City of Morgan Hill Fiscal Years 2020- 2022 Recommended Operating and CIP Budgets

205.00

202.75

200.00

196.0

195.0

195.00

193.5

193.5

193.5

193.5

189.0

190.00

187.5

185.00

182.0

180.00

177.1

174.0

175.00

169.5

170.00

168.85

165.00

Employee Pensions The City provides retirement benefits to its employees through the California Public Employee Retirement System (CalPERS). Like most California cities, Morgan Hill provides a defined benefit pension to its employees. Furthermore, a new State law known as PEPRA (Public Employee Pension Reform Act), became effective in January 2013 and changed CalPERS pensions for “new employees.” Since the majority of Morgan Hill’s employees are not impacted by these changes, any cost savings will be realized over time as new employees, who are not current CalPERS members through another public agency, join the organization. Currently, 54 full-time employees (or 28 percent of the approved full- time positions) are classified as new employees for pension purposes. This is up from 45 full-time employees, or 23 percent, two years ago. In addition to the revenue loss due to the COVID-19 pandemic, the City is also expecting its pension contributions to CalPERS to increase as a result of CalPERS’ expected investment loss for the current fiscal year ending June 30, 2020. As of March 31, 2020, CalPERS is experiencing an investment loss of 4.0 percent versus the expected annual return of 7 percent. CalPERS investment loss will translate to higher pension contribution from local agencies, including City of Morgan Hill beginning FY 2022-23. Staff has included approximately $0.9 million impact in the forecast for the two fiscal years beginning FY 2022-23, with the assumptions that CalPERS would generate a higher return in the following years that would offset the current year loss.

RECOMMENDED BUDGET MESSAGE 25