HomeMy WebLinkAbout2017-09-19 Finance Committee Agenda PacketFinance Committee
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Tuesday, September 19, 2017
Regular Meeting
Community Meeting Room
7:00 PM
Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in
the Council Chambers on the Thursday 10 days preceding the meeting.
PUBLIC COMMENT
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Call to Order
Oral Communications
Members of the public may speak to any item NOT on the agenda.
Action Items
1. Utilities Advisory Commission Recommendation That the City Council
Approve Policy Objectives for the 2017 Wastewater Collection Utility
Cost of Service Analysis
2. Discuss and Recommend the City Council Adopt an Ordinance
Amending the Fiscal Year 2018 Municipal Fee Schedule to Reflect
Development Services Cost of Services Study and a Reserve Fund
Policy
3. Review and Discuss CalPERS Pension Annual Valuation Reports as of
June 30, 2016 Including Assumptions, Financial Disclosures and Next
Steps
Future Meetings and Agendas
Adjournment
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2 September 19, 2017
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE.
DURING NORMAL BUSINESS HOURS.
Finance Committee Items Tentatively Scheduled
Meeting
Date
Line
No.
Item Title Referral Date
10/17/201
7
1 Paid Parking Study Recommendations (Planning)
2 Review and Recommend Strategies to Address the City’s Unfunded Pension
Liability (ASD)
11/7/2017 3 Human Relations Commission Recommendations for Fical Year 2018-19
Human Services Resource Allocation Process Funding - Additional Allocation
(Community Services)
11/21/201
7
4 Transportation Impact Fees (Planning)
5 Hydroelectric Variability Management Strategy (Utilities)
12/5/2017 6 Presentation of FY2017 CAFR (ASD)
7 Long Range Financial Forecast (ASD)
City of Palo Alto (ID # 8385)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 9/19/2017
City of Palo Alto Page 1
Summary Title: Wastewater COSA Design Guidelines
Title: Utilities Advisory Commission Recommendation that the City Council
Approve Policy Objectives for the 2017 Wastewater Collection Utility Cost of
Service Analysis
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Utilities Advisory Commission (UAC) request that the Finance Committee
recommend that the City Council approve the Policy Objectives for the 2017 Wastewater
Collection Utility Cost of Service Analysis (Attachment A)
Executive Summary
Wastewater Collection rates were last adjusted when a 9% rate increase went into effect on
July 1, 2016.1 The last cost of service analysis (COSA) for this utility was completed in 2011.
Staff intends to complete a Wastewater Collection COSA in FY 2018 in advance of a projected
rate adjustment on July 1, 2018. The primary goal of the COSA will be to review the allocation
of costs to customer classes and the Wastewater Collection rate design to ensure customers are
charged according to the cost to serve them. This report discusses the existing rate design,
gives an overview of the issues to be addressed in the COSA, and presents the proposed COSA
policy objectives to guide staff and the consultant in completing the Wastewater Collection
COSA.
The UAC reviewed these guidelines at its meeting on August 2, 2017 meeting, and unanimously
recommended approval of the guidelines.
Background
A COSA is used to equitably and reasonably allocate a utility’s costs across the customer groups
served. A COSA includes a Rate Study, which sets the retail rates for specific customer classes.
COSAs support the development of fair and reasonable rates and serve as a complement to the
annual financial planning and budgeting processes. Through the financial planning and
1 Staff Report 6690 http://www.cityofpaloalto.org/civicax/filebank/documents/51813
City of Palo Alto Page 2
budgeting process the City determines its objectives for a utility (e.g. maintenance objectives,
customer service objectives, infrastructure replacement plans), estimates what it will cost to
achieve those objectives, implements cost control measures or process efficiency measures
where feasible, and proposes adjustments to its annual budget and utility rates. The COSA takes
this annual operating budget and determines how much of the cost should be allocated to each
customer class, establishing pricing structures to ensure the cost of serving each customer
matches the price they pay for the service. Note that this annual operating budget includes
both wastewater collection costs and Palo Alto wastewater customers’ share of the cost of
operating the Regional Water Quality Control Plant (RWQCP). The determination of Palo Alto’s
share of RWQCP wastewater treatment costs is made using a formula established under the
contracts among the agencies participating in funding of the RWQCP, and is simply an input to
the COSA process rather than a subject of the COSA.
The FY 2018 Wastewater Collection Utility Financial Plan2 projects the need for a 7% rate
increase on July 1, 2018. The current rates are based on a COSA performed by Utility Financial
Solutions (UFS) in 2011.3 COSAs are typically updated every three to seven years, or when there
are significant changes in the utility’s costs, customer base, or other factors. As California is
exiting a multi-year drought, and customer water usage is starting to stabilize at lower levels
than before the drought, it is a good time to evaluate whether customer sewer outflows have
changed as well. In addition, Wastewater Collection Utility expenses have changed in recent
years. Whether or not these changes have resulted in the need to adjust allocations of costs
between customers is unknown, but will be evaluated as a part of the COSA analysis.
Discussion
The following sections provide a review of the current rate structure, a discussion of rate design
issues affecting the utility, and the proposed set of policy objectives to guide the COSA.
Summary of Existing Rate Structure
CPAU has three sewer rate schedules: one for residents (S-1), one for commercial customers
(S-2), and a special schedule for restaurants (S-6), which discharge higher than average
amounts of grease and oil and, therefore, have a greater impact on the sewer system.
Residential customers (S-1) are billed a monthly service charge, while most commercial
customers (S-2) are billed based on their winter month water usage (January through March).
This closely approximates non-irrigation water consumption, which is a good proxy for actual
sewer use, since nearly all non-irrigation water is discharged to the sewer. Restaurant
customers (S-6) are billed based on monthly water usage.4 CPAU also maintains a rate schedule
for those industrial dischargers (S-7) whose discharge requires monitoring for specific
2 Staff Report 7855 http://www.cityofpaloalto.org/civicax/filebank/documents/56659
3 Staff Report 1399 http://www.cityofpaloalto.org/civicax/filebank/documents/26410
4 Note that unlike other commercial customers, restaurant water use is not based on winter water consumption.
This is because water use in restaurants is primarily process related (cooking, restrooms), meaning that month to
month variation typically represents variations in business water needs, which impacts the sewer, rather than
irrigation, which does not.
City of Palo Alto Page 3
pollutants, but there are currently no customers required to be on this rate schedule. Table 1,
below, summarizes the current rates for all customer classes.
Table 1: Current Wastewater Collection Rates
Current
(as of 7/1/2016)
Monthly Service and Minimum Charges ($/month)
S-1 (Residential) Service charge $34.83
S-2 (Commercial) and
S-6 (Restaurant)
Minimum $34.83
Quantity Rates: based on water usage
S-2 (Commercial) $/CCF 6.71
S-6 (Restaurant) $/CCF 10.38
S-7 (Industrial) $/CCF 3.08
COSA Policy Objectives
In the past, the UAC and Council have expressed concern about having limited ability to make
changes to proposed rate structures once a COSA is completed. Therefore, staff has committed
to having policy discussions with the UAC and Council prior to embarking on a COSA. For this
COSA, staff has a limited set of policy objectives (Attachment A) to guide the development of
the next Wastewater Collection COSA. The proposed objectives are:
Objective 1. Rates must be based on the cost to serve customers. This is the overriding
principle for the cost of service analysis (COSA); all other rate design
considerations are subsidiary to this basic premise.
Objective 2. Examine the feasibility of a separate flat rate for multi-family dwelling units.
Objective 3. Evaluate the impact of proposed rate designs on low income customers and
mitigate if feasible.
Objective 1: Rates must be based on the cost of service
The goal of a COSA is to identify the costs associated with serving each customer class and the
rates required to recover those costs. The California Constitution requires property-related fees
such as municipal wastewater collection rates to be based on the utility’s cost to serve its
customers, or else they are considered a tax subject to 2/3 voter approval. Thus, the COSA is an
important tool to design and support utility rates that are based on the cost of service. As a
result, this guideline must be the primary and overriding one for the COSA.
Objective 2: Consider potential updates to existing rate schedules
Staff recommends evaluating the possibility of differentiating rates by dwelling type (single
family homes vs multi-family dwellings, such as apartments) for the residential customer class.
Customers in apartments, townhomes, etc. have occasionally inquired as to whether a lower
City of Palo Alto Page 4
rate could be created for smaller dwellings, as they theoretically have less discharge to the
sewer than a larger home.
The COSA will also examine separate multi-family dwelling wastewater collection rates. While
some neighboring agencies offer this type of rate structure, it can present challenges since
most multi-family dwellings are master-metered, complicating assessment of individual water
use (and therefore sewer discharge). Recent surveys of the number of units served by master-
meters may allow for meaningful analysis to take place. Any potential for differentiating the
rate must be weighed against increased billing system complexity, as well as additional
monitoring and tracking considerations.
Objective 3: Evaluate the impacts of proposed rate designs on low income customers and
mitigate, if feasible
Tied with the review of residential customer rates, staff intends to evaluate the impact of any
recommended rate design changes on low-income consumers and may recommend mitigation
of those impacts if necessary. Low-income customers may have lower water usage than other
customers, on average, and are more likely to live in apartments, so rate structure changes that
take these characteristics into account may reduce the sewer rate impact on the City’s low-
income population.
Commission Review and Recommendation
The UAC reviewed this proposal at its August 2, 2017 meeting. Staff presented the basic
objectives of the COSA, and requested any comments or concerns that the UAC may have.
Commissioners had general questions regarding how current residential flat rates relate to
water consumption. Staff noted that residential rates are based on class averages and
estimations of ouflow based on water usage rather than individual customer use.
Commissioners also asked whether house size, number of fixtures, or occupancy impact
wastewater outflow, and how irrigation was factored into the analysis. Staff noted that these
factors indirectly affect water use and therefore would be considered in the COSA analysis, and
that irrigation is separated from indoor usage by analyzing customer class average winter
usage, when irrigation systems are typically turned off.
The UAC voted to recommend that the Council approve the proposed Wastewater Collection
COSA guidelines. The vote was unanimous (5-0, Commissioners Segal and Ballantine absent).
The draft excerpted minutes from the UAC’s August 2, 2017 meeting are provided as
Attachment B.
Next Steps
After receiving the Finance Committee’s recommendation, staff will take the COSA policy
objectives to the City Council for consideration. The COSA is expected to be completed by the
City of Palo Alto Page 5
spring of 2018 so that updated rates can be adopted as part of the FY 2019 budget process to
be effective on July 1, 2018.
Resource Impact
The work associated with this project will be absorbed using existing staff and contract budgets.
The new rates adopted as a result will be designed to generate adequate sales revenue to fund
the Wastewater Collection utility’s operations in FY 2019. As discussed in the FY 2018
Wastewater Collection Utility Financial Plan (Staff Report 7855), preliminary projections show
that the utility may need roughly 7% more sales revenue in FY 2019 than is generated by
current rates. Expenses are projected to exceed revenues, with reserves being used to
moderate customer impacts as rates are brought to parity over several years. Costs in general
are projected to increase due to inflation. For more detail on these projections see the adopted
FY 2018 Wastewater Collection Utility Financial Plan.
Policy Implications
The process of adopting these policy objectives provides the UAC and Council an opportunity to
provide policy guidance to staff before work begins on the COSA.
Environmental Review
Adoption of the Policy Objectives for the 2018 Wastewater Collection Cost of Service Analysis
does not meet the definition of a project, under Public Resources Code Section 21065 and
CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity
which will not cause a direct or indirect physical change in the environment, thus no
environmental review is required.
Attachments:
Attachment A: Proposed Policy Objectives for the 2018 Wastewater Collection Cost of
Service Analysis
Attachment B: Draft Excerpted UAC Minutes of August 2, 2017
ATTACHMENT A
Policy Objectives for the Wastewater Collection Utility Cost of Service Analysis
Objective 1. Rates must be based on the cost to serve customers. This is the overriding
principle for the cost of service analysis (COSA); all other rate design
considerations are subsidiary to this basic premise.
Objective 2. Examine the feasibility of a separate flat rate for multi-family dwelling units.
Objective 3. Evaluate the impact of proposed rate designs on low income customers and
mitigate if feasible.
EXCERPTED DRAFT MINUTES OF THE AUGUST 2, 2017
UTILITIES ADVISORY COMMISSION MEETING
ITEM 3: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that the City
Council Approve Policy Objectives for the 2017 Wastewater Collection Utility Cost of Service Analysis
Senior Resource Planner Eric Keniston presented three general objectives for the proposed Wastewater
Collection Cost of Service (COSA) study, and asked if the commissioners had any additions, comments or
concerns they wanted addressed in the study.
Commissioner Johnston supported the staff recommendation.
Commissioner Trumbull asked staff to clarify how sewer rates were charged.
Keniston noted that residential customers were charged a flat rate, based on class averages, while non-
residential customers were charged a rate based on water consumption. As not all residential units charged
for wastewater are billed directly for water, such as in apartments, tying sewer bills to water usage has not
been feasible in the past. This could be evaluated for the future.
Chair Danaher asked staff to confirm that one goal of the study was to determine if here could be different
class averages for different types of customers.
Keniston affirmed this.
Commissioner Schwartz asked if a larger house with more plumbing fixtures may have a different rate than
a smaller home, and whether the difference between rates would be large or small.
Keniston replied that low water usage months would be the proxy for outflow, and allocations would be
evaluated based on that.
Commissioner Schwartz stated she was a proponent of having allocations to smaller homes be smaller than
to larger homes.
Councilmember Filseth asked whether landscaping and irrigation were included in wastewater calculations.
Keniston mentioned that these were factored out when performing calculations.
Abendschein stated that census figures show that multi-family residences have fewer people on average,
and thus lower indoor consumption.
ACTION: Commissioner Danaher made a motion to recommend that the Utilities Advisory Commission
recommend that the Council approve the Policy Objectives for the 2017 Wastewater Collection Utility Cost
of Service Analysis. Commissioner Trumbull seconded the Motion. The motion carried unanimously (5 - 0)
with Vice Chair Ballantine and Commissioner Segal absent.
ATTACHMENT B
City of Palo Alto (ID # 8437)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 9/19/2017
City of Palo Alto Page 1
Summary Title: Development Services Cost of Services Study Phase Two and
Reserve Fund Policy
Title: Discuss and Recommend the City Council Adopt an Ordinance
Amending the Fiscal Year 2018 Municipal Fee Schedule to Reflect
Development Services Cost of Services Study and a Reserve Fund Policy
From: City Manager
Lead Department: Development Services Department
Recommendation
Staff recommends that the Finance Committee recommend that the City Council adopt an ordinance
(Attachment A) to adopt a reserve policy for the Development Services Department (Attachment B) and
amend the Fiscal Year 2018 Municipal Fee Schedule to adjust the Development Services Municipal Fees
(Attachment C), based on the completion of Phase Two of a Cost of Services Study.
Executive Summary
The Development Services Department (DSD) has completed Phase Two of a Cost of Services Study
which analyzed construction project fees that are determined by the value of the project, otherwise
known as valuation based fees. In addition to updating fees based on this study, DSD is recommending
the implementation of a reserve policy to ensure operational continuity and provide City Council with
alternative funding options during unpredictable financial periods.
Background
In 2015, the DSD retained the services of Capital Accounting Partners (CAP) to complete a cost of
services study in two phases. This was the first cost of services study for development fees to come after
the DSD was created in 2012 as an outcome of the City Manager’s “Development Center Blueprint”
project. The goal of the project was to restructure and adopt a more holistic approach to integrated
development review, permitting services, and staff coordination in order to improve organizational
efficiencies and minimize unnecessary costs and delays to property owners and developers. DSD is made
up of key representatives from various different departments including the Planning and Community
Environment, Public Works, Utilities, and Fire Departments. DSD works closely with these departments
to ensure efficient, predictable, and transparent compliance with all development related construction
regulations. DSD is responsible for post entitlement activities on private property. It does not oversee or
have authority over the entitlement phase of development or construction occurring within the City’s
right of way such as streets or sidewalks. DSD does support construction of City facilities; however,
these projects also pay fees for DSD services similar to city facilities paying for utilities.
City of Palo Alto Page 2
A new cost of services study was prudent for several reasons. First, DSD is a relatively young City
department with a new management structure. Second, DSD is using more technology solutions to
provide services than the City previously had. Third, changes to the uniform building codes and the
City’s local amendments (e.g. green building and electrical codes) have added new and complex
functions to the DSD in recent years. Finally, in 2015, the City Council adopted a policy of full cost
recovery for DSD services. CAP determined the cost of doing business for non-valuation based fees in
Phase One and is now presenting the results of the valuation based fees and a reserve in Phase Two.
Phase One was presented to the Finance Committee on November 15, 2016, where members discussed
and recommended that the City Council adopt an ordinance amending the Development Services
Department’s Municipal Fee Schedule. Committee members expressed concerns about the increase in
fees as related to low income citizens, requested information about comparing the new fees to existing
fees for a standard project and questioned if the some of the proposed fees were higher than the
product or fixture, therefore leading to citizens to not request a permit. Committee members also
briefly discussed the concept of a reserve policy but were reminded that the topic of reserve would
return as part of the Phase Two. The Committee approved the staff recommendation with a 4-0 vote
and advanced the recommendation to City Council.
On December 12, 2016, the City Council held a public hearing to adopt the ordinance amending the
Fiscal Year 2017 Municipal Fee Schedule to reflect the DSD cost of services study and the Fiscal Year
2017 annual adjustment. At this meeting, staff addressed the Committee’s concerns about support for
fixed or low income citizens. Additionally, staff provided a standard service cost comparison using old
fees versus new fees. Council members discussed the notion of the new fees being higher than the
product or fixture, therefore leading to citizens to not request a permit. Council discussion also led to
questions about the definitions of “project” vs. “maintenance” as well as about the impact of special
event fees. With an 8-0 vote, Council adopted the ordinance to update the Fiscal Year 2017 Municipal
Fee Schedule to adjust DSD municipal fees, based on the cost of services study and adjusted the annual
inflator applied to municipal fees from Fiscal Year 2016 to Fiscal Year 2017, with the exception of fees
that could impact community events. Council directed staff to return to the Finance Committee with a
definition of a “project” versus “maintenance” and an analysis about the community (special event)
fees.
On June 19, 2017, staff advanced an informational report to City Council clarifying the definitions of
“project” and “maintenance” based on the California Building Code. Additionally, staff informed City
Council that the special event fees will not be adjusted and will be reviewed within the context of the
Special Event Application process led by the Police Department. The staff reports from aforementioned
meetings are attached.
Discussion
City Council’s action in 2016 implemented Phase One of the cost of services study. In this phase non-
valuation based or “flat” fees were adopted and implemented in March 2017. The Phase One study
conducted by CAP for non-valuation fees utilized an activity-based costing model to calculate the full
cost of providing specific services. This methodology identified activities in DSD and assigned the cost of
each activity with the resources to all services according to the consumption by each. The model
assigned a direct and indirect cost to each fee and as a result, the fees were calculated at full cost
recovery. This is in line with City Council’s May 18, 2015 adoption of the User Fee Recovery Level Policy.
City of Palo Alto Page 3
Phase Two of the study targets the valuation based fees as well as recommends implementing a reserve
fund for the DSD.
Phase Two of Fee Study
In February 2017, CAP began the Phase Two of the cost services study. The study recommends a more
objective fee model based of the International Code Council (ICC) methodology of calculating fees as
opposed to the current model, which allows the applicant discretion to provide the given valuation of a
project. As noted in the attached report, “construction values can vary even though the cost to the City
in providing plan check and inspection services may not. A traditional example is two custom built
homes. They each have the same floor plan, the same number of bathrooms, kitchens, outlets, etc. One
home is built by a builder of high end homes with the best fixtures available. The other home is built by
a retired relative of the home owner, built with second tier materials and fixtures from the local big box
store. Even though the two homes will require similar plan review and inspection services the two
valuations will be wildly different and thus generate different fees to the City. Using the ICC table
eliminates these differences and establishes a consistent valuation and therefore a consistent fee for
similar projects.” The ICC calculates fees based on construction, occupancy type, and square footage
provides more equity and consistency.
The Phase Two study reviewed and updated the fee schedule; calculated the total cost of fee generating
services; calculated the cost of plan check and inspection services from valuation based fees; reviewed
valuation data to calculate the valuation multiplier; analyzed cost recovery levels; developed a cost
model based on the current organizational structure; reviewed the results with staff; and provided
recommendations or methodologies on how to adjust fees annually.
DSD provided a year of budget expenditure data and nine months of project activity data to CAP to be
used for analysis. Using that data along with the ICC table, CAP calculated the valuation based fees at full
cost recovery. In addition, CAP did the calculation of fees that assumes a reserve as part of the
department’s costs, equivalent to approximately three months of DSD’s operating expenses and built
over a five year period. To further understand the methodology for calculating fees please refer to the
attached ICC Building Valuation Data (Attachment D).
Furthermore, in applying the new methodology to valuation based fees CAP conducted an analysis of
existing non-valuation fees. This analysis led CAP to recommend new non-valuation fees which provides
a more streamline service delivery. These fees are listed in Attachment C. Due to the creation of these
fees and the reallocation of department overhead across the new fees, all non-valuation fees have been
realigned. Additionally, similar to Phase One, Public Works related fees used the Questica Calculator
methodology through the Office of Management and Budget and therefore no changes are being
recommended to those rates at this time. Staff may bring forward additional fee changes during the
Fiscal Year 2019 budget process. Moreover, staff is not recommending a change to the Business Registry
Fee. Staff will return to City Council before December 31, 2017 with an update to the Business Registry
program which may include fee changes. Finally with the recommended creation of a reserve,
adjustments were made to all non-valuation fees to assist in recovering costs associated with the five
year phase in of the reserve.
Reserve Fund
During the November 15, 2016 Finance Committee meeting, the idea of reserve for DSD was discussed.
Committee members questioned the need given that DSD is within the General Fund and that the
City of Palo Alto Page 4
General Fund maintains a reserve. Additionally, Committee members asked about the specific uses of a
DSD reserve. When DSD was developed, the longer term goal was to transition the operations both
centrally for a one-stop shop for customers, but also financially so that all activities would be supported
by the revenues generated. This would potentially result in establishing a special revenue or enterprise
fund. This type of fully cost recoverable operation would normally have a reserve as it would need to
independently manage financials in both positive and negative cycles such as an economic downturn.
Attached is the recommended DSD Reserve Fund Policy (Attachment B). The policy provides a target of
25 percent or three month operating reserve which is established by a five (5) percent fee increase over
a five year period. This will create a balance of $3 to $4 million reserve.
Reserves are the cornerstone of financial prudence and safety. In determining the need for a reserve,
DSD conducted a risk assessment and benchmark research. The results of the risk assessment indicated
that due to revenue volatility, a 25 percent reserve would provide operational continuity, financial
flexibility, and leverage. For example a reserve would allow active continuous improvement programs to
be completed or phased down in an organized fashion. Furthermore it will allow DSD to maintain highly
skilled staff to ensure that key projects stay on schedule which correlates to earlier economic recovery.
With respect to the benchmark research, the results indicated that 100% of government agencies
surveyed have a reserve with one third having a dedicated development services reserve. Finally, a
noteworthy element of DSD is the fact the department has a responsibility to provide services once an
applicant submits a plan.
Given the value of real estate in Palo Alto and the investment citizens and businesses make in their
properties, management strongly believes in a dedicated DSD reserve. The reserve will ensure DSD
continued service delivery during tough times. More importantly the reserve will further stabilize the
General Fund to ensure City services and City Council priorities are managed in an even more orderly
manner.
Resource Impact
The actions recommended in this report would increase the estimated revenue generated by the DSD
valuation and non-valuation fees. Given the changing economic environment and the unknown
potential impacts of the increases on activity levels (estimated to be minor), no adjustment to the
budget is assumed. Revenue collections will be monitored and factored into the annual development of
the budget as data is available and adjustments are found to be necessary.
Environmental Review
Adoption of an ordinance amending Development Services Municipal Fees is not a project for the
purposes of the California Environmental Quality Act (CEQA) and therefore no environmental review is
necessary.
Attachments:
Attachment A - Ordinance of the Council of the City of Palo Alto to Update the Fiscal
Year 2018 Municipal Fee Schedule to Adjust Development Services Department Fees
Attachment B - Reserve Fund Policy
Attachment C - Municipal Fee Schedule
Attachment D - International Code Council Building Valuation Data Table
Attachment E - Capital Accounting Partners - Fee Study
City of Palo Alto Page 5
Attachment F - 6-19-17 Staff Report
Attachment G - 12-12-16 Staff Report
Attachment H - 11-15-16 Staff Report
Not Yet Approved
1
Ordinance No. ____
Ordinance of the Council of the City of Palo Alto to Update the Fiscal Year 2018
Municipal Fee Schedule to Adjust Development Services Department Fees
The City Council of the City of Palo Alto does hereby ORDAIN as follows:
SECTION 1. Findings and declarations.
A. In 2016, the Development Services Department completed Phase I of a fee study to
update certain non‐valuation‐based fees for services, reserving an update of valuation‐based
fees for Phase II of the fee study.
B. In 2017, the Development Services Department completed Phase II of the fee study,
which recommended adjustments to the Department’s valuation‐based fees, the adoption of
an operating reserve, and associated changes.
C. On September 19, 2017, the Finance Committee reviewed the fee study and
recommended adoption of an ordinance updating Development Services Department fees in
accordance with the study’s recommendations, adjusted by the annual salary and benefits
adjustment of 5.5 percent.
SECTION 2. The Council of the City of Palo Alto adopts the Development Services
Department Reserve Fund Policy, as set forth in Exhibit “1” and incorporated herein by
reference.
SECTION 3. The Council of the City of Palo Alto adopts the changes to the Municipal
Fee Schedule as set forth in Exhibit "2" and incorporated herein by reference. When effective,
such fees shall supersede any prior inconsistent fees charged by the Development Services
Department.
SECTION 4. The amount of the new or increased fees and charges is no more than
necessary to cover the reasonable costs of the governmental activity, and the manner in which
those costs are allocated to a payer bears a fair and reasonable relationship to the payer's
burden on, or benefits received from, the governmental activity.
SECTION 5. Fees in the Municipal Fee Schedule are for government services provided
directly to the payor that are not provided to those not charged. The amount of this fee does
not exceed the reasonable costs to the City of providing the services. Consequently, pursuant to
Art. XIII C, Section l(e)(2), such fees are not a tax.
SECTION 6. Effective Date. The fee increases proposed for FY 2017 described in
Exhibit A shall become effective no sooner than sixty (60) days from the date of adoption of this
ordinance.
2
SECTION 7. CEQA. The adoption of user fees is exempt from environmental review
under the California Environmental Quality Act (CEQA). (See CEQA Guidelines Section 15273.)
INTRODUCED:
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
____________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
____________________________ ____________________________
Deputy City Attorney City Manager
____________________________
Director of Development Services
____________________________
Director of Administrative Services
Page 1 of 2
Development Services Department
Reserve Fund Policy
Section 1. Purpose
The purpose of the Development Services Department Reserve Fund (DSDRF) is to build and
maintain an adequate level of unrestricted funds available to cover any unforeseen shortfalls
that arise outside of the regular budget planning process, as well as one‐time, nonrecurring
expenses that will build long‐term capacity The fund may not be used to create or hire new full
time benefited positions. The department intends for the operating reserve to be used and
replenished within a reasonable period of time. This policy will be implemented in conjunction
with the other financial policies of the City and is intended to support the goals and strategies
contained in those related policies and in strategic and operational plans.
Section 2. Definitions and Goals
The DSDRF is a designated fund set aside by action of the City Council. The target of the DSDRF
is equal to three (3) months of average recurring operating costs; with a range of 23 (minimum)
to 27 (maximum) percent with a target of 25 percent of average recurring operating cost.
The DSDRF is dynamic and will be reviewed and adjusted in response to internal and external
changes. In addition to calculating the actual reserve at the fiscal year‐end, the reserve fund
minimum, target and maximum can be adjusted by the Council as necessary each year during
the annual budget development process. These reserves will be reported to the Finance
Committee and City Council.
Section 3. Funding of Reserves
The DSDRF will be funded by a five (5) percent increase to all Development Services
Department fees as listed in the City’s Municipal Fee Schedule beginning in Fiscal Year 2018,
upon City Council approval, through Fiscal Year 2022. The City Council may, from time to time,
direct that a specific source of revenue be set aside for the DSDRF.
Section 4. Accounting for Reserves
The DSDRF will be recorded in the City’s accounting system and financial statements titled as
the Development Services Department Reserve Fund. The DSDRF will be maintained in
accordance with the City’s investment policy.
Section 5. Authority to Use the DSDRF
Authority to use the DSDRF will remain with the City Council. The City Manager will submit a
request to use the DSDRF to the City Council. The Director of Development Services
Department will prepare the report identifying the need for access to the DSDRF and confirm
that the use is consistent with the purpose of the reserves as described in this policy.
Determination of need requires analysis of the sufficiency of the current level of reserve funds,
the availability of any other sources of funds before using reserves, and evaluation of the time
period for which the funds will be required and replenished.
Page 2 of 2
Section 6. Fee or Rate Stabilization
DSDRF may be added to the Development Services Department revenue projections by action
of the City Council and held to manage the trajectory of future year rate increases.
Section 7. Reappropriation of DSDRF
At the end of each fiscal year the DSDRF will be reappropriated to the following fiscal year in
accordance with Palo Alto Municipal Code Section 2.28.090.
Section 8. Relationship to Other Policies
The City Manager maintains City Council approved policies, which may contain provisions that
affect the creation, sufficiency, and management of the DSDRF. It will be the responsibility of
the City Manager and Director of Administrative Services Officer to notify the Director of
Development Services if changes to city‐wide policies impact the DSDRF. These policies may be
City Council approved policies such as the Investment Policy or administrative policies within
the confines of the Municipal Code.
Section 9. Reporting, Monitoring and Review of Policy
The Director of Development Services is responsible for ensuring that the DSDRF is maintained
and used only as described in this policy. Upon approval of the use of DSDRF, the Director of
Development Services and the Director of Administrative Services will maintain records of the
use of funds and plan for replenishment. Staff will provide reports to the City Council within the
annual budget process, or sooner if warranted by internal or external events.
Municipal Fee Schedule
Proposed Fee
Business Registry Fee $50.00
Technology Surcharge
Note: This surcharge will be added to all fees in Development Services.
1.8% per fee
A. $1.00 ‐ $1,000.00 Delete
B. $1,000.01 ‐ $2,000.00 Delete
C. $2,000.01 ‐ $25,000.00 Delete
D. $25,000.01 ‐ $50,000.00 Delete
E. $50,000.01 ‐ $100,000.00 Delete
F. $100,000.01 ‐ $500,000.00 Delete
G. $500,000.01 ‐ $1,000,000.00 Delete
H. $1,000,000.01 and Up
Delete
Building Permit Fee Restructured to be 1.44% of Construction
Valuation based on the ICC Table
I. Building Demolition Permit $498.00
J. Commercial Interior Non‐Structural Demolition Permit $179.00
Commercial and Multi‐Family Projects greater than or equal to $25,000.00 in
Valuation
$305.00
See Above
Current Fee
$412.00 per permit
$1,895.94 for the first $100,000.00 plus $10.63 for each additional $1,000.00 or
fraction thereof, to and including
$500,000.00
$6147.94 for the first $500,000.00 plus $9.03 for each additional $1,000.00 or
fraction thereof, to and including
$1,000,000.00
$10,662.94 for the first $1,000,000.00 plus $7.12 for each additional $1,000.00 or
fraction thereof
If valuation exceeds $5,000,000.00, an alternative fee arrangement may be
established by the Chief Building Official to achieve full cost recovery.
$431.00 (does not include C&D fees) per permit
$196.00 (does not include C&D fees) per permit
Construction & Demolition
Building Permit Fees
$73.00 Base Fee
$73.00 for the first $1,000.00 plus $5.80 for each additional
$100.00 or fraction thereof, to and including $2,000.00
$131.00 for the first $2,000.00 plus $26.53 for each additional $1,000.00 or fraction
thereof, to and including
$25,000.00
$741.19 for the first $25,000.00 plus $19.69 for each additional $1,000.00 or
fraction thereof, to and including
$50,000.00
$1,233.44 for the first $50,000.00 plus $13.25 for each additional $1,000.00 or
fraction thereof, to and including
$100,000.00
DEVELOPMENT SERVICES
Business Registry
$50.00 per business
Miscellaneous
1.8% of each transaction
Building
Municipal Fee Schedule
Single Family and Two Family Projects greater than
$25,000.00 and less than $75,000.00 in Valuations1
$163.00
Single Family and Two Family Projects greater than
$75,000.00 in Valuation1
$210.00
A. Base Fee $115.00
B. New or Remodeled Square Footage Delete
Air Conditioners $70.00
Busway, Power Duct, or Floor Duct Per Foot $58.00
Conditional Utility Agreement $236.00
Each Additional Meter $153.00
Fixtures, Switches, and Outlets $58.00
Lighting, Power and/or Control Panel Board, Switchboard Cabinet or Panel $70.00
Motor $58.00
Motor Generator $441.00
Range, Electric Clothes Dryer, or Water Heater $58.00
Service Conductor/Switch ‐ Greater than 800 amp $209.00
Service Conductor/Switch ‐ Less than 200 amp Delete
Service Conductor/Switch ‐ Less than 800 amp $367.00
Special Circuit (Not Listed Herein)$58.00
Temporary Power Pole $58.00
Temporary Wiring for Construction $58.00
Commercial (Level 1 and 2)$357.00 plus $67.00 for each additional
station
Commercial (Level 3 and 4)$426.00 plus $83 for each additional
station
Residential (Level 1 and 2)$154.00
Residential (Level 3)$235.00
Commercial System (less than 10 kW)$557.00
Commercial System (10kW ‐ 49kW)$557.00
Commercial System (greater than 49kW)$748.00
Residential Systems (greater than 10kW)$357.00
$976.00 each
$340.00 each
$518.00 plus $102.00 for each additional station each
$188.00 per station
$264.00 per station
Electrical Permits ‐ Photovoltaic Systems
$600.00 each
$901.00 each
$181.00 each
$75.00 each
$75.00 each
$75.00 each
Electrical Permits ‐ Electrical Vehicle Charging Stations
$427.00 plus $83.00 for each additional station
$75.00 each
$75.00 each
$75.00 each
$75.00 each
$272.00 each
$136.00 each
$0.02 per square foot per square foot
$91.00 per unit
$75.00 each
$265.00 each
$75.00 each
$75.00 each
DEVELOPMENT SERVICES
$172.00 per permit
$252.00 per permit
Electrical Permits
$92.00 per permit
Municipal Fee Schedule
Residential Systems (less than 10kW)$165.00
Address Change $505.00 single; $244.00 each additional
All Other Publications $16.00
Construction/Maintenance Vehicles $80.00
Electric Service and Safety Inspection $197.00
Extension of Building Permit or Building Permit Application $79.00
Inspections and Investigations ‐ Outside Normal Business Hours
Note: Inspections and investigations outside normal business hours (2‐ hour minimum).
$369.00 per 1.5x OT Hour; $492.00 per
2.0x OT hour
Inspections and Investigations ‐ Unclassified
Note: Inspections and investigations for which no fee is specifically indicated (2‐hour
minimum).
$246.00
Reactivation of Expired Building Permit ‐ All Others $222.00
Reactivation of Expired Building Permit ‐ Final Inspection Only $256.00
Reactivation of Expired Building Permit Application $156.00
Real Property Research Fee (1‐hour minimum)$229.00
Records Retention $6.00 per plan sheet
Reinspection Fee ‐ Multi‐Family Residential and Non‐ Residential $137.00
Reinspection Fee ‐ Single Family Residential $76.00 each secondary inspection type;
$141.00 each primary inspection type per
Request for Release of Building Plans $77.00
Residential Inspection Guidelines
Note: Available free online
No Change
Alterations and additions for single and multifamily > 1,000 sq ft $728.00
Alterations and additions for single family and multifamily < 1,000 sq ft and
increases conditioned space
$441.00
If the project is over $100,000 Energy Star is required after 12 months of
occupancy
$144.00$140.00 per review
$247.00 each secondary inspection type; $315.00 each primary inspection type per
inspection
$85.00 each
$37.00 each
Green Building
$708.00 per review
$429.00 per review
50% of original Building Permit Fee not to exceed the full cost to perform
remaining inspections as determined by the Chief Building Official
$283.00 or 50% of original Building Permit Fee, whichever is less
$211.00 per permit plus Plan Check Fees as applicable per permit
$271.00 per hour
$6.00 per plan sheet
$315.00 each
$18.00 each
$81.00 per space per week. This includes FY 18 adjustment rate of 6%.
$169.00 per hour
$95.00 per application
$408.00 per 1.5x OT Hour; $544.00 per 2.0x OT hour
$254.00 per hour
$91.00 each
General & Miscellaneous Fees
$399.00 single address; $192.00 each additional address
DEVELOPMENT SERVICES
Municipal Fee Schedule
Landscape Inspection $190.00
Landscape Plan Review ‐ Non‐Residential & Multi‐Family $1,939.00
Landscape Plan Review ‐ Single Family Residential $1,193.00
Multi Family New Construction of 1‐3 (attached) units $949.00
Multi Family New Construction of 4 or More $1,523.00
New Commercial >50,000 SF $1,810.00
New Commercial 1,000 ‐ 25,000 SF $1,236.00
New Commercial 25,001 ‐ 50,000 SF $1,523.00
New Single Family $949.00
Tenant improvements, renovations or alterations > $200,000 in valuation (and
not triggered by a Calgreen Tier)
$662.00
Tenant improvements, renovations or alterations > 5,000 SF Note: includes
replacement or alteration of at least two of the following: HVAC systems, building
envelope, hot water system, or lighting system and project greater than $200,000
$662.00
A. Base Fee $115.00
B. New or Remodeled Square Footage Delete
Air Handlers up to and including 10,000 cfm $47.00
Boilers, Compressors and Absorption Systems: For the installation or
reloacation of each boiler or compressor up to 30 hp or each absorption
system up to and including 1,000,000 Btu/h
$93.00
Boilers, Compressors, and Absorption Systems: For the installation or
relocation of each boiler or compressor exceeding 30 hp, or each absorption
system exceeding 1,000,000 Btu/h
$93.00
Furnace, Flue and Associated Ducts $93.00
Miscellaneous
Note: For each appliance or piece of equipment regulated by this code, but not classed
in other appliance categories, or for which no other fee is listed.
$47.00
Process Piping System $46.00
Process Piping System ‐ Hazardous $47.00
Swimming Pool Heater $56.00
Ventilation and Exhaust $47.00$60.00 each
Plan Review Fees
$182.00 each
$182.00 each
$60.00 each
$60.00 per permit
$145.00 per permit
$72.00 per permit
$644.00 per review
Mechanical Permits
$92.00 per permit
$0.02 per square foot
$60.00 each
$122.00 each
$1761.00 per review
$1202.00 per review
DEVELOPMENT SERVICES
$1481.00 per review
$923.00 per review
$644.00 per review
$185.00 per inspection
$1886.00 per review
$1161.00 per review
$923.00 per review
$1481.00 per review
Municipal Fee Schedule
Additional Plan Review
Note: Required by changes, additions, or revisions to plans including Alternative Means
and Methods (2‐hour minimum). For Elective (3rd party) and over‐the‐counter reviews
(half hour minimum).
$191.00
Building Plan Check 75%
Certified Access Specialist (CASp) Review/Consultation $367.00
Elective Plan Check 35%
Fire and Life Safety Plan Check 54%
Public Works Plan Check 44%
Zoning Plan Check 35%
A. Base Fee $115.00
B. New or Remodeled Square Footage Delete
Atomospheric‐type vaccum Breakers $115.00
Backflow protective device other than atomospheric‐type $167.00
Gas Piping System $167.00
Industrial Waste Pretreatment Interceptor
Note: Including trap and vent, except kitchen‐type grease interceptors functioning as
fixture traps
$167.00
Medical Gas Piping System $167.00
Plumbing Fixtures
Note: For each plumbing fixture on one trap or a set of fixtures on one trap (including
water, drainage piping, and backflow protection).
$116.00
Plumbing Fixtures: For each building sewer $112.00
Rain Water Systems Delete
Solar Hot Water System
Note: Does not include Plan Check fee.
$167.00
Storm Drain System $167.00
Swimming Pool $56.00
Water Heater, Vent or Other $84.00
Water Piping
Note: Installation, alteration or repair of water piping, water treatment equipment or
both
$84.00
Clotheswasher System $70.00
Complex System $167.00
Simple System $70.00
SB 1473 Fee
$109.00 each
$109.00 each
Plumbing Permits ‐ Graywater Systems
$91.00 each
$217.00 plus plan review at cost
$91.00 plus plan review at cost
$91.00 each
$145.00 each
$91.00 each
$217.00 each
$217.00 each
$72.00 each
DEVELOPMENT SERVICES
$109.00 each
$217.00 each
$217.00 each
$217.00 each
$217.00 each
45% of Building Permit fee
12% of Building Permit fee
30% of Building Permit fee
Plumbing Permits
$92.00 per permit per permit
$0.02 per square foot
$225.00 per hour
80% of Building Permit fee
Actual cost of CASp Consultant plus 15% per hour. Restructured to a flat fee.
35% of Building Plan Check fee
Municipal Fee Schedule
A. $1.00 ‐ $25,000.00 Permit Valuation No change
B. $25,001.00 ‐ $50,000.00 Permit Valuation No change
C. $50,001.00 ‐ $75,000.00 Permit Valuation No change
D. $75,001.00 ‐ $100,000.00 Permit Valuation No change
E. Each $25,000.00 Increment or Fraction Thereof Above
$100,000.00
No change
F. Minimum No change
Commercial No change
Residential No change
Certificate of Use and Occupancy $1,095.00
Certificate of Use and Occupancy ‐ Replacement $228.00
SB 1186 Mandated Fee
Note: Does not include fees collected by the Fire Department.
No change
Temporary Occupancy Permit ‐ Multi‐Family Residential, Non‐Residential, and
Other Commercial
$826.00
Temporary Occupancy Permit ‐ Single Family Residential and Commercial
Tenant Improvement less than 10,000 sq. ft.
$606.00
Additional Non‐Residential Long‐Term (More than 5 days) Monthly No Change
Dumpster, Container No Change
Non‐Residential ‐ Single Day No Change
Non‐Residential Long‐Term (More than 5 days)No Change
Non‐Residential Short‐Term (Less than 5 days)No Change
A. 101 ‐ 1,000 cubic yards No Change
B. 1,001 ‐ 10,000 cubic yards No Change
Public Works
Engineering
$197.00 for the first 100 cubic yards, plus $197.00 for each additional 100 cubic
yards or fraction thereof
$1970.00 for the first 1,000 cubic yards plus $186.00 for each additional 1,000
cubic yards or fraction thereof
Encroachment Permit
$746.00 per month
$310.00 each
$1,249.00 each
$2,039.00 each
$1,466.00 each
$123.00 each
DEVELOPMENT SERVICES
$1.00 each
$673.00 each
$498.00 each
$1.00 minimum
Strong Motion Instrument Program
$28.00 per $100,000.00 permit valuation ($0.50 minimum)
$13.00 per $100,000.00 permit valuation ($0.50 minimum)
Use & Occupancy Permits
$287.00 each
$1.00 per valuation increment
$2.00 per valuation increment
$3.00 per valuation increment
$4.00 per valuation increment
Add $1.00 per valuation increment
Municipal Fee Schedule
C. 10,001 or more cubic yards No Change
Tree Inspection for Private Development No Change
Construction in Public Right‐of‐Way ($1.00 ‐ $5,999)
Note: Including public or private subdivision streets
No Change
Construction in Public Right‐of‐Way ($6,000 ‐ $25,999)
Note: Including public or private subdivision streets
No Change
Construction in Public Right‐of‐Way ($26,000 ‐ $100,999)
Note: Including public or private subdivision streets
No Change
Construction in Public Right‐of‐Way ($101,000 +)
Note: Including public or private subdivision streets
No Change
Storm Drain Plan Check Fee No Change
Temporary Discharge to Storm Drain from Construction Site Dewatering No Change
Additional Temporary Discharge to Storm Drain from Construction Site
Dewatering
No Change
Wet Season Construction Site Stormwater Inspection Note: MRP requirement
for sites >1 acre and/or high priority (hillside, near creek, prior violation)
No Change
Emergency Response Fee ‐ Hazmat (PAMC 17.24.050)$350.00
Installation or Closure Without Approved Plans and/or Permits No Change
Emergency Planning Guide No Change
Long‐term Offsite Document Storage No Change
Microfilm Copy/Print No Change
Photographs No Change
Fire
$30.00 first print; $0.55 each additional print
Hazardous Materials Classification Permits
Up to $1,212.00 for each incident up to 100% cost recovery
$275.00 ‐ $813.00 average fee range
Documents
$253.00 each
$0.25 per page
$3.25 per blueprint page; $0.30 per specification/ calculation page
$4,093 per request to discharge
$313.00 per week for the duration of dewatering activities
DEVELOPMENT SERVICES
$287.00 per month, charge monthly October through April
Compliance Fees
Permit Fees
$712.00 per occurrence
$712.00 + 8.8% of value greater than $6,000.00
$2472.00 + 10.8% of value greater than $26,000.00
10,572.00 + 9% of value greater than $100,000.00
$743.00 per project
$3830.00 for the first 10,000 cubic yards plus $711.00 for each additional 10,000
cubic yard or fraction thereof
Inspection Fees
$139.00 per inspection
Municipal Fee Schedule
Compressed Gas $351.00
Corrosives $351.00
Cryogenic Fluid $351.00
Flammable and Combustible Liquids $351.00
Flammable Gas $351.00
Flammable Solids $351.00
Health Hazard (Liquids & Solids)$351.00
Liquefied Petroleum Gases $351.00
Organic Coatings $351.00
Organic Peroxides $351.00
Other Hazardous Materials ‐ Unclassified
Note: Inspections and investigations for which no fee is specifically indicated (1‐hour
maximum)
$351.00
Ovens ‐ Industrial Baking or Drying $351.00
Oxidizers (Liquids & Solids)$351.00
Oxidizing Gas $351.00
Pyrophoric Gas $351.00
Pyrophoric Materials (Liquids & Solids)$351.00
Pyrotechnical Special Effects Material $351.00
Radioactive Materials $351.00
Refrigeration Equipment $351.00
Spraying/Dipping $351.00
Tire Recapping/Tire Storage $1,397.00
Toxic, Highly Toxic, Moderately Toxic, Health Hazard Gas
Note: Includes pesticides, fumigants, and etiologic agents.
$351.00
Toxic, Highly Toxic, Moderately Toxic, Health Hazard Materials $351.00
Unstable Reactive Gas $351.00
Unstable Reactive Materials (Liquids & Solids)$351.00
Water Reactive Materials (Liquids & Solids)$351.00
Additional Approvals for Hazardous Materials Storage Permit Note: Additional
approval for permit to construct, temporary closure, permanent closure, otherwise
modify a hazardous materials storage facility. See CEQA for additional fees.
$761.00 per occurrence plus $498.00 per
hour for time above two hours per
occurrence
Business Plan (HMBP)$498.00
Late Fee for Hazardous Materials Storage Permit No Change
$848.00 per occurrence plus $554.00 per hour for time above two hours per
occurrence
$554.00 per location annually
25% of total Hazardous Material permit fee
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
Hazardous Materials Storage Permits
$391.00 annually
DEVELOPMENT SERVICES
$391.00 annually
$391.00 annually
$391.00 annually
$1,561.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
$391.00 annually
Municipal Fee Schedule
Level I Facility
Note: Minimal storage as defined by having no hazardous materials over CFC permit
amounts as specified in CFC section 105.
$351.00
Level II Facility
Note: Quantities exceeding CFC permit threshold, but less than 50 gal., 500lbs or 200 cu.
ft. Category also includes dry cleaning, fixed medical gas, auto or aircraft repair, and
service stations.
$703.00
Level III Facility
Note: Quantities exceed 50 gal. 500lbs, or 200 cu. ft. and not categorized as Level II.
$1,406.00
Petroleum Aboveground Storage Tank
Note: Includes 2 hrs inspection time.
$703.00
Provisional (6 Month)$703.00
Additional Inspection or Reinspection Fee $699.00 for up to 2 hours reinspection plus
$349.00 per hour (during business hours)
After Hours Inspection Fee
Note: Fee for before or after normal business hours; weekends and holidays included.
Fee is to be paid in advance of inspection.
$524.00
As‐Built Plan Check and Additional Work $699.00
Care Facility Inspection Including Fire Clearance $349.00 for facilities with 7‐25 clients;
$699.00 for facilities with more than 25
Christmas Tree Lot/Pumpkin Patch $349.00
High Rise Building ‐ Certificate of Compliance
Note: Certificate of compliance inspection for each high rise building which is required
by state law to be inspected and certified annually as meeting minimum compliance
with applicable state of California fire and life safety standards for existing high rise
b ildi (CFC11143)
$1456.00 annually for up to 4 hours;
$349.00 for each additional hour
Outside Cooking Booths $524.00
Standby Fire Watch
Note: Per person.
$349.00
Use and Occupancy Fire Inspection $349.00
Additional Hours Over Plan Review/Inspection $249.00
Alternate Means and Methods Application
Note: 2 hr maximum.
$746.00
Appeals to Decisions $349.00
Consultation Fee $349.00
Hydrant Flow Fee $349.00$391.00 per occurrence
Life Safety & Fire Protection
$148.00 per inspection
Investigations & Consultations
$308.00 per hour
$735.00 per application
$391.00 per hour
$391.00 per hour
$390.00 for facilities with 7‐25 clients; $780.00 for facilities with more than 25
clients per inspection
$391.00 each
DEVELOPMENT SERVICES
$1626.00 annually for up to 4 hours; $391.00 for each additional hour
$210.00 each
$391.00 per hour
$782.00 annually
$782.00 plus other hazardous materials classification permit fees if applicable.
Includes 2 hrs inspection time.
Inspection Fees
$781.00 for up to 2 hours reinspection plus $390.00 per hour (during business
hours) per inspection
$585.00 per hour; 4 hour minimum
$780.00 per review
$391.00 annually per location. Includes 1 hr inspection time.
$782.00 annually per location plus other hazardous materials classification permit
if applicable. Includes 2 hrs inspection time.
$1565.00 annually per location plus other hazardous materials classification permit
if applicable. Includes 4 hrs inspection time.
Municipal Fee Schedule
Hydrant Installation/Modification ‐ Private $175.00
Automatic Fire Sprinkler Installation/Modification
Note: Includes hydrostatic test
$1543.00 for 1‐19 Sprinkler Heads;
$1,724.00 plus $3.00 per head for 20 or
Express Fire Protection Plan Check Fee No Change
Fire Alarm System Installation and Modification $948.00 plus $21.00 a device or contract
point
Fire and Life Safety Plan Check ‐ Commercial
Note: Includes one inspection and reinspection.
$0.54
Fire Prevention Inspection of Private Schools $699.00
Fire Protection and Fire Access Plan Review for New Single Family Dwellings
or Additions
$773.00
Multifamily dwellings, hotels & motels 51‐100 units $699.00
Multifamily dwellings, hotels & motels greater than 100 units $1,048.00
Multifamily dwellings, hotels, motels 4‐50 Units $349.00
Other Automatic Fire Extinguishing System
Note: Includes hood and duct, FM 200, Inergen, and C02. If a system has a release
panel, Fire Alarm fees apply as well.
$948.00
Site Disaster Planning $349.00
Standpipe System ‐ Wet, Dry, or Combination $699.00
Temporary Certificate of Occupancy $757.00
Underground Fire Service Line
Note: Includes 4 hrs of inspection and 1 hr of plan check
$1,647.00
Verification of Fire Protection System Maintenance and Certification $64.00
Aerosol Products $437.00
Bowling Alley and Pin Refinishing Involving the use of Flammable Liquids $1,019.00
Candles and Open Flames in Assembly Areas $349.00
Carnivals and Fairs $1,456.00
Cellulose Nitrate Storage/Nitrate Film $102.00
Hot Work (Welding) Operations No Change
Liquid or Gas‐Fueled Powered Equipment/Generator $349.00
Malls ‐ Covered $699.00
Occupant Load Increase ‐ Temporary Public Assembly $349.00
Open Burning $349.00
$113.00 annually
$391.00 each
$391.00 each
$782.00 annually
$391.00 each
$391.00 each
DEVELOPMENT SERVICES
Specific Hazard Permits
$488.00 annually
$1,138.00 each
$391.00 annually
$189.00 each
$1,090.00 per occurrence
$390.00 per hour
$780.00 per riser
$377.00 per occurrence
$1,870.00 per occurrence
$88.00 annually
The Fire and Life Safety Plan Review Fee is 45% of the Building Plan Check Fee and
is collected by the Building Division at the time an application of a Building Permit
is submitted.
$780.00 annually
$894.00 each
$780.00 annually
$1,170.00 annually
$391.00 annually
$195.00 per device
$780.00 for 1‐19 Sprinkler Heads; $1,724.00 plus $4.80 per head for 20 or more
Sprinkler Heads
$173.00 per occurrence
$1090.00 plus $23.00 a device or contract point
Municipal Fee Schedule
Open Flame/Flame Producing Devices $349.00
Operate a Tank Vehicle to Transport Flammable/Combustible Liquids $495.00
Parade Float $351.00
Place of Assembly $703.00
Place of Public Assembly ‐ Temporary $349.00
Tent or Air Supported Structure
Note: Tent or air‐supported structure having an area in excess of 200 sq. ft. or canopies
in excess of 400 sq. ft. Fee includes a public assembly permit of $125.00 for all tents.
$734.00
Commercial & Residential windows, skylights and doors, New and alteration
(structural) (per 5)
$279.00
Commercial & Residential windows, skylights and doors, New and alteration
(structural) (per 10)
$140.00
Residential Reroof $279.00
Residential Reroof (overlay)$70.00
Commercial and multifamily reroof (first 5000 sf)$279.00
commercial and multifamily reroof (each additional 2500 sf)$70.00
Kitchen (non structural) per each $210.00
Bathroom (non structural) per each $279.00
Commercial & Residential Siding replacement or repair $140.00
commercial & Residential Stucco replacement or repair $210.00
Commercial doors, new and alteration (structural) per 5 doors $210.00
Commercial doors, new and alteration (structural) per 10 doors $140.00
Residential dry rot repair and replacement $70.00
Deck, new or repair up to 1000 sf $210.00
Deck, new or repair each additional 1000 SF $70.00
Sign permit $116.00
Residential and commercial window awnings (group of 5)$70.00
Cell Tower Equip $210.00
Building New Fees
$391.00 each
$553.00 per vehicle
$122.00 per hour
$782.00 per occurrence
$391.00 each
$307.00 each
Municipal Fee Schedule
Utilities Handling Fee $116.00
Progress and partial inspections $56.00
Green Building ‐ Special Inspector applications and qualifications (internal
review)
$395.00
Green Building ‐ Special Inspector applications and qualifications (renewal
update)
$197.00
Special Inspections ‐ materials testing lab certification (up to 4 hours)$1,579.00
Miscellananeous Building ‐ base fee $115.00
Retaining Walls ‐ first 100 LF $93.00
Retaining Walls ‐ each additional 100 LF $46.00
Fees not listed above will either be based on an applicable hourly rate or at
the given valuation
TCO fee for Vendors/Stock Occupancy (requires at least one additional
inspection
$1,125.00
Emergency Responder Radio Coverage (testing) fee $492.00
Fire New Fee
Certifications
Building Valuation Data – AUGUST 2017
The International Code Council is pleased to provide the
following Building Valuation Data (BVD) for its members. The BVD will be updated at six-month intervals, with the next
update in February 2018. ICC strongly recommends that all jurisdictions and other interested parties actively evaluate and
assess the impact of this BVD table before utilizing it in their current code enforcement related activities.
The BVD table provides the “average” construction costs per
square foot, which can be used in determining permit fees for a jurisdiction. Permit fee schedules are addressed in Section 109.2 of the 2015 International Building Code (IBC) whereas
Section 109.3 addresses building permit valuations. The
permit fees can be established by using the BVD table and a Permit Fee Multiplier, which is based on the total construction
value within the jurisdiction for the past year. The Square Foot Construction Cost table presents factors that reflect relative
value of one construction classification/occupancy group to another so that more expensive construction is assessed
greater permit fees than less expensive construction.
ICC has developed this data to aid jurisdictions in determining permit fees. It is important to note that while this BVD table
does determine an estimated value of a building (i.e., Gross Area x Square Foot Construction Cost), this data is only
intended to assist jurisdictions in determining their permit fees. This data table is not intended to be used as an estimating
guide because the data only reflects average costs and is not representative of specific construction.
This degree of precision is sufficient for the intended purpose,
which is to help establish permit fees so as to fund code compliance activities. This BVD table provides jurisdictions
with a simplified way to determine the estimated value of a building that does not rely on the permit applicant to determine
the cost of construction. Therefore, the bidding process for a particular job and other associated factors do not affect the
value of a building for determining the permit fee. Whether a specific project is bid at a cost above or below the computed
value of construction does not affect the permit fee because the cost of related code enforcement activities is not directly
affected by the bid process and results. Building Valuation
The following building valuation data represents average valuations for most buildings. In conjunction with IBC Section
109.3, this data is offered as an aid for the building official to determine if the permit valuation is underestimated. Again it
should be noted that, when using this data, these are “average” costs based on typical construction methods for
each occupancy group and type of construction. The average costs include foundation work, structural and nonstructural
building components, electrical, plumbing, mechanical and
interior finish material. The data is a national average and does not take into account any regional cost differences. As
such, the use of Regional Cost Modifiers is subject to the authority having jurisdiction. Permit Fee Multiplier
Determine the Permit Fee Multiplier:
1. Based on historical records, determine the total annual construction value which has occurred within the
jurisdiction for the past year. 2. Determine the percentage (%) of the building
department budget expected to be provided by building permit revenue.
3.
Example
The building department operates on a $300,000 budget, and
it expects to cover 75 percent of that from building permit fees. The total annual construction value which occurred within the
jurisdiction in the previous year is $30,000,000.
Permit Fee
The permit fee is determined using the building gross area, the Square Foot Construction Cost and the Permit Fee Multiplier.
Permit Fee = Gross Area x Square Foot Construction Cost
X Permit Fee Multiplier Example
Type of Construction: IIB
Area: 1st story = 8,000 sq. ft. 2nd story = 8,000 sq. ft. Height: 2 stories Permit Fee Multiplier = 0.0075
Use Group: B 1. Gross area:
Business = 2 stories x 8,000 sq. ft. = 16,000 sq. ft. 2. Square Foot Construction Cost:
B/IIB = $165.19/sq. ft. 3. Permit Fee:
Business = 16,000 sq. ft. x $165.19/sq. ft x 0.0075 = $19,823
Bldg. Dept. Budget x (%) Total Annual Construction Value
Permit Fee Multiplier =
$300,000 x 75%
$30,000,000
Permit Fee Multiplier = = 0.0075
Important Points
• The BVD is not intended to apply to alterations or
repairs to existing buildings. Because the scope of alterations or repairs to an existing building varies so
greatly, the Square Foot Construction Costs table does not reflect accurate values for that purpose.
However, the Square Foot Construction Costs table can be used to determine the cost of an addition that is
basically a stand-alone building which happens to be attached to an existing building. In the case of such
additions, the only alterations to the existing building would involve the attachment of the addition to the
existing building and the openings between the addition and the existing building.
• For purposes of establishing the Permit Fee Multiplier, the estimated total annual construction value for a
given time period (1 year) is the sum of each building’s value (Gross Area x Square Foot Construction Cost)
for that time period (e.g., 1 year).
• The Square Foot Construction Cost does not include the price of the land on which the building is built. The
Square Foot Construction Cost takes into account everything from foundation work to the roof structure
and coverings but does not include the price of the land. The cost of the land does not affect the cost of
related code enforcement activities and is not included in the Square Foot Construction Cost.
Square Foot Construction Costs a, b, c
Group (2015 International Building Code) IA IB IIA IIB IIIA IIIB IV VA VB
A-1 Assembly, theaters, with stage 233.95 225.89 220.42 211.39 198.92 193.15 204.70 181.63 174.97
A-1 Assembly, theaters, without stage 214.40 206.35 200.88 191.84 179.53 173.76 185.16 162.23 155.58
A-2 Assembly, nightclubs 182.86 177.56 173.06 166.05 156.54 152.22 160.22 141.73 136.94
A-2 Assembly, restaurants, bars, banquet halls 181.86 176.56 171.06 165.05 154.54 151.22 159.22 139.73 135.94
A-3 Assembly, churches 216.47 208.41 202.95 193.91 181.79 176.02 187.23 164.50 157.85
A-3 Assembly, general, community halls, libraries,
museums 180.57 172.51 166.04 158.00 144.89 140.11 151.32 127.59 121.94
A-4 Assembly, arenas 213.40 205.35 198.88 190.84 177.53 172.76 184.16 160.23 154.58
B Business 186.69 179.79 173.86 165.19 150.70 145.02 158.70 132.31 126.48
E Educational 197.52 190.73 185.77 177.32 165.32 156.97 171.23 144.39 140.26
F-1 Factory and industrial, moderate hazard 111.86 106.71 100.58 96.68 86.77 82.81 92.61 72.75 68.09
F-2 Factory and industrial, low hazard 110.86 105.71 100.58 95.68 86.77 81.81 91.61 72.75 67.09
H-1 High Hazard, explosives 104.68 99.53 94.40 89.50 80.80 75.84 85.43 66.78 N.P.
H234 High Hazard 104.68 99.53 94.40 89.50 80.80 75.84 85.43 66.78 61.12
H-5 HPM 186.69 179.79 173.86 165.19 150.70 145.02 158.70 132.31 126.48
I-1 Institutional, supervised environment 187.63 181.26 176.01 168.60 155.33 151.11 168.69 139.15 134.82
I-2 Institutional, hospitals 314.17 307.27 301.34 292.67 277.18 N.P. 286.18 258.79 N.P.
I-2 Institutional, nursing homes 217.67 210.77 204.84 196.17 182.68 N.P. 189.68 164.29 N.P.
I-3 Institutional, restrained 212.42 205.52 199.59 190.92 177.93 171.25 184.43 159.54 151.71
I-4 Institutional, day care facilities 187.63 181.26 176.01 168.60 155.33 151.11 168.69 139.15 134.82
M Mercantile 136.25 130.95 125.45 119.44 109.43 106.11 113.60 94.63 90.83
R-1 Residential, hotels 189.35 182.99 177.74 170.33 156.80 152.58 170.42 140.62 136.29
R-2 Residential, multiple family 158.84 152.48 147.23 139.81 127.05 122.83 139.91 110.87 106.54
R-3 Residential, one- and two-family d 148.17 144.14 140.42 136.90 131.89 128.41 134.60 123.40 116.15
R-4 Residential, care/assisted living facilities 187.63 181.26 176.01 168.60 155.33 151.11 168.69 139.15 134.82
S-1 Storage, moderate hazard 103.68 98.53 92.40 88.50 78.80 74.84 84.43 64.78 60.12
S-2 Storage, low hazard 102.68 97.53 92.40 87.50 78.80 73.84 83.43 64.78 59.12
U Utility, miscellaneous 80.38 75.90 71.16 67.61 60.99 57.00 64.60 48.23 45.92
a. Private Garages use Utility, miscellaneous b. For shell only buildings deduct 20 percent c. N.P. = not permitted d. Unfinished basements (Group R-3) = $21.00 per sq. ft.
Capital Accounting Partners Page 1
Development Services Fee Study
Restructuring Valuation Based Building Fees
September 2017
CITY OF PALO
ALTO
Development Services
Department
CAPITAL ACCOUNTING PARTNERS, LLC
Daniel B Edds, MBA, PMP
3570 Buena Vista Dr.
Sacramento, Ca 95864
916.670.0001
2
Contents
Development Services Department ........................................................................................................................... 3
Introduction and Scope ................................................................................................................................... 3
Restructuring Valuation Model ................................................................................................................ 3
Summary of Costing Methodologies ............................................................................................................... 4
Assuring Quality Results .................................................................................................................................. 7
Quantitative ............................................................................................................................................. 7
Qualitative ................................................................................................................................................ 7
Summary of Results ................................................................................................................................................ 9
General Observations of Building Valuations .................................................................................................. 9
Calculating the Cost of Valuation Based Fees ........................................................................................10
Summary of Results by Division or Work Unit ...............................................................................................11
Observations and Recommendations .....................................................................................................................12
Monitoring Revenues .............................................................................................................................12
Adjusting the Fee Schedule ....................................................................................................................12
Building Reserves ...................................................................................................................................12
3
Development Services Department
The City’s Development Services Department is comprised of four divisions or functions:
1. Building;
2. Fire prevention;
3. Planning; and
4. Public works.
Together, they form a valuable resource for home owners, businesses, contractors, developers, and
citizens to build safe buildings that comply with the code requirements of the City. The long-term
objective of the Department is to become an enterprise fund. Financially, this means that fees for its
various services must be sufficient to recover the cost of the Department.
Introduction and Scope
This is phase two of a two phase project. The first phase reset the fee schedule to align with the
California Building Code. In addition, we calculated the full cost of each flat fee as opposed to building
fees that are calculated as a function of construction value. Phase two calculated the building fees that
are a function of construction value. With additional changes in the fee schedule and the Department
budget, all fees are impacted.
Restructuring Valuation Model
To date, the City has been calculating building fees as a function of provided or given construction
value. This is a traditional model used by many jurisdictions nationally as well as in the State of
California. However, construction values can vary even though the cost to the City in providing plan
check and inspection services may not. A traditional example is two custom built homes. They each
have the same floor plan, the same number of bathrooms, kitchens, outlets, etc. One home is built by a
respected builder of high end homes with the best fixtures available. The other home is built by a
retired relative of the home owner, built with second tier materials and fixtures from the local big box
store. Even though the two homes will require similar plan review and inspection services the two
valuations will be wildly different and thus generate different fees to the City. Another example is a
remodel. In one remodel the home owner is contracting with a respected builder. In another the home
owner is doing the work himself. Both remodeling projects are identically the same but the given
valuation of construction will be very different. Using the ICC table eliminates these differences and
establishes a consistent valuation and therefore a consistent fee for similar projects.
The International Code Council (ICC) publishes an independent and standard set of valuations based on
construction, occupancy type, and size. In effort to move away from using provided or given
construction value as the method of calculating new construction building fees, the Department
determined that using values from the ICC table was more equitable and would create fees that were
more consistent. Therefore, a primary objective of this study was to restructure valuation based
building fees from provided or given construction value to value as established by the ICC table.
Changing valuations does not change revenues as a simple multiplier is calculated to generate a level of
revenue that is consistent with City requirements.
4
This involved significant review of project data. For the last 12 months, the City has been collecting
valuation data based on the ICC table. This was a requirement to the project.
Therefore, the scope of this study included the following:
• Review and update the fee schedule;
• Calculate the total cost of fee generating services;
• Calculate the cost of plan check and inspection services from valuation based fees;
• Review valuation data to calculate the valuation multiplier;
• Analyze cost recovery levels;
• Develop a cost model based on the current organizational structure;
• Review the results with staff; and
• Provide recommendations or methodologies on how to adjust fees annually.
Summary of Costing Methodologies
Driver Based Costing Models
Developing driver based costing models is a detailed and robust method of calculating the cost of
a specific service. It is based on the principles of activity based costing so it seeks to understand
cost at an operational level. This means it relies on understanding the time staff invests in core
business processes to provide fee and non-fee services. This provides the ability to understand
staff time and cost as each staff position participates in providing fee services.
5
Project Steps and Process
Virtually all of our cost of service studies uses some form of a driver based costing model. The following is
provided to give the reader an overall summary of the steps in created these models.
Step 1: Collect Data – This first step involves discussions with staff to identify those positions within the
department that provide and support direct services. It also involves collecting departmental budget and
expenditure data, identifying the salary and benefits for each position, and identifying non-personnel
expenditures, as well as any departmental and City wide overhead. Specifically, the steps involve the
following:
• Identifying staff positions – This includes identifying both position titles and names.
• Calculating the number of productive hours – For each position, vacation time, sick leave, paid
holidays, professional development (training), routine staff meetings, and daily work breaks are
deducted from the standard 2,080 annual hours. The result is a range of hours available for each
position on an annual basis. This range is typically 1,500 to 1,600 hours. Factors that influence
this range are length of service with the jurisdiction and local policies for holiday and personal
leave time. However, based on previous work with the City where the calculated number of
productive hours was almost exactly 1600 hours, and at the request of the Office of
Management and Finance, we set all positions at 1600 productive hours.
• Identifying and allocating non-personnel costs – Costs for materials and supplies are allocated
to the salary and benefits for each position.
• Assigning any other expenses that are budgeted in other areas – There are often expenses that
should be included with the total cost of services. Examples of such costs might include
amortized capital expenses for vehicles and technology.
• Identifying core business processes or activities – This step also involves discussions with staff
to understand, at an operational level, the work of the operating unit. Core business processes
used to provide services are identified and then defined by the tasks that are involved.
Processes are also organized by direct and indirect categories:
• Direct processes and activities – Those processes that directly contribute to the processing of
an application or permit are first identified. Examples of a direct activity are permit intake, plan
review, and building inspection.
• Indirect processes and activities – Those processes that support, but do not directly apply to the
processing of a specific application or permit. An example of an indirect activity is customer
service or staff training to maintain certifications.
Step 2: Building cost structures – This second step involves significant interaction with staff and the
development of time estimates for both direct and indirect processes in each department. Specifically,
this step is at the core of the analysis. There are four processes that comprise this step:
• Gathering time estimates for direct processes – By interviewing staff in individual and group
meetings, an estimate of time was assigned to each service by the process that is indicated. For the
most part, the processes included three primary steps:
• Permit intake;
• Plan review; and
6
• Construction inspections.
In this analysis, staff time is estimated and assigned to each step. The sum of all the process steps is
the total time that is required to provide that specific service.
• Assigning indirect and annual process time – An annual time estimate is gathered from staff for
those indirect or support processes in which they are involved. These may include activities such as
program administration, customer service, and department administration. These costs are
allocated to all services proportionately to all services provided by the department.
• Calculating fully loaded hourly rates and the cost of service – Once the total time for each direct
and indirect service is estimated, the cost of service is calculated by using the fully loaded hourly
rates for each staff member or position that is involved with the service. The fully loaded hourly
rate for each employee is based on the employee's salary and benefit costs plus a share of non-
personnel and City overhead costs divided by the employee's available work hours (i.e. 2,080 hours
minus all leave hours). Thus, the direct and indirect cost by activity also includes departmental and
Citywide overhead as well as non-labor costs. The source of City indirect costs and non-personnel
costs is from the annual budget or cost allocation that has been established by the City.
• Gathering activity or volume data – A critical element in the analysis is the number of times a given
service is provided on an annual basis. This is critical data for three reasons:
• It allows a calculated projection of current revenue based on current prices. This is compared
with actual revenue to see if there is a close match as the data should match.
7
• It allows for a calculated projection of revenue at full cost. This is compared to actual
expenditures to see if there is a close match as the data should match.
• It allows for a calculation of total hours consumed. Hours consumed must closely match actual
hours available.
If any of the three calculations do not approximate actual numbers, then time estimates and/or volume
data need to be re-evaluated. These are critical quality checks for costing accuracy.
Step 3: Calculating the full cost of services – This third step calculates the full cost of service for each
direct service in the department. In the previous step, the cost of service was calculated for each direct
and indirect service. In this step, the cost layers are brought together to establish the full cost of service
for a specific direct service, program, or activity. As previously mentioned the cost of each direct service
is calculated. To determine the full cost of service, the cost of indirect services is allocated to each direct
service. The indirect services costs are allocated to each direct service based on each direct services
proportion of labor spent processing each permit and application. By summing the direct and allocated
indirect costs and multiplying that by the activity data, a total cost of service is calculated for both an
individual service and the operating unit as a whole.
Step 4: Setting fees
Based on any new, existing, or revised cost recovery policies, the recommended fees can be established.
The recommended fees will be established based on City staff recommendations and Council discussion
in the future. The fee analyses in this report are based on full cost recovery.
Assuring Quality Results
In our analysis we utilize both quantitative and qualitative tests for quality.
Quantitative
Our process incorporates substantial input from both individuals and groups. Our belief is that we get
the best data from group interviews. For example, in determining how much time is required for any
specific type of building inspection, we want to hear the perspective of an inspector, the supervisor, and
the counter tech or project manager. Each will have a perspective. Each will contribute value to the
estimate. When all perspectives agree, we have a good sense of confidence in our results.
Qualitative
We also utilize four qualitative measure of quality data. When each of these measures match and there
are no major disagreements with the qualitative assessment, we have significant confidence in our
results. These qualitative measures are:
Quantitative Analysis Targeted Margin of Error
1) Budgeted expenses entering the cost models must equal total expenses accounted for in the
costing model.
0%
2) Projected revenue from fees must closely match actual revenue from fees. + or – 5%-10%
8
3) Available staff time must be fully accounted for in the costing models. 0%
4) Total revenues from fees and contributions from the general fund or other sources must match
total expenses.
0%
9
Valuations
Total Job Cost (current valuation)394,166,970$
Total Valuation (Calculated from ICC Table)276,628,520$
Summary of Results
Department Revenue Projection and Reserve Fund Calculations
Based on our modeling we project a shortfall of revenue of $1,102,130 for fiscal year 2017-2018. Obviously, this will
not build reserves to protect the Department from future economic cycles.
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
$ 14,077,204 $ 12,975,074 ($1,102,130)
Based on discussions with staff a determination was made that the Department should target a 3-month operating
expense to be held in reserve and to build this up over 5 years. This adds an additional $652,317 of revenue to
meet both current operating expenses and building a reserve fund.
Given Construction Value Vs. International Code Council (ICC)
As stated earlier, (Introduction and Scope) the building plan check and inspection fees are based on a multiplier of
project valuation. A major objective of the study was to calculate building permit and plan check fees based on an
independent and objective assessment of value. This contrasts with the current method of calculating plan check
and inspection fees based on given or construction value. The International Code Council (ICC) provides a valuation
table for each of the major building projects and construction types. The formula is simple: total square footage X
ICC multiplier = total valuation. For example, a 5,000 SF custom home is going to carry a value based on the ICC
table of $563,250. This contrasts with construction value which can vary with construction materials, furnishings,
quality and experience of the contractor and regional market forces. However, the cost to provide plan check and
inspection services by the City do not change relative to these same market forces.
Observations of Building Valuations
Assessing the annual building valuation as defined by the ICC was a critical part of the project. The only way to
calculate an accurate multiplier is to know total project valuation. To do this, Plan Reviewers tracked a second set
of project data as part of their normal fee calculations. These additional data included:
1. Building occupancy type such as Assembly – theaters; Assembly – churches; Business; Mercantile,
Residential homes; Storage facilities, etc.
2. Construction type; and
3. Construct size (square footage).
These data gave us the ability to project forward a total annual valuation number based on the ICC table and
thus determine a multiplier. We did not use an entire year of data as it was not available at the time of the
analysis. However, the sample size was 9 months and over 900 data records, which should be sufficient sample
size to determine annual valuation as defined by the ICC. The comparative results follow:
10
Fees Generate as a Percentage of the Permit Fee Total Valuations Target Revenue Required Sum Permit Values Required % Multplier Current Fee
Total Plan Check Cost (from cost model, assumes reserves)276,628,520$ 2,988,332$ 3,996,139$ 74.8%Varies
Fire and Life Safety Plan Check (from cost model) *218,809,753$ 1,718,935$ 3,160,896$ 54%45%
Public Works Plan Check (from cost model) *56,853,663$ 363,442$ 821,300$ 44.3%12%Zoning Plan Check (from cost model) *166,115,084$ 833,314$ 2,399,676$ 34.7%30%* Assumes build up of reserves
Comprehensive Plan Update (base: per $1,000 of valuation)300,000$ 276,629$ 1.08$ 0.55$
As the reader can see, valuation based on a given job cost creates total valuations that are very different than
using the ICC table. However, because both use a multiplier to calculate a fee, the critical number is not valuation
but the multiplier.
Calculating the Cost of Valuation Based Fees
Calculating the correct multiplier is relatively simple. By knowing the annual valuation and by knowing the annual
cost of inspection services we can calculate the correct multiplier. The following graphic illustrates:
The multiplier of 1.45% is what creates the permit fee for inspection services or the permit cost. Therefore, when
applied to the valuation of an individual project, a project with a $100,000 valuation creates a permit fee of $1,440.
The building plan check fee is a function of the permit fee = 74.8%. Thus, the total permit and building plan check
fee is $1,440 + (74.8% x $1,440) = $2,517.
Four other fees are driven off the valuation and permit fee. These include:
1. Zoning plan check fee, (as a percentage of the building permit);
2. Fire and life safety plan check fee, (as a percentage of the building permit);
3. Public Works plan check fee, (as a percentage of the building permit); and
4. Comprehensive plan update fee, (as a cost per $1000 of valuation).
The results follow:
While the multipliers are increasing, it should be noted that valuations are, on average, going down. Therefore, it is
difficult to say if the actual fee charged is going to change by a significant amount.
Total Valuations Target Revenue Required Valuation (Permit)
Multiplier
Total Permit Cost (from cost model, assumes reserves) 276,628,520$ 3,996,139$ 1.44%
11
Fee Type
Projected Fee
Revenues at Full
Cost (w/ reserves)
Projected
Revenues at
Current Prices
Difference
(Potential New
Revenue)
Valuation
Bldg Permit & Plan Check $ 6,984,471 $ 6,577,408 $ 407,062
Fire and Life Safety Plan Check $ 1,718,935 $ 1,057,088 $ 661,847
Public Works Plan Check $ 363,442 $ 193,838 $ 169,604
Zoning Plan Check $ 833,314 $ 983,696 ($150,382)
Total Valuation $ 9,900,162 $ 8,812,030 $ 1,088,132
Non-Valuation
Building Total 1,742,844$ 1,511,676$ $231,169
Construction & Demolition 162,203$ 167,487$ ($5,284)
Mechanical 139,767$ 134,147$ $5,620
Plumbing 217,548$ 202,000$ $15,548
Electrical 421,572$ 367,170$ $54,402
Green Building 510,868$ 496,988$ $13,880
Use and Occupancy 290,886$ 143,884$ $147,002
Fire Prevention Total 1,704,096$ 1,850,605$ ($146,509)
Public Works Total 645,585$ 569,596$ $75,989
Building Admin and Reinspection Fees 217,950$ 231,167$ ($13,217)
Miscellaneous Building Fees 518,884$ 0$ $518,884
Total Resources Consumed $ 14,729,521 $ 12,975,074 $ 1,754,447
Summary of Results by Division or Work Unit
The following graphic outlines various levels of recovery for each of the major work units within the Development
Services Department.
Project Revenues Based on Current Activity Levels
12
Observations and Recommendations
Monitoring Revenues
The fee schedule and the model of calculating fees is changing significantly. Therefore, we would strongly urge
careful monitoring of revenues. The calculations of value require Project Coordinators to identify and input new
data into the permitting system. In addition, for some projects, given value is the only way of calculating value.
Therefore, care should be taken that revenues neither significantly exceed cost nor under recover costs. Our
recommendation is that Development Services leadership and managers carefully monitor Project Coordinators
during the early phases of adoption. In our view managers should be onsite and available for questions and
assistance to support Project Coordinators.
Adjusting the Fee Schedule
Given the changes in structure we would recommend regular reviews to compare actual vs projected revenues
and a report to Council if revenues are significantly out of scope with projections. This may require adjustments
to fees during the fiscal year.
In addition, we also recommend that fees be adjusted annually. For flat fees we recommend using a simple CPI
type increase that is attached to the City’s labor cost. For example, if the labor cost for the City goes up by 2%
then adjust each fee by 2%. This is the simplest and most common method of adjusting fees. It is our observation
that the regulatory requirements change enough within three to five years that a comprehensive review of costs
is then warranted. We understand that the City’s policy is to adjust fees annually based on changes to salaries
and benefits. We would affirm this practice and find that those cities that do this, maintain better cost recovery
levels over the long term.
For the valuation based fees we would recommend adjusting the ICC multiplier each time the ICC table is
adjusted or at a minimum, annually. This valuation table is adjusted by the ICC at regular intervals and we would
highly recommend that these valuations be monitored and maintained.
Building Reserves
We regularly recommend 6-12 months of operating expenses as a reserve. Based on discussions with Department
leadership and the Office of Finance and Management a decision was made to target 3 months of operating
expenses as a reserve. This has been built into the fee models as part of the department's expenses. Based on our
modeling, this should add $652,317 to the department's expenses in the first year. However, we would fully expect
this to be even higher due to seasonal fluctuations in activity and larger projects requiring services across multiple
years.
13
DEVELOPMENT SERVICES FEE TABLE
The following table details the individual unit costs of each fee in the Department and provides annual revenue
impacts for each fee and all fees collectively.
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
1,165 Business Registry Fee per business -$ 50.00$ $50
-$
Building New Construction (Valuation Based Fees, Annual Revenues
and Expenses)-$
Total Building Permit Costs/Revenue 1 2,200,076$ $1,631,970 $3,832,046 3,572,026.00$ ($260,020)
Building Plan Review Fees
80% of Bldg
Permit Fee 1 1,645,228$ $1,220,395 $2,865,623 2,997,912.25$ $132,289
Elective Plan Check
35% of current
Bldg Plan Check -$ 7,470.00$ $7,470
Fire and Life Safety Plan Check
45% of Bldg
Permit Fee 1 1,161,234$ $471,091 $1,632,324 1,057,087.57$ ($575,237)
Public Works Plan Check
12% of Bldg
Permit Fee 1 228,484$ $32,402 85,515.00$ $346,401 193,838.00$ ($152,563)
Zoning Plan Check
30% of Bldg
Permit Fee 1 685,066$ $97,152 $782,219 983,696.33$ $201,478
Residential Swimming Pools (includes strucural, mechanical,
electrical)New 153$ $114 $267 ($267)
Commercial and Multi Family Swimming Pools (includes strucural,
mechanical, electrical)New 230$ $171 $401 ($401)
-$
1,217 I. Building Demolition Permit 177 274$ $203 $478 431.00$ ($47)
1,218 J. Commercial Interior Non-Structural Demolition Permit 39 98$ $73 $171 196.00$ $25
-$ -$
1,207 Additional Plan Review per hour 117 105$ $78 $183 224.00$ $41
1,202 -$ -$
1,208 Certified Access Specialist (CASp) Review/Consultation Hourly 202$ $150 $352 276.00$ ($76)
1,203 -$ -$
1,204 Address change - single address 278$ $206 $485 399.00$ ($86)
1,206 Address change - each additional address 135$ $100 $234 192.00$ ($42)
-$ -$
-$ -$
Construction & Demolition -$
1,198
Commercial and Multi-Family Projects greater than or equal to
$25,000.00 in Valuation per permit 89 168$ $124 $292 412.00$ $120
1,200
Single Family and Two Family Projects greater than $25,000.00 and
less than $75,000.00 in Valuations per permit 18 90$ $66 $156 172.00$ $16
1,199
Single Family and Two Family Projects greater than $75,000.00 in
Valuation per permit 71 116$ $86 $201 252.00$ $51
-$
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Capital Accounting Partners Page 1 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
ELECTRICAL PERMITS
1,228 Air Conditioners per unit 39 38$ $28 $67 91.00$ $24
1,230 -$
1,226 Base Fee per permit 1,696 63$ $47 $111 92.00$ ($19)
1,240 Busway, Power Duct install, repair or replace per permit 20 32$ $24 $56 75.00$ $19
1,229 per permit -$
1,249 Additional meter (groups of 5)per permit 2 84$ $63 $147 75.00$ ($72)
1,234 Fixtures, Switches, and Outlets (groups of 20 per permit 1,633 32$ $24 $56 75.00$ $19
1,241
Lighting, Power and/or Control Panel Board, Switchboard Cabinet or
Panel per permit 43 38$ $28 $67 75.00$ $8
1,236 Motors per permit 13 32$ $24 $56 75.00$ $19
1,235 -$
1,227
1,237 Range, Electric Clothes Dryer, or Water Heater per permit 2 32$ $24 $56 75.00$ $19
Installation of a generator New 40 243$ $180 $423 -$ ($423)
1,248 Service Conductor/Switch - Greater than 800 ampre per permit 2 115$ $85 $200 272.00$ $72
1,246 -$
1,247 Service Conductor/Switch - Less than 800 ampre per permit 139 202$ $150 $352 181.00$ ($171)
1,238 Special Circuit (Not Listed Herein)per permit 26 32$ $24 $56 75.00$ $19
1,250 Temporary Power Pole per permit 149 32$ $24 $56 75.00$ $19
1,251 Temporary Wiring for Construction per permit 32$ $24 $56 75.00$ $19
-$ -$
Electrical Permits - Electrical Vehicle Charging Stations -$ -$
1,232 Commercial (Level 1 and 2)17 196$ $146 $342 427.00$ $85
1,233 Commercial (Level 1 and 2) - each additional station 79 37$ $27 $64 83.00$ $19
1,233 Commercial (Level 3 and 4)1 235$ $174 $409 518.00$ $109
1,234 Commercial (Level 3 and 4) - each additional station 46$ $34 $79 102.00$ $23
1,231 Residential (level 1 & 2)per station 57 85$ $63 $147 188.00$ $41
Residential (level 3)129$ $96 $225 264.00$ $39
Electrical Permits - Photovoltaic Systems -$ -$
Residential System (less than 10 kw)127 91$ $68 $159 91.00$ ($68)
1,242 Residential System (greater than 10 kw)each 196$ $146 $342 340.00$ ($2)
1,243 Commercial System (less than 10 kW)each 307$ $227 $534 600.00$ $66
1,244 Commercial System (10kW - 49kW)each 3 307$ $227 $534 901.00$ $367
1,245 Commercial System (greater than 49kW)each 1 412$ $305 $717 976.00$ $259
MECHANICAL PERMITS
Swimming Pool Heater 23 31$ $23 $53 72.00$ $19
1,254 Admin base fee 1,021 63$ $47 $111 92.00$ ($19)
1a -$ -$
Capital Accounting Partners Page 2 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
1b Furnace, Flue and Associated Ducts 98 51$ $38 $89 182.00$ $93
1c -$
1d -$
2 -$
3 -$
Boilers, Compressors, and Absorption Systems:-$
4a
Up to and including 30 HP, absorption system up to and including
100,000 Btu/h 51$ $38 $89 122.00$ $33
4b
For the installation or relocation of each boiler or compressor
exceeding 30 hp, or each absorption system exceeding 1,000,000
Btu/h 86 51$ $38 $89 182.00$ $93
4c -$
4d -$
4e -$
5 Air handlers up to and including 10,000 cf per cfm…26$ $19 $45 60.00$ $15
-$
7a Ventilation and exhaust 78 26$ $19 $45 60.00$ $15
7b -$
7c -$
Miscellaneous -$ -$
9
Each appliance or piece of equipment regulated by this code, but
not classed in other appliance categories for which no other fee is
listed in this table 26$ $19 $45 60.00$ $15
-$ -$
10a 4 -$ 97.66$ $98
10b -$ 54.11$ $54
Process Piping System 26$ $19 $45 60.00$ $15
11a Process Piping System - Hazardous 26$ $19 $45 145.00$ $100
11b -$ 54.11$ $54
11c -$ 130.12$ $130
11d -$ 130.12$ $130
PLUMBING PERMITS - GRAY WATER SYSTEMS
1,266 Admin base fee 1,310 63$ $47 $111 92.00$ ($19)
1 Plumbing fixture on one trap or set of fixtures (set of 5)82 64$ $47 $111 91.00$ ($20)
2 For each building sewer 135 62$ $46 $107 145.00$ $38
3 -$ -$
4 -$
6 For each water heater, vent, or both 56 46$ $34 $80 109.00$ $29
7 Gas Piping System 142 92$ $68 $160 217.00$ $57
8 Gas Piping System Repair 46$ $34 $80 48.70$ ($31)
Capital Accounting Partners Page 3 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
9 Interceptor, including trap and vent 92$ $68 $160 217.00$ $57
10
Installation, alteration or repair of water piping, water treatment
equip or both 1 46$ $34 $80 109.00$ $29
11 -$
12 -$
13A Atmospheric-type vacuum breakers 46$ $34 $80 109.00$ $29
13B -$
14 Backflow protective device other than atmospheric-type (any size)78 92$ $68 $160 217.00$ $57
Plumbing Permits - Graywater Systems -$ -$
1,271 Clothes washer System 38$ $28 $67 91.00$ $24
1,273 Complex System 1 92$ $68 $160 217.00$ $57
1,272 Simple System 3 38$ $28 $67 91.00$ $24
16 -$
17 -$
18 Medical Gas Piping Systems 92$ $68 $160 217.00$ $57
-$
-$ -$ -$
Solar hot water system 92.060$ 68.288$ 160.35$ 217.00$ $57
1,190 Storm drain system 92$ $68 $160 217.00$ $57
1,191 Swimming pool 31$ $23 $53 72.00$ $19
Use & occupancy Permits
1,187 Certificate of Use and Occupancy each 155 603$ $447 $1,050 287.00$ ($763)
1,188 Certificate of Use and Occupancy - Replacement each 125$ $93 $218 123.00$ ($95)
1,189 -$ -$
1,186
Temporary Occupancy Permit - Multi-Family Residential, Non-
Residential, and Other Commercial each 33 455$ $337 $792 673.00$ ($119)
1,185
Temporary Occupancy Permit - Single Family Residential and
Commercial Tenant Improvement less than 10,000 sq. ft.each 155 334$ $247 $581 498.00$ ($83)
-$
FIRE FEES
Hazardous Materials Classification Permits -$ -$
1,367 Compressed Gas annually 28 237$ $96 $334 391.00$ $57
1,363 Corrosives annually 54 237$ $96 $334 391.00$ $57
1,364 Cryogenic Fluid annually 42 237$ $96 $334 391.00$ $57
1,365 Flammable and Combustible Liquids annually 172 237$ $96 $334 391.00$ $57
1,368 Flammable Gas annually 28 237$ $96 $334 391.00$ $57
1,366 Flammable Solids annually 237$ $96 $334 391.00$ $57
1,373 Health Hazard (Liquids & Solids)annually 33 237$ $96 $334 391.00$ $57
1,381 Liquefied Petroleum Gases annually 10 237$ $96 $334 391.00$ $57
Capital Accounting Partners Page 4 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
1,354 Organic Coatings annually 237$ $96 $334 391.00$ $57
1,374 Organic Peroxides annually 1 237$ $96 $334 391.00$ $57
1,355 Ovens - Industrial Baking or Drying annually 4 237$ $96 $334 391.00$ $57
1,375 Oxidizers (Liquids & Solids)annually 16 237$ $96 $334 391.00$ $57
1,369 Oxidizing Gas annually 34 237$ $96 $334 391.00$ $57
1,356 Parade Float per hour 237$ $96 $334 391.00$ $57
1,357 Place of Public Assembly per occurrence 475$ $193 $667 391.00$ ($276)
1,370 Pyrophoric Gas annually 1 237$ $96 $334 391.00$ $57
1,376 Pyrophoric Materials (Liquids & Solids)annually 4 237$ $96 $334 391.00$ $57
1,358 Pyrotechnical Special Effects Material annually 237$ $96 $334 391.00$ $57
1,377 Radioactive Materials annually 28 237$ $96 $334 391.00$ $57
1,359 Refrigeration Equipment annually 237$ $96 $334 391.00$ $57
1,360 Spraying/Dipping annually 17 237$ $96 $334 391.00$ $57
1,361
Tent or air-supported structure having an area in excess of 200
square feet; or canopies in excess of 400 square feet (includes a
public assembly permit of $125.00 for all tents)each 496$ $201 $697 307.00$ ($390)
1,362 Tire Recapping/Tire Storage annually 944$ $383 $1,327 1,561.00$ $234
1,371 Toxic, Highly Toxic, Moderately Toxic, Health Hazard Gas annually 11 237$ $96 $334 391.00$ $57
1,378 Toxic, Highly Toxic, Moderately Toxic, Health Hazard Materials annually 38 237$ $96 $334 391.00$ $57
1,372 Unstable Reactive Gas annually 1 237$ $96 $334 391.00$ $57
1,379 Unstable Reactive Materials (Liquids & Solids)annually 237$ $96 $334 391.00$ $57
1,380 Water Reactive Materials (Liquids & Solids)annually 237$ $96 $334 391.00$ $57
Other Hazardous Materials - Unclassified 237$ $96 $334 391.00$ $57
Hazardouis Materials County Reimbursement -$ -$
Hazardous Materials Storage Permits -$ -$
1,311
Additional Approvals for Hazardous Materials Storage Permit (first 2
hours)514$ $209 $723 848.00$ $125
1,312
Additional Approvals for Hazardous Materials Storage Permit (per
hour for time above 2 hours)336$ $136 $473 554.00$ $81
1,308 Business Plan (HMBP)annually 234 336$ $136 $473 554.00$ $81
1,312 Late Fee for Hazardous Materials Storage Permit -$ -$
1,305 Level I Facility 81 237$ $96 $334 391.00$ $57
1,306 Level II Facility 119 475$ $193 $667 782.00$ $115
1,307 Level III Facility 191 949$ $385 $1,335 1,565.00$ $230
1,309 Petroleum Aboveground Storage Tank annually 26 475$ $193 $667 782.00$ $115
Capital Accounting Partners Page 5 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
1,310 Provisional (6 Month)475$ $193 $667 782.00$ $115
-$ -$
-$ -$
Fire Inspection Fees -$ -$
1,313
Additional Resinspection Fee (up to 2 hours during normal business
hours)150 472$ $191 $664 781.00$ $117
1,313 Additional Resinspection Fee (each additional hour)236$ $96 $332 390.00$ $58
1,314 After Hours Inspection Fee 354$ $144 $498 585.00$ $87
1,316 Care Facility annually -$ -$
1,317 Care Facility Inspection Including Fire Clearance (7-14 clients)472$ $191 $664 390.00$ ($274)
Care Facility Inspection Including Fire Clearance (more than 14 236$ $96 $332 780.00$ $448
1,315 Christmas Tree Lot/Pumpkin Patch each 236$ $96 $332 391.00$ $59
1,321 High Rise Building - Certificate of Compliance (annually up to 4 984$ $399 $1,382 1,626.00$ $244
1,322 High Rise Building - Certificate of Compliance (each additional hour))236$ $96 $332 391.00$ $59
1,318 Outside Cooking Booths each 354$ $144 $498 210.00$ ($288)
1,320 Standby Fire Watch or After Hours at Fire or Incident Scene per hour 236$ $96 $332 391.00$ $59
1,319 Use and Occupancy Fire Inspection per inspection 155 236$ $96 $332 148.00$ ($184)
As-Built Plan Check and Additional Work each 75 472$ $191 $664 780.00$ $116
-$ -$
Investigations & Consultations -$ -$
1,325 Additional Hours Over Plan Review/Inspection each 168$ $68 $237 308.00$ $71
1,323 Alternate Means and Methods Application per application 75 504$ $205 $709 735.00$ $26
1,324 Appeals to Decisions per hour 236$ $96 $332 391.00$ $59
1,322 Consultation Fee per hour 475 236$ $96 $332 391.00$ $59
1,328 -$ -$
1,327 Hydrant Flow Fee per occurrence 75 236$ $96 $332 391.00$ $59
1,326 Site Disaster Planning per hour 236$ $96 $332 391.00$ $59
-$ -$
-$ -$
Life Safety & Fire Protection
1294A Automatic Fire Sprinkler Installation/Modification 1- 19 heads 1,043$ $423 $1,465 780.00$ ($685)
1,295 Automatic Fire Sprinkler Installation/Modification (plus per head)2$ $1 $3.32 4.80$ $1
Capital Accounting Partners Page 6 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
1,301 Express Fire Protection Plan Check Fee 50% of usual fee -$ 173.00$ $173
1,296 Fire Alarm System Installation and Modification 641$ $260 $900 1,090.00$ $190
1,297
Fire Alarm System Installation and Modification (plus a device or
contact point)14$ $6 $19.91 22.00$ $2
1,303
Fire Protection and Fire Access Plan Review for New Single Family
Dwellings or Additions each 523$ $212 $735 894.00$ $159
1,298 Hydrant Installation/Modification - Private 118$ $48 $166 195.00$ $29
1,295 Other Automatic Fire Extinguishing System 641$ $260 $900 1,090.00$ $190
1,297 Standpipe System - Wet, Dry, or Combination 25 472$ $191 $664 780.00$ $116
1,300 Temporary Certificate of Occupancy per occurrence 511$ $207 $719 377.00$ ($342)
1,299 Underground Fire Service Line
per 200LF of pipe
(inspection,
reinspection - 150 1,113$ $451 $1,564 1,870.00$ $306
1,304 Verification of Fire Protection System Maintenance and Certification annually 43$ $18 $61 88.00$ $27
Food truck permits 118$ $48 $166 210.00$ $44
Multifamily dwellings, hotels & motels -$ -$
4-50 units 236$ $96 $332 391.00$ $59
51-100 units 472$ $191 $664 780.00$
Greater than 100 units 708$ $287 $995 1,170.00$ $175
Fire Prevention Inspection of Private Schools 472$ $191 $664 780.00$ $116
1294B Automatic Fire Sprinkler Installation/Modification 19+472$ $191 $664 1,724.00$ $1,060
Specific Hazard Permits -$ -$
1,329 Aerosol Products annually 295$ $120 $415 488.00$ $73
1,330 -$ -$
1,331 -$ -$
1,332 Bowling Alley and Pin Refinishing Involving the use of Flammable each 688$ $279 $968 1,138.00$ $170
1,333 Candles and Open Flames in Assembly Areas annually 236$ $96 $332 391.00$ $59
1,334 Carnivals and Fairs each 984$ $399 $1,382 189.00$ ($1,193)
1,335 Cellulose Nitrate Storage/Nitrate Film annually 69$ $28 $97 113.00$ $16
1,337 -$ -$
1,336 -$ -$
1,338 -$
1,339 -$ -$
1,340 -$ -$
1,341 Delete -$
1,342 High-piled Combustible Storage Delete -$ -$
1,343 Hot Work (Welding) Operations Delete -$ 391.00$ $391
1,349 Liquid or Gas-Fueled Powered Equipment each 236$ $96 $332 391.00$ $59
1,344 each -$ -$
Capital Accounting Partners Page 7 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
1,350 annually -$ -$
1,345 Malls - Covered annually 472$ $191 $664 782.00$ $118
1,351 Occupant Load Increase - Temporary Public Assembly each 236$ $96 $332 391.00$ $59
1,352 Open Burning each 236$ $96 $332 391.00$ $59
1,348 Open Flame/Flame Producing Devices each 236$ $96 $332 391.00$ $59
1,353 Operate a Tank Vehicle to Transport Flammable/Combustible Liquids annually 334$ $136 $470 553.00$ $83
1,347 Place of Public Assembly - Temporary each 236$ $96 $332 391.00$ $59
1,346 Temporary Kiosks -$ -$
Place of Assembly 236$ $96 782.00$ $782
Fire Miscellaneous Fees -$ -$
TCO fee for Vendors/Stock occupancy (Requires at least one
additional inspection)250 760$ $308 $1,069 1,212.00$ $143
1,288 Emergency Response Fee - Hazmat (PAMC 17.24.050)Per hour 236$ $96 $332 369.00$ $37
1,289 Installation or Closure Without Approved Plans and/or Permits Fine -$ 275.00$ $275
Fire plans revision 76 -$ -$
Building Admin and Reinspection Fees
1,176 All Other Publications each -$ 16 $16 18.00$ $2
1,201 -$ -$
1,172 Electric Service and Safety Inspection per hour 162$ $23 $185 169.00$ ($16)
1,181 Extension of Building Permit or Building Permit Application per application 31 65$ $9 $74 95.00$ $21
1,174
Inspections and Investigations - Outside Normal Business Hours
(1.5xOThour)1 303$ $43 $346 408.00$ $62
1,175
Inspections and Investigations - Outside Normal Business Hours
(2.0xOThour)52 404$ $57 $462 544.00$ $82
1,173 Inspections and Investigations - Unclassified per hour 202$ $29 $231 254.00$ $23
1,184
Reactivation of Expired Building Permit - All Others (50% Bldg permit
fee)19 182$ $26 $208 -$ ($208)
1,183 Reactivation of Expired Building Permit - Final Inspection Only 16 211$ $30 $240 283.00$ $43
1,182 Reactivation of Expired Building Permit Application 16 128$ $18 $147 211.00$ $64
1,178 Real Property Research Fee (1-hour minimum)per hour 189$ $27 $215 271.00$ $56
1,177 Records Retention per plan sheet 20,234 5$ $1 $6 6.00$ $0
1,180 Reinspection Fee - Multi-Family Residential and Non-Residential each 2 113$ $16 $129 315.00$ $186
1,179
Reinspection Fee - Single Family Residential (each secondary
inspection type)14 62$ $9 71$ 247.00$ $176
1,180
Reinspection Fee - Single Family Residential (each primary inspection
type)116$ $16 132$ 315.00$ $183
Capital Accounting Partners Page 8 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
1,171 Request for Release of Building Plans each 63$ $9 $72 85.00$ $13
1,175 Inspection Guidelines each -$ 37.00$ $37
Conditional Utility Agreement 187 194$ $27 $221 265.00$ $44
Emergency Responder Radio Coverage (testing) fee.25 405$ $57 $462 663.00$ $201
PUBLIC WORKS
1,166 Protected Tree Removal 56 459$ $65 $524 280.00$ ($244)
1,283 Grading: A. 101 - 1,000 cubic yards (first 101 CY)30 105$ $15 $120 197.00$ $77
1,284
Grading: A. 101 - 1,000 cubic yards (plus each additional 100 CY or
fraction thereof)105$ $15 $120 197.00$ $77
1,284 Grading: B. 1,001 - 10,000 cubic yards (first 1000 CY)30 1,048$ $149 $1,196 1,970.00$ $774
1,285
Grading: B. 1,001 - 10,000 cubic yards (each additional CY or fraction
thereof)105$ $15 $120 186.00$ $66
1,285 Grading: C. 10,001 or more cubic yards (first 10,000 CY)5 1,452$ $206 $1,658 3,838.00$ $2,180
1,286
Grading: C. 10,001 or more cubic yards (each additional 10,000 CY or
fraction thereof)105$ $15 $120 711.00$ $591
248 Tree Inspection for Private Development per inspection 55 237$ $34 $270 139.00$ ($131)
1,287 -$
1,288 Wet Season Construction Site Storm Water Inspection Per month 20 182$ $26 $208 ($208)
1,286 -$
1,171 Dumpster, Container 40 156$ $22 $178 310.00$ $132
Bldg Non-residential single day Current 55 656$ $93 $749 1,249.00$ $500
Bldg Non-residential long-term (more than 5 days)25 761$ $108 $869 2,039.00$ $1,170
Bldg Non-residential long-term (less than 5 days)25 420$ $60 $480 1,466.00$ $986
Bldg Residential (encroachments)4 536$ $76 $612 501.00$ ($111)
Bldg VTA Bus Shelter installation/relocation Hourly -$ 352.00$ $352
GREEN BUILDING FEES
Bldg
Alterations and additions for single and multifamily < 1,000 sq ft and
increases conditioned space Residential 99 162$ $267 $429 429.00$ ($0)
Bldg Alterations and additions for single and multifamily > 1,000 sq ft Residential 166 267$ $441 $708 708.00$ ($0)
Bldg Multi Family New Construction of 1-3 (attached) Units 4 348$ $575 $923 923.00$ $0
Bldg Multi Family New Construction of 4 or more units Residential 559$ $923 $1,481 1,481.00$ ($0)
Bldg New Single family and duplex Residential 7 348$ $575 $923 923.00$ $0
Bldg
Tenant improvements, renovations, or alterations > 5,000 sq ft that
includes replacement or alteration of
at least two of the following: HVAC system, building envelope, hot
water system, or lighting
system and project value greater than $200,000.Non-Residential 34 243$ $401 $644 644.00$ $0
Capital Accounting Partners Page 9 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
Bldg
C. Tenant improvements, renovations or alterations > $200,000 in
valuation (and not triggered by a Calgreen Tier) Non-Residential 42 243$ $401 $644 644.00$ $0
Bldg
If the project is over $100,000 Energy Star is required after 12
months of occupancy Non-Residential 53$ $87 $140 140.00$ $0
Bldg New commercial 1000 - 25,000 SF Non-Residential 21 453$ $749 $1,202 1,202.00$ ($0)
Bldg New commercial 25,001-50,000 SF Non-Residential 559$ $923 $1,481 1,481.00$ ($0)
Bldg New commercial >50,000 SF Non-Residential 664$ $1,097 $1,761 1,761.00$ $0
Bldg Landscape Review - plan review: Non-residential Non-Residential 60 706$ $1,180 $1,886 1,886.00$ ($0)
Bldg Landscape Review - inspection Non-Residential 60 69$ $115 $185 185.00$ $0
Bldg Landscape Review - plan review SFR 80 434$ $726 $1,161 1,161.00$ $0
Bldg Landscape Review - inspection SFR 80 69$ $115 $185 185.00$ $0
Bldg Landscape Review - plan review Multifamily 10 706$ $1,180 $1,886 1,886.00$ ($0)
Bldg Landscape Review - inspection Multifamily 10 69$ $115 $185 185.00$ $0
Bldg -$ -$
ADDITIONAL PUBLIC WORKS FEES
Bldg Fence (encroachment permit)1 1,121$ $159 $1,280 191.00$ ($1,089)
Bldg A. Constriction in public rght of way($1-$5,999)Base 130 364$ $52 $416 712.00$ $296
Bldg B. Constriction in public rght of way($6,000-$25,999)Base 50 364$ $52 $416 712.00$ $296
Bldg B. Constriction in public rght of way($6,000-$25,999)
Plus 3.9%
>$6,000 of value 50 491$ $70 5.85%($0)
Bldg C. Constriction in public rght of way($26,000-$100,999)Base 36 1,221$ $173 $1,394 2,472.00$ $1,078
Bldg C. Constriction in public rght of way($26,000-$100,999)
Plus 4.4% of
value >$26,000 of
value 36 1,830$ $260 4.5%($0)
Bldg D. Constriction in public rght of way(>$101,000)Base 7 3,948$ $560 $4,508 10,572.00$ $6,064
Bldg D. Constriction in public rght of way(>$101,000)
Plus 3.%
>$101,000 of
value 7 5,751$ $816 3.8%($0)
Bldg -$
Bldg Improvement plan review Deposit -$ 1,171.00$ $1,171
Bldg -$
Bldg Temporary Discharge to Storm Drain from Construction Site 15 2,189$ $310 $2,499 ($2,499)
Bldg
Temporary Discharge to Storm Drain (per week of discharge); this is
additional to other fee Current 150 151$ $112 $262 ($262)
Capital Accounting Partners Page 10 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
Bldg Current -$
Bldg Current -$
Miscellaneous Building Fees
1
Commercial & Residential windows, skylights and doors, New and
alteration (structural) (per 5)131 $153.43 $114 $267 ($267)
2
Commercial & Residential windows, skylights and doors, New and
alteration (non-structural) (per 10)$76.72 $57 $134 ($134)
3 Residential Reroof 29 $153.43 $114 $267 ($267)
4 Residential Reroof (overlay)$38.36 $28 $67 ($67)
5
6 Commercial and multifamily reroof (first 5000 SF)15 $153.43 $114 $267 ($267)
7 Commercial and multifamily reroof (each additional 2500 SF)$38.36 $28 $67 ($67)
8 Kitchen (nonstructural) (per each)245 $115.07 $85 $200 ($200)
9 Bathroom (nonstructural) per each 267 $153.43 $114 $267 ($267)
10 Commercial & Residential Siding replacement or repair 33 $76.72 $57 $134 ($134)
11 Commercial & Residential Stucco replacement or repair 14 $115.07 $85 $200 ($200)
12
13 Technology Surcharge (revenue requirement)250,000 1.8%1.81%
14
15 Commercial doors, new and alteration (structural) (per 5 doors)$115.07 $85 $200 ($200)
16 Commercial door replacement (nonstructural) (per 10)$76.72 $57 $134 ($134)
17 Residential dry rot repair and replacement 11 $115.07 $85 $200 ($200)
18 $38.36 $28 $67 ($67)
19 Deck, new or repair up to 1000 SF 24 $115.07 $85 $200 ($200)
20 Deck, new or repair each additional 1000 SF $38.36 $28 $67 ($67)
21 Sign permit $63.93 $47 $111 ($111)
22 Work without a permit
Twice Permit and
Plan Review Fees
23 Residential and commercial window awnings (groups of 5)1 $38.36 $28 $67 ($67)
24 Cell Tower Equip New 14 $115.07 $85 $200 ($200)
25 Utilities handling fee $63.46 $47 $111 ($111)
26 Progress and partial inspections $30.69 $23 $53 ($53)
27 Consultation (per hour)
28
29 Certifications:
Capital Accounting Partners Page 11 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name Unit/Notes Actual Work
Volume Direct Cost Indirect Costs Other external
costs
Total Cost
Assigned /
Annual
Revenues
Current
Fee / Revenue
Unit Surcharge or
(Subsidy)
Unit Cost Summary
BUILDING FEES
30
Green Building - Special inspector applications and qualifications
(initial review)$217.39 $161 $379 ($379)
31
Green Building - Special inspector applications and qualifications
(renewal/update)$108.70 $81 $189 ($189)
32
Special Inspections - materials testing lab certification (up to 4
hours)$869.57 $645 $1,515 ($1,515)
33
Special Inspections - materials testing lab certification (each
additional hour)$217.39 $161 $379 ($379)
34 Miscellaneous Building - base fee 665 $63.46 $47 $111 ($111)
35 Retaining Walls - first 100 LF $51.14 $38 $89 ($89)
36 Retaining Walls - each additional 100 LF $25.57 $19 $45 ($45)
37
Fees not listed above will either be based on an applicable hourly
rate or at the given valuation
Capital Accounting Partners Page 12 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
1,165 Business Registry Fee
Building New Construction (Valuation Based Fees, Annual Revenues
and Expenses)
Total Building Permit Costs/Revenue
Building Plan Review Fees
Elective Plan Check
Fire and Life Safety Plan Check
Public Works Plan Check
Zoning Plan Check
Residential Swimming Pools (includes strucural, mechanical,
electrical)
Commercial and Multi Family Swimming Pools (includes strucural,
mechanical, electrical)
1,217 I. Building Demolition Permit
1,218 J. Commercial Interior Non-Structural Demolition Permit
1,207 Additional Plan Review
1,202
1,208 Certified Access Specialist (CASp) Review/Consultation
1,203
1,204 Address change - single address
1,206 Address change - each additional address
Construction & Demolition
1,198
Commercial and Multi-Family Projects greater than or equal to
$25,000.00 in Valuation
1,200
Single Family and Two Family Projects greater than $25,000.00 and
less than $75,000.00 in Valuations
1,199
Single Family and Two Family Projects greater than $75,000.00 in
Valuation
Va
l
u
a
t
i
o
n
B
a
s
e
d
F
e
e
s
(
A
n
n
u
a
l
Re
v
e
n
u
e
s
a
n
d
C
o
s
t
s
)
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
1,165Business Registry Feeper business -$ 50.00$ $50 -$
-$ -$
-$ -$
Total Building Permit Costs/Revenue12,200,076$ $1,631,970 $3,832,046 3,572,026.00$ ($260,020)3,832,046$ $3,572,026 ($260,020)$164,093 $3,996,139 $3,996,139
Building Plan Review Fees11,645,228$ $1,220,395 $2,865,623 2,997,912.25$ $132,289 2,865,623$ $2,997,912 $132,289 $122,709 $2,988,332 $2,988,332
Elective Plan Check -$ 7,470.00$ $7,470 -$ 7,470.00$ $7,470
Fire and Life Safety Plan Check11,161,234$ $471,091 $1,632,324 1,057,087.57$ ($575,237)1,632,324$ $1,057,088 ($575,237)$86,611 $1,718,935 $1,718,935
Public Works Plan Check1228,484$ $32,402 85,515.00$ $346,401 193,838.00$ ($152,563)346,401$ $193,838 ($152,563)$17,041 $363,442 $363,442
Zoning Plan Check1685,066$ $97,152 $782,219 983,696.33$ $201,478 782,219$ $983,696 $201,478 $51,096 $833,314 $833,314
New153$ $114 $267 ($267)-$ $11 $279
New230$ $171 $401 ($401)-$ $17 $418
-$ -$
1,217I. Building Demolition Permit177274$ $203 $478 431.00$ ($47)84,528$ $76,287 ($8,241)$20 $498 $88,147
1,218J. Commercial Interior Non-Structural Demolition Permit39 98$ $73 $171 196.00$ $25 6,676$ $7,644 $968 $7 $179 $6,962
-$ -$ -$
1,207Additional Plan Reviewper hour117 105$ $78 $183 224.00$ $41 21,460$ $26,208 $4,748 $8 $191 $22,379
1,202 -$ -$ -$
1,208Certified Access Specialist (CASp) Review/ConsultationHourly202$ $150 $352 276.00$ ($76)-$ $15 $367
1,203 -$ -$ -$
1,204Address change - single address 278$ $206 $485 399.00$ ($86)-$ $21 $505
1,206Address change - each additional address 135$ $100 $234 192.00$ ($42)-$ $10 $244
-$ -$ -$
-$ -$ -$
Construction & Demolition-$ -$
1,198per permit89168$ $124 $292 412.00$ $120 25,861$ $36,462 $10,601 $13 $305 $26,968
1,200per permit18 90$ $66 $156 172.00$ $16 2,760$ $3,044 $284 $7 $163 $2,879
1,199per permit71116$ $86 $201 252.00$ $51 14,258$ $17,842 $3,584 $9 $210 $14,868
-$ -$
-$
Capital Accounting Partners Page 13 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
ELECTRICAL PERMITS
1,228 Air Conditioners
1,230
1,226 Base Fee
1,240 Busway, Power Duct install, repair or replace
1,229
1,249 Additional meter (groups of 5)
1,234 Fixtures, Switches, and Outlets (groups of 20
1,241
Lighting, Power and/or Control Panel Board, Switchboard Cabinet or
Panel
1,236 Motors
1,235
1,227
1,237 Range, Electric Clothes Dryer, or Water Heater
Installation of a generator
1,248 Service Conductor/Switch - Greater than 800 ampre
1,246
1,247 Service Conductor/Switch - Less than 800 ampre
1,238 Special Circuit (Not Listed Herein)
1,250 Temporary Power Pole
1,251 Temporary Wiring for Construction
Electrical Permits - Electrical Vehicle Charging Stations
1,232 Commercial (Level 1 and 2)
1,233 Commercial (Level 1 and 2) - each additional station
1,233 Commercial (Level 3 and 4)
1,234 Commercial (Level 3 and 4) - each additional station
1,231 Residential (level 1 & 2)
Residential (level 3)
Electrical Permits - Photovoltaic Systems
Residential System (less than 10 kw)
1,242 Residential System (greater than 10 kw)
1,243 Commercial System (less than 10 kW)
1,244 Commercial System (10kW - 49kW)
1,245 Commercial System (greater than 49kW)
MECHANICAL PERMITS
Swimming Pool Heater
1,254 Admin base fee
1a
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
2,606$ $3,549 $943 $3 $70 $2,717
-$
187,479$ $156,032 ($31,447)$5 $115 $195,507
1,114$ $1,500 $386 $2 $58 $1,161
-$
294$ $150 ($144)$6 $153 $306
90,919$ $122,475 $31,556 $2 $58 $94,813
2,873$ $3,225 $352 $3 $70 $2,996
724$ $975 $251 $2 $58 $755
-$
-$
111$ $150 $39 $2 $58 $116
16,908$ ($16,908)$18 $441 $17,632
401$ $544 $143 $9 $209 $418
-$
48,962$ $25,159 ($23,803)$15 $367 $51,059
1,448$ $1,950 $502 $2 $58 $1,510
8,296$ $11,175 $2,879 $2 $58 $8,651
-$ $2 $58
-$
-$
5,813$ $7,259 $1,446 $15 $357 $6,062
5,054$ $6,557 $1,503 $3 $67 $5,270
409$ $518 $109 $18 $426 $426
-$ $3 $83
8,401$ $10,716 $2,315 $6 $154 $8,761
-$ $10 $235
-$
20,132$ $11,557 ($8,575)$7 $165 $20,994
-$ $15 $357
-$ $23 $557
1,602$ $2,703 $1,101 $23 $557 $1,670
717$ $976 $259 $31 $748 $748
1,229$ $1,656 $427 $2 $56 $1,282
112,863$ $93,932 ($18,931)$5 $115 $117,696
-$
-$
Capital Accounting Partners Page 14 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
1b Furnace, Flue and Associated Ducts
1c
1d
2
3
Boilers, Compressors, and Absorption Systems:
4a
Up to and including 30 HP, absorption system up to and including
100,000 Btu/h
4b
For the installation or relocation of each boiler or compressor
exceeding 30 hp, or each absorption system exceeding 1,000,000
Btu/h
4c
4d
4e
5 Air handlers up to and including 10,000 cf per cfm…
7a Ventilation and exhaust
7b
7c
Miscellaneous
9
Each appliance or piece of equipment regulated by this code, but
not classed in other appliance categories for which no other fee is
listed in this table
10a
10b
Process Piping System
11a Process Piping System - Hazardous
11b
11c
11d
PLUMBING PERMITS - GRAY WATER SYSTEMS
1,266 Admin base fee
1 Plumbing fixture on one trap or set of fixtures (set of 5)
2 For each building sewer
3
4
6 For each water heater, vent, or both
7 Gas Piping System
8 Gas Piping System Repair
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
8,756$ $17,836 $9,080 $4 $93 $9,131
-$
-$
-$
-$
-$
-$ $4 $93
7,684$ $15,652 $7,968 $4 $93 $8,013
-$
-$
-$
-$ $2 $47
-$
3,495$ $4,680 $1,185 $2 $47 $3,645
-$
-$
-$
-$ $2 $47
-$
-$ $391 $391
-$
-$ $2 $46
-$ $2 $47
-$
-$
-$
144,810$ $120,520 ($24,290)$5 $115 $151,010
9,131$ $7,462 ($1,669)$5 $116 $9,522
14,467$ $19,575 $5,108 $5 $112 $15,087
-$
-$
4,490$ $6,104 $1,614 $3 $84 $4,682
22,769$ $30,814 $8,045 $7 $167 $23,744
-$ $3 $84
Capital Accounting Partners Page 15 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
9 Interceptor, including trap and vent
10
Installation, alteration or repair of water piping, water treatment
equip or both
11
12
13A Atmospheric-type vacuum breakers
13B
14 Backflow protective device other than atmospheric-type (any size)
Plumbing Permits - Graywater Systems
1,271 Clothes washer System
1,273 Complex System
1,272 Simple System
16
17
18 Medical Gas Piping Systems
Solar hot water system
1,190 Storm drain system
1,191 Swimming pool
Use & occupancy Permits
1,187 Certificate of Use and Occupancy
1,188 Certificate of Use and Occupancy - Replacement
1,189
1,186
Temporary Occupancy Permit - Multi-Family Residential, Non-
Residential, and Other Commercial
1,185
Temporary Occupancy Permit - Single Family Residential and
Commercial Tenant Improvement less than 10,000 sq. ft.
FIRE FEES
Hazardous Materials Classification Permits
1,367 Compressed Gas
1,363 Corrosives
1,364 Cryogenic Fluid
1,365 Flammable and Combustible Liquids
1,368 Flammable Gas
1,366 Flammable Solids
1,373 Health Hazard (Liquids & Solids)
1,381 Liquefied Petroleum Gases
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
-$ $7 $167
80$ $109 $29 $3 $84 $84
-$
-$
-$ $3 $84
-$
12,507$ $16,926 $4,419 $7 $167 $13,043
-$
-$ $3 $70
160$ $217 $57 $7 $167 $167
200$ $273 $73 $3 $70 $209
-$
-$
-$ $7 $167
-$ -$
-$ -$ -$ -$
Solar hot water system92.060$ 68.288$ 160.35$ 217.00$ $57 -$ $7 $167
1,190Storm drain system 92$ $68 $160 217.00$ $57 -$ $7 $167
1,191Swimming pool 31$ $23 $53 72.00$ $19 -$ $2 $56
Use & occupancy Permits
1,187Certificate of Use and Occupancyeach155603$ $447 $1,050 287.00$ ($763)162,714$ $44,485 ($118,229)$45 $1,095 $169,682
1,188Certificate of Use and Occupancy - Replacementeach125$ $93 $218 123.00$ ($95)-$ $9 $228
1,189 -$ -$ -$
1,186each33 455$ $337 $792 673.00$ ($119)26,152$ $22,209 ($3,943)$34 $826 $27,272
1,185each155 334$ $247 $581 498.00$ ($83)90,075$ $77,190 ($12,885)$25 $606 $93,933
-$ -$
FIRE FEES
Hazardous Materials Classification Permits -$ -$ -$
1,367Compressed Gasannually28 237$ $96 $334 391.00$ $57 9,343$ $10,948 $1,605 $18 $351 $9,839
1,363Corrosivesannually54 237$ $96 $334 391.00$ $57 18,018$ $21,114 $3,096 $18 $351 $18,974
1,364Cryogenic Fluidannually42 237$ $96 $334 391.00$ $57 14,014$ $16,422 $2,408 $18 $351 $14,758
1,365Flammable and Combustible Liquidsannually172 237$ $96 $334 391.00$ $57 57,392$ $67,252 $9,860 $18 $351 $60,437
1,368Flammable Gasannually28 237$ $96 $334 391.00$ $57 9,343$ $10,948 $1,605 $18 $351 $9,839
1,366Flammable Solidsannually 237$ $96 $334 391.00$ $57 -$ $18 $351
1,373Health Hazard (Liquids & Solids)annually33 237$ $96 $334 391.00$ $57 11,011$ $12,903 $1,892 $18 $351 $11,595
1,381Liquefied Petroleum Gasesannually10 237$ $96 $334 391.00$ $57 3,337$ $3,910 $573 $18 $351 $3,514
Capital Accounting Partners Page 16 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
1,354 Organic Coatings
1,374 Organic Peroxides
1,355 Ovens - Industrial Baking or Drying
1,375 Oxidizers (Liquids & Solids)
1,369 Oxidizing Gas
1,356 Parade Float
1,357 Place of Public Assembly
1,370 Pyrophoric Gas
1,376 Pyrophoric Materials (Liquids & Solids)
1,358 Pyrotechnical Special Effects Material
1,377 Radioactive Materials
1,359 Refrigeration Equipment
1,360 Spraying/Dipping
1,361
Tent or air-supported structure having an area in excess of 200
square feet; or canopies in excess of 400 square feet (includes a
public assembly permit of $125.00 for all tents)
1,362 Tire Recapping/Tire Storage
1,371 Toxic, Highly Toxic, Moderately Toxic, Health Hazard Gas
1,378 Toxic, Highly Toxic, Moderately Toxic, Health Hazard Materials
1,372 Unstable Reactive Gas
1,379 Unstable Reactive Materials (Liquids & Solids)
1,380 Water Reactive Materials (Liquids & Solids)
Other Hazardous Materials - Unclassified
Hazardouis Materials County Reimbursement
Hazardous Materials Storage Permits
1,311
Additional Approvals for Hazardous Materials Storage Permit (first 2
hours)
1,312
Additional Approvals for Hazardous Materials Storage Permit (per
hour for time above 2 hours)
1,308 Business Plan (HMBP)
1,312 Late Fee for Hazardous Materials Storage Permit
1,305 Level I Facility
1,306 Level II Facility
1,307 Level III Facility
1,309 Petroleum Aboveground Storage Tank
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
1,354Organic Coatingsannually 237$ $96 $334 391.00$ $57 -$ $18 $351
1,374Organic Peroxidesannually1 237$ $96 $334 391.00$ $57 334$ $391 $57 $18 $351 $351
1,355Ovens - Industrial Baking or Dryingannually4 237$ $96 $334 391.00$ $57 1,335$ $1,564 $229 $18 $351 $1,406
1,375Oxidizers (Liquids & Solids)annually16 237$ $96 $334 391.00$ $57 5,339$ $6,256 $917 $18 $351 $5,622
1,369Oxidizing Gasannually34237$ $96 $334 391.00$ $57 11,345$ $13,294 $1,949 $18 $351 $11,947
1,356Parade Floatper hour 237$ $96 $334 391.00$ $57 -$ $18 $351
1,357Place of Public Assembly per occurrence 475$ $193 $667 391.00$ ($276)-$ $35 $703
1,370Pyrophoric Gasannually1237$ $96 $334 391.00$ $57 334$ $391 $57 $18 $351 $351
1,376Pyrophoric Materials (Liquids & Solids)annually4 237$ $96 $334 391.00$ $57 1,335$ $1,564 $229 $18 $351 $1,406
-$ $18 $351
9,343$ $10,948 $1,605 $18 $351 $9,839
-$ $18 $351
5,672$ $6,647 $975 $18 $351 $5,973
-$ $37 $734
-$ $70 $1,397
1,371Toxic, Highly Toxic, Moderately Toxic, Health Hazard Gasannually11237$ $96 $334 391.00$ $57 3,670$ $4,301 $631 $18 $351 $3,865
12,680$ $14,858 $2,178 $18 $351 $13,352
334$ $391 $57 $18 $351 $351
-$ $18 $351
-$ $18 $351
-$ $18 $351
-$
-$
-$ $38 $761
-$ $25 $498
110,639$ $129,636 $18,997 $25 $498 $116,509
-$
1,305Level I Facility81 237$ $96 $334 391.00$ $57 27,028$ $31,671 $4,643 $18 $351 $28,462
79,414$ $93,058 $13,644 $35 $703 $83,628
254,926$ $298,915 $43,989 $71 $1,406 $268,452
17,351$ $20,332 $2,981 $35 $703 $18,272
Capital Accounting Partners Page 17 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
1,310 Provisional (6 Month)
Fire Inspection Fees
1,313
Additional Resinspection Fee (up to 2 hours during normal business
hours)
1,313 Additional Resinspection Fee (each additional hour)
1,314 After Hours Inspection Fee
1,316 Care Facility
1,317 Care Facility Inspection Including Fire Clearance (7-14 clients)
Care Facility Inspection Including Fire Clearance (more than 14
1,315 Christmas Tree Lot/Pumpkin Patch
1,321 High Rise Building - Certificate of Compliance (annually up to 4
1,322 High Rise Building - Certificate of Compliance (each additional hour))
1,318 Outside Cooking Booths
1,320 Standby Fire Watch or After Hours at Fire or Incident Scene
1,319 Use and Occupancy Fire Inspection
As-Built Plan Check and Additional Work
Investigations & Consultations
1,325 Additional Hours Over Plan Review/Inspection
1,323 Alternate Means and Methods Application
1,324 Appeals to Decisions
1,322 Consultation Fee
1,328
1,327 Hydrant Flow Fee
1,326 Site Disaster Planning
Life Safety & Fire Protection
1294A Automatic Fire Sprinkler Installation/Modification 1- 19 heads
1,295 Automatic Fire Sprinkler Installation/Modification (plus per head)
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
-$ $35 $703
-$ -$ -$
-$ -$ -$
-$
99,531$ $117,150 $17,619 $35 $699 $104,812
-$ $18 $349
-$ $26 $524
-$
-$ $35 $699
-$ $18 $349
-$ $18 $349
-$ $73 $1,456
-$ $18 $349
-$ $26 $524
-$ $18 $349
51,424$ $22,940 ($28,484)$18 $349 $54,153
49,766$ $58,500 $8,734 $35 $699 $52,406
-$
-$
-$ $13 $249
53,160$ $55,860 $2,700 $38 $746 $55,980
-$ $18 $349
157,591$ $185,725 $28,134 $18 $349 $165,953
-$
24,883$ $29,716 $4,833 $18 $349 $26,203
-$ $18 $349
-$
-$
-$ $78 $1,543
-$ $0 $3
Capital Accounting Partners Page 18 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
1,301 Express Fire Protection Plan Check Fee
1,296 Fire Alarm System Installation and Modification
1,297
Fire Alarm System Installation and Modification (plus a device or
contact point)
1,303
Fire Protection and Fire Access Plan Review for New Single Family
Dwellings or Additions
1,298 Hydrant Installation/Modification - Private
1,295 Other Automatic Fire Extinguishing System
1,297 Standpipe System - Wet, Dry, or Combination
1,300 Temporary Certificate of Occupancy
1,299 Underground Fire Service Line
1,304 Verification of Fire Protection System Maintenance and Certification
Food truck permits
Multifamily dwellings, hotels & motels
4-50 units
51-100 units
Greater than 100 units
Fire Prevention Inspection of Private Schools
1294B Automatic Fire Sprinkler Installation/Modification 19+
Specific Hazard Permits
1,329 Aerosol Products
1,330
1,331
1,332 Bowling Alley and Pin Refinishing Involving the use of Flammable
1,333 Candles and Open Flames in Assembly Areas
1,334 Carnivals and Fairs
1,335 Cellulose Nitrate Storage/Nitrate Film
1,337
1,336
1,338
1,339
1,340
1,341
1,342 High-piled Combustible Storage
1,343 Hot Work (Welding) Operations
1,349 Liquid or Gas-Fueled Powered Equipment
1,344
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
-$
-$ $48 $948
-$ $1 $21
-$ $39 $773
-$ $9 $175
-$ $48 $948
16,589$ $19,500 $2,911 $35 $699 $17,469
-$ $38 $757
234,590$ $280,500 $45,910 $83 $1,647 $247,038
-$ $3 $64
-$ $9 $175
-$
-$ $18 $349
-$ $35 $699
-$ $53 $1,048
-$ $35 $699
-$ $35 $699
-$
-$ $22 $437
-$
-$
-$ $51 $1,019
-$ $18 $349
-$ $73 $1,456
-$ $5 $102
-$
-$
1,338 -$ -$
-$
-$
-$
-$
-$
-$ $18 $349
-$
Capital Accounting Partners Page 19 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
1,350
1,345 Malls - Covered
1,351 Occupant Load Increase - Temporary Public Assembly
1,352 Open Burning
1,348 Open Flame/Flame Producing Devices
1,353 Operate a Tank Vehicle to Transport Flammable/Combustible Liquids
1,347 Place of Public Assembly - Temporary
1,346 Temporary Kiosks
Place of Assembly
Fire Miscellaneous Fees
TCO fee for Vendors/Stock occupancy (Requires at least one
additional inspection)
1,288 Emergency Response Fee - Hazmat (PAMC 17.24.050)
1,289 Installation or Closure Without Approved Plans and/or Permits
Fire plans revision
Building Admin and Reinspection Fees
1,176 All Other Publications
1,201
1,172 Electric Service and Safety Inspection
1,181 Extension of Building Permit or Building Permit Application
1,174
Inspections and Investigations - Outside Normal Business Hours
(1.5xOThour)
1,175
Inspections and Investigations - Outside Normal Business Hours
(2.0xOThour)
1,173 Inspections and Investigations - Unclassified
1,184
Reactivation of Expired Building Permit - All Others (50% Bldg permit
fee)
1,183 Reactivation of Expired Building Permit - Final Inspection Only
1,182 Reactivation of Expired Building Permit Application
1,178 Real Property Research Fee (1-hour minimum)
1,177 Records Retention
1,180 Reinspection Fee - Multi-Family Residential and Non-Residential
1,179
Reinspection Fee - Single Family Residential (each secondary
inspection type)
1,180
Reinspection Fee - Single Family Residential (each primary inspection
type)
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
-$
-$ $35 $699
-$ $18 $349
-$ $18 $349
-$ $18 $349
-$ $25 $495
-$ $18 $349
-$
-$ $18 $18
-$
267,165$ $303,000 $35,835 $57 $1,125 $281,340
-$ $18 $349
-$
-$
-$ $16
-$
1,172Electric Service and Safety Inspectionper hour 162$ $23 $185 169.00$ ($16)-$ $12 $197
2,293$ $2,945 $652 $5 $79 $2,442
346$ $408 $62 $23 $369 $369
24,015$ $28,288 $4,273 $30 $492 $25,584
-$ $15 $246
3,958$ ($3,958)$14 $222 $4,216
3,846$ $4,528 $682 $16 $256 $4,097
2,344$ $3,376 $1,032 $10 $156 $2,497
-$ $14 $229
113,606$ $121,404 $7,798 $0 $6 $121,027
257$ $630 $373 $8 $137 $274
997$ $3,458 $2,461 $5 $76 $1,062
-$ $9 $141
Capital Accounting Partners Page 20 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
1,171 Request for Release of Building Plans
1,175 Inspection Guidelines
Conditional Utility Agreement
Emergency Responder Radio Coverage (testing) fee.
PUBLIC WORKS
1,166 Protected Tree Removal
1,283 Grading: A. 101 - 1,000 cubic yards (first 101 CY)
1,284
Grading: A. 101 - 1,000 cubic yards (plus each additional 100 CY or
fraction thereof)
1,284 Grading: B. 1,001 - 10,000 cubic yards (first 1000 CY)
1,285
Grading: B. 1,001 - 10,000 cubic yards (each additional CY or fraction
thereof)
1,285 Grading: C. 10,001 or more cubic yards (first 10,000 CY)
1,286
Grading: C. 10,001 or more cubic yards (each additional 10,000 CY or
fraction thereof)
248 Tree Inspection for Private Development
1,287
1,288 Wet Season Construction Site Storm Water Inspection
1,286
1,171 Dumpster, Container
Bldg Non-residential single day
Bldg Non-residential long-term (more than 5 days)
Bldg Non-residential long-term (less than 5 days)
Bldg Residential (encroachments)
Bldg VTA Bus Shelter installation/relocation
GREEN BUILDING FEES
Bldg
Alterations and additions for single and multifamily < 1,000 sq ft and
increases conditioned space
Bldg Alterations and additions for single and multifamily > 1,000 sq ft
Bldg Multi Family New Construction of 1-3 (attached) Units
Bldg Multi Family New Construction of 4 or more units
Bldg New Single family and duplex
Bldg
Tenant improvements, renovations, or alterations > 5,000 sq ft that
includes replacement or alteration of
at least two of the following: HVAC system, building envelope, hot
water system, or lighting
system and project value greater than $200,000.
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
-$ $5 $77
-$
41,377$ $49,555 $8,178 $14 $236 $44,080
11,547$ $16,575 $5,028 $30 $492 $12,301
29,331$ $15,680 ($13,651)$34 $558 $31,247
3,588$ $5,910 $2,322 $8 $127 $3,823
-$ $8 $127
35,882$ $59,100 $23,218 $78 $1,274 $38,226
-$ $8 $127
8,289$ $19,190 $10,901 $108 $1,766 $8,831
-$ $8 $127
14,863$ $7,645 ($7,218)$18 $288 $15,833
-$
4,161$ ($4,161)$14 $222 $4,433
-$
7,138$ $12,400 $5,262 $12 $190 $7,604
41,175$ $68,695 $27,520 $49 $798 $43,865
21,720$ $50,975 $29,255 $57 $926 $23,139
11,997$ $36,650 $24,653 $31 $511 $12,780
2,447$ $2,004 ($443)$40 $652 $2,606
-$
42,474$ $42,471 ($3)$12 $441 $43,668
117,574$ $117,528 ($46)$20 $728 $120,881
3,691$ $3,692 $1 $26 $949 $3,795
-$ $42 $1,523
6,460$ $6,461 $1 $26 $949 $6,641
21,880$ $21,896 $16 $18 $662 $22,496
Capital Accounting Partners Page 21 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
Bldg
C. Tenant improvements, renovations or alterations > $200,000 in
valuation (and not triggered by a Calgreen Tier)
Bldg
If the project is over $100,000 Energy Star is required after 12
months of occupancy
Bldg New commercial 1000 - 25,000 SF
Bldg New commercial 25,001-50,000 SF
Bldg New commercial >50,000 SF
Bldg Landscape Review - plan review: Non-residential
Bldg Landscape Review - inspection
Bldg Landscape Review - plan review
Bldg Landscape Review - inspection
Bldg Landscape Review - plan review
Bldg Landscape Review - inspection
Bldg
ADDITIONAL PUBLIC WORKS FEES
Bldg Fence (encroachment permit)
Bldg A. Constriction in public rght of way($1-$5,999)
Bldg B. Constriction in public rght of way($6,000-$25,999)
Bldg B. Constriction in public rght of way($6,000-$25,999)
Bldg C. Constriction in public rght of way($26,000-$100,999)
Bldg C. Constriction in public rght of way($26,000-$100,999)
Bldg D. Constriction in public rght of way(>$101,000)
Bldg D. Constriction in public rght of way(>$101,000)
Bldg
Bldg Improvement plan review
Bldg
Bldg Temporary Discharge to Storm Drain from Construction Site
Bldg
Temporary Discharge to Storm Drain (per week of discharge); this is
additional to other fee
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
27,029$ $27,048 $19 $18 $662 $27,789
-$ $4 $144
25,243$ $25,242 ($1)$34 $1,236 $25,953
-$ $42 $1,523
-$ $50 $1,810
113,185$ $113,160 ($25)$53 $1,939 $116,344
11,070$ $11,100 $30 $5 $190 $11,379
92,870$ $92,880 $10 $32 $1,193 $95,462
14,761$ $14,800 $39 $5 $190 $15,173
18,864$ $18,860 ($4)$53 $1,939 $19,391
1,845$ $1,850 $5 $5 $190 $1,897
-$
1,280$ $191 ($1,089)$84 $1,363 $1,363
54,069$ $92,560 $38,491 $27 $443 $57,601
20,796$ $35,600 $14,804 $27 $443 $22,154
46,800$ ($46,800)$37 6.14%$49,140
50,173$ $88,992 $38,819 $91 $1,485 $53,451
81,000$ ($81,000)$136 4.725%$85,050
31,557$ $74,004 $42,447 $294 $4,803 $33,619
66,500$ ($66,500)$429 3.99%$69,856
-$
-$
-$
37,490$ ($37,490)$163 $2,663 $39,939
39,341$ ($39,341)$11 $274 $41,026
Capital Accounting Partners Page 22 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
Bldg
Bldg
Miscellaneous Building Fees
1
Commercial & Residential windows, skylights and doors, New and
alteration (structural) (per 5)
2
Commercial & Residential windows, skylights and doors, New and
alteration (non-structural) (per 10)
3 Residential Reroof
4 Residential Reroof (overlay)
5
6 Commercial and multifamily reroof (first 5000 SF)
7 Commercial and multifamily reroof (each additional 2500 SF)
8 Kitchen (nonstructural) (per each)
9 Bathroom (nonstructural) per each
10 Commercial & Residential Siding replacement or repair
11 Commercial & Residential Stucco replacement or repair
12
13 Technology Surcharge (revenue requirement)
14
15 Commercial doors, new and alteration (structural) (per 5 doors)
16 Commercial door replacement (nonstructural) (per 10)
17 Residential dry rot repair and replacement
18
19 Deck, new or repair up to 1000 SF
20 Deck, new or repair each additional 1000 SF
21 Sign permit
22 Work without a permit
23 Residential and commercial window awnings (groups of 5)
24 Cell Tower Equip
25 Utilities handling fee
26 Progress and partial inspections
27 Consultation (per hour)
28
29 Certifications:
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
-$
-$
35,009$ ($35,009)$11 $279 $36,508
-$ $6 $139
7,750$ ($7,750)$11 $279 $8,082
-$ $3 $70
-$
4,009$ ($4,009)$11 $279 $4,180
-$ $3 $70
49,106$ ($49,106)$9 $209 $51,209
71,355$ ($71,355)$11 $279 $74,410
4,410$ ($4,410)$6 $139 $4,598
2,806$ ($2,806)$9 $209 $2,926
-$
250,000$ $0 ($250,000)$0 250,000$
-$
-$ $9 $209
-$ $6 $139
2,205$ ($2,205)$9 $209 $2,299
-$ $3 $70
4,810$ ($4,810)$9 $209 $5,016
-$ $3 $70
-$ $5 $116
-$
67$ ($67)$3 $70 $70
2,806$ ($2,806)$9 $209 $2,926
-$ $5 $115
-$ $2 $56
-$
-$
-$
Capital Accounting Partners Page 23 of 24 BldCostCalcs
Palo Alto Building Dept
Building Valuation and Flat Fees
Service
# If
Any
Fee Name
BUILDING FEES
30
Green Building - Special inspector applications and qualifications
(initial review)
31
Green Building - Special inspector applications and qualifications
(renewal/update)
32
Special Inspections - materials testing lab certification (up to 4
hours)
33
Special Inspections - materials testing lab certification (each
additional hour)
34 Miscellaneous Building - base fee
35 Retaining Walls - first 100 LF
36 Retaining Walls - each additional 100 LF
37
Fees not listed above will either be based on an applicable hourly
rate or at the given valuation
Annual Revenue With
Reserves
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)
R
e
q
u
i
3 Months Reserve,
5 Year Build Full Cost / Unit With Reserves
ANNUAL REVENUE ANALYSIS INCLUDING RESERVES
Reserve RequirementsAnnual Revenue Impact
BUILDING FEES $ 652,317
-$ $16 $395
-$ $8 $197
-$ $65 $1,579
-$ $16 $395
73,510$ ($73,510)$5 $115 $76,658
-$ $4 $93
-$ $2 $46
-$
Annual Revenue
Impact
Revenue at Full Cost of
Services
Projection of
Revenues at
Current Fees
Annual Surplus
(subsidy)With Reserves
14,077,204$ 12,975,074$ ($1,102,130)$14,729,521
Capital Accounting Partners Page 24 of 24 BldCostCalcs
City of Palo Alto (ID # 8175)
City Council Staff Report
Report Type: Informational Report Meeting Date: 6/19/2017
City of Palo Alto Page 1
Summary Title: Clarification to FY2017 Muni Fee Schedule for Development
Services
Title: Clarification to FY2017 Municipal Fee Schedule for Development
Services
From: City Manager
Lead Department: Development Services Department
Recommendation
This is an informational item; no Council action is required.
Executive Summary
This is an Informational Report clarifying the definitions of “Project” and “Maintenance” items
in building construction. This report responds to a request from the December 12, 2016 Council
hearing for the Adoption of an Ordinance Amending the FY 2017 Municipal Fee Schedule to
Reflect Development Services Cost of Services Study and FY 2017 Annual Adjustment.
During that same meeting, Council also directed that proposed changes to Special Event fees be
removed from the fee schedule prior to the second reading. After reviewing the Fee Schedule
proposal and the Council’s comments, the Development Services Department and Fire Marshal
have chosen not to re-introduce the “Special Event” fee in question in the proposed FY 2017
fee schedule. The Fire Marshal will continue to work with the Special Events Committee
(headed by the Palo Alto Police Department) to ensure the public safety at large events, but has
no control over the fees charged by the other departments involved.
Background and Discussion
“Projects” and “Maintenance” Definitions
The California Building Code (CBC) requires building permits when any owner or owner’s agent
intends to construct, enlarge, alter, repair, move demolish or change the occupancy of a
building or structure or to install, enlarge, alter, repair, remove, convert or replace any
City of Palo Alto Page 2
electrical, gas, mechanical or plumbing system. A permit is to be obtained from the
Development Services department to ensure that the work performed is in compliance with the
code.
Within the CBC, there are exceptions to when a permit is required. For building permits, the
following exceptions apply to structures:
1. One-story detached accessory structures used as storage sheds and playhouses and
similar uses with a floor area not greater than 120 square feet, s.f.
2. Fences not over 7-feet high.
3. Retaining walls that are not over 4-feet in height measured from the bottom of the
footing to the top of the wall.
4. Sidewalks and driveways not more than 30 inches above the adjacent grade and not
over any basement or story below.
5. Painting, papering, tiling, carpeting, cabinets, counter tops and similar finish work.
6. Swings and other playground equipment accessory to detached one and two family
dwellings.
7. Non-fixed and movable fixtures, cases, racks, counters and partitions not over 5 feet and
9 inches in height.
For Electrical Residential Permits:
1. Minor repairs and maintenance, including the replacement of lamps or the connection
of approved portable electrical equipment.
For Gas & Mechanical Residential Permits:
1. Portable heating appliance
2. Replacement of any minor part that does not alter the equipment to make is unsafe.
3. Portable ventilation equipment
4. Portable cooling unit
5. Steam, hot or chilled water piping within any heating or cooling equipment
For Plumbing Residential Permits:
1. The stopping of leaks in drains, water, waste or vent piping.
2. The clearing of stoppages or repairing leaks in pipes, valves or fixtures and the removal
and reinstallation of water closets (toilets).
New building construction, additions to existing buildings, remodeling kitchens and bathrooms
are the most common residential projects that apply for building permits. These projects often
combine the aspects of multiple construction disciplines, such as structural engineering,
architectural life safety, mechanical, electrical and plumbing design and construction. Even
small projects of kitchen and bathroom remodels can encompass multiple construction trades
in its design and construction.
City of Palo Alto Page 3
Some components, such as faucet and toilet replacements, repairing of plumbing piping and
mechanical duct leaks are often performed on an individual basis. Unless performed as part of
a larger project, this type of work is considered a maintenance item, which may be exempt
from permit requirements. Even though some of the maintenance items do not require
building permits, the work is required to comply with the applicable code and state regulations.
Council had a question about the need for a permit to replace a single fixture in a bathroom or
kitchen. Single fixture replacements fall in the category of maintenance and do not trigger the
need for a building permit. Upon review of the building sub-permits (e.g., Plumbing,
Mechanical and Electrical stand-alone permits) that were issued in 2016, there were no records
of a single fixture permit, e.g., water-closet, faucet, receptacle outlet, etc., found to be issued.
However, when work combines multiple construction trades, e.g. bathroom “like for like”
remodels, and work that combines construction trades with minor structural alterations, e.g.,
kitchen remodel that relocates a bearing wall, or adds a window to an exterior wall, then the
proposed work will be considered a project that does require a building permit, which includes
plan review and field inspections.
Fire Marshal’s Review of Special Events
Staff has revisited their permitting process in response to the council’s question about the
extent to which permits are needed for special events. It was council’s desire to reduce hurdles
and unnecessary obstacles in the permitting of special events. While the previously proposed
“Special Event” fee was removed, the Fire Department is bound by the California Fire code to
permit and evaluate all tents and membrane structures having an area in excess of 400 square
feet (CFC Sec. 3103.2). In response to council’s direction, staff has simplified the approval
process and will simply continue using the existing tent permit fee structure from the 2016 fee
schedule. Staff feels they can work with applicants to properly inspect these tents within the
existing fee structure.
Attachments:
City Council Action Minutes_12.12.16
City of Palo Alto (ID # 7525)
City Council Staff Report
Report Type: Action Items Meeting Date: 12/12/2016
City of Palo Alto Page 1
Summary Title: Development Services Cost of Services Study
Title: PUBLIC HEARING: Adoption of an Ordinance Amending the FY 2017
Municipal Fee Schedule to Reflect Development Services Cost of Services
Study and FY 2017 Annual Adjustment
From: City Manager
Lead Department: Development Services Department
Recommendation
Staff and the Finance Committee recommend that the City Council adopt an ordinance
(Attachment A) to update the Fiscal Year 2017 Municipal Fee Schedule to adjust Development
Services Municipal Fees, based on the completion of a Cost of Services Study (Attachment B)
and adjusted by the annual inflator applied to Municipal Fees from Fiscal Year 2016 to Fiscal
Year 2017.
At the Finance Committee meeting of November 15, 2016, the Development Services Municipal
Fee amendments were approved 4-0 without any recommended changes.
Executive Summary
The Development Services Department (DSD) initiated a Cost of Services Study in 2015 to
evaluate development related service fees incurred by applicants seeking a construction related
permit. These fees had not been reevaluated for many years, and the resulting
recommendations -- if approved -- would increase fee revenues and lower General Fund
subsidies consistent with the Cost Recovery Policy adopted by the City Council in May 2015.
The proposed changes would amend the fee schedule to reflect current International Code
Council (ICC) unit fee schedule structures and the City’s Green Building and Energy Ordinances
by eliminating some fees, proposing new fees, consolidating or expanding others, and adjusting
certain fees to a single flat-fee per permit. The City Council has the discretion to determine the
level of cost recovery for each of these fees. However, under State law, fees cannot be set
above the cost of service.
The consultant report is discussed in detail below, and the proposed ordinance adopting fee
changes (Attachment A) and the full text of the consultant report (Attachment B) are attached.
City of Palo Alto Page 2
This study was completed based on FY 2016 data, therefore an annual inflation value of 5.5%,
as recommended by the Office of Management and Budget for all Citywide fees in Fiscal Year
2017, has been included in the fees detailed in Attachment A as part of the final ordinance
action for City Council consideration.
Background
In July 2010, the City Manager launched the comprehensive “Development Center Blueprint”
(Blueprint) project to restructure and adopt more holistic approaches to integrated
development review, permitting services, and staff coordination in order to improve
organizational efficiencies and minimize unnecessary costs and delays to customers. Since the
inception of the Blueprint, DSD has implemented new technologies, acquired additional space,
upgraded the existing space, and consolidated into a central department, that consists of
Building (formerly within the Planning department), Planning, Public Works, and Fire Prevention
divisions. Development Services is now a “one-stop” shop, located in a leased space across
from City Hall. Design development projects now have a single point of contact that facilitates
the customers’ experience throughout the permitting and construction process.
As part of the Fiscal Year 2014 Adopted Budget, and in efforts to better align the budget with
the current operational structure, the City Council created the Development Services
Department. Development Services embodies all development-related activities, including staff
allocations, resources, and associated service fees across multiple departments. The operating
budget currently relies on development review fees, permitting fees, and a subsidy from the
General Fund. Though the fees have been adjusted annually for inflation factors, it has been at
least five years since the fee schedule and structure were last subject to a full evaluation.
The Development Services Department is made up of key representatives from four different
departments including the Building, Planning, Public Works, and Fire divisions. These
representatives are physically stationed at the Development Center (285 Hamilton Avenue) or
elsewhere in the City, and provide development-related services to applicants seeking a
construction-related permit. In the current budget structure, representatives are allocated
proportionally to Development Services based on their time involved in the review process.
Approximately 80
employees are fully or
fractionally budgeted to the
department, resulting in a
total of 40 FTE. For
example, Development
Services has watershed
protection representatives
in the Public Works
department and
transportation planners in
the Planning department
City of Palo Alto Page 3
that review building permits. In addition to personnel costs, Development Services has specific
overhead and indirect charges such as the rent, administrative functions, and city support
services like Administrative Services, City Attorney, and Human Resources that must also be
accounted for. As a department that operates based on fee revenues, the incoming fees must
offset all expenses which include personnel, overhead, and indirect charges.
On May 18, 2015 the City Council adopted the User Fee Recovery Level Policy (CMR 5735) that
suggests levels of cost recovery (high, medium, and low) based upon policy considerations. As
referenced in the table below, activities in which participants receive most or all of the benefit
from the service provided (i.e. issuance of building permits), or which are regulatory in nature,
fall within the “high” cost recovery level group.
The City retained the services of Capital Accounting Partners (CAP) to complete a cost of
services study to identify the total cost of providing services for which the City charges fees,
Phase I of which is included as Attachment D. CAP has prepared hundreds of cost allocation
plans for cities, counties and special districts throughout California, Texas, Washington and
more. Some of their clients include San Diego, Glendale, Los Gatos, Santa Barbara, Burbank and
Sacramento. Dan Edds is a project manager with CAP and has more than 15 years of experience
consulting within the public sector. His operational improvement work has involved problem
solving and process improvement opportunities for core business processes.
CAP uses an activity-based costing model to calculate the cost of a specific service (detailed
further in Attachment B), which identifies activities in an organization and assigns the cost of
each activity with resources to all services according to the consumption by each. The model
assigns direct and indirect costs to each fee, and therefore, calculates the cost of each fee at full
cost recovery. As discussed below, Phase I of the study includes recommendations for the
Department’s flat fees only.
Discussion
Fees and Fee Structure:
Development Services fees are structured in two ways: flat or project valuation-based. Based
on estimated FY 2016 revenues, approximately 75%, or $8.6 million, of departmental revenue is
derived from project valuation-based fees. Major project valuation-based fees include the
Building Permit and Plan Check fees. Industry practice correlates the valuation of a job to its
complexity, in the aggregate, and building permit and plan check fees are then calculated based
on a percentage of a project’s valuation. In contrast, flat rate fees are based on time and
materials and activity levels. These fees comprise the remaining Development Services
revenue. The following represents the projected breakdown of FY 2016 revenues evaluated as
part of the fee study, at current fee levels:
FY 2016 Development Services Projected Revenue
City of Palo Alto Page 4
Fee Study Project Steps and Process:
CAP was tasked to prepare a detailed cost analysis of its Development Services user fees with
the objective of ensuring that the Development Services Department is fully accounting for all
costs and recovering adequate revenues to cover expenses. Based on the current organizational
structure, CAP developed a costing model to analyze the total cost of fee generating services
and recommend adjustments necessary to reach full recovery.
As the study progressed, it was determined that additional data points were necessary to
recommend adjustments for valuation-based fee activities. Therefore, the report includes only
a high-level assessment of aggregated building permit and plan check activities. Staff is
currently in the process of implementing new data collection fields in the permit system and is
expanding the existing study to include a survey of other comparable City valuation tables and
alternative permit fee structures for what are currently valuation-based fees.
The study conducted by CAP for all Non-Valuation-based fees, or “flat rate” fees, utilized an
activity-based costing model to calculate the full cost of providing specific services. This
methodology identifies activities in an organization and assigns the cost of each activity with
resources to all services according to the consumption by each. The model assigns direct and
indirect costs to each fee, where all proposed fees have been calculated at full recovery. A
summary of how CAP builds cost structures follows:
1. Direct Costs
Through meetings with staff, CAP identified all direct staff time spent on fee-related activities
or services, where direct time is indicative of workers who are directly involved with activities
of a specific fee or service. Average salaries and the City Standard productive rate of 1,600
hours/year were used for these calculations. Additionally, CAP identified other operational
costs that are directly attributed to certain services, such as the Department’s use of on-call
consultants for inspections in the Building and Fire divisions.
2. Indirect Costs (citywide administration)
City of Palo Alto Page 5
These costs include processes that support, but do not directly apply to any specific activity or
fee, such as the Citywide and Departmental Overhead. The Citywide overhead costs are
allocated to departments based on the City’s Cost Allocation Plan. These represent expenses of
supporting departments including the offices of the City Manager, City Attorney, City Auditor,
City Clerk, Administrative Services, Human Resources, Information Technology, and Facilities
Maintenance.
3. Overhead (departmental administration)
Department Overhead is represented in two aspects: 1) Development Services as a whole; and
2) Divisional Overhead. Development Services overhead includes the salaries of the Director,
the Director’s Administrative Assistant, and the Senior Management Analyst, as well as rent,
and other supplies commonly used by all divisions of the department (Building, Planning, Public
Works, and Fire Prevention). These are not assigned to any particular service, but are allocated
to all fees since these professionals support all the activities of the department as a whole.
The Divisional Overhead represents costs associated with managers, supervisors, and support
staff and common purpose operational costs of the Public Works, Planning, and Fire
Departments. For example, direct staff is allocated as a percentage of an FTE to Development
Services based upon activity levels for Public Works, while divisional overhead which reflects
the Public Works administrative costs such as budget, contract, and executive leadership costs
are calculated as a rate that is applied to the salaries allocated to Development services and
executed through a year-end adjustment. The rate assumes that the same level of
administrative support provided to the Public Works Department is provided to the Public
Works division within Development Services. These are not assigned to any particular service,
but are allocated to all fees in the respective division.
4. Reserve
A reserve fund provides a mechanism to finance future unanticipated events and other
identified or planned needs of the department. For purposes of the calculation, the reserve
amount is allocated to all fees, similar to Overhead. As part of the study, the consultant
recommended that the City set a specific reserve policy, and included an illustrative calculation
based on the common practice of building 6-12 months of operating expenses over a three year
period. This is equivalent to a $2.3 million reserve within the annual cost structure of the
department, and the study’s results show the full cost of fees with and without a reserve.
However, due to the significant changes recommended to move closer towards cost recovery,
and the anticipated future adjustments valuation-based fees, staff does not recommend the
establishment of a reserve at this time. As such, the proposed fees presented in Attachment A
do not include any assumption for reserve costs.
Projections:
The study indicates a total projected General Fund subsidy in FY 2016 of $1,787,985, excluding
impacts of one-time activities, such as deferred revenue for large projects and expense savings.
Once adjusted for one-time revenues, the net general fund subsidy in FY 2016 is approximately
City of Palo Alto Page 6
$294,000.
Drivers of Cost Recovery Variances:
Staff believes the following to be key drivers for cost recovery variances within the Public
Works, Planning, and Fire Prevention divisions:
1. Length of time since last comprehensive Fee Study. While fees have been adjusted annually
for inflation factors, it has been at least five years since the fee schedule and structure were last
subject to a full evaluation.
2. Fee levels in Planning, Public Works, and Fire have historically been set below full cost
recovery.
3. As part of the creation of Development Services, the cost structure for Planning, Public
Works, and Fire divisions has significantly changed. For example, divisions are now responsible
for overhead allocations such as rent, Development Services managerial staff, and other
commonly used operating expenses (e.g. scanning services, office supplies, etc.).
Findings & Recommendations:
Modifications to flat fees, representing approximately 25% or $2.7 million of departmental
revenues, are representative of current resources, activities, and activity levels, as well as
changes to California Building and Fire Codes, and/or state mandates. Recommended
modifications to fees included re-naming fees, altering tiered fees and triggers, removing, and
creating new fees. The proposed fees, including a description of changes where applicable, are
included in Attachment A.
Fire Prevention
The largest impact of the Fee Study is anticipated in the Fire Prevention Division. Fire
Prevention fees have historically been set below cost recovery, or were provided at no cost,
and a complete fee study or evaluation has not been completed in at least five years. Further,
as part of creating Development Services, all Fire Prevention staff and associated costs were
moved to Development Services offices resulting in the need for additional space. Moving Fire
Prevention entirely out of the Fire Department and into Development Services means that this
division is now subject to a different cost structure that includes overhead allocations such as
rent, Development Services managerial staff, and other commonly used operating expenses
(e.g. scanning services, office supplies, etc.).
All fees in Fire Prevention were calculated according to the consultant’s activity-based model,
where fees have been proposed at full cost based on current activities, activity levels, and
proposed resources. These proposed fees are included in the fee study and are proposed to be
increased as recommended by CAP.
City of Palo Alto Page 7
Public Works
Public Works, like Planning, has a host of fees. However, many of their fees can be applied to
both development and non-development-related work. The differentiating factor is that
development-related work is entirely the result of private development. For example, a
commercial developer has to apply for a street work permit to work in the right-of-way. That is
entirely due to the impacts associated with their project. That work is driven by private
interests and it has been the direction from Council to ensure that those fees are set at full cost
recovery. Those fees are collected by and reside in Development Services as do the subsequent
direct, indirect and overhead Public Works costs associated with providing those services.
For purposes of this study, private development work is separate and distinct from non-
development related work. Therefore, those services and fees are provided by Public Works as
a whole, and the fees are set by Public Works as a whole through the Public Works
departmental municipal fee schedule. Public Works, with direction from the City Council,
decides how close to full cost recovery they should set those fees. The CAP study did include
analysis of the Public Works Department, however, subsequent to the kick-off of the consultant
study, updated analysis on staff allocations, time estimates, and fee volumes were obtained
and staff was unable to incorporate this more current data into the consultant’s final results.
Therefore, Public Works municipal fee proposals included as part of the development of the
Adopted Fiscal Year 2017 Municipal Fee Schedule are reflective of a full cost recovery model,
however, were not reflective of the specific methodologies and assumptions used in the CAP
study. The FY 2017 Adopted Fees utilized the Questica Calculator launched by the Office of
Management and Budget as opposed to those fees recommended in the CAP study. The
Adopted amendments to Public Works’ fees in the Development Services Department
represent significant recommended increases from the 2016 fees, and are expected to bring
the Public Works fees much closer to cost recovery. As part of the FY 2018 budget process, the
Office of Management and Budget, Development Services and Public Works will review these
fees and ensure they are at full cost recovery and/or bring forward recommended adjustments
to the fees and appropriate based on FY 2017 actual activity levels and estimated FY 2018 costs.
Building
Non-valuation fees were updated to reflect current ICC unit fee schedule structures, per
California State code. Similar to Fire Prevention, a complete fee study or evaluation has not
been completed in the last five years, and all fees are proposed at full cost according to the
consultant’s activity based model and current activities, activity levels, and resources.
The most significant changes recommended within the Building division are a result of
restructuring Mechanical, Plumbing, and Electric Permit fees. These fees are charged in
conjunction with the Building Permit and generally charge a Base Fee (representing
administrative costs to process) and new or remodeled supplemental fee (based on square
footage and representative of inspection costs). As a result of the study, current processing and
inspection times have both decreased. At full cost, the base fee is proposed to decrease to $82,
from $92, and the square footage fee to decrease to $0.02, from $0.11 per square foot.
City of Palo Alto Page 8
Mechanical, Plumbing, and Electric fees can also be charged as stand-alone permits. These fees
are structured as a Base fee (representing administrative costs to process) plus a supplemental
permit fee (representing inspection costs). The base fee is proposed to decrease to $82 from
$92 as stated above, where the unit of measure for the supplemental permit is proposed to
change from “each” to “per permit”. The current unit of measure is reflective of time estimates
for each incremental measure of an activity, such as the inspection of each individual light
fixture or switch at $0.50/each. Determining the incremental unit of time is incredibly difficult,
hard to justify, and is no longer a method promoted by ICC. As such, Development Services has
revised these fees on a per permit basis, using time estimates of an average project (5,000 sq.
ft.). In the case of the light fixture, the permit would be issued at a total cost of $82 for the
Base Fee, representing administrative processing costs, plus $68 for the inspection of any
number of light fixtures.
Green Building
Development Services continues to expand and develop the Green Building program in efforts
to follow the City Council’s lead and maintain a leadership role in environmental sustainability.
Fees were updated and new fees implemented to comply with State mandates, such as a
Landscape review and permit management, as well as the current Green Building and Energy
Ordinance. The cost structure of these fees includes consulting services associated with the
integration and management of sustainable building practices and policies, Landscape review
and permit management, as well as staff training, quality control, reporting, and informational
outreach to the community.
Use & Occupancy
Use & Occupancy fees were included in the study; however, staff does not propose to adjust
these fees at this time. These fees will be studied separately with the integration of the
Business Registry fee where staff anticipates that drivers to calculate cost, such as activities and
resources, will change as the program is developed.
Next Steps:
Development Services strives to operate as a revenue-supported department within the
General Fund with the ultimate goal of being an enterprise fund. The ultimate goal of
Development Services is to reach full cost recovery in all divisions and the adoption of the Fees
outlined in Attachment A represents the next step towards this goal of full cost recovery.
The department will continue to track revenues and expenditures at a divisional level through
Fiscal Year 2017 in order to analyze their cost-recovery performance and will work
collaboratively with the Office of Management and Budget, and the City Attorney’s Office to
identify and define a reserve policy that is appropriate and specific to the Development
Services. Staff anticipates returning to City Council with iterative recommendations, including
adjustments to valuation-based fees and the inclusion of reserve costs, through subsequent
budget processes.
City of Palo Alto Page 9
Resource Impact
The actions recommended in this report would increase the estimated revenue generated by
the Development Service Department flat fee activities. Given the changing economic
environment and the unknown potential impacts of the increases on activity levels (estimated
to be minor), no adjustment to the budget is assumed. Revenue collections will be monitored
and factored into the annual development of the budget as data is availabe and adjustments
are found to be necessary.
Environmental Review
Adoption of an ordinance amending Development Services Municipal Fees is not a project for
the purposes of the California Environmental Quality Act (CEQA) and therefore no
environmental review is necessary.
Attachments:
Attachment A: Municipal Fee Proposals (PDF)
Attachment B: CAP Cost of Services Study (PDF)
Attachment C: 11-15-16_FCM-Excerpt-Item-3 (PDF)
City of Palo Alto (ID # 7347)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 11/15/2016
City of Palo Alto Page 1
Summary Title: Development Services Cost of Services Study
Title: Development Services Cost of Services Study Including Fiscal Year 2017
Fee Proposals
From: City Manager
Lead Department: Development Services Department
Recommendation
Staff recommends that the Finance Committee recommend that the City Council adopt an
ordinance amending to Development Services Municipal Fees as described in Attachment A,
based on the completion of a Cost of Services Study (Attachment B) and adjusted by the annual
inflator applied to Municipal Fees from Fiscal Year 2016 to Fiscal Year 2017.
Executive Summary
The Development Services Department (DSD) undertook a Cost of Services Study in 2015 to
evaluate development related service fees incurred by applicants seeking a construction related
permit. These fees had not been reevaluated for many years, and the resulting
recommendations -- if approved -- would increase fee revenues and lower General Fund
subsidies consistent with the Cost Recovery Policy adopted by the City Council in May 2015.
The proposed changes would amend the fee schedule to reflect current International Code
Council (ICC) unit fee schedule structures and the City’s Green Building and Energy Ordinances
by eliminating some fees, proposing new fees, consolidating or expanding others, and adjusting
certain fees to a single flat-fee per permit. The City Council has the discretion to determine the
level of cost recovery for each of these fees. However, under State law, fees cannot be set
above the cost of service.
The consultant report is discussed in detail below, and the recommended fee changes
(Attachment A) and the full text of the consultant report (Attachment B) are attached. This
study was completed based on Fy2016 data, therefore an annual inflation value of 5.5%, as
recommended by the Office of Management and Budget for all Citywide fees in Fiscal Year
2017, is not included in the fees detailed in Attachment A but staff does recommend that this
increase be applied to all Development Services related fees in order to capture their cost in FY
2017 and included as part of the final ordinance action for City Council consideration.
City of Palo Alto Page 2
Background
In July 2010, the City Manager launched the comprehensive “Development Center Blueprint”
(Blueprint) project to restructure and adopt more holistic approaches to integrated
development review, permitting services, and staff coordination in order to improve
organizational efficiencies and minimize unnecessary costs and delays to customers. Since the
inception of the Blueprint, DSD has implemented new technologies, acquired additional space,
upgraded the existing space, and consolidated into a central department, that consists of
Building (formerly within the Planning department), Planning, Public Works, and Fire Prevention
divisions. Development Services is now a “one-stop” shop, located in a leased space across
from City Hall. Design development projects now have a single point of contact that facilitates
the customers’ experience throughout the permitting and construction process.
As part of the Fiscal Year 2014 Adopted Budget, and in efforts to better align the budget with
the current operational structure, the City Council created the Development Services
Department. Development Services embodies all development-related activities, including staff
allocations, resources, and associated service fees across multiple departments. The operating
budget currently relies on development review fees, permitting fees, and a subsidy from the
General Fund. Though the fees have been adjusted annually for inflation factors, it has been at
least five years since the fee schedule and structure were last subject to a full evaluation.
The Development Services Department is made up of key representatives from four different
departments including the Building, Planning, Public Works, and Fire divisions. These
representatives are physically stationed at the Development Center (285 Hamilton Avenue) or
elsewhere in the City, and provide development-related services to applicants seeking a
construction-related permit. In the current budget structure, representatives are allocated
proportionally to Development Services based on their time involved in the review process.
Approximately 80 employees are fully or fractionally budgeted to the department, resulting in a
total of 40 FTE. For example, Development Services has watershed protection representatives
in the Public Works department and transportation planners in the Planning department that
review building permits. In addition to personnel costs, Development Services has specific
overhead and indirect
charges such as the rent,
administrative functions,
and city support services
like Administrative Services,
City Attorney, and Human
Resources that must also
be accounted for. As a
department that operates
based on fee revenues, the
incoming fees must offset
all expenses which include
City of Palo Alto Page 3
personnel, overhead, and indirect charges.
On May 18, 2015 the City Council adopted the User Fee Recovery Level Policy (CMR 5735) that
suggests levels of cost recovery (high, medium, and low) based upon policy considerations. As
referenced in the table below, activities in which participants receive most or all of the benefit
from the service provided (i.e. issuance of building permits), or which are regulatory in nature,
fall within the “high” cost recovery level group.
The City retained the services of Capital Accounting Partners (CAP) to complete a cost of
services study to identify the total cost of providing services for which the City charges fees,
Phase I of which is included as Attachment D. CAP has prepared hundreds of cost allocation
plans for cities, counties and special districts throughout California, Texas, Washington and
more. Some of their clients include San Diego, Glendale, Los Gatos, Santa Barbara, Burbank and
Sacramento. Dan Edds is a project manager with CAP and has more than 15 years of experience
consulting within the public sector. His operational improvement work has involved problem
solving and process improvement opportunities for core business processes.
CAP uses an activity-based costing model to calculate the cost of a specific service (detailed
further in Attachment D), which identifies activities in an organization and assigns the cost of
each activity with resources to all services according to the consumption by each. The model
assigns direct and indirect costs to each fee, and therefore, calculates the cost of each fee at full
cost recovery. As discussed below, Phase I of the study includes recommendations for the
Department’s flat fees only.
Discussion
Fees and Fee Structure:
Development Services fees are structured in two ways: flat or project valuation-based. Based
on estimated FY 2016 revenues, approximately 75%, or $8.6 million, of departmental revenue is
derived from project valuation-based fees. Major project valuation-based fees include the
Building Permit and Plan Check fees. Industry practice correlates the valuation of a job to its
complexity, in the aggregate, and as such fees are calculated based on a percentage of a
projects valuation. Currently, the department uses the construction value for labor and
materials of the permitted work as the basis for determining the total Building Permit fee. An
additional Plan Check fee is assessed on top of the Building Permit, which is based on a
percentage of the total Permit fee. The Plan Check fee is intended to recover costs associated
with the Building, Fire & Life Safety, Zoning, and Public Works review of applicant plan
submittals. In contrast, flat rate fees are fees costed based on time and materials and activity
levels. These fees comprise the remaining Development Services revenue. The following
represents the projected breakdown of FY 2016 revenues evaluated as part of the fee study, at
current fee levels:
City of Palo Alto Page 4
FY 2016 Development Services Projected Revenue
Fee Study Project Steps and Process:
CAP was tasked to prepare a detailed cost analysis of its Development Services user fees with
the objective of ensuring that the Development Services Department is fully accounting for all
costs and recovering adequate revenues to cover expenses. Based on the current organizational
structure, CAP developed a costing model to analyze the total cost of fee generating services
and recommend adjustments necessary to reach full recovery.
As the study progressed, it was determined that additional data points were necessary to
recommend adjustments for valuation-based fee activities. Therefore, the report includes only
a high-level assessment of aggregated building permit and plan check activities. Staff is
currently in the process of implementing new data collection fields in the permit system and is
expanding the existing study to include a survey of other comparable City valuation tables and
alternative permit fee structures for what are currently valuation-based fees.
The study conducted by CAP for all Non-Valuation-based fees, or “flat rate” fees as referenced
earlier in this report, utilized an activity-based costing model to calculate the full cost of
providing specific services. This methodology identifies activities in an organization and assigns
the cost of each activity with resources to all services according to the consumption by each.
The model assigns direct and indirect costs to each fee, where all proposed fees have been
calculated at full recovery. A summary of how CAP builds cost structures follows:
1. Direct Costs
Through meetings with staff, CAP identified all direct staff time spent on fee-related activities
or services, where direct time is indicative of workers who are directly involved with activities
of a specific fee or service. Average salaries and the City Standard productive rate of 1,600
hours/year were used for these calculations. Additionally, CAP identified other operational
costs that are directly attributed to certain services, such as the Department’s use of on-call
consultants for inspections in the Building and Fire divisions.
City of Palo Alto Page 5
2. Indirect Costs (citywide administration)
These costs include processes that support, but do not directly apply to any specific activity or
fee, such as the Citywide and Departmental Overhead. The Citywide overhead costs are
allocated to departments based on the City’s Cost Allocation Plan. These represent expenses of
supporting departments including the offices of the City Manager, City Attorney, City Auditor,
City Clerk, Administrative Services, Human Resources, Information Technology, and Facilities
Maintenance.
3. Overhead (departmental administration)
Department Overhead is represented in two aspects: 1) Development Services as a whole; and
2) Divisional Overhead. Development Services overhead includes the salaries of the Director,
the Director’s Administrative Assistant, and the Senior Management Analyst, as well as rent,
and other supplies commonly used by all divisions of the department (Building, Planning, Public
Works, and Fire Prevention). These are not assigned to any particular service, but are allocated
to all fees since these professionals support all the activities of the department as a whole.
The Divisional Overhead represents costs associated with managers, supervisors, and support
staff and common purpose operational costs of the Public Works, Planning, and Fire
Departments. For example, direct staff is allocated as a percentage of an FTE to Development
Services based upon activity levels for Public Works, while divisional overhead which reflects
the Public Works administrative costs such as budget, contract, and executive leadership costs
are calculated as a rate that is applied to the salaries allocated to Development services and
executed through a year-end adjustment. The rate assumes that the same level of
administrative support provided to the Public Works Department is provided to the Public
Works division within Development Services. These are not assigned to any particular service,
but are allocated to all fees in the respective division.
4. Reserve
A reserve fund provides a mechanism to finance future unanticipated events and other
identified or planned needs of the department. For purposes of the calculation, the reserve
amount is allocated to all fees, similar to Overhead. As part of the study, the consultant
recommended that the City set a specific reserve policy, however included an optional common
practice to build 6-12 months of operating expenses over a three year period. The original
consultant study incorporates a $2.3 million reserve within the cost structure of the
department, where results show the full cost of fees with and without a reserve. However, due
to the recommended significant changes to move closer towards cost recovery, and the delay
necessary to adjust valuation-based fees, staff does not recommend the establishment of a
reserve at this time. As such, the proposed fees presented in Attachment A do not include any
assumption for reserve costs.
Projections:
The study indicates a total projected General Fund subsidy in FY 2016 of $1,787,985, excluding
City of Palo Alto Page 6
impacts of one-time activities, such as deferred revenue for large projects and expense savings.
Once adjusted for one-time revenues, the net general fund subsidy in FY 2016 is approximately
$294,000.
Drivers of Cost Recovery Variances:
Staff believes the following to be key drivers for cost recovery variances within the Public
Works, Planning, and Fire Prevention divisions:
1. Length of time since last comprehensive Fee Study. While fees have been adjusted annually
for inflation factors, it has been at least five years since the fee schedule and structure were last
subject to a full evaluation.
2. Fee levels in Planning, Public Works, and Fire have historically been set below full cost
recovery.
3. As part of the creation of Development Services, the cost structure for Planning, Public
Works, and Fire divisions has significantly changed. For example, divisions are now responsible
for overhead allocations such as rent, Development Services managerial staff, and other
commonly used operating expenses (e.g. scanning services, office supplies, etc.).
Findings & Recommendations:
Modifications to flat fees, representing approximately 25% or $2.7 million of departmental
revenues, are representative of current resources, activities, and activity levels, as well as
changes to California Building and Fire Codes, and/or state mandates. Recommended
modifications to fees included re-naming fees, altering tiered fees and triggers, removing, and
creating new fees. The proposed fees, including a description of changes where applicable, are
included as Attachment A (excluding the recommended 5.5% increase to align with FY 2017
costs).
Fire Prevention
The largest impact of the Fee Study is anticipated in the Fire Prevention Division. Fire
Prevention fees have historically been set below cost recovery, or were provided at no cost,
and a complete fee study or evaluation has not been completed in at least five years. Further,
as part of creating Development Services, all Fire Prevention staff and associated costs were
moved to Development Services offices resulting in the need for additional space. Moving Fire
Prevention entirely out of the Fire Department and into Development Services means that this
division is now subject to a different cost structure that includes overhead allocations such as
rent, Development Services managerial staff, and other commonly used operating expenses
(e.g. scanning services, office supplies, etc.).
All fees in Fire Prevention were calculated according to the consultant’s activity-based model,
where fees have been proposed at full cost based on current activities, activity levels, and
City of Palo Alto Page 7
proposed resources. These proposed fees are included in the fee study and are proposed to be
increased as recommended by CAP.
Public Works
Public Works, like Planning, has a host of fees. However, many of their fees can be applied to
both development and non-development-related work. The differentiating factor is that
development-related work is entirely the result of private development. For example, a
commercial developer has to apply for a street work permit to work in the right-of-way. That is
entirely due to the impacts associated with their project. That work is driven by private
interests and it has been the direction from Council to ensure that those fees are set at full cost
recovery. Those fees are collected by and reside in Development Services as do the subsequent
direct, indirect and overhead Public Works costs associated with providing those services.
For purposes of this study, private development work is separate and distinct from non-
development related work. Therefore, those services and fees are provided by Public Works as
a whole, and the fees are set by Public Works as a whole through the Public Works
departmental municipal fee schedule. Public Works, with direction from the City Council,
decides how close to full cost recovery they should set those fees. The CAP study did include
analysis of the Public Works Department, however, subsequent to the kick-off of the consultant
study, updated analysis on staff allocations, time estimates, and fee volumes were obtained
and staff was unable to incorporate this more current data into the consultant’s final results.
Therefore, Public Works municipal fee proposals included as part of the development of the
Adopted Fiscal Year 2017 Municipal Fee Schedule are reflective of a full cost recovery model,
however, were not reflective of the specific methodologies and assumptions used in the CAP
study. The FY 2017 Adopted Fees utilized the Questica Calculator launched by the Office of
Management and Budget as opposed to those fees recommended in the CAP study. The
Adopted amendments to Public Works’ fees in the Development Services Department
represent significant recommended increases from the 2016 fees, and are expected to bring
the Public Works fees much closer to cost recovery. As part of the FY 2018 budget process, the
Office of Management and Budget, Development Services and Public Works will review these
fees and ensure they are at full cost recovery and/or bring forward recommended adjustments
to the fees and appropriate based on FY 2017 actual activity levels and estimated FY 2018 costs.
Building
Non-valuation fees were updated to reflect current ICC unit fee schedule structures, per
California State code. Similar to Fire Prevention, a complete fee study or evaluation has not
been completed in the last five years, and all fees are proposed at full cost according to the
consultant’s activity based model and current activities, activity levels, and resources.
The most significant changes recommended within the Building division are a result of
restructuring Mechanical, Plumbing, and Electric Permit fees. These fees are charged in
conjunction with the Building Permit and generally charge a Base Fee (representing
administrative costs to process) and new or remodeled supplemental fee (based on square
City of Palo Alto Page 8
footage and representative of inspection costs). As a result of the study, current processing and
inspection times have both decreased. At full cost, the base fee is proposed to decrease to $82,
from $92, and the square footage fee to decrease to $0.02, from $0.11 per square foot.
Mechanical, Plumbing, and Electric fees can also be charged as stand-alone permits. These fees
are structured as a Base fee (representing administrative costs to process) plus a supplemental
permit fee (representing inspection costs). The base fee is proposed to decrease to $82 from
$92 as stated above, where the unit of measure for the supplemental permit is proposed to
change from “each” to “per permit”. The current unit of measure is reflective of time estimates
for each incremental measure of an activity, such as the inspection of each individual light
fixture or switch at $0.50/each. Determining the incremental unit of time is incredibly difficult,
hard to justify, and is no longer a method promoted by ICC. As such, Development Services has
revised these fees on a per permit basis, using time estimates of an average project (5,000 sq.
ft.). In the case of the light fixture, the permit would be issued at a total cost of $82 for the
Base Fee, representing administrative processing costs, plus $68 for the inspection of any
number of light fixtures.
Green Building
Development Services continues to expand and develop the Green Building program in efforts
to follow the City Council’s lead and maintain a leadership role in environmental sustainability.
Fees were updated and new fees implemented to comply with State mandates, such as a
Landscape review and permit management, as well as the current Green Building and Energy
Ordinance. The cost structure of these fees includes consulting services associated with the
integration and management of sustainable building practices and policies, Landscape review
and permit management, as well as staff training, quality control, reporting, and informational
outreach to the community.
Use & Occupancy
Use & Occupancy fees were included in the study; however, staff does not propose to adjust
these fees at this time. These fees will be studied separately with the integration of the
Business Registry fee where staff anticipates that drivers to calculate cost, such as activities and
resources, will change as the program is developed.
Next Steps:
Development Services strives to operate as a revenue-supported department within the
General Fund with the ultimate goal of being an enterprise fund. The ultimate goal of
Development Services is to reach full cost recovery in all divisions and the adoption of the Fees
outlined in Attachment A represents the next step towards this goal of full cost recovery.
The department will continue to track revenues and expenditures at a divisional level through
Fiscal Year 2017 in order to analyze their cost-recovery performance and will work
collaboratively with the Office of Management and Budget, and the City Attorney’s Office to
identify and define a reserve policy that is appropriate and specific to the Development
City of Palo Alto Page 9
Services. Staff anticipates returning to City Council with iterative recommendations, including
adjustments to valuation-based fees and the inclusion of reserve costs, through subsequent
budget processes.
Resource Impact
The actions recommended in this report would increase the estimated revenue generated by
the Development Service Department flat fee activities. Given the changing economic
environment and the unknown potential impacts of the increases on activity levels (estimated
to be minor), no adjustment to the budget is assumed. Revenue collections will be monitored
and factored into the annual development of the budget as data is availabe and adjustments
are found to be necessary.
Environmental Review
Adoption of an ordinance amending Development Services Municipal Fees is not a project for
the purposes of the California Environmental Quality Act (CEQA) and therefore no
environmental review is necessary.
Attachments:
Attachment A_Municipal Fee Proposals (PDF)
Attachment B_CAP Cost of Services Study (PDF)
City of Palo Alto (ID # 8509)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 9/19/2017
City of Palo Alto Page 1
Summary Title: Review and Discuss CalPERS Pension Annual Valuation
Reports
Title: Review and Discuss CalPERS Pension Annual Valuation Reports as of
June 30, 2016 Including Assumptions, Financial Disclosures and Next Steps
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff Recommends the Finance Committee:
1. Review and discuss the June 30, 2016 CalPERs Valuation Reports for the Miscellaneous
and Safety Pension Plans; and
2. Provide feedback and direction for the next scheduled discussion (October 2017)
regarding the City’s options related to pension funding.
BACKGROUND
The City of Palo Alto offers its employees and retirees a defined pension benefit plan which is
managed and administered by the California Pensions Retirement System (CalPERS) a State of
California Pension Trust program. Annually staff provides the CalPERS actuarial reports detailing
the latest status of the City of Palo Alto Pension trust plans for employees and retirees. These
actuarial reports are used to calculate the annual required contribution to the trust for the
pension obligations. In addition, updates on the rate of return, funding status, and changes to
the trust based on various impacts are detailed in the report.
The City of Palo Alto provides a defined pension benefit to its employees through the State of
California Pension Retirement System (CalPERS), which manages and administers the program.
The CalPERS program maintains two trust accounts: 1) a plan for safety employees (sworn fire
and police personnel); and 2) a plan for miscellaneous employees (all other non-safety
personnel employed by the City such as field personnel, administrative support, and managers).
These annual reports provide updated actuarial information for both pension plans as of June
30, 2016.
City of Palo Alto Page 2
As a refresher on the CalPERS benefits, there are three tiers of benefits within the two plans
described above and it takes City employees five (5) years of service to vest in the pension
program. Table 1 below outlines the current pension plans and the different benefits levels by
tier. Attachment A outlines in further detail the participation levels in each of these tiers by
pension plan and employee group as of March 2017.
Table 1: City of Palo Alto Pension Benefit Plans and Tiers
Miscellaneous Safety: Fire Safety: Police
Tier 1 2.7%/service year
worked; eligibility starting
at the age of 55 (2.7% @
55)
3.0%/service year
worked; eligibility starting
at the age of 50 (3.0% @
50)
3.0%/service year
worked; eligibility starting
at the age of 50 (3.0% @
50)
Tier 2 Effective July 16, 2010 –
2.0%/service year worked,
eligibility starting at age
60 (2.0% @ 60)
Effective June 7, 2012 –
3.0%/service year
worked, eligibility starting
at age 55 (3.0% @ 55)
Effective December 6,
2012 – 3.0%/service year
worked, eligibility starting
at age 55 (3.0% @ 55)
Tier 3
“PEPRA”*
Effective January 1, 2013:
2.0%/service year
worked; eligibility starting
at age 62 (2.0% at 62)
Effective January 1, 2013:
2.7%/service year
worked; eligibility starting
at age 57 (2.7% at 57)
Effective January 1, 2013:
2.7%/service year
worked; eligibility starting
at age 57 (2.7% at 57)
* Under PEPRA, the benefit calculation is maxed at a salary of $142,530 for both Miscellaneous and Safety benefit plans,
therefore it is calculated based on service years but cannot exceed $142,530. Also, the final salary calculation is based on the
average of highest three years.
In addition, as part of the adoption of the City’s FY 2018 Budget, the City Council referred to the
Finance Committee the task of identifying funding options to further address the City’s
unfunded pension.
Specifically, the City Council directed staff to:
Return to the Finance Committee beginning August to review the citywide implications of: 1)
Structural revenue and expense growth ensuring expense growth remains at or below that of
revenues; and 2) Unfunded pension liability.
Some specific areas to address include:
1. Look first at current public safety growth rate of 10 to 12 percent in relation to
citywide growth rate of 6 percent. Include a review of staffing levels and
alternative models.
2. Review of the financial reporting of the unfunded pension liability
This is the first in a series of meetings staff anticipates scheduling over the coming fiscal year in
order to begin to address this referral from the City Council.
City of Palo Alto Page 3
DISCUSSION
CalPERS prepares an annual actuarial analysis to determine the City’s pension liability and
annual required contribution for the two trusts – update on the funding status, results of
assumptions such as rate of return (ROR), the new fiscal year Annual Required Contribution
(ARC) and projected future ARC as a percentage of payroll. The actuarial analysis is based on
current employees’ accrued benefit, and former employees that are vested but have yet to
retire as well as retired employees as of June 30, 2016. The CalPERS actuarial analysis is
completed two years in arrears by practice.
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate (or rate
of return) from 7.5 percent to 7.0 percent using a three-year phase-in beginning in FY 2019.
The reports were prepared prior to CalPERS staff finalizing the ROR as of June 30, 2017, which
CalPERS estimated to be 11.2 percent. Overall, this ROR of 11.2 percent is a significant
improvement over the prior year’s rate of return of only 0.61 percent. Exceeding the assumed
rate of return of 7.375 percent is a positive short-term result and is estimated to bring CalPERS
overall funding status up by approximately 3 percent. The use of the actual 11.2 percent ROR
instead of the assumed rate of return of 7.375 percent will decrease the unfunded pension
liability in both trusts compared to the levels reported in these valuations, however, this will be
offset by the lowering of the ROR to 7.0 percent in future years, which will result in an increase
of the unfunded pension liability for both trusts.
CalPERS Projected Contribution levels
As of 2017, CalPERS has designated two components to the annual billing of the employer
portion of pension contributions, 1) the Normal Cost, and 2) the Unfunded Accrued Liability
(UAL).
- Normal Cost: This reflects a rate of contribution for the plan of retirement benefits
provided to current employees based on the current set of assumptions.
- Employer Amortization of Unfunded Accrued Liability: This is an annual payment
calculated by CalPERS to pay down an agency’s unfunded accrued pension liability.
Assuming every assumption in the actuarial valuation stayed perfectly in place, an
organization would eliminate its unfunded pension liability if it made these payments
annually for 30 years. The liability grows when the assumptions goals, such as rate of
return, are not met.
This ARC for FY 2019 is $26.8 million for the Miscellaneous Plan and $12.9 million for the Safety
Plan. These payments reflect the blended or combined cost of both the “Normal Cost” and the
“Unfunded Accrued Liability” and are within the staff estimated payment based on CalPERS
projections provided earlier this calendar year. Future ARCs are estimated to grow from 32.6
percent to 44.1 percent of payroll by FY 2025 for miscellaneous and from 55.6 percent to 76.2
percent of payroll for safety. This is based on a 7.375 percent ROR for FY 2019, 7.25 percent for
FY 2020, and 7.00 percent for future years starting in FY 2021.
City of Palo Alto Page 4
The tables below, Table 2 through Table 4, summarize the projected percentage of payroll
required for each plan to fund the ARC as well as the individual components that make up this
rate.
- Table 2: Reflects the estimated percentage of payroll that is necessary for the City of
Palo Alto as an employer to fund both the Normal Cost and the annual payment of the
Unfunded Accrued Liability. It should be noted that the majority of employee groups
have agreed to pick-up between 1% and 3% of this employer contribution rate.
- Table 3: Reflects the projected percentage of payroll for the Normal Cost employer
contribution. This rate increases as the phase in of the change in ROR is realized.
- Table 4: Reflects the estimated annual contribution to pay down the Unfunded Accrued
Liability. This cost also increases as the phase-in of the change in ROR is realized.
Staff anticipates providing additional implications of the increasing cost of providing current
service levels on the City of Palo Alto in future discussions.
TABLE 2: CalPERS Projected Employer Contribution Rates (blended both UAL and Normal
Cost)*
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Miscellaneous 28.89% 30.20% 32.56% 35.9% 38.8% 40.9% 42.6% 43.5% 44.1%
Safety 45.43% 49.69% 55.63% 61.6% 66.3% 70.3% 73.5% 75.2% 76.2%
* In the most recent negotiations between the City and the represented labor units, the parties agreed to Memoranda of
Agreement (MOAs) that include provisions for employees to accept a greater share of pension costs to assist in curtailing the
City’s growing pension expense. For all Miscellaneous Plan employees, a 1% employee pick-up of the employer contribution
(excluding UMPAPA) and for all Safety employees a 3% employee pick-up of the employer contribution are anticipated to be
executed.
TABLE 3: CalPERS Projected Normal Cost Employer Rate*
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Miscellaneous 10.33% 10.04% 10.22% 10.7% 11.7% 11.7% 11.7% 11.7% 11.7%
Safety 18.98% 18.90% 19.40% 20.2% 21.9% 21.9% 21.9% 21.9% 21.9%
* In addition to the employer contributions, employees contribute the employee share of pension costs based on the plan and
benefit tier. Miscellaneous employees in Tier 1 contribute 8 percent, Tier 2 contribute 7 percent and Tier 3 are 50 percent of
the Normal Cost. Safety employees in Tiers 1 and 2 contribute 9 percent and Tier 3 contribute 50 percent of the Normal Cost
percent.
TABLE 4: CalPERS Projected Annual Employer Amortization of Unfunded Accrued Liability
($’s in 000’s)
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Miscellaneous 13,748 15,765 18,393 21,368 23,620 26,268 28,624 30,328 31,816
Safety 6,149 7,128 8,421 9,894 10,943 12,295 13,495 14,345 15,080
TOTAL $19,897 $22,893 $26,814 $31,262 $34,563 $38,563 $42,119 $44,673 $46,896
% Change from Prior Yr 15.1% 17.1% 16.6% 10.6% 11.6% 9.2% 6.1% 5.0%
City of Palo Alto Page 5
CalPERS Projected Unfunded Accrued Pension Liability
Included in the annual valuation report is a status of both plans “Funded Status.” Overall,
CalPERS is funded at 68 percentage. This is higher than the City’s funded status of 63.6 percent
for Safety, and 64.2 percent for miscellaneous. The Table 5 below outlines the City’s Funded
Status for both the Miscellaneous and Safety Plans with an assumed ROR of 7.375 as of June 30,
2017. The unfunded pension liability increased from $338.4 million as of June 30, 2015 to
$404.7 million as of June 30, 2016 an increase of $66.2 million or 19.6%. Again the actual ROR
was 11.2 percent and if this was used in the reports it would have lowered the unfunded
liability number that was provided.
TABLE 5: CalPERS Projected Unfunded Accrued Liability for the City of Palo Alto
As of
June 30, 2014
As of
June 30, 2015
As of
June 30, 2016
Miscellaneous 191,411,633 219,668,121 261,680,231
Miscellaneous Funded Ratio 71.3% 68.5% 64.2%
Safety 103,333,634 118,764,933 143,025,193
Safety Funded Ratio 71.9% 68.6% 63.6%
TOTAL UNFUNDED PENSION LIABILITY $249,745,267 $338,433,054 $404,705,424
% Change from Prior Yr 14.8% 19.6%
CalPERS recognizes the varying assumptions that may impact a plans unfunded accrued liability
and therefore a pension plan’s funding status, especially the implications of the discount rate
assumption. Therefore, in addition to the actuarial assumptions used to develop this annual
evaluation, CalPERS includes an Analysis of Discount Rate Sensitivity Section in their reports in
order to provide some level of sensitivity analysis of the pension plans. This analysis can be
found on page 22 of each respective plan report. The following analysis provided by CalPERS
looks at the June 30, 2016 unfunded accrued liability alternative discount rates. At 6.0 percent
ROR, the plans are estimated to have a total unfunded accrued liability of $609 million. This
represents an approximate 54 percent funding level of each plan. This analysis gives an
indication of the potential plan impacts if the Public Employees Retirement Fund were to realize
investment returns of 3.0% to 8.0% over the long-term. This type of analysis provides a sense of
the long-term risk of the employer contribution rates.
TABLE 6: CalPERS Alternative Scenarios Sensitivity Analysis (as of June 30, 2016)
3% Discount
Rate
6% Discount
Rate
7% Discount
Rate
8% Discount
Rate
Miscellaneous $681,675,340 $394,930,155 $294,639,684 $211,566,099
Miscellaneous Funded Ratio 40.7% 54.3% 61.4% 68.9%
Safety $388,794,232 $214,495,451 $160,646,230 $116,295,910
Safety Funded Ratio 39.1% 53.8% 60.9% 68.2%
TOTAL UNFUNDED PENSION LIABILITY $1.1 billion $609 million $455 million $328 million
City of Palo Alto Page 6
Conclusion
The City of Palo Alto has already proactively anticipated this increased need for funding and
worked on two strategies successfully to mitigate these growing funding needs. First, in the
most recent negotiations between the City and the represented labor units, the parties agreed
to Memoranda of Agreement (MOAs) that include provisions for employees to accept a greater
share of pension costs to assist in curtailing the City’s growing pension expense. For all
Miscellaneous Plan employees, a 1% employee pick-up of the employer contribution (excluding
UMPAPA) and for all Safety employees a 3% employee pick-up of the employer contribution are
anticipated to be executed. Second, the City Council has established an irrevocable 115
Pension Trust Fund with funding of approximately $3.1 million contributed through FY 2018
from all funds. This represents approximately 10% of the ARC.
Staff anticipates a continuation of this discussion in October 2017 including bringing back
potential funding options, methods of mitigating the implications in these reports, and
timelines for policy decisions in the context of the FY 2019 Budget development. It is through
this continued discussion staff anticipates further policy direction to be developed and
ultimately include in the annual budget process including the Long Range Financial Forecast.
RESOURCE IMPACT SECTION
Implications will be determined based on policy direction in subsequent conversations. The FY
2019 projects discussed in the Adopted of the FY 2018 Budget are consistent with these values.
ENVIRONMENTAL IMPACT
This report is not a project for the purposes of the California Environmental Quality Act.
Environmental review is not required.
Attachments:
Attachment A: Pension Tiers Table March 2017
Attachment B: CalPERS Safety Valuation June 30, 2016
Attachment C: CalPERS Misc. Valuation June 30, 2016
Mar 2017 Mar 2016 Mar 2017 Mar 2016
Tier 14 6 Tier 16770
Tier 22 2 Tier 267
Tier 34 3 Tier 31110
Sub‐total 10 11 Sub‐total 84 87
Tier 1 102 106 Tier 155
Tier 248 49 Tier 200
Tier 345 35 Tier 300
Sub‐total 195 190 Sub‐total 55
Tier 1 321 352 Tier 144
Tier 266 64 Tier 200
Tier 3 170 125 Tier 300
Sub‐total 557 541 Sub‐total 44
Tier 143 45 Tier 15059*
Tier 2 ‐ ‐ Tier 234
Tier 32 2 Tier 32410
Sub‐total 45 47 Sub‐total 77 73
Tier 176
Tier 211
Tier 300
Sub‐total 87
Tier 101
Tier 200
Tier 300
Sub‐total 01
Total Tier 1 470 509 Total Tier 1 133 145
Tier 2 116 115 Tier 21012
Tier 3 221 165 Tier 33520
Grand Total Misc Plans 807 789 Grand Total Safety Plans 178 177
%Tier 1 58% 65%%Tier 1 75% 82%
Tier 2 14% 15%Tier 26%7%
Tier 3 27% 21%Tier 3 20% 11%
Tier 1 2.7% @ 55 Tier 13% @ 50
Tier 22% @ 60 Tier 23% @ 55
Tier 32% @ 62 Tier 3 2.7% @ 57
*Excludes police trainees (4/2)
Police Management
Association
Police Management
Fire Management
PAPOA
Service Employees
International Union
Utilities Management
Miscellaneous Plans Safety Plans
Fire Chiefs Association
Employee Group
IAFFCity Council and Council
Appointed Officers
Employee Group
Management and
Professional
# of Employees # of Employees
Attachment A:
City of Palo Alto Pension Plan Benefit Levels Enrollment by Plan and Employee Group
California Public Employees’ Retirement System
Actuarial Office
P.O. Box 942701
Sacramento, CA 94229-2701
TTY: (916) 795-3240
(888) 225-7377 phone • (916) 795-2744 fax
www.calpers.ca.gov
July 2017
SAFETY PLAN OF THE CITY OF PALO ALTO (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2016
Dear Employer,
As an attachment to this letter, you will find a copy of the June 30, 2016 actuarial valuation report of your pension
plan. Your 2016 actuarial valuation report contains important actuarial information about your pension plan at CalPERS.
Your CalPERS staff actuary, whose signature appears in the “Actuarial Certification” section on page 1, is available to
discuss the report with you after August 31, 2017.
Required Contributions
The exhibit below displays the minimum required employer contributions and the Employee PEPRA Rate for Fiscal Year
2018-19 along with estimates of the required contributions for Fiscal Years 2019-20 and 2020-21. Member
contributions other than cost sharing (whether paid by the employer or the employee) are in addition to the results
shown below. The required employer contributions in this report do not reflect any cost sharing arrangement you may have with your employees.
Fiscal Year Employer Normal Cost Rate Employer Amortization of Unfunded Accrued Liability Employee PEPRA Rate
2018-19 19.397% $8,421,191 10.75%
Projected Results
2019-20 20.2% $9,894,000 TBD
2020-21 21.9% $10,943,000 TBD
The actual investment return for Fiscal Year 2016-17 was not known at the time this report was prepared. The
projections above assume the investment return for that year would be 7.375 percent. If the actual investment
return for Fiscal year 2016-17 differs from 7.375 percent, the actual contribution requirements for the projected years will differ from those shown above.
Moreover, the projected results for Fiscal Years 2019-20 and 2020-21 also assume that there are no future plan
changes, no further changes in assumptions other than those recently approved, and no liability gains or losses. Such
changes can have a significant impact on required contributions. Since they cannot be predicted in advance, the
projected employer results shown above are estimates. The actual required employer contributions for Fiscal year
2019-20 will be provided in next year’s report.
For additional details regarding the assumptions and methods used for these projections please refer to the “Projected
Employer Contributions” in the “Highlights and Executive Summary” section.
The required contributions shown above include a Normal Cost component expressed as a percentage of payroll and a
payment toward Unfunded Accrued Liability expressed as a dollar amount. Actual contributions for Fiscal Year 2018-19
and all future years will be collected on that basis. For illustrative total contribution requirements expressed as
percentages of payroll, please see pages 4 and 5 of the report.
The “Risk Analysis” section of the valuation report on page 21 also contains estimated employer contributions in future
years under a variety of investment return scenarios.
SAFETY PLAN OF THE CITY OF PALO ALTO
(CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2016
Page 2
Changes since the Prior Year’s Valuation
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to 7.00
percent using a three year phase-in beginning with the June 30, 2016 actuarial valuations. The minimum employer
contributions for Fiscal Year 2018-19 determined in this valuation were calculated using a discount rate of 7.375
percent. The projected employer contributions on Page 5 are calculated assuming that the discount rate will be lowered to 7.25 percent next year and to 7.00 percent the following year as adopted by the Board.
Beginning with Fiscal Year 2017-18 CalPERS began collecting employer contributions toward the plan’s unfunded
liability as dollar amounts instead of the prior method of a contribution rate. This change addresses potential funding
issues that could arise from a declining payroll or reduction in the number of active members in the plan. Funding the
unfunded liability as a percentage of payroll could lead to the underfunding of the plans. Due to stakeholder feedback
regarding internal needs for total contributions expressed as a percentage of payroll, the reports have been modified to include such results in the contribution projection on page 5. These results are provided for information purposes only.
Contributions toward the unfunded liability will continue to be collected as dollar amounts.
The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over
time. This Policy has been temporarily suspended during the period over which the discount rate is being lowered.
More details on the Risk Mitigation Policy can be found on our website.
Besides the above noted changes, there may also be changes specific to the plan such as contract amendments and funding changes. Further descriptions of general changes are included in the “Highlights and Executive Summary” section and in
Appendix A, “Actuarial Methods and Assumptions.” The effects of the changes on the required contributions are
included in the “Reconciliation of Required Employer Contributions” section.
We understand that you might have a number of questions about these results. While we are very interested in
discussing these results with your agency, in the interest of allowing us to give every public agency their results, we ask that you wait until after August 31 to contact us with actuarial questions. If you have other questions, you may call
the Customer Contact Center at (888)-CalPERS or (888-225-7377).
Sincerely,
SCOTT TERANDO Chief Actuary
ACTUARIAL VALUATION
as of June 30, 2016
for the
SAFETY PLAN
of the
CITY OF PALO ALTO
(CalPERS ID: 6373437857)
(Rate Plan ID: 5080)
REQUIRED CONTRIBUTIONS
FOR FISCAL YEAR
July 1, 2018 – June 30, 2019
TABLE OF CONTENTS
ACTUARIAL CERTIFICATION 1
HIGHLIGHTS AND EXECUTIVE SUMMARY
Introduction 3
Purpose of the Report 3
Required Contributions 4
Plan’s Funded Status 5 Projected Employer Contributions 5
Cost 6
Changes Since the Prior Year’s Valuation 7
Subsequent Events 7
ASSETS
Reconciliation of the Market Value of Assets 9
Asset Allocation 10
CalPERS History of Investment Returns 11
LIABILITIES AND CONTRIBUTIONS
Development of Accrued and Unfunded Liabilities 13 (Gain) / Loss Analysis 06/30/15 - 06/30/16 14
Schedule of Amortization Bases 15
30-Year Amortization Schedule and Alternatives 16
Reconciliation of Required Employer Contributions 18
Employer Contribution History 19
Funding History 19
RISK ANALYSIS
Analysis of Future Investment Return Scenarios 21
Analysis of Discount Rate Sensitivity 22 Volatility Ratios 23
Hypothetical Termination Liability 24
PLAN’S MAJOR BENEFIT PROVISIONS
Plan’s Major Benefit Options 26
APPENDIX A – ACTUARIAL METHODS AND ASSUMPTIONS
Actuarial Data A-1
Actuarial Methods A-1
Actuarial Assumptions A-3
Miscellaneous A-21
APPENDIX B – PRINCIPAL PLAN PROVISIONS B-1
APPENDIX C – PARTICIPANT DATA
Summary of Valuation Data C-1 Active Members C-2
Transferred and Terminated Members C-3
Retired Members and Beneficiaries C-4
APPENDIX D – DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATE D-1
APPENDIX E – GLOSSARY OF ACTUARIAL TERMS E-1
(CY) FIN PROCESS CONTROL ID: 496858 (PY) FIN PROCESS CONTROL ID: 480105 REPORT ID: 104049
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 1
ACTUARIAL CERTIFICATION
To the best of our knowledge, this report is complete and accurate and contains sufficient information to
disclose, fully and fairly, the funded condition of the SAFETY PLAN OF THE CITY OF PALO ALTO. This
valuation is based on the member and financial data as of June 30, 2016 provided by the various CalPERS databases and the benefits under this plan with CalPERS as of the date this report was produced. It is our
opinion that the valuation has been performed in accordance with generally accepted actuarial principles, in
accordance with standards of practice prescribed by the Actuarial Standards Board, and that the
assumptions and methods are internally consistent and reasonable for this plan, as prescribed by the
CalPERS Board of Administration according to provisions set forth in the California Public Employees’
Retirement Law.
The undersigned is an actuary for CalPERS, a member of the American Academy of Actuaries and the
Society of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render
the actuarial opinions contained herein.
DAVID CLEMENT, ASA, MAAA, EA
Senior Pension Actuary, CalPERS
HIGHLIGHTS AND EXECUTIVE SUMMARY
INTRODUCTION
PURPOSE OF THE REPORT
REQUIRED CONTRIBUTIONS
PLAN’S FUNDED STATUS
PROJECTED EMPLOYER CONTRIBUTIONS
COST
CHANGES SINCE THE PRIOR YEAR’S VALUATION
SUBSEQUENT EVENTS
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 3
Introduction
This report presents the results of the June 30, 2016 actuarial valuation of the SAFETY PLAN OF THE CITY
OF PALO ALTO of the California Public Employees’ Retirement System (CalPERS). This actuarial valuation
sets the required employer contributions for Fiscal Year 2018-19.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2016. The purpose of the report is to:
Set forth the assets and accrued liabilities of this plan as of June 30, 2016;
Determine the required employer contributions for the fiscal year July 1, 2018 through June 30, 2019;
Provide actuarial information as of June 30, 2016 to the CalPERS Board of Administration and other
interested parties.
The pension funding information presented in this report should not be used in financial reports subject to Governmental Accounting Standards Board (GASB) Statement No. 68 for an Agent Employer Defined Benefit
Pension Plan. A separate accounting valuation report for such purposes is available from CalPERS and
details for ordering are available on our website.
The measurements shown in this actuarial valuation may not be applicable for other purposes. The
employer should contact their actuary before disseminating any portion of this report for any reason that is
not explicitly described above.
Future actuarial measurements may differ significantly from the current measurements presented in this
report due to such factors as the following: plan experience differing from that anticipated by the economic
or demographic assumptions; changes in economic or demographic assumptions; changes in actuarial
policies; and changes in plan provisions or applicable law.
California Actuarial Advisory Panel Recommendations
This report includes all the basic disclosure elements as described in the Model Disclosure Elements for
Actuarial Valuation Reports recommended in 2011 by the California Actuarial Advisory Panel (CAAP), with
the exception of including the original base amounts of the various components of the unfunded liability in
the Schedule of Amortization Bases shown on page 15.
Additionally, this report includes the following “Enhanced Risk Disclosures” also recommended by the CAAP
in the Model Disclosure Elements document:
A “Deterministic Stress Test,” projecting future results under different investment income
scenarios
A “Sensitivity Analysis,” showing the impact on current valuation results using alternative discount
rates of 6.0 percent, 7.0 percent and 8.0 percent.
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2018-19
Employer Normal Cost Rate 19.397%
Plus Either
1) Monthly Employer Dollar UAL Payment $ 701,766
Or
2) Annual UAL Prepayment Option $ 8,126,844
Required PEPRA Member Contribution Rate
10.75%
The total minimum required employer contribution is the sum of the Plan’s Employer Normal Cost Rate
(expressed as a percentage of payroll) plus the Employer Unfunded Accrued Liability (UAL) Contribution
Amount (billed monthly in dollars).
Only the UAL portion of the employer contribution can be prepaid (which must be received in full no
later than July 31). Plan Normal Cost contributions will be made as part of the payroll reporting
process. If there is contractual cost sharing or other change, this amount will change.
§20572 of the Public Employees’ Retirement Law assesses interest at an annual rate of 10 percent if a
contracting agency fails to remit the required contributions when due.
For additional detail regarding the determination of the required contribution for PEPRA members, see Appendix D. Required member contributions for Classic members can be found in Appendix B.
Fiscal Year Fiscal Year
2017-18 2018-19
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 28.029% 28.571%
Employee Contribution1 9.129% 9.174%
Employer Normal Cost 18.900% 19.397%
Projected Annual Payroll for Contribution Year $ 23,150,815 $ 23,240,148
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $ 6,488,942 $ 6,639,943
Employee Contribution1 2,113,438 2,132,051
Employer Normal Cost 4,375,504 4,507,892
Unfunded Liability Contribution 7,127,885 8,421,191
% of Projected Payroll (illustrative only) 30.789% 36.236%
Estimated Total Employer Contribution $ 11,503,389 $ 12,929,083
% of Projected Payroll (illustrative only) 49.689% 55.633%
1 For classic members, this is the percentage specified in the Public Employees Retirement Law, net of any reduction from
the use of a modified formula or other factors. For PEPRA members, the member contribution rate is based on 50 percent of the normal cost. A development of PEPRA member contribution rates can be found in Appendix D. Employee
cost sharing is not shown in this report.
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 5
Plan’s Funded Status
This measure of funded status is an assessment of the need for future employer contributions based on the
selected actuarial cost method used to fund the plan. The UAL is the present value of future employer
contributions for service that has already been earned and is in addition to future normal cost contributions
for active members. For a measure of funded status that is appropriate for assessing the sufficiency of plan assets to cover estimated termination liabilities, please see “Hypothetical Termination Liability” in the “Risk
Analysis” section.
Projected Employer Contributions
The table below shows the required and projected employer contributions (before cost sharing) for the next
six fiscal years. Projected results reflect the adopted changes to the discount rate described in Appendix A,
“Actuarial Methods and Assumptions.” The projections also assume that all actuarial assumptions will be
realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the
projection period. The projected normal cost percentages in the projections below do not reflect that the
normal cost will decline over time as new employees are hired into PEPRA or other lower cost benefit tiers.
Required
Contribution
Projected Future Employer Contributions
(Assumes 7.375% Return for Fiscal Year 2016-17)
Fiscal Year 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25
Normal Cost % 19.397% 20.2% 21.9% 21.9% 21.9% 21.9% 21.9%
UAL Payment 8,421,191 9,894,000 10,943,000 12,295,000 13,495,000 14,345,000 15,080,000
Total as a % of Payroll* 55.6% 61.6% 66.3% 70.3% 73.5% 75.2% 76.2%
Projected Payroll 23,240,148 23,937,353 24,655,474 25,395,138 26,156,992 26,941,702 27,749,953
*Illustrative only and based on the projected payroll shown.
Changes in the UAL due to actuarial gains or losses as well as changes in actuarial assumptions or methods
are amortized using a 5-year ramp up. For more information, please see “Amortization of the Unfunded
Actuarial Accrued Liability” under “Actuarial Methods” in Appendix A. This method phases in the impact of
unanticipated changes in UAL over a 5-year period and attempts to minimize employer cost volatility from
year to year. As a result of this methodology, dramatic changes in the required employer contributions in
any one year are less likely. However, required contributions can change gradually and significantly over the next five years. In years where there is a large increase in UAL the relatively small amortization payments
during the ramp up period could result in a funded ratio that is projected to decrease initially while the
contribution impact of the increase in the UAL is phased in.
Due to the adopted changes in the discount rate for the next two valuations in combination with the 5-year
phase-in ramp, the increases in the required contributions are expected to continue for seven years from
Fiscal Year 2018-19 through Fiscal Year 2024-25.
For projected contributions under alternate investment return scenarios, please see the “Analysis of Future
Investment Return Scenarios” in the “Risk Analysis” section.
June 30, 2015 June 30, 2016
1. Present Value of Projected Benefits $ 433,980,861 $ 448,048,891
2. Entry Age Normal Accrued Liability 377,934,524 392,911,774
3. Market Value of Assets (MVA) $ 259,169,591 $ 249,886,581
4. Unfunded Accrued Liability (UAL) [(2) – (3)] $ 118,764,933 $ 143,025,193
5. Funded Ratio [(3) / (2)] 68.6% 63.6%
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 6
Cost
Actuarial Cost Estimates in General
What is the cost of the pension plan?
Contributions to fund the pension plan are comprised of two components:
The Normal Cost, expressed as a percentage of total active payroll.
The Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount.
For fiscal years prior to FY 2017-18, the Amortizations of UAL component was expressed as percentage of
total active payroll. Starting with FY 2017-18, the Amortization of UAL component will be expressed as a dollar amount and will be invoiced on a monthly basis. There will be an option to prepay this amount during
July of each fiscal year.
The Normal Cost component will continue to be expressed as a percentage of active payroll with employer
and employee contributions payable as part of the regular payroll reporting process.
The determination of both components requires complex actuarial calculations. The calculations are based on a set of actuarial assumptions which can be divided into two categories:
Demographic assumptions (which includes mortality rates, retirement rates, employment
termination rates, disability rates)
Economic assumptions (which includes future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPERS best estimate of the future experience of the plan and are long term in nature. We recognize that all the assumptions will not be realized in any given year. For example, the
investment earnings at CalPERS have averaged 7.0 percent over the 20 years ending June 30, 2016, yet
individual fiscal year returns have ranged from -24 percent to +21.7 percent. In addition, CalPERS reviews
all the actuarial assumptions on an ongoing basis by conducting in depth experience studies every four
years.
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 7
Changes since the Prior Year’s Valuation
Benefits
The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first annual valuation following the effective date of the legislation. Voluntary benefit changes by plan
amendment are generally included in the first valuation that is prepared after the amendment becomes
effective, even if the valuation date is prior to the effective date of the amendment.
This valuation generally reflects plan changes by amendments effective before the date of the report. Please
refer to the “Plan’s Major Benefit Options” and Appendix B for a summary of the plan provisions used in this
valuation. The effect of any mandated benefit changes or plan amendments on the unfunded liability is shown in the “(Gain)/Loss Analysis” and the effect on the employer contribution is shown in the
“Reconciliation of Required Employer Contributions.” It should be noted that no change in liability or
contribution is shown for any plan changes which were already included in the prior year’s valuation.
Actuarial Methods and Assumptions
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to
7.00 percent using a three year phase-in beginning with the June 30, 2016 actuarial valuations. The minimum employer contributions for Fiscal Year 2018-19 determined in this valuation were calculated using
a discount rate of 7.375 percent. The projected employer contributions on Page 5 are calculated assuming
that the discount rate will be lowered to 7.25 percent next year and 7.00 percent the following year as
adopted by the Board. The decision to reduce the discount rate was primarily based on reduced capital
market assumptions provided by external investment consultants and CalPERS investment staff. The specific
decision adopted by the Board reflected recommendations from CalPERS staff and additional input from
employer and employee stakeholder groups. Based on the investment allocation adopted by the Board and capital market assumptions, the reduced discount rate assumption provides a more realistic assumption for
the long term investment return of the fund.
Notwithstanding the Board’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the
expected investment return of CalPERS assets or changes to the investment allocation may result in a
change to this three year discount rate schedule. A comprehensive analysis of all actuarial assumptions and
methods including the discount rate will be conducted in 2017.
Subsequent Events
The contribution requirements determined in this actuarial valuation report are based on demographic and financial information as of June 30, 2016. Changes in the value of assets subsequent to that date are not
reflected. Declines in asset values will increase the required contribution, while investment returns above
the assumed rate of return will decrease the actuarial cost of the plan.
This actuarial valuation report reflects statutory changes, regulatory changes and CalPERS Board actions
through January 2017. Any subsequent changes or actions are not reflected.
ASSETS
RECONCILIATION OF THE MARKET VALUE OF ASSETS
ASSET ALLOCATION
CALPERS HISTORY OF INVESTMENT RETURNS
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 9
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/15 including Receivables $ 259,169,591
2. Change in Receivables for Service Buybacks (93,759)
3. Employer Contributions 9,403,268
4. Employee Contributions 2,014,877
5. Benefit Payments to Retirees and Beneficiaries (21,629,407)
6. Refunds (39,964)
7. Lump Sum Payments 0
8. Transfers and Miscellaneous Adjustments 136,139
9. Net Investment Return 925,836
10. Market Value of Assets as of 6/30/16 including Receivables $ 249,886,581
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 10
Asset Allocation
CalPERS adheres to an Asset Allocation Strategy which establishes asset class allocation policy targets and
ranges, and manages those asset class allocations within their policy ranges. CalPERS Investment Belief No.
6 recognizes that strategic asset allocation is the dominant determinant of portfolio risk and return. On February 19, 2014, the CalPERS Board of Administration adopted changes to the current asset allocation as
shown in the Policy Target Allocation below expressed as a percentage of total assets.
The asset allocation and market value of assets shown below reflect the values of the Public Employees’
Retirement Fund (PERF) in its entirety as of June 30, 2016. The assets for CITY OF PALO ALTO SAFETY
PLAN are part of the PERF and are invested accordingly.
(A)
Asset Class
(B)
Market Value
($ Billion)
(C)
Policy Target
Allocation
Public Equity 153.1 51.0%
Private Equity 26.4 10.0%
Global Fixed Income 59.9 20.0%
Liquidity 4.5 1.0%
Real Assets 31.8 12.0%
Inflation Sensitive Assets 17.8 6.0%
Other 1.6 0.0%
Total Fund $295.1 100.0%
Global Equity
51.9%
Private Equity
9.0%
Global Fixed
Income
20.3%
Liquidity
1.5%
Real Assets
10.8%
Inflation
6.0%
Other
0.5%
Asset Allocation at 6/30/2016
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 11
CalPERS History of Investment Returns
The following is a chart with the 20-year historical annual returns of the Public Employees Retirement Fund
for each fiscal year ending on June 30. Beginning in 2002, the figures are reported as gross of fees.
The table below shows historical geometric mean annual returns of the Public Employees Retirement Fund
for various time periods ending on June 30, 2016, (figures are reported as gross of fees). The geometric
mean rate of return is the average rate per period compounded over multiple periods. It should be
recognized that in any given year the rate of return is volatile. The portfolio has an expected volatility of 11.8 percent per year based on the most recent Asset Liability Modelling study. The volatility is a measure of
the risk of the portfolio expressed in the standard deviation of the fund’s total return distribution, expressed
as a percentage. Consequently, when looking at investment returns, it is more instructive to look at returns
over longer time horizons.
History of CalPERS Geometric Mean Rates of Return and Volatilities
1 year 5 year 10 year 20 year 30 year
Geometric Return 0.6% 6.6% 5.0% 7.0% 8.2%
Volatility – 8.1% 14.0% 11.8% 10.1%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
20
.
1
%
19
.
5
%
12
.
5
%
10
.
5
%
-7.
2
%
-6.
1
%
3.
7
%
16
.
6
%
12
.
3
%
11
.
8
%
19
.
1
%
-5.
1
%
-24
.
0
%
13
.
3
%
21
.
7
%
0.
2
%
13
.
2
%
17
.
7
%
2.
4
%
0.
6
%
LIABILITIES AND CONTRIBUTIONS
DEVELOPMENT OF ACCRUED AND UNFUNDED LIABILITIES
(GAIN) / LOSS ANALYSIS 06/30/15 - 06/30/16
SCHEDULE OF AMORTIZATION BASES
30-YEAR AMORTIZATION SCHEDULES AND ALTERNATIVES
RECONCILIATION OF REQUIRED EMPLOYER CONTRIBUTIONS
EMPLOYER CONTRIBUTION HISTORY
FUNDING HISTORY
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 13
Development of Accrued and Unfunded Liabilities
June 30, 2015 June 30, 2016
1. Present Value of Projected Benefits
a) Active Members $ 145,227,338 151,548,026
b) Transferred Members 7,219,815 7,805,314
c) Terminated Members 2,371,428 2,453,933
d) Members and Beneficiaries Receiving Payments 279,162,280 286,241,618
e) Total $ 433,980,861 448,048,891
2. Present Value of Future Employer Normal Costs $ 37,166,396 36,656,902
3. Present Value of Future Employee Contributions $ 18,879,941 18,480,215
4. Entry Age Normal Accrued Liability
a) Active Members [(1a) - (2) - (3)] $ 89,181,001 96,410,909
b) Transferred Members (1b) 7,219,815 7,805,314
c) Terminated Members (1c) 2,371,428 2,453,933
d) Members and Beneficiaries Receiving Payments (1d) 279,162,280 286,241,618
e) Total $ 377,934,524 392,911,774
5. Market Value of Assets (MVA) $ 259,169,591 249,886,581
6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $ 118,764,933 143,025,193
7. Funded Ratio [(5) / (4e)] 68.6% 63.6%
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 14
(Gain)/Loss Analysis 6/30/15 – 6/30/16
To calculate the cost requirements of the plan, assumptions are made about future events that affect the
amount and timing of benefits to be paid and assets to be accumulated. Each year, actual experience is
compared to the expected experience based on the actuarial assumptions. This results in actuarial gains or losses, as shown below.
1. Total (Gain)/Loss for the Year
a) Unfunded Accrued Liability (UAL) as of 6/30/15 $ 118,764,933
b) Expected Payment on the UAL during 2015-16 5,004,190 c) Interest through 6/30/16 [.075 x (1a) - ((1.075)½ - 1) x (1b)] 8,723,105
d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 122,483,848
e) Change due to plan changes 0
f) Change due to assumption change 5,599,395
g) Expected UAL after all other changes [(1d) + (1e) + (1f)] 128,083,243
h) Actual UAL as of 6/30/16 143,025,193
i) Total (Gain)/Loss for 2015-16 [(1h) - (1g)] $ 14,941,950
2. Contribution (Gain)/Loss for the Year
a) Expected Contribution (Employer and Employee) $ 11,142,461
b) Interest on Expected Contributions 410,288
c) Actual Contributions 11,418,145 d) Interest on Actual Contributions 420,440
e) Expected Contributions with Interest [(2a) + (2b)] 11,552,749
f) Actual Contributions with Interest [(2c) + (2d)] 11,838,585
g) Contribution (Gain)/Loss [(2e) - (2f)] $ (285,836)
3. Asset (Gain)/Loss for the Year
a) Market Value of Assets as of 6/30/15 $ 259,169,591
b) Prior Fiscal Year Receivables (739,213)
c) Current Fiscal Year Receivables 645,454
d) Contributions Received 11,418,145
e) Benefits and Refunds Paid (21,669,371) f) Transfers and Miscellaneous Adjustments 136,139
g) Expected Int. [.075 x (3a + 3b) + ((1.075)½ - 1) x ((3d) + (3e) + (3f))] 19,009,820
h) Expected Assets as of 6/30/16 [(3a) + (3b) + (3c) + (3d) + (3e) + (3f) + (3g)] 267,970,565
i) Market Value of Assets as of 6/30/16 249,886,581
j) Asset (Gain)/Loss [(3h) - (3i)] $ 18,083,984
4. Liability (Gain)/Loss for the Year
a) Total (Gain)/Loss (1i) $ 14,941,950
b) Contribution (Gain)/Loss (2g) (285,836)
c) Asset (Gain)/Loss (3j) 18,083,984
d) Liability (Gain)/Loss [(4a) - (4b) - (4c)] $ (2,856,198)
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 15
Schedule of Amortization Bases
There is a two-year lag between the valuation date and the start of the contribution fiscal year.
The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2016.
The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuation date: Fiscal Year 2018-19.
This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies
with their required employer contribution well in advance of the start of the fiscal year.
The Unfunded Accrued Liability (UAL) is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first day of the fiscal year for which the contribution is being determined. The UAL is rolled forward each year by subtracting the expected payment on the UAL for
the fiscal year and adjusting for interest. The expected payment on the UAL for a fiscal year is equal to the Expected Employer Contribution for the fiscal year minus
the Expected Normal Cost for the year. The Employer Contribution for the first fiscal year is determined by the actuarial valuation two years ago and the contribution
for the second year is from the actuarial valuation one year ago. The Normal Cost Rate for each of the two fiscal years is assumed to be the same as the rate
determined by the current valuation. All expected dollar amounts are determined by multiplying the rate by the expected payroll for the applicable fiscal year, based
on payroll as of the valuation date.
Reason for Base
Date
Established
Amorti-zation
Period
Balance
6/30/16
Expected Payment
2016-17
Balance
6/30/17
Expected Payment
2017-18
Balance
6/30/18
Scheduled Payment for
2018-19
FRESH START 06/30/04 18 $(928,572) $(70,112) $(924,403) $(72,216) $(917,746) $(73,518)
BENEFIT CHANGE 06/30/05 8 $141,689 $17,674 $133,824 $18,204 $124,831 $18,618
ASSUMPTION CHANGE 06/30/09 13 $7,356,998 $674,413 $7,200,737 $694,645 $7,011,987 $708,757
SPECIAL (GAIN)/LOSS 06/30/09 23 $8,903,104 $588,446 $8,949,949 $606,099 $8,981,956 $615,760
SPECIAL (GAIN)/LOSS 06/30/10 24 $4,238,306 $274,129 $4,266,823 $282,353 $4,288,922 $286,741
ASSUMPTION CHANGE 06/30/11 15 $6,174,876 $518,759 $6,092,725 $534,322 $5,988,389 $544,679
SPECIAL (GAIN)/LOSS 06/30/11 25 $2,401,190 $152,183 $2,420,583 $156,749 $2,436,675 $159,124
PAYMENT (GAIN)/LOSS 06/30/12 26 $1,549,288 $96,335 $1,563,724 $99,225 $1,576,230 $100,690
(GAIN)/LOSS 06/30/12 26 $44,343,046 $2,757,260 $44,756,220 $2,839,977 $45,114,153 $2,881,919
(GAIN)/LOSS 06/30/13 27 $41,497,881 $1,133,854 $43,383,429 $1,751,805 $44,767,703 $2,370,921
ASSUMPTION CHANGE 06/30/14 18 $19,725,680 $375,729 $20,791,111 $774,001 $21,522,421 $1,182,639
(GAIN)/LOSS 06/30/14 28 $(26,317,755) $(370,160) $(27,875,123) $(762,530) $(29,140,765) $(1,160,282)
(GAIN)/LOSS 06/30/15 29 $13,398,115 $(183,242) $14,576,105 $205,251 $15,438,408 $416,097
ASSUMPTION CHANGE 06/30/16 20 $5,599,395 $(172,182) $6,190,769 $(177,347) $6,831,109 $128,758
(GAIN)/LOSS 06/30/16 30 $14,941,952 $(97,946) $16,145,414 $0 $17,336,138 $240,288
TOTAL $143,025,193 $5,695,140 $147,671,888 $6,950,538 $151,360,411 $8,421,191
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 20 Page 16
30-Year Amortization Schedule and Alternatives
The amortization schedule on the previous page shows the minimum contributions required according to
CalPERS amortization policy. There has been considerable interest from many agencies in paying off these unfunded accrued liabilities sooner and the possible savings in doing so. As a result, we have provided
alternate amortization schedules to help analyze the current amortization schedule and illustrate the
advantages of accelerating unfunded liability payments.
Shown on the following page are future year amortization payments based on 1) the current amortization
schedule reflecting the individual bases and remaining periods shown on the previous page, and 2) alternate “fresh start” amortization schedules using two sample periods that would both result in interest savings
relative to the current amortization schedule. Note that the payments under each alternate scenario
increase by 3 percent per year. The schedules do not reflect the impact of adopted discount rate
changes that will become effective beyond June 30, 2016. Therefore, future amortization
payments displayed in the Current Amortization Schedule on the following page will not match
projected amortization payments shown in connection with Projected Employer Contributions
provided elsewhere in this report.
The Current Amortization Schedule typically contains individual bases that are both positive and negative.
Positive bases result from plan changes, assumption changes or plan experience that result in increases to
unfunded liability. Negative bases result from plan changes, assumption changes or plan experience that
result in decreases to unfunded liability. The combination of positive and negative bases within an
amortization schedule can result in unusual or problematic circumstances in future years such as:
A positive total unfunded liability with a negative total payment,
A negative total unfunded liability with a positive total payment, or Total payments that completely amortize the unfunded liability over a very short period of time
In any year where one of the above scenarios occurs, the actuary will consider corrective action such as
replacing the existing unfunded liability bases with a single “fresh start” base and amortizing it over a
reasonable period.
The Current Amortization Schedule on the following page may appear to show that, based on the current amortization bases, one of the above scenarios will occur at some point in the future. It is impossible to
know today whether such a scenario will in fact arise since there will be additional bases added to the
amortization schedule in each future year. Should such a scenario arise in any future year, the actuary will
take appropriate action based on guidelines in the CalPERS amortization policy. For purposes of this display,
total payments include any negative payments. Therefore, the amount of estimated savings may be
understated to the extent that negative payments appear in the current schedule.
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 17
30-Year Amortization Schedule and Alternatives
* This schedule does not reflect the impact of adopted discount rate changes that will become effective
beyond June 30, 2016. For Projected Employer Contributions, please see Page 5.
Alternate Schedules
Current Amortization
Schedule* 20 Year Amortization 15 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2018 151,360,410 8,421,191 151,360,410 11,314,568 151,360,410 13,767,113
6/30/2019 153,797,041 9,886,419 150,798,869 11,654,005 148,257,495 14,180,126
6/30/2020 154,895,077 10,803,156 149,844,184 12,003,625 144,497,768 14,605,530
6/30/2021 155,124,154 11,757,856 148,456,807 12,363,734 140,019,949 15,043,696
6/30/2022 154,380,847 12,525,958 146,593,960 12,734,646 134,757,856 15,495,007
6/30/2023 152,786,799 12,901,734 144,209,381 13,116,685 128,640,026 15,959,857
6/30/2024 150,685,803 13,288,788 141,253,064 13,510,186 121,589,319 16,438,653
6/30/2025 148,028,785 13,687,451 137,670,965 13,915,491 113,522,486 16,931,812
6/30/2026 144,762,708 14,074,490 133,404,701 14,332,956 104,349,702 17,439,767
6/30/2027 140,854,703 14,496,722 128,391,215 14,762,945 93,974,073 17,962,960
6/30/2028 136,220,958 14,931,625 122,562,422 15,205,833 82,291,099 18,501,848
6/30/2029 130,794,820 15,379,572 115,844,827 15,662,008 69,188,099 19,056,904
6/30/2030 124,504,332 15,840,963 108,159,111 16,131,868 54,543,594 19,628,611
6/30/2031 117,271,818 15,275,357 99,419,696 16,615,824 38,226,643 20,217,469
6/30/2032 110,091,996 15,137,335 89,534,264 17,114,299 20,096,130 20,823,993
6/30/2033 102,525,688 14,128,693 78,403,253 17,627,728
6/30/2034 95,446,537 13,713,340 65,919,305 18,156,560
6/30/2035 88,275,692 13,260,351 51,966,680 18,701,256
6/30/2036 81,045,396 12,892,998 36,420,623 19,262,294
6/30/2037 73,662,521 13,054,009 19,146,687 19,840,163
6/30/2038 65,568,318 13,213,079
6/30/2039 56,712,335 13,609,471
6/30/2040 46,792,475 14,017,755
6/30/2041 35,717,955 12,053,231
6/30/2042 25,862,365 11,413,248
6/30/2043 15,943,089 10,555,614
6/30/2044 6,180,964 3,028,946
6/30/2045 3,498,158 1,666,411
6/30/2046 2,029,381 1,575,523
6/30/2047 546,462 566,254
Totals 347,157,540 304,026,674 256,053,346
Interest Paid 195,797,130 152,666,264 104,692,936
Estimated Savings 43,130,866 91,104,194
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 18
Reconciliation of Required Employer
Contributions
Normal Cost (% of Payroll)
1. For Period 7/1/17 – 6/30/18
a) Employer Normal Cost 18.900%
b) Employee Contribution 9.129%
c) Total Normal Cost 28.029%
2. Changes since the prior year annual valuation
a) Effect of changes in demographics results (0.244%)
b) Effect of plan changes 0.000%
c) Effect of changes in assumptions 0.786%
d) Net effect of the changes above [sum of (a) through (c)] 0.542%
3. For Period 7/1/18 – 6/30/19
a) Employer Normal Cost 19.397%
b) Employee Contribution 9.174%
c) Total Normal Cost 28.571%
Employer Normal Cost Change [(3a) – (1a)] 0.497%
Employee Contribution Change [(3b) – (1b)] 0.045%
Unfunded Liability Contribution ($)
1. For Period 7/1/17 – 6/30/18 7,127,885
2. Changes since the prior year annual valuation
a) Effect of (gain)/loss during prior year1 240,288
b) Effect of plan changes 0
c) Effect of changes in assumptions2 128,758
d) Changes to prior year amortization payments3 924,260
e) Effect of changes due to Fresh Start 0
f) Effect of elimination of amortization base 0
g) Net effect of the changes above [sum of (a) through (f)] 1,293,306
3. For Period 7/1/18 – 6/30/19 [(1)+(2g)] 8,421,191
1 The unfunded liability contribution for the (gain)/loss during the year prior to the valuation date is 20 percent of the
“full” annual requirement due to the 5-year ramp. Increases to this amount that occur during the ramp period will be included in line d) in future years.
2 The unfunded liability contribution for the change in assumptions is 20 percent of the “full” annual requirement due to the 5-year ramp. Increases to this amount that occur during the ramp period will be included in line d) in future years.
3 Includes changes due to 5-year ramp, payroll growth assumption, and re-amortization under new discount rate.
The amounts shown for the period 7/1/17 – 6/30/18 may be different if a prepayment of unfunded actuarial
liability is made or a plan change became effective after the prior year’s actuarial valuation was performed.
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 19
Employer Contribution History
The table below provides a recent history of the required employer contributions for the plan, as determined
by the annual actuarial valuation. It does not account for prepayments or benefit changes made during a fiscal year.
Required By Valuation
Fiscal
Year
Employer
Normal Cost
Unfunded Rate
Unfunded Liability
Payment ($)
2013 - 14 18.658% 14.786% N/A
2014 - 15 18.874% 20.654% N/A
2015 - 16 18.627% 23.305% N/A
2016 - 17 18.977% 26.449% N/A
2017 - 18 18.900% N/A 7,127,885
2018 - 19 19.397% N/A 8,421,191
Funding History
The table below shows the recent history of the actuarial accrued liability, the market value of assets, the
funded ratio and the annual covered payroll.
Valuation
Date
Accrued
Liability
Market Value
of Assets
(MVA)
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
06/30/11 $ 313,183,690 $ 225,015,089 $ 88,168,601 71.8% $ 22,774,462
06/30/12 327,608,300 215,605,457 112,002,843 65.8% 20,919,846
06/30/13 338,666,499 233,417,363 105,249,136 68.9% 21,258,082
06/30/14 367,478,634 264,145,000 103,333,634 71.9% 21,274,021
06/30/15 377,934,524 259,169,591 118,764,933 68.6% 21,186,275
06/30/16 392,911,774 249,886,581 143,025,193 63.6% 21,268,028
RISK ANALYSIS
ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS
ANALYSIS OF DISCOUNT RATE SENSITIVITY
VOLATILITY RATIOS
HYPOTHETICAL TERMINATION LIABILITY
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 21
Analysis of Future Investment Return Scenarios
Analysis was performed to determine the effects of various future investment returns on required employer
contributions. The projections below provide a range of results based on five investment return scenarios assumed to occur during the next four fiscal years (2016-17, 2017-18, 2018-19 and 2019-20). The
projections also assume that all other actuarial assumptions will be realized and that no further changes to
assumptions, contributions, benefits, or funding will occur.
Each of the five investment return scenarios assumes a return of 7.375 percent for fiscal year 2016-17. For
fiscal years 2017-18, 2018-19, and 2019-20 each scenario assumes an alternate fixed annual return. The fixed return assumptions for the five scenarios are -3.0 percent, 3.0 percent, 7.0 percent (7.25 percent for
2017-18), 11.0 percent and 17.0 percent.
The alternate investment returns were chosen based on stochastic analysis of possible future investment
returns over the four year period ending June 30, 2020. Using the expected returns and volatility of the
asset classes in which the funds are invested, we produced ten thousand stochastic outcomes for this
period. We then selected annual returns that approximate the 5th, 25th, 50th, 75th, and 95th percentiles for
these outcomes. For example, of all of the 4-year outcomes generated in the stochastic analysis, approximately 25 percent of them had an average annual return of 3.0 percent or less.
Required contributions outside of this range are also possible. In particular, while it is unlikely that
investment returns will average less than -3.0 percent or greater than 17.0 percent over this four year
period, the possibility of a single investment return less than -3.0 percent or greater than 17.0 percent in
any given year is much greater.
Assumed Annual Return From 2017-18 through 2019-20
Projected Employer Contributions
2019-20 2020-21 2021-22 2022-23
(3.0%)
Normal Cost 20.2% 21.9% 21.9% 21.9%
UAL Contribution $9,894,000 $11,335,000 $13,461,000 $15,815,000
3.0%
Normal Cost 20.2% 21.9% 21.9% 21.9%
UAL Contribution $9,894,000 $11,106,000 $12,782,000 $14,478,000
Assumed Discount Rate
Normal Cost 20.2% 21.9% 21.9% 21.9%
UAL Contribution $9,894,000 $10,943,000 $12,295,000 $13,495,000
11.0%
Normal Cost 20.2% 21.9% 22.3% 22.7%
UAL Contribution $9,894,000 $10,799,000 $11,820,000 $12,533,000
17.0%
Normal Cost 20.2% 21.9% 23.1% 24.4%
UAL Contribution $9,894,000 $10,569,000 $11,062,000 $11,004,000
Given the temporary suspension of the Risk Mitigation Policy during the period over which the discount rate
assumption is being phased down to 7.0 percent, the projections above were performed without reflection
of any possible impact of this Policy for Fiscal Years 2019-20 and 2020-21.
The projected normal cost percentages do not reflect that the normal cost will decline over time as new
employees are hired into PEPRA or other lower cost benefit tiers.
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 22
Analysis of Discount Rate Sensitivity
Shown below are various valuation results as of June 30, 2016 assuming alternate discount rates. Results
are shown using the current discount rate of 7.375 percent as well as alternate discount rates of 6.0
percent, 7.0 percent, and 8.0 percent. The alternate rate of 7.0 percent was selected since the Board has adopted this rate as the final discount rate at the end of the three year phase-in of the reduction in this
assumption. The rates of 6.0 percent and 8.0 percent were selected since they illustrate the impact of a 1
percent increase or decrease to the 7.0 percent assumption. This analysis shows the potential plan impacts
if the PERF were to realize investment returns of 6.0 percent, 7.0 percent, or 8.0 percent over the long-
term.
This type of analysis gives the reader a sense of the long-term risk to required contributions. For a measure of funded status that is appropriate for assessing the sufficiency of plan assets to cover estimated
termination liabilities, please see “Hypothetical Termination Liability” in the “Risk Analysis” section.
Sensitivity Analysis
As of June 30, 2016 Plan’s
Normal Cost
Accrued
Liability Unfunded
Accrued Liability Funded
Status
7.375% (current discount rate) 28.571% $392,911,774 $143,025,193 63.6%
6.0% 39.221% $464,382,032 $214,495,451 53.8%
7.0% 31.093% $410,532,811 $160,646,230 60.9%
8.0% 24.890% $366,182,491 $116,295,910 68.2%
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 23
Volatility Ratios
The actuarial calculations supplied in this communication are based on a number of assumptions about
long-term demographic and economic behavior. Unless these assumptions (terminations, deaths, disabilities,
retirements, salary growth, and investment return) are exactly realized each year, there will be differences on a year-to-year basis. The year-to-year differences between actual experience and the assumptions are
called actuarial gains and losses and serve to lower or raise required employer contributions from one year
to the next. Therefore, employer contributions will inevitably fluctuate, especially due to the ups and downs
of investment returns.
Asset Volatility Ratio (AVR)
Plans that have higher asset-to-payroll ratios experience more volatile employer contributions (as a
percentage of payroll) due to investment return. For example, a plan with an asset-to-payroll ratio of 8 may
experience twice the contribution volatility due to investment return volatility than a plan with an asset-to-
payroll ratio of 4. Shown below is the asset volatility ratio, a measure of the plan’s current volatility. It
should be noted that this ratio is a measure of the current situation. It increases over time but generally
tends to stabilize as the plan matures.
Liability Volatility Ratio (LVR)
Plans that have higher liability-to-payroll ratios experience more volatile employer contributions (as a
percentage of payroll) due to investment return and changes in liability. For example, a plan with a liability-
to-payroll ratio of 8 is expected to have twice the contribution volatility of a plan with a liability-to-payroll
ratio of 4. The liability volatility ratio is also included in the table below. It should be noted that this ratio
indicates a longer-term potential for contribution volatility. The asset volatility ratio, described above, will
tend to move closer to the liability volatility ratio as the plan matures. Since the liability volatility ratio is a long-term measure, it is shown below at the current discount rate (7.375 percent) as well as the discount
rate the Board has adopted to determine the contribution requirement in the June 30, 2018 actuarial
valuation (7.00 percent).
Contribution Volatility As of June 30, 2016
1. Market Value of Assets without Receivables $ 249,241,127
2. Payroll 21,268,028
3. Asset Volatility Ratio (AVR) [(1) / ( 2)] 11.7
4. Accrued Liability (7.375% discount rate) $ 392,911,774
5. Liability Volatility Ratio (LVR) [(4) / (2)] 18.5
6. Accrued Liability (7.00% discount rate) 410,532,811
7. Projected Liability Volatility Ratio [(6) / (2)] 19.3
CALPERS ACTUARIAL VALUATION - June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 24
Hypothetical Termination Liability
The hypothetical termination liability is an estimate of the financial position of the plan had the contract with
CalPERS been terminated as of June 30, 2016. The plan liability on a termination basis is calculated
differently compared to the plan’s ongoing funding liability. For this hypothetical termination liability calculation, both compensation and service are frozen as of the valuation date and no future pay increases
or service accruals are assumed. This measure of funded status is not appropriate for assessing the need for
future employer contributions in the case of an ongoing plan, that is, for an employer that continues to
provide CalPERS retirement benefits to active employees.
A more conservative investment policy and asset allocation strategy was adopted by the CalPERS Board for
the Terminated Agency Pool. The Terminated Agency Pool has limited funding sources since no future employer contributions will be made. Therefore, expected benefit payments are secured by risk-free assets
and benefit security for members is increased while limiting the funding risk. However, this asset allocation
has a lower expected rate of return than the PERF and consequently, a lower discount rate assumption. The
lower discount rate for the Terminated Agency Pool results in higher liabilities for terminated plans.
The effective termination discount rate will depend on actual market rates of return for risk-free securities
on the date of termination. As market discount rates are variable the table below shows a range for the
hypothetical termination liability based on the lowest and highest interest rates observed during an approximate 2-year period centered around the valuation date.
Market
Value of
Assets (MVA)
Hypothetical
Termination
Liability1,2
@ 1.75%
Funded
Status
Unfunded
Termination
Liability
@ 1.75%
Hypothetical
Termination
Liability1,2
@ 3.00%
Funded
Status
Unfunded
Termination
Liability
@ 3.00%
$249,886,581 $737,420,442 33.9% $487,533,861 $638,680,813 39.1% $388,794,232
1 The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with Board
policy. Other actuarial assumptions can be found in Appendix A. 2 The current discount rate assumption used for termination valuations is a weighted average of the 10-year and 30-year
U.S. Treasury yields where the weights are based on matching asset and liability durations as of the termination date.
The discount rates used in the table are based on 20-year Treasury bonds, rounded to the nearest quarter percentage point, which is a good proxy for most plans. The 20-year Treasury yield was 1.75 percent on June 30, 2016, and was
2.75 percent on January 31, 2017.
In order to terminate the plan, you must first contact our Retirement Services Contract Unit to initiate a
Resolution of Intent to Terminate. The completed Resolution will allow the plan actuary to give you a
preliminary termination valuation with a more up-to-date estimate of the plan liabilities. CalPERS advises
you to consult with the plan actuary before beginning this process.
PLAN’S MAJOR BENEFIT PROVISIONS
CALPERS ACTUARIAL VALUATION – June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which your agency has contracted for this plan. A description of principal standard and optional
plan provisions is in Appendix B of this report.
Contract Package
Active
Police
Active
Fire
Active
Fire
Active
Police
Active
Fire
Active
Police
Active
Fire
Benefit Provision
Benefit Formula 3.0% @ 50 3.0% @ 50 3.0% @ 50 2.7% @ 57 3.0% @ 55 3.0% @ 55 2.7% @ 57
Social Security Coverage No No No No No No No Full/Modified Full Full Full Full Full Full Full
Employee Contribution Rate 9.00% 9.00% 9.00% 10.75% 9.00% 9.00% 10.75%
Final Average Compensation Period One Year One Year One Year Three Year Three Year Three Year Three Year
Sick Leave Credit No No No No No No No
Non-Industrial Disability Standard Standard Standard Standard Standard Standard Standard
Industrial Disability Yes Yes Yes Yes Yes Yes Yes
Pre-Retirement Death Benefits
Optional Settlement 2W No Yes Yes No Yes No Yes 1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1 Level 1 Level 1 Level 1
Special Yes Yes Yes Yes Yes Yes Yes
Alternate (firefighters) No No No No No No No
Post-Retirement Death Benefits
Lump Sum $500 $500 $500 $500 $500 $500 $500
Survivor Allowance (PRSA) No No No No No No No
COLA 2% 2% 2% 2% 2% 2% 2%
Page 26
CALPERS ACTUARIAL VALUATION – June 30, 2016
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which your agency has contracted. A description of principal standard and optional plan provisions
is in the following section of this Appendix.
Contract Package
Receiving
Fire
Receiving
Police
Benefit Provision
Benefit Formula
Social Security Coverage
Full/Modified
Employee Contribution Rate
Final Average Compensation Period
Sick Leave Credit
Non-Industrial Disability
Industrial Disability
Pre-Retirement Death Benefits
Optional Settlement 2W
1959 Survivor Benefit Level
Special
Alternate (firefighters)
Post-Retirement Death Benefits
Lump Sum $500 $500
Survivor Allowance (PRSA) No No
COLA 2% 2%
Page 27
APPENDICES
APPENDIX A – ACTUARIAL METHODS AND ASSUMPTIONS
APPENDIX B – PRINCIPAL PLAN PROVISIONS
APPENDIX C – PARTICIPANT DATA
APPENDIX D – DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATES
APPENDIX E – GLOSSARY OF ACTUARIAL TERMS
APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
ACTUARIAL DATA
ACTUARIAL METHODS
ACTUARIAL ASSUMPTIONS
MISCELLANEOUS
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-1
Actuarial Data
As stated in the Actuarial Certification, the data which serves as the basis of this valuation has been
obtained from the various CalPERS databases. We have reviewed the valuation data and believe that it is
reasonable and appropriate in aggregate. We are unaware of any potential data issues that would have a
material effect on the results of this valuation, except that data does not always contain the latest salary
information for former members now in reciprocal systems and does not recognize the potential for unusually large salary deviation in certain cases such as elected officials. Therefore, salary information in
these cases may not be accurate. These situations are relatively infrequent, however, and when they do
occur, they generally do not have a material impact on the required employer contributions.
Actuarial Methods
Actuarial Cost Method
The actuarial cost method used is the Entry Age Normal Cost Method. Under this method, projected benefits are determined for all members and the associated liabilities are spread in a manner that produces level
annual cost as a percentage of pay in each year from the member’s entry age to their assumed retirement
age on the valuation date. The cost allocated to the current fiscal year is called the normal cost.
The actuarial accrued liability for active members is then calculated as the portion of the total cost of the
plan allocated to prior years. The actuarial accrued liability for members currently receiving benefits and for
members entitled to deferred benefits is equal to the present value of the benefits expected to be paid. No
normal costs are applicable for these participants.
Amortization of Unfunded Actuarial Accrued Liability
The excess of the total actuarial accrued liability over the market value of plan assets is called the unfunded
actuarial accrued liability (UAL). Funding requirements are determined by adding the normal cost and an
amortization payment toward the unfunded liability. The unfunded liability is amortized as a “level percent
of pay”. Commencing with the June 30, 2013 valuation, all new gains or losses are amortized over a fixed 30-year period with a 5-year ramp up at the beginning and a 5-year ramp down at the end of the
amortization period. All changes in liability due to plan amendments (other than golden handshakes) are
amortized over a 20-year period with no ramp. Changes in actuarial assumptions or changes in actuarial
methodology are amortized over a 20-year period with a 5-year ramp up at the beginning and a 5-year
ramp down at the end of the amortization period. Changes in unfunded accrued liability due to a Golden
Handshake will be amortized over a period of five years.
The 5-year ramp up means that the payments in the first four years of the amortization period are 20
percent, 40 percent, 60 percent and 80 percent of the “full” payment which begins in year five. The 5-year
ramp down means that the reverse is true in the final four years of the amortization period.
Exceptions for Inconsistencies:
An exception to the amortization rules above is used whenever their application results in inconsistencies. In
these cases, a “fresh start” approach is used. This means that the current unfunded actuarial liability is projected and amortized over a set number of years. For example, a fresh start is needed in the following
situations:
1) When a positive payment would be required on a negative unfunded actuarial liability (or
conversely a negative payment on a positive unfunded actuarial liability); or
2) When there are excess assets, rather than an unfunded liability. In this situation, a 30-year fresh
start is used.
It should be noted that the actuary may determine that a fresh start is necessary under other
circumstances. In all cases of a fresh start, the period is set by the actuary at what is deemed appropriate;
however, the period will not be greater than 30 years.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-2
Exceptions for Inactive Plans:
The following exceptions apply to plans classified as Inactive. These plans have no active members and no
expectation to have active members in the future.
Amortization of the unfunded liability is on a “level dollar” basis rather than a “level percent of pay”
basis. For amortization layers which utilize a ramp up and ramp down, the “ultimate” payment is
constant.
Actuarial judgment will be used to shorten amortization periods for Inactive plans with existing
periods that are deemed too long given the duration of the liability. The specific demographics of
the plan will be used to determine if shorter periods may be more appropriate.
Asset Valuation Method
It is the policy of the CalPERS Board of Administration to use professionally accepted amortization methods
to eliminate a surplus or an unfunded accrued liability in a manner that maintains benefit security for the
members of the System while minimizing substantial variations in required employer contributions. On April
17, 2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS
amortization and rate smoothing policies. Beginning with the June 30, 2013 valuations that set the employer
contribution for Fiscal Year 2015-16, CalPERS employs a policy that amortizes all gains and losses over a fixed 30-year period. The increase or decrease in the rate is then spread directly over a 5-year period. This
method is referred to as “direct rate smoothing.” CalPERS no longer uses an actuarial value of assets and
only uses the market value of assets. The direct rate smoothing method is equivalent to a method using a 5
year asset smoothing period with no actuarial value of asset corridor and a 25-year amortization period for
gains and losses.
PEPRA Normal Cost Rate Methodology
Per Government Code Section 7522.30(b) the “normal cost rate” shall mean the annual actuarially
determined normal cost for the plan of retirement benefits provided to the new member and shall be
established based on actuarial assumptions used to determine the liabilities and costs as part of the annual
actuarial valuation. The plan of retirement benefits shall include any elements that would impact the
actuarial determination of the normal cost, including, but not limited to, the retirement formula, eligibility
and vesting criteria, ancillary benefit provisions, and any automatic cost-of-living adjustments as determined by the public retirement system.
Each non-pooled plan is considered to be stable with a sufficiently large demographic of actives. It is
preferable to determine normal cost using a large active population ongoing so that this rate remains
relatively stable. The total PEPRA normal cost will be calculated using all active members within a non-
pooled plan until the number of members covered under the PEPRA formula meets either:
1. 50 percent of the active population, or
2. 25 percent of the active population and 100 or more PEPRA members
Once either of the conditions above are met for a non-pooled plan, the total PEPRA normal cost will be
based on the active PEPRA population in the plan.
Accordingly, the total normal cost will be funded equally between employer and employee based on the
demographics of the employees of that employer.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-3
Actuarial Assumptions
In 2014, CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions
and strategic asset allocation. On February 19, 2014, the CalPERS Board of Administration adopted relatively
modest changes to the asset allocation that reduced the expected volatility of returns. The adopted asset
allocation was expected to have a long-term blended return that continued to support a discount rate
assumption of 7.5 percent at that time. The Board also approved several changes to the demographic assumptions that more closely aligned with actual experience. The most significant of these is mortality
improvement to acknowledge the greater life expectancies we are seeing in our membership and expected
continued improvements. These new actuarial assumptions were first used in the June 30, 2014 valuation to
set the Fiscal Year 2016-17 contribution for public agency employers.
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to
7.00 percent using a three year phase-in beginning with the June 30, 2016 actuarial valuations. The
minimum employer contributions for Fiscal Year 2018-19 determined in this valuation were calculated using a discount rate of 7.375 percent. The projected employer contributions on Page 5 are calculated assuming
that the discount rate will be lowered to 7.25 percent next year and 7.00 percent the following year as
adopted by the Board. The decision to reduce the discount rate was primarily based on reduced capital
market assumptions provided by external investment consultants and CalPERS investment staff. The specific
decision adopted by the Board reflected recommendations from CalPERS staff and additional input from
employer and employee stakeholder groups. Based on the investment allocation adopted by the Board
and capital market assumptions, the reduced discount rate schedule provides a more realistic assumption
for the long term investment return of the fund.
Notwithstanding the Board’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the
expected investment return of CalPERS assets or changes to the investment allocation may result in a
change to this three year discount rate schedule. A comprehensive analysis of all actuarial assumptions and methods including the discount rate will be conducted in 2017.
For more details and additional rationale for the selection of the actuarial assumptions, please refer to the
CalPERS Experience Study and Review of Actuarial Assumptions report from January 2014 that can be found
on the CalPERS website under: “Forms and Publications”. Click on “View All” and search for Experience
Study.
All actuarial assumptions (except the discount rates used for the hypothetical termination liability) represent an estimate of future experience rather than observations of the estimates inherent in market data.
Economic Assumptions
Discount Rate
The prescribed discount rate assumption adopted by the Board on December 21, 2016 is 7.375 percent compounded annually (net of investment and administrative expenses) as of 6/30/2016.
The Board also prescribed that the assumed discount rate will reduce to 7.25 percent compounded
annually (net of expenses) as of 6/30/2017, and 7.0 percent compounded annually (net of
expenses) as of 6/30/2018. These further changes to the discount rate assumption are not
reflected in the determination of required contributions determined in this report for Fiscal Year
2018-19.
Termination Liability Discount Rate The current discount rate assumption used for termination valuations is a weighted average of the
10-year and 30-year U.S. Treasury yields where the weights are based on matching asset and
liability durations as of the termination date.
The hypothetical termination liabilities in this report are calculated using an observed range of
market interest rates. This range is based on the lowest and highest 20-year Treasury bond observed during an approximate 2-year period centered around the valuation date. The 20-year
Treasury bond has a similar duration to most plan liabilities and serves as a good proxy for the
termination discount rate. The 20-year Treasury yield was 1.75 percent on June 30, 2016.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-4
Salary Growth
Annual increases vary by category, entry age, and duration of service. A sample of assumed
increases are shown below.
Public Agency Miscellaneous
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1220 0.1160 0.1020
1 0.0990 0.0940 0.0830
2 0.0860 0.0810 0.0710
3 0.0770 0.0720 0.0630
4 0.0700 0.0650 0.0570
5 0.0640 0.0600 0.0520
10 0.0460 0.0430 0.0390
15 0.0420 0.0400 0.0360
20 0.0390 0.0380 0.0340
25 0.0370 0.0360 0.0330
30 0.0350 0.0340 0.0320
Public Agency Fire
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.2000 0.1980 0.1680
1 0.1490 0.1460 0.1250
2 0.1200 0.1160 0.0990
3 0.0980 0.0940 0.0810
4 0.0820 0.0780 0.0670
5 0.0690 0.0640 0.0550
10 0.0470 0.0460 0.0420
15 0.0440 0.0420 0.0390
20 0.0420 0.0390 0.0360
25 0.0400 0.0370 0.0340
30 0.0380 0.0360 0.0340
Public Agency Police
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1500 0.1470 0.1310
1 0.1160 0.1120 0.1010
2 0.0950 0.0920 0.0830
3 0.0810 0.0780 0.0700
4 0.0700 0.0670 0.0600
5 0.0610 0.0580 0.0520
10 0.0450 0.0430 0.0370
15 0.0450 0.0430 0.0370
20 0.0450 0.0430 0.0370
25 0.0450 0.0430 0.0370
30 0.0450 0.0430 0.0370
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-5
Salary Growth (continued)
Public Agency County Peace Officers
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1770 0.1670 0.1500
1 0.1340 0.1260 0.1140
2 0.1080 0.1030 0.0940
3 0.0900 0.0860 0.0790
4 0.0760 0.0730 0.0670
5 0.0650 0.0620 0.0580
10 0.0470 0.0450 0.0410
15 0.0460 0.0450 0.0390
20 0.0460 0.0450 0.0380
25 0.0460 0.0450 0.0380
30 0.0460 0.0440 0.0380
Schools
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.0900 0.0880 0.0820
1 0.0780 0.0750 0.0700
2 0.0700 0.0680 0.0630
3 0.0650 0.0630 0.0580
4 0.0610 0.0590 0.0540
5 0.0580 0.0560 0.0510
10 0.0460 0.0450 0.0410
15 0.0420 0.0410 0.0380
20 0.0390 0.0380 0.0350
25 0.0370 0.0350 0.0330
30 0.0350 0.0330 0.0310
The Miscellaneous salary scale is used for Local Prosecutors.
The Police salary scale is used for Other Safety, Local Sheriff, and School Police.
Overall Payroll Growth
3.00 percent compounded annually (used in projecting the payroll over which the unfunded liability
is amortized). This assumption is used for all plans with active members.
Inflation
2.75 percent compounded annually.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.75 percent inflation
assumption, and any potential liability loss from future member service purchases are not reflected
in the valuation.
Miscellaneous Loading Factors
Credit for Unused Sick Leave
Total years of service is increased by 1 percent for those plans that have accepted the provision
providing Credit for Unused Sick Leave.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-6
Conversion of Employer Paid Member Contributions (EPMC)
Total years of service is increased by the Employee Contribution Rate for those plans with the
provision providing for the Conversion of Employer Paid Member Contributions (EPMC) during the
final compensation period.
Norris Decision (Best Factors)
Employees hired prior to July 1, 1982 have projected benefit amounts increased in order to reflect
the use of “Best Factors” in the calculation of optional benefit forms. This is due to a 1983
Supreme Court decision, known as the Norris decision, which required males and females to be
treated equally in the determination of benefit amounts. Consequently, anyone already employed
at that time is given the best possible conversion factor when optional benefits are determined. No loading is necessary for employees hired after July 1, 1982.
Termination Liability
The termination liabilities include a 7 percent contingency load. This load is for unforeseen
improvements in mortality.
Demographic Assumptions
Pre-Retirement Mortality
Non-industrial death rates vary by age and gender. Industrial death rates vary by age. See sample
rates in table below. The non-industrial death rates are used for all plans. The industrial death
rates are used for safety plans (except for Local Prosecutor safety members where the
corresponding miscellaneous plan does not have the Industrial Death Benefit).
Non-Industrial Death Industrial Death (Not Job-Related) (Job-Related)
Age Male Female Male and Female
20 0.00031 0.00020 0.00003
25 0.00040 0.00023 0.00007
30 0.00049 0.00025 0.00010
35 0.00057 0.00035 0.00012
40 0.00075 0.00050 0.00013
45 0.00106 0.00071 0.00014 50 0.00155 0.00100 0.00015
55 0.00228 0.00138 0.00016
60 0.00308 0.00182 0.00017
65 0.00400 0.00257 0.00018
70 0.00524 0.00367 0.00019
75 0.00713 0.00526 0.00020
80 0.00990 0.00814 0.00021
Miscellaneous plans usually have industrial death rates set to zero unless the agency has specifically
contracted for industrial death benefits. If so, each non-industrial death rate shown above will be
split into two components; 99 percent will become the non-industrial death rate and 1 percent will
become the industrial death rate.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-7
Post-Retirement Mortality
Rates vary by age, type of retirement, and gender. See sample rates in table below. These rates
are used for all plans.
Healthy Recipients
Non-Industrially Disabled Industrially Disabled
(Not Job-Related) (Job-Related)
Age Male Female Male Female Male Female
50 0.00501 0.00466 0.01680 0.01158 0.00501 0.00466
55 0.00599 0.00416 0.01973 0.01149 0.00599 0.00416
60 0.00710 0.00436 0.02289 0.01235 0.00754 0.00518
65 0.00829 0.00588 0.02451 0.01607 0.01122 0.00838 70 0.01305 0.00993 0.02875 0.02211 0.01635 0.01395
75 0.02205 0.01722 0.03990 0.03037 0.02834 0.02319
80 0.03899 0.02902 0.06083 0.04725 0.04899 0.03910
85 0.06969 0.05243 0.09731 0.07762 0.07679 0.06251
90 0.12974 0.09887 0.14804 0.12890 0.12974 0.09887
95 0.22444 0.18489 0.22444 0.21746 0.22444 0.18489
100 0.32536 0.30017 0.32536 0.30017 0.32536 0.30017
105 0.58527 0.56093 0.58527 0.56093 0.58527 0.56093 110 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000
The post-retirement mortality rates above include 20 years of projected on-going mortality
improvement using Scale BB published by the Society of Actuaries.
Marital Status
For active members, a percentage who are married upon retirement is assumed according to member category as shown in the following table.
Member Category Percent Married
Miscellaneous Member 85% Local Police 90%
Local Fire 90%
Other Local Safety 90%
School Police 90%
Age of Spouse
It is assumed that female spouses are 3 years younger than male spouses. This assumption is used for all plans.
Terminated Members
It is assumed that terminated members refund immediately if non-vested. Terminated members
who are vested are assumed to follow the same service retirement pattern as active members but
with a load to reflect the expected higher rates of retirement, especially at lower ages. The
following table shows the load factors that are applied to the service retirement assumption for active members to obtain the service retirement pattern for separated vested members:
Age Load Factor Miscellaneous Load Factor Safety
50 190% 310%
51 110% 190% 52 110% 105%
53 through 54 100% 105%
55 100% 140%
56 and above 100% (no change) 100% (no change)
Termination with Refund Rates vary by entry age and service for miscellaneous plans. Rates vary by service for safety plans.
See sample rates in tables below.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-8
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1742 0.1674 0.1606 0.1537 0.1468 0.1400
1 0.1545 0.1477 0.1409 0.1339 0.1271 0.1203
2 0.1348 0.1280 0.1212 0.1142 0.1074 0.1006
3 0.1151 0.1083 0.1015 0.0945 0.0877 0.0809
4 0.0954 0.0886 0.0818 0.0748 0.0680 0.0612
5 0.0212 0.0193 0.0174 0.0155 0.0136 0.0116
10 0.0138 0.0121 0.0104 0.0088 0.0071 0.0055
15 0.0060 0.0051 0.0042 0.0032 0.0023 0.0014
20 0.0037 0.0029 0.0021 0.0013 0.0005 0.0001
25 0.0017 0.0011 0.0005 0.0001 0.0001 0.0001
30 0.0005 0.0001 0.0001 0.0001 0.0001 0.0001
35 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
Public Agency Safety
Duration of Service Fire Police County Peace Officer
0 0.0710 0.1013 0.0997
1 0.0554 0.0636 0.0782
2 0.0398 0.0271 0.0566
3 0.0242 0.0258 0.0437
4 0.0218 0.0245 0.0414
5 0.0029 0.0086 0.0145
10 0.0009 0.0053 0.0089
15 0.0006 0.0027 0.0045
20 0.0005 0.0017 0.0020
25 0.0003 0.0012 0.0009
30 0.0003 0.0009 0.0006
35 0.0003 0.0009 0.0006
The police termination and refund rates are also used for Public Agency Local Prosecutors, Other
Safety, Local Sheriff, and School Police.
Schools
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1730 0.1627 0.1525 0.1422 0.1319 0.1217
1 0.1585 0.1482 0.1379 0.1277 0.1174 0.1071
2 0.1440 0.1336 0.1234 0.1131 0.1028 0.0926
3 0.1295 0.1192 0.1089 0.0987 0.0884 0.0781
4 0.1149 0.1046 0.0944 0.0841 0.0738 0.0636
5 0.0278 0.0249 0.0221 0.0192 0.0164 0.0135
10 0.0172 0.0147 0.0122 0.0098 0.0074 0.0049
15 0.0115 0.0094 0.0074 0.0053 0.0032 0.0011
20 0.0073 0.0055 0.0038 0.0020 0.0002 0.0002
25 0.0037 0.0023 0.0010 0.0002 0.0002 0.0002
30 0.0015 0.0003 0.0002 0.0002 0.0002 0.0002
35 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-9
Termination with Vested Benefits
Rates vary by entry age and service for miscellaneous plans. Rates vary by service for safety plans.
See sample rates in tables below.
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40
5 0.0656 0.0597 0.0537 0.0477 0.0418
10 0.0530 0.0466 0.0403 0.0339 0.0000
15 0.0443 0.0373 0.0305 0.0000 0.0000
20 0.0333 0.0261 0.0000 0.0000 0.0000
25 0.0212 0.0000 0.0000 0.0000 0.0000
30 0.0000 0.0000 0.0000 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
Public Agency Safety
Duration of
Service Fire Police
County Peace
Officer
5 0.0162 0.0163 0.0265
10 0.0061 0.0126 0.0204
15 0.0058 0.0082 0.0130
20 0.0053 0.0065 0.0074
25 0.0047 0.0058 0.0043
30 0.0045 0.0056 0.0030
35 0.0000 0.0000 0.0000
When a member is eligible to retire, the termination with vested benefits probability is set to zero.
After termination with vested benefits, a miscellaneous member is assumed to retire at age 59
and a safety member at age 54.
The Police termination with vested benefits rates are also used for Public Agency Local
Prosecutors, Other Safety, Local Sheriff, and School Police.
Schools
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40
5 0.0816 0.0733 0.0649 0.0566 0.0482
10 0.0629 0.0540 0.0450 0.0359 0.0000
15 0.0537 0.0440 0.0344 0.0000 0.0000
20 0.0420 0.0317 0.0000 0.0000 0.0000
25 0.0291 0.0000 0.0000 0.0000 0.0000
30 0.0000 0.0000 0.0000 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-10
Non-Industrial (Not Job-Related) Disability
Rates vary by age and gender for miscellaneous plans. Rates vary by age and category for safety
plans.
Miscellaneous Fire Police County Peace Officer Schools
Age Male Female Male and Female Male and Female Male and Female Male Female
20 0.0002 0.0001 0.0001 0.0001 0.0001 0.0003 0.0003
25 0.0002 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
30 0.0002 0.0002 0.0001 0.0002 0.0001 0.0001 0.0002
35 0.0005 0.0008 0.0001 0.0003 0.0004 0.0005 0.0004
40 0.0012 0.0016 0.0001 0.0004 0.0007 0.0015 0.0010
45 0.0019 0.0022 0.0002 0.0005 0.0013 0.0030 0.0019
50 0.0021 0.0023 0.0005 0.0008 0.0018 0.0039 0.0024
55 0.0022 0.0018 0.0010 0.0013 0.0010 0.0036 0.0021
60 0.0022 0.0014 0.0015 0.0020 0.0006 0.0031 0.0014
The miscellaneous non-industrial disability rates are used for Local Prosecutors.
The police non-industrial disability rates are also used for Other Safety, Local Sheriff, and
School Police.
Industrial (Job-Related) Disability Rates vary by age and category.
Age Fire Police County Peace Officer
20 0.0001 0.0000 0.0004
25 0.0003 0.0017 0.0013
30 0.0007 0.0048 0.0025
35 0.0016 0.0079 0.0037
40 0.0030 0.0110 0.0051
45 0.0053 0.0141 0.0067
50 0.0277 0.0185 0.0092
55 0.0409 0.0479 0.0151
60 0.0583 0.0602 0.0174
The police industrial disability rates are also used for Local Sheriff and Other Safety.
Fifty percent of the police industrial disability rates are used for School Police.
One percent of the police industrial disability rates are used for Local Prosecutors.
Normally, rates are zero for miscellaneous plans unless the agency has specifically contracted for industrial disability benefits. If so, each miscellaneous non-industrial disability rate will be
split into two components: 50 percent will become the non-industrial disability rate and 50
percent will become the industrial disability rate.
Service Retirement
Retirement rates vary by age, service, and formula, except for the safety ½ @ 55 and 2% @ 55
formulas, where retirement rates vary by age only.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-11
Service Retirement
Public Agency Miscellaneous 1.5% @ 65
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.008 0.011 0.013 0.015 0.017 0.019
51 0.007 0.010 0.012 0.013 0.015 0.017
52 0.010 0.014 0.017 0.019 0.021 0.024
53 0.008 0.012 0.015 0.017 0.019 0.022
54 0.012 0.016 0.019 0.022 0.025 0.028
55 0.018 0.025 0.031 0.035 0.038 0.043
56 0.015 0.021 0.025 0.029 0.032 0.036
57 0.020 0.028 0.033 0.038 0.043 0.048
58 0.024 0.033 0.040 0.046 0.052 0.058
59 0.028 0.039 0.048 0.054 0.060 0.067
60 0.049 0.069 0.083 0.094 0.105 0.118
61 0.062 0.087 0.106 0.120 0.133 0.150
62 0.104 0.146 0.177 0.200 0.223 0.251
63 0.099 0.139 0.169 0.191 0.213 0.239
64 0.097 0.136 0.165 0.186 0.209 0.233
65 0.140 0.197 0.240 0.271 0.302 0.339
66 0.092 0.130 0.157 0.177 0.198 0.222
67 0.129 0.181 0.220 0.249 0.277 0.311
68 0.092 0.129 0.156 0.177 0.197 0.221
69 0.092 0.130 0.158 0.178 0.199 0.224
70 0.103 0.144 0.175 0.198 0.221 0.248
Public Agency Miscellaneous 2% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.010 0.013 0.015 0.018 0.019 0.021
51 0.009 0.011 0.014 0.016 0.017 0.019
52 0.011 0.014 0.017 0.020 0.022 0.024
53 0.010 0.012 0.015 0.017 0.020 0.021
54 0.015 0.019 0.023 0.025 0.029 0.031
55 0.022 0.029 0.035 0.040 0.045 0.049
56 0.018 0.024 0.028 0.033 0.036 0.040
57 0.024 0.032 0.038 0.043 0.049 0.053
58 0.027 0.036 0.043 0.049 0.055 0.061
59 0.033 0.044 0.054 0.061 0.068 0.076
60 0.056 0.077 0.092 0.105 0.117 0.130
61 0.071 0.097 0.118 0.134 0.149 0.166
62 0.117 0.164 0.198 0.224 0.250 0.280
63 0.122 0.171 0.207 0.234 0.261 0.292
64 0.114 0.159 0.193 0.218 0.244 0.271
65 0.150 0.209 0.255 0.287 0.321 0.358
66 0.114 0.158 0.192 0.217 0.243 0.270
67 0.141 0.196 0.238 0.270 0.301 0.337
68 0.103 0.143 0.174 0.196 0.219 0.245
69 0.109 0.153 0.185 0.209 0.234 0.261
70 0.117 0.162 0.197 0.222 0.248 0.277
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-12
Service Retirement
Public Agency Miscellaneous 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.014 0.018 0.021 0.025 0.027 0.031
51 0.012 0.014 0.017 0.020 0.021 0.025
52 0.013 0.017 0.019 0.023 0.025 0.028
53 0.015 0.020 0.023 0.027 0.030 0.034
54 0.026 0.033 0.038 0.045 0.051 0.059
55 0.048 0.061 0.074 0.088 0.100 0.117
56 0.042 0.053 0.063 0.075 0.085 0.100
57 0.044 0.056 0.067 0.081 0.091 0.107
58 0.049 0.062 0.074 0.089 0.100 0.118
59 0.057 0.072 0.086 0.103 0.118 0.138
60 0.067 0.086 0.103 0.123 0.139 0.164
61 0.081 0.103 0.124 0.148 0.168 0.199
62 0.116 0.147 0.178 0.214 0.243 0.288
63 0.114 0.144 0.174 0.208 0.237 0.281
64 0.108 0.138 0.166 0.199 0.227 0.268
65 0.155 0.197 0.238 0.285 0.325 0.386
66 0.132 0.168 0.203 0.243 0.276 0.328
67 0.122 0.155 0.189 0.225 0.256 0.304
68 0.111 0.141 0.170 0.204 0.232 0.274
69 0.114 0.144 0.174 0.209 0.238 0.282
70 0.130 0.165 0.200 0.240 0.272 0.323
Public Agency Miscellaneous 2.5% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.004 0.009 0.019 0.029 0.049 0.094
51 0.004 0.009 0.019 0.029 0.049 0.094
52 0.004 0.009 0.020 0.030 0.050 0.095
53 0.008 0.014 0.025 0.036 0.058 0.104
54 0.024 0.034 0.050 0.066 0.091 0.142
55 0.066 0.088 0.115 0.142 0.179 0.241
56 0.042 0.057 0.078 0.098 0.128 0.184
57 0.041 0.057 0.077 0.097 0.128 0.183
58 0.045 0.061 0.083 0.104 0.136 0.192
59 0.055 0.074 0.098 0.123 0.157 0.216
60 0.066 0.088 0.115 0.142 0.179 0.241
61 0.072 0.095 0.124 0.153 0.191 0.255
62 0.099 0.130 0.166 0.202 0.248 0.319
63 0.092 0.121 0.155 0.189 0.233 0.302
64 0.091 0.119 0.153 0.187 0.231 0.299
65 0.122 0.160 0.202 0.245 0.297 0.374
66 0.138 0.179 0.226 0.272 0.329 0.411
67 0.114 0.149 0.189 0.229 0.279 0.354
68 0.100 0.131 0.168 0.204 0.250 0.322
69 0.114 0.149 0.189 0.229 0.279 0.354
70 0.127 0.165 0.209 0.253 0.306 0.385
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-13
Service Retirement
Public Agency Miscellaneous 2.7% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.004 0.009 0.014 0.035 0.055 0.095
51 0.002 0.006 0.011 0.030 0.050 0.090
52 0.006 0.012 0.017 0.038 0.059 0.099
53 0.010 0.017 0.024 0.046 0.068 0.110
54 0.032 0.044 0.057 0.085 0.113 0.160
55 0.076 0.101 0.125 0.165 0.205 0.265
56 0.055 0.074 0.093 0.127 0.160 0.214
57 0.050 0.068 0.086 0.118 0.151 0.204
58 0.055 0.074 0.093 0.127 0.161 0.215
59 0.061 0.082 0.102 0.138 0.174 0.229
60 0.069 0.093 0.116 0.154 0.192 0.250
61 0.086 0.113 0.141 0.183 0.225 0.288
62 0.105 0.138 0.171 0.218 0.266 0.334
63 0.103 0.135 0.167 0.215 0.262 0.329
64 0.109 0.143 0.177 0.226 0.275 0.344
65 0.134 0.174 0.215 0.270 0.326 0.401
66 0.147 0.191 0.235 0.294 0.354 0.433
67 0.121 0.158 0.196 0.248 0.300 0.372
68 0.113 0.147 0.182 0.232 0.282 0.352
69 0.117 0.153 0.189 0.240 0.291 0.362
70 0.141 0.183 0.226 0.283 0.341 0.418
Public Agency Miscellaneous 3% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.012 0.018 0.024 0.039 0.040 0.091
51 0.009 0.014 0.019 0.034 0.034 0.084
52 0.014 0.020 0.026 0.043 0.044 0.096
53 0.016 0.023 0.031 0.048 0.050 0.102
54 0.026 0.036 0.045 0.065 0.070 0.125
55 0.043 0.057 0.072 0.096 0.105 0.165
56 0.042 0.056 0.070 0.094 0.103 0.162
57 0.049 0.065 0.082 0.108 0.119 0.180
58 0.057 0.076 0.094 0.122 0.136 0.199
59 0.076 0.100 0.123 0.157 0.175 0.244
60 0.114 0.148 0.182 0.226 0.255 0.334
61 0.095 0.123 0.152 0.190 0.214 0.288
62 0.133 0.172 0.211 0.260 0.294 0.378
63 0.129 0.166 0.204 0.252 0.285 0.368
64 0.143 0.185 0.226 0.278 0.315 0.401
65 0.202 0.260 0.318 0.386 0.439 0.542
66 0.177 0.228 0.279 0.340 0.386 0.482
67 0.151 0.194 0.238 0.292 0.331 0.420
68 0.139 0.179 0.220 0.270 0.306 0.391
69 0.190 0.245 0.299 0.364 0.414 0.513
70 0.140 0.182 0.223 0.274 0.310 0.396
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-14
Service Retirement
Public Agency Miscellaneous 2% @ 62
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.000 0.000 0.000 0.000 0.000 0.000
51 0.000 0.000 0.000 0.000 0.000 0.000
52 0.010 0.013 0.016 0.019 0.022 0.024
53 0.013 0.017 0.020 0.024 0.027 0.031
54 0.021 0.027 0.033 0.039 0.045 0.050
55 0.044 0.056 0.068 0.080 0.092 0.104
56 0.030 0.039 0.047 0.055 0.063 0.072
57 0.036 0.046 0.056 0.066 0.076 0.086
58 0.046 0.059 0.072 0.085 0.097 0.110
59 0.058 0.074 0.089 0.105 0.121 0.137
60 0.062 0.078 0.095 0.112 0.129 0.146
61 0.062 0.079 0.096 0.113 0.129 0.146
62 0.097 0.123 0.150 0.176 0.202 0.229
63 0.089 0.113 0.137 0.162 0.186 0.210
64 0.094 0.120 0.145 0.171 0.197 0.222
65 0.129 0.164 0.199 0.234 0.269 0.304
66 0.105 0.133 0.162 0.190 0.219 0.247
67 0.105 0.133 0.162 0.190 0.219 0.247
68 0.105 0.133 0.162 0.190 0.219 0.247
69 0.105 0.133 0.162 0.190 0.219 0.247
70 0.125 0.160 0.194 0.228 0.262 0.296
Service Retirement
Public Agency Fire ½ @ 55 and 2% @ 55
Age Rate
Age Rate
50 0.0159 56 0.1108
51 0.0000 57 0.0000
52 0.0344 58 0.0950
53 0.0199 59 0.0441
54 0.0413 60 1.00000
55 0.0751
Public Agency Police ½ @ 55 and 2% @ 55
Age Rate
Age Rate
50 0.0255 56 0.0692
51 0.0000 57 0.0511
52 0.0164 58 0.0724
53 0.0272 59 0.0704
54 0.0095 60 1.0000
55 0.1667
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-15
Service Retirement
Public Agency Police 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.005 0.005 0.005 0.005 0.017 0.089
51 0.005 0.005 0.005 0.005 0.017 0.087
52 0.018 0.018 0.018 0.018 0.042 0.132
53 0.044 0.044 0.044 0.044 0.090 0.217
54 0.065 0.065 0.065 0.065 0.126 0.283
55 0.086 0.086 0.086 0.086 0.166 0.354
56 0.067 0.067 0.067 0.067 0.130 0.289
57 0.066 0.066 0.066 0.066 0.129 0.288
58 0.066 0.066 0.066 0.066 0.129 0.288
59 0.139 0.139 0.139 0.139 0.176 0.312
60 0.123 0.123 0.123 0.123 0.153 0.278
61 0.110 0.110 0.110 0.110 0.138 0.256
62 0.130 0.130 0.130 0.130 0.162 0.291
63 0.130 0.130 0.130 0.130 0.162 0.291
64 0.130 0.130 0.130 0.130 0.162 0.291
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.009 0.009 0.009 0.009 0.013 0.020
51 0.013 0.013 0.013 0.013 0.020 0.029
52 0.018 0.018 0.018 0.018 0.028 0.042
53 0.052 0.052 0.052 0.052 0.079 0.119
54 0.067 0.067 0.067 0.067 0.103 0.154
55 0.089 0.089 0.089 0.089 0.136 0.204
56 0.083 0.083 0.083 0.083 0.127 0.190
57 0.082 0.082 0.082 0.082 0.126 0.189
58 0.088 0.088 0.088 0.088 0.136 0.204
59 0.074 0.074 0.074 0.074 0.113 0.170
60 0.100 0.100 0.100 0.100 0.154 0.230
61 0.072 0.072 0.072 0.072 0.110 0.165
62 0.099 0.099 0.099 0.099 0.152 0.228
63 0.114 0.114 0.114 0.114 0.175 0.262
64 0.114 0.114 0.114 0.114 0.175 0.262
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-16
Service Retirement
Public Agency Police 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.004 0.004 0.004 0.004 0.015 0.086
51 0.014 0.014 0.014 0.014 0.034 0.114
52 0.026 0.026 0.026 0.026 0.060 0.154
53 0.038 0.038 0.038 0.038 0.083 0.188
54 0.071 0.071 0.071 0.071 0.151 0.292
55 0.061 0.061 0.061 0.061 0.131 0.261
56 0.072 0.072 0.072 0.072 0.153 0.295
57 0.065 0.065 0.065 0.065 0.140 0.273
58 0.066 0.066 0.066 0.066 0.142 0.277
59 0.118 0.118 0.118 0.118 0.247 0.437
60 0.065 0.065 0.065 0.065 0.138 0.272
61 0.084 0.084 0.084 0.084 0.178 0.332
62 0.108 0.108 0.108 0.108 0.226 0.405
63 0.084 0.084 0.084 0.084 0.178 0.332
64 0.084 0.084 0.084 0.084 0.178 0.332
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.001 0.001 0.001 0.006 0.016 0.069
51 0.002 0.002 0.002 0.006 0.018 0.071
52 0.012 0.012 0.012 0.021 0.040 0.098
53 0.032 0.032 0.032 0.049 0.085 0.149
54 0.057 0.057 0.057 0.087 0.144 0.217
55 0.073 0.073 0.073 0.109 0.179 0.259
56 0.064 0.064 0.064 0.097 0.161 0.238
57 0.063 0.063 0.063 0.095 0.157 0.233
58 0.065 0.065 0.065 0.099 0.163 0.241
59 0.088 0.088 0.088 0.131 0.213 0.299
60 0.105 0.105 0.105 0.155 0.251 0.344
61 0.118 0.118 0.118 0.175 0.282 0.380
62 0.087 0.087 0.087 0.128 0.210 0.295
63 0.067 0.067 0.067 0.100 0.165 0.243
64 0.067 0.067 0.067 0.100 0.165 0.243
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-17
Service Retirement
Public Agency Police 3% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.050 0.050 0.050 0.099 0.240 0.314
51 0.034 0.034 0.034 0.072 0.198 0.260
52 0.033 0.033 0.033 0.071 0.198 0.259
53 0.039 0.039 0.039 0.080 0.212 0.277
54 0.045 0.045 0.045 0.092 0.229 0.300
55 0.052 0.052 0.052 0.105 0.248 0.323
56 0.042 0.042 0.042 0.087 0.221 0.289
57 0.043 0.043 0.043 0.088 0.223 0.292
58 0.054 0.054 0.054 0.109 0.255 0.333
59 0.054 0.054 0.054 0.108 0.253 0.330
60 0.060 0.060 0.060 0.121 0.272 0.355
61 0.048 0.048 0.048 0.098 0.238 0.311
62 0.061 0.061 0.061 0.122 0.274 0.357
63 0.057 0.057 0.057 0.115 0.263 0.343
64 0.069 0.069 0.069 0.137 0.296 0.385
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 3% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.020 0.020 0.020 0.040 0.130 0.192
51 0.008 0.008 0.008 0.023 0.107 0.164
52 0.023 0.023 0.023 0.043 0.136 0.198
53 0.023 0.023 0.023 0.043 0.135 0.198
54 0.027 0.027 0.027 0.048 0.143 0.207
55 0.043 0.043 0.043 0.070 0.174 0.244
56 0.053 0.053 0.053 0.085 0.196 0.269
57 0.054 0.054 0.054 0.086 0.197 0.271
58 0.052 0.052 0.052 0.084 0.193 0.268
59 0.075 0.075 0.075 0.116 0.239 0.321
60 0.065 0.065 0.065 0.102 0.219 0.298
61 0.076 0.076 0.076 0.117 0.241 0.324
62 0.068 0.068 0.068 0.106 0.224 0.304
63 0.027 0.027 0.027 0.049 0.143 0.208
64 0.094 0.094 0.094 0.143 0.277 0.366
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-18
Service Retirement
Public Agency Police 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.011 0.011 0.011 0.011 0.020 0.036
51 0.009 0.009 0.009 0.009 0.016 0.028
52 0.018 0.018 0.018 0.018 0.034 0.060
53 0.037 0.037 0.037 0.037 0.067 0.119
54 0.049 0.049 0.049 0.049 0.089 0.159
55 0.063 0.063 0.063 0.063 0.115 0.205
56 0.045 0.045 0.045 0.045 0.082 0.146
57 0.064 0.064 0.064 0.064 0.117 0.209
58 0.047 0.047 0.047 0.047 0.086 0.154
59 0.105 0.105 0.105 0.105 0.130 0.191
60 0.105 0.105 0.105 0.105 0.129 0.188
61 0.105 0.105 0.105 0.105 0.129 0.188
62 0.105 0.105 0.105 0.105 0.129 0.188
63 0.105 0.105 0.105 0.105 0.129 0.188
64 0.105 0.105 0.105 0.105 0.129 0.188
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.005 0.005 0.005 0.005 0.008 0.012
51 0.006 0.006 0.006 0.006 0.009 0.013
52 0.012 0.012 0.012 0.012 0.019 0.028
53 0.033 0.033 0.033 0.033 0.050 0.075
54 0.045 0.045 0.045 0.045 0.069 0.103
55 0.061 0.061 0.061 0.061 0.094 0.140
56 0.055 0.055 0.055 0.055 0.084 0.126
57 0.081 0.081 0.081 0.081 0.125 0.187
58 0.059 0.059 0.059 0.059 0.091 0.137
59 0.055 0.055 0.055 0.055 0.084 0.126
60 0.085 0.085 0.085 0.085 0.131 0.196
61 0.085 0.085 0.085 0.085 0.131 0.196
62 0.085 0.085 0.085 0.085 0.131 0.196
63 0.085 0.085 0.085 0.085 0.131 0.196
64 0.085 0.085 0.085 0.085 0.131 0.196
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-19
Service Retirement
Public Agency Police 2.5% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.014 0.014 0.014 0.014 0.025 0.045
51 0.012 0.012 0.012 0.012 0.021 0.038
52 0.025 0.025 0.025 0.025 0.046 0.081
53 0.047 0.047 0.047 0.047 0.086 0.154
54 0.063 0.063 0.063 0.063 0.115 0.205
55 0.076 0.076 0.076 0.076 0.140 0.249
56 0.054 0.054 0.054 0.054 0.099 0.177
57 0.071 0.071 0.071 0.071 0.130 0.232
58 0.057 0.057 0.057 0.057 0.103 0.184
59 0.126 0.126 0.126 0.126 0.156 0.229
60 0.126 0.126 0.126 0.126 0.155 0.226
61 0.126 0.126 0.126 0.126 0.155 0.226
62 0.126 0.126 0.126 0.126 0.155 0.226
63 0.126 0.126 0.126 0.126 0.155 0.226
64 0.126 0.126 0.126 0.126 0.155 0.226
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 2.5% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.007 0.007 0.007 0.007 0.010 0.015
51 0.008 0.008 0.008 0.008 0.012 0.018
52 0.016 0.016 0.016 0.016 0.025 0.038
53 0.042 0.042 0.042 0.042 0.064 0.096
54 0.057 0.057 0.057 0.057 0.088 0.132
55 0.074 0.074 0.074 0.074 0.114 0.170
56 0.066 0.066 0.066 0.066 0.102 0.153
57 0.090 0.090 0.090 0.090 0.139 0.208
58 0.071 0.071 0.071 0.071 0.110 0.164
59 0.066 0.066 0.066 0.066 0.101 0.151
60 0.102 0.102 0.102 0.102 0.157 0.235
61 0.102 0.102 0.102 0.102 0.157 0.236
62 0.102 0.102 0.102 0.102 0.157 0.236
63 0.102 0.102 0.102 0.102 0.157 0.236
64 0.102 0.102 0.102 0.102 0.157 0.236
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-20
Service Retirement
Public Agency Police 2.7% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0138 0.0138 0.0138 0.0138 0.0253 0.0451
51 0.0123 0.0123 0.0123 0.0123 0.0226 0.0402
52 0.0249 0.0249 0.0249 0.0249 0.0456 0.0812
53 0.0497 0.0497 0.0497 0.0497 0.0909 0.1621
54 0.0662 0.0662 0.0662 0.0662 0.1211 0.2160
55 0.0854 0.0854 0.0854 0.0854 0.1563 0.2785
56 0.0606 0.0606 0.0606 0.0606 0.1108 0.1975
57 0.0711 0.0711 0.0711 0.0711 0.1300 0.2318
58 0.0628 0.0628 0.0628 0.0628 0.1149 0.2049
59 0.1396 0.1396 0.1396 0.1396 0.1735 0.2544
60 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
61 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
62 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
63 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
64 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 2.7% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0065 0.0065 0.0065 0.0065 0.0101 0.0151
51 0.0081 0.0081 0.0081 0.0081 0.0125 0.0187
52 0.0164 0.0164 0.0164 0.0164 0.0254 0.0380
53 0.0442 0.0442 0.0442 0.0442 0.0680 0.1018
54 0.0606 0.0606 0.0606 0.0606 0.0934 0.1397
55 0.0825 0.0825 0.0825 0.0825 0.1269 0.1900
56 0.0740 0.0740 0.0740 0.0740 0.1140 0.1706
57 0.0901 0.0901 0.0901 0.0901 0.1387 0.2077
58 0.0790 0.0790 0.0790 0.0790 0.1217 0.1821
59 0.0729 0.0729 0.0729 0.0729 0.1123 0.1681
60 0.1135 0.1135 0.1135 0.1135 0.1747 0.2615
61 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
62 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
63 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
64 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-21
Service Retirement
Schools 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.005 0.009 0.013 0.015 0.016 0.018
51 0.005 0.010 0.014 0.017 0.019 0.021
52 0.006 0.012 0.017 0.020 0.022 0.025
53 0.007 0.014 0.019 0.023 0.026 0.029
54 0.012 0.024 0.033 0.039 0.044 0.049
55 0.024 0.048 0.067 0.079 0.088 0.099
56 0.020 0.039 0.055 0.065 0.072 0.081
57 0.021 0.042 0.059 0.070 0.078 0.087
58 0.025 0.050 0.070 0.083 0.092 0.103
59 0.029 0.057 0.080 0.095 0.105 0.118
60 0.037 0.073 0.102 0.121 0.134 0.150
61 0.046 0.090 0.126 0.149 0.166 0.186
62 0.076 0.151 0.212 0.250 0.278 0.311
63 0.069 0.136 0.191 0.225 0.251 0.281
64 0.067 0.133 0.185 0.219 0.244 0.273
65 0.091 0.180 0.251 0.297 0.331 0.370
66 0.072 0.143 0.200 0.237 0.264 0.295
67 0.067 0.132 0.185 0.218 0.243 0.272
68 0.060 0.118 0.165 0.195 0.217 0.243
69 0.067 0.133 0.187 0.220 0.246 0.275
70 0.066 0.131 0.183 0.216 0.241 0.270
Miscellaneous
Internal Revenue Code Section 415
The limitations on benefits imposed by Internal Revenue Code Section 415 are taken into account in this
valuation. Each year the impact of any changes in this limitation since the prior valuation is included and
amortized as part of the actuarial gain or loss base. This results in lower contributions for those employers
contributing to the Replacement Benefit Fund and protects CalPERS from prefunding expected benefits in
excess of limits imposed by federal tax law.
Internal Revenue Code Section 401(a)(17)
The limitations on compensation imposed by Internal Revenue Code Section 401(a)(17) are taken into
account in this valuation. Each year, the impact of any changes in the compensation limitation since the
prior valuation is included and amortized as part of the actuarial gain or loss base. The compensation limit
for classic members for the 2016 calendar year is $265,000.
APPENDIX B
PRINCIPAL PLAN PROVISIONS
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-1
The following is a description of the principal plan provisions used in calculating costs and liabilities. We have
indicated whether a plan provision is standard or optional. Standard benefits are applicable to all members while
optional benefits vary among employers. Optional benefits that apply to a single period of time, such as Golden
Handshakes, have not been included. Many of the statements in this summary are general in nature, and are
intended to provide an easily understood summary of the Public Employees’ Retirement Law. The law itself governs in all situations.
Service Retirement
Eligibility
A classic CalPERS member or PEPRA Safety member becomes eligible for Service Retirement upon attainment of age
50 with at least 5 years of credited service (total service across all CalPERS employers, and with certain other
retirement systems with which CalPERS has reciprocity agreements). For employees hired into a plan with the 1.5
percent at 65 formula, eligibility for service retirement is age 55 with at least 5 years of service. PEPRA miscellaneous
members become eligible for service retirement upon attainment of age 52 with at least 5 years of service.
Benefit
The service retirement benefit is a monthly allowance equal to the product of the benefit factor, years of service, and
final compensation.
The benefit factor depends on the benefit formula specified in your agency’s contract. The table below shows
the factors for each of the available formulas. Factors vary by the member’s age at retirement. Listed are the
factors for retirement at whole year ages:
Miscellaneous Plan Formulas
Retirement
Age
1.5% at
65 2% at 60 2% at 55 2.5% at
55
2.7% at
55 3% at 60
PEPRA
2% at 62
50 0.5000% 1.092% 1.426% 2.000% 2.000% 2.000% N/A
51 0.5667% 1.156% 1.522% 2.100% 2.140% 2.100% N/A
52 0.6334% 1.224% 1.628% 2.200% 2.280% 2.200% 1.000%
53 0.7000% 1.296% 1.742% 2.300% 2.420% 2.300% 1.100%
54 0.7667% 1.376% 1.866% 2.400% 2.560% 2.400% 1.200%
55 0.8334% 1.460% 2.000% 2.500% 2.700% 2.500% 1.300%
56 0.9000% 1.552% 2.052% 2.500% 2.700% 2.600% 1.400%
57 0.9667% 1.650% 2.104% 2.500% 2.700% 2.700% 1.500%
58 1.0334% 1.758% 2.156% 2.500% 2.700% 2.800% 1.600%
59 1.1000% 1.874% 2.210% 2.500% 2.700% 2.900% 1.700%
60 1.1667% 2.000% 2.262% 2.500% 2.700% 3.000% 1.800%
61 1.2334% 2.134% 2.314% 2.500% 2.700% 3.000% 1.900%
62 1.3000% 2.272% 2.366% 2.500% 2.700% 3.000% 2.000%
63 1.3667% 2.418% 2.418% 2.500% 2.700% 3.000% 2.100%
64 1.4334% 2.418% 2.418% 2.500% 2.700% 3.000% 2.200%
65 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.300%
66 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.400%
67 & up 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.500%
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-2
Safety Plan Formulas
Retirement
Age ½ at 55 * 2% at 55 2% at 50 3% at 55 3% at 50
50 1.783% 1.426% 2.000% 2.400% 3.000%
51 1.903% 1.522% 2.140% 2.520% 3.000%
52 2.035% 1.628% 2.280% 2.640% 3.000%
53 2.178% 1.742% 2.420% 2.760% 3.000%
54 2.333% 1.866% 2.560% 2.880% 3.000%
55 & Up 2.500% 2.000% 2.700% 3.000% 3.000%
* For this formula, the benefit factor also varies by entry age. The factors shown are for members with an entry age
of 35 or greater. If entry age is less than 35, then the age 55 benefit factor is 50 percent divided by the difference
between age 55 and entry age. The benefit factor for ages prior to age 55 is the same proportion of the age 55
benefit factor as in the above table.
PEPRA Safety Plan Formulas
Retirement Age 2% at 57 2.5% at 57 2.7% at 57
50 1.426% 2.000% 2.000%
51 1.508% 2.071% 2.100%
52 1.590% 2.143% 2.200%
53 1.672% 2.214% 2.300%
54 1.754% 2.286% 2.400%
55 1.836% 2.357% 2.500%
56 1.918% 2.429% 2.600%
57 & Up 2.000% 2.500% 2.700%
The years of service is the amount credited by CalPERS to a member while he or she is employed in this group
(or for other periods that are recognized under the employer’s contract with CalPERS). For a member who has
earned service with multiple CalPERS employers, the benefit from each employer is calculated separately
according to each employer’s contract, and then added together for the total allowance. An agency may contract
for an optional benefit where any unused sick leave accumulated at the time of retirement will be converted to
credited service at a rate of 0.004 years of service for each day of sick leave.
The final compensation is the monthly average of the member’s highest 36 or 12 consecutive months’ full-time
equivalent monthly pay (no matter which CalPERS employer paid this compensation). The standard benefit is 36 months. Employers had the option of providing a final compensation equal to the highest 12 consecutive months
for classic plans only. Final compensation must be defined by the highest 36 consecutive months’ pay under the
1.5% at 65 formula. PEPRA members have a cap on the annual salary that can be used to calculate final
compensation for all new members based on the Social Security contribution and benefit base. For employees
that participate in Social Security this cap is $118,775 for 2016 and for those employees that do not participate
in Social Security the cap for 2016 is $142,530. Adjustments to the caps are permitted annually based on
changes to the CPI for all urban consumers.
Employees must be covered by Social Security with the 1.5% at 65 formula. Social Security is optional for all
other benefit formulas. For employees covered by Social Security, the modified formula is the standard benefit.
Under this type of formula, the final compensation is offset by $133.33 (or by one third if the final compensation
is less than $400). Employers may contract for the full benefit with Social Security that will eliminate the offset
applicable to the final compensation. For employees not covered by Social Security, the full benefit is paid with
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-3
no offsets. Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the offset is $317 if members are not covered by Social Security or $513 if members are covered by Social Security.
The miscellaneous and PEPRA safety service retirement benefit is not capped. The classic Safety service
retirement benefit is capped at 90 percent of final compensation.
Vested Deferred Retirement
Eligibility for Deferred Status
A CalPERS member becomes eligible for a deferred vested retirement benefit when he or she leaves employment,
keeps his or her contribution account balance on deposit with CalPERS, and has earned at least 5 years of credited
service (total service across all CalPERS employers, and with certain other retirement systems with which CalPERS
has reciprocity agreements).
Eligibility to Start Receiving Benefits
The CalPERS classic members and PEPRA safety members become eligible to receive the deferred retirement benefit
upon satisfying the eligibility requirements for deferred status and upon attainment of age 50 (55 for employees
hired into a 1.5% @ 65 plan). PEPRA miscellaneous members become eligible to receive the deferred retirement
benefit upon satisfying the eligibility requirements for deferred status and upon attainment of age 52.
Benefit
The vested deferred retirement benefit is the same as the service retirement benefit, where the benefit factor is
based on the member’s age at allowance commencement. For members who have earned service with multiple
CalPERS employers, the benefit from each employer is calculated separately according to each employer’s contract,
and then added together for the total allowance.
Non-Industrial (Non-Job Related) Disability Retirement
Eligibility
A CalPERS member is eligible for Non-Industrial Disability Retirement if he or she becomes disabled and has at least 5 years of credited service (total service across all CalPERS employers, and with certain other retirement systems
with which CalPERS has reciprocity agreements). There is no special age requirement. Disabled means the member is
unable to perform his or her job because of an illness or injury, which is expected to be permanent or to last
indefinitely. The illness or injury does not have to be job related. A CalPERS member must be actively employed by
any CalPERS employer at the time of disability in order to be eligible for this benefit.
Standard Benefit
The standard Non-Industrial Disability Retirement benefit is a monthly allowance equal to 1.8 percent of final
compensation, multiplied by service, which is determined as follows:
Service is CalPERS credited service, for members with less than 10 years of service or greater than 18.518 years
of service; or
Service is CalPERS credited service plus the additional number of years that the member would have worked
until age 60, for members with at least 10 years but not more than 18.518 years of service. The maximum benefit in this case is 33 1/3 percent of final compensation.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-4
Improved Benefit
Employers have the option of providing the improved Non-Industrial Disability Retirement benefit. This benefit
provides a monthly allowance equal to 30 percent of final compensation for the first 5 years of service, plus 1 percent
for each additional year of service to a maximum of 50 percent of final compensation.
Members who are eligible for a larger service retirement benefit may choose to receive that benefit in lieu of a
disability benefit. Members eligible to retire, and who have attained the normal retirement age determined by their
service retirement benefit formula, will receive the same dollar amount for disability retirement as that payable for
service retirement. For members who have earned service with multiple CalPERS employers, the benefit attributed to
each employer is the total disability allowance multiplied by the ratio of service with a particular employer to the total
CalPERS service.
Industrial (Job Related) Disability Retirement
All safety members have this benefit. For miscellaneous members, employers have the option of providing this benefit. An employer may choose to provide the increased benefit option or the improved benefit option.
Eligibility
An employee is eligible for Industrial Disability Retirement if he or she becomes disabled while working, where
disabled means the member is unable to perform the duties of the job because of a work-related illness or injury,
which is expected to be permanent or to last indefinitely. A CalPERS member who has left active employment within
this group is not eligible for this benefit, except to the extent described below.
Standard Benefit
The standard Industrial Disability Retirement benefit is a monthly allowance equal to 50 percent of final
compensation.
Increased Benefit (75 percent of Final Compensation)
The increased Industrial Disability Retirement benefit is a monthly allowance equal to 75 percent final compensation
for total disability.
Improved Benefit (50 percent to 90 percent of Final Compensation)
The improved Industrial Disability Retirement benefit is a monthly allowance equal to the Workman’s Compensation Appeals Board permanent disability rate percentage (if 50 percent or greater, with a maximum of 90 percent) times
the final compensation.
For a CalPERS member not actively employed in this group who became disabled while employed by some other
CalPERS employer, the benefit is a return of accumulated member contributions with respect to employment in this
group. With the standard or increased benefit, a member may also choose to receive the annuitization of the
accumulated member contributions.
If a member is eligible for service retirement and if the service retirement benefit is more than the industrial disability
retirement benefit, the member may choose to receive the larger benefit.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-5
Post-Retirement Death Benefit
Standard Lump Sum Payment
Upon the death of a retiree, a one-time lump sum payment of $500 will be made to the retiree’s designated
survivor(s), or to the retiree’s estate.
Improved Lump Sum Payment
Employers have the option of providing an improved lump sum death benefit of $600, $2,000, $3,000, $4,000 or $5,000.
Form of Payment for Retirement Allowance
Standard Form of Payment
Generally, the retirement allowance is paid to the retiree in the form of an annuity for as long as he or she is alive.
The retiree may choose to provide for a portion of his or her allowance to be paid to any designated beneficiary after
the retiree’s death. CalPERS provides for a variety of such benefit options, which the retiree pays for by taking a
reduction in his or her retirement allowance. Such reduction takes into account the amount to be provided to the
beneficiary and the probable duration of payments (based on the ages of the member and beneficiary) made subsequent to the member’s death.
Improved Form of Payment (Post-Retirement Survivor Allowance)
Employers have the option to contract for the post-retirement survivor allowance.
For retirement allowances with respect to service subject to the modified formula, 25 percent of the retirement
allowance will automatically be continued to certain statutory beneficiaries upon the death of the retiree, without a reduction in the retiree’s allowance. For retirement allowances with respect to service subject to the full or
supplemental formula, 50 percent of the retirement allowance will automatically be continued to certain statutory
beneficiaries upon the death of the retiree, without a reduction in the retiree’s allowance. This additional benefit is
referred to as post-retirement survivor allowance (PRSA) or simply as survivor continuance.
In other words, 25 percent or 50 percent of the allowance, the continuance portion, is paid to the retiree for as long
as he or she is alive, and that same amount is continued to the retiree’s spouse (or if no eligible spouse, to unmarried child(ren) until they attain age 18; or, if no eligible child(ren), to a qualifying dependent parent) for the
rest of his or her lifetime. This benefit will not be discontinued in the event the spouse remarries.
The remaining 75 percent or 50 percent of the retirement allowance, which may be referred to as the option portion
of the benefit, is paid to the retiree as an annuity for as long as he or she is alive. Or, the retiree may choose to
provide for some of this option portion to be paid to any designated beneficiary after the retiree’s death. Benefit
options applicable to the option portion are the same as those offered with the standard form. The reduction is calculated in the same manner but is applied only to the option portion.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-6
Pre-Retirement Death Benefits
Basic Death Benefit
This is a standard benefit.
Eligibility
An employee’s beneficiary (or estate) may receive the basic death benefit if the member dies while actively
employed. A CalPERS member must be actively employed with the CalPERS employer providing this benefit to be
eligible for this benefit. A member’s survivor who is eligible for any other pre-retirement death benefit may choose to
receive that death benefit instead of this basic death benefit.
Benefit
The basic death benefit is a lump sum in the amount of the member’s accumulated contributions, where interest is
currently credited at 7.5 percent per year, plus a lump sum in the amount of one month's salary for each completed
year of current service, up to a maximum of six months' salary. For purposes of this benefit, one month's salary is
defined as the member's average monthly full-time rate of compensation during the 12 months preceding death.
1957 Survivor Benefit
This is a standard benefit.
Eligibility
An employee’s eligible survivor(s) may receive the 1957 Survivor benefit if the member dies while actively employed,
has attained at least age 50 for classic and safety PEPRA members and age 52 for miscellaneous PEPRA members,
and has at least 5 years of credited service (total service across all CalPERS employers and with certain other
retirement systems with which CalPERS has reciprocity agreements). A CalPERS member must be actively employed
with the CalPERS employer providing this benefit to be eligible for this benefit. An eligible survivor means the surviving spouse to whom the member was married at least one year before death or, if there is no eligible spouse,
to the member's unmarried child(ren) under age 18. A member’s survivor who is eligible for any other pre-retirement
death benefit may choose to receive that death benefit instead of this 1957 Survivor benefit.
Benefit
The 1957 Survivor benefit is a monthly allowance equal to one-half of the unmodified service retirement benefit that the member would have been entitled to receive if the member had retired on the date of his or her death. If the
benefit is payable to the spouse, the benefit is discontinued upon the death of the spouse. If the benefit is payable to
dependent child(ren), the benefit will be discontinued upon death or attainment of age 18, unless the child(ren) is
disabled. The total amount paid will be at least equal to the basic death benefit.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-7
Optional Settlement 2W Death Benefit
This is an optional benefit.
Eligibility
An employee’s eligible survivor may receive the Optional Settlement 2W Death benefit if the member dies while
actively employed, has attained at least age 50 for classic and safety PEPRA members and age 52 for miscellaneous
PEPRA members, and has at least 5 years of credited service (total service across all CalPERS employers and with
certain other retirement systems with which CalPERS has reciprocity agreements). A CalPERS member who is no longer actively employed with any CalPERS employer is not eligible for this benefit. An eligible survivor means the
surviving spouse to whom the member was married at least one year before death. A member’s survivor who is
eligible for any other pre-retirement death benefit may choose to receive that death benefit instead of this Optional
Settlement 2W Death benefit.
Benefit
The Optional Settlement 2W Death benefit is a monthly allowance equal to the service retirement benefit that the
member would have received had the member retired on the date of his or her death and elected Optional
Settlement 2W. (A retiree who elects Optional Settlement 2W receives an allowance that has been reduced so that it
will continue to be paid after his or her death to a surviving beneficiary.) The allowance is payable as long as the
surviving spouse lives, at which time it is continued to any unmarried child(ren) under age 18, if applicable. The total
amount paid will be at least equal to the basic death benefit.
Special Death Benefit
This is a standard benefit for safety members. An employer may elect to provide this benefit for miscellaneous
members.
Eligibility
An employee’s eligible survivor(s) may receive the special death benefit if the member dies while actively employed
and the death is job-related. A CalPERS member who is no longer actively employed with any CalPERS employer is not eligible for this benefit. An eligible survivor means the surviving spouse to whom the member was married prior
to the onset of the injury or illness that resulted in death. If there is no eligible spouse, an eligible survivor means the
member's unmarried child(ren) under age 22. An eligible survivor who chooses to receive this benefit will not receive
any other death benefit.
Benefit
The special death benefit is a monthly allowance equal to 50 percent of final compensation, and will be increased whenever the compensation paid to active employees is increased but ceasing to increase when the member would
have attained age 50. The allowance is payable to the surviving spouse until death at which time the allowance is
continued to any unmarried child(ren) under age 22. There is a guarantee that the total amount paid will at least
equal the basic death benefit.
If the member’s death is the result of an accident or injury caused by external violence or physical force incurred in
the performance of the member’s duty, and there are eligible surviving child(ren) (eligible means unmarried child(ren) under age 22) in addition to an eligible spouse, then an additional monthly allowance is paid equal to
the following:
if 1 eligible child: 12.5 percent of final compensation
if 2 eligible children: 20.0 percent of final compensation
if 3 or more eligible children: 25.0 percent of final compensation
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-8
Alternate Death Benefit for Local Fire Members
This is an optional benefit available only to local fire members.
Eligibility
An employee’s eligible survivor(s) may receive the alternate death benefit in lieu of the basic death benefit or the
1957 Survivor benefit if the member dies while actively employed and has at least 20 years of total CalPERS service.
A CalPERS member who is no longer actively employed with any CalPERS employer is not eligible for this benefit. An
eligible survivor means the surviving spouse to whom the member was married prior to the onset of the injury or illness that resulted in death. If there is no eligible spouse, an eligible survivor means the member's unmarried
child(ren) under age 18.
Benefit
The Alternate Death benefit is a monthly allowance equal to the service retirement benefit that the member would
have received had the member retired on the date of his or her death and elected Optional Settlement 2W. (A retiree who elects Optional Settlement 2W receives an allowance that has been reduced so that it will continue to be paid
after his or her death to a surviving beneficiary.) If the member has not yet attained age 50, the benefit is equal to
that which would be payable if the member had retired at age 50, based on service credited at the time of death.
The allowance is payable as long as the surviving spouse lives, at which time it is continued to any unmarried
child(ren) under age 18, if applicable. The total amount paid will be at least equal to the basic death benefit.
Cost-of-Living Adjustments (COLA)
Standard Benefit
Retirement and survivor allowances are adjusted each year in May for cost of living, beginning the second calendar year after the year of retirement. The standard cost-of-living adjustment (COLA) is 2 percent. Annual adjustments
are calculated by first determining the lesser of 1) 2 percent compounded from the end of the year of retirement or
2) actual rate of inflation. The resulting increase is divided by the total increase provided in prior years. For any
particular year, the COLA adjustment may be less than 2 percent (when the rate of inflation is low), may be greater
than the rate of inflation (when the rate of inflation is low after several years of high inflation) or may even be
greater than 2 percent (when inflation is high after several years of low inflation).
Improved Benefit
Employers have the option of providing a COLA of 3 percent, 4 percent, or 5 percent, determined in the same
manner as described above for the standard 2 percent COLA. An improved COLA is not available with the 1.5% at 65
formula.
Purchasing Power Protection Allowance (PPPA)
Retirement and survivor allowances are protected against inflation by PPPA. PPPA benefits are cost-of-living adjustments that are intended to maintain an individual’s allowance at 80 percent of the initial allowance at
retirement adjusted for inflation since retirement. The PPPA benefit will be coordinated with other cost-of-living
adjustments provided under the plan.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-9
Employee Contributions
Each employee contributes toward his or her retirement based upon the retirement formula. The standard employee
contribution is as described below.
The percent contributed below the monthly compensation breakpoint is 0 percent.
The monthly compensation breakpoint is $0 for full and supplemental formula members and $133.33 for
employees covered by the modified formula.
The percent contributed above the monthly compensation breakpoint depends upon the benefit formula, as
shown in the table below.
Benefit Formula Percent Contributed above the
Breakpoint
Miscellaneous, 1.5% at 65 2%
Miscellaneous, 2% at 60 7%
Miscellaneous, 2% at 55 7%
Miscellaneous, 2.5% at 55 8%
Miscellaneous, 2.7% at 55 8%
Miscellaneous, 3% at 60 8%
Miscellaneous, 2% at 62 50% of the Total Normal Cost
Miscellaneous, 1.5% at 65 50% of the Total Normal Cost
Safety, 1/2 at 55 Varies by entry age
Safety, 2% at 55 7%
Safety, 2% at 50 9%
Safety, 3% at 55 9%
Safety, 3% at 50 9%
Safety, 2% at 57 50% of the Total Normal Cost
Safety, 2.5% at 57 50% of the Total Normal Cost
Safety, 2.7% at 57 50% of the Total Normal Cost
The employer may choose to “pick-up” these contributions for classic members (Employer Paid Member Contributions
or EPMC). EPMC is prohibited for new PEPRA members.
An employer may also include Employee Cost Sharing in the contract, where employees agree to share the cost of the employer contribution. These contributions are paid in addition to the member contribution.
Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the offset is $317 and
the contribution rate is 6 percent if members are not covered by Social Security. If members are covered by Social
Security, the offset is $513 and the contribution rate is 5 percent.
Refund of Employee Contributions
If the member’s service with the employer ends, and if the member does not satisfy the eligibility conditions for any of the retirement benefits above, the member may elect to receive a refund of his or her employee contributions,
which are credited with 6 percent interest compounded annually.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-10
1959 Survivor Benefit
This is a pre-retirement death benefit available only to members not covered by Social Security. Any agency joining
CalPERS subsequent to 1993 is required to provide this benefit if the members are not covered by Social Security.
The benefit is optional for agencies joining CalPERS prior to 1994. Levels 1, 2 and 3 are now closed. Any new agency
or any agency wishing to add this benefit or increase the current level may only choose the 4th or Indexed Level.
This benefit is not included in the results presented in this valuation. More information on this benefit is available on
the CalPERS website at www.calpers.ca.gov.
APPENDIX C
PARTICIPANT DATA
SUMMARY OF VALUATION DATA
ACTIVE MEMBERS
TRANSFERRED AND TERMINATED MEMBERS
RETIRED MEMBERS AND BENEFICIARIES
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-1
Summary of Valuation Data
June 30, 2015 June 30, 2016
1. Active Members
a) Counts 179 174
b) Average Attained Age
40.91 41.61
c) Average Entry Age to Rate Plan 29.21 29.31
d) Average Years of Service 11.70 12.30
e) Average Annual Covered Pay $ 118,359 $ 122,230
f) Annual Covered Payroll 21,186,275 21,268,028
g) Projected Annual Payroll for Contribution Year 23,150,815 23,240,148
h) Present Value of Future Payroll 205,334,914 199,470,322
2. Transferred Members
a) Counts 59 63
b) Average Attained Age 43.87 42.96
c) Average Years of Service 3.22 3.34
d) Average Annual Covered Pay $ 109,275 $ 114,053
3. Terminated Members
a) Counts 39 38
b) Average Attained Age 42.63 43.22
c) Average Years of Service 3.54 3.61
d) Average Annual Covered Pay $ 89,331 $ 87,206
4. Retired Members and Beneficiaries
a) Counts 414 417
b) Average Attained Age 67.81 68.24
c) Average Annual Benefits $ 51,863 $ 52,760
5. Active to Retired Ratio [(1a) / (4a)] 0.43 0.42
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple
records may exist for those who have service in more than one valuation group. This does not result in
double counting of liabilities.
Average Annual Benefits represents benefit amounts payable by this plan only. Some members may have
service with another agency and would therefore have a larger total benefit than would be included as part
of the average shown here.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-2
Active Members
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple records
may exist for those who have service in more than one valuation group. This does not result in double counting of
liabilities.
Distribution of Active Members by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
15-24 1 0 0 0 0 0 1
25-29 13 3 0 0 0 0 16
30-34 15 9 4 0 0 0 28
35-39 7 13 9 2 0 0 31
40-44 6 4 7 18 2 0 37
45-49 1 1 7 9 6 3 27
50-54 1 1 5 6 7 8 28
55-59 0 1 0 1 0 2 4
60-64 0 0 0 0 0 1 1
65 and over 0 0 0 0 0 1 1
All Ages 44 32 32 36 15 15 174
Distribution of Average Annual Salaries by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Average
15-24 $85,500 $0 $0 $0 $0 $0 $85,500
25-29 96,376 109,816 0 0 0 0 98,896
30-34 102,167 117,615 116,867 0 0 0 109,233
35-39 114,032 119,919 128,323 154,720 0 0 123,275
40-44 111,805 115,909 137,179 134,200 135,680 0 129,235
45-49 118,622 127,278 113,807 118,795 128,696 167,814 125,456
50-54 218,930 124,923 110,502 120,124 137,058 133,545 130,174
55-59 0 121,321 0 147,465 0 194,438 164,415
60-64 0 0 0 0 0 122,334 122,334
65 and over 0 0 0 0 0 126,294 126,294
All Ages $106,307 $118,253 $122,868 $129,511 $133,529 $147,287 $122,230
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-3
Transferred and Terminated Members
Distribution of Transfers to Other CalPERS Plans by Age, Service, and average Salary
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
Average
Salary
15-24 1 0 0 0 0 0 1 $103,645
25-29 1 0 0 0 0 0 1 120,404
30-34 5 1 0 0 0 0 6 109,662
35-39 14 2 0 0 0 0 16 100,832
40-44 9 2 0 0 0 0 11 108,583
45-49 9 6 2 0 0 0 17 124,976
50-54 7 0 1 0 0 0 8 120,946
55-59 0 2 0 0 0 0 2 126,592
60-64 0 1 0 0 0 0 1 150,271
65 and over 0 0 0 0 0 0 0 0
All Ages 46 14 3 0 0 0 63 114,053
Distribution of Terminated Participants with Funds on Deposit by Age, Service, and average Salary
Years of Service at Valuation Date
Attained Age 0-4 5-9 10-14 15-19 20-25 25+ Total Average Salary
15-24 0 0 0 0 0 0 0 $0
25-29 2 0 0 0 0 0 2 91,679
30-34 1 1 0 0 0 0 2 88,888
35-39 10 3 1 0 0 0 14 93,175
40-44 0 3 0 0 0 0 3 107,289
45-49 6 2 1 0 0 0 9 85,994
50-54 5 0 0 0 0 0 5 54,434
55-59 1 1 0 0 0 0 2 86,896
60-64 0 1 0 0 0 0 1 106,475
65 and over 0 0 0 0 0 0 0 0
All Ages 25 11 2 0 0 0 38 87,206
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-4
Retired Members and Beneficiaries
Distribution of Retirees and Beneficiaries by Age and Retirement Type*
Attained
Age
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Total
Under 30 0 0 0 0 0 0 0
30-34 0 0 0 0 0 0 0
35-39 0 0 2 0 0 0 2
40-44 0 0 7 0 0 0 7
45-49 0 1 5 0 0 0 6
50-54 25 0 15 0 1 0 41
55-59 38 1 20 0 2 0 61
60-64 30 1 19 0 0 4 54
65-69 33 1 20 0 0 4 58
70-74 31 0 17 0 0 9 57
75-79 33 2 25 0 0 5 65
80-84 16 0 12 0 0 7 35
85 and Over 17 0 7 0 0 7 31
All Ages 223 6 149 0 3 36 417
Distribution of Average Annual Disbursements to Retirees and Beneficiaries by Age
and Retirement Type*
Attained
Age
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Average
Under 30 $0 $0 $0 $0 $0 $0 $0
30-34 0 0 0 0 0 0 0
35-39 0 0 54,436 0 0 0 54,436
40-44 0 0 59,398 0 0 0 59,398
45-49 0 83 42,136 0 0 0 35,127
50-54 79,097 0 71,792 0 52,644 0 75,779
55-59 84,777 32,929 70,873 0 36,504 0 77,786
60-64 58,918 2,048 52,903 0 0 44,160 54,655
65-69 72,548 17,352 46,687 0 0 35,800 60,144
70-74 46,376 0 30,498 0 0 38,584 40,410
75-79 48,114 11,533 34,877 0 0 29,016 40,428
80-84 42,630 0 31,537 0 0 24,496 35,200
85 and Over 28,738 0 24,075 0 0 21,909 26,143
All Ages $60,792 $12,580 $47,691 $0 $41,884 $31,584 $52,760
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-5
Retired Members and Beneficiaries (continued)
Distribution of Retirees and Beneficiaries by Years Retired and Retirement Type*
Years
Retired
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Total
Under 5 Yrs 49 1 17 0 0 7 74
5-9 41 1 22 0 0 5 69
10-14 48 0 16 0 1 9 74
15-19 22 1 19 0 1 9 52
20-24 29 0 13 0 0 1 43
25-29 18 1 19 0 0 4 42
30 and Over 16 2 43 0 1 1 63
All Years 223 6 149 0 3 36 417
Distribution of Average Annual Disbursements to Retirees and Beneficiaries by Years Retired and
Retirement Type*
Years
Retired
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Average
Under 5 Yrs $77,313 $2,048 $77,780 $0 $0 $21,308 $71,106
5-9 75,538 83 77,762 0 0 35,334 72,240
10-14 64,157 0 63,687 0 52,644 43,771 61,420
15-19 40,377 32,929 44,117 0 46,601 30,307 39,977
20-24 50,346 0 41,507 0 0 25,841 47,104
25-29 40,215 17,352 34,169 0 0 29,306 35,897
30 and Over 32,469 11,533 23,881 0 26,406 1,417 25,354
All Years $60,792 $12,580 $47,691 $0 $41,884 $31,584 $52,760
* Counts of members do not include alternate payees receiving benefits while the member is still working.
Therefore, the total counts may not match information on page 25 of the report. Multiple records may exist for
those who have service in more than one coverage group. This does not result in double counting of liabilities.
APPENDIX D
DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION
RATES
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX D
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
D-1
Development of PEPRA Members Contribution Rates
The table below shows the determination of the Member contribution rates based on 50 percent of the Total Normal
Cost for each respective plan on June 30, 2016.
Assembly Bill (AB) 340 created PEPRA that implemented new benefit formulas and a final compensation period as
well as new contribution requirements for new employees. In accordance with Section Code 7522.30(b), “new
members … shall have an initial contribution rate of at least 50 percent of the normal cost rate.” The normal cost for
the plan is dependent on the benefit levels, actuarial assumptions and demographics of the plan particularly the entry
age into the plan. Should the total normal cost of the plan change by one percent or more from the base total normal
cost established for the plan, the new member rate shall be 50 percent of the new normal cost rounded to the
nearest quarter percent.
Basis for Current Rate Rates Effective July 1, 2018
Rate Plan
Identifier Plan
Total
Normal Cost
Member
Rate
Total
Normal Cost Change Change
Needed
Member
Rate
25006 Safety Fire PEPRA 21.276% 10.750% 21.856% 0.580% No 10.750%
25007 Safety Police PEPRA 21.276% 10.750% 21.856% 0.580% No 10.750%
For a description of the methods used to determine the Total Normal Cost for this purpose, please see the “PEPRA
Normal Cost Rate Methodology” section in Appendix A.
APPENDIX E
GLOSSARY OF ACTUARIAL TERMS
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX E
SAFETY PLAN OF THE CITY OF PALO ALTO
GLOSSARY OF ACTUARIAL TERMS
E-1
Glossary of Actuarial Terms
Accrued Liability (also called Actuarial Accrued Liability or Entry Age Normal Accrued Liability)
The total dollars needed as of the valuation date to fund all benefits earned in the past for current members.
Actuarial Assumptions
Assumptions made about certain events that will affect pension costs. Assumptions generally can be broken
down into two categories: demographic and economic. Demographic assumptions include such things as
mortality, disability and retirement rates. Economic assumptions include discount rate, salary growth and
inflation.
Actuarial Methods
Procedures employed by actuaries to achieve certain funding goals of a pension plan. Actuarial methods include funding method, setting the length of time to fund the Accrued Liability and determining the Value of Assets.
Actuarial Valuation
The determination, as of a valuation date of the Normal Cost, Accrued liability, and related actuarial present
values for a pension plan. These valuations are performed annually or when an employer is contemplating a
change to their plan provisions.
Amortization Bases
Separate payment schedules for different portions of the Unfunded Liability. The total Unfunded Liability of a
Risk Pool or non-pooled plan can be segregated by "cause,” creating “bases” and each such base will be
separately amortized and paid for over a specific period of time. However, all bases are amortized using
investment and payroll assumptions from the current valuation. This can be likened to a home having a first
mortgage of 24 years remaining payments and a second mortgage that has 10 years remaining payments. Each
base or each mortgage note has its own terms (payment period, principal, etc.)
Generally, in an actuarial valuation, the separate bases consist of changes in unfunded liability due to contract
amendments, actuarial assumption changes, actuarial methodology changes, and/or gains and losses. Payment
periods are determined by Board policy and vary based on the cause of the change.
Amortization Period
The number of years required to pay off an Amortization Base.
Classic Member (under PEPRA)
A classic member is a member who joined CalPERS prior to January, 1, 2013 and who is not defined as a new
member under PEPRA. (See definition of new member below)
Discount Rate Assumption
The actuarial assumption that was called “investment return” in earlier CalPERS reports or “actuarial interest
rate” in Section 20014 of the California Public Employees’ Retirement Law (PERL).
Entry Age
The earliest age at which a plan member begins to accrue benefits under a defined benefit pension plan. In
most cases, this is the age of the member on their date of hire.
Entry Age Normal Cost Method
An actuarial cost method designed to fund a member's total plan benefit over the course of his or her career.
This method is designed to yield a rate expressed as a level percentage of payroll. (The assumed retirement age less the entry age is the amount of time required to fund a member’s total benefit.
Generally, the older a member on the date of hire, the greater the entry age normal cost. This is mainly because
there is less time to earn investment income to fund the future benefits.)
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX E
SAFETY PLAN OF THE CITY OF PALO ALTO
GLOSSARY OF ACTUARIAL TERMS
E-2
Fresh Start
A Fresh Start is when multiple amortization bases are collapsed to one base and amortized together over a new
funding period.
Funded Status
A measure of how well funded, or how "on track" a plan or risk pool is with respect to assets versus accrued
liabilities. A ratio greater than 100 percent means the plan or risk pool has more assets than liabilities and a ratio
less than 100 percent means liabilities are greater than assets.
GASB 68
Statement No. 68 of the Governmental Accounting Standards Board. The accounting standard governing a state
or local governmental employer’s accounting and financial reporting for pensions. GASB 68 replaces GASB 27
effective the first fiscal year beginning after June 15, 2014.
New Member (under PEPRA) A new member includes an individual who becomes a member of a public retirement system for the first time on
or after January 1, 2013, and who was not a member of another public retirement system prior to that date, and
who is not subject to reciprocity with another public retirement system.
Normal Cost
The annual cost of service accrual for the upcoming fiscal year for active employees. The normal cost should be
viewed as the long term contribution rate.
Pension Actuary
A business professional that is authorized by the Society of Actuaries, and the American Academy of Actuaries to
perform the calculations necessary to properly fund a pension plan.
PEPRA
The California Public Employees’ Pension Reform Act of 2013
Prepayment Contribution
A payment made by the employer to reduce or eliminate the year’s required employer contribution.
Present Value of Benefits (PVB)
The total dollars needed as of the valuation date to fund all benefits earned in the past or expected to be earned
in the future for current members.
Unfunded Accrued Liability (UAL)
When a plan or pool’s Value of Assets is less than its Accrued Liability, the difference is the plan or pool’s
Unfunded Accrued Liability (or unfunded liability). If the unfunded liability is positive, the plan or pool will have
to pay contributions exceeding the Normal Cost.
California Public Employees’ Retirement System
Actuarial Office
P.O. Box 942701
Sacramento, CA 94229-2701
TTY: (916) 795-3240
(888) 225-7377 phone • (916) 795-2744 fax
www.calpers.ca.gov
July 2017
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2016
Dear Employer,
As an attachment to this letter, you will find a copy of the June 30, 2016 actuarial valuation report of your pension
plan. Your 2016 actuarial valuation report contains important actuarial information about your pension plan at CalPERS.
Your CalPERS staff actuary, whose signature appears in the “Actuarial Certification” section on page 1, is available to
discuss the report with you after August 31, 2017.
Required Contributions
The exhibit below displays the minimum required employer contributions and the Employee PEPRA Rate for Fiscal Year
2018-19 along with estimates of the required contributions for Fiscal Years 2019-20 and 2020-21. Member
contributions other than cost sharing (whether paid by the employer or the employee) are in addition to the results
shown below. The required employer contributions in this report do not reflect any cost sharing arrangement you may have with your employees.
Fiscal Year Employer Normal Cost Rate Employer Amortization of Unfunded Accrued Liability Employee PEPRA Rate
2018-19 10.217% $18,392,618 6.25%
Projected Results
2019-20 10.7% $21,368,000 TBD
2020-21 11.7% $23,620,000 TBD
The actual investment return for Fiscal Year 2016-17 was not known at the time this report was prepared. The
projections above assume the investment return for that year would be 7.375 percent. If the actual investment
return for Fiscal year 2016-17 differs from 7.375 percent, the actual contribution requirements for the projected years will differ from those shown above.
Moreover, the projected results for Fiscal Years 2019-20 and 2020-21 also assume that there are no future plan
changes, no further changes in assumptions other than those recently approved, and no liability gains or losses. Such
changes can have a significant impact on required contributions. Since they cannot be predicted in advance, the
projected employer results shown above are estimates. The actual required employer contributions for Fiscal year
2019-20 will be provided in next year’s report.
For additional details regarding the assumptions and methods used for these projections please refer to the “Projected
Employer Contributions” in the “Highlights and Executive Summary” section.
The required contributions shown above include a Normal Cost component expressed as a percentage of payroll and a
payment toward Unfunded Accrued Liability expressed as a dollar amount. Actual contributions for Fiscal Year 2018-19
and all future years will be collected on that basis. For illustrative total contribution requirements expressed as
percentages of payroll, please see pages 4 and 5 of the report.
The “Risk Analysis” section of the valuation report on page 21 also contains estimated employer contributions in future
years under a variety of investment return scenarios.
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
(CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2016
Page 2
Changes since the Prior Year’s Valuation
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to 7.00
percent using a three year phase-in beginning with the June 30, 2016 actuarial valuations. The minimum employer
contributions for Fiscal Year 2018-19 determined in this valuation were calculated using a discount rate of 7.375
percent. The projected employer contributions on Page 5 are calculated assuming that the discount rate will be lowered to 7.25 percent next year and to 7.00 percent the following year as adopted by the Board.
Beginning with Fiscal Year 2017-18 CalPERS began collecting employer contributions toward the plan’s unfunded
liability as dollar amounts instead of the prior method of a contribution rate. This change addresses potential funding
issues that could arise from a declining payroll or reduction in the number of active members in the plan. Funding the
unfunded liability as a percentage of payroll could lead to the underfunding of the plans. Due to stakeholder feedback
regarding internal needs for total contributions expressed as a percentage of payroll, the reports have been modified to include such results in the contribution projection on page 5. These results are provided for information purposes only.
Contributions toward the unfunded liability will continue to be collected as dollar amounts.
The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over
time. This Policy has been temporarily suspended during the period over which the discount rate is being lowered.
More details on the Risk Mitigation Policy can be found on our website.
Besides the above noted changes, there may also be changes specific to the plan such as contract amendments and funding changes. Further descriptions of general changes are included in the “Highlights and Executive Summary” section and in
Appendix A, “Actuarial Methods and Assumptions.” The effects of the changes on the required contributions are
included in the “Reconciliation of Required Employer Contributions” section.
We understand that you might have a number of questions about these results. While we are very interested in
discussing these results with your agency, in the interest of allowing us to give every public agency their results, we ask that you wait until after August 31 to contact us with actuarial questions. If you have other questions, you may call
the Customer Contact Center at (888)-CalPERS or (888-225-7377).
Sincerely,
SCOTT TERANDO Chief Actuary
ACTUARIAL VALUATION
as of June 30, 2016
for the
MISCELLANEOUS PLAN
of the
CITY OF PALO ALTO
(CalPERS ID: 6373437857)
(Rate Plan ID: 8)
REQUIRED CONTRIBUTIONS
FOR FISCAL YEAR
July 1, 2018 – June 30, 2019
TABLE OF CONTENTS
ACTUARIAL CERTIFICATION 1
HIGHLIGHTS AND EXECUTIVE SUMMARY
Introduction 3
Purpose of the Report 3
Required Contributions 4
Plan’s Funded Status 5 Projected Employer Contributions 5
Cost 6
Changes Since the Prior Year’s Valuation 7
Subsequent Events 7
ASSETS
Reconciliation of the Market Value of Assets 9
Asset Allocation 10
CalPERS History of Investment Returns 11
LIABILITIES AND CONTRIBUTIONS
Development of Accrued and Unfunded Liabilities 13 (Gain) / Loss Analysis 06/30/15 - 06/30/16 14
Schedule of Amortization Bases 15
30-Year Amortization Schedule and Alternatives 16
Reconciliation of Required Employer Contributions 18
Employer Contribution History 19
Funding History 19
RISK ANALYSIS
Analysis of Future Investment Return Scenarios 21
Analysis of Discount Rate Sensitivity 22 Volatility Ratios 23
Hypothetical Termination Liability 24
PLAN’S MAJOR BENEFIT PROVISIONS
Plan’s Major Benefit Options 26
APPENDIX A – ACTUARIAL METHODS AND ASSUMPTIONS
Actuarial Data A-1
Actuarial Methods A-1
Actuarial Assumptions A-3
Miscellaneous A-21
APPENDIX B – PRINCIPAL PLAN PROVISIONS B-1
APPENDIX C – PARTICIPANT DATA
Summary of Valuation Data C-1 Active Members C-2
Transferred and Terminated Members C-3
Retired Members and Beneficiaries C-4
APPENDIX D – DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATE D-1
APPENDIX E – GLOSSARY OF ACTUARIAL TERMS E-1
(CY) FIN PROCESS CONTROL ID: 494678 (PY) FIN PROCESS CONTROL ID: 480029 REPORT ID: 103789
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 1
ACTUARIAL CERTIFICATION
To the best of our knowledge, this report is complete and accurate and contains sufficient information to
disclose, fully and fairly, the funded condition of the MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO.
This valuation is based on the member and financial data as of June 30, 2016 provided by the various CalPERS databases and the benefits under this plan with CalPERS as of the date this report was produced.
It is our opinion that the valuation has been performed in accordance with generally accepted actuarial
principles, in accordance with standards of practice prescribed by the Actuarial Standards Board, and that
the assumptions and methods are internally consistent and reasonable for this plan, as prescribed by the
CalPERS Board of Administration according to provisions set forth in the California Public Employees’
Retirement Law.
The undersigned is an actuary for CalPERS, a member of the American Academy of Actuaries and the
Society of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render
the actuarial opinions contained herein.
DAVID CLEMENT, ASA, MAAA, EA
Senior Pension Actuary, CalPERS
HIGHLIGHTS AND EXECUTIVE SUMMARY
INTRODUCTION
PURPOSE OF THE REPORT
REQUIRED CONTRIBUTIONS
PLAN’S FUNDED STATUS
PROJECTED EMPLOYER CONTRIBUTIONS
COST
CHANGES SINCE THE PRIOR YEAR’S VALUATION
SUBSEQUENT EVENTS
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 3
Introduction
This report presents the results of the June 30, 2016 actuarial valuation of the MISCELLANEOUS PLAN OF
THE CITY OF PALO ALTO of the California Public Employees’ Retirement System (CalPERS). This actuarial
valuation sets the required employer contributions for Fiscal Year 2018-19.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2016. The purpose of the report is to:
Set forth the assets and accrued liabilities of this plan as of June 30, 2016;
Determine the required employer contributions for the fiscal year July 1, 2018 through June 30, 2019;
Provide actuarial information as of June 30, 2016 to the CalPERS Board of Administration and other
interested parties.
The pension funding information presented in this report should not be used in financial reports subject to Governmental Accounting Standards Board (GASB) Statement No. 68 for an Agent Employer Defined Benefit
Pension Plan. A separate accounting valuation report for such purposes is available from CalPERS and
details for ordering are available on our website.
The measurements shown in this actuarial valuation may not be applicable for other purposes. The
employer should contact their actuary before disseminating any portion of this report for any reason that is
not explicitly described above.
Future actuarial measurements may differ significantly from the current measurements presented in this
report due to such factors as the following: plan experience differing from that anticipated by the economic
or demographic assumptions; changes in economic or demographic assumptions; changes in actuarial
policies; and changes in plan provisions or applicable law.
California Actuarial Advisory Panel Recommendations
This report includes all the basic disclosure elements as described in the Model Disclosure Elements for
Actuarial Valuation Reports recommended in 2011 by the California Actuarial Advisory Panel (CAAP), with
the exception of including the original base amounts of the various components of the unfunded liability in
the Schedule of Amortization Bases shown on page 15.
Additionally, this report includes the following “Enhanced Risk Disclosures” also recommended by the CAAP
in the Model Disclosure Elements document:
A “Deterministic Stress Test,” projecting future results under different investment income
scenarios
A “Sensitivity Analysis,” showing the impact on current valuation results using alternative discount
rates of 6.0 percent, 7.0 percent and 8.0 percent.
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2018-19
Employer Normal Cost Rate 10.217%
Plus Either
1) Monthly Employer Dollar UAL Payment $ 1,532,718
Or
2) Annual UAL Prepayment Option $ 17,749,739
Required PEPRA Member Contribution Rate
6.25%
The total minimum required employer contribution is the sum of the Plan’s Employer Normal Cost Rate
(expressed as a percentage of payroll) plus the Employer Unfunded Accrued Liability (UAL) Contribution
Amount (billed monthly in dollars).
Only the UAL portion of the employer contribution can be prepaid (which must be received in full no
later than July 31). Plan Normal Cost contributions will be made as part of the payroll reporting
process. If there is contractual cost sharing or other change, this amount will change.
§20572 of the Public Employees’ Retirement Law assesses interest at an annual rate of 10 percent if a
contracting agency fails to remit the required contributions when due.
For additional detail regarding the determination of the required contribution for PEPRA members, see Appendix D. Required member contributions for Classic members can be found in Appendix B.
Fiscal Year Fiscal Year
2017-18 2018-19
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 17.623% 17.697%
Employee Contribution1 7.584% 7.480%
Employer Normal Cost 10.039% 10.217%
Projected Annual Payroll for Contribution Year $ 78,211,742 $ 82,332,567
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $ 13,783,255 $ 14,570,395
Employee Contribution1 5,931,579 6,158,476
Employer Normal Cost 7,851,676 8,411,919
Unfunded Liability Contribution 15,765,273 18,392,618
% of Projected Payroll (illustrative only) 20.157% 22.339%
Estimated Total Employer Contribution $ 23,616,949 $ 26,804,537
% of Projected Payroll (illustrative only) 30.196% 32.556%
1 For classic members, this is the percentage specified in the Public Employees Retirement Law, net of any reduction from
the use of a modified formula or other factors. For PEPRA members, the member contribution rate is based on 50 percent of the normal cost. A development of PEPRA member contribution rates can be found in Appendix D. Employee
cost sharing is not shown in this report.
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 5
Plan’s Funded Status
This measure of funded status is an assessment of the need for future employer contributions based on the
selected actuarial cost method used to fund the plan. The UAL is the present value of future employer
contributions for service that has already been earned and is in addition to future normal cost contributions
for active members. For a measure of funded status that is appropriate for assessing the sufficiency of plan assets to cover estimated termination liabilities, please see “Hypothetical Termination Liability” in the “Risk
Analysis” section.
Projected Employer Contributions
The table below shows the required and projected employer contributions (before cost sharing) for the next
six fiscal years. Projected results reflect the adopted changes to the discount rate described in Appendix A,
“Actuarial Methods and Assumptions.” The projections also assume that all actuarial assumptions will be
realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the
projection period. The projected normal cost percentages in the projections below do not reflect that the
normal cost will decline over time as new employees are hired into PEPRA or other lower cost benefit tiers.
Required
Contribution
Projected Future Employer Contributions
(Assumes 7.375% Return for Fiscal Year 2016-17)
Fiscal Year 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25
Normal Cost % 10.217% 10.7% 11.7% 11.7% 11.7% 11.7% 11.7%
UAL Payment 18,392,618 21,368,000 23,620,000 26,268,000 28,624,000 30,328,000 31,816,000
Total as a % of Payroll* 32.6% 35.9% 38.8% 40.9% 42.6% 43.5% 44.1%
Projected Payroll 82,332,567 84,802,544 87,346,620 89,967,019 92,666,029 95,446,010 98,309,391
*Illustrative only and based on the projected payroll shown.
Changes in the UAL due to actuarial gains or losses as well as changes in actuarial assumptions or methods
are amortized using a 5-year ramp up. For more information, please see “Amortization of the Unfunded
Actuarial Accrued Liability” under “Actuarial Methods” in Appendix A. This method phases in the impact of
unanticipated changes in UAL over a 5-year period and attempts to minimize employer cost volatility from
year to year. As a result of this methodology, dramatic changes in the required employer contributions in
any one year are less likely. However, required contributions can change gradually and significantly over the next five years. In years where there is a large increase in UAL the relatively small amortization payments
during the ramp up period could result in a funded ratio that is projected to decrease initially while the
contribution impact of the increase in the UAL is phased in.
Due to the adopted changes in the discount rate for the next two valuations in combination with the 5-year
phase-in ramp, the increases in the required contributions are expected to continue for seven years from
Fiscal Year 2018-19 through Fiscal Year 2024-25.
For projected contributions under alternate investment return scenarios, please see the “Analysis of Future
Investment Return Scenarios” in the “Risk Analysis” section.
June 30, 2015 June 30, 2016
1. Present Value of Projected Benefits $ 788,241,494 $ 827,688,407
2. Entry Age Normal Accrued Liability 696,699,220 730,382,476
3. Market Value of Assets (MVA) $ 477,031,099 $ 468,702,245
4. Unfunded Accrued Liability (UAL) [(2) – (3)] $ 219,668,121 $ 261,680,231
5. Funded Ratio [(3) / (2)] 68.5% 64.2%
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 6
Cost
Actuarial Cost Estimates in General
What is the cost of the pension plan?
Contributions to fund the pension plan are comprised of two components:
The Normal Cost, expressed as a percentage of total active payroll.
The Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount.
For fiscal years prior to FY 2017-18, the Amortizations of UAL component was expressed as percentage of
total active payroll. Starting with FY 2017-18, the Amortization of UAL component will be expressed as a dollar amount and will be invoiced on a monthly basis. There will be an option to prepay this amount during
July of each fiscal year.
The Normal Cost component will continue to be expressed as a percentage of active payroll with employer
and employee contributions payable as part of the regular payroll reporting process.
The determination of both components requires complex actuarial calculations. The calculations are based on a set of actuarial assumptions which can be divided into two categories:
Demographic assumptions (which includes mortality rates, retirement rates, employment
termination rates, disability rates)
Economic assumptions (which includes future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPERS best estimate of the future experience of the plan and are long term in nature. We recognize that all the assumptions will not be realized in any given year. For example, the
investment earnings at CalPERS have averaged 7.0 percent over the 20 years ending June 30, 2016, yet
individual fiscal year returns have ranged from -24 percent to +21.7 percent. In addition, CalPERS reviews
all the actuarial assumptions on an ongoing basis by conducting in depth experience studies every four
years.
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 7
Changes since the Prior Year’s Valuation
Benefits
The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first annual valuation following the effective date of the legislation. Voluntary benefit changes by plan
amendment are generally included in the first valuation that is prepared after the amendment becomes
effective, even if the valuation date is prior to the effective date of the amendment.
This valuation generally reflects plan changes by amendments effective before the date of the report. Please
refer to the “Plan’s Major Benefit Options” and Appendix B for a summary of the plan provisions used in this
valuation. The effect of any mandated benefit changes or plan amendments on the unfunded liability is shown in the “(Gain)/Loss Analysis” and the effect on the employer contribution is shown in the
“Reconciliation of Required Employer Contributions.” It should be noted that no change in liability or
contribution is shown for any plan changes which were already included in the prior year’s valuation.
Actuarial Methods and Assumptions
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to
7.00 percent using a three year phase-in beginning with the June 30, 2016 actuarial valuations. The minimum employer contributions for Fiscal Year 2018-19 determined in this valuation were calculated using
a discount rate of 7.375 percent. The projected employer contributions on Page 5 are calculated assuming
that the discount rate will be lowered to 7.25 percent next year and 7.00 percent the following year as
adopted by the Board. The decision to reduce the discount rate was primarily based on reduced capital
market assumptions provided by external investment consultants and CalPERS investment staff. The specific
decision adopted by the Board reflected recommendations from CalPERS staff and additional input from
employer and employee stakeholder groups. Based on the investment allocation adopted by the Board and capital market assumptions, the reduced discount rate assumption provides a more realistic assumption for
the long term investment return of the fund.
Notwithstanding the Board’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the
expected investment return of CalPERS assets or changes to the investment allocation may result in a
change to this three year discount rate schedule. A comprehensive analysis of all actuarial assumptions and
methods including the discount rate will be conducted in 2017.
Subsequent Events
The contribution requirements determined in this actuarial valuation report are based on demographic and financial information as of June 30, 2016. Changes in the value of assets subsequent to that date are not
reflected. Declines in asset values will increase the required contribution, while investment returns above
the assumed rate of return will decrease the actuarial cost of the plan.
This actuarial valuation report reflects statutory changes, regulatory changes and CalPERS Board actions
through January 2017. Any subsequent changes or actions are not reflected.
ASSETS
RECONCILIATION OF THE MARKET VALUE OF ASSETS
ASSET ALLOCATION
CALPERS HISTORY OF INVESTMENT RETURNS
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 9
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/15 including Receivables $ 477,031,099
2. Change in Receivables for Service Buybacks (370,242)
3. Employer Contributions 18,839,524
4. Employee Contributions 5,608,002
5. Benefit Payments to Retirees and Beneficiaries (34,250,971)
6. Refunds (574,027)
7. Lump Sum Payments 0
8. Transfers and Miscellaneous Adjustments 572,097
9. Net Investment Return 1,846,763
10. Market Value of Assets as of 6/30/16 including Receivables $ 468,702,245
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 10
Asset Allocation
CalPERS adheres to an Asset Allocation Strategy which establishes asset class allocation policy targets and
ranges, and manages those asset class allocations within their policy ranges. CalPERS Investment Belief No.
6 recognizes that strategic asset allocation is the dominant determinant of portfolio risk and return. On February 19, 2014, the CalPERS Board of Administration adopted changes to the current asset allocation as
shown in the Policy Target Allocation below expressed as a percentage of total assets.
The asset allocation and market value of assets shown below reflect the values of the Public Employees’
Retirement Fund (PERF) in its entirety as of June 30, 2016. The assets for CITY OF PALO ALTO
MISCELLANEOUS PLAN are part of the PERF and are invested accordingly.
(A)
Asset Class
(B)
Market Value
($ Billion)
(C)
Policy Target
Allocation
Public Equity 153.1 51.0%
Private Equity 26.4 10.0%
Global Fixed Income 59.9 20.0%
Liquidity 4.5 1.0%
Real Assets 31.8 12.0%
Inflation Sensitive Assets 17.8 6.0%
Other 1.6 0.0%
Total Fund $295.1 100.0%
Global Equity
51.9%
Private Equity
9.0%
Global Fixed
Income
20.3%
Liquidity
1.5%
Real Assets
10.8%
Inflation
6.0%
Other
0.5%
Asset Allocation at 6/30/2016
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 11
CalPERS History of Investment Returns
The following is a chart with the 20-year historical annual returns of the Public Employees Retirement Fund
for each fiscal year ending on June 30. Beginning in 2002, the figures are reported as gross of fees.
The table below shows historical geometric mean annual returns of the Public Employees Retirement Fund
for various time periods ending on June 30, 2016, (figures are reported as gross of fees). The geometric
mean rate of return is the average rate per period compounded over multiple periods. It should be
recognized that in any given year the rate of return is volatile. The portfolio has an expected volatility of 11.8 percent per year based on the most recent Asset Liability Modelling study. The volatility is a measure of
the risk of the portfolio expressed in the standard deviation of the fund’s total return distribution, expressed
as a percentage. Consequently, when looking at investment returns, it is more instructive to look at returns
over longer time horizons.
History of CalPERS Geometric Mean Rates of Return and Volatilities
1 year 5 year 10 year 20 year 30 year
Geometric Return 0.6% 6.6% 5.0% 7.0% 8.2%
Volatility – 8.1% 14.0% 11.8% 10.1%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
20
.
1
%
19
.
5
%
12
.
5
%
10
.
5
%
-7.
2
%
-6.
1
%
3.
7
%
16
.
6
%
12
.
3
%
11
.
8
%
19
.
1
%
-5.
1
%
-24
.
0
%
13
.
3
%
21
.
7
%
0.
2
%
13
.
2
%
17
.
7
%
2.
4
%
0.
6
%
LIABILITIES AND CONTRIBUTIONS
DEVELOPMENT OF ACCRUED AND UNFUNDED LIABILITIES
(GAIN) / LOSS ANALYSIS 06/30/15 - 06/30/16
SCHEDULE OF AMORTIZATION BASES
30-YEAR AMORTIZATION SCHEDULES AND ALTERNATIVES
RECONCILIATION OF REQUIRED EMPLOYER CONTRIBUTIONS
EMPLOYER CONTRIBUTION HISTORY
FUNDING HISTORY
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 13
Development of Accrued and Unfunded Liabilities
June 30, 2015 June 30, 2016
1. Present Value of Projected Benefits
a) Active Members $ 342,215,197 362,450,800
b) Transferred Members 31,772,074 33,583,165
c) Terminated Members 12,787,802 13,595,787
d) Members and Beneficiaries Receiving Payments 401,466,421 418,058,655
e) Total $ 788,241,494 827,688,407
2. Present Value of Future Employer Normal Costs $ 50,436,220 54,419,083
3. Present Value of Future Employee Contributions $ 41,106,054 42,886,848
4. Entry Age Normal Accrued Liability
a) Active Members [(1a) - (2) - (3)] $ 250,672,923 265,144,869
b) Transferred Members (1b) 31,772,074 33,583,165
c) Terminated Members (1c) 12,787,802 13,595,787
d) Members and Beneficiaries Receiving Payments (1d) 401,466,421 418,058,655
e) Total $ 696,699,220 730,382,476
5. Market Value of Assets (MVA) $ 477,031,099 468,702,245
6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $ 219,668,121 261,680,231
7. Funded Ratio [(5) / (4e)] 68.5% 64.2%
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 14
(Gain)/Loss Analysis 6/30/15 – 6/30/16
To calculate the cost requirements of the plan, assumptions are made about future events that affect the
amount and timing of benefits to be paid and assets to be accumulated. Each year, actual experience is
compared to the expected experience based on the actuarial assumptions. This results in actuarial gains or losses, as shown below.
1. Total (Gain)/Loss for the Year
a) Unfunded Accrued Liability (UAL) as of 6/30/15 $ 219,668,121
b) Expected Payment on the UAL during 2015-16 13,171,185 c) Interest through 6/30/16 [.075 x (1a) - ((1.075)½ - 1) x (1b)] 15,990,119
d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 222,487,055
e) Change due to plan changes 0
f) Change due to assumption change 10,486,467
g) Expected UAL after all other changes [(1d) + (1e) + (1f)] 232,973,522
h) Actual UAL as of 6/30/16 261,680,231
i) Total (Gain)/Loss for 2015-16 [(1h) - (1g)] $ 28,706,709
2. Contribution (Gain)/Loss for the Year
a) Expected Contribution (Employer and Employee) $ 26,007,671
b) Interest on Expected Contributions 957,656
c) Actual Contributions 24,447,526 d) Interest on Actual Contributions 900,208
e) Expected Contributions with Interest [(2a) + (2b)] 26,965,327
f) Actual Contributions with Interest [(2c) + (2d)] 25,347,734
g) Contribution (Gain)/Loss [(2e) - (2f)] $ 1,617,593
3. Asset (Gain)/Loss for the Year
a) Market Value of Assets as of 6/30/15 $ 477,031,099
b) Prior Fiscal Year Receivables (2,539,961)
c) Current Fiscal Year Receivables 2,169,719
d) Contributions Received 24,447,526
e) Benefits and Refunds Paid (34,824,998) f) Transfers and Miscellaneous Adjustments 572,097
g) Expected Int. [.075 x (3a + 3b) + ((1.075)½ - 1) x ((3d) + (3e) + (3f))] 35,225,781
h) Expected Assets as of 6/30/16 [(3a) + (3b) + (3c) + (3d) + (3e) + (3f) + (3g)] 502,081,263
i) Market Value of Assets as of 6/30/16 468,702,245
j) Asset (Gain)/Loss [(3h) - (3i)] $ 33,379,018
4. Liability (Gain)/Loss for the Year
a) Total (Gain)/Loss (1i) $ 28,706,709
b) Contribution (Gain)/Loss (2g) 1,617,593
c) Asset (Gain)/Loss (3j) 33,379,018
d) Liability (Gain)/Loss [(4a) - (4b) - (4c)] $ (6,289,902)
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 15
Schedule of Amortization Bases
There is a two-year lag between the valuation date and the start of the contribution fiscal year.
The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2016.
The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuation date: Fiscal Year 2018-19.
This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies
with their required employer contribution well in advance of the start of the fiscal year.
The Unfunded Accrued Liability (UAL) is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first day of the fiscal year for which the contribution is being determined. The UAL is rolled forward each year by subtracting the expected payment on the UAL for
the fiscal year and adjusting for interest. The expected payment on the UAL for a fiscal year is equal to the Expected Employer Contribution for the fiscal year minus
the Expected Normal Cost for the year. The Employer Contribution for the first fiscal year is determined by the actuarial valuation two years ago and the contribution
for the second year is from the actuarial valuation one year ago. The Normal Cost Rate for each of the two fiscal years is assumed to be the same as the rate
determined by the current valuation. All expected dollar amounts are determined by multiplying the rate by the expected payroll for the applicable fiscal year, based
on payroll as of the valuation date.
Reason for Base
Date
Established
Amorti-zation
Period
Balance
6/30/16
Expected Payment
2016-17
Balance
6/30/17
Expected Payment
2017-18
Balance
6/30/18
Scheduled Payment for
2018-19
ASSUMPTION CHANGE 06/30/03 7 $15,478,726 $2,102,994 $14,441,120 $2,166,084 $13,261,614 $2,216,388
METHOD CHANGE 06/30/04 8 $(1,186,612) $(148,017) $(1,120,747) $(152,458) $(1,045,422) $(155,924)
BENEFIT CHANGE 06/30/05 8 $26,288,910 $3,279,266 $24,829,679 $3,377,643 $23,160,890 $3,454,433
ASSUMPTION CHANGE 06/30/09 13 $25,621,903 $2,348,748 $25,077,701 $2,419,210 $24,420,350 $2,468,358
SPECIAL (GAIN)/LOSS 06/30/09 23 $16,653,731 $1,100,719 $16,741,358 $1,133,741 $16,801,229 $1,151,812
SPECIAL (GAIN)/LOSS 06/30/10 24 $1,374,845 $88,923 $1,384,096 $91,591 $1,391,265 $93,015
ASSUMPTION CHANGE 06/30/11 15 $12,031,321 $1,010,766 $11,871,256 $1,041,089 $11,667,965 $1,061,270
SPECIAL (GAIN)/LOSS 06/30/11 25 $(57,801) $(3,663) $(58,268) $(3,773) $(58,656) $(3,830)
PAYMENT (GAIN)/LOSS 06/30/12 26 $3,021,937 $187,905 $3,050,094 $193,542 $3,074,487 $196,400
(GAIN)/LOSS 06/30/12 26 $25,475,473 $1,584,070 $25,712,846 $1,631,592 $25,918,481 $1,655,688
(GAIN)/LOSS 06/30/13 27 $74,807,078 $2,043,968 $78,206,101 $3,157,930 $80,701,494 $4,273,993
ASSUMPTION CHANGE 06/30/14 18 $41,242,604 $785,576 $43,470,217 $1,618,287 $44,999,246 $2,472,670
(GAIN)/LOSS 06/30/14 28 $(45,020,639) $(633,217) $(47,684,760) $(1,304,427) $(49,849,838) $(1,984,845)
(GAIN)/LOSS 06/30/15 29 $26,755,579 $639,126 $28,066,528 $395,222 $29,726,898 $801,201
ASSUMPTION CHANGE 06/30/16 20 $10,486,467 $(364,750) $11,637,805 $(375,692) $12,885,392 $242,873
(GAIN)/LOSS 06/30/16 30 $28,706,709 $624,231 $30,176,989 $0 $32,402,542 $449,116
TOTAL $261,680,231 $14,646,645 $265,802,015 $15,389,581 $269,457,937 $18,392,618
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 20 Page 16
30-Year Amortization Schedule and Alternatives
The amortization schedule on the previous page shows the minimum contributions required according to
CalPERS amortization policy. There has been considerable interest from many agencies in paying off these unfunded accrued liabilities sooner and the possible savings in doing so. As a result, we have provided
alternate amortization schedules to help analyze the current amortization schedule and illustrate the
advantages of accelerating unfunded liability payments.
Shown on the following page are future year amortization payments based on 1) the current amortization
schedule reflecting the individual bases and remaining periods shown on the previous page, and 2) alternate “fresh start” amortization schedules using two sample periods that would both result in interest savings
relative to the current amortization schedule. Note that the payments under each alternate scenario
increase by 3 percent per year. The schedules do not reflect the impact of adopted discount rate
changes that will become effective beyond June 30, 2016. Therefore, future amortization
payments displayed in the Current Amortization Schedule on the following page will not match
projected amortization payments shown in connection with Projected Employer Contributions
provided elsewhere in this report.
The Current Amortization Schedule typically contains individual bases that are both positive and negative.
Positive bases result from plan changes, assumption changes or plan experience that result in increases to
unfunded liability. Negative bases result from plan changes, assumption changes or plan experience that
result in decreases to unfunded liability. The combination of positive and negative bases within an
amortization schedule can result in unusual or problematic circumstances in future years such as:
A positive total unfunded liability with a negative total payment,
A negative total unfunded liability with a positive total payment, or Total payments that completely amortize the unfunded liability over a very short period of time
In any year where one of the above scenarios occurs, the actuary will consider corrective action such as
replacing the existing unfunded liability bases with a single “fresh start” base and amortizing it over a
reasonable period.
The Current Amortization Schedule on the following page may appear to show that, based on the current amortization bases, one of the above scenarios will occur at some point in the future. It is impossible to
know today whether such a scenario will in fact arise since there will be additional bases added to the
amortization schedule in each future year. Should such a scenario arise in any future year, the actuary will
take appropriate action based on guidelines in the CalPERS amortization policy. For purposes of this display,
total payments include any negative payments. Therefore, the amount of estimated savings may be
understated to the extent that negative payments appear in the current schedule.
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 17
30-Year Amortization Schedule and Alternatives
* This schedule does not reflect the impact of adopted discount rate changes that will become effective
beyond June 30, 2016. For Projected Employer Contributions, please see Page 5.
Alternate Schedules
Current Amortization
Schedule* 20 Year Amortization 15 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2018 269,457,937 18,392,618 269,457,937 20,142,652 269,457,937 24,508,772
6/30/2019 270,271,679 21,337,802 268,458,259 20,746,932 263,934,002 25,244,035
6/30/2020 268,093,576 23,309,575 266,758,689 21,369,340 257,240,783 26,001,357
6/30/2021 263,711,651 25,202,766 264,288,825 22,010,420 249,269,189 26,781,397
6/30/2022 257,044,797 26,737,689 260,972,509 22,670,732 239,901,397 27,584,839
6/30/2023 248,295,747 27,539,817 256,727,386 23,350,854 229,010,188 28,412,384
6/30/2024 238,070,276 28,366,013 251,464,429 24,051,380 216,458,234 29,264,756
6/30/2025 226,234,553 26,491,113 245,087,432 24,772,921 202,097,330 30,142,699
6/30/2026 215,468,753 23,107,399 237,492,456 25,516,109 185,767,569 31,046,980
6/30/2027 207,415,244 23,800,618 228,567,245 26,281,592 167,296,454 31,978,389
6/30/2028 198,049,463 24,514,638 218,190,592 27,070,040 146,497,951 32,937,741
6/30/2029 187,253,077 25,250,078 206,231,656 27,882,141 123,171,459 33,925,873
6/30/2030 174,898,379 26,007,577 192,549,233 28,718,606 97,100,717 34,943,649
6/30/2031 160,847,587 23,162,939 176,990,972 29,580,164 68,052,619 35,991,958
6/30/2032 148,708,219 22,611,118 159,392,526 30,467,569 35,775,945 37,071,717
6/30/2033 136,245,376 20,351,915 139,576,649 31,381,596
6/30/2034 125,204,431 19,250,096 117,352,218 32,323,044
6/30/2035 114,490,941 18,063,849 92,513,190 33,292,735
6/30/2036 104,216,544 16,789,107 64,837,470 34,291,517
6/30/2037 94,505,323 16,866,899 34,085,709 35,320,262
6/30/2038 83,997,289 16,934,251
6/30/2039 72,644,495 17,442,280
6/30/2040 59,928,003 17,965,550
6/30/2041 45,731,446 14,122,542
6/30/2042 34,470,094 13,530,028
6/30/2043 22,992,191 12,253,254
6/30/2044 11,990,809 5,916,684
6/30/2045 6,744,151 3,302,911
6/30/2046 3,818,993 2,971,635
6/30/2047 1,021,378 1,058,372
Totals 562,651,133 541,240,606 455,836,546
Interest Paid 293,193,196 271,782,669 186,378,609
Estimated Savings 21,410,527 106,814,587
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 18
Reconciliation of Required Employer
Contributions
Normal Cost (% of Payroll)
1. For Period 7/1/17 – 6/30/18
a) Employer Normal Cost 10.039%
b) Employee Contribution 7.584%
c) Total Normal Cost 17.623%
2. Changes since the prior year annual valuation
a) Effect of changes in demographics results (0.396%)
b) Effect of plan changes 0.000%
c) Effect of changes in assumptions 0.470%
d) Net effect of the changes above [sum of (a) through (c)] 0.074%
3. For Period 7/1/18 – 6/30/19
a) Employer Normal Cost 10.217%
b) Employee Contribution 7.480%
c) Total Normal Cost 17.697%
Employer Normal Cost Change [(3a) – (1a)] 0.178%
Employee Contribution Change [(3b) – (1b)] (0.104%)
Unfunded Liability Contribution ($)
1. For Period 7/1/17 – 6/30/18 15,765,273
2. Changes since the prior year annual valuation
a) Effect of (gain)/loss during prior year1 449,116
b) Effect of plan changes 0
c) Effect of changes in assumptions2 242,873
d) Changes to prior year amortization payments3 1,935,356
e) Effect of changes due to Fresh Start 0
f) Effect of elimination of amortization base 0
g) Net effect of the changes above [sum of (a) through (f)] 2,627,345
3. For Period 7/1/18 – 6/30/19 [(1)+(2g)] 18,392,618
1 The unfunded liability contribution for the (gain)/loss during the year prior to the valuation date is 20 percent of the
“full” annual requirement due to the 5-year ramp. Increases to this amount that occur during the ramp period will be included in line d) in future years.
2 The unfunded liability contribution for the change in assumptions is 20 percent of the “full” annual requirement due to the 5-year ramp. Increases to this amount that occur during the ramp period will be included in line d) in future years.
3 Includes changes due to 5-year ramp, payroll growth assumption, and re-amortization under new discount rate.
The amounts shown for the period 7/1/17 – 6/30/18 may be different if a prepayment of unfunded actuarial
liability is made or a plan change became effective after the prior year’s actuarial valuation was performed.
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 19
Employer Contribution History
The table below provides a recent history of the required employer contributions for the plan, as determined
by the annual actuarial valuation. It does not account for prepayments or benefit changes made during a fiscal year.
Required By Valuation
Fiscal
Year
Employer
Normal Cost
Unfunded Rate
Unfunded Liability
Payment ($)
2013 - 14 10.360% 14.240% N/A
2014 - 15 10.283% 15.839% N/A
2015 - 16 10.358% 17.336% N/A
2016 - 17 10.334% 18.556% N/A
2017 - 18 10.039% N/A 15,765,273
2018 - 19 10.217% N/A 18,392,618
Funding History
The table below shows the recent history of the actuarial accrued liability, the market value of assets, the
funded ratio and the annual covered payroll.
Valuation
Date
Accrued
Liability
Market Value
of Assets
(MVA)
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
06/30/11 $ 552,715,631 $ 384,056,704 $ 168,658,927 69.5% $ 60,297,783
06/30/12 576,182,013 373,592,926 202,589,087 64.8% 62,910,810
06/30/13 602,540,178 412,227,784 190,312,394 68.4% 64,439,680
06/30/14 666,978,627 475,566,994 191,411,633 71.3% 67,802,942
06/30/15 696,699,220 477,031,099 219,668,121 68.5% 71,574,823
06/30/16 730,382,476 468,702,245 261,680,231 64.2% 75,345,962
RISK ANALYSIS
ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS
ANALYSIS OF DISCOUNT RATE SENSITIVITY
VOLATILITY RATIOS
HYPOTHETICAL TERMINATION LIABILITY
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 21
Analysis of Future Investment Return Scenarios
Analysis was performed to determine the effects of various future investment returns on required employer
contributions. The projections below provide a range of results based on five investment return scenarios assumed to occur during the next four fiscal years (2016-17, 2017-18, 2018-19 and 2019-20). The
projections also assume that all other actuarial assumptions will be realized and that no further changes to
assumptions, contributions, benefits, or funding will occur.
Each of the five investment return scenarios assumes a return of 7.375 percent for fiscal year 2016-17. For
fiscal years 2017-18, 2018-19, and 2019-20 each scenario assumes an alternate fixed annual return. The fixed return assumptions for the five scenarios are -3.0 percent, 3.0 percent, 7.0 percent (7.25 percent for
2017-18), 11.0 percent and 17.0 percent.
The alternate investment returns were chosen based on stochastic analysis of possible future investment
returns over the four year period ending June 30, 2020. Using the expected returns and volatility of the
asset classes in which the funds are invested, we produced ten thousand stochastic outcomes for this
period. We then selected annual returns that approximate the 5th, 25th, 50th, 75th, and 95th percentiles for
these outcomes. For example, of all of the 4-year outcomes generated in the stochastic analysis, approximately 25 percent of them had an average annual return of 3.0 percent or less.
Required contributions outside of this range are also possible. In particular, while it is unlikely that
investment returns will average less than -3.0 percent or greater than 17.0 percent over this four year
period, the possibility of a single investment return less than -3.0 percent or greater than 17.0 percent in
any given year is much greater.
Assumed Annual Return From 2017-18 through 2019-20
Projected Employer Contributions
2019-20 2020-21 2021-22 2022-23
(3.0%)
Normal Cost 10.7% 11.7% 11.7% 11.7%
UAL Contribution $21,368,000 $24,382,000 $28,551,000 $33,202,000
3.0%
Normal Cost 10.7% 11.7% 11.7% 11.7%
UAL Contribution $21,368,000 $23,936,000 $27,222,000 $30,563,000
Assumed Discount Rate
Normal Cost 10.7% 11.7% 11.7% 11.7%
UAL Contribution $21,368,000 $23,620,000 $26,268,000 $28,624,000
11.0%
Normal Cost 10.7% 11.7% 12.0% 12.2%
UAL Contribution $21,368,000 $23,341,000 $25,347,000 $26,740,000
17.0%
Normal Cost 10.7% 11.7% 12.5% 13.2%
UAL Contribution $21,368,000 $22,895,000 $23,879,000 $23,757,000
Given the temporary suspension of the Risk Mitigation Policy during the period over which the discount rate
assumption is being phased down to 7.0 percent, the projections above were performed without reflection
of any possible impact of this Policy for Fiscal Years 2019-20 and 2020-21.
The projected normal cost percentages do not reflect that the normal cost will decline over time as new
employees are hired into PEPRA or other lower cost benefit tiers.
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 22
Analysis of Discount Rate Sensitivity
Shown below are various valuation results as of June 30, 2016 assuming alternate discount rates. Results
are shown using the current discount rate of 7.375 percent as well as alternate discount rates of 6.0
percent, 7.0 percent, and 8.0 percent. The alternate rate of 7.0 percent was selected since the Board has adopted this rate as the final discount rate at the end of the three year phase-in of the reduction in this
assumption. The rates of 6.0 percent and 8.0 percent were selected since they illustrate the impact of a 1
percent increase or decrease to the 7.0 percent assumption. This analysis shows the potential plan impacts
if the PERF were to realize investment returns of 6.0 percent, 7.0 percent, or 8.0 percent over the long-
term.
This type of analysis gives the reader a sense of the long-term risk to required contributions. For a measure of funded status that is appropriate for assessing the sufficiency of plan assets to cover estimated
termination liabilities, please see “Hypothetical Termination Liability” in the “Risk Analysis” section.
Sensitivity Analysis
As of June 30, 2016 Plan’s
Normal Cost
Accrued
Liability Unfunded
Accrued Liability Funded
Status
7.375% (current discount rate) 17.697% $730,382,476 $261,680,231 64.2%
6.0% 24.098% $863,632,400 $394,930,155 54.3%
7.0% 19.208% $763,341,929 $294,639,684 61.4%
8.0% 15.497% $680,268,344 $211,566,099 68.9%
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 23
Volatility Ratios
The actuarial calculations supplied in this communication are based on a number of assumptions about
long-term demographic and economic behavior. Unless these assumptions (terminations, deaths, disabilities,
retirements, salary growth, and investment return) are exactly realized each year, there will be differences on a year-to-year basis. The year-to-year differences between actual experience and the assumptions are
called actuarial gains and losses and serve to lower or raise required employer contributions from one year
to the next. Therefore, employer contributions will inevitably fluctuate, especially due to the ups and downs
of investment returns.
Asset Volatility Ratio (AVR)
Plans that have higher asset-to-payroll ratios experience more volatile employer contributions (as a
percentage of payroll) due to investment return. For example, a plan with an asset-to-payroll ratio of 8 may
experience twice the contribution volatility due to investment return volatility than a plan with an asset-to-
payroll ratio of 4. Shown below is the asset volatility ratio, a measure of the plan’s current volatility. It
should be noted that this ratio is a measure of the current situation. It increases over time but generally
tends to stabilize as the plan matures.
Liability Volatility Ratio (LVR)
Plans that have higher liability-to-payroll ratios experience more volatile employer contributions (as a
percentage of payroll) due to investment return and changes in liability. For example, a plan with a liability-
to-payroll ratio of 8 is expected to have twice the contribution volatility of a plan with a liability-to-payroll
ratio of 4. The liability volatility ratio is also included in the table below. It should be noted that this ratio
indicates a longer-term potential for contribution volatility. The asset volatility ratio, described above, will
tend to move closer to the liability volatility ratio as the plan matures. Since the liability volatility ratio is a long-term measure, it is shown below at the current discount rate (7.375 percent) as well as the discount
rate the Board has adopted to determine the contribution requirement in the June 30, 2018 actuarial
valuation (7.00 percent).
Contribution Volatility As of June 30, 2016
1. Market Value of Assets without Receivables $ 466,532,526
2. Payroll 75,345,962
3. Asset Volatility Ratio (AVR) [(1) / ( 2)] 6.2
4. Accrued Liability (7.375% discount rate) $ 730,382,476
5. Liability Volatility Ratio (LVR) [(4) / (2)] 9.7
6. Accrued Liability (7.00% discount rate) 763,341,929
7. Projected Liability Volatility Ratio [(6) / (2)] 10.1
CALPERS ACTUARIAL VALUATION - June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 24
Hypothetical Termination Liability
The hypothetical termination liability is an estimate of the financial position of the plan had the contract with
CalPERS been terminated as of June 30, 2016. The plan liability on a termination basis is calculated
differently compared to the plan’s ongoing funding liability. For this hypothetical termination liability calculation, both compensation and service are frozen as of the valuation date and no future pay increases
or service accruals are assumed. This measure of funded status is not appropriate for assessing the need for
future employer contributions in the case of an ongoing plan, that is, for an employer that continues to
provide CalPERS retirement benefits to active employees.
A more conservative investment policy and asset allocation strategy was adopted by the CalPERS Board for
the Terminated Agency Pool. The Terminated Agency Pool has limited funding sources since no future employer contributions will be made. Therefore, expected benefit payments are secured by risk-free assets
and benefit security for members is increased while limiting the funding risk. However, this asset allocation
has a lower expected rate of return than the PERF and consequently, a lower discount rate assumption. The
lower discount rate for the Terminated Agency Pool results in higher liabilities for terminated plans.
The effective termination discount rate will depend on actual market rates of return for risk-free securities
on the date of termination. As market discount rates are variable the table below shows a range for the
hypothetical termination liability based on the lowest and highest interest rates observed during an approximate 2-year period centered around the valuation date.
Market
Value of
Assets (MVA)
Hypothetical
Termination
Liability1,2
@ 1.75%
Funded
Status
Unfunded
Termination
Liability
@ 1.75%
Hypothetical
Termination
Liability1,2
@ 3.00%
Funded
Status
Unfunded
Termination
Liability
@ 3.00%
$468,702,245 $1,331,814,237 35.2% $863,111,992 $1,150,377,585 40.7% $681,675,340
1 The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with Board
policy. Other actuarial assumptions can be found in Appendix A. 2 The current discount rate assumption used for termination valuations is a weighted average of the 10-year and 30-year
U.S. Treasury yields where the weights are based on matching asset and liability durations as of the termination date.
The discount rates used in the table are based on 20-year Treasury bonds, rounded to the nearest quarter percentage point, which is a good proxy for most plans. The 20-year Treasury yield was 1.75 percent on June 30, 2016, and was
2.75 percent on January 31, 2017.
In order to terminate the plan, you must first contact our Retirement Services Contract Unit to initiate a
Resolution of Intent to Terminate. The completed Resolution will allow the plan actuary to give you a
preliminary termination valuation with a more up-to-date estimate of the plan liabilities. CalPERS advises
you to consult with the plan actuary before beginning this process.
PLAN’S MAJOR BENEFIT PROVISIONS
CALPERS ACTUARIAL VALUATION – June 30, 2016
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which your agency has contracted for this plan. A description of principal standard and optional
plan provisions is in Appendix B of this report.
Contract Package
Active
Misc
Active
Misc
Active
Misc
Inactive
Misc
Receiving
Misc
Benefit Provision
Benefit Formula 2.7% @ 55 2.0% @ 60 2.0% @ 62 2.0% @ 55
Social Security Coverage No No No No Full/Modified Full Full Full Full
Employee Contribution Rate 8.00% 7.00% 6.25%
Final Average Compensation Period One Year One Year Three Year One Year
Sick Leave Credit No No No No
Non-Industrial Disability Standard Standard Standard Standard
Industrial Disability No No No No
Pre-Retirement Death Benefits
Optional Settlement 2W No No No No 1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1
Special No No No No
Alternate (firefighters) No No No No
Post-Retirement Death Benefits
Lump Sum $500 $500 $500 $500 $500
Survivor Allowance (PRSA) No No No No No
COLA 2% 2% 2% 2% 2%
Page 26
APPENDICES
APPENDIX A – ACTUARIAL METHODS AND ASSUMPTIONS
APPENDIX B – PRINCIPAL PLAN PROVISIONS
APPENDIX C – PARTICIPANT DATA
APPENDIX D – DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATES
APPENDIX E – GLOSSARY OF ACTUARIAL TERMS
APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
ACTUARIAL DATA
ACTUARIAL METHODS
ACTUARIAL ASSUMPTIONS
MISCELLANEOUS
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-1
Actuarial Data
As stated in the Actuarial Certification, the data which serves as the basis of this valuation has been
obtained from the various CalPERS databases. We have reviewed the valuation data and believe that it is
reasonable and appropriate in aggregate. We are unaware of any potential data issues that would have a
material effect on the results of this valuation, except that data does not always contain the latest salary
information for former members now in reciprocal systems and does not recognize the potential for unusually large salary deviation in certain cases such as elected officials. Therefore, salary information in
these cases may not be accurate. These situations are relatively infrequent, however, and when they do
occur, they generally do not have a material impact on the required employer contributions.
Actuarial Methods
Actuarial Cost Method
The actuarial cost method used is the Entry Age Normal Cost Method. Under this method, projected benefits are determined for all members and the associated liabilities are spread in a manner that produces level
annual cost as a percentage of pay in each year from the member’s entry age to their assumed retirement
age on the valuation date. The cost allocated to the current fiscal year is called the normal cost.
The actuarial accrued liability for active members is then calculated as the portion of the total cost of the
plan allocated to prior years. The actuarial accrued liability for members currently receiving benefits and for
members entitled to deferred benefits is equal to the present value of the benefits expected to be paid. No
normal costs are applicable for these participants.
Amortization of Unfunded Actuarial Accrued Liability
The excess of the total actuarial accrued liability over the market value of plan assets is called the unfunded
actuarial accrued liability (UAL). Funding requirements are determined by adding the normal cost and an
amortization payment toward the unfunded liability. The unfunded liability is amortized as a “level percent
of pay”. Commencing with the June 30, 2013 valuation, all new gains or losses are amortized over a fixed 30-year period with a 5-year ramp up at the beginning and a 5-year ramp down at the end of the
amortization period. All changes in liability due to plan amendments (other than golden handshakes) are
amortized over a 20-year period with no ramp. Changes in actuarial assumptions or changes in actuarial
methodology are amortized over a 20-year period with a 5-year ramp up at the beginning and a 5-year
ramp down at the end of the amortization period. Changes in unfunded accrued liability due to a Golden
Handshake will be amortized over a period of five years.
The 5-year ramp up means that the payments in the first four years of the amortization period are 20
percent, 40 percent, 60 percent and 80 percent of the “full” payment which begins in year five. The 5-year
ramp down means that the reverse is true in the final four years of the amortization period.
Exceptions for Inconsistencies:
An exception to the amortization rules above is used whenever their application results in inconsistencies. In
these cases, a “fresh start” approach is used. This means that the current unfunded actuarial liability is projected and amortized over a set number of years. For example, a fresh start is needed in the following
situations:
1) When a positive payment would be required on a negative unfunded actuarial liability (or
conversely a negative payment on a positive unfunded actuarial liability); or
2) When there are excess assets, rather than an unfunded liability. In this situation, a 30-year fresh
start is used.
It should be noted that the actuary may determine that a fresh start is necessary under other
circumstances. In all cases of a fresh start, the period is set by the actuary at what is deemed appropriate;
however, the period will not be greater than 30 years.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-2
Exceptions for Inactive Plans:
The following exceptions apply to plans classified as Inactive. These plans have no active members and no
expectation to have active members in the future.
Amortization of the unfunded liability is on a “level dollar” basis rather than a “level percent of pay”
basis. For amortization layers which utilize a ramp up and ramp down, the “ultimate” payment is
constant.
Actuarial judgment will be used to shorten amortization periods for Inactive plans with existing
periods that are deemed too long given the duration of the liability. The specific demographics of
the plan will be used to determine if shorter periods may be more appropriate.
Asset Valuation Method
It is the policy of the CalPERS Board of Administration to use professionally accepted amortization methods
to eliminate a surplus or an unfunded accrued liability in a manner that maintains benefit security for the
members of the System while minimizing substantial variations in required employer contributions. On April
17, 2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS
amortization and rate smoothing policies. Beginning with the June 30, 2013 valuations that set the employer
contribution for Fiscal Year 2015-16, CalPERS employs a policy that amortizes all gains and losses over a fixed 30-year period. The increase or decrease in the rate is then spread directly over a 5-year period. This
method is referred to as “direct rate smoothing.” CalPERS no longer uses an actuarial value of assets and
only uses the market value of assets. The direct rate smoothing method is equivalent to a method using a 5
year asset smoothing period with no actuarial value of asset corridor and a 25-year amortization period for
gains and losses.
PEPRA Normal Cost Rate Methodology
Per Government Code Section 7522.30(b) the “normal cost rate” shall mean the annual actuarially
determined normal cost for the plan of retirement benefits provided to the new member and shall be
established based on actuarial assumptions used to determine the liabilities and costs as part of the annual
actuarial valuation. The plan of retirement benefits shall include any elements that would impact the
actuarial determination of the normal cost, including, but not limited to, the retirement formula, eligibility
and vesting criteria, ancillary benefit provisions, and any automatic cost-of-living adjustments as determined by the public retirement system.
Each non-pooled plan is considered to be stable with a sufficiently large demographic of actives. It is
preferable to determine normal cost using a large active population ongoing so that this rate remains
relatively stable. The total PEPRA normal cost will be calculated using all active members within a non-
pooled plan until the number of members covered under the PEPRA formula meets either:
1. 50 percent of the active population, or
2. 25 percent of the active population and 100 or more PEPRA members
Once either of the conditions above are met for a non-pooled plan, the total PEPRA normal cost will be
based on the active PEPRA population in the plan.
Accordingly, the total normal cost will be funded equally between employer and employee based on the
demographics of the employees of that employer.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-3
Actuarial Assumptions
In 2014, CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions
and strategic asset allocation. On February 19, 2014, the CalPERS Board of Administration adopted relatively
modest changes to the asset allocation that reduced the expected volatility of returns. The adopted asset
allocation was expected to have a long-term blended return that continued to support a discount rate
assumption of 7.5 percent at that time. The Board also approved several changes to the demographic assumptions that more closely aligned with actual experience. The most significant of these is mortality
improvement to acknowledge the greater life expectancies we are seeing in our membership and expected
continued improvements. These new actuarial assumptions were first used in the June 30, 2014 valuation to
set the Fiscal Year 2016-17 contribution for public agency employers.
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to
7.00 percent using a three year phase-in beginning with the June 30, 2016 actuarial valuations. The
minimum employer contributions for Fiscal Year 2018-19 determined in this valuation were calculated using a discount rate of 7.375 percent. The projected employer contributions on Page 5 are calculated assuming
that the discount rate will be lowered to 7.25 percent next year and 7.00 percent the following year as
adopted by the Board. The decision to reduce the discount rate was primarily based on reduced capital
market assumptions provided by external investment consultants and CalPERS investment staff. The specific
decision adopted by the Board reflected recommendations from CalPERS staff and additional input from
employer and employee stakeholder groups. Based on the investment allocation adopted by the Board
and capital market assumptions, the reduced discount rate schedule provides a more realistic assumption
for the long term investment return of the fund.
Notwithstanding the Board’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the
expected investment return of CalPERS assets or changes to the investment allocation may result in a
change to this three year discount rate schedule. A comprehensive analysis of all actuarial assumptions and methods including the discount rate will be conducted in 2017.
For more details and additional rationale for the selection of the actuarial assumptions, please refer to the
CalPERS Experience Study and Review of Actuarial Assumptions report from January 2014 that can be found
on the CalPERS website under: “Forms and Publications”. Click on “View All” and search for Experience
Study.
All actuarial assumptions (except the discount rates used for the hypothetical termination liability) represent an estimate of future experience rather than observations of the estimates inherent in market data.
Economic Assumptions
Discount Rate
The prescribed discount rate assumption adopted by the Board on December 21, 2016 is 7.375 percent compounded annually (net of investment and administrative expenses) as of 6/30/2016.
The Board also prescribed that the assumed discount rate will reduce to 7.25 percent compounded
annually (net of expenses) as of 6/30/2017, and 7.0 percent compounded annually (net of
expenses) as of 6/30/2018. These further changes to the discount rate assumption are not
reflected in the determination of required contributions determined in this report for Fiscal Year
2018-19.
Termination Liability Discount Rate The current discount rate assumption used for termination valuations is a weighted average of the
10-year and 30-year U.S. Treasury yields where the weights are based on matching asset and
liability durations as of the termination date.
The hypothetical termination liabilities in this report are calculated using an observed range of
market interest rates. This range is based on the lowest and highest 20-year Treasury bond observed during an approximate 2-year period centered around the valuation date. The 20-year
Treasury bond has a similar duration to most plan liabilities and serves as a good proxy for the
termination discount rate. The 20-year Treasury yield was 1.75 percent on June 30, 2016.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-4
Salary Growth
Annual increases vary by category, entry age, and duration of service. A sample of assumed
increases are shown below.
Public Agency Miscellaneous
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1220 0.1160 0.1020
1 0.0990 0.0940 0.0830
2 0.0860 0.0810 0.0710
3 0.0770 0.0720 0.0630
4 0.0700 0.0650 0.0570
5 0.0640 0.0600 0.0520
10 0.0460 0.0430 0.0390
15 0.0420 0.0400 0.0360
20 0.0390 0.0380 0.0340
25 0.0370 0.0360 0.0330
30 0.0350 0.0340 0.0320
Public Agency Fire
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.2000 0.1980 0.1680
1 0.1490 0.1460 0.1250
2 0.1200 0.1160 0.0990
3 0.0980 0.0940 0.0810
4 0.0820 0.0780 0.0670
5 0.0690 0.0640 0.0550
10 0.0470 0.0460 0.0420
15 0.0440 0.0420 0.0390
20 0.0420 0.0390 0.0360
25 0.0400 0.0370 0.0340
30 0.0380 0.0360 0.0340
Public Agency Police
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1500 0.1470 0.1310
1 0.1160 0.1120 0.1010
2 0.0950 0.0920 0.0830
3 0.0810 0.0780 0.0700
4 0.0700 0.0670 0.0600
5 0.0610 0.0580 0.0520
10 0.0450 0.0430 0.0370
15 0.0450 0.0430 0.0370
20 0.0450 0.0430 0.0370
25 0.0450 0.0430 0.0370
30 0.0450 0.0430 0.0370
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-5
Salary Growth (continued)
Public Agency County Peace Officers
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1770 0.1670 0.1500
1 0.1340 0.1260 0.1140
2 0.1080 0.1030 0.0940
3 0.0900 0.0860 0.0790
4 0.0760 0.0730 0.0670
5 0.0650 0.0620 0.0580
10 0.0470 0.0450 0.0410
15 0.0460 0.0450 0.0390
20 0.0460 0.0450 0.0380
25 0.0460 0.0450 0.0380
30 0.0460 0.0440 0.0380
Schools
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.0900 0.0880 0.0820
1 0.0780 0.0750 0.0700
2 0.0700 0.0680 0.0630
3 0.0650 0.0630 0.0580
4 0.0610 0.0590 0.0540
5 0.0580 0.0560 0.0510
10 0.0460 0.0450 0.0410
15 0.0420 0.0410 0.0380
20 0.0390 0.0380 0.0350
25 0.0370 0.0350 0.0330
30 0.0350 0.0330 0.0310
The Miscellaneous salary scale is used for Local Prosecutors.
The Police salary scale is used for Other Safety, Local Sheriff, and School Police.
Overall Payroll Growth
3.00 percent compounded annually (used in projecting the payroll over which the unfunded liability
is amortized). This assumption is used for all plans with active members.
Inflation
2.75 percent compounded annually.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.75 percent inflation
assumption, and any potential liability loss from future member service purchases are not reflected
in the valuation.
Miscellaneous Loading Factors
Credit for Unused Sick Leave
Total years of service is increased by 1 percent for those plans that have accepted the provision
providing Credit for Unused Sick Leave.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-6
Conversion of Employer Paid Member Contributions (EPMC)
Total years of service is increased by the Employee Contribution Rate for those plans with the
provision providing for the Conversion of Employer Paid Member Contributions (EPMC) during the
final compensation period.
Norris Decision (Best Factors)
Employees hired prior to July 1, 1982 have projected benefit amounts increased in order to reflect
the use of “Best Factors” in the calculation of optional benefit forms. This is due to a 1983
Supreme Court decision, known as the Norris decision, which required males and females to be
treated equally in the determination of benefit amounts. Consequently, anyone already employed
at that time is given the best possible conversion factor when optional benefits are determined. No loading is necessary for employees hired after July 1, 1982.
Termination Liability
The termination liabilities include a 7 percent contingency load. This load is for unforeseen
improvements in mortality.
Demographic Assumptions
Pre-Retirement Mortality
Non-industrial death rates vary by age and gender. Industrial death rates vary by age. See sample
rates in table below. The non-industrial death rates are used for all plans. The industrial death
rates are used for safety plans (except for Local Prosecutor safety members where the
corresponding miscellaneous plan does not have the Industrial Death Benefit).
Non-Industrial Death Industrial Death (Not Job-Related) (Job-Related)
Age Male Female Male and Female
20 0.00031 0.00020 0.00003
25 0.00040 0.00023 0.00007
30 0.00049 0.00025 0.00010
35 0.00057 0.00035 0.00012
40 0.00075 0.00050 0.00013
45 0.00106 0.00071 0.00014 50 0.00155 0.00100 0.00015
55 0.00228 0.00138 0.00016
60 0.00308 0.00182 0.00017
65 0.00400 0.00257 0.00018
70 0.00524 0.00367 0.00019
75 0.00713 0.00526 0.00020
80 0.00990 0.00814 0.00021
Miscellaneous plans usually have industrial death rates set to zero unless the agency has specifically
contracted for industrial death benefits. If so, each non-industrial death rate shown above will be
split into two components; 99 percent will become the non-industrial death rate and 1 percent will
become the industrial death rate.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-7
Post-Retirement Mortality
Rates vary by age, type of retirement, and gender. See sample rates in table below. These rates
are used for all plans.
Healthy Recipients
Non-Industrially Disabled Industrially Disabled
(Not Job-Related) (Job-Related)
Age Male Female Male Female Male Female
50 0.00501 0.00466 0.01680 0.01158 0.00501 0.00466
55 0.00599 0.00416 0.01973 0.01149 0.00599 0.00416
60 0.00710 0.00436 0.02289 0.01235 0.00754 0.00518
65 0.00829 0.00588 0.02451 0.01607 0.01122 0.00838 70 0.01305 0.00993 0.02875 0.02211 0.01635 0.01395
75 0.02205 0.01722 0.03990 0.03037 0.02834 0.02319
80 0.03899 0.02902 0.06083 0.04725 0.04899 0.03910
85 0.06969 0.05243 0.09731 0.07762 0.07679 0.06251
90 0.12974 0.09887 0.14804 0.12890 0.12974 0.09887
95 0.22444 0.18489 0.22444 0.21746 0.22444 0.18489
100 0.32536 0.30017 0.32536 0.30017 0.32536 0.30017
105 0.58527 0.56093 0.58527 0.56093 0.58527 0.56093 110 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000
The post-retirement mortality rates above include 20 years of projected on-going mortality
improvement using Scale BB published by the Society of Actuaries.
Marital Status
For active members, a percentage who are married upon retirement is assumed according to member category as shown in the following table.
Member Category Percent Married
Miscellaneous Member 85% Local Police 90%
Local Fire 90%
Other Local Safety 90%
School Police 90%
Age of Spouse
It is assumed that female spouses are 3 years younger than male spouses. This assumption is used for all plans.
Terminated Members
It is assumed that terminated members refund immediately if non-vested. Terminated members
who are vested are assumed to follow the same service retirement pattern as active members but
with a load to reflect the expected higher rates of retirement, especially at lower ages. The
following table shows the load factors that are applied to the service retirement assumption for active members to obtain the service retirement pattern for separated vested members:
Age Load Factor Miscellaneous Load Factor Safety
50 190% 310%
51 110% 190% 52 110% 105%
53 through 54 100% 105%
55 100% 140%
56 and above 100% (no change) 100% (no change)
Termination with Refund Rates vary by entry age and service for miscellaneous plans. Rates vary by service for safety plans.
See sample rates in tables below.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-8
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1742 0.1674 0.1606 0.1537 0.1468 0.1400
1 0.1545 0.1477 0.1409 0.1339 0.1271 0.1203
2 0.1348 0.1280 0.1212 0.1142 0.1074 0.1006
3 0.1151 0.1083 0.1015 0.0945 0.0877 0.0809
4 0.0954 0.0886 0.0818 0.0748 0.0680 0.0612
5 0.0212 0.0193 0.0174 0.0155 0.0136 0.0116
10 0.0138 0.0121 0.0104 0.0088 0.0071 0.0055
15 0.0060 0.0051 0.0042 0.0032 0.0023 0.0014
20 0.0037 0.0029 0.0021 0.0013 0.0005 0.0001
25 0.0017 0.0011 0.0005 0.0001 0.0001 0.0001
30 0.0005 0.0001 0.0001 0.0001 0.0001 0.0001
35 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
Public Agency Safety
Duration of Service Fire Police County Peace Officer
0 0.0710 0.1013 0.0997
1 0.0554 0.0636 0.0782
2 0.0398 0.0271 0.0566
3 0.0242 0.0258 0.0437
4 0.0218 0.0245 0.0414
5 0.0029 0.0086 0.0145
10 0.0009 0.0053 0.0089
15 0.0006 0.0027 0.0045
20 0.0005 0.0017 0.0020
25 0.0003 0.0012 0.0009
30 0.0003 0.0009 0.0006
35 0.0003 0.0009 0.0006
The police termination and refund rates are also used for Public Agency Local Prosecutors, Other
Safety, Local Sheriff, and School Police.
Schools
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1730 0.1627 0.1525 0.1422 0.1319 0.1217
1 0.1585 0.1482 0.1379 0.1277 0.1174 0.1071
2 0.1440 0.1336 0.1234 0.1131 0.1028 0.0926
3 0.1295 0.1192 0.1089 0.0987 0.0884 0.0781
4 0.1149 0.1046 0.0944 0.0841 0.0738 0.0636
5 0.0278 0.0249 0.0221 0.0192 0.0164 0.0135
10 0.0172 0.0147 0.0122 0.0098 0.0074 0.0049
15 0.0115 0.0094 0.0074 0.0053 0.0032 0.0011
20 0.0073 0.0055 0.0038 0.0020 0.0002 0.0002
25 0.0037 0.0023 0.0010 0.0002 0.0002 0.0002
30 0.0015 0.0003 0.0002 0.0002 0.0002 0.0002
35 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-9
Termination with Vested Benefits
Rates vary by entry age and service for miscellaneous plans. Rates vary by service for safety plans.
See sample rates in tables below.
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40
5 0.0656 0.0597 0.0537 0.0477 0.0418
10 0.0530 0.0466 0.0403 0.0339 0.0000
15 0.0443 0.0373 0.0305 0.0000 0.0000
20 0.0333 0.0261 0.0000 0.0000 0.0000
25 0.0212 0.0000 0.0000 0.0000 0.0000
30 0.0000 0.0000 0.0000 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
Public Agency Safety
Duration of
Service Fire Police
County Peace
Officer
5 0.0162 0.0163 0.0265
10 0.0061 0.0126 0.0204
15 0.0058 0.0082 0.0130
20 0.0053 0.0065 0.0074
25 0.0047 0.0058 0.0043
30 0.0045 0.0056 0.0030
35 0.0000 0.0000 0.0000
When a member is eligible to retire, the termination with vested benefits probability is set to zero.
After termination with vested benefits, a miscellaneous member is assumed to retire at age 59
and a safety member at age 54.
The Police termination with vested benefits rates are also used for Public Agency Local
Prosecutors, Other Safety, Local Sheriff, and School Police.
Schools
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40
5 0.0816 0.0733 0.0649 0.0566 0.0482
10 0.0629 0.0540 0.0450 0.0359 0.0000
15 0.0537 0.0440 0.0344 0.0000 0.0000
20 0.0420 0.0317 0.0000 0.0000 0.0000
25 0.0291 0.0000 0.0000 0.0000 0.0000
30 0.0000 0.0000 0.0000 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-10
Non-Industrial (Not Job-Related) Disability
Rates vary by age and gender for miscellaneous plans. Rates vary by age and category for safety
plans.
Miscellaneous Fire Police County Peace Officer Schools
Age Male Female Male and Female Male and Female Male and Female Male Female
20 0.0002 0.0001 0.0001 0.0001 0.0001 0.0003 0.0003
25 0.0002 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
30 0.0002 0.0002 0.0001 0.0002 0.0001 0.0001 0.0002
35 0.0005 0.0008 0.0001 0.0003 0.0004 0.0005 0.0004
40 0.0012 0.0016 0.0001 0.0004 0.0007 0.0015 0.0010
45 0.0019 0.0022 0.0002 0.0005 0.0013 0.0030 0.0019
50 0.0021 0.0023 0.0005 0.0008 0.0018 0.0039 0.0024
55 0.0022 0.0018 0.0010 0.0013 0.0010 0.0036 0.0021
60 0.0022 0.0014 0.0015 0.0020 0.0006 0.0031 0.0014
The miscellaneous non-industrial disability rates are used for Local Prosecutors.
The police non-industrial disability rates are also used for Other Safety, Local Sheriff, and
School Police.
Industrial (Job-Related) Disability Rates vary by age and category.
Age Fire Police County Peace Officer
20 0.0001 0.0000 0.0004
25 0.0003 0.0017 0.0013
30 0.0007 0.0048 0.0025
35 0.0016 0.0079 0.0037
40 0.0030 0.0110 0.0051
45 0.0053 0.0141 0.0067
50 0.0277 0.0185 0.0092
55 0.0409 0.0479 0.0151
60 0.0583 0.0602 0.0174
The police industrial disability rates are also used for Local Sheriff and Other Safety.
Fifty percent of the police industrial disability rates are used for School Police.
One percent of the police industrial disability rates are used for Local Prosecutors.
Normally, rates are zero for miscellaneous plans unless the agency has specifically contracted for industrial disability benefits. If so, each miscellaneous non-industrial disability rate will be
split into two components: 50 percent will become the non-industrial disability rate and 50
percent will become the industrial disability rate.
Service Retirement
Retirement rates vary by age, service, and formula, except for the safety ½ @ 55 and 2% @ 55
formulas, where retirement rates vary by age only.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-11
Service Retirement
Public Agency Miscellaneous 1.5% @ 65
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.008 0.011 0.013 0.015 0.017 0.019
51 0.007 0.010 0.012 0.013 0.015 0.017
52 0.010 0.014 0.017 0.019 0.021 0.024
53 0.008 0.012 0.015 0.017 0.019 0.022
54 0.012 0.016 0.019 0.022 0.025 0.028
55 0.018 0.025 0.031 0.035 0.038 0.043
56 0.015 0.021 0.025 0.029 0.032 0.036
57 0.020 0.028 0.033 0.038 0.043 0.048
58 0.024 0.033 0.040 0.046 0.052 0.058
59 0.028 0.039 0.048 0.054 0.060 0.067
60 0.049 0.069 0.083 0.094 0.105 0.118
61 0.062 0.087 0.106 0.120 0.133 0.150
62 0.104 0.146 0.177 0.200 0.223 0.251
63 0.099 0.139 0.169 0.191 0.213 0.239
64 0.097 0.136 0.165 0.186 0.209 0.233
65 0.140 0.197 0.240 0.271 0.302 0.339
66 0.092 0.130 0.157 0.177 0.198 0.222
67 0.129 0.181 0.220 0.249 0.277 0.311
68 0.092 0.129 0.156 0.177 0.197 0.221
69 0.092 0.130 0.158 0.178 0.199 0.224
70 0.103 0.144 0.175 0.198 0.221 0.248
Public Agency Miscellaneous 2% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.010 0.013 0.015 0.018 0.019 0.021
51 0.009 0.011 0.014 0.016 0.017 0.019
52 0.011 0.014 0.017 0.020 0.022 0.024
53 0.010 0.012 0.015 0.017 0.020 0.021
54 0.015 0.019 0.023 0.025 0.029 0.031
55 0.022 0.029 0.035 0.040 0.045 0.049
56 0.018 0.024 0.028 0.033 0.036 0.040
57 0.024 0.032 0.038 0.043 0.049 0.053
58 0.027 0.036 0.043 0.049 0.055 0.061
59 0.033 0.044 0.054 0.061 0.068 0.076
60 0.056 0.077 0.092 0.105 0.117 0.130
61 0.071 0.097 0.118 0.134 0.149 0.166
62 0.117 0.164 0.198 0.224 0.250 0.280
63 0.122 0.171 0.207 0.234 0.261 0.292
64 0.114 0.159 0.193 0.218 0.244 0.271
65 0.150 0.209 0.255 0.287 0.321 0.358
66 0.114 0.158 0.192 0.217 0.243 0.270
67 0.141 0.196 0.238 0.270 0.301 0.337
68 0.103 0.143 0.174 0.196 0.219 0.245
69 0.109 0.153 0.185 0.209 0.234 0.261
70 0.117 0.162 0.197 0.222 0.248 0.277
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-12
Service Retirement
Public Agency Miscellaneous 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.014 0.018 0.021 0.025 0.027 0.031
51 0.012 0.014 0.017 0.020 0.021 0.025
52 0.013 0.017 0.019 0.023 0.025 0.028
53 0.015 0.020 0.023 0.027 0.030 0.034
54 0.026 0.033 0.038 0.045 0.051 0.059
55 0.048 0.061 0.074 0.088 0.100 0.117
56 0.042 0.053 0.063 0.075 0.085 0.100
57 0.044 0.056 0.067 0.081 0.091 0.107
58 0.049 0.062 0.074 0.089 0.100 0.118
59 0.057 0.072 0.086 0.103 0.118 0.138
60 0.067 0.086 0.103 0.123 0.139 0.164
61 0.081 0.103 0.124 0.148 0.168 0.199
62 0.116 0.147 0.178 0.214 0.243 0.288
63 0.114 0.144 0.174 0.208 0.237 0.281
64 0.108 0.138 0.166 0.199 0.227 0.268
65 0.155 0.197 0.238 0.285 0.325 0.386
66 0.132 0.168 0.203 0.243 0.276 0.328
67 0.122 0.155 0.189 0.225 0.256 0.304
68 0.111 0.141 0.170 0.204 0.232 0.274
69 0.114 0.144 0.174 0.209 0.238 0.282
70 0.130 0.165 0.200 0.240 0.272 0.323
Public Agency Miscellaneous 2.5% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.004 0.009 0.019 0.029 0.049 0.094
51 0.004 0.009 0.019 0.029 0.049 0.094
52 0.004 0.009 0.020 0.030 0.050 0.095
53 0.008 0.014 0.025 0.036 0.058 0.104
54 0.024 0.034 0.050 0.066 0.091 0.142
55 0.066 0.088 0.115 0.142 0.179 0.241
56 0.042 0.057 0.078 0.098 0.128 0.184
57 0.041 0.057 0.077 0.097 0.128 0.183
58 0.045 0.061 0.083 0.104 0.136 0.192
59 0.055 0.074 0.098 0.123 0.157 0.216
60 0.066 0.088 0.115 0.142 0.179 0.241
61 0.072 0.095 0.124 0.153 0.191 0.255
62 0.099 0.130 0.166 0.202 0.248 0.319
63 0.092 0.121 0.155 0.189 0.233 0.302
64 0.091 0.119 0.153 0.187 0.231 0.299
65 0.122 0.160 0.202 0.245 0.297 0.374
66 0.138 0.179 0.226 0.272 0.329 0.411
67 0.114 0.149 0.189 0.229 0.279 0.354
68 0.100 0.131 0.168 0.204 0.250 0.322
69 0.114 0.149 0.189 0.229 0.279 0.354
70 0.127 0.165 0.209 0.253 0.306 0.385
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-13
Service Retirement
Public Agency Miscellaneous 2.7% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.004 0.009 0.014 0.035 0.055 0.095
51 0.002 0.006 0.011 0.030 0.050 0.090
52 0.006 0.012 0.017 0.038 0.059 0.099
53 0.010 0.017 0.024 0.046 0.068 0.110
54 0.032 0.044 0.057 0.085 0.113 0.160
55 0.076 0.101 0.125 0.165 0.205 0.265
56 0.055 0.074 0.093 0.127 0.160 0.214
57 0.050 0.068 0.086 0.118 0.151 0.204
58 0.055 0.074 0.093 0.127 0.161 0.215
59 0.061 0.082 0.102 0.138 0.174 0.229
60 0.069 0.093 0.116 0.154 0.192 0.250
61 0.086 0.113 0.141 0.183 0.225 0.288
62 0.105 0.138 0.171 0.218 0.266 0.334
63 0.103 0.135 0.167 0.215 0.262 0.329
64 0.109 0.143 0.177 0.226 0.275 0.344
65 0.134 0.174 0.215 0.270 0.326 0.401
66 0.147 0.191 0.235 0.294 0.354 0.433
67 0.121 0.158 0.196 0.248 0.300 0.372
68 0.113 0.147 0.182 0.232 0.282 0.352
69 0.117 0.153 0.189 0.240 0.291 0.362
70 0.141 0.183 0.226 0.283 0.341 0.418
Public Agency Miscellaneous 3% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.012 0.018 0.024 0.039 0.040 0.091
51 0.009 0.014 0.019 0.034 0.034 0.084
52 0.014 0.020 0.026 0.043 0.044 0.096
53 0.016 0.023 0.031 0.048 0.050 0.102
54 0.026 0.036 0.045 0.065 0.070 0.125
55 0.043 0.057 0.072 0.096 0.105 0.165
56 0.042 0.056 0.070 0.094 0.103 0.162
57 0.049 0.065 0.082 0.108 0.119 0.180
58 0.057 0.076 0.094 0.122 0.136 0.199
59 0.076 0.100 0.123 0.157 0.175 0.244
60 0.114 0.148 0.182 0.226 0.255 0.334
61 0.095 0.123 0.152 0.190 0.214 0.288
62 0.133 0.172 0.211 0.260 0.294 0.378
63 0.129 0.166 0.204 0.252 0.285 0.368
64 0.143 0.185 0.226 0.278 0.315 0.401
65 0.202 0.260 0.318 0.386 0.439 0.542
66 0.177 0.228 0.279 0.340 0.386 0.482
67 0.151 0.194 0.238 0.292 0.331 0.420
68 0.139 0.179 0.220 0.270 0.306 0.391
69 0.190 0.245 0.299 0.364 0.414 0.513
70 0.140 0.182 0.223 0.274 0.310 0.396
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-14
Service Retirement
Public Agency Miscellaneous 2% @ 62
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.000 0.000 0.000 0.000 0.000 0.000
51 0.000 0.000 0.000 0.000 0.000 0.000
52 0.010 0.013 0.016 0.019 0.022 0.024
53 0.013 0.017 0.020 0.024 0.027 0.031
54 0.021 0.027 0.033 0.039 0.045 0.050
55 0.044 0.056 0.068 0.080 0.092 0.104
56 0.030 0.039 0.047 0.055 0.063 0.072
57 0.036 0.046 0.056 0.066 0.076 0.086
58 0.046 0.059 0.072 0.085 0.097 0.110
59 0.058 0.074 0.089 0.105 0.121 0.137
60 0.062 0.078 0.095 0.112 0.129 0.146
61 0.062 0.079 0.096 0.113 0.129 0.146
62 0.097 0.123 0.150 0.176 0.202 0.229
63 0.089 0.113 0.137 0.162 0.186 0.210
64 0.094 0.120 0.145 0.171 0.197 0.222
65 0.129 0.164 0.199 0.234 0.269 0.304
66 0.105 0.133 0.162 0.190 0.219 0.247
67 0.105 0.133 0.162 0.190 0.219 0.247
68 0.105 0.133 0.162 0.190 0.219 0.247
69 0.105 0.133 0.162 0.190 0.219 0.247
70 0.125 0.160 0.194 0.228 0.262 0.296
Service Retirement
Public Agency Fire ½ @ 55 and 2% @ 55
Age Rate
Age Rate
50 0.0159 56 0.1108
51 0.0000 57 0.0000
52 0.0344 58 0.0950
53 0.0199 59 0.0441
54 0.0413 60 1.00000
55 0.0751
Public Agency Police ½ @ 55 and 2% @ 55
Age Rate
Age Rate
50 0.0255 56 0.0692
51 0.0000 57 0.0511
52 0.0164 58 0.0724
53 0.0272 59 0.0704
54 0.0095 60 1.0000
55 0.1667
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-15
Service Retirement
Public Agency Police 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.005 0.005 0.005 0.005 0.017 0.089
51 0.005 0.005 0.005 0.005 0.017 0.087
52 0.018 0.018 0.018 0.018 0.042 0.132
53 0.044 0.044 0.044 0.044 0.090 0.217
54 0.065 0.065 0.065 0.065 0.126 0.283
55 0.086 0.086 0.086 0.086 0.166 0.354
56 0.067 0.067 0.067 0.067 0.130 0.289
57 0.066 0.066 0.066 0.066 0.129 0.288
58 0.066 0.066 0.066 0.066 0.129 0.288
59 0.139 0.139 0.139 0.139 0.176 0.312
60 0.123 0.123 0.123 0.123 0.153 0.278
61 0.110 0.110 0.110 0.110 0.138 0.256
62 0.130 0.130 0.130 0.130 0.162 0.291
63 0.130 0.130 0.130 0.130 0.162 0.291
64 0.130 0.130 0.130 0.130 0.162 0.291
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.009 0.009 0.009 0.009 0.013 0.020
51 0.013 0.013 0.013 0.013 0.020 0.029
52 0.018 0.018 0.018 0.018 0.028 0.042
53 0.052 0.052 0.052 0.052 0.079 0.119
54 0.067 0.067 0.067 0.067 0.103 0.154
55 0.089 0.089 0.089 0.089 0.136 0.204
56 0.083 0.083 0.083 0.083 0.127 0.190
57 0.082 0.082 0.082 0.082 0.126 0.189
58 0.088 0.088 0.088 0.088 0.136 0.204
59 0.074 0.074 0.074 0.074 0.113 0.170
60 0.100 0.100 0.100 0.100 0.154 0.230
61 0.072 0.072 0.072 0.072 0.110 0.165
62 0.099 0.099 0.099 0.099 0.152 0.228
63 0.114 0.114 0.114 0.114 0.175 0.262
64 0.114 0.114 0.114 0.114 0.175 0.262
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-16
Service Retirement
Public Agency Police 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.004 0.004 0.004 0.004 0.015 0.086
51 0.014 0.014 0.014 0.014 0.034 0.114
52 0.026 0.026 0.026 0.026 0.060 0.154
53 0.038 0.038 0.038 0.038 0.083 0.188
54 0.071 0.071 0.071 0.071 0.151 0.292
55 0.061 0.061 0.061 0.061 0.131 0.261
56 0.072 0.072 0.072 0.072 0.153 0.295
57 0.065 0.065 0.065 0.065 0.140 0.273
58 0.066 0.066 0.066 0.066 0.142 0.277
59 0.118 0.118 0.118 0.118 0.247 0.437
60 0.065 0.065 0.065 0.065 0.138 0.272
61 0.084 0.084 0.084 0.084 0.178 0.332
62 0.108 0.108 0.108 0.108 0.226 0.405
63 0.084 0.084 0.084 0.084 0.178 0.332
64 0.084 0.084 0.084 0.084 0.178 0.332
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.001 0.001 0.001 0.006 0.016 0.069
51 0.002 0.002 0.002 0.006 0.018 0.071
52 0.012 0.012 0.012 0.021 0.040 0.098
53 0.032 0.032 0.032 0.049 0.085 0.149
54 0.057 0.057 0.057 0.087 0.144 0.217
55 0.073 0.073 0.073 0.109 0.179 0.259
56 0.064 0.064 0.064 0.097 0.161 0.238
57 0.063 0.063 0.063 0.095 0.157 0.233
58 0.065 0.065 0.065 0.099 0.163 0.241
59 0.088 0.088 0.088 0.131 0.213 0.299
60 0.105 0.105 0.105 0.155 0.251 0.344
61 0.118 0.118 0.118 0.175 0.282 0.380
62 0.087 0.087 0.087 0.128 0.210 0.295
63 0.067 0.067 0.067 0.100 0.165 0.243
64 0.067 0.067 0.067 0.100 0.165 0.243
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-17
Service Retirement
Public Agency Police 3% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.050 0.050 0.050 0.099 0.240 0.314
51 0.034 0.034 0.034 0.072 0.198 0.260
52 0.033 0.033 0.033 0.071 0.198 0.259
53 0.039 0.039 0.039 0.080 0.212 0.277
54 0.045 0.045 0.045 0.092 0.229 0.300
55 0.052 0.052 0.052 0.105 0.248 0.323
56 0.042 0.042 0.042 0.087 0.221 0.289
57 0.043 0.043 0.043 0.088 0.223 0.292
58 0.054 0.054 0.054 0.109 0.255 0.333
59 0.054 0.054 0.054 0.108 0.253 0.330
60 0.060 0.060 0.060 0.121 0.272 0.355
61 0.048 0.048 0.048 0.098 0.238 0.311
62 0.061 0.061 0.061 0.122 0.274 0.357
63 0.057 0.057 0.057 0.115 0.263 0.343
64 0.069 0.069 0.069 0.137 0.296 0.385
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 3% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.020 0.020 0.020 0.040 0.130 0.192
51 0.008 0.008 0.008 0.023 0.107 0.164
52 0.023 0.023 0.023 0.043 0.136 0.198
53 0.023 0.023 0.023 0.043 0.135 0.198
54 0.027 0.027 0.027 0.048 0.143 0.207
55 0.043 0.043 0.043 0.070 0.174 0.244
56 0.053 0.053 0.053 0.085 0.196 0.269
57 0.054 0.054 0.054 0.086 0.197 0.271
58 0.052 0.052 0.052 0.084 0.193 0.268
59 0.075 0.075 0.075 0.116 0.239 0.321
60 0.065 0.065 0.065 0.102 0.219 0.298
61 0.076 0.076 0.076 0.117 0.241 0.324
62 0.068 0.068 0.068 0.106 0.224 0.304
63 0.027 0.027 0.027 0.049 0.143 0.208
64 0.094 0.094 0.094 0.143 0.277 0.366
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-18
Service Retirement
Public Agency Police 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.011 0.011 0.011 0.011 0.020 0.036
51 0.009 0.009 0.009 0.009 0.016 0.028
52 0.018 0.018 0.018 0.018 0.034 0.060
53 0.037 0.037 0.037 0.037 0.067 0.119
54 0.049 0.049 0.049 0.049 0.089 0.159
55 0.063 0.063 0.063 0.063 0.115 0.205
56 0.045 0.045 0.045 0.045 0.082 0.146
57 0.064 0.064 0.064 0.064 0.117 0.209
58 0.047 0.047 0.047 0.047 0.086 0.154
59 0.105 0.105 0.105 0.105 0.130 0.191
60 0.105 0.105 0.105 0.105 0.129 0.188
61 0.105 0.105 0.105 0.105 0.129 0.188
62 0.105 0.105 0.105 0.105 0.129 0.188
63 0.105 0.105 0.105 0.105 0.129 0.188
64 0.105 0.105 0.105 0.105 0.129 0.188
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.005 0.005 0.005 0.005 0.008 0.012
51 0.006 0.006 0.006 0.006 0.009 0.013
52 0.012 0.012 0.012 0.012 0.019 0.028
53 0.033 0.033 0.033 0.033 0.050 0.075
54 0.045 0.045 0.045 0.045 0.069 0.103
55 0.061 0.061 0.061 0.061 0.094 0.140
56 0.055 0.055 0.055 0.055 0.084 0.126
57 0.081 0.081 0.081 0.081 0.125 0.187
58 0.059 0.059 0.059 0.059 0.091 0.137
59 0.055 0.055 0.055 0.055 0.084 0.126
60 0.085 0.085 0.085 0.085 0.131 0.196
61 0.085 0.085 0.085 0.085 0.131 0.196
62 0.085 0.085 0.085 0.085 0.131 0.196
63 0.085 0.085 0.085 0.085 0.131 0.196
64 0.085 0.085 0.085 0.085 0.131 0.196
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-19
Service Retirement
Public Agency Police 2.5% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.014 0.014 0.014 0.014 0.025 0.045
51 0.012 0.012 0.012 0.012 0.021 0.038
52 0.025 0.025 0.025 0.025 0.046 0.081
53 0.047 0.047 0.047 0.047 0.086 0.154
54 0.063 0.063 0.063 0.063 0.115 0.205
55 0.076 0.076 0.076 0.076 0.140 0.249
56 0.054 0.054 0.054 0.054 0.099 0.177
57 0.071 0.071 0.071 0.071 0.130 0.232
58 0.057 0.057 0.057 0.057 0.103 0.184
59 0.126 0.126 0.126 0.126 0.156 0.229
60 0.126 0.126 0.126 0.126 0.155 0.226
61 0.126 0.126 0.126 0.126 0.155 0.226
62 0.126 0.126 0.126 0.126 0.155 0.226
63 0.126 0.126 0.126 0.126 0.155 0.226
64 0.126 0.126 0.126 0.126 0.155 0.226
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 2.5% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.007 0.007 0.007 0.007 0.010 0.015
51 0.008 0.008 0.008 0.008 0.012 0.018
52 0.016 0.016 0.016 0.016 0.025 0.038
53 0.042 0.042 0.042 0.042 0.064 0.096
54 0.057 0.057 0.057 0.057 0.088 0.132
55 0.074 0.074 0.074 0.074 0.114 0.170
56 0.066 0.066 0.066 0.066 0.102 0.153
57 0.090 0.090 0.090 0.090 0.139 0.208
58 0.071 0.071 0.071 0.071 0.110 0.164
59 0.066 0.066 0.066 0.066 0.101 0.151
60 0.102 0.102 0.102 0.102 0.157 0.235
61 0.102 0.102 0.102 0.102 0.157 0.236
62 0.102 0.102 0.102 0.102 0.157 0.236
63 0.102 0.102 0.102 0.102 0.157 0.236
64 0.102 0.102 0.102 0.102 0.157 0.236
65 1.000 1.000 1.000 1.000 1.000 1.000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-20
Service Retirement
Public Agency Police 2.7% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0138 0.0138 0.0138 0.0138 0.0253 0.0451
51 0.0123 0.0123 0.0123 0.0123 0.0226 0.0402
52 0.0249 0.0249 0.0249 0.0249 0.0456 0.0812
53 0.0497 0.0497 0.0497 0.0497 0.0909 0.1621
54 0.0662 0.0662 0.0662 0.0662 0.1211 0.2160
55 0.0854 0.0854 0.0854 0.0854 0.1563 0.2785
56 0.0606 0.0606 0.0606 0.0606 0.1108 0.1975
57 0.0711 0.0711 0.0711 0.0711 0.1300 0.2318
58 0.0628 0.0628 0.0628 0.0628 0.1149 0.2049
59 0.1396 0.1396 0.1396 0.1396 0.1735 0.2544
60 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
61 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
62 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
63 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
64 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
These rates also apply to Local Prosecutors, Local Sheriff, School Police, and Other Safety.
Service Retirement
Public Agency Fire 2.7% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0065 0.0065 0.0065 0.0065 0.0101 0.0151
51 0.0081 0.0081 0.0081 0.0081 0.0125 0.0187
52 0.0164 0.0164 0.0164 0.0164 0.0254 0.0380
53 0.0442 0.0442 0.0442 0.0442 0.0680 0.1018
54 0.0606 0.0606 0.0606 0.0606 0.0934 0.1397
55 0.0825 0.0825 0.0825 0.0825 0.1269 0.1900
56 0.0740 0.0740 0.0740 0.0740 0.1140 0.1706
57 0.0901 0.0901 0.0901 0.0901 0.1387 0.2077
58 0.0790 0.0790 0.0790 0.0790 0.1217 0.1821
59 0.0729 0.0729 0.0729 0.0729 0.1123 0.1681
60 0.1135 0.1135 0.1135 0.1135 0.1747 0.2615
61 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
62 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
63 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
64 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-21
Service Retirement
Schools 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.005 0.009 0.013 0.015 0.016 0.018
51 0.005 0.010 0.014 0.017 0.019 0.021
52 0.006 0.012 0.017 0.020 0.022 0.025
53 0.007 0.014 0.019 0.023 0.026 0.029
54 0.012 0.024 0.033 0.039 0.044 0.049
55 0.024 0.048 0.067 0.079 0.088 0.099
56 0.020 0.039 0.055 0.065 0.072 0.081
57 0.021 0.042 0.059 0.070 0.078 0.087
58 0.025 0.050 0.070 0.083 0.092 0.103
59 0.029 0.057 0.080 0.095 0.105 0.118
60 0.037 0.073 0.102 0.121 0.134 0.150
61 0.046 0.090 0.126 0.149 0.166 0.186
62 0.076 0.151 0.212 0.250 0.278 0.311
63 0.069 0.136 0.191 0.225 0.251 0.281
64 0.067 0.133 0.185 0.219 0.244 0.273
65 0.091 0.180 0.251 0.297 0.331 0.370
66 0.072 0.143 0.200 0.237 0.264 0.295
67 0.067 0.132 0.185 0.218 0.243 0.272
68 0.060 0.118 0.165 0.195 0.217 0.243
69 0.067 0.133 0.187 0.220 0.246 0.275
70 0.066 0.131 0.183 0.216 0.241 0.270
Miscellaneous
Internal Revenue Code Section 415
The limitations on benefits imposed by Internal Revenue Code Section 415 are taken into account in this
valuation. Each year the impact of any changes in this limitation since the prior valuation is included and
amortized as part of the actuarial gain or loss base. This results in lower contributions for those employers
contributing to the Replacement Benefit Fund and protects CalPERS from prefunding expected benefits in
excess of limits imposed by federal tax law.
Internal Revenue Code Section 401(a)(17)
The limitations on compensation imposed by Internal Revenue Code Section 401(a)(17) are taken into
account in this valuation. Each year, the impact of any changes in the compensation limitation since the
prior valuation is included and amortized as part of the actuarial gain or loss base. The compensation limit
for classic members for the 2016 calendar year is $265,000.
APPENDIX B
PRINCIPAL PLAN PROVISIONS
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-1
The following is a description of the principal plan provisions used in calculating costs and liabilities. We have
indicated whether a plan provision is standard or optional. Standard benefits are applicable to all members while
optional benefits vary among employers. Optional benefits that apply to a single period of time, such as Golden
Handshakes, have not been included. Many of the statements in this summary are general in nature, and are
intended to provide an easily understood summary of the Public Employees’ Retirement Law. The law itself governs in all situations.
Service Retirement
Eligibility
A classic CalPERS member or PEPRA Safety member becomes eligible for Service Retirement upon attainment of age
50 with at least 5 years of credited service (total service across all CalPERS employers, and with certain other
retirement systems with which CalPERS has reciprocity agreements). For employees hired into a plan with the 1.5
percent at 65 formula, eligibility for service retirement is age 55 with at least 5 years of service. PEPRA miscellaneous
members become eligible for service retirement upon attainment of age 52 with at least 5 years of service.
Benefit
The service retirement benefit is a monthly allowance equal to the product of the benefit factor, years of service, and
final compensation.
The benefit factor depends on the benefit formula specified in your agency’s contract. The table below shows
the factors for each of the available formulas. Factors vary by the member’s age at retirement. Listed are the
factors for retirement at whole year ages:
Miscellaneous Plan Formulas
Retirement
Age
1.5% at
65 2% at 60 2% at 55 2.5% at
55
2.7% at
55 3% at 60
PEPRA
2% at 62
50 0.5000% 1.092% 1.426% 2.000% 2.000% 2.000% N/A
51 0.5667% 1.156% 1.522% 2.100% 2.140% 2.100% N/A
52 0.6334% 1.224% 1.628% 2.200% 2.280% 2.200% 1.000%
53 0.7000% 1.296% 1.742% 2.300% 2.420% 2.300% 1.100%
54 0.7667% 1.376% 1.866% 2.400% 2.560% 2.400% 1.200%
55 0.8334% 1.460% 2.000% 2.500% 2.700% 2.500% 1.300%
56 0.9000% 1.552% 2.052% 2.500% 2.700% 2.600% 1.400%
57 0.9667% 1.650% 2.104% 2.500% 2.700% 2.700% 1.500%
58 1.0334% 1.758% 2.156% 2.500% 2.700% 2.800% 1.600%
59 1.1000% 1.874% 2.210% 2.500% 2.700% 2.900% 1.700%
60 1.1667% 2.000% 2.262% 2.500% 2.700% 3.000% 1.800%
61 1.2334% 2.134% 2.314% 2.500% 2.700% 3.000% 1.900%
62 1.3000% 2.272% 2.366% 2.500% 2.700% 3.000% 2.000%
63 1.3667% 2.418% 2.418% 2.500% 2.700% 3.000% 2.100%
64 1.4334% 2.418% 2.418% 2.500% 2.700% 3.000% 2.200%
65 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.300%
66 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.400%
67 & up 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.500%
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-2
Safety Plan Formulas
Retirement
Age ½ at 55 * 2% at 55 2% at 50 3% at 55 3% at 50
50 1.783% 1.426% 2.000% 2.400% 3.000%
51 1.903% 1.522% 2.140% 2.520% 3.000%
52 2.035% 1.628% 2.280% 2.640% 3.000%
53 2.178% 1.742% 2.420% 2.760% 3.000%
54 2.333% 1.866% 2.560% 2.880% 3.000%
55 & Up 2.500% 2.000% 2.700% 3.000% 3.000%
* For this formula, the benefit factor also varies by entry age. The factors shown are for members with an entry age
of 35 or greater. If entry age is less than 35, then the age 55 benefit factor is 50 percent divided by the difference
between age 55 and entry age. The benefit factor for ages prior to age 55 is the same proportion of the age 55
benefit factor as in the above table.
PEPRA Safety Plan Formulas
Retirement Age 2% at 57 2.5% at 57 2.7% at 57
50 1.426% 2.000% 2.000%
51 1.508% 2.071% 2.100%
52 1.590% 2.143% 2.200%
53 1.672% 2.214% 2.300%
54 1.754% 2.286% 2.400%
55 1.836% 2.357% 2.500%
56 1.918% 2.429% 2.600%
57 & Up 2.000% 2.500% 2.700%
The years of service is the amount credited by CalPERS to a member while he or she is employed in this group
(or for other periods that are recognized under the employer’s contract with CalPERS). For a member who has
earned service with multiple CalPERS employers, the benefit from each employer is calculated separately
according to each employer’s contract, and then added together for the total allowance. An agency may contract
for an optional benefit where any unused sick leave accumulated at the time of retirement will be converted to
credited service at a rate of 0.004 years of service for each day of sick leave.
The final compensation is the monthly average of the member’s highest 36 or 12 consecutive months’ full-time
equivalent monthly pay (no matter which CalPERS employer paid this compensation). The standard benefit is 36 months. Employers had the option of providing a final compensation equal to the highest 12 consecutive months
for classic plans only. Final compensation must be defined by the highest 36 consecutive months’ pay under the
1.5% at 65 formula. PEPRA members have a cap on the annual salary that can be used to calculate final
compensation for all new members based on the Social Security contribution and benefit base. For employees
that participate in Social Security this cap is $118,775 for 2016 and for those employees that do not participate
in Social Security the cap for 2016 is $142,530. Adjustments to the caps are permitted annually based on
changes to the CPI for all urban consumers.
Employees must be covered by Social Security with the 1.5% at 65 formula. Social Security is optional for all
other benefit formulas. For employees covered by Social Security, the modified formula is the standard benefit.
Under this type of formula, the final compensation is offset by $133.33 (or by one third if the final compensation
is less than $400). Employers may contract for the full benefit with Social Security that will eliminate the offset
applicable to the final compensation. For employees not covered by Social Security, the full benefit is paid with
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-3
no offsets. Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the offset is $317 if members are not covered by Social Security or $513 if members are covered by Social Security.
The miscellaneous and PEPRA safety service retirement benefit is not capped. The classic Safety service
retirement benefit is capped at 90 percent of final compensation.
Vested Deferred Retirement
Eligibility for Deferred Status
A CalPERS member becomes eligible for a deferred vested retirement benefit when he or she leaves employment,
keeps his or her contribution account balance on deposit with CalPERS, and has earned at least 5 years of credited
service (total service across all CalPERS employers, and with certain other retirement systems with which CalPERS
has reciprocity agreements).
Eligibility to Start Receiving Benefits
The CalPERS classic members and PEPRA safety members become eligible to receive the deferred retirement benefit
upon satisfying the eligibility requirements for deferred status and upon attainment of age 50 (55 for employees
hired into a 1.5% @ 65 plan). PEPRA miscellaneous members become eligible to receive the deferred retirement
benefit upon satisfying the eligibility requirements for deferred status and upon attainment of age 52.
Benefit
The vested deferred retirement benefit is the same as the service retirement benefit, where the benefit factor is
based on the member’s age at allowance commencement. For members who have earned service with multiple
CalPERS employers, the benefit from each employer is calculated separately according to each employer’s contract,
and then added together for the total allowance.
Non-Industrial (Non-Job Related) Disability Retirement
Eligibility
A CalPERS member is eligible for Non-Industrial Disability Retirement if he or she becomes disabled and has at least 5 years of credited service (total service across all CalPERS employers, and with certain other retirement systems
with which CalPERS has reciprocity agreements). There is no special age requirement. Disabled means the member is
unable to perform his or her job because of an illness or injury, which is expected to be permanent or to last
indefinitely. The illness or injury does not have to be job related. A CalPERS member must be actively employed by
any CalPERS employer at the time of disability in order to be eligible for this benefit.
Standard Benefit
The standard Non-Industrial Disability Retirement benefit is a monthly allowance equal to 1.8 percent of final
compensation, multiplied by service, which is determined as follows:
Service is CalPERS credited service, for members with less than 10 years of service or greater than 18.518 years
of service; or
Service is CalPERS credited service plus the additional number of years that the member would have worked
until age 60, for members with at least 10 years but not more than 18.518 years of service. The maximum benefit in this case is 33 1/3 percent of final compensation.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-4
Improved Benefit
Employers have the option of providing the improved Non-Industrial Disability Retirement benefit. This benefit
provides a monthly allowance equal to 30 percent of final compensation for the first 5 years of service, plus 1 percent
for each additional year of service to a maximum of 50 percent of final compensation.
Members who are eligible for a larger service retirement benefit may choose to receive that benefit in lieu of a
disability benefit. Members eligible to retire, and who have attained the normal retirement age determined by their
service retirement benefit formula, will receive the same dollar amount for disability retirement as that payable for
service retirement. For members who have earned service with multiple CalPERS employers, the benefit attributed to
each employer is the total disability allowance multiplied by the ratio of service with a particular employer to the total
CalPERS service.
Industrial (Job Related) Disability Retirement
All safety members have this benefit. For miscellaneous members, employers have the option of providing this benefit. An employer may choose to provide the increased benefit option or the improved benefit option.
Eligibility
An employee is eligible for Industrial Disability Retirement if he or she becomes disabled while working, where
disabled means the member is unable to perform the duties of the job because of a work-related illness or injury,
which is expected to be permanent or to last indefinitely. A CalPERS member who has left active employment within
this group is not eligible for this benefit, except to the extent described below.
Standard Benefit
The standard Industrial Disability Retirement benefit is a monthly allowance equal to 50 percent of final
compensation.
Increased Benefit (75 percent of Final Compensation)
The increased Industrial Disability Retirement benefit is a monthly allowance equal to 75 percent final compensation
for total disability.
Improved Benefit (50 percent to 90 percent of Final Compensation)
The improved Industrial Disability Retirement benefit is a monthly allowance equal to the Workman’s Compensation Appeals Board permanent disability rate percentage (if 50 percent or greater, with a maximum of 90 percent) times
the final compensation.
For a CalPERS member not actively employed in this group who became disabled while employed by some other
CalPERS employer, the benefit is a return of accumulated member contributions with respect to employment in this
group. With the standard or increased benefit, a member may also choose to receive the annuitization of the
accumulated member contributions.
If a member is eligible for service retirement and if the service retirement benefit is more than the industrial disability
retirement benefit, the member may choose to receive the larger benefit.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-5
Post-Retirement Death Benefit
Standard Lump Sum Payment
Upon the death of a retiree, a one-time lump sum payment of $500 will be made to the retiree’s designated
survivor(s), or to the retiree’s estate.
Improved Lump Sum Payment
Employers have the option of providing an improved lump sum death benefit of $600, $2,000, $3,000, $4,000 or $5,000.
Form of Payment for Retirement Allowance
Standard Form of Payment
Generally, the retirement allowance is paid to the retiree in the form of an annuity for as long as he or she is alive.
The retiree may choose to provide for a portion of his or her allowance to be paid to any designated beneficiary after
the retiree’s death. CalPERS provides for a variety of such benefit options, which the retiree pays for by taking a
reduction in his or her retirement allowance. Such reduction takes into account the amount to be provided to the
beneficiary and the probable duration of payments (based on the ages of the member and beneficiary) made subsequent to the member’s death.
Improved Form of Payment (Post-Retirement Survivor Allowance)
Employers have the option to contract for the post-retirement survivor allowance.
For retirement allowances with respect to service subject to the modified formula, 25 percent of the retirement
allowance will automatically be continued to certain statutory beneficiaries upon the death of the retiree, without a reduction in the retiree’s allowance. For retirement allowances with respect to service subject to the full or
supplemental formula, 50 percent of the retirement allowance will automatically be continued to certain statutory
beneficiaries upon the death of the retiree, without a reduction in the retiree’s allowance. This additional benefit is
referred to as post-retirement survivor allowance (PRSA) or simply as survivor continuance.
In other words, 25 percent or 50 percent of the allowance, the continuance portion, is paid to the retiree for as long
as he or she is alive, and that same amount is continued to the retiree’s spouse (or if no eligible spouse, to unmarried child(ren) until they attain age 18; or, if no eligible child(ren), to a qualifying dependent parent) for the
rest of his or her lifetime. This benefit will not be discontinued in the event the spouse remarries.
The remaining 75 percent or 50 percent of the retirement allowance, which may be referred to as the option portion
of the benefit, is paid to the retiree as an annuity for as long as he or she is alive. Or, the retiree may choose to
provide for some of this option portion to be paid to any designated beneficiary after the retiree’s death. Benefit
options applicable to the option portion are the same as those offered with the standard form. The reduction is calculated in the same manner but is applied only to the option portion.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-6
Pre-Retirement Death Benefits
Basic Death Benefit
This is a standard benefit.
Eligibility
An employee’s beneficiary (or estate) may receive the basic death benefit if the member dies while actively
employed. A CalPERS member must be actively employed with the CalPERS employer providing this benefit to be
eligible for this benefit. A member’s survivor who is eligible for any other pre-retirement death benefit may choose to
receive that death benefit instead of this basic death benefit.
Benefit
The basic death benefit is a lump sum in the amount of the member’s accumulated contributions, where interest is
currently credited at 7.5 percent per year, plus a lump sum in the amount of one month's salary for each completed
year of current service, up to a maximum of six months' salary. For purposes of this benefit, one month's salary is
defined as the member's average monthly full-time rate of compensation during the 12 months preceding death.
1957 Survivor Benefit
This is a standard benefit.
Eligibility
An employee’s eligible survivor(s) may receive the 1957 Survivor benefit if the member dies while actively employed,
has attained at least age 50 for classic and safety PEPRA members and age 52 for miscellaneous PEPRA members,
and has at least 5 years of credited service (total service across all CalPERS employers and with certain other
retirement systems with which CalPERS has reciprocity agreements). A CalPERS member must be actively employed
with the CalPERS employer providing this benefit to be eligible for this benefit. An eligible survivor means the surviving spouse to whom the member was married at least one year before death or, if there is no eligible spouse,
to the member's unmarried child(ren) under age 18. A member’s survivor who is eligible for any other pre-retirement
death benefit may choose to receive that death benefit instead of this 1957 Survivor benefit.
Benefit
The 1957 Survivor benefit is a monthly allowance equal to one-half of the unmodified service retirement benefit that the member would have been entitled to receive if the member had retired on the date of his or her death. If the
benefit is payable to the spouse, the benefit is discontinued upon the death of the spouse. If the benefit is payable to
dependent child(ren), the benefit will be discontinued upon death or attainment of age 18, unless the child(ren) is
disabled. The total amount paid will be at least equal to the basic death benefit.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-7
Optional Settlement 2W Death Benefit
This is an optional benefit.
Eligibility
An employee’s eligible survivor may receive the Optional Settlement 2W Death benefit if the member dies while
actively employed, has attained at least age 50 for classic and safety PEPRA members and age 52 for miscellaneous
PEPRA members, and has at least 5 years of credited service (total service across all CalPERS employers and with
certain other retirement systems with which CalPERS has reciprocity agreements). A CalPERS member who is no longer actively employed with any CalPERS employer is not eligible for this benefit. An eligible survivor means the
surviving spouse to whom the member was married at least one year before death. A member’s survivor who is
eligible for any other pre-retirement death benefit may choose to receive that death benefit instead of this Optional
Settlement 2W Death benefit.
Benefit
The Optional Settlement 2W Death benefit is a monthly allowance equal to the service retirement benefit that the
member would have received had the member retired on the date of his or her death and elected Optional
Settlement 2W. (A retiree who elects Optional Settlement 2W receives an allowance that has been reduced so that it
will continue to be paid after his or her death to a surviving beneficiary.) The allowance is payable as long as the
surviving spouse lives, at which time it is continued to any unmarried child(ren) under age 18, if applicable. The total
amount paid will be at least equal to the basic death benefit.
Special Death Benefit
This is a standard benefit for safety members. An employer may elect to provide this benefit for miscellaneous
members.
Eligibility
An employee’s eligible survivor(s) may receive the special death benefit if the member dies while actively employed
and the death is job-related. A CalPERS member who is no longer actively employed with any CalPERS employer is not eligible for this benefit. An eligible survivor means the surviving spouse to whom the member was married prior
to the onset of the injury or illness that resulted in death. If there is no eligible spouse, an eligible survivor means the
member's unmarried child(ren) under age 22. An eligible survivor who chooses to receive this benefit will not receive
any other death benefit.
Benefit
The special death benefit is a monthly allowance equal to 50 percent of final compensation, and will be increased whenever the compensation paid to active employees is increased but ceasing to increase when the member would
have attained age 50. The allowance is payable to the surviving spouse until death at which time the allowance is
continued to any unmarried child(ren) under age 22. There is a guarantee that the total amount paid will at least
equal the basic death benefit.
If the member’s death is the result of an accident or injury caused by external violence or physical force incurred in
the performance of the member’s duty, and there are eligible surviving child(ren) (eligible means unmarried child(ren) under age 22) in addition to an eligible spouse, then an additional monthly allowance is paid equal to
the following:
if 1 eligible child: 12.5 percent of final compensation
if 2 eligible children: 20.0 percent of final compensation
if 3 or more eligible children: 25.0 percent of final compensation
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-8
Alternate Death Benefit for Local Fire Members
This is an optional benefit available only to local fire members.
Eligibility
An employee’s eligible survivor(s) may receive the alternate death benefit in lieu of the basic death benefit or the
1957 Survivor benefit if the member dies while actively employed and has at least 20 years of total CalPERS service.
A CalPERS member who is no longer actively employed with any CalPERS employer is not eligible for this benefit. An
eligible survivor means the surviving spouse to whom the member was married prior to the onset of the injury or illness that resulted in death. If there is no eligible spouse, an eligible survivor means the member's unmarried
child(ren) under age 18.
Benefit
The Alternate Death benefit is a monthly allowance equal to the service retirement benefit that the member would
have received had the member retired on the date of his or her death and elected Optional Settlement 2W. (A retiree who elects Optional Settlement 2W receives an allowance that has been reduced so that it will continue to be paid
after his or her death to a surviving beneficiary.) If the member has not yet attained age 50, the benefit is equal to
that which would be payable if the member had retired at age 50, based on service credited at the time of death.
The allowance is payable as long as the surviving spouse lives, at which time it is continued to any unmarried
child(ren) under age 18, if applicable. The total amount paid will be at least equal to the basic death benefit.
Cost-of-Living Adjustments (COLA)
Standard Benefit
Retirement and survivor allowances are adjusted each year in May for cost of living, beginning the second calendar year after the year of retirement. The standard cost-of-living adjustment (COLA) is 2 percent. Annual adjustments
are calculated by first determining the lesser of 1) 2 percent compounded from the end of the year of retirement or
2) actual rate of inflation. The resulting increase is divided by the total increase provided in prior years. For any
particular year, the COLA adjustment may be less than 2 percent (when the rate of inflation is low), may be greater
than the rate of inflation (when the rate of inflation is low after several years of high inflation) or may even be
greater than 2 percent (when inflation is high after several years of low inflation).
Improved Benefit
Employers have the option of providing a COLA of 3 percent, 4 percent, or 5 percent, determined in the same
manner as described above for the standard 2 percent COLA. An improved COLA is not available with the 1.5% at 65
formula.
Purchasing Power Protection Allowance (PPPA)
Retirement and survivor allowances are protected against inflation by PPPA. PPPA benefits are cost-of-living adjustments that are intended to maintain an individual’s allowance at 80 percent of the initial allowance at
retirement adjusted for inflation since retirement. The PPPA benefit will be coordinated with other cost-of-living
adjustments provided under the plan.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-9
Employee Contributions
Each employee contributes toward his or her retirement based upon the retirement formula. The standard employee
contribution is as described below.
The percent contributed below the monthly compensation breakpoint is 0 percent.
The monthly compensation breakpoint is $0 for full and supplemental formula members and $133.33 for
employees covered by the modified formula.
The percent contributed above the monthly compensation breakpoint depends upon the benefit formula, as
shown in the table below.
Benefit Formula Percent Contributed above the
Breakpoint
Miscellaneous, 1.5% at 65 2%
Miscellaneous, 2% at 60 7%
Miscellaneous, 2% at 55 7%
Miscellaneous, 2.5% at 55 8%
Miscellaneous, 2.7% at 55 8%
Miscellaneous, 3% at 60 8%
Miscellaneous, 2% at 62 50% of the Total Normal Cost
Miscellaneous, 1.5% at 65 50% of the Total Normal Cost
Safety, 1/2 at 55 Varies by entry age
Safety, 2% at 55 7%
Safety, 2% at 50 9%
Safety, 3% at 55 9%
Safety, 3% at 50 9%
Safety, 2% at 57 50% of the Total Normal Cost
Safety, 2.5% at 57 50% of the Total Normal Cost
Safety, 2.7% at 57 50% of the Total Normal Cost
The employer may choose to “pick-up” these contributions for classic members (Employer Paid Member Contributions
or EPMC). EPMC is prohibited for new PEPRA members.
An employer may also include Employee Cost Sharing in the contract, where employees agree to share the cost of the employer contribution. These contributions are paid in addition to the member contribution.
Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the offset is $317 and
the contribution rate is 6 percent if members are not covered by Social Security. If members are covered by Social
Security, the offset is $513 and the contribution rate is 5 percent.
Refund of Employee Contributions
If the member’s service with the employer ends, and if the member does not satisfy the eligibility conditions for any of the retirement benefits above, the member may elect to receive a refund of his or her employee contributions,
which are credited with 6 percent interest compounded annually.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-10
1959 Survivor Benefit
This is a pre-retirement death benefit available only to members not covered by Social Security. Any agency joining
CalPERS subsequent to 1993 is required to provide this benefit if the members are not covered by Social Security.
The benefit is optional for agencies joining CalPERS prior to 1994. Levels 1, 2 and 3 are now closed. Any new agency
or any agency wishing to add this benefit or increase the current level may only choose the 4th or Indexed Level.
This benefit is not included in the results presented in this valuation. More information on this benefit is available on
the CalPERS website at www.calpers.ca.gov.
APPENDIX C
PARTICIPANT DATA
SUMMARY OF VALUATION DATA
ACTIVE MEMBERS
TRANSFERRED AND TERMINATED MEMBERS
RETIRED MEMBERS AND BENEFICIARIES
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-1
Summary of Valuation Data
June 30, 2015 June 30, 2016
1. Active Members
a) Counts 796 821
b) Average Attained Age
46.35 46.17
c) Average Entry Age to Rate Plan 35.01 35.05
d) Average Years of Service 11.34 11.12
e) Average Annual Covered Pay $ 89,918 $ 91,773
f) Annual Covered Payroll 71,574,823 75,345,962
g) Projected Annual Payroll for Contribution Year 78,211,742 82,332,567
h) Present Value of Future Payroll 549,799,999 583,437,155
2. Transferred Members
a) Counts 347 361
b) Average Attained Age 46.34 45.98
c) Average Years of Service 3.55 3.46
d) Average Annual Covered Pay $ 111,297 $ 113,704
3. Terminated Members
a) Counts 367 383
b) Average Attained Age 47.69 48.05
c) Average Years of Service 3.30 3.19
d) Average Annual Covered Pay $ 64,442 $ 66,844
4. Retired Members and Beneficiaries
a) Counts 1,027 1,061
b) Average Attained Age 69.31 69.64
c) Average Annual Benefits $ 32,564 $ 32,763
5. Active to Retired Ratio [(1a) / (4a)] 0.78 0.77
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple
records may exist for those who have service in more than one valuation group. This does not result in
double counting of liabilities.
Average Annual Benefits represents benefit amounts payable by this plan only. Some members may have
service with another agency and would therefore have a larger total benefit than would be included as part
of the average shown here.
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-2
Active Members
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple records
may exist for those who have service in more than one valuation group. This does not result in double counting of
liabilities.
Distribution of Active Members by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
15-24 12 0 0 0 0 0 12
25-29 52 0 0 0 0 0 52
30-34 54 20 6 1 0 0 81
35-39 45 34 20 11 2 0 112
40-44 34 26 20 19 6 1 106
45-49 43 17 16 28 13 3 120
50-54 19 29 19 27 33 29 156
55-59 18 18 11 21 11 19 98
60-64 6 13 7 10 10 9 55
65 and over 3 4 1 9 7 5 29
All Ages 286 161 100 126 82 66 821
Distribution of Average Annual Salaries by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Average
15-24 $57,743 $0 $0 $0 $0 $0 $57,743
25-29 68,174 0 0 0 0 0 68,174
30-34 77,827 83,831 83,460 99,780 0 0 79,998
35-39 80,289 86,452 91,827 91,950 82,351 0 85,402
40-44 92,188 91,278 89,991 93,318 111,222 86,060 92,772
45-49 96,084 93,981 111,666 98,326 118,659 93,855 100,777
50-54 109,651 98,853 98,331 86,561 102,240 104,917 99,821
55-59 113,847 97,497 90,220 83,301 92,928 106,744 97,921
60-64 110,080 87,411 85,736 85,225 103,248 88,967 92,407
65 and over 97,621 94,278 58,768 116,311 89,153 97,137 99,493
All Ages $85,334 $91,441 $94,434 $92,245 $102,772 $101,890 $91,773
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-3
Transferred and Terminated Members
Distribution of Transfers to Other CalPERS Plans by Age, Service, and average Salary
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
Average
Salary
15-24 1 0 0 0 0 0 1 $103,645
25-29 14 1 0 0 0 0 15 97,680
30-34 39 3 0 0 0 0 42 96,159
35-39 43 10 1 0 0 0 54 106,490
40-44 43 7 0 2 0 0 52 111,706
45-49 47 10 2 2 1 0 62 113,645
50-54 48 14 3 3 1 0 69 123,040
55-59 25 7 4 1 0 0 37 129,573
60-64 15 3 1 1 1 0 21 129,129
65 and over 3 4 1 0 0 0 8 104,826
All Ages 278 59 12 9 3 0 361 113,704
Distribution of Terminated Participants with Funds on Deposit by Age, Service, and average Salary
Years of Service at Valuation Date
Attained Age 0-4 5-9 10-14 15-19 20-25 25+ Total Average Salary
15-24 1 0 0 0 0 0 1 $53,219
25-29 14 0 0 0 0 0 14 72,132
30-34 30 5 0 0 0 0 35 71,310
35-39 46 3 2 0 0 0 51 63,875
40-44 37 7 1 0 0 0 45 66,627
45-49 43 14 1 2 1 0 61 74,762
50-54 49 15 4 2 1 0 71 68,022
55-59 32 8 5 1 0 0 46 65,351
60-64 30 6 1 0 0 0 37 60,309
65 and over 17 3 1 1 0 0 22 52,669
All Ages 299 61 15 6 2 0 383 66,844
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-4
Retired Members and Beneficiaries
Distribution of Retirees and Beneficiaries by Age and Retirement Type*
Attained
Age
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Total
Under 30 0 0 0 0 0 2 2
30-34 0 0 0 0 0 1 1
35-39 0 0 1 0 0 1 2
40-44 0 1 3 0 0 0 4
45-49 0 2 0 0 0 0 2
50-54 18 8 3 0 0 2 31
55-59 100 14 1 0 0 3 118
60-64 171 7 2 0 0 9 189
65-69 196 13 2 0 0 17 228
70-74 191 7 1 0 0 14 213
75-79 97 7 1 0 0 11 116
80-84 54 3 1 0 0 15 73
85 and Over 51 3 0 0 0 28 82
All Ages 878 65 15 0 0 103 1,061
Distribution of Average Annual Disbursements to Retirees and Beneficiaries by Age
and Retirement Type*
Attained
Age
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Average
Under 30 $0 $0 $0 $0 $0 $13,093 $13,093
30-34 0 0 0 0 0 11,571 11,571
35-39 0 0 249 0 0 11,571 5,910
40-44 0 8,919 252 0 0 0 2,419
45-49 0 10,962 0 0 0 0 10,962
50-54 22,821 15,760 519 0 0 21,898 18,781
55-59 39,769 12,987 1,613 0 0 19,713 35,759
60-64 43,184 19,227 6,833 0 0 28,913 41,233
65-69 37,757 17,063 9,278 0 0 23,978 35,300
70-74 32,812 14,768 1,922 0 0 17,440 31,064
75-79 33,718 20,452 1,811 0 0 31,435 32,426
80-84 27,675 16,738 4,260 0 0 19,678 25,262
85 and Over 23,075 18,352 0 0 0 20,838 22,138
All Ages $35,742 $16,107 $2,959 $0 $0 $22,220 $32,763
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-5
Retired Members and Beneficiaries (continued)
Distribution of Retirees and Beneficiaries by Years Retired and Retirement Type*
Years
Retired
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Total
Under 5 Yrs 184 5 4 0 0 34 227
5-9 312 10 3 0 0 25 350
10-14 170 12 2 0 0 16 200
15-19 107 11 5 0 0 11 134
20-24 59 16 1 0 0 9 85
25-29 30 7 0 0 0 7 44
30 and Over 16 4 0 0 0 1 21
All Years 878 65 15 0 0 103 1,061
Distribution of Average Annual Disbursements to Retirees and Beneficiaries by Years Retired and
Retirement Type*
Years
Retired
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Average
Under 5 Yrs $32,001 $16,464 $267 $0 $0 $23,840 $29,878
5-9 48,959 10,254 6,013 0 0 26,976 45,915
10-14 30,240 18,806 6,254 0 0 17,696 28,310
15-19 29,154 19,607 2,124 0 0 24,030 26,941
20-24 17,218 19,494 2,155 0 0 12,395 16,958
25-29 21,552 9,324 0 0 0 19,847 19,335
30 and Over 18,472 10,892 0 0 0 5,784 16,424
All Years $35,742 $16,107 $2,959 $0 $0 $22,220 $32,763
* Counts of members do not include alternate payees receiving benefits while the member is still working.
Therefore, the total counts may not match information on page 25 of the report. Multiple records may exist for
those who have service in more than one coverage group. This does not result in double counting of liabilities.
APPENDIX D
DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION
RATES
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX D
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
D-1
Development of PEPRA Members Contribution Rates
The table below shows the determination of the Member contribution rates based on 50 percent of the Total Normal
Cost for each respective plan on June 30, 2016.
Assembly Bill (AB) 340 created PEPRA that implemented new benefit formulas and a final compensation period as
well as new contribution requirements for new employees. In accordance with Section Code 7522.30(b), “new
members … shall have an initial contribution rate of at least 50 percent of the normal cost rate.” The normal cost for
the plan is dependent on the benefit levels, actuarial assumptions and demographics of the plan particularly the entry
age into the plan. Should the total normal cost of the plan change by one percent or more from the base total normal
cost established for the plan, the new member rate shall be 50 percent of the new normal cost rounded to the
nearest quarter percent.
Basis for Current Rate Rates Effective July 1, 2018
Rate Plan
Identifier Plan
Total
Normal Cost
Member
Rate
Total
Normal Cost Change Change
Needed
Member
Rate
26004 Miscellaneous PEPRA 12.500% 6.250% 12.165% (0.335%) No 6.250%
For a description of the methods used to determine the Total Normal Cost for this purpose, please see the “PEPRA
Normal Cost Rate Methodology” section in Appendix A.
APPENDIX E
GLOSSARY OF ACTUARIAL TERMS
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX E
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
GLOSSARY OF ACTUARIAL TERMS
E-1
Glossary of Actuarial Terms
Accrued Liability (also called Actuarial Accrued Liability or Entry Age Normal Accrued Liability)
The total dollars needed as of the valuation date to fund all benefits earned in the past for current members.
Actuarial Assumptions
Assumptions made about certain events that will affect pension costs. Assumptions generally can be broken
down into two categories: demographic and economic. Demographic assumptions include such things as
mortality, disability and retirement rates. Economic assumptions include discount rate, salary growth and
inflation.
Actuarial Methods
Procedures employed by actuaries to achieve certain funding goals of a pension plan. Actuarial methods include funding method, setting the length of time to fund the Accrued Liability and determining the Value of Assets.
Actuarial Valuation
The determination, as of a valuation date of the Normal Cost, Accrued liability, and related actuarial present
values for a pension plan. These valuations are performed annually or when an employer is contemplating a
change to their plan provisions.
Amortization Bases
Separate payment schedules for different portions of the Unfunded Liability. The total Unfunded Liability of a
Risk Pool or non-pooled plan can be segregated by "cause,” creating “bases” and each such base will be
separately amortized and paid for over a specific period of time. However, all bases are amortized using
investment and payroll assumptions from the current valuation. This can be likened to a home having a first
mortgage of 24 years remaining payments and a second mortgage that has 10 years remaining payments. Each
base or each mortgage note has its own terms (payment period, principal, etc.)
Generally, in an actuarial valuation, the separate bases consist of changes in unfunded liability due to contract
amendments, actuarial assumption changes, actuarial methodology changes, and/or gains and losses. Payment
periods are determined by Board policy and vary based on the cause of the change.
Amortization Period
The number of years required to pay off an Amortization Base.
Classic Member (under PEPRA)
A classic member is a member who joined CalPERS prior to January, 1, 2013 and who is not defined as a new
member under PEPRA. (See definition of new member below)
Discount Rate Assumption
The actuarial assumption that was called “investment return” in earlier CalPERS reports or “actuarial interest
rate” in Section 20014 of the California Public Employees’ Retirement Law (PERL).
Entry Age
The earliest age at which a plan member begins to accrue benefits under a defined benefit pension plan. In
most cases, this is the age of the member on their date of hire.
Entry Age Normal Cost Method
An actuarial cost method designed to fund a member's total plan benefit over the course of his or her career.
This method is designed to yield a rate expressed as a level percentage of payroll. (The assumed retirement age less the entry age is the amount of time required to fund a member’s total benefit.
Generally, the older a member on the date of hire, the greater the entry age normal cost. This is mainly because
there is less time to earn investment income to fund the future benefits.)
CALPERS ACTUARIAL VALUATION – June 30, 2016 APPENDIX E
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
GLOSSARY OF ACTUARIAL TERMS
E-2
Fresh Start
A Fresh Start is when multiple amortization bases are collapsed to one base and amortized together over a new
funding period.
Funded Status
A measure of how well funded, or how "on track" a plan or risk pool is with respect to assets versus accrued
liabilities. A ratio greater than 100 percent means the plan or risk pool has more assets than liabilities and a ratio
less than 100 percent means liabilities are greater than assets.
GASB 68
Statement No. 68 of the Governmental Accounting Standards Board. The accounting standard governing a state
or local governmental employer’s accounting and financial reporting for pensions. GASB 68 replaces GASB 27
effective the first fiscal year beginning after June 15, 2014.
New Member (under PEPRA) A new member includes an individual who becomes a member of a public retirement system for the first time on
or after January 1, 2013, and who was not a member of another public retirement system prior to that date, and
who is not subject to reciprocity with another public retirement system.
Normal Cost
The annual cost of service accrual for the upcoming fiscal year for active employees. The normal cost should be
viewed as the long term contribution rate.
Pension Actuary
A business professional that is authorized by the Society of Actuaries, and the American Academy of Actuaries to
perform the calculations necessary to properly fund a pension plan.
PEPRA
The California Public Employees’ Pension Reform Act of 2013
Prepayment Contribution
A payment made by the employer to reduce or eliminate the year’s required employer contribution.
Present Value of Benefits (PVB)
The total dollars needed as of the valuation date to fund all benefits earned in the past or expected to be earned
in the future for current members.
Unfunded Accrued Liability (UAL)
When a plan or pool’s Value of Assets is less than its Accrued Liability, the difference is the plan or pool’s
Unfunded Accrued Liability (or unfunded liability). If the unfunded liability is positive, the plan or pool will have
to pay contributions exceeding the Normal Cost.