HomeMy WebLinkAboutAgenda Statement 1978/02/28 Item 12CITY OF CHULA VISTA
COUNCIL AGENDA STATEMENT
Item No. 12
For meeting of 2/28/78
ITEM TITLE ResolutionG 0.20:
Accepting Report of Reed, Roberts, Associates, Inc., and
Approving the Reimbursement Method for Payment of
/~ Unemployment Insurance
SUBMITTED Bl~-~ Director of Finance
ITEM EXPLANATION
(4/5TH'S VOTE REQUIRED YES NO X )
As a result of the passage of PL 94-566 and AB 644, the City of Chula Vista
is now subject to the California State Unemployment Insurance Law as of
January 1, 1978, In anticipation of the passage of Federal and State law,
the City Council, by Resolution 8874, authorized the employment of the
consulting firm, Reed, Roberts Associates, Inc. One of the primary
responsibilities of this consulting firm was to study and review past
personnel procedures in our City as they related to the Unemployment Insurance
Law and recommend to the City, based on this review, the most economical
taxing method to adopt. Under the new law, cities have the option of
selecting one of three methods offered for financing their unemployment
insurance costs. The three methods are: The Tax Rated Method, Public
Entity Funding Method; and the Reimbursement Method.
Tax Rated Method
Under this method the City can
the State at the rate of 3.6%.
the same as any private sector
used for the first three years
this plan is the first $6,000
tax, excluding CETA.
choose to pay the unemployment tax levied by
Under this option the City would be treated
employer. The entrance rate of 3.6% is
of experience. The taxable wage base in
if payroll for each employee subject to the
Continued on next pa e
rV1iTTTT(+
C/~ Il 1 b l I J
Agreement Resolution x Ordinance Plat Notification List
Other X ENVIRONMENTAL DOCUMENT: Attached Submitted on
FINANCIAL IMPACT
No financial impact this fiscal year.
STAFF RECOMMENDATION
Approval.
BOARD/COMMISSION RECOMMENDATION
N/A
COUNCIL ACTION
APPr~~TT~D
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0~,~ ~ ~'. ~, fir; ., . :; .. ~!_ ..._ v ~, rsia
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"`~~~. ~'; f° =:3. ~iO IBC ~i Q~
Tax Rated Method Continued
Item No. 12
Page 2
2/28/78
According to our consultant, the City's cost under this plan would be
$124,200 per year, or $372,600 over the three-year period. Most experts
feel that the City's rates would go down after the first three-year period,
however, the amount of reduction would be dependent upon the actual experience
incurred by the City in the first three years. Under this method the first
payment due would be by April 30, 1978.
Public Entity Funding Method
Under this method a special fund in the State Treasury is established,
which will collect taxes in advance from all local entity members and
reimburse the State Unemployment Fund in the aggregate amount of all the
benefits paid to the former employees of its local entity members. If
a local entity chooses this method, it will pay a tax of .8% of total payroll
for the first three years, after which it will pay an individual experience
rated tax. Adequate experience will be acquired in this three-year period
on which to base their individual tax rate. The Economic Development Depart-
ment expects that the actual average tax under this method will be .7%,
According to our consultant's report, the City's estimated cost is $59,940.89
for the first year; $53,537.34 for the second year; and $67,349,58 for the
third year. The total cost for the three years would be $190,827.81.
The first payment under this method would be due in July, 1978.
Reimbursement Method
The reimbursement method simply provides that the City shall reimburse the
State for the amount of any benefits paid out to any employees. In order
to determine the probable cost of this method, it is necessary to analyze
the past experience of our City in relationship to the number of termin-
ations, the average turnover rate, and the reasons for terminating. An
estimated percentage of liability is then established and applied to the
gross payroll in the three-year period.
Under the reimbursement method the City pays benefits only to the extent
that the State has made actual benefit payments. That is the reason it is
so important to thoroughly review our past experience and turnover rate.
Under this method our consultant indicates that the City's estimated cost
is $20,319.96 for the first year; $37,693.53 for the second year; and
$57,078.77 for the third year, The total cost for the three years would
be $115,092,26.
Item No. 12
Page 3
2/28/78
Based upon the consultant's study and report, they are recommending that the
City of Chula Vista select the direct reimbursement method, In adopting this
method of financing, staff questioned our consultants concerning the possible
financial impact of the Jarvis/Gann Initiative and also the budget require-
ments for the 1978-79 fiscal year.
Following is a schedule of the financial requirements with and without the
passage of the Jarvis/Gann Initiative based on an employee reduction of
seventy-five.
1978-79 Without Jarvis With Jarvis
Budget $39,170 $ 71,289
Reserve 38,560 70,169
Totals $77,730 $141,458
The reserve noted above is required to finance additional claims in the
event of poor experience and is recommended by our consultant.
Our first payment under this option will be made during the last calendar
quarter of 1978.
REED, ROBERTS
U N[ M P L O V M C N T
ASSOCIATES, INC.
T• x f U- C R V I f 1 0 N
P. O. BOX 1346, BEVERLY HILLS, CAL. 90213
TlLEPHONE 217559.4870
February 21, 1978
Mr. Lane Cole
City Manager
CITY OF CHUhA VISTA -
276 Fourth Avneue
Chula Vista, California 92010
Dear Mr. Cole:
Attached is the completed Unemployment Insurance Funding Cost
worksheet, as a result of the separation liability study con-
ducted for your city.
Based upon this study we recommend the direct reimbursable
funding option as being the most feasible for the City of
Chula Vista.
We appreciate the assistance you and your staff have extended
to us in the preparation of this material.
Very truly yours,
REED, ROBERTS ASSOCIATES, INC.
~f
Ag ~ Ye M ` ames~
Vice Pr ident
CM
enclosure
cc: Mr. Bud Bigge w/enclosure
Director of Personnel
cc: IN Gordon K. Grant w/enclosure
Finance Director
O-- 1 C E 6 I N - R I N C I P A L C I T I E B C O A 6 T T O C O A 6 T
CITY OF CHULA VISTA
FINANCING UNEMPLOYMENT INSURANCE
ESTIMATED COST WORKSHEETS
TAX RATED METHOD
Actual Payroll Method
Compute year's taxable payroll (all wages earned by
all err~loyees up to $6,000 per individual. Exclude
CETA employees.)
A~roximation Method
Number of full-time equivalents on payroll
Multiply by $6,000 (State taxable wage limit)
Estimated taxable payroll
Rate assigned for first three years
Taxable payroll
Multiplied by 3.6$
Contributions - one year
Multiplied by three years
Three-year contribution cost tax rated method
PUBLIC ENTITY FUND METHOD
~~ 3.6+k
%% $
575
x $6,000
$ 3,450,000.00
$3,450,000.00
x .036
$124,200.00
x 3
$ 372,600.00
Corrplete year's ross payroll. (A?1 wages earned by all
individual err~Ioyees. Exclude CETA employees.) $7,492,611.00
Gross payroll adjustment factor should be computed. This
adjustmznt should allow for payroll expansion due to cost
of living increases, etc.
Gross payroll first year $ 7,492,611.00
N,ultiplied by adjustment factor x .06
Estimated gross payroll second year
* * x
499,556.66
$ 7,942,167.66
Pcae 1 of 4
Estimated gross payroll second year
. $ 7,942,167.66
Multiplied by adjustment factor _ a{.06
~~ 476, .06
Estimated gross payroll third year $ 8,418,697.72
* * * # * * ~
Rate assigned for first three years
Gross payroll first year
Multiplied by ~8$
Estimated public entity fund cost first year
Gross payroll second year
Multiplied by ~g$
Estimated public entity fund cost second year
Gross payroll third year
Multiplied by ~g$
Estimated public entity fund cost third year
Public Entity Fund Cost
First year
Second year
Third year
Estimated three-year cost of contributions
.8$
. $7,492,611.00
x- .008
$ 59,940.89
$ 7,942,167.66
x .008
$ 63,537.34
$ 8,418,697.72
_ x .008
$ 67,349.58
$ 59,940.89
$ 63,537.34
$_ 67,349.58
$ 190,827.81
Face 2 of 4
REIMBURSE2~'3:NT METHOD
Estimated percentage of liability is .678. This~per-
centage is based upon funding studies completed in your
City.
Estimated impact of liability percentages. Full impact
of liability will be a gradual process as wages move
into the base period reaching full impact in the third.
ye~~
Impact percentage first year 40$
second year 70+t
third year 100$
Compute year's gross payroll (all wages earned by all
individual employees, excluding CETA employees. W-2 gross
fis.:res may be used. ) - _
Gress payroll first year
Gross payroll adjustment factor should be computed.
This adjustment should allow for payroll expansion due
to cost of living increases, etc.
Gross payroll first year
Multiplied by adjustment factor
Estimated gross payroll second year
Estir,.ated gross payroll second year
Multiplied by adjustment factor
Estimated gross payroll third year
Gross payroll first year
Iultiplied by estimated percentage of liability
Estimated reimbursable liability
Multiplied by impact percentage first year 40$
Estimated reimbursable cost of benefits first year
$ 7,492,611.00
$ 7,492,611.00
x .06
6.66
$ 7,942,167.66
$ 7,942,167.66
x .06
-476,530.06
$ 8,418,697,72
$ 7,492,611.00
x .00678
50,799.90
x .40
$ ?_0,'319.96
Page 3 of 4
Gross payroll second year $7,942,167.66
Multiplied by estimated percentage of liability ~• x.00678
Estimated reimbursable liability $ 53,847.90
Multiplied by impact percentage second year 70$ x .70
Estimated reimbursable cost of benefits second year .! $ 37.693.53
Gross payroll third year
Multiplied by estimated percentage of liability
Estimated reimbursable liability
Multiplied by impact percentage 'third year 100$
Estimated reimbursable cost of benefits third year
Reimbursable three-year cost of benefits
Estimat¢lreiruursable cost of benefits first year
•second year
third year
Estimated three-year cost of benefits
CO_'~`~ARISON OF FUITDING OPTIONS
Tax Rated I3ethod
$ 8,418,697.72
x .00678
$ 57,078.77
x 1.00
$ 57,078.77
$ 37,693.53
$ 57,078.77
$115,092.26
Three-year contribution cost .$ 372,600.00
Public Entity Fund r:ethod
Three-year public entity fund cost $ 190,827.81
Reim~,ursement Method
Three-year reir.~bursable cost
$ 115,092.26
Faoe 4 of 4