHANGES IN DISCOUNT AND TREND RATES

For June 30, 2020 Disclosure

1%

Decrease

Current

Discount Rate

1%

Increase

5.50% 6.50% 7.50%

Total OPEB Liability $ 36,027,124 $ 32,681,691 $ 29,818,171

Fiduciary Net Position 31,119,625 31,119,625 31,119,625

Net OPEB Liability $ 4,907,499 $ 1,562,066 $ (1,301,454)

1%

Decrease

Current

Trend Rate

1%

Increase

5.00% Graded

Down to 3.50%

6.00% Graded

Down to 4.50%

7.00% Graded

Down to 5.50%

Total OPEB Liability $ 29,364,376 $ 32,681,691 $ 36,633,052

Fiduciary Net Position 31,119,625 31,119,625 31,119,625

Net OPEB Liability $ (1,755,249) $ 1,562,066 $ 5,513,427

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SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS

2019 2018 2017

1. Total OPEB Liability - beginning $ 29,842,604 $ 27,838,370 $ 25,974,214

2. Service Cost 1,430,642 1,261,339 1,184,356

3. Interest 1,983,605 1,855,327 1,731,659

4. Changes of benefit terms 0 0 0

5. Differences between expected and actual experience 185,869 0 0

6. Changes of assumptions or other input 751,478 0 0

7. Benefit payments (1,512,507) (1,112,432) (1,051,859)

8. Net change in TOL 2,839,087 2,004,234 1,864,156

9. Total OPEB Liability - end of year $ 32,681,691 $ 29,842,604 $ 27,838,370

10. Fiduciary Net Position - beginning $ 29,086,366 $ 28,245,592 $ 24,926,077

11. Employer contributions 1,512,507 232,648 2,533,034

12. Net investment income 2,047,647 1,734,983 1,851,190

13. Benefit payments (1,512,507) (1,112,432) (1,051,859)

14. Administrative expenses (14,388) (14,425) (12,850)

15. Net change in FNP 2,033,259 840,774 3,319,515

16. Fiduciary Net Position - end of year $ 31,119,625 $ 29,086,366 $ 28,245,592

17. Net OPEB Liability 1,562,066 756,238 (407,222)

18. Fiduciary Net Position as a percentage of Total OPEB Liability 95.22% 97.47% 101.46%

19. Covered payroll $ 29,082,864 $ 30,618,811 $ 29,187,767

20. Net OPEB Liability as a percentage of covered payroll 5.37% 2.47% -1.40%

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SCHEDULE OF COLLECTIVE DEFERRED INFLOWS AND OUTFLOWS

Gain/Loss

Deferred

Outflows of

Resources

Deferred

Inflows of

Resources

1. Differences between expected and actual experience $ 162,635 $ 0

2. Changes of assumptions or other input 657,543 0

3. Net difference between projected and actual earnings on

OPEB plan investments 43,426 238,564

4. Contribution subsequent to the measurement date TBD 0

5. Total $ 863,604 $ 238,564

Year ended June 30:

2021 $ 53,601

2022 53,599

2023 90,407

2024 75,931

2025 117,169

Thereafter 234,333

Amounts reported as deferred outflows of resources related to OPEB resulting from City

contributions subsequent to the measurement date will be recognized as a reduction of the Total

OPEB Liability in the year ended June 30, 2020. Other amounts reported as deferred outflows and

deferred inflows of resources related to OPEB benefits will be recognized in OPEB expense as

follows:

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CALCULATION OF COLLECTIVE OPEB EXPENSE

Fiscal Year Ending

June 30, 2020

1. Change in Net OPEB Liability $ 805,828

2. (Increase)/Decrease in Deferred Outflows (805,703)

3. Increase/(Decrease) in Deferred Inflows 128,147

4. Contributions - Employer 1,512,507

5. OPEB Expense $ 1,640,779

Operating Expenses

6. Service Cost $ 1,430,642

7. Administrative expenses 14,388

8. Total $ 1,445,030

Financing Expenses

9. Interest 1,983,605

10. Expected return on assets (1,841,457)

11. Total 142,148

Changes

12. Benefit changes $ 0

13. Recognition of assumption changes 93,935

14. Recognition of experience gains and losses 23,234

15. Recognition of investment gains and losses (63,568)

16. Total $ 53,601

17. OPEB Expense (8. + 11. + 16.) $ 1,640,779

18. OPEB Expense as % of Payroll 5.64%

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ACTUARIALLY DETERMINED CONTRIBUTION

Fiscal Year Ending

June 30, 2020

1. $ 979,601

2. Interest to Year End 63,674

3. Normal Cost at End of Year $ 1,043,275

4. Actuarial Value of Assets 31,119,625

5. Actuarial Accrued Liability 32,681,691

6. Unfunded Actuarial Accrued Liability (UAAL) $ 1,562,066

7. Amortization Period (years) 5

8. Amortization Factor (level $) 4.66

9. Amortization of UAAL at Beginning of Year 335,207

10. Interest to Year End 21,788

11. $ 1,400,270

(3. + 9. + 10., not less than $0)

Normal Cost at Beginning of Year

Actuarially Determined Contribution

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ACTUARIAL METHODS AND ASSUMPTIONS

I. Relevant Dates

Actuarial Valuation Date June 30, 2019

Data was collected as of February 1, 2020, and benefits were valued as if the data was representative of data on June 30, 2019.

Measurement Date June 30, 2019 Fiscal Year End June 30, 2020

II. Actuarial Cost Method Entry Age Normal, level percent of salary. III. Assumptions

Interest Rate for 6.5% per year, based on all years discounted at the long- Discounting Future Liabilities term expected return of the CERBT fund strategy 2. Since

the long-term contribution strategy of the City is to fully fund the OPEB trust, we expect the OPEB plan assets to be sufficient to pay projected benefit payments. The long-term expected return for the CERBT fund strategy is published on the CalPERS website.

General Inflation 2.5% per year.

Payroll Growth 2.75% per year. PEMHCA Admin. Fee 0.27% of premiums. Salary Merit Scale Total payroll increase is overall payroll growth plus the

CalPERS Salary Rates. The CalPERS rates are available from the following site:

https://www.calpers.ca.gov/page/employers/actuarial-

services

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(Continued)

Annual Premium Increase Rate The assumed increases for medical plans are:

Year Rate Year Rate

2019-20 6.00% 2030-31 5.30%

2020-21 6.00% 2031-32 5.20%

2021-22 5.90% 2032-33 5.10%

2022-23 5.90% 2033-34 5.00%

2023-24 5.90% 2034-35 4.90%

2024-25 5.80% 2035-36 4.80%

2025-26 5.70% 2036-37 4.70%

2026-27 5.60% 2037-38 4.60%

2027-28 5.50% 2038+ 4.50%

2028-29 5.40%

The initial rates in the table above are based in part on the 2019 Segal Health Plan Cost Trend Survey. Rates are trended down in subsequent years in accordance with prevalent actuarial practice, based in part on the Society of Actuaries - Getzen Long Term Healthcare Trends Resource Model, as updated October 2018. Dental and vision premiums were assumed to increase 4.0% annually. The PEMHCA minimum employer contribution is assumed to increase 3.25% annually, based on the medical care component of the CPI.

Mortality and Disability Rates As developed in the most recent experience study for CalPERS. The rates are available for download from the CalPERS website:

https://www.calpers.ca.gov/page/employers/actuarial-

services

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(Continued)

Withdrawal Rates Sample probabilities of terminating within one year are

shown below:

Miscellaneous* Safety Entry Age Rate Yrs of Svc Rate

30 4.70% 0 9.74% 35 4.18% 3 2.48% 40 3.66% 5 2.23% 45 1.16% 10 1.60% 50 0.97% 15 0.97% 55 0.78% 20 0.73%

*Sample rates for Misc. employees with 5 years of svc. Retirement Rates Sample probabilities of retiring within one year with 15

years of service are shown below:

Miscellaneous Safety Age Males Females All 50 3.75% 5.25% 3.26% 51 1.50% 3.75% 2.89% 52 2.25% 3.75% 4.61% 53 2.25% 4.50% 5.17% 54 3.00% 4.50% 5.33% 55 6.75% 7.50% 6.74% 56 5.25% 6.00% 5.15% 57 6.00% 5.25% 6.02% 58 6.00% 7.50% 5.93% 59 7.50% 6.75% 6.15% 60 12.75% 9.75% 100.00% 61 12.00% 8.25% 100.00% 62 21.00% 17.25% 100.00% 63 17.25% 15.00% 100.00% 64 12.00% 10.50% 100.00% 65 20.25% 20.25% 100.00% 66 11.25% 12.00% 100.00% 67 9.75% 12.00% 100.00% 68 9.75% 9.00% 100.00% 69 7.50% 10.50% 100.00%

70+ 100.00% 100.00% 100.00%

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(Continued)

Participation The following percentages of current active employees are assumed to be enrolled in a medical plan at retirement: 100% of actives eligible for additional City-paid health benefits and currently enrolled in a medical plan. 50% of actives eligible for the PEMHCA minimum employer contribution and currently enrolled in a medical plan.

Plan Enrollment Current and future retirees are assumed to remain

enrolled in the plans in which they are currently enrolled, if any.

Marital Status 65% of future retirees electing coverage are assumed to

cover a spouse as well. Males are assumed to be three years older than their female spouses. Actual marital status and ages as of the valuation date are used for current retirees, if available.

Coverage of Eligible Children We have assumed no impact of dependent children on

the implicit subsidy.

Health Care Claims Costs The Claims Costs for Region 1 are as follows:

The age-specific claims costs were developed based on

the CalPERS health plans’ overall demographics and regional premiums, as provided in the data published in the CalPERS implicit subsidy data file.

Age Male Female

50-54 12,664 13,416

55-59 14,374 13,706

60-64 17,763 15,372

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(Concluded)

Aging Factors Aging factors are used to adjust the age 64 per capita

claims cost. For the purposes of developing the age-specific claims cost, the aging factors are provided as “risk scores” in the CalPERS implicit subsidy data file, available from the following CalPERS website:

https://www.calpers.ca.gov/page/employers/benefit-

programs/cerbt

Dental and Vision Costs We have assumed no implicit subsidy due to dental or vision costs.

IV. Changes Since Prior Valuation Premium increase rates were modified to reflect

anticipated experience. Mortality rate, disability rate, payroll growth, and the

salary merit scale were all revised to match (as closely as possible) those developed in the most recent experience study for CalPERS.

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https://www.calpers.ca.gov/page/employers/benefit-programs/cerbt

https://www.calpers.ca.gov/page/employers/benefit-programs/cerbt

CITY COUNCIL STAFF REPORT

DATE: May 12, 2020

TO: City Council/City Manager

FROM: Eva Phelps, Administrative Services Director

By: Eva Phelps, Administrative Services Director

SUBJECT: General Fund Reserve Policy and Reserve Level Review

ATTACHMENT:

A: SanRamonGFReservePolicy_Memo_Final

B: San Ramon Reserve Policy Presentation

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1730 MADISON ROAD • CINCINNATI, OH 45206 • 513 861 5400 • FAX 513 861 3480 MANAGEMENTPARTNERS.COM

2107 NORTH FIRST STREET, SUITE 470 • SAN JOSE, CALIFORNIA 95131 • 408 437 5400 • FAX 408 453 6191

3152 RED HILL AVENUE, SUITE 210 • COSTA MESA, CALIFORNIA 92626 • 949 222 1082 • FAX 408 453 6191

To: Mr. Joe Gorton, City Manager

Ms. Eva Phelps, Administrative Services Director

City of San Ramon

From: Andy Belknap, Senior Vice President

Rick Haydon, Special Advisor

Subject: San Ramon General Fund Reserve Policy and Reserve Level Review Report

Date: April 29, 2020

Executive Summary

The City of San Ramon engaged Management Partners to assist in reviewing the General Fund

Reserve Policy and provide policy recommendations and analysis to determine the adequacy of

existing reserve amounts. City leaders were specifically interested in ensuring that the current

reserve policy and level of General Fund reserves represent an adequate strategy to meet the

City’s financial commitments and address unanticipated financial needs in the future.

Cities carry reserves for a good reason. Tax revenues can vary while service demands tend to

remain fixed and a reserve is used to buffer services from short-term cuts during normal

economic cycles. Setting a reserve policy is always a balancing act. City leaders do not want to

set it too low so that it is exhausted quickly, causing vital services to be disrupted. Likewise, if

the level is set too high, services might have to be cut simply to fund the reserve requirement.

San Ramon’s current reserve policy was developed by City staff using the Government Finance

Officers Association (GFOA) Risk Factor Assessment in determining a minimum target reserve

amount in the General Fund. It was adopted in February 2017 by the San Ramon City Council.

This memorandum provides our analysis of the current policy, potential adjustments to it, and

the financial impact of implementing those changes. Our analysis was done prior to the recent

COVID-19 pandemic, and associated emergency actions and declarations. Consequently, we did

not assess the financial impact this event has had or will have on the City’s General Fund or on reserves.

Management Partners has recently developed an emergency fiscal diagnostic tool for cities,

which on a general basis, allows us to gauge financial impact on different sized cities. Because

of the substantial economic impact on many types of revenues associated with the COVID-19

recession our forecast indicates that a typical city carrying GFOA-recommended levels of

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San Ramon General Fund Reserve Policy and Reserve Level Review Page 2

General Fund reserves (approximately 17% of General Fund spending) will exhaust its General

Fund reserves by approximately August 2020 absent any corrective actions. Staff will, of course,

need to perform their own analysis of the financial impact the COVID-19 pandemic on City

finances and reserves. Nonetheless, we believe our framework and analysis will serve to inform

any such evaluation. Clearly, at this time, it is a good thing that San Ramon carries a reserve

significantly higher than the GFOA-recommended minimum.

Our analysis was specifically sought regarding following two tenets of the current reserve

policy:

1. Adequacy of setting the reserve at 40% of the prior year actual General Fund

expenditures. The current policy calls for the minimum target reserve of the General

Fund reserves to be maintained at 40% of prior year General Fund operating

expenditures. As written, the General Fund reserves consist of a combination of

unallocated General Fund reserves, Dougherty Valley Fund reserves, Certificate of

Participation Debt Fund reserves, and Healthcare Fund reserves.

As a basis for determining the prior operating expenditures, the audited prior fiscal

year’s actual General Fund expenditures are used. In addition, the requirement for a

40% reserve amount is a relatively high standard for a municipality. GFOA recommends

that municipalities set aside no less than approximately 17% in their fund balance for

cashflow purposes. Many local governments typically keep General Fund reserve

amounts at 20% to 25% and more depending on their size and characteristics.

Neighboring jurisdictions (Danville, Dublin, Livermore, Pleasanton and Walnut Creek)

have written General Fund reserve policies that call for reserve amounts ranging from

20% to 26.5%; although later in this report it is noted that their reserve amounts are

higher than required.

According to the results of the City’s Risk Factor Assessment, San Ramon should have a

reserve amount between 26% to 35%, which is what the City has done. However, our

analysis indicated that the 40% goal is relatively high and as discussed later in this

report, we recommend considering reducing it.

2. Adequacy of a contingency reserve of $24.9 million to meet the unanticipated needs of

the City. The audited reserves in the combined General Fund, Dougherty Valley Fund,

and Debt Service Fund, as of June 30, 2019, are $24.9 million. Based on last year’s

General Fund operating expenditures being $46.4 million, the 40% minimum General

Fund reserve amount would have required a target goal of $18.6 million. Table 1 shows

the actual fund reserves as of June 30, 2019 and the goal.

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Table 1. Combined Actual General Fund Reserve Amount and Target Goal – June 30, 2019

Actual Goal

General Fund Balance $13,888,558 $18,567,378

Dougherty Valley Fund $ 470,903 -

Debt Service Fund $10,563,736 -

TOTAL $24,923,197 $18,567,378

Consequently, the current reserve amount of $24.9 million is more than adequate to

meet the unanticipated needs of the City based on the Risk Factor Assessment model. In

fact, the adequacy of this contingency reserve has been more than sufficient to meet the

minimum 40% target amount since the policy was approved in February 2017. Figure 1

illustrates the percentage of General Fund reserves compared with General Fund

expenditures for FY 2015-16 through FY 2018-19.

Figure 1. General Fund Reserves as a Percent of Total General Fund Expenditures

Our analysis resulted in the following major observations regarding the City’s General Fund

Reserve Policy.

1. Based on calculations when conducting the Risk Factor Assessment, City staff

identified a “worst case scenario” revenue loss which our independent review

concluded was higher than necessary based on actual experience in the Great

Recession, thereby increasing the minimum target reserve.

2. While utilizing reserves from the Dougherty Valley and Debt Service Funds is

appropriate given the fact that resources in those funds are related to the General

Fund, the policy does not take into consideration prior year’s expenditures in the

Dougherty Valley Fund and it should.

0%

10%

20%

30%

40%

50%

60%

70%

80%

2015-16 2016-17 2017-18 2018-19

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3. The City’s Risk Factor Assessment calls for setting aside reserves due to unanticipated

expenditures and potential revenue volatility. However, there are no reserves

designated for these purposes in the fund balance, as more than half of the General

Fund reserves ($13.8 million) are categorized as unassigned.

We have provided six preliminary recommendations in this project report. Our major

recommendations for consideration by the City are to:

1. Adjust the Revenue Source Stability amount downward in the City’s Risk Factor

Assessment from $12.3 million to $10.7 million. Making this adjustment in the Risk Factor

Assessment will reduce the amount of reserves needed in the General Fund from 40% to

35%.

2. Modify the current General Fund Reserve Policy and require a minimum target

reserve of $2 million for Dougherty Valley Fund operating expenditures. This

would increase the target reserve amount.

Taken together these two options would reduce the reserve target to approximately 36% of

General Fund expenditures.

Following a review and discussion of our analysis and preliminary recommendations with you

and others you may designate, Management Partners will finalize the project report.

Project Approach As part of this engagement, we:

• Interviewed City Manager Joe Gorton and Administrative Services Director Eva Phelps

• Reviewed the City’s General Fund Reserve Policy and the results of the GFOA Risk

Factor Assessment analysis (the basis for the City’s General Fund Reserve Policy)

• Reviewed current and previous (FY 2015-16, FY 2016-17, and FY 2017-18)

Comprehensive Annual Financial Reports (CAFRs) and Citywide budget documents

covering the same period

• Performed peer agency research related to General Fund Reserves and previous CAFRs

in Danville, Dublin, Livermore, Pleasanton and Walnut Creek

• Reviewed relevant GFOA documents pertaining specifically to fund balance-related

information and data

• Reviewed the City’s General Fund Five-year Financial Forecast and Projections

As previously mentioned, we reviewed relevant GFOA fund balance-related documents. The

GFOA is designed to advance excellence in public finance through best management practices

and represents public finance officials throughout the United States and Canada. As such, one

best management practice is for municipalities to maintain adequate levels of reserves to help

mitigate current and future risks (e.g., revenue shortfalls and/or unanticipated expenditures).

Accordingly, GFOA recommends, at a minimum, that municipalities, regardless of their size,

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maintain an unrestricted budgetary fund balance in their General Fund of no less than two

months of general fund operating revenues or general fund operating expenses. However, it

should be noted that unrestricted fund balance levels may vary and be in excess of the

aforementioned minimum level based on a municipality’s particular situation; thus, warranting

a Risk Factor Assessment to determine the appropriate level of reserves.

Existing General Fund Reserve Policy In 2016, City staff conducted an internal risk factor analysis using the GFOA Risk Factor

Assessment instrument and determined that a reserve greater than 35% in the General Fund was

warranted based on the assessment results. The Risk Factor Assessment took into consideration a

multitude of potential financial risk concerns as outlined by GFOA, including vulnerability to

extreme events (such as earthquakes, floods, etc.), revenue source stability (potential revenue

loss), expenditure volatility (potential lawsuits or increased operating costs), unfunded

liabilities (potential increase in pension costs), liquidity risks (cash flow issues), other fund

dependency issues, (i.e. Dougherty Valley), growth concerns, and unfunded capital projects.

In developing the Risk Factor Assessment, staff attributed certain monetary amounts to specific

risk factors. These were $4 million to the Vulnerability to Extreme Events factor and $12.3

million to the Revenue Source Stability factor. Combined, these two risk factors resulted in the

need to have at least $16.3 million in General Fund reserves. At the time the report was drafted,

prior year General Fund operating expenditures were $42 million. Accordingly, the identified

$16.3 million needed in reserve funds equated to 39% of prior year General Fund operating

expenditures.

When the General Fund Reserve Policy was brought before the City Council for their

consideration, the Council chose to have General Fund reserves be maintained at 40% of

General Fund operating expenditures (using prior fiscal year’s actual General Fund

expenditures as a basis for operating expenditures). General Fund reserves were then calculated

using reserves in the General Fund, Dougherty Valley Fund, Debt Service Fund, and Healthcare

Fund.

Accordingly, as of June 30, 2019, the combined General Fund reserve amount was $24.9 million

which more than met the desired 40% reserve goal. Figure 2 illustrates that the current General

Fund reserve amount is more than sufficient to meet its reserve goal of $18.6 million.

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Figure 2. Combined General Fund Reserve Balance

Major Observations Our major observations regarding the City’s current written reserve policy are provided below.

• After the Great Recession, the City’s three main economy-related revenue sources in the

General Fund, property tax, sales tax and transient occupancy tax plummeted as

demonstrated in Figures 3, 4 and 5.

Figure 3. Property Tax Actual Revenue FY 2008 through FY 2014 (in millions)

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

Actual Goal

General Fund Balance Dougherty Valley Fund Debt Service Fund

$14.35 $14.53 $13.93 $14.04 $13.91 $13.72

$14.63

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

2008 2009 2010 2011 2012 2013 2014

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Figure 4. Transient Occupancy Tax Actual Revenues FY 2008 through FY 2014 (in millions)

Figure 5. Sales and Use Tax Actual Revenues FY 2008 through FY 2014 (in millions)

According to the City’s Risk Factor Assessment, Revenue Source Stability was a major risk factor

that was taken into consideration during the drafting of the policy. Essentially, in developing

the revenue volatility estimate, the staff took the revenue decline between FY 2009 and FY 2010

$1.98

$1.57

$1.25

$1.50

$1.74

$2.10

$2.25

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

2008 2009 2010 2011 2012 2013 2014

$9.24 $9.01

$6.66

$7.58 $8.20 $8.34

$9.70

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

2008 2009 2010 2011 2012 2013 2014

3.2.a

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which amounted to revenue loss of $4.1 million in one year, and assumed a decline of this

magnitude over a three year period resulting in a “worst case scenario” revenue loss of $12.3

million over three years.

In examining data from the Great Recession, we note that while revenues declined over a five-

year period, they slowly grew from FY 2010 forward, and the total revenue loss was much less

than $12.3 million. As Table 2 shows, actual revenue loss in San Ramon’s property tax, sales tax,

and transient occupancy tax receipts during the last recessionary period was closer to $10.7

million. Consequently, had City staff used a more conservative amount like $10.7 million, their

recommended General Fund reserve amount would have been closer to 35% rather than 40%.

Since the Great Recession was the worst economic contraction since the Great Depression in the

1930s, we conclude that the City’s “worst case” $12.3 million potential revenue loss scenario

appears to have been slightly larger than justified by the actual data.

Table 2. Actual Property Tax, Sales Tax and TOT loss (FY 2008 through FY 2013)

2008 Actuals 2009 Actuals 2010 Actuals 2011 Actuals 2012 Actuals 2013 Actuals

Property Tax $14,345,904 $14,525,239 $13,930,189 $14,038,722 $13,912,217 $13,720,279

Sales and Use Tax $9,241,599 $9,013,866 $6,657,222 $7,580,028 $8,198,736 $8,336,061

Transient Occupancy Tax $1,979,708 $1,566,201 $1,247,315 $1,500,987 $1,740,663 $2,095,975

Property Transfer Tax $664,267 $438,874 $537,645 $469,732 $439,705 $518,437

Total $26,231,478 $25,544,180 $22,372,371 $23,589,469 $24,291,321 $24,670,752

Loss $(687,298) $(3,859,107) $(2,642,009) $(1,940,157) $(1,560,726)

TOTAL LOSS $(10,689,297)

Of course, given current circumstances this is a good thing, and the COVID-19 pandemic we are

now experiencing may cause the industry to fundamentally reset guidance on reserve levels.

However, based on existing guidance the City’s reserve levels are somewhat higher than would

be recommended. Lending additional credence to this is the fact that in reviewing the revenue

loss in neighboring jurisdictions during the last recessionary period, the average combined

cumulative loss in those agencies (Danville, Dublin, Livermore, Pleasanton and Walnut Creek)

was approximately $3.2 million.

• The City’s General Fund Reserve Policy states:

The minimum target reserve of General Fund reserves will be maintained at forty

percent (40%) of General Fund Operating Expenditures. The General Fund

reserves shall consist of a combination of unallocated General Fund reserves,

Dougherty Valley Fund reserves, Certificate of Participation Debt Fund reserves,

and Healthcare Fund reserves...with the minimum reserve level calculated

annually using the prior fiscal year’s actual General Fund Expenditures.

3.2.a

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As written, the policy does not take into consideration prior year’s expenditures in the

Dougherty Valley Fund it should, as expenditures in this fund is substantial and should

also be used in the calculation of prior year expenditures due to the financial obligations

this fund has in relation to the General Fund.

In addition, the policy is written to require the use of the “prior fiscal year’s actual

General Fund Expenditures,” which is not the most efficient way of calculating General

Fund reserves. This is because it requires the use of audited financial data which is not

readily available at the time the budget is being compiled. Rather, the use of the prior

fiscal year’s estimated General Fund expenditures would be simpler to implement and

more consistent with other cities.

• Since one of the key components of the City’s Risk Factor Assessment addressed the

concern for potential revenue loss, it would be prudent to set aside funds in the reserves

and designate them as “committed” funds for Economic Stabilization or Revenue Source

Stability to help bridge the financial gap in the General Fund during the next recession

period.

• In addition to the previously mentioned revenue source stability issue, the City’s Risk

Factor Assessment also identified two other areas of concern dealing with expenditures:

vulnerability to extreme events and expenditure volatility. Such expenditure risk factors

take into consideration the potential exposure for increased pension-related expenses,

unanticipated lawsuits, as well as catastrophic events such as earthquakes and floods.

And as with the need to designate reserve funds to address revenue source stability

concerns, it would also be wise to set aside funds and designate them as “assigned”

funds to help mitigate unexpected future catastrophic events.

• There is no mention in the annual CAFR of the makeup of the General Fund reserves.

Therefore, for clarification and full disclosure purposes, the annual CAFR should

indicate which funds are included in calculating the General Fund reserve amount.

• The existing written reserve policy also references the use of Healthcare Fund reserves

in the calculation of the General Fund reserves. In practice, the City no longer uses this

fund in the calculation; therefore, the Healthcare Fund should no longer be referenced in

this policy.

Preliminary Recommendations The following recommendations were developed prior to the onset of the recent COVID-19

pandemic.

One of the critical factors used in determining the City’s targeted General Fund reserve amount

when it was formulated in 2016 was revenue volatility and as noted, our analysis indicates that

the City’s “worst case scenario” of revenue volatility appears to be slightly overstated. In fact, a

3.2.a

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review of actual revenue loss during the last recession in property taxes, sales taxes and

transient occupancy taxes totaled only $10.7 million. Consequently, had City staff used a $10.7

million revenue loss in determining their Risk Factor Assessment, as opposed to the $12.3 million

figure, the targeted reserve amount would have been closer to 35% rather than 40%.

Recommendation 1. Adjust the minimum General Fund reserve amount from

40% to 35%.

The Dougherty Valley Fund provides several General Fund-related municipal services to a

County service area within the City’s limits. The City is then reimbursed for said services by

Contra Costa County on a semi-annual basis. This creates a liquidity concern as the City’s

General Fund assumes various costs for providing services before being reimbursed by the

County. Because the General Fund annually contributes (transfers out) approximately $2

million to the Dougherty Valley Fund, it is recommended that this amount be included in the

calculation of prior year General Fund operating expenditures.

Recommendation 2. Incorporate the transfer payment to the Dougherty

Valley Fund (approximately $2 million) to reflect the annual General Fund

contribution to this fund, for inclusion into the calculation of prior year

General Fund operating expenditures.

This recommendation warrants adjusting the minimum General Fund target reserve to 36% of

prior year operating expenditures.

The City’s Risk Factor Assessment identified significant risk factors associated with the potential

for substantial revenue loss in the future (i.e., Revenue Source Stability) and the exposure to

future expenditure volatility (i.e., Vulnerability to Extreme Events). However, there are no

reserve funds designated as either “committed” or “assigned” to address the potential for

substantial revenue loss or to deal with expenditure volatility. In fact, of the current $24.9

million in combined reserves, over $11.1 million are designated as either “non spendable” or

“restricted,” leaving more than half of the reserve funds ($13.8 million) categorized as

unassigned. To that end, it would be prudent to designate a portion of the $13.8 million in

unassigned reserves to address future revenue stabilization and expenditure volatility. In

addition, a re-designation of some restricted funds may also be in order since there are

sufficient funds in the Debt Service Fund to pay for current and future debt service obligations;

thereby allowing those remaining funds to be designated as unassigned.

It should also be noted that the neighboring jurisdictions such as Danville, Dublin, Livermore

and Walnut Creek all designate portions of their reserve funds as either committed or assigned

to address revenue stabilization and expenditure volatility concerns, as shown in Table 3.

3.2.a

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Table 3. General Fund Reserve Designation Comparison by Jurisdiction

City Nonspendable Restricted Committed Assigned Unassigned

Danville $7,325,019 $820,547 $19,005,310 $117,735 $0

Dublin $2,818 $1,938,000 $47,267,326 $60,771,810 $61,235,819

Livermore $5,712,441 $0 $15,954,446 $22,359,001 $21,015,747

Pleasanton $524,566 $0 $0 $0 $29,077,433

San Ramon (current) $170,326 $11,026,271 $0 $0 $13,726,600

San Ramon (proposed) $170,326 $4,621,275 $10,700,000 $4,000,000 $5,431,596

Walnut Creek $896,338 $17,618,718 $24,410,360 $18,759,479 $6,794,320

Recommendation 3. Reallocate $10.7 million in unassigned General Fund

reserves to the “committed” designation to address future revenue

stabilization concerns and $4 million in unassigned General Fund reserves to

the “assigned” designation to address expenditure volatility issues in the

future.

Should City leaders conclude that the recommended action does not meet their criteria for

committing or assigning fund balance reserve amounts, in the alternative, at a minimum, notes

to the financial statements in the annual CAFR should disclose such revenue stabilization and

expenditure volatility information. Such clarification language could be incorporated in Section

9 Net Position and Fund Balances, Subsection C.

As a matter of practice, the City uses a combination of General Fund reserves, Dougherty Valley

Funds reserves and the Debt Service Fund reserves as a basis for establishing their General

Fund reserve amount. However, aside from the General Fund Reserve Policy, there is no

mention of this practice in the annual CAFR and there should be for purposes of clarification

and full disclosure.

Recommendation 4. Insert clarification language in future CAFRs to indicate

that for calculation purposes the General Fund reserves shall consist of a

combination of the following three reserves: General Fund reserves,

Dougherty Valley Fund reserves, and Debt Service Fund. Specifically, this

language can be incorporated in the Notes to the Financial Statements, Section 9

Net Position and Fund Balances, Subsection (C).

Since the Healthcare Fund is no longer used in the calculation for determining the General Fund

reserve amount, the City should change the policy and remove any reference to the Healthcare

Fund.

Recommendation 5. Revise the General Fund Reserve Policy and remove any

reference to the Healthcare Fund since it is no longer used in calculating

reserves.

3.2.a

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Finally, as written, the existing policy’s requirement to use prior fiscal year’s “actual” General

Fund Expenditures is difficult to put into practice because it requires the use of audited

financial data which City staff does not have readily available at the time the budget is being

compiled. Accordingly, the policy should be slightly modified to use the prior fiscal year’s

estimated General Fund Expenditures.

Recommendation 6. Modify the General Fund Reserve Policy and replace the

word “actual” with “estimated” before the wording “General Fund Operating

Expenditures” when describing the minimum reserve level calculation.

Conclusion A healthy and appropriately constructed reserve policy is an industry-wide best management

practice and is also an integral part and key attribute of a City’s financial stability and

sustainability. Strong reserve funds enable cities to weather significant economic downturns

more effectively as well as successfully address unexpected financial emergencies when they

arise and help bring the financial gap between one budget year to the next.

The City of San Ramon is to be commended for undertaking the GFOA’s Risk Factor

Assessment and constructing a formalized General Reserve Policy designed to help mitigate

various risks, meet future financial commitments, and address unexpected future events in a

fiscally prudent manner. As previously noted, this work product was performed prior to the

recent COVID-19 pandemic. Consequently, the financial impacts associated with this

unfortunate event were not analyzed as part of this engagement.

3.2.a

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San Ramon’s General Fund Reserve Policy and Reserve Level Review

San Ramon City Council Meeting

May 12, 2020

Rick Haydon, Special Advisor

3.2.b

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of service exclusively to local governments25+years

About Management Partners

including local government generalists andsubject-matter experts

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in Cincinnati, Ohio; San Jose and Costa Mesa, California

Our Services• Strategic Planning• Organization Analysis• Financial Planning/Budgeting• Organization Development• Process Improvement• Operations Improvement• Service Sharing• Performance Management• Facilitation and Training• Executive Recruitment• Executive Coaching

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3national offices

3.2.b

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Goals of the Engagement

• Review the adequacy of setting the General Fund reserve at 40% of the prior year actual General Fund expenditures

• Validate the adequacy of a contingency reserve of $24.9 million to meet the unanticipated needs of the City

Note: Our analysis was done prior to the recent COVID-19 pandemic 3

3.2.b

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What are Reserves?

• A cornerstone of financial flexibility

• Provide options for responding to unexpected issues and help buffer against various forms of risk

• Commonly referred to as the difference between a fund’s assets and liabilities

A reserve policy establishes minimum levels of designated funds to help protect the

City against financial instability.

4

3.2.b

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General Fund Reserve Level

5

Reserve levels vary among cities

Government Finance Officers’

Association (GFOA) recommends no

less than 17% reserve amounts

Many cities have between 20% to 25% in reserves

Nearby cities have written

policies that call for reserves

between 20% and 26.5%

San Ramon’s policy calls for minimum reserves of 40%

3.2.b

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Basis for Current Reserve Policy

• City staff conducted a Risk Factor Assessment in 2016

• Risk Assessment based on GFOA guidelines factored in: Vulnerability to extreme events Revenue source stability Expenditure volatility Unfunded liabilities Liquidity risks Other fund dependency issues Unfunded capital projects

6

3.2.b

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• Based on the 2016 Risk Factor Assessment (RFA)

City identified a “worst case scenario” revenue loss of $12.3 million

$4 million was identified for expenditure volatility

• Results of the RFA indicated a reserve between 26% to 35% was warranted

• City Council decided on a 40% minimum reserve

• General Fund reserve includes funding from the Dougherty Valley and Debt Service Funds

7

How the City set the Reserve at 40%3.2.b

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Current Reserves Exceed Minimum Goal of 40%

Actual Goal

General Fund Balance $13,888,558 $18,567,378

Dougherty Valley Fund $ 470,903 -

Debt Service Fund $10,563,736 -

TOTAL $24,923,197 $18,567,378

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

Actual Goal

General Fund Balance Dougherty Valley Fund

Debt Service Fund8

3.2.b

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Attainment of 40% Reserve Goal

0%

10%

20%

30%

40%

50%

60%

70%

80%

2015-16 2016-17 2017-18 2018-19

General Fund Reserves as a Percent of Total General Fund Expenditures

9

3.2.b

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Adequacy of Setting Reserve at 40%

• Current reserve of 40% is a relatively high standard for a minimum reserve amount

• Many cities have between 20% to 25% in reserves

• Each city is different and has its own unique set of circumstances

• In our opinion, the minimum reserve of 40% is high based on historical data

10

3.2.b

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Revenue Loss during Great Recession

$14.30

$14.50

$13.90

$14.04 $13.95

$13.72

$14.63

$13.20

$13.40

$13.60

$13.80

$14.00

$14.20

$14.40

$14.60

$14.80

2008 2009 2010 2011 2012 2013 2014

Actual Property Tax Revenue FY 2007-08 through FY 2013-14 (in millions)

11

3.2.b

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$1.98

$1.57

$1.25

$1.50

$1.74

$2.10 $2.25

$-

$0.50

$1.00

$1.50

$2.00

$2.50

2008 2009 2010 2011 2012 2013 2014

Actual Transient Occupancy Tax Revenue FY 2007-08 through FY 2013-14 (in millions)

12

3.2.b

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$9.20 $9.00

$6.70

$7.58 $8.20 $8.30

$9.70

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

2008 2009 2010 2011 2012 2013 2014

Actual Sales Tax Revenue FY 2007-08 through FY 2013-14 (in millions)

13

3.2.b

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Total Cumulative Revenue Loss

2008 Actuals 2009 Actuals 2010 Actuals 2011 Actuals 2012 Actuals 2013 ActualsProperty Tax $14,345,904 $14,525,239 $13,930,189 $14,038,722 $13,912,217 $13,720,279 Sales and Use Tax $9,241,599 $9,013,866 $6,657,222 $7,580,028 $8,198,736 $8,336,061 Transient Occupancy Tax $1,979,708 $1,566,201 $1,247,315 $1,500,987 $1,740,663 $2,095,975 Property Transfer Tax $664,267 $438,874 $537,645 $469,732 $439,705 $518,437 Total $26,231,478 $25,544,180 $22,372,371 $23,589,469 $24,291,321 $24,670,752

Loss $(687,298) $(3,859,107) $(2,642,009) $(1,940,157) $(1,560,726)TOTAL LOSS $(10,689,297)

14

3.2.b

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Modified Reserve Amount

• Uses $10.7 million actual revenue loss

• Includes $4 million for expenditure volatility

• Adjusts the Minimum General Fund Amount from 40% to 35%

• Needs to include Dougherty Valley Fund expenses

Recommended Reserve Amount

• Include Dougherty Valley Fund expenses (approx. $2 million)

• Adjust the Minimum General Fund Amountto 36%

15

3.2.b

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Other Recommendations

• Reallocate unassigned General Fund reserves to: $10.7 million in committed funds to address future revenue

stabilization concerns; and $4 million in assigned funds to address expenditure volatility issues

City Nonspendable Restricted Committed Assigned UnassignedDanville $7,325,019 $820,547 $19,005,310 $117,735 $0Dublin $2,818 $1,938,000 $47,267,326 $60,771,810 $61,235,819Livermore $5,712,441 $0 $15,954,446 $22,359,001 $21,015,747Pleasanton $524,566 $0 $0 $0 $29,077,433San Ramon (current) $170,326 $11,026,271 $0 $0 $13,726,600 San Ramon (proposed) $170,326 $4,621,275 $10,700,000 $4,000,000 $5,431,596 Walnut Creek $896,338 $17,618,718 $24,410,360 $18,759,479 $6,794,320

116

3.2.b

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Other Recommendations

Remove Remove all references to the Healthcare Fund in the reserve policy

Identify Identify in the CAFR that the Dougherty Valley Fund and Debt Service reserves are part of the General Fund reserves

Replace Replace the word “actual” with “estimated” in the calculation of prior year General Fund operating expenditures

17

3.2.b

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Questions

Rick Haydon | [email protected]

3.2.b

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CITY OF SAN RAMON

City Council Budget WorkshopUpdate on Development of the FY 2020-21 Budget

May 12th, 2020 1

Presentation Outline

Update of FY 2020-21 Budget Development

Options to Consider

Unfunded CIP

Next Steps

2

Recap of April 14th Workshop:

Revised FY 2019-20 Projections due to COVID-19

FY 2019-20 Reserves going from $22.3 million to

$20.4 million – projected losses of $1.9 million

3

Status 2020-21

Budget Development

Recap of April 14th Workshop:

Revisions to FY 2020-21 Budget Development due to

COVID-19:

GF Revenue Estimates - $52.6 million

GF Expenditure Estimates - $51.0 million

GF Net Transfer Out - $3.6 million

Use of Reserves:

$2.0 million in General Fund Reserve

$1.6 million in Debt Service Reserve

$3.6 million Total General Reserves

4

Status 2020-21

Budget Development (continued)

5

Status 2020-21


General Fund

($ in million)

FY20/21

Preliminary

Budget

(April)

FY20/21

Preliminary

Budget

(May)

$

Change

%

Change

REVENUES:

Property Tax $ 22.23 $ 22.23 $0.00 0%

Sales and Use Tax 9.51 9.51 0.00 0%

Property Transfer Tax 0.69 0.69 0.00 0%

Transient Occupancy Taxes 2.61 2.61 0.00 0%

Franchise Fees 6.06 6.06 0.00 0%

Licenses and Permits 2.37 2.37 0.00 0%

Intergovernmental 0.22 0.22 0.00 0%

Charges for Services 5.40 5.40 0.00 0%

Fines and Forfeitures 0.32 0.32 0.00 0%

Investment Income 0.10 0.10 0.00 0%

Miscellaneous Revenue 3.03 3.03 0.00 0%

Total Revenues 52.55 52.55 0.00 0%

6

Status 2020-21


General Fund

($ in million)

FY20/21

Revised

Request

(April)

FY20/21

Revised

Request

(May)

$

Change

%

Change

EXPENDITURES

General Government $ 2.86 $ 2.86 0.00 0%

Administrative Services 4.71 4.71 0.00 0%

Community Development 4.06 4.02 (0.04) -1%

Police Services 16.04 15.82 (0.22) -1%

Public Works 15.09 15.08 0.00 0%

Parks & Community Services 8.16 8.06 (0.10) -1%

Non-Departmental 0.05 0.05 0.00 0%

Total Expenditures 50.97 50.61 (0.36) -0.7%

OTHER FINANCING SOURCES (USES)

Net Transfers Out (3.64) (2.09) 1.55 -43%

Excess (Deficiency) of Revenues (2.06) (0.15) 1.91

Over (Under) Expenditures

Changes from the April Budget Workshop:

Removed transfer to Infrastructure Maint. Fund $1,500,000

Removed funding for two new police officers 349,000

Implement credit card merchant fee recovery 137,000

No overhead transfer in from Storm Water Fund (76,000)

Net Change: 1,910,000

7

Status 2020-21


Impact on the use of reserves:

Proposed budget shows additional draw-down of

reserves

$0.15 million use of General Fund Reserve

$1.57 million use of Debt Service Reserve

$1.72 million use of Total General Reserves

Projected $18.63 million at June 30, 2021 or 40.1% of

FY 2018-19 General Fund actual expenditures

40% Reserves Policy is $18.56 million

8

Status 2020-21


Option 1 – Use of Reserves

$1.7 million

Option 2 – Service Level Reductions

Option 3 – Combination of Use of Reserves and

Service Level Reductions

9

Options to Consider


$2.2 million expenditure reductions

10

Options to Consider (continued)


11

ADMINISTRATIVE SERVICES

#1 Employee Holiday Luncheon $6,700

Total $6,700


12


CITY CLERK

#2 Records Management Consultant $15,000

#3 Government 101 1,000

#4 School Tours Giveaways 1,500

Total $17,500


13


COMMUNITY DEVELOPMENT

#5 Part-Time Code

Enforcement

Longer response time to

complaints and resolving cases.

Elimination of weekend code

enforcement (e.g., real estate and

garage sale sign pick-up).Reduction

in proactive enforcement of

commercial centers.

$50,000

#6 Plan Check Services Remaining budget is $100,000 and

will cover 11arge project. Plan

check review times increase,

delaying permit issuance, start of

construction and revenue to the

City.

100,000

Total $150,000


14


POLICE SERVICES

#7 Youth Academy $1,400

#8 Two Citizens Academy 11,000

#9 Training Costs & Range Fees for Citizens Academy 3,000

Total $15,400

Option 2 – Service Level Reductions – Tier 1

15


PARKS & COMMUNITY SERVICES

#10 Eliminate free 2020 4th of July concert

-Reduce expenditures $7,780

-No reduction in revenue

$7, 780

#11 Reduce 4th of July Run to a Virtual Run

-Reduce Expenditures $13,367

-Reduction in revenue $15,500

(2,133)

#12 Reduce free Summer Concert Series from five to three

performances; eliminating July events and keeping August

events


-Reduction of sponsorship revenue $2,500

9,274

#13 (OR) Eliminate free Summer Concert Series


-Reduction of sponsorship revenue $2,500

20,222


16



#14 Eliminate the free Senior Concert at the Alcosta Senior and

Community Center

-Reduce entertainment/supplies $400


400

#15 Remove free Dive In Movies events at SROP and DVAC

(July/August 2020 - June 2021)



4,573

#16 Reduce Presenting Series from five new performances to one

new performance in FY20/21 and two rescheduled

performances from FY19/20


-Reduce revenue $63,126

75,324


17



#17 Reduce Summer Rec Swim Hours at both DVAC and

SROP collectively for 4 hours a week, for 10 weeks

-Reduce temp staffing $11,700


7,700

#18 Reduce Rec Swim Hours at SROP only during Spring

(April – May)



5,086


18



#19 Reduce free weekly Saturday Events at Forest Home

Farms and offer on a monthly basis only staffed by full

time staff



18,604

Total $126,608


19


PUBLIC WORKS

#20 Reduce maintenance service

levels and frequencies, i.e.

janitorial, landscape, parks,

mowing, carpet cleaning, roadway

Deferred maintenance costs; visual

impact to public, increased public

concerns, degradation of vegetation

and facility amenities over time;

reduction in lifespan of amenities;

additional work to keep up with

reduced services; safety concerns.

$921,000

#21 Eliminate temporary and limited-

term staff

Maintenance temporary staff cover

high season, so there would be delay

in response and decrease in quality

of work. Minimizes oversight of

contractor at school parks,

landscape maintenance. Impact to

landscape renovation work. Impact

on construction inspection and GIS

Program.

425,000

20


PUBLIC WORKS

#22 Return maintenance of

school parks to School

District

Currently done by city staff

through MLA with SRVUSD;

quality of work would be

impacted. Cost for contract

landscape maintenance.

534,000

#23 Reduce hours of

operation of Bollinger

Fountain

Run fountain minimally to

preserve equipment and

pump; visual impact to

residents.

15,000

#24 Reduce Engineering

Professional Services

Impact to Development and

CIP projects. Increase in

workload for engineers;

longer response time. Still

have need for specialty

engineering services.

20,000

Total $1,915,000


Option 2 – Revenue Enhancements

21


PUBLIC WORKS

#25 Increase User Fees for

maintenance

None of user fees pay for

maintenance services;

propose to increase these

fees to help offset field

maintenance costs.

TBD in

FY20/21

Work Plan

#26 Increase

Encroachment Fees

Incorporated in FY

20/21 fee schedule

Increase hourly inspection

rate to cover staff costs.30,000

Total $ 30,000

Option 2 – Prioritization of Reductions

22


PUBLIC WORKS

Tier 1 #20 (ptn) – Reduce Janitorial

Service Frequencies

Reduction of costs will be realized

based on facility closures.

No service level impacts.

$85,359

Tier 2 Tier 1 plus

#20 (ptn) park maintenance

#23 Bollinger Fountain hours

Suspend Ecofert services at Athan

Downs; reduce operation hours at

Bollinger Fountain.

113,345

Tier 3 Tier 1 plus Tier 2 plus

#20 (ptn) park restrooms,

landscape and park

maintenance, carpet cleaning

#21 (ptn) temp, L/T staff

#24 (ptn) engineering

professional services

Reduce landscape services to 6x/year;

suspend ecofert services at Central

Park; maintain park restrooms 9

month winter schedule, 3 month

summer; reduce carpet cleaning;

eliminate 1 maintenance temp;

eliminate limited term l/s maintenance

staff.

520,417

Tier 4 Tiers 1-3, plus all remaining

service level reductions

Includes all service level reductions

proposed (total revised based on

further analysis of each service level

reduction).

$1,547,331

Cumulative

Total

Option 2 – Prioritization of Reductions

23


Service Frequency Tier 1&2 Tier 3 Tier 4

Parks Restroom

Janitorial

Large parks:

5x/wk for 8 mos;

3x/wk for 4 mos

Current Large parks:

5x/wk for 3 mos;

3x/wk for 9 mos

Large parks:

3x/wk for 12 mos

Small parks:

3x/wk for 8 mos;

1x/wk for 4 mos

Current Small parks:

3x/wk for 3 mos;

1x/wk for 9 mos

Small parks:

1x/wk for 12 mos

Street Landscape

Maintenance (DV)

8x - 10x/year landscape

pruning and services

Current 6x/year 4x/year

Parks Mowing &

Landscape

Mow:

1x/wk for 8 mos;

2x/mo for 4 mos

Current Current Current

Parks landscape:

monthly

Current Large/Small parks:

every 6 wks

(~10% reduction)

Large/Small parks:

every 6 wks +

lower services

(~ 15% reduction)

Carpet Cleaning Monthly: high traffic

areas, facilities;

Quarterly: rest of

facilities

Current Reduce areas of

buildings to

quarterly, 3x/year,

or annually

Further reduction

in frequencies and

impacts to higher

traffic areas

24

Unfunded CIP

CIP Projects – Unfunded

DoughertyValley CSA Funded

Projects

FY 20/21

Scheduled

CIPs

Proposed

FY 20/21

Proposed

Mid-Year

FY 20/21

Centralized Irrigation System Upgrades

(CIP 935404)

$67,000 $33,500 33,500

Irrigation Booster Pump Installation

(CIP 955516)

85,000 42,500 42,500

Fountain Repairs and Replacement

(CIP 955478)

51,840 7,840 44,000

Street Landscape Planting Renovation

(CIP 935488)

250,000 0 0

Total $453,840 $83,840 $120,000

Staff will incorporate feedback from the City

Council on what was presented today

Staff will complete preparation of the proposed

budget document

City Council to adopt the budget in early June

~ Thank You ~

25

Next Steps