HomeMy WebLinkAboutMINUTES - 08152006 - SD.10A I
TO: BOARD OF SUPERVISORSContraA. :
Costa
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FROM,., JOHN CULLEN, County Administrator =-= ���°r County
DATE: AUGUST' 7, 2006 °''--- �`�
S��1 COLII�'�
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STP 10 -A
SUBJECT: RESPONSE TO GRAND JURY REPORT NO. 0606, ENTITLED "COUNTY
II IGNORES RETIREEi HEALTH COSTS: The Financial Tidal Wave"
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SPECIFIC REQUEST(S)OR RECOMMENDATiON(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATION:
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APPROIVE response to Grand Jury Report No. 0606, entitled "COUNTY IGNORES RETIREE
HEALTH COSTS: The Financial Tidal Wave", and DIRECT the Clerk of the Board to forward the
response to the Superior Court no laterjthan August 18, 2006.
BACKGROUND:
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On May 26, 2006,the 2005/2006 Grand Jury filed the above-referenced report, which was reviewed
by the Board of Supervisors and subsequently referred to the County Administrator and Capital
Facilities Committee, who jointly prepared the attached response that clearly specifies:
A. I Whether a finding or recommendation is accepted or will be implemented;
B. j If a recommendation is accepted, a statement as to who will be responsible for
implementation and by what definite target date;
C. II
I A delineation of the constraints if a recommendation is accepted but cannot be implemented
within a six-month period; and
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D. The reason for not accepting i r adopting a finding or recommendation.
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CONTINUED ON ATTACHMENT: YES SIGNATURE:
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,/F�ECOMMENDATION OF COUNTY ADMINIS RATOR RECOMM ND TION OF BOARD COMMITTEE
-APP OTHER
SIGNATURE(S): I
---------------------------- ----------- ---- --- -------------------------------------------------------------------------------------------------------------------------
ACTION OF BOA N APPROVE AS RECOMMENDED C OTHER
VOTE OFII SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE
AND CORRECT COPY OF AN ACTION TAKEN
UNANIMOUS(ABSENT ) AND ENTERED ON THE MINUTES OF THE
it BOARD OF SUPERVISORS ON THE DATE
AYES: NOES: SHOWN.
ABSENT: ABSTAIN:
III ATTESTED: AUGUST 15,2006
CONTACT: JULIE ENEA(925)335-1077 JOHN CULLEN,CLERK OF THE BOARD OF
II SUPERVISORS AND COUNTY ADMINISTRATOR
CC: PRESIDING JUDGE OF THE GRAND JURY
GRAND JURY FOREMAN
COUNTY ADMINISTRATOR
AUDITOR-CONTROLLER
CAO-CAPITAL FACILITIES ADMINISTRATOR(CRAPO)
CAO-SENIOR DEPUTY-FINANCE(DRISCOLL)
CAO-SENIOR DEPUTY-ADMIN(ENEA)
BY , DEPUTY
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Background (continued...
The Board of Supervisors appreciates the Grand Jury's attention to the issue of retiree healthcare and
Governmental Accounting Standards Board (GASB) 45. This is one of the most significant
financial challenges facing the County and many other public agencies.
AIthoulgh GASB 45 does not become effective until Fiscal Year 2007/2008, the County began work
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on implementing GASB 45 in 2005. Contra Costa was one of the first counties in California to
complete an actuarial study consistent with the requirements of GASB 45. This was a critical step in
understanding the implications of GASB 45 for the County and beginning the process to develop a
management plan to address the County's liability for post-employment benefits, other than pension
benefits.
The Boand of Supervisors is concerned about the financial impact of retiree health costs and has
directed staff to develop reconunendations to address this issue and to make future progress reports
to the Finance Committee.
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Background(continued...)
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The Board of Supervisors appreciates the Grand Jury's attention to the issue of retiree healthcare and
Governmental Accounting Standards Board(GASB)45. This is one of the most significant
financial challenges facing the County and manyi other public agencies.
Although GASB 45 does not become effective until Fiscal Year 2007/2008,the County began work
on implementing GASB 45 in 2005. Contra Costa was one of the first counties in California to
complete an actuarial study consistent with the requirements of GASB 45. This was a critical step in
understanding the implications of GASB 45 for the County and beginning the process to develop a
management plan to address the County's liability for post-employment benefits,other than pension
benefits.
The Board of Supervisors is concerned about the financial impact of retiree health costs and has
directed staff to develop recommendations to address this issue and to make future progress reports
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to the Finance Committee.
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BOARD OF SUPERVISORS RESPONSE TO
GRAND JURY REPORT NO. 0606:
COUNTY IGNORES RETIREE HEALTH COSTS --
The Financial Tidal Wave
rFINDINGS
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1. The County provides health insurance for active and retired employees and pays most of the
cost,generally ranging between 80%and 98%of the total cost,depending on the insurance
plan selected.
Response: Agree.
2. The County pays the same percentage of the cost for retirees as for active employees.
Recpnitse: Agree.
3. I?ive years of service qualifies an employee for retiree health benefits.
Response: Agree,with the clarification that the total of five years of service may include
service in a retirement si stem that has reciprocity with the Contra Costa County Emploj,ees'
Retirement Association(CCCERA),and the retiree must have been enrolled in a Count}?health
plan)1prior to retirement or within two years of the.start of the CCCERA pension.
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4. Between fiscal year 2001-2002 and the budget for fiscal year 2006-2007,the cost for retiree
health insurance doubled—from$16 million to$32 million.
Response: Agree.
5. I.,ike many other public employers,the County expenses the cost of retiree health benefits
over the employee's retirement when they are paid("pay-as-you-go"),rather than over the
employee's service when they are earned("accrual basis").
Response: Agree.
6. The Governmental Accounting Standards Board("GASB")establishes standards for financial
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accounting and reporting for state and 101 cal governments.
Xespoirse: Partially disagree. The Governmental Accounting Standards Board("GASB')
establishes standards for reporting in financial statements that are to be audited by and opined
11 upon by independent auditors. Internal reporting and reporting to the State of California is
governed by the State of California"Accounting Standards and Procedures for Counties
issued d by the State Controller's Office.
7. The County has elected to follow all GASB pronouncements.
Resnon.se: Agree.
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County Ignores Retiree Health Costs: The Financial Tidal Nave August 7,2006
County Response to Grand Jury Report No.0606 I Page 3
8. GASB 45,"Accounting and Financial Reporting by Employers for Post-employment Benefits
Other than Pensions"("GASB 45")provides an accounting standard that is analogous to the
pension accounting standard and will result in a calculation and disclosure of an unfunded
liability for retiree health similar to the one for pensions.
Response: Agree.
9. GASB 45 requires,no later than fiscal year 2007-2008,that the County:
a. Disclose the unfunded liability for health benefits(and other post-employment benefits
other than pensions)that have been learned
arned by all active employees and retirees.
b. To the extent they are funded,increase its annual health care cost to include the normal
cost of benefits as they are earned,plus an amount that amortizes the unfunded liability.
c. Disclose the funding policy and status.
Response: Agree.
10. Although there is no current requirement to fund any of the unfunded liability,a directive
requiring funding could be issued in the'future or credit rating agencies could, in effect,
require partial or full funding by their credit rating actions and practices.
Response: Disagree. The County has no knowledge of any such directive being considered by
any entity having the authority to issue such a directive. Neither GASB nor the credit rating
agencies have such authority.
The credit rating agencies have indicated that management of retiree healthcare liability will
influence credit ratings for counties and other public agencies. Contra Costa County will not
be unlike other cities,counties and other local government agencies,and the state that will
likewise be required to report unfunded OPEB(other post-employment benefits)liability.
IL An independent actuarial firm has recently completed an actuarial analysis as of January 1,
2006,for the County,including Fire Districts,under two discount assumptions:(1)4.5%,
which relates to the current pay-as-you go method and(2)7.9%,which would reflect a fully
funded plan. These estimates are basedlon GASB 45 and are summarized below.
Contra Costa Cqunty Retiree Health Costs
(iln millions)
Annual Expen `
Discount..: Unfunded -
Rate. V= Liability Liability 'Normal ;Required
Amortization Cost, :Contribution
,:� .
4.5% $2,561 $85 $130 $215
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County Ignores Retiree Health Costs: The Financial Tidal Wave August 7,2006
County Response to Grand Jury Report No.06061 Page 4
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7.9% 1.420 1 47 55 1021
Discount Rate: The interest rate use d in developing present values to reflect the time
value of money.
Unfunded Liability: The present value of benefits attributed to employee service as of
January 1,2006,less any assets held!for the plan. Currently there are no assets held for the
plan.
Liability Amortization: Principal portion of the Unfunded Liability,assuming a 30-year
amortization period,to be amortized leach year.
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Normal Cost: The portion of the ret Iiree health costs attributed to employee service for
2006.
Required Contribution: The Normal Cost plus the Liability Amortization for the year.
Response: .Agree.
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12. The costs of retiree health benefits are offset to the extent they are reimbursed by the State
and Federal Governments;however,there is uncertainty regarding the treatment of pre-
funded amounts in determining these expense reimbursements.
Response: Partially disagree. Federal guidelines that establish the principles and standards
for determining costs for Federal awards carried out through grants,cost reimbursement
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contracts,and other agreements with State and local governments,currentiv permit
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reimbursement of pre funded OPEB costsi
Chronology
13. GASB 45 was issued in June 2004.
Response: Agree.
14. In September 2005,County staff received a preliminary estimate of the County's unfunded
liability and annual expense under GASB 45.
Response: Agree.
15. At the February 28,2006 Board of Supervisors' ("BOS")meeting,a very brief presentation
of the preliminary estimate was made and an independent actuary was retained to perform a
full retiree health actuarial valuation for the County,consistent with GASB 45.
Response: Agree. The Board discussed this iter:jor approximately 20 minutes.on February
28,2006 and the Finance Committee discussed this item for approximately 90 minutes at a
public study session.
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County Ignores Retiree Health Costs: The Financial Tidal Wave August 7,2006
Counts Response to Grand Jury Report No.0606 Page 5
16. At the May 2,2006 BOS meeting,to achieve a balanced budget for fiscal,year 2006-2007
which included retiree health costs on a
( pay-as-you-go basis)the BOS approved a reduction
of 200 staff positions.
Resnottse: Agree.
17. At the May 4,2006 meeting of the BOS Finance Committee,the Committee discussed the
valuation authorized on February 28,200 6,and directed County staff and the actuary to:
I Analyze alternative changes to healthcare benefits.
.I Analyze alternative funding approaches.
.I Investigate unresolved issues including State and Federal cost reimbursements.
Collaborate with the California State Association of Counties to seek information and
solutions.
No definitive action plan or timeline for these actions was established.
Resnon.se: Partially disagree. The Finding itself lists the action plan jor the newt step in the
investigation. The required analysis and collaboration must occur before the newt logical steps
can be developed. An implementation timeline is dependent on the information obtained in the
investigative stage. The Finance Committee directed staff to make progress reports to the
Committee on a quarterly basis.
RECOMMENDATIONS
The 200II-2006 Contra Costa County Grand Jury recommends that the BOS do the following:
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1. By July 31,2006,establish a plan for addressing retiree health benefits and costs with
timelines and responsibilities.
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Response: Will not be implemented because the recommendation is not reasonable. The
Finance Committee and the Board of Supervisors have given direction to staff to develop a
plan)for addressing retiree health benefits,and this effort is currently underway. It is not
reasonable to anticipate that such a plan could be completed by July 31,2006. As more
information is obtained,the general plat:will be continually refined to establish a timeline and
additional responsibilities. A more realistic ltntelinefor detertninink,a specific strate,y 10
addr�es.s retiree health benefit costs would be late 2007_ - Deleted:
2. B y September 30,2006,review alternate approaches to:
• Health benefits, including retiree eligibility requirements,co-pays,deductibles,and
employee contribution level.
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Counh•Ignores Retiree Health Costs: The Financial Tidal Wave August 7,2006
Counh Response to Grand,lun'Report no.06061 Page 6
• Funding amounts and timing.
Response: Has been implemented The recommended research is currently underway.
3. By September 30,2006,research the issl es regarding State and Federal expense
reimbursements of pre-funding retiree health benefits and the related dollar impact on current
County programs.
Response: Has been implemented The recommended research is currently underway.
4. Within this calendar year,establish short-term and long-term cost reduction strategies
addressing questions such as:
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What approaches to cost containme�t are most appropriate?
• Should the County's contribution for retirees continue to be the same percentage as for
active employees? j
• Should a new tier for new employee's be created with reduced retiree health benefits?
Response: Will not be implemented because it is not reasonable. W7rile the County recognizes
the importance of establishing strategies to11 reduce County costs for retiree health care and is
currently developing such cost reduction strategies,we do not believe the recommended action
can be accomplished within this calendar pear. .4 amore realistic timeline fi)r deterntinin,�a
specific strate_t'to address retiree health benefit costs would he lade 2007.
'- --II---- - ---- - - Deleted:¶
5. Within this calendar year,establish short-term and long-term funding strategies for retiree
Health costs.
Response:
Will not be implemented because it is not reasonable. See the County's response to
Finding/Vo. 4. 1
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6. �und at least half of the normal cost for retiree health benefits in 2007-2008 to reduce the rate
of increase in the unfunded liability. (Based on 2006-2007 estimates,this would roughly
double the annual cost for retiree health�-from$32 million to$65 million.)
Response: Will not be implemented because it is not reasonable. The County intends to fund
some level of the normal cost for retiree health benefits in 21107/08,but the County does not
have,enough information at this time to commit to a specific plan or funding level for 2007/08.
Determinations on OPEB funding must occur onv after thorough anar vsis and investigation
of all available options and their ramifications,and in consideration of'impacts to County
services and the public which relies on those services. A realistic timeline for determining it
specific strate;,•y to address retiree health bluetit costs►,;ould he late 2007.
For ram-le the Count rrr -----
....._. _.P._. __._.__......V.must evaluate t{re merits of con:nrrttrng OPEB firrrdinb to an �Deleted:¶
irrer ocable trust,as recommended by GASB,or a more flexible designation. Each of these —--
.II Deleted:pare
Opti and other o tions ras unique bene its and drawbacks that must be assesse -----..........-.-..-
P P �- -1-- --.f. .. - ---------._. .
- Deleted:.
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County Ignores Retiree Health Costs: The Financial Tidal Wave August 7,2006
County liesponse.to Grand Jury Report No.06061 Page 7
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1 ,4s stated in our reponse to Finding No. 10,it is impossible to-know with anv certainty how_
the Deleted:¶
rating agencies will react with respect to all public agencies and Contra Costa County in
particular. We believe the rating agencies will look favorably on agencies that develop
mitigation plans and demonstrate progress,in implementing those plans. In this dynamic
environment,however,the recommended permanent designation of millions of additional
dollars to fund retiree health benefits would I be precipitate.
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TO: BOARD OF SUPERVISORS
FROM: JOHN CULLEN, County Administrator �` °� �D 10
DATE: AUGUST 7, 2006 sra roUK
SUBJECT: RESPONSE TO GRAND JURY REPORT NO. 0605, ENTITLED "NEW
AUTOMATED DRUG DISPENSER IN COUNTY JAILS: Who Drugged ROBOT?"
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECO11 MMENDATION:
APPROVE response to Grand Jury Report No. 0605, entitled "NEW AUTOMATED DRUG
DISPENSER: Who Drugged ROBOT...-, and DIRECT the Clerk of the Board to forward the response
to the Superior Court no later than August 18, 2006.
BACKGROUND:
On May 25, 2006,the 2005/2006 Grand Jury filed the above-referenced report,which was reviewed
by the Board of Supervisors and subsequently referred to the County Administrator and Capital
Facilities Committee,who jointly prepared the attached response that clearly specifies:
A. Whether a finding or recommendation is accepted or will be implemented;
B. If a recommendation is accepted, a statement as to who will be responsible for
implementation and by what!definite target date;
C. A delineation of the constraints if a recommendation is accepted but cannot be implemented
within a six-month period; a d
D. The reason for not accepting or adopting a findinor recommendation.
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CONTINUED ON ATTACHMENT: YES SIGNATURE: r
�/FFECOMMENDATION OF COUNTY ADMINISTRATOR RECOMM ATION OF BOARD COMMITTEE
vA PROVE OTHER
SIGNATURE(S): r �/
ACTION OF BOAS n c APPROVE AS RECOMMENDED)_ OTHER
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VOTE OF SUPERVISORS 1 HEREBY CERTIFY.THAT THIS IS A TRUE
AND CORRECT COPY OF AN ACTION TAKEN
UNANIMOUS(ABSENT ) AND ENTERED ON THE MINUTES OF THE
11 BOARD OF SUPERVISORS ON THE DATE
AYES: NOES: SHOWN.
ABSENT: ABSTAIN:I
I� i ATTESTED: AUGUST 15,2006
.CONTACT: JULIE ENEA(925:1335-1077 JOHN CULLEN,CLERK OF THE BOARD OF
SUPERVISORS AND COUNTY ADMINISTRATOR
CC: PRESIDING JUDGE OF THE GRAND JURY
GRAND JURY FOREMAN
COUNTY ADMINISTRATOR
SHERIFF-CORONER
COUNTY PROBATION OFFICER
HEALTH SERVICES DIRECTOR Y DEPUTY
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County Administrator Contra Costa Board of supervisors
County JOHN GIOIA
County Administration Building I�'District
651 Pine Street, 11th Floor
— Q,
Martinez, California 94553-4068 .. = GAYLE B.UILKEMA
V-925-335111080 2"'District
F-925-33511098N •'" -__ ' �'n. - ` -- - ,Q MARY N.PIEPHO
3'd District
John Cullen •, °
ri. MARK DESAULNIER
County Administrator os - th
t cou- ; 4 District
FEDERAL D.GLOVER
51h District
August 16, 2006
Honorable Terence L. Bruiniers
Presiding Judge of the Grand Jury
725 Court Street
P.O. Box 911
Martinez, CA 94553
Dear Judge Bruiniers:
Transmitted herewith are the County Board of Supervisors" responses to 2005/06 Grand
Jury Reports No. 0605. entitled "NEW AUTOMATED DRUG DISPENSER: Who
Drugged ROBOTT; and No. 0606, entitled "COUNTY IGNORES RETIREE HEALTH
COSTS: The Financial Tidal Wave". These responses were approved by the Board on
(August 15, 2006.
Sincerely,
JOHN CULLEN
County Administrator and Clerk of the Board of Supervisors
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JANE ENNNING N
ChiefClerk of the Board of Supervisors
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Attachments
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cc: Grand duty Foreperson
Count} Administrator
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BOARD OF SUPERVISORS RESPONSE TO
GRAND JURY REPORT NO. 0605:
NEW AUTOMATED DRUG DISPENSER -- Who Drugged ROBOT?
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FINDINGS j
1. In September 2004,the County leased three ROBOT systems for five years at a total cost of
$971,082. Lease payments do not begin until the system is operational. _
Response: Agree. No payments on the lease have been paid to date.
2. In February 2005,two ROBOTS were delivered, one for the Martinez Detention Facility and
one for West County Detention Facility.
Response: Agree.
3. As of May 2006, none of the ROBOTS are operational.
Response: Agree. It should be noted, however,that ROBOTS have since been installed in the
Martinez Detention Facility, e West County Detention Facility, and the Juvenile Hall, and
Jare partially operational The system interfaces required to realize the full potential of the
ROBOTS are yet to be completed. In accordance with the lease agreement, no lease costs will
be paid on the ROBOTS until they are fully operational.
4. A major reason for delays has been.lack of management, coordination, and communication
between the Sheriff and Health Services departments.
Response: Disagree. The primary reason for the delay in implementing the ROBOTS has
�'been the complexity in building interfaces.among the three proprietary computer systems that
are required to support the ROBOTS: the Health Services Department pharmacy tracking .
system, the Sheriffs jail.management system (identifies and locates inmates within the
detention facilities), and the software that operates the ROBOTS. While delays can be
frustrating, they are not unusual in this type of project and are, in this case, not an indication
I�f lack of or poor management Rather, they are a reflection of the complex procedural and
technological issues that need time to be discussed and resolved
5. The County has not assigned an overall Project Manager to monitor and expedite this project.
Response: Disagree: The Health Services Administrator-Detention serves as the.project
'manager for the ROBOTS pr ject.
6. The original justification for leasing ROBOT anticipated the following annual savings and
costs:
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Replacement of a Pharmacist with a Pharmacy Technician $89,468
Simplification of drug formulary 100,000
Savings(already realized without ROBOT) $189,468
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New Automated Drug Dispenser: Who Drugged ROBOT? August 7,2006
Con ty Response to Grand Jury Report No.0605 Page 2
Savings from not wasting drugs* 60,000
Total Savings $249,468
Lease cost for three ROBOTS ($194,216)
Medical system software/maintenance fees (2,400)
Total Costs ($196,616)
Net County Savings $52,852
*Estimated savings.from not wasting drugs ranged from$64,000 to $120,000 per year.
Response: Agree.
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7. The anticipated savings of$189,468 for replacement of a pharmacist with a pharmacy
technician and simplification of drug formulary have already been achieved without ROBOT
being operational.
(Response: Agree. Analysis r�quired for the implementation of the ROBOT systems revealed
opportunities for additional savings by instituting procedural changes. As a result, when the
ROBOT system is fully implemented, the County is expected to save even more money than was
initially estimated.
8. The County has incurred additional costs,which were not included in the original proposal,
including at least$60,000 in Health Services Information Technology staff time and an
undetermined amount of time from Sheriff Information Technology staff.
Response: Partially disagree. While the departments'technical staff has invested a
'considerable amount of time and coordinative effort toward implementing this project, the
work was performed by existing staff that see to the many technical needs of the departments.
No new staff was hired for this project and no additional staff costs were incurred.
RECOMMENDATIONS
The 2005-2006 Contra Costa County Grand Jury recommends that:
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1. The Contra Costa County Sheriff-Coroner and Director of Health Services get all three
ROBOT systems operational by September 30, 2006.
Response: Has not been implemented, but will be when the County is assured that the ROBOT
systems will be accurate,predictable, and reliable. Both the Sheriff and Health Services
departments are committed to the implementation of the ROBOT systems and continue to work
cooperatively to complete the project
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New Automated Drug Dispenser. Who Drugged ROBOT? August 7,2006
County Response.to Grand Jury Report No.0605 Page 3
2. The Contra Costa County Administrator ensures future projects of this size(one million
dollars)receive an accurate and comprehensive analysis of costs, savings, and implementation
challenges prior to entering into purchase or lease contracts.
Response: Has been implemented This project did receive accurate cost and savings analysis.
IThe unanticipated savings were the result of procedural changes beyond the initial scope of the
ROBOTS project that increasid the estimated benefit of the program.
3. The Contra Costa County Administrator ensures that an overall Project Manager be assigned
to track, monitor and take responsibility for projects of this nature, particularly when projects
involve more than one County department.
Response: Has been implemented The Health Services Administrator Detention serves as the
project manager for the coordinated effort. As the project goals of the Sheriffs and Health
'Services departments are compatible and both departments are committed to the successful
implementation of the project, a third party project manager would be no more effective than
the current project manager to reconcile the remaining technology issues.
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BOARD OF SUPERVISORS RESPONSE TO
GRAND JURY REPORT NO. 0606:
COUNTY IGNORES RETIREE HEALTH COSTS
The Financial Tidal Wave
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FINDINGS
1. The County provides health insurance for active and retired employees and pays most of the
cost, generally ranging between 80% and 98% of the total cost, depending on the insurance
plan selected.
Response: Agree.
2. The County pays the same percentage of the cost for retirees as for active employees.
Response: Agree.
3. Five years of service qualifies an employee for retiree health benefits.
Response: Agree, with the clarification that the total of five years of service may include
service in a retirement system that has reciprocity with the Contra Costa County Employees'
Retirement Association (CCCERA), and the retiree must have been enrolled in a County health
plan prior to retirement or witllirr two years of the start of the CCCERA pension.
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4. Between fiscal year 2001-2002 and the budget for fiscal year 2006-2007, the cost for retiree
health insurance doubled— om $16 million to $32 million.
Response: Agree.
5. Like many other public employers, the County expenses the cost of retiree health benefits
over the employee's retirement when they are paid ("pay-as-you-go"), rather than over the
employee's service when they are earned ("accrual basis").
Response: Agree.
6. The Governmental Accounting Standards Board ("GASB'') establishes standards for financial
accounting and reporting for state and local governments.
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Response: Partially disagree. The Governmental Accounting Standards Board("GASB')
establishes standards for reporting in financial statements that are to be audited by and opined
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pon by independent auditors. Internal reporting and reporting to the State of California is
governed by the State of California "Accounting Standards and.Procedures for Counties",
issued by the State Controller's Office.
7. The County has elected to follow all GASB pronouncements.
Response: Agree.
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County Ignores Retiree Health Costs: The Financial Tidal Wave August 7,2006
County Response to Grand Jury Report No. 0606 Page 3
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8. GASB 45, "Accounting and Financial Reporting by Employers for Post-employment Benefits
Other than Pensions' ("GASB 45")provides an accounting standard that is analogous to the
pension accounting standard and will result in a calculation and disclosure of an unfunded
liability for retiree health si ilar to the one for pensions.
Response: Agree.
9. GASB 45 requires, no later than fiscal year 2007-2008, that the County:
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a. Disclose the unfunded liability for health benefits (and other post-employment benefits
other than pensions) that have been earned by all active employees and retirees.
b. To the extent they are funded, increase its annual health care cost to include the normal
cost of benefits as they are earned, plus an amount that amortizes the unfunded liability.
c. Disclose the funding policy and status.
Response: Agree.
10. Although there is no current requirement to fund any of the unfunded liability, a directive
requiring funding could be issued in the future or credit rating agencies could, in effect,
require partial or full funding by their credit rating actions and practices.
Response: Disagree. The County has no knowledge of any such directive being considered by
any entity having the authority to issue such a directive. Neither GASB nor the credit rating
agencies have such authority.
The credit rating agencies have indicated that managentent of retiree healthcare liability will
nflr�ence credit ratings for counties and other public agencies. Contra Costa County will not
be unlike other cities, counties and other local government agencies, and the state that will
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likewise be required to report unfunded OPEB(other post-employment benefits) liability.
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11. An independent actuarial firm has recently completed an actuarial analysis as of January 1,
2006, for the County, including Fire Districts, under two discount assumptions: (1) 4.5%,
which relates to the current pay-as-you-go method and (2) 7.9%, which would.reflect a fully
funded plan. These estimates are based on GASB 45 and are summarized below.
Contra Costa County Retiree Health Costs
(in millions)
Annual Ex""ens'6w
Discount Unfunded
m �.
_. Liability' N
Rate Liability ed
Liabili ormal � Re uir
µF:
Amor61t.1-n4 "`Cost Contribution_
4.5% $2;561 $85 µ $130 $215
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County Ignores Retiree Health Costs: The Financial Tidal Wave August 7,2006
County Response to Grand Jury Report No. 0606 Page 4
7.9% 1 1,14201 47 1 55 1 102
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Discount Rate: The inteI est rate used in developing present values to reflect the time
value of money.
Unfunded Liability: The present value of benefits attributed to employee service as of
January 1, 2006, less anyjassets held for the plan. Currently there are no assets held for the
plan.
Liability Amortization: Principal portion of the Unfunded Liability, assuming a 30-year
amortization period,to be amortized each year.
Normal Cost: The porti n of the retiree health costs attributed to employee service for
2006.
Required Contribution: The Normal Cost plus the Liability Amortization for the year.
Response: Agree.
12. The costs of retiree health b6nefits are offset to the extent they are reimbursed by the State
and Federal Governments; however, there is uncertainty regarding the treatment of pre-
funded amounts in determining these expense reimbursements.
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Response: Partially disagree. Federal guidelines that establish the principles and standards
for determining costs for Federal awards carried out through grants, cost reimbursement
contracts, and other agreements with State and local governments, currently permit
reimbursement of pre funded OPER costs.
Chronology
13. GASB 45 was issued in June 2004.
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Response: Agree.
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14. In September 2005, County staff received a preliminary estimate of the County's unfunded
liability and annual expense under GASB 45.
Response: Agree.
15. At the February 28, 2006 Bogard of Supervisors' ("BOS") meeting, a very brief presentation
of the preliminary estimate was made and an independent actuary was retained to perform a
full retiree health actuarial valuation for the County, consistent with GASB 45.
Response: Agree. The Board discussed this item for approximately 20 minutes on February
28, 2006 and tl:e Finance Committee discussed this item for approximately 90 minutes at a
public study session.
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• Counity Ignores Retiree Health Costs: The Financial Tidal Wave August 7,2006
County Response to Grand Jury Report No. 0606 Page 5
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16. At the May 2, 2006 BOS meeting, to achieve a balanced budget for fiscal year 2006-2007
(which included retiree healil h costs on a pay- as-you-go basis) the BOS approved a reduction
of 200 staff positions.
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Response: Agree.
17. At the May 4, 2006 meeting of the BOS Finance Committee, the Committee discussed the
valuation authorized on February 28, 2006, and directed County staff and the actuary to:
• Analyze alternative changes to healthcare benefits.
• Analyze alternative funding approaches.
• Investigate unresolved issues including State and Federal cost reimbursements.
• Collaborate with the California State Association of Counties to seek information and
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solutions.
No definitive action plan or timeline for these actions was established.
Response: Partially disagree. The Finding itself lists tl:e action plan for.the next step in the
41ivestigation. The required analysis and collaboration must occur before the next logical steps
can be developed An implementation timeline is dependent on the information obtained in the
investigative stage. The Finance Committee directed staff to make progress reports to the
Committee on a quarterly basis.i
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REC.OM:MENDATIONS
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The 2005-2006 Contra Costa County Grand Jury recommends that the BOS do the following:
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1. By July 31, 2006, establish a,plan for addressing retiree health benefits and costs with
timelines and responsibilities`
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RII sponse: Will not be impleme I ted because the recommendation is not reasonable. The
Finance Committee and the Board of Supervisors have given direction to staff to develop a
Plan for addressing retiree health benefits, and this effort is currently underway. It is not
reasonable to anticipate that such a plan could be completed by July 31, 2006. As more
ifiiformation is obtained, the general plan will be contil:ually refined to establish a timeline and
additional responsibilities. A more realistic timeline for determining a specific strategy to
address retiree health benefit costs would be late 2007.
2. By September 30, 2006, review alternate approaches to:
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• Health benefits, including retiree eligibility requirements, co-pays, deductibles, and
employee contribution le el.
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County Ignores Retiree Health Costs:l The Financial Tidal Wave August 7,2006
County Response to Grand Jury Report No.0606 Page 6
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• Funding amounts and timing.
Response: Has been implemented. The recommended research is currently underway.
3. I�' By September 30, 2006, research the issues regarding State and Federal expense
li reimbursements of pre-funding retiree health benefits and the related dollar impact on current .
II County programs.
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Response: Has been implemented. The recommended research is currently underway.
4. I Within this calendar year, establish short-term and long-term cost reduction strategies
Il i addressing questions such as'
�i • What approaches to cost!!containment are most appropriate?
1 • Should the County's contribution for retirees continue to be the same percentage as for
�I. active employees?
1 • Should a new tier for new employees be created with reduced retiree health benefits?
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Response: Will not be implemented because it is not reasonable. While the County recognizes
the importance of establishing strategies to reduce County costs for retiree health care and is
currently developing such cost reduction strategies, we do not believe the recommended action
can be accomplished within this!calendar year. A more realistic timeline for determining a
specific strategy to address retiree health benefit costs would be late 2007.
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5. �� Within this calendar year, establish short-term and long-term funding strategies for retiree
Il i health costs.
Response: Will not be implemented because it is not reasonable. See the County's response to
Finding No. 4.
6. Fund at least half of the normal cost for retiree health benefits in 2007-2008 to reduce the rate
I of increase in the unfunded liability. (Based on 2006-2007 estimates, this would roughly
!'double the annual cost for retiree health—from $32 million to $65 million.)
R I sponse: Will not be implement ted because it is not reasonable. The County intends to fund
some level of the normal cost jorlretiree health benefits in 2007/08, but the County does not
ha11ve enough information at this time to commit to a specific plan or funding level for 2007/08.
Determinations on OPEB funding must occur only after thorough analysis and investigation
of hall available options and their ramifications, and in consideration of impacts to County
services and the public which relies on those services. A realistic timeline for determining a
specific strategy to address retiree health benefit costs would be late 2007.
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r,eranhple, the County must evaluate the merits of committing OPER funding to an
irrevocable trust, as recommended by GASB, or a more fle_vible designation. Each of these
options and other options has unique benefits and drawbacks that must be assessed.
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County Ignores Retiree Health Costs: The Financial Tidal Wave August 7,2006
Count Response to Grand Jury Report No. 0606 Page 7
As stated in our response to Fi�iding No. 10, it is impossible to know with any certainty {row the
rating agencies will react with respect to all public agencies and Contra Costa County in
particular. We believe the ratiing agencies will look favorably on agencies that develop
mitigation plans and demonstrate progress in implementing those plans.. In this dynamic
environment, however, the recommended permanent designation of millions of additional
dollars to fund retiree health benefits would be precipitate.
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