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HomeMy WebLinkAbout2016-04-05 Finance Committee Summary Minutes Special Meeting April 5, 2016 Chairperson Filseth called the meeting to order at 6:03 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California. Present: Filseth (Chair), Holman, Schmid, Wolbach Absent: Action Items 1. Recommendations on Proposed Fiscal Year 2017 Community Development Block Grant (CDBG) Funding Allocations and the Draft Fiscal Year 2017 Annual Action Plan. Chair Filseth: Very good. Welcome to the Finance Committee Meeting on April 5, 2016. Let’s see, Oral Communications. Are there any speakers from the public here? Okay, in that case let us proceed to action items and the first action item is the Community Development Block Grant (CDBG) allocations for this year. You have the floor. Eloiza Murillo-Garcia, Senior Planner: Thank you. Good evening. I am Eloiza Murillo-Garcia. I am a Senior Planner and CDBG and Housing Coordinator, and I am here to talk about the proposed CDBG funding allocations for Fiscal Year 2017. The City of Palo Alto receives an annual funding allocation from the U.S. Department of Housing and Urban Development, also known as HUD, as an entitlement city under the Community Development Block Grant Program, also known as CDBG. CDBG is the principal Federal program that provides grants to improve physical, economic and social conditions primarily for persons of low and moderate incomes. Activities funded through CDBG must meet one of three national objectives, which are to benefit low and very low income persons, aid in the prevention or elimination of slums or blight and meet other community needs that are particularly urgent for the low income community, and that mostly deals with natural disasters. All of the activities funded by this City meet the first objective, which are to benefit low and very low income persons. Currently the CDBG Program operates under a two-year funding request cycle and Fiscal Year 2016/2017 is the second year in the funding cycle. On February 16 HUD notified the City of its Fiscal Year 2016/2017 entitlement grant amount and that is $441,253. In addition to that, the funds available for allocation include $213,165 in reallocated funds from previous fiscal years, and $100,000 in estimated program income, so the total available is $754,418. The CDBG Program has five funding categories in which to allocate funds. The first one is the Public Service category, and this slide here shows you the five Public Service applicants. It lists the agency, the program name, request and the recommendation. This funding category has a 15 percent funding cap, so the maximum available that we can fund under this cap is $76,619. The next category is Planning and Administration. This category also has a funding cap, and that cap is 20 percent and the maximum available under the cap is $108,251. These are the two applicants as well as the amount requested and the recommendation. The next category is Economic Development and there is no funding cap on this category. There is one agency under this category, which is the Downtown Streets Team for their work for the Economic Development Program and this slide shows the request and the recommendation as well. Housing is the next category. There was one applicant which was MidPen Housing for their Palo Alto Gardens Rehab Project. They requested $300,000 and the recommendation is $278,825. There is a fifth category, which is Public Facilities, but there were no applicants under that category. Just to give you a little bit of information on the process, HUD requires the preparation of a five-year strategic plan of action, which is called the Consolidated Plan. So our current Consolidated Plan runs from 2015 to 2020, and that Plan was approved by Council in May of 2015. That Plan identifies primary objectives of how the City wants to spend their CDBG funds and those objectives that were identified include the preservation of existing affordable housing units, supporting activities to end homelessness, provide community services to special needs populations, strengthening neighborhoods, promoting fair housing choice and expanding economic opportunities for low-income households. All of the funded activities need to meet one of the objectives. In addition to the five-year plan, the City is also required to prepare a one-year Action Plan that outlines the activities that it will implement in each of the fiscal years covered by the Consolidated Plan, so the Fiscal Year 2016/2017 Draft Action Plan is currently in its public review period, which ends on April 15, and the funding recommendations that are part of the Staff report and that I have discussed here are part of the Action Plan. In terms of how we arrived at these funding recommendations, these have been reviewed by the Human Relations Commission’s Selection Committee, which consists of three members of the Human Relations Commission (HRC). The Selection Committee met in February to discuss the budget, review the applications and recommend funding amounts based on the estimated funds available. In addition, the full HRC considered the funding recommendations of the Selection Committee at a Public Hearing in March. After tonight’s meeting, the next step is for this item to go before the full City Council for approval in May, and after Council approval Steph will submit the Final Action Plan to HUD by May 15. Finally, the recommendation that we have is for Finance Committee to recommend that City Council take the following actions, which are to allocate CDBG funding as recommended in the Action Plan as described in the Staff report, authorize the City to execute the 2016/2017 CDBG application and the Action Plan for CDBG funds and authorize Staff to submit the Action Plan to HUD by the May 15 deadline. I am available to answer any questions that you might have and thank you. Chair Filseth: Thank you very much. At this time are there any members of the public who would like to comment on this item? Seeing none, let’s proceed to group questions and comments. Council Member Holman. Council Member Holman: So again, just a couple, three questions. One of the HUD regulations regarding CDBG-funded activities, one of the three national objectives, one of them is, “Meet other community development needs, such as particular urgency where posing a serious and immediate threat to the health or welfare of the community.” So led me to a question, which is, how is our homeless population prepared for, what do that have access to in terms of natural disaster preparedness, and also, so they have access or training on the defibrillator (defib) equipment that there are several around town? So, what does our homeless population do in case of a natural disaster, say an earthquake or flood, what do they do. Lalo Perez, Director of Administrative Services Department and Chief Financial Officer: Probably not in the planning side, it’s more on the Ken Dueker side, in the Emergency Operation’s Center. Speaking from some of the meetings that I attend and the preparation as we open up our facilities, for example Cubberley is a prime destination for people to come and we have cots and the Red Cross comes in and assists us, but that is a general service that we provide to everybody, and so anybody can come to our facilities for those types of services. In terms of the defibrillators, I believe they are in public locations, so somebody that would be in need, they could follow the directions, they are audible and in written form next to the equipment, so I think as cover as part of our general preparation plan is my best guess from the discussions of meetings that I have attended on the preparations. Council Member Holman: So there wouldn’t be any need for any CDBG funding to go to that, it is all under Emergency Preparedness (E-Prep) under Ken Dueker’s charge you would think? Mr. Perez: I won’t go as far as saying that. I think what we probably would want to see is how do you want to allocate funds based on the various needs and do we have enough coverage on the other side of the budget for the emergency preparedness that it takes care of itself. You may recall, because you were part of this, that we did a matching amount with the County and also where we are addressing on an annual basis, $125,000 a year, so there are some expenses we are allocating in our budget to address some of the issues. I can’t imagine we would address all of them. That is something that we are looking at to bring forward to you. Community Services Department (CSD) Staff, Rob’s group, is going to come, I want to say in May, to the Council and give you an update from the Council, excuse me, the County Board of Supervisors requesting that we continue the funding, so I think there is some tie into that from my best guess at this point, not having the leadership of those programs, but I think there is some tie in. Council Member Holman: So if not a part of this funding mechanism, then I’m a little off track since it is not in this, so I will just make a quick statement. I think it would behoove us to see that our homeless population knows where the defibs are. You know, we assume that everybody has access to the Internet and they know where the defibs are, but that is not really necessarily the case. Palo Alto Housing Corp did not submit as I read this and I understood the presentation, did not submit for housing funds. Why is that? Ms. Murillo-Garcia: I don’t know. I don’t think they had any projects that were ready, but they were made aware that we had the special Request for Proposal (RFP) for housing projects. Council Member Holman: So we don’t know why they… okay. Then the (inaudible) the Micro Enterprise Assistance Program. It isn’t receiving funding in this cycle. That category seems to be all going to Downtown Streets Team, which I do not object to, but was there a rationale at the HRC why… Council Member Schmid: Isn’t that part of (inaudible) CDBG? Council Member Holman: Well, it is listed here as one of their considerations, under this $754,000 allocation. Mr. Perez: In terms of the Downtown Street Team, so (inaudible) in the current Fiscal Year we have $37,991, so I think there is a combination of funding in the two programs. Council Member Holman: Right, but that is not the question though, but I do understand that, yes, and I am glad we do that. Ms. Murillo-Garcia: So your question is on the Micro Enterprise Assistance Program. Council Member Holman: Yes. Ms. Murillo-Garcia: And what you have on that page is the recommendation is to reallocate, I believe it is $150,000 of the Micro Enterprise Program to another use, and the reason for that is just due to our staffing levels. We are not able to devote the time that we need to devote to that program, so the thinking is that in our next two-year funding cycle we will put out our applications later this fall. Our plan is to solicit a third party to take that program on for us, because we just don’t have the Staff capacity in-house to administer the program. Council Member Holman: I thought that might be the case. Ms. Murillo-Garcia: (crosstalk) Council Member Holman: It was no success rate issue though. Ms. Murillo-Garcia: It wasn’t the success rate. It is more capacity in-house to administer the program. Council Member Holman: I think I took care of my questions. Chair Filseth: Council Member Schmid. Council Member Schmid: An important part of our budget, and I am glad we are turning our attention to this, which is more funding, I was disappointed to see that there is no material from the HRC. They had a subcommittee and then a full committee meeting, and discussed all this, and yet we don’t have minutes of the meeting and there is no one here from the HRC to explain whether there was some controversy or that they looked at alternatives. How can we capture what went on at the HRC? Ms. Murillo-Garcia: Yes, you are correct. We did not include minutes. The reason we typically don’t have a representative attend, unless there is a controversial issue, but at the HRC the vote was unanimous to accept the recommendation and the way that the Committee came up with their recommendations, you know, we did have slightly less money available for Public Services and Planning and Administration, so the approach was to do an across-the-board decrease, which seemed like the most equitable way to handle having to reduce funding for everybody. So the Public Services received approximately an 8 percent decrease, and the Planning and Administration (Admin) received approximately a 6 percent decrease. Council Member Schmid: I understand this is the second year of a two-year program, so there is no grand changes taking place, but still it would be good (crosstalk) Ms. Murillo-Garcia: Yeah, we will definitely take your comment into consideration for next year. Council Member Schmid: Because I know they take this very seriously. I guess the one general question I have is it seems striking that the Downtown Street Team got four times more money than everyone in the Public Services. They say they are dealing with 30 people. Now they are making a change in 30 people’s lives, which is important, but is there some explanation of why the opportunity (inaudible) are the Housing Corporation (Corp) for someone who is doing innovative things didn’t get a bigger cut of the total funds? Ms. Murillo-Garcia: So as I mentioned, there are caps for two of the categories, the first one being Public Services, and that is where Housing Corp is funded as well as the Opportunity Center, so we were limited to approximately $76,000 for the five agencies. Council Member Schmid: My understanding of the Opportunity Center is it does a variety of things, some homeless services, some counseling, some job support, so wouldn’t it qualify under Economic Development? Ms. Murillo-Garcia: If they were creating jobs, that would be how they would qualify under Economic Development. So if they came to us with a proposal saying that they would create jobs, then that is something we could certainly consider. Council Member Schmid: Yeah, it seems a gap there. I think they do work on support employment activities, but were they aware that if they changed their proposal a little bit they would qualify for a much larger… Ms. Murillo-Garcia: That is something we can discuss with them for the next fiscal year. As you said, this is the second year of the funding cycle, so we don’t make too many changes, but it is something we can discuss with them for the next funding cycle. Council Member Schmid: Yeah, because if you just look at the numbers of people that they deal with, there is a much larger group than appears at some of these other places. Now in contrast Human Services Resource Allocation Process (HSRAP) is an open competition, is that right? They are not categorized? Mr. Perez: I’m sorry, can you repeat your question. Council Member Schmid: HSRAP gave grants to like 15 different organizations that do different things, so they don’t have to qualify under certain discrete categories. Is that right? Mr. Perez: Correct. So the funding is split over two pots, as you might recall. We have the (inaudible) combination, and then the 15 agencies that qualified under the Fiscal Year 2016 Budget, so that pot is $436,000 and it goes through that process where they submit a proposal and the Staff that said what the HRC… Council Member Schmid: And there is no categorization of… Mr. Perez: Not that I recall. I missed last year’s and I am going to see this year’s this year. Council Member Schmid: That seems much more flexible than the CDBG that has limits on things, and I am not sure that… Mr. Perez: So the difference is that this is federal funding and it has limitations, this other fund is your money that you control. It is a Council policy directive, so that is why you have more flexibility. Council Member Schmid: Right, but if there is a way of allowing people to understand that there is a variety of ways that they can compete for these funds. Mr. Perez: I think it’s mostly newer agencies that may not know, because it has always been a strong competition where agencies have submitted in both programs and depending on how they fit on the categories, on the federal side is whether they make it to that cut or not. Needless to say, I will have a discussion with CSD Staff to make sure they do that, broadcast it. We do it through a formal RFP process too, so it is publicized. Council Member Schmid: Great. Thank you very much and I appreciate the work put into it. Chair Filseth: Council Member Wolbach. Council Member Wolbach: A couple of things. One, as our Liaison to the HRC, I was at the meeting where the full HRC discussed this and from what I recall off the top of my head, there was some frustration in trying to make hard choices, so they weren’t thrilled with the fact that they weren’t able to approve everything that was requested. So that’s… Council Member Schmid: If you could share some notion of what were the hard choices that they were dealing with. Council Member Wolbach: I think the hard choice we see is they weren’t able to provide full funding for those requests, which, you know… so they decided on, as was mentioned before, an across-the-board cut. Also, relating to Karen’s questions about Palo Alto Housing, I did notice that they are approved here for just under $23,000 on Page 3. Council Member Holman: But not for housing. Council Member Wolbach: Right, just for the services. And just kind of on a related note, I would just mention that word that I hear is that Palo Alto Housing, formerly Palo Alto Housing Corporation, is, how do I put this, reluctant to bring forward proposals for housing development in Palo Alto because of the lingering aftermath of 2013’s Measure D and also a continuing perception that the Palo Alto Community and City Council are not enthusiastic about affordable housing, so that is something to keep in mind for all of us. Also, one thing that I notice here is that in Packet Page 7, so Page 5 of the Staff Report, we list our six goals that we have established for the next five years for our Consolidated Plan, and I notice the last couple, in particular fair housing, that promoting fair housing choice and fair housing is one of our key goals, so this is just a comment I wanted to put out there to make sure that we are aware. I believe the City Staff has shared an article that I sent to the City Manager and the Planning Director a couple of months ago, Richard Florida writing in City Lab in January of this year about how zoning restrictions make segregation worse. Something else for us to consider when we are talking about fair housing being a goal that is established by the City of Palo Alto, and I think we should always keep in mind what the contradictory effects might be of our restrictive zoning policies and our restrictions on housing in general, which might limit our stated goal of fair housing. Just to quote briefly from that article, “Density restrictions work to increase segregation, mainly by exacerbating the concentration of affluence. The economic segregation of metros is significantly higher in places where cities, not just suburbs, employ more stringent land use and density restrictions. Density restrictions in the city not only lead to higher housing prices, but to a greater economic segregation across the metro as a whole.” And he is referring to something else, the authors write, “Density restrictions are culprit in the social fragmentation of metropolitan areas and should be relaxed where possible.” Further, “Places that require multiple levels of approval to get housing built are more segregated, largely because such regulations hinder new housing development. Furthermore, segregation is higher in metros where local governments are more involved in residential development and feel pressured to restrict population growth.” So I am just putting that out there as something to consider, because we have right here in the Staff report and in our Consolidated Plan for the next five years, that we have a goal of fair housing, but we, of course, have a City Council that is very involved in housing development and does feel pressures to restrict housing and population growth, and we do have a complex approval process for housing, so I leave that for further consideration in the future. Chair Filseth: Do you want to respond to that, follow up on that, but can we please, it is a pretty broad topic, right, and this is the Finance Committee, so… Council Member Holman: Yes, it is only one comment, which is, in the past I have also been Liaison for the Housing Corp, had that privilege, and we did talk about and I can’t remember for sure if we did it or not, but that the Housing Corp could come to the Council and make a presentation, and have basically a study session, so I think rather than any entity languishing under a perception that is either a perception, right, or misperception, wrong, that best to come to the Council and have a conversation. So perhaps you can take that to the Commission, or to the Board. That was all. Chair Filseth: Thank you. Are you… Council Member Wolbach: Those are my comments. Chair Filseth: Thank you very much. I only had a couple. One was I noticed there was a very incremental decrease it looks like in entitlement for this year versus last year. Is there anything in particular we should read into that? Is that relatively normal or, should we take anything from that. Ms. Murillo-Garcia: Yeah, well the allocation has been slowly decreasing over the years. I believe the last Fiscal Year there was a little bit of additional money that had reallocated towards the end, but I don’t see the allocation changing too much in the near future. Chair Filseth: Okay. And then, you were at the HRC discussions. Do you generally agree with the choices they made on this? Are they fiscally responsible, I guess (inaudible) Council Member Wolbach: I think they did the best that they could, but we have all read the same materials. They used, I guess, a Subcommittee of the HRC to do a lot of the work, so the discussion wasn’t extensive with the full HRC, if I remember correctly. Chair Filseth: And I gather that all of this year’s Action Plan conforms to the five-year plan. Ms. Murillo-Garcia: Yes. Chair Filseth: Alright, I’m set. Motions. Council Member Schmid: I’ll move the Staff Report, and just add a comment that it would be good to have the results of the HRC the next round. Ms. Murillo-Garcia: Yes. Council Member Holman: Do you want them presented to Council? Council Member Schmid: Yeah. Ms. Murillo-Garcia: Okay. Council Member Holman: I’ll second. MOTION: Council Member Schmid moved, seconded by Council Member Holman that the Finance Committee recommend the City Council take the following actions: Allocate CDBG funding as recommended in the draft 2016/2017 Action Plan and as described in this report; Authorize the City Manager to execute the 2016/2017 CDBG application and 2016/2017 Action Plan for CDBG funds, any other necessary documents concerning the application, and to otherwise bind the City with respect to the applications and commitment of funds; and Authorize staff to submit the 2016/2017 Action Plan to HUD by the May 15, 2016 deadline. Chair Filseth: Do you care to speak to your second? Council Member Schmid: As I say, this is an important part of the budget. This is the federal funded part of it where the discretion is lower. It is the second year of a two-year program, so next year is the year to take a fresh look at it. There is good support to those organizations (inaudible), those who need it the most. Council Member Holman: I don’t think I need to, thank you. Chair Filseth: So let me ask a question on that, which is, so if this passes unanimously, it is going to go on Consent. Did you just ask for something to be presented to Council? Did I understand that right? Council Member Holman: Just when this goes to Council that the minutes from the HRC be included in the packet, yeah. So it’s not a change or option. Jonathan Lait, Assistant Director of Planning: Just the one comment I would make, I was just looking at their agenda and they don’t seem to be running their minutes, they are a little bit behind on their minutes, so this is going to the Council on May 2, I believe, so as we are able to produce even draft minutes, we will do that, but we may be constricted on the minutes being available. Schmid: Yeah, we do need to reach the Fiscal Year deadline. Mr. Lait: So we will convey that to our colleagues and see what we can do. Female: Yeah, we will reach out to… Chair Filseth: Do you want that as part of the Motion or are you good with it as is? Mr. Lait: I think we got it. We will certainly include it and even if we can’t get the minutes, we will include a section that articulates more clearly the intent of the Commission. Council Member Holman: It is always nice to see their minutes, but we do have the recommendation so… Mr. Lait: Absolutely, they are available, they are just not on line now. I don’t know what the status is or when they meet relative to when we you your next report. Chair Filseth: Then the Motion is: One, allocate CBDG funding as recommended in the Draft 2016/2017 Action Plan as described in this report; two, authorize the City Manager to execute the 2016/2017 CBDG application for 2016/2017 Action Plan for CBDG funds, any other necessary documents concerning the applications, and to otherwise bind the City with respect to the applications for commitment of funds, and to authorize Staff to submit the Action Plan to HUD by the May 15, 2016 deadline. Is that right? Any comments? Council Member Holman: Just one. Lalo, will you or somebody follow up with Ken and see where these other aspects might be brought up. Mr. Perez: I certainly will, and also with Community Services, in case there is (inaudible). Council Member Holman: Right, thank you. Chair Filseth: Okay. All in favor? Motion carries unanimously. MOTION PASSED: 4-0 2. Staff Recommends the Finance Committee Review the Various Options to Address the Unfunded Pension Liability and Provide Direction on a Funding Plan. Chair Filseth: Okay, with that we move on to the second Action Item, which is Finance Committee Review of Various Options to address the Unfunded Pension Liability (UAL) and Provide Direction for a Funding Plan. I see that John Bartel has joined us. Welcome John, welcome back. Thank you for joining us. John Bartel, President of Bartel Associates, LLC: Thank you very much. My pleasure to talk to you all, as always. Chair Filseth: So is there… Lalo Perez, Chief Financial Officer: You should have, I think, Mr. Bartel’s presentation, his slide presentation. Yes. So the thinking was that we have Mr. Bartel go through the presentation. Staff will make some comments at the end and then we are free for all questions and comments. Chair Filseth: Okay, so we will check for public comments at the end of the Staff summary, or the Staff comments? Mr. Perez: Sure. Chair Filseth: Let’s do that. Mr. Bartel: Do you mind if I ask a question, maybe for Staff and for you all. My preference is that you all ask me questions as I go through this. I think that’s a little bit easier. You may choose to not do that, but that would certainly be my choice. Chair Filseth: I like that. The one question I have is, how do we handle… First of all, are there any public comments to this topic? In that case, not an issue and let’s do it that way. Mr. Bartel: Great. So what we really have here is an updated version of the information that we had provided before. The City has the June 30, 2014 actuarial valuation. The last one we went through was June 30, 2013. The June 30, 2014 valuation determines the City’s ’16/’17 contribution rates, so that is sort of the piece of the update Number 1, and piece of the update Number 2 is California Public Employees Retirement System (CalPERS) investment return for the current June 30, 2016 fiscal year end through January 31. We have incorporated that as well. And what you will see is then both the combination of those two things gives us a higher contribution rate than we were projecting before; principally, the more current investment return. So we will go through this. Some of this I am going to go through relatively quickly, but please, please slow me down if I am going too fast. Chair Filseth: This crowd will have no trouble with that. Mr. Bartel: I didn’t think so. So Slide 1, just very, very quickly, talk about three things that really are incorporated in these valuations, all of which have the impact of driving up unfunded liability and increasing contribution rates. Issue Number 1, this is really a very abbreviated version of what CalPERS has done. CalPERS adopted a while ago what I refer to as a new contribution policy change where they are using market value of assets to determine your unfunded liability. No more asset smoothing. Essentially what they are doing is looking at your unfunded liability, determining your contribution rate, and then stepping into that rate over a five-year period. So that technically if the CalPERS’s actuaries were here, they would say that is not exactly right, and they would be right, but it is 95 percent of the way there. The other thing they are doing is they are no longer using what I refer to rolling amortization, so it is all fixed, closed amortization periods. That means the unfunded liability will arguably be paid off. That was first factored in the June 30, 2013 valuation impacting 2015/2016 rates, the full impact because it is a five-year phase in, comes in in 2019/2020. So that is issue Number 1. Issue Number 2 is they had some assumption changes, most notably the assumption change of mortality improvement had a big impact on the unfunded liability. That is in the June 30, 2014 valuation, first impacting 2016/2017, full impact 2021, a bigger impact for safety than for miscellaneous. Then the third thing is what CalPERS refers to as their risk mitigation strategy. The way I kind of look at this is, and we will talk about why CalPERS is doing this in a couple of slides, but the way I really look at this is that it is a recognition that the City’s plan, as well as other plans at CalPERS, are mature. In other words, there are a lot of retirees. The retiree liability is large compared to the active liability and the bigger that is, the more it makes sense to have a less risky investment portfolio. For the same reason that as you get closer to retirement, you don’t have all of your investments in highly volatile equities. You may have some, but you certainly don’t have all. You just don’t have that much time to make it up. What they are doing is doing that over a targeted 20-year period, but it is really going to be a function of how their investment return does, so if they have a really good investment return they are going to get there quicker. If they have a poor investment return, they will get there slower, if you will. Slide 2 is the investment return and so when we looked at this slide, all of the bullets here, all of the notes on the market value investment return are the same except for June 30, 2016. What we have done now is updated this slide using CalPERS actual return through January 31. Projecting that out using an annualized rate of return for the last five months of the Fiscal Year gets to a projected return of -3, so that poor investment return year-to-date, meaning through January 31, is pretty bad. One of the things you should take note about this is that if you go back over the last 20 some odd years, none of the actual returns are actually very close to the assumed rate of return, and that is what you get if you will, with a standard deviation as CalPERS has of about 12, so it is pretty significant. That is the nature of that volatility, if you will. Chair Filseth: Can I ask a question? When you said, through January 31st this year, so they are looking at the investment returns over what period, to when? Mr. Bartel: From July 1, 2015 through January 31, that return year-to-date is about minus 5.9. Chair Filseth: Because the market took a dive in January. Mr. Bartel: The market absolutely took a dive in January. Chair Filseth: And then it came back so should we expect a change? Mr. Bartel: Yeah, so we don’t have any of the bounce back, if you will, in February in that number, because what we are doing is using reported so we are using annualized return for the last five months, so it is certainly possible if not… Chair Filseth: If the bounce back holds, as you would expect, right? And we would expect the next one is going to be different? Mr. Bartel: Yeah, I still don’t think they are going to bounce back enough to get a return greater than zero through… I think there would have to be continued stellar returns for the last few months to get them above zero for the current fiscal year. Council Member Schmid: Just a long-term historical look, if you look at those that are above the 7.5, the first five years were all above, the next group there were four years above, the next group there were two years above and then two. We bought into the system during the first five year return. Mr. Bartel: Yeah, so arguably, you all bought into the system in the 40’s, so you have been there for a long, long time. Council Member Schmid: Well in the late 90’s the commitments were made. Mr. Bartel: The one comment I will give you is your pension plan is a long-term animal, and so even though the investment return for the current Fiscal Year looks very bad, it will have an adverse impact on your contributions, it’s not the whole story, and so what will happen over the next decade, two decades, will be much more important than what has happened in the last year. That is absolutely true. And that’s, of course, the challenge is making a prediction as to what is going to happen over the next decade, if you will. Slide 3 again goes back to ’94, back in ’94 you had 761 active employees. These are bodies. These are not positions. These are filled positions. So in 2014, 802, so a modest increase in the number of active employees, a substantial increase in the number of people receiving benefit payments, 402 to 1,011. Now for your Non-Safety Plan, not all of those 1,011 folks receiving a benefit are 30 or full career employees. Many of those worked at other agencies during the year, so the ratio of 1,011 to 802 seems really high, but is not probably as dramatic as it seems. Nonetheless, that is a big increase from 400 to 1,000 over that 20-year period. You can really kind of see that graphically on Slide 4. The blue bar, the number of folks receiving benefit payments and that darker, duller red bar, number of active employees. What is probably a little bit more alarming, alarming is maybe not the right word, but indicative of full career, is the Safety Plan. Back in ’94 you had 204 active employees, in 2014, 187. In ’94 you had 221 retirees, people receiving benefit payments, increasing to 411. Now these are generally full career retirees, so it is much, much more common for safety, for you to hire safety officers at younger ages and have them work their full careers. Not all of them do, but much, much more common for safety than for non-safety. So when you look at the relationship of 187 and 411, it is a bigger deal active liability versus retiree liability. You will see that when we go to the liability number. Chair Filseth: So to make sure I am reading this right, you are saying essentially that somewhat more than twice as many people are receiving benefits from the system as opposed to paying into it? Mr. Bartel: That’s right, that’s exactly right. Council Member Schmid: And that the retirements in the last five years are being paid substantially. Mr. Bartel: That’s right. Chair Filseth: So one of the factors on the ratio, but is it a big factor or a little factor. I mean, safety employees retire earlier than… Mr. Bartel: They retire earlier, they are typically more career employees, so their benefits have a more generous benefit formula and the dollar amounts are higher. That is the combination and again, you will see that when we look at the liabilities, if you will. Back to Slide 7, I probably should have put a circle around the total liability at June 30, 2013, $602.5. This is miscellaneous, increasing to $667. What I would like you to do is look a little bit above that and you take a look at the active liability, $239 million compared to the retiree liability of $388. So a large portion of your $667 liability belongs to people who have already retired. So a little more than one-third of it belongs to active employees and when you look at the unfunded liability June 30, 2013, $190.3, actually increased very modestly despite a good investment return year, to $191.4 million. You can kind of see this graphically on Slide 8, so for me Slides 8 and 10 are actually two of the more important pictures that I think people ought to have in their head. The green bars are the assets, the red bars are the liability, and what you really see is with the downturn in the investments, in Eight and Nine that’s when the bulk of the liability really began to show itself and CalPERS old contribution policy did not help in digging that out. The other thing that absolutely is going to be true with that market, using market value of assets, that green bar will be volatile over time. You can really see that both in Eight and Nine, but you can certainly see it in the relationship between 14, 15 and 16. The red bar, the liability bar, just kind of keeps plodding along on an upward tilt. Council Member Schmid: Question on Page 7. This was year 2014, where their returns were 17.7 percent. Mr. Bartel: That’s right. Council Member Schmid: And yet the unfunded liability went up for miscellaneous. How is that possible? Mr. Bartel: How is which possible, the fact that they had a really good year, or the fact that the unfunded liability is still as big as it is? Council Member Schmid: Well, when the returns were 17.7 percent the unfunded liability went up. You would think that would cover. Mr. Bartel: Yeah, so what I want you to do is kind of take a look at that Slide Seven. There are two things in coming up with that $191 million unfunded liability. Thing number one is what happened to the liability, and thing number one is what happened to the assets, with the unfunded liability really being the difference between those two. So on Slide 7 the liability increased $65 million, $64.5 million. A large portion of that has to do with CalPERS demographic assumption changes, principally, the mortality improvement. The second piece of that is what I refer to as normal growth in the liability, so this is a crummy analogy, but when you think of the liability I would encourage you to think of it in the following way. When you hire an employee, they have no liability because they haven’t rendered any service. Each year what you are doing is, just think of a coin going on a stack. So the first year somebody works is one coin. The second year they have two coins, and you are building up a stack of coins. That actuarial liability represents the stack of coins for all of your active employees and for all of your retirees and for all of your folks who are no longer working here but have not yet retired, so it is the sum of all of those stacks of coins. So the growth in the liability includes the addition of a coin on there for active employees. So that is a relatively noticeable number, but the big increase from 62 to 67 has to do with that mortality improvement that really impacted the liability. So you have the growth in the liability being faster than the growth in the assets, so the market value of assets went up noticeably because of investment gains. What it did not do, though, is go up noticeably because you made a large payment on the unfunded liability. Your payment on the unfunded liability was not really sufficient, if there had been no assumption changes, if the growth in the liability had been as expected, if the growth in the assets had been as expected, then actually your unfunded liability would have gone up more than it actually did because your contribution did not adequately take care of your existing unfunded liability. Council Member Schmid: Yet, 2014, that number went up 10 percent. Mr. Bartel: Yes. Council Member Schmid: The year before it went up 4 percent, the two years after you (crosstalk). Mr. Bartel: The number meaning the liability, yeah. Council Member Schmid: So why 2014, you say it is the demographic assumptions that accounts for most of that. Mr. Bartel: Yeah. That was the big deal in that affect. I don’t remember the increase from 2013 to 2014. There were no assumption changes during that period. I would have to go back and look why the increase from ’12 to ’13 was that big, but the increase from ’13 to ’14, the bulk of that were the assumption changes. Council Member Schmid: Just to make sure it is not something… Mr. Bartel: You should absolutely understand that when you take a look at Slide 8, the nature of the red bar is it’s going to keep going up. It might not go up as fast as it has gone up recently, but it will continue to go up. I wouldn’t expect it to grow in the neighborhood of 10, but it is not going to be much below 10 on a future growth basis. Council Member Holman: Do you somewhere in this look at, we are talking about employees that are unfunded liability is not just that because we have… Mr. Bartel: That’s right. Take a look at Slide 7 and of the liability on Slide 7, if you look at that right-hand column, a large portion of your liability is for retirees, so what we don’t do is allocate the unfunded liability between active and retirees. To do that you have to make a conscious decision as to who you are going to give the money to, but nonetheless, your active liability represents a little more than a third of your total liability and that percentage of the total liability has been decreasing over time. Council Member Holman: And we are just talking pension. Mr. Bartel: We are just talking pension. This is not (inaudible). That is correct. Suzanne Mason, Assistant City Manager: So John, when you say the active liability is going to be decreasing, does California Public Employees’ Pension Reform Act (PEPRA) have anything and reform have anything to do with that? Mr. Bartel: Yeah, what will happen on the active liability is that you are beginning to have more and more of your employees who are in PEPRA as time goes by, and the definition of time here is maybe 20 years, your growth in the active portion will slow because the coin that you are really putting on the stack for the PEPRA employees and for non-PEPRA as well, is a little smaller than it is for folks who are in Tier 1. So the folks who are in the more generous formulas, their normal costs, their coin, if you will, is smaller so you will begin to see the active number slow in its growth. Having said that, it is going to take a very long time before you really see that. That is sort of the nature of only making the change for people hired in the future. Chair Filseth: And when we look at this, so the active Actuarial Accrued Liability (AAL) number, that includes all the coins in the stack as of today. Mr. Bartel: Yes sir. Chair Filseth: So it includes, Karen’s stack includes Karen’s coins as of today, but it does not make any allowance, at least this number doesn’t make any allowance for the coin that Karen is going to earn next year. Mr. Bartel: That’s correct. That’s absolutely correct. Chair Filseth: But your projection, your long-term projection, that includes an estimate of the future coins? Mr. Bartel: That’s correct. And it would matter whether, if we add up all of the coins, some of them will be PEPRA employees and so they will add smaller stacks, smaller coins and we are factoring that in when we project out the rate. Okay. Council Member Holman: He used me to describe these (inaudible). Mr. Bartel: So, included by the way on Slide 8 is a projection of where we think your unfunded liability will be at June 30, 2015 and June 30, 2016, so we are projecting that $190 million number will grow to $220 on June 30, 2015 and about $270 at June 30, 2016. What you can really see what’s going on there is the liability growing sort of at that 10 percent-ish rate and the assets, of course, for ’15 and ’16 not growing. Chair Filseth: So one thing that you observe from this, right, the assets here take a larger than normal jump from 2013 to 2014 and you said that’s because of the change in recognition. (crosstalk) Mr. Bartel: No, all of these bars are market value that is absolutely investment return related. And then you see the opposite, or course, happening in the next few years. Chair Filseth: And it turns around the other way, yup, yup. Mr. Perez: Chair Filseth, if I may. John, there were some discussions by some of the Council members that could be of interest to project out 10 years for this number. Can you comment on that? Mr. Bartel: Yeah, so the single biggest factor that will affect your unfunded liability is market value of assets. So I can tell you with a certain degree of confidence what the red bar will look like over the next 8, 10 years. I would probably be comfortable projecting it further than that. If you had asked us on June 30, 2007 to do a 10-year projection, you would have seen green bars going up very nicely with the red bars. It would have been absolutely wrong, right, and so the thing that is volatile on this graph is not the red bar, it is the green bar, and the green bar is the asset. So we absolutely could project where it is going to be. If you wanted us to project it, we would do it, but we would give you, we would tell you that we ought to have some sensitivity in that projection. So you are going to see number 1, volatility in that number and number 2, how do I say this, it is going to be information that is not at all clear to me will be very useful to you. I think something that is more useful is not where your unfunded liability will be. It is more where will your cash requirements be, where will your contribution rates be and what is the volatility on your contribution rates. So that is what we typically project for clients. You are going to see that shortly. I think, you all can tell me whether you agree or not, but I would suggest that the competition for your fiscal resources is all related to the contribution that CalPERS is going to ask you to make, and that is a byproduct of your unfunded liability. It is much easier to understand what is going to be the demand on your resources from a contribution standpoint, I think, than strictly looking at the unfunded liability. Chair Filseth: My inclination is that both have value and for slightly different reasons. Like you said, one of them is involved with our short-term budgeting and planning and the other is, you know, a macro perspective of where we all are, and I am certainly convinced by your argument about the largest swing is in the green bar. And yet both the red bar and to some extent, the green bar, are influenced by policy decisions we make as well, although in the short term the volatility in the market will have a much bigger impact. I would guess that in the longer term the contribution of policy relative to the random walk, has, the percentages, the proportions of those impacts change. They are different in the long term versus the short term I would guess. Mr. Bartel: Yes, a much bigger impact over the long run than the short run, that’s right. Chair Filseth: And so I think we would have a use for both. Mr. Bartel: We can easily add it. We do (crosstalk). Chair Filseth: It actually is sort of in here, you know, buried inside other charts and sort of like if you change the axes and take the log and the third derivative and so forth. Mr. Bartel: We have to project your unfunded liability to determine your contribution rate , so it is not exactly difficult. I hope what you’re hearing in me is not that it is difficult to do, but I am more reluctant because I am struggling with the value, but we can easily provide it for whatever period you wanted. Okay. So having said that, we give you the short term through the expected through June 30, 2016 and then Slide 19 I think of safety for most of our city clients as being where more of the action is. I don’t mean that in a particularly nice way when I say action. Chair Filseth: What do you mean? Mr. Bartel: What I mean is, well, take a look at Slide 9 and when we look at your total liability for safety, you know, it is going up from $339 to $367, but what I want you to do is look above that $367 number. You see… Chair Filseth: The proportion of active to retired. Is that what we are looking at? Mr. Bartel: You bet, that is exactly right. So there is a very strong argument that you all are a very mature safety plan. So, in fact, what is fascinating about this, quite different than for miscellaneous, look at your retiree liability for 2014, $272 million. Your assets on a market value basis $264, so you don’t have enough money in the bag to take care of your existing retiree liability. Forget about active employees, forget about people who have not yet retired who aren’t working at the City anymore. For people who have already retired, you don’t have enough and that was at June 30, 2014, when the investment return was good. When you look at ’15 and ’16 it is going to be a little more adverse than that. Chair Filseth: Your observation is on Enterprise Funds and Utilities versus General Fund, but all the Public Safety comes out of the General Fund, so it’s not really (inaudible) it’s not really half and half. Your numbers weren’t half and half because it was skewed by the public safety right. There are fewer of them, but the numbers are one-third, right? Mr. Bartel: And so when I say that’s the action, it’s the action in your General Fund that’s going on here. So when you look at your unfunded liability it goes down. Investment return overrode the adverse impact on the liability on the mortality change, nonetheless, a particularly big deal. And you kind of see Slide 10 almost looks exactly like the miscellaneous slide. If you didn’t look at the left-hand side, but projecting out to 15 we are really saying that the unfunded liability about $120 million and then going to about $150 million at June 30, 2016. Chair Filseth: My brother-in-law is a policeman in Los Angeles. They call it 30/30. Council Member Schmid: And what did you go to in 2016 on miscellaneous? Mr. Bartel: For miscellaneous it’s back on Slide 8, about 100, excuse me, $270 plus million. So the nature of those numbers, so all of those are going to be volatile from one year to the next and there is a strong argument that contributions that pay that unfunded liability off need to be higher than what you are currently contributing. That’s the byproduct of CalPERS contribution policy change and you will see that when we look at where contributions are going to go. Chair Filseth: I’m sorry, can you repeat what you just said. Mr. Bartel: Yeah. Chair Filseth: Make sure I grabbed that. Mr. Bartel: A very strong argument that as your unfunded liability, if you take a look at Slide 8, Slide 6 as well, excuse me, Slide 8 and Slide 10, both of them, there is a strong argument that CalPERS historical contribution policy was not strong enough to bring that unfunded liability down. Investment return didn’t help, certainly, but the contribution policy wasn’t sufficient, so if you think about this, you know the crummy analogy that I use all the time is this. The credit card debt for a young couple, if you are always making the minimum payment, you really never get that paid off. Chair Filseth: That’s what I thought you said. So are you saying that if we follow CalPERS contribution policy, we never pay off? Mr. Bartel: No, that’s not what I am saying. What I’m saying is the old policy. I really want you to make the distinction, the old policy was exactly that. Chair Filseth: How old are we talking about, because this whole problem is only 15 years old. Mr. Bartel: No, no. The contribution policy changed the beginning in the June 30, 2013 valuation, so you have not really seen the impact of it yet. What we will do is do our best to kind of project where that is going to go. Council Member Wolbach: I’m sorry, just to connect back to this, the change in the contribution, that’s more coming from employees working for the City, both, just remind me. Mr. Bartel: It is really City contribution, so historically the CalPERS contribution policy, what they ask you folks to pay, was, so let me give you a very simple example. Pretend for a moment your unfunded liability was $100 dollars, okay, and CalPERS got their expected return and your liability grew asset was expected. This is just kind of, write this down, you should then have expected your unfunded liability would grow from $100 to just, we’ll call it $102. It’s going to grow rather than going down because the old contribution policy did not adequately pay the unfunded liability off. Chair Filseth: It’s like one of those funky mortgages where you pay… Ms. Mason: This was on Page 1 when we talked about the change, (crosstalk). Council Member Wolbach: It was just making that connection back so thank you for letting me role us back to the start of the presentation. (crosstalk) Ms. Mason: We just changed to the (crosstalk). Chair Filseth: So CalPERS old policy (crosstalk) change says they will cover it and we should believe it. (crosstalk) It’s fixed now. Mr. Bartel: The new policy, unless of course, they make some change to that policy, the new policy is that you will have your unfunded liability paid off one way or another. It might be painful to do it, but that’s what the new policy is. Chair Filseth: I’m glad they’ve changed their ways. Mr. Bartel: If we take a look at Slides 11 and 12, this is absolutely what we really were talking about, how mature are your systems. So Slide 11, if you look at back in ’97, your active liability was about 35, excuse me, your retiree liability was about 35 percent of your total liability. At June 30, 2014, you’re at about 60 percent and then for safety at June 30, 2012 you were at about 55 percent and now you are at about 75 percent, so 75 percent of your liability for people who have already retired and receive their benefits. And then we had included sort of some comparison slides of how does the City compare with other folks. There are many ways you could put these slides together. You know, the nature of being an actuary is that I have learned over the years you can put a ton of different numbers up there and make them say very different things to different people. One of the things we try to show is context, if you will. So if we are comparing you all to Daly City or Alameda, your payroll is different, lots of things are different. What we try to do though is look at your unfunded liability as a percentage of, we call it payroll but it is really pensionable wages that we are looking at. So we are not bringing in overtime. We are not bringing in other things. It is really pensionable wages and you all are the one, you know, there really are two bars that stick out here. One is the City of San Jose, the other one is City of Vallejo. Chair Filseth: Although it is interesting. It is different from safety to miscellaneous dramatically. Mr. Bartel: It really is. Yeah, so you all are high, but you all have been in CalPERS longer and had a retirement system longer than just about I don’t know if it’s everybody here, but longer than most folks here. Then if you look at safety, it is also, it is just fascinating to me the differences in these bars. Now you all are certainly towards the upper end here, but you’re certainly not the highest on either one of these graphs. Mr. Perez: John, I probably should know the answer to this, but let me try this. We provide services to Stanford, so we have additional staff there and we also provide paramedic services where most of the surrounding cities don’t, so I believe that those are also influencing our numbers? Mr. Bartel: I think that’s right. Council Member Wolbach: But it looks like, so we’re certainly not the highest on either, but if you remove a couple of outliers then we are kind of in that top group, right? Mr. Bartel: You’re in the upper bracket of these bars. Council Member Wolbach: Yeah, it looks like there is definitely the grouping, there is a grouping on both of those, if you carve off a couple of outliers like Vallejo, Alameda, San Jose, etc, if you carved out those couple of outliers, then we are definitely in that top bracket. Mr. Bartel: That’s right. What I want you to do, though, is, so this is not meant to be comforting, it’s meant to be factual, okay. (crosstalk).I am a fan of examples, so if you just take a step back and pretend for a moment you had two neighbors. One neighbor was 40 years old and the other one was 65 years old and the 65-year-old neighbor was getting ready to retire, had a lot of money set aside for their retirement and lo and behold, the downturn in ’08 and ’09 hit both of your neighbors. The one who is 40 years old didn’t have as much money set aside. They may actually be making the same amount of money, but the adverse investment earnings impacted your neighbor who was close to retirement, so what would happen is if you are doing a bar like this of your neighbors, the ones close to retirement who had saved a lot of money would be the higher bars. So in lots of ways having a higher bar is a function of a city that has been around for a long time who has been setting money aside for retirement for a long time, it hits you a little harder than it does some of your other… Now the comparison of agencies that are here, a lot of these folks have had pension plans for a long time. I’m not suggesting that that’s in and of itself the single biggest reason, but it absolutely is a contributing factor here. Council Member Wolbach: That again goes back to your earlier point, your qualifier before we got on to these slides that you can look at these a lot of different ways. Mr. Bartel: Yes, that’s absolutely right. Council Member Wolbach: I appreciate that. Council Member Holman: Can I ask a question, why is the San Jose Miscellaneous Plan so much higher than their Safety Plan? It just is not in accordance with the rest of the pattern. Mr. Bartel: That’s absolute right. So in the interest of full disclosure we do work for the City, so I am going to give you a short version of my comment. The City has two different systems, one for Police and Fire and one for their federated or their non-safety group. Those two systems today had the same actuary with the same actuarial discipline. I will tell you we have told the City we think the current actuaries are doing a very, very nice job. Historically both systems did not have the same actuary and those actuaries did not have the same discipline. So if it’s okay with you I would kind of like to leave my comments there. Ms. Mason: Okay, okay. Council Member Holman. So just to be clear, this has nothing to do with populations, obviously… Mr. Bartel: Well, of course, staffing, yeah. But I think that is right. But, of course, staffing may be different in a City like Palo Alto with a college campus right next door than maybe it would be in other cities. Council Member Holman: I shouldn’t say nothing to do with populations. That was not an intelligent thing to say, but it has less to do with population than it does with how long we have been… Mr. Bartel: I think that’s right, yes, that’s absolutely right. I think that’s spot on. Chair Filseth: Well, from a perspective of spending and what you owe and so forth, I mean, it is what it is, but the circumstances behind it, we have a small department but a lot of people retired versus a large department and only a few people retired could be different. But from a financial perspective, it’s apples-to-apples. Mr. Bartel: Yeah. What we are trying to do here, and keep in mind please, I am an actuary trying to give you information that is useful to you, and so I am not a finance officer. I know what I know, but there is a ton that I don’t know, and what I think of is payroll and revenue as being, they have to have some relationship with each other, so your unfunded liability relative to payroll matters, and that’s why I put it in that context. That’s right. You could do these differently. For example, you could do these on a dollar unfunded liability per resident, for example. I just, for me this is a valuable way to look at this. Slide 15 and 16 both look at the history, again going back to ’97/’98 Fiscal Year of the City’s contribution and this is miscellaneous. Two lines here, the light green line with the triangles is your normal cost rate. That is the size of the coin expressed as the percentage of pay that is provided by the City. It does not include the member contribution. This is the employer portion of the normal cost only. The dark green line is the total rate. What you are paying, if you will, and so if you look at 15 and then you look at 16, they are amazingly similar to me. Council Member Schmid: What’s the difference? Mr. Bartel: Well, the difference is 15 is non-safety, 16 is safety. And so safety… Council Member Schmid: No, between the triangles and the squares? Mr. Bartel: Oh, I’m so sorry. The triangles are the normal cost rate paid by the City. So when you go back to the coin going on the stack, it is the portion of that coin provided by the City, if you will. Chair Filseth: The City’s contribution. Mr. Bartel: The City contribution for the benefit being earned in this year. Council Member Schmid: And what is the green square? Mr. Bartel: Dark green line is the total contribution paid by the City. So your contribution… Mr. Perez: It is super funded, that’s why it’s… Ms. Mason: It’s what you’re paying in the end, the liability. Mr. Bartel: Yeah. Ms. Mason: So the normal cost is just your year-to-year. Mr. Bartel: The difference between the dark green and the light green line, the difference between that is the contribution on the unfunded liability. Council Member Schmid: So in 2016 we are paying the same thing, 10 percent, 10 percent of what? Mr. Bartel: 10.4, so let me say this differently. Let’s look at the 10.4, okay. What I want you to do is think of your pension benefit as deferred compensation, okay. So 10.4 is the amount of the deferred compensation for active employees, 10.4 percent of pay, so that’s the amount of the deferred compensation. 27.7 is the amount of the deferred compensation plus the payment on the unfunded liability, so your contribution for the amount of benefit that is being deferred, 10 percent of pay, but the payment on the unfunded liability is an additional 17.3 percent of pay for that year. Ms. Mason: So if we had a defined contribution plan and we said we are putting 10 percent in because we project if you retire in the future that should be adequate funding, and we were not obligated to pay the difference in earnings or losses, then we would just stay on the 10 percent trajectory and say, here employee, here’s your 10 percent. But because we buy into a defined benefit plan, we roll with… So down in the early 2000’s we were what is super funded, so we had more money, or what they called super funded… Mr. Bartel: We contributed less. Ms. Mason: Right. We didn’t have to contribute because we had enough funding to definitely make that obligation without putting more money in, but then as the market changed and we had investment loss, we started having to pay more for the losses, right. Mr. Bartel: Yeah. Ms. Mason: John taught me well. (crosstalk) Mr. Bartel: So do me a favor, because it is not clear to me that we are answering your question, so do me a favor and ask the question again. You can use the exact same words, but I just want to make sure that I am understanding what your question is. Council Member Schmid: Let me put it a different way. Between ’04 and ’08 were good years for the stock market. Mr. Bartel: Yup. Council Member Schmid: So our liability should not have been growing faster than our payments, and yet it went from zero to 12. Mr. Bartel: Yeah, so timing, like the rest of life, is particularly important for pension plans, so the impact… What I want you to do is go back and take a look at Slide 2. So the impact of the dot com bubble with investment returns at ’01, ’02, ’03, June 30 of each of those years. Council Member Schmid: Right, and I am referring to the years ’04 and ’08. Mr. Bartel: I know you are. I heard you. I promise you I heard you. Council Member Schmid: Okay. Mr. Bartel: The contribution for the losses in ’03 impact the ’05/’06, so when you look at Slide 15 and you see the rate going up on ’04/’05, that’s because of the losses, I’m being a little simplistic here, that’s because of the losses in ’02. In ’05/’06 that’s because of the losses in ’03 and it’s even more complicated than that because the losses really were gradually factored in in those years, so what happens is you see a bit of that increase in ’06/’07 and then you see in ’07/’08 you see two things happen. Your total rate pops up and your normal cost rate pops up. Well, the normal cost rate pops up because that is the first valuation that fully reflected the miscellaneous benefit enhancement. Council Member Wolbach: So you have a delayed indicator. Mr. Bartel: Yeah. Ms. Mason: And even now we have a two-year delay, so we just are doing the valuation report from ’14 and that rate will take place in July of 2016, so we always have a two-year delay. Mr. Bartel: We always have a two-year lag. So you see the popup in ’07/’08, yeah that’s the benefit… Council Member Schmid: Let me take this one step further. Then in ’16 we should be feeling the benefit of the 17.7 increase in ’14, and yet you’re not. Mr. Bartel: You’re not. Council Member Schmid: A constant increase from ’15 to ’17. Mr. Bartel: So there are multiple reasons for that. Let me give you the single biggest reason. So go back for a moment to my crummy example of a credit card, right? So let’s change the credit card a little bit. They are making their minimum payment on the credit card and that minimum payment on the credit card, if you make it means you’re minimum payment the next year is going to be a little higher, so what’s going on here is that steady increase from ’12/’13 on is partly because you’re not making the full payment on your unfunded liability and it’s recognition by CalPERS that you keep falling further behind. I’m being a little simplistic on that, because it’s more complicated than that because the market value is a little volatile during that period. It is also, we know for miscellaneous the unfunded liability went up, even though CalPERS had that wonderful investment return, and so your payment, that initial payment is not just a function of the investment return. So, here is what you are going to hear me say, had CalPERS not changed their contribution policy, your increase in ’16/’17 would not have been as big. Council Member Schmid: Another way of saying what you’re saying, CalPERS has misled us for many years. Mr. Bartel: I wouldn’t use those words. I would tell you that I think they made a mistake in setting your contributions, but that mistake was one of more optimism than they should have had. Chair Member Schmid: But we pay for their optimism. Mr. Bartel: Well, so you are not going to like this next statement. Council Member Schmid: (crosstalk) the risk. Mr. Bartel: No, no, wait. You’re not going to like this next statement and I’m going to apologize for it in advance. Every client that I talked with over two years ago, before CalPERS made their contribution policy changes, I said the contribution CalPERS is giving you is not sufficient to pay your unfunded liability, so every client with a very small number of exceptions, heard what I said and responded with something in the order of, “Thank you very much John,” with very few exceptions. And so… Filseth: I didn’t, but I wasn’t in government then. Mr. Bartel: Yeah, not every member of the Council had that same response, but it is very difficult to pay more than what CalPERS is asking you to pay. That is really what you’re doing now. This conversation today is about trying to mitigate contribution volatility. Trying to do something to mitigate that upward… Council Member Schmid: Another way of saying that, though, is if CalPERS had been straightforward with us, it would have been easier for local councils to sit down with their workers and say, “We need to deal with this.” Mr. Bartel: Boy do I agree with that. That is right spot on. I agree with that. (crosstalk) There is no question about that. Should it have happened? Yeah, I think it should have happened, but… Council Member Schmid: I mean they have delayed the 6.5 for 20 years, instead of saying, “We need it this year.” Mr. Bartel: I think I agree with you a little bit on that too. Chair Filseth: Not wanting to stick up for CalPERS here, but I think (inaudible). I look at this stuff and I think, you know, the truth is this isn’t CalPERS’s fault, right. We entered those contracts and this is the result of contracts we entered. But I think you are right that our group reliance on CalPERS changed the tenor of the negotiations over the contracts that we signed. So I think that is a true statement that he made. Mr. Bartel: Yeah, I think that’s right. Council Member Holman: But it is a little different, though. It’s not like we can be with Edward-Jones versus Merrill-Lynch. I mean, we’ve got CalPERS. Mr. Bartel: You’re not going to change. That’s right, but… Chair Filseth: The market is the market. Mr. Bartel: Yeah. Kind of here is something none of my clients want to hear, CalPERS is who you are with, that is who you are married to. There is no question about that. Council Member Holman: It’s the horse we road in on. (crosstalk) Mr. Bartel: And it’s the horse you’re going to ride out on. But absolutely understand this, that just because CalPERS is telling you something, doesn’t mean you… Chair Filseth: Have to believe it. Mr. Bartel: Yeah, well but necessarily you can’t change all the investments they are going to make. You can’t contribute less than what CalPERS is asking, but you can do things that will mitigate that volatility, and so that, I think is, so for me there are so many things about this particular graph that are really important for my clients to understand. What I want you to do is take a look at Slide 15. One more thing I want you to look at there. You had incredibly low contributions for a relatively noticeable period of time and you all negotiated benefit increases shortly after that. Council Member Holman: Not us. Chair Filseth: Yes we did. Mr. Bartel: It was the Council. Chair Filseth: Yes, the City did. Mr. Bartel: And so that event is common around the state and so all I would tell you is, when I am speaking to employee groups or I’m speaking to large members of Staff, I ask people who are under age 40 to raise their hands, pull out a pencil and write down, “Remember what has happened over the last 10 years.” Because what will happen is, people who are over age 40 are not going to be here to have that conversation when that happens again, and it is going to happen again. (crosstalk) Chair Filseth: Can I ask a question on Slide 15. Both the Safety Plan and the miscellaneous plan are sort of, they are soft of flat out here in the later half of the odds, and then they take a big jump as we get into ’11, ’12 and so forth. Is that, is some of this inflection point here associated with the recalculation of how CalPERS does this? (crosstalk) Is that reflective… Mr. Bartel: It is really all tied to the incredible downturn in ’08 and ’09 and the very slow recognition of the impact on the… Chair Filseth: As opposed to the change that says, “Okay, we are going to change the minimum payments so it covers…” Mr. Bartel: Okay, so take your pencil, put it right there and have it be horizontal, a little bit to the left, right there. Really, no move it up, your rate really should have climbed to where your pencil is much quicker than it did, and that’s really what the shape of your contribution… Chair Filseth: Fundamentally that’s what we are talking about with Section 115’s and so forth is, you know, try to take charge of more of this and not be completely reliant on what CalPERS says, but have our own as well. (crosstalk) Council Member Wolbach: I had a quick question, but I’ll let Suzanne go first. Ms. Mason: I just wanted to say one thing, I have learned over the past few years, that the CalPERS Board is making decisions and the governor has stood up pretty strong with his representatives, and the other thing that I just never realized until recently is that local agencies can speak in front of the Board, which I did during that time and we supported the change in the asset allocation policy and we actually fought against the five-year smoothing, and they’re testifying in front of the Board I think makes a difference, and we sent letters. It is not just a monolith. I mean, it is hard. Labor is very heavily represented on the Board, but I think speaking up for what we believe is important also, and not just, you know, getting involved. Mr. Bartel: I absolutely agree. It is very difficult to do though, because there is, if you take, this is going to sound a little biased here, but the bargaining groups have State Representatives (reps) who drive policy. It is hard for my clients to agree on what that common policy should be for public agencies. There certainly are State organizations, but it is very difficult for them to get their head around what the right policy is. So it is easy for the bargaining groups, it is much harder for public agencies. Chair Filseth: Let’s proceed. Council Member Wolbach: Can I actually, I had one question I was holding off on. Chair Filseth: Okay, go ahead. Council Member Wolbach: This is kind of a bigger framing question about how CalPERS works, how it’s supposed to work, is the… This might be a golf course question, but I just wanted to try to be very explicit about it. Rather than having employees face volatility of the market, we protect our employees from that volatility by assuming some of that ourselves. That’s the point, right. Mr. Bartel: So most of that is not CalPERS’ related. It is in the statute. What the members pay is in the statute and what CalPERS does is addresses the employer portion, not the employee portion. But the Legislature believes, generally speaking, that the employees should not see the volatility in the rates, that employers do. Council Member Wolbach: Right and that’s sensible. I mean, this is why people have retirement accounts. We can hope that a large institution can better weather storms than a single person on a fixed income. Mr. Bartel: Right. Council Member Wolbach: Okay. I just, I appreciate that. Thank you. Council Member Schmid: Could I ask a process question? Chair Filseth: Yes, please. Council Member Schmid: We are well into our second hour, it is 5:15, and we are beginning to talk about what do we do. Would it make more sense to go through the rest of the slides quickly and then have a discussion. Mr. Bartel: So, in fact, what kind of in light of this, what I am going to do is go through some of these slides very, very quickly. I will kind of tell you what’s here, but I really want you to kind of see where the contribution rates are going. This projection of the contribution rates is what we had done before. We are taking into account the fact that you have hired people into the various tiers. If you take a look at Slide 20, what you see here is the projection, the miscellaneous contribution rates. So for ’15/’16 current fiscal year, contribution rate 27.8, that solid green line assumes CalPERS earned 7.5 percent on average, after January 31 of 2016. So that is really what that green line represents. The poor investment return is by and large on average low single digit rate of return, so that’s the nature of kind of that range and what your contribution rates will be. The lower rates take into account good investment return. Now what I will tell you is the one thing this graph does not show is the volatility in your rate from one year to the next. One thing you can absolutely count on is that the odds are excellent your contribution rate is going to go up noticeably over the next several years. Then, so Slide 20 is what we refer to as kind of the short-term projection through ’25/’26. Slide 21 is a longer term projection and we have a third line on there, a light blue line, that is what your contribution would have been without risk mitigation. So if they were not changing your discount rate from 7.5 to 6.5, that difference in those lines is the impact of the risk mitigation. We just put that there for informational purposes only. Let me also tell you that if CalPERS went to 6.5 percent sooner rather than later, then your rate would be higher in the earlier years, and then lower in the later years. Slide 22 is with and without, so all of those two projections did not include the impact of employee cost sharing. The dark green line there is the impact of employees, so with employee cost sharing. This again for miscellaneous, so employee cost sharing gets to about 1 percent of pay for miscellaneous. And then if we…Pardon me. Ms. Mason: Those are the recent changes, (crosstalk) we are actually bringing them next Monday. Mr. Bartel: Okay. So Slide 23 is, again, same information for safety. Your rate low 40’s. What we are really saying is your rate needs to be, or will ultimately be in the 60’s, again assuming the 7.5 percent. The 7.5 percent, of course, grading down over time and then you see the longer-term projection here. So the one comment that I will make when you look at both this Slide 24 and the miscellaneous slide is, the reason your rates are coming down after about 30 years, or approaching 30 years, is by and large because your unfunded liability is being paid off. That is a byproduct of CalPERS contribution policy changes. So that is the relatively steep increase, the high rates for safety that really get you into the 60’s for really the next 20 years or thereabouts and then the gradual decline for both miscellaneous and safety is a function of paying the unfunded liability off, and the fact that you are really hiring people into Tier 2 and Tier 3. Ms. Mason: That Tier 1 should be kind of… Mr. Bartel: Tier 1 folds are retiring, right. Contribution projections with safety. This includes the 3 percent safety cost sharing and so you see that impact. So paying down the unfunded liability, we had gone over the various options. We talked about pension obligation bonds. We talked about using sort of arguably existing reserves, shorter amortization periods, all of these really are a function of paying the unfunded liability down sooner. What I will tell you is any payment to CalPERS will not mitigate the volatility until they really get that investment mix more conservative. It actually increases your volatility because what you are doing is you are increasing the amount of money you have compared to your payroll, if you will. And so it is that same issue, your two neighbors, the 65-year-old and the 40-year-old, you are putting more money in and so that just creates more volatility for you. And that is true regardless of which of those four you do. Then we talked about the internal service fund as compared to the irrevocable Section 115 Trust. I will make kind of an additional comment. There are two entities, two private sector entities that are setting these trusts up, Public Agency Retirement Services (PARS) and Public Financial Management (PFM). We thought CalPERS was actually going to begin to participate in this. They had a disagreement with the bargaining groups. CalPERS decided they had to run legislation to be able to do this. The bargaining groups insisted that that legislation include a provision that if you set your trust up with CalPERS and put money into the trust, you were required to notify your bargaining groups. So you laugh a little bit, that was kind of my reaction too. Bargaining groups don’t see it quite that same way apparently. So CalPERS said, “No, we’re not going to do it.” What’s fascinating to me about that is that is one of the very few times that I have seen CalPERS kind of stand up to the unions. For me, that is really an indication of that request. Chair Filseth: I think that is part of the concern about CalPERS is they have a lot of pressures on them from different directions. Mr. Bartel: They really do. Chair Filseth: So they respond to that in a different way, depending on… Mr. Bartel: Chair Filseth: Who’s in charge. Right. Mr. Bartel: I have a couple more slides, but I will leave it up to you as to whether or not you want me to go over them. The slides talk about PEPRA cost sharing. You know, what’s the definition of an unfunded liability, PEPRA cost sharing, what the impact of an additional 1 percent pay increase is on the City’s contribution, and the challenges, just so you know, the challenge with that question is, all 1 percent pay raises are not created equally. So that’s my caveat about that particular section. Chair Filseth: So the actual business that we are… Mr. Perez: Maybe I can…(crosstalk) Chair Filseth: Yeah, what we are on tap to do tonight. Mr. Perez: So John gave you a recap of what we had discussed before and an update on the numbers. The last time we met you gave us direction to go and issue an RFQ, Request For Quote. What we decided to do instead is just meet with the firms. Because there are two of them, with CalPERS, three right. And so we set up these meetings since the last time we talked to you. PARS seems to be a little bit ahead of the others in terms of number of clients that have set up and structured trusts. PFM, at the time we had spoken were interested, but they had not won a solicitation process and John gave you the latest update on CalPERS. So at the time we were talking to them they were very much interested in, the Staff, very much interested in setting that up, but obviously the have to go through the Board. So to remind you from the discussion of last night, we set aside $1.3 million from fiscal year ’15 General Fund Excess Funds that is available for the Committee to consider or direct us to start the process of a competitive solicitation for a firm to manage those funds on a Section 115 Trust. So that is an option. The second piece that we don’t have in front of you, but you could give us direction to go and work on a plan, is for the remaining funds to also contribute towards this trust. So in other words, the electric, the gas, the water funds, the refuse, all of those other funds could also add to that, to those dollars. The other recommendation that we are making based on the Government Finance Officers Association (GFOA) Best Practices is not to consider pension obligation or (inaudible) bond. Chair Filseth: I remember we talking about that and even at the previous meeting there was sort of, it wasn’t clear that that was a good idea to pursue that. Council Member Wolbach: And I would say that’s clear, it’s not a good idea. Mr. Perez: So I think that’s the point we are at, that we think we have heard enough reasons as to why we should consider establishing the trust. John outlined at the last time, just to cover the words, and John can correct me if I state the issues incorrectly, you never want to be fully funded. If you are going to do this and put it aside on a Section 115 Trust it gives you the flexibility. So what do I mean by that? Because there could be concerns as we talked about last night with the long-range financial forecast, is that we face a little bit of troubled waters here that we are going to have to fix our boat and make sure the leak is fixed, and once you put this money in the trust, it is… Chair Filseth: You can’t get it back to pay for… Mr. Perez: Not for operations, but you can if, let’s say, let’s take the General Fund and let’s say that we have a $30 million obligation and I’m making up a number just for simplicity here, and we have a $3 million gap. So now we have a problem with making our first payment without making some cuts and let’s assume we have $8 million in this trust built up now for the General Fund, you can take $3 from there and send the other $27 and now you’re balanced. So that’s the beauty of this trust. The assets count towards the unfunded liability and it gives you flexibility to use in case of a need. Council Member Holman: It’s kind of our own version of smoothing. Mr. Perez: Yeah. Council Member Wolbach: So, while this is all designed around… As I was saying earlier, the whole point of having a retirement is to protect our employees, who we want them to be happy. We want to recruit good talent, right? We want to protect them from volatility. The idea of the trust is to protect us from volatility. Mr. Perez: And that would be our recommendation, that we would establish a trust. You have us send the $1.3 million, and continue to work on the other funds to come up with some amount where we can track it and have proportional shares that are easy to trust. Chair Filseth: Can you comment for a second on, like you said, there are the utilities and these other funds and so forth. Can you comment for a second on those, because as you pointed out last week, a sizable chunk of the unfunded liability is in the Utilities, and then fundamentally in order to contribute into a trust that applies to that we have to take money from the General Fund or the Utilities, right, and if we take it from the Utilities at some level we are fundamentally raising utility rates in order to cover it. It seems like from a 90,000 foot perspective, is that an accurate characterization? Mr. Perez: I would say that it can be, depending on the fund, because there are different magnitudes of reserves in the various funds, so some of them could afford to absorb it within the reserve, but we need to analyze that and return to you. That’s why we didn’t bring it in front of you today. Chair Filseth: So are you recommending then that we start with $1.3 from the General Fund and look next year at what we do in the other funds. Mr. Perez: Yeah, because I think we need to get through the rate increase discussions that need to happen. They are starting the 19th in May and then in June the Council takes it up, so we can set up the trust in the General Fund section and track that and then later on contribute for the other funds. So I think it is better to let that play out, figure out what the impacts are, give you the information so you can have the information in front of you to make those decisions. Council Member Schmid: Jim last night made it pretty clear that the $1.3 was in the 2015 Budget, 2016 Budget, but is not necessarily available for the 2017 Budget. Mr. Perez: So this is how I heard it, that he was comfortable with proceeding with the $1.3. He wasn’t ready to commit to you that another contribution from the next fiscal year be included. Council Member Schmid: Yeah, but I guess one of our recommendations should be, is this a one-time thing, or is this a commitment to the future. Chair Filseth: Mr. Perez: My suggestion to you now, because there is so much more that you are going to need to see, so let’s get it started and I think that is the key. Let’s see where the proposed budget is in front of you, but see what it looks like towards the future so you make an informed decision after. So let’s get that account open, let’s get the seed money in and then let’s see where it goes. You can make determinations at any point in time during the fiscal year. Let’s see that we figure out how to do this and if we are in a good position you can tell us at mid-year let’s send another blank amount. Council Member Schmid: Let me ask the actuary a question. How much is $1.3 million given (crosstalk) Mr. Bartel: Oh, it’s modest. Your total unfunded liability is large, but I think the single biggest advantage of a trust like this is not to make a large dent in your unfunded liability. It is to address that contribution volatility. It is the uncertainty of the contribution. So, I think 1.3 you are going to find is going to help you a lot in looking at that volatility. Council Member Schmid: But it would only make a difference if it was a commitment to the future, that we would do this each year. Mr. Bartel: Yeah, you would hear me say that a commitment to keep looking at the trust. I actually think the commitment should not necessarily be to put money in. I think the commitment should be to look at it each year and make a conscious decision as to whether or not you should. I have a relatively high expectation if you do that, you will come to the conclusion in future years you should be putting more money in, but I think the … So for me the commitment is not, we’re going to put more money in. The commitment, I think should be, we are going to look at it and make a decision as to whether or not we are going to put more money in in future years. The short-term commitment is $1.3, but I think it is hard to commit to future monies when you really don’t know. Council Member Schmid: I guess the real question in our commitment is this goes into a separate fund and when our budget gets tight the tendency is to say, “Oh, we can save jobs or we can finish this project if we use that money,” so it’s not a full commitment and I am concerned about what future Council choices will be. Ms. Mason: It is irrevocable. Mr. Bartel: I know, you know, I am not a politician so I am confident though that you recognize that you can’t control what future councils are going to do. The nature of a trust like this, the risk mitigation and the flexibility that it gives you is the value of a trust like this, but with flexibility comes trust that future councils are going to do, are going to look at that commitment to study the same way that you are looking at it. Council Member Wolbach: Hopefully everybody who is under 40 remembers this. Mr. Bartel: Well now, seriously, it is the under 40, I really feel strongly it is the under 40 people that this is going to matter to. Chair Filseth: Because they are going to pay for it. Mr. Perez: I was going to give you the example of I think, you know, we do need to develop a policy, I agree with that. So an example of a policy we have been thinking about, and this is one option, I will bring to you more options. Right now the budget (inaudible) the General Fund 15 floor, 20 cap with an 18.5 as the goal. The Policy, right now it says that anything above 18.5 the City Manager can recommend to the Council to send to infrastructure. The policy could be modified to say anything above 18.5, 50 percent goes to infrastructure, 50 percent goes to pension and Other Post Employee Benefit (OPEB) at the discretion of the City Manager with the recommendation to the City Council. So that way the organization has flexibility. If the Council doesn’t agree with the City Manager you make the call differently. Again, I think that’s why we need to give you some parameters, some policy choices such as that example. Council Member Wolbach: But we’re not doing that tonight. Mr. Perez: Well, I think it is a little early because we really need…Obviously I have a little bit of knowledge of what we are putting together for Fiscal Year ’17 and some of that, so I think you need to see that, hear that because if you make a policy without knowing that information you say, “I wish we wouldn’t have done that now that we know this.” I kind of want you to see that information because I think there is time for you to make those adjustments. Chair Filseth: It’s one step at a time and I think that makes sense. Council member Holman has been waiting here. Council Member Holman: So there are these two trusts that you have put down here, PARS, couldn’t they do something, more different than PERS, but PARS and PFM and it says the likely much higher investment returns at 5 to 7 percent. I just do a quick fan through the rest of this. I didn’t see anything that shows like a track record. What are we basing that on? Mr. Perez: Well, we will bring to you the historical records for them and PURS too so we will have a comparison so we will have a recommendation to you, we will definitely to that. We have looked at it and obviously it depends on what period of time you look. Council Member Holman: Sure, but if you look at a 20-year track record, how long have these been around? Mr. Bartel: Both PARS and PFM have…So what we are talking at here is a Section 115 Trust. Both PARS and PFM have been investing money in Section 115 trusts for OPEB for several years now, so they both have a track record… Council Member Holman: What is several years? Mr. Bartel: Several years, I think they probably begin to do this in 2006, 2005, something like that, so a decade. They both, but PARS in particular though, has set up supplemental pension trusts for longer than that, so they have an historical track record going back longer than 10 years. The 115 trusts had money invested for the last decade. For me, that’s the beginning, if you will. But having said that, what I would encourage you to talk with Staff about is thinking about this money as supplemental, and not trying to be aggressive, trying to mitigate the volatility and having that conversation with PARS or PFM, whoever you decide, I think will get you to a better place. You know, I’m not an investment guy. Nobody should pay attention to me when I say stuff like that, but… Council Member Holman: So the other question is, it is a simple question with a simple answer, but I just wanted to be absolutely certain, so if we are looking at, because our Enterprise Funds are separate, but pensions are not, so is there any reason we would have to set up different trusts for Enterprise Fund investment versus General Fund and employee? Mr. Perez: So right now we have this OPEB, which is the retiree medical and we have it all in one and we have a way to track it and segregate it, so I think we can do that, but we will look at the options and the cost difference of separating it as well. Council Member Holman: As well as the legal (inaudible) requirements. Mr. Perez: Yeah. Ms. Mason: And all of our miscellaneous are together in our pension contribution and about half of that is due to the utilities, so half of our unfunded liability likely in the Miscellaneous Plan is associated with the utilities. Council Member Holman: Right, but it is to this point in time our contributions have been coming from the General Fund, so that’s why I am asking the question. Mr. Perez: We will need to be absolutely sure that we track it because we will be audited and everybody will want to know that their funds are there. Proposition 26 (inaudible). Council Member Holman: Okay. Chair Filseth: So are we ready for motions? Council Member Schmid. Council Member Schmid: Thinking of alternatives, it seems to me the clearest alternative with the shift in risk is to go down the road of the CalPERS Social Security Plan. They did once have, they might still have, a CalPERS Program that includes Social Security. It seems to me that we are talking throughout the evening of a risk uncertainty, the future is unknown, the values change, the problems of setting up separate trusts. Social Security would give a baseline for every employee which had the added virtue that people could take it when they left if they tended to leave after five years or ten years. Now they take nothing but paying into Social Security and have Social Security gives them flexibility for career. It has none of the risk associated with uncertainties about CalPERS, can you trust CalPERS. It takes off the bottom share. Every employee would get Social Security as their base, so we would only play the margin above nine. There seems so many positives on that with a much lower risk, you know, with the U.S. Government and the Federal Reserve signing the checks there is no risk, rather than us trying to either keep up with CalPERS and CalPERS having no risk and telling us what to do, what is that as a realistic alternative? (crosstalk) let me just… Mr. Bartel: No, let me tell you, well, so I have not read that article so I don’t know about the number, but let’s back up and talk about Social Security. I am on record as saying that California pensions should, in fact, be exactly what you just said. The challenge is, that’s not what the law really provides for. A Social Security offset plan under CalPERS is not really the way you just described it. The way I think of a Social Security offset plan is, you get to retirement and your total benefit is calculated and you subtract out of that what you are getting from Social Security and the Agency is responsible for the delta. I am absolutely on record as saying that’s a wonderful plan design. The challenge is, that’s not what the law provides for right now and that was a suggestion I made when people were looking at possible pension reform, and you can kind of see how far it made. So, I wouldn’t hold my breath as to whether that would even be an option for the City down the road. Council Member Schmid: The reason I raise this is this is an editorial on Monday’s Chronicle, and for the first time the State in their comprehensive annual forecast had published their liabilities. Their liabilities are $250 billion. Now it’s the State that has the ability to change the rules of the game for CalPERS. PERS is a good example and it caught their attention, they came up with the reform, so with this maybe there is reform in the air, where all of a sudden the legislature is going to say, “My God, what am I going to do.” So could we be suggesting that as a viable important alternative to us trying to build up a separate trust fund? Mr. Bartel: So let me give you two answers to that because I am an actuary. I want you to understand that neither response is legal in nature and what you are really asking is, what are the legal implications of doing this, so for me, I continue to believe a reasonable solution is to have a plan like you just described. So what I can’t tell you is whether or not, so part 1 to my answer is, I really do think it is a reasonable question to ask, but whether or not it has a significant impact is related to who that change applies to. Does it apply only to people hired in the future or does it apply to current employees. I hope you know by now that changes that only impact people hired in the future take a very long time for it to have a positive impact. Council Member Schmid: Although PERS has a noticeable impact over two years. Mr. Bartel: Well… Council Member Schmid: What is it, 8 to 10 percent over the labor force. Mr. Bartel: But the bulk of your contribution rate is the unfunded liability, right, and if you don’t address the unfunded liability, you really have a very limited impact on your contribution, and so there are two ways you could look at pension reform. You could say, unless everybody is in Social Security, the total benefit is going to be the same, but we are going to provide part of it with Social Security and part of it through the pension plan, and if you did that I suspect you would find yourself in court. I don’t pretend to know what the outcome would be, but the answer to that question drives whether or not you really have an impact on your existing unfunded liability. Would it be a solution for 30 years from now? I do think it would be, but you still have to figure out how to pay the unfunded liability in the short run. Council Member Schmid: Okay, I guess the question is, is it worth bringing that up as an issue maybe to look at strategically at this time? Mr. Bartel: I am going to make a comment that is outside the bounds of actuarial, right, and gets into the realm of politics because the nature of that question is not an actuarial question, it is a political question. It may sound a little biased in the response and I don’t mean it to be biased at all. I am worried that the folks who are looking at pension reform are doing so with the goal of eliminating pensions, of eliminating CalPERS, rather than structurally fixing it, and what you are suggesting falls under the category of structurally fixing. I would leave it, I think that I am not the right person to answer that question. I think the right person to answer that question are the folks who seem to be behind the ballot initiatives and the question for them, I think, should be, “Do you want to do something that structurally fixes it, or do you want to do something that eliminates it?” For me, if you take the position of eliminating, you are bound to fail. If you take the position that you want to structurally fix it, then you have to convince the people who are funding you that that is the right approach. My political finger in the wind is that that is a hard thing to do. I don’t think I answered your question. Council Member Schmid: No, I think you did. I guess my perception, though, is continuing to work with CalPERS with them being in the (crosstalk) Mr. Bartel: I think CalPERS will not be interested in your suggestion, by the way, just letting you know. Council Member Schmid: But that is a hard thing… Chair Filseth: But from a practical perspective, to what we are talking about tonight, if we proceed with the direction we are soft of discussing, which is direct Staff to come back to initiate the process of coming back, get some options to actually implement a Section 115, if the kind of structure that you are talking about actually should materialize some years down the road, we haven’t locked ourselves into anything we didn’t want to. The Section 115 is still useful to us because, as you point out, we still have to pay down the unfunded liability. I mean, the $500 million isn’t going away, right, so if that happens we will still be better off with a Section 115 I think. Is that an accurate statement? Mr. Bartel: That’s my opinion, yes. Chair Filseth: As for eliminating CalPERS versus fixing it, if the outcome is good I am personally indifferent between the two. Okay, motions? I’ll make one then. I move that we direct Staff to begin the process of identifying a partner to establish a Section 115 with the $1.3 million as the initial payment. Council Member Wolbach: I’ll second. MOTION: Chair Filseth moved, seconded by Council Member Wolbach that the Finance Committee direct Staff to begin the process of identifying a partner to establish a Section 115 Trust with the $1.3 million from the Fiscal Year 2016 General Fund Budget as the initial payment. Mr. Perez: Perez: Could you consider, and also explore additional contributions by other funds, or are you not ready for that. Chair Filseth: And ask the Staff to explore additional contributions from other funds. INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER to direct Staff to explore additional contributions to the Section 115 Trust with contributions from other funds. Chair Filseth: Cory, you seconded it first. Council Member Wolbach: Okay, yes that’s great. Chair Filseth: I don’t need to speak to my motion. Cory do you need to speak to your second? Council Member Wolbach: I’ don’t. Council Member Schmid: Let me try an amendment by adding that we would anticipate to have additional budget item in 2017 Budget as a contribution, so that the goal is to each year take a look at making an annual contribution. AMENDMENT: Council Member Schmid moved, seconded by Council Member xxx to anticipate having an additional budget item in the 2017 Budget as a contribution so the annual goal is looking for an annual contribution. AMENDMENT FAILED DUE TO THE LACK OF A SECOND Chair Filseth: What’s the best way…I like your description which was the Staff and Council could consider doing that next year, what is the best way to say that to capture the spirit of what Greg is talking about. Mr. Perez: Maybe to reevaluate at the end of the fiscal year if there is excess revenues or funds, I should say, whether an additional contribution can be made. Chair Filseth: Okay, so Staff and Council or just Staff? Mr. Perez: Both. Chair Filseth: So Staff and Council should consider during 2017, during fiscal 2017, whether a contribution should be made for that year as well. Mr. Perez: I was suggesting if there are excess funds, but it is your call. Chair Filseth: What do you think? Council Member Schmid: I guess I would push a little bit that it not be a default, oh, if we have extra money we will put it in, but that it is a clear statement that this is a commitment of the Council to the workers, to the Staff and that Staff is a participant that they are going to see the long-term benefits of this contribution, so that it gets associated with salaries, benefits, healthcare and this special fund. Chair Filseth: Sure, if we fix this we are in a much more secure position to be able to pay everybody, right. Council Member Schmid: Well, it is part of our payment to their future, so I guess I want it to be clear that this is part of compensation. So just the wording, instead of, Oh, if we have a few extra dollars… Chair Filseth: Cory, do you have a suggestion on this? Council Member Wolbach: I just want to make sure that we follow what I thought was very wise counsel from our Staff that we don’t establish the policy tonight, but I am fine with the Motion including the clear indication that we will continue those discussions about long-term policies, that we will discuss this with each Fiscal Year, but I am very reluctant to commit to a longer term policy at this point but… Chair Filseth: I don’t think that is what we are talking about here. (crosstalk) a long-term policy would be, okay, in 2017 we are going to have this much and in 2018… Council Member Wolbach: Right, and so even that question of… Yeah, I guess I am looking for a slightly softer version of the proposed amendment. I think the Staff feedback on that was appropriate. Chair Filseth: So Staff’s suggestion was, Staff and Council will consider applying potential available funds in 2017 toward this as well. Mr. Perez: It is along the lines with the current policy about infrastructure so it’s adding the pension to it. Council Member Wolbach: And did Staff have any other recommendations about anything that we missed in the Motion about coming back to Council? Mr. Perez: Suzanne had a good point about how does this go back to Council. This is probably a significant policy, you may want it to be an Action. Ms. Mason: It should go on Action, not Consent. Or bring it back to Council in coordination with the upcoming budget as well, as another option. Mr. Perez: We are open to whichever format you want. Council Member Schmid: Wasn’t there a scheduled Council meeting where this item specifically was supposed to come up? Mr. Perez: No, we were going to try to incorporate the discussion with the long-range, but (crosstalk). Chair Filseth: You know, I think it shouldn’t be part of the budget discussion because we are talking about, the $1.3 million is 2016 and the budget discussion is 2017, so it seems like this should be separate. Council Member Holman: The other thing too is the budget discussions are so long and I think separating it makes sense. Mr. Perez: That’s fine. Council Member Wolbach: And the thing we were just talking about was having it as part of the 2017 Budget as well. Council Member Schmid: No, adding language as well as approving the $1.3 we would recommend it be part of the discussions (crosstalk). Council Member Wolbach: So we are exploring something for 2017 if it is possible, but $1.3 is for 2016 and so it should not necessarily (crosstalk). Chair Filseth: Actually, what if it just said this, instead, I think this is to the point, so instead of saying, wait till the end of the year and see if there are excess funds, just say, we will consider this during the 2017 budget process. Mr. Perez: I was just going to suggest that. Council Member Wolbach: And that is the softer language, the more flexible language that I was looking for. Thanks, that’s good for me. Council Member Holman: So, can you repeat the motion for us? Tabatha Boatwright, Administrative Associate III: The motion, yes. The amendment may take… Chair Filseth: The motion first. Council Member Wolbach: It’s not possible to put it up on the screen, is it? Ms. Boatwright: Not yet. Council Member Wolbach: That’s fine (inaudible). Ms. Boatwright: I just have to scroll back. It started with, “To direct Staff to begin the process to identify a partner to establish a 115 Trust and then we moved on and the motion was to ask Staff to explore additional contributions from other funds and then the amendment came in and it got a little… Chair Filseth: Okay, if it said, “Staff and Council will consider any possible 2017 contributions during the 2017 budgeting process.” INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER to recommend Staff and Council consider any possible Fiscal Year 2017 contributions during the 2017 Budget process. Council Member Wolbach: And then we didn’t have anything in that motion about coming back to Council, so do we need to add some language about that? Are we able to direct Staff to do it, or recommend to Council at the very beginning. Chair Filseth: So the 115 has to come, because they have to identify the processes, you have to identify, you have to talk to PARS and FPM and say, you know, here’s what I think we should do. Does that come back to Finance first, or does that go back to Council? Mr. Perez: We would go to Council since we have the discussion here, so I think you should incorporate to our motion that it should be an Action Item Chair Filseth: It should be an Action on to Council? Council Member Schmid: Does the sentence specifically mention the $1.3 million? Ms. Boatwright: For ’16 going into the 115. Mr. Perez: the Section 115 Trust. Filseth: All in favor? MOTION RESTATED: Chair Filseth moved, seconded by Council Member Wolbach that the Finance Committee direct Staff to begin the process of identifying a partner to establish a Section 115 Trust with the $1.3 million from the Fiscal Year 2016 General Fund Budget as the initial payment and direct Staff to explore additional contributions to the Section 115 Trust with contributions from other Funds. Recommend Staff and Council consider any possible Fiscal Year 2017 contributions during the 2017 budget process. Also, direct Staff to return to Council with the recommendation agendized as an Action Item on the City Council Agenda. MOTION AS AMENDED PASSED: 4-0 Chair Filseth: Thank you very much. Bye guys. (crosstalk) We can say we did something cool. Can I get you for a minute? Can we proceed. Can you drive for a minute. Council Member Wolbach: Or do you want us to take 5. Chair Filseth: I’ll be back in a minute. I just have a question. Council Member Wolbach: I will just say that everybody in the room under 40 thinks we made a good decision. And I can speak for everyone in the room. Council Member Schmid: Okay, should we continue to proceed? Council Member Holman: Not without our Chair. Council Member Schmid: He said to go on. Council Member Holman: Oh, he did? Okay. Council Member Schmid: He said to continue. Council Member Holman: Okay. Council Member Schmid: So moving on to Item number 3. 3. Finance Committee Review of Pool Car Utilization and Plan to Reduce the Size of the City's Pool Car Fleet. Jon Hospitalier, Assistant Director of Public Works: Good evening Council Members. I am Jon Hospitalier, Assistant Director of Public Works, Public Services Division, and I would like to introduce to you our somewhat new Fleet Manager, Raul Juarez. Raul joined our team about a year and a half ago. He came to us from the City of San Antonio with prior experience with the City of Escondido and also United Parcel Service (UPS). We are here tonight to revisit the issue of pool vehicles and their use within the City fleet and bring you up to speed on some of the things we have been up to as far as evaluating the utilization in the fleet related to pool vehicles. With that I will hand it over to Raul Raul Juarez, Fleet Manager: Good evening. Thank you Jon for the introduction. I am not sure if you have been handed out the Report, the Staff Report that was written, but I will go ahead and just read it to you. Recommendations: At this meeting the Council Finance Committee will review the City policies and uses of the City pool vehicle fleet. Staff will be moving forward with the reduction of the City’s fleet by three full vehicle cars in support of the continuing effort to eliminate underutilized vehicles. The background is, on May 26, 2015 Finance Committee directed Staff to provide information on the policies and use of pool vehicles. City pool cars were established in an effort to more efficiently utilize underutilized vehicles from the fleet, reduce the liability of employees utilizing private vehicles to conduct City business, lessen parking expenses and encourage commuter alternatives. Pool cars are City vehicles housed in several locations throughout the City to allow employees access to transportation to conduct City business. Pool vehicles are used primarily between various City facilities and within the City Limits of Palo Alto. Less common, but equally important, to City business are those pool vehicles used to travel to other cities and counties for meetings, conferences and training. The ability to efficiency secure a vehicle for offsite meetings minimizes lost Staff time. Fleet management conducted the annual review to ensure that each City pool car is justified in its retention or replacement and assignment, analyzing all 27 of the City’s current pool cars. Of the 27 pool cars, there are 15 compressed natural gas sedans, four hybrid sedans, one hybrid SUV, two sedans, two passenger vans and a one-ton flatbed truck and a half- ton pickup truck and one small pickup truck as well as a Ford Ranger. Attachment A. Following the minimum usage requirements described in Section 4 of Policy and Procedure, 4-01 4/BWD, Vehicles and Equipment Use, Maintenance and Replacement, Attachment B, Staff identified changes needed to comply with the outlined minimum usage requirements of the 2,500 miles per year, or 50 hours usage, or 50 percent of annual work day based on 220 works days in a fiscal year. Discussion… Council Member Schmid: Yeah, I think we have that information here. So maybe if there are questions that we have about the policy, although what are we… Lalo Perez, Chief Financial Officer: So this came about from last year’s budget review. There was a concern about the size of the fleet. You know, one of the things that we are working on and maybe Suzanne should speak to it because she is heading up the program, (inaudible) is that we are trying to get more of our employees out of a vehicle. It is essential for us to have the fleet of cars that we can utilize as people come without a vehicle or share a ride, and so I think what the Public Works Staff is trying to convey is that they did a review of all the vehicles and after that thorough review they have come to the conclusion that three of those vehicles could be set aside and taken out of the fleet, but all the other vehicles are for essential needs, and as we, hopefully, ramp up our program with our employees in carpooling, car sharing, then these vehicle utilizations could take us to… Council Member Schmid: Now, Staff recommends the Finance Committee review, so do you want a Motion out of this, or just comments. Mr. Perez: I think mainly comments because we didn’t necessarily have a recommendation to you at that point. It was, you wanted some assurance that you, the Finance Committee last year wanted some assurances that we had looked at the fleet and that it was adequately being used. Mr. Hospitalier: Can I add to that. Council Member Schmid: Please. Mr. Hospitalier: I think during the last meeting there were some unanswered questions related to why we have pool vehicles and why we don’t look into alternative ways to get folks from point A to point B when it is business related to the City. That is part of why we are coming back. The Committee wanted more information on that and as we got into this discussion the last time, we weren’t able to really give you a full factual answer. So the full factual answer is that the Pool Vehicle Program was initiated as part of the reduction of the fleet back in 2008/2009 when fleet utilization came in question. The size of the fleet seemed to be growing uncontrollably. Fleet Review Committee was formed as a result to initiate some controls, and as we started to downsize the fleet in order to meet the needs of the Finance Committee and Council, there were a lot of questions that came back from Staff as to, okay, how do we do things now, now that we don’t have these additional vehicles assigned to specific departments, and that is where the pool concept came up, where there are actually City-wide shared vehicles and as you see in the list here, they are available essentially City-wide, but they are assigned to specific work groups. The reason for that is to increase their availability to the work groups that have these questions, have these issues when we started downsizing the fleet. This seems to be working fairly well for us. Raul and I are coming to you tonight and we are telling you this story, but we are also saying we are really looking at this now. We have a new, more robust vehicle use and maintenance and replacement policy that’s been adopted and we have some built-ins in that policy that we feel answered a lot of the questions that were brought up during the last session. One of the questions I recall was, you know, how are we making the fleet greener. In this new policy, if you have read through it, you will see there is a section about how now our first choice for passenger vehicles is an electric vehicle, and if an electric vehicle doesn’t meet the workgroup Staff needs, then the next step is some other either hybrid C&G and the last choice is a conventional engine. We have essentially taken out one whole class of vehicle as an option to the plan users, which is the medium or mid-sized vehicle and we go straight to compacts, the hybrids, the EV’s, the C&G vehicles. We feel that is going to help meet that goal of having a greener fleet over time. Council Member Schmid: Okay, that is very helpful. Let’s have Council comments. Council Member Holman: So thank you for bringing this forward. So a couple of questions I had is, and I just have to assume that this is the right size, you taking three cars out, so two questions I had thought of were, what happens to the money from the sale of the three that are being removed from the pool, what happens to that money? Mr. Perez: It goes back to the fund that contributed the dollars from, so the Staff from Public Works keeps track of the replacement accumulation of dollars and we allocate that to the fund, whether it is the General Fund, Department or Enterprise, and whatever net proceeds go back to those funds. Council Member Holman: Thank you. Another question is, say it’s maybe the easiest with, I’ll just say Utilities vehicles. So were those Utilities vehicles that cost of them, maintenance and insurance and all that, is that prorated across the cost of Utilities users, or, you know what I’m saying? Mr. Juarez: Yes, the department that uses the vehicle is given an account, a charge and me and fleet, we have a maintenance and operation charge as well as a rental fee charge. Council Member Holman: I’m not sure I made the question clear. What I am looking for is, is the cost associated with having those vehicles borne by the Utility users? Mr. Perez: You are talking about the rate payers? Council Member Holman: Yeah. Mr. Perez: Oh, yes, sorry. That wasn’t clear. Absolutely, it is imbedded as part of the operation cost of the fund, which is part of the calculation of the rate. Council Member Holman: Okay, alright, good. And that’s true for, which departments is that not true for? It might be a little harder for planning maybe for instance. Mr. Perez: Right, the General Fund Department’s. Council Member Holman: ERB, CSD. Mr. Perez: There might be some component for the fee in terms of…but you know, it is very rare that we have 100% fee recovery of most of our fees. Council Member Holman: Okay, so Utilities that would be the case. Public Works? Mr. Perez: For the Enterprise Funds, definite. So refuse… Council Member Holman: Okay, only for the Enterprise aspect if it though. Mr. Perez: Mm-hmm. Council Member Schmid: Planning has one. Council Member Holman: Yeah, sorry, I see the car. I was just wondering is like how we – or the vehicles, you’re saying how we capture the cost of it, or capture the cost. Municipal Service Center (MSC) though we don’t capture those costs? Mr. Perez: It depends on what portion of the MSC because there is… I am assuming you are looking at Page 70 of our Packet. Council Member Holman: 72 I was actually looking at, yeah, 72 is a little bit... Suzanne Mason, Assistant City Manager: You can see the Utilities versus Public Works and so these are the departments that are going to get charged the replacement costs on those vehicles, so yes, it is going to assess back to… Mr. Perez: Yeah, so if it is a Public Works Enterprise it will definitely be part of the rate. Council Member Holman: Okay, but non-Enterprise? Mr. Perez: Then it would be absorbed within the General Fund. (crosstalk) Council Member Holman: Absorb is always like a troubling word when you are looking at this. Mr. Perez: Yeah, it’s like your Firefighter and your Police expense. It’s just part of the general fees and taxes that pay for that. Ms. Mason: I guess I would just say that when the fleet, when we have a vehicle that is in supportive service to the community, when we set fees we consider that as part of the cost and we didn’t do, you know, the cost of service study for Planning, but if there is a dedicated fee to the cost of their service or there is an allocation of the administrative costs, it’s being considered. So it can be General Fund and still have a cost. Council Member Holman: I’ve just never noticed that this was integrated into the cost of services. Mr. Perez: Yes, it is just like the commodities, (crosstalk) gas, water… Ms. Mason: It’s part of your internal services, technology. Council Member Holman: Okay, alright, good. Council Member Schmid: Cory. Council Member Wolbach: So it looks like the Policy went into effect on March 3rd. Is that correct? Ms. Mason: The updated policy. Council Member Wolbach: Yeah, the updated policy, okay. How long ago was the Fleet Review Committee formed? How long has that been in effect? I guess I missed that, if that was in there. Mr. Perez: Yeah, I’m trying to remember now, because I am part of it. We have been doing it for about four years. I think it was part of an audit recommendation, that there be some oversight. Council Member Wolbach: Okay, and I guess it sounds like through the policy and the Committee, you will probably be having robust discussions about this, but it was already referred to earlier, the question of whether, as we ramp up our Transportation Demand Management as an organization ourselves, do we really want to be shrinking the size of our fleet? I guess I want to defer to Staff and trust that you will make the right decisions with all that in mind. I know that you are very focused on that, but I was just surprised that we were shrinking the fleet while also trying go get more people out of their cars. Ms. Mason: That’s one of the discussions we are having as we are looking for opportunities to increase commute alternatives for our employees and to encourage that, we also need them to know that they have access to vehicles when they are at work to get their work done during the day, to attend meetings, that we provide a guaranteed ride home. So actually Mike Sartor and I were talking about that while these are assigned, we may need to be looking for more flexibility in a City-wide vehicle pool, that the pools may be more flexible as we have more and more people commuting without a vehicle. Council Member Wolbach: That they end up being essentially zip cars for City employees. Ms. Mason: And we may look at some alternatives there too. Mike was going to talk to Jon and Raul, but we just had this conversation yesterday, Mike and I. There are some cities that are doing some dual programs with zip cars. I think we have an account, right? Mr. Juarez: Yes, that’s correct. The City of Palo Alto does have zip. Council Member Wolbach: With actual zip cars, okay. I meant that we were using the pool like a zip car. (crosstalk). Ms. Mason: Right, but I think we are actually going to try and look at the zip car account and perhaps more effectively use it as part of the pool, or someone was telling me that either Oakland or another city, that during the day the zip cars are for the employees’ use and then at night they shift to be for public use, so we are going to look at all different alternatives. Council Member Wolbach: Great, and speaking only for myself, at this point I am totally ambivalent about which way you end up going. Again, I want to be differential and respectful of the process that Staff is clearly engaging in and just to encourage that you will make the right decisions and let us know if you need any further authorization or if you need clarity on direction if among Staff you get to loggerheads about which direction to go. It sounds like the right discussions and the right process for having those discussions is underway, if I am correct. That’s how it sounds. Mr. Hospitalier: I think your observation is spot on. What we’ve created here now in the Fleet Review Committee and instituted and with the institutional knowledge that Raul brings to the table with his past experience, we are open to looking at anything and everything as far as right sizing the fleet, talking with our clients, our end users of the fleet. Raul has already sat down with the members of Leadership and Utilities, CSD and Planning and the other departments to convey what our policy changes are and to meet with them on a regular basis to talk over their future needs. I’ll give you an example. One of the discussions he has been involved in is bringing into the fleet a hybrid bucket truck configuration over in Utilities. After probably six months of discussion, ultimately and unfortunately, the decision was that that hybrid wasn’t the right choice for their operation, but those are the types of conversations that Raul and I are involved in and we have very much an open mind about tracing down the right tool for the job and still meet Council’s desires and the communities desires for (inaudible) fleet. So, a lot more to come. Council Member Schmid: Cory, do you have anything more? Council Member Wolbach: That was it for my comments and questions at this time. Thank you. Council Member Schmid: Yeah, let me just follow up for a minute. As I recall, when we had this discussion a few years ago, there was talk about maybe outsourcing to one of the local car fleets around here might be interested in providing a service to the City and getting the cars you need when you need them, managing Palo Alto as part of their overall fleet. Was there ever any discussion with car fleets around town? Mr. Perez: There was… Ms. Mason: Well, that’s sort of the zip car conversation in a moderate sense that our contract with zip car would provide flexibility. Mr. Perez: I think I know what you are talking about. A couple of years ago we were looking at sedans and, like, trucks and we had a study done where outfits like Enterprise would come in and provide the vehicles and the maintenance. My recollection from the study that was done a couple of years ago, I think the Staff here I don’t believe participated in, but correct me if I’m wrong, was that it didn’t pencil out. There were some challenges because the vehicles needed to be taken to various facilities. It wasn’t a central facility to get, for example, the oil changed in your car and the tire rotation. They had agreements with different outfits throughout the City, so you would have to make appointments, so it just became a little more of a challenge setup. But that was a couple of years ago and maybe there is stuff we need to look at as we go forward. We will definitely keeping our eyes open. Council Member Schmid: I guess the other notion is we move into the digital world, that cars are on call. One of the things I noticed is the cars are really dispersed around town, one here, three here, two there, and that must mean a lot of down time where you need a car on site that is not being used all the time. Is there any way of setting up an app where you can say, “My calendar, I’ll need a car at 10:00 here and 2:00 there and 3:00 here?” Mr. Perez: Let me start it and you guys can add, at the same time that we were looking at the outsourcing of the vehicles, we actually procured a system, a software system that was supposed to make it on line, because right now it is very manual, and correct me if I’m off here because it has been a little while since I talked to you guys. The idea was that we could go on our system and see where the cars are available and then you go to the system, punch in the code you got for the reservation, the key would drop, you would hit the key and go. It ended up that it just wasn’t working. Staff had to leave the door unlocked so they could grab the keys. It became a (crosstalk). Mr. Hospitalier: The problem was that our Staff’s demands are really, it’s an on-demand type of thing. I’ll give you an example. One thing that I experienced before I was in this capacity, I was a Manager of Maintenance Operations over in the (inaudible) section, and in the middle of the night on a stormy night our Storm Electrician, his van developed mechanical problems so I tried to go onto this system and check out one of the pool vans so I could get him back out to the site where we were having difficulties to make these repairs, and I keyed it up so that it would release the keys to me in this sophisticated lockbox assembly that was on the side of the building at a certain time, walked over to the building. It wouldn’t release it. I walked back to the next building, punched in the information again, go back to it. I wouldn’t release the key. I ended up on the phone with the assistant fleet manager at the time. I need to get into your shop, I need to get these keys, we have an emergency. That was kind of the straw that broke the camel’s back with that system. It wasn’t real time. Council Member Schmid: Yeah, you need 24/7 and a very decentralized system. Mr. Perez: We do need to continue exploring because, as you mentioned, technology is evolving. If we are going to get employees out in the cars we have to make it convenient, because we are a society of convenience and if you look in here and see there is a car available, I’m more likely to car pool, knowing that I know where there is a car. Council Member Schmid: And the customers around town need services and have to get there. Chair Filseth: How much does a car cost the City? I mean, what… You guys probably did this already, right, when I was outside there. What does a car cost? Mr. Hospitalier: You’ve got the right guy here to answer that question. Mr. Juarez: It varies. It depends on the model and… Chair Filseth: How old it is… Mr. Juarez: Yeah, the older the vehicle the more costly it is, and that is really the size of fleet management that you have to know when to hold them and when to (crosstalk) yeah, because that is, you know, I just listened to the presentation on retirement and funding and all that, so my job is to make sure that I am a good store of the taxpayers’ money and making sure that I provide a good, safe vehicle to the City, but it’s not costing an arm and a leg. Chair Filseth: But you must have a number for how much a car costs per years. Mr. Juarez: Well, a Honda Civic CMG 2012 is very inexpensive maintenance and operations wise, but you’re depreciating the initial investment, so a vehicle costs the City like $1,200 a year or, what is it, $120 a month is the average maintenance and operations costs. (crosstalk) Chair Filseth: Does that include fuel? Mr. Juarez: Yes, compressed natural gas. Chair Filseth: Insurance. Mr. Juarez: Well, we are self-insured, the City is self-insured and we pay tax when we buy the vehicle but we don’t pay the tax because we are an exempt City. Chair Filseth: Right, and then how long do you depreciate (crosstalk). Mr. Juarez: Ten years is the average life span of a vehicle. It can go more if it is well taken care of and maintained. We have vehicles that are 18… Chair Filseth: I saw you have some 1998... (crosstalk) Mr. Juarez: See, you hold onto something long enough, then it starts to… Chair Filseth: So well let’s see, it depreciates over ten years, so if it’s a Prius and its $30,000, $35,000 a year, then you are looking at $3,000 a year in depreciation? Mr. Juarez: That sounds about correct. Chair Filseth: And then you have to finance the $30,000 too, so that’s like $1,000 a year or something like that? Mr. Juarez: Yeah, there’s a lot of models because, you know, it depends on what model you look at. I know, Dr. Schmid, he has a Ph.D…(crosstalk). You know, the money you invest in that vehicle, had you not invested in that vehicle but invested in stocks and bonds or whatever…(crosstalk). So yeah, it depends on what model you want to use to justify the total expense. You know, generally speaking most off the internet the depreciation schedules don’t really show those types. Council Member Schmid: Let’s see, you have 11 different sites with cars. Is there one which is sort of more troublesome, either because cars aren’t used very effectively or they need more cars than others. Mr. Juarez: You counted 11, but actually it’s only five. It’s repetitive because, see the MSE, 3201 East Bayshore, which is where we were, there are three buildings, so those three building… Council Member Schmid: Can share. Mr. Juarez: Well, the whole City can share, but strategically they are located like here in Hamilton we have 350 employees that work out of this building, and there are eight vehicles assigned to this building, so out of the 350 employees that work here, eight vehicles are at their disposal, and they are in different levels of the building. Council Member Schmid: And you’re comfortable that you don’t get calls saying, “I need a car and there are none here?” Mr. Juarez: Sometimes I do. Sometimes I do get calls requesting…But most of the time where these vehicles come in handy, and really you go down the line and even in this building, Utilities, the Director of Utilities who left, she had to go to Sacramento on a monthly basis to attend the Public Utility Commission meetings, so her old Prius was replaced with a new Prius, and I took the old Prius and I put it in the MSC and it’s a great car. It gets 50 miles per gallon, low cost to maintain. I try to, as a fleet manager, get rid of the ones that are costing the City the most money. They are old and they pollute more. They won’t even pass, some won’t even pass the smog test, so that’s… Council Member Schmid: And you’re comfortable with 27? Mr. Juarez: Actually, I’m reducing that number by three. Council Member Schmid: So that would be 24. Mr. Juarez: 24, right. Chair Filseth: Maybe this is a dumb question, but I remember last year when we went through this in May, the number of passenger cars was a lot higher than that, and I assume there is a pool, but then there are some that aren’t in the pool that are another category. What is that? Mr. Juarez: Well, Police, every officer has an assigned vehicle, although I meet with the Sergeants and we go over the mileage, so even though they have assigned vehicles, I try to rotate them so that all the vehicles are the same year are the same mileage, and you don’t have one that is underutilized, because I let them know, if you aren’t going to use it, you can’t justify having it. It’s that simple. Chair Filseth: I mean, is there a fleet that is different from the pool, like it’s a Building Inspector or something like that, who is using it all the time, so they are not using a pool vehicle? Mr. Juarez: Yes, there are assigned vehicles to an employee, if you will, that’s correct. Chair Filseth: Go ahead. Council Member Wolbach: Then the same thing for Utilities, all the Utilities’ maintenance vehicles and Public Works maintenance are still considered part of the larger fleet, but not part of the pool. Correct? Mr. Juarez: Well, they are assigned to a manager, and then the manager runs the department and then that department basically utilizes the number of vehicles in their department to do the job that needs to be done. Like in Public Works the street crews, they need big trucks, dump trucks for material, paving the roads, concrete work… Chair Filseth: That’s a different kind of vehicle, right? Mr. Juarez: Right, that’s a Class 7. Chair Filseth: But that wouldn’t be part of the pool. Mr. Juarez: No. Chair Filseth: I’ve seen the City truck that drives and waters trees, it’s kind of cool. That’s not part of the pool, right? Mr. Hospitalier: That’s assigned to our Forestry Section. Mr. Juarez: No. We’ve been renting a water truck. It’s been going on for, well since the drought took place. We have an older water truck that will be replaced in the next fiscal year, FY 2017. It is a 2,000 gallon water truck. The rental comes in handy so we can water more trees and those water trucks run about $102,000. Mr. Hospitalier: I think it is important also to let you know, just because those larger utility vehicles seem to be assigned to one department, there is a lot of horse trading that goes on behind the scenes with the managers. When there is a special project over in Utilities a Public Works truck may be over in Utilities and be in use by that group, maybe with or without an operator. It depends on who has the priority issue at whatever time. Public Works has borrowed large dump trucks from Utilities, backhoes. Utilities has come over and approached us for the grinding equipment that we have for resurfacing the streets, bobcats, you know, so it works out really well because we save a lot of money on renting special equipment. Utilities doesn’t need what Public Works has all the time, but they may have a need once in a while and vice versa. Chair Filseth: So what does somebody do if they need a car and there isn’t a car. You said sometimes there isn’t a car. What do they do then? Mr. Perez: They could use their own vehicle and get mileage reimbursement if it gets to that point. Mr. Hospitalier: Or we could set up a rental if it’s something that’s long-term. The intention of the pool is for those areas, those work areas that I spoke of earlier that have vehicles eliminated as permanently assigned to specific staff to bring those numbers down, and to fully utilize the vehicles. Then we have the pool at the MSC that is right outside of Raul’s office that is used as a substitute, as a loaner when their other vehicles are going in for service, and it’s going to take us a couple of days to do whatever procedures necessary to fix that vehicle and we provide them with that pool vehicle much like you would if you had a new car and you had to have it serviced and you got a loaner. Chair Filseth: You guys don’t use Uber or anything like that? Mr. Hospitalier: Well, not yet. Chair Filseth: I don’t see the City cars with a moustache. Mr. Hospitalier: Well, not yet. (crosstalk) Not yet, and like I said, part of that, I think the reluctance to head down that road, no pun intended, is that so much of what we do is so on demand. You know, I can speak from experience with working up on the sixth floor and working out at the MSC, things come up and if you don’t have a vehicle that is available for those incidental field meetings, for an engineer to get out there and solve a problem immediately, that equates to dollars lost for the City. If we are asking our employees to chase down an Uber, from my experience where I’ve used it quite a bit, it seems like it is great at first glance. I don’t know if you have used it or not, but it does take time for someone to show up, pick you up, and it does take time once you get to your destination, conduct your meeting, to have somebody come back out and pick you up and get you back to where you need to go. That would equate to some lost time. Council Member Schmid: You guys can just call City Council members. (crosstalk). Eric, in your absence I guess we are just reviewing, so there is no need for a motion to come out of this. Council Member Holman: Is this going to Council or when? Mr. Perez: No, it was a Finance Committee review or request to follow up. Chair Filseth: Probably caught up in the budgeting process. Mr. Perez: So if you’re satisfied with the responses we will consider this completed. Mr. Hospitalier: I would just like to close with an opportunity for you folks. I talked with the City Manager about it and he’s been open to it and I want to offer this to you. If you have any desire to come out and see our fleet operations, see what Public Services does, I’m sure we could arrange a tour, a field trip. I see a lot of value in you knowing what we are spending a lot of money on, and it would be beneficial for everybody, I think. Council Member Schmid: Yeah, it was just good to have an evening like tonight to hear what’s going on, how you’re doing and to see you get down to 24. That’s helpful. Chair Filseth: Gentlemen, thank you very much for coming in, for staying here until 9:00 at night. NO ACTION TAKEN Future Meetings and Agendas Chair Filseth: Future meetings. Lalo Perez, Chief Financial Officer: We have April 19th as our next scheduled meeting. We have a 7:00 start. We have the Water Financial Plan and rate adjustment. Same for the wastewater, storm drain and the refuse fund. So those are the four items for the 9th. Council Member Schmid: And that is scheduled for 7:00. Mr. Perez: That’s correct. Yeah, the third Tuesday we switched to 7:00. Council Member Holman: Can I ask a question about the fourth one there. Is there anything incorporated in that about how both residential and commercial refuse and compost and recycling customers can combine with others. So for instance, it’s like, and Tom (inaudible) and I have talked about this a fair amount and I know Russ Cohen is also aware of it, so there are a number of alleys downtown for instance, where there are an unbelievable amount of containers, and I know at least in one case the neighbors have said, “Okay, I’ll still pay for the service, but we don’t need all these dumpsters here, or all these recycling containers here.” It really helps clean up the alleyways, and the same thing is true even on my block, there are so many garbage and recycling cans and they are just totally unnecessary. The people don’t use them on the same parcel even. Suzanne Mason, Assistant City Manager: We can have that definitely addressed when the rates are provided, but I didn’t think we paid for recycling. I thought we just paid for the size garbage can you get, and so then the recycling is provided. Council Member Holman: I’m talking about containers and combining them, whether we pay for them or not. Ms. Mason: I’m just saying fee wise. Mr. Perez: I see your point. Council Member Holman: But also for residential or multi-units on the same parcel. Mr. Perez: I don’t know the answer but I will relay your question. Council Member Holman: It will not be a… Ms. Mason: Do you know, in my multi-unit place, we decide how many recycling and green waste and we share them. But we do end up with a garbage can for every unit because we pay for garbage by unit, which I thought was silly, but… Council Member Holman: It is. Ms. Mason: But I got the little one (crosstalk) Council Member Wolbach: Probably because we want to discourage garbage and encourage… Ms. Mason: There are a lot of cans in my backyard. Council Member Holman: It’s just not necessary because we have so little garbage. Mr. Perez: I’ll pass on your comments. (crosstalk) And that’s it for the 19th. The other thing I wanted to do was give you a reminder of your May budget hearings. (crosstalk) Chair Filseth: This is great. Council Member Schmid: So no changes? Council Member Holman: Last time we did. We did the 25th. Council Member Schmid: That’s right, it is different. Mr. Perez: Yes, the 25th was the new wrap-up night. Council Member Holman: You know what, that is worse for me than the 24th, so we were talking about… Hang on a second. We were on the 24th before, weren’t we? (crosstalk) Mason: The 26th or 31st. Council Member Holman: I’m sorry, I thought we were looking to see what Jim’s for-sure dates were and then what the options were for the other, and I didn’t hear anything back, so the 25th is actually worse for me than the 24th. Mr. Perez: So do you want to go back to the 24th? Council Member Holman: Well, the 24th is not good, but the 25th is right in the middle of my… Ms. Mason: I think we were saying Jim was going to be out on the 19th and we wanted to make sure he was at the wrap up. Did you confirm that? Mr. Perez: Yeah, so what I had on my notes is the 24th was not good for you, but the 25th, 26th would work better, so we… Council Member Holman: Actually, that was a misunderstanding so, actually, you know, because I was actually away the 24, 25, 26, and so… Ms. Mason: I have the 26th was good too. Mr. Perez: I know that some of the department heads cannot make the 26th. Council Member Holman: Well, it’s not good for me either, so the 24th is better for me than the 25th. That’s right in the middle of… Council Member Wolbach: What about the 23rd? I don’t see… Council Member Holman: That’s Monday. Mr. Perez: You are being polled for a Council meeting that night, I know that. I just saw a note, because the agendas are so loaded. So it sounds like it is back to the 24th. Council Member Holman: Apologies for misunderstanding. Mr. Perez: So May 24th, everybody okay with that? Council Member Holman: No, but… Council Member Schmid: That’s an important meeting, that’s a wrap up. Mr. Perez: The other thing we can do, Jim suggested this, is if anything is a challenge, consider what you did last year, which was have day meetings, if that’s a better fit. Council Member Schmid: Would that be better for you, Karen? Council Member Holman: Yes. Council Member Schmid: So you’re out. Chair Filseth: Was that a yes to a day meeting or yes, you’re gone? Ms. Mason: The wrap-up meeting is going to be a long meeting. Council Member Wolbach: Are you available earlier in the day on the 24th, or are you traveling? Chair Filseth: She’s traveling. Council Member Wolbach: My question is, when do you start traveling? Council Member Holman: How long do you expect that to be on the 24th, the wrap-up meeting? Mr. Perez: It’s hard to say right now, with… Chair Filseth: The wrap-up meetings were long, I remember. Mr. Perez: It can be because you have a big parking lot. Council Member Holman: When will we know if there is a meeting on the 23rd or not? Ms. Mason: With Beth being gone until Tuesday, I’m going to say probably not until Tuesday at the earliest. Council Member Holman: Okay. Ms. Mason: Well, originally one of the discussions was the 19th. Oh, I see, we had the 19th and the 24th. Ms. Perez: Jim’s out the 19th. (crosstalk) Chair Filseth: Okay, as of now there is no Council meeting scheduled for the 23rd, right. Ms. Mason: So we schedule the Finance Committee… Council Member Holman: Which would be ideal. Chair Filseth: I mean, it is sort of half in jest, right, but it’s really hard to do what if this, what if that with this kind of stuff, right? Council Member Holman: Let me ask the question, on the 23rd, which is Monday, right, if we did something in the afternoon, like 3:00 and hopefully could conclude before, if you did end up, it would be a long day. Council Member Schmid: What about 1:00. That gives you a good four hours, five hours. Mr. Perez: Because you need time to eat. Council Member Holman: And go run around the block. Mr. Perez: Okay, we will look at the 23rd. Council Member Wolbach: A day meeting? Chair Filseth: A day meeting on the 23rd. Council Member Holman: That would be good. Council Member Wolbach: I am currently okay with that too. Mr. Perez: Okay, we will work on that and if there is any challenge I will let you know. Council Member Holman: Apologies for misunderstanding. Mr. Perez: Thank you so much. That’s probably good enough for that? Let me speak about something real quick. On the 25th what Jim is going to do is give you a summary of his message, the budget message. You will receive as a Council the budget document that evening, so it will probably be a short presentation and defer the discussion to the Finance Committee and eventually back in June to the Council. Then on the first meeting on the third of May, I think at that point we can set up whatever process you want to use. What will it take to put in the parking lot, for example, does it take two of you, one of you. So that is the kind of stuff you might want to be thinking as a Committee, with the structure you want to set up to establish a parking lot, because we will have everything as a tentative approval until you do your final wrap up. That’s all I have. Council Member Holman: Good. Chair Filseth: With that, we are at the end of the Agenda, so the meeting is adjourned. Adjournment: The meeting was adjourned at 9:17 P.M. TRANSCRIPT 2 Transcript 04/05/2016 Finance Committee Meeting FINANCE COMMITTEE TRANSCRIPT 1 Draft Action Minutes 04/05/2016 Finance Committee Meeting