>> It's 2:32, we'll call the meeting to order.
First, I'd like to thank everyone
for attending today's BRAC meeting.
We're going to be covering three main items
after the approval of the minutes.
Let's just recap before we start.
We're going to be looking at a brief budget update talking
about an irrevocable trust for the --
our OPEB liability [phonetic].
And then finally the IEPI indicators.
So first, our second item is to see
if there's any public comment.
So seeing none, then we'll move
onto number three, approval of minutes.
So if you could take a look at the minutes.
And once you've looked at those, take your time,
if there's a motion to approve.
[ Inaudible Background Comments ]
>> Thank you.
>> Move to [inaudible].
Move for approval.
>> I'll second.
>> Second?
All those in favor?
>> [Group] aye.
>> Any opposed?
Okay, so the minutes are approved.
Next, we'll go to number four, report updates.
Really, number A is a budget update; where we are
in the budget cycle with the state.
There's no new additional information from the state
or the chancellor's office,
or really even the whole new cabinet right now
until the mayor revises is issued.
But currently, the revenues flowing
into the state are tracking slightly higher
than what the budget -- what the governor was using
for the proposed budget.
So that's good news.
If we end with a higher revenue base,
that would indicate support for a higher budget,
and the Prop 98 K-14 gets about 48%,
49% of the total state budget.
So if revenues at the state level are
about $2 billion higher
than what the budget originally projected, that would mean
about a billion dollars for K-14
and community colleges get about 11% of that.
So it's a pretty sizable potential upside in the budget.
And here at PCC, we're currently very active
in preparing the budget for next year.
So we're working with each of the major departments to set
up budgets, project expenses, project revenues,
and we should be able to share something with this group,
either next meeting or the following meeting
about additional information
about where we stand with the budget.
But it's my goal to have a balanced budget
for next fiscal year.
Any questions on the budget?
Okay. So our second item, OPEB [phonetic] irrevocable trust.
So the last two meetings we've had a discussion
about our OPEB liability, and ways that we could save funds
for -- save on our general fund dollars by setting
up an irrevocable trust.
And a little bit of background that we've talked
about in the past couple meetings is our other
post-employment benefits provide health benefits for staff
who retire with 14 years of service.
So if someone retires at 55 with at least 14 years of service,
health benefits are provided until the age of 65,
and then after 65 they will receive a payment
of $1440 per year.
In the past, state agencies --
it was very common for state agencies
to use a pay-as-you-go approach.
So they wouldn't record a liability for the OPEB,
and really when you think about it,
each person who's working now, there's a slight --
there's a small liability for every year
of service that they put in.
Because every year of service they're earning credit towards
that OPEB liability.
So in the past, agencies didn't record that liability
on the books, but there's new accounting pronouncements
that require us to record that liability.
And PCC hired -- hires an actuarial company to do a study
for us every two years.
And the last study was performed in 2016
and it calculated the liability for both past employees
and current employees as $32 million.
Currently, we have set aside $15 million.
And according to the actuarial study, we would be required
to contribute $4 million a year to keep up with the outflow
for currently retired employees and building up our reserve
for people who are currently working.
So we have $15 million set aside to meet that liability,
which is a pretty good chunk of money.
The problem is, if we do not have an irrevocable trust,
we're restricted how we could invest those funds.
And they can only be invested with the county,
and the county's earning rate is very, very low.
So over the last three years, on a $15 --
we're averaging about $15 million a year
because money's coming in that we contribute our offset
by monies going out.
But over the last three years, our highest earning
on $15 million was $110,000.
So I don't know about anyone at this table,
but if I had $15 million in the bank
and it was earning $110,000,
I would be very unhappy with that return.
And we're really restricted because if it's not
in an irrevocable trust, we have no choice
but to let the county invest it for us.
If we do have an irrevocable trust, we can invest it
through a management company
through safe investment vehicles,
and earn a much higher return.
I think we could generate at least a million dollars return.
So what that does, it goes towards meeting our OPEB
contribution -- our annual required contribution;
our ARC payment.
And also, when you have an irrevocable trust, you know,
one of the things -- one of the challenges with it,
once you transfer the money over,
you can't transfer it back.
So if there's an emergency on-campus,
you can't transfer that money back.
Once it's in the irrevocable trust,
it's set aside permanently for that use.
>> Can you borrow against it?
>> You really can't borrow against it.
Yeah. Yeah.
But if we do set up an irrevocable trust,
what we can do -- we don't have to --
we don't have to transfer over the whole $15 million.
What would happen is we would set up a committee including all
of our constituency groups on-campus,
to oversee the irrevocable trust.
How we invest it.
What company we hire to manage the funds.
How much we transfer over to the irrevocable trust.
So we can make the decision
to transfer maybe $5 million initially and see how that goes,
and then monitor our actuarial study.
And then decide to contribute more; contribute less.
But some districts are generating 10% returns.
So if we were to transfer $5 million over, that's $500,000
that would just be self-supporting the program,
as opposed to transferring over from the general fund.
And also, when we have an irrevocable trust,
the benefit is it reduces the annual required payment.
Because right now, when the actuary does their study,
they say, "Well you have $15, but it's not
in an irrevocable trust, so you guys can transfer that over
at any time to use for any purpose.
So we're not giving you any credit for that."
And that's why our annual required contribution is
so high.
With an irrevocable trust,
I anticipate our arc would be almost halved.
So we'd go from about $4 million to somewhere around $2
to $3 million, which is a significant decrease.
So do you have a question?
>> Yes.
>> Yeah.
>> I have two.
>> Okay.
>> So what are the risks?
Or are there any risks?
>> The only risk or challenge is, you transfer over the money
and you can't transfer it back.
>> Okay.
>> And that's why, you know,
we're not recommending here how much we transfer over.
That's why once -- if we do decide to go in the direction
of an irrevocable trust, it would be my recommendation
that we start out small.
Maybe transfer a third of it -- $5 million, and then, you know,
see how that works and then transfer more.
>> Is there anyone else doing it?
I mean is there --
>> There's a lot -- a lot of districts are doing it.
Both small and large.
>> It's good to know, because then we're out there --
>> Yeah. Yeah.
>> And we're talking about it,
because I believe we should do it.
>> Yeah. Yeah.
>> But knowing the risk and knowing
that other people are doing it, and there has been success,
I think [inaudible] --
>> We posted on the BRAC website,
a report that our auditors created.
>> Mm-hm.
>> And it showed all the districts who --
who have irrevocable trusts already set up,
and it shows how much they have.
There's some districts that they're fully funded,
so they don't -- they're not requiring any payment
from their general fund, you know?
Everything set aside is self-supporting the program,
and others that are very close.
But, you know, most of the districts have it.
And from an accreditation standpoint,
that's one of the questions on accreditation in Standard 3 is,
is there an irrevocable trust set
up to meet the OPEB liability?
And if not, how is the district planning for those liabilities?
Yes?
>> So I have two -- there's two things
about this that give me pause.
And it's the fact that it's irrevocable.
Number one is, you -- it's not a requirement
that we have OPEB, right?
So if we --
>> It's in our contracts.
>> It's in our contracts now.
>> Right.
>> Which means it's a negotiable point.
So because it's something that's negotiable,
there's technically a possibility, however small,
that at some point, we'll remove that from the contract.
But this dooms us to having it forever.
Which as an employee, I love, right?
But as someone who's sitting here looking
at the budget I don't.
Secondarily there is --
and I actually think it's a pretty good chance,
not necessarily a small chance that we're going
to move nationally to a single-payer healthcare.
And if this is to be used for OPEB,
then it's sitting there doing nothing
if we no longer have a need for any sort of insurance.
So I definitely like the concept of saving $2 million a year,
but I'm -- I wonder how long our savings
of $2 million a year will be of benefit to us.
>> And let me address your questions.
You know, first, if it is negotiated --
if it were to be negotiated out of the contracts,
>> Mm-hm.
>> We'd still have the liability --
>> The provocation.
>> For all the --
>> Mm-hm. Yeah, for a while.
For a while.
>> You know, we do have it.
And the actuarial study does state, you know,
the liability from past employees.
I don't recall what that number is,
but it's a very healthy number [inaudible background comment].
And if we did move towards some type of, you know,
national healthcare system, you know, that's something that,
you know, we would need to consider at that time.
And that's why I suggest we move forward
with the irrevocable trust, and then work very cautious as far
as what we transfer over.
We could start off with a $2 million transfer over,
or an amount that's --
that covers the liability for the employees
who are already retired.
But that's something we could definitely consider
at that point.
They're very good questions though.
I mean I'm cautious too.
>> I think that if, you know, and God --
from your mouth to God's ears of -- on the single-payer.
But if Congress were to ever get there, they could write
into the law language that frees up irrevocable trusts
that have been created to cover liability.
So, you know, that would be the chance to deal with it
on a [inaudible] basis.
>> Yeah. Yeah.
>> You have great faith in them [background laughter].
>> Well, you have greater faith thinking we're going
to get the [inaudible] [background laughter].
>> So -- so when you say "irrevocable",
is that absolutely, under no conditions can this ever,
ever be broken?
There's no -- nothing that could ever break an irrevocable trust?
>> Unless there's something in the law.
If there was a law that says we could break it.
But yeah. But we're very restrictive.
But that's why we -- if we set it up, we're very cautious
as far as what we transfer over.
You know, we monitor what our liability is
without transferring over too much, you know?
If our liability's $30 million, maybe we determine that we want
to build up a base of $10 million.
>> Now does the irrevocable trust have to be for --
specifically for one item only?
>> This one would be.
This one would be.
We could set it up for other purposes,
but this would be specifically for OPEB.
Yeah.
>> Well, I think it's costing us money every year to be
in the county's system.
>> It is. Yeah.
>> And so, you know, it's -- we could --
I mean we could talk about this for five years,
and that would cost us five years of the use of our money.
And right now the county's about less than 1%, right?
On the rate of return?
>> It's less -- less than 1%, yeah.
>> Yeah.
>> And you -- your math --
seems to think you're thinking something more
in the terms of 6.5%.
>> It could be higher.
>> Yeah.
>> Yeah.
>> But I think that's a fairly conservative estimate.
>> Yeah. Yeah.
It is.
>> So I think it's a great idea.
>> Good. So.
>> What else would be the holdup?
>> Well, what we would do is, if we have a motion in support
from BRAC, the next step would be we present it
as a recommendation to college council.
And if that's approved at college council,
it goes to the President as a recommendation,
and then [inaudible background comment] --
and then, yeah, and then it's approved that we set
up the irrevocable trust.
The next step would be we set up a committee that oversees --
that provides oversight for the irrevocable trust.
>> Right. Yeah.
>> How -- who we select to manage it.
How much we transfer over?
What's the investment makeup look like?
Yes.
>> Okay, I'm not a real finance person,
but let's say we put in $5 million.
At some point, wouldn't we start making money on money we have?
>> Oh, yes.
>> And so how far -- do we know how far that would be?
Like say we put $5 million, and we --
whatever interest we get covers,
like you said, our OPEB provocation.
>> Yeah.
>> At what point would we be at like a break-even point?
>> Yeah, it's probably going to be around $25 million.
And it depends on the rate-of-return.
So the higher rate of return, the lower required.
But you have money -- you have the liability growing each year,
and then you have payments coming out, right?
>> But I -- I would assume that the trust could be written
in a way that because the purpose being OPEB covering
obligations that are unfunded, that there'd be a way to take --
if you got to a profit situation,
you could channel the money into benefits in general.
>> Right.
>> The income part of it, yeah.
>> And the irrevocable trust would cover the outflow
for benefits, yeah.
Yeah. So the money generated would cover that.
>> Well not just retiree benefits is what I'm thinking.
>> Yeah. Right.
So is a motion in order?
>> Yes.
>> Move that we approve the established [inaudible].
>> I second.
>> All in favor, aye?
>> [Group] aye.
>> Any opposed?
Okay, so the motion passes.
We'll bring that to college council.
Thank you.
The last item was IEPI indicators.
And we have a memo included in your packet
under the last two pages.
And this is something that we're required to report
to the Chancellor's Office.
It's goals for several different items.
What we're presenting here are suggested goals
for fiscal-related items.
And a lot of them are pretty straight-forward.
Like, you have a clean audit report.
No odd findings; things of that nature.
But we've talked about this for the last couple meetings,
and I was hoping that we could move forward with this.
It's something that's -- we still have time,
but it's something that we need to provide
to the Chancellor's Office.
So like the first item, our fund balance --
so we have the historical fund balances as a percentage
of total expenditures.
And we have a goal of 10% as a short-term goal,
and 18% as a long-term goal.
And salaries and benefits, you know,
here you can see the rates are -- in the past we're 90%.
We dip down to the high 80s,
and short-term goal, I would say 88%.
Long-term goal I would say higher, 92%.
So I would suggest a change in that item.
And the only reason for the increase is because we all know
about the [Inaudible] contribution,
and that's just going to drive up our total compensation
as a percent of our total expenditures.
So I think a lot of districts, not just Pasadena,
will see that measure increase because of the [inaudible].
>> Now isn't 87.5 like the generally considered --
>> Yeah.
>> Desirable goal?
>> Yeah. You want to be somewhere
in the mid, you know, upper-80s.
Yeah. Once you get above 90, it's you know,
you're -- you're tight.
Almost everything's going for --
>> Yeah.
>> -- you know, salaries and benefits.
It makes it very difficult.
>> So despite the fact that we have [inaudible] allegations
that are increasing, shouldn't we still aim for not being
above 90 if that puts us everywhere?
I mean I know it's a hard goal --
>> Yeah.
>> It may be a goal that we can't make,
but is there not a benefit to keep a goal
of remaining before we're totally strapped for cash?
>> Ideally, yes [background laughter].
But really, the other things, it's so small,
you have utilities, water, electric.
You still have to pay for those items.
Supplies that, you know, contracts and things like that.
So really, ideally, we'd be able to shrink those.
But I don't think it's really realistic.
>> We could definitely leave that as a goal.
>> Is there any penalty for not attaining your goals?
>> No. There's no penalty at all.
>> It -- yeah, it seems to me that we're --
in my opinion, we're better having the goal being at 80% --
>> Okay.
>> Because once we set the goal of 92%, it's just okay --
>> Okay.
>> That it's 92.
I'd rather miss a goal personally.
>> Okay. How does the group feel about that?
88%?
>> Well, as long as you don't use it
against the union [inaudible] --
[ Background Laughter and Inaudible Comments ]
>> Let the record show --
>> [Laughs] yeah right.
>> Well I think also because it --
there's so much uncertainty
as to how the state's going to deal with this.
>> Mm-hm.
>> Okay.
>> Yeah.
>> Who knows, maybe they --
they're going to come up with some kind of solution.
Hopefully, I mean they have to.
>> They have to, yeah.
>> You know [laughs].
Something's going to have to give.
>> Yeah.
>> So that number three is the annual operating expense access
for deficiency.
So, you know, basically what we have here is the short
and long-term goal is the revenues coming
in equal the expenses going out.
So we're not operating in a mode where we're trying
to build a huge reserve,
but at the same time we're not relying on our reserves.
So we're using what we have to meet the needs of our students.
So that's why 0 for the next short-term and long-term.
Cash balance, you know, you can see the trend.
Anywhere from 12 or 11 to about $25 million.
So we're projecting -- or proposing a goal of $20 million
and $25 million [inaudible background comment].
>> What is this huge increase between --
>> 2012 --
>> 2012 and 2013?
>> It would probably have to do
with the budget approving at the state level.
>> Oh.
>> Or a lot of -- there is pay-downs of loans.
>> Oh --
>> And if the state has borrowed
from the community college system,
so they couldn't get the paybacks --
>> Yeah. Yeah.
>> They probably paid all that back.
And then in 2014/2015, it --
I mean it was consistently high just
because of the environment we were
in with one-time funding coming in; mandated cost.
So really, $20 million it sounds like a lot; $25 million.
But our -- and our monthly outflow --
Etla correct me if I'm wrong --
>> $13 --
>> $13 million, so just to operate one month --
>> Yeah.
>> It's about $13 million, so --
>> And the -- and this -- and the figure that we're looking
at is the culmination of your reserve,
and plus your cashflow [inaudible] right?
>> Correct.
Unrestricted.
>> This is just [inaudible].
>> Yeah, general fund.
Restricted and unrestricted general fund.
So then we look at, you know, number five, audit findings.
So we want to have a clean report.
And last year we actually had a clean report
and no audit findings, which was excellent.
State-compliance is --
>> How often are we changing our auditors now?
Because I know at one time we had Joe Blankenmire
and Lawson [phonetic] forever.
Which isn't generally considered to be prudent.
>> That's a good question.
We're required to change the audit partner every six years.
But our audit contract will expire after this year's audit,
and I plan to do an RFP.
>> Okay.
>> Just to make sure --
>> But [inaudible] benefits.
>> Yeah. Yeah.
Just to make sure that we're competitive, you know,
that we have the best deal and a -- and a reputable firm.
So the firm that we have,
we think is doing a pretty good job,
but we should open it up and let others --
>> We probably won't hire the guys that do the Oscars?
>> Probably not [background laughter].
Pricewater, huh?
>> Yeah [inaudible background comment].
>> So once you do that, are these guys going to come
and whine to the board about --
[ Background Laughter and Conversations ]
>> So those are really the items, so if there's support
to move this forward, and again, what would happen
if this was moved forward from BRAC,
it would go to college council.
Presented there.
If there's support there, we go to the President.
>> And do you need a motion to move on?
>> Need a motion.
>> Move that we approve these goals.
>> Okay.
>> Second.
>> Second?
All those in favor say aye?
>> [Group] aye [inaudible] [background laughter].
>> Any opposed?
>> I'm sure.
>> Motion carries.
Item passes.
And we have our next BRAC meeting set for April 27.
And meeting adjourned.
>> Thank you.
>> Thank you all for attending.
Appreciate it.
>> Nice work.
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