City Council Agenda Cover Memorandum

Transcription

1 City Council Agenda Cover Memorandum Meeting Date: November 28, 2011 Item Title: IMRF and Uptown TIF Financing Action Requested: Approval X For discussion Feedback requested For your information Staff Contact: Allison Stutts Phone Number: (847) Address: astutts@parkridge.us Background: IMRF In February 2007, the City Council passed a resolution to adopt an early retirement incentive program offered by the Illinois Municipal Retirement Program. The City requested IMRF to amortize the cost of the incentive over a 10 year period. The interest rate imposed by IMRF is 7.5%. Each year since adoption, the IMRF employer contribution rate has included a component to pay down the cost of the early retirement incentive. The balance owed to IMRF for the early retirement incentive as of November 18 th is $1.75M. In 2008, the IMRF Board took action to moderate the impact of the 2008 investment losses on employers. One of the actions included adopting a phase-in plan for employer contribution rates which capped most employer rate increases at 10% and provide immediate rate relief in 2010 and subsequent years. According to IMRF, selecting the phase-in rate delays the recovery of unfunded pension costs, over the long-term the phase-in rate is more costly for employers than the ARC rate. The City chose the phasedin-rate. Because of this, for the fiscal year ending 4/30/11, the City had a net pension obligation of $235,376 which includes 7.5% interest for the year. This obligation is expected to increase to approximately $350,000 by the end of calendar year Since the City Council approved moving forward on a bond issuance for the Sewer Capital Projects, and with interest rates at historic levels, it is the City Manager s recommendation that we also obtain financing to pay off the early retirement incentive balance and the net pension obligation to the Illinois Municipal Retirement Fund. The bond financing could be obtained at an estimated rate of 2.6% as compared to 7.5% with IMRF. The estimated savings with the bond financing is $180K through Uptown TIF The City Manager requested a bond financing scenario illustration that provided short term cash flow relief to the Uptown TIF. This was requested due to the financial status of the Uptown TIF Fund and the negative fund balance. The current forecast for the fund projects a ($931K) deficit as compared to a ($210K) budgeted deficit. This additional deficit is due to revenue projections falling short of budgeted Rev 10/10/11

2 City Council Agenda Cover Memorandum levels. The bond financing for the Uptown TIF results in a cash flow savings of $3.2M for with an overall cost increase of $2.0M through 2029, discounted to an overall cost increase of $400K in Recommendation: Advise staff as to whether IMRF and/or Uptown TIF Financing should be obtained. Budget Implications: Does Action Require an Expenditure of Funds: Yes No If Yes, Total Cost: If Yes, is this a Budgeted Item: Yes No If Budgeted, Budget Code (Fund, Dept, Object) Attachments: IMRF Bond Financing IMRF Phased In Memo Uptown TIF Financing Rev 10/10/11

3 Illinois Municipal Retirement Fund Suite York Road Oak Brook IL Member s Representatives ASK-IMRF GENERAL MEMORANDUM Number: 586 Date: March 3, 2009 To: Subject: All Authorized Agents IMRF Board s Response to the Impact of 2008 Investment Return on Future Employer Contribution Rates We encourage each Authorized Agent to share this memorandum with the unit of government s chief financial officer, other officials, and governing body members. Executive Summary This preliminary information is based on unaudited investment return data and projected actuarial information. All finalized information will not be available until early May The estimated 2008 investment return for IMRF is a negative 24.8%. This return translates into investment loss of approximately $6.1 billion. If IMRF were to follow its normal rate setting procedures, the magnitude of this loss would dramatically impact employer contribution rates for To moderate the impact of the 2008 investment losses on employers, the IMRF Board took the following actions at its February 27, 2009, Board meeting: Changed two actuarial techniques which will provide short-term and longer-term relief for employer rates and funded status. Adopted a phase-in plan for employer contribution rates which will cap most employer rate increases at 10% and provide immediate rate relief in 2010 and subsequent years. Preliminary phase-in plan rates will be available the week of March 2, 2009, on IMRF s employer website and are subject to change based upon the final actuarial data. Employers will receive preliminary rate notices in mid-april Final rate notices will be available in November The preliminary rate notices will show the full actuarial required contribution (ARC) and the finalized phase-in rate. Although employers may contribute the full ARC rate, the phase-in rate or some rate between the two, employers who are capable of funding the additional costs are encouraged to choose the higher ARC rate. - over -

4 General Memorandum 586 March 3, 2009 IMRF Board s Response to the Impact of 2008 Investment Return on Future Employer Contribution Rates Page 2 of 3 Actions Taken by IMRF Board At its February 27, 2009 meeting, the Board took several actions to moderate the impact on employers funded status and contribution rates. It made three changes to the actuarial techniques used to calculate employer funded status and the actuarial required contribution rates (ARC): Widened the allowable corridor between the market and actuarial value of assets from 15% to 20%; Changed the amortization method from a closed to a rolling one and changed the period to 30 years for taxing bodies and 10 years for non-taxing bodies; and Increased the threshold for the rapid amortization of over funding credits to reduce employer contribution rates from 100% to 120%. Second, the Board adopted an optional phase-in plan for employer contribution rates with the following components: Capped most employer contribution rate increases at 10% of the 2009 rate, excluding ERI and SLEP enhancement costs (For example, an employer with a 10% rate would increase to 11%); Maintained the Board s policy of requiring all employers to pay the full cost for current service regardless of the percentage increase (for example, using the full cost of the IMRF program for 2009, the minimum employer contribution rates for the regular, SLEP and ECO plans for most employers would be 8.37%, 12.58% and 25.69% respectively in 2010); Provided employers the option of paying the full actuarial required contribution (ARC), the phase-in rate or some rate between the ARC and the phase-in rate; and Provided the Board the prerogative to review the phase-in plan annually and to modify it based on actual future investment returns and other relevant factors. Employer Contribution Rates The average employer rate for the Regular plan was 9.47% for 2008 and is 9.27% for 2009, a decrease of 20 basis points or 2.1%. The 2009 rate reflects the fact that the Regular plan was less than 100% funded on an actuarial basis as of December 31, The impact of 2008 investment losses on individual employer contribution rates is difficult to forecast, since each employer has a unique rate affected by its own demographics and funded status. IMRF s actuarial return (used to determine employer contribution rates and actuarial funding status) is estimated to be a negative 6.7% in 2008, significantly less than the 7.5% assumed return. Therefore, despite the moderating impact of widening the corridor to 20% and changing the amortization method to a rolling 30 years for taxing bodies and to a rolling 10 years for non-taxing bodies, the average employer rate for the Regular plan is expected to increase to 14% in 2010, an increase of 4.73%, or a 51% increase from the 2009 rate. - more -

5 General Memorandum 586 March 3, 2009 IMRF Board s Response to the Impact of 2008 Investment Return on Future Employer Contribution Rates Page 3 of 3 Phase-in Plan rates Because of this dramatic increase, the IMRF Board adopted the phase-in plan discussed above. Most employers will see their 2010 contribution rates increase by 10% from their 2009 rates. For example, if an employer had a 10% contribution rate in 2009, the optional phase-in rate would be 11% for The phase-in plan applies to all three of IMRF s plans the regular plan, the SLEP plan and the ECO plan. Employers who are paying less than the full cost of the IMRF program in 2009 (8.37% for the regular plan, 12.58% for SLEP and 25.69% for ECO) because they were over funded as of December 31, 2007, will have to pay the full cost of the IMRF program in The preliminary phase-in plan rates will be available the week of March 2, 2009, on IMRF s employer website. We believe these rates will be very close to the finalized phase-in rates but are subject to change based upon the final actuarial data which will be available in late April. Rate Notices As in prior years, employers will receive preliminary rate notices in mid-april Final rate notices will be available in November The preliminary rate notices, which will be available in April, will show the full actuarial required contribution (ARC) and the finalized phase-in rate. IMRF employers will be given the option to contribute based on the full ARC rate, the phase-in rate or some rate between the two. In conjunction with the preliminary rate notice, employers will receive a memorandum outlining how the phase-in plan will work for contribution year 2010 and beyond. Since selecting the phase-in rate delays the recovery of unfunded pension costs, over the long-term the phase-in rate is more costly for employers than the ARC rate. Because of the additional cost, employers who are capable of funding the additional costs are encouraged to choose the higher ARC rate. IMRF will assume that an employer has chosen the lower phase-in rate unless the employer contacts IMRF with a different rate by August 31, Questions? If you have any questions regarding the information presented in this memorandum, please call or Chief Financial Officer Richard DeCleene at (630) or rdecleene@imrf.org. Sincerely, Louis W. Kosiba Executive Director

6 City of Park Ridge, Illinois - Series 2012 IMRF Financing (Taxable) ASSUMPTIONS 1 : - Series 2012 principal funds IMRF payments of Calendar Years Present value of IMRF payments estimated to be $2,075,000 (PVed at approximately 4.141%) - Principal begins amortizing in Rates calculated from 11/17 Treasury yield curve + estimated credit spread (average of 165 basis points from ) RESULTS: - Overall fixed rate of 2.60% - Total par amount $2,120,000 Levy Year Calendar Year (Bonds Due Dec. 1) Fiscal Year Current ERI Payments Series 2012 Debt Payments Annual General Fund Savings , ,659 17, , ,306 23, , ,490 23, , ,706 23, , ,831 21, , ,621 25, , ,097 21, , ,890 24, $2,560,107 $2,379,599 $180,507 ¹ Subject to discussion and change. As of 11/18/2011 William Blair & Company, L.L.C. -4- Present Value at 2.60%: $174,263

7 City of Park Ridge, Illinois - Series 2011A&B Restructuring Overview ASSUMPTIONS 1 : - Principal begins amortizing in Rates calculated from 11/15 MMD + estimated credit spread (2004A) - Rates calculated from 11/15 Treasury yield curve + estimated credit spread (2006B) RESULTS: - Overall fixed rate of 4.15% - Total par amount $3,835,000 Levy Year Bonds Due Dec. 1 Fiscal Year 2004A Debt OUTSTANDING BONDS 2005A Debt 2006A Debt 2006B Debt Total GO Debt Total Including Other City Payments $ 1,200,669 $ 421,113 $ 523,500 $ 579,815 $ 2,725,096 $ 3,185,984 $ (1,200,669) $ (122,083) $ 141,555 $ 2,004,788 $ 1,181, , , ,500 1,364,815 2,504,228 2,965,116 (98,800) (907,083) 163,858 2,123, , , ,250 1,880,070 2,912,433 3,373,321 - (1,422,338) 163,858 2,114,841 1,258, , ,000 2,167,733 3,191,845 3,652, ,858 3,816,591 (163,858) , ,750 2,174,408 3,190,270 3,651, ,858 3,815,016 (163,858) , ,500 2,610,045 3,617,508 4,078, ,858 4,242,253 (163,858) , ,500 2,164,633 3,582,895 4,043, ,858 4,207,641 (163,858) ,775 3,472,250 4,004,025 4,464, ,858 4,988,771 (523,858) ,750 3,467,750 4,448,500 4,909, ,458 5,428,846 (519,458) ,179,025 3,696,000 4,875,025 5,335, ,103 5,855,016 (519,103) ,176,950 1,176,950 1,637, ,548 2,160,386 (522,548) ,643,075 1,643,075 2,103, ,525 2,623,488 (519,525) ,916,250 1,916,250 2,377, ,205 2,897,343 (520,205) , , ,193 (524,305) , , ,288 (524,400) , ,000 (520,000) ,299,469 10,426,113 15,121,000 12,941,518 39,788,099 46,701,419 (1,299,469) (2,451,503) 5,818,100 48,768,547 $ (2,067,128) Less: 2004A Debt Less: 2006B Debt Plus: 2011A&B Refunding Debt Proposed City Payments Net Savings (Net Cost) ¹ Subject to discussion and change. Present Value at Arbitrage Yield (4.15%): ($400,649) 2 Includes City payments to School District 207 and to the Park District (approximately $461K, annually). As of 11/16/2011 William Blair & Company, L.L.C. -1-