|
Back to Calendar
Return
|
| |
Regular-General Government # 35.
|
| Board of Supervisors |
Financial Services |
|
|
|
| Subject |
| Approve the strategy to prepay 2017-18 CalPERS contributions; receive cash discount from PERS for the pre payment which can be used to provide initial funding for a pension stabilization fund; and adopt resolution authorizing the County Treasurer to pursue interim cash flow financing known as Dry Period Financing to fund the CalPERS prepayment. (No general fund impact) (Newens/Rinde) |
| Recommended Action |
- Approve the strategy to prepay 2017-18 CalPERS UAL contributions to receive cash prepayment discount; and
- Adopt resolution authorizing the County Treasurer to engage in a dry period financing program to reduce short term borrowing costs.
|
| Strategic Plan Goal(s) |
| Operational Excellence |
| Reason for Recommended Action/Background |
On December 13, 2016, the Department of Financial Services and County Administrator's Office presented options on stabilizing pension funding in the future and was given direction to proceed with further development. These options included 1) creating an Accounting reserve, 2) discretionary contribution to CalPERS, 3) prepayment of annual contributions, 4) establishing a Section 115 Trust, and 5) using an alternative amortization schedule.
Upon further analysis County finance staff is recommending to proceed with the third option, that is, make a prepayment of the annual contributions to CalPERS to generate a cash saving that can be applied toward the other options. This cash prepayment must be made annually by July 15th, beginning with this upcoming 7/15/17. The County would prepay CalPERS the discounted rate but would still internally charge departments the quoted rate and transfer the cash savings to create an initial pension funding stabilization reserve by the end of 2017/18. In turn, this reserve can be used as seed money for a Section 115 Pension Stabilization Trust in the future.
In order to make the prepayment to CalPERS by July 15th, the County needs to have sufficient cash available to pay the Unfunded Actuarial Liability (UAL) part of the annual contribution which is $12.6 million for the County Miscellaneous plan and $3.7 million for the County Safety plan. The County can only prepay the UAL portion and continues to be required to pay normal cost contributions each payroll period.
County staff reviewed various short term financing options to make the prepayment in Attachment A. Staff recommends taking the option of creating a Dry Period Financing program which would allow the County to borrow on a short term basis between July 1 and the last Monday in April up to 85% of of the anticipated revenues accrued to the County. Dry Period Financing allows a local agency to borrow from their respective Treasury pool and requires a resolution of the governing body to make such temporary transfer.
The Cash prepayment savings quoted from CalPERS are approximately $450,000 for the County Miscellaneous plan and $130,000 for the County Safety Plan. This prepayment saves approximately 3.55% of the total amount paid to CalPERS over the course of a fiscal year. However, the County would have to pay interest on amounts borrowed to the County Treasury Pool of approximately 1% resulting in net savings of approximately 2.55% or $415,000. This is the projected amount that would be accumulated by the end of 2017/18 for a pension reserve, trust or other pension stabilization mechanism.
To effect this recommendation, a resolution (Attachment B) was drafted to authorize a Dry Period Financing program which allows the County to borrow from the Treasury Pool in order to make the CalPERS prepayment and repay the Pool with County revenues prior to the April deadline. |
| Collaborations (including Board advisory groups and external partner agencies) |
| The Department of Financial Services collaborated with the County Administrator's Office in preparation of options to address the unfunded pension liability and potential methods for financing. The County Debt Committee was informed of, and supported this borrowing in its meeting on 5/12/17. |
|
| Fiscal Impact |
|
|
| Source of Funds for this Expenditure |
|
|
Explanation (Expenditure and/or Revenue) |
| Further explanation as needed: |
| This action will yield a net cost savings in pension payments to CalPERS for fiscal year 2017/18 of about $415,000. This cost savings would be set aside as initial seed money for a pension reserve or pension stabilization trust. This reserve is anticipated to be restricted in a Pension ISF or other internal fund and can be later transferred to a Section 115 Trust. |
|
|
|
|
|