04-13-1994 Council Agenda - Laserfiche WebLink

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The key question we looked at was the expected earnings level for 1994. Joey Vitale and I contacted Dan Croonquist at Piper Jaffrey to discuss this factor. He estimated a 5% return on investments for 1994. In a subsequent conversation with Joey, he indicated if all investments were held to maturity, a yield of between 6.75% and 7% should be realized. This takes into account that a number of investments do not mature until 1998 or beyond. Given the current market volatility, the opportunity for selling investments and realizing appreciation gains has diminished, thereby impacting short -term yields. This does not mean conditions will not improve in the future. If one evaluates the 5% interest earnings assumptions for both benefit levels, you will note that required City support for 1995 equals $19,094 for the $2050 benefit level and $21,246 for $2100 benefit level. In a quick run - through of schedules I -II -III for the 1995 budget year, we would estimate that the actual required City contribution would be $15,010 for the $2050 level and $19,156 for the $2100 benefit level. The difference in these amounts from the projections enclosed relates to the assumptions used in the projections versus that required in the preparation of schedules I -II -III. Given the fact that $2100 benefit level would appear to require a minimum contribution of $19,156 in 1995, I cannot recommend an increase at this time. The basis for my position is that I do not feel it would be wise to lock ourselves into a higher level of municipal support than we are presently providing in 1994 without knowing other budget implications for 1995. I feel any discussion as to the level of City support in 1995 should be done as part of the total budget process. Furthermore, given the uncertainty with interest rates, we would be minimizing any surprises for future budget years whereby the required level of municipal support exceeds our expectations. (This point is best illustrated when one looks at the required City contribution in 1994 of $7,800 for Schedules I -II -III versus the projected requirement for 1995 of $15,010 for the same benefit level. Typically, this figure has reduced each year there is no benefit increase.) The last concern to be addressed relates to the possibility for future benefit increases based on the projections of the three year average income per member. Given the current benefit level of $2050 it appears a benefit increase may not be possible in 1995. However, the opportunity to increase benefits would again exist in 1996 and beyond due to the existence of a surplus and its impact on the three year average calculation. In this case, the existence of a surplus provides a positive impact for the Page 17