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tv   [untitled]    June 19, 2011 12:00pm-12:30pm PDT

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come back to that a little bit later. in summary, on the cost neutrality finding, in the simplest of terms, is drop encourages officers to work longer than they would have the outcome of the potential for cost savings are realized. the savings come from deferred training and deferred a health benefit costs. cost comes from changes in the retirement benefits. if it encourages them to work longer than they would have without it, the cost savings potential are realized. if it is other than that, they are not realized as well.
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our analysis hinged on what was the behavior when people enter drop? in general, if you look at the fact we drew attention to in the front of the report, prior to drop, 12% of officers age 55 with 25 years of service would have been predicted to retire. this is based on many years of behavior in their retirement system. since the drop, 33% of officers have retired or enter drop. there are only a few years of data in that probability but that is what has happened and the retirement system can talk more about that.
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you can turn to the question of what happened -- understanding the change in behavior and linking it to the police department's actual cost -- a couple of things can happen to a member's behavior. those who entered drop before they plan to retire may work longer than without. others may be retiring as they would have without drop. if you look at the last slide, the probability so far is members entered the drop before they would have retired without it. during the time they're in the drop, workers may exit after a day otherwise would have retired. too few members have retired to determine the actual additional service the city gained from the drop.
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taking together the effects of a change in retirement behavior, the summary costs were if you take those two graphics together and if the program were made permanent, this is the scenario described in the report, the change in actuarial assumptions the consulting actuary would recommend to the retiring board would be to amortize the $52 million cost over the normal amortization time for the change in their benefit levels. we translated that into the standard way retirement cost increases are viewed over 20 years -- over a 2.5% change in payroll right now. that's the cost model for the retirement system.
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we look at taking every year of service demonstrated from the drop. over 30 months, there has been approximately 169 drop officers with an average of 12 months of services. over 30 months, if you look at the record and training and benefit costs that are deferred, we calculate that to be $55,100 per deferred year. if you assume every year served in the drop was an actual credit and deferred cost savings to the city, take those 68 times 55,000, you come to 3.7 $5 million in savings to the city. -- $3.7 5 million in savings to the city. the cost is significantly larger
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-- significantly larger. we made the finding, it is summarized in the front of our report that as of this time, the program is not demonstrating its cost neutrality admonition that was in the original charter amendment. gary will speak to some of the more recent demographics we have mentioned. those are the summary findings and i will leave it to them to walk you through this and areas bst to model that got us there. >> we have a few questions. supervisor mirkarimi: thank you. i supported proposition b like a number of our colleagues because we wanted to help create whatever contingencies to meet
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the attrition realities the city is confronted by. with some lessons learned, what i am hearing from the comptroller's office is that the hope of proposition b realizing a certain savings or some cost neutrality is not there. but i'm trying to understand how we arrived at some of these conclusions, starting from what do we define as cost neutrality in this city? >> the charter amendment asks us to look specifically at a couple of items, so i can refer to those.
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i am looking for the language in the charter amendment so i can be specific on that front. this section is 88909 and as
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specifies taking into cost of payroll, expenditures for training police officers and cost of recruits and trainees and field officer training costs, contributions made by members participating in drop in the city's share on drop funds and and the cost related to the implementations of the program. >> i understand that through that prism, but does the city itself have a definition of costa neutrality? do we on our own operating plane -- definition of cost of neutrality? does that give us a margin of error say 1% above or below whenever the baseline determination is once we enter into these kind of contracts. that is what i am trying to understand. >> in this summary front section to the charter amendment, it
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refers to a simpler view of it -- shall not impose new costs as a result of the participation of police officers in the drop. supervisor mirkarimi: it is a little vague to me only because i'm trying to catch up and understand our yardstick compared to other cities who are experiencing the same debate. it seems our controller would like to weigh in. >> we do not have a single definition of costs neutrality we apply to all circumstances in this city. generally speaking, absent other direction, our office would apply an absolute rule to take it at its face. i know there has been conversation in other jurisdictions about drop program analysis. is it within a reasonable margin
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of error that the cost or savings are within a band and in some places, folks have stood on that to authorize continuing the program, specifically in our program and i think the retiring -- the retirement system can speak to this -- the ballot system that tracks office to complete the study is absolute in its terms and does not imply or allow leeway in our report to you to say this results in a cost increase. but the cost increase is marginal and simply says the comptroller shall provide a report indicating -- whether it achieves cost neutrality in absolute terms. >> is that a consequence of how the ballot measure was written as opposed to how we made ourselves assess -- does it present a different scenario
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that may be does a disservice to itself or maybe not as opposed to weed -- as opposed to how we may actually gauge the efficacy of this program? >> i do not read anything in the ballot language it self that gives the comptroller's office leeway in terms of how we produce this report as far as placing an incredible cost in a larger context. it speaks of absolute terms in terms of our reporting requirement. supervisor mirkarimi: i'm going to reserve the rest of my questions for the actuaries. supervisor wiener: this may be a combination answer between you and the actuaries, but i assume you have seen the response to the comptroller's report and actuarial analysis.
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i just want to know what the controllers responses to that response. >> at the outset of this analysis, i think this goes to the question -- part of the difficulty is what scenario you would use to analyze. we participated in asking for the models that underlay the report. the scenario is the range of possible savings using data as of january 1st, 2011. what would happen if the program were stopped as of that date and the cost that would run into the retirement system? then we asked for a second scenario, which was the program sunsets as of june 30th and everyone who was eligible enters it.
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scenario no. 3 was what with the program cost if it were continued, if there was a decision made to extend it and became a permanent feature of the retirement system? in the letter and the correspondence back and forth, it had to do with if you assume different counterfactual said buzz. those -- different counterfactual attacks than those. i will let the actuaries comment, but i just wanted to say at the outset that we did try to take a fair look at the range of possible outcomes for
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the program and those flow into the actuarial assumptions. supervisor wiener: i would ask that the actuaries respond to the analysis. was there anything in the response that caused the comptroller to question your conclusions or change any of the calculations or anything like that? >> there really was not. these are fairly big numbers. the demonstrated savings to the operating cost of the police department are very small. even if you give complete credit assuming every year of service in drop is and avoided cost for the police department, which is also questionable, that is a relatively small savings. under the range of possible
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costs to the retirement system, if you think of the retirement behavior creating a range of savings to cost, there is a table and our report that talks about that. the actual behavior of officers is somewhere in the middle. what we see in terms of officer behavior is pointing to the idea that behavior is going to bring us down on the cost side and not the savings side. those numbers are so much significantly larger than the savings to the police department that minor changes in the view of the actuarial data would not make a material difference. supervisor chu: thank you for your presentation. >> thank you, supervisors.
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i'm with the retirement system and i just passed out a handout. i only have two purposes and a very brief overview. what is to give you a quick summation of the overall demographics of the drop program. the other is to introduce the retirement systems consulting actuary. under the charter, the report submitted in april was in two parts. one the city comptroller provided a cost report to the board with overall numbers. the second piece was not from the retirement system itself, but from the resulting actuary and i will be introducing the actuary who authored and provided that report in a month. i just want to run through a brief summation through this
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drop program. 560 officers of the various eligible ranks are eligible to collect in the drop. what you can see in the middle of the page are those to have already taken some action. they are eligible for drop but have elected to retire through service or disability. that's 17% of the overall universe. to leonard 66 officers have already elected in the drop, that's 47% -- 27 officers have completed their full drop time, either the one, too, or three year timeframe depending on their rank which is out their maximum eligibility is concluded. 49 officers, 9% elected in and chose to leave early. a drop election is a revocable.
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once they are in, it cannot be waived off. they would leave the service. that leaves 190 officers currently participated -- currently participating in drop. the numbers at the bottom are of more interest to the retirement board so we can service the officers and insure those who want to elect in will indeed be able to be processed and right now there are 204 remaining officers on the force to have the ability to elect drop if they so desire. that would have to occur by the end of june unless the program would be extended. the next two lines are those who have received personal counseling from the retirement system or will receive counseling, which we strongly recommend they do before they submit their drop election. the last number are those who
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are eligible but have not contacted the retirement system indicating they wish a counseling session. i would like to introduce bill hallmark, and enrolled actuaries. it is an independent actuarial firm hired to perform our services and they prepared the comptroller's cost report. he will speak to the actuarial report and presumably address some of the questions you have already asked as well as the remaining questions you may have. i'm not going to steal his thunder when i tell you, because we told you what we received the report, the message he will be delivering is that based upon the limited time span drop was available and the limited universe of individuals who are
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eligible, they basically determined the question of cost or savings was indeterminable as the report was filed. with that, i will introduce bill hall -- a bill called mark. >> thank you. -- i will introduce a bill hallmark. >> the cost or savings due to drop cannot be determined with certainty. there are couple of factors that lead to that. the first is the limited experience timeframe at two and half years and the fact that was the initial time in behavior in the initial time maybe somewhat different than the program that is ongoing. the second issue is not dependent of the time. in order to determine the cost
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or savings, we need to compare what actually happened to what would have happened if the drought program did not exist. it is impossible to determine with any kind of certainty what decision officers would have made if the drought program did not exist. we can only compare to patterns prior to drop, but other factors could have intervened. generally, if a member enters drop when they would have otherwise retired had the program not existed, there is a savings. here, i'm only speaking about the savings to their retirement system, not addressing the other parts the comptroller addressed. if the member enters drop earlier and actually retires or exits drop at the same time,
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then there is a cost. the reality is somewhere in between. in the first two scenarios, the scenarios we are asked to look at is the two ends of that spectrum. the savings and and the cost and of the spectrum. overall, looking at the experience, we saw an increase in the retirement rates. it appears members are entering dropped before they would have otherwise retired. giving the length of the time frame, they could be exiting from the time of the city after
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the time of the program. we have very little data on when people exit drop. just over 50 people actually exited drop during that time. looking at the impact on the behavior compared to the time just before, we estimated a cost if the drop program more permanent at .25%. that is an initial estimate based on the data we have to date. if it was made permanent, that would have to go through the retirement board and would be updated periodically as we got further experience. the report gives ranges of cost to date.
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three years or four d two and half years or for people who actually entered drop -- the ranges are shown in the report. with that, i will take any questions you have. supervisor mirkarimi: thank you. i appreciate the information. i'm still trying to understand of the baseline comparisons based on the data that has been handed to us. on the city analysis cost for detail, it itemizes everything from the beginning paid to trainers to help savings arrive acosta $55,100. are you with me on that? >> yes. but we did not have anything to do with that calculation. supervisor mirkarimi: that is
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the controller. i'm just trying to understand because it is derived from partial savings or lack of savings based on what those costs are verses what of the other bookend, what are costs may be through the drought program. maybe you and/or the comptroller could speak to the probationary time -- that is not itemize year. -- that is not itemized here. >> let me show you where the 55,000 comes from. if you treat every year served by a drop officer as a deferred cost to the police department, looking at the aggregate cost of running the academies and the training of officers, these are
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the numbers -- premium pay, uniform and the quebec cost, background investigations, and the health benefit savings because there is a time during which some of these health benefit costs are very expensive. after they retire and before they are eligible for medicare. the savings are pretty significant. this is an aggregate number, about $55,000 per year. >> it says cost delayed per recruit. what kind of recruit are we talking about? >> not sure what you mean. for any year during which you do not have to hire and train a new recruit and that service is served by a police officer. supervisor mirkarimi: in this particular case, with that recruit in this general analysis take them through the academy or beyond the academy? when you say recruit -- i'm just asking what that means. >> i am not sure i am answering
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your question, but for each year served by a drop officer, where you do not have to incur these costs, a savings of $55,000 in operating costs. supervisor mirkarimi: but if you are comparing it verses bringing in a new recruit into the police department, what would be the comparable -- what would be the comparisons of us taking that academy recruit through the academy, through the background investigation, where did that costco? to -- where did that cost go? to the point of their academy graduation or beyond? >> if i understand your question and i'm not certain i do, in either case, you are paying for the cost of an officer.
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you either have an officer in the drop programming have retained and continue to pay them a direct salary or alternately, you are paying for a recruit. in either case, you are paying a salary. the recruit is a less expensive officer because they're typically get a lower rank. the cost that you defer if you have a dynamic of drop officers staying lager, the cost you are avoiding is the kind of onetime cost of running the recruit through the academy. supervisor mirkarimi: i get to that. the $55,100 is reflective of that one time cost. so where does that and? at that point of graduation or the point of probation? >> at the point of graduation from the program, in both cases, you are paying for and officers from a salary. supervisor mirkarimi: i got
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that. but what it says here in your ionization is that you go through the academy, you go through -- what is senator item ization, you are assuming they conclude the academy. it does not include the probationary time, yes or no? s >> that is correct. supervisor mirkarimi: so it does not. you have a considerable drop-off rate through the fto program, trying to understand at a cost is calculated if it is a onetime cost savings we avoid because of the seasoned veteran officer we keep through drop, but i'm wondering would be potentially more useful to us that it is not stopping where the