are ordered the august th meeting of the santa barbara city council finance committee is there anyone in the audience who would like to speak to anything not on our agenda seeing no one will go to the first and only item on our agenda which present it to you and get your your feedback and recommendations hopefully to council that and we at the that you support these proposed responses so just by way of background the city of santa barbara offers what's called a defined benefit retirement plan which means that we guarantee a benefit based on years of service and in other formulaic components this calpers is the biggest or i should say calpers administers the city's pynch pension plan it i does the same for basically all cities are almost all cities in the state most counties there are some counties they have their own pension plan like the county santa barbara under the one thousand nine hundred and thirty seven act but the state of california is part of the per system and they are the largest pension system in the world they currently have somewhere around three hundred and fifty billion dollars of assets accumulated for the future payment of benefits or current payments of benefits as well so over the last decade as i'm sure you know public employee pensions have received a great deal of attention nationwide and even before the great recession of two thousand and eight there was there was the criticism of the fact that pers was the using what some believe to be an unreasonable discount rate that's the rate that they that they used and assumed in terms of what they're going to earn on their investments back in the early s it was seven and three quarters so they assumed that on average every year they would earn seven three quarters on their investments and even back then when when plans were in the s and s percentage funded there was criticism that they should be a hundred percent funded personally i didn't agree with those criticisms because i think if you you know over a thirty or forty year period  debt has enjoyed has been in the seven and a half to eight percent range even through this current date and included in a great recession if you look at any twenty or thirty year period calpers has earned on average closer to eight percent than what people think should case you know there has been this national attention but again because it's particularly because of the mizpah losses in two thousand and eight calpers did sustain about a twenty four percent a twenty four percent loss in their assets so at that point they were in the low three hundred billion range they went almost down to two  big hit for sure but in any case the the state the santa barbara county grand jury received complaints about the nine pension plans in the county so there are eight city plans plus the county's own plan and as a result of that they completed an analysis of those plans and developed a number of recommendations are actually findings and recommendations i have in fact was part of that analysis and they interviewed me and other finance directors in the county for some of our feedback but they basically came up with ten findings and two recommendations more i'm sorry they're more than that but we were required to respond to items three t because they affected us as well as recommended ations one and two and we are required to respond by september th we have ninety days to respond from the june th date our response options as they provide indicat which are kind of related we indicate that we disagree partially and for finding four we proposed that we would disagree wholly and then five throughs items five and then seven through ten we agree with so we're gonna spend our time and focus our attention on iowa's three six and four so within those findings there's basically assess two primary risks and i'll define what they mean but one is solvency risk and the other is liquidity risk and the solvency risk is related relates to findings three and six and  based strictly on on what they as their measure or indicator they looked at the funded ratio of the plans and what that means is how much do we have in total assets accumulated in for it pers with our plans versus what's our our crude liability and that's just a simple formula what the funded ratio is and that's that seventy percent eighty percent number we've been talking about so they they calculated the funded ratios across all the plans it's actually a number provided in the value and the valuation reports that pers produces every year and they basically determine that if you have a funded plan that's funded at less than seventy percent then you are considered to be a high risk and what the implication or what they're trying to suggest is that pers not the city that the calpers plans in the system itself because we're below seventy percent is an at high risk of going bankrupt or insolvent it's a solvency risk not with a city but with the system itself that they will run out of money in the future to not be able to pay benefits into the future or a long term it's a pretty pretty you know big you know thing to claim to that the system and that's why i brought up at the beginning that calpers is this is a big plan big systems three hundred and fifty billion dollars in assets and to suggest that they will be bankrupt in the near future not build up a benefits it's a big statement in my opinion so we disagree partially believe it or not with this but this finding because we do agree that funded funded status of sending percenter below that is not ideal we would like to be higher than that and i'll speak more to that but we also just flat out don't agree that the plans are in jeopardy of insolvency if you just for example if you were to pay continue to pay benefits for all retirees and future retirees and have no additional contributions from employers and employees we would be able to make benefit payments for the next fifteen years just based on what's there today so again point of time as a basis for the conclusion is fairly flawed it doesn't provide any context over the last fifteen years what's transpired you know it just happens that we've gone through with price that you know the worst fifteen year period in history us the nation and economically and the fact that we are close to seventy percent even today with all that is pretty remarkable and i think that to point that out that wearable slightly below seventy percent today and that as a basis to determine that we are have a high risk of insolvency is a little unfair it doesn't provide context or doesn't consider the cont we also just we believe that their assessment and they're finding doesn't take the consideration the recent actions that pers us taking over the last several years to address the fund status as you know even even before the change in the discount rate recently pers has made some changes that will help get us to a fully fully funded status that was the whole plan initially a number of years ago that said over a five year period we're gonna start raising raised to to get to a fully funded status and more recently they lowered the discount rate not because they believe they're not going to achieve that seven and a half or eight percent per year that they've enjoyed over the last three thirty or so years on average they just are trying to eliminate the volatility in the future and so what they're since since you've done is they shift the risk of volatility more to the employers and the employees rather than to themselves so basically what the actions they've taken is to in a sense strengthen the the the risk or lower the risk of the plan itself by shifting it more to cities but the plan itself i think is stronger because of those those actions on the part of pers and will will likely result in a near future of getting two or more fully funded status and then the last thing we our basis for our response is that the assessment does not factor the long term benefits of pepra which we really reduced formulas reduced our normal cost any questions than you know that piece comments on that the other risk that the assess was liquidity risk and that's finding number four and what that speaks to now is the city what they're suggesting is that the city is in high risk of not being able to fulfill its obligations and your contribution requirements over the over the near term or long term that at some point we're not going to be able to make those payments and the basis for this conclusion is that they basically looked at what are they going to be the projected pension costs over the next seven or eight years and what is and they made some assumptions of our revenue growth they looked at historical averages and they show a projected our responses we disagree wholly with us not even partially we wholly disagree that we are at high risk of not being able to fulfill our obligations to pers we historically have shown that we don't but first we have a policy that says we're not gonna adopt any deficit spending budgets we're know incur we're not going to look to pay for any of these things that are reserves we're gonna maintain balanced budgets and we we do have a history of addressing and managing these these big hits we did that in two thousand and nine after the two thousand and eight recession we had a ten million dollar that was ten percent of our budget and we were able to manage to get through that successfully and in fact during that period as we were since that period we would actually grow our reserves and with this one it's a known impact and it's a future impact and we will in my opinion we're gonna balance each year's budget through either cost containment cutting measures or we're gonna have new revenues to help us to ensure that we're able to pay it i just don't see or i don't see us not being able to and deciding not to make our payments or not being able to make our payments to pers or the next several years and so what we've done so far and what we will continue to do on the cost containment measure side is we are as you know we're shifting more even higher contributions to that so that's one of the things we've been doing we're also negotiating shorter term contracts just so we can be more nimble and respond to what may occur in the near future and then also negotiating sadr increases that are within our means as you know we our budget calls a one percent increase in salaries and we've been pretty good staying pretty close to that in our negotiations and that's going to help us long term and then what the the grand jury did not consider in factored in to their forecasts are the fact that we have new revenues coming in from cannabis taxes we don't know what the number is gonna be but it could it could be upwards of a million dollars per year when they're all up and running and we're also going to be getting additional sales taxes from the recent us supreme court decision on south dakota versus wayfarer that's going to provide more sales tax revenues to us that we're currently not enjoying for for those that occur out of state so the decision said that even if you're out of state do an online sales if it's being used here in the state of california we are entitled to those sales taxes so those two things are going to be providing us additional revenues that are all definitely offset those impacts and then the other thing is that it it doesn't recognize their findings doesn't recognize that fifty percent of our budget is outside the general fund and those utility funds particularly they have a lot more flexibility in being able to not only control cost but also to generate more revenues to cover those costs the recommendations that they came up with were one was that the city should analyze capital spending staffing levels revenues under our control to identify cost savings of revenue gains to address these increasing costs and there are responses sure we and we've been doing that and we'll continue  that that's certainly something we agree with and that the city produce a pension or a public report on its plan for addressing the rising pension costs and that is our intent between now and next next spring as we develop the budget we are going to be working on developing a plan that speaks to how we in fact are going to address the long term impacts of rising pension costs so that's something we agree with and and have indicated that is our intent so that's all i really wanted to cover like i said the other findings were where we agreed with there were pretty uh knock ewis but that's that's my report thank you for that presentation are there any questions