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HomeMy WebLinkAbout2008-01-28 08-080 ORDER�:"_,�28,i��no. O8 080 item/Subje : ORDER, Adopting Amendment to tm Designated! and Undesignated Fund Balance Policy— Eliminating the MSRS Reserve and Establishing a Benefit Reserve. Responsible Deparbnelat: Finance Commentary: The attached Order will amend the Cdys current Designated and Undesignated Fund Balance policy by eliminating a no longer required Maine State Retirement Reserve and adding a Beneflt Reserve. The Maine State Retirement Reserve was established aI the time the Retirement System established are Consolidated Plan which covers those City employees who remained in the Maitre State Retirement System. It was established due to concerns, which have proven unfaunded, that the benefit costs of this retirement system would potentially be highly variable. The new Benefit Reserve is primarily directed at the highly volatile rosts of employee health insurance. In addition, with the recent change to a new provider, the Citys health insurance premiums will now be adjusted on a calendar year as opposed to a fiscal year basis, increasing uncertainty as to actual casts during any given budget year. As proposed, the Benefit Reserve can be funded through direct appropriations or through depositing any actual berrefit savings during a particular year into it. As you will recall, the change in health insurers will result in cost savings this Fiscal year, and It is our Intention to use these savings to inPoalize this reserve. Reserved funds can only be spent m bansfened to other reserves through formal action of the City Council. This order will establish the Wrpose, funding mechanism, authority to use and amounts and limits by policy. Department Head Manager's Comments: Daring the Finance Committee's discussion, a request was made that option that would limit the total amount that could go into this reserve was made. Please see the attached memo from Deb Cyr outlining options and proAding a recommendation. Should the Council wish N dace a limit, the attached Order will require amen ment. ^r.�:�al,.., htfMrn✓�o'%Ai/La L1' •� y r City Manager Associated Information: Memo from Finance Director Budget Approval FitS� r Legal Approval: cy Solicitor Introduced for 3 Passage _ First Reading Page _ of Referral 08 080 �[ Jaumau 2e. 3008 Asslgnedro Councilor Farrington CITY OF BANGOR (TITLE.) ORDER, Adopting Amendment to the Designated and Undesignated Fund Balance Policy — Eliminating the Ml Reserve and Establishing a Benefit Reserve. BE IT ORDERED BY WE CITY COUNCIL OF THE CITY OF BANGOR THAT Section 13 of the Designated and Undesignated Fund Balance Policy is hereby deleted and the following new Secdon 13 Is added for the purpose of eliminating the MSRS Consolidated Plan Reserve and establishing a new Benefit Reserve: 13.0 Benefit Reserve 13.1 Purpose. The Benefit Reserve is designed to provide financial Flexibility to the City for the potentially unpredictable costs associated with employee benefits, the most significant being health insurance. 13.2 Funding. The Benefit Reserve may be funded by direct annual appropriation in the Citys operating budget and through transfers from undesignated fund balance or other designated reserves. In addition, any savings realized if benefits are budgeted at a higher amount than actually required may be placed in this reserve upon a recommendation by the France Director and approval by the City Manager. 13.3 Authority to Use. The City Council must authonze the expenc oure of these funds either as an element of the annual operating budget or through a separate appropriation resolve. Funds may be transferred from this reserve to other designated reserves or released to undesignated fund balance by Counal Order. 13.4 Amounts and Limits. No limitations are placed on the amount which maybe canted in this reserve. ^? CSO To: Ed Barrett From: Debbie Cyr Date: January 8, 2008 RE: Designated Fund Balance — Benefit Reserve At the Finanm Committee last night, several Councilors voiced a concent that the proposed amendment to the designated fund balance policy establishing a benefit reserve places no limitation on the amount that could be in that reserve. As initially presented, no limit on this reserve was proposed since, as a practical matter, this reserve will tend to be self-limiting based on annual changes in the City's costs for employee health insurance. As the CM moves forward with Cigna, our plan year will now be on a calendar year rather than the CWs fiscal year. At the time our budget is adopted in June, we will not know with certainty how our costs will change as of the following January. It is our intention, pending information to the contrary from Cigna, to Include a 10% Increase in health Insurance costs In the annual budget Ten percent represents the historical annual average increase the City has experienced. For FY 2008, the General Fund's contribution for health Insurance premiums is $3,222,970. Budgeting for a 10% increase will require an appropriation next year of about $322,000. If the increase is less than 10%, any excess will go to the reserve. If it is greater, the difference will be taken out of the reserve. Over time, therefore, this reserve should be largely self -balancing since it is unlikely that we will have the flexibility to make additional direct appropriations to It while meeting LD 1's property tax levy limits. The Committee requested that a number of different options be presented as potential limitations on this reserve. These Include: • Adopting the policy as initially presented with no limitation. • Setting a limit equal to a percentage of the annual premium level. Given the dramatic changes that we have experienced historically in this area, this approach provides a more realistic basis than a set dollar figure. Under this approach, the following limitation options are offered: 0 100% of premiums, currently $3,222,970 0 84% of premiums or $2,707,295 0 50% of premiums or $1,611,485 Recommendation While I continue to believe that no limit is necessary, shmld the Council wish to set one, I recommend that the limit be set in excess of 50% of current premiums, preferably at 100%. IN Pin cauewn lanuar9 28. 2005 Motion Hade and Seconded for Passage Notion Hese aid Seconded to Refer back to the Pinson Co®itcee Motiux Doubted Vote: 5-3 Councilor Voting Yea: Blanchette. ecuraick, Haees, Palmer and wheeler Counsellors Voting No: D•Ditico Farrington and Stone Councllar Absent: Greene He to Finance INCITY COUNCIL Parch 26, 2008 Hotton Nude and Seconded for Passage Pawed CITY CLERK x DH -Dao 0HDER andILea ema..n.noar nF o yYo...ted and ➢sderalgated Puvd Balancence Policy ^.- Ag a and establishing sBenefit Reserve A.Igneda Cououm