HomeMy WebLinkAboutBUDGET & FINANCE AGENDA 05-18-09~~ Central Contra Costa Sanitary District
BUDGET AND FINANCE COMMITTEE
Chair Lucey
Member McGill (Alternate)
Monday, May 18, 2009
3:00 p.m.
Executive Conference Room
5019 Imhoff Place
Martinez, California
INFORMATION FOR THE PUBLIC
ADDRESSING THE COYIMITTEE ON AN [TEAT ON THE AGENDA
Anyone wishing to address the Committee on an item listed on the agenda will he heard when the
Committee Chair calls for comments from the audience. The Choir may specify the number of minutes
each person will be permitted to speak based on the number of persons wishing to speak and the time
available. After the public has commented, the item is closed to further public comment and brought to the
Committee for discussion. There is no further comment permitted from the audience unless invited by the
Committee.
ADDRESSING THE COMMITTEE ON AN ITEM NOT ON THE AGENDA
In accordance wish state law, the Committee is prohibited From discussing items not calendared on the
agenda. You may address the Committee on any items not listed on the agenda, and which are within their
jurisdiction, under PUBLIC COMMENTS. Matters brought up which are not on the agenda may he
referred to staff for action or calendared on a future agenda.
AGENDA REPORTS
Supporting materials on Committee agenda items are available fur public review at the Reception, 5019
Imhoff Place. Martinez. Reports or information relating to agenda items distributed within 72 hours of die
meting to a majority of the Committee ore also available for public inspection at the Reception. Dw'ing
the meeting, information and supporting nuuerials are available in the Conicrcnce Room.
AMERICANS WITH DISABILITIES ACT
In xeordancc with the Americans \\'ith Disahilitics Act and Calili~rnia Law, it is the policy of the Central
Contra Costa Sanitary District to olfer its public ntcclings in a manner th;u is readily accessible to
everyone, including those with disabilities. If you arc disublcd and rcyuire special accommodations to
patlicip:ne, please contact the Secretary of the Disu'icl :u ICaSI dtS hours in advance of the meeting at (927)
~"'9-730?.
~q~>>) 223-900
www.cenUalsan.or<~
Recycled Paper
Budget and Finance Committee
May 18, 2009
Page 2
1. CALL MEETING TO ORDER
2. PUBLIC COMMENTS
3. OLD BUSINESS
*a. Review Outstanding Questions
4. CLAIMS MANAGEMENT
*a. Review Outstanding Claims
5. REPORTS/ANNOUNCEMENTS
*a. District Response to the 2008-2009 Grand Jury Report
b. Review Position Paper on O&M Budget (Item 8.a. in Board Binder)
c. GASB 45 Monthly Investment (Staff will be sending investment to trust)
d. CCCERA Pursuit as a Special District
6. REVIEW EXPENDITURES (Item 3.a. in Board Binder)
a. Review expenditures
7. ADJOURNMENT
* Attachment
~a•
Central Contra Costa Sanitary District
May 15, 2009
TO: BOARD BUDGET AND FINANCE COMMITTEE
FROM: RANDALL MUSGRAVES
DEBBIE RATCLIFF ,®2
SUBJECT: May 4, 2009 Finance Committee Meeting
There were two outstanding questions from the last Board Budget and Finance
Committee meeting which required additional staff research. The questions and
answers are provided below:
1. 175442 Waxie Sanitary Supply -What is being purchased from this
vendor?
These supplies were requested by the new janitorial service, DMS. Three 5 liter
containers of floor stripper were purchased as well as three containers of floor
wax. The supplies are being stored in the warehouse as inventory for future use.
2. 175511 Sentinel Newspapers, Inc. -What was this invoice for?
This was a single advertisement for the San Ramon Household Hazardous
Waste event.
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May 15, 2009
Ms. Leslie Lea
Foreperson
2008-2009 Contra Costa County Civil Grand Jury
725 Court Street
P.O. Box 911
Martinez, California 94553-0091
FAX: (925) 676-7211
JAMF.SM. KELLY
Genera! Manager
KENTON L. ALM
Counsel jor the District
(5/O) 808-2000
ELA/NE R. BOF,NMF.
Secremry ajrhe District
RE: GRAND JURY REPORT NUMBER 0907 RESPONSE FROM THE CENTRAL
CONTRA COSTA SANITARY DISTRICT
Dear Ms. Lea:
On April 3, 2009, the Central Contra Costa Sanitary District (CCCSD or District)
received Grand Jury Report number 0907, dated April 2, 2009. The report specifically
directed a response to Findings #1 through 6, and 12-14 and the Grand Jury's
recommendations. The following is the District's response.
SUMMARY
The District shares your concern regarding the funding and impacts of Other Post-
Employment Benefits (OPEB). The District complied with GASB 45 requirements
securing an actuarial study identifying the future liability two years before we were
required to do so. The 2006-2007 actuarial study projected the District's Actuarial. j
Accrued Unfunded Liability (UAAL) to be between $65 million at a five percent interest
income and $92 million at a three percent interest income assumption. The 2008-2009,
second, actuarial study estimated our UAAL to be between $48 million at an eight
percent interest income and $68 million at a five percent interest income assumption.
The Annual Required Contribution (comprised of the retiree annual health premiums
plus the unfunded liability) was estimated to be $4.9 million in 2006-2007 and $6.2
million in 2008-2009 over a 30 year period with an assumed annual interest rate of five
percent. The District started setting aside $5 million annually starting in 2006-2007.
Approximately $2.2 million is paid annually for retiree healthcare premiums and $2.8
million for GASB 45 UAAL. A Trust Fund has been established for the liability. The
District has set aside $8.8 million to fund future liabilities. The Trust Fund is being
funded now that the financial markets have calmed. The District is currently soliciting
proposals for the third actuarial study. The District's annual contribution may be
adjusted based upon the findings and recommendations of the Actuary.
The District's retiree healthcare benefits are provided for in negotiated Memorandums of
Understanding (MOU) for employees who reach retirement age while working for the
District. These benefits are similar to benefits for active employees and are provided
through an HMO and an insurance company whose premiums are based on benefits
paid during the year. The District paid just under $2.2 million for healthcare premiums
for 178 eligible retirees for the year ended June 30, 2008.
FINDINGS
The following is the District's response to the findings.
Finding #1: Retiree health benefits have been recognized as an expense by the
pay-as-you-go method.
Response: Prior to GASB 45 publication, the District followed this method,
consistent with accounting, auditing and financial reporting requirements as
prescribed by the State Controller's Office.
The respondent agrees with the finding.
Finding #2: GASB 45 requires OPEB benefits to be accounted for on an accrual
basis.
Response: The District is in compliance with GASB 45 requirements.
The respondent agrees wifh the finding.
Finding #3: GASB 45 Expense recognition.
Response: The District complied with GASB 45 two years prior to the
requirement.
The respondent agrees with the finding and has complied with GASB 45
requirements.
Finding #4: To date in Contra Costa County there has been little or no funding of
the OPEB liabilities.
Response: The District's focus has been on addressing its own issues and
liabilities.
The respondent does not have the knowledge to confirm nor deny a finding that
pertains to another agency.
Finding #5: Most larger County governmental employers provide their
employees with extraordinarily generous retiree health benefits.
Response: The District's benefits are in line with competing agencies for new
hires.
The respondent disagrees with the finding.
Finding #6: Property Tax Revenue accounted for almost 93% of county tax
revenues.
Response: The District receives approximately $12.4 million annually from
property taxes with total budgeted revenue of $99 million, 12 percent of total
revenue. $3.8 million funds the annual debt service payment for the District's
outstanding $29 million debt. $8.6 million provides funding for one time capital
projects associated with equipment renovation or replacement.
The District assumes the finding is correct in general. However, Ad Valorem
Taxes make up only 12% of the District's total revenue.
Finding #12: Payment of 34% of the GASB 45 annual required contribution.
Response: For the past three fiscal years and the next fiscal year (2009-2010)
the District set aside 100% of the actuarially developed Annual Required
Contribution and is now investing it in a Trust Fund. The delay in investment was
due to market volatility. Therefore, District OPEB costs are not being transferred
to future taxpayers. The recommendation (funding of the Annual Required
Contribution) has been implemented. The District is currently soliciting a
proposal for the third actuarial study. The annual contribution may be adjusted
based upon the findings and recommendations of the Actuary.
The respondent disagrees with the finding as it applies to the District.
Finding #13: Reduction in future property tax revenue.
Response: The District will likely experience a reduction in property tax revenue
due to a decline in property values.
The respondent agrees with the finding.
Finding #14: Identified agencies with retiree healthcare plans.
Response: The District does provide retiree healthcare plans. The
recommendation (funding of the Annual Required Contribution) has been
implemented.
The respondent agrees with the finding.
RECOMMENDATIONS
"The Grand Jury recommends that these governmental entities implement sustainable
strategies to reduce retiree healthcare benefits."
The District has been negotiating with its bargaining groups since January 2009. One
of the District's goals is to reduce our retiree benefit liabilities. The District has
proposed a new tier of reduced retirement healthcare benefits for employment with the
District afterJuly 1, 2009.
Option 1. Implement a new defined contribution-type retiree healthcare program for
employees hired after July 1, 2009.
The recommendation requires further analysis. The District is currently negotiating
reduced retiree healthcare benefits for employees hired on or after July 1, 2009.
Option 2. Freeze the employer-provided portion of the retiree health plan for currently
covered active employees, regardless of age.
The recommendation is not currently being considered because the District could not
attract qualified employees while neighboring communities and wastewater agencies
provide better benefits and salaries.
Option 3. Require greater benefit or premium cost sharing from retirees.
It is the District's understanding that changes to retiree medical benefits for existing
retirees presents legal risks under the "vested rights" doctrine, which is well-established
under Califomia legal precedent. The District is currently negotiating for a new tier that
would reduce retiree healthcare benefits for future employees. The negotiating process
must be concluded prior to the District attempting implementation.
Option 4. Require retirees to pay all, or a portion of the cost of dependent coverage.
It is the District's understanding that changes to retiree medical benefits for existing
retirees presents legal risks under the "vested rights" doctrine, which is well-established
under Califomia legal precedent. The District is currently negotiating for a new tier,
reducing retiree healthcare benefits for future employees. The negotiating process
must conclude prior to the District attempting implementation.
Thank you for the opportunity to respond to the report. While the District disagreed with
some of the findings as they relate to the District, we share the Grand Jury's concern of
the impact of funding the already provided retiree healthcare benefits.
The District has been proactive and responsible in addressing the Other Post-
Employment Benefits (OPEB) requirements. Furthermore, the District has used
financial planning models and sound judgment to ensure proper prudent financial
management of the District. This is reinforced by the AAA bond rating the District
currently holds.
Sincerely,
James A. Nejedly
Board President
cc: Honorable Board Members ,.
James M. Kelly, General Manager
Grand Jury Contra 725 Court Stree
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Cotta Martinez. CA 93553.0091
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SECR
pr
, 2009 ;
,..:,__~:.~. ETARY OF THE DISTRICT
Board of Directors
Central Contra Costa Sanitary District
5019 Imhoff Place
Martinez, CA 94553
Dear Boazd of Directors:
Attached is a copy of Grand Jury Report No. 0907, "Retiree Healthcare Benefits Leave County
Taxpayers on the Hook - A New Approach is Required to Deal With Unsustainable Retiree
Healthcare Benefits Provided to Most Contra Costa Govei•rtmental Employees" by the 2008-2009
Contra Costa Grand Jury.
In accordance with California Penal Code Section 933.05, this report is being provided to you at
least two working days before it is released publicly.
Section 933.5(a) of the California Government Code requires that (the responding person or
entity shall report one of the following actions) in respect to each findine:
(1) The respondent agrees with the finding.
(2) The respondent disagrees with the finding.
(3) The respondent partially disagrees with the finding.
In the cases of both (2) and (3) above, the respondent shall specify the portion of the finding that
is disputed, and shall include an explanation of the reasons therefor.
In addition, Section 933.05(b) requires that the respondent reply to each recommendation by
stating one of the following actions:
The recommendation has been implemented, with a summary describing the implemented
action.
2. The rcconuncndation has not yet been implemented, but ~~ill he implemented in the
future, ~~°ith a time dame for implementation.
3. The recommendation requires further analysis. This response should explain the scope
and parameters of the analysis or study, and a time li•ame for the matter to he prepared for
disrussiun. 'Phis time frame shall not exceed six months ti•om the date of the publication
of the Grriuid .lul~~ Report.
`t
Board of Directors
Central Contra-Costa Sanitary District
April 2, 2009
Page 2
4. The recommendation will not be implemented because it is not warranted or is not
reasonable, with an explanation thereof
Please be reminded that Section 933.05 specifies that no officer, agency, department or
governing body of a public agency shall disclose any contents of the report prior to its public
release. Please insure that your response to the above noted Grand Jury report includes the
mandated items. We will expect your response, using the form described by the quoted
Government Code, no later than June 1, 2009.
It would be greatly appreciated if you could send this response in hard copy to the Grand Jury as
well as by a-mail to Lcuev contracosta courts ca gov (Word document).
Sincerely,
~~
LESLIE LEA, Foreperson
2008-2009 Contra Costa County Civil Grand Jury
,~
Contact: Leslie Lea
Foreperson
(925)957-5638
Contra Costa CountyL008-2009 Grand Jury Report No 0907
Retiree Healthca><•e Benefits Lea~-e
County Tatpayers on the Hook
A Yew Approach is Required to Deal With Unsustainable Retiree
Healthcare Benefits Provided to Most Contra Costa Governmental Employees
TO CONTRA COSTA COUNTY
Board of Supervisors
School Boards
City Councils
District Boards
SUMMARY
A fiscal disaster is looming on the horizon for Contra Costa County and other local
governmental entities-school districts, cities and special districts. Retiree medical plans,
by far the most costly of the Other Post-Employment Benefits (OPEB) now provided to
retired employees, cannot be continued in their present form without requiring that
potentially drastic reductions be made in the staffing of police, fire, education, health
care, and social services. These enormous liabilities were approved by past government
officials without a provision for future funding. The senior executives of Contra Costa
County and other local governmental entities must recognize that these unfunded benefits
could lead them 'into financial ruin. A significant reduction in public services is
occurring now and there can be no alternative in the future but to anticipate further
significant reductions in public services to those needing them the most: vulnerable
children, the disabled, the frail elderly, and the needy.
The liabilities and required annual contribution totals represent only a reasonable
accounting approximation of the arnuunts that will have to be borne by the County's
taxpayers if the current plans continue without change. The estimated liability for these
programs now exceeds X3.1 billion. County guvemments are presently paying an
average of only 3=1°ro of the .lnnual Required Contribution necessary to both amortize
these OPEB liabilities and cover the current year's costs. Because 66% of those annual
obligations are being deferred (approximately X162 million or 8°% of total County
property tat revenues), they will have to be borne by future County taxpayers. Failure to
address this shortfall is both irresponsible and indefensible.
Contra Costa County 2008-2009 Grand Jurj Report ~Vo U907 -_--~--- --
GranC:ury.9CpCrt5 ire poaed at http:; /w~4w.¢-iCUrt;.or¢;gam,:~ury PagQ 1
GLOSSARI'
Accrual Accounting:
:t m~thvd uJ'uc•iorurting }glrel'26V Ini gAle E117d e:YpillSl' !lC'l11$ (lYL' rei o~q!]e[1 ia!d rE'Cfirdid H'h<'/7 flli J/IIi 1.S eilrlid(l
clnd e.Ypel7Se 1S inC(lrrE'<'!, regru'dless o f.}~hen n:sh is ucR(a!!y reeeiyed or paid
Actuarial,-tccrued Liability (.-t.aL)
The portion of the a(.vuetrially determined present }•(aue of ben<fits allocated to the prior sen•ice nL'e(:(:y pcrlorn!ed
by the covered employees.
Annual Required Contribution (ARC)
The acn(arially determined amount of retiree healehiare expense that G,dSB -15 requires be recorded as a current
year expense. !t is comprised of the amolult that should beset aside to fund retiree health benefits earned during the
nlrrent year plus the amount necessary to amortize the unfunded,-i.9L over not morn than 30 years.
Government Accounting Standards Board Statement ;Vo. 45 (GASB 45), ".'t ccounting and Financial Reporting
by Employers jot Post-Employment Benefits other dram Pensions"
G.9SB a5 now requires larger p:tblic employers to report OPEB expenses and related specific information in their
financial statements.
Outer Post-Emp/oyment Benefits (OPEB)
OPEBs include the following benefrts that are earned by employees during their active service but are paid to them
by their employers after they retire: medical, prescription drugs, dental, vision care, hearing, life insurance, long-
term care and long-term disability benefts. Healthcare benefits constitute the vast majority ofOPEB liabilities.
BACKGROUND
Retiree healthcare benefits are a form of deferred compensation earned by employees during
their active working career but paid to them after they retire. To properly account and pay for
the costs of these plans, expenses should be recognized, and funding set aside, during each
covered employee's years of active employment. 1~•fost larger Contra Costa County
governmental entities providing retiree benefit plans have not done this. They have ignored the
fact that there is a need to fund the benefit during the period that each -employee is actually
providing services.
Governmental entities providing these benefits have generally recognized that they have a retiree
healthcare cost only ~r-hen an employee actually retires and begins to receive the promised
benefits. Previous accounting rules were shortsighted and technically allowed governmental
employers to ignore the cost of these plans during the active service period in which the
employees earned the benefits.
A new Government Accounting Standards Board Statement, called GASB =t~, was recently
adopted. This new standard now requires larger governmental entities to begin recognizing (but
not necessarily funding) retiree healthcare benetlt costs in their most recently completed fiscal
year, and smaller governmental entities to begin accounting tier them during the next two years.
OPEB liabilities incurred by County governments have generally been looked at on an individual
~'uvernmental entity basis; few are looking at these debts from an overall county-wide
e
Contra Costa County 2008-2009 Grand Jury Report No 0907 ---"
Grand :ury Pep,r,: are posted a[ Mtp://www.[c-ccurts.~;ry'grand;ury PagC Z
i
perspective. "Ihe payment source for substantially ull of the retiree healthcare benefits promised
b}• Contra Costa County's local governments will be borne by local taxpayers.. The great
majority of thesz County UPEB obligations have nut been funded, and the Grand Jury
determined that it would attempt to estimate their amount in total. To accomplish this, a sun•ey
was sent to substantially all school districts, cities and special districts that comprise County
local governments and a significant majority of these surveys u~cre completed and returned.
.•ypprosimatcly 30°% of these entities indicated that they did nut offer OPEBs to their employees.
The information submircd by the responding entities with OPEBs, supplemented by information
drawn from recent studies and from other public documents, provided the basis for the facts,
figures and statistics shown in this report.
FIiv~INGS
Retiree health benefits have traditionally been a form of compensation earned by County
and local government employees (e.g., pension income) over their working cazeer, .but
paid to them over the years they spend in retirement. In prior yeazs the cost of these
benefits was usually recognized as an expense only when actual payments began
following an employee's retirement (This method of recognizing an expense is
commonly described as "pay-as-you-go" or "paygo".)
2. GASB 45 now requires that larger governmental entities commence accounting for (but
not necessarily funding) these benefits on an Accrual basis -during the employees'
period of active service when the benefits are actually earned.
3. GASB 45 requires the following expenses to be recognized:
• the current yeaz's cost to fund that yeaz's earned benefits, plus
• the amount necessary to fund the unfunded OPEB liability for benefits earned but
not funded in prior years.
In most cases, these rules first became effective for public entities with revenues in
excess of $100 million for the fiscal year ended June 30, 2008. Smaller public entities
will be required to comply during the following two fiscal years.
4. To date in Contra Costa County there has been little or no funding of the OPEB liabilities
for most govemmental entities offering retiree medical benefits, including County, school
districts, cities, and special districts.
~. iVlost larger County goverrunental employers provide their employees with
extraordiciazily generous retiree health benefits.
(i. Property lases accot:ntcd for almost 93% of Contra Costa County tax revenues in the
most recent fiscal year with sales and other fates mctl:ing up the balance of total tas
revenues received. 1-hose locally derived taxes also represented a significant portion of
the revenue of school districts; cities and special districts located in the County.
7. The Board of Supervisors i)f Contra Costa County has committed to a future OPEB
liability turtling schedule liar the County, including a conunitment to contribute $20
Contra Costa COUnt;J 2008-2009 Grand Jury Report ~~0 0907 i --
Grand:ory,irpcrsareFcs:ed:¢h;; ~ vwwtc-crbrtsar[/gr.mdjury PegL 3
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million during the 2008-2009 fiscal ~•car. .1lthough no actual payments ~~cre made into
the County's OPEB Irrevocably Trust as of January i 1, 2009, $10 million is held by the
County Treasurer in a designated account.
8. As of January 1, 2008 the Cuunty's OPEB ubligatiun was determined to be 52.367
billion, or almost four times the County's covered payroll (annual payroll of active
employees covered by the plan) of $610 milliiln. Its Annual Peyuired Contribution for
the fiscal year ended June 30, 2008 was $19~ million, or almost 32°'0 of covered payroll.
9. The calculation to determine a liability for future payments is primarily dependent upon
the interest rate assumption. If the interest rate assumption is higher then the liability is
lower; if the interest rate assumption is lower, then the liability is higher. If no funding
mechanism is in place, and there is no expectation of putting money aside, the rules under
GASB 4~ require that a lower interest rate assumption be used.
The interest rate assumption that was used for the calculation of the OPEB liability and
ARC for the fiscal year 2007-2008 was 4.5%. The basis for allowing the use of a higher
interest assumption rate is that the entity will eam a rate of return on investments that can
be used to help pay for the future benefits. Because the funding commenced with the
current fiscal yeaz, the assumed interest rate vas increased to 7.75% in 2008-2009.
The result of the assumed interest rate increase w•as the OPEB liability dropped from $2.3
billion to 1.7 billion, almost solely due to the interest rate assumption change.
10. Based on information available to the Grand Jury, the current Actuarial Accrued Liability
for OPEB benefits due to employees of all larger Contra Costa County local
governmental entities, including those promised by the County, school districts, cities and
special districts, now exceeds $3.1 billion. These liabilities are summarized and shown
graphically as follows:
Liabilities of Contra Costa County and Local Government Entities
Contra Costa County $1,737,000,000
Contra Costa County School Districts 1,060,000,000
Contra Costa County Cities , 199,000,000
Contra Costa County Special Districts 124.000.000
Actuarial accrued liability for OPEB benefits $3,120,000,000
Lla6ilides d OC Cga,riy and Local C+otientnenb
53,9DD,000,000
53,000,000,000
bZ500,000,000
SZ000,000,000
51,500,000,000
S~,000,o0o,000
Ssoo,aoo,aoo
Contra Costa County 2008-2009 Grand Jury Report No 0907 l,.r, e ;~
Gracd Jury peputs are pelted at htP : ~
a //www.tt~courts.adrgrandjury a
total CauttY Sdnd Qttes Special
Liadlities ^~rids Qstricfs
11. 13ascd un thr same sources, the current Annual Required Contribution (ARC) and the
actual expense recognized (generally the current }ear's payment of health, dental and
vision insurance premiums tier retirees receiving benet7ts) are summarized as follows:
,Annual Required Contributiutt
Contra Costa Counq-
Contra Costa County School Districts
Contra Costa County Cities
Contra Costa County Special Districts
Total annual required contributions under GASB 45 $129,633,000
73,326,000
21,199,000
21,161,000
$245,324,000
annual Actual Expense Recoenized (Actual Contributions)
Contra Costa County
Contra Costa County- School Districts
Contra Costa County Cities
Contra Costa County Special Districts
Total actual annual expenses paid for OPEBs $36,000,000
31,699,000
6,986,000
8,663,000
$83,348,000
~rrxel RecXired Conihibtrians
~rsis~ Carrtr'ibudans
Stao4ooo,ooa
$1000,000
$100,000,000
$80,000,000
$60,000,000
$40,000,000
$2q 000, 000
I
12. As the summary numbers shown in Finding 11 indicate, County local governments are
currently only paying 34% ($83,3=18,000 / $245,32=3,000) of the Annua] Required
Contribution set forth in GASB 45. This means that the unpaid balance of the Annual
Required Contribution, ($2=15,32=1,000 - $83,3=18,000) $161,976,000, is being transferred
to future taxpayers. This transfer to future taxpayers takes place every year.
13. The 200 7-2008 property .tat revenue for the entire County was $2.077 billion.
Projections arc that this amount will decline signiticantly during the next several fiscal
years because of the current widespread decline in property values.
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14. Larger Contra Costa Ci,unty governmental entities ~yith identified retiree hcalthcctre plcuis
are:
• County: Contra Costa County
• School Districts: Lafayette Elementary, :~calanes Ltnion, John Swett Unitied, eft.
Diablo Unitied, Pittsburg Unitied, San Ramon Valley tlnitied, 14'est Contra Costa
linitied and Contra Costa Community College.
• Cities: Antioch, Brentwood, Concord, IVI~u-tinez, Pittsburg and Richmond.
• Special pistricts: Central Contra Costa Sanitary, Delta Diablo Sanitary and East
Bay Regional Parks.
15. Recent information provided to the Contra Costa County Board of Supervisors makes
clear that tax revenues and state support to the County are likely to decline for at least the
next several years. This reduction in projected revenue has been currently offset by
County Departments reducing their budgeted 2009-2010 full-time equivalent headcount
by 191 public safety, health care and social services positions. If the County were to
commence fully funding its ARC, its only practical source of near term future funding
would be to further lower its staffing levels.
16.On 1V1ay 6, 2008, the Contra Costa County Administrator presented the following
challenge to the Board of Supervisors:
"The ever growing health care expense demand on the general find will
consume our ability to provide public services. Given the size of our liability,
we cannot responsibly eliminate enough programs to fund our current health
care programs; we must contain and change the County's cost of health
care."
CONCLUSIONS
A number of County• governmental entities do not offer their employees retiree healtlcare
benefits. Moreover, in a •few cases local governments have substantially funded those benefits.
The conclusions and recommendations contained in this report do not pertain to them.
A significant number of the larger governmental entities in the County offer very generous
retiree healthcare benefits, and most have provided little or no funding to pay for those benefits.
These local governments must adopt a new paradigm -anew framework to deal with this issue.
Given the present economic em-ironment facing Contra Costa County government entities,
litnding the accumulated and accruing benrtits under these plans is not a realistic option. The
Grand Jury concurs with the inherent si~httion ro the challenge made by the County
Administrator to the Board of Supervisors on `-fay 6; 2008 -the only practical solution for both
the County, and other aft~cted C'uunt_v eoverntnenrtl entities, is to reduce the benefits olfered
under these programs.
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The plan documents, plan descriptions and underlying legal documents differ widely. Retiree
healthcare benefits are frequently subject to collective bargaining. Consequently, cash separntc
governmental entity will have to consult with its o«n counsel and advisors to detcrmire «•hat
design changes should be made or negotiated for its various employee groups.
:-~ "business-as-usual".pusition with respect to continuing to offer the same retiree health plans is
not a sustainable strateev.
RECOVIiv1ENDATION
Contra Costa County government entities .in most cases do not have the financial ability to
prudently pay for the current retiree healthcare benefits that have been, and are
continuing to be, earned by their employees. The Grand Jury recommends that these
governmental entities implement sustainable strategies to reduce retiree healthcare
benefits.
Several alternatives are:
• Option 1. Implement a new defined contribution type retiree healthcare program for
emplovees lured after July 1 2009. Under this type of plan, the government employer
.would contribute annually an agreed upon amount into each covered employee's separate
account. This contribution would grow with investment earnings until withdrawn. Each
covered employee would be entitled, at retirement, to draw from this account. The
amount withdrawn would be used to purchase a health insurance policy of choice. There
would be no employer responsibility to make any payments to, or on behalf of, the retired
employee following his/her actual retirement.
• Option 2. Freeze the emplover-provided portion of the retiree health plan for currently
covered active employees regardless of age. Any future cost increases would be borne
by employees when they commence to receive their retiree healthcare benefits. (With the
concurrence of legal counsel, this action could also be adopted for current retirees by
freezing the employer's payment at their current premium rate.)
• Option 3. Require greater benefit or premium cost sharing from retirees. This could take
the form of increases ui program deductibles, co-pays, co-insurance and out-of-pocket
macimums paid for by retirees, and,ior it could require that retirees commence paying a
larger portion of the insurance premium amounts.
• Option ~. Re uire retirees to pav all or a portion of the cost of dependent coy era~JC.
These options are not all inclusive and are intended to be illustrative only. Individual Contra
Costa County governmental entities will arrive at different plan design solutions that they deem
appropriate for their employee groups and tinancial situations. "the important point is that
benefits provided under retiree healthcare plans for most County governmental emplo~ecs must
be reduced.
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REQUIRED RESPO\`SES
Findings
Contra Costa Board of Supen~isors: 1 through 9 and 12 through 16
School Boards for: Lafayette Elementary, rlcalanes CJnion, John Swett Unitied, ~It.
Diablo Unitied, Pittsburg L~niticd, San Rarnon Valley Unitied, Nest Contra Costa
unified and Contra Costa Community College, 1 through 6, and 12 though 14
City Councils for: Antioch, Brentwood, Concord, Martinez, Pittsburg`and Richmond.
1 through 6, and 12 though 14
Districts Boards for: Central Contra Costa Sanitary, Delta Diablo Sanitary and East Bay
Regional Parks. 1 through 6, and 12 though 1=t
Recommendation
Contra Costa Board of Supervisors
School Boards for: Lafayette Elementary, Acalanes Union, John Swett Unified, Mt.
Diablo Unified, Pittsburg Unified, San Ramon Valley Unified, W"est Contra Costa
Unified and Contra Costa Community College.
City Councils for: Antioch, Brentwood, Concord, Martinez, Pittsburg and Richmond.
Districts Boazds for: Central Contra Costa Sanitary, Delta Diablo Sanitary and East Bay
Regional Parks.
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