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HomeMy WebLinkAbout05 - Pension Reform IniativeCITY OF NEWPORT BEACH City Council Staff Report Agenda Item No. 5 February 11, 2014 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: City Manager's Office Dave Kiff, City Manager 949 - 644 -3001, dkiff @newportbeachca.gov PREPARED BY: Dave Kiff, City Manager APPROVED: TITLE: Resolution No. 2014- 9 Expressing Support for "The Pension Reform Act of 2014" ABSTRACT: A bipartisan coalition of California mayors drafted and is circulating a statewide ballot initiative, "The Pension Reform Act of 2014" ( "Pension Reform Act "), to provide state and local governments options to manage and rein in public employee retirement plans. The City Council of the City of Newport Beach ( "City ") has an established history and practice of fiscal responsibility and supports the Pension Reform Act because it helps ensure there are adequate resources available to fund essential and beneficial City services today, tomorrow and in the future. Adopt Resolution No. 2014- 9 Expressing Support for "The Pension Reform Act of 2014." FUNDING REQUIREMENTS: There is no fiscal impact associated with the adoption of this resolution DISCUSSION: The Little Hoover Commission on California State Government Organization and Economy ( "Little Hoover Commission ") issued a 2011 report entitled Public Pensions for Retirement Security, which found, in part, "California's pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently." The Little Hoover Commission concluded, "[u]nless aggressive reforms are implemented now, the problem will get far worse, forcing Resolution No. 2014- 9 Expressing Support for "The Pension Reform Act of 2014" February 11, 2014 Page 2 counties and cities to severely reduce services and lay off employees to meet pension obligations." In response to the findings of the Little Hoover Commission, a bipartisan coalition of California mayors came together to craft common -sense solutions to the impending pension crisis. The Pension Reform Act amends the California Constitution to give state and local governments an opportunity to negotiate changes to existing employees' pension or retiree healthcare benefits on a going - forward basis. Currently, the courts have ruled that the California Constitution permits changes to retirement plans for new public employees, but prevents changes to retirement plans for existing public employees. The City Council values and appreciates the dedicated and hardworking men and women who work for the City and provide unparalleled service day -in and day -out to City residents, visitors and businesses. It remains challenging to balance the benefits provided to employees and the money that is available to provide essential and beneficial City services and infrastructure to residents, visitors and businesses. Newport Beach has led local pension reform efforts. The City has worked to reduce staffing and pension costs in a variety of ways, including negotiating agreements with employee associations that increase employees' contributions to their pensions and adopting two new retirement tiers with reduced benefits for new hires. The Council has expressed that they greatly appreciate the willingness of our current employees to participate in addressing pension costs. In recognition of the pension reforms and conservative fiscal policies, the City received a Rose Award from the Orange County Taxpayers Association. If qualified for the ballot and passed by the voters (and if it survives legal challenges), the Pension Reform Act of 2014 does these key things, among others: • Authorizes governments to negotiate lower benefit formulas for existing employees for years not yet worked, while not affecting formulas for years worked. For example, a non - Safety employee who has worked 20 years under a 2.5% at 55 plan might, through negotiations, have the final 5 or 10 years of his or her career worked under a 2% at 60 plan. The Act does not dictate benefit levels and doesn't require any change in them — it allows such changes to be negotiated. • Requires governments to review the funded status of their retirement plans (determining to what extent actuarial liabilities exceed assets) on an annual basis. If the funded status slips below 80% (i.e. the market value of assets is less than 80% of actuarially- estimated liabilities), then the local government would have to develop and publish a report showing what actions would allow the plans to achieve 100% funding. 4 Resolution No. 2014- 9 Expressing Support for "The Pension Reform Act of 2014" February 11, 2014 Page 3 If adopted by the Council, the attached resolution states that the City Council supports the Pension Reform Act of 2014 because it gives state and local governments an additional tool to responsibly manage the public's finances and ensure a stable work force and the continuation of existing and new essential infrastructure and services. We note that as we prepare this Resolution, news articles point to a challenge by the initiative's proponents to the language prepared by the California Attorney General that summarizes what this initiative might do. As a result of this challenge, proponents may not have enough time to secure signatures for the November 2014 ballot and may instead seek signatures for a 2016 statewide ballot. ENVIRONMENTAL REVIEW: Staff recommends the City Council find the adoption of this resolution is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. This agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers this item). Submitted by: Dave K —�` iff City Manager Attachment: Resolution No. 2014- 9 7 RESOLUTION NO. 2014- 9 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA EXPRESSING SUPPORT FOR "THE PENSION REFORM ACT OF 2014" WHEREAS, in 2011 the Little Hoover Commission on California State Government Organization and Economy ( "Little Hoover Commission ") issued a report entitled Public Pensions for Retirement Security, which found, in part, "California's pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently "; WHEREAS, the Little Hoover Commission concluded, "[u]nless aggressive reforms are implemented now, the problem will get far worse, forcing counties and cities to severely reduce services and layoff employees to meet pension obligations "; WHEREAS, the City Council values and appreciates the dedicated and hardworking men and women who work for the City of Newport Beach ( "City ") and provide unparalleled service day -in and day -out to City residents, visitors and businesses; WHEREAS, the City Council's highest priority and duty is to ensure the City's residents, visitors and businesses receive the best services and infrastructure available; WHEREAS, the City Council has an established history and practice of championing fiscal responsibility to ensure resources are available to fund essential and beneficial City services today, tomorrow and in the future; WHEREAS, the City Council desires to balance the needs of its employees and the duty it owes to City residents, visitors and businesses by providing retirement benefit plans that are sustainable, responsible and fiscally sound; WHEREAS, a bipartisan coalition of California mayors has sought to place pension reforms before the voters either in 2014 or 2016; and WHEREAS, these pension reforms would not change existing employees' benefits for years already worked, but would allow the negotiations process to be used to change benefits for existing employees' years not yet worked to a different benefit level. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City Council of the City of Newport Beach supports "The Pension Reform Act of 2014" (or its successor measure on a 2016 ballot) as advocated by a bipartisan coalition of California mayors. "The Pension Reform Act of 2014" would, a among other things, allow local agencies to negotiate a reduction in future pension obligations for current employees to provide stable employment opportunities and ensure that local governments are able to continue to fund governmental services and infrastructure. Section 2: The recitals provided in this resolution are true and correct and are hereby incorporated into the substantive portion of this resolution. Section 3: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting this resolution. ADOPTED this 11 day of February, 2014. ATTEST: Leilani I. Brown City Clerk Rush N. Hill, II Mayor -2- s