Operating and CIP Budget Fiscal Year 2015-16

Some units of local government have begun to set aside cash to “pre-fund” their retiree health insurance liability; the Santa Clara Valley Water District is one nearby example. Most have not, in light of revenue constraints, the abolition of redevelopment and other budget priorities. The City considers its pension and OPEB liabilities very seriously and continuously evaluates all options; and when funding availability arises, strategically earmarks funds for reserves and pre-payment. The City began to set aside funds related to OPEB in FY14-15 with an initial funding of $110,000. The Recommended Budget for FY 15-16 proposes an additional funding for all funds of $270,000 to help fund future benefits. In addition, the Proposed FY 15-16 Budget also recommends setting up a “PERS Stabilization Account” with an initial funding of $200,000. The funds in the PERS Stabilization Account would be used to mitigate unpredictable PERS rate increases and pre-payment of unfunded pen- sion obligations. The investment securities the City Treasurer is permitted to buy under State law and the City Council’s investment pol- icy are of insufficient maturity and yield to generate the investment return of 4 percent for OPEB and 7.5 percent for PERS pension assumed by the City’s actuary. Another investment mechanism must be used to generate higher re- turns. The most common (offered by CalPERS, PARS, and private financial firms like banks) is an “irrevocable trust” into which employers irrevocably transfer money that can be invested like a pension fund to accumulate earnings that years later can be tapped to make the promised payments for the City’s (still small) contribution to retirees’ health insurance premiums and to pre-fund pension costs and reduce liability. The Administrative Services Department will recommend an appropriate provider for City Council consideration during FY 15-16 as part of our effort to advance the Council’s fiscal sustainability priority. On behalf of the entire organization, I am proud to recommend a budget that reflects the City Council’s priorities and strives to enhance service levels for the Morgan Hill community. The City is able to maintain its positive financial condi- tion by adhering to its sustainable budget strategy, prudently investing in service level enhancements as resources allow, and addressing areas of financial concern. As a result of the budget recommendation, the City will invest an ad- ditional $2.5 million in maintaining its street infrastructure over the course of the 5 year forecast, prudently plan for its public safety needs as the community grows, increase its economic development efforts, provide quality senior ser- vices, address its long-term OPEB obligation, and undertake many exciting and needed capital improvement projects. Moving forward, there are many signs that the Morgan Hill community will prosper. At the same time, the Council and staff will need to ensure that the community’s water and wastewater infrastructure is financially and environmentally sustainable and that a community focused effort to invest new resources in the community’s aging public infrastruc- ture is pursued so that Morgan Hill remains a highly desirable place to live, work, play, and do business. Summary

 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

Sincerely,

Steve Rymer

City Manager

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

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