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HomeMy WebLinkAboutCC Resolution 12284 (Grand Jury Response; I Think I'm Gonna be Sick)RESOLUTION NO. 12284 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL APPROVING AND AUTHORIZING THE MAYOR TO EXECUTE THE CITY OF SAN RAFAEL RESPONSE TO THE 2006-2007 MARIN COUNTY GRAND JURY REPORT ENTITLED "RETIREE HEALTH CARE COSTS: I THINK I'M GONNA BE SICK" WHEREAS, pursuant to Penal Code section 933, a public agency which receives a Grand Jury Report addressing aspects of the public agency's operations, must comment on the Report's findings and recommendations contained in the Report in writing within ninety (90) days to the Presiding Judge of the Superior Court with a copy to the Foreperson of the Grand Jury; and WHEREAS, Penal Code section 933 specifically requires that the "governing body" of the public agency provide said response and, in order to lawfully comply, the governing body must consider and adopt the response at a noticed meeting pursuant to the Brown Act; and WHEREAS, the City Council of the City of San Rafael has received and reviewed the 2006-2007 Marin County Grand Jury Report, dated March 19, 2007, entitled "Retiree Health Care Costs: I Think I'm Gonna Be Sick" and has agendized it at this meeting to consider and approve a response; hereby: NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of San Rafael 1. Approves and authorizes the Mayor to execute, the City of San Rafael's response to the 2006-2007 Marin County Grand Jury Report entitled "Retiree Health Care Costs: Think I'm Gonna Be Sick", copy attached hereto. 2. Directs the City Clerk to forward the City's Grand Jury Report response to the Presiding Judge of the Marin County Superior Court and to the Foreperson of the Marin County Grand Jury. I, Jeanne M. Leoncini, Clerk of the City of San Rafael, hereby certify that the foregoing Resolution was duly and regularly introduced and adopted at a special meeting of the San Rafael City Council held on the 20t'' day of June, 2007, by the following vote to wit: AYES: Councilmembers: Cohen, Heller, Miller, Phillips and Mayor Boro NOES: Councilmembers: None ABSENT: Councilmembers: None JEANNE M. LEONCINI, City Clerk r,A L RESPONSE TO GRAND JURY REPORT FORM Report Title: Report Date: Response By: FINDINGS: Retiree Health Care Costs: I Think I'm Going to be Sick March 19, 2007 Citv of San Rafael Title: Mavor and Citv Council • We agree with the finding numbered F1. F3, F4, F5. • We disagree wholly or partially with the findings numbered F2. F6. F7. F8, F9. F10. F11 (See attached statement specifying the portions of the findings that are disputed, including an explanation of the reasons therefor.) RECOMMENDATIONS: • Recommendations numbered R3, R5 have been implemented. (Attach a summary describing the implemented actions.) • Recommendations numbered R6 have not yet been implemented, but will be implemented in the future. (Attach a timeframe for the implementation.) • Recommendations numbered n/a require further analysis. (Attach an explanation and the scope and parameters of an analysis or study, and a timeframe for the matter to be prepared for discussion by the officer or director of the agency or department being investigated or reviewed, including the governing body of the public agency when applicable. This timeframe shall not exceed six months from the date of publication of the grand jury report.) • Recommendations numbered R4 will not be implemented because they are not warranted or are not reasonable. (Attach an explanation.) DATED: v /2_ "/ ° 7 Signed - ATTEST: JEANNE M. LEONCINI, City Clerk Number of r)aaes attached: 2 '�ALYERT J. ?RO, /Mayor RESPONSE TO GRAND JURY REPORT FORM Report Title: Retiree Health Care Costs: I Think I'm Going to be Sick Report Date: March 19, 2007 Response By: Citv of San Rafael Title: Mavor and Citv Council ADDITIONAL INFORMATION/EXPLANATIONS Finding F1. Health care coverage is a valuable benefit to attract and retain employees. Response: Agree. Finding F2. Government entities generally pay more of their compensation in the form of benefits than the private sector. Response: We disagree as we have not researched specific private sector compensation packages. The City attempts to stay competitive with other local governmental entities and therefore researches their compensation including benefits, but does not compare compensation to private sector packages. Finding F3. Most government entities providing retiree health care and other non -pension retirement benefits must disclose the future and accrued cost of those benefits to the public within the next fours years pursuant to GASB 45. Response: Agree. Finding F4. Government budgets and union negotiations will be affected by the implementatior of GASB 45. Response: We agree that GASB 45 will affect some governmental budgets and some union negotiations. In San Rafael, we have been accounting for retiree health benefits for many years using a "pay as you go" approach which sets aside funding each budget cycle for retiree health costs. In addition, we have accumulated approximately $12 million over time with the Marin County Employees' Retirement Association which can be used to fund retiree health obligations. With GASB 45, we agree that budgeting and negotiations will be affected. Finding F5. Unless legally determined otherwise, the issue of vesting for retiree health care benefits requires a fact -specific analysis. Response: We agree that vesting specifics are determined differently by different jurisdictions. Finding F6. Some government entities have not done the extensive research to determine if retiree health care benefits and the manner in which they are calculated are vested or can be changed or eliminated. Response: We have no reason to disagree but have not researched other governmental entities. In San Rafael, we are underway in our determinations regarding this issue. Consistent with the Grand Jury's fifth recommendation, we will not comment publicly on this question at this time. Finding F7. Public comments on vesting by government entities could result in creating a vested right where none previously existed. Response: This statement is very broad and speculative and would require further legal and other forms of research to respond. Finding F8. Unless government employers prudently manage the liability for retiree health care benefits, they will be forced to cut services, reduce benefits, and/or raise taxes to satisfy credit agencies. Response: This statement is very broad and asks jurisdictions to anticipate future opinions and actions of credit agencies. We agree these measures, or some combination, may take place in some jurisdictions. Other options to manage the liability may also exist or be developed. Finding F9. Financially weak government entities faced with staggering liabilities will be required to reduce benefits, raise taxes or reduce services. Failure to manage the liability could well result in bankruptcy for those government entities. Response: We agree that there area large number of possibilities for all jurisdictions. However, the question is overly speculative so it is impossible to say the likelihood of bankruptcy for other governmental agencies. Finding F10. The municipalities and special districts have not taken appropriate aggressive steps to understand and begin to comply with the requirements of GASB 45. Response: Disagree. We can not speak to what other jurisdictions have done and if they have been appropriate or aggressive. However, in San Rafael, we have taken appropriate steps by attending multiple workshops and seminars on the topic, engaging an actuarial, and including compliance with GASB 45 in our 2 -year budgetary objectives. As the GASB 45 standards go into effect for San Rafael in Fiscal Year 2008-09, we are well ahead of the compliance schedule. Finding F11. Whether elected or appointed, public employees managing the retiree health care liability may also be eligible to receive the retiree health care benefits they manage. They are subject to a conflict of interest. Response: This statement is very broad and would require further legal and other forms of research to respond. Conflicts of interest, as defined by state law, must be analyzed with reference to specific facts and circumstances in light of the complex laws and regulations that may apply. Recommendation R3. All municipalities and special districts do extensive research on the facts and seek professional help to determine vesting issues. This work should be done by the end of 2007. Response: We are implementing this recommendation as we are doing extensive research and seeking professional assistance. Recommendation R4. The county, all municipalities and the special districts offering health care benefits consult with professional advisers to state clearly in employee and public communications whether retiree health care benefits are vested and the extent to which they can be changed, modified or eliminated. Response: The above describes a very specific manner of process (who to consult with, what to communicate, and how to communicate it). San Rafael will likely not use the above exact process, but will make vesting information available as appropriate. We are currently in the process of updating our retiree health policy. Recommendations R5. Unless they are certain of the status of vesting for retiree health care benefits, no government entity should comment publicly on the question of vesting because doing so may create a vested right where none exists currently. Response: We will implement this recommendation by not commenting publicly on the question. Recommendation R6. The municipalities and special districts take immediate, aggressive steps to understand now the requirements of GASB 45 reporting and that these entities, including the county, begin using the information generated for GASB 45 in labor negotiations and budgeting. Response: Our Fiscal Year 2007-09 budget will be approved prior to the completion of our GASB 45 actuarial study, but once the information is obtained, we will share it in the labor negotiation and budget process. c'TM °1 Agenda Item No: 15 or Meeting Date: June 20, 2007 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: MANAGEMENT SERVICES Prepared by:, City Manager Approval: Jim Schutz, Assistant City Manager SUBJECT: Consideration of A Resolution Approving and Authorizing the Mayor to Execute the City of San Rafael's Response to Marin County Grand Jury Report entitled "Retiree Health Care Costs: I Think I'm Going to be Sick." RECOMMENDATION: Staff recommends that the City Council adopt the Resolution approving the response to the Grand Jury report, authorizing the Mayor to execute it, and directing the City Clerk to forward the response to the Presiding Judge of the Marin County Superior Court and the Foreperson of the Grand Jury. BACKGROUND: In its report dated March 19, 2007, "Retiree Health Care Costs: I Think I'm Going to be Sick," the 2006-2007 Marin County Grand Jury made several findings and recommendations, and submitted the report to the City of San Rafael for a formal response. The Grand Jury requested responses to the following findings and recommendations: ■ Finding F1. Health care coverage is a valuable benefit to attract and retain employees. ■ Finding F2. Government entities generally pay more of their compensation in the form of benefits than the private sector. ■ Finding F3. Most government entities providing retiree health care and other non - pension retirement benefits must disclose the future and accrued cost of those benefits to the public within the next four years pursuant to GASB 45. ■ Finding F4. Government budgets and union negotiations will be affected by the implementation of GASB 45. ■ Finding F5. Unless legally determined otherwise, the issue of vesting for retiree health care benefits requires a fact -specific analysis. ■ Finding F6. Some government entities have not done the extensive research to determine if retiree health care benefits and the manner in which they are calculated are vested or can be changed or eliminated. • Finding F7. Public comments on vesting by government entities could result in creating a vested right where none previously existed. FOR CITY CLERK ONLY File No.: Council Meeting: Disposition: SAN I2AFAEL CITY COUNCIL AGENDA REPORT / Pale: 2 • Finding F8. Unless government employers prudently manage the liability for retiree health care benefits, they will be forced to cut services, reduce benefits, and/or raise taxes to satisfy credit agencies. ■ Finding F9. Financially weak government entities faced with staggering liabilities will be required to reduce benefits, raise taxes or reduce services. Failure to manage the liability could well result in bankruptcy for those government entities. ■ Finding F10. The municipalities and special districts have not taken appropriate aggressive steps to understand and begin to comply with the requirements of GASB 45. ■ Finding F11. Whether elected or appointed, public employees managing the retiree health care liability may also be eligible to receive the retiree health care benefits they manage. They are subject to a conflict of interest. ■ Recommendation R3. All municipalities and special districts do extensive research on the facts and seek professional help to determine vesting issues. This work should be done by the end of 2007. ■ Recommendation R4. The county, all municipalities and the special districts offering health care benefits consult with professional advisers to state clearly in employee and public communications whether retiree health care benefits are vested and the extent to which they can be changed, modified or eliminated. ■ Recommendations R5. Unless they are certain of the status of vesting for retiree health care benefits, no government entity should comment publicly on the question of vesting because doing so may create a vested right where none exists currently. ■ Recommendation R6. The municipalities and special districts take immediate, aggressive steps to understand now the requirements of GASB 45 reporting and that these entities, including the county, begin using the information generated for GASB 45 in labor negotiations and budgeting. ANALYSIS: Accounting and reporting standards addressing pension obligations have been in place for many years. Outside of pensions, jurisdictions often offer "Other Post Employment Benefits (OPEBs)," such as medical, dental, vision, life, or other benefits. In 2004, the Governmental Standards Accounting Board (GASB) released Statement 45 which concerns health and other non -pension retiree benefits for public employees. GASB 45 establishes standards for accounting and financial reporting of OPEBs. It was issued "to provide more complete, reliable, and decision -useful financial reporting." It requires each public agency to engage a certified actuary to calculate several actuarial measures estimating the current and future costs and liabilities of an agency's OPEBs. Agencies must calculate their unfunded liability, normal costs, and annual required contribution. Agencies are not required to fund their OPEBs, but rather meet accounting and financial reporting standards. GASB 45 goes into effect in three phases based on a jurisdiction's annual revenues. The first phase includes the larger jurisdictions (annual revenues over $100 million) and requires reporting in Fiscal Year 2007-08, followed by the medium jurisdictions (annual revenues over $10 million) requiring reporting in Fiscal Year 2008-09, and finally the smaller jurisdictions (annual revenues less than $10 million) requiring reporting in Fiscal Year 2009-10. The City of San Rafael falls into the second phase and therefore the new standards go into effect in Fiscal Year 2008-09. Staff from the City Manager's Office, Finance Department, and Human Resources Department have all attended seminars or informational presentations on the requirements of GASB 45. In addition, staff has already engaged Bartel Associates LLC as our certified actuary and expects their report in August. This puts San Rafael well ahead of the GASB 45 compliance schedule. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3 The Grand Jury's report addresses the issue of retiree health care costs with a particular focus on vesting and conflict of interest. The following are the proposed responses to the findings and recommendations in the report. Finding F1. Health care coverage is a valuable benefit to attract and retain employees. Response: Agree. Finding F2. Government entities generally pay more of their compensation in the form of benefits than the private sector. Response: We disagree as we have not researched specific private sector compensation packages. The City attempts to stay competitive with other local governmental entities and therefore researches their compensation including benefits, but does not compare compensation to private sector packages. Finding F3. Most government entities providing retiree health care and other non -pension retirement benefits must disclose the future and accrued cost of those benefits to the public within the next fours years pursuant to GASB 45. Response: Agree. Finding F4. Government budgets and union negotiations will be affected by the implementation of GASB 45. Response: We agree that GASB 45 will affect some governmental budgets and some union negotiations. In San Rafael, we have been accounting for retiree health benefits for many years using a "pay as you go" approach which sets aside funding each budget cycle for retiree health costs. In addition, we have accumulated approximately $12 million over time with the Marin County Employees' Retirement Association which can be used to fund retiree health obligations. With GASB 45, we agree that budgeting and negotiations will be affected. Finding F5. Unless legally determined otherwise, the issue of vesting for retiree health care benefits requires a fact -specific analysis. Response: We agree that vesting specifics are determined differently by different jurisdictions. Finding F6. Some government entities have not done the extensive research to determine if retiree health care benefits and the manner in which they are calculated are vested or can be changed or eliminated. Response: We have no reason to disagree but have not researched other governmental entities. In San Rafael, we are underway in our determinations regarding this issue. Consistent with the Grand Jury's fifth recommendation, we will not comment publicly on this question at this time. Finding F7. Public comments on vesting by government entities could result in creating a vested right where none previously existed. Response: This statement is very broad and speculative and would require further legal and other forms of research to respond. Finding F8. Unless government employers prudently manage the liability for retiree health care benefits, they will be forced to cut services, reduce benefits, and/or raise taxes to satisfy credit agencies. Response: This statement is very broad and asks jurisdictions to anticipate future opinions and actions of credit agencies. We agree these measures, or some combination, may take place in some jurisdictions. Other options to manage the liability may also exist or be developed. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 4 Finding F9. Financially weak government entities faced with staggering liabilities will be required to reduce benefits, raise taxes or reduce services. Failure to manage the liability could well result in bankruptcy for those government entities. Response: We agree that there are a large number of possibilities for all jurisdictions. However, the question is overly speculative so it is impossible to say the likelihood of bankruptcy for other governmental agencies. Finding F10. The municipalities and special districts have not taken appropriate aggressive steps to understand and begin to comply with the requirements of GASB 45. Response: Disagree. We can not speak to what other jurisdictions have done and if they have been appropriate or aggressive. However, in San Rafael, we have taken appropriate steps by attending multiple workshops and seminars on the topic, engaging an actuarial, and including compliance with GASB 45 in our 2 -year budgetary objectives. As the GASB 45 standards go into effect for San Rafael in Fiscal Year 2008-09, we are well ahead of the compliance schedule. Finding F11. Whether elected or appointed, public employees managing the retiree health care liability may also be eligible to receive the retiree health care benefits they manage. They are subject to a conflict of interest. Response: This statement is very broad and would require further legal and other forms of research to respond. Conflicts of interest, as defined by state law, must be analyzed with reference to specific facts and circumstances in light of the complex laws and regulations that may apply. Recommendation R3. All municipalities and special districts do extensive research on the facts and seek professional help to determine vesting issues. This work should be done by the end of 2007. Response: We are implementing this recommendation as we are doing extensive research and seeking professional assistance. Recommendation R4. The county, all municipalities and the special districts offering health care benefits consult with professional advisers to state clearly in employee and public communications whether retiree health care benefits are vested and the extent to which they can be changed, modified or eliminated. Response: The above describes a very specific manner of process (who to consult with, what to communicate, and how to communicate it). San Rafael will likely not use the above exact process, but will make vesting information available as appropriate. We are currently in the process of updating our retiree health policy. Recommendations R5. Unless they are certain of the status of vesting for retiree health care benefits, no government entity should comment publicly on the question of vesting because doing so may create a vested right where none exists currently. Response: We will implement this recommendation by not commenting publicly on the question. Recommendation R6. The municipalities and special districts take immediate, aggressive steps to understand now the requirements of GASB 45 reporting and that these entities, including the county, begin using the information generated for GASB 45 in labor negotiations and budgeting. Response: Our Fiscal Year 2007-09 budget will be approved prior to the completion of our GASB 45 actuarial study, but once the information is obtained, we will share it in the labor negotiation and budget process. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Paze: 5 OPTIONS: • Approve the Resolution • Modify Resolution and/or Reponses to Findings and Recommendations ACTION REQUIRED: The City is required to respond to the Grand Jury Report. Penal Code section 933(c) states in part: "No later than 90 days after the Grand Jury submits a final report ... the governing body of the public agency shall comment to the presiding Judge of the Superior Court on the findings and recommendations ... [contained in the report]." In compliance with this statute, staff has drafted for City Council consideration, a Resolution approving a proposed response, copies of which are attached for your review. ATTACHMENTS: Attachment A: Resolution Attachment B: Grand Jury Report "Retiree Health Care Costs: I Think I'm Gonna Be Sick."