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Item # 3.
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| Town Council Regular Session |
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| Information |
| SUBJECT: |
| DISCUSSION AND POSSIBLE ACTION TO AMEND THE FY 2016/17 ADOPTED BUDGET TO TRANSFER GENERAL FUND SURPLUS TO TOWN SELF-INSURANCE BENEFIT FUND AND COMMUNITY CENTER FUND, AND AUTHORIZE ADDITIONAL SURPLUS GENERAL FUNDS FOR THE REPAYMENT OF PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) EXCESS CONTRIBUTIONS TO MEMBERS |
| RECOMMENDATION: |
| Staff recommends approval. |
| EXECUTIVE SUMMARY: |
In order to close projected year-end deficits in the Town's Self-Insurance Benefit Fund and the Community Center Fund for the current fiscal year, Council approval is requested to amend the FY 2016/17 Adopted Budget to transfer $300,000 from the General Fund to the Self-Insurance Benefit Fund and $350,000 from the General Fund to the Community Center Fund. The estimated year-end General Fund surplus for FY 2016/17 is nearly $2 million based on the April 2017 Financial Status Report, and would be the recommended funding source for these budget transfers.
In addition, the Town received notice that the Public Safety Personnel Retirement System (PSPRS) Board of Trustees voted to recommend that employers begin refunding excess employee contributions related to the recent settlement of the Hall and Parker lawsuits. PSPRS has estimated the contribution repayment amount for the Town of Oro Valley at $1,073,051, including interest estimated at 5%. This amount could change upon final determination of the interest rate set by the courts. PSPRS is recommending that if an employer is able to make the payment in a lump sum to their members, this is the preferred method. PSPRS would then allow the employer the ability to utilize contribution credits made available to them to recoup the amounts paid out. Accordingly, staff is requesting Council authorization to utilize FY 2016/17 General Fund surplus funds to provide the lump sum repayments to our PSPRS members and then take the allowable credit against our FY 2017/18 employer contributions up to the point when we recoup the full amount paid out in the lump sum distribution. Once we recoup our lump sum amount, the Town's employer contributions to the PSPRS plan would resume on a per pay period basis. |
| BACKGROUND OR DETAILED INFORMATION: |
Transfer to Self-Insurance Benefit Fund
As mentioned in previous monthly financial reports to Town Council, staff noted the increased medical claim trends in the Self-Insurance Benefit Fund this fiscal year. As the end of the fiscal year approaches, it is estimated that the medical claims costs in this fund will outpace revenues in the fund by approximately $200,000 - $250,000, creating a fund deficit at year-end. Accordingly, it is best practice and a recommended budget control measure to transfer funds from the General Fund into this fund to close the anticipated deficit prior to year-end, June 30. Staff recommends a transfer of $300,000 from the estimated year-end General Fund surplus amount of nearly $2 million into this fund to close the deficit and provide a minimal positive fund balance to begin the 2017/18 fiscal year. As Council is aware, medical premium contributions were increased by 20% for FY 2017/18 as a measure to increase funding to the Self-Insurance Benefit Fund needed to pay our increased claims costs.
Transfer to Community Center Fund
Based on year-end budget projections presented in the April financial reports, it is estimated that the Community Center Fund will end the year with an estimated deficit of $285,000, including the $120,000 loan repayment transfer to the General Fund. Contributing factors to this deficit are mainly water costs due to unseasonably warm and dry weather conditions this spring and golf member dues revenues trending under budget. Staff is recommending a transfer of $350,000 from the estimated year-end General Fund surplus amount of nearly $2 million into this fund to close the deficit and provide a minimal positive fund balance to begin FY 2017/18.
Use of Surplus General Funds to Refund PSPRS Excess Contributions
Beginning in 2011, PSPRS employee contributions were increased in statute (via Senate Bill 1609) to help pay off the growing unfunded liability in the PSPRS plan. Contributions were increased annually between 2011 through 2016 from 7.65% to 11.65%. This increase was challenged in court and was ruled unconstitutional. The court decision requires that these excess contributions be repaid to all active and retired members with interest. While a final interest rate has not yet been determined by the courts, PSPRS has estimated the contribution repayment amount for the affected Town of Oro Valley members at $1,073,051, including interest estimated at 5% (subject to change). Per federal tax regulations, these excess contributions must be repaid by the employer, not from the PSPRS Plan directly. PSPRS is encouraging employers who have the available funds on hand to refund these contributions in a lump sum payment to reduce the interest costs. PSPRS will, in turn, provide employers with credit memos in the amount of the refund. Those credit memos can be taken against our FY 2017/18 employer contributions up to the point when we recoup the full amount paid out in the lump sum distribution. Once we recoup our lump sum amount, the Town's employer contributions to the PSPRS plan would resume on a per pay period basis. Accordingly, staff is requesting Council authorization to utilize FY 2016/17 General Fund surplus funds to provide the lump sum refunds to our PSPRS members and subsequently take the allowable credit memos against our FY 2017/18 employer contributions up to that amount. |
| FISCAL IMPACT: |
| The estimated FY 2016/17 year-end General Fund surplus is nearly $2 million as reported in the April financial report. If all of the above amounts are approved by Town Council for the purposes outlined, the estimated remaining surplus in the General Fund at year-end would be approximately $300,000, resulting in an overall ending fund balance in the General Fund of approximately $10.7 million. It is important to note that the amount used to refund the PSPRS contributions will be recouped during the first half of FY 2017/18 through savings achieved by not making employer PSPRS contributions. Once those savings have been recouped, the employer contributions will resume. Another important point to note is that General Fund operations will not be disrupted or affected by transferring these surplus funds to cover the deficits in the other funds noted above. |
| SUGGESTED MOTION: |
I MOVE to (approve/deny) the transfer of the following amounts from the FY 2016/17 estimated General Fund surplus funds:
- $300,000 to the Self-Insurance Benefit Fund
- $350,000 to the Community Center Fund
and further MOVE to approve the use of General Fund surplus funds for the lump sum refund of excess PSPRS contributions to all affected members, as specified by the PSPRS pension system.
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