REQUEST FOR CITY COUNCIL ACTION
DATE: 02/07/2024
TO: Honorable Mayor and City Council Members
FROM: Pension Stabilization Trustee Board and Finance Department
SUBJECT:
Title
FISCAL YEAR 2024 PENSION STABILIZATION TRUST CONTRIBUTION
End
EXECUTIVE SUMMARY:
This staff report asks the City Council to approve the annual contribution of $2,000,000 from Measure X Reserves to the Pension Stabilization Trust and approve the recommendation from the Pension Stabilization Trustee Board to contribute $4,050,000 of the Fiscal Year 2023 General Fund year-end surplus to the Pension Stabilization Trust. The combined contributions total $6,050,000.
RECOMMENDED ACTION:
Recommended action
That the City Council:
a. Approve the annual contribution of $2,000,000 from Measure X Reserves Fund 120 to the Pension Stabilization Trust Fund 485.
b. Approve the Pension Stabilization Trustee Board’s recommendation to contribute $4,050,000 of the Fiscal Year 2023 General Fund 110 year-end surplus to the Pension Stabilization Trust Fund 485.
c. Authorize the City Manager, or his designee, to make the necessary budget and accounting adjustments for the Fiscal Year 2024 contribution.
Body
BACKGROUND & HISTORY:
The City of Corona Pension Stabilization Trust (Trust) was established pursuant to Section 115 of the Internal Revenue Code, as an entity in which funds for the City can be deposited, and through which a Board of Trustees can invest and manage funds for the exclusive purpose of funding contributions to the pension plan providing benefits for City employees and retirees.
In May 2021, the City Council approved the Pension Management Policy (Policy). In January 2022, the City Council approved the establishment of the Trust and the Trust Agreement (Agreement) and approved an initial investment of $30,000,000 to the Trust. The funds may be used to address future CalPERS unfunded accrued liabilities as well as Pension Obligation Bond (POB) payments.
The Agreement details the rules and responsibilities of the Pension Stabilization Board of Trustees (Trustees) and the administration of the Trust. The Trustees consist of five members including the City Treasurer, City Manager, Assistant City Manager, Finance Director, and Accounting Manager. The Trustees serve as an advisory group to the City Council and conduct at least two (2) public meetings per year, as outlined in the Agreement.
The Trustees held a meeting on October 5, 2023, to review the results of the Fiscal Year (FY) 2022 CalPERS actuarial reports (received in 2023), which included the new unfunded liabilities to be assessed starting in FY 2025. The combined unfunded accrued liability (UAL) for the four pension plans is $81.8 million. CalPERS investment returns for FY 2022 were -6.1% which is a difference of 12.9% compared to their original estimate of +6.8%. This is a snapshot at a given point in time. CalPERS returns for FY 2023 (report anticipated in 2024) will reflect +5.8%. While the FY 2023 returns are significantly better than FY 2022, they fall short of CalPERS estimated +6.8% by 1.0%. Based on this information, staff anticipates an additional increase to the UAL at that time.
Staff will continue to monitor and provide updates on this item annually. Because this is the first assessment after the POBs were issued, the Trustees will re-evaluate the Policy over the next couple of years and provide the City Council with a recommendation, if policy adjustments are needed.
ANALYSIS:
The Trustees held a meeting on January 29, 2024, to discuss the FY 2023 General Fund year-end results, after the completion of the annual audit and Annual Comprehensive Financial Report (ACFR). At the Trustee meeting, the discussion covered the FY 2023 surplus, the current unfunded liabilities, and the payment plan for the POBs. The City’s FY 2023 General Fund surplus was $18.6 million.
As part of the Measure X spending plan, funds have been reserved in the Measure X Fund to proactively address pension debt obligations. A total of $2.0 million was reserved in the Proactive Debt Retirement Reserve for FY 2024. Staff’s recommendation is for the City Council to approve the contribution to the Pension Stabilization Trust.
The target for paying off the POBs is after year 10 (2031), when the bonds become callable. To achieve that target, $2.7 million will need to be added to the Trust each year, assuming a return on investment of 5%. In FY 2023, the contribution was $2,111,000, with $111,000 from the General Fund surplus and $2,000,000 from Measure X.
The recommended FY 2024 contribution totals $6,050,000, with $2,000,000 from Measure X and $4,050,000 from the FY 2023 General Fund surplus. The Trustees were presented with three funding options for discussion. The following table explains the details of the FY 2024 contribution amount recommended by the Trustees.
|
DESCRIPTION |
AMOUNT |
|
Measure X Reserves - Baseline Contribution |
$2,000,000 |
|
General Fund Surplus: Add to Baseline Contribution to meet the target of bond payoff after year 10 |
700,000 |
|
General Fund Surplus: Additional funds to put the City one year ahead of schedule to mitigate future years when funding may be more restrictive |
2,700,000 |
|
General Fund Surplus: Catch Up from Prior Year Contribution - the difference between last year’s contribution and annual target of $700,000, adjusted for interest earned |
650,000 |
|
TOTAL |
$6,050,000 |
FINANCIAL IMPACT:
Approval of the recommended actions will transfer a total of $6,050,000 into the Pension Stabilization Trust Fund 485 for FY 2024. The funding breakdown includes $4,050,000 from the General Fund 110 Unassigned Fund Balance and $2,000,000 from the Measure X Fund 120 reserves. The funds will be added to the existing Trust balance. The Trust balance as of December 31, 2023, has a book value of $33,228,741 and a market value of $37,759,219. No expenditures from the Trust will be incurred at this time.
ENVIRONMENTAL ANALYSIS:
This action is exempt pursuant to Section 15061(b)(3) of the guidelines for the California Environmental Quality Act (CEQA), which states that a project is exempt from CEQA if the activity is covered by the common sense exemption that CEQA applies only to projects that have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the action is not subject to CEQA. This action simply makes a recommendation for the FY 2024 contribution to the Pension Stabilization Trust, and there is no possibility that this action will have any effect on the environment. Therefore, no environmental analysis is required.
PREPARED BY: KIM SITTON, FINANCE DIRECTOR
REVIEWED BY: BRETT CHANNING, ASSISTANT CITY MANAGER