Page 289 - FY 2021-22 Blue Book Volume 2

FIRE AND POLICE PENSION FUND

BASIS FOR THE PROPOSED BUDGET

The 2021-22 Proposed Budget for the Fire and Police Pension Fund relates to current year funding as follows:

2020-21 2021-22

Adopted Estimated Proposed
Budget Expenditures Budget

$ 752,187,959 $ 738,908,000 Tax and Revenue Anticipation Notes $ 720,296,351

$ 752,187,959 $ 738,908,000 Total $ 720,296,351

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 City pays for the contribution and Excess Benefit Plan 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 2021, 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 3.17 percent. The discount reduces the required City General Fund contribution
to the LAFPP Fund by approximately $22.81 million. The appropriation for the payment of the principal and
borrowing costs on the tax and revenue anticipation notes is in the 2021 Tax and Revenue Anticipation Notes Debt
Service Fund. The Harbor Department and the Department of Airports transmit their contribution payments directly
to the LAFPP Fund.

The $31.89 million decrease in the City General Fund contribution from 2020-21 is due to a decrease in covered
payroll and a slight decrease in the contribution rate. Expressed as a percentage of the City’s budgeted payroll, the
2021-22 combined City contribution rate is 45.89 percent compared to 46.60 percent in 2020-21. 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, and lower health premiums and subsidies. In May 2020, the LAFPP Board considered its
triennial experience study and approved the following assumption changes: (1) reduce the expected rate of return
from 7.25 percent to seven percent; (2) reduce the inflation rate from three percent to 2.75 percent; and, (3) reduce
payroll growth from 3.5 percent to 3.25 percent. These actions offset the overall decrease to the contribution rate
when applied to the June 2020 actuarial valuation.

The LAFPP System’s overall funded ratio, using actuarial value of assets, increased from 88.5 percent to 88.6
percent as of June 30, 2020 and is broken down as follows: retirement (93.2 percent) and health (59.7 percent).

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