Manager's Report for the April City Council Included a Photo of a Public Works Employee Painting the Sign on Stockbridge

To: Mayor and Town Council

From: George J. Rodericks, City Manager

Date: April 29, 2013

SUBJECT: April 2013 MANAGER’S REPORT

Below is the Manager’s Report for April 2013. Thank you to staff for providing updates to the Council on various projects and areas of interest.

Known Upcoming April/May Meetings –

• April 30 – CCAC Meeting – 4:30 pm • May 1 – Park & Recreation Meeting – 6:30 pm • May 9 – Finance Committee – 2 pm • May 15 – City Council Meeting – 7 pm • May 20 – Special Meeting – Budget Workshop – 1 pm • May 28 – Council-Manager Workshop – 9 am • May 30 – Council-Manager-Director Workshop – 9 am

Table of Contents 1. Staff Report – May Agenda | Information on the Parcel Tax Renewal – November 2013 ...... 2 2. Town Website Updates – Project Overview Timeline ...... 2 3. Fee Study – Capital Accounting Partners, LLC ...... 4 4. CalPERS Funding and Pensions ...... 4 5. CalPERS Actuarial Smoothing and Amortization Policy ...... 5 6. Hybrid Beacon on ECR ...... 5 7. Fire @ Shoreway Environmental Facility ...... 5 8. Big Bear Run ...... 6 9. Cellular Site Improvements – Town Hall ...... 6 10. 150 Toyon Tree Protection Complaint ...... 6 11. Transient Guest Quarters – 19 Selby Lane ...... 7 12. Blue Ribbon Task Force – SBWMA ...... 7 13. Tree Removal at 120 Toyon ...... 8 14. Street Sign Refurbishment Program ...... 8 15. Underground Utility Districts ...... 8 16. Menlo-School Traffic and Parking ...... 12 MANAGER’S REPORT Confidential Page 2 of 17 5/1/2013

17. Earth Day Tree Planting ...... 12 18. SBWMA Agency Snapshot ...... 13 19. Street Lights & Signal Maintenance ...... 13 20. Media Center Annual Report ...... 13 21. Dames Planned September Fun Run ...... 13 22. Pensions | Finance Committee – Joe Nation ...... 13 23. Human Resource (Administrative Policy) Handbook ...... 13 24. Planning Commission Meeting Action – April 24 ...... 14 25. Grand Jury Reports – Town Response(s) ...... 15 26. Status Update – Menlo-Atherton Little League ...... 15 27. Drainage along Atherton Channel (Walsh Road) ...... 15 28. Library Funds – Donor Cities ...... 16 29. Jobs for Youth Fundraising Breakfast ...... 16 30. Articles of Note ...... 17 31. SBWMA Administrative Changes to Agreement ...... 17

Manager’s Report – Public Reports

1. Staff Report – May Agenda | Information on the Parcel Tax Renewal – November 2013

At a prior meeting the Council directed that staff return with proposals from polling firms that could assist in the November 2013 election for parcel tax renewal. Staff received cost estimates from three firms: Tramutola Advisors, Godbe Research, and National Citizen Surveys. All three estimates hover around $14,000 to $18,000.

The staff report for the May Agenda will include summaries of the three estimates and a recommended budget amendment for the cost.

2. Town Website Updates – Project Overview Timeline

Work on the Town’s new website continues. As mentioned previously, we will be accellerating the “Go Live” date once the site reaches a certain point in the design and we are able to contribute directly to its content. We should be able to Go Live with minimum historical content and add historic content on an as we go basis. Presently, key remaining dates in the timeline are as follows:

• Content Process – 5/16

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• Final Design Approval – 5/24 • Content Delivery & Upload – 6/1 – 7/31 • Content Complete – 8/23 • Project Sign-Off/Go Live – 9/25

Staff has worked with CivicPlus through several designs trying to find the right look and feel of the website. To the right is the latest rendition of the homepage. Please provide any feedback as we hope to move this quickly to the content phase to accellerate the timeline. Let me know your impressions by Friday.

By way of explaining some of the features on the page:

• Top Bar – Dropdown menus along the top provide links to the internal pages o About Atherton (History, Demographics, Maps, etc.) o Town Government (Departments, Council, Staff, etc.) o Community (Schools, adjacent jurisdictions, service providers, etc.) o Transparency (quick links to disclosure documents, Form 801, Filings, Form 700s, etc.) o I Want To…(quick links to Start Phone Service, Schedule a Trash Pickup, etc.) • Along the Left – Menu o Agendas & Minutes (all legislative bodies) o Council Meeting Videos o Departments o FAQs (all departments) o Municipal Code o Online Publications • Along the Left – Bottom Quick Link Buttons o Notify Me (sign-up for notifications on emergency preparedness, page changes, police activity, news flashes, newsletters, etc.) o E-Newsletter (archive of new and archived newsletters) o Park Events (calendar of activities at the Park) o Report a Concern (online reports of tree issues, parking issues, graffiti, code enforcement, etc.) o Submit a Police Report (online police report submittals) • Along the Bottom Center o Town News Tab (recent news from the Town) o Calendar Tab (meeting calendar)

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o Spotlight Tab (special feature stories) • Along the Bottom Right o Rotating picture slideshow

Other features on the homepage include the search button, email, facebook link, twitter link, Youtube Link, and RSS page subscription(s). The goal is to be able to find and get to information on the site with a limited number of click-throughs. As we watch the site statistics and get feedback after it goes live we will be able to adapt the drop down menus and the left menus to those areas that get the most traffic.

3. Fee Study – Capital Accounting Partners, LLC

As the Council is aware, the Town is in the midst of a fee study and development of a cost allocation model to calculate the full cost of each fee established by the Town. The final results of the study will be presented to the Council at an upcoming study session with the expectation that the Council will adopt a Fee Resolution at the June City Council meeting.

Part of the effort included meeting with various stakeholder groups in the community – one such group is the builders and contractors. Staff met with this group on April 22. Attachment B is the powerpoint presentation from that meeting.

4. CalPERS Funding and Pensions

In one of my recent discussions with resident Peter Carpenter we discussed the pending CalPERS rate adjustments (beginning in 2015 for local agencies). In the early 2000s CalPERS established employer "side funds" as part of their rate smoothing process to both address the funding needs of the plan and the impact on local budgets. They picked a moment in time and established an employer rate moving forward and then calculated the "difference" to bring funds whole based on current and projected market conditions. The difference was setup as a “side fund” that the employer was required to pay off. These "side funds" were amortized over 30 year funding horizons. This is not the method that the recent CalPERS Board has chosen to use to address changes moving forward.

Instead, CalPERS will be adjusting the rates for local miscellaneous and safety and they expect that the rates will increase by 50 percentage points over the course of 5 years in an effort to address the funded status of local plans. CalPERS will be adjusting the employer rate agressively instead of establishing actuarial side funds with long-term funding horizons. In November 2013, CalPERS will also contemplate a reduction in their expected rate of return from 7.5% to 7.25%. Lastly, in its annual fund valuations, CalPERS will begin using the Market Value of Assets (MVA) versus the Actuarial Value of Assets (AVA) in determining an individual agency plan funded status.

The Town has paid off its actuarial unfunded liability (side fund) for local safety and by June 30, 2013 will have done the same for local miscellaneous. In June 2012, the Town estimated that the amount required to pay off the actuarial unfunded liability for local miscellaneous employees was $704,000. Due to fund performance in a recent valuation, CalPERS has

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advised that if the Town pays off this liability by June 30, 2013 the amount required is $647,550. The pay off of these side funds significantly reduces the employer rate. By way of example, the local miscellaneous employer rate will drop from 15.844% to 11.104% with the pay off of the side fund. The basic rate (i.e. the net employer normal cost) for the employee pension is 8.052% and the pool payment based on amortization is another 3.052%. The total employer cost is 11.104%.

As a reminder and by comparison, the Town does not participate in Social Security (a 6.2% employer rate) or have a separate 401K matching contribution for employee pensions (typically up to 6% of earnings). The Town local miscellaneous employee rate of contribution is 7% toward their pension.

Atherton’s Market Value of Assets sets our funded status at approximately 85%. That’s an annually identifiable number. CalPERS basis our employer rate off of that gap. When speaking with Peter and others I have suggested that in concert with the Town’s study to review the Town’s obligations at various rates of return the Town should consider the establishment of its own internal side fund. With the OPEB funding obligation we have a more acceptable estimate of rate of return at 6%. While the moves by CalPERS are designed to close the funding gap more quickly, each year we will still be able to identify a gap. We are obligated to pay what CalPERS establishes as its rates, but the City Council could decide to establish its own internal "side fund" based on the difference between what CalPERS' projected rate of return is and what the Council determines to be more reasonable. This internal side fund would help the Town weather any changes by CalPERS over time.

I suspect that legislative changes are still on the horizon for public sector defined benefit plans. AB 340 was simply the first step. Because of the size of the pool and the delicate balance of local agency budgets changes will likely be slow. But I believe they are coming.

5. CalPERS Actuarial Smoothing and Amortization Policy

Attachment C is CalPERS’s proposed policies to address actuarial smoothing and amortization issues as mentioned prior.

6. Hybrid Beacon on ECR

We continue to work with CalTrans on the option for a Hybrid Beacon at crosswalk locations on El Camino Real. While CalTrans is supportive and has placed it in their funding cue, that cue does not place as high a priority at the location(s) as the Town would like. The CalTrans funding cycle indicates a timeframe of 2018.

If the Town is interested in getting a more expedited schedule the best option is for the Town to consider funding it separately. Staff will include the option as part of the 2013/2014 Capital Improvement Program for the Council’s consideration.

7. Fire @ Shoreway Environmental Facility

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Yesterday morning there was a fire at the Shoreway Environmental Facility caused by material inside a Recology commercial recycle truck that ignited when it was unloaded at the MRF. Crews acted quickly to move the material (approximately 30 yards of recyclables) outside the building, called 911 and worked on putting the fire out with the fire department. Both the MRF and Transfer Station were evacuated, and the facility was shut down for approximately an hour. No injuries or damages were reported. The cause of the fire is under investigation.

8. Big Bear Run

On Sunday, May 5 the Menlo-Atherton High School Athletic Boosters will be host the annual Big Bear Run. The event takes place between 7:30 am and 12 pm and involves a run through Menlo-Atherton High School and Lindenwood. This is an annual event.

As in the past, the group uses non-permanent paint to layout the run’s course. Flyers will be used to notify all residents in Lindenwood. Event organizers will be clean up the course following the event.

The group works closely with Atherton Police and Menlo Fire to facilitate the safety concerns connected to the event. No major roadways will be closed and there are no Town resources required to facilitate the event beyond normal operations.

9. Cellular Site Improvements – Town Hall

As the Council is aware, there is an cellular tower located adjacent to Town Hall. AT&T will be making minor modifications to the antenna consistent with the existing Conditional Use Permit. AT&T will be installing three small remote radio units (RRU) directly behind the existing antenna units on the “interior” of the antenna installation. New coaxial cable will run from the RRUs to the equipment building. They will also submit a new RF Report to ensure continued compliance with FCC Standards.

10. 150 Toyon Tree Protection Complaint

On April 24 staff received a complaint regarding tree protection at 150 Toyon during construction. The complainant asserted that the Town has laws and guidelines on the books with respect to tree protection during construction. The complainant requested that the Town investigate the situation and consider the following (quote from email):

• Accept that the Town will do nothing and just pretend that it cares about its trees and environment and do nothing. • At least be honest and say heritage trees and our environment are not relevant and abolish tree protection rules and reasonable development standards that include soil protection (without good dirt not much grows well). • Do something about it.

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On April 24 staff investigated the situation at 150 Toyon and found that the tree protection measures at 150 Toyon were inspected by the Town Arborist prior to the start of construction. No permits were issued until the tree protection was in place and inspected. The tree protection was reinspected during the project by the Town Arborist. The Building Inspector was on-site in March and as part of his inspection, verified that the tree protection remained intact. Throughout construction, staff verified compliance with tree protection measures.

Tree protection is often removed as projects progress to the landscaping phase. The project at 150 Toyon is presently in the landscaping phase. However, the Town Guidelines for tree protection provide that prior to starting the landscaping phase of a project the tree protection measures must again be inspected by the Town Arborist before they are removed. The Town Arborist visited the site on April 25 to verify the health of the trees in question and also verified that the contractor had entered the landscaping phase of the project, removed the tree protection, but failed to call for an inspection.

The Town Arborist issued and documented a verbal warning to the property owner and contractor for failing to call for the required inspection before starting the landscaping phase of the project and removing any tree protection measures. This is the first and only offense by this contractor and homeowner. Per the Guidelines established by the Town, the first offense is a verbal warning, the second offense results in fines, and the third offense is a stop work order. On this site, tree protection was intact throughout construction and verified by the Town's Arborist and building inspection team. The contractor removed the tree protection only upon entering the landscape phase of the project.

11. Transient Guest Quarters – 19 Selby Lane

Staff received a complaint that a rental facility is operating out of 19 Selby Lane. Staff conducted some initial research and found that there appears to be advertising and weblinks connected to the property that validate the operations.

Staff will initiate code enforcement to gain compliance with the Town’s zoning codes.

12. Blue Ribbon Task Force – SBWMA

As you likely know, the SBWMA Blue Ribbon Task Force held its second meeting on April 24 (the agenda and staff report can be found at the link below).

http://www.redwoodcity.org/government/council/BlueRibbonTaskForce/Blue_Ribbon_Task _Force.html

The Task Force reviewed the governance structures of other JPAs. The group heard from SBWMA Director Kevin McCarthy and Board member Larry Patterson regarding the evolution of the SBWMA’s focus, staffing and board role.

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The Task Force concluded they would recommend that SBWMA be governed by a Board comprised of member agency elected officials. They also asked Redwood City to revise the JPA agreement accordingly and prepare a staff report with this recommendation for the consideration of each of the member agencies. Additionally, the Task Force encouraged the new SBWMA Board, if and when formed, determine the role and duties of a technical advisory committee (TAC) that would support the board and be comprised of member agency staff. They felt a TAC would ensure the board has staff expertise and institutional knowledge in moving forward. Finally, the Blue Ribbon Task Force also recommended that any new Board should review and determine the need for additional revisions to the JPA agreement.

Redwood City staff is currently working on the staff report and revised JPA agreement showing the revised Board composition. It is expected that each member agency will receive the revised agreement in May. It was the BRTF’s hope that the member agencies could act on this item by the end of July.

A minimum of eight (8) member agencies must approve the governance changes.

13. Tree Removal at 120 Toyon

Staff received a complaint that excessive trees were being removed at 120 Toyon and requested that the activity be investigated.

Staff investigated the complaint and determined that a permit for tree removal at 120 Toyon had been issued. The permit was for the removal of a Coast Live Oak. The Town Arborist visited the site, verified compliance with the issued permit, and advised that the remainder of trees removed were removed because they were within the buildable area of the lot and as such did not require a permit.

14. Street Sign Refurbishment Program

Staff received a request for maintenance of the Town’s street markers (Virginia, McCormick, Mt. Vernon).

Staff has an ongoing operational maintenance program for street markers. The April Manager's Report for the April City Council included a photo of a public works employee painting the sign on Stockbridge. Every year staff identifies 50-60 signs throughout the Town and refurbishes them. Because of the time involved in the activity, staff refurbishes the signage on a rotational basis each year. I have forwarded the request to Public Works and we will inspect the signage on Fair Oaks and see if it can be worked into the current year.

15. Underground Utility Districts

I received an inquiry on the undergrounding of utilities in Town. An estimated all-in cost to underground utilities is about $120,000 for about 300 lineal feet of street frontage. The Town has just over $1 million within its Rule 20A Account with PG&E that can be put toward

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undergrounding projects along approved major thoroughfares only. All other areas would need to be privately funded. The amount of funds within our Rule 20A Allocation would allow basic undergrounding of approximately 2,500 lineal feet (absent unusual circumstances).

The Town's ordinance provides that the Council may establish an underground district and order the undergrounding provided that the Town or a public utility has voluntarily agreed to pay over fifty percent of all costs of conversion, excluding costs of users’ connections to underground electric or communication facilities. It is highly unlikely if not an impossibility that PG&E would voluntarily pay 50% of the costs to underground utilities. In terms of committing Town resources to bear on the project I would against doing so given other competing priorities. Undergrounding the frontage of 6-7 properties alone is more than the Town's annual Capital Projects budget and more than the Town receives each year in parcel tax revenue for capital projects. However, none of this prevents private districts from being formed.

Under State law. residents can form private assessment districts to underground utilities. Formation of an Underground Utility District has a number of steps. Because the Town would consider undergrounding of utilities a public benefit to improve public safety under fire, earthquake and high wind conditions; reduce PG&E maintenance costs for tree trimming to maintain overhead lines and equipment; and improved visual characteristics the Town would likely support the formation of Districts to do so. California State law provides a method to form districts to carry out such undergrounding. In essence, such districts must have the approval of a certain percentage of the property owners in the district, be approved by PG&E and other utilities affected and by the Atherton City Council. When all of these requirements have been met, all property owners within the district will be required to participate.

The Public Utilities Commission provides for certain PG&E funds to be set aside for use by cities to defray the costs of undergrounding projects that have been approved by the cities and PG&E. These are the Rule 20A funds I mentioned. They are restricted use funds that must be approved by PG&E for use. The steps to form an underground utility district are as follows:

• Develop Cost Estimate. In order to start the process of establishing an undergrounding project, a preliminary cost estimate (plus or minus 20%) must be established. This will normally be done by the utilities, and will require an advance deposit from the property owners to pay the utilities for design engineering time required to develop the preliminary cost estimate. A map must be developed outlining the project boundaries. Upon completion of this phase, the petitioners may decide to proceed, to change the boundaries, or suspend the procedure. Significant changes in design, such as the boundaries, may require additional deposit costs over those originally estimated by the utilities. If it is decided to proceed, the first Petition must be prepared.

• Submit 1st Petition. A petition must be submitted for the proposed district. Property owners representing at least 60% of the land area (in square feet) in the proposed district

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must sign the Petition. The petition accompanied by a map must be submitted to the Town.

• Underground Committee Information Meeting. Upon receipt of the petition, the Town would form an internal Underground Committee will meet with the petitioners, PG&E, and any other affected utilities, to determine which P.U.C. Rule may be applicable in order to provide further information to the petitioners regarding district formation.

• Funding Options. There are 4 basic funding options which may be available depending on the determination of the Town and PG&E. These basic options are as follows: • Rule 20A. This option is reserved for Town only projects. • Rule 20B/A. In this option, the project meets Rule 20A requirements. The majority of the funds will be provided by the district property owners but some part will be paid for from the use of available Rule 20A funds at the discretion of the City Council. • Rule 20B. This option will be used for projects that do meet some of the Rule 20A requirements but not all; or when Rule 20A funds are not available. This approach still yields cost benefits to the property owners, resulting from credits for overhead materials and exclusion from CIAC (Contribution In Aid Of Construction) taxes. All costs will be paid by the property owners. Rule 20B projects need the formation of district and require City Council approval. If not, option Rule 20C can be used. • Rule 20C. Under this option, the entire project is paid for by the property owners. However, the project does not require the petition process; but does require coordination with the City for issuance of the proper building permits. The property owners will work directly with the contractors and utilities in implementing the undergrounding. Property owners' funds must be deposited with the City prior to the start of any work on the project, or, in the case of Rule 20C, deposited with the utilities. In projects 20B/A, 20B, and 20C, trenching, backfilling, conduit and boxes located on the home owner's property will be contracted for and paid directly by the home owner. In the event of an overrun in costs, the property owners will provide additional funds to cover the overrun. Property owner funds may be derived by cash contributions from the owners or may be acquired through the establishment of a Municipal Bond. In the case of the Bond, repayment of the Bond is via property taxes collected annually by the City. When the property is sold, the indebtedness passes to the new owner. Where funding is derived from the issuance of a Municipal Bond, it may be required to hire an Engineer-of-Work organization and a Bond agent. The Engineer-of-Work organization is a professional engineering group which will provide a report defining the district geographical definition and attesting to the fairness of assessment criteria.

• Design Engineering. In order to initiate the bidding process to establish final firm costs, a composite drawing must be created. This drawing contains the detail information on trench size and location and the location of equipment within the trenches. This drawing may be created by the utilities or an independent design agency. The utilities will provide a review and approval of these drawings. The cost for these services under Rule 20A will be paid from Rule 20A funds. Under Rule 20B/A and 20C, the cost will be paid by the property owners.

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• Development of Firm Costs. Rule 20B/A and Rule 20B Projects. Upon completion of an approved composite drawing for the project, the City will initiate a public bidding process. At that time, the utilities will submit a firm bid for their portion and independent contractors will be requested to bid also. In general, the utilities will supply the electrical equipment, cabling and final installation; and the contractors will supply trenching, conduit, substructure, and backfill to the property line. In some cases, the utilities may elect to bid on the entire project. The utilities will remove the overhead facilities upon completion. Rule 20C. The property owners may elect to contract with a private company to do the trenching, conduit substructure and backfill, or with the utilities. The utilities will do their part as in rule 20B/A and 20B projects. The costs for this work will be paid directly by the property owners.

• Submit 2nd Petition. Property owners representing at least 60% of the land area (in square feet) in the proposed district must sign Petition No. 2. This petition, accompanied by the map, shall be submitted to the Underground Committee in the same manner as Petition No. 1. At this point, the district participants will have additional information in that they will have a firm cost.

• City Council Public Hearing. If the Underground Committee finds that Petition No. 2 contains the signatures of property owners representing 60% of the land area in the proposed district, it will recommend to the City Council that the district be formed. The City Council will then schedule a public hearing. All property owners in the proposed district and affected utilities will be invited to the public hearing where all interested persons will be given an opportunity to be heard. At the conclusion of the public hearing, the City Council will make a decision regarding formation of the district. The Council's decision will be final and conclusive. If the district is formed, property owners within the district and the affected utilities will be notified of their participation requirements.

• Additional Expenses. Additional costs may be incurred to compensate the City for services in conjunction with the bidding process, inspection of the construction, and the purchase of replacement street lighting.

• City and District Approve Final Construction Contracts. Any surplus private funds remaining on deposit with the City may be returned to property owners in the proportion which each individual property owner's deposit bears to the total of all individual property owners' deposits.

I worked with a City Engineer in the past who now operates as a consultant assisting communities with underground utility districts. I can have him come by and conduct an informational meeting for the community (at cost) to advise interested residents about underground districts, how they operate, how they are formed, and greater details on the process. This issues could be something for the Council to discuss at the Goals Workshop at the end of May.

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16. Menlo-School Traffic and Parking

On June 22, 2011 the Planning Commission approved a Conditional Use Permit (CUP) requested by Menlo School to increase its enrollment from 750 to 795 students. The use permit was conditioned upon implementation of a Transportation Demand Management program designed to reduce the number of vehicle trips generated by the school. Specific maximum peak hour trip standards were included in the CUP conditions. Further, a maximum on-campus parking capacity utilization rate was established. The CUP conditions specified that annual monitoring be undertaken each spring to assess compliance with the program standards.

As requested by the School, the Town of Atherton contracted with Hexagon Transportation Consultants, Inc. of San Jose to conduct the 2012 and 2013 annual monitoring. A report dated April 10, 2012 from Hexagon provided data and analysis for the spring 2012 monitoring. Another report dated April 22, 2013 from Hexagon provides data and analysis for the spring 2013 monitoring. Copies of those reports are available via the Town’s website.

As required by the CUP conditions, the results of the 2012 monitoring were reported to the Planning Commission at its June 27, 2012 regular meeting. That was the meeting when the Planning Commission heard the annual status of the Menlo School Master Plan. The results of the 2013 monitoring will be reported to the Planning Commission at its regular meeting on May 22.

The monitoring reports will be posted on the Town of Atherton website under the heading Current Community Topics and the subheading “Menlo School Transportation Demand Management (TDM) Monitoring. Attachments D, E, and F are those attachments posted on the Town’s website.

17. Earth Day Tree Planting

On April 22 the Environmental Programs Committee hosted the installation of a southern Oak in the Park. Below are a couple of photos from the event.

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18. SBWMA Agency Snapshot

Attachment G is the Member Agency Snapshot Report for 2012. The Report advises that the Town has record residential diversion of 84.4%, up from 74.1% in 2010 and that the Town remains compliant with State recycling mandates.

19. Street Lights & Signal Maintenance

We are investigating a “shared services” opportunity for signal and street light maintenance.

20. Media Center Annual Report

Attachment H is the Media Center’s 2012 Annual Report.

21. Dames Planned September Fun Run

The Dames’s Fun Run Event planned for September 2013 will come before the City Council in June for formal authorization. The Dames have been advised of the estimated cost that they will be responsible for and will work with staff in advance of the event to reduce that cost as much as possible.

The Dames are responsible for any costs beyond the Town’s normal operational costs connected to the event. For this event, the Dames are requesting closure of Middlefield and Watkins. Closure of these streets cannot be done by resident volunteers and must be handled by uniformed officers – hence the cost.

22. Pensions | Finance Committee – Joe Nation

The next meeting of the Finance Committee is May 9. Joe Nation has returned and has advised that he would be happy to come speak with the Committee on pension issues. We will be coordinating with Mr. Nation upon his return. Mr. Enthoven would like to be present for the discussion and he is unable to make the May meeting. We will schedule Mr. Nation for the soonest possible meeting where Mr. Enthoven can attend.

23. Human Resource (Administrative Policy) Handbook

Staff is coordinating a meeting with the APOA to “meet and confer” on revisions to the Human Resource (Administrative Policy) Handbook. Because it includes a number of

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policies that affect wages, hours, and working conditions the APOA has an opportunity to meet and confer on its content.

The Handbook is designed to tell existing and new employees about the Town and answer questions related to its employment policies, administrative policies, and practices. For example, the Handbook will cover standard State and Federal laws releated to equal opportunity employment, Americans with Disabilities, Family Medical Leave, and harassment as well as local policies relating to ergonomics, ethics, recruitment and selection, job classifications, compensation programs, hours of work, paydays, discipline, smoking in the workplace, computer and email policies, and disaster service – to name a few. Many of these policies already exist in some form or another, but many have been found to be out of date or inconsistent with current law.

The Handbook is consistent with the Town’s Salary and Benefit Resolutions approved by the City Council but it will also cover areas that would not be addressed within those Resolutions. For example, where the Resolutions state that the Town will provide leave policies consistent with State and Federal law, the Handbook delineates the detail, such as jury duty, family medical leave, etc.). Once we create the Handbook we will continuously add applicable policies and procedures to it to create a working document. Because these are “administrative policies” most are not related to Town Council operations, rather, they are Town Administrative practices. For example, we might create an Administrative Policy to govern how and where employees may park, where to put keys after locking the Town offices, or to create an internal committee to address good risk management practices, or create an internal policy to put adequate controls on a petty cash box, etc.

Where policies rise to the level of City Council review they will be approved by the Council before they are put into the manual but where they are administrative in nature they will not. For example, creating a policy to address conflicts of interest would trigger City Council review, as would a policy to control use of Town facilities – these are Council Policy decisions. But, creating a policy requring employees to complete office supply forms in a particular manner would not as this is a management/administrative issue. As a rule, once a year, the entire Handbook will be provided to the Council for review.

24. Planning Commission Meeting Action – April 24

At the April 24, 2013 Planning Commission meeting the following items were considered:

• 163 Almendral Avenue: Heritage Tree Removal Permit request for the removal of three heritage redwood trees. Approved removal of one tree.

• 12 Cowell Lane: Special Structure Permit to allow two basements (one each under a detached accessory sturcture and a detached garage). Approved.

• 82 Howard Way: Special Structure Permit to allow a tennis court outside the accessory structure setback requriements. Approved.

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25. Grand Jury Reports – Town Response(s)

The May Agenda will include a Grand Jury Response for “Can We Talk? Law Enforcement and Our Multilingual County.” The Grand Jury recommends that every policing agency in the County develop a written policy/procedure for language access, subscribe to effective translation services, and actively encourage language training for its personnel. Staff will be preparing a draft and brief response for the Council’s consideration.

Civil Grand Jury Reports can be found online via the San Mateo Court website - here. The Civil Grand Jury is a judicial body composed of 19 citizens that serves as a “watchdog for citizens of the county.” It is impaneled to act as an "arm of the court," as authorized by the State Constitution and serves as an ombudsperson for the citizens of San Mateo County. The jury may receive and investigate complaints by individuals regarding the actions or performances of county or public officials. However, its decisions and recommendations do not have the force of law or mandate. Through its process, the San Mateo County Civil Grand Jury works to submit meaningful solutions to a wide range of problems.

26. Status Update – Menlo-Atherton Little League

Little League representatives have provided an online draft of their latest plans and today submitted their project proposal for consideration by the Planning Commission.

Steve will update the Parks and Recreation Commission and Lisa will continue to update the Planning Commission on the status. As Council is aware, when we met with M-ALL President, Mike Haven, his contractor and project manager, on January 16 we discussed process and said we would move as quickly as they desired, so long as we received complete plans. Parks and Recreation and Planning stand ready to process the item as soon as we receive it. There may be a Special Parks and Recreation Committee Meeting called to review the submittal early May.

27. Drainage along Atherton Channel (Walsh Road)

Staff received a request from a resident on Walsh Road that the Town address the potential of slope erosion by waters within the Atherton Channel that could ultimately affect adjacent private property improvements. Staff investigated the issue and found that the Town does not own the channel; rather, the Town has an easement that allows the flow of water within the channel as an “approved drainage course.” Underlying ownership rests with the property owner. So long as the flow of water does not damage or threaten property outside the boundaries of the easement the Town’s obligation in the easement ends.

The Town has made few improvements to the channel over the years and in the vicinity of this property made some initial improvements prior to 1970. There are legal issues related to the Town placing improvements within the channel. A permit from the Army Corp of Engineers is required before any new private or public improvements may be placed within the channel. Town staff met with the property owner(s) to discuss the issues further and

MANAGER’S REPORT Confidential Page 16 of 17 5/1/2013

discuss how the Town can assist the property owners with development and protection of their property.

The City Attorney and Public Works have investigated the issue and determined that property owners are free to make improvements within the channel and the Town can assist with permit processing. A letter will be forthcoming to all property owners along the channel advising them of the status of the channel, their ability to make improvements, and the process or processes they will need to follow to do so. The Town will continue to be responsible for any public improvements placed within the channel.

28. Library Funds – Donor Cities

The Library JPA Operations Committee met last week to review the preliminary budget and 2011/12 Financial Audit Report that would be presented to the JPA Board of Directors.

There were no deficiencies in the audit and the budget included no major fiscal changes. The Operations Committee recommended that both the budget and the audit be presented to the Board of Directors.

Staff advised the JPA staff of the Town’s intent to discuss the JPA, its finances, service delivery, and continued viability of membership. Staff asked the JPA to provide performance data at the branch level in addition to the system level report included within the budget documents. Staff questioned the ability of the JPA to sustain continued staffing costs. Staff questioned the level of inclusion of ERAF revenues and at what level they were included. Staff asked for budget detail views by branch in addition to the system level report.

Staff is meeting with Library JPA finance staff on May 15 to get to fine-tuning on direct and indirect service costs over the last several years as well as a branch level budget detail summary.

29. Jobs for Youth Fundraising Breakfast

Jobs for Youth has invited members of the Council to its 31st Annual Awards Fundraising Breakfast on May 23 at 7:30 am at the Foster City Crowne Plaza Hotel.

Statistics indicate that in 2011/2012 there were 30 participants from Atherton and 3 placements within Atherton. Jobs for Youth is a unique program designed to serve all youths ages 14 to 21 years old regardless of income or socio-economic background at no cost to them or employers. The youth learn to master job applications, prepare for interviews, create resumes, and are provided with job and/or intership leads. Program participants are offered bus passes and work/interview clothing.

If you are interested in attending or would like more information on the program contact Ruby Tomas at 650.301.8492. The cost for the breakfast is $45 per person or $400 for a table of 10. Proceeds go directly to youth service and scholarships.

MANAGER’S REPORT Confidential Page 17 of 17 5/1/2013

30. Articles of Note

Attachment I is an article on running local governments like Silicon Valley. Attachment J is an article on the Town’s request for reimbursement for the Obama visit.

31. SBWMA Administrative Changes to Agreement

An Ad Hoc SBWMA Board Committee, staff and Recology began meeting in July 2012 discussing changes to the Franchise Agreements for Collection Services with a goal of identifying changes that would accomplish the following:

• Reduce costs (Recology collection costs and/or SBWMA program costs) • Streamline or eliminate any contractual provisions that are not needed or provide little or no value to the effected parties (e.g., the customer, Member Agencies, etc.).

The recommended changes cover a number of areas and result in cost savings exceeding $325,000 annually in both Recology costs (i.e., elimination of three positions) and reductions to the SBWMA budget (i.e., reduced contamination monitoring per Section 6.02 of the Franchise Agreement). Because the savings was part of an overall negotiation strategy, the provisions recommended for change are encouraged to be adopted as a group. Individual agency changes are discouraged for consistency across the JPA.

Staff will review this item with the SBWMA Subcommittee before placing it on the Council Agenda for approval. It may be that these changes will be placed on hold pending amendments to the JPA Agreement as proposed by the Blue Ribbon Task Force.

Round Table Presentation

Town of Atherton April 22, 2013

CAPITAL

We give you a product we are PROUD to put our name on!

Components of Project

§ Prepare a “full cost” indirect cost allocation plan; § Calculate fully loaded productive hourly rates for each staff and contract position; § Calculate the full cost of each user fee, and

§ Comparison fee study.

1 Robust Methodology to Calculate Indirect Costs INDIRECT COST ALLOCATION PLAN

Cost Allocations from Central Services to Receiving Departments Receiving Departments Central Support Central Departments

City Admin. Public Works Officer Building

City-wide central support departments City allocate to all receivers Parks/ City Clerk Attorney in the city. Recreation

Finance Electric/ Community Development Water

Information Use multiple allocation Fire Sewer Services bases to allocate the costs to the receiving departments based on a Building reasonable basis. Police Maintenance Planning

2 Uses for the Cost Allocation Plan (continued)

§ Section 1460 of the State Controller’s Handbook states:

“Non-grantee departments charging for their services can utilize the cost plan in determining their billing rate structures. If a department charges the public a fee for a service it provides, the board of supervisors should be aware of the total cost of providing that service, including all applicable indirect costs. This will allow the supervisors to establish fees at the appropriate levels to recover the true costs associated with the services provided. Even if the department is not charging a fee for the service, this concept can be employed as a management tool in identifying county(city)wide overhead costs to all applicable departments. Non-grantee departments should note the cost recovery limits set by OMB A-87 and, if necessary, adjust their costs to recover as nearly as possible the total costs of doing business.”

CALCULATE FULLY LOADED PRODUCTIVE HOURLY RATES

3 Components of Hourly Rates - Staff

Position A Total labor $100,000 Calculation of Annual Productive Hours Total benefit $50,000 Annual Work Hours 2080 Allocated materials & $5,000 Less Vacation -200 supplies Less Sick Leave -96 Allocated department $7,500 Less Paid Holidays -104 overhead Less Daily Work Breaks -105 Less Annual Training -40 Allocated Town overhead $10,000 Total Annual Productive Hours 1535

Total Position Cost $172,500

Fully loaded productive hourly rate: $172,500/1535 = $112.38 per hour

Components of Hourly Rates - Contract

Contract Staff Productive Hourly Rate Calculation

Contract Staff Cost $125.00

Allocated Materials & Services $1.25

Allocated Departmental Overhead $7.50

Allocated Town Overhead $15.00

Total Cost / Contract Hour $148.75

4 Components of Hourly Rates - Results

Building Rates Comparison Chief Building Oﬃcial $ 194.44 $ 299.53 Building Inspector $ 127.13 $ 162.55 Building Plans Reviewer $ 172.01 $ 262.48 Building Tech $ 89.74 $ 161.21 Planning Rates Comparison Deputy Town Planner $ 206.07 $ 246.61 Town Planner $ 301.57 $ 269.86 Associate Planner $ 156.81 $ 189.28 Sr. Planner $ 186.97 $ 189.28 Admin $ 85.95 $ 149.02

Calculating Full Cost of Services USER FEE STUDY

5 User Fee Study

Driver Based Costing Models.

Contributing Staff Process Steps Fee

Application Intake Planning Tech Initial Application Review Planner l Site Plan Review

Review Application for Planner ll Conditions of Approval

Planning Director Prepare Report for Planning Commission 11

Hypothetical Example

Application or Fee Title Assigning Staff Cost and Time Community Planning Associate Executive Signing Programs (Five or More Signs) Development Totals Manager Planner Assistant Director Pre-submittal meeting 0.5 0.5 1 Land Use Application Intake 0.25 0.25 0.25 0.75 Application Review 1 6.5 7.5 Development Review Committee (DRC) 0.5 2 2.5 Prepare for decision 0.5 1.25 5 1 7.75 Public hearing 0.33 0.33 2 0.33 2.99 Plan Check of accepted plans – post entitlement 1.25 0.5 1.75 Total Time by Position 0.83 3.83 17.50 2.08 24.24 Calculated Full Loaded Hourly Rate 203.67 183.96 152.38 128.66 Total Direct Cost by Position 169 705 2,667 268 3,808 Total support or indirect costs assigned $ 574 Total Cost Assigned $ 4,382

6 Identified Two Surcharges

§ Technology (prorated to building, planning and engineering fees): - New permitting system; - Routine upgrades to permitting system; and - Upgrade hardware.

§ General Plan updates (assigned to building fees).

Results of Planning Analysis

Planning Cost & Revenue Results

$300,000 $43,791 $76,592 Additional Cost $250,000 $8,692 Recovery $83,458 $5,600 Contribuon to Other Actvies (non-fee) $200,000 General Fund Contribuon to Fees

Current Revenue

Town Income Overhead Costs (CAP) $150,000 Technology

$222,050 Services & Supplies* $100,000 $185,685 Contract Labor Costs

$50,000

$- Current Costs Current Revenues 14

7 Results of Building Analysis

Actual Revenue / Expenditure Comparison at Full Cost $1,500,000 $177,747 $204,588 Additional Cost $27,000 Recovery $1,300,000 $34,271

$1,100,000 Current General Fund Subsidy

$900,000 Current Projected Revenue (budgeted)

Town Inderict Costs $700,000 $1,354,800 Addional Costs = General Plan Update

$500,000 Addional Costs = Technology Total Building Budgeted Expenditures $300,000

$100,000

$(100,000) Costs Revenue

Building – Sources of Revenue

Cost and Revenue Analysis $1,600,000 $61,271 $116,322 $1,400,000 $177,747 $61,271 Remaining Revenues from Valuaon Increase $1,200,000 Total Surcharge Revenue

$1,000,000 Total Valuaon Based Fee Revenue (Current Projecon)

$800,000 $1,115,235 Total Flat Fee Revenue

Total Other Costs (Surcharges) $600,000

Total Indirect Costs $400,000

Total Direct $200,000 $266,560

$- Costs Revenues

8 Building Fee – Additional Analysis

Changes to building fees: § Flat fees have been expanded; § Some valuation fees have been turned into flat fees; and § Two surcharges have been identified: - Technology and - General plan update.

COMPARISON STUDY

9 Communities for Comparison

§ Los Altos Hills; § Woodside; § Belmont; § Hillsborough; and § Belvedere.

Challenges With Comparisons

§ Comparing current cost with a price; § Fee requirements don’t always match; § Many communities do not routinely update fees with a robust cost analysis; and § Service levels can vary dramatically.

10 Planning Fee Comparison

Planning Fee Comparison $5,000

$4,500

$4,000

$3,500 Current Fee/Deposit levels

Actual or Esmated Cost $3,000 Los Altos Hills

$2,500 Woodside

Belmont $2,000 Hillsborough

$1,500 Belvedere Average $1,000

$500

$- Condional Use Variance Lot Line Heritage Tree Plan Review - Permit Adjustment Removal Fence 21

Building Fee Comparison

Building Project Cost Comparison $60,000

$50,000

$40,000 Current Fee/Deposit levels

Actual or Esmated Cost

Los Altos Hills $30,000 Woodside (plus actual costs for each)

Belmont $20,000 Hillsborough

Belvedere

$10,000 Average

$- 8,000 Sf Ft new 800 SF detached 1500 SF pool house 1000 SF pool home, (two story) garage 4,000 Sq Ft basement 22 (12,000 total SqFt)

11 Q & A

Thank you! CAPITAL ACCOUNTING PARTNERS, LLC Dan Edds, MBA, PMP

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12 Pension & Health Benefits Committee California Public Employees’ Retirement System

Agenda Item 9 April 16, 2013

ITEM NAME: Amortization Periods and Smoothing Methods for Retirement Trust Funds (Second Reading)

PROGRAM: Actuarial Office

ITEM TYPE: Action

RECOMMENDATION Amend existing actuarial smoothing and amortization policies to improve the soundness and sustainability of the system by:

Adopting amendments to the following existing actuarial policies as shown in the attachments: x Board Resolution No. ACT-96-05E (Rev.) regarding amortization and smoothing policies x Board Resolution No. 05-02-AESD (Rev.) regarding smoothing employer contribution rates x Board Resolution No. 95-05C (Rev.) regarding the actuarial asset valuation method effective with the June 30, 2013 actuarial valuation

Rescinding the following actuarial policy: x Board Resolution No. 05-01-AESD (Rev.) regarding the employer rate stabilization policy

In order to ease the impact of this proposal, it is phased in over six or seven years with no impact in the first year on State and School contribution rates and no impact in the first two years on public agency contribution rates.

EXECUTIVE SUMMARY This item is a key element to improving the long-term pension and health benefit sustainability, which is the first goal in our 2012-2017 Strategic Plan and is also an important initiative in our 2012-2014 Business Plan. The changes proposed in this agenda item would significantly improve the funding and enhance the long term sustainability of the fund.

Concerns about the current actuarial smoothing policies have arisen in a number of different contexts over the last several years. Some of these concerns surfaced as a result of the market failure and resulting investment losses in 2008-09, which led to a significant decrease in funded status. Following the market failure, and in combination with other factors, the overall funded status dropped to 60.8 percent. Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 2 of 11

In 2009 and 2010, the Board of Administration (Board) adopted modifications to the smoothing methods that addressed, in a temporary or limited fashion, some weaknesses in the smoothing methods previously adopted in 2004.

Additional concerns were raised as a result of the insights gained from the asset liability management framework recently developed by staff. This is a new powerful tool to look at the funding of the system from both the asset and liability sides. It has provided the organization with a unique and insightful look at the funding of the system. In particular, the framework allowed us to identify a significant probability of being at very low funded levels at some point in the future and a disturbingly high probability of large single year increases in employer contribution rates.

As of June 30, 2012, the overall funded status is expected to be about 70 percent. Under the existing actuarial policies, the model indicates that there is between a 26 and 34 percent chance of falling below 40 percent funded at some point in the next 30 years, depending on the plan. In addition, there are relatively high probabilities of plans experiencing significant year to year increases in employer contribution rates. For example, a sample public agency safety plan has more than a 60 percent chance of seeing a 7 percent of pay increase in its rate in a single year at some point in the next 30 years.

The proposed changes would modify the smoothing approach used by CalPERS and would shorten smoothing and amortization periods. Currently, smoothing of employer contribution rates is achieved through the use of an asset smoothing method and an actuarial value of assets along with amortization methods. Going forward, staff proposes using a method known as “Direct Rate Smoothing” combined with amortization methods.

Over time, the proposed methods are designed to improve funding levels and help reduce the overall funding level risk. The proposed methods are expected to result in higher volatility in employer contribution rates in normal years but much less volatility in employer contribution rates in years where extreme events occur. The proposed methods will result in an increased likelihood of higher peak employer contribution levels in the future but not significantly increase average contribution levels. The median employer contribution rate over the next four years is expected to be higher as well. But in the long-term, better funded levels should result in lower employer contributions.

The proposed changes will impact employer contribution rates for the State plans and the Schools pool starting with fiscal year 2014-15 and will impact public agencies starting with fiscal year 2015-16. This delay will allow the impact of the changes to be built into the projection of employer contribution rates and will thus afford employers with an additional year or two to adjust to the change. Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 3 of 11

As requested during the first reading, staff has analyzed alternatives to further phase- in the impact of this change in method over time. As described in the analysis, the impact of the additional time to phase in the impact on rates was modest and staff is recommending the same approach that was recommended in the first reading.

STRATEGIC PLAN This review of our actuarial policies is a cornerstone in our plan to accomplish Strategic Plan Goal A: Improve long-term pension and health benefit sustainability. The first objective under that strategic goal is to fund the system through an integrated view of pension assets and liabilities. To implement this goal, the 2012-14 Business Plan provides that CalPERS will update its actuarial amortization and smoothing policies. The changes we are recommending today are the culmination of many months of work with the Board, staff and stakeholders and are designed to implement this commitment to ensure the integrity and soundness of the fund.

BACKGROUND Over the past 18 months the CalPERS Actuarial Office has engaged in multiple policy reviews to strengthen the sustainability of the Fund. During this time the Board, staff and stakeholders have discussed, reviewed or approved a number of different policies, timelines and rates to enhance the long-term health of the Fund.

In October 2011, the Actuarial Office informed members of the Benefits and Program Administration Committee that staff would review all Board actuarial policies in a revolving three year cycle. The purpose of these reviews is to recommend changes, if necessary, to ensure all actuarial policies are current, that they are consistent with the Board’s fiduciary duties and with CalPERS mission and core values.

Staff’s review comprised four phases. First, staff reviewed the policies regarding funding methods and assumptions. The review was completed in December 2011. Next, staff reviewed policies related to the risk pooling structure. The review was completed and the Board adopted the changes in June 2012. In the current phase, staff is reviewing and making recommendations regarding existing smoothing and amortization policies. The fourth phase will consist of a review of policies related to plan termination is scheduled for later this year.

The need to review, and possibly change, these smoothing and amortization policies has been part of many public discussions and documents. In early 2012 the Business Plan included the initiative to update these amortization and smoothing policies, just as the Strategic Plan that was adopted in August 2012 included the initiative to manage and asses funding risk through an asset liability management framework to guide actuarial policies. Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 4 of 11

Additional discussions took place including at the January 2013 Board Offsite meeting, at a Board Workshop in February 2013 and at the first reading of this item in March 2013.

Staff has endeavored to keep our stakeholders and interested parties informed during the development of these recommendations. Concerns with our current funding methods, and the review of the actuarial assumptions, have been addressed in several Pension and Health Benefits Committee agenda items, Board offsite meetings and workshops, as well as in annual reports on funding levels and risks. In addition, staff members have been highlighting the review in various speaking presentations and forums across the state.

ANALYSIS Concerns with the Current Smoothing Methods The smoothing and amortization methods adopted by the Board in 2004 were designed to reduce volatility in employer contribution rates. They have accomplished this goal very well in normal years since their adoption.

However, since that time, a number of concerns have developed: x The use of an actuarial value of assets corridor can lead to significant amount of volatility in extreme years. This was demonstrated by the investment losses in the 2008-2009 fiscal year which necessitated a temporary change in the asset smoothing method to avoid very large increases in employer contribution rates. x The use of long and rolling smoothing periods and long and rolling amortization periods results in slow (in some cases, very slow) progress toward being fully funded. A low funded status increases the risk that funding levels will deteriorate to very low levels and increases the risk that efforts will be made to reduce benefit levels for current or future members. A low funded status also reduces the flexibility to respond to future financial shocks (either to investment returns or to employer revenues) and hence increases the risk to employers. Allowing a low funded status to continue for a very long period means that members and employers are exposed to these risks for longer. x The use of an actuarial value of assets inhibits transparency as it results in the disclosure of two different funded statuses and unfunded liabilities in actuarial valuation reports. Having two funded statuses can lead to confusion and misuse even if the report properly explains the difference between the actuarial value of assets and market value of assets. x The use of rolling smoothing and amortization periods inhibits transparency as it is very difficult for employers to predict when contribution rates will peak and how high they will be at that point. This is true even though our valuation reports provide for a five year projection of employer contribution rates. Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 5 of 11

x The use of rolling amortization and asset smoothing periods will result in unnecessary additional work as a result of the new accounting standards. If these methods are not changed, the new accounting standard would require a liability calculation based on a very slightly lower discount rate. While this would lead to accounting information that is not materially different than the information used for funding purposes, it could result in significant confusion. x The use of longer amortization and smoothing periods has increasingly been called into question within actuarial organizations. For example, the California Actuarial Advisory Panel released a report on funding policies which suggests that longer, rolling amortization methods are not recommended.

Staff believes that the current methods have between a 26 and 34 percent chance of falling below 40 percent funded at some point in the next 30 years, depending on the plan. In addition, there are relatively high probabilities of plans experiencing significant year over year increases in employer contribution rates. The sample public agency safety plan has more than a 60 percent chance of seeing a 7 percent of pay increase in their rate in a single year at some point in the next 30 years. This suggests that changes are appropriate. Furthermore, staff believes that keeping the current methods in place will increase the funding risk of the system to a level that the Board has previously considered unacceptable.

Methods Being Considered At the March Board meeting, , the CalPERS Board approved a first reading in which staff recommended a method that would smooth employer contribution rates over a 5 year period using direct rate smoothing and shorter, fixed amortization periods. However, the Board also directed staff to analyze additional alternatives; ones that would reduce the probability of falling below 50 percent funded and others that would result in a lower impact to employer contribution rates in the short term.

At the first reading, there was concern expressed due to the probability of falling below 50 percent funded at least once over the next 30 years being greater than 50 percent for most of the plans shown. This was true under each of the five methods analyzed for the first reading. The Committee directed staff to analyze what method change would be needed so that there would only be a 20 percent, 30 percent or 40 percent chance that the State Miscellaneous plan would fall below 50 percent funded at any time in the next 30 years. Please refer to Attachment 1 for more information on the changes in methods that would be needed to accomplish these goals. As a result of the significant increase in employer contribution volatility and level that would result from making these changes, staff is not recommending any of the alternative methods shown in Attachment 1.

Another concern that was expressed was that the proposed method might result in too much additional stress being placed on employers. Staff has analyzed two alternative methods that result in smaller increases in contribution rates in the near Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 6 of 11

term. Below is a table comparing the current and proposed method with these two alternative methods. The proposed method is Method 5 from the March agenda item which was the method the Board adopted as a first reading. Alternative 1 and 2 are methods that would result in a smaller impact in the near term on employer rates but with a higher long term expected employer contribution rate.

Asset Actuarial Direct Rate Amortization Smoothing Value of Smoothing Period of Period Assets Period Gains and Corridor Losses Current 15 Years 80%-120% of N/A 30 years Method (Rolling) Market Value (Rolling) of Assets Proposed N/A N/A 5 Years 30 Years Method1 (Fixed) Alternative 1 N/A N/A 5 or 7 Years2 30 Years (Fixed) Alternative 2 N/A N/A 5 or 10 30 Years Years3 (Fixed) The remainder of this agenda item will focus on a comparison between the four methods shown in the table above.

Comparison of Smoothing Methods The criteria used to evaluate each method are the same as those used in the March agenda item with some minor changes. The criteria are: x The impact on the preservation/advancement of funded status x The impact on the estimated volatility of the annual change in employer contribution rates x The impact on the estimated average employer contribution rate x The likelihood of high levels of employer contribution rates in any given year

1 The proposed method is a direct rate smoothing method designed to pay gains and losses over a fixed 30 year period with a 5 year ramp up period at the beginning and a 5 year ramp down at the end of the amortization period. This method is equivalent to a method using a 5 year asset smoothing period with no actuarial value of asset corridor and a 25 year amortization period for gains and losses.

2 Alternative 1 is a direct rate smoothing method designed to pay gains and losses over a fixed 30 year period with a 7 year ramp up at the beginning and a 7 year ramp down at the end of the amortization period for gains and losses recognized in the June 30, 2013 actuarial valuations. For actuarial valuations beyond that date, the ramp up and ramp down period will be 5 years.

3 Alternative 2 is a direct rate smoothing method designed to pay gains and losses over a fixed 30 year period with a 10 year ramp up at the beginning and a 10 year ramp down at the end of the amortization period for gains and losses recognized in the June 30, 2013 actuarial valuations. For actuarial valuations beyond that date, the ramp up and ramp down period will be 5 years. Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 7 of 11

x The likelihood of large changes in employer contributions from year-to-year

To evaluate the four methods, staff selected the same six plans as used for the first reading and performed 1,500 projections for 50 years each based on randomly simulated investment returns. The funded status and expected required employer contributions were estimated for each projection. A summary of the results of these projections and the impact of the four methods being analyzed can be found in attachments to this agenda item.

Attachment 2 compares the four methods and how they impact the funded status over time for each of the six selected plans. The first set of tables in Attachment 2 provides the projected median funded status in 10, 20 and 30 years for six different plans. The second set of tables in Attachment 2 provides the probability of each plan falling below a certain funding level once over the next 30 years. For purposes of comparing the four methods, 30 percent funded, 40 percent funded and 50 percent funded were selected. These tables now also include the probability of the funding status reaching 100 percent and 120 percent at least once over the next 30 years.

As can be seen in Attachment 2, the proposed method as well as alternatives 1 and 2 does much better when looking at the impact on the funded status. The proposed method which also uses the shortest direct rate smoothing period does slightly better than alternative 1 and 2 when it comes to improvements in funded status.

Attachment 3 compares the four methods and how they impact the estimated volatility of the employer contribution rates and the estimated average employer contribution rate for each of the six selected plans. The standard deviation of the expected annual change in employer contribution rate was used as a measure of rate volatility. As can be seen in Attachment 3, the proposed method as well as alternatives 1 and 2 would result in slightly more volatility in rates compared to our current method. The proposed method which performed best when looking at funded status produces the most volatility in contribution rates but not by a material difference.

Attachment 4 compares the four methods by looking at the likelihood of seeing high levels of employer contribution rates over the next 30 years. For purposes of comparing the four methods, contribution levels of 30 percent, 35 percent and 40 percent of payroll were selected for the comparison for miscellaneous plans and 50 percent, 55 percent and 60 percent of payroll were selected for safety plans. As can be seen in Attachment 4, the current method produces the lowest probability of seeing high employer contribution rates. This is expected since the current method used long amortization and smoothing periods as well as relying on rolling rather than fixed periods. Attachment 4 also shows that alternatives 1 and 2 have a slightly higher probability of causing higher employer contribution rates over time. This is due primarily to the fact these methods are designed to pay off the existing unfunded Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 8 of 11

liabilities over 30 years starting with lower contributions and ultimately reaching a higher level of employer contribution rates than under the proposed method.

Attachment 5 compares the four methods by looking at the likelihood of seeing large year-to-year increases in employer contribution rates over the next 30 years. For purposes of comparing the four methods, the likelihood of annual increases in employer contribution rates of 3 percent of payroll, 5 percent of payroll and 7 percent of payroll were selected for the comparison for miscellaneous plans and 5 percent, 7 percent and 9 percent of payroll were selected for safety plans. As can be seen in Attachment 5, the current method that uses an actuarial value of asset corridor in combination with a longer asset smoothing period has the highest probability of seeing large increases in contribution rates in a single year. The proposed method as well as Alternatives 1 and 2 has lower probabilities of seeing large year-to-year increases in rates because they do not require the use of an actuarial value of assets corridor.

Attachment 6 compares how the four methods would impact the employer contribution requirements over the next 10 years by looking at the median employer contribution rate from the 1,500 projections performed by staff. As can be seen in Attachment 6, the proposed method has the highest median employer contribution rate for the first 5 years. Alternative 1 has a higher median employer rate starting in year 7. In year 10, Alternative 2 has the highest median employer contribution rate of all four methods. This higher contribution rate is expected to continue for many years.

Implementation This is the second reading for the adoption of the proposed changes to smoothing and amortization methods. If the proposed methods are adopted by the Board, these methods will be used for the first time to set employer contribution rates in the June 30, 2013 actuarial valuations that will be performed in 2014. These valuations will be used to set employer contribution rates for fiscal year 2014-15 for State and School employers and for fiscal year 2015-16 for public agencies. In the June 30, 2012 actuarial valuations that will be prepared this year, staff will use the new methods for the calculation of the projected employer contribution rates that we provide in our valuation reports to help employers budget for the future.

Staff reviewed all existing smoothing and amortization Board policies to determine if any changes would be necessary other than the ones that would be needed if the proposed method is adopted by the Board. Various minor changes were identified to the four existing policies in addition to the significant changes needed to implement the proposed method. No additional changes have been made to the Board policies when compared to the proposed revisions presented in March. Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 9 of 11

Staff has received an inquiry from a member of the public as to the treatment of the change from using an actuarial value of asset to using the market value of assets. Is this to be treated as an asset loss that will be amortized over 30 years or as a method change and amortized over 20 years? For clarification, it is staff’s intention to treat this as an asset loss, not a method change. Therefore, this change in unfunded liability will be subject to the 30 year amortization with the five year ramp up/down applicable to gains and losses as per the proposed changes to Board Resolution No. ACT-96-05E.

The proposed method changes would not impact member calculations, such as optional form conversions and service purchases. The proposed method changes will also not impact the total normal cost of any plan.

Recommendation Staff recommends that the Board adopt the proposed contribution rate smoothing and amortization method. This includes the use of a five year direct rate smoothing period and amortization periods as follows: x 30 year amortization period for gains and losses with a fixed rather than rolling period. The amortization would have a 5 year ramp up of rates at the start and a 5 year ramp down at the end. x 20 year fixed amortization period for assumption and method changes with a 5 year ramp up and 5 year ramp down.

Staff believes that changes to the smoothing and amortization methods are needed. The changes proposed would significantly improve the funding of the system and enhance the long-term sustainability of the system.

To implement the new smoothing policies, staff is recommending amendments to the following existing actuarial policies as shown in the attachments: x Board Resolution No. ACT-96-05E (Rev.) regarding amortization and smoothing policies (see Attachment 7 for red line version) x Board Resolution No. 05-02-AESD (Rev.) regarding smoothing employer contribution rates (see Attachment 8 for red line version) x Board Resolution No. 95-05C (Rev.) regarding actuarial asset valuation method effective with the June 30, 2013 actuarial valuation (see Attachment 9 for red line version)

Staff is also recommending that the Board rescind the following actuarial policy: Board Resolution No. 05-01-AESD (Rev.) regarding employer rate stabilization policy (see Attachment 10)

BENEFITS/RISKS The adoption of the proposed method will result in better funding of the system over time and will result in a lower probability of large increases in employer contribution Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 10 of 11

rates. Adopting the proposed method will result in higher peak contribution rates which may put more strain on employers’ budgets. Adopting Alternatives 1 or 2 would result in lower expected employer contribution rates short term but would result in higher employer contribution rates starting 7 years from now.

Both alternatives would result in a longer period before employer rates are expected to peak. This could be good if there are no economic shocks in the intervening period as they would have more time to adjust their budgets. However, there is the risk of a shock, either to investment returns or to employer revenues, in the period. If this were to happen, employers would be at a greater disadvantage if they had not yet adjusted their budgets to the necessary level.

Without adopting any method changes there is a higher probability of large increases in employer contribution rates which will put significantly more strain on employers’ budgets. When these large increases in contribution rates occur in the future as a result of an extreme event, like the market failure of 2008-09, there will be a temptation to avoid the large increase in contribution rates by putting in place temporary measures to mitigate the impact on employer rates. Analysis performed by staff has shown that if every time an extreme event occurs and necessary rate increases are postponed it will increase the risk to the funding of the system. Therefore, staff believes that keeping the current methods in place will increase the funding risk of the system to a level that the Board has previously considered unacceptable.

ATTACHMENTS Attachment 1 – Probability of Falling Below 50 Percent Funded Attachment 2 – Funded Status Attachment 3 – Impact on Employer Rates Attachment 4 – Probability of High Levels of Employer Contribution Rates Attachment 5 – Probability of Large Year-to-Year Changes in Contribution Rates Attachment 6 – Median Employer Contribution Rates for the Next Ten Years Attachment 7 – Actuarial Policy on Amortization and Smoothing Methods Attachment 8 – Actuarial Policy on Smoothing Employer Contribution Rates Attachment 9 – Actuarial Policy on the Actuarial Asset Valuation Method Attachment 10 – Actuarial Policy on Employer Rate Stabilization Agenda Item 9 Pension & Health Benefits Committee April 16, 2013 Page 11 of 11

______ALAN MILLIGAN Chief Actuary

______ANN BOYNTON Deputy Executive Officer Benefit Programs Policy and Planning Agenda Item 9 Attachment 1 Page 1 of 3

Probability of Falling Below 50 Percent Funded

At the meeting in March, Board members discussed their concern that for most of the plans, the probability the funded status would fall below 50 percent at least once over the next 30 years was greater than 50 percent.

During the meeting, the Committee directed staff to analyze what method change would be needed in order to lower this probability to 20 percent, 30 percent or 40 percent for the State Miscellaneous plan.

Staff performed the analysis and the results presented in this attachment compares the proposed method along with a method that would lower the probability to 20 percent, a method that would lower the probability to 30 percent and another method that would lower it to 40 percent. The methods that were selected to meet these criteria use a direct rate smoothing approach with a shorter smoothing period and shorter amortization periods. Below is a table showing the methods that would be needed to lower the probabilities for the State Miscellaneous plan.

Direct Rate Smoothing Years to Pay off Gains Method Period and Losses Proposed Method 5 Years 30 Years 20% Method 3 Years 6 Years 30% Method 3 Years 10 Years 40% Method 5 Years 15 Years

As can be seen below, the 20% method would result in a much faster improvement in funded status at the expense of rapid and large increases in employer contribution rates short term. This again illustrates the compromise that must be made between having smooth contribution rates and how quickly a plan gets back to being fully funded. The 30% and 40% method show results that are between the proposed method and the 20% method.

The results on the next pages are based on 1,500 projections for 50 years using randomly simulated investment returns. Projections include impact of changes due to the PEPRA reform law. Data is as of June 30, 2011. All results are for the State Miscellaneous Plan. Agenda Item 9 Attachment 1 Page 2 of 3

Median Funded Status The table below compares the projected median funded status in 10 years, 20 years and 30 years for each plan and each method considered.

Median Funded Median Funded Median Funded Status in 10 Status in 20 Status in 30 Method Years Years Years Proposed Method 64% 84% 103% 20% Method 84% 112% 142% 30% Method 78% 107% 132% 40% Method 71% 102% 124%

Probability of Low or High Funded Status The table below compares the probability of the funded status falling below or rising above the given percentage in any year over the next 30 years.

Probability of the Funded Status Falling Falling Falling Rising Rising Below Below Below Above Above Method 30% 40% 50% 100% 120% Proposed Method 7% 24% 52% 69% 51% 20% Method 0% 2% 18% 99% 84% 30% Method 0% 5% 28% 96% 76% 40% Method 1% 12% 39% 90% 68%

Impact on Employer Rates The table below compares the volatility in employer contribution rates for each method as measured by the standard deviation of the annual change in employer contribution rate. The table below also compares the average employer contribution rate over the next 50 years.

Standard Deviation of Average Employer Annual Change in Rate Over the Next 50 Method Employer Rate Years Proposed Method 2.1% 19.0% 20% Method 9.0% 18.4% 30% Method 5.2% 18.4% 40% Method 3.4% 18.7% Agenda Item 9 Attachment 1 Page 3 of 3

Probability of High Levels of Employer Contribution Rates The table below compares the probability of the employer contribution rate being above the given percentage in any year over the next 30 years.

Probability of Probability of Probability of Employer Rate Employer Rate Employer Rate Method above 30% above 35% above 40% Proposed Method 73% 53% 31% 20% Method 100% 99% 97% 30% Method 97% 92% 83% 40% Method 90% 80% 69%

Probability of Large Year to Year Changes in Employer Contribution Rate The table below compares the probability of the employer contribution rate having a year-to-year increase greater than the given percentage in any year over the next 30 years.

Probability of Probability of Probability of Rate Increase Rate Increase Rate Increase Method Greater Than 3% Greater Than 5% Greater Than 7% Proposed Method 62% 8% 1% 20% Method 100% 100% 100% 30% Method 100% 100% 88% 40% Method 93% 72% 36%

Median Employer Contribution Rates for the Next Five Years The table below compares the projected median employer contribution rate for each method for select years over the next 10 years.

Method Year 1 Year 3 Year 5 Year 7 Year 10 Proposed Method 22.0% 25.3% 29.2% 30.0% 30.9% 20% Method 31.9% 56.1% 49.0% 27.2% 23.7% 30% Method 26.6% 39.6% 41.8% 44.2% 33.9% 40% Method 23.3% 29.4% 36.4% 38.0% 40.1% Agenda Item 9 Attachment 2 Page 1 of 4

Funded Status

Median Funded Status The tables below compare the projected median funded status in 10 years, 20 years and 30 years for each plan and each method considered. The results are based on 1,500 projections for 50 years using randomly simulated investment returns. Projections include impact of changes due to the PEPRA reform law. Data is as of June 30, 2011.

State Miscellaneous Median Funded Median Funded Median Funded Status in 10 Status in 20 Status in 30 Method Years Years Years Current Method 62% 74% 79% Proposed Method 64% 84% 103% Alternative 1 63% 82% 102% Alternative 2 62% 83% 102%

Schools Pool Median Funded Median Funded Median Funded Status in 10 Status in 20 Status in 30 Method Years Years Years Current Method 68% 77% 82% Proposed Method 70% 86% 104% Alternative 1 69% 85% 103% Alternative 2 68% 85% 103%

Sample Public Agency Miscellaneous Plan Median Funded Median Funded Median Funded Status in 10 Status in 20 Status in 30 Method Years Years Years Current Method 67% 79% 86% Proposed Method 69% 87% 104% Alternative 1 68% 86% 103% Alternative 2 67% 86% 104% Agenda Item 9 Attachment 2 Page 2 of 4

Funded Status

CHP Median Funded Median Funded Median Funded Status in 10 Status in 20 Status in 30 Method Years Years Years Current Method 62% 77% 90% Proposed Method 64% 84% 104% Alternative 1 63% 83% 103% Alternative 2 63% 83% 103%

POFF Median Funded Median Funded Median Funded Status in 10 Status in 20 Status in 30 Method Years Years Years Current Method 65% 77% 83% Proposed Method 68% 85% 103% Alternative 1 67% 85% 102% Alternative 2 66% 85% 102%

Sample Public Agency Safety Plan Median Funded Median Funded Median Funded Status in 10 Status in 20 Status in 30 Method Years Years Years Current Method 65% 76% 86% Proposed Method 67% 84% 103% Alternative 1 66% 83% 102% Alternative 2 65% 83% 102% Agenda Item 9 Attachment 2 Page 3 of 4

Funded Status

Probability of Low or High Funded Status The tables below compare the probability of the funded status falling below or rising above the given percentage in any year over the next 30 years. The results are based on 1,500 projections for 50 years using randomly simulated investment returns. Projections include impact of changes due to the PEPRA reform law. Data is as of June 30, 2011.

State Miscellaneous Probability of the Funded Status Falling Falling Falling Rising Rising Below Below Below Above Above Method 30% 40% 50% 100% 120% Current Method 14% 34% 59% 52% 38% Proposed Method 7% 24% 52% 69% 51% Alternative 1 7% 25% 53% 68% 50% Alternative 2 8% 26% 54% 68% 51%

Schools Pool Probability of the Funded Status Falling Falling Falling Rising Rising Below Below Below Above Above Method 30% 40% 50% 100% 120% Current Method 11% 27% 51% 57% 40% Proposed Method 4% 17% 41% 72% 53% Alternative 1 5% 18% 42% 71% 52% Alternative 2 5% 19% 43% 72% 52%

Sample Public Agency Miscellaneous Plan Probability of the Funded Status Falling Falling Falling Rising Rising Below Below Below Above Above Method 30% 40% 50% 100% 120% Current Method 10% 26% 50% 58% 43% Proposed Method 5% 19% 43% 71% 53% Alternative 1 5% 19% 44% 71% 52% Alternative 2 5% 20% 45% 71% 52% Agenda Item 9 Attachment 2 Page 4 of 4

Funded Status

CHP Probability of the Funded Status Falling Falling Falling Rising Rising Below Below Below Above Above Method 30% 40% 50% 100% 120% Current Method 7% 27% 59% 58% 42% Proposed Method 4% 21% 54% 71% 51% Alternative 1 5% 22% 55% 70% 50% Alternative 2 5% 23% 56% 70% 51%

POFF Probability of the Funded Status Falling Falling Falling Rising Rising Below Below Below Above Above Method 30% 40% 50% 100% 120% Current Method 9% 26% 54% 55% 39% Proposed Method 3% 17% 45% 71% 51% Alternative 1 4% 18% 47% 70% 50% Alternative 2 4% 19% 47% 70% 51%

Sample Public Agency Safety Plan Probability of the Funded Status Falling Falling Falling Rising Rising Below Below Below Above Above Method 30% 40% 50% 100% 120% Current Method 9% 27% 54% 57% 41% Proposed Method 5% 20% 48% 70% 51% Alternative 1 6% 21% 49% 69% 50% Alternative 2 6% 22% 49% 69% 50% Agenda Item 9 Attachment 3 Page 1 of 2

Impact on Employer Rates

The tables below compare the volatility in employer contribution rates for each method as measured by the standard deviation of the annual change in employer contribution rate. The tables below also compare the average employer contribution rate over the next 50 years. The results are based on 1,500 projections for 50 years using randomly simulated investment returns. Projections include impact of changes due to the PEPRA reform law. Data is as of June 30, 2011.

State Miscellaneous Standard Deviation of Average Employer Annual Change in Rate Over the Next 50 Method Employer Rate Years Current Method 1.8% 18.7% Proposed Method 2.1% 19.0% Alternative 1 2.0% 19.1% Alternative 2 2.0% 19.1%

Schools Pool Standard Deviation of Average Employer Annual Change in Rate Over the Next 50 Method Employer Rate Years Current Method 1.3% 14.6% Proposed Method 1.5% 14.9% Alternative 1 1.5% 14.9% Alternative 2 1.5% 14.9%

Sample Public Agency Miscellaneous Plan Standard Deviation of Average Employer Annual Change in Rate Over the Next 50 Method Employer Rate Years Current Method 1.4% 15.8% Proposed Method 1.7% 16.3% Alternative 1 1.6% 16.3% Alternative 2 1.7% 16.3% Agenda Item 9 Attachment 3 Page 2 of 2 Impact on Employer Rates

CHP Standard Deviation of Average Employer Annual Change in Rate Over the Next 50 Method Employer Rate Years Current Method 2.9% 30.5% Proposed Method 3.4% 31.3% Alternative 1 3.3% 31.3% Alternative 2 3.3% 31.3%

POFF Standard Deviation of Average Employer Annual Change in Rate Over the Next 50 Method Employer Rate Years Current Method 2.2% 26.9% Proposed Method 2.8% 27.7% Alternative 1 2.8% 27.7% Alternative 2 2.8% 27.7%

Sample Public Agency Safety Plan Standard Deviation of Average Employer Annual Change in Rate Over the Next 50 Method Employer Rate Years Current Method 2.5% 28.4% Proposed Method 2.9% 29.2% Alternative 1 2.8% 29.2% Alternative 2 2.9% 29.2% Agenda Item 9 Attachment 4 Page 1 of 2

Probability of High Levels of Employer Contribution Rates

The tables below compare the probability of the employer contribution rate being above the given percentage in any year over the next 30 years. The results are based on 1,500 projections for 50 years using randomly simulated investment returns. Projections include impact of changes due to the PEPRA reform law. Data is as of June 30, 2011.

State Miscellaneous Probability of Probability of Probability of Employer Rate Employer Rate Employer Rate Method above 30% above 35% above 40% Current Method 57% 33% 13% Proposed Method 73% 53% 31% Alternative 1 72% 54% 32% Alternative 2 73% 57% 37%

Schools Pool Probability of Probability of Probability of Employer Rate Employer Rate Employer Rate Method above 30% above 35% above 40% Current Method 11% 1% 0% Proposed Method 31% 15% 4% Alternative 1 31% 14% 4% Alternative 2 34% 16% 5%

Sample Public Agency Miscellaneous Plan Probability of Probability of Probability of Employer Rate Employer Rate Employer Rate Method above 30% above 35% above 40% Current Method 24% 6% 1% Proposed Method 45% 23% 10% Alternative 1 46% 23% 9% Alternative 2 48% 25% 11% Agenda Item 9 Attachment 4 Page 2 of 2

Probability of High Levels of Employer Contribution Rates

CHP Probability of Probability of Probability of Employer Rate Employer Rate Employer Rate Method above 50% above 55% above 60% Current Method 47% 31% 17% Proposed Method 66% 51% 38% Alternative 1 66% 51% 38% Alternative 2 67% 53% 40%

POFF Probability of Probability of Probability of Employer Rate Employer Rate Employer Rate Method above 50% above 55% above 60% Current Method 18% 8% 2% Proposed Method 43% 30% 19% Alternative 1 43% 29% 18% Alternative 2 45% 31% 19%

Sample Public Agency Safety Plan Probability of Probability of Probability of Employer Rate Employer Rate Employer Rate Method above 50% above 55% above 60% Current Method 30% 16% 7% Proposed Method 51% 38% 25% Alternative 1 51% 38% 25% Alternative 2 54% 40% 28% Agenda Item 9 Attachment 5 Page 1 of 2

Probability of Large Year-to-Year Changes in Employer Contribution Rates

The tables below compare the probability of the employer contribution rate having a year-to-year increase greater than the given percentage in any year over the next 30 years. The results are based on 1,500 projections for 50 years using randomly simulated investment returns. Projections include the impact of changes due to the PEPRA reform law. Data is as of June 30, 2011.

State Miscellaneous Probability of Probability of Probability of Rate Increase Rate Increase Rate Increase Method Greater Than 3% Greater Than 5% Greater Than 7% Current Method 82% 59% 29% Proposed Method 62% 8% 1% Alternative 1 60% 7% 1% Alternative 2 60% 8% 1%

Schools Pool Probability of Probability of Probability of Rate Increase Rate Increase Rate Increase Method Greater Than 3% Greater Than 5% Greater Than 7% Current Method 78% 43% 15% Proposed Method 40% 2% 0% Alternative 1 38% 2% 0% Alternative 2 40% 2% 0%

Sample Public Agency Miscellaneous Plan Probability of Probability of Probability of Rate Increase Rate Increase Rate Increase Method Greater Than 3% Greater Than 5% Greater Than 7% Current Method 78% 47% 19% Proposed Method 45% 4% 0% Alternative 1 43% 3% 0% Alternative 2 44% 3% 0% Agenda Item 9 Attachment 5 Page 2 of 2

Probability of Large Year-to-Year Changes in Employer Contribution Rate

The tables below compare the probability of the employer contribution rate having a year-to-year increase greater than the given percentage in any year over the next 30 years. The results are based on 1,500 projections for 50 years using randomly simulated investment returns. Projections include impact of changes due to the PEPRA reform law. Data is as of June 30, 2011.

CHP Probability of Probability of Probability of Rate Increase Rate Increase Rate Increase Method Greater Than 5% Greater Than 7% Greater Than 9% Current Method 80% 62% 41% Proposed Method 52% 14% 4% Alternative 1 51% 13% 3% Alternative 2 50% 13% 3%

POFF Probability of Probability of Probability of Rate Increase Rate Increase Rate Increase Method Greater Than 5% Greater Than 7% Greater Than 9% Current Method 73% 52% 31% Proposed Method 38% 9% 2% Alternative 1 36% 8% 2% Alternative 2 36% 8% 2%

Sample Public Agency Safety Plan Probability of Probability of Probability of Rate Increase Rate Increase Rate Increase Method Greater Than 5% Greater Than 7% Greater Than 9% Current Method 79% 62% 41% Proposed Method 44% 11% 3% Alternative 1 43% 10% 2% Alternative 2 45% 11% 3% Agenda Item 9 Attachment 6 Page 1 of 2

Median Employer Contribution Rates for the Next Ten Years

The tables below compare the projected median employer contribution rate for each method for select years over the next 10 years. The results are based on 1,500 projections for 50 years using randomly simulated investment returns. Projections include impact of changes due to the PEPRA reform law. Data is as of June 30, 2011.

State Miscellaneous Method Year 1 Year 3 Year 5 Year 7 Year 10 Current Method 20.9% 23.1% 25.3% 27.1% 28.4% Proposed Method 22.0% 25.3% 29.2% 30.0% 30.9% Alternative 1 21.6% 24.1% 27.1% 30.5% 31.5% Alternative 2 21.3% 23.3% 25.8% 28.7% 32.9%

Schools Pool Method Year 1 Year 3 Year 5 Year 7 Year 10 Current Method 12.3% 13.9% 15.7% 17.2% 18.4% Proposed Method 13.3% 15.9% 18.9% 19.6% 20.5% Alternative 1 12.9% 14.9% 17.3% 20.0% 20.9% Alternative 2 12.7% 14.3% 16.3% 18.6% 21.9%

Sample Public Agency Miscellaneous Plan Method Year 1 Year 3 Year 5 Year 7 Year 10 Current Method 16.8% 18.1% 19.6% 20.9% 21.9% Proposed Method 17.8% 20.2% 23.0% 23.5% 24.1% Alternative 1 17.5% 19.2% 21.3% 23.9% 24.5% Alternative 2 17.3% 18.6% 20.3% 22.5% 25.6% Agenda Item 9 Attachment 6 Page 2 of 2

Median Employer Contribution Rates for the Next Five Years

CHP Method Year 1 Year 3 Year 5 Year 7 Year 10 Current Method 33.0% 35.7% 38.7% 41.2% 43.3% Proposed Method 34.5% 38.8% 43.7% 45.2% 46.7% Alternative 1 34.0% 37.3% 41.2% 45.8% 47.3% Alternative 2 33.7% 36.3% 39.6% 43.6% 49.0%

POFF Method Year 1 Year 3 Year 5 Year 7 Year 10 Current Method 29.6% 30.1% 32.3% 34.0% 35.3% Proposed Method 30.9% 33.4% 37.5% 38.4% 39.4% Alternative 1 30.5% 32.1% 35.2% 39.0% 40.0% Alternative 2 30.2% 31.2% 33.8% 37.0% 41.5%

Sample Public Agency Safety Plan Method Year 1 Year 3 Year 5 Year 7 Year 10 Current Method 29.3% 31.5% 33.9% 36.0% 37.6% Proposed Method 30.8% 34.8% 39.5% 40.4% 41.3% Alternative 1 30.3% 33.1% 36.7% 41.1% 41.9% Alternative 2 29.9% 32.1% 35.0% 38.7% 43.8% Agenda Item 9 Attachment 7 Page 1 of 7 STATE OF CALIFORNIA BOARD OF ADMINISTRATION PUBLIC EMPLOYEES' RETIREMENT SYSTEM

RESOLUTION

No. ACT-96-05E (Rev.)

Subject: Actuarial Policies - Amortization Methods& Smoothing Policy

WHEREAS, 1. On November 3, 1992, the people of the state of California passed Proposition 162, which amended Article XVI, section 17 of the California Constitution ("Section 17"), granting the CalPERS Board of Administration plenary authority and fiduciary responsibility for investment of moneys, providing for actuarial services, and administration of the Public Employees' Retirement System, the Judges' Retirement Systems, the Legislators' Retirement System, and the Volunteer Firefighters' Length of Service Award (collectively "the Systems").In accordance with Government Code section 20120, the Board of Administration of the California Public Employees’ Retirement System (the “Board”) is vested with the management and control of the Public Employees’ Retirement System (the “System”).

WHEREAS, 2. Under Article XVI, Section 17 of the California Constitution (the “Constitution”), the Board has plenary authority and fiduciary responsibility for the investment of monies and administration of the System. The Constitution also vests the Board with the sole and exclusive power to provide for actuarial services in order to assure the competency of the System.requires the CalPERS Board to exercise its responsibility with respect to the Systems, subject to continuing fiduciary duties and specifies that the duty to participants and their beneficiaries takes precedence over any other duty.

WHEREAS, 3. The provisions of Section 17 expressly supersede any contrary provision of law or the Constitution.

WHEREAS, 4. The Systems contain multiple plans, in which, except as expressly provided by law, the assets and liabilities of each CalPERS plan remain separate and distinct from the assets and liabilities of other CalPERS plans. Agenda Item 9 Attachment 7 Page 2 of 7 WHEREAS, 53. In furtherance of its sole and exclusive duty to make actuarial determinations under Section 17, the CalPERS Board has hired a Chief Actuary to advise the Board and to direct the activities of the Board'sSystem’s professional actuarial staff.

WHEREAS, 64. Also in furtherance of this its sole and exclusive duty to make actuarial determinations, the CalPERS Board has retained the services of an outside consulting actuarial firm, to review the work of the Board'sSystem’s actuarial staff and to certify that such work satisfies professional actuarial standards.

WHEREAS, 75. Both the CalPERS Board's Chief Actuary and its consulting actuary have advised the Board to adopt specific written policies regarding the actuarial practices that are most prudent for the Systems.

NOW THEREFORE BE IT RESOLVED:

(A) It is the policy of the CalPERS Board to utilize use professionally accepted amortization methods to provide for the eliminatione of unfunded liabilities or surpluses in a manner that maintains benefit security for the members of the Systems while minimizing substantial variations in employer contribution rates.

(B) To accomplish this goal, the Board hereby adopts an amortization method which amortizes different pieces portions of the total unfunded liability or surplus over different periods of time, depending upon the type of event that created the particular piece portion of the unfunded liability or surplus, specifically as follows:

(1) For each plan, as of the June 30, 1996 actuarial valuation, the unfunded liability with respect to prior service shall be combined with the unfunded liability with respect to current service. The resulting combined unfunded liability shall be amortized as a level percentage of payroll over that number of full years which produces an initial payment which most closely approximates the payment on the unfunded liability that would have been produced had the Board's amortization methods prior to this Resolution remained unchanged.

(21) Commencing with the June 30, 2004 actuarial valuation, For the June 30, 2012 valuation, the annual contribution amount with Agenda Item 9 Attachment 7 Page 3 of 7 regard to gains and losses shall be determined as the dollar amount (increasing each year by the overall payroll increase assumption adopted by the Board)level percent of payroll required to amortize the accumulated amount of unamortized gains and losses as of the valuation date over a period of thirty years (i.e. rolling thirty year fresh start).

(2) Commencing with the June 30, 2013 valuation, the annual contribution amount with regard to gains and losses shall be the dollar amount determined in accordance with the following schedule: x Year 1: 20% of base payment x Year 2: 40% of base payment x Year 3: 60% of base payment x Year 4: 80% of base payment x Years 5 through 26: base payment x Year 27: 80% of base payment x Year 28: 60% of base payment x Year 29: 40% of base payment x Year 30: 20% of base payment

The base payment, for this paragraph (B)(2), shall be the annual amount (increasing each year by the overall payroll increase assumption adopted by the Board) necessary for the gains and losses to be fully amortized over a fixed 30 year period using the above schedule.

(3) Commencing with the June 30, 1997 actuarial valuation, For the June 30, 2012 valuation ,the annual contribution with regard to a change in unfunded liability due to a change in plan provisions, or a change in actuarial assumptions, or a change in actuarial methods, shall be determined as the level percent of payroll dollar amount (increasing each year by the overall payroll increase assumption adopted by the Board) required to amortize that change in unfunded liability over a period of twenty years from the date of the actuarial valuation which first recognizes that change in unfunded liability.

(4) Commencing with the June 30, 2013 actuarial valuation, the annual contribution amount with regard to a change in unfunded liability due to a change in plan provisions (other than a Golden Handshake) shall be the dollar amount (increasing each year by the overall payroll increase assumption adopted by the Board) required to amortize that change in unfunded liability over a period of twenty Agenda Item 9 Attachment 7 Page 4 of 7 years from the date of the actuarial valuation which first recognizes that change in unfunded liability

(5) Commencing with the June 30, 2013 actuarial valuation, the annual contribution amount with regard to a change in unfunded liability due to a Golden Handshake shall be the dollar amount (increasing each year by the overall payroll increase assumption adopted by the Board) required to amortize that change in unfunded liability over a period of five years from the date of the actuarial valuation which first recognizes that change in unfunded liability

(6) Commencing with the June 30, 2013 actuarial valuation, the annual contribution amount with regard to a change in unfunded liability due to a change in actuarial assumptions or actuarial methods shall be the dollar amount required to amortize that change in unfunded liability over a period of twenty years from the date of the actuarial valuation which first recognizes that change in unfunded liability in accordance with the following schedule: x Year 1: 20% of base payment x Year 2: 40% of base payment x Year 3: 60% of base payment x Year 4: 80% of base payment x Years 5 through 16: base payment x Year 17: 80% of base payment x Year 18: 60% of base payment x Year 19: 40% of base payment x Year 20: 20% of base payment

The base payment, for this paragraph (B)(6), shall be the annual amount (increasing each year by the overall payroll increase assumption adopted by the Board) necessary for the change in unfunded liability to be fully amortized over a fixed 20 year period using the above schedule

(47) Any agency contracting with CalPERS for the first time shall have the initial unfunded liability amortized as a level percent of payroll over a period equal to the smaller of twenty years or the average future working lifetime of that agency's active members with the annual contribution amount increasing each year by the overall payroll increase assumption adopted by the Board.

(58) Commencing with the June 30, 2012 1997 actuarial valuation, notwithstanding the foregoing (1) through (47) and except as provided in (610) below, the annual contribution (increasing each Agenda Item 9 Attachment 7 Page 5 of 7 year by the overall payroll increase assumption adopted by the Board) with regard to the total unfunded liability as of any valuation date shall not be less than the amount necessary to amortize the total unfunded liability as a level percent of payroll over a period of thirty years from the date of that actuarial valuation.

(69) In certain cases, provide for a Fresh Start of the amortization bases. Under this policy, Fresh Start means combining all multiple amortization bases into a single base equal to the unfunded liability/surplus.

(a) A Fresh Start may be used whenever application of policies as set forth in paragraphs (B)(1) through (B)(38) results in mathematical inconsistencies or a violation of the goals as stated in paragraph (A), including, without limitation, the following circumstances:

(1) a negative employer contribution rate; or (2) a negative employer amortization payment on a positive unfunded liability; or (3) a positive employer amortization payment on a negative unfunded liability (i.e. an actuarial surplus); or (4) the effect of adding multiple amortization base payments results in a net amortization payment that completely amortizes the total unfunded liability/surplus in a very short time period, which results in a large change in the employer contribution rate; or (5) whenever application of the methods set forth in paragraph (B), in the professional judgment of the Chief Actuary, does not accomplish the goals as stated in paragraph (A).

(b) The amortization period of the Fresh Start base shall be determined by policies established by the Chief Actuary in a manner which best meets the goals stated in paragraph (A). The Chief Actuary will inform the Board of the policies so established, and the Board shall retain its right to instruct the Chief Actuary to change those policies.

(710) Commencing with the June 30, 201203 actuarial valuation, the annual contribution with regard to the side fund for agencies joining a risk pool for the first time shall be determined as the dollar amount (increasing each year by the overall payroll increase assumption adopted by the Board) level percent of payroll required to amortize the side fund using a fFresh sStart. The fFresh sStart shall be done over a period that would produce an amortization Agenda Item 9 Attachment 7 Page 6 of 7 payment as a percentage of payroll that would be as close as possible to the payment that all existing separate amortization bases would have generated had the plan not participated in a risk pool.

(811) Commencing with the June 30, 201203 actuarial valuation, the annual contribution with regard to a change in side fund due to a change in plan provisions for employers participating in a risk pool shall be determined by doing a Fresh Start of the adjusted side fund. The Fresh Start shall be the dollar amount (increasing each year by the overall payroll increase assumption adopted by the Board) done as a level percent of payroll payable over the period that would produce a required contribution as close as possible to amortizing the change in side fund in accordance with paragraphs (B)(3) and B(710).

(C) (1) In situations where the Chief Actuary expects a plan to have a decrease in payroll over time or to increase at a slower rate than the overall payroll increase assumption, the methods described in paragraph (B) can be changed to better accomplish the goals stated in paragraph (A) by calculating the dollar amount needed assuming the amount (or base payment) will remain the same each year instead of increasing each year by the overall payroll increase assumption adopted by the Board.

(2) In the case of the inactive agency risk pool, the methods described in paragraph (B) will be applied except that annual contribution amounts will not increase each year by the overall payroll increase assumption adopted by the Board.

(3) When an active plan changes status to an inactive plan, the annual contribution with regard to the side fund shall be the dollar amount required to amortize the side fund calculated at the date of change in status. The amortization period shall be the greater of (i) ten years or (ii) the outstanding amortization period at the date of the change in status.

(CD) Public agency employers for whom the policies provided in this Resolution produce severe financial hardship may petition the Chief Actuary, for an extension of the amortization period to no more than thirty years. Other employers for whom the policies provided in this Resolution produce severe financial hardship may petition the Board for an extension of the amortization period to no more than thirty years.

(DE) This Resolution shall be effective immediately upon adoption.

* * * * * * * * * * Agenda Item 9 Attachment 7 Page 7 of 7

I hereby certify that on the 20th day of October, 1999 the Board of Administration of the California Public Employees' Retirement System, made and adopted the foregoing Resolution; and that this Resolution was amended on the 20th day of April, 2005. ; and that this Resolution was again amended on the 17th day of April 2013.

______ROB FECKNER, PRESIDENT BOARD OF ADMINISTRATION, PUBLIC EMPLOYEES' RETIREMENT SYSTEM Agenda Item 9 Attachment 8 Page 1 of 3

STATE OF CALIFORNIA BOARD OF ADMINISTRATION PUBLIC EMPLOYEES' RETIREMENT SYSTEM

RESOLUTION

No. 05-02-AESD (Rev)

Subject: Actuarial Policies - Smoothing Employer Contribution Rates

WHEREAS, 1. On November 3, 1992, the people of the state of California passed Proposition 162, which amended Article XVI, section 17 of the California Constitution (“Section 17”), granting the CalPERS Board of Administration plenary authority and fiduciary responsibility for investment of moneys, providing for actuarial services, and administration of the Public Employees’ Retirement System, the Judges’ Retirement Systems, the Legislators’ Retirement System, and the Volunteer Firefighters’ Length of Service Award System (collectively “the Systems”)In accordance with Government Code section 20120, the Board of Administration of the California Public Employees’ Retirement System (the “Board”) is vested with the management and control of the Public Employees’ Retirement System (the “System”).

WHEREAS, 2. Under Article XVI, Ssection 17 of the California Constitution (the “Constitution”), the Board has plenary authority and fiduciary responsibility for the investment of monies and administration of the System. The Constitution also vests the Board with the sole and exclusive power to provide for actuarial services in order to assure the competency of the Systemrequires the CalPERS Board to exercise its responsibility with respect to the Systems, subject to continuing fiduciary duties and specifies that the duty to participants and their beneficiaries takes precedence over any other duty.

WHEREAS, 3. The provisions of Section 17 expressly supersede any contrary provision of law or the ConstitutionIn furtherance of its sole and exclusive duty to make actuarial determination, the Board has hired a Chief Actuary to advise the Board and to direct the activities of the System’s professional actuarial staff.

(Rev. April 2013) Agenda Item 9 Attachment 8 Page 2 of 3

WHEREAS, 4. Also in furtherance of its sole and exclusive duty to make actuarial determinations, the Board has retained the services of an outside consulting actuarial firm to review the work of the System’s actuarial staff and to certify that such work satisfies professional actuarial standardsSection 17 also vests the Board with the sole and exclusive power to provide for the actuarial services in order to assure the competency of the System.

WHEREAS, 5. In furtherance of its sole and exclusive duty to make actuarial determinations under Section 17, the Board has hired a Chief Actuary to advise the Board and to direct the activities of the Board's professional actuarial staff.

WHEREAS, 6. Also in furtherance of this sole and exclusive duty to make actuarial determinations, the CalPERS Board has retained the services of an outside consulting actuarial firm, to review the work of the Board's actuarial staff and to certify that such work satisfies professional actuarial standards.

WHEREAS, 75. Both the Board's Chief Actuary and its consulting actuary have advised the Board to adopt specific written policies regarding the actuarial practices that are most prudent for the Systems.

NOW, THEREFORE, BE IT RESOLVED:

It is the policy of the CalPERS Board to utilize use professionally accepted actuarial methods to help reduce volatility and help stabilize employer contribution rates. That when the Board modifies the actuarial Actuarial valuation Valuation of asset Asset method Method Policy or modifies the Aamortization and smoothing methods & Smoothing Policyto smooth out the impact of gains and losses on employer contribution rates, it shall consider all of the following: x The impact on the preservation/advancement of funded status x The impact on the estimated volatility of the annual change in employer contribution rates x The impact on the estimated average employer contribution rate x The likelihood of high level of employer contribution rates in any given year x The likelihood of large changes in employer contribution rate in any given year x Compliance with Generally Accepted Accounting Principles

(Rev. April 2013) Agenda Item 9 Attachment 8 Page 3 of 3

To impose a minimum employer contribution rate equal to the employer normal cost minus a 30 year amortization of surplus. In order tTo further reduce the volatility in employer contribution rates and to improve the preservation/advancement of funded status, bBeginning with the June 30, 2004 actuarial valuations, the employer contribution rates for non-pooled plans and for risk pools, will not be less than a rate equal to the employer normal cost minus the payment for a 30 year amortization of any surplus.

* * * * * * * * * *

I hereby certify that the foregoing Resolution was originally made and adopted on the 20th day of April, 2005, and was amended on the 17th day of April, 2013, by the Board of Administration of the California Public Employees' Retirement System, made and adopted the foregoing Resolution.

______ROB FECKNER, PRESIDENT BOARD OF ADMINISTRATION CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM

(Rev. April 2013) Agenda Item 9 Attachment 9 Page 1 of 3

STATE OF CALIFORNIA BOARD OF ADMINISTARTION PUBLIC EMPLOYEES’ RETIREMENT SYSTEM

RESOLUTION

No. 95-05C (Rev.)

Subject: Actuarial Policies – Actuarial Asset Valuation Method

WHEREAS, On November 3, 1992, the people of the state of California passed Proposition 162, which amended Article XVI, section 17 of the California Constitution ("Section 17"), granting the CalPERS Board of Administration plenary authority and fiduciary responsibility for investment of moneys, providing for actuarial services, and administration of the Public Employees' Retirement System, the Judges' Retirement Systems, the Legislators' Retirement System, and the Volunteer Firefighters' Length of Service Award (collectively "the Systems")In accordance with Government Code section 20120, the Board of Administration of the California Public Employees’ Retirement System (the “Board”) is vested with the management and control of the Public Employees’ Retirement System (the “System”).

WHEREAS, Under Article XVI, Section 17 requires the CalPERS Board to exercise its responsibility with respect to the Systems, subject to continuing fiduciary duties and specifies that the duty to participants and their beneficiaries takes precedence over any other dutyof the California Constitution (the “Constitution”), the Board has plenary authority and fiduciary responsibility for the investment of monies and administration of the System. The Constitution also vests the Board with the sole and exclusive power to provide for actuarial services in order to assure the competency of the System.

WHEREAS, The provisions of Section 17 expressly supersede any contrary provision of law or the Constitution.

WHEREAS, In furtherance of its sole and exclusive duty to make actuarial determinations under Section 17, the CalPERS Board has hired a Chief Actuary to advise the Board and to direct the activities of the Board's System's professional actuarial staff.

(Rev. April 2013 April 2005) Agenda Item 9 Attachment 9 Page 2 of 3

WHEREAS, Also in furtherance of this sole and exclusive duty to make actuarial determinations, the CalPERS Board has retained the services of an outside consulting actuarial firm, to review the work of the Board's System's actuarial staff and to certify that such work satisfies professional actuarial standards.

WHEREAS, Both the CalPERS Board's Chief Actuary and its consulting actuary have advised the Board to adopt specific written policies regarding the actuarial practices that are most prudent for the Systems. Now therefore be it:

NOW, THEREFORE, BE IT RESOLVED:,

(A) It is the policy of the CalPERS Board to utilize use a professionally accepted smoothing technique in an effort to minimize substantial variations in employer contribution rates that result from wide swings, upward and downward, in the market value of assets.

RESOLVED, (B) That, for June 30, 2012 actuarial valuations, the actuarial value of assets shall recognize one fifteenth of the difference between the market value of assets and the expected actuarial value of assets subject to the limitation that the actuarial value of assets be (i) no less than 80% of the market value of assets and (ii) no greater than 120%, of the market value of assets except for the Judges Retirement System which will continue to use an actuarial value of assets equal to the market value of assets.

RESOLVED, (C) That, through its smoothing technique, the actuarial value of assets shall be limited to the corridor between 80% and 120% of market value. That for the actuarial valuations commencing June 30, 2013, and thereafter, the Board adopts a direct rate smoothing technique to determine employer contribution rates.

RESOLVED, (D) That, pursuant to (C) above, the market value of assets will be used in actuarial valuations performed as of June 30, 2013 and thereafter (replacing the use of an actuarial value of assets used in prior actuarial valuations). if the actuarial value of assets derived under this technique consistently falls either below or above the market value of assets for a

(Rev. April 2013 April 2005) Resolution 95-05C (Rev.) Page 3 Actuarial Asset Valuation Method period of five consecutive years, the Chief Actuary will bring this to the attention of the Board for its consideration.

RESOLVED, (E) That any changes to the methods described above shall require Board approval.

* * * * * * * * * *

I hereby certify that on the 16th day of December, 1998 the Board of Administration of the California Public Employees' Retirement System, made and adopted the foregoing Resolution; and that this Resolution was amended on the 20th day of April, 2005 and that this Resolution was amended on the 17th day of April, 2013.

______ROB FECKNER, PRESIDENT BOARD OF ADMINISTRATION, PUBLIC EMPLOYEES' RETIREMENT SYSTEM

(Rev. April 2013 April 2005) Agenda Item 9 Attachment 10 Page 1 of 3

STATE OF CALIFORNIA BOARD OF ADMINISTRATION PUBLIC EMPLOYEES' RETIREMENT SYSTEM

RESOLUTION

No. 05-01-AESD

Subject: Actuarial Policies - Employer Rate Stabilization Policy

WHEREAS, 2. Section 17 requires the CalPERS Board to exercise its responsibility with respect to the Systems, subject to continuing fiduciary duties and specifies that the duty to participants and their beneficiaries takes precedence over any other duty.

WHEREAS, 3. The provisions of Section 17 expressly supersede any contrary provision of law or the Constitution.

WHEREAS, 4. Section 17 also vests the Board with the sole and exclusive power to provide for the actuarial services in order to assure the competency of the System.

WHEREAS, 7. Both the Board's Chief Actuary and its consulting actuary have advised the Board to adopt specific written policies regarding the actuarial practices that are most prudent for the Systems.

WHEREAS, 8. The Board’s Chief Actuary has advised the Board that volatility in employer contribution rates may harm the financial strength of employers and hence jeopardize the rights of members and their beneficiaries to receive all of their scheduled benefits.

WHEREAS, 9. The Board’s Chief Actuary has advised the Board that changing the Board’s policy of actuarial asset valuation method in its policy No. 95-05C (as provided in Exhibit A), would not have a materially adverse impact on the actuarial soundness of the System and would not harm the security of the benefits of members and their beneficiaries.

WHEREAS, 10. The Board’s Chief Actuary has advised the Board that changing the Board’s policy of amortization methods in its policy No. ACT-96- 05E (as provided in Exhibit B), would not have a materially adverse impact on the actuarial soundness of the System and would not harm the security of the benefits of members and their beneficiaries.

WHEREAS, 11. The Board’s Chief Actuary has advised the Board that adopting a new Board policy to smooth employer contribution rates, as provided in the proposed policy No. 05-02-AESD (as provided in Exhibit C), would further reduce the volatility in employer contribution rates and improve the preservation and advancement of the funded status.

NOW, THEREFORE, BE IT RESOLVED: Agenda Item 9 Attachment 10 Page 3 of 3 (A) It is the policy of the CalPERS Board to utilize professionally accepted actuarial methods to help reduce volatility and help stabilize employer contribution rates.

(B) To adopt the revised Board policy of actuarial asset valuation method No. 95-05C (Rev.), (Exhibit A) to calculate the actuarial value of assets to spread the market value asset gains and losses over 15 years as opposed to the current 3 years and to change the corridor limits for the actuarial value of assets from 90%-110% of market value to 80%-120% of market value.

(C) To adopt the revised Board policy of amortization methods No. ACT-96-05E (Rev.) (Exhibit B) to calculate the annual contribution amount with regard to gains and losses as a rolling 30 year amortization of al remaining unamortized gains or losses as oposed to the current 10% of such gains and losses and to eliminate (B)(6) from the policy which is obolete language regarding the amortization of the State plans’ unfunded liability.

(D) To adopt new Board policy No. 05-02-AESD (Exhibit C) to impose a minimum employer contribution rate equal to the employer normal cost minus a 30 year amortization of surplus, if any.

* * * * * * * * * *

I hereby certify that on the 20th day of April, 2005 the Board of Administration of the California Public Employees' Retirement System, made and adopted the foregoing Resolution.

______ROB FECKNER, PRESIDENT BOARD OF ADMINISTRATION CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM

April 22, 2013

Mr. Neal Martin Town Planner Town of Atherton 91 Ashfield Road Atherton, CA 94027 Re: Report for Menlo School TDM Monitoring Dear Mr. Martin: Hexagon Transportation Consultants, Inc., has completed this report for the 2013 Transportation Demand Management (TDM) monitoring study for Menlo School. The purpose of the study was to determine the peak-hour trip generation and parking utilization at the school. The results were then compared to the conditions of approval found in the Conditional Use Permit issued by the Town of Atherton. Traffic counts were conducted at the intersection of Valparaiso/University during school peak hours from 7:00-9:00 AM and 2:00-4:00 PM on three weekdays in order to ensure accurate and consistent results. Counts also were conducted at a secondary driveway near the intersection of Valparaiso/Crane that is open during the AM hours and closed during the PM hours. Hexagon later learned that one of the days on which counts were conducted was atypical due to several large events held that morning, including an opportunity for parents to meet the new Head of School for the first time, a “Connections Beyond the Classroom” meeting, and a Frosh-Soph parent meeting. Thus, the traffic count conducted on 4/10/13 was regarded as an anomaly and excluded from the summary. The peak hour of each 2-hour peak period was determined by reviewing the total vehicles entering and exiting the campus during the entire peak period and identifying the hour during which the most vehicles were counted. The AM peak hour includes vehicles using both the main entrance/exit and the gated driveway on the eastern edge of the campus. The current school year (which began in August 2012) is defined as the second year in the Conditional Use Permit, for which a maximum of 627 and 302 vehicle trips are allowed in the morning peak hour and afternoon peak hour, respectively. A summary of the trips generated by Menlo School during the AM and PM peak hours is presented in Table 1. Table 1: Menlo School Trip Generation Summary Traffic Counts at Main Entrance and E. Driveway (AM Only) AM Peak Hour (7:15-8:15 AM) PM Peak Hour (3:00-4:00 PM) In Out Total Trips In Out Total Trips 4/9/2013 458 205 663 136 299 435 4/16/2013 411 238 649 138 298 436

Second Year1 --627 --302 1 Maximum trips allowed as stated in the Conditional Use Permit issued by the Town of Atherton

As shown above, the number of trips generated by the school can be compared to the maximum number of trips allowed by the conditions of approval in the Conditional Use Permit. During both the AM peak hour and the PM peak hour, the traffic counts indicate that the school generated more trips than the maximum number allowed for the second year according to the terms of the permit. However, a comparison with the traffic counts conducted in the spring of 2012 indicates that the number of trips generated by the school in the PM peak hour has declined by 24%. Table 2 presents the average number of trips for the two days included in the trip generation summary in 2012 and 2013, and suggests that the school’s TDM program has made significant progress in reducing traffic during the PM peak hour.

Mr. Neal Martin April 22, 2013 Page 2 of 5

Table 2: Change in Trips Generated from 2012 to 2013

Change in Trip Generation Total Trips 2012 2013 Change % Change AM Average 658 656 ‐20%

PM Average 570 435 ‐135 ‐24%

The Conditional Use Permit also requires Menlo School to maintain a maximum parking capacity utilization rate of 86.5%. Three different days were surveyed during the three-hour peak parking period, 9:00 AM to 12:00 noon. Counts were conducted every 30 minutes. Four parking areas were counted, as shown on Figure 1: the south lot (Lot 1), the north lot (Lot 2), the north faculty lot (Lot 3), and the drop-off loop which offers curbside parking. The Conditional Use Permit states that “Only faculty, staff and student vehicles will be counted in determining that a parking space is being utilized for the purpose of measuring parking capacity utilization.” In order to exclude vehicles that do not belong to faculty, staff or students from the total count of parked vehicles, the cars that did not have a student sticker or a faculty/staff tag were also counted every 30 minutes. These were deducted from the total number of parked vehicles for each time period. For example, in Lot 1 at 9:00 on Tuesday, April 9, 2013, there were 69 total vehicles parked in the 78 spaces available. Since 13 of these vehicles did not have a student sticker or a faculty/staff tag, they were considered visitors and were deducted from the total number of parked vehicles. Thus, Table 3 shows there were 56 vehicles belonging to students/faculty/staff in Lot 1 at that time. Table 3: Parking Lot Survey Results South Lot (Lot 1) North Lot (Lot 2) N. Faculty Lot (Lot 3) Drop-Off (Curb Parking) Total Total spaces: 78 Total spaces: 186 Total spaces: 28 Total spaces: ~29 Total spaces: ~321 4/9 4/10 4/16 4/9 4/10 4/16 4/9 4/10 4/16 4/9 4/10 4/16 4/9 4/10 4/16 9:00 AM 56 68 61 145 148 148 24 21 21 6 2 8 231 239 238 9:30 AM 56 68 61 144 148 148 24 21 21 9 2 10 233 239 240 10:00AM 57 67 61 141 147 148 25 21 21 9 2 10 232 237 240 10:30 AM 57 65 61 141 147 150 25 21 21 8 1 10 231 234 242 11:00 AM 57 64 61 143 147 149 25 21 21 8 2 11 233 234 242 11:30 AM 57 64 62 143 146 149 25 21 21 8 2 11 233 233 243 Noon 58 64 62 142 146 149 25 21 21 8 2 11 233 233 243 Note: All counts reflect only the vehicles which had a student sticker or a faculty/staff tag. Other vehicles were excluded. When non-student/faculty/staff vehicles are excluded from the count, the parking utilization rate was well below 86.5% on all three days, as shown in Table 4. It is interesting to note that the parking utilization rate on April 10, 2013 (the day when several large events occurred and many parents visited the school) was no higher than the other two days, even though all parking facilities were 100% occupied that morning. For example, 25 vehicles were parked in the drop-off area that morning (the remaining 4 spaces were occupied by two yellow school buses). But since 23 did not have a student sticker or faculty/staff hangtag, only 2 vehicles were included for purposes of calculating the parking utilization rate pursuant to the Conditional Use Permit.

Mr. Neal Martin April 22, 2013 Page 3 of 5

Table 4: On-site Parking Utilization Parking Capacity Utilization Total available spaces: ~3211 4/9/2013 4/10/2013 4/16/2013 9:00 AM 231 72.0% 239 74.5% 238 74.1% 9:30 AM 233 72.6% 239 74.5% 240 74.8% 10:00AM 232 72.3% 237 73.8% 240 74.8% 10:30 AM 231 72.0% 234 72.9% 242 75.4% 11:00 AM 233 72.6% 234 72.9% 242 75.4% 11:30 AM 233 72.6% 233 72.6% 243 75.7% Noon 233 72.6% 233 72.6% 243 75.7% 1Total spaces includes a curb with an estimated 29 available spaces

Detailed information from both the traffic counts and the parking survey are included at the end of this report. We appreciate the opportunity to submit this report. Please do not hesitate to contact us if additional information is needed.

Sincerely, HEXAGON TRANSPORTATION CONSULTANTS, INC.

Gary Black, President Menlo School TDM Monitoring

Figure 1 Parking Lot Counter Locations Mr. Neal Martin April 22, 2013 Page 5 of 5

Parking Lot Survey Details

Menlo School Parking Study

9:00AM 9:30 AM 10:00 AM 10:30AM 11:00AM 11:30AM NOON Location Lot # of Spaces OCPD Visitors Stu/Fac OCPD Visitors Stu/Fac OCPD Visitors Stu/Fac OCPD Visitors Stu/Fac OCPD Visitors Stu/Fac OCPD Visitors Stu/Fac OCPD Visitors Stu/Fac Lot 17869 13 56 69 13 56 68 11 57 68 11 57 68 11 57 69 12 57 70 12 58 Lot 2186181 36 145 179 35 144 173 32 141 179 38 141 182 39 143 181 38 143 180 38 142 Tuesday April 9th Lot 32827 3 24 27 3 24 28 3 25 28 3 25 28 3 25 28 3 25 28 3 25 Drop‐Off 29 6 0 6 1459145 9 157 815781028 1028 Total 321 283 52 231 289 56 233 283 51 232 290 59 231 293 60 233 288 55 233 288 55 233 0 Lot 17877 9 68 79 11 68 76 9 67 75 10 65 71 7 64 72 8 64 72 8 64 Lot 2186186 38 148 187 39 148 181 34 147 178 31 147 172 25 147 174 28 146 175 29 146 Wednesday April 10th Lot 32828 7 21 28 7 21 27 6 21 27 6 21 27 6 21 27 6 21 27 6 21 Drop‐Off 29 25 23 2 25 23 2 17 15 2 16 15 1 12 10 2 12 10 2 11 9 2 Total 321 316 77 239 319 80 239 301 64 237 296 62 234 282 48 234 285 52 233 285 52 233 0 Lot 17873 12 61 74 13 61 74 13 61 74 13 61 73 12 61 74 12 62 74 12 62 Lot 2186170 22 148 174 26 148 177 29 148 181 31 150 184 35 149 184 35 149 182 33 149 Tuesday April 16th Lot 32827 6 21 27 6 21 27 6 21 27 6 21 27 6 21 27 6 21 27 6 21 Drop‐Off 29 8 0 8 10 0 10 11 1 10 11 1 10 13 2 11 13 2 11 12 1 11 Total 321 278 40 238 285 45 240 289 49 240 293 51 242 297 55 242 298 55 243 295 52 243 Note: "OCPD" means parking space was occupied. Number of vehicles shown as "Stu/Fac" is the difference between the total occupied parking spaces and the number of vehicles (Visitors) that did not have a student sticker or a faculty/staff tag.

April 10, 2012

Mr. Neal Martin Town Planner Town of Atherton 91 Ashfield Road Atherton, CA 94027 Re: Report for Menlo School TDM Monitoring Dear Mr. Martin: Hexagon Transportation Consultants, Inc., has completed this report for the 2012 TDM monitoring study for Menlo School. The purpose of the study was to determine the peak-hour trip generation and parking utilization at the school. The results, which can be found in Tables 1 and 2, were then compared to the conditions of approval found in the Conditional Use Permit issued by the Town of Atherton. Traffic counts were conducted at the intersection of Valparaiso/University during school peak hours from 7-9 AM and 2-4 PM on three weekdays in order to ensure accurate and consistent results. Two of the weekday counts were very close; one day proved to be an anomaly so is not included in the summary. Counts also were conducted at Valparaiso/Crane for a secondary driveway that is open during the AM hours and closed during the PM hours. The resulting trip generation can be found in Table 1: Table 1 – Trip Generation for Menlo School Trip Generation - Menlo School AM Peak Hour (7:30-8:30 AM) PM Peak Hour (3:00-4:00 PM) In Out Total Trips In Out Total Trips 3/20/2012 417 231 648 250 337 587 3/27/2012 416 252 668 263 289 552 First Year1 - - 711 - - 332 Second Year1 - - 627 - - 302 1Required conditions for approval as stated in the Conditional Use Permit issued by the Town of Atherton Shown above, the existing conditions can be compared to the conditions of approval. It is apparent that while the AM conditions are currently acceptable, the PM conditions far surpass the approved maximum.

The Conditional Use Permit also requires Menlo School to maintain a maximum parking capacity utilization rate of 86.5%. The results for the parking study can be found in Table 2 (detailed results can be found at the end of the report). Three different days were surveyed during the three-hour peak parking period, 9 AM to noon. Counts were conducted every 30 minutes. The results show that while the majority of 3/21 is under the allowed maximum, the other two days exceeded the maximum during all times of the survey. Table 2 - On-site Parking Utilization Parking Capacity Utilization Total available spaces: ~3171 3/21/2012 3/27/2012 3/28/2012 9:00 AM 302 95.3% 292 92.1% 283 89.3% 9:30 AM 285 89.9% 293 92.4% 289 91.2% 10:00AM 259 81.7% 296 93.4% 290 91.5% 10:30 AM 260 82.0% 293 92.4% 296 93.4% 11:00 AM 264 83.3% 294 92.7% 301 95.0% 11:30 AM 264 83.3% 303 95.6% 288 90.9% Noon 273 86.1% 304 95.9% 288 90.9% 1Total spaces includes a curb of an estimated 20 available spaces

Mr. Neal Martin April 10, 2012 Page 2 of 3

We appreciate the opportunity to submit this report. Please do not hesitate to contact us if additional information is needed.

Sincerely, HEXAGON TRANSPORTATION CONSULTANTS, INC.

Gary Black, President Mr. Neal Martin April 10, 2012 Page 3 of 3

Complete Parking Survey South Lot Circle - On Curb North Lot North Lot Faculty Total Total spaces: Total spaces: 77 Total spaces: ~20 Total spaces: 190 Total spaces: 30 ~317 3/21 3/27 3/28 3/21 3/27 3/28 3/21 3/27 3/28 3/21 3/27 3/28 3/21 3/27 3/28 9:00 AM 63 73 74 23 9 11 186 182 169 30 28 29 302 292 283 9:30 AM 50 73 76 23 15 15 183 177 169 29 28 29 285 293 289 10:00AM 46 71 75 12 15 18 173 182 169 28 28 28 259 296 290 10:30 AM 45 74 77 12 13 21 176 178 171 27 28 27 260 293 296 11:00 AM 44 73 77 12 15 21 181 179 176 27 27 27 264 294 301 11:30 AM 46 74 75 15 21 19 176 181 166 27 27 28 264 303 288 Noon 46 74 75 15 21 19 184 182 166 28 27 28 273 304 288

RECYCLING, ORGANICS AND SOLID WASTE SNAPSHOT REPORT: ATHERTON 2012 2 Overview Atherton • Record residential diversion level of 84.4%, up from 74.1% in 2010

• Commercial and Multi-Family Dwelling Diversion of 51.9%, up from 51.5% in 2011 and 40.6% in 2010

• Total measured diversion level of 81.5%, up from 69.5% in 2010

• The Town is compliant with State recycling mandates

Shoreway Environmental Center • Overall tonnage and diversion rates up over 2011

• Commodity revenue down about 12% from 2011 totals

• Successful school and public tour program hosted over 5,000 visitors in 2012 3 Residential Diversion

Atherton 9,000

8,000

7,000

6,000

5,000

Residential Recycling

Tons 4,000 Residential Compost

3,000 Residential Garbage

2,000

1,000

0 2010 = 74.1% 2011 = 82.2% 2012 = 84.4% (Diversion)

SBWMA Agency-wide Diversion • 2010: 54.7% • 2011: 66.2% • 2012: 66.7%

4 Commercial/Multi-Family Dwelling Diversion

Atherton 900

800

700

600

500 Commercial/MFD Recycling Tons 400 Commercial/MFD Compost

300 Commercial/MFD Garbage

200

100

0 2010 = 40.6% 2011 = 51.5% 2012 = 51.9% (Diversion)

SBWMA Agency-wide Diversion • 2010: 24.7% • 2011: 25.9% • 2012: 27.8%

5 Total Diversion Atherton 10,000

9,000

8,000

7,000

6,000

Total Recycling 5,000

Tons Total Compost 4,000 Total Garbage

3,000

2,000

1,000

0 2010 = 69.5% (Diversion) 2011 = 79.2% 2012 = 81.5% SBWMA Agency-wide Diversion • 2010: 39.2% • 2011: 46.6% • 2012: 47.7%

6 AB 939 Per Capita Targets Atherton 60.0

50.0

Residential = Per Capita 40.0 Disposal

30.0

48.9 Commercial = Per Employee Disposal 20.0

25.3 10.0 18.3 18.6 Pounds Per Day Disposal Day Per Pounds 11.4 4.9 5.1 4.8 0.0 Target (50% 2009 2010 2011 Equivalents)

AB939 50% Recycling Diversion Compliance • 50% recycling diversion compliance calculation was changed in 2008 from a diversion rate/percentage to per capita/employee disposal. • If the year-end result is below the established target, then this result is considered in compliance. • Also, in 2008 a greater emphasis was placed on program implementation than on the numerical compliance.

7 Bulky Items Collection (2 collections per household/per year at no additional cost)

Atherton 500 442 450

400

350

300

250

200

No. of Collections 157 150 112 120 100 53 50

0 Q1 Q2 Q3 Q4 Total

• Atherton total single-family accounts: 2,369 • SBWMA Agency-wide 2012 collection total: 23,854

8 Curbside Collection of Household Batteries and Cell Phones

Atherton 1,600 1,500

1,400 1,200 1,200

1,000 2011 800 2012 600 Pounds Collected Pounds

400

200

Public Outreach • Identified by Spring 2012 residential customer satisfaction survey as one of the programs residents are not as familiar with. • Fall/Winter 2012 promotions included information in rethinker newsletter, holiday newspaper ads, and use of social media. • Atherton year-over-year change: 25% • SBWMA year-over-year change: 24%

9 Community Events

Compost Giveaways • April 14, 2012 10 Public Education and Outreach

CartSMART and BizSMART • Bulky Items Collection Program mailer • AB 341 Mandatory Commercial Recycling compliance • Annual Service Notice • Residential and commercial bill inserts • BizSMART@Work Awards • Strategy and tools to increase multi-family diversions

11 Shoreway Environmental Center Total Facility Tons 450,000

400,000

350,000

300,000

250,000 2010 200,000 2011 Received Tons 150,000 2012

100,000

50,000

0 Solid Waste Recycling Recycling - Organics - Subtotal - Subtotal - OVERALL (MSW) MRF/Public thru Transfer thru Transfer Disposed Diverted TOTAL Recycling Station Station Center

Total Facility Tons 2010 2011 2012 Overall Diversion Percentage 45% 50% 54% Percentage of Franchise Tons 85% 87% 83% Percentage of Non-Franchise Tons 15% 13% 17% 12 Shoreway Environmental Center

Transfer Station and MRF Tonnage Breakout 450,000

400,000

350,000

300,000

250,000

200,000 Tons Received Tons 150,000

100,000

50,000

0 Total Transfer Station Tons Total MRF Tons Overall Total 2010 349,310 57,504 406,814 2011 333,886 63,496 397,382 2012 351,376 75,898 427,274 13 Shoreway Environmental Center

Self-Haul (Public) Tons 70,000

60,000

50,000

40,000

Tons 30,000

20,000

10,000

0 Disposed tons Diverted tons Overall Total 2010 16,878 46,415 63,293 2011 10,587 36,545 47,132 2012 7,040 49,304 56,344

Self-Haul Diversion Rates • 2010 = 73% • 2011 = 78% • 2012 = 88%

14 Shoreway Environmental Center

SBWMA Commodity Pricing for Fiber (Paper)

$200.00

$180.00

$160.00

$140.00

$120.00

$100.00 2012

$80.00 2011

$60.00

Price Per Ton $40.00

$20.00

$0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Gross Commodity Revenue* 2011 2012 $12,143,152 $10,706,139 *Before revenue sharing with SBR and payments to SBR for MRF operations 15 Shoreway Environmental Center

School and Public Tour Program

SBWMA 2012 Total Visitors 6,000 5,086 4,550 5,000

4,000

3,000 2012 2,000 536 1,000

0 School Group Visitors Public Tour Visitors Total

Atherton School Groups • Number of tours: 2 • Sacred Heart School • Total visitors: 60

16 Shoreway Environmental Center

Awards • 2013 Green Building Award Winner – March 2013, Sustainable San Mateo County • 2012 Recycling Systems Excellence Gold Award – August 2012, Solid Waste Association of North America • LEED® Gold Certified – June 2012, U.S. Green Building Council • 2011 Business Beautification Award – January 2012, San Carlos Chamber of Commerce

Trade Press (feature story) • RethinkWaste Reaches 2M Ton Diversion Mark – Waste & Recycling News, March 7, 2013 • Shoreway Reaches 2M Ton Diversion Mark – Recycling Today, March 6, 2013 • Laying the Groundwork – Waste Age, September 2, 2012 • MRF of the Month – Resource Recycling, December 15, 2011 • Shore Bet – Recycling Today, November 21, 2011

17 Future Projects RethinkWaste Website Redesign • Launch May/June 2013 • User-friendly with new interactive features Home Diversion Calculator • Launch Spring/Summer 2013 • Web-based application for residents to estimate the amount of waste they are diverting from the landfill • Recognition for high-diversion households Mobile Phone App • Launch Summer 2012 • User-friendly app with CartSMART and BizSMART program and other services information • Service request capability Analyzing Future Diversion and Service Needs • Statewide Recycling Goal of 75% • New options for organics processing • Transfer Station Diversion • Policy options Non-Exclusive Franchise System for Commercial Recyclers • Tracking non-franchised commercial recycling activities • More complete picture of commercial recycling to cost effectively focus future programs

18 Questions 19 Contact Information

• Kevin McCarthy, Executive Director (650) 802-3505 [email protected]

• Cliff Feldman, Recycling Programs Manager (650) 802-3502 [email protected]

• Hilary Gans, Facility Operations Manager (650) 802-3507 [email protected]

• Monica Devincenzi, Recycling Outreach & Sustainability Manager (650) 802-3509 [email protected]

MEDIA CENTER Lights! Camera! Community Action! 2012 Annual Report

Dear Members of the Media Center Community: fund, we continued to host the Sound Lounge in our studio, a safe place where youth bands can perform On December 17, 2012, Palo Alto Mayor Yiaway Yeh for their fans and future audio engineers can learn their issued a proclamation recognizing the accomplishments craft. and achievements of the 2012 Palo Alto Mayor’s Youth Video Corps (YVC). The proclamation was the culmination • A grant from the Silicon Valley Community Foundation of our work guiding youth to create videos for Mayor Yeh launched an immigrations stories project – a multimedia and the city’s Utilities department. project to collect and celebrate family stories and immigrant perspectives. This work impressed the leadership of the Democratic Municipal Officials (of which the Mayor is a former board • With some funding from a private donor and elbow member). The DMO brought the YVC team to Washington grease on the part of one passionate volunteer and a to cover the Inauguration and to create videos about their dedicated board member, we launched MC Sports, a experience. Part of their experience was a White House youth-led, youth-driven sports-casting program using tour capped by a surprise audience with the President and our mobile production truck. First Lady. What does all this have to do with running a TV station? It has to do with the production of a unique story, a video that, but for our efforts, would never be created; would never come into our homes, schools, civic buildings and businesses; would never touch lives, entertain and give hope. Behind everything we do is our strong commitment to our studio and field production programs.

To do this, we must consistently reinvest in the technology base that makes it all possible. At the end of 2012, our I.T. department installed a new state-of-the-art playback system. This system brings new functionality and capability to cablecast and automates several routine but painstaking tasks that had to be done by hand before. We are able to Members of the Media Center’s Youth Video Corp greet First deliver higher quality video feeds to Comcast and AT&T Lady Michelle Obama and President Barack Obama in the Blue U-verse to showcase our community videos. In 2013, we Room of the White House. YVC members from left to right: plan to use the system as a basis to start streaming our Kenny Jones, Dakota Baker and Nitya Kasturi. channels in HD via the Internet.

This magic is what we do! In 2012 as in every year, we How did we do all of this delivered on our mission to put the faces and issues of our in 2012? With the help of community on TV and the Web. We do this by providing you – our “stock holders.” It media production skills and tools to the people who live and is the gift of your time and work on the Midpeninsula: your unique talents, and the sharing of your wealth with us that empower us to • Through a partnership with the City of Palo Alto, we empower others to make taught the YVC how to interview, produce, operate high- a lasting difference in our end equipment and edit their footage into a compelling community one video at a narrative. time. • With grants from Microsoft and Cisco, we expanded Best Regards, our after school media programs to serve Willow Oaks Elementary School in Menlo Park.

• Through a grant from the Palo Alto Weekly Holiday Board President Executive Director Financial Report Operations Revenue The total operating revenue for 2012 was $775,538, a 7.9% decrease from 2011. Lower in-kind contributions accounted for over 60% of that decrease. PEG (Public, Education and Government) subscriber pass-through fees, representing 45% of the total revenue in 2012, were 4.5% greater than in 2011. Contracted meeting coverage billings decreased by $4,350 (-2%), reflecting continuing municipal economic pressures. Class & facility use fees increased by $15,400 (+24%) mainly due to the high demand for our summer camps. Professional/media services decreased by $46,200 (-39%) and represents 9% of total revenue. Expenditures Operating expenses were $925,194, a 2% decrease that was largely due to low in-kind legal services along with lower salary costs related to the decrease in professional services projects. Summary Overall, we finished the year with $149,656 in net operating loss. This was in line with the 2012 budget authorized by the Board. Capital Expenditures We purchased and began implementation of a new state-of-the-art Cablecast System. In 2012 we capitalized costs of $36,500 for this system. Net Assets Update Net assets increased by $570,546 as compared with 2011. That increase was the result of a very strong market performance of our investments and included $149,656 in disbursements for operations, and $83,900 in depreciation. The Board continues to invest the capital fund conservatively with the advice of professional investment managers.

UNAUDITED STATEMENT OF FINANCIAL POSITION UNAUDITED STATEMENT OF OPERATIONS December 31, 2012 For the year ended December 31, 2012

ASSETS REVENUES Current assets PEG subscriber pass-through fees $ 351,654 Cash & cash equivalents $ 1,636,598 Contracted meeting coverage 189,741 Investments 4,043,537 Class & facility use fees 78,857 Accounts receivable 165,804 Professional/media services 71,459 Prepaid expenses & other current assets 26,026 Contributions & grants 65,986 Total current assets 5,871,965 In-kind contributions 15,012 Fixed assets, net of accumulated depreciation 2,243,234 Tape sales & other income 2,829 Total assets $ 8,115,199 Total revenues $ 775,538

LIABILITIES AND NET ASSETS EXPENSES Current liabilities: Salaries & benefits $ 658,178 Accounts payable & accrued expenses $ 23,288 Professional svcs 105,759 Unearned revenue 32,955 General operating 91,832 Total current liabilities 56,243 Facility 54,413 Net assets: In-kind legal services 15,012 Unrestricted, undesignated 5,147,761 Total expenses $ 925,194 Unrestricted, designated 667,961 Unrestricted, fixed assets 2,243,234 NET OPERATING INCOME/-LOSS $ -149,656 Total net assets 8,058,956

Total liabilities & net assets $ 8,115,199

Net assets, beginning of period $ 7,488,410 Change in net assets 570,546 Net assets, end of period $ 8,058,956

REVENUES EXPENSES In-kind EXPENSES Contributions & contributions Tape sales & grants 2% In-kind legal other income In-kind legalFacility 9% services <1% 6% Generalservices Facility2% operating6% 5% Professional/ PEG 10% media services subscriber General 9% operating pass-through Professional 7% fees services Class & facility 45% Professional11% Salaries & use fees services 10% benefits Contracted 11% 71% Salaries & meeting coverage benefits 24% 71% 2 Our History Our Mission

Thanks to Cable Co-op, Midpeninsula Community Our Mission is to inform, inspire, and empower Media Center was created by the 2001 merger of people to speak and act on behalf of their Mid-Peninsula Access Corp, operating since 1990, communities, to use television and the internet and Silicon Valley Community Communications, to create and distribute programs that promote established by Co-op to keep local programming and celebrate individual expression, local alive. We serve Atherton, East Palo Alto, Menlo achievements, education, cultural exchange, arts Park, Palo Alto, Stanford and unincorporated appreciation, and civic engagement. The Media portions of San Mateo and Santa Clara counties. Center is a 501(c)(3) public benefit corporation.

Classes & Equipment Programs Produced No one is turned away from our fee-based classes 1,000 900 due to lack of funds. Out of the 243 community 800 members who completed Media Center training 700 600 794 828 classes and workshops, 29 applied for and 756 749 500 received scholarships. 400

300

We increased the number of active studio 200 178 producers and volunteer crew by 12.7%: 100 122 129 120 0 • 308 in 2011 2009 2010 2011 2012 Staff Produced Community Produced • 347 in 2012 We also brought in 72 new field producers: • 20 youth joined MC Sports • 45 new field producers through Zoom In, our fast track video field production workshop In all, community members produced 828 • 7 youth joined our Mayor’s Youth Video programs and staff members produced another Corps 120, for a total of 948 productions for the year.

Digiquest Summer Camp 2012 Our TV Production Instructor, Sally Rayn, abstract artist and creator of Dynamic Symbolism, Digiquest Summer Camp Workshops continued is the 2011 winner of the Adolph and Esther this year, carrying on our tradition of providing TV Gottieb Foundation Individual Support Grant Production, Advanced TV Production, and Special and a TV show producer at the Media Center, Effects and Animation weeklong camps for youth, hosting “Talk Art,” an artist interview show. ages 10-15. (www.sallyrayn.com)

Our Special Effects and Animation Instructor, William Mitchell-Kapeliela is a multi-media artist and a Masters student of Fine Arts in Game Design at the Academy of Art University. He received his Bachelors of Science in Game Art and Design from the Art Institute of California at Orange County. (www.willsportfolio.com)

Camps ran from 9:30am – 3:30pm for seven weeks, providing 210 hours of camp, reaching more than eighty students. This year we were Our camp instructors were both industry proud to receive grant funding from the City of East professionals who worked to make our camp Palo Alto’s Measure C to provide 12 students from curricula relevant to young people as well as East Palo Alto with full scholarships to a week of aligned with industry standards. summer camp. 3 Community Programs Open to Hope local singer/songwriters. Music industry Studio Highlights Dr. Gloria Horsley and Dr. Heidi Horsley, judges select “Best Original Song” and a mother-daughter team of therapists, “Best Performance.” tackle the tough topic of death and how to find hope after loss. Won 1st Place at High Five the CreaTiVe Awards. Health and fitness series featured Mona Lisa Reyes, former Miss California, and Dr. G’s Empirical Compound her team of fitness fans. Norm Goldblatt, aka “Dr G,” physicist, Protect Choice: The Threat to inventor, astronomer and all-around renaissance nerd, performed stand-up Women’s Rights A call to face the escalating threat. This comedy around his lifelong love affair show features new vignettes culled with science. Producer Gloria Horsley speaks with the from Oscar-nominated, Emmy-winning studio audience during a taping of Open West Coast Songwriters Dorothy Fadiman’s trilogy on reproductive to Hope in the studio. Monthly performance series showcasing rights.

Mayor’s Youth Video Corps Field Production Highlights A group of teenagers worked with Palo Public Safety Videos Alto Mayor Yiaway Yeh to create videos Zoom In volunteers produced videos about infrastructure. about personal safety and emergency preparedness that the City of Palo Alto Phantom Loads distributes at safety events. Lani Ludwick with Doug Kreitz won a Zoomie for this profile of the City of Palo MC Sports Alto’s Halloween energy conservation Coverage of local high school football, event. boys and girls basketball, boys baseball, International Folk Art Market and girls soccer and volleyball games by Gunn student Kirsten Baird runs camera Producer Beth Charlesworth won two youth volunteer crew. at a girls basketball game. WAVE awards.

family services, foster care, adoption, KMVT Mountain View: Promoted Partnerships education, afterschool programs, and each others classes community partnerships. After the In addition to our studio and field Palo Alto Art Center: Conducted production of a series of Aspiranet Encore Digital Art classes in our classroom production classes and programs, Fellow segments, their CEO gave budget we entered new partnerships with approval to pursue producing a series East Palo Alto Police Department: local organizations in the areas with the Media Center. Produced continuing episodes of “Make of education, children and family the Call” featuring family and friends of resources, and women’s rights. Honoring Womens Rights murder victims The Media Center provided video Provided volunteers equipment to document the “Honoring Film Festivals: Palo Alto Adult School and equipment for: Launched co-branded classes at the Adult Womens Rights Conference & Art Exhibit” School using Media Center instructors in celebration of the 40th Anniversary of • United Nations Association Film for “Video Production with iMovie” and Women’s Caucus for Art (WCA). Festival (UNAFF) “Podcasting.” We continued active partnerships • Palo Alto International Film Festival (PAIFF) Aspiranet with: • Cinequest (San Jose) Aspiranet offers children and family Project Safety Net: Supported youth resources with programs that focus on emotional health and wellness

Government Meetings Local Election Coverage We produced 398 city hall and school board meetings We videotaped six candidate forums and covered in 2012. In all we covered 1,651 meeting hours: 11 additional races with candidate or ballot measure statements. We also produced a debate on one local • 925 hours for Palo Alto measure. We featured video links for 26 different races • 272 hours for Belmont and one review of all state props on the Election Page • 186 hours for East Palo Alto on our website and got the most views ever for our • 137 hours for Palo Alto School Board online videos. Thousands of local voters made use of • 131 hours for Menlo Park our online voter resources. 4 Youth Programs We are pleased to announce the kickoff of a new Media Center youth program: MC Sports! This youth-driven, youth-led initiative is spearheaded by Chuck Alley with support from Board member Andrew Mellows. Using the mobile production truck, students cover local games with adult mentoring. MC Sports seeks ways to make this pilot program sustainable. Currently there is no charge to participate and Chuck volunteers his time. Since its inception in the fall, MC Sports has covered 16 games. We continued and expanded youth programs in a number of exciting ways: • Opened our Studio Internship program to middle schoolers • Developed Field Production Internships to cover local events and news • Added more Sound Lounge music nights, with youth bands performing for youth • Started another afterschool program in East Palo Alto at Willow Oaks • Created new onsite youth leadership positions, including Social Media Coordinator and Youth Video Editor Board member Andrew Mellows supervises Paly students • Broadened the production work of the Youth Simone Buteau and Ethan Cohen in the production truck. Advisory Council to include three video-based community action projects on cyber bullying, peer pressure, and stress film, “Living the Green Life” about • Added a new award to our 7th Annual environmentally conscious habits: Greenlight Earth Day Film Festival through a www.youtube.com/watch?v=aIiqMVnFWHo grant from the City of San Jose. A brother and sister were named “Community • Distributed over 100 Greenlight curriculum Energy Champions” for their inspiring short packets to area educators Professional Services

Professional Services Revenue Nothing can move people like the power of video. We bring video messages to life at an affordable price for $350,000 schools, non-profits, government agencies, and small businesses. $300,000

$250,000 We use the modest profit margin from our combined government meeting coverage and professional services $200,000 to subsidize our community access activities. Professional

$150,000 services revenues were down in 2012 reflecting continuing economic pressures on local organizations.

$100,000 Contact [email protected]. $50,000

$- 2009 2010 2011 2012 Gov't meetings Professional services

Our team of professionals works with clients to produce the right video product, whether on location or at our fully equipped professional studio. This includes: • Clips for websites • Public Service Announcements • Training videos • Fundraising campaign messages • Live event coverage • Documentaries • Custom video productions of every kind 5 Staff Annie Folger, Executive Director. Full Time: Karen Adams, Becky Sanders, Katherine Saviskas, Chris Pearce, Lupita Segura, Dave Sorokach. Part Time: Sara Bennett, Nancy Brown, Bill Dimitri, Jarred Hodgdon, Brian Jones, Jeff McGinnis, Louise Pencavel, Sally Rayn, Doug Smith. Consultants: Judy Blumenstein, Elliot Margolies

Our Studio and Field Production Volunteers The Media Center’s success in 2012 would not have been possible without the talents and dedication of 285 active volunteers. Our Board and Staff are most grateful to our volunteers, our most cherished assets!

Laura Aceves James Chang- Deanna Fountain Sarah Kahn Jamie Munguia Judy Rock Wyatt Thayer Amanda Akass Davidson Jan Foy Andrew Kandasamy Nitya Nasturi Ofelia Romero Owen Tomlins Jose Alvarez Scott Chesworth Max Frenkel Alexander Kanellakos Marco Navarro Laura Rosensteel Ilja Trifonovs Peter Anderson Joshua Ching Alec Furrier DC Kansundra Lucas Neumeyer Emilia Rossmann Lynn Tsai Serena Arge Haelin Cho Danielle Gee Craig Kaplan Stan Ng Max Rossmann Naomi Ture Victoria Asbury Tanuj Chopra Sean George Joseph Kautz Jesse Norfleet Sooji Rugh Curtis Turner Gaia Aspitz Don Cirlin Daria Godorozha Kendy Tim Norkol Byung Sa Micheal Uhila Herb Atkins Rogelio Cisneros Azucena Gonzalez Bruce Kerr Fabian Nunez Stephen Salazar Tom Upton Brady Austin Malia Clark Brian Good Cathy Keys Myles Nunez Becky Sanders Marce Uriarte Karin Baage Ethan Cohen Lauren Goodkind Laura Kinley Fanny Obadia Brad Sanzenbacher Ray Uribes Kirsten Baird Nia Combs Mark Gorelik Mary Klein Vance Okita Jayshree Sarathy Jaime Valderrama Dakota Baker Nubia Combs Agata Goroski Suresh Kondapalli Henry Organ Paula Saslow Francisco Valdespine Eric Baker Sam Cook Peter Graham Daniel Kottke Karen Owoc Maria Sauza Scott Van Duyne Reva Balakrishnan Randy Cookson Patricia Gray Alex Kreitz Lola Padilla Cheryl Savan Victoria Van Duyne Scotty Bara Katie Cox Trich Gray Doug Kreitz Miguel Adolfo Katherine Saviskas Yana Vashenko Dan Beaulier Jim Crawford Yvelle Green Gary Kreitz Padilla Kent Schneevies Taevia Vauss Cecilia Belmont Audrey Daniel John Guisin Paula Kyin Susana Padilla Norma Schroder Iwalani Venerable Sara Bennett TD Daniel Jasmin Guttierrez Erinne Lambden Genaro Paed Sibyl Schroder Edgar Villa Rachael Bertone Ragu Das Ben Haber Sean Lee Patty Page Jo-Anne Scott Isabelle Vincent Abira Berzin Santa Dasu Mohammad Hakkik Carrie Leroy Victor Palacios Jim Seawright Alex Vlassova John Bessire Elliot Dauber Steve Hall Lily Levin Breana Park Lupita Segura Zac Wang Kathy Bibby Michael Davich Ronny Hamed Denet Lewis Song Park Martha Sevilla Jacob Warsaw Fred Bockmann Edoardo De Armas Ashley Harkness Jim Lewis Sophie Pelosi Sion Shankel Marty Wasserman Sharat Bodduluri Makenna Christopher Harris Victor Li Phil Pflager Jake Shapiro Alex Watson Michael Bogart DeGeronnimo Twila Harrison Mei Lin Fung Sophia Pino Corinna Shi Paul Wehrenberg Nicolas Borbolis Francisco Del Rosario Reagan Harwood Erik Lind Veronica Polivanaya Anita Silver Greg Weinstein Nick Bousse Stacie Delakovias Teagn Harwood Alma Love Emily Pomeroy Coby Simler Claire Wellwood Jack Brook Mitchell Donat Birgit Haselhuber Lani Ludwick Galaxy Portillo David Simon Nance Wheeler Nancy Brown Maya Donato Mark Hatatsaka Alex Lui Dean Pronge Allison Simoni Paola Williams Kevin Burnett Serly Echeveria Stephanie Herman Victor Luna Annette Puskarich Shaan Singh Nozipo Wobogo Jim Buteau Chris Echols Fiona Hon Elliot Margolies Suzie Quackenbush Vicci Smith Elise Wong Michael Buteau Tim Erskin Phil Horsley Kari Martell Mike Quinn Brian Sotnick Emily Wong Simone Buteau Veronica Escamez Maritza Hurtado Hedy McAdams Grant Raffel Myhtili Ryan Wong John Cabrera Spence Everson Jack Jaffe Judi McCalla Krishna Raghunath Soundararajan Alex Yang Patrick Campisi Alexander Faciane Alondra Jaime Patrick McErlain Blake Ragsdale Eva Spektoro Carl Yorke Griffin Carlson Grace Fang Vishnu Jaisim John McGuire Pranov Rajan Birgit Starmanns Loren Young Livia Carlson Patricia Faust Anthony Jewett Marlo McKenzie Maya Ram Paul Stefanski Joshua Yuan Doug Carman Trevor Felch Faith Jones Raphael Miranda Jean Ramacciotti Justine Strayhorn Josh Yuen Dr. Gunjan Chakravarty Steven Felicelli Kenny Jones VJ Mohan Wes Rapaport Shobana Swami Maya Zach Shubha Chakravarty Carl Ferreira Marc Judson Layla Moheimani Chris Rasmussen Noam Tadelis Alan Zoraster Conrad Chan Dontae Flemming Christina Kahn Eva Mungai Evan Rattner Lisa Tesler 6 Our Donors and Members We hope that you will join us. Become a member, remain a member and help us reach our goals. We are grateful to our members and donors for their support. We thank our Advisory Council for sharing their expertise and for acting as Media Center Ambassadors in our community. Ken Allen Judy Gittelsohn Barbara Noparstak Veronica S. Tincher Anonymous Annette Glanckopf Henry Organ Debra L Wakefield Applied Materials Theodore L. Glasser Palo Alto Historical Michael E. Wyant Duane Bay Teresa Godfrey Association Patricia Becker Gloria Goldblatt Palo Alto Weekly Holiday Media Center Sarah E. Bemus Jeff Greenfield Fund Advisory Council Fred Bockmann Stephen E. Hall Susan Purdy Pelosi Cable Co-op Legacy Grant Gloria Hoarsley Louise Pencavel Elisa Agor Cal Construction Group Jarred Hodgdon Laura G. Quackenbush John Barton Cisco Systems Foundation Alexander Kanellakos Elizabeth Raffel Bern Beecham City of East Palo Alto Tilak Katsuri Joanne Reed Michael Closson Measure C Cathy Kroymann John C. Richards Peter Drekmeier City of Menlo Park Lawrence Lee Dave Robertson Sid Espinosa City of Mountain View Paul & Wen Lee Robert W. Row Seth Fearey City of Palo Alto Janet Littlefield Rebecca Sanders Ted Glasser City of San Jose William Lindemann Brad Sanzenbacher Karen Holman City of Sunnyvale Mac MacCorkle Mary Sause Joanie King Community Energy Elliot Margolies Silicon Valley Community Tony Klein Champion Grant Joyce McClure Foundation: Microsoft Meda Okelo Kathy Cordova Eric McCormick Silicon Valley Community Audrey Ramberg Michael Di Battista Jeff McGinnis Foundation: Silicon Valley Greg Schmid Dan Dykwel Andrew Mellows Threads Kathy Schroeder Melinda Fabozzi Goro O. Mitchell Phil Smaller Christine Shambora Dorothy Fadiman Deborah D. Mytels Stanley Smith Silvia Vonderlinden Annie & Roy Folger Peter Neal Michael Stern Yiaway Yeh Mike Francois Stan Ng Tom & Mary Thomas

Board of Directors

Barbara Noparstak, President. Joanne Reed, Vice President. Mike DiBattista, Treasurer. Michael Stern, Secretary. Dan Dykwel, Donna Grider, Lawrence Lee, Andrew Mellows, Azieb Nicodimos, Nora Pimentel, Sue Purdy Pelosi, Margaret S. Roberts 7 Organizations Served by the Media Center in 2012

Abilities United Continental Caterers with Children ROKPA Acceleraton Studies Foundation CreaTV San Jose Lions Toastmasters Ron Davis, EPA Interim Acterra Crow Canyon Archaeological Liz Kniss, Santa Clara County City Manager Adjacent Applications Center Supervisor Rosalie Rendu Center Afe Mai A Club David Woods, EPA City Council Lucile Packard Children’s Hospital Sally Lieber, California State African Womens Development Deborah’s Palm Mandy Lowell, former PAUSD Senator Candidate Fund, USA Diva Designs Board President San Francisco 49ers Academy Ageno School of Business E3Regenesis Solutions Maxygen San Francisco Foundation Alameda County Vets EarthBench.org Mayor Yiaway Yeh, City of San Mateo County Workforce Employment Committee East Palo Alto Sanitary District Palo Alto Investment Board All of Us or None Economic Development, Medbump San Mateo Credit Union American Grief Academy City of EPA Melissa Baten Caswell, PAUSD SAP (System Analysis & Art for Well Beings Ecumenical Hunger Program Board Member Program Development) Arts Council Silicon Valley Educators for Fair Consideration Menlo Park City School District Save Our Shores Aspiranet Encinal School Menlo Park Fire Protection District Scary Cow Independent Avenidas Energy Foundation Menlo-Atherton High School Film Makers Bar-Ilan University, Israel Enneagram Explorations Midpeninsula Regional Second Harvest Food Bank Bay Area Code Pink Environmental Volunteers Open Space District Sequoia Union High School District Bay Area Somali Community EPACT Mothers on a Mission to SETI Institute Blood Centers of the Pacific EPA Summer Journalism Institute Save Our Children Sickle Cell Community Boys & Girls Club of the Peninsula Escuela Popular Charter School Move To Amend Advisory Council Break Through The Static Film 77 Studios NASA Ames Research Sierra Club: Loma Prieta Chapter CA Assemblymember Rich Gordon Filoli New America Media Silicon Valley Community CA Assemblymember Jerry Hill Food System Oak Knoll Elementary School Foundation CA Employment Development Foothill Theatre Company Occupy Mountain View SLAC National Accelerator Department Foreclosure Summit Occupy Redwood City Laboratory CA Senator Joe Simitian GAIA Open ROV Smith & Nasht CA Voters Rights Institute German American Business Pacific Art League Sonoma Graphic Products CAC Group Association (GABA) Palo Alto Adult School South Bay Veterans Collaborative Cana Restaurant, Oakland Girl Scouts of America Palo Alto Art Center Spark Candidates for Foothill-De Anza Golden Gate University Palo Alto Chamber of Commerce Stanford Medical Center trustee Google Palo Alto Daily News Stanford University Candidates for San Mateo County Grace Lutheran Church Palo Alto High School Star Search Toastmasters Board of Education Greater Good Palo Alto Historical Association Stephanie Herman Style Candidates For San Mateo County Green Foothills Palo Alto International Film Festival TEDx Bay Area Supervisor Gunn High School Palo Alto Library System The Cat Coach Candidates for Sequoia Health Habitat for Humanity, Palo Alto Medical Foundation The Oakland Tribune District Greater San Francisco Palo Alto Online The Roadway Safety Foundation Candidates Santa Clara County Hillview Middle School Palo Alto PTA The Tech Museum Board of Education Housing Leadership Council Palo Alto Unified School District Toastmasters International Cantor Museum Hu Nu Clothing Line Palo Alto University Tokyo Waka Carolyne Clarke, Candidate for HyTrust Marketing Palo Alto Weekly Town of Atherton Menlo Park City Council Institute for Equality Pat Burt, Palo Alto City Council UC Berkeley Castro Travel Intel Pathways Home Health, Hospice UC San Francisco Center for a New Generation International Folk Art Market, & Private Duty Union City Toastmasters Children’s Hospital & Research New Mexico Pen TV, San Mateo United Nations Association Center, Oakland International Institute of Peninsula Peace and Justice Film Festival City of Belmont City Council the Bay Area Center United Nurses Associations City of East Palo Alto Jewish Community Center Peninsula Conflict Resolution of California City of Menlo Park JLS Middle School Center University of Washington City of Mountain View JobTrain Peninsula Interfaith Action VEC San Mateo City of Palo Alto Jordan Middle School Performance Science Training Veterans for Peace City of Palo Alto Mayor’s Office Ken Dauber, Candidate for Picture the Possibilities VFW Native American Veterans City of Palo Alto Utilities PAUSD Board Planned Parenthood Mar Monte Village Harvest City of San Jose Kidizens Presidio Chapter Daughters of VivAsia City of Sunnyvale KMVT Mountain View the American Revolution VMware Coalicion Pinolera La Entrada Middle School Project Safety Net Well Spring College Track Larry Moody, Candidate for Promise Worldwide Wemorph Inc. Common Ground EPA City Council Ravenswood City School District William & Flora Hewlett Foundation CommonBrights.org Las Lomitas Elementary Ravenswood Family Health Center Willow Oaks School Community Legal Services School District Redwood City Neighbors United Wisdom 2.0 in East Palo Alto Laura Martinez, Mayor Regional Water Quality Woodside Atherton Garden Club Company C Ballet East Palo Alto Control Plant Wrike Compassionate Friends Laurel Elementary School Renaissance Mid-Peninsula Youth Community Service Concentric Media League of Women Voters Richmond/Ermet AIDS Foundation Youth United for Community Action Congresswoman Anna Eshoo of Palo Alto Robert Hoover, Director, Zero Waste, City of Palo Alto Constellation Research Legal Services for Prisoners David Lewis Reporting Center Should Local Government Be Run Like Silicon Valley? Cities are contracting with Code for America -- what some call “the Peace Corps for geeks” -- in an effort to seed Silicon Valley virtues in local government. BY: John Buntin | April 2013 ark Bolton has a problem. To be more precise, he has 250 problems. Bolton runs Louisville, Ky.’s M metro jail system. Its main facility -- two aging structures joined by a pedestrian sky bridge -- is designed to hold 1,353 inmates. Another facility across town has another 440 beds. But on this particular day in early February, Bolton has 2,043 people behind bars. For weeks, he’s been adding cots to the barracks-style rooms that house most inmates. But the jail is so overcrowded that he’s now considering opening another wing of the facility, even though it’s not up to code. “It’s actually illegal for us to open it, but I have to consider it,” he says. “[W]hat’s the worse of two evils, just packing them in here like sardines, or putting them in a section of the jail that we don’t want to put them in?” Read the April issue of Governing magazine. Jails don’t fill themselves. Police, prosecutors and judges do. “A jail is like a rain barrel,” says Kim Allen, executive director of Louisville’s Metro Criminal Justice Commission. “If you want to change the water level, you’ve either got to put less in or let more out.” But while everyone in Louisville knows the barrel is overflowing, they’ve had a hard time adjusting the taps. One of the biggest problems is sharing information. Louisville has a long history of coordinating criminal justice initiatives, including what may be the oldest multiagency criminal justice commission in the country. Sharing information electronically, though, is a different story. The courts’ computer systems are administered by the state; the jail’s by the city; and then there are the systems used by Louisville’s various prosecutors, the public defender’s office and the police department. Although significant progress has been made in linking up the courts and law enforcement, the overall system is still far from optimal. Louisville’s 40 elected judges use their computer system in different ways to different degrees. Unnecessary duplication of forms is rife. Prisoners stay in jail for roughly 20 days on average before going to trial, even though many are there for nonviolent offenses. Some are there for failing to appear in court on bench warrants -- warrants they didn’t even know about. Louisville doesn’t have the technology to provide public access to its criminal justice system. As a result, it often communicates with offenders by arresting them. Metro officials know these problems could be fixed with better systems and new technology. But like most city and county officials, they’re hard-pressed to find the money to make these sorts of investments. The state-operated court system has experienced years of deep budget cuts. Kentucky’s chief justice recently estimated that it would cost $28 million to begin updating the system. Software and support from vendors are expensive, and Louisville’s 70-person IT department includes just two programmers, which limits its ability to develop customized solutions. All of which explains why Bolton and his top managers are willing to talk at length with a San Francisco-based team of computer programmers, designers and data experts. On a recent rainy day, a trio of them is gathered around the conference table off Bolton’s office on the third floor. They represent an unusual skill set for local government. Marcin Wichary, 35, is a user interface designer and programmer. Originally from the Polish city of Szczecin, he’s worked for the past seven years at Google, primarily on its Chrome and search teams. Laura Meixell, 27, was previously a Presidential Management Fellow at the U.S. Department of Housing and Urban Development, where she worked on HUDStat, the department’s performance tracking system. Shaunak Kashyap, who turns 32 next month, grew up in Mumbai, India, before emigrating to the U.S. His first job as a programmer was writing code to control satellites. He then made his way to Yahoo and Netflix. With their impressive credentials, attentive demeanors and buttoned-down business attire, the youthful group could easily be a team of high-powered consultants. In a sense, they are. But these are consultants with a twist. Louisville isn’t paying for their services. Instead, they are here as volunteers with a San Francisco-based nonprofit called Code for America (CfA). The idea is for the city to lay out its problems and for the team to explore ways software codes -- new apps -- could solve them. In particular, they are looking at the issues Louisville is having with its criminal justice computer system to see whether there might be a customized software fix. CfA founder Jennifer Pahlka calls it “the Peace Corps for geeks.” Programmers and other data specialists apply for a one-year fellowship, for which they receive a stipend of $35,000. Cities apply too, presenting potential projects and also lining up funding for the fellows. (Some cities, including Louisville, rely on foundations; others appropriate funds to cover the $120,000 cost of a three-fellow team.) Last year, 29 cities and counties proposed projects. More than 550 people, many of them from top technology companies, applied for the 28 fellow positions. In a sea of 14 million local government employees, that’s not a large number. But the idea Code for America embodies is very big indeed. “The notion,” says Pahlka, “is that we should make government work like the Internet itself.” Louisville and other cities, such as Boston and Philadelphia, have used their partnerships with CfA as part of a conscious effort to seed Silicon Valley virtues, such as creativity, speed and experimentation, in local government. That raises the question: What’s in Silicon Valley’s secret sauce, and why are Louisville -- and a growing number of other cities -- so eager to get it? ode for America began with the vision of computer publisher Tim O’Reilly. In 2005, O’Reilly coined the C phrase “Web 2.0” to describe the shift away from the personal computer to the Internet itself as a computing platform. Four years later in 2009, O’Reilly Publishing and UBM TechWeb organized a conference, Gov 2.0, at which he challenged programmers to start working on society’s most urgent problems. His call resonated with Pahlka, a computer gaming event organizer, who helped put the conference together. “One of the things I love about Silicon Valley is the experimentation and willingness to play around,” says Pahlka. “That is wonderful, but sometimes becomes trivialization. As a society we can’t afford to have some of our brightest minds working on trivial things like, you know, Facebook apps.” Barack Obama’s election in 2008 raised hopes in Silicon Valley that Gov 2.0 for the federal government was at hand. And indeed people such as Todd Park, one of the founders of Athenahealth and the federal government’s current chief technology officer, moved to the nation’s capital and became effective proselytizers for open data and startup government. However, one of Pahlka’s childhood friends, Andrew Greenhill, who worked as the chief of staff to then-Tucson mayor Robert Walkup, argued that Silicon Valley was focused on the wrong level of government -- that Gov 2.0 could have a bigger impact on cities. “Andy kept telling me that people understand their relationship with city government more than they do with the federal government,” recalls Pahlka. Cities such as Tucson needed apps too, apps that addressed the issues people cared about most: Where was the closest park? Was it clean? When would the trash get picked up? Pahlka was dubious. “That’s not going to happen,” she told Greenhill. People in Silicon Valley, she argued, were interested in two things. One was making lots of money. The other, which she considered even more important, was that “they value creativity, agility, speed, autonomy and independence. That is not what government offers them.” For nearly a year, Pahlka and Greenhill went back and forth on the issue. Then Pahlka went to Flagstaff, Ariz., for a family reunion. There she met up with her friend. “One day, we were talking about his experiences with Teach for America, how it influenced him, how he went into public service.” For Pahlka, it was a eureka moment. Programmers would never see writing apps for local government as a way to get rich, but they might see it as a form of public service. That very night, says Pahlka, “I told my dad and stepmom that I was quitting my job and starting something called Code for America.” She did. A year later, in January 2011, CfA enrolled its first group of “fellows.” Pahlka’s vision for the group was essentially that by taking start-up values to government, “this thing that works” (Silicon Valley) would “fix this thing that doesn’t” (government). She quickly concluded that idea was wrong. “There is a lot that is broken,” Pahlka says of local government, “and it is a really complicated system.” But, she continues, “the biggest thing we have learned is that the people who work in government, by and large (and there are certainly exceptions), are actually amazing. They go into this field because they want to serve the public. The notion that we were going to fix them was terribly wrong.” What was broken, though, was the relationship between government and the citizenry. “That’s a problem on both sides,” Pahlka says. One way she saw to fix it was by encouraging citizens to see problem-solving as something they could do with government. CfA fellows would act as catalysts in that process. An early success story occurred in Boston. During snowstorms, many residents there dig out and assertively defend parking spaces. Meanwhile, the fire department struggles to clear hydrants. Fellows helped write an “adopt-a-hydrant” application that allows residents or businesses to take responsibility for shoveling out “their” fire hydrants. (Buenos Aires, Chicago and Honolulu have since adopted modified versions of the application for maintaining other shared infrastructure, such as sidewalks.) The following year, fellows in New Orleans addressed a problem that frustrated local residents in neighborhoods affected by urban blight: They created a one-stop resource with extensive information on who owned what piece of property, as well as the restoration status of each lot. Called BlightStatus, the website allows citizens to enter an address and get a comprehensive update on remediation efforts. In Detroit, a team of fellows developed Textizen, an app that allows local officials to conduct quick surveys of city residents. As Code for America has grown, Pahlka and her colleagues have sought to leverage its work in numerous ways. One has been to make the code for all of the applications developed by the fellows freely available online. Another has been to use local programming talent by inviting local computer programmers to become “captains” of civic hacking “brigades” that can assist local governments even in the absence of fellows. More recently, Code for America has created a business accelerator to encourage programmers to develop commercial applications for local government. “Once you create the demand for a different way of doing things, you need to be able to fulfill it,” says Pahlka. “The typical way you fulfill it is through contracts. We need to be a much larger, richer ecosystem of companies that contract with local government.” s interesting as Code for America’s plans for local government are, even more intriguing are the ways A in which mayors and county leaders are using those ideas to implement Silicon Valley virtues in local government. For Mayor Greg Fischer, bringing CfA to Louisville isn’t simply a way of addressing jail overcrowding. It also offers a chance to promote innovation in government more broadly. Prior to winning election as mayor in 2010, Fischer was a successful entrepreneur, with a passion for quality improvement. By all accounts, he’s brought that same passion to metro government. “He lives and breathes continuous improvement,” says Margaret Handmaker, a longtime consultant for Booz Allen Hamilton and a former state secretary of commerce who came out of retirement to serve as Fischer’s interim director of economic improvement. “It’s what he is about.” One of Fischer’s first acts was to create a planning department, whose primary function was putting W. Edwards Deming’s Plan-Do-Check-Act (PDCA) model for continuous quality improvement in place. (“There were a lot of cities and agencies collecting data,” says Fischer, “but when I asked them, ‘How are you then solving problems?’ most people looked at me with a what-does-the-question-mean look.”) He also embraced Baltimore’s CitiStat, which gathers data on government agency performance in a single computer database, allowing local officials to evaluate everyday performance and progress toward civic goals. “LouieStat,” now in its second year of operation, began with nine key agencies. Together with the PDCA process, it aims to address what Fischer calls “the daily work and continuous improvement” part of government. But there is also what Fischer calls “the breakthrough part.” In 2011, Louisville was one of five cities awarded a $4.8 million Bloomberg innovation award. With it, Louisville intends to make striking improvements in five areas: recycling, animal control services, vacant and abandoned properties, rezoning, and encouraging exports. For Fischer, successful governance involves all three of these functions -- the daily work, continuous improvements, and innovation and breakthroughs. He sees the city’s partnership with Code for America (the cost of which has been paid for largely by the Houston-based Arnold Foundation) as a way of improving on all three of these functions. “Number one,” says Fischer, “we have a real problem we can improve on” -- jail overcrowding. This is not a small problem. Nationwide, some 800,000 people are locked up in local or county jails at any given time. Many are nonviolent offenders awaiting a court date. Yet only about a tenth of the nation’s local jurisdictions use a risk-assessment protocol to decide who should stay behind bars and who can be safely released pending their court appearance. The cost of building new facilities instead can be considerable. Denver recently spent $159 million on a new 1,500-bed detention facility. While it has many features that should make it a more efficient and humane institution than Louisville’s facilities, it’s an expenditure Fischer would prefer to avoid. The second reason to use Code for America is the role it can play as a dedicated innovation resource. “It’s hard in any business, or government for that matter, to pull out dedicated resources just to focus on innovation,” says Fischer, “so this is an intentional way to do that.” The third attraction of the program is that it can give Louisville a global best-practices view. “When you’re doing culture change in an organization, there have to be signals from the outside that your organization is in fact changing and being valued on the national or international level,” says Fischer. “That’s why we compete for things.” There’s another benefit too -- fresh eyes to assess how and what you’re doing. “The last person you want to ask is the person who works in the government,” says Ted Smith, who heads Louisville’s economic growth and innovation initiative. “They’re the fish in the fish tank. They don’t see the water. The hallmark of all Code for America projects is, what is the user experience? How does it work? And is it inefficient or ineffective in some way?” s for the CfA fellows, after their first month in Louisville, they’ve begun to circle around a handful of A potential fixes to the criminal justice system. Resolving all the issues of inoperable computer systems may be beyond the capacity of three fellows. “Every group of users has different systems and different levels of access,” notes Wichary. Simply trying to map them all -- a task the fellows have undertaken -- “is an interesting challenge.” They have also begun looking at other issues. One has to do with how Louisville interacts with the people it imprisons pending trial. Outstanding warrants is on this list. Louisville -- a city of 600,000 residents -- has 100,000 of them. “We have heard that sometimes it is hard for people to re-docket,” says Wichary. Some citizens who have a warrant pending can walk into court, pay a fine or reschedule (re-docket) a court date, and walk out. But first they need to know there is a bench warrant. They also need to understand where they need to go to re-docket their case, and what words like “re-docket” mean. Right now, there is no single source of information on outstanding warrants, no easy way to pay a fine and no way to reschedule. “It’s just one piece of the puzzle,” says Wichary, who also cautions that the fellows have not yet begun to discuss specific solutions in detail, but “it’s a general area we are trying to explore.” That’s just fine with Criminal Justice Commission head Kim Allen. “There are so many opportunities for either applications or process changes or interfaces that can make a real difference in how effective and inefficient the system is,” Allen says. “[H]aving them here helps us re-energize and focus our efforts. I think you can see the excitement from the players in the system. It’s a great opportunity.”

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SAN FRANCISCO BAY AREA Updated April 17, 2013, 4:10 p.m. ET Town Wants Reimbursement for Obama Visit Councilman in Atherton, Calif., Fertile Ground for Political Fundraisers, Is Sending DNC a Bill

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By ZUSHA ELINSON ATHERTON—When President Barack Obama stopped by earlier this month it was a windfall for his party. For the town of Atherton, the visit cost thousands.

Mr. Obama helicoptered into this wealthy town with quiet, leafy streets for two fundraisers, including a $32,400-per-person brunch at the home of a private-equity manager. Atherton spent $8,122.91 for the extra work by police and other city employees on security, planning and cleanup.

That galls Atherton City Councilman Bill Widmer, a registered Republican, who says he is fed up with the costs of frequent fundraisers by both parties and plans to send the bill for Mr. Obama's appearance to the Democratic National Committee for

Enlarge Image reimbursement. Agence France-Presse/Getty Images Available to WSJ.com Subscribers President Barack Obama on April 4, before "Consideration needs to be given to the boarding Marine One. Mr. Obama was in the Bay Area to attend Democratic fundraisers. host communities, especially in these tight budget times," says Mr. Widmer. Scalia Calls Voting "The politicians come and they raise a Act 'Racial Preferment' substantial amount of money—they take a substantial amount of money out of the community—and they don't give anything back."

While municipalities nationwide get stuck with the bill after Mr. Obama or other Immigration Bill's Price Tag an Issue high-profile politicians visit for fundraising or other activities, Bay Area towns get White House Threatens Veto of more of those bills than most. That is because the region—with a multitude of Cybersecurity Bill affluent residents—is a favorite fundraising spot for Democrats and even Republicans. Fight Over Donors from the nine Singalongs Reaches Bay Area counties Crescendo gave $178 million to national candidates, parties and political Don't Miss [?] action committees during the 2012 election cycle, according to the campaign finance site Opensecrets.org, Video Captures Rat Poison Found in Lululemon's Bombs Exploding at Counterfeit Sheerness Hits which parses Federal Boston Marathon Medication Bottom Line, and Election Commission More filings. That is more than the individual Read Articles in San Francisco Bay Area

totals from 46 states, Boston Bomb Clues Surface including Illinois and Investigators determined the explosives used were crudely made bombs, built into pressure cookers using black powder explosive Massachusetts, the home states of Mr. Obama and Mitt Romney, respectively. Tiny and made more lethal by using nails and pellets, a lawmaker said. Atherton—measuring just five square miles and with only 6,900 residents—pitched Two Explosions at Boston Marathon in $6.4 million, the ninth most generous ZIP Code in the state last year, according Two deadly explosions brought the Boston Marathon and much of to Opensecrets.org. this city to a chaotic halt, killing at least three people, injuring about 140 and once again raising the specter of terrorism on American soil. Regular fundraising visits from politicians put a financial strain on municipalities A Take on Tuscany in Pacific Palisades because of the extra work done by police officers and other city employees. San A stone-clad facade and rustic finishes blend with high-tech audio Francisco got stuck with a $62,000 police overtime bill from Mr. Obama's trip earlier and a sizeable pool area in this Italian-influenced home. this month, says a spokesman for the San Francisco Police Department. A Explosions Rock Boston fundraising stop by the president in Oakland during the 2012 campaign cost the city Two explosions shattered the finish line of the Boston Marathon Monday, killing at least three people and injuring many more. approximately $300,000, according to a city spokeswoman. 'Tripwires' Can Spot Would-Be Bombers The White House and political parties aren't legally required to pick up any tabs The powerful blasts at the Boston Marathon finish line underscore why the FBI has spent years refining and tightening its 'tripwire' from such visits, but municipalities like Atherton are agitating for compensation as system for catching would-be bomb makers before they can build a local budgets have tightened in recent years. Atherton was forced to dip into deadly device. reserves for almost $1.7 million over four years beginning in fiscal 2009, says Pulitzer-Winning Breaking-News Photography finance director Robert Barron. In 2011, the town laid off 11 public-works and The Faces of Tragedy in the Boston Attack building-department employees and outsourced the work. The current $10.8 million See All budget doesn't rely on reserves. RSS Feed

The White House referred questions to a Secret Service spokesman, who says the Most Popular president's security detail isn't in the habit of cutting checks for police overtime. "We Read Emailed Video Commented don't have any mechanism in place to reimburse the municipalities," says George Ogilvie, Secret Service spokesman. 1. Video Shows Suspect in Boston Blasts

While the Secret Service is responsible for protecting the president, the agency 2. The Cupcake Bubble Is Bursting coordinates with local officials and police forces when he travels. 3. China Mourns Boston Marathon Victim City officials who have sought reimbursement from political parties for such costs in 4. Opinion: Judith Grossman: A Mother, a Feminist, the past say they got the brush-off. Gordon Joseloff, first selectman in Westport, Aghast Conn., who tried to recoup overtime costs for an Obama fundraiser visit last year, says the Democratic National Committee told him to take it up with the Secret 5. Workers Share Their Salary Secrets Service. The Democratic National Committee didn't return calls and emails seeking comment.

During the San Francisco portion of Mr. Obama's recent Bay Area trip, he went to dinner at the Getty mansion and to a reception at the home of Thomas Steyer, founder of hedge fund Farallon Capital Management. The two events raised $3.25 million for the Democratic Congressional Campaign Committee, says a spokesman.

San Francisco police spokesman Albie Esparza says the department asked for reimbursement from the Secret Service in the past. When asked if the bills had yielded payments, Mr. Esparza chuckled.

Other municipal officials say they don't send bills to the White House. "We do feel it's the cost of doing business and we do feel happy with the partnership with the feds," says Karen Boyd, a spokeswoman for the city of Oakland, referring to the $300,000 bill incurred by hosting Mr. Obama for a day of fundraisers during the 2012 campaign. Nevada Gov. Sandoval Withholds choice of homecare providers from Medicaid recipients. GovernorBrianSandoval.info In Atherton, donors paid $32,400 per person to eat brunch with Mr. Obama at the home of Liz Simons and Mark Heising, managing director of private-equity firm "Top 2013" Work At Home Read Our Review! Before Joining Any Work At Home Programs! Medley Partners, and $1,000 and up for lunch at the place of Levi Strauss heir www.canada-grants.us/cn/1.0 John Goldman. Search by Twely Atherton Police Chief Dynamic search page. Find things easier twely.co.uk Ed Flint says that on a normal day, two officers and one Content from our Sponsors [?] sergeant patrol the town. When Mr. Obama came, three officers, two reserves, one lieutenant and CARING.COM TRAVEL CHANNEL ALLSTATE BLOG one sergeant were 5 Signs a Caregiver Sports Illustrated Top 5 Used Car Is Stealing From Models' Sexiest Buying Scams working while the You Shots chief manned a command post in the gymnasium of Selby Lane Elementary School.

Beforehand, police attended planning meetings with the Secret Service and a practice helicopter landing on the polo field at Atherton's Menlo Circus Club. (The city waived an ordinance that requires Atherton-bound helicopters to apply for a special permit.) Afterward, three public-works employees spent the day cleaning up barricades and other detritus.

Atherton city manager George Rodericks says the federal "perspective is the president is coming to town, you're going to get tourists there going to get a cup of coffee." That would be difficult in Atherton, he notes, since there are no coffee shops in the town.

Write to Zusha Elinson at [email protected]@wsj.com

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