Public Employees Retirement System Update

On July 13, 2009 the Utah League of Cities and Towns conducted it fourth subcommittee meeting on the Utah State Retirement issue. At this meeting we had asked the various participating entities (Counties, Cities, Special Districts, Police Associations, and Fire Associations) to be prepared to evaluate and prioritize the various retirement modification options that have been provided by the Utah State Retirement System (URS). The group was asked to prioritize from “most acceptable” to “least acceptable”. We also asked that each group come prepared to discuss the issue of having an employee retirement contribution component considered, whereas now most public sector employees have their retirement solely funded by the public employer contribution.

In order to fairly prioritize the various options, we felt that a common set of assumptions would be necessary, so we had also established a set of assumptions for the various options. Below is a list of those options and assumptions:

Benefit Options and Assumptions:

Non-Contributory to Contributory Threshold:

Assumptions: Please evaluate the sensitivity of having a shared employer/employee responsibility for making a pension contribution. The idea being that the employer would make the contribution to a certain level (the current contribution level). After that level is reached, the employee would assume either partial or full responsibility for the remainder of the required contribution amount. Any amount contributed by the employee would be portable and would not be subject to vesting requirements.

Option 1: Redirect the 1.5% 401K contribution to the URS

Assumptions: From this date forward the 1.5% contribution would be redirected to the URS System. This would apply to all current and future employees.

Option 2: Change the Final Average Salary (FAS) calculator from the highest 3 years of salary to the highest 5 years of salary

Assumptions: Those retiring prior to 2011 maintain 3 year (FAS); those retiring after 2011 but prior to 2013 get 4 year (FAS); those retiring after 2013 have a 5 year (FAS).

Option 3: Change the years of service multiplier from 2.0% per year of service to 1.9% per year of service

Assumptions: Apply to only future years of service, and only apply to those not eligible to retire.

Option 4: Change the minimum age of retirement (55)

Assumptions: Change the minimum age of retirement to 55 and grandfather all those who are currently eligible to retire.

Option 5: Change the minimum age of retirement (60)

Assumptions: Change the minimum age of retirement to 60 and grandfather all those who are currently eligible to retire.

Option 6: Members pay full actuarial cost of retiring prior to age 65 if they have less than 30 years of service (rather than the 3% currently applied)

Assumptions: Apply to all current members of the system who are yet to retire

Option 7: Defer the COLA to the 3rd anniversary of retirement or 1st anniversary after turning age 65.

Assumptions: Apply which ever comes first (age 65 or 3rd anniversary). No grandfathering.

Option 8: Move from a 20 to a 25 year retirement for public safety and firefighter retirement.

Assumptions: For new hires only

Option 9: Change post-retired employment and associated contributions

Assumptions: Those who are rehired after retiring would still draw a pension, but make a full contribution to the state retirement system, or could reactivate and forego the pension to acquire additional years of service.

In the meeting we went through the various options to determine the level of acceptability for all participating groups. In doing so, we have found that there are some options that have a natural gravity, but others clearly split the groups based on the disproportionate impact that they may have on certain categories of employees. After receiving the feedback, it was determined that a smaller working group would get together to compile a comprehensive package, or set of packages for the larger group to evaluate. We are now in the process of that compilation and will be meeting again in August to follow-up on the effort. Upon the completion of this effort we will be submitting the agreed upon package to the various group’s policy committees for final recommendations. We intend to have the entire effort completed in time to respond to the legislative request for recommendations for their September legislative meetings.

If you have any questions about this effort, please feel free to call or write the Utah League of Cities and Towns.

Update on Municipal Water Issues

The Water Coalition met on Thursday June 25 at the office of the Metropolitan Water District of Salt Lake & Sandy. Fred Finlinson chaired the meeting. He reviewed 12 priorities of the Executive Water Task Force:

1. Water title/conveyance issues
   
2. Domestic preference for public water suppliers (response to Kerry Gibson’s repeal of the domestic preference in water law)


3. State Engineer’s consideration of prior “non use” in change applications


4. Property tax exemptions for water-related property (pipes, pumps, treatment facilities) of private water companies


5. Rainwater capture


6. Taxing authority for appointed boards


7. Shareholder change applications]


8. Accountability of the State Engineer with respect to pending adjudications


9. How small water change applications relate to zoning prohibitions (blue lines)


10. Elimination of the State Engineer bond


11. Colorado River over-appropriation


12. Public access along river and stream corridors
    

The coalition discussed each of these items briefly, and then engaged in an in depth discussion of several topics.

“Non Use” Considerations in Change Applications. After HB51 passed in 2008, the prior State Engineer, Jerry Olds, took the position that the new law prohibited him from looking into whether or not the water right in a change application was in fact a “good” right, representing real wet water or a “bad” right that had been subject to “non-use”. This practice was criticized by the Water Community, because it had the potential to convert “bad” paper water rights into good rights through the change application process.

The new State Engineer, Kent Jones, has taken a more moderate position than his predecessor and is asking for legislative clarification. To that end, a Water Coalition drafting committee of Mark Stratford, John Mabey, Warren Peterson and Steve Clyde are working on language that would assure that only the amount of water that consistently has been put to “beneficial use” can be changed into a new use, or a new place or time of use. Specifically, the law would be drafted to explain that holding water for the “reasonable future demands of the public” (HB51 language) would be considered beneficial use for change application purposes.

This practice will help municipalities that have already converted water from agricultural use to municipal use, but are not in fact consuming it at present. However, it will not help municipalities convert agricultural water that is not being put to beneficial use—even though the agricultural water is being held by the municipality for the reasonable future demands of the public. Under this practice, the State Engineer would look to the extent of the use of the water as agricultural water and would not enlarge the right from the agricultural use simply it is being held by a municipality.

The drafting committee will bring specific “non use” language to the next Water Coalition meeting. This will be a hot one this summer.
Domestic Preference. The group spent a fair amount of time discussing the domestic preference concept and seemed to conclude that the 2010 legislative proposal should include two components:

1. A broad preference for municipal use among equal priority right holders in times of scarcity;


2. A temporary, narrow, domestic preference limited to water for human consumption, sanitation, health and safety that would “jump” priority in times of scarcity if just compensation is paid for the temporary use.

The broad preference for municipal use is of limited application because it only pertains to equal priority rights. Typically, equal priority rights are the earliest rights that are subject to an adjudicated decree. The later priority rights typically have unique priority dates and generally do not overlap one another.

The temporary, narrow domestic preference is the more controversial of the two, but likely the most important. To gain its use, a public water supplier would have to require control (cut off) all outside watering, industrial and discretionary use prior to justifying a leap in priority of other water rights. This preference would be used only in an emergency situation of temporary duration, with just compensation required.

The group is struggling with a definition of scarcity. The group discussed standards for an emergency declaration of scarcity and would like to keep the definition of scarcity as objective and transparent as possible.

Taxing Authority of Appointed Boards. Some members of the legislature are requesting on some level of electoral oversight for each taxing authority. The large conservancy districts believe that it is essential to the dynamics of their organization to keep their current board composition—both elected and appointed members. Not long ago, the law allowed voters a special route to refer tax increases in these situations. That opportunity was removed from the law five or six years ago. The group believes that restoring this limited referendum route may resolve the issue for the legislature.