Operating and CIP Budget Fiscal Year 2015-16

 CITY OF MORGAN HILL  FY 15-16  OPERATING AND CIP BUDGET  CITY OF MORGAN HILL  FY 15-16  OPERATING AND CIP BUDGET  CITY OF MORGAN HILL  FY 15-16  OPERATING AND CIP BUDGET  CITY OF MORGAN HILL  FY 15-16 OPERATING AND CIP CITY OF MORGAN HILL  FY 15-16  OPERATING AND CIP BUDGET  CITY OF MORGAN HILL  FY 15-16  OPERATING AND CIP BUDGET  CITY OF MORGAN HILL  FY15-16  OPERATING AND CIP BUDGET  CITY FY 14-15’s 35.8 percent. For all other employees, the City’s contribution is 19.3 percent of pay (17.8 percent City-paid and 1.5 percent employee-paid—in addition to the employees’ 8 percent of pay contribution to their own retirement). The most recent CalPERS contribution rate projections for FY 19-20 are 43.5 percent for the Safety Group and 22.7 per- cent for the Miscellaneous Group, respectively. These figures have been included in the five year forecast, although as noted above, half of the increase is to be paid by employees under the pension cost-sharing agreement reached in 2013. Furthermore, new State law became effective in January 2013 that changed CalPERS pensions for “new employees” that is known as PEPRA (Public Employee Pension Reform Act). Since the vast majority of Morgan Hill’s employees are not impacted by these changes, any cost savings will be realized only over time as new employees (who are not cur- rent CalPERS members through another public agency) join the organization. Currently, 21 full-time employees (or 11 percent of the approved full-time positions) are classified as new employees for pension purposes. Employee Benefits Fund Since FY 10-11, the Employee Benefits Fund (EBF) has captured in one place the City’s liability for leave earned but not taken.The purpose of EBF is to remove from operating department budgets the expenditure spikes caused by payouts of vacation and other leave earned but not taken, thus dampening the effects on operating department budgets of the inherently episodic nature of leave payouts to employees exiting the City workforce. A second purpose of the Employee Benefits Fund is to identify and accumulate financial resources to pre-fund, to the extent feasible, the City’s accumulated liability for leave earned but not taken. The operating departments contribute 15 percent of the outstanding leave liability balance to this fund annually. The recommended budget for FY 15-16 includes an assessment to all funds of $558,621. Unfunded Liabilities for PERS Pension and Other Post-Employment Benefits (OPEB, Retiree Health Insurance) The unfunded liability for PERS pension from the most recent actuary valuation reports for City’s Public Safety and Miscellaneous Plan combined is approximately $31.8 million as of June 30, 2013, an increase of 350 percent or $24.7 million from June 30, 2003 amount of $7.1 million. Several factors caused the unfunded liability to change from 2003 valuation: PERS Board decision to lower the discount rate assumption from 7.75 percent to 7.50 percent in 2012; PERS 10-year historical annual returns have been below assumption, 7 percent actual versus 7.50 percent revised assump- tion; increase in mortality rate as people live longer; enhanced formula applied to all active employees from 2 percent at 50 to 3 percent at 50 for Safety in 2002 and from 2 percent at 55 to 2.5 percent at 55 for Miscellaneous in 2006. The City has a much smaller liability for retiree health insurance as the City only subsidizes retirees’ CalPERS health insurance at the lowest level permitted by State law (currently $97.60 per month per retiree), compared to other pub- lic agencies that pay a fixed percentage (as high as 100 percent) of their retirees’ monthly premium.Even so, that accu- mulated unfunded liability was most recently calculated by the City’s actuary at nearly $2.4 million as of July 1, 2014, an increase of approximately $700,000 from 2011 study. The increase was primarily due to passage of time as employees accrue more service and get closer to receiving benefits and lowered investment rate of return assumption, from 5 percent to 4 percent, to reflect the decrease in long-term interest rates over the last several years.

30