BUDGET COMMITTEE MEETING
April 14, 2009
Harris Hall Main Floor
Chair David Crowell presided the Budget Committee with Budget Committee members present: Scott Bartlett; Bill Fleenor, Rob Handy, Denis Hijmans, Alice Kaseberg, Peter Sorenson, Faye Stewart and Rose Wilde present Bill Dwyer excused. County Administrator Jeff Spartz, County Counsel Liane Richardson, and Recording Secretary Melissa Zimmer were also present.
I. CALL TO ORDER
David Crowell, Budget Committee Chair
II. APPROVAL OF MINUTES
December 2, 2008
December 9, 2008
January 27, 2009
MOTION: to approve the above minutes.
Fleenor MOVED, Kaseberg SECONDED.
III. OREGON PERS
Communications Officer, PERS and Dale Orr, Actuarial Services Manager, gave a
power point presentation on PERS Update. (Copy
Orr said starting
July 1, 2009, they will have a three percentage point of payroll decline in
employer rates. He said they are
cautioning employers to recognize it is a temporary decline.
He said those dollars shouldnít be spent for payroll or things in the
future. He said there needs to be
flexibility because of the decrease employers are getting in the employee rate
that in anticipation of rate rises in future years, they are not giving their
departments a break over the next few years.
He said they are holding the PERS funding level constant.
He indicated that there will be some reserves available if there is a
rate hike in the 2011 biennium available to help cover that.
Senior Budget Analyst, said because they know they have the $1.5 million PERS
bond, the Board indicated they would like to pay off the callable piece.
She stated that because rates went down, they kept the rate constant.
She added that they put more into the PERS bond for next year so they are
able to pay off the callable piece by the end of next fiscal year. She said it left the employer rates more than what was
charged, so there will be a little reserve.
She indicated that it was based on the Boardís direction and built into
the proposed budget.
IV. RETIREE MEDICAL
James Kenney, Kenney Consulting, said the County has the responsibility for a long-term commitment to active employees and to the retired employees who are covered by the post employment medical program. He said they determine all future premiums on people covered by the plan and try to convert it into an amount of money in todayís dollars as a single sum. He indicated that is what the incurred liability is under the Countyís plan.
With regards to keeping the plan from costing more than the County can afford, Kenney noted that the County had already taken major steps concerning the plan. He said the County froze the plan. He indicated the people who are covered by the plan now are only people who were hired between 1987 and 1991. He said the savings cost of the plan with controlling and preventing new people from joining the plan has been taken care of and is not an option for the future. He said another possibility is changing terms of the plan, but under Oregon Law, it is difficult for a public entity to do. He said once they have made a promise to employees and that employee has continued services, they donít stop the promise. He commented that courts do not look favorably at going back to change the promise.
Kenney explained that the plan is for people who retire prior to Medicare eligibility. He said Lane Countyís plan continues coverage under the medical program and pays the premiums for those retirees. He added that once the retirees turn 65 and become eligible for Medicare, then the program pays for the Part B premium and for the supplemental premiums associated with Medicare.
Kenney reported that the average age of employees covered by the plan is 54. He added for employees who are not covered by this plan, the average age is about 43. He noted people who are covered by the plan have almost 19 years of service. He added employees who are not covered by the plan have an average period of service of six years. He noted that most employees are close to being eligible to retire. He said they probably met the service requirements under the plan. He noted of the total employees, 489 employees are covered by the post employment medical plan and 940 other employees are not covered by the plan. He noted the amount of the liability is $65,208,658. He added they take that amount and spread it over a 30 year period, based on assumption they will have a stable population of employees in the future and they converted it into an amortization of the liability they already accrued of $2.3 million. He said there is an additional accrual of benefits of $1.4 million. He stated that the total annual cost under this approach is about 5.3 percent of payroll. He indicated they are based on how things will go in the future. He said although the County has about $8.5 million worth of assets that have been earmarked for this post employment medical plan, they were not allowed to consider those assets in their evaluation due to the requirements of the Government Accounting Standards for #45. He added that in order to utilize those assets in their evaluation, those assets would have to be in an irrevocable trust. He said currently they are not in an irrevocable trust and they were not allowed to consider those assets.
With regard to the future, Kinney said his business is to take what might happen in the future and put a monetary value on it today. He said in order to do that he has to make assumptions and he takes computer models to generate cost figures. He said they have to figure out what will happen with health care premiums in the future. He said health care premiums have been going up at an alarming rate over the past few years. He assumed that 2009 premiums will be ten percent greater than 2008 premiums. He added the 2010 premiums will be 9.5 percent greater than the 2009 premiums. He said they level off at an assumed rate where health insurance premiums are six percent. He said they are using a six percent ultimate rate starting in 2016 for their health care inflation rate. He noted the discount rate for the County is 4.5 percent because under the GASB #45, states that unless assets are set in an irrevocable trust, they can only use an interest rate that is equal to the expected earning rate on their general assets of Lane County. He added that Lane Countyís business model is that they could earn 4.5 percent on general assets. He said it means that health care premiums are increasing at six percent in the future, but they are discounting the premiums to four percent. He added the premiums paid thirty years from now will cost more than premiums paid ten years from now. He wanted to use a six percent interest rate to value the discount for plan liabilities so health care inflation rate and the discount rate to bring money back into the present is equal.
Kenney explained that if the Board is interested in controlling the actual annual cost for this year and into the future, the best way is to create an irrevocable trust and put in the $8.5 million earmarked for the program. He said it would allow the County to reduce the costs from 5.3 percent payroll to 4.3 percent payroll. He added that there are disadvantages to an irrevocable trust. He noted that assets cannot be used for any other purpose. He said the dangers of creating an irrevocable trust are more theoretical. He recommended setting an irrevocable trust and transferring over the money that has already been earmarked.
Kenney said the County could try to reduce costs by changing the legal nature of the premise they are making to employees. He said it would require negotiating with employees. He thought a buyout program could be set up or to make other concessions and get a legally binding change to the program that would reduce the future costs. He thought there were other approaches. He indicated that the cost of this program is based prior to age 65. He said the premiums they use to calculate are based on the premiums for all of the employees whether they are covered by the program or not He recommended instituting a wellness program so their overall medical costs would go down and it would decrease the post employment medical costs. He said to encourage the employees covered by this program to stay with the County until they reach age 65 because the premiums prior to age 65 are three times the cost of the premiums after age 65.
Kenney explained that creating an asset pool will not change the cost of the program. He stated that the program costs will be driven by the actual experience of the covered population. He said those things are unaffected by whether the County sets up an irrevocable trust. He thought it was to the Countyís advantage to set up an irrevocable trust because he believes that evaluating the cost of the program using a 4.5 percent discount rate is unrealistic. He added the County could invest the assets more aggressively than the Countyís own general assets.
Stewart asked if they put another $8 million into the irrevocable trust if it would reduce the overall yearly employee cost by one percent for each $8 million.
Kenney responded that he would have to work out the details. He said they are approaching the point where they will be doing another evaluation for the County. He didnít think it would drop costs by another one percent. He thought it would drop it by 6/10ths of a percent.
Kay Blackburn, Finance, explained that the advantages to an irrevocable trust are savings in terms of an accounting standpoint. She said they are not actual savings in the cost of a plan. She said there would be savings in an annual actuarial value cost, but it doesnít save anything in terms of the actual cost of providing benefits.
Kenney said it was a matter of accounting and how they define the annual expenses instead of the actual cost of the program over a long term basis. He said it could be controlled only through helping people stay healthy or by encouraging people to defer their retirement until age 65.
Handy asked how they would encourage employees to remain on until age 65. He asked how they could help employees stay healthy.
Spartz thought they could offer any employee who is eligible for the retirement benefit and stays until they are eligible for Medicare so many dollars per year that is set aside, and is payable the day they reach 65. He said they could try to keep employees healthier. He discussed employees possibly trading some of their time management for a membership in an athletic club or a bicycle or treadmill. He said this would be on a voluntary basis
Moody commented that if they encouraged employees to stay on through age 65, the County would also be covering family coverage while they are employees. She said once they retire, they would only pay for the retiree.
V. UPDATE ON FY 08-09
State budget impacts
Federal stimulus impacts
YTD budget adjustments
Projected year end reserves
Fin Plan and MuniCast
to FY 09-10 Proposed Budget
Dave Garnick, Budget and Finance Manager, reported that for the next biennium, the state is looking at a $5 billion deficit. He indicated the state of Oregon has asked all of their departments to come up with cuts as deep as 30 percent. He noted the state of Oregon will receive several billion dollars in federal stimulus, but it wonít be enough to close a $5 billion hole. He said the legislators will be waiting until the May forecast and basing their decisions on that forecast. He indicated at this point Lane County doesnít know what all the state cuts will be. He noted Lane County has federal timber money of about $13.5 million this year. He added that the Board spent $825,000 to keep some services whole through June 30. He said the rest of the funding will be rolling forward, as that was the direction Budget Staff has taken in preparing the 09/10 Budget. He said they were told to preserve the services they have now and in response to some of the community requests, there will be some add packages. He said the unknown is what the state will do and because so many of the dollars help provide services at the local level, they wonít know what the impact to Lane County will be from the state budgets.
Garnick explained the MuniCast Tool. (Copy in file). He said this was designed specifically for governments to input actual information and in the process, they would be able to do ďwhat ifĒ scenarios. He indicated they will be able to do up to ten options for revenue and up to ten options for expenditures. He said he will need to know about the scenarios in advance of the meeting because he will need to build them.
Garnick recalled the last time the Budget Committee met, he distributed a sheet that when the committee adopted the budget for 08/09, they added $7.5 million of additional services they didnít have money for. He added that for the 09/10 Budget, there are add packages that are over and above what was funded for 08/09. He said he will have information on what the differences are between 08/09 and what has changed as a result of the proposed budget. He said to keep the current level of services funded at next yearís cost, the budget went up several million dollars.
Fleenor commented that it appears the structural deficit will get worse and the property taxes will be going down, with expenses going up. He asked how much it would take for them to be even.
Garnick responded that at the current rate they are spending, it will be $7 million to $10 million to stay even.
Sorenson asked when the budget is released what the numbers would be for July 1, 2014. He stated that he wanted a zero balance and he wanted to know what needed to be cut in this upcoming budget to achieve a zero balance in 2014.
Hijmans asked if they could discuss the stability issue sooner than the last day of the budget deliberations. With regard to the upcoming budget calendar, he noted there was no time to comment or discuss stability issues prior to the last meeting. He hoped they could modify the schedule to give them some time for discussion.
Spartz asked if they wanted to make modest improvements in their criminal justice system by adding jail beds and prosecutors or if the Budget Committee wanted to get four or five years of stability in the budget system. He proposed adding jail beds and help in the prosecutorís office. He stated that would allow for three years of stability. He added if they want to cut back to the bare minimums, and maintain the Sheriff and District Attorney at their current service levels, they could squeeze out another year. If they wanted to have five years of stability, it would require 70 layoffs starting at the end of this fiscal year.
Crowell indicated that Handy distributed a proposal. (Copy in file).
Crowell recalled that the County received four years of timber money. He wanted to spend the four years of funding Congress gave Lane County in the four years they received it. He said if they havenít spent any money this year, then spend the money in the next three years. He thought they should spend the vast majority on public safety. He wanted to add back jail beds and deputies. He commented that the public safety system is in absolute shambles.
Sorenson thought a longer stability of time was better than a longer period of instability. He said if the proposed budget has the reductions and the public comes in and tells them to make adjustments, then that is what they should do. He asked what the impact on the plan would be to add 84 jail beds.
Kaseberg was concerned about being honest with the public. She said if they donít spend the money, it appears they donít need it. She said the County worked so hard to get the money and they set it aside. She wondered if they would lose points with the community and federal government if the money is not spent appropriately during the years. She was concerned that if they donít invest in things now, it will cause them problems in three years of having to roll it all back. She wanted to see the 84 bed scenario shown to them so they can see what it looks like in and out of the budget. She thought there were other areas they needed to review.
Stewart shared the concerns that Kaseberg and Crowell expressed. He said they worked hard to receive four more years of Secure Rural School payments. He heard loud and clear from Washington, D.C. that they heard Lane Countyís needs of jail capacity and the laid off employees. He said they responded by giving the money. He said the Board is doing nothing to hire those people back and provide the services they begged to keep. He thought that needed to be considered. He heard that the legislators for Lane County are working to find a permanent solution. He commented that it was premature for them to assume they have no more money. He believed they should commit to work with their legislators and do everything they can to try to find a permanent solution. He added that they should also work with the local citizens. He commented that they have serious problems and he wanted to see them worked on. He added that it is not all public safety, they also have public health issues that need to be discussed. He stated that every scenario they look at shows that if they donít find different revenue mechanisms and different ways to pay for them, they will sink. He was in favor of trying to allocate the money to buy the services they promised the people who got them the money and find ways to work toward a brighter future for Lane County.
Bartlett wasnít aware when people asked for the reauthorization for Secure Rural Schools that it was exclusively for jail beds. He thought it was a key component. He heard from employees who lost their jobs and he is sympathetic to them. He didnít know the cause and effect relationship between the jail bed closure and any statistical increase in crime. He indicated that when they received crime data from the District Attorney in prior briefings, almost every indicator had shown crime going down in the past ten years. He didnít think they were in a dire disaster. He hears that citizens want resident deputies in rural Lane County. He wanted to see fewer people pushing pencils in the courthouse and more people putting pushers in the pen. He wanted to know the facts. He was okay with adding 84 beds if that would really save lives and preserve public safety. He said they have to be judicious about how they spend the money. He thought they should have a middle ground focus on preventing the causes, not just dealing with the symptoms.
Handy said they need time to work out the policy matters and options. His commitment to his constituents when he ran for office was that the County needs to live within its means. He committed to looking at extending the Secure Rural Schools. He said if there are other options, it should be part of their deliberations.
Fleenor didnít want to bet on the future. He wanted to know they have the money and he was willing to spend that money. He said as they move forward in the future, they have flexibility. He thought if they could get an extension of the Secure Rural Schools in a year or two, he would feel comfortable about spending more of the money now. He said it doesnít look like they will get the money. He wanted to wait and not spend as much money. He wanted to see two scenarios: one with the three year scenario with the 84 jail beds and a four year scenario with the 84 jail beds. He didnít think they could make a decision until they see the numbers. He wanted maximum flexibility as they move forward.
Wilde wanted a longer term strategy to stretch the money out or a compromise so in a year or two they can check back and modify the budget based on money coming in. She didnít think there will be the same Secure Rural Schools money available in the form it had been.
Bartlett was interested in a middle ground. He wanted to hear from judges and experts about counterbalancing, putting criminals in jail with treatment that will keep them from coming back.
Jennifer Inman, Senior Budget Analyst, explained that the budget presentation is organized around service, not departments and they made that direction last year. She said services feel more relevant to outcomes and public investment. She said they are moving in the direction to talk more about services than departments.
Handy said there were strengths and weaknesses with the budget process. He wanted to look at a zero based budget and if there are adds, they will probably be small. He said the departments have needs and they donít have to be convinced of those needs. He thought a better use of their time as the Budget Committee would be looking to see if they are spending their dollars most effectively and if they are making decisions related to reserves and other factors. He said they need a different process to reflect the lack of dollars and looming state cuts. He said they need time to delve into all of the issues for an adjusted process. He said they have to gather information along with public input. He said they will need time to clarify things. He said they will need the implications of policy issues. He said they will still need time to have a discussion to lead to their recommendations.
Handy noted on his budget schedule, he added the date of April 30. He said it would be Spartzí presentation of the budget and a Public Hearing. He added that would be the night they would elect chair and vice chair. He added for May 5, they would have a Budget Committee work session to get into the issues. He noted for May 7, they would have Public Works and the Sheriffís Office present for a work session. He said May 12 would be another work session with Health and Human Services and the other services being heard that night. He indicated that May 14 would be an additional work session, passing a draft budget with May 19 a Public Hearing, so people could comment on the budget. He wanted to leave May 21 as an optional meeting time.
With regard to department presentations, Handy recommended each department or large division send their director and budget analyst only as presenters and bring along necessary staff that could answer the budget and outcome questions. He added that each department and large division that presents, would have a five minute overview of their budget. He said then the Budget Committee chair would then ask questions of the Budget Committee that have been previously submitted by Budget Committee members of the department and the division staff so they would have all the information ahead of time. He said as part of the process for the work session, the chair could facilitate a round robin from the Budget Committee members based on what has been going on in the work sessions and they could work with the departments and divisions. He wanted to preserve the option to bring in outside experts as need be so they could get additional information. He said the process would give them the time to have discussions and allow a significant amount of public input and it wouldnít be focused on the hearings. He added that they would have an e-mail address set up so people could send e-mails to the Budget Committee.
Crowell was concerned that five minutes was not enough time to hear from the departments.
Fleenor was supportive of the new process. He said he liked to do things different. He said they could try it this year to see if it helps. He wanted the rounds to be three minutes per person so they could have an expedited and thorough discussion. He wanted it similar to discussion at the Board of Commissioners.
Bartlett didnít understand why the process had to change. He commented that Lane County has one of the best budget processes in the state. He asked if this could have unanticipated consequences.
Spartz was concerned that on May 12 they will handle everything except for Public Works and the Sheriffís Office. He didnít think they could get it done in that time frame. He thought they needed four or more hours for the presentations.
Richardson said they would then have to hear Department of Youth Services, the District Attorneyís Office, Veteranís Services, the Extension Services, Human Services Commission and Children and Families. She said the amount of information on that night would require them to be there until midnight.
Hijmans liked the proposal. He wanted to hear from staff more than anyone because they are dealing with conceptual issues. He thought for May 5 and 12 that they could have a law enforcement component. He wanted to get everyone into two nights instead of four meetings. He said the department heads could shorten the time it takes to prepare the presentations. He didnít think it had to be as involved as in past years.
Sorenson liked the idea. With regard to six hours to hear presentations about the budgets, he said they are not trying to have a presentation to explain the thoroughness of what the department does, they are interested in a budget presentation by a budget person about what the County Administratorís budget proposal is. He said they need to free up time to deliberate on the budget and give an opportunity for the public to comment at the beginning and the end of the process.
Handy said that under the proposed process for department presentations, it would apply to each night for work sessions. His intent was to have a five minute overview of the budget from each department. He said when they talk about all the departments, it wonít take long. He said they want to deliberate and they want to work with the 15 people in the County and that is the focus of the presentations with the proposal.
Crowell thought there needed to be adjustments to the proposal. He recommended that he, Handy and Inman meet with a recommendation back to the rest of the Budget Committee.
Stewart thought they should have more tentative dates. His concern is that they are throwing the presentations on two days and he didnít think they would be able to complete the presentation in two days. He said they also need to talk about Land Management, fees and work plans. He wanted the Board and the Committee to also talk about memberships and dues. He thought if they allocated three minutes per committee member for discussion, it would be a half hour per round and they could burn up several hours.
Bartlett commented that they need to allow for the unexpected. He thought they should allow the public to comment on other issues. He said it isnít just about 15 people, it is about 349,000 people and this is the only time the public can come in to testify. He thought they should think about the public.
Wilde said she sat through previous budget meetings and thought it was painful to listen to the testimony when there were limited options. She thought limiting department presentation was a good idea because no amount of detail will solve the budget problem. She said spending more time finding solutions that arenít there will not be as helpful as working things out as a committee.
Sorenson said the Budget Committee needs to establish the amount of real property taxation as part of the final motion. He said they need to make a recommendation for the maximum amount that could be spent in each category.
adjourned the meeting at 4:45 p.m.