Page 347 - FY 2020-21 Blue Book Volume II

FIRE AND POLICE PENSION FUND

BASIS FOR THE PROPOSED BUDGET

The 2020-21 Proposed Budget for the Fire and Police Pension Fund relates to current year funding as follows:

2019-20 2020-21

Adopted Estimated Proposed
Budget Expenditures Budget

$ 705,075,973 $ 705,076,000 Tax and Revenue Anticipation Notes $ 752,187,959

$ 687,867,488 $ 687,867,000 Total $ 752,187,959

The City’s contribution to the Los Angeles Fire and Police Pension (LAFPP) Fund is based on rates prepared by an
actuary and adopted by the LAFPP Board. The total contribution also includes the Excess Benefit Plan payment,
which is transferred to the Controller. The contribution and Excess Benefit Plan will be funded through the issuance
of tax and revenue anticipation notes.

By funding the required General Fund contribution through the issuance of tax and revenue anticipation notes, the
City will be able to make the entire contribution in July 2020, rather than spreading the payments throughout the
year. As a result, the LAFPP expects to gain additional investment earnings on the payment, which discounts the
City contribution by approximately 3.3 percent. The discount reduces the required City General Fund contribution
to the LAFPP by approximately $24.7 million. The appropriation for the payment of the principal and borrowing costs
on the tax and revenue anticipation notes is in the 2020 Tax and Revenue Anticipation Notes (TRAN), Debt Service
Fund. The Harbor Department and the Department of Airports transmit their contribution payments directly to the
LAFPP Fund.

The $47.1 million increase in the City General Fund contribution from 2019-20 is due to an increase in covered
payroll. Expressed as a percentage of the City’s budgeted payroll, the 2020-21 combined City contribution rate is
46.60 percent compared to 47.37 percent in 2019-20. The slight reduction in the contribution rate reflects the most
recent LAFPP valuation, which assumed a rate of investment return of 7.25 percent. The LAFPP System will
conduct an experience study toward the end of Fiscal Year 2019-20, which will include an evaluation of the
investment rate of return assumptions.

The decrease in the contribution rate is a result of a higher than expected rate of return, loss layers from the June
2004 valuation being fully amortized, lower than expected salary increases for active members, and a change in
the Fire and Police Pension Plan provisions. This decrease was primarily offset by adjustments to mortality
assumptions, which reflect the latest LAFPP experience for the period July 1, 2016 to June 30, 2019. The
contribution rate is further offset by lower than expected employee contributions and amortizing the prior year’s
unfunded actuarial accrued liability over smaller than expected payroll.

The LAFPP System’s overall funded ratio, using actuarial value of assets, increased from 86.9 percent to 88.5
percent as of June 30, 2019 and is broken down as follows: retirement (93.6 percent) and health (56.2 percent).

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