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Home My WebLink AboutAgenda - Mail Packet - 5/19/2015 - Council Finance & Audit Committee Agenda - May 18, 2015Council Finance Committee & URA Finance Committee Agenda Planning Calendar 2015 RVSD 04.27.15 mnb May 18 TOPIC TIME WHO CFC City Debt Capacity 30 min M. Beckstead J. Manire GERP Update 30 min J. Voss J. Stewart Economic Health Policy 30 min J. Voss J. Birks 2014 Year End Highlights 30 min J. Voss URA June 15 TOPIC TIME WHO CFC 2014 Year End Fund Balance Review 30 min J. Voss Exempt Organization – Potential Code Updates 30 min J. Ping-Small URA July 20 TOPIC TIME WHO CFC Auditors Report 30 min T. Storin K. Smith DDA Debt Interest Rate Amendment on 2010 Bond Series 30 min M. Robenalt Revenue Diversification - Sales Tax on Services and Admissions Tax 45 min J. Ping-Small URA Aug 17 TOPIC TIME WHO CFC 2016 Budget Revisions 30 min L. Pollack URA Future Council Finance Committee Topics: • Annual Adjustment Ordinance (clean-up) Review – September • Long-Term Financial Plan – October Future URA Committee Topics: Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com AGENDA Council Finance & Audit Committee May 18, 2015 10:00 a.m. to Noon CIC Room – City Hall Approval of the Minutes from the March 16, 2015 meeting 1. City Debt Capacity 30 minutes M. Beckstead J. Manire 2. GERP Update 30 minutes J. Voss J. Stewart 3. Economic Health Policy 30 minutes J. Voss J. Birks 4. 2014 Year End Highlights 30 minutes J. Voss Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Council Audit & Finance Committee Minutes 03/16/15 10:00 am to 12:00 Noon CIC Room Council Attendees: Ross Cunniff, Mayor Karen Weitkunat Staff: Darin Atteberry, Mike Beckstead, Lori Clements, Carrie Daggett, John Duvall, Kevin Gertig, Tauny Gilmore, Harold Hall, Jeff Mihelich, Lisa Rosintoski, Lance Smith, John Voss Others: Dale Adamy, Ann Hutchinson Approval of Minutes Ross Cunniff made a motion to approve the February 9, 2015 Council Finance Committee minutes. Mayor Weitkunat made a second to the motion. The minutes were approved unanimously. Utility Billing Transparency Lisa Rosintoski presented the Utility Bill Transparency Project. Resolution 2014-095 directed staff to explore ways to improve the transparency of utility costs to customers. Billing transparency is focused on all four utilities -Light & Power, Water, Wastewater and Stormwater. Lisa provided a breakdown of utility costs that illustrate capital improvements, operations, customer service & administration, debt service, purchase power, and pilots for each Utility. A survey of 1,001 utility customers and several focus group meetings indicated moderate interest of customers to better understand utilities costs included within rates and in what medium citizens would most like to see this additional cost information. Based on the survey and focus group results, staff recommended providing citizens additional cost information using various mediums: 1. City web site – pie charts for each utility that illustrates the percent of each utilities costs for purchased power, debt service, PILOTs, Street lights, Renewable & Conservation, Capital, O&M, etc. 2. Text on the front and back of each citizen’s bill with the URL for the web information in #1. 3. Annual bill insert that summarizes in pie charts the cost allocations for each of the four utilities. 2 Council Finance was supportive of moving forward with implementation of the recommendation. A memo recapping the discussion and direction will be provided to the entire council. Subject to concurrence of the entire Council, staff will begin implementation per the schedule below. The implementation schedule is as follows: 1. Website – June 2015 2. Utility Bill – July 2015 3. Newsletters – Beginning Third Quarter 2015 4. Bill Insert – January 2016 The Council Finance Committee also asked for additional information and discussion on several customer service and energy conservation questions: • Ways we can provide incentives to customers to reduce their usage • Mayor is asking for a conscious effort going forward to improve customer on-line electronic services and reduce hard copy paper billing. Possibly offering an incentive (one-time credit) for customers to sign up for electronic billing that eliminate paper statements • Ross Cunniff and the Mayor recommend setting a target date for reduction of utility usage (by “X” date a “X” percentage) reduced • City Manager recommends a return to Council Finance Committee with future updates Staff will schedule a follow-up discussion at a later date to review the topics above. Utility Development Investment Fee Lance Smith stated that the City Council passed Resolution 2014-095 directing the City Manager to investigate options for modifying the Utility Development Fees to fund additional types of capital needs. He noted that staff is recommending that changes be made to City Code allowing general plant and building improvements be included in Utility Development Fees. Current City Code language focuses on recovering capital expenses related to specific direct operations and to not include administrative facilities. Lance stated that the City Attorney’s office has researched the legal perspective and has determined that such change is permissible. Lance continued, noting that PIFs (Plant Investment Fee) are the mechanism by which new customers pay for existing infrastructure and provide service to growth. He noted that PIFs are evaluated annually and are approved by City Council. The Council Finance Committee and staff provided the following feedback: • What is the impact – potential loss revenue if delayed – should we wait • Mayor recommends that information needs to include public outreach and information to City Boards and Commissions • Ross Cunniff suggests outreach processes are done prior to the next rate adjustments/increases – late October early November 3 • Requesting a memo to newly elected City Council recapping today’s discussion Staff will move forward with public outreach and will bring forward changes to the code and adjustments to PIF during the next rate adjustment/increase discussion in October or November. Annual Reappropriation Ordinance Mike Beckstead addressed the Council Finance Committee reviewing the 2015 Reappropriation Ordinance which appropriates prior year reserves. Mike provided an executive summary and listed monies reappropriated for each City fund as follows: General Fund $1,197,690 Golf Fund 40,000 Keep Fort Collins Great Fund 772,000 Light & Power Fund 18,000 Transportation Fund 28,000 $2,055,690 Mike asked the Council Finance Committee for their support to move forward with the 2015 Reappropriation Ordinance in April. The Mayor and Ross Cunniff had no comments or questions at this time. Mike stated he would provide a memo to City Council and the first reading is anticipated for April 21, 2015. 2014 Investment Returns & Investment Policy Harold Hall presented to the Council Finance Committee the City Investment Policy and 2014 Investment Return Review. The review includes: • Investment objectives • Legal investments • City investment policy & summary of investments • Federal Reserve policy & interest rate environment • 2014 investment returns Harold noted that the investment policy did not change in 2014. He stated that the current policy has been in place since December 2012. Harold identified the City of Fort Collins investment objectives in order of importance: 1. Legal conformance 2. Safety 3. Liquidity 4. Return on investment 4 Harold stated that investment returns bottomed in year 2013, however noting that rates do increase as the federal government normalizes monetary policy. He noted the potential increase in interest rates is anticipated during the 2nd half of 2015 but is still an unknown despite much speculation by Wall Street economists. Harold identified a list of bonds – a total of 108 current investments in the portfolio at year end 2014. Ross Cunniff requested a memo to City Council to include a list of any oil and gas related investments (including energy) that the City has. Meeting Adjourned COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Mike Beckstead Date: May 18, 2015 SUBJECT FOR DISCUSSION – City Debt Capacity EXECUTIVE SUMMARY With the recent adoption of the City’s Climate Action Plan and other potential infrastructure needs such as parking, police training, Vine/Lemay intersection, Staff worked with the City’s Financial Advisor, Jim Manire, to evaluate the current debt capacity of the City. Debt capacity was analyzed assuming a commitment to maintain the City’s current Moody’s credit rating of Aaa. The analysis was completed to provide guidance and context to future discussions concerning the appropriate use of debt to fund City objectives Bottom-line: Debt capacity is a range that will vary based on economic conditions, type of debt taken on, funded from existing or new revenue sources, etc. In summary, without new revenue sources a range of $75M to $100M is estimated. With new revenue sources (mill levy or sales tax) a range of $125M to $150M is estimated. The analysis excludes Utility debt supported by rate revenue. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Discussion is intended to inform and provide guidance to future borrowing discussions. BACKGROUND/DISCUSSION A detailed write-up of the analysis is attached ATTACHMENTS 1. Fort Collins Debt Capacity and Rating Factors Analysis dated Feb 26, 2015 2. CFC Presentation on Debt Capacity dated May 18, 2015 Member FINRA & SIPC | © 2015 FirstSouthwest Debt Capacity and Rating Factors Analysis Fort Collins, Colorado February 26, 2015 Fort Collins, Colorado February 26, 2015 Debt Capacity and Rating Analysis CONTACT: Jim Manire James.Manire@firstsw.com 8055 East Tufts Avenue, Suite 500 Denver, CO 80237 Phone: 303.771.1678 Fax: 303.771.0566 Page | 1 Member FINRA & SIPC | © 2014 FirstSouthwest Debt Capacity and Rating Report to City of Fort Collins Introduction This report provides estimates of the City of Fort Collins’ capacity to incur additional debt while maintaining its existing Moody’s “Aaa” credit rating. Moody’s reviews its bond ratings annually, and it is important to remember that a change in the rating can be made whether or not the City issues new debt, based on trends across the other rating factors which are discussed further in this report. For our estimates, we will focus specifically on how changes in the City’s debt levels may influence certain rating factors, and assume that the other rating factors which contribute to the current “Aaa” rating are not trending negatively unless otherwise noted. General Comments on Bond Ratings General The City of Fort Collins is one of 189 municipalities in the United States which currently carries a credit rating of “Aaa”, the highest debt rating provided by Moody’s Investor’s Service (see Table 1 – “Moody’s Investor’s Service Long Term Rating Scale”. The “Aaa” rating for Fort Collins is an “issuer rating” that would be applicable to general obligations of the City. The general obligation rating also provides a reference point for other forms of debt or financial obligations which the City may incur for general governmental purposes. (Ratings for enterprise obligations are analyzed independently, and are not directly linked to general obligation ratings.) For details on the City’s current ratings please see Table A- 1 in Appendix A. Table 1 Moody’s Investor’s Service Long-Term Rating Scale Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk Aaa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk Aa Obligations rated A are judged to be upper-medium grade and are subject to low credit risk A Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics Baa Obligations rated Ba are judged to be speculative and are subject to substantial credit risk Ba Obligations rated B and below are considered speculative and subject to high credit risk, with obligations rated C being the lowest rated and typically in default B Caa, Ca, C Page | 2 Member FINRA & SIPC | © 2014 FirstSouthwest Moody’s Weighted Rating Factors Should the City choose to issue new debt, the amount of the additional debt would be one factor which Moody’s would consider before either reaffirming or lowering the “Aaa” issuer rating. However, it is only one of a number of factors which Moody’s would consider. As seen in Table 2 below, the weighted factors which influence the general obligation rating include Economy and Tax Base (30%), City Finances (30%), Management (20%), and Debt/Pensions (20%). Within the last category, debt levels not related to pension liabilities make up 10% of Moody’s general obligation rating criteria. Table 2 Moody’s General Obligation Rating Scorecard Moody’s GO Rating Scorecard Rating Factor Weighting Economy/Tax Base 30% Tax Base Size (full value) 10% Full Value per Capita 10% Wealth (median family income) 10% Finances 30% Fund Balance (% of Revenues) 10% Fund Balance Trend (5-yr Change) 5% Cash Balance (% of Revenues) 10% Cash Balance Trend (5-yr Change) 5% Management 20% Institutional Framework 10% Operating History 10% Debt/Pensions 20% Debt to Full Value 5% Debt to Revenue 5% Moody’s-adjusted Net Pension Liability (3-yr average) to Full Value 5% Moody’s-adjusted Net Pension Liability (3-yr average) to Revenue 5% Page | 3 Member FINRA & SIPC | © 2014 FirstSouthwest Fort Collins’ Comparative Debt Levels Moody’s Municipal Financial Ratio Analysis (MFRA) * Moody’s provides under a subscription service the Moody’s Median Financial Ratio Analysis (“MFRA”). The “Moody’s Medians” are often used to compare the debt and financial performance ratios of an individual borrower to a peer group. In Table 3, we compare certain financial and debt ratios which Moody’s has published for the City of Fort Collins to their published median values for a peer group of Aaa-rated Cities with populations between 100,000 and 500,000 (the “Peer Group”). The Cities that comprise the Peer Group are listed in Table A-2 of Appendix A. Please also see the endnote “*” in Appendix A for source and copyright information regarding Moody’s and MFRA data. Table 3 Moody’s MFRA Medians And Selected Ratios for Fort Collins, CO and Selected Peers Peer Group Medians (Aaa Cities with Populations 100,000- 500,000) City of Fort Collins, CO Financial Data : Debt Statistics & Ratios Direct Net Debt Outstanding ($000) 294,139 55,317 Overall Net Debt Outstanding ($000) (includes overlapping) 574,647 346,029 Direct Net Debt as % of Full Value 1.3 0.38 Direct Net Debt Per Capita ($) 1,179 366 Debt Burden (Overall Net Debt as % Full Value) 2.5 2.4 Overall Net Debt Per Capita ($) 2,849 2,287 Debt Service as % of Operating Expenditures (General Fund) 12.3 5.4 Financial Data : Demographic Statistics Actual/Estimated Population, Annual Value 196,289 151,330 Median Family Income (2010 Census) 76,323 73,687 Financial Data : Financial Statistics & Ratios Total General Fund Revenues ($000) 182,741 118,626 General Fund Balance as % of Revenues 27.6 50.7 Total General Fund Balance ($000) 53,339 60,120 Unrestricted, Uncommitted Fund Balance as % of Revenue (General Fund) 26.1 33.2 Unassigned Fund Balance as % of Revenue (General Fund) 18.3 24.5 Financial Data : Tax Base Statistics and Ratios Total Full Value ($000) 22,695,307 14,531,581 Full Value Per Capita ($) 114,832 96,026 Page | 4 Member FINRA & SIPC | © 2014 FirstSouthwest To estimate the City’s debt capacity, we will focus primarily on the Debt Statistics and Ratios. Fort Collins compares favorably (lower values in this case) when looking at the median “Direct” Debt ratios. For example, Fort Collins’ Direct Net Debt represents 0.38% of the “full” value of the taxable property within its boundaries, well below the median value of 1.3%. In another set of ratios based on “Overall” Debt, Fort Collins is more closely aligned to the median values of the Peer Group. The City’s Overall Net Debt as measured by Moody’s represents 2.4% of full value, compared to the median ratio of 2.5%. The differences in these calculations are important to our discussion. Moody’s recognizes $55.3 million of “Direct Net Debt” for the City of Fort Collins. This figure includes the City’s outstanding Capital Leases and Certificates of Participation ($44.2 million), as well as $11.1 million of debt of the Fort Collins URA (which is also secured by the City’s “moral obligation” pledge which is described further below). It should be noted that from other points of view, neither the leases nor the URA debt would be considered to be direct obligations of the City, regardless of how they are viewed by Moody’s. The different characteristics of these financial obligations are described later in this report, along with the features of other debt options which Moody’s would include in this category if pursued by the City. In the second set of ratios, Moody’s recognizes $346.0 million of “Overall Net Debt” for Fort Collins. To calculate Overall Net Debt, the City’s Direct Net Debt is added to “overlapping debt” (an allocated amount of the general-purpose debt of other governmental borrowers which overlap portions of the City’s tax base). In this calculation, $290.7 million overlapping debt (all attributable to Poudre R-1 School District) is added to the City’s $55.3 million of Direct Debt. Fort Collins’ annual Debt Service as a percentage operating expenses is 5.4%, again well below the median value of 12.3%. Fort Collins, CO Debt Capacity Estimates The Table below, Table 4 – “Moody’s MFRA Medians Versus Fort Collins, CO Debt Capacity Analysis”, considers a hypothetical scenario in which Fort Collins issues additional debt in the amount $133 million, which would bring its Direct Net Ratio up from 0.38% to the Peer Group median of 1.3%. Table 5 also tracks the changes in Overall Net Debt ratios which would move as a result of the new debt issuance. Under this assumption, Overall Net Debt would increase to 3.3% of full value, which is higher than the median value of 2.5%. Overall Debt Per Capita increases similarly, moving from $2,287 to $3,169, which is greater than the median value of $2,849. Page | 5 Member FINRA & SIPC | © 2014 FirstSouthwest Table 4 Moody’s MFRA* Medians And Selected Ratios for Fort Collins, CO with Projected Additional Debt Peer Group Medians Fort Collins, CO (Current) Fort Collins, Co (With Additional Debt) Financial Data : Debt Statistics & Ratios Direct Net Debt Outstanding ($000) 294,139 55,317 188,910 Overall Net Debt Outstanding ($000) (includes overlapping) 574,647 346,029 479,622 Direct Net Debt as % of Full Value 1.3 0.38 1.3 Direct Net Debt Per Capita ($) 1,179 366 1,248 Debt Burden (Overall Net Debt as % Full Value) 2.5 2.4 3.3 Overall Net Debt Per Capita ($) 2,849 2,287 3,169 Debt Service as % of Operating Expenditures 12.3 5.4 Varies We also note that, depending on the type of debt, changes in the ratio of annual debt service to Operating Expenses may be viewed differently. Payments on new debt, if repayable from a new property tax for traditional general obligation debt, or from a new sales tax, would not need to be absorbed in the City’s existing budget. So while an increase in the ratio of debt service to operating expenses may take place, the final rating would be adjusted to reflect less budgetary impact. On the other hand, if new City debt is expected to be paid from existing revenues, the resulting pressure on the budget could make it more difficult to maintain the “Aaa” rating. Looking at the projected changes in these ratios, we can estimate the City’s capacity to issue additional debt while maintaining its “Aaa” rating within certain ranges, depending on the type of debt and repayment source. Table 5 Fort Collins, CO Estimated Debt Capacity by Debt Type and Repayment Source Type Repayment Estimated Capacity General Obligation New mill levy $125 - $150 million Sales Tax Revenue Bonds New sales tax $125 - $150 million Capital Lease / COP New tax $100 - $125 million Sales Tax Revenue Bonds Current revenue only $75 - $100 million Capital Lease / COP Current revenue only $75 - $100 million (leased property may affect rating) Moral Obligation Current revenue only $75 - $100 million (see discussion below – project performance may affect rating) Page | 6 Member FINRA & SIPC | © 2014 FirstSouthwest Forms of Debt Fort Collins may incur debt in several forms, subject to the relevant provisions of Colorado’s Constitution and other governing state law, as well as the City’s Home Rule Charter. Estimates of debt capacity will vary somewhat according the form of the debt. An obligation which will be repaid from a reliable new revenue source, such as dedicated new tax, creates more debt capacity because it will have less budgetary impact on other City finances. Table 6 Rating Considerations by Form of Debt • From Moody’s perspective, a general obligation debt is one which is secured by the borrower’s authority and commitment to increase the property tax levy for the sole purpose of repaying the debt. This is frequently described as a “full faith and credit” obligation of the issuer. A general obligation usually receives the highest credit rating of any of the available debt options. General Obligation Bonds • Debt which is secured by a pledge of a City’s general sales tax revenue is usually rated just below the general obligations of the issuer. If the pledge is limited to only a portion of City sales tax, or to a special or limited tax, the rating could be lower. Sales Tax Revenue Bonds • Lease financing is available for many projects, and often takes the form of Certificates of Participation which are marketed like bonds. Lease payments do not have the legal standing of long-term debt because payments are subject to annual appropriation. Unlike bonds, leases are specifically collateralized by real property assets of the City. A lease for an essential City asset which is payable from a general fund appropriation can often be rated just below the general obligations rating of the issuer. Capital Leases •While not a direct debt of the City, a non-binding moral obligation pledge is sometimes made by a City to provide credit support for the debt of a related entity, such as an urban renewal authority. Moody’s sometimes considers a moral obligation pledge to be part of a City’s direct debt burden when reviewing the City’s bond rating. Moral Obligations APPENDIX A Appendix| A Member FINRA & SIPC | © 2015 FirstSouthwest APPENDIX A Table A-1 Fort Collins’ Ratings by Form of Debt and Rating Agency Moody’s S&P Fitch General Obligation Aaa (implied issuer rating) - - Certificates of Participation Aa1 - - Moral Obligation/ Tax Allocation Aa3 - - Sales and Use Tax - - AA Wastewater (Sewer/Storm) Aa1 (reflects 2010 recalibration) AA+ AA+ (positive outlook) Water (Aa2) AAA - Electric - AA- - Table A-2 Entities Included in Peer Group Medians Alexandria, VA Bellevue, WA Cambridge, MA Cary, NC Chandler, AZ Charleston, SC Durham, NC Fort Collins, CO Greensboro, NC Huntington Town, NY Huntsville, AL Irving, TX Lincoln, NE Madison, WI Naperville, IL Overland Park, KS Plano, TX Raleigh, NC Rochester, MN Salt Lake City, UT Scottsdale, AZ Sunnyvale, CA Virginia Beach, VA Winston-Salem, NC * MFRA, Moody’s Investors Services. January 22, 2015 2:40 pm Eastern Standard Time. 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"By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing " "the document as a representative of, a ""wholesale client"" and that neither you nor the entity you represent will " "directly or indirectly disseminate this document or its contents to ""retail clients"" within the meaning of " "section 761G of the Corporations Act 2001." 1 Fort Collins Debt Capacity Analysis Council Finance Committee May 18th, 2015 2 Introduction • The City has several significant goals that may require funding, i.e. • Climate Action Plan • Parking • Northeast Infrastructure • Staff initiated an analysis to determine – How much Debt could the City take on and maintain the current Aaa Moody’s credit rating • Jim Manire – City Financial Advisor with FirstSouthwest developed the analysis • Bottom-Line: • The answer is a range that varies based on the type of debt and multiple factors • Without new revenue sources – range is $75M to $100M • With new revenue sources – range if $125M to $150M • Intent of this discussion: • Educate and inform in advance of future project funding discussions 3 Types of Debt Different types of debt typically carry different ratings and ultimately cost 4 Moody’s Rating Scale Table 1 Moody’s Investor’s Service Long-Term Rating Scale Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk Aaa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk Aa Obligations rated A are judged to be upper-medium grade and are subject to low credit risk A Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics Baa Obligations rated Ba are judged to be speculative and are subject to substantial credit risk Ba Obligations rated B and below are considered speculative and subject to high credit risk, with obligations rated C being the lowest rated and typically in default B Caa, Ca, C City of Fort Collins currently has a Aaa Issuer and GO rating by Moody’s 5 How Moody’s Determines Rating Moody’s GO Rating Scorecard Rating Factor Weighting Economy/Tax Base 30% Tax Base Size (full value) 10% Full Value per Capita 10% Wealth (median family income) 10% Finances 30% Fund Balance (% of Revenues) 10% Fund Balance Trend (5-yr Change) 5% Cash Balance (% of Revenues) 10% Cash Balance Trend (5-yr Change) 5% Management 20% Institutional Framework 10% Operating History 10% Debt/Pensions 20% Debt to Full Value 5% Debt to Revenue 5% Moody’s-adjusted Net Pension Liability (3-yr average) to Full Value 5% Moody’s-adjusted Net Pension Liability (3-yr average) to Revenue 5% Multiple weighted factors are used by Moody’s to determine a rating 6 Fort Collins Compared with Aaa Peer Group Peer Group Medians (Aaa Cities with Populations 100,000- 500,000) City of Fort Collins, CO Financial Data : Debt Statistics & Ratios Direct Net Debt Outstanding ($000) 294,139 55,317 Overall Net Debt Outstanding ($000) (includes overlapping) 574,647 346,029 Direct Net Debt as % of Full Value 1.3 0.38 Direct Net Debt Per Capita ($) 1,179 366 Debt Burden (Overall Net Debt as % Full Value) 2.5 2.4 Overall Net Debt Per Capita ($) 2,849 2,287 Debt Service as % of Operating Expenditures (General Fund) 12.3 5.4 Financial Data : Demographic Statistics Actual/Estimated Population, Annual Value 196,289 151,330 Median Family Income (2010 Census) 76,323 73,687 Financial Data : Financial Statistics & Ratios Total General Fund Revenues ($000) 182,741 118,626 General Fund Balance as % of Revenues 27.6 50.7 Total General Fund Balance ($000) 53,339 60,120 Unrestricted, Uncommitted Fund Balance as % of Revenue (General Fund) 26.1 33.2 Unassigned Fund Balance as % of Revenue (General Fund) 18.3 24.5 Financial Data : Tax Base Statistics and Ratios Total Full Value ($000) 22,695,307 14,531,581 Full Value Per Capita ($) 114,832 96,026 7 Debt Capacity Peer Group Medians Fort Collins, CO (Current) Fort Collins, Co (With Additional Debt) Financial Data : Debt Statistics & Ratios Direct Net Debt Outstanding ($000) 294,139 55,317 188,910 Overall Net Debt Outstanding ($000) (includes overlapping) 574,647 346,029 479,622 Direct Net Debt as % of Full Value 1.3 0.38 1.3 Direct Net Debt Per Capita ($) 1,179 366 1,248 Debt Burden (Overall Net Debt as % Full Value) 2.5 2.4 3.3 Overall Net Debt Per Capita ($) 2,849 2,287 3,169 Debt Service as % of Operating Expenditures 12.3 5.4 Varies • With an additional $130M of debt, FC compares similar to the Rating Peer Group. 8 Debt Capacity Varies by Type of Debt Type Repayment Estimated Capacity General Obligation New mill levy $125 - $150 million Sales Tax Revenue Bonds New sales tax $125 - $150 million Capital Lease / COP New tax $100 - $125 million Sales Tax Revenue Bonds Current revenue only $75 - $100 million Capital Lease / COP Current revenue only $75 - $100 million (leased property may affect rating) Moral Obligation Current revenue only $75 - $100 million (see discussion below – project performance may affect rating) • Debt Capacity varies depending on the type of debt issued 9 Back - Up 10 11 1 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: John Voss, Controller SUBJECT: Review of the 2015 Actuarial Valuation of the General Employees’ Retirement Plan (GERP) for year ending 2014 and new accounting standards affecting plan reporting. EXECUTIVE SUMMARY: The actuary firm engaged on the GERP is Milliman, Inc. The presentation today will be lead by Joel Stewart. The General Employees’ retirement Plan review covers Plan highlights, economic and demographic assumptions, unfunded actuarial accrued liabilities, and the solvency /sensitivity model. The Net Pension Liability (NPL) at the end of 2014 was $12.1 million compared to $11.5 million the prior year. The mortality tables were updated resulting in an increase $828,000 to the NPL. BACKGROUND/DISCUSSION: This pension plan was closed to new employees in 1999. At that time employees were given the option to migrate to the City’s 401(a) defined contribution plan, and many opted to do so. Of the approximately 1,300 current regular employees, only 113 active employees continue to earn benefits under this plan. The presentation will review the Plan’s Actuarial valuation for year ending 2014 and discuss the impact to the plan from investment return sensitivity. The General Employees’ Retirement Committee reviewed and approved the 2015 actuary report in at their March 12 th meeting. FINANCIAL/ECOMOMIC IMPACTS: The 2014 investment return of 6.0% was less than the Plan return assumption of 6.5%. Investment returns added to supplemental and payroll contributions exceeded retiree payouts which contributed to a year over year increase of $1.0 million the Fiduciary Net Position (FNP). The future impact to the Plan from the increase in NPL is a projected increase in the end date for supplemental contributions from year 2025 to year 2028. The market value calculation recognizes total asset gains and losses in the current year. Supplemental contribution end dates fluctuate annually based on actual Plan economic and demographic performance. New accounting standards (GASB 67 and 68) change the reporting requirements for the City from Net Pension Obligations of $3.7M to a Net Pension Liability of $12.1M. This change will not however impact the Plan’s anticipated cash flows or the City’s credit rating. STAFF RECOMMENDATION: Staff recommends the City continue to fund the current $1.12M supplemental contribution. ATTACHMENTS: 1. City GERP Review presentation 2. General Employees’ Retirement Plan, January 1, 2015 Actuarial Valuation Milliman Actuarial Valuation Issued March 13, 2015 City of Fort Collins General Employees’ Retirement Plan January 1, 2015 Actuarial Valuation Prepared by: Joel E. Stewart, ASA, EA, MAAA Consulting Actuary Katie Antoline, ASA, MAAA Associate Actuary Milliman, Inc. 1400 Wewatta Street, Suite 300 Denver, CO 80202-5549 Tel +1 303 299 9400 Fax +1 303 299 9018 milliman.com J:\Documents\CFC\15val.docx 1400 Wewatta Street Suite 300 Denver, CO 80202-5549 USA Tel +1 303 299 9400 Fax +1 303 299 9018 milliman.com March 13, 2015 Retirement Committee Members City of Fort Collins 215 North Mason Street Fort Collins, Colorado 80522 Re: City of Fort Collins General Employees’ Retirement Plan - 2015 Actuary’s Report Dear Retirement Committee Members: As requested, we performed an actuarial valuation of the City of Fort Collins General Employees’ Retirement Plan as of January 1, 2015, for the Plan Year ending December 31, 2015. Our findings are set forth in this actuary’s report. This report reflects the benefit provisions in effect as of January 1, 2015. In preparing this report, we relied, without audit, on information (some oral and some in writing) supplied by City staff. This information includes, but is not limited to, plan provisions, participant census data, and financial information. We found this information to be reasonably consistent and comparable with information used for other purposes. The valuation results depend on the integrity of this information. If any of this information is inaccurate or incomplete our results may be different and our calculations may need to be revised. All costs, liabilities, rates of interest, and other factors for the Plan have been determined on the basis of actuarial assumptions and methods which are individually reasonable (taking into account the experience of the Plan and reasonable expectations); and which, in combination, offer our best estimate of anticipated experience affecting the Plan. Further, in our opinion, each actuarial assumption used is reasonably related to the experience of the Plan and to reasonable expectations which, in combination, represent our best estimate of anticipated experience under the Plan. This valuation report is only an estimate of the Plan’s financial condition as of a single date. It can neither predict the Plan’s future condition nor guarantee future financial soundness. Actuarial valuations do not affect the ultimate cost of Plan benefits, only the timing of Plan contributions. While the valuation is based on an array of individually reasonable assumptions, other assumption sets may also be reasonable and valuation results based on those assumptions would be different. No one set of assumptions is uniquely correct. Determining results using alternative assumptions is outside the scope of our engagement. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Due to the limited scope of our assignment, we did not perform an analysis of the potential range of future measurements. The Retirement Committee has the final decision regarding the appropriateness of the assumptions and adopted them as indicated in the February 2015 meeting. Retirement Committee Members March 13, 2015 Page 2 J:\Documents\CFC\15val.docx Actuarial computations presented in this report are for purposes of determining the recommended funding amounts for the Plan. Actuarial computations presented in this report under GASB Statement No. 27 are for purposes of assisting the Plan and the City in fulfilling their financial accounting requirements. The computations prepared for these two purposes may differ as disclosed in our report. The calculations in the enclosed report have been made on a basis consistent with our understanding of the Plan’s funding requirements and goals. The calculations in this report have been made on a basis consistent with our understanding of the plan provisions described in Appendix B of this report, and of GASB Statement No. 27. Determinations for purposes other than meeting these requirements may be significantly different from the results contained in this report. Accordingly, additional determinations may be needed for other purposes. Milliman’s work is prepared solely for the use and benefit of the City of Fort Collins General Employees’ Retirement Plan (“Plan”). To the extent that Milliman's work is not subject to disclosure under applicable public records laws, Milliman’s work may not be provided to third parties without Milliman's prior written consent. Milliman does not intend to benefit or create a legal duty to any third party recipient of its work product. Milliman’s consent to release its work product to any third party may be conditioned on the third party signing a Release, subject to the following exception(s): (a) The Plan may provide a copy of Milliman’s work, in its entirety, to the Plan's professional service advisors who are subject to a duty of confidentiality and who agree to not use Milliman’s work for any purpose other than to benefit the System. (b) The Plan may provide a copy of Milliman’s work, in its entirety, to other governmental entities, as required by law. No third party recipient of Milliman's work product should rely upon Milliman's work product. Such recipients should engage qualified professionals for advice appropriate to their own specific needs. The consultants who worked on this assignment are pension actuaries. Milliman’s advice is not intended to be a substitute for qualified legal or accounting counsel. The signing actuary is independent of the Plan Sponsor. We are not aware of any relationship that would impair the objectivity of our work. On the basis of the foregoing, I hereby certify that, to the best of my knowledge and belief, this report is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices. I am a member of the American Academy of Actuaries and meet the Qualification Standards to render the actuarial opinion contained herein. We respectfully submit the following report, and we look forward to discussing it with you. Joel E. Stewart, ASA, EA, MAAA Consulting Actuary JES:kea Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. JANUARY 1, 2015 ACTUARIAL VALUATION TABLE OF CONTENTS SECTION PAGE 1 SUMMARY OF THE VALUATION RESULTS ...................................................................... 1 2 SCOPE OF THE REPORT ................................................................................................ 7 3 PARTICIPANT DATA ...................................................................................................... 8 Table 1 Reconciliation of Participant Data............................................................ 9 Table 2 Summary of Active Participants............................................................. 10 Table 3 Summary of Deferred Vested and Deferred Disabled Participants ..... 12 Table 4 Summary of Retirees, Disableds, and Beneficiaries ............................ 13 Table 5 Number of Pensioners and Annual Annuity as of the End of the Each Year ............................................................................................... 14 Table 6 Schedule of Members Eligible for Normal or Delayed Retirement in the Next Five Years ............................................................................... 15 4 FINANCIAL DATA ....................................................................................................... 18 Table 7 Statement of Market Value of Assets ............................................... 19 Table 8 Change in Market Value of Assets ................................................... 20 Table 9 Development of Actuarial Value of Assets ........................................ 21 5 DEVELOPMENT OF ACTUARIAL LIABILITY ................................................................... 22 Table 10 Actuarial Balance Sheet ........................................................................ 23 Table 11 Unfunded Actuarial Liability ................................................................... 24 6 GASB NO. 27 DISCLOSURE INFORMATION ................................................................ 25 Table 12 Calculation of Net Pension Obligation and Pension Cost .................... 26 Table 13 Schedule of Funding Progress .............................................................. 27 Table 14 Three-Year Trend Information ............................................................... 28 7 HISTORY AND PROJECTIONS ...................................................................................... 29 Table 15 Historical Statistics ................................................................................. 30 Table 16 Twenty-Year Projection of Benefit Payments ....................................... 31 APPENDICES A ACTUARIAL PROCEDURES AND ASSUMPTIONS .................................................... 32 B PLAN SUMMARY ................................................................................................... 36 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 1 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. SECTION 1 SUMMARY OF THE VALUATION RESULTS This is a report of our actuarial valuation of the Plan as of January 1, 2015. A summary of our valuation results follows: 1. Overview of Results The following table summarizes some of the key results of our valuation of the Plan, along with the comparable figures from the prior year valuation. January 1, 2015 January 1, 2014 Market Value of Assets (MV) $ 45,722,416 $ 44,692,556 Actuarial Value of Assets (AV) 43,191,478 41,530,376 Ratio of AV to MV 94.5% 92.9% Discount Rate for Liabilities 6.50% 6.50% Present Value of Future Benefits $ 60,112,124 $ 58,760,427 Present Value of Future Normal Costs 2,315,819 2,577,619 Actuarial Liability (AL) $ 57,796,305 $ 56,182,808 Funded Ratio (AV / AL) 74.7% 73.9% Funded Ratio (MV / AL) 79.1% 79.5% Unfunded Actuarial Liability (AL - AV) $ 14,604,827 $ 14,652,432 GASB 27 Information Net Pension Obligation (End of Prior Year) $ 3,713,026 $ 3,203,138 GASB 67/68 Disclosure Information December 31, 2014 December 31, 2013 Total Pension Liability $ 57,796,305 $ 56,182,808 Fiduciary Net Position $ 45,722,416 $ 44,714,837 Net Pension Liability $ 12,073,889 $ 11,467,971 2. Analyze recent plan experience and select appropriate actuarial assumptions. To value the Plan, the actuary must predict future events such as investment return, mortality, and rates of termination and retirement by means of “actuarial assumptions.” The validity of our valuation depends on how closely future Plan experience follows our assumptions. Experience different from that assumed gives rise to actuarial gains or losses, which affect future costs. The actuarial assumptions we used in this valuation are stated in Appendix A. The following comments address some of the more important assumptions. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 2 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. a. Rate of investment return This actuarial valuation was prepared assuming a 6.5% investment return, net of investment related expenses. A study of actual investment performance on the market value of assets produced the following results: Annual Rate of Investment Return For One-Year Period For Period Ending December 31, 2014 Ending December 31 Annual Rate Period Average Annual Rate 2014 6.0% 1 year 6.0% 2013 18.7 2 years 12.2 2012 11.6 3 years 12.0 2011 (3.1) 4 years 8.0 2010 11.1 5 years 8.6 2009 20.5 6 years 10.5 2008 (26.5) 7 years 4.3 2007 12.2 8 years 5.2 2006 13.6 9 years 6.1 2005 8.5 10 years 6.4 2004 9.5 11 years 6.6 2003 18.8 12 years 7.6 2002 (9.3) 13 years 6.2 2001 (4.0) 14 years 5.4 2000 (3.5) 15 years 4.8 1999 21.1 16 years 5.8 1998 8.8 17 years 5.9 1997 10.5 18 years 6.2 1996 10.1 19 years 6.4 1995 13.8 20 years 6.7 1994 (0.2) 21 years 6.4 * Rates of return for 1999 and earlier as reported by the prior actuary and used without audit. ** Rates of return for 2013 and earlier are net of all expenses. Rate of return for 2014 is net of investment expenses only. One of the most important assumptions in an actuarial valuation is the investment return assumption, which represents the expected long-term rate of return on plan assets. Actuarial Standard of Practice (ASOP) No. 27, Selection of Economic Assumptions for Meausring Pension Obligations, provides guidance to actuaries on selecting assumptions for measuring obligations under defined benefit pension plans. Because no one knows what the future holds, the best an actuary can do is to use professional judgment to estimate possible future economic outcomes. These estimates are based on a mixture of past experience, future expectations, and professional judgment. The actuary should consider a number of factors, including the purpose and nature of the measurement, and appropriate recent and long-term historical economic data. However, the standard explicitly advises the actuary not to give undue weight to recent experience. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 3 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Recognizing that there is not one “right answer”, the standard lays out a general selection process, and then calls for the actuary to select a reasonable assumption. Each economic assumption should individually satisfy this standard. Furthermore, with respect to any particular valuation, each economic assumption should be consistent with every other economic assumption over the measurement period. Milliman’s investment practice has developed a model of expected real returns for various asset classes based on their capital market assumptions. Utilizing this model at December 31, 2014, an inflation assumption of 2.5% and a 30-year time horizon produces a geometric mean return of 6.42%. The current assumption of 6.50% represents the 52nd percentile of projected annualized 30-year returns. b. Withdrawal and retirement rates On December 31, 2010 the GERP was amended to allow members to cease accruals in the plan and either elect to receive a lump sum or leave their accrued benefit in the plan until early or normal retirement. The analysis that follows excludes these participants. Withdrawal rates The actual number of participants leaving employment during 2014 prior to retirement is zero, compared to one expected to terminate in 2014. Withdrawal experience has been adjusted for terminations that had reached retirement eligibility but not yet commenced, and is summarized in the following table for the last five years: 2010 2011 2012 2013 2014 Total Actual 5 4 1 1 0 11 Expected 3 2 1 1 1 8 A/E 138% We are not recommending any changes at this time for withdrawal, but will continue to monitor this assumption in the future to determine whether any changes are warranted. Retirement rates Fifteen active participants actually retired during 2014, compared to eleven expected to retire in 2014. Retirement experience from the past five years, adjusted for terminations that had reached retirement eligibility but not yet commenced, is summarized in the following table: 2010 2011 2012 2013 2014 Actual 9 10 13 11 15 Expected 19 16 10 11 11 A/E 47% 63% 130% 100% 136% The retirement assumption was updated with the January 1, 2012 actuarial valuation. We are not recommending any changes at this time for retirement, but will continue to monitor this assumption in the future. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 4 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. c. Salary increase assumption The assumed rate of future salary increases used for the valuation of the plan is a graded table based on age, as shown in Appendix A, which anticipated average salary increases during 2014 of 3.9%. Average salary increases for those participants continuing in covered employment was 2.1%, with the median salary increase from 2014 to 2015 of 2.5%, based on a comparison of actual compensation rates for 2014 and 2015. Although the actual increases for the last few years have been lower than expected, we do not recommend a change at this time, as current economic conditions including inflation and real-wage growth lower than the long-term assumption of 3.5% may have influenced the short-term results. We will continue to monitor this experience. d. Form of payment assumption It is assumed that 30% of participants retiring from active status or terminating employment prior to retirement will elect a lump sum. Analysis of lump sum elections over the last five years produces the following. 20101 2011 2012 2013 2014 Total Lump sums 6 2 2 4 2 16 Total exits 14 14 14 12 15 69 % taking a lump sum 23% 1. Excludes experience of those opting out as a result of the plan change on 12/31/2010. The Retirement Committee has adopted the use of the assumptions for the January 1, 2015 actuarial valuation at their February 2015 meeting. 3. Review the financial effect of experience gains and losses and changes in plan benefits. Under the entry age normal cost method, an explicit actuarial liability is calculated, and is compared to the actuarial value of assets in order to determine the unfunded actuarial liability (UAL). Actuarial gains and losses on the unfunded actuarial liability can then be measured. The UAL is expected to increase by the normal cost and for interest due to the passage of time each year and is reduced by the amount of contributions made to the Plan. The following table summarizes the change in the UAL during 2014. Actual UAL, January 1, 2014: $ 14,652,432 Expected changes during 2014: (496,718) Expected UAL, January 1, 2015: $ 14,155,714 Changes: Asset (gain) or loss $ (617,565) Salary changes different than assumed (286,190) Pensioner mortality 252,005 Retirement and other Terminations 224,562 Other demographic (gains)/losses 48,454 Change in mortality assumption 827,847 Total $ 449,113 Actual UAL, January 1, 2015: $ 14,604,827 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 5 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. 4. Provide the disclosure information required by Government Accounting Standards Board Statement (GASB) No. 27. Section 6 sets forth certain information required for the plan’s disclosures under GASB No. 27. 5. Funding Analysis The City’s current funding policy is to contribute 10.5% of compensation for active plan participants, plus a supplemental contribution necessary for the plan to remain solvent. The supplemental contribution has been approximately $1.1 million for the last two plan years. The following chart compares the obligations of the Plan to the resources available to pay those obligations. The obligations of the Plan are equal to the present value of all benefits projected to be accrued for all current participants through their anticipated termination date. This includes the present value of benefits attributable to service already completed as of the valuation date (“Current”), also known as the Actuarial Liability, as well as the amounts attributable to projected future service for current active participants (“Future”). The resources of the Plan include the value of the assets set aside to pay for the benefits (“Current”), plus the present value of the future expected contributions for participants in the plan as of the valuation date (“Future”) equal to 10.5% of projected future compensation. The present value of future payroll contributions is approximately $4.2 million. The shortfall of approximately $10.1 million is anticipated to be funded through the supplemental contribution. This represents approximately 14 years of the $1.1 million supplemental contribution as of the actuarial valuation date. If all future experience follows assumptions, there are no changes to assumptions, plan provisions or funding policy, and the policy contributions are made each year, the plan’s funded status should improve. In addition, the declining active participant population should result in a declining contribution as the compensation base declines. $0 $10 $20 $30 $40 $50 $60 $70 Obligations Resources Millions Current Future Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 6 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Highlights of the 2014 plan year  There were 431 members reported on January 1, 2015, 113 of whom were active members who continue to accrue benefits under the plan. The remaining 318 were inactive members retaining benefits under the plan.  The plan assets earned 6.0% during the 2014 plan year on a market value basis. The average annual return over the last 21 years is 6.4%. The assumed return for the 2014 plan year was 6.5%.  At the end of 2014, the market value of assets was $45,722,416. The actuarial value of assets was $43,191,478 at January 1, 2015.  As of January 1, 2015, the ratio of the actuarial value of assets to the actuarial liability was 74.7%. The ratio of the market value of assets to the actuarial liability was 79.1%. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 7 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. SECTION 2 SCOPE OF THE REPORT Section 1 of this report presents a summary of the findings resulting from this valuation. Section 3 contains a summary of the data we received regarding participants of the Plan. Section 4 describes the basis we use in assigning values to the assets, and contains summaries of the assets in Tables 7, 8 and 9. Section 5 expands upon Section 1 in various areas of our findings, and describes the actuarial concepts and methods upon which the findings are based. Section 6 provides the required GASB No. 27 disclosure information. Section 7 provides historical statistics of the Plan and a 20-year projection of benefit payments. All of the calculations of the valuation were carried out using certain assumptions as to the future experience of the plan. Appendix A summarizes these assumptions. Appendix B outlines the benefit provisions of the Plan as of January 1, 2015. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 8 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. SECTION 3 PARTICIPANT DATA The actuarial valuation of the plan is based on the participant data provided to us by the City. The data includes active participants, terminated vested participants who retain benefits under the plan, and retirees and beneficiaries receiving benefits as of January 1, 2015. A total of 431 participants were reported to us and included in this valuation. Table 1 includes a reconciliation of the participant data from January 1, 2014 to January 1, 2015. The age and service characteristics of the 113 active participants in the plan as of January 1, 2015 are shown in Table 2. As indicated in Table 2, the average age of the active participants on the valuation date was 59.0, an increase from the average age of 58.6 of the active participants on January 1, 2014. The average years of service of the active participants on January 1, 2015 was 25.7, up from the 25.3 average years of service of the active participants on January 1, 2014. In addition to the active members, there were 113 inactive participants not yet in pay status retaining benefits under the plan. Table 3 contains a summary of the number of inactive participants not yet in pay status but retaining benefits under the plan, and the amounts of those benefits. Tables 4 and 5 summarize the information provided on the 205 members and beneficiaries who are currently receiving monthly benefits. Table 4 contains a summary of the number of participants receiving benefits and the amounts of those benefits, while Table 5 lists the benefits being paid as of January 1 of each year from 1985 to 2015. Counts and total annual benefit amounts are separated by status and sex. Table 6 displays the list of the retirement dates and status of participants eligible for normal or delayed retirement in the next five years. Because participation in the plan was frozen as of January 1, 1999, the number of participants in the plan has declined over the years, as illustrated below: 0 200 400 600 800 1,000 1,200 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Summary of Plan Participants Active Employees Retirees Vested Inactives Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 9 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 1 RECONCILIATION OF PARTICIPANT DATA (January 1, 2014 to January 1, 2015) Actives Terminated Vested Retired Beneficiary Total Included in January 1, 2014 Valuation: 128 121 169 21 439 Change due to: New entrants N/A N/A N/A N/A N/A Rehired 0 0 0 N/A 0 Termination Nonvested 0 N/A N/A N/A 0 Vested (4) 4 N/A N/A 0 Retirement (9) (10) 19 0 0 Disabled 0 0 0 0 0 Death no Beneficiary 0 0 (3) 0 (3) Death with Beneficiary 0 0 (1) 1 0 Cash out (2) (2) 0 0 (4) Other 0 0 0 (1) (1) Net change (15) (8) 15 0 (8) Included in January 1, 2015 Valuation: 113 113 184 21 431 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 10 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 2 SUMMARY OF ACTIVE PARTICIPANTS AS OF JANUARY 1, 2015 Years of Service 1 to 5 5 to 10 10 to 15 15 to 20 20 to 25 25 to 30 30 & Up Total Age Number of Participants Under 25 0 0 0 0 0 0 0 0 25 to 29 0 0 0 0 0 0 0 0 30 to 34 0 0 0 0 0 0 0 0 35 to 39 0 0 0 1 0 0 0 1 40 to 44 0 0 0 4 0 0 0 4 45 to 49 0 0 0 3 3 1 0 7 50 to 54 0 1 1 1 4 4 0 11 55 to 59 0 0 0 4 11 7 4 26 60 to 64 0 0 0 5 13 15 11 44 65 & Up 0 0 0 3 6 2 9 20 Total 0 1 1 21 37 29 24 113 Salary Under 25 0 0 0 0 0 0 0 0 25 to 29 0 0 0 0 0 0 0 0 30 to 34 0 0 0 0 0 0 0 0 35 to 39 0 0 0 64,469 0 0 0 64,469 40 to 44 0 0 0 230,412 0 0 0 230,412 45 to 49 0 0 0 163,872 180,557 65,487 0 409,916 50 to 54 0 48,544 48,543 59,533 227,606 248,049 0 632,275 55 to 59 0 0 0 211,898 683,906 434,171 255,448 1,585,423 60 to 64 0 0 0 320,141 941,475 991,082 861,672 3,114,370 65 & Up 0 0 0 120,981 311,086 149,150 688,579 1,269,796 Total 0 48,544 48,543 1,171,306 2,344,630 1,887,939 1,805,699 7,306,661 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 11 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 2 (CONTINUED) SUMMARY OF ACTIVE PARTICIPANTS AS OF JANUARY 1, 2015 Years of Service 1 to 5 5 to 10 10 to 15 15 to 20 20 to 25 25 to 30 30 & Up Total Age Average Compensation Under 25 0 0 0 0 0 0 0 0 25 to 29 0 0 0 0 0 0 0 0 30 to 34 0 0 0 0 0 0 0 0 35 to 39 0 0 0 64,469 0 0 0 64,469 40 to 44 0 0 0 57,603 0 0 0 57,603 45 to 49 0 0 0 54,624 60,186 65,487 0 58,559 50 to 54 0 48,544 48,543 59,533 56,902 62,012 0 57,480 55 to 59 0 0 0 52,975 62,173 62,024 63,862 60,978 60 to 64 0 0 0 64,028 72,421 66,072 78,334 70,781 65 & Up 0 0 0 40,327 51,848 74,575 76,509 63,490 Total 0 48,544 48,543 55,776 63,368 65,101 75,237 64,661 HISTORICAL SUMMARY 2008 2009 2010 2011 2012 2013 2014 2015 Not Vested: 0 0 0 0 0 0 0 0 Partially Vested: 0 0 0 0 0 0 0 0 Fully Vested: 235 229 212 169 155 140 128 113 Total: 235 229 212 169 155 140 128 113 Total Compensation: $13,851,399 $13,958,960 $12,897,653 $10,399,205 $9,582,235 $8,834,557 $8,202,862 $7,306,661 Average Rate of Pay: $58,942 $60,956 $60,838 $61,534 $61,821 $63,104 $64,085 $64,661 Average Service: 20.5 21.5 22.1 23.0 24.2 24.7 25.3 25.7 Average Age: 54.8 55.6 56.1 56.8 57.5 57.9 58.6 59.0 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 12 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 3 SUMMARY OF DEFERRED VESTED AND DEFERRED DISABLED PARTICIPANTS AS OF JANUARY 1, 2015 Age Number Total Annual Benefit Average Monthly Benefit 30-34 0 $ 0 $ 0 35-39 0 0 0 40-44 3 28,212 784 45-49 1 4,013 334 50-54 15 126,060 700 55-59 44 438,802 831 60-64 45 483,046 895 65 & Up 5 565,314 939 Total 113 $ 1,136,447 $ 838 HISTORICAL SUMMARY 2009 2010 2011 2012 2013 2014 2015 Deferred Vested Number: 112 113 134 135 128 120 112 Total Annual Benefit: $786,930 $828,324 $1,308,605 $1,402,476 $1,320,218 $1,162,402 $1,123,187 Average Monthly Benefit: $586 $611 $814 $866 $860 $807 $836 Average Age: 54.6 55.4 56.2 57.0 57.6 58.0 58.4 Deferred Disabled Number: 3 1 1 1 1 1 1 Total Annual Benefit: $60,981 $13,260 $13,260 $13,260 $13,260 $13,260 $13,260 Average Monthly Benefit: $1,694 $1,105 $1,105 $1,105 $1,105 $1,105 $1,105 Average Age: 57.3 53.0 54.0 55.0 56.0 57.0 58.0 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 13 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 4 SUMMARY OF RETIREES, DISABLEDS, AND BENEFICIARIES AS OF JANUARY 1, 2015 Retirees Disabled Retirees Beneficiaries Total Age Number Annual Benefit Average Monthly Benefit Number Annual Benefit Average Monthly Benefit Number Annual Benefit Average Monthly Benefit Number Annual Benefit Average Monthly Benefit 55-59 2 $15,205 $634 0 $0 $0 0 $0 $0 2 $15,205 $634 60-64 12 227,410 1,579 0 0 0 1 2,773 231 13 230,183 1,476 65-69 57 785,195 1,148 1 29,956 2,496 2 16,461 686 60 831,612 1,155 70-74 39 645,958 1,380 2 42,285 1,762 1 9,474 790 42 697,717 1,384 75-79 40 431,836 900 1 3,729 311 1 6,433 536 42 441,998 877 80-84 15 124,215 690 1 11,258 938 2 5,210 217 18 140,683 651 Above 85 14 134,150 799 0 0 0 14 116,841 695 28 250,991 747 Total 179 $2,363,969 $1,101 5 $87,228 $1,454 21 $157,192 $624 205 $2,608,389 $1,060 HISTORICAL SUMMARY 2008 2009 2010 2011 2012 2013 2014 2015 Retirees Number: 133 137 141 141 143 157 163 179 Total Annual Benefit: $1,391,269 $1,389,056 $1,544,520 $1,551,801 $1,553,258 $1,836,582 $2,057,107 $2,363,969 Average Monthly Benefit: $872 $845 $913 $917 $905 $975 $1,052 $1,101 Average Age: 71.4 71.5 71.8 72.4 72.5 72.6 72.8 72.7 Disabled Number: 8 7 8 6 6 5 6 5 Total Annual Benefit: $69,537 $63,995 $88,050 $76,483 $76,483 $61,091 $91,047 $87,228 Average Monthly Benefit: $724 $762 $917 $1,062 $1,062 $1,018 $1,265 $1,454 Average Age: 74.0 74.3 74.1 72.5 73.5 72.4 72.2 73.8 Beneficiaries Number: 18 19 22 23 22 23 21 21 Total Annual Benefit: $107,583 $124,591 $138,291 $147,516 $140,353 $160,626 $151,954 $157,192 Average Monthly Benefit: $498 $546 $524 $534 $532 $582 $603 $624 Average Age: 80.1 81.1 81.2 81.3 81.6 82.4 82.1 82.6 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 14 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 5 NUMBER OF PENSIONERS AND AMOUNT OF ANNUAL ANNUITY AS OF THE END OF EACH YEAR Year Retirement* Beneficiaries* Disability** Male Female Male Female Male Female All No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount 1985 46 $130,578 $ 5 $ 5,643 $ $ $ 51 $136,221 1986 67 250,103 7 14,058 74 264,161 1987 72 267,262 6 12,904 78 280,166 1988 70 264,467 6 9,299 76 273,766 1989 75 355,402 5 15,931 80 371,333 1990 65 370,147 19 38,437 2 3,561 3 12,370 2 2,041 0 0 91 426,556 1991 64 370,359 17 42,832 3 4,736 3 14,349 2 2,041 0 0 89 434,317 1992 65 375,014 18 51,214 3 4,736 4 15,640 2 2,041 1 5,692 93 454,337 1993 67 393,340 22 79,136 3 4,736 7 35,056 3 18,485 1 5,692 103 536,445 1994 60 394,223 17 75,333 1 3,099 8 39,381 3 21,369 2 10,884 91 544,287 1995 55 359,659 17 77,358 1 3,099 11 55,120 4 25,825 2 10,884 90 531,945 1996 66 466,177 18 84,593 1 3,099 10 50,512 4 25,825 2 10,884 101 641,090 1997 68 477,993 21 104,091 1 3,099 10 50,512 5 35,717 2 10,884 107 682,296 1998 70 547,160 23 121,654 1 3,099 11 53,600 6 40,722 2 10,884 113 777,119 1999 74 593,649 23 133,013 1 3,099 12 61,432 5 32,577 2 10,884 117 834,654 2000 74 650,175 22 136,795 1 3,572 13 71,763 5 34,506 2 11,825 117 908,636 2001 74 656,815 23 143,199 1 3,572 13 71,763 6 45,764 2 11,825 119 932,938 2002 73 691,385 29 194,447 1 3,572 12 68,051 6 45,764 2 11,825 123 1,015,044 2003 75 750,807 31 214,130 2 9,855 12 70,742 6 45,764 1 5,543 127 1,096,841 2004 77 807,941 33 215,275 2 9,855 13 80,089 6 45,764 1 5,543 132 1,164,467 2005 78 809,581 33 215,275 2 9,855 14 87,665 6 45,764 1 5,543 134 1,173,683 2006 83 889,557 36 241,760 2 9,855 14 87,665 7 63,995 1 5,543 143 1,298,375 2007 90 1,080,910 43 310,359 2 9,855 16 97,728 7 63,994 1 5,543 159 1,568,389 2008 90 1,050,492 47 338,564 2 9,855 17 114,736 7 63,995 0 0 163 1,577,642 2009 92 1,160,329 49 384,191 2 9,855 20 128,436 8 88,050 0 0 171 1,770,861 2010 90 1,151,934 51 399,867 3 18,484 20 129,032 6 76,483 0 0 170 1,775,800 2011 90 1,141,103 53 412,155 3 18,484 19 121,869 6 76,483 0 0 171 1,770,094 2012 101 1,382,769 56 453,813 3 18,484 20 142,142 5 61,091 0 0 185 2,058,299 2013 103 1,512,466 60 544,641 2 12,201 19 139,753 6 91,047 0 0 190 2,300,108 2014 115 1,764,025 64 599,944 1 3,572 20 153,620 5 87,228 0 0 205 2,608,389 * Male and female splits are not available prior to 1990. ** Retirement and disability splits are not available prior to 1990. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 15 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 6 SCHEDULE OF MEMBERS ELIGIBLE FOR NORMAL OR DELAYED RETIREMENT IN THE NEXT FIVE YEARS Normal Retirement Date Current Status 12/1/2009 6/1/2011 1/1/2012 2/1/2012 5/1/2012 9/1/2012 1/1/2013 1/1/2013 3/1/2013 5/1/2013 12/1/2013 3/1/2014 4/1/2014 10/1/2014 12/1/2014 1/1/2015 1/1/2015 1/1/2015 2/1/2015 3/1/2015 4/1/2015 4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/2015 11/1/2015 1/1/2016 3/1/2016 3/1/2016 4/1/2016 4/1/2016 4/1/2016 5/1/2016 7/1/2016 7/1/2016 7/1/2016 7/1/2016 9/1/2016 9/1/2016 Active Active Active Deferred Vested Active Active Active Active Active Active Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 16 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Normal Retirement Date Current Status 10/1/2016 10/1/2016 11/1/2016 11/1/2016 11/1/2016 12/1/2016 12/1/2016 12/1/2016 1/1/2017 1/1/2017 2/1/2017 3/1/2017 4/1/2017 5/1/2017 7/1/2017 8/1/2017 10/1/2017 10/1/2017 11/1/2017 11/1/2017 11/1/2017 12/1/2017 12/1/2017 12/1/2017 1/1/2018 1/1/2018 2/1/2018 2/1/2018 4/1/2018 5/1/2018 6/1/2018 7/1/2018 8/1/2018 8/1/2018 8/1/2018 9/1/2018 9/1/2018 9/1/2018 10/1/2018 10/1/2018 10/1/2018 11/1/2018 11/1/2018 11/1/2018 1/1/2019 2/1/2019 2/1/2019 3/1/2019 3/1/2019 Active Active Deferred Vested Deferred Vested Active Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 17 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Normal Retirement Date Current Status 3/1/2019 3/1/2019 4/1/2019 4/1/2019 4/1/2019 5/1/2019 5/1/2019 5/1/2019 6/1/2019 7/1/2019 10/1/2019 11/1/2019 11/1/2019 11/1/2019 Deferred Vested Deferred Vested Deferred Vested Active Active Active Active Deferred Vested Deferred Vested Active Active Deferred Vested Active Deferred Vested Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 18 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. SECTION 4 FINANCIAL DATA Table 7 displays a Statement of the Market Value of Assets, and Table 8 presents a summary of the Changes in the Market Value of Assets. During 2014, the market value of the plan assets increased by $1,007,579. Benefit payments for 2014 were $3,509,719, a decrease from $4,044,328 during the preceding year. For the purpose of the actuarial valuation, the investment income of the Fund consists of interest and dividends as well as realized and unrealized gains and losses on investments. During 2014, investment earnings totaled $2,630,327. The fund earned 6.0% on a market value basis and earned 8.0% on an actuarial value basis. The fund earned 18.7% on a market value basis for 2013. For funding purposes, gains and losses over our assumed rate of return are recognized over a five- year period. The development of the actuarial value of assets is shown in Table 9. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 19 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 7 STATEMENT OF MARKET VALUE OF ASSETS FOR THE PLAN YEARS 2014 AND 2013 December 31, 2014 December 31, 2013 INVESTMENTS Mutual Funds $ 32,168,850 $ 31,727,758 Cash and Fixed Income Funds 13,500,153 12,910,437 Total $ 45,669,003 $ 44,638,195 RECEIVABLES Employer Contributions $ 0 $ 0 Accrued Interest and Dividends 53,778 54,676 Total $ 53,778 $ 54,676 LIABILITIES Expenses and Benefits Payable $ 365 $ 315 Investment Transaction 0 0 Total $ 365 $ 315 TOTAL MARKET VALUE OF ASSETS $ 45,722,416 $ 44,692,556 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 20 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 8 CHANGE IN MARKET VALUE OF ASSETS FOR THE PLAN YEARS 2014 AND 2013 2014 2013 Market value at end of prior year $ 44,692,556 $ 39,489,447 Adjustment 22,281 (382) Market value at beginning of year $ 44,714,837 $ 39,489,065 Income: Contributions $ 1,905,906 $ 2,067,363 Realized and unrealized appreciation/(depreciation) 2,630,327 7,201,472 Total $ 4,536,233 $ 9,268,835 Disbursements: Benefit payments: Periodic Payments $ 2,465,018 $ 2,170,022 Lump Sum Distributions 1,044,701 1,874,306 Expenses 18,935 21,016 Total $ 3,528,654 $ 4,065,344 Net income: $ 1,007,579 $ 5,203,491 Market value at end of year $ 45,722,416 $ 44,692,556 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 21 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 9 DEVELOPMENT OF ACTUARIAL VALUE OF ASSETS GAIN/(LOSS) Actuarial value at beginning of year: $ 41,530,376 Contributions: 1,905,906 Benefit Payments: (3,509,719) Expected Interest: 2,647,350 Expected actuarial value at end of year: $ 42,573,913 Unrecognized asset gain/(loss) as of end of prior year: 3,162,180 Expected actuarial value plus prior year's unrecognized gain/(loss): $ 45,736,093 Actual market value at end of year: $ 45,722,416 Gain/(loss) for Year: $ (13,677) ASSET GAIN/(LOSS) RECOGNIZED Original Amount Recognized This Year Recognized in Prior Years To Be Recognized in the Future 2010 $ 1,133,859 $ 226,772 $ 907,087 $ 0 2011 (4,174,766) (834,953) (2,504,860) (834,953) 2012 1,543,072 308,614 617,230 617,228 2013 4,599,341 919,868 919,869 2,759,604 2014 (13,677) (2,736) 0 (10,941) Total $ 3,087,829 $ 617,565 $ (60,674) $ 2,530,938 ACTUARIAL VALUE OF ASSETS 1. Expected actuarial value as of December 31, 2014 $ 42,573,913 2. Gain/(loss) to be recognized this year 617,565 3. Initial Actuarial Value of Assets (1. + 2.) $ 43,191,478 4. 80% of Market Value $ 36,577,933 5. 120% of Market Value $ 54,866,899 6. Actuarial Value of Assets (3., but not less than 4. or greater than 5.) $ 43,191,478 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 22 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. SECTION 5 DEVELOPMENT OF ACTUARIAL LIABILITY A fundamental principle in financing a benefit program is that the cost of its benefits should be related to when those benefits are earned, rather than to when they are paid. Various methods are used by actuaries to determine costs that satisfy this principle. The actuarial valuation is prepared using the entry age normal cost method. Under this cost method, the actuarial present value of the projected benefits of each individual included in the valuation is allocated on a level basis over the earnings of the individual between entry age and assumed exit age. The portion of the actuarial present value of the projected benefits allocated to all service prior to the valuation date is called the Actuarial Liability. The portion of this actuarial present value of projected benefits allocated to a valuation year is called the Normal Cost. Table 10 contains information on the actuarial balance sheet: the plan’s resources and requirements. The plan requirements consist of the actuarial present value of projected plan benefits on January 1, 2015. Plan resources consist of plan assets, projected future normal costs and the plan’s unfunded actuarial liability. The actuarial liability of the Plan is illustrated below: Table 11 shows how the unfunded actuarial liability was derived for the Plan. 43% 15% 42% Actuarial Liability Actives Retirees Vested Inactive Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 23 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 10 ACTUARIAL BALANCE SHEET AS OF JANUARY 1, 2015 REQUIREMENTS Present Value of Projected Benefits Retired Participants $ 25,057,100 Vested Inactive Participants 8,522,860 Active Participants Retirement $ 24,320,531 Vested Withdrawal 270,195 Death 250,297 Disability 1,691,141 Total Active 26,532,164 Total Present Value of Projected Benefits $ 60,112,124 RESOURCES Actuarial Value of Assets $ 43,191,478 Present Value of Future Normal Costs 2,315,819 Unfunded Actuarial Liability 14,604,827 Total $ 60,112,124 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 24 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 11 UNFUNDED ACTUARIAL LIABILITY Actuarial Liability as of January 1, 2015 Retired Participants and Beneficaries $ 25,057,100 Vested Inactive Participants 8,522,860 Active Participants 24,216,345 Total $ 57,796,305 Actuarial Value of Assets $ 43,191,478 Unfunded Actuarial Liability as of January 1, 2015 $ 14,604,827 Expected Unfunded Actuarial Liability on January 1, 2015 Unfunded Actuarial Liability as of January 1, 2014 $ 14,652,432 Normal Cost 487,063 Employer Contributions (1,905,906) Interest 922,125 Expected, January 1, 2015 $ 14,155,714 Changes Experience (Gain)/Loss Asset (Gain)/Loss (617,565) Salary (Gain)/Loss (286,190) Retirement and Withdrawal (Gain)/Loss 224,562 Pensioner Mortality (Gain)/Loss 252,005 Other Demographic 48,454 Total Experience (Gain)/Loss (378,734) Assumption Change 827,847 Plan Changes 0 Unfunded Actuarial Liability on January 1, 2015 $ 14,604,827 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 25 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. SECTION 6 DISCLOSURE INFORMATION REQUIRED BY GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT NO. 27 This section provides the disclosure information required by Government Accounting Standards Board (GASB) Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. The assumptions and methods used for these funding disclosures meet the parameters set forth in GASB No. 27, and, other than those described below, are outlined in Appendix A of this report. The Plan’s Annual Required Contribution (ARC) for 2014 is calculated using a 9-year amortization of the unfunded actuarial liability or funding excess to determine the amortization component of the ARC. Unfunded actuarial liability or funding excess is the difference between the actuarial accrued liability and the actuarial value of assets, as calculated in Section 5. The pension cost is the ARC plus an amortization of the net pension obligation. The net pension obligation is the cumulative difference between the pension cost and the employer contribution to the plan. In this context, the net pension obligation will decrease if contributions exceed the pension cost and will increase if the entire pension cost is not contributed each year. Table 12 shows the calculation of the net pension obligation and annual pension cost. Table 13 contains the information required for the schedule of funding progress. Table 14 contains the three-year trend information, as required by GASB No. 27. In June 2012 the Government Accounting Standards Board issued GASB Statement No. 67 and No. 68, which amended GASB 25 and GASB 27, respectively. No. 67 is effective for fiscal years beginning after June 15, 2013, and No. 68 is effective for fiscal years beginning after June 15, 2014. The disclosure requirements under GASB No. 67 and No. 68 will be provided in a separate report. GASB No. 25 is no longer required beginning in 2014. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 26 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 12 CALCULATION OF NET PENSION OBLIGATION AND PENSION COST (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Fiscal Year Annual Required Contribution (ARC) Net Pension Obligation (NPO) as of January 1 [Prior year (10)] Interest Rate for Fiscal Year Interest on NPO to End of Year [(3) * (4)] Amortization Factor ARC Adjustment [(3) / (6)] Annual Pension Cost (APC) [(2)+(5)-(7)] Actual Employer Contribution Net Pension Obligation at End of Year [(8)-(9)+(3)] 2008 1,325,710 1,443,775 7.50% 108,283 8.3477 172,955 1,261,038 1,807,834 896,979 2009 1,901,281 896,979 7.50% 67,273 8.4814 105,759 1,862,795 1,005,901 1,753,873 2010 1,892,946 1,753,873 7.50% 131,540 8.7353 200,780 1,823,706 2,100,467 1,477,112 2011 1,706,844 1,477,112 7.50% 110,783 8.3154 177,635 1,639,992 1,345,466 1,771,638 2012 2,334,577 1,771,638 6.80% 120,471 8.0890 219,019 2,236,029 1,241,929 2,765,738 2013 2,681,999 2,765,738 6.80% 188,070 7.5710 365,306 2,504,763 2,067,363 3,203,138 2014 2,659,452 3,203,138 6.50% 208,204 7.0888 451,862 2,415,794 1,905,906 3,713,026 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 27 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 13 SCHEDULE OF FUNDING PROGRESS Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (b) Unfunded Actuarial Liability (UAL) (b)-(a) Funded Ratio (a)/(b) Covered Payroll (c) UAL as a Percentage of Covered Payroll [(b)-(a)]/(c) 1/1/2009 39,568,446 49,707,694 10,139,248 79.6% 13,958,960 72.6% 1/1/2010 39,577,509 50,300,314 10,722,805 78.7% 12,897,653 83.1% 1/1/2011 39,974,052 49,651,276 9,677,224 80.5% 10,399,210 93.1% 1/1/2012 39,973,803 53,813,281 13,839,478 74.3% 9,582,235 144.4% 1/1/2013 38,940,438 54,682,992 15,742,554 71.21% 8,834,557 178.2% 1/1/2014 41,530,376 56,182,808 14,652,432 73.92% 8,202,862 178.6% 1/1/2015 43,191,478 57,796,305 14,604,827 74.73% 7,306,659 199.9% Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 28 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 14 THREE-YEAR TREND INFORMATION Fiscal Year Annual Pension Cost (APC) Percent of APC Contributed Net Pension Obligation 2012 2,236,029 55.5% 2,765,738 2013 2,504,763 82.5% 3,203,138 2014 2,415,794 78.9% 3,713,026 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 29 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. SECTION 7 HISTORY AND PROJECTIONS Table 15 shows seven years of the more important Plan statistics.  Assets: Comparison of the Market Value of Assets to the Actuarial Value of Assets, including the rate of return on the Market Value of Assets, net of investment-related expenses. Investment return often represents the largest source of actuarial gain or loss.  Present Value of Projected Benefits: This represents the present value of benefits earned currently, plus all benefits expected to be earned in the future.  Participant Statistics: Changes, if any, in the active and inactive participants’ characteristics over time can cause significant changes in costs.  Assumptions: Changes, if any, in the assumptions used to value plan liabilities can have a dramatic effect. Several key assumptions are shown in Table 16. Table 16 provides a projection of benefit payments over the next twenty years. This can be useful for the investment manager in planning future liquidity requirements, although this exhibit does not attempt to predict future lump sum payments to terminating employees. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 30 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 15 HISTORICAL STATISTICS 2015 2014 2013 2012 2011 2010 2009 Assets Market Value of Assets $ 45,722,416 $ 44,692,556 $ 39,489,447 $ 37,015,380 $ 39,355,910 $ 37,302,262 $ 32,973,705 Actuarial Value of Assets $ 43,191,478 $ 41,530,376 $ 38,940,438 $ 39,973,803 $ 39,974,052 $ 39,577,509 $ 39,568,446 Ratio 94.5% 92.9% 98.6% 108.0% 101.6% 106.1% 120.0% Market Value Return 6.0% 18.7% 11.6% (3.1)% 11.1% 20.5% (26.5)% Present Value of Projected Benefits For retirees and beneficiaries $ 25,057,100 $ 21,608,789 $ 18,850,712 $ 16,058,012 $ 15,459,723 $ 15,544,671 $ 13,871,991 For terminated vested participants 8,522,860 8,473,138 9,217,906 9,568,212 7,704,312 4,286,911 4,311,839 For active participants 26,532,164 28,678,500 29,279,641 31,223,732 28,839,842 33,569,162 34,967,356 Total $ 60,112,124 $ 58,760,427 $ 57,348,259 $ 56,849,956 $ 52,003,877 $ 53,400,744 $ 53,151,186 Actuarial Liability $ 57,796,305 $ 56,182,808 $ 54,682,992 $ 53,813,281 $ 49,651,276 $ 50,300,314 $ 49,707,694 Participant Statistics Retired Participants Number 205 190 185 171 170 171 163 Average Monthly Benefits $ 1,060 $ 1,009 $ 927 $ 863 $ 870 $ 863 $ 807 Vested Inactive Participants Number 113 121 129 136 135 114 115 Average Monthly Benefits $ 838 $ 810 $ 861 $ 867 $ 816 $ 615 $ 614 Active Participants Number of Participants 113 128 140 155 169 212 229 Average Compensation $ 64,661 $ 64,085 $ 63,104 $ 61,821 $ 61,534 $ 60,838 $ 60,956 Average Years of Service 25.7 25.3 24.7 24.2 23.0 22.1 21.5 Average Age 59.0 58.6 57.9 57.5 56.8 56.1 55.6 Actuarial Assumptions Interest 6.50% 6.50% 6.80% 6.80% 7.50% 7.50% 7.50% Salary Growth Table Table Table Table Table Table Table Mortality Table Utilized RP-2000; Proj. Generationally RP-2000; Proj. 2021 RP-2000; Proj. 2021 RP-2000; Proj. 2021 RP-2000; Proj. 2021 94GAM 94GAM Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 31 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. TABLE 16 TWENTY-YEAR PROJECTION OF BENEFIT PAYMENTS Plan Year Estimated Annual Benefit Payments 2015 3,811,000 2016 4,066,000 2017 4,269,000 2018 4,362,000 2019 4,707,000 2020 4,817,000 2021 4,916,000 2022 4,954,000 2023 5,116,000 2024 5,016,000 2025 5,039,000 2026 4,911,000 2027 4,981,000 2028 4,827,000 2029 4,771,000 2030 4,555,000 2031 4,508,000 2032 4,381,000 2033 4,210,000 2034 3,961,000 Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 32 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. APPENDIX A ACTUARIAL PROCEDURES AND ASSUMPTIONS The actuarial assumptions used in the valuation are intended to estimate future experience affecting projected benefit flow and investment earnings. Any variations in future experience from that expected from these assumptions will result in corresponding changes in the estimated costs of the plan’s benefits. The tables in this section give rates of decrement, referred to in actuarial notation by the general symbol “q'.” The underlying theory is described more fully in Jordan, Life Contingencies, Society of Actuaries (Second Edition, 1967), page 277. Any age referred to in a table is always the age of the person at his or her nearest birthday. Actuarial Cost Method The actuarial cost method we use to calculate the funding requirements of the Plan is called the entry age normal cost method. Under this cost method, the actuarial present value of the projected benefits of each individual included in the valuation is allocated on a level basis over the earnings of the individual between entry age and assumed exit age. The portion of the actuarial present value of the projected benefits allocated to all service prior to the valuation date is called the Actuarial Liability. The portion of this actuarial present value of projected benefits allocated to a valuation year is called the Normal Cost. Actuarial Value of Assets An expected actuarial value is determined equal to the prior year's actuarial value of assets plus cash flow (excluding realized and unrealized gains or losses) for the year ended on the valuation date and assuming 7.5% interest for years 2010 through 2011, 6.8% for 2012 and 2013, and 6.5% for 2014. The unrecognized gain or loss is then added to the expected value. Any difference between this amount and the market value of assets is set up as a gain or loss base and amortized over five years. The expected actuarial value plus the amortization of prior gain or losses is constrained to a value of 80% to 120% of the market value of assets at the valuation date in order to determine the final actuarial value of assets. Investment Earnings 6.50% per annum, compounded annually net of investment-related expenses. COLA None. Wage Increase 3.50% Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 33 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Earnings Progression Annual salary increases are based on a table graded by age, as displayed below: Age Percentage Increase at Age Inflation Productivity Merit Total 35 2.5% 1.0% 1.0% 4.5% 40 2.5 1.0 1.0 4.5 45 2.5 1.0 0.8 4.3 50 2.5 1.0 0.7 4.2 55 2.5 1.0 0.5 4.0 60 2.5 1.0 0.2 3.7 65+ 2.5 1.0 0.1 3.6 Retirement The following table sets forth the probability of retirement according to age. Age Probability of Retirement 55 2% 56 2 57 2 58 2 59 2 60 2 61 2 62 10 63 10 64 10 65 40 66 40 67 30 68 30 69 & Over 100 Deferred Vested participants were assumed to retire at age 65. Disablement Graduated rates are used. See table below for sample rates. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 34 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Withdrawal Rates Graduated rates are used. Sample rates are as follows: Age at Termination Withdrawal Male Female Disability 35 8.58% 9.53% 0.19% 45 3.88 5.23 0.44 55 2.00 3.29 1.19 60 1.50 2.15 1.80 Mortality Healthy Lives, Pre-retirement – RP-2000 Healthy Non-Annuitant Mortality Table projected generationally using Scale AA Healthy Lives, Post-retirement – RP-2000 Healthy Annuitant Mortality Table projected gernationally using Scale AA Disabled Lives – RP-2000 Healthy Non-Annuitant and Annuitant Mortality Table set forward 3 years and projected generationally using Scale AA Expenses The average of the prior three year's expenses: Year Expenses 2014 $ 18,935 2013 21,016 2012 23,801 Total $ 63,752 Average $ 21,251 Marriage Rates 85% of all active and terminated participants not currently receiving benefits are assumed to be married. Male spouses are assumed to be three years older than their female spouses. Future Credited Service The Future Credited Service rate is equal to the member’s Full Time Equivalent (FTE) rate as of December 31 preceding the current valuation year. Form of Payment 30% of participants terminating or retiring from active service are assumed to elect a lump sum. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 35 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Changes in Actuarial Assumptions and Methods as of January 1, 2015  The healthy mortality assumption was changed from a static projection to 2021 of the RP- 2000 Non-Annuitant and Annuitant Mortality Table to a generational projection of the same sex-distinct tables.  The disabled mortality was changed to the same mortality as for healthy lives, but with a 3 year set forward. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 36 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. APPENDIX B PLAN SUMMARY All actuarial calculations are based upon our understanding of the provisions of City of Fort Collins General Employees’ Retirement Plan, as adopted and in effect on January 1, 2015. This summary does not attempt to cover all of the detailed provisions. Plan Year The Plan Year is the 12-month period beginning January 1 and ending December 31. Effective Date The original effective date of the plan is January 1, 1971. The plan was most recently restated effective January 1, 2012 and amended effective February 5, 2013. Eligible Employee Classification All persons employed to fill a classified position defined by the city, excluding police officers and firefighters, shall become a member of the Plan on the later of the Effective Date of the Plan or Date of Hire. The Plan was frozen to new entrants as of January 1, 1999. Accrued Benefit The Accrued Benefit for each Member is the Member's Normal Retirement Benefit calculated using Average Monthly Compensation and Credited Service as of the calculation date. In no event will a Member’s Accrued Benefit be less than the Accrued Benefit earned as of June 30, 2003. Average Monthly Compensation A Member’s Average Monthly Compensation, as of a given date, is the average of the highest 60 consecutive months of considered compensation during the last 120 months of Credited Service. In the event that a participant was employed on a part time basis during any portion of this period, the compensation will be converted to a full time equivalent for purposes of calculating the Average Monthly Compensation. Compensation Compensation is the gross compensation included as taxable income on Form W-2, excluding bonuses, compensatory time recorded as additional hours, overtime pay, workers' compensation accrued vacation pay, taxable fringe benefits, but including any amounts contributed by the City to a salary reduction agreement including Code Sections 125, 132(f)(4), 402(a)(8), 403(b), 402(a), and 457. Credited Service A Year of Service is credited for each plan year a member works 2,080 hours. If the member works less than 2,080 hours, a partial Year of Service will be credited on a prorate basis based on the number of hours for which compensation is paid. Service is credited while a member is on long-term disability as long as no benefits are being paid from the plan. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 37 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Vested Accrued Benefit A Participant's Vested Accrued Benefit as of a given date is equal to the product of his Accrued Benefit multiplied by his Vested Percentage as of that same date. Vesting Schedule Members become vested in their Accrued Benefit according to the following schedule: Years of Credited Service Percent Vested Less than 2 0% 2 40% 3 60% 4 80% 5 and over 100% Normal Retirement Date A Participant’s Normal Retirement Age is the first of the month coincident with or next following the attainment of age 65. Normal Retirement Benefits Each Member who becomes eligible for a Normal Retirement Benefit under the plan will be entitled to receive a monthly retirement pension benefit beginning at the Member's Normal Retirement Date and payable in the Normal Benefit Form equal to:  1.5% of Average Monthly Compensation, multiplied by Credited Service. Normal Benefit Form Life Annuity - Monthly pension benefit payable for the lifetime of the Member. Early Retirement (a) Early Retirement Date A Member's Early Retirement Date is the first day of the month so elected by the Member which coincides with or next follows the date upon which the Member attains age 55 and completes 2 Years of Service. (b) Early Retirement Benefit A Member's Early Retirement Benefit is a monthly pension benefit equal to his Accrued Benefit determined as of his Early Retirement Date, reduced by 1/15th for the first 5 years and 1/30th for each of the next 5 years payments commence prior to age 65. Optional Benefit Forms Optional Benefit Forms are available and equal to the Actuarial Equivalent of the Normal Benefit Form and may be in an amount more than or less than that provided by the Normal Benefit Form depending on the option selected. Such distribution may be as a Joint & 50% or 100% Survivor Annuity, a Life Annuity with 120 payments guaranteed, or a Lump Sum. Milliman Actuarial Valuation January 1, 2015 Actuarial Valuation 38 City of Fort Collins General Employees’ Retirement Plan This work product was prepared solely for the City of Fort Collins General Employees Retirement Committee for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Pre-Retirement Death Benefit If a Member dies prior to commencing pension payments, the Member’s beneficiary will receive a single sum benefit in an amount equal to 47% of the actuarial equivalent value of the Member’s Accrued Benefit. If the beneficiary is the Member's spouse, the spouse may elect a monthly benefit which is the actuarial equivalent of the single sum benefit. (The 47% factor is stated in the Plan Document Article XI, Section 11. It was developed assuming that the participant quit the day prior to death and elected a 50% joint and survivor benefit.) Termination Benefit In the event of the termination of a Member's employment for any reason other than death, disability or retirement after completing 2 Years of Service, the Member will become entitled to receive a monthly pension benefit commencing on his Normal Retirement Date equal to his Vested Accrued Benefit. If the deferred benefit to which the Member is to be paid at his Normal Retirement Date has an actuarial equivalent value less than $5,000, the entire benefit will be paid to the terminated participant as a single lump sum. Disability Benefit (a) Total Disability The monthly benefit, payable for life commencing at normal retirement date, is equal to the normal retirement benefit considering annual rate of compensation at disability and credited service he would have accumulated if employment had continued uninterrupted to his normal retirement date. (b) Permanent Partial Disability A member may accrue Credited Service under the Plan for any period of time up to a maximum accrual of two (2) years. Instead of the disability benefit described above, the disabled participant may elect to take a lump-sum distribution at any time. City Contributions The entire cost of the plan is to be paid by the City. Plan Changes None Council Finance Committee Meeting May 18, 2015 GERP Actuarial Valuation January 1, 2015 Joel Stewart, ASA, EA, MAAA This work product was prepared solely to provide assistance to the City of Fort Collins and the Council Finance Committee. It may not be appropriate for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. 1 Agenda  Pension Plan Overview  GERP Plan Summary  Valuation Results  Solvency Model This work product was prepared solely to provide assistance to the City of Fort Collins and the Council Finance Committee. It may not be appropriate for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. 2 Pension Plan Equation $ 7 investment $$ $ earnings $ $ $ $ $ $ $ $ $ $ $Assets $ $ $ $ $ $ $ $ $ PEN ISO N FU N D $ $ benefits expenses contributions The illustration above represents the financial functioning of a pension trust. Ultimately, all benefits and expenses must be provided for by current assets, future contributions and future investment returns. This work product was prepared solely to provide assistance to the City of Fort Collins and the Council Finance Committee. It may not be appropriate for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. The City owns the Investment Return Risk for the Plan 3 GERP Plan Summary This work product was prepared solely to provide assistance to the City of Fort Collins and the Council Finance Committee. It may not be appropriate for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Demographics as of 1/1/2015  Total Participants = 431 (113 Active, 184 Retired, 113 Term Vested & 21 Beneficiaries)  Active Participant Ave. Age = 59.0 & Ave. Years of Service = 25.7 (Employees hired before 1/1/1999) Plan Summary  Normal Retirement Date (NRD) = Age 65  Benefit Payable at NRD = Final Ave Monthly Salary x 1.5% x Years of Service  Benefit Example assuming $65,000 average salary and 25 years of service $5,417 x 1.5% x 25 = $2,031 Key Assumptions  Investment Return Assumption = 6.5%  Life Expectancy  City Contribution = 10.5% of Salary + Supplemental Contribution (currently $1.12m) 4 2015 Actuarial Valuation Report Highlights This work product was prepared solely to provide assistance to the City of Fort Collins and the Council Finance Committee. It may not be appropriate for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.  The plan assets returned 6.0% during the 2014 plan year on a market value basis. The average annual return over the last 21 years is 6.4%. The assumed rate of return for the 2014 plan year was 6.5%.  At the end of 2014, the market value of assets was $45,722,416, up from the previous year ending market value of $44,692,556.  Key Results: 12/31/2014 12/31/2013 Total Pension Liability (TPL) $ 57,796,305 $ 56,182,808 Fiduciary Net Position (FNP) $ 45,722,416 $ 44,714,837 Net Pension Liability (NPL) = TPL - FNP $ 12,073,889 $ 11,467,971 FNP as a % of TPL 79.11% 79.59% 5 Summary of Resources and Obligations This work product was prepared solely to provide assistance to the City of Fort Collins and the Council Finance Committee. It may not be appropriate for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. – Obligations consist of the Actuarial Liability (Current) and the amount of the total liability attributable to future service, the Present Value of Future Normal Costs (Future) – Resources consist of the current market value of assets (Current) and the present value of the future anticipated payroll contributions of 10.5% of compensation (Future) – The difference of $10.1 million is anticipated to be funded through the supplemental contribution of $1.1 million per year. This equates to about 14 years as of the valuation date. 6 Solvency Projections • The following graph shows the results of the solvency projections for the current year. • Each year we update the solvency projection to reflect the current year’s actuarial valuation results, including the actual return on assets for the prior year. • Historical asset returns for the last few years are as follows: 2010: 11.1% 2011: -3.1% 2012: 11.6% 2013: 18.7% 2014: 6.0% This work product was prepared solely to provide assistance to the City of Fort Collins and the Council Finance Committee. It may not be appropriate for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. 7 Future Return on Assets: 6.5% Base Contribution Rate: 10.5% Supplemental Contributions: $1,120,000 through 2028 This work product was prepared solely to provide assistance to the City of Fort Collins and the Council Finance Committee. It may not be appropriate for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Projection of Assets, Contributions and Benefit Payments 8 Questions? This work product was prepared solely to provide assistance to the City of Fort Collins and the Council Finance Committee. It may not be appropriate for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: John Voss and Josh Birks Date: May 18, 2015 SUBJECT FOR DISCUSSION An update to the Economic Health Financial Policy EXECUTIVE SUMMARY The Fort Collins City Council has adopted Financial Management Policies pursuant to the provisions of Article V, Section 12 of the City Charter, to guide the administration, management, deposit and investment of City funds. In addition, City Council and staff have committed to regularly review and update these Financial Management Policies. The current Economic Development financial policy was last updated in 1999. Staff will present the Council Finance Committee with an updated policy for their review. The bulk of the new policy comes from documents previously approved by City Council in recent years. The new financial policy will replace the existing policy in its entirety. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Does the Council Finance Committee have any questions or concerns with the proposed policy? 2. Are there any missing aspects of the policy? 3. Is the proposed policy ready for consideration by the full City Council? BACKGROUND/DISCUSSION The City of Fort Collins adopted an Economic Development Policy in 1999 (see Attachment 1) that outlined the City’s general approach to Economic Development. In 1999, the City did not have a dedicated Economic Health Office and no staff directly tasked with preserving and enhancing the economic health of the community. Fast forward to 2005, the City created an Economic Health Office by hiring the first ever staff directly tasked with preserving and enhancing the economic health of the community, an Economic Advisor. Since 2005, the Economic Health Office has grown by absorbing the Urban Renewal Authority oversight and adding additional staff. In addition, a number of documents were approved by City Council to guide the actions of the EHO. These documents include:  2006 – Economic Health Action Plan (Resolution 2006-097);  2010 – Target Industry Development (Resolution 2010-055);  2012 – Economic Health Strategic Plan (Resolution 2012-044); and  2013 – Policy for Developing Primary Employer Business Assistance Packages (Resolution 2013-025). In addition, EHO staff is currently finalizing a proposed update to the 2012 Economic Health Strategic Plan. The update responds to a City Council request to evaluate changes to the existing strategic plan and seeks alignment with the objectives of the Sustainability Service Area (formed in 2012). The update introduces five themes around which to organize the City’s economic health activities:  Community Prosperity  Grow Our Own  Place Matters  The Climate Economy  Think Regionally The proposed update to the Economic Health Financial Policy addresses several key aspects of the City’s evolving Economic Health approach:  Section 9.1: Policy Statement – This section of the policy re-iterates the City’s position on Economic Health, as stated in the City’s Strategic Plan (2014). Most importantly, it provides the City’s approved Economic Health Mission Statement: Fort Collins promotes a healthy, sustainable economy reflecting community values.  Section 9.2: Role of the City – This section of the policy relates a high-level overview of the evolving role of the City in Economic Health. The bulleted role statements come directly from the draft revisions to the Economic Health Strategic Plan, which will be considered by City Council on June 2, 2015.  Section 9.3: Role of the Private Sector – This section provides a brief statement about the importance and role of the private sector in preserving and enhancing the community’s economic health.  Section 9.4: Role of Outside Entities – This section provides a brief statement about the importance and role of outside entities in preserving and enhancing the community’s economic health.  Section 9.5: Primary Employer Business Assistance Package Development – This section re-iterated the essential portions of the Primary Employer Business Assistance Package Development framework approved by City Council on March, 19, 2013 (Resolution 2013-025).  Section 9.6: Industry Cluster Grants – The EHO staff has developed a process for reviewing competitive applications for available Industry Cluster support funds. These funds are provided annually through the process outlined in this section. The section covers eligibility, evaluation criteria, selection process, and other aspects of the program.  Section 9.7: Use Tax and Business Personal Property Tax Rebate Process – This section of the policy covers the process by which use tax and business personal property tax rebates are managed if provided through a Primary Employer Assistance Package. The process provides significant refinement to early rebates and makes the verification of eligibility and performance easier to manage. As additional programs are developed by EHO that require financial oversight this proposed policy will be updated accordingly. ATTACHMENTS 1. Existing Economic Development financial policy, modified November 15, 2005; Resolution 1999-023 2. Proposed Economic Health Financial Policy; issued May 12, 2015 3. Staff Presentation Financial Management Policies ECONOMIC DEVELOPMENT POLICY (Summarizing Resolution 1999-023) 9.1. POLICY STATEMENT The City of Fort Collins has chosen a partnership model for economic development. The partnership is between the public and private sector, and the citizens of Fort Collins. The City provides many services to existing and prospective business. The City facilitates the processes and procedures required for site development, provides data and demographic information, invests in municipal infrastructure, and considers other initiatives on a case-by- case basis. The private sector shares responsibility with the public sector for the retention and expansion of business or industry with the City. This may include marketing and promotion of the community, outreach to existing business, and assistance in project financing and small business counseling. 9.2. ROLE OF THE CITY OF FORT COLLINS Businesses considering expansion or relocation are most concerned and interested in the overall quality of life. Some measures of quality of life include: the quality of primary and secondary schools, the skill of the work force, the quality of municipal services, and the state of the natural environment. The City's primary role in economic development focuses on those areas which directly involve City process and procedure. The City's goal is to encourage and support economic development and economic opportunities which provide primary employment, increase private investment within the community and improve the quality of life for its residents. The City strives to achieve this goal through the following policies: 1. Promotion of the City as a good place to live and work. 2. Emphasis on comprehensive, quality municipal services as the City's primary contribution to the community's economic development effort. 3. Create a positive climate for both local and new business. 4. Assist small business retention and expansion as appropriate. 5. Encourage and promote workforce training, retraining, education, and employee support services to assist in the creation and expansion of meaningful employment opportunities. 6. The City=s role in dealing with prospective expansion or relocations focuses on planning and the provision of municipal services and facilities such as streets and utilities. 7. Encourage the development of a wide variety of business activities rather than focusing solely on one sector. 8. Awareness of the community=s role in the global and domestic marketplace, and the importance of welcoming and assisting visitors from other nations, foreign firms, and tourists. Financial Management Policies Financial Management Policies The City has identified several action steps to be used to implement the policies above: 1. Work with other public and private entities to promote policies and programs which encourage education, training, workforce development, and basic, advanced, and technological skills enhancement. 2. Provide prospective businesses with information regarding municipal services, schools, recreational opportunities, health care, and other services available within the community. 3. Notify existing and prospective businesses of the opportunities available through Colorado State University and the private sector in the areas of product and process development. 4. Consider partnerships with other public and private entities such as the Fort Collins Virtual Business Incubator and Small Business Development Center to encourage entrepreneurial activity within a one-stop environment. 5. Maintain and enhance utility and technological infrastructure and strive to provide consistently reliable and efficient service. 6. Maintain a reasonable and equitable tax structure. 7. Provide assistance to business and industry about City process and procedure. 8. Afford new and existing business and industry the opportunity to seek financial incentives from City, state, and federal sources. 9. Monitor economic, community and environmental indicators on a periodic basis and consider actions that address a change in the local economy. 10. Evaluate all programs and policies that are suggested for Council consideration to determine if there are unintended impacts on the business community. 9.3. ROLE OF THE PRIVATE SECTOR The private sector plays a significant role in the success of the overall economic development strategy. The private sector mission is to work with the City and other public organizations to retain and expand basic industry within the city and county. This effort requires the support of the Northern Colorado Economic Development Corporation, the Chamber of Commerce and other entities referenced below, as well as local banks, financial institutions, and existing business and industry. The private sector role is characterized by its ability to work with new and existing business in a confidential manner. Real estate values, business climate, financing options, and site options are most appropriately discussed by the private sector. 9.4. ROLE OF OUTSIDE ENTITIES The efforts of the City and private sector to enhance the economic prosperity of the community are directly and indirectly supported by several organizations and entities including: Colorado State University Downtown Development Authority Larimer County Convention & Visitor's Bureau Poudre R-1 School District Private Industry Council Financial Management Policies Employment and Training Service Though each has an independent focus, their work contributes to the overall quality of life and prosperity enjoyed with the community. In this way, the network required to conduct an effective community-based economic development is provided. Economic Health Policy 9 Economic Health Financial Policy Issue Date: May 18, 2015 Version: 1 Issued by: Josh Birks Financial Policy 9 – Economic Health 1 9.1 Policy Statement Fort Collins promotes a healthy, sustainable economy reflecting community values. The City plays a critical role in shaping quality of life, creating a sense of place, and providing fiscal stability for the community. Defining sense of place requires identifying the various perspectives across the spectrum of the Fort Collins community. Sustainable economic health, maintaining the City’s role as a regional economic center, continuing collaboration with Colorado State University and other regional participants, and supporting cultural amenities are important priorities. A sustainable economy means that residents can find employment and afford to live in the community; that businesses are able and encouraged to start, remain and expand in the community; and that everyone can expect quality City services and sustainable, attractive infrastructure. Objective: Provide an overview of the City of Fort Collins’ policy related to Economic Health. The objective of Economic Health within Fort Collins is a sustainable economy. A sustainable economy means that residents can find employment and afford to live in the community; that businesses are able and encouraged to start, remain, and expand in the community; and that everyone can expect quality City services and sustainable, attractive infrastructure. In addition, this Policy provides specific direction on:  Primary Employer Business Assistance Package Development;  Industry Cluster Grants; and  Use Tax and Business Personal Property Tax Rebate Process Applicability: This policy applies to the City’s actions related to Economic Health except those related to redevelopment as specified in Policy X on the Urban Renewal Authority. Authorized by: City Council Resolutions 2012-044 and 2013-025. Financial Policy 9 – Economic Health 2 Economic Health depends on a safe community. Rather than “deal-making,” the City’s approach to Economic Health is one of “place- making” (a decision-making approach intended to preserve and enhance a vibrant community by optimizing its economy, environment and social values). The City creates an atmosphere where businesses that align with community values thrive, and focuses on retaining, expanding, incubating and, lastly, attracting businesses. Economic development efforts focus on established Targeted Industry Clusters including clean energy, water innovation, bioscience and technology. In addition, the City supports those businesses that exemplify the overall character of the community. Creating a skilled workforce that meets the needs of local employers and creating partnerships with other economic development organizations are important to the City’s efforts. New opportunities and challenges exist related to adequate technological infrastructure to support a knowledge-based economy and employment competition. Numerous prospects are emerging for redevelopment and infill. Priorities include efforts to foster entrepreneurship, grow and attract primary employers, remain a retirement and tourism destination, and support and strengthen existing businesses. The relationship of economic health to environmental stewardship and a well-planned community is recognized in the decisions made and programs proposed. A healthy and resilient economy includes:  Diverse jobs that enable citizens and businesses to thrive.  A reflection of our unique community in a changing world.  An innovative and entrepreneurial atmosphere that builds new and creative industries.  Strong partnership and collaboration with the private sector, educational institutions, and other organizations.  A quality and comprehensive infrastructure that supports business.  Balancing the built and natural environment. In order to achieve the above outcomes the City of Fort Collins has adopted numerous documents, policies, and resolutions:  2006 – Economic Health Action Plan (Resolution 2006-097);  2010 – Target Industry Development (Resolution 2010-055);  2012 – Economic Health Strategic Plan (Resolution 2012-044); and  2013 – Policy for Developing Primary Employer Business Assistance Packages (Resolution 2013-025). Financial Policy 9 – Economic Health 3 9.2 Role of the City of Fort Collins The City’s primary role in economic health focuses on business retention, expansion, incubation and attraction, in that order. The City’s goal is to support and encourage economic opportunities which provide primary employment, increased private investment within the community and improved quality of life for its residents. Activities include:  Support workforce development and community amenity initiatives that meet the needs of Fort Collins employers  Catalyze industry sectors and clusters to increase economic diversification  Ensure alignment of resources such as reliable, ultra-high speed internet services across the community to incubate new businesses and support entrepreneurs  Identify barriers to spin-out, new business formation, and conversion of intellectual property to economic activity and develop new approaches to address the identified barriers  Work with business community to ensure an adequate supply of employment land (office and industrial) to meet the need of new business formation and expansion  Ensure the infrastructure provided by the City is high-quality and supports business  Preserve the City's sense of place by encouraging strategic public and private investment  Help businesses navigate City processes (e.g., development review, licensing, etc.)  Aid businesses in leveraging the challenges of climate change and carbon reduction into economic opportunities  Develop strong relationships with our counterparts in the region, including Larimer County  Convener of economic recovery entities during natural disasters  Support and develop regional sector initiatives  Identify and market supply chain opportunities for the region The City engages in these activities in one of three ways, as:  Leader— City takes on the lead role in implementing specific goals;  Partner—City partners with other agencies and organizations to implement specific goals including providing funds to achieve these collective goals;  Collaborator— City partners with other agencies and organizations to implement specific goals without providing funds. Financial Policy 9 – Economic Health 4 9.3 Role of the Private Sector The City of Fort Collins follows the triple helix approach (university, private sector and government) to economic health. The private sector plays a significant role in the success of the overall economic health strategy. The private sector mission is to work with the City and other public organizations to retain and support the basic industries within the city and county. This effort requires the support of partners such as the Chamber of Commerce, Metro Denver Economic Development Corporation and other entities referenced below, as well as local banks, financial institutions, developers and existing business and industry. The private sector role is characterized by its ability to work with new and existing business in a confidential manner. Real estate values, business climate, financing options and site options are most appropriately discussed by the private sector. 9.4 Role of Outside Entities The efforts of the City and private sector to enhance the economic prosperity of the community are directly and indirectly supported by several organizations and entities including: Colorado State University Front Range Community College Downtown Development Authority Larimer County Visit Fort Collins Poudre R-1 School District Private Industry Councils Employment and Training Services Various Nonprofit Organizations Though each has an independent focus, their work contributes to the overall quality of life and prosperity enjoyed within the community. In this way, the network required to conduct an effective community-driven economic health is provided. Financial Policy 9 – Economic Health 5 9.5 Primary Employer Business Assistance Package Development The following sections outline the refined process for developing primary employer business assistance packages. 9.5.1 Applicability This policy will apply to all requests for direct assistance, as defined in the available assistance tools section below (e.g., tax rebates, specialized financing, etc.), from primary employers looking to remain or expand their operations in the City, as well as, any primary employer evaluating relocation to the City. For the purpose of this document, a “Primary Employer” or “Primary Job” will be defined as any business or job located within the City that derives a minimum of 50 percent of its income from the sales of goods or services outside the Fort Collins Growth Management Area (“GMA”). 9.5.2 Organization and Management The City’s Economic Health Office (EHO) will have the responsibility of managing and developing all business assistance packages subject to this policy. EHO staff will work collaboratively with other City departments throughout the development process. In addition, EHO staff will work with the applicable City departments to ensure compliance with all terms and conditions of the final business assistance package(s) as approved by City Council. 9.5.3 Available Assistance Tools The City has historically provided a variety of direct assistance to primary employers to encourage the creation and retention of primary jobs. The following provides a list and brief description of the type of assistance commonly used by the City:  Private Activity Bond Financing – A Federal program allowing private corporations to access tax exempt financing for qualified business development investments, such as property acquisition, building construction, building renovation, and equipment procurement.  Manufacturing Equipment Use Tax Rebate – A rebate of the applicable use tax due for the purchase of qualified manufacturing equipment by a business. The maximum allowed rebate will not exceed the City’s general fund tax rate, which at time of adoption of this policy is 2.25 percent.  Business Personal Property Tax Rebate – A rebate of the applicable personal property tax due on qualified manufacturing equipment owned by a business. The maximum allowed rebate will not exceed 50 percent of the City’s portion of the personal property tax rate. In addition, the maximum term of the rebate will not exceed 10 years. The above list does not constitute a complete list of the tools available. In the spirit of continuous improvement, the EHO staff will evaluate additional tools for their applicability to primary employers and job creation and retention. In addition, all new tools will be vetted with the Economic Advisory Commission (EAC), Council Finance Committee, and City Council before use in a business assistance package. Emphasis will be placed on tools that maximize public benefit at minimal cost to the community. Financial Policy 9 – Economic Health 6 9.5.4 Application Requirements A request for direct assistance, as described above, from the City by a primary employer must include a complete application. The EHO will develop an application to be approved and modified from time to time as necessary by the City Manager. At a minimum the application will address the following:  Company Information  Project Information  Capital Investment  Jobs Categories and Wage Distribution  Public Benefit  Natural Resource Stewardship  Community Well-Being The EHO will use existing applications, such as the Community Development Block Grant funding request and Urban Renewal Assistance applications as a model for the initial application. The intent of the application is to collect the necessary data to perform a holistic evaluation of the project and assistance request. 9.5.5 Evaluation Criteria After receipt of a complete application, the EHO office will screen all request using a set of evaluation criteria designed to provide a holistic evaluation of the proposed project. The evaluation criteria will be approved and modified from time to time by the City Manager as proposed by the EHO. The evaluation criteria will address the following key areas with example criteria:  Economic Impact – Overall impact (e.g., Gross Revenues, percent of City employment), employment impact (e.g., number of jobs, wages, benefits), and capital investment (e.g., equipment purchases, facility investment, infrastructure impact).  Contribution to Quality of Place – Added community value through their product/service, has a positive history and/or longevity in the community, and/or meets a community need.  Alignment with City Objectives – The project aligns with clearly stated City objectives from the EHSP, City Plan, or other relevant strategy (such as a target industry cluster) or planning document.  Natural Resource Stewardship – Impact of electricity and water consumption, hazardous waste management, ClimateWise Partner, participation in Utility’s Integrated Design Assistance Program (IDAP) or similar conservation program.  Community Well-Being – Contribution to a diverse job base, corporate outreach/volunteerism, impact to community infrastructure, proximity to public transportation, provision of other benefits (e.g., childcare). 9.5.6 Business Assistance Inputs All business assistance packages will be performance-based agreements. The program is designed to Financial Policy 9 – Economic Health 7 support and encourage new business development, business expansion and relocations that either retain or generate net new primary jobs. The EHO will use a list of scalable inputs to determine the amount and type of assistance to include in each package:  Annual average wages – It is the intent of this policy to encourage a diverse base of jobs. Therefore annual average wage will be one of several inputs in determining the amount and type of direct assistance for an eligible project. The computed annual average wage of all jobs included in a project will be considered against the Larimer County annual average wage. Projects that achieve an annual average wage higher than the Larimer County annual average will qualify for additional assistance.  Number of retain or net new jobs – The total number of jobs retained or created by a project will figure into the ultimate level of assistance received by a project from the City. Projects with larger number of retained or created jobs with a significant economic impact will receive additional assistance.  Health care premium assistance – Projects that provide greater than a 50 percent contribution by the employer to an employee’s health care insurance premium will qualify for additional assistance. These inputs will be approved and from time to time as necessary modified by the City Manager. 9.5.7 Economic and Other Analyses The EHO will use a Triple Bottom Line (TBL) approach to evaluating all applications for assistance to primary employers. Therefore, the approach will require a holistic set of analyses that address the economic, environmental, and human aspects of a project. This systematic approach will avoid evaluating a project in isolation. The following analyses will be included for every application:  Economic Impact Analysis – The EHO will use an outside consultant with expertise in economic impact analysis for this aspect of the evaluation. The analysis will include both costs and revenues to the community allowing for a true fiscal impact analysis of the project. At time of adoption, EHO has contracted with TIP Strategies and Impact DataSource for these services. All economic impact analyses will evaluate a minimum of a 10 year period.  Sustainability Assessment – The EHO will identify and use a tool(s) that address a holistic analysis of a project including natural resource impacts and community well-being impacts. Examples of these tools include: Fort Collins Sustainability Assessment Tool (“SAT”) or a tool developed by Portland State University (tbltool.org) for the US Economic Development Administration. The results of these analyses will be summarized and presented to City Council for their consideration of a business assistance package for primary employers. Financial Policy 9 – Economic Health 8 9.5.8 Minimum Company Commitments Any applicant for direct assistance from the City for the purpose of creating or retaining primary jobs will commit to the following:  Pledge to Annual Reporting – All recipients of direct assistance through a business assistance package will pledge to provide annually all information stipulated in the final agreement to comply with the performance requirements of that agreement. At a minimum, this reporting requirement will include: the number of jobs created or retained, the wage distribution for those jobs, and the capital investment and timing of investment.  Separate Use Tax Schedule – This requirement applies only to recipients of a Manufacturing Use Tax Rebate (“MUTR”). The applicant must submit a separate schedule at the time the use tax submission for eligible equipment that accurately designates and identifies the eligible equipment for which a rebate will be requested by the company.  Timeline for Confidentiality – The applicant will commit to a timeline for releasing claims of confidentiality regarding the proposed project. At ther latest, confidentiality will be maintained up to a term of 30 days prior to consideration of a business assistance package by City Council. These 30 days will provide an opportunity for the Economic Advisory Commission and the general public to comment on the package ahead of City Council action.  Assurance of Existing Workforce Retention – This requirement applies only to retention and expansion projects. The applicant will commit to all reasonable efforts to maintain their existing workforce in the City for the duration of the business assistance package. Individual agreements will specify the amount of existing employment and the exact duration. 9.5.9 Compliance Monitoring The EHO will monitor each project and business assistance package annually for compliance to the terms of the final agreement approved by City Council. In addition, the EHO will develop a template checklist, to be customized to each project, to ensure compliance with initial aspects of the agreement, such as submission of use tax on a separate schedule, construction of facilities on the proposed timeline, and purchase of equipment on the proposed timeline. Each agreement will stipulate the terms of compliance that the EHO will monitor. 9.5.10 Annual Reporting The EHO will provide City Council a written annual report outlining the compliance of each approved applicant with the terms of their business assistance package. In addition, this annual report will include an assessment of the economic impact of the active projects. Financial Policy 9 – Economic Health 9 9.6 Industry Cluster Grants The City of Fort Collins aims to support the growth of key industries and sectors. 9.6.1 Grant Objectives This support will facilitate companies’ access to: 1. Peer networks: opportunities to interact with peers. Examples include CEO roundtables, occupation-specific professional development workshops, and industry-specific, topical symposia. 2. Suppliers and inputs: better access to supplies or suppliers to reduce costs. Examples include recruitment of suppliers, purchasing cooperatives, and shared storage facilities. 3. Talent: increased access to qualified workers. Examples include customized training programs for key occupations, marketing to build Fort Collins brand in industry, informative relocation- oriented website geared at specific talent segments, collaborative recruitment. 4. Markets: increased visibility in market segments and improved market penetration. Examples include export/trade assistance, co-marketing opportunities at trade shows, trade delegation trips, and general marketing activities that promote a Fort Collins brand for the industry. 5. Capital: improved access to capital networks – local and beyond. Examples include local angel investor network, local revolving loan fund, networking opportunities with venture capitalists, events to raise awareness of Fort Collins entrepreneurs. 6. Industry intelligence: access to data and market research to inform business planning and strategic decision-making. Examples include shared access to industry databases and new sources, research assistance, industry conferences. 9.6.2 Eligibility Eligible applicants must meet the following eligibility requirements. Priority will be given to proposals that include a collaboration of triple helix partners to leverage resources and expertise. The City acknowledges the importance of maintaining a well-rounded diverse portfolio of partners.1  Applicants must have their operations based in Fort Collins, or be partnered with a Fort Collins based entity.  Applicants must be a group of businesses or a non-profit umbrella organization; applications that benefit a sole entity will be disqualified.  Applicants must have matching funds that establish a 1:1 public-to-private funding ratio. Third- party investors may include such entities as another company or companies, a venture capital firm, angel investors, and federal, state or local government grants. 9.6.3 Grant Awards Funds available for eligible companies vary by fiscal year depending on the outcomes of the City’s budgeting process. The City retains the right to withhold funding regardless of the number and amount of requests. 1 The City does not provide funding for capital expenditures, and reserves the right to not fund overhead expenses. Financial Policy 9 – Economic Health 10 Payments Payments will be disbursed in accordance with the specific terms and conditions of the project as outlined in the Grant Agreement, either on a quarterly, bi-annual, or annual basis. Payments may be contingent on project/program progress. Budget Adjustments & Return of Unused Grant Money Upon completion or early-termination of a project, any unused grant money shall be returned to the City of Fort Collins which will be de-obligated and returned to the Economic Health Cluster Support Fund. 9.6.4 Application Review Staff Review & Selection Process  EHO Staff will screen each application for compliance with the rules and statutory requirements outlined in this document. Only those applications that meet rules and requirements will move forward for committee review.  EHO will convene a Selection Committee (“Committee”) to review and evaluate eligible applicants.  Applicants that move forward will be required to participate in a mandatory interview prior to award notification.  The City reserves the right to award partial funding, which will be discussed at the interview.  The City intends for the process to last no more than two months, from application submission to award disbursement. Committee Members will not discuss deliberations with applicants mid process; however, the Committee may provide professional feedback before the application submittal, and after the awards have been announced. 9.6.5 Evaluation Criteria All applications are competitively evaluated by the Committee with a focus on: 1. Growth in the targeted industries and sectors in terms of employees, wages, sales, talent, private investment, and establishments. 2. Continued innovation, which may be measured by patents, start-ups funded, business support, collaborative efforts, and research funded. 3. Greater visibility of Fort Collins and Northern Colorado, through local successes, and coordinated promotion/marketing. 4. Support of the Cluster Program goals (Section I), the Economic Health Office Strategic Plan, and the City of Fort Collins Strategic Plan. 9.6.6 Reporting Requirements Annual Progress Report & Award Responsibilities Each applicant that successfully receives funding from EHO must submit an annual report documenting accomplishments, results achieved, community impact, and monetary and other Financial Policy 9 – Economic Health 11 returns if applicable including jobs created. Applicants may be required to provide monthly/quarterly updates to EHO staff, as outlined in the Grant Agreement. A report outline will be available from EHO on September 1, and the report must be electronically submitted December 1st, or as specified in the Grant Agreement. Additionally, successful applicants may be required to participate in an annual EHO conference, EHO/Cluster marketing materials, and serve as a cluster ambassador. 9.7 Use Tax and Business Personal Property Tax Rebate Process When Council approves rebates as part of a Business Assistance package as described in Section 9.5.3, the City, in an effort to better manage the inflow and outflow of funds, will use the following process to manage use tax and business personal property tax rebates awarded through a Primary Employer Assistance Package:  The Company receiving the use or personal property tax rebates will provide a separate schedule of payments to the City, such that staff has a clear understanding of what portion of the company’s remittance are applicable to the business assistance package. Two submissions from the company may be required – one for the remittance of payments eligible for rebates and one for the remittance of payment not eligible for rebates.  As the recipient company remits either use tax or business personal property tax, the City’s finance department will assign these funds within the General Fund in a special account to record the future liability associated with the rebate.  A recipient company will make an application to receive a rebate consistent with the terms of the business assistance package. Upon receipt of this application the Economic Health Office will review the company’s eligibility and verify performance, as required by the Assistance Package;  After verification of eligibility and performance, EHO will initiate an Appropriation request to Council using the funds previously assigned to fund rebates as described above. After the Appropriation has been approved, the finance department will make payment on the rebate according to the terms of the Assistance Package. Update to Economic Health Financial Policy Josh Birks, Economic Health Director 5-18-15 Direction Sought 1. Does the Council Finance Committee have any questions or concerns with the proposed policy? 2. Are there any missing aspects of the policy? 3. Is the proposed policy ready for consideration by the full City Council? 2 Background & History • 1999 – City Adopts an Economic Development Policy • 2004 – Economic Vitality and Sustainability Action Group Report • 2006 – Economic Health Action Plan • 2010 – Target Industry Development • 2012 – Economic Health Strategic Plan • 2013 – Policy for Developing Primary Employer Business Assistance Packages 3 Our Mission 4 Fort Collins promotes a healthy, sustainable economy reflecting community values. Comparison of Policies Existing Economic Development Financial Policy • Out-dated (e.g., Development vs. Health, 2005, etc.) • General and vague • Focused only on roles of key players New Economic Health Financial Policy • Up-to-date • Overview and specifics • Discusses role of key players with update for City • Specifics on individual programs with financial aspect 5 Our Economic Strategy Community prosperity. Grow Our Own. Place Matters. The Climate Economy. Think Regionally 6 Business Assistance Framework Reflects the approach approved by Council in Resolution 2013-025: • Describes available assistance tools; • Application requirements; • Evaluation criteria; • Other required analyses; • Minimum company commitments; and • Annual reporting and compliance monitoring. 7 Industry Cluster Grants Describes the process for soliciting and evaluating grants for Industry Cluster support funds authorized through the Budgeting for Outcomes process, including: • Program objectives; • Eligibility requirements; • Award mechanics; • Application review; • Evaluation criteria; and • Annual reporting requirements. 8 Use & Business Personal Property Tax Rebate Process Describes the process used to manage the inflow/outflow of funds related to approved Use Tax and Business Personal Property Tax Rebates: 1. Recipient provides schedule of payments 2. As funds are remitted they get assigned to a special account within the General Fund 3. As a recipient applies for the rebate – the Economic Health Office (EHO) evaluates eligibility and performance 4. After eligibility and performance have been verified EHO request an appropriation from City Council; funds are drawn from the special account 9 Direction Sought 1. Does the Council Finance Committee have any questions or concerns with the proposed policy? 2. Are there any missing aspects of the policy? 3. Is the proposed policy ready for consideration by the full City Council? 10 May 18, 2015 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: John Voss, Controller SUBJECT FOR DISCUSSION – 2014 Financial Highlights EXECUTIVE SUMMARY – The financial condition of the City continues to be healthy. Revenues increased as did expenditures. The population continues to grow and with it a demand for more services. Outstanding debt continues to decline. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED None. BACKGROUND/DISCUSSION – Todays review focuses on revenues, expenditures and debt. At an upcoming meeting fund balances will looked at with more detail. ATTACHMENTS PowerPoint presentation 1 2014 Financial Highlights Council Finance Committee May 18, 2015 2 Contents • Revenue • Expenditures • Debt • General Fund change in Fund Balance 3 Tale of Two Cities • Governmental Activities – Activities that do not lend themselves to be fully funded by User Fees and are wholly or partially tax supported – Transportation, Police, Fire, Parks, Natural Areas, etc. • Enterprise Activities – 100% funded by User Fees – Light & Power, Water, Wastewater, Storm Drainage, and Golf 4 Revenue 5 Sales & Use Tax and Capital Impact Fees lead revenue increase 6 Capital Grants down, primarily MAX. 2014 Sales & Use Tax up 15.4%. Impact Fees driving increase in Charges for Services 7 Sales & Use Tax is primary source of revenue at 51% 8 Community growth and strong economic rebound are reflected in Sales & Use Tax revenue 9 URA expects an additional $281k in 2015. General Fund expects an additional $566k in 2015. 10 Interest rates continue historic lows, expect slight rise in 2015 Unrealized gains and losses washout when held to maturity 11 Light & Power revenue declines, while the other Enterprise Funds see increased revenue 12 Expenditures 13 14 Efficiency Programs Appear to be Working 15 Personnel Costs 16 Personnel Costs Rise in all Service Areas 17 2014 Full Time Equivalent (FTE) (a) Approved positions (b) Based on actuals divided by 2,080 Service Area Classified & Unclassified (a) Hourly (b) TOTAL Police Services 294.3 6.1 300.3 Financial Services 39.8 0.3 40.1 Community & Operation Services 293.8 222.8 516.6 Utility Services 351.8 45.2 397.0 Planning, Dev & Transportation 219.6 75.9 295.4 ELJS 42.3 1.5 43.8 Employee & Comm Services 33.8 5.2 39.0 Sustainability Services 19.6 5.2 24.8 Total 1,294.9 362.3 1,657.1 18 19 20 Debt 21 Better 22 Compliance with Debt Policy • Annual debt service can not exceed 5% of governmental revenue * Does not include one-time large capital grants, as per policy 2014 Revenue * $ 229.5 M Debt Service $ 5.4 M DS/Revenue 2.20% DS Policy Limit 5.00% 23 Fund Balance in General Fund • At the June CFC meeting we’ll review fund balances for all funds in more detail 2013 Ending $ 60.7 2014 net $ 13.2 2014 Ending $ 73.9 Active Deferred Vested Active Active Active Deferred Vested Deferred Vested Active Deferred Vested Deferred Vested Active Active Active Deferred Vested Active Active Deferred Vested Deferred Vested Active Deferred Vested Deferred Vested Deferred Vested Active Deferred Vested Active Deferred Vested Deferred Vested Deferred Vested Active Active Active Active Deferred Vested Deferred Vested Deferred Vested Active Active Deferred Vested Deferred Vested Active Deferred Vested Deferred Vested Active Deferred Vested Active Active Active Active Deferred Vested Active Deferred Vested Active Deferred Vested Active Active Active Deferred Vested Active Active Active Active Deferred Vested Deferred Vested Active Active Deferred Vested Deferred Vested Active Deferred Vested Deferred Vested Active Active Active Deferred Vested Deferred Vested