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Home My WebLink AboutMINUTES - 03052002 - C69 TO: BOARD OF SUPERVISORS Contra FROM: JOHN SWEETEN, County Administrator Costa DATE: MARCH'5, 2002 County SUBJECT`. RESPONSE TO GRAND JURY REPORT NO. 0201 ENTITLED '--111 "COUNTY FINANCES IN JEOPARDY" SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATION ADOPT report as the Board of Supervisors' response to Grand Jury 'Report No. 0201 entitled, "County Finances in Jeopardy" BACKGROUND: The 2001-2002 Grand Jury filed the above-referenced report on December 6, 2001, which was reviewed by the Board of Supervisors and subsequently referred to the County Administrator, who prepared the attached response that clearly specifies: A. Whether the 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 a definite target date; C. A delineation of the constraints if a recommendation is accepted but cannot be implemented within'a six-month period; and D. The reason for not accepting or adopting a finding or recommendation. CONTINUED ON ATTACHMENT: YES SIGNATURE:(,----- -- IGNATURE x_ RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMM�KD ION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD ON Yn&tdl 5Y, O ': —APPROVE AS RECOMMENDED OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE UNANIMOUS(ABSENT ' 2, e AND CORRECT COPY OF IN ACTION TAKEN ) AND ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS'ON THE DATE AYES: NOES: SHOWN. ABSENT: ABSTAIN: ATTESTED !G�c't E,'�� J; CONTACT': JULIE ENEA(925)335-1077 JOHN SWEETEN, CLERK OF THE BOARD OF SUPERVISORS AND COUNTY ADMINISTRATOR CC PRESIDING JUDGE OF THE GRAND JURY COUNTY ADMINISTRATOR RETIREMENT BOARD HUMAN RESOURCES DIRECTOR COUNTY COUNSEL BY ._ �•'77�-- � � ...�{., ,DEPUTY County Finances in Jeopardy March 5 2002 ¢ County Response to Grand Jury Report No. 0201Page 1' RESPONSE TO GRAND JURY REPORT NO. 42131'' COUNTY FINANCES IN JEOPARDY {=1NINGS' 1. Employers, primarily Contra Costa County (County), contributed approximately 77% of the revenue of CCCERA, exclusive of investment income, during calendar year 2000. Response: Agree. 2. By law, the County;is required to make contributions to ensure that CCCERA has sufficient'«funds to pay benefits. If action by the Board of CCCERA and approval by the Board of Supervisors increases benefits beyond the availability of funds, the additional monies will come from the taxpayers of Contra Costa County. Response: Partially disagree. if CCCERA experiences a shortfall, the additional monies will come from the employers through increased contributions. tf the employers do not have available additional revenue or the ability to raise taxeslIfees, programs will have to be reduced and/or positions eliminated. The net effect is the taxpayer will pay through increased,'taxes or reduced services. 3. Most County retirees have been reasonably protected from inflation by cost of living adjustments, known as COLA. =However, those who retired prior to 1982 have lost significant buying power due to capped COLA and high inflation. Response: Agree. 4. At its January 30, 2001 meeting, the Board' of CCCERA voted to take action to give an additional $200 benefit monthly to all retirees. (Survivors of County retirees would receive an additional $120 per month benefit.) The increased benefits are to be fully funded from excess earnings. Excess earnings, defined as investment only earnings" in excess of 8%, have been transferred to the County in past years to reduce employee/employer contribution rates. All five County Supervisors attended this meeting and cautioned the Board of CCCERA to consider the effects of their proposal,on county finances. Response: Partially disagree. Excess earnings can be defined as investment returns in excess of net 8 114% prior to July 1, 2001' and a net 8 112% commencing July 1, 2001, (i.e., net of administrative costs and fees that approximate an additional 13.5/). All rive County Supervisors attended the January 30, 2001 CCCERA Board meeting to ask that the Retirement Board not raise the County's'rates. 5. In their October 1, 2001 letter to the County Administrator, the Board of CCCERA stated that their actuary estimated $124 million was required to fund the proposed benefit increase with a retirement eligibility date of January 1, 2001 Response: Agree. However, the;letter to the County Administrator from the Board of CCCERA incorrectly stated the funding date assumed by the actuary. The actuary (in its Marsch 2, 2001 study) estimated $124 million was required to fund the proposed benefit increase with a retirement eligibility date of December 31, 1999, not January 1 2001, as stated in the letter. Logically, any effective date after December 31, 1999 will result in a larger amount required to fund the proposed benefit: if we assume January 1, 2002, as recommended by the Board of CCCERA, the unknown increased cost could be significant because the additional two years of retirees may be expected to survive the longest. 6. Legislative action was necessary to increase the benefits and the matter was taken to State Senator Tom Torlakson to introduce a bill. The Board of CCCERA drafted SB 795. The fiscal impact of the bill was described as "unknown". `SB 795 was passed by both houses of the State Legislature and signed into law by Governor Davis on July 16, 2001.' County Finances in Jeopardy March 5, 2002 a County Response to Grand Jury Report No. 0201: Page 2 Response: Agree.' 7. The Beard of CCCERA set the eligibility date of January 1, 2002 for those retired employees who will benefit from the proposed monthly benefit increase of$200. A Board member of CCCERA stated that this January 2002 date was selected rather than adhering to the target of assisting long time retired members, as that would involve "complex calculations Response: Partially disagree, ,in that the Board of Supervisors is not aware of the specft statement attributed to a Board member of CCCERA. 8. If the County Supervisors adopt the recommendations of the Board of CCCERA for the January 1, 2002 eligibility date: A. Retirees currently receiving retirement benefits of over $100,000 'annually wouldreceive the $200 per month 'increase. B. Ewen retirees currently receiving retirement benefits of less than $10 per month would receive the $200 >per month` increase.: These are retired employees who worked a short' time for the County and .are collecting retirement benefits from another source. C. ;Employees who retire by December 31, 2001 would also be eligible to receive the $200 extra monthly benefit. D. There were 5560 people receiving retirement benefits as of December 31, 2000. Response: Partially disagree, in that in Point B regarding retirees receiving Jess than $10 per month it is not known by the Board of Supervisors that subject retirees are collecting retirement benefits from another source'or if they worked for the County for a short time: 9. The Board of CCCERA approved a motion to increase the real 'rate of return component of the interest rate assumption from 8.25% to 8.50% effective July 1, 2001. The effect of raising this assumption is to increase the apparent unallocated reserve from which the benefit increase will be drawn. This increase in the rate of investment was instituted during a period when actual long-term interest rates were at a 30-year low. This new rate of 8.50% is the highest assumed rate of return for any retirement association organized under the 1937 County Employees Retirement Act: Response: Partially disagree. The effect of raising the assumed investment return rate to 8 112916 was to reduce the Unfunded Accrued Actuarial Liability (U.A.A.L.) by about $75 million, thus reducing Employer contribution rates. While this helps employers" in the short term, it will hurt them in the long term if the new 8 112% investment return rate is not achieved. Failure to achieve the assumed investment return rate on a consistent'basis' will increase the U.A.A.L., thus increasing Employer contribution rates. 10. Approval of the new benefits for Contra Costa County retirees that cannot be supported by CCCERA investment income will result in a liability to be covered" by the County General Fund. This potential deficit can only be compensated for by employee layoffs and program cuts and/or increased taxes. Response: Partially disagree. A potential deficit of high magnitude can be compensated for by employee layoff's and/or program cuts. It :can also be compensated for by growth in existing revenue, if such growth occurs. However, the County does not have the ability to raise local taxes' without the consent of a 213 majority of the voting public: 11. The first priority and obligation of the County General Fund'is payment of benefits under the 37 Act. County Finances in.Jeopardy March 5, 2002 County Response to Grand Jury Report No. 0201 Page 3 Response: Agee. i~tECONIME VD,AT N 1. The 2001-2002 Contra Costa County Grand Jury recommends that the Boardof Supervisors reject the recommendation of the Board of CCCERA which establishes December 31, 2001 as the retirement date to'increase the benefits of every retiree In the County by$200 per month. Response: Requires further analysis. This ratter is directly related to labor negotiations under the Meyers Millas Brown Act and discussions with, the County's Labor Coalition, which are currently under gray. The Board of Supervisors intends to consider a;response to the CCCLRA proposal when those negotiations and discussions are concluded. The Board anticipates that negotiations will be concluded no later than the end of May 2002