AGENDA STAFF REPORT

Agenda Item AGENDA STAFF REPORT ASR Control 18-001216
MEETING DATE:	12/04/18
legal entity taking action:	Board of Supervisors
board of supervisors district(s):	All Districts
SUBMITTING Agency/Department:	County Executive Office (Approved)
Department contact person(s):	Frank Kim (714) 834-6200
	Lala Oca Ragen (714) 834-7219

Subject: Fourth Amendment to Orange County Fire Authority Joint Powers Agreement

ceo CONCUR

County Counsel Review

Clerk of the Board

Concur

Approval Not Required

Discussion

3 Votes Board Majority

Budgeted: N/A

Current Year Cost: N/A

Annual Cost: N/A

Staffing Impact:

# of Positions:

Sole Source: N/A

Current Fiscal Year Revenue: N/A

Funding Source: N/A	County Audit in last 3 years: No

Prior Board Action: 12/18/2007 #47

RECOMMENDED ACTION(S):

Approve proposed Fourth Amendment to Amended Orange County Fire Authority Joint Powers Authority Agreement.

SUMMARY:

Approval of the proposed Fourth Amendment to the Amended Orange County Fire Authority(OCFA) Joint Powers Agreement will reaffirm the interest of the County of Orange in the continued implementation of OCFA's unfunded pension liability payment plan with the Orange County Employees Retirement System.

BACKGROUND INFORMATION:

In February 1995 the County of Orange (County) and several Cities entered into a Joint Powers Authority (JPA) Agreement to form the Orange County Fire Authority (OCFA), pursuant to the provisions of Article 1, Chapter 5, Division l7, Title I, section 6500 et seq. of the Government Code (Joint Powers Statutes). OCFA provides regional fire protection and related services, including the financing of such services, to the County and 18 member cities. Six other cities have subsequently joined OCFA.

Amended JPA Agreement

On September 23, 1999, the OCFA members entered into an Amended Joint Powers Authority Agreement (Amended JPA Agreement) which was scheduled to expire in June 2010. On December 18, 2007, the Orange County Board of Supervisors (Board) approved the First Amendment to the Amended JPA, which established an initial 20-year term starting July 1, 2010, and allowed automatic 20-year renewals with withdrawal options at 10-year intervals. The First Amendment also specified that the annual cost for fire system operations, including an annual percentage change, would be determined annually for payment by Cities, subject to a specified limit.

In November 2013, OCFA members approved the Second Amendment to the Amended JPA Agreement, modifying the joint financing of fire services to promote financing equity among the members. The Second Amendment attempted to address "equity" concerns by the City of Irvine that property taxes paid by its residents exceeded OCFA's costs to deliver fire protection services. The Second Amendment was invalidated by court judgment.

On July 1, 2015, OCFA members approved the Third Amendment to the Amended JPA Agreement eliminating alternate members on the OCFA Board of Directors.

Unfunded Pension Liability Payment Plan

OCFA participates in the Orange County Employees Retirement System (OCERS), a cost sharing, multiple-employer defined benefit pension plan. OCFA employees become members of OCERS upon employment. OCFA and its employees make periodic contributions to OCERS as part of the pension liability funding process. The combination of pension contributions and income from OCFA's investments funds the employees' retirement benefits.

At its September 26, 2013 meeting, the OCFA Board of Directors adopted the "snowball" pension plan for paying down OCFA's unfunded pension liability with OCERS. The snowball plan provided for the following:

Annual updates to the OCFA Board of the amount of fund balance available from the prior fiscal year, with that amount to be paid to OCERS as an annual lump sum payment towards OCFA's unfunded liability.

Additional payments towards OCFA's unfunded liability from savings resulting from the Public Employees' Pension Reform Act and other reductions in OCFA's retirement contribution rates.

Beginning in FY 2016/17 and for five years, the addition of $1 million annually to OCFA's budget, for retirement contributions to OCERS as a base-building source for additional payments towards OCFA's unfunded liability

Implementation of the snowball plan continued in the form of annual updates to the above plan provisions that were approved by the OCFA Board on November 19, 2015, November 17, 2016, and March 23, 2017.

Proposed Fourth Amendment to the Amended JPA Agreement

On June 13, 2018, the City of Irvine submitted a proposal seeking, among other things, OCFA's commitment to a pension paydown strategy that would significantly reduce OCFA's unfunded pension liability. The City also outlined its interest in "value added" capital improvements, the return of fire stations and other real property as well as transfer of property taxes allocated to OCFA, upon expiration of the JPA.

In its June 21, 2018 response to the City of Irvine, OCFA reiterated its 2013 stated goal of paying down its unfunded pension liability. To that end, OCFA has proposed the Fourth Amendment to the Amended JPA Agreement, approved by the OCFA Board of Directors on October 25, 2018, to formalize the same commitment of member agencies towards expediting payment of OCFA's unfunded pension liability.

The proposed Fourth Amendment to the Amended JPA Agreement provides for the following:

The OCFA Board shall appropriate funds in its annual budget in amounts that are consistent with or greater than the payments previously approved under the snowball accelerated pension liability paydown plan on September 26, 2013, and amended on November 19, 2015, November 17, 2016 and March 23, 2017.

Payments under the snowball accelerated pension liability paydown plan will be greater than those appropriated in the OCFA annual budget when triggered by a net general fund surplus, derived from revenues received by overfunded structural fire fund cities as determined by the equity calculation.

Budget appropriations and payments may be reduced to the extent determined by the OCFA Board, by a two-third vote as needed to address a substantial reduction in OCFA anticipated revenue, and/or a significant increase in anticipated expenses.

In requesting member agencies to submit the proposed Fourth Amendment to their governing bodies for consideration, OCFA's stated goal is to formalize its commitment to the snowball pension liability paydown plan, in order to save future interest costs and improve the plan's funding status. Since the 2013 adoption of the snowball paydown plan, OCFA reports that voluntary payments to OCERS in excess of the required amounts have totaled $80.1 million.

It is important to note that OCFA's reiteration of its intent for continued implementation of the snowball plan, via the proposed Fourth Amendment, does not change any of the existing specified methods for the provision and financing of fire services. In addition, the annual process for budget review and approval of appropriations towards the snowball payment plan provides for flexibility in making reductions to or elimination of such payments as needed, and with a two-third vote of the then-governing OCFA Board. Moreover, while the Fourth Amendment generally operates to require OCFA’s Board to appropriate more money toward the payment of OCFA’s pension liability, the Fourth Amendment may not actually reduce OCFA’s total pension liability. OCFA’s pension liability may still increase due to low investment returns or increased pension costs.

FINANCIAL IMPACT:

N/A

STAFFING IMPACT:

N/A

ATTACHMENT(S):

Attachment A – First Amendment to the Amended Orange County Fire Authority Joint Powers Agreement
Attachment B – Second Amendment to the Amended Orange County Fire Authority Joint Powers Agreement
Attachment C – Third Amendment to the Amended Orange County Fire Authority Joint Powers Agreement
Attachment D – Fourth Amendment to the Amended Orange County Fire Authority Joint Powers Agreement
Attachment E –Amended Orange County Fire Authority Joint Powers Agreement