Loading...
02 February 14, 2007 Budget & Implementation(.1 79686 RIVERSIDE COUNTY TRANSPORTATION COMMISSION BUDGET AND IMPLEMENTATION COMMITTEE AUDIT AD HOC COMMITTEE AGENDA Wednesday, February 14, 2007 11:30 a.m. (following Commission meeting) COUNTY OF RIVERSIDE ADMINISTRATIVE CENTER 4080 Lemon Street, 3' Floor Riverside, California Conference Room B 1) TDA and Measure A Audit Results Overview This item is for the Committee to: 1) Receive and file the TDA and Measure A Audit Results Report; 2) Forward to the Budget and Implementation Committee, and 3) Forward to the Commission for final action. 2) Postretirement Health Benefits Liability and Funding Overview This item is for the Committee to: 1) Receive and file a report on the status of the calculation of the Commission's postretirement health benefits liability and related funding issues. 11.36.06 AGENDA ITEM 1 J i RIVERSIDE COUNTY TRANSPORTATION COMMISSION DATE: February 14, 2007 TO: Audit Ad Hoc Committee FROM: Theresia Trevino, Chief Financial Officer THROUGH: Anne Mayer, Deputy Executive Director SUBJECT: Fiscal Year 2005/06 TDA and Measure A Audit Results STAFF RECOMMENDATION: This item is for the Committee to: 1) Receive and file the Transportation Development Act (TDA) and Measure A. audit results report for the Fiscal Year 2005/06• 2) Forward to the Budget and Implementation Committee, and 3) Forward to the Commission for final action. BACKGROUND INFORMATION: In April 2003, Caporicci & Larson (C&L) was selected to perform the audits of Riverside . County's TDA claimants and Measure A recipients, except for the Riverside Transit Agency which elected to select its audit firm. This is the fourth year that C&L has performed these audits for the Commission; however, it: did not . perform the audit for the city of Beaumont. In October 2005, the city of Beaumont was notified by the Commission to engage an audit firm to _perform the financial and compliance audits of its transit and transportation funds commencing with fiscal year (FY) 2003/04. C&L has completed the audits of and issued the audit reports for most of the local governments, non-profit agencies, and transit agencies that received TDA and Measure A funds. Professional auditing standards require the auditors to communicate to the audit committee, or an equivalent group, to ensure additional information is provided regarding the scope and results of the audit that may assist in overseeing management's financial reporting and disclosure process related to the TDA claimants and. Measure A recipients. Such communications related to C&L's responsibilities and approach, summary of results, and preliminary findings will be discussed by Caporicci & Larson. Following are highlights of the presentation: Of the $1' 27,052,000 distributed related to Measure' A, State 'Transit -Assistance, and Transportation Development. Act, $84,494; 000, or :66.5 %, was audited by C&L. This comprised 33 recipients who received fundsfor transit, local streets and roads, and bicycle and pedestrian project purposes. $42,540, or 33.5%`, was not audited. The majority of these disbursements were related to TDA planning and administration funds :to agencies, including the Commission. As .of February 7, 2007, 33 .reports were issued. Issuance of two reports was -pending- approval bythe cities of Hemet and;, Moreno Valley., .Fieldwork was substantially completed for one additionaltioreci;pients; issuance of -this final . report for Care -A -Van was pending resolution of open items and completion of quality review procedures. Findings and observations will be discussed. Attached is the summary of transportation and transit fund operations ;and related audit results for the various types of TDA (Articles 3, 4, and 8) .and Measure :A' `(specialized transit and local streets and roads) funding. Each schedule provides information for each claimant and recipient regarding the revenues, expenditures/expenses, and change in fund balance/net assets for the year ended June 30, 2006; other financial and compliance information; summary of observations and findings; and other information pertaining to .the status or scope of work performed. Attachments: 1) Transportation Development Act Article 3 Schedule 2) Transportation Development Act Article 4 Schedule 3) Transportation Development Act Article 8 Schedule 4) Measure A Specialized Transit Schedule 5) Measure A Local Streets and Roads Schedule and. Comments' • Transportation Development Act Article 3 Schedule Year Ended June 30, 2006 Cathedral Desert Hot Moreno Palm County of Banning City .Corona Springs Hemet Indio La Quinta Valley Springs : Perris Riverside Riverside Temecula DRAFT DRAFT Revenues:. Intergovernmental allocations: Article 3 $ 202,500 $ 59,258 $107,1.83 $ 30,000 $ 16,707 $ - $ 62,991 $ . 21,550 $ 72,897 $ - $ 186,227 $ 88,973 $ 34,873 Other - - , - - - 100,000 - - . Other revenues 214,411 - - 9,604 - 235 - 100,000 - - Interest income 490 (194) - - - 6,973 - - - 477 583 Total revenues 417,401 _ 59,064 107,183 30,000 26,311 62,991 128,758. 72,897 100,000 186,227 89,450 35,456 Total expenditures 416,911 64,639 107,183 30,000 156,945 62,991 21,550 72,897 186,227 89,450 35,456 Excess (deficiency) of revenues over (under) expenditures _ 490 (5,575) (130,634) 107,208 100,000 Fund balances at beginning of year 4,881 - 167,944 - (53,475) Fund balances at end of year $ 5,371 $ (5,575) $ $ - $ (130,634) $ - $ - $ 275,152 $ - $ 46,525 $ $ - $ Deferred revenues at end of year $ - $ - $ $ 130,634 $ 1,465 $ - $ 43,668 $ - $ $ 98,607 $1.53,858 $ Source: 2006 Financial Statements Summary of Observations (Article 3 allocations are for specific bicycle and pedestrian proiects approved by the Commission) 1 Banning fund balance relates to excess transfers from other city funds as a match for grant funds. 2 Cathedral City deficit fund balance to be funded by transfer from other city funds, per city disclosure in financial statements. 3 Desert Hot Springs Audit Finding 2006-1 related to City not spending Article 3 interest on Article 3 expenditures of 2005 carryover funds: 4 Hemet deficit fund balance is related to deferred revenue balance. Amounts result from revenue recognition policy that revenues not received within 60 days after year end are not recognized as current year revenues. . 5 Indio retumed $1,357 to RCTC on 10/20/06. Difference relates to interest which may be used on future Article 3 projects. 6 Moreno Valley -fund balance is related to accumulation of transfers from city's Measure A fund. Audit Finding 2006-1 related to City not spending Article 3 interest on Article 3 expenditures as interest eamed is recorded in Measure A fund since most of cash is related to excess Measure A transfers. 7 Perris has a fund balance of $46,525, which city has indicated will be paid back to city's Measure`A funds in fiscal year 2007. Amount relates to Measure A transfer in excess of 2005 deficit fund balance. 8 Moreno Valley, Riverside, and County will be requested .to provide details on projects that such unexpended funds. are related to. Section 99234 2/8/2007 Total operating revenues Operating expenses: Depreciation and amortization. Other operating expenses Total operating expenses Operating loss Nonoperating revenues (expenses): Grants: Transportation Development Act Article 4 Schedule Year Ended June 30, 2006 (Note 1) (Note 2) Banning Beaumont Corona Riverside PVVTA SunLine_ . RTA $ 125,736 $ 243,334 $ 238,118 $ 63,051 $ 3,192,357 $ 7,145,886 236,909 147,242 406,450 90,828 1,863,234 6,730,744 1,044,316 1,516,339 2,511,251 775,187 18,487,874 41,489,354 1,281,225 1,663,581 2,917,701 866,015 20,351,108 48,220,098 (1,155,489) (1,420,247) (2,679,583) ' (802,964) (17,158,751) (41,074,212) Local: Transportation Funds 925,578 State Transit Assistance 9,430 Federal Measure A specialized transit Other . Interest income Interest expense (6,734) Settlement of lawsuit (Note 9) Transfers in (out) - Gain (loss) on sale of property 796 Recovery of bad debt to affiliate Other Total nonoperating revenue (expense) 929,070 1,598,592 2,785,622 777,115 20,562,017 44,336,072 Net increase (decrease) (226,419) 178,345 106,039 (25,849) 3,403,266 3,261,860 Net assets at beginning of year 816,823 1,278,071 692,645 362,024 7,978,330 34,797,119 Net assets at end of year $ 590,404 $ $ 1,456,416 $ 798,684 $ 336,175 $11,381,596 $ 38,058,979 1,105,834 2,249,481 710,886 10,359,699 28,926,373 106,500 93,032 72,269 808,595 1,316,130 348,069 440,586 5,152,361 11,896,259 - 3,764,919 - 10,000 - 1,069,632 12,902 '`` 5,302 147,831 444,913 - (32,519) (457,300) - - 522,456 20,134 - 12,800 - - 5,153 (205) (152,202) 1,501 (9,123) 2,728 (34,142) - 1,138,564 Deferred revenue at end of year: Operating $ .44,717 $ 157,883 $ 103,928 $ 11,202 $ 892,415 $ 707,428 Capital 106,531 112,991 125,278 69,755 5,510,474 2,177,048 Total deferred revenue at end of year $ 151,248 $ - $ 270,874 $ 229,206 $ 80,957 $ 6,402,889 $ 2,884,476 Required fare ratio 10.00% 20.00% 10.00% 10.00% 17.22% 17.73% Actual fare ratio 12.10% 20.30% 10.00% 11.00% 21.97% 19.34% Fare ratio compliance status Met Met Met Met Met Met Source: 2006 Financial Statements Note 1 Beaumont's 2005 and 2006 audits have not been completed by city's auditors. Note 2 RTA elected to select its independent public accounting firm, which met the requirements set forth by.the Commission in January 1998. Summary of Findings: 1 Banning incurred interest expense and Riverside recorded no interest income due to timing in filing of TDA claims. 2 Riverside Audit Finding 2006-1 was related to $90,102 of prior years' excess operating expenditures being applied against deferred operating revenue balances without SRTP amendment and RCTC approval. City is in process of requesting amendment and approval, 3 PVVTA had two audit findings. Finding 2006-1 was related to receipt of capital funds in excess of capital and debt service requirements. Finding 2006-2 was related to Agency's inability to segregate revenues and expenses for new and altered routes that qualify for exclusions from the fare ratio calculation. It wee determined that lack of segregation of revenues and expenses would not have affected compliance with the fare ratio requirement. Section 99260 2/8/2007 • Transportation Development Act Article 8 Schedule Year ended June 30, 2006 County of Blythe Riverside Revenues: Intergovernmental allocations: Article 8 $ , $ Other revenues 205,296 Interest income 16,644 Total revenues 205,296 16,644 Total expenditures 491,997 161,252 Excess (deficiency) of revenues over (under) expenditures (286,701) (144,608) Fund balances at beginning of year (544,173) 555,565 Fund balances at end of year $(830,874) $ 410,957 Source: 2006 Financial Statements Summary of Observations (Article 8 allocations for Western County and Coachella Valley ended in 1993 and 1987, respectively, as available LTF funds are . now used to meet transit needs. Article 8 allocations for Palo Verde Valley are subject to an annual unmet needs hearing.) 1 Blythe has had significant negative fund balance for a few years. Expenditures were not budgeted for. No disbursements of Article 8 revenue to Blythe have been made through 2006 due to unmet needs in Palo Verde Valley. At 9/14/06 Commission meeting, RCTC approved allocation of available Palo Verde Valley TDA monies for local streets and roads for Blythe and County. Blythe's share was $627,556, which will substantially reduce the deficit in 2007. Section 99400 (a) 2/8/2007 • Measure A Specialized Transit Schedule Year Ended June 30, 2006 Audits Agreed Upon Procedures (Note 2) (Note 1A) (Note 1A) (Note 1A) (Note 1A) Partnership for Friends of Beaumont Care Independent Volunteer Moreno Blindness Adult Inland AIDS Care -A -Van Connexxus Living Center City of Norco Valley Support School Project Operating revenues: Measure A $ 130,000 $ 340,698 $ 91,010 $ 17,843 $ 46,880 $ 65,342 - $ 48,650 $ 95,425 Interest income 305 285 - Other revenue 118,714 - - 19,443 Total operating revenues 248,714 341,003 ' 91,295 37,286 Total operating expenses 248,714 337,421 121,420 37,286 $ 81,000 $ 67,159 $ 50,277 $ 100,000. Change in net assets - 3,582 (30,125) Net assets at beginning of year.. - 30,5317 Net assets at end of year $ - $ $ 3,582 $ 412 $ - Deferred revenues $ $ $ $ Match requirement $ 65,000 $ 428,685 $ 143,523 $ 17,843 $ 23,440 N/A $ 26,498 $ 89,000 Actual match $ 118,714 $ 431,607 $ 154,940 $ 19,443 $ 23,440 N/A $ 30,437 $ 103,727: Match requirement compliance status Met Met Met Met Met N/A Met Met Source: 2006 Financial Statements Note 1 Full -scope audit was not performed due to grant amounts and/or purpose; however, agreed -upon procedures were performed related to the agreement and grant expenditures. Note 2 Care -A -Van audit has not been completed due to matching issues to be resolved. Summary of Observations (Measure A specialized transit grants are provided in two-year cycles, most recent cycle ended June 30, 2006) and Findings 1 Norco Department of Parks did not distinguish expenditures spent by the senior Citizen transit program from the rest of the Senior Citizen department expenditures. The city will set-up separate expenditure accounts to track Measure A Specialized Program expenditures in subsequent years. 2 RCTC staff to address accounting for cash matching requirements, which currently are not reflected in financial statements. 3 Partnership must request carryover of funds of $3,582 or return to RCTC. 4 Volunteer Center must request carryover of funds of $412 or return to RCTC. 5 Whiteside Manor received funds of $17,845 allocated for purchase of vehicle. Proper supporting documentation was provided to RCTC to support such vehicle purchase. Auditors not required to perform additional procedures. Measure A Specialized Transit 2/8/2007 LOOZ/8/Z 9 j0. l 48£'198'£$ 909`L8£'9$ 960`9£6'L $ ZZL 166 $ 5l4'91.917 $ 49£`ti94'ZL $ ZLl`L89$ • $ £84`LL4 $ LL6'96L'ZZS'£L L'9 Z6L`£91'9 Z09'186 8Z8`Z£5`£ ££8`l9V9 L9L1655 Z96`1.99 NS-I y aansealN legiqo pug saouel eq pund Jean;o 6uluul6aq saoueleq pund ;uaw;snfpe poped mud (£65`6Z6) £894ELZ1Z 406'l82.1Z OZZ'4 L89'£80`L LE5'Z00'4 504'LZ - (6917'980 samppusdxa (Jepun) JOAo sanuom jo Vouefogop) sseoxa £O9'00 L'Z 099`999 146`£ 1L'Z 669140Z' I. 968'££ L' L net, L8'4 906'£6 L • 610'£6 L' L saJn;ppuadxa ie;ol 649'6£ - - - 899196 - Isamu! L£8'L61 424`ZZ4 ledlouud :aolnJas;qaa - sluawenoidwl lepoue jeuol6o8 000199 - itegno le;lde9 • 646'49£ uopei;slulwpe pue 6upeoul6u9 - L L£`£98' I. 099'899 ; 1.176'£ LL`Z 669170Z` l 968`££ L' L 1.9Z`999'£ 906`£6l 6101£61` L aoueuemew pue uopru;suoo :sainmpuadxa sanuanaa le;ol . awooul ;sagaM sanuanaJ 191110 wei6oid lepope leuol6ai woad s;uawesmgwlaa s;uawasmquimd d ainseaw :suogeoolle leluawwano6mul :venue/at' O LZ' 111.11. £4Z`Z£81Z 948'96419 . 6 L'6`80Z` L £84'L LZ`Z £9L'9 L9'9 L L£' LZZ - 05519001L £60'991 LLL'90Z 884`Z91 £61'0£ £LL'09 998199Z 8£9'91. L6Z`4L 8Z8'L4 - Z561760'.£ - 91.9109L - 9ZZ'409 - - L L L'996 $ ZL019Z9`Z $ . £0£' L94'4 $ 9Z1.`81 l' L $ 0LL'99 L'Z $ £46`494'9 $ £L9`50Z $ 4i,9` L l8 9 1dVeCI Igte80 (l aloN) ooioN e)auanw °moo' aiouls13 eMe-1 ;awaH anon WalsaM euom0 esawlle0 :;uowneag 6uluues 900Z `0£ aunt pepue JeeA elnpayos speoa pue swarm moo, y amsem Measure A Local Streets and Roads Schedule Year ended June 30, 2006 Western County Banning Beaumont Calimesa Corona - Hemet Lake Elsinore Moreno Valley' 'Murrieta . Norco Components of fund balances: Reserved for encumbrances Reserved for specific projects Reserved for continuing appropriations - Reserved for advances -` 599,972 Designated for specific/future projects or cont approp - - - 2,378,865, Unreserved', undesignate_d_ 471,483 587,172 6,261,929 4,288,324 = 972 856.__ 4 060,329 8,387 505 3,267,41-2 Total fund balances by component $: 471,483 $ $ 587,172 $ 12,464,364 $ 4616,415 $ 991,722 $7,935,096 $ 8,387,505 -$3 867 384 Fund balance by year. received: 2006 2005 2004 2003 2002 1998 Total fund balances by year received Notes payable to RCTC at end of year Amount of Excess MOE at end of year MOE compliance. status . Source: 2006 Financial Statements Measure A LSR. $ 471,483 $. - - $ 378,688 ; $ : 328,091 $ 18,866 $; „1,495,902 $ - 5,823,747 _ $221,311 $ 8,816,763 $ 2,217,483 $ " 991,722 . $ .5,495,845 $ 2,832,243 $1,171.,210 186,766 3,647,601 1,904,100 2,439,251.. 2,260,225 1,196,591 170,598 494,832 - 1,421,978, 853,870 8,497 - 1,504,995, 256,073 368,064 - 389,640 $ 471,483 $ - $ 587,172 $ 2,627,884 Met $ 12,464,364 $ 4,616,415 $ 991,722 $ 7,935,096 $ - $ 1,484,790 $ $; . $ 8,387,505 $3�867,384 $ $ 599,973 N/A $ 24,823,454 $ 4,017,085 $ 8,781,233 $20,292,223 N/A ` ' $3,297,231 N/A Met Met w/use of Met` Met N/A (Note2) . Met (Note2) excess MOE 2 of 6 2/8/2007 Measure A Local Streets and Roads Schedule Year ended June 30, 2006 Revenues: Intergovernmental allocations:. Measure A Reimbursements Reimbursements from regional arterial program Other revenues Interest income Total revenues Expenditures: Construction and maintenance Engineering and administration Capital outlay Regional arterial improvements Debt service: Principal Interest Total expenditures Excess (deficiency) of revenues over (under) expenditures Prior period adjustment Fund balances at beginning of year Fund balances at end of year Western County. T Perris - 'CsiftM171 Riverside San Jacinto Temecula City Coachella Valle���yy���� "ITEs ri' 181 Coachella Springs Indian Wells $ 1,383,806 $ 9,717,087 $ 751,530 ' $ 3,798,437 $1,792,298 $ 949,522 $ 404,037 $ 245,313 497,210 6 566 - 46,215 - 132,358 766,901 44,377 143,812 86,373 28,131 2,013,374 10,483,994 796,473 3942,249 1,924,886 977,6.53 3,242,366 20,687,115 353,202 2,175,950 2,281,220 179,095 35,893 3,457,354 20,687,115 (1,443,980) (10,203,121) 3,827,523 $ 2,383,543 39,657,273 974,119 $ 29,454,152 $ 1,270,340 122,500 24,550 500,252 296,221. 17,517 20,022 . . 11,702 441,576 257, 015` 759,167 450,000 2,281,220 - 759,167 450,000 (356,334) 977,653 (317,591) (192,985) (49,142) 4,713,616 3,062,144 820,979 734,380 589,318 $ 5,914,359 $2,705,810 $1,798,632 $ 367,647 $ 396,333` 471,135 94,421 2,74.1,506 1,200,743 Measure A LSR 3 of 6 2/8/2007 Measure'A Local Streets and Roads Schedule Year ended June 30, 2006 Components of fund`balances: Reserved for encumbrances Reserved for specific projects Reserved for continuing appropriations Reserved for advances Designated for specific/future.projects or cont approp Unreserved,; undesignated Total fund balances by component Fund balance by year received: 2006 2005 2004 2003 2002 1998 Total fund balances by year received Notes payable to RCTC at end of year Amount of Excess MOE at end, of year MOE compliance status Source: 2006 Financial Statements Coachella Valle 'Cdth€ei?Ni = -- ""IM gii -fat r -....111.11111 ........ . Perris Riverside San Jacinto Temecula City Coachella Springs Indian Wells 10,088,608 _ 2,383,543 16,.178,027 1,270,340 5,914,359 2,705,810: 1,798,632 367,647 396 333 $ 2,383,543 $29,454,152 $ 1,270,340 $ 5,914,359 ` $2,705,810 $1,798,632 $ 367,647 . $ 396,333 $ 2,013,374 $ 10,483,994 $ 683,930 $ 3,942,249 $1,924,886 $ 977,653 $ 367,647 , $ 257,015 370,169 14,508,502 1,972,110 780,924 11142 - 139,318 4,461,656 586,410 - 375,960 433,877 - $ 2,383,543 $ 29,454,152 $ 1,270,340 $ 5,914,359 $2,705,810 , $1,798,632 $ 367,647 $ 396,333 $ 571,908 $ $ 391,835 $ 1,506,991 $ $ - $ - $ $ 12,527,070 $ 25,448,703 $ 9,885,871 N/A $2,442,384 Met w/use of Met Met N/A (Note 2) Met excess MOE $2,226,720 $ 298,643 $18,102,607 Met Met Met Measure A LSR 4 of 6 2/8/2007 Measure A Local Streets and Roads Schedule Year ended June 30, 2006, Revenues: Intergovernmental allocations: Measure A Reimbursements Reimbursements from regional arterial program Other revenues Interest income Total revenues Expenditures: Construction and maintenance Engineering and administration Capital outlay Regional arterial improvements Debt service: Principal Interest Total expenditures Excess (deficiency) of revenues over (under) expenditures Prior period adjustment Fund balances at beginning of year Fund balances at end of year Measure A LSR Coachella Valley "R5ii51'ia' Indio Palm Desert Palm Springs Mirage 1155rdv11aeT - - -1 Valley I 1 . County of Blythe I Riverside $ 1,703,133 $ 2,825,202 223,335 162,093 - 151,796 189,356 2,017,022 3,237,893 $ 2,000,975 2,320 166,294 148,507 2,318,096 4,370,340 1,251,684 1,298,885 182,632 $ 963,129 2,811,489 21,861 3,796,479 $ 846,997 $13,408,897 60,109 679,011 907,106 14,087,818 3,485,203 454,080 7,989,383 4,370,340 1,251,684 1-,481, 517 (2,353,318) 1,986,209 836,579 3,485,203 454,080 7,989,383 311,276 453,026 6,098,435 - (366, 903) - (454,124) 4,506,813 5,840,443 5,543,705 2,074,975 1,290,154 17,444,571 $2,153,495 $ 7,826,652 $ 6,013,381 $ 2,386,251 $ 1,743,180 $23,088,882. 5 ofs6 2/8/2007 Measure A Local Streets and -Roads Schedule Year ended June 30, 2006 Components of fund balances: Reserved for encumbrances` Reserved for specific projects . Reserved for continuing appropriations Reserved for advances Designated for specific/future projects or cont approp Unreserved, undesignated Total fund balances by component Fund balance by year received: 2006 2005 2004 2003 2002 1998 Total fund balances by year received Notes payable to RCTC at end of year Amount of Excess MOE at end of year MOE compliance.status Source: 2006 Financial Statements 1-pSrErViaar T - - -- I Valley I 1 'R5'ii6Rd"' ""`' — — — - 1_ County of. I . Palm Desert • Palm Springs Mirage Blythe 1 Riverside, .I $ ''1,407,784 - $ 1,271,698 $ :: 92,144 $ Coachella Valley' 5,992,012 6,562,078 2,294,107 426,856 2,153,495 (1,820,395): _ _."_ -. 1,743,180 - - $ 2,153,495 $ 7,826,652 " $ 6,013,381- 1 2,386,251 - $ 1,743,180 $ 23 088,882 $ 2,017,022 $ 3,237,893 $ 2,318,096 $ 2,386,251 $ 136,473 3,023,670 ` 2,341,616 - 1,565,089 1,353,669 • 907,106 $14,087,818` 836,074 .. 9,001,064 $ 2,153,495 $ 7,826,652 $ 6,013,381 $ 2,386,251 $ 1,743,180 $23,088,882 $ 22,798,121 $ 73,272,364 $ 21,934,063 $_ 27,538,355 $ 2,544,172 N/A Met Met. Measure A LSR 6 of 6 Met 2/8/2007 AGENDA ITEM 2 RIVERSIDE COUNTY TRANSPORTATION COMMISSION DATE: February 14, 2007 TO: Audit Ad Hoc Committee FROM: Theresia Trevino, Chief Financial Officer THROUGH: Anne Mayer-, ;Deputy Executive Director SUBJECT: Postretirement Health Benefits Liability and Funding STAFF RECOMMENDATION: This item is for the Committee to: 1) Receive and file a report on the status of the calculation of the Commission's postretirement health benefits liability and related funding issues; and 21 Provide direction to staff regarding the implementation of the accounting and financial reporting for postretirement health benefits. BACKGROUND INFORMATION: The Commission provides postretirement health benefits for eligible retirees and their dependents at retirement. Employees hired after January 1, 2007 mustmeet the Commission's vesting requirement to be eligible to receive health benefits paid by the Commission at their retirement date. The employer contribution payable for postretirement health benefits for each retired employee in this category will be equal to the state's contribution regulated by Government Code Section 22893. A minimum of 10 years of , state service credit is required to receive 50% of the employer contribution, of which 5 of those 10 years must' be performed at the Commission. Each additional service credit year after 10 years increases the employer contribution percentage by 5 % until 20 years at which time the retiring employee is eligible for 100% of the employer contribution. Employees hired prior to January 1, 2007 are not required to meet the eligibility criteria. The employer contribution payable for post retirement health benefits for each retired employee in this category shall be the rate paid for active employees, which monthly rate currently is $ 6.00. Currently seven retirees receive postretirement health benefits, which are funded on a pay-as-you-go basis. For the fiscal year ended June 30; 2006, expenditures of $37,897 were incurred for .postretirement health care costs for these retirees. The Governmental Accounting Standards Board (GASB) has issued Statement No. 45, Accounting and Financial Reporting by Employers for Postretirement Benefits Other Than Pensions, to address :the accounting and disclosure treatment for this type of plan. Effective with the fiscal year ending June 30,'2008,.the Commission will be required to recognize postretirement health care costs on; an accrual basis over a period approximating the employees' years of service. It must also <provide information about actuarial accrued liabilities: associated ;with :these benefits as well as the extent of progress . made in funding the plan, if any. While GASB' 45 doesnot require employers to pre -fund . postretirement health benefits, there are some advantages for the pre -funding of these- benefits. The advantages, as listed in roundtable discussion materialS"provided by. PERS, include: • Earnings on assets reduce employer contributions ,'significantly; • Investment return assumption (discount rate ;assumption) will - be higher, making annual expense and .the unfunded liability lower; • Prevents net postretirement health benefit obligation from becoming a significant liability on balance sheet; • Enhanced security for members; • Enhance, intergenerationalequity; and By not pre -funding, the employer's credit rating might :be. affected. ` In May 2006, theCommissionretained Bartel & Associates, actuarial consultants, to perform a preliminary calculation of the Commission's postretirement health benefitsliability as of June 30, 2006. The calculation resulted in the following: Present Value of Projected Benefits Discount Rate 415%1 6.5 %0' 4 3,6,26,000 $ 2,452,000 Funded Status: Actuarial :Accrued Liability (AAL) $ 2,170,000 Assets 0 Unfunded AAL.-(UAAL) FY 2006/07 Annual Required Contribution: Normal Cost UAAL Amortization Total Accrual Accrual as: a % of payroll $ 1,631,000 ,000 $; 1,631,000 1;47,000 124,000 98,000' 1 `11, 000: 271,000 107 °/u 20.9,000 - 8.2%0. The discount rate of 4.5 % assumes that the assets. are ;invested in the `. General Fund and are not pre -funded, while the discount rate of 6.5 % assu_rnes. that the assets are pre -funded and invested in a separate trust in .diversified investments. • • This preliminary calculation identified a few matters related to benefit provisions that required Commission action in November 2006. An updated calculation as of June 3.0, 2007, based . on the revised benefit provisions described in the first paragraph, will be performed prior to June 30, 2007. As a result of the initial calculation and the approaching implementation requirement, Finance staff has identified the following matters that require consideration: • Considering that the Commission has adequate cash available to fund the initial liability estimate of $1.6 million, should it pre -fund the liability or continue paying the benefits on a pay-as-you-go basis? • If pre -funding is desired, should the Commission join the pool that PERS has established for postretirement health benefits or should it establish its own trust? • What is the impact of these costs, pre -funded or pay-as-you-go, on the Measure A salaries and benefits limitation of 1 % of sales tax revenues? • To determine the sources of pre -funding, should the calculation include a determination of the benefits accrued prior to . and those accrued after the inception of the` 1989 Measure A? Staff has .submitted a . survey to the self-help counties to obtain information regarding the impact of GASB 45 implementation on their agencies, including consideration of the 1 % limitation. Additionally, Finance staff has consulted with legal counsel, the Commission's auditors, and the financial advisory team regarding the matters discussed above. A presentation will be made at the Audit Ad Hoc Committee meeting to discuss the matters presented above in more detail and to seek direction from the Committee regarding implementation of GASB 45.