Aptos/La Selva Fire Protection District 6934 Soquel Drive Aptos, CA Phone # Fax #

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Aptos/La Selva Fire Protection District 6934 Soquel Drive Aptos, CA 95003 Phone # 831-685-6690 Fax # 831-685-6699 A-G-E-N-D-A Aptos/La Selva Fire Protection District Board of Directors Study Session

1 Aptos/La Selva Fire Protection District 6934 Soquel Drive Aptos, CA Phone # Fax # A-G-E-N-D-A Aptos/La Selva Fire Protection District Board of Directors Study Session Thursday, November 8, :00 PM Administration Office 6934 Soquel Drive Aptos, California Welcome to the Aptos/ La Selva Fire Protection District Board Study Session. The President of the Board of Directors will invite your comments regarding any item listed on our open session agenda. The President may request that comments be limited to three (3) minutes for any item NOT listed on the agenda. The Brown Act prohibits the Fire Board from taking any action not listed on the agenda. Agenda material including late additions to the agenda is available on the District s website and at the District s Administrative Office during business hours. 1.0 ROLL CALL ABENDSCHAN, FOSTER, LUCCHESI, SPISAK 1.1 INTRODUCTIONS: FIRE CHIEF/BOARD SECRETARY AARON LOWE 2.0 PLEDGE OF ALLEGIANCE 2.1 PLEDGE OF ALLEGIANCE 3.0 COMMUNICATIONS FROM/TO BOARD MEMBERS & PUBLIC 3.1 ORAL COMMUNICATIONS This time is set-aside for members of the public to address the board on any item NOT on the agenda, which is within the subject matter jurisdiction of the board. No action or discussion shall be taken on any item presented except that any board member may respond to statements made or questions asked, or may ask questions for clarification. All matters of an administrative nature will be referred to staff. All matters relating to the board will be noted in the minutes and may be scheduled for discussion at a future meeting or referred to staff for clarification and report. Any board member may place matters brought up under oral communications on a future agenda. 1

3 Aptos-La Selva Fire Protection District Financial Study Session 3

4 Topics of discussion Pension - Overview of Pension Liability - Strategies to Address Unfunded Liability Other Post Employment Benefits (OPEB) - Overview of OPEB Liability - Strategies to Address Unfunded Liability Financial Reserve Policy 4

5 Pension 5

6 CalPERS Annual Valuation Report 6

7 Accrued Liability Calculation Service accrues each year for active members - Example 3% of salary each year in the 55 benefit formula Normal Cost is the benefits accruing in the current year for actives employees - Shared between Employer and Employee Accrued Liability is the total of all prior years Normal Costs 7

8 8

9 CalPERS Pension Plan Current Status of District s Pension Plans as of 6/30/2017 9

10 What Impacts Unfunded Liability? Change in market value of assets - Investment gains and losses Revised assumptions and policy changes - Recent lowering of discount rate from 7.5% to 7% - Changes to mortality rates, inflation rates etc. - Lower amortization to 20 years for new liability bases Interest charged on unfunded liability portion equal to discount rate 10

11 District s Funded Ratio FY thru FY ALSFPD Pension Funded Status 7 Year Trend 82% 25.0% 80% 21.7% 81% 78% 17.7% 78% 20.0% 76% 74% 72% 70% 73% 70% 13.2% 76% 73% 11.2% 76% 15.0% 10.0% 68% 66% 64% 2.4% 0.2% 0.6% 6/30/2011 6/30/2012 6/30/2013 6/30/2014 6/30/2015 6/30/2016 6/30/ % 0.0% CalPERS Investment Returns Funded Status 11

12 Employer Contribution 12

13 Strategies to Address Unfunded Liability Pay down unfunded liability through accelerated funding with these three methods: - Additional Discretionary Payment (ADP) - Fresh Start (change to the plan s amortization period) - Section 115 Trust (prefunding pension contributions) 13

14 Strategies to Address Unfunded Liability Additional Discretionary Payment (ADP) 14

15 Strategies to Address Unfunded Liability Fresh Start (shorten the UAL amortization period) 15

16 Strategies to Address Unfunded Liability Section 115 Trust - Senate Bill 1413 allows CalPERS to create a Section 115 Trust CEPPT 16

17 Strategies to Address Unfunded Liability 17

18 OPEB 18

19 OPEB Valuation Report Latest OPEB Valuation report as of June 30, Pay-as-you-go cost (retiree benefits paid each year) in FY 2017/18 was $105,

4% funded - Includes implicit subsidy (cost for allowing retirees to participate

20 OPEB Valuation Report Latest OPEB Valuation report as of June 30, 2017: - Unfunded liability totaling $1.7 million at 29.4% funded - Includes implicit subsidy (cost for allowing retirees to participate at active rates). GASB 75 requires reporting unfunded liability on audited financial statements beginning with FY

(CERBT) in April 2008. Contributions made until FY 2014-15.

21 Strategies to Address OPEB Unfunded Liability Status Quo - District joined California Employers Retirement Benefits Trust (CERBT) in April Contributions made until FY Continue pay-as-you-go; no contributions made to CERBT in last 4 years 21

Strategies to Address OPEB Unfunded Liability Contribute

(ADC) - ADC is normal cost plus amortization portion of

- If funding ADC at 100%, trust contributions would have

22 Strategies to Address OPEB Unfunded Liability Contribute up to 100% of the Actuarially Determined Contribution (ADC) - ADC is normal cost plus amortization portion of the unfunded liability. - If funding ADC at 100%, trust contributions would have been $35,000 for FY and $24,000 for FY Actual contributions totaled $0. 22

23 FINANCIAL RESERVE POLICY 23

24 Financial Reserve Policy ALSFD currently has a single fund the General Fund used to account for all financial resources. - Beginning fund balance for FY 18/19 was $7.4 million - Fund balance increased significantly over last 10 years from $1.8 million $14,000,000 ALSFPD General Fund 10 Year Trend $12,000,000 $10,000,000 Millions $8,000,000 $6,000,000 Property Tax Revenue General Fund Balance $4,000,000 $2,000,000 $- FY 08/09 FY 09/10 FY 10/11 FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16 FY 16/17 FY 17/18 24

25 Financial Reserve Policy Adopt Financial Reserve (Fund balance) policy which complies with Government Accounting Standards Board (GASB) statement Articulates use of District s fund balances - Structured approached to funding levels - Oversight and ensure long term fiscal health - Mitigates current and future risk - Determine adequate reserves levels 25

26 Financial Reserve Policy Under GASB 54 there are five different classifications of the fund balance which identifies specific purposes for which amounts can be spent. - Nonspendable Fund Balance - Restricted Fund Balance - Committed Fund Balance - Assigned Fund balance - Unassigned Fund Balance 26

27 Financial Reserve Policy Recommended fund designations and funding levels based on Proposed Financial Reserve Policy: - Capital Outlay Fund, an Assigned Fund for acquisition, replacement or improvement of capital assets based on a Capital Improvement Plan (CIP). - Emergency Reserve Fund, an Assigned Fund for budgetary shortfalls or declared state of emergency based on three (3) months of budgeted expenditures. - Minimum fund balance, an Unassigned Fund to provide adequate cash flow during the year based on two (2) months of budgeted expenditures. 27

28 Financial Reserve Policy Establish Capital Outlay Fund to align with best fiscal practice based on ESCI and Citygate recommendations: - Capital costs funded independently from annual operating budget. - Implement formal capital improvement program (CIP) and budget. 28

Financial Reserve Policy Establish Emergency Reserve Fund and Minimum Reserve Balance for ongoing cash flow needs: - District is on teeter plan with Property Tax apportionment received in Dec (50%),

29 Financial Reserve Policy Establish Emergency Reserve Fund and Minimum Reserve Balance for ongoing cash flow needs: - District is on teeter plan with Property Tax apportionment received in Dec (50%), Apr (45%) and Jun (5%). - 5 months of total reserves needed to address dry tax funding period between July and November. - Tax Revenue Anticipation Note (TRANS) short term borrowing used and paid back with interest if fund balance negative. 29

30 Financial Reserve Policy 30

31 Conclusion Recommendations: - Develop Pension Funding Policy - Formally adopt OPEB Funding Schedule - Adopt Financial Reserve Policy Q & A? 31

32 Item 4.1 B Aptos/La Selva Fire Protection District 6934 Soquel Drive Aptos, CA Phone # Fax # FINANCIAL RESERVE POLICY 1. PURPOSE To document the District s approach to establishing and maintaining fund balances to ensure adequate financial resources to protect the District against unforeseen events such as revenue shortfalls, unanticipated expenditures and similar circumstances. The District s Financial Reserve Policy shall address the following: A. Establish a procedure for reviewing fund balances and making necessary changes to achieve the desired level of funding. B. Establish anticipated expenses, target reserve levels, and methodology for calculating reserve levels. Anticipated expenses and target reserve funding shall be established by the Fire Chief or designee each year prior to the adoption of the Final Budget. C. To properly classify the District s fund balances per Government Accounting Standards Board (GASB) Statement No. 54; Fund Balance Reporting and Governmental Fund Type Definitions. 2. DEFINITIONS The fund balance is a measurement of available financial resources and is the difference between total assets and total liabilities in each fund. GASB Statement 54 distinguishes fund balance classified based on the relative strength of the constraints that control the purposes for which specified amounts can be spent. Beginning with the most restrictive constraints, fund balance amounts will be reported in the following categories: 1) Nonspendable fund balance amounts that are not in a spendable form or are legally or contractually required to be maintained intact (e.g., prepaid items and deposits on file with other agencies) 2) Restricted fund balance amounts that can be spent only for the specific purposes stipulated by external parties either constitutionally or through enabling legislation (e.g., grants, donations or funds held in a trust). 3) Committed fund balance amounts that can be used only for the specific purposes determined by a formal action of the Board of Directors, through ordinance or resolution. These committed amounts cannot be use for any other purpose unless the Board removes or changes the specific use through the same type of formal action taken to establish the commitment. Board action to commit fund balance must occur within the fiscal reporting period; however, the amount or amounts can be determined subsequently. 32

33 4) Assigned fund balance amounts intended to be used by the government for specific purposes. Intent is expressed by the Board Directors or by a designee to whom the governing body delegates the authority. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds are, at a minimum, intended to be used for the purpose of that fund. 5) Unassigned fund balance includes all amounts not contained in other classifications and is the residual classification of the general fund. 3. POLICY The Board of Directors shall be responsible for the oversight of all District fund accounts and balances. Changes to the existing fund balances, establishing new fund accounts, and authorizing expenditures for fund balances shall require action by the Board. The Fire Chief or designee shall review fund balances and recommend changes to fund balances for the upcoming fiscal year to be presented to the full Board of Directors prior to the adoption of the Final Budget. Reserve Fund Designations and Funding Levels A. Capital Outlay Fund: An Assigned fund for the purpose of funding acquisitions, replacements, or improvements of capital assets. Capital outlay is defined as a tangible or intangible fixed asset with a value over $5,000 that has an initial useful life extending beyond one year. Fund balance requirements shall be based on the Capital Improvement Plan (CIP). B. Emergency Reserve Fund: An Assigned fund for the purpose of providing funds for budgetary shortfalls or emergency operating purposes in the event of the declaration of a local, state or federal state of emergency. The funding level shall be at a minimum of three (3) months of budgeted operating expenditures. C. Minimum Fund Balance: It is the goal of the District to achieve and maintain an unassigned fund balance in the general fund at a minimum of two (2) months of budgeted operating expenditures to provide adequate cash flow and avoid short term borrowing in the subsequent fiscal year. Reserve Fund Expenditures and Replenishment A. Fund balances shall be reviewed by the Fire Chief or designee before adoption of the Final Budget each year. B. All expenditures or transfers between reserve funds shall be approved by the Board of Directors unless pre-designated, the Fire Chief or designee can approve such transactions. For example if Emergency Reserve Fund falls below three (3) months, then a transfer from unassigned fund balance may be required to replenish fund. C. If the unassigned minimum fund balance at fiscal year-end falls below the goal, the District shall develop a restoration plan to achieve and maintain the minimum fund balance. Should the unassigned minimum fund balance ever exceed the maximum range, the District will consider such fund balance surpluses for one-time expenditures that are non-recurring in nature. Item 4.1 B 33

CHAPTER 7.00 BUSINESS SERVICES

CHAPTER 7.00 BUSINESS SERVICES 7.101 FUND BALANCE POLICY POLICY: Purpose: The following policy has been adopted by the School Board of Sarasota County, Florida in order to address the implications of Government