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HomeMy WebLinkAboutPackets - Budget and Finance Committee (51)       AGENDA ORO VALLEY BUDGET AND FINANCE COMMISSION REGULAR SESSION APRIL 16, 2024 COUNCIL CHAMBERS 11000 N. LA CAÑADA DRIVE        REGULAR SESSION AT OR AFTER 4:00 PM   CALL TO ORDER   ROLL CALL   PLEDGE OF ALLEGIANCE   CALL TO AUDIENCE - at this time, any member of the public is allowed to address the Commission on any issue not listed on today’s agenda. Pursuant to the Arizona open meeting law, individual Commission members may ask Town staff to review the matter, ask that the matter be placed on a future agenda, or respond to criticism made by speakers. However, the Commission may not discuss or take legal action on matters raised during "Call to Audience." In order to speak during "Call to Audience", please specify what you wish to discuss when completing the blue speaker card.   STAFF LIAISON REPORT   REGULAR SESSION AGENDA   1.REVIEW AND APPROVAL OF THE MARCH 19, 2024 REGULAR SESSION MEETING MINUTES   2.PRESENTATION AND POSSIBLE DISCUSSION OF THE TOWN'S FY 23/24 FINANCIAL UPDATE THROUGH FEBRUARY 2024 (Please reference attachments)   3.DISCUSSION AND POSSIBLE RECOMMENDATION OF DRAFT PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) PENSION FUNDING POLICY FOR FISCAL YEAR ENDING JUNE 30, 2025   4.REVIEW, DISCUSSION AND POSSIBLE ACTION ON PROPOSED DRAFT FINANCIAL AND BUDGETARY POLICIES   5.PRESENTATION AND POSSIBLE DISCUSSION REGARDING THE TOWN'S FIVE-YEAR FINANCIAL FORECAST THROUGH FY 2028/29   COUNCIL LIAISON COMMENTS   ADJOURNMENT   POSTED: 4/12/24 at 5:00 PM by ms. POSTED: 4/12/24 at 5:00 PM by ms. When possible, a packet of agenda materials as listed above is available for public inspection at least 24 hours prior to the Commission meeting in the Town Clerk's Office between the hours of 8:00 a.m. – 5:00 p.m. The Town of Oro Valley complies with the Americans with Disabilities Act (ADA). If any person with a disability needs any type of accommodation, please notify the Town Clerk’s Office at least five days prior to the Commission meeting at 229-4700. INSTRUCTIONS TO SPEAKERS Members of the public have the right to speak during any posted public hearing. However, those items not listed as a public hearing are for consideration and action by the Commission during the course of their business meeting. Members of the public may be allowed to speak on these topics at the discretion of the Chair. If you wish to address the Commission on any item(s) on this agenda, please complete a blue speaker card located on the Agenda table at the back of the room and give it to the Recording Secretary. Please indicate on the speaker card which item number and topic you wish to speak on, or if you wish to speak during “Call to Audience,” please specify what you wish to discuss when completing the blue speaker card. Please step forward to the podium when the Chair announces the item(s) on the agenda which you are interested in addressing. 1. For the record, please state your name and whether or not you are a Town resident. 2. Speak only on the issue currently being discussed by the Commission. Please organize your speech, you will only be allowed to address the Commission once regarding the topic being discussed. 3. Please limit your comments to 3 minutes. 4. During “Call to Audience”, you may address the Commission on any issue you wish. 5. Any member of the public speaking must speak in a courteous and respectful manner to those present. Thank you for your cooperation. “Notice of Possible Quorum of the Oro Valley Town Council, Boards, Commissions and Committees: In accordance with Chapter 3, Title 38, Arizona Revised Statutes and Section 2-4-4 of the Oro Valley Town Code, a majority of the Town Council, Board of Adjustment, Historic Preservation Commission, Parks and Recreation Advisory Board, Stormwater Utility Commission, and Water Utility Commission may attend the above referenced meeting as a member of the audience only.”    Budget and Finance Commission 1. Meeting Date:04/16/2024   Submitted By:Melissa Flores, Legal SUBJECT: REVIEW AND APPROVAL OF THE MARCH 19, 2024 REGULAR SESSION MEETING MINUTES RECOMMENDATION: Staff recommends approval. EXECUTIVE SUMMARY: N/A BACKGROUND OR DETAILED INFORMATION: N/A FISCAL IMPACT: N/A SUGGESTED MOTION: I MOVE to approve (approve with changes) the March 19, 2024 regular session meeting minutes. Attachments Draft Minutes 031924  D R A F T MINUTES BUDGET AND FINANCE COMMISSION REGULAR SESSION March 19, 2024 COUNCIL CHAMBERS 11000 N. LA CAÑADA DRIVE            REGULAR SESSION AT OR AFTER 4:00 PM   CALL TO ORDER   ROLL CALL Present: Jennifer Carr, Vice Chair Joyce Garland, Member Michael Mason, Chair Matthew Miller, Member Absent:Gerald LeMay, Member Staff Present:Jeff Wilkins, Town Manager David Gephart, Chief Financial Officer Wendy Gomez, Deputy Finance Director Chris Hutchison, Senior Budget Analyst PLEDGE OF ALLEGIANCE - Chair Mason led the group in the Pledge of Allegiance.   CALL TO AUDIENCE - No comments were received.   STAFF LIAISON REPORT Chief Financial Officer, David Gephart, reported on the following: - Budget season has begun and Staff has held departmental meetings to review each department's requests. - The Town Manager's Recommended Budget is set to be distributed by or on April 19. - Council Member One-on-One sessions are being held in late April and early May. - The Five-Year Budget Forecast will be presented at the April Budget and Finance Commission meeting, then to Town Council the following day. - At the last Town Council Meeting, the item regarding the Vistoso Trial Nature Preserve was discussed and, as related to budget, Town Council provided Staff direction to add two million dollars of capacity into next year's budget for the various needs related to the preserve. Additional direction of the allocation of these funds will be provided to staff at the next Town Council Meeting. - Also at the next Town Council Meeting, there will be discussion on the Pusch Ridge Golf Course bridge on the seventh hole. The bridge is considered unsafe to use. The item requests additional resources to remedy the situation. A proposal of permanently putting the bridge out of commission and creating an alternative route will be presented and the potential cost would be $250,000. - Additionally, at the next Town Council Meeting, an item will be addressed regarding the Vistoso Highlands Development. There is a developer, who was part of the acquisition of the Vistoso Trails Nature Preserve, that will provide proposals to Town Council on how to proceed with the development of the property. will provide proposals to Town Council on how to proceed with the development of the property.   REGULAR SESSION AGENDA   1.REVIEW AND APPROVAL OF THE FEBRUARY 20, 2024 REGULAR SESSION MEETING MINUTES       Motion by Vice Chair Jennifer Carr, seconded by Member Joyce Garland to approve the March 19, 2024 Regular Session Meeting Minutes as written.  Vote: 4 - 0 Carried   2.PRESENTATION AND POSSIBLE DISCUSSION OF THE TOWN'S FY 23/24 FINANCIAL UPDATE THROUGH JANUARY 2024 Wendy Gomez, Deputy Finance Director, leads the discussion. Discussion further ensued amongst staff and commissioners.      3.REVIEW AND DISCUSSION ON PROPOSED TOWN FINANCIAL AND BUDGETARY POLICIES FOR FY 2024/25 David Gephart, Chief Financial Officer, leads the discussion. Discussion further ensued amongst staff and commissioners.      COUNCIL LIAISON COMMENTS No comments were received.   ADJOURNMENT    Motion by Vice Chair Jennifer Carr, seconded by Member Matthew Miller to adjourn the meeting at 5:28 P.M.  Vote: 4 - 0 Carried     I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the regular session of the Town of Oro Valley Budget and Finance Commission of Oro Valley, Arizona held on the 19th day of March, 2024. I further certify that the meeting was duly called and held and that a quorum was present. Dated this 19 day of March, 2024. ___________________________ Melissa Flores Legal Secretary    Budget and Finance Commission 2. Meeting Date:04/16/2024   Submitted By:Christopher Hutchison, Finance SUBJECT: PRESENTATION AND POSSIBLE DISCUSSION OF THE TOWN'S FY 23/24 FINANCIAL UPDATE THROUGH FEBRUARY 2024 (Please reference attachments) RECOMMENDATION: N/A EXECUTIVE SUMMARY: Please reference attachments for this item. BACKGROUND OR DETAILED INFORMATION: N/A FISCAL IMPACT: N/A SUGGESTED MOTION: N/A Attachments Consolidated February 2024 Monthly Financial Report  Town Manager’s Office TOWN COUNCIL REPORT DATE: April 12, 2024 TO: Mayor and Council FROM: Jeff Wilkins, Town Manager David Gephart, Chief Financial Officer SUBJECT: February 2024 Financial Update   This financial update is intended to provide an overview and status of financial results for the Town’s selected funds through February 2024 for fiscal year 2023/24. Please note that all amounts are preliminary, un-audited and subject to change. Additionally, estimates reflected in monthly financial updates may not include any adjusting audit entries required at year-end. EXECUTIVE SUMMARY Revenues and expenditures are performing well compared to budget. Further details are as follows: General Fund In the General Fund (see attachment A), revenues total $39.0 million or 67.9% of budget, while uses are at $37.0 million or 58.8% of budget. Highway Fund In the Highway Fund (see attachment B), sources total $2.9 million or 48.4% of budget, while expenditures total $4.0 million or 62.5% of budget. Community Center Fund In the Community Center Fund (see attachment C-1, C-2 and C-3), revenues total $7.2 million or 73.9% of budget, while uses total $7.5 million or 73.5% of budget. BACKGROUND AND DETAILED INFORMATION GENERAL FUND Attachment A shows General Fund revenues and expenditures through February, other financing uses and year-end estimates for each category. The estimated year-end projections in the General Fund are as follows: Revenues $58,830,758 Less: Expenditures ($49,816,677) Other Financing Uses ($12,274,644) Preliminary Estimated Decrease in Fund Balance: ($3,260,564)* Estimated FY24 Year-End Fund Balance $20,537,928** *The estimated decrease in fund balance is due to a budgeted transfer of $10 million to the Capital Fund for CIP projects. **The ending fund balance is currently estimated to exceed the 30% reserve policy by $5.4 million. General Fund Revenues  Local sales tax collections in the General Fund total $18.4 million or 69.8% of the budgeted amount of $26.4 million and overall are performing better than anticipated. Retail collections total $6.2 million, which is 1.7% greater than the same time period last fiscal year. Restaurant/bar collections total $1.7 million which is 3.2% greater than the same time period last fiscal year. Bed tax collections total $1.3 million which is 2.2% less than the same time period last fiscal year. Construction sales tax collections total $3.9 million through February, which is 3.9% less than collections from the same time period last fiscal year. (The budgeted decrease for construction sales tax is 16.6%). Total local sales tax revenue in the General Fund is expected to come in about $1.1 million or 4.1% above budget due to stronger performance in construction, remote seller, and utilities. The low growth in retail sales tax is more than made up by the increase in remote seller sales tax which indicates a greater shift to online purchases from brick-and-mortar stores compared to the prior year. Please see attachment E for detailed information on General Fund local sales tax collections.  State shared revenues total $15.1 million or 65.6% of the budget amount of $23.0 million. These revenue sources are comprised of state shared sales taxes, state shared income taxes, auto-lieu fees, and Smart and Safe shared taxes. At this time, these revenues are forecasted to come in 0.2% under budget due to lower trending vehicle license tax, state income tax, and Smart & Safe tax.  License and permit revenues total about $1.4 million or 78.7% of the budget amount of $1.7 million. A total of 108 Single Family Residential (SFR) permits have been issued through February (119 budgeted). License and permit revenues are expected to come in $203,000 above budget, due to greater than expected commercial and residential development activity.  Charges for services revenues total $1.9 million or 59.0% of the budget amount of $3.2 million. Cost allocation charges to the Town’s enterprise funds for services provided, as well as Parks & Recreation fees, make up the bulk of this revenue category. Charges for services are forecasted to come in about $340,000 or 10.6% below budget due to a reduction in the enterprise service charge, lower-than-expected engineering plan review fees and court fees, and no transit farebox revenues.  Other revenues are forecasted to come in about $413,000 above budget due to a rebate received from the Arizona Municipal Risk Retention Pool (AMRRP) and greater than expected interest income. General Fund Uses  General Fund uses total $37.0 million or 58.8% of budget through February.  Personnel costs are forecasted to come in about $0.7 million or 1.9% less than budget, due to a combination of vacancy savings, position refills and budgeted PSPRS contributions.  Operations and maintenance are forecasted to come in about $20,000 or 0.1% less than budget, due to savings in travel and training and outside professional services.  Capital costs are forecasted to come in on budget.  Transfers out of the General Fund are expected to end the fiscal year on budget. Note that actuals through February reflect the budgeted transfer to debt service and 1/2 of the budgeted transfer to the Capital Fund for CIP. HIGHWAY FUND Attachment B shows Highway Fund revenues and expenditures through February, other financing sources, and year-end estimates for each category. The estimated year-end projections in the Highway Fund are as follows: Revenues $4,525,233 Transfers In $1,500,000 Less: Expenditures ($6,463,787) Preliminary Estimated Decrease in Fund Balance: ($438,554) Estimated FY24 Year-End Fund Balance $440,378 Please note the negative fund balance on attachment D is expected to be temporary and will be corrected when the budgeted transfer from the Capital Fund is posted. Highway Fund Revenues  State shared highway user funds (HURF) total about $2.7 million or 62.6% of the budget amount of $4.3 million. These revenues are projected to come in on budget at this time.  Interest income is expected to come in at a favorable budget variance of $80,000, due primarily to earnings in the State’s Local Government Investment Pool (LGIP).  Other minor revenues in the Highway Fund are expected to come in at a favorable budget variance of $12,625 due to insurance recoveries. Highway Fund Expenditures  Highway Fund expenditures through February are at $4.0 million or 62.5% of the adopted budget of $6.5 million. Highway Fund expenditures are projected to come in $5,004 under budget due to personnel savings. COMMUNITY CENTER FUND Attachment C-1 shows consolidated Community Center Fund revenues and expenditures through February, other financing uses, and year-end estimates for each category. Attachment C-2 shows the monthly line-item detail for the contractor-managed operations, specifically revenues and expenditures associated with golf, and food and beverage operations. The totals in the revenue and expenditure categories in attachment C-2 tie to the contracted operating revenues and expenditures in attachment C-1. Attachment C-3 shows contractor operations for 36-hole, Pusch Ridge and F&B separately, as well as capital investments for golf, half cent sales tax collections, and HOA contributions. The estimated year-end projections in the Community Center Fund are as follows: Revenues $10,560,329 Less: Expenditures ($8,426,600) Transfers Out ($1,717,203) Preliminary Estimated Increase in Fund Balance: $416,526 Estimated FY24 Year-end Fund Balance $1,424,759 Community Center Fund Revenues  Revenues in the Community Center Fund through February total about $7.2 million or 73.9% of the budget amount of $9.7 million.  Contracted operating revenues total $3.7 million as of February, which is about $594,000 or 19.0% greater than the same time last fiscal year. Contracted revenues are estimated to come in $574,000 or 12.5% over budget mostly due to member dues and greens fees.  Town operating revenues through February are at about $826,000 or 70.3% of the budget amount of $1.2 million. Town operating revenues are expected to end the fiscal year about $198,000 higher than budget due mainly to member dues. Recreation programs, daily drop-ins and facility rental income are also expected to exceed budget expectations.  Local sales tax revenues through February total about $2.5 million or 67.0% of the budget amount of $3.7 million. These collections are currently projected to come in $77,000 or 2.1% above budget, due to positive trends in the remote seller category. Community Center Fund Uses  Expenditures in the Community Center Fund total $5.7 million or 68.1% of the budgeted amount of $8.4 million.  Contracted operating expenditures total $3.5 million, or 71.3% of the budgeted amount of $5.0 million. Contracted expenditures are currently estimated to come in 6.3% over budget due to greater than expected utilities, labor costs, and cost of sales.  Town operating expenditures total about $1.1 million or 66.0% of budget and are currently estimated to come in approximately $84,000 over budget due to trending of personnel costs, as well as contracted program instructors.  Capital expenditures total about $1.1 million or 61.1% of budget and are currently estimated to come in approximately $412,000 under budget due to $540,802 of capital projects expected to carry over into next fiscal year, namely the Community Center flat roof surface replacement, restaurant cooler/freezer modernization, and Vistoso Trails Nature Preserve safety improvements. The budget carryover is partially offset by greater than expected expenditures on equipment.  Transfers out are expected to end the year on budget. Note that actuals through February reflect the full year budgeted transfer out to debt service. The Town is not expecting any year-end sales tax support for golf operations for the current fiscal year. Contracted operations have a projected net loss of $95,697 before outside HOA contributions of $159,050, and local sales taxes generated from golf related operations estimated at $131,015. ATTACHMENTS A. Additional details on the General Fund B. Additional details on the Highway Fund C. C-1, C-2, and C-3 for additional details on the Community Center Fund and golf operations D. Fiscal year-to-date consolidated summary for all Town funds E. Breakdown of monthly local sales tax for the General Fund F. Breakdown of monthly state shared revenue collections for the General Fund ATTACHMENT A General Fund Financial Status Fiscal Year to Date: February 2024 Revenues ` Amount Percent Local Sales Tax 17,933,205$ 18,427,917$ 26,398,318$ (7,970,401)$ 70% 27,419,438$ State Shared Revenues 12,359,642 15,061,758 22,953,222 (7,891,464) 66% 22,911,519 Licenses & Permits 2,002,430 1,351,273 1,717,118 (365,845) 79% 1,920,582 Grants 424,287 331,169 657,415 (326,246) 50% 744,251 Intergovernmental 1,082,773 1,035,638 1,869,500 (833,862) 55% 1,869,500 Charges for Service 1,827,515 1,891,561 3,204,246 (1,312,685) 59% 2,863,987 Other Revenue 701,573 921,815 688,000 233,815 134% 1,101,480 Total Revenues 36,331,425$ 39,021,131$ 57,487,819$ (18,466,688)$ 68% 58,830,758$ Uses Amount Percent Personnel Services 19,105,404$ 20,905,436$ 35,698,399$ 14,792,963$ 59% 35,007,347$ Operations and Maintenance 8,359,982 8,634,764 14,149,058 5,514,294 61% 14,129,073 Capital Outlay 181,164 277,352 680,257 402,904 41% 680,257 Transfers Out 11,048,965 7,136,644 12,274,644 5,138,000 58% 12,274,644 Total Uses 38,695,515$ 36,954,197$ 62,802,358$ 25,848,161$ 59% 62,091,321$ Change in Fund Balance Total Revenues 36,331,425$ 39,021,131$ 57,487,819$ 58,830,758$ Total Uses (38,695,515) (36,954,197) (62,802,358) (62,091,321) Change in Fund Balance (2,364,090)$ 2,066,934$ (5,314,539)$ (3,260,564)$ Beginning Fund Balance 23,798,492$ Estimated Ending Fund Balance 20,537,928$ FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget FY 2023/24 Budget Year End Estimate Year End Estimate Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget FY 2022/23 Actuals FY 2023/24 Actuals ATTACHMENT A Page 1 OF 6 ATTACHMENT A General Fund Financial Status Fiscal Year to Date: February 2024 Local Sales Tax Revenue Amount Percent Construction 4,026,503$ 3,869,540$ 4,609,182$ (739,642)$ 84% 5,009,182$ Utilities 2,569,606 2,862,877 3,721,616 (858,739) 77% 3,997,877 Retail 6,070,169 6,176,197 9,339,301 (3,163,103) 66% 9,354,138 Bed Tax 1,353,331 1,323,296 2,384,479 (1,061,184) 55% 2,440,453 Restaurant & Bar 1,666,282 1,720,174 2,596,724 (876,550) 66% 2,596,449 Other 1,878,545 2,120,946 2,982,017 (861,070) 71% 3,298,309 Cable Franchise 368,769 354,887 765,000 (410,113) 46% 723,030 Local Sales Tax Total 17,933,205$ 18,427,917$ 26,398,318$ (7,970,401)$ 70% 27,419,438$ State Shared Revenue Amount Percent State Income Tax 6,055,147$ 8,519,654$ 12,839,525$ (4,319,871)$ 66% 12,779,535$ State Sales Tax 4,648,080 4,830,481 7,207,659 (2,377,178) 67% 7,411,231 County Auto Lieu 1,529,793 1,575,428 2,582,388 (1,006,960) 61% 2,428,421 Smart and Safe 126,622 136,194 323,650 (187,456) 42% 292,332 State Shared Total 12,359,642$ 15,061,758$ 22,953,222$ (7,891,464)$ 66% 22,911,519$ Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate $8.5 $4.8 $1.6 $0.1 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 State Income Tax State Sales Tax County Auto Lieu Smart and SafeMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget $3.9 $2.9 $6.2 $1.3 $1.7 $2.1 $0.4 $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 Millions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget No explanation necessary ATTACHMENT A Page 2 OF 6 ATTACHMENT A General Fund Financial Status Fiscal Year to Date: February 2024 Licenses & Permits Revenue Amount Percent Business Licenses & Permits 323,201$ 240,223$ 300,000$ (59,777)$ 80% 300,000$ Residential Building Permits 645,027 844,493 1,090,118 (245,625) 77% 1,210,582 Commercial Building Permits 918,945 224,717 250,000 (25,283) 90% 350,000 Other Building Fees & Charges 115,257 41,840 77,000 (35,160) 54% 60,000 Licenses & Permits Total 2,002,430$ 1,351,273$ 1,717,118$ (365,845)$ 79% 1,920,582$ Grants Revenue Amount Percent Federal grants 375,500$ 213,947$ 582,415$ (368,468)$ 37% 596,765$ State Grants 48,787 117,222 75,000 42,222 156% 147,486 Grants Total 424,287$ 331,169$ 657,415$ (326,246)$ 50% 744,251$ FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate $0.2 $0.8 $0.2 $0.0 $0.0 $0.5 $1.0 $1.5 Business Licenses & Permits Residential Building Permits Commercial Building Permits Other Building Fees & ChargesMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget $0.2 $0.1 $0.0 $0.2 $0.4 $0.6 $0.8 Federal grants State GrantsMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget No explanation necessary ATTACHMENT A Page 3 OF 6 ATTACHMENT A General Fund Financial Status Fiscal Year to Date: February 2024 Intergovernmental Revenue Amount Percent School Resource Officers 51,328$ 90,000$ 90,000$ -$ 100% 90,000$ RTA Reimbursements 1,031,445 945,638 1,774,000 (828,362) 53% 1,774,000 PC Library District Reimburse - - 5,500 (5,500) - 5,500 Intergovernmental Total 1,082,773$ 1,035,638$ 1,869,500$ (833,862)$ 55% 1,869,500$ Charges for Service Revenue Amount Percent Enterprise Funds Cost Allocation 1,099,311$ 1,102,623$ 1,897,065$ (794,442)$ 58% 1,653,935$ Recreation Fees 432,091 543,718 796,840 (253,122) 68% 848,284 Development Fees 83,187 55,018 116,080 (61,063) 47% 72,100 Court Fees 110,906 87,461 194,400 (106,939) 45% 125,000 Other 102,021 102,742 199,861 (97,119) 51% 164,668 Charges for Service Total 1,827,515$ 1,891,561$ 3,204,246$ (1,312,685)$ 59% 2,863,987$ FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate $0.1 $0.9 $0.0 $0.0 $0.5 $1.0 $1.5 $2.0 School Resource Officers RTA Reimbursements PC Library District ReimburseMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget $1.1 $0.5 $0.1 $0.1 $0.1 $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 $1.6 $1.8 $2.0 Enterprise Funds Cost Allocation Recreation Fees Development Fees Court Fees OtherMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget ATTACHMENT A Page 4 OF 6 ATTACHMENT A General Fund Financial Status Fiscal Year to Date: February 2024 Other Revenue Amount Percent Fines 57,455$ 38,431$ 125,000$ (86,569)$ 31% 55,000$ Interest Earnings 178,728 466,416 300,000 166,416 155% 500,000 Miscellaneous 465,390 416,967 263,000 153,967 159% 546,480 Other Revenue Total 701,573$ 921,815$ 688,000$ 233,815$ 134% 1,101,480$ FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate $0.0 $0.5 $0.4 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 Fines Interest Earnings MiscellaneousMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget ATTACHMENT A Page 5 OF 6 ATTACHMENT A General Fund Financial Status Fiscal Year to Date: February 2024 Expenditures by Department Amount Percent Clerk 269,756$ 249,989$ 419,897$ 169,908$ 60% 418,693$ Community & Econ. Dev. 1,951,560 2,094,491 3,882,445 1,787,954 54% 3,779,916 Council 157,981 142,085 209,203 67,118 68% 209,203 Finance 599,507 515,293 850,456 335,163 61% 837,979 General Administration 2,429,628 1,538,525 2,555,536 1,017,011 60% 2,555,536 Human Resources 348,551 384,273 673,755 289,482 57% 666,576 Information Technology 3,052,232 4,011,509 6,004,600 1,993,091 67% 5,959,357 Legal 619,054 655,144 1,132,503 477,359 58% 1,128,116 Manager 746,261 933,599 1,760,479 826,880 53% 1,651,253 Parks & Recreation 2,218,316 2,620,415 4,766,140 2,145,725 55% 4,456,701 Police 11,104,295 12,088,572 20,436,591 8,348,019 59% 20,393,738 Public Works 3,563,562 3,978,192 6,825,447 2,847,255 58% 6,759,523 Town Court 585,845 605,467 1,010,662 405,195 60% 1,000,086 Total Department Expenditures 27,646,550$ 29,817,553$ 50,527,714$ 20,710,161$ 59% 49,816,677$ FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate $0.2 $2.1 $0.1 $0.5 $1.5 $0.4 $4.0 $0.7 $0.9 $2.6 $12.1 $4.0 $0.6 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 Millions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget General Administration in FY23 there was a $885,000 settlement for Vistoso Trails Nature Preserve. InformationTechnology actuals as a percent of budget are due to planned mobile data computer and PC replacements ATTACHMENT A Page 6 OF 6 ATTACHMENT B Highway Fund Financial Status Fiscal Year to Date: February 2024 Sources ` Amount Percent Licenses & Permits 17,932$ 15,334$ 25,000$ (9,666)$ 61% 25,000$ Highway User Revenue 2,675,263 2,713,625 4,334,608 (1,620,983) 63% 4,334,608 Interest Earnings 80,644 125,930 70,000 55,930 180% 150,000 Miscellaneous 6,419 14,061 3,000 11,061 469% 15,625 Transfers In - - 1,500,000 (1,500,000) - 1,500,000 Total Sources 2,780,257$ 2,868,950$ 5,932,608$ (3,063,658)$ 48% 6,025,233$ Expenditures Amount Percent Personnel 726,801$ 757,593$ 1,262,861$ 505,268$ 60% 1,257,857$ O&M 355,652 567,467 1,010,930 443,463 56% 1,010,930 Capital Outlays 1,233,584 2,715,316 4,195,000 1,479,684 65% 4,195,000 Total Expenditures 2,316,037$ 4,040,376$ 6,468,791$ 2,428,415$ 62% 6,463,787$ Change in Fund Balance Total Sources 2,780,257$ 2,868,950$ 5,932,608$ 6,025,233$ Total Expenditures (2,316,037) (4,040,376) (6,468,791) (6,463,787) Change in Fund Balance 464,220$ (1,171,426)$ (536,183)$ (438,554)$ Beginning Fund Balance 878,932$ Estimated Ending Fund Balance 440,378$ FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate Year End Estimate ATTACHMENT B PAGE 1 OF 1 ATTACHMENT C-1 Community Center Fund Financial Status Fiscal Year to Date: February 2024 Revenues Amount Percent Local Sales Tax 2,400,794$ 2,497,124$ 3,726,016$ (1,228,892)$ 67% 3,803,267$ Contracted Operating Revenues 3,125,402 3,719,781 4,609,486 (889,705) 81% 5,183,890 Town Operating Revenues 661,261 826,156 1,175,800 (349,644) 70% 1,373,974 Other Revenues 198,244 128,344 197,150 (68,806) 65% 199,198 Total Revenues 6,385,702$ 7,171,405$ 9,708,452$ (2,537,047)$ 74% 10,560,329$ Uses Amount Percent Contracted Operating Expenditures 3,101,661$ 3,539,961$ 4,965,264$ 1,425,303$ 71% 5,279,587$ Town Operating Expenditures 1,023,920 1,092,426 1,654,718 562,292 66% 1,738,276 Capital Outlay 1,074,880 1,111,910 1,820,500 708,590 61% 1,408,737 Transfers Out 2,028,066 1,717,203 1,717,203 - 100% 1,717,203 Total Uses 7,228,527$ 7,461,500$ 10,157,685$ 2,696,185$ 73% 10,143,803$ Change in Fund Balance Total Revenues 6,385,702$ 7,171,405$ 9,708,452$ 10,560,329$ Total Uses (7,228,527) (7,461,500) (10,157,685) (10,143,803) Change in Fund Balance (842,826)$ (290,094)$ (449,233)$ 416,526$ Beginning Fund Balance 1,008,233$ Estimated Ending Fund Balance 1,424,759$ FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget ATTACHMENT C-1 PAGE 1 OF 4 ATTACHMENT C-1 Community Center Fund Financial Status Fiscal Year to Date: February 2024 Local Sales Tax Revenue Amount Percent Retail 1,517,542$ 1,544,049$ 2,334,825$ (790,776)$ 66% 2,338,535$ Restaurant & Bar 416,570 430,043 649,181 (219,137) 66% 649,112 Other 466,682 523,031 742,010 (218,979) 70% 815,620 Local Sales Tax Total 2,400,794$ 2,497,124$ 3,726,016$ (1,228,892)$ 67% 3,803,267$ Contracted Operating Revenue Amount Percent Golf Revenue, Trail & Cart Fees 1,513,513$ 1,922,571$ 2,424,211$ (501,640)$ 79% 2,569,390$ Member Dues 916,373 1,067,112 1,219,000 (151,888) 88%1,514,000 Food & Beverage 455,673 477,097 641,975 (164,878) 74%714,500 Merchandise & Other 239,844 253,001 324,300 (71,299) 78% 386,000 Contracted Revenue Total 3,125,402$ 3,719,781$ 4,609,486$ (889,705)$ 81% 5,183,890$ Actual Vs. Budget Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget $1.9 $1.1 $0.5 $0.3 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 Golf Revenue, Trail & Cart Fees Member Dues Food & Beverage Merchandise & OtherMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget $1.5 $0.4 $0.5 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 Retail Restaurant & Bar OtherMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget ATTACHMENT C-1 PAGE 2 OF 4 ATTACHMENT C-1 Community Center Fund Financial Status Fiscal Year to Date: February 2024 Town Operating Revenue Amount Percent Daily Drop-Ins 30,636$ 55,475$ 50,500$ 4,975$ 110% 76,000$ Member Dues 469,750 597,976 660,000 (62,024) 91% 823,800 Recreation Programs 112,127 114,816 380,000 (265,184) 30% 385,000 Facility Rental Income 48,748 57,890 85,300 (27,410) 68% 89,174 Town Operating Revenue Total 661,261$ 826,156$ 1,175,800$ (349,644)$ 70% 1,373,974$ Other Revenue Amount Percent Interest Income 35,045$ 21,277$ 35,000$ (13,723)$ 61% 35,000 HOA Contributions - - 159,050 (159,050) - 159,050 Miscellaneous 163,199 107,067 3,100 103,967 3454% 5,148 Other Revenue Total 198,244$ 128,344$ 197,150$ (68,806)$ 65% 199,198$ FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate $0.1 $0.6 $0.1 $0.1 $0.0 $0.1 $0.2 $0.3 $0.4 $0.5 $0.6 $0.7 Daily Drop-Ins Member Dues Recreation Programs Facility Rental Income FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget $0.0 $0.0 $0.1 $0.0 $0.1 $0.2 Interest Income HOA Contributions MiscellaneousMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget ATTACHMENT C-1 PAGE 3 OF 4 ATTACHMENT C-1 Community Center Fund Financial Status Fiscal Year to Date: February 2024 Contracted Operating Expenditures Amount Percent Personnel 1,083,725$ 1,205,737$ 1,738,221$ (532,484)$ 69% 1,829,774$ Food & Beverage 385,219 444,070 550,992 (106,922) 81% 625,500 Operations & Maintenance 1,535,466 1,781,699 2,513,367 (731,668) 71% 2,661,629 Equipment Leases 97,251 108,455 162,684 (54,229) 67% 162,684 Contracted Expenditures Total 3,101,661$ 3,539,961$ 4,965,264$ (1,425,303)$ 71% 5,279,587$ Town Operating Expenditures Amount Percent Personnel 587,616$ 696,433$ 1,114,639$ (418,206) 62% 1,187,609$ Operations & Maintenance 417,514 380,427 540,079 (159,652) 70% 535,102 Town Operating Expenditures Total 1,005,130$ 1,076,861$ 1,654,718$ (577,857)$ 65% 1,722,711$ 550,000 75,000 198,000 65,000 100,000 285,000 75,000 75,000 255,000 20,000 12,000 7,500 12,000 15,000 10,000 7,000 35,000 8,000 16,000 1,820,500 Outdoor movie screen replacement Facility landscaping Pool deck maintenance Pool handrails PR Tennis bleacher demo PR Tennis Court Gate repair VTNP Improvements PR Concrete ADA pad CC Walking path lighting External Pool lighting Facility beautification Overlook Cooler/freezer Modern Life Cycle Repl - Bunkers & Turf Red PR ADA & Code Compliance PR Improvements VTNP ADA Restrooms List of FY24 Capital Projects: Canada Golf Crs Pathway Impro CC Fire Alarm Upgrade CC Flat Roof Replacement Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget Year End Estimate FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget Actual Vs. Budget $0.7 $0.4 $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 Personnel Operations & MaintenanceMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget $1.2 $0.4 $1.8 $0.1 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 Personnel Food & Beverage Operations & Maintenance Equipment LeasesMillions FY 2022/23 Actuals FY 2023/24 Actuals FY 2023/24 Budget ATTACHMENT C-1 PAGE 4 OF 4 ATTACHMENT C-2 Budget Last Year Budget Last Year Actual Budget Variance Last Year Variance Actual Budget Variance Last Year Variance Rounds 4,427 3,400 1,027 3,570 857 Rounds ‐ Member 29,733 24,000 5,733 25,899 3,834 1,200 1,200 0 596 604 Rounds ‐ Outing 5,309 4,650 659 3,883 1,426 6,316 5,950 366 5,890 426 Rounds ‐ Public 31,264 29,775 1,489 30,700 564 ==================================================================================================================================================================== 11,943 10,550 1,393 10,056 1,887 Total Rounds 66,306 58,425 7,881 60,482 5,824 Revenue 346,444 300,500 45,944 280,441 66,002 Green Fees 1,397,098 1,261,000 136,098 1,272,323 124,775 32,170 24,800 7,370 28,111 4,059 Cart Fees 226,411 191,296 35,115 215,114 11,297 5,624 6,000 (376)4,849 774 Driving Range 29,389 28,000 1,389 26,076 3,313 0 0 0 0 0 Golf Cards/Passes 0 0 0 0 0 28,698 25,150 3,548 28,662 36 Pro Shop Sales 171,459 164,125 7,334 165,085 6,374 34,500 37,300 (2,800)35,227 (727)Food (Food & Soft Drinks) 238,838 202,075 36,763 235,635 3,202 32,820 30,200 2,620 35,131 (2,312)Beverages (Alcohol) 228,772 188,225 40,547 209,924 18,849 975 0 975 1,004 (29)Other Food & Beverage Revenue 9,487 0 9,487 10,114 (627) 5,870 3,075 2,795 4,840 1,030 Other Golf Revenues (Club Rent, Handica 46,356 17,125 29,231 28,665 17,691 3,642 2,575 1,067 4,468 (826)Clinic / School Revenue 18,195 15,750 2,445 22,214 (4,019) 150,181 108,000 42,181 137,218 12,963 Dues Income ‐ Monthly Dues 1,062,683 803,000 259,683 911,513 151,170 0 0 0 780 (780)Initiation Fee Income / Annual Membersh 4,429 0 4,429 4,860 (431) (4,838)10,000 (14,838)13,285 (18,123)Miscellaneous Income and Discounts 16,992 10,000 6,992 23,880 (6,888) ================================================================================= ============================================================= ================ 636,086 547,600 88,486 574,018 62,068 Total Revenue 3,450,107 2,880,596 569,511 3,125,402 324,705 Cost of Sales 23,461 17,555 (5,906)10,843 (12,618)COGS ‐ Pro Shop 128,530 114,353 (14,177)116,359 (12,171) 11,306 11,338 32 11,939 634 COGS ‐ Food 85,498 58,670 (26,828)69,901 (15,597) 3,222 1,252 (1,970)2,936 (287)COGS ‐ Non‐Alcoholic Beverages 15,050 9,401 (5,649)12,971 (2,079) 8,758 9,008 250 6,411 (2,348)COGS ‐ Alcohol 63,925 56,431 (7,494)53,023 (10,902) ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 46,747 39,153 (7,595)32,129 (14,619)Total Cost of Sales 293,002 238,854 (54,148)252,254 (40,748) ================================================================================= ============================================================= ================ 589,339 508,447 80,891 541,889 47,450 GROSS INCOME 3,157,105 2,641,742 515,363 2,873,148 283,957 Labor 40,982 39,270 (1,712)37,553 (3,429)Golf Operation Labor 285,476 274,726 (10,750)268,578 (16,899) 11,803 10,063 (1,740) (566) (12,369)General and Administrative 90,496 84,500 (5,996)80,953 (9,543) 70,297 68,861 (1,437)65,703 (4,594)Maintenance and Landscaping 589,259 552,661 (36,598)515,354 (73,905) 27,705 23,878 (3,827)24,539 (3,165)F&B 221,552 179,006 (42,546)182,860 (38,692) 8,662 7,058 (1,604)8,794 132 Sales and Marketing 62,255 57,667 (4,588)49,771 (12,484) ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 159,449 149,129 (10,319)136,024 (23,425)Total Direct Labor 1,249,038 1,148,559 (100,479)1,097,516 (151,522) 13,385 13,422 37 18,271 4,886 Total Payroll Taxes 101,049 103,370 2,321 109,231 8,181 10,711 13,300 2,589 10,121 (589)Total Medical/Health Benefits 86,926 68,700 (18,226)86,641 (285) 2,197 2,190 (7)1,946 (251)Total Workmans Comp 17,902 15,395 (2,507)15,734 (2,168) ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 26,292 28,912 2,619 30,338 4,046 Total Payroll Burden 205,877 187,465 (18,412)211,606 5,729 ================================================================================= ============================================================= ================ 185,741 178,041 (7,700)166,362 (19,379)Total Labor 1,454,915 1,336,025 (118,891)1,309,121 (145,794) Other Operational Expenses 12,154 9,619 (2,535)7,763 (4,391)Golf Ops 57,964 51,475 (6,489)49,226 (8,739) 14,063 16,304 2,241 12,065 (1,998)G&A 84,843 104,006 19,163 102,659 17,816 31,667 43,443 11,776 36,555 4,888 Maintenance 461,298 504,644 43,346 483,272 21,974 2,152 3,705 1,553 2,266 114 F&B 30,420 29,550 (870)23,928 (6,491) 3,385 1,350 (2,035)5,685 2,300 Sales and Marketing 33,885 19,075 (14,810)32,930 (955) 13,259 13,259 0 13,259 0 Golf Cart Leases 106,070 106,072 2 95,164 (10,906) 298 298 (0)298 0 Equipment Leases 2,385 2,384 (1)2,087 (298) 27,285 56,667 29,382 31,500 4,215 Utilities ‐ Maintenance 760,972 592,761 (168,211)469,641 (291,331) 18,889 15,050 (3,839)17,261 (1,628)Utilities ‐ G&A 149,576 121,800 (27,776)126,450 (23,126) 10,612 10,612 (0)10,404 (208)Management Fees 84,897 84,896 (1)83,232 (1,665) 2,276 4,000 1,724 4,500 2,224 Insurance ‐ P&C 19,733 43,000 23,267 44,197 24,463 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 136,039 174,307 38,268 141,556 5,517 Total Other Operational Expenses 1,792,043 1,659,663 (132,380)1,512,786 (279,258) ================================================================================= ============================================================= ================ 321,780 352,348 30,568 307,918 (13,862)Total Expenses 3,246,959 2,995,688 (251,271)2,821,907 (425,051) ================================================================================= ============================================================= ================ 267,559 156,099 111,460 233,971 33,587 EBITDAR (89,854) (353,946)264,092 51,241 (141,095) ================================================================================= ============================================================= ================ 267,559 156,099 111,460 233,971 33,587 EBITDA (89,854) (353,946)264,092 51,241 (141,095) Interest Expense/Dep&Amt (30,164)0 30,164 0 30,164 Other Expense (269,674)0 269,674 0 269,674 0 0 0 0 0 Capital Improvements/Cap Reserve 0 0 0 27,500 27,500 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ (30,164)0 30,164 0 30,164 Total Interest Expense (269,674)0 269,674 27,500 297,174 ================================================================================= ============================================================= ================ 297,723 156,099 141,624 233,971 63,751 Net Income 179,820 (353,946)533,766 23,741 156,079 El Conquistador Golf Club For the Month Ending February 28th, 2024 February YTD ATTACHMENT C-3Operating:Through FebBudgetCumulativeFY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY2024 FY 2024 ActualsRevenue36 Hole 500,158           1,883,452         1,798,304     2,171,484     2,367,136    2,593,395    3,522,083   3,674,489   3,856,880      2,945,963      3,553,371        25,313,344     Pusch ridge‐                   105,370            99,134          59,726          106,184       98,316          ‐               380,375      414,225         296,722         433,565           1,560,052       F&B ‐ Overlook‐                   606,171            708,594        745,766        671,582       554,336       448,782      671,479      725,222         477,097         622,550           5,609,029       Total Revenue500,158              2,594,993            2,606,032        2,976,976        3,144,902       3,246,047       3,970,865   4,726,343   4,996,327      3,719,781      4,609,486        32,482,424     Expenses36 Hole 1,112,252        3,588,714         3,936,889     3,817,932     3,771,706    3,891,341    3,915,216   3,740,982   3,929,757      2,773,123      3,993,980        34,477,912     Pusch ridge‐                   253,513            256,769        236,160        230,196       287,112        ‐               319,702      390,959         322,768         420,292           2,297,179       F&B ‐ Overlook‐                   861,740            823,383        841,866        785,499       701,538       440,382      630,509      596,910         444,070         550,992           6,125,897       Total Expenses1,112,252           4,703,967            5,017,041        4,895,958        4,787,401       4,879,991       4,355,598   4,691,193   4,917,626      3,539,961      4,965,264        42,900,988     Profit/(Loss)36 Hole (612,094)             (1,705,262)           (2,138,585)      (1,646,448)       (1,404,570)     (1,297,946)     (393,133)     (66,493)       (72,877)          172,840         (440,609)          (9,164,568)      Pusch ridge‐                      (148,143)              (157,635)         (176,434)          (124,012)         (188,796)          ‐               60,673         23,266           (26,047)          13,273             (737,128)         F&B ‐ Overlook‐                      (255,569)              (114,789)         (96,100)            (113,917)         (147,202)         8,400           40,970         128,312         33,027           71,558             (516,868)         Total Operating Profit/(Loss)(612,094)             (2,108,974)           (2,411,009)      (1,918,982)       (1,642,499)     (1,633,944)     (384,733)     35,150         78,701           179,820         (355,778)          (10,418,564)    Capital Investments45,116                  47,909             29,464             ‐                       ‐                      131,035      2,828,061   4,619,904      2,103,404      2,745,000 9,804,893       Initial purchase (1)300,000               350,000           350,000           ‐                       ‐                      ‐                ‐                ‐                   ‐                   ‐                   1,000,000       Notes: (1) $1,000,000 original purchase of courses and community center1/2 cent sales tax 506,710              2,030,750            2,199,466        2,330,941        2,463,034       2,584,916       2,947,420   3,535,507   3,707,578      2,497,124      3,726,016        24,803,446     HOA contributions‐                       ‐                         ‐                    ‐                    ‐                   ‐                  125,000      159,050      159,050         101,950         159,050           545,050          POST AGREEMENTPRE AGREEMENTTown of Oro ValleyGolf AnalysisATTACHMENT  C‐3PAGE 1 OF 2 ATTACHMENT C-3Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May JunFY 2022Gross Income 229,456          231,657          245,357          246,063          421,446          388,213          469,675          503,028          597,798          492,033          313,725          219,663          Expenses 323,615          307,066          422,292          453,613          328,298          269,604          317,597          347,338          337,511          371,044          351,526          521,466          Net Income/(Loss) (94,159)           (75,408)           (176,935)         (207,550)         93,147            118,609          152,078          155,690          260,286          120,989          (37,801)           (301,802)         FY 2023Gross Income 218,180          210,232          258,241          252,747          499,632          394,901          472,032          541,889          636,010          523,324          315,175          231708Expenses 306,974          296,210          432,727          576,529          322,700          297,856          310,847          307,918          355,497          313,621          429,007          558,232          Net Income/(Loss) (88,794)           (85,978)           (174,487)         (323,782)         176,932          97,044            161,185          233,971          280,512          209,703          (113,832)         (326,524)         FY 2024Gross Income 213,698          225,040          295,419          332,783          495,412          480,305          525,109          589,339          Expenses 406,558          333,614          420,523          454,504          412,959          349,298          308,213          291,616          Net Income/(Loss) (192,860)         (108,573)         (125,103)         (121,721)         82,453            131,007          216,896          297,723           ‐                    ‐                    ‐                    ‐                   Town of Oro ValleyGolf Analysis ‐ Contractor Financials ‐ 200,000 400,000 600,000 800,000Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May JunComparison of Gross Income by Month ‐Total Golf OperationsFY 2022FY 2023FY 2024 ‐ 200,000 400,000 600,000 800,000Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May JunComparison of Total Expenses by Month ‐Total Golf OperationsFY 2022FY 2023FY 2024 (400,000) (200,000) ‐ 200,000 400,000Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May JunComparison of Net Income/(Loss) by Month ‐Total Golf OperationsFY 2022FY 2023FY 2024ATTACHMENT C‐3PAGE 2 0F 2 ATTACHMENT DConsolidated Year-to-Date Financial Report through February 2024FY 2023/2024FundFY 23/24Beginning BalanceRevenueOther Fin Sources/Transfers InTotal In Personnel O&M CapitalDebt ServiceOther Fin Uses/ Transfers OutTotal OutFund Balance Through February 2024General Fund 23,798,492 39,021,131 39,021,131 20,905,436 8,634,764 277,352 7,136,644 36,954,197 25,865,426 Highway Fund 878,932 2,868,950 2,868,950 757,593 567,467 2,715,316 4,040,376 (292,494) Grants and Contributions Fund 162,207 1,639,332 1,639,332 4,647 23,966 1,078,320 522,701 1,629,634 171,906 Seizure & Forfeiture - Justice/State 230,193 104,125 104,125 30,572 30,572 303,746 Community Center Fund 1,008,233 7,171,405 7,171,405 696,433 3,935,953 1,111,910 1,717,203 7,461,500 718,139 Municipal Debt Service Fund 273,719 153,373 3,902,708 4,056,081 8,126 4,027,853 4,035,979 293,821 Water Resource System & Dev. Impact Fee Fund 18,419,840 1,760,140 1,760,140 80,655 4,781,756 73,005 4,935,416 15,244,564 Townwide Roadway Dev Impact Fee Fund 2,188,554 213,700 213,700 377 377 2,401,877 Parks & Recreation Impact Fee Fund 671,640 61,991 61,991 176 600,000 600,176 133,455 Police Impact Fee Fund 64,727 30,272 30,272 50 46,553 46,603 48,396 Capital Fund 24,550,287 1,630,869 5,000,000 6,630,869 172,449 2,671 9,944,771 10,119,891 21,061,265 PAG/RTA Fund 808,007 133,433 133,433 22,042 49,503 71,545 869,895 Water Utility 12,293,771 13,755,855 522,701 14,278,556 2,220,588 5,917,986 981,224 3,472,635 2,308 12,594,741 13,977,586 Stormwater Utility923,112 1,044,821 1,044,821 580,594 237,853 50,700 869,147 1,098,786 Benefit Self Insurance Fund 2,895,866 2,859,284 2,859,284 2,687,612 2,687,612 3,067,538 Recreation In-Lieu Fee Fund 17,216 705 705 - 17,921 Total 89,184,796 72,449,386 9,425,409 81,874,795 25,337,739 22,150,271 21,590,853 7,573,493 9,425,409 86,077,766 84,981,825 ATTACHMENT EGeneral Fund Local Sales Tax Collections FY 2023/24JULAUGSEPOCTNOVDECJANFEBMARAPRMAYJUNTOTALConstruction Sales Tax566,321 609,737 391,196 422,231 488,917 493,394 486,229 411,515 3,869,540 Utility Sales Tax250,515 368,788 435,027 373,297 365,463 336,739 321,251 411,797 2,862,877 Retail Sales Tax728,452 730,517 682,418 725,728 645,288 841,754 1,049,364 772,676 6,176,197 Bed Tax144,726 137,921 139,535 141,666 163,605 153,950 115,408 326,484 1,323,296 Restaurant & Bar Sales Tax192,259 193,105 215,297 223,296 212,172 217,665 234,122 232,257 1,720,174 All Other Local Sales Tax *218,097 226,809 233,029 260,403 345,752 259,882 253,288 323,686 2,120,946 Monthly Total 2,100,370$ 2,266,876$ 2,096,503$ 2,146,622$ 2,221,197$ 2,303,384$ 2,459,664$ 2,478,415$ 18,073,030$ Cumulative Total 2,100,370$ 4,367,246$ 6,463,748$ 8,610,370$ 10,831,567$ 13,134,951$ 15,594,615$ 18,073,030$ -$ Monthly variance (63,193)$ 130,347$ (7,816)$ 27,123$ 154,685$ 46,257$ (112,892)$ 334,084$ Cumulative variance(63,193)$ 67,154$ 59,338$ 86,460$ 241,146$ 287,402$ 174,510$ 508,594$ FY 2022/23JULAUGSEPOCTNOVDECJANFEBMARAPRMAYJUNTOTALConstruction Sales Tax 586,039 575,738 540,567 518,177 382,338 478,496 580,594 364,554 331,226 376,895 358,367 432,766 5,525,757 Utility Sales Tax317,210 371,973 356,012 334,868 295,825 266,797 293,200 333,721 320,870 270,869 245,486 302,123 3,708,954 Retail Sales Tax 716,720 680,117 691,138 713,672 729,067 838,562 995,470 705,424 711,636 806,316 786,447 755,079 9,129,647 Bed Tax 146,263 128,132 114,626 142,628 213,392 186,186 165,540 256,564 320,963 362,494 207,226 226,474 2,470,488 Restaurant & Bar Sales Tax 186,438 180,577 199,405 204,482 205,881 227,422 246,520 215,557 281,190 281,567 256,102 236,540 2,721,681 All Other Local Sales Tax *210,893 199,992 202,571 205,672 240,009 259,665 291,232 268,511 287,294 315,096 259,556 258,710 2,999,201 Monthly Total 2,163,563$ 2,136,529$ 2,104,319$ 2,119,499$ 2,066,512$ 2,257,128$ 2,572,556$ 2,144,331$ 2,253,179$ 2,413,237$ 2,113,184$ 2,211,693$ 26,555,729$ Cumulative Total2,163,563$ 4,300,092$ 6,404,411$ 8,523,910$ 10,590,421$ 12,847,549$ 15,420,105$ 17,564,436$ 19,817,615$ 22,230,852$ 24,344,036$ 26,555,729$ *Does not include cable franchise fees or sales tax audit revenues ATTACHMENT FGeneral Fund State Shared RevenuesFY 2023/24JULAUGSEPOCTNOVDECJANFEBMARAPRMAYJUNTOTALState Shared Income Tax 1,064,957 1,064,957 1,064,957 1,064,957 1,064,957 1,064,957 1,064,957 1,064,957 8,519,654 State Shared Sales Tax 585,790 598,642 580,255 602,020 587,629 599,429 695,594 581,121 4,830,481 County Auto Lieu 189,254 220,268 179,819 201,993 183,567 183,086 222,892 194,548 1,575,428 Smart and Safe- - - - - 136,194 - - 136,194 Monthly Total 1,840,001$ 1,883,868$ 1,825,032$ 1,868,970$ 1,836,152$ 1,983,666$ 1,983,443$ 1,840,626$ 15,061,758$ Cumulative Total 1,840,001$ 3,723,869$ 5,548,900$ 7,417,870$ 9,254,023$ 11,237,689$ 13,221,132$ 15,061,758$ Monthly variance 677,489$ 462,516$ 193,669$ 356,835$ (14,336)$ 348,734$ 784,294$ (107,085)$ (1,739,561)$ Cumulative variance 677,489$ 1,140,005$ 1,333,673$ 1,690,508$ 1,676,173$ 2,024,907$ 2,809,201$ 2,702,116$ (18,969,634)$ FY 2022/23JULAUGSEPOCTNOVDECJANFEBMARAPRMAYJUNTOTALState Shared Income Tax 756,893 756,894 756,893 756,893 756,893 756,893 756,895 756,893 756,893 756,894 756,894 756,893 9,082,721 State Shared Sales Tax 308,350 462,557 664,529 559,547 823,170 575,594 246,387 1,007,946 568,981 656,403 601,331 602,722 7,077,517 County Auto Lieu 97,269 201,901 209,941 195,695 270,425 175,823 195,867 182,872 267,340 190,731 217,316 216,309 2,421,489 Smart and Safe- - - - - 126,622 - - - - - 145,164 271,786 Opioid Settlement- - - - - - - - 91,120 - 6,528 18,472 116,120 Monthly Total 1,162,512$ 1,421,352$ 1,631,363$ 1,512,135$ 1,850,488$ 1,634,932$ 1,199,149$ 1,947,711$ 1,684,334$ 1,604,028$ 1,582,069$ 1,739,561$ 18,969,634$ Cumulative Total 1,162,512$ 2,583,864$ 4,215,227$ 5,727,362$ 7,577,850$ 9,212,782$ 10,411,931$ 12,359,642$ 14,043,976$ 15,648,004$ 17,230,073$ 18,969,634$    Budget and Finance Commission 3. Meeting Date:04/16/2024   Submitted By:David Gephart, Finance SUBJECT: DISCUSSION AND POSSIBLE RECOMMENDATION OF DRAFT PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) PENSION FUNDING POLICY FOR FISCAL YEAR ENDING JUNE 30, 2025 RECOMMENDATION: Staff recommends approval of the draft PSPRS pension funding policy for next fiscal year. EXECUTIVE SUMMARY: Each local government must annually update its PSPRS pension funding policy according to the Arizona Revised Statutes. Highlights of the proposed PSPRS pension funding policy are the following: 1) The Annual Required Contribution (ARC) will be paid from operating revenues. 2) The Town, moving forward, will contribute the greater of the total contribution rate made to ASRS (24.28% for next fiscal year) or the contribution rate prescribed by the most recent actuarial valuation (16.22% + 7.65% = 23.87%).  3) The 20-year amortization of any unfunded actuarial accrued liability will continue to be utilized. The Town has set a target to be fully funded on its PSPRS Unfunded Accrued Actuarial Liability by June 30, 2036. BACKGROUND OR DETAILED INFORMATION: The PSPRS pension funding policy is required by HB 2097, which amends Arizona Revised Statutes Title 38, Chapter 5, Article 4, and was approved by the Governor on April 3, 2018. The policy must be updated and approved annually by the governing body of a local government participating in the plan. The intent of the revision in state law is to highlight to governing bodies and the public, the approach local governments are taking in addressing unfunded, accrued, actuarial liabilities of their public safety retirement plan(s). The draft policy pertaining to next fiscal year is attached and includes a number of updates from the current year, including necessary updates to the actuarial assets, liabilities and unfunded accrued liabilities.  A "redline" copy of the draft showing all changes from the current policy is also attached. Staff have also received the most current pension modeler distributed by the plan.  A couple scenarios have been run, one utilizing a 7.2% assumed earnings rate and the other utilizing a 6.5% assumed earnings rate.  Slides will be presented showing both scenarios. FISCAL IMPACT: N/A SUGGESTED MOTION: I MOVE to recommend Town Council approval of the updated PSPRS pension funding policy for the fiscal year I MOVE to recommend Town Council approval of the updated PSPRS pension funding policy for the fiscal year ending June 30, 2025, as presented. or I MOVE to recommend Town Council approval of the updated PSPRS pension funding policy for the fiscal year ending June 30, 2025, with the following changes: ___ Attachments Current PSPRS pension funding policy  PSPRS redline  Draft FY2025 PSPRS Pension Funding Policy  CORP Actuarial Valuation  Police Actuarial Valuation  RESOLUTION NO. (R)23-20 A RESOLUTION OF THE MAYOR AND COUNCIL OF THE TOWN OF ORO VALLEY, ARIZONA, ADOPTING THE PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) PENSION FUNDING POLICY AND ACCEPTING THE TOWN’S SHARE OF ASSETS AND LIABILITIES UNDER THE PSPRS ACTUARIAL VALUATION REPORT; AND DIRECTING THE TOWN MANAGER, TOWN CLERK, TOWN LEGAL SERVICES DIRECTOR, TOWN CHIEF FINANCIAL OFFICER, OR THEIR DULY AUTHORIZED OFFICERS AND AGENTS TO TAKE ALL STEPS NECESSARY TO CARRY OUT THE PURPOSES AND INTENT OF THIS RESOLUTION WHEREAS, A.R.S. Title 38, Chapter 5, Article 4 and related statutes establish a Public Safety Personnel Retirement System; and WHEREAS, on April 3, 2018, House Bill 2097 was passed into law, requiring the Town Council to adopt a pension funding policy for the Public Safety Personnel Retirement System (PSPRS) before July 1, 2019 and annually each year after; and WHEREAS, pursuant to A.R.S. §38-863.01, the Town is required to adopt a pension funding policy to communicate how the Town will maintain the stability of the Town’s required contributions, how and when the Town’s funding requirements will be met, and defining the Town’s funded ratio target under PSPRS and how it will be met ; and WHEREAS, the Town’s sworn police officers are members of the PSPRS plan, PSPRS also administers the Correction Officers Retirement Plan (CORP) and t wo (2) Town police dispatch personnel are currently active members of the CORP plan; and WHEREAS, annually, PSPRS and CORP provide the Town with an actuarial report that includes the Town’s assets, liabilities, unfunded actuarial liability, funding ratio, and the projected minimum contributions required for the upcoming fiscal year; and WHEREAS, it is in the best interest of the Town to adopt the Public Safety Personnel Retirement System (PSPRS) Pension Funding Policy, attached hereto as Exhibit “A” and incorporated herein by reference, and accept the Town’s share of assets and liabilities under the PSPRS actuarial valuation report. NOW THEREFORE, BE IT RESOLVED by the Mayor and Council of the Town of Oro Valley, that: SECTION 1. The Mayor and Council hereby adopt the Public Safety Personnel Retirement System Pension Funding Policy, attached hereto as Exhibit “A” and accept the Town’s share of assets and liabilities under the PSPRS actuarial valuation report. SECTION 2. The Town Manager, Town Clerk, Town Legal Services Director, Town Chief Financial Officer, or their duly authorized officers and agents are hereby authorized and directed to take all steps necessary to carry out the purposes and intent of this resolution. SECTION 3. If any section, subsection, sentence, clause, phrase, or portion of this resolution or any part of the PSPRS Pension Funding Policy, attached hereto as Exhibit “A”, is for any reason held to be invalid or unconstitutional by the decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions thereof. SECTION 4. All Oro Valley resolutions, or motions and parts of resolutions or motions of the Council in conflict with the provisions of this Resolution are hereby repealed. PASSED, AND ADOPTED by the Mayor and Council of the Town of Oro Valley Arizona, this 7th day of June, 2023. TOWN OF ORO VALLEY Joseph C. Winfield, Mayor ATTEST: APPROVED AS TO FORM: Michael Standish, Town Clerk Tobin Sidles, Legal Services Director Date: Date: E-SIGNED by Michael Standish on 2023-06-08 20:11:52 GMT E-SIGNED by Joseph C. Winfield on 2023-06-08 16:33:17 GMT E-SIGNED by Tobin Sidles on 2023-06-08 19:32:10 GMT EXHIBIT “A” 1 Town of Oro Valley Public Safety Personnel Retirement System (PSPRS & CORP) Pension Funding Policy – FY23/24 The intent of this policy is to clearly communicate the Town Council’s pension funding objectives, its commitment to employees and the sound financial management of the Town of Oro Valley and maintain compliance with statutory requirements of A.R.S. 38-863.01. The Council shall annually assess the status of the Town’s PSPRS trust fund and take formal action to update this policy in concert with the final annual budget approval. This policy shall also apply to the Town’s participation in the Correction Officer Retirement Plan (CORP). Several terms are used throughout this policy and are defined as follows: Unfunded Actuarial Accrued Liability (UAAL) – Is the difference between trust assets and the estimated future cost of pensions earned by employees. This UAAL results from actual results (interest earnings, member mortality, disability rates, etc.) being different from the assumptions used in previous actuarial valuations. Annual Required Contribution (ARC) – Is the annual amount required to pay into the pension funds, as determined through annual actuarial valuations. It is comprised of two primary components: normal pension cost – which is the estimated cost of pension benefits earned by employees in the current year; and, amortization of UAAL – which is the cost needed to cover the unfunded portion of pensions earned by employees in previous years. The UAAL is collected over a period of time referred to as the amortization period. The ARC is a percentage of the current payroll. Funded Ratio – Is a ratio of fund assets to actuarial accrued liability. The higher the ratio, the better funded the pension is, with 100% being fully funded based on current actuarial valuations. Intergenerational equity – Is a concept used to describe the policy expectation that no generation is burdened by substantially more or less pension costs than past or future generations. The Town’s sworn police employees who are regularly assigned hazardous duty participate in the Public Safety Personnel Retirement System (PSPRS). Selected individuals who serve as dispatchers in the Oro Valley Police Department participate in the CORP plan, which is also administered by the Public Safety Personnel Retirement System. Public Safety Personnel Retirement System (PSPRS) PSPRS is administered as an agent multiple-employer pension plan. An agent multiple-employer plan has two main functions: 1) to comingle assets of all plans under its administration, thus achieving economy of scale for more cost efficient investments, and invest those assets for the benefit of all members under its administration and 2) serve as the statewide uniform administrator for the distribution of benefits. 2 Under an agent multiple-employer plan, each agency participating in the plan has an individual trust fund reflecting that agencies’ assets and liabilities. Under this plan all contributions are deposited to and distributions are made from that fund’s assets, each fund has its own funded ratio and contribution rate, and each fund has a unique annual actuarial valuation. The Town of Oro Valley has one trust fund for police employees. The Town also contributes to the Correction Officer Retirement Plan (CORP), administered by the Public Safety Personnel Retirement System, on behalf of selected individuals who serve as dispatchers in the Oro Valley Police Department. CORP maintains one trust fund for dispatchers. Oro Valley Town Council formally accepts the assets, liabilities, and current funding ratio of the Town’s PSPRS and CORP trust funds from the June 30, 2022 actuarial valuations specified below. Trust Fund Assets Accrued Liability Unfunded Actuarial Accrued Asset/(Liability) Funded Ratio Oro Valley Police (PSPRS) $77,967,201 $76,438,334 $1,528,867 102.0% Oro Valley Dispatchers (CORP) $ 1,710,819 $ 3,721,151 ($2,010,332) 46.0% PSPRS and CORP Funding Goal Pensions that are less than fully funded place the cost of service provided in earlier periods (amortization of UAAL) on current taxpayers. Fully funded pension plans are the best way to achieve taxpayer and member intergenerational equity. The Council’s PSPRS and CORP funding ratio goal is 100% (fully funded) through June 30, 2036 and beyond. Council establishes this goal for the following reasons: • The PSPRS and CORP trust funds represent only the Town of Oro Valley’s liability • The fluctuating cost of an UAAL causes strain on the Town’s budget, affecting the Town’s ability to provide services • A fully funded pension is the best way to achieve taxpayer and member intergenerational equity Council has determined that in order to achieve the 100% funding ratio goal, the following actions will be taken: • Maintain ARC payment from operating revenues – Council is committed to maintaining the full ARC payment (normal cost and UAAL amortization) from operating funds. The estimated combined ARC for FY23/24 is estimated at $3.7 million for PSPRS and at $75,000 for CORP and shall be paid from operating funds. • At such time the ARC is projected to be reduced, the Town should endeavor to continue paying the ARC as defined as the normal cost rate plus an additional contribution of $2.5 million, to maintain the funding ratio goal of 100%. This is due to historically poor investment performance in the Plan and should assist in mitigating that risk should it continue. • Retain 20-year amortization of unfunded liability 3 • Review Local board practices annually • Periodically engage consultants to review actual results and recommend possible adjustments or corrections as necessary Payments to PSPRS will be as follows: • In FY23, the Town will make approximately $2.01M in additional payments to CORP to fund its unfunded actuarial liability. • In FY24 and subsequent years, the Town will continue maintaining a 100% funding ratio by making contributions of $2.5 million per year, above and beyond the normal cost rate payment. If the funding ratio grows to over 110%, the Town Manager through the budget process, may recommend applying funding to other Town priorities. If the funding ratio falls below 100%, future additional payments will be made to restore the funding ratio back to 100%. It is hereby the Town Council’s intent to achieve its goal of 100% funding by June 30, 2036, in accordance with the amortization timeline set forth by the PSPRS and CORP June 30, 2022 Actuarial Valuation The attached appendix shows the historical performance of the unfunded actuarial accrued liability. 4 Appendix A Unfunded Accrued Actuarial Accrued Funded Year Trust Fund Assets Liability Asset/(Liability)Ratio 2014 Oro Valley Police 23,567,852 36,122,643 (12,554,791) 65% 2014 Oro Valley Dispatchers 1,216,956 2,269,744 (1,052,788) 54% 2015 Oro Valley Police 26,200,389 40,452,911 (14,252,522) 65% 2015 Oro Valley Dispatchers 1,205,067 2,362,604 (1,157,537) 51% 2016 Oro Valley Police 29,296,195 48,414,270 (19,118,075) 61% 2016 Oro Valley Dispatchers 1,163,258 2,524,360 (1,361,102) 46% 2017 Oro Valley Police 31,882,797 53,037,566 (21,154,769) 60% 2017 Oro Valley Dispatchers 1,260,798 3,077,649 (1,816,851) 41% 2018 Oro Valley Police 34,172,618 57,022,056 (22,849,438) 60% 2018 Oro Valley Dispatchers 1,337,558 2,945,307 (1,607,749) 45% 2019 Oro Valley Police 37,842,906 62,278,853 (24,435,947) 61% 2019 Oro Valley Dispatchers 1,424,947 3,240,399 (1,815,452) 44% 2020 Oro Valley Police 41,498,361 67,240,526 (25,742,165) 62% 2020 Oro Valley Dispatchers 1,504,732 3,374,933 (1,870,201) 45% 2021 Oro Valley Police 46,773,089 70,792,554 (24,019,465) 66% 2021 Oro Valley Dispatchers 1,649,829 3,551,295 (1,901,466) 46% 2022 Oro Valley Police 77,967,201 76,438,334 1,528,867 102% 2022 Oro Valley Dispatchers 1,710,819 3,721,151 (2,010,332) 46% Source: Town Comprehensive Annual Financial Report for June 30, 2022 – Note 15. 1 Town of Oro Valley Public Safety Personnel Retirement System (PSPRS & CORP) Pension Funding Policy – FY24/25 The intent of this policy is to clearly communicate the Town Council’s pension funding objectives, its commitment to employees and the sound financial management of the Town of Oro Valley and maintain compliance with statutory requirements of A.R.S. 38-863.01. The Council shall annually assess the status of the Town’s PSPRS trust fund and take formal action to update this policy in concert with the final annual budget approval. This policy shall also apply to the Town’s participation in the Correction Officer Retirement Plan (CORP). Several terms are used throughout this policy and are defined as follows: Unfunded Actuarial Accrued Liability (UAAL) – Is the difference between trust assets and the estimated future cost of pensions earned by employees. This UAAL results from actual results (interest earnings, member mortality, disability rates, etc.) being different from the assumptions used in previous actuarial valuations. Annual Required Contribution (ARC) – Is the annual amount required to pay into the pension funds, as determined through annual actuarial valuations. It is comprised of two primary components: normal pension cost – which is the estimated cost of pension benefits earned by employees in the current year; and, amortization of UAAL – which is the cost needed to cover the unfunded portion of pensions earned by employees in previous years. The UAAL is collected over a period of time referred to as the amortization period. The ARC is a percentage of the current payroll. Funded Ratio – Is a ratio of fund assets to actuarial accrued liability. The higher the ratio, the better funded the pension is, with 100% being fully funded based on current actuarial valuations. Intergenerational equity – Is a concept used to describe the policy expectation that no generation is burdened by substantially more or less pension costs than past or future generations. The Town’s sworn police employees who are regularly assigned hazardous duty participate in the Public Safety Personnel Retirement System (PSPRS). Selected individuals who serve as dispatchers in the Oro Valley Police Department participate in the CORP plan, which is also administered by the Public Safety Personnel Retirement System. Public Safety Personnel Retirement System (PSPRS) PSPRS is administered as an agent multiple-employer pension plan. An agent multiple-employer plan has two main functions: 1) to comingle assets of all plans under its administration, thus achieving economy of scale for more cost efficient investments and invest those assets for the benefit of all members under its administration, and 2) serve as the statewide uniform administrator for the distribution of benefits. 2 Under an agent multiple-employer plan, each agency participating in the plan has an individual trust fund reflecting that agencies’ assets and liabilities. Under this plan all contributions are deposited to and distributions are made from that fund’s assets, each fund has its own funded ratio and contribution rate, and each fund has a unique annual actuarial valuation. The Town of Oro Valley has one trust fund for police employees. The Town also contributes to the Correction Officer Retirement Plan (CORP), administered by the Public Safety Personnel Retirement System, on behalf of selected individuals who serve as dispatchers in the Oro Valley Police Department. CORP maintains one trust fund for dispatchers. Oro Valley Town Council formally accepts the assets, liabilities, and current funding ratio of the Town’s PSPRS and CORP trust funds from the June 30, 2023 actuarial valuations specified below. Trust Fund Assets Accrued Liability Unfunded Actuarial Accrued Asset/(Liability) Funded Ratio Oro Valley Police (PSPRS) $81,319,622 $85,636,864 ($4,317,242) 95.0% Oro Valley Dispatchers (CORP) $ 3,929,592 $ 3,910,076 $ 19,516 100.5% PSPRS and CORP Funding Goal Pensions that are less than fully funded place the cost of service provided in earlier periods (amortization of UAAL) on current taxpayers. Fully funded pension plans are the best way to achieve taxpayer and member intergenerational equity. The Council’s PSPRS and CORP funding ratio goal is 100% (fully funded) through June 30, 2036 and beyond. Council establishes this goal for the following reasons: • The PSPRS and CORP trust funds represent only the Town of Oro Valley’s liability • The fluctuating cost of an UAAL causes strain on the Town’s budget, affecting the Town’s ability to provide services • A fully funded pension is the best way to achieve taxpayer and member intergenerational equity Council has determined that in order to achieve the 100% funding ratio goal, the following actions will be taken: • The total contribution rate to the police plan, as a baseline, will be the greater of the total contribution rate made to ASRS for non-sworn employees or the minimum contribution rate per the most recent actuarial report. This will continue until the Town achieves a 100% funding ratio. • The CORP plan does not require any additional contributions as it is fully funded. • Retain 20-year amortization of unfunded liability. • Review Local board practices annually. • Periodically engage consultants to review actual results and recommend possible adjustments or corrections as necessary. 3 Payments to the PSPRS Police pension plan will be as follows: • In FY25, the Town will contribute an additional 14%, above and beyond the total contribution rate prescribed above. Contributions are estimated as follows: Total Tier 1/2 Police pension employer cost at 16.22% plus additional 14% - $1,019,289 + $865,956 = $1,885,245. • In FY26 and beyond, the Town will reevaluate its additional percentage contributions based upon future actuarial valuations and budget capacity. It is hereby the Town Council’s intent to achieve its goal of 100% funding by June 30, 2036, in accordance with the amortization timeline set forth by the PSPRS and CORP June 30, 2023 Actuarial Valuation The attached appendix shows the historical performance of the unfunded actuarial accrued liability. 4 Appendix A Unfunded Accrued Actuarial Accrued Funded Year Trust Fund Assets Liability Asset/(Liability)Ratio 2014 Oro Valley Police 23,567,852 36,122,643 (12,554,791) 65% 2014 Oro Valley Dispatchers 1,216,956 2,269,744 (1,052,788) 54% 2015 Oro Valley Police 26,200,389 40,452,911 (14,252,522) 65% 2015 Oro Valley Dispatchers 1,205,067 2,362,604 (1,157,537) 51% 2016 Oro Valley Police 29,296,195 48,414,270 (19,118,075) 61% 2016 Oro Valley Dispatchers 1,163,258 2,524,360 (1,361,102) 46% 2017 Oro Valley Police 31,882,797 53,037,566 (21,154,769) 60% 2017 Oro Valley Dispatchers 1,260,798 3,077,649 (1,816,851) 41% 2018 Oro Valley Police 34,172,618 57,022,056 (22,849,438) 60% 2018 Oro Valley Dispatchers 1,337,558 2,945,307 (1,607,749) 45% 2019 Oro Valley Police 37,842,906 62,278,853 (24,435,947) 61% 2019 Oro Valley Dispatchers 1,424,947 3,240,399 (1,815,452) 44% 2020 Oro Valley Police 41,498,361 67,240,526 (25,742,165) 62% 2020 Oro Valley Dispatchers 1,504,732 3,374,933 (1,870,201) 45% 2021 Oro Valley Police 46,773,089 70,792,554 (24,019,465) 66% 2021 Oro Valley Dispatchers 1,649,829 3,551,295 (1,901,466) 46% 2022 Oro Valley Police 77,967,201 76,438,334 1,528,867 102% 2022 Oro Valley Dispatchers 1,710,819 3,721,151 (2,010,332) 46% 2023 Oro Valley Police 81,319,622 85,636,864 (4,317,242) 95% 2023 Oro Valley Dispatchers 3,929,592 3,910,076 19,516 100% Source: Town Comprehensive Annual Financial Report for June 30, 2023 – Note 16. ARIZONA CORRECTIONS OFFICER RETIREMENT PLAN TOWN OF ORO VALLEY - DISPATCHERS (556) ACTUARIAL VALUATION AS OF JUNE 30, 2023 CONTRIBUTIONS APPLICABLE TO THE PLAN/FISCAL YEAR ENDING JUNE 30, 2025 VIA E-MAIL 13420 Parker Commons Boulevard, Suite 104 Fort Myers, FL 33912 ꞏ (239) 433-5500 ꞏ Fax (239) 481-0634 ꞏ www.foster-foster.com December 2023 Board of Trustees Arizona Corrections Officer Retirement Plan Phoenix, AZ Re: Actuarial Valuation Report as of June 30, 2023 for Town of Oro Valley - Dispatchers (556) Dear Members of the Board: We are pleased to present to the Board this report of the annual actuarial valuation of the Arizona Corrections Officer Retirement Plan (CORP). The valuation was performed to determine whether the assets and contributions are sufficient to provide the prescribed benefits and to develop the appropriate funding requirements for the applicable plan year. This report was prepared at the request of the Board and is intended for use by CORP and those designated or approved by the Board. It documents the valuation of the consolidated plan and provides summary information for CORP participating employers. This report may be provided to parties other than CORP only in its entirety and only with the permission of the Board. Foster & Foster is not responsible for the unauthorized use of this report. The valuation has been conducted in accordance with generally accepted actuarial principles and practices, including the applicable Actuarial Standards of Practice as issued by the Actuarial Standards Board, and reflects laws and regulations issued to date pursuant to the provisions of Title 38, Chapter 5, Article 6 of the Arizona Revised Statutes, as well as applicable federal laws and regulations. In our opinion, the assumptions used in this valuation, as adopted by the Board of Trustees, represent reasonable expectations of anticipated plan experience. Future actuarial measurements may differ significantly from the current measurements presented in this report for a variety of reasons including changes in applicable laws, changes in plan provisions, changes in assumptions, or plan experience differing from expectations. Due to the limited scope of the valuation, we did not perform an analysis of the potential range of such future measurements. The computed contribution rates shown in the “Contribution Results” section should be considered minimum contribution rates that comply with the Board’s funding policy and Arizona Statutes. Users of this report should be aware that contributions made at that rate do not guarantee benefit security. Given the importance of benefit security to any retirement system, we suggest that contributions to the Plan in excess of those presented in this report be considered. The funding percentages and unfunded accrued liability as measured based on the actuarial value of assets will differ from similar measures based on the market value of assets. These measures, as provided, are appropriate for determining the adequacy of future contributions, but may not be appropriate for the purpose of settling a portion or all of the Plan’s liabilities. Board of Trustees Arizona Corrections Officer Retirement Plan | Page 2 13420 Parker Commons Boulevard, Suite 104 Fort Myers, FL 33912 ꞏ (239) 433-5500 ꞏ Fax (239) 481-0634 ꞏ www.foster-foster.com In conducting the valuation, we have relied on personnel, plan design, and asset information supplied by CORP through June 30, 2023 and the actuarial assumptions and methods described in the Actuarial Assumptions section of this report. While we cannot verify the accuracy of all this information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial accuracy of the information and believe that it has produced appropriate results. This information, along with any adjustments or modifications, is summarized in various sections of this report. This valuation assumes the continuing ability of the participating employers to make the contributions necessary to fund this plan. A determination regarding whether or not the participating employers are actually able to do so is outside our scope of expertise. Consequently, we did not perform such an analysis. In performing the analysis, we used third-party software to model (calculate) the underlying liabilities and costs. These results are reviewed in the aggregate and for individual sample lives. The output from the software is either used directly or input into internally developed models to generate the costs. All internally developed models are reviewed as part of the process. As a result of this review, we believe that the models have produced reasonable results. We do not believe there are any material inconsistencies among assumptions or unreasonable output produced due to the aggregation of assumptions. The undersigned are familiar with the immediate and long-term aspects of pension valuations and meet the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. All sections of this report are considered an integral part of the actuarial opinions. To our knowledge, no associate of Foster & Foster, Inc. working on valuations of the program has any direct financial interest or indirect material interest in the Arizona Corrections Officer Retirement Plan, nor does anyone at Foster & Foster, Inc. act as a member of the Board of Trustees of the Arizona Corrections Officer Retirement Plan. Thus, there is no relationship existing that might affect our capacity to prepare and certify this actuarial report. If there are any questions, concerns, or comments about any of the items contained in this report, please contact us at 239-433-5500. Respectfully Submitted, Foster & Foster, Inc. By: ______________________________ Bradley R. Heinrichs, FSA, EA, MAAA By: ______________________________ Paul M. Baugher, FSA, EA, MAAA Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) TABLE OF CONTENTS I. Summary of Report ..........................................................................................................................................1 II. Contribution Results ........................................................................................................................................4 III. Liability Support ............................................................................................................................................8 IV. Asset Support ............................................................................................................................................... 11 V. Member Statistics .......................................................................................................................................... 14 VI. Actuarial Assumptions and Methods ........................................................................................................... 17 VII. Discussion of Risk ...................................................................................................................................... 22 VIII. Summary of Current Plan.......................................................................................................................... 26 IX. Actuarial Funding Policy ............................................................................................................................. 31 X. Glossary ........................................................................................................................................................ 35 Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 1 I. SUMMARY OF REPORT The regular annual actuarial valuation of the Arizona Corrections Officer Retirement Plan for the Town of Oro Valley - Dispatchers, performed as of June 30, 2023, has been completed and the results are presented in this Report. The purpose of this valuation is to:  Compute the liabilities associated with benefits likely to be paid on behalf of current retired and active members. This information is contained in the section entitled “Liability Support.”  Compare accumulated assets with the liabilities to assess the funded condition. This information is contained in the section entitled “Liability Support.”  Compute the employers’ recommended contribution rates for the Fiscal Year beginning July 1, 2024. This information is contained in the section entitled “Contribution Results.” 1. Key Valuation Results The funded status as of June 30, 2023 and the employer contribution amounts applicable to the plan/fiscal year ending June 30, 2025 are as follows: Tier 1 & Tier 2 Members Pension Health Total Employer Contribution Rate 6.00% 0.00% 6.00% Funded Status 100.5% 284.9% 101.9% 2. Comparison of Key Results to Prior Year The chart below compares the results from this valuation with the results of the prior year’s valuation (as of June 30, 2022): Contribution Rate Tier 1 & Tier 2 Members Valuation Date Pension Health Total June 30, 2022 128.44% 0.00% 128.44% June 30, 2023 6.00% 0.00% 6.00% Funded Status Tier 1 & Tier 2 Members Valuation Date Pension Health Total June 30, 2022 46.0% 285.2% 47.8% June 30, 2023 100.5% 284.9% 101.9% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 2 3. Reasons for Change Changes in the results from the prior year’s valuation can be illustrated in the following tables along with high-level explanations for the entire Plan below: Contribution Rate Tier 1 & Tier 2 Pension Health Contribution Rate Last Valuation 128.44% 0.00% Asset Experience 0.39% (0.02%) Payroll Base (12.30%) 0.02% Liability Experience 8.99% (0.05%) Additional Contributions (119.58%) 0.00% Assumption/Method Change 0.00% 0.00% Actuarial Audit (2.50%) 0.01% Other 2.56% 0.04% Contribution Rate This Valuation 6.00% 0.00% Funded Status Tier 1 & Tier 2 Pension Health Funded Status Last Valuation 46.0% 285.2% Asset Experience (0.2%) 0.8% Liability Experience (4.6%) (6.2%) Additional Contributions 51.4% 0.0% Assumption/Method Change 0.0% 0.0% Actuarial Audit 0.9% (1.5%) Other 7.0% 6.6% Funded Status This Valuation 100.5% 284.9% Assets Experience – Asset gains and losses (relative to the assumed earnings rate) are smoothed over seven years for Tiers 1 and 2. The return on the market value of assets for the year ending June 30, 2023 was 7.7%. On a smoothed, actuarial value of assets basis, however, the average return was 6.8%. This return fell just short of the 2022 assumed earnings rate of 7.2%. Payroll Base – Under the current amortization policy for Tiers 1 and 2, the contribution rate is developed as a level percentage of payroll. Payroll for this purpose includes members of this plan and defined contribution plan’s members that would have been in this plan. To the extent that actual payroll is lower/greater than last year’s projected payroll, the contribution rate will increase/decrease as a result. Liability Experience – Experience overall was unfavorable, driven by higher than expected salary increases for actives. Additional Contribution – Monies contributed in excess of the required contribution rate in order to pay down the unfunded liability. Assumption / Method Change – The Board continued the decrease in the payroll growth assumption from 2.00% to 1.50%. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 3 Audit Adjustment – An independent actuarial audit was performed during 2023, with recommendations made in a detailed report. Following discussions with staff, several changes (both numeric and written) were made as part of this valuation to improve the report going forward. The most notable change was prorating the COLA benefit in the first year of retirement and revisiting the valuation of the reverse DROP benefit. Other – This is the combination of all other factors that could impact liabilities year-over-year, with the primary sources being changes in member data. 4. Looking Ahead The volatility in annual returns, which have produced both gains and losses in recent years, was dampened by the asset smoothing reflected in the actuarial value of assets. The significant loss realized this year will, in the absence of other gains, put upward pressure on the contribution rate next year. If the June 30, 2023 pension valuation results were based on the market value of assets instead of the actuarial value of assets, the pension funded percentage for Tiers 1 and 2 would be 98.5% (instead of 100.5%) and the pension employer contribution requirement would be 6.00% of payroll (instead of 6.00%). 5. Conclusion The funded status for Tiers 1 and 2 will continue to improve if assumptions are met and contributions at least equal to the rates determined for each employer are made to the fund. The recent adoption of a layered amortization approach along with a plan to systematically lower the payroll growth assumption was an excellent step to improve funding and ensure the Plan is on a viable path. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 4 II. CONTRIBUTION RESULTS Contribution Requirements Development of Employer Contributions - Tiers 1 & 2 Members Valuation Date June 30, 2023 June 30, 2022 Applicable to Fiscal Year Ending 2025 2024 Rate Dollar Rate Dollar Pension Normal Cost Total Normal Cost 9.16% $16,676 10.21% $16,408 Employee Cost (7.65%) (13,924) (7.96%) (12,792) Employer (Net) Normal Cost 1.51% 2,752 2.25% 3,616 Amortization of Unfunded Liability 0.00% 0 126.19% 202,799 Total Employer Cost (Pension) 1.51% 2,752 128.44% 206,415 Health Normal Cost 0.21% $377 0.23% $364 Amortization of Unfunded Liability (0.21%) (377) (0.23%) (364) Total Employer Cost (Health) 0.00% 0 0.00% 0 Total Employer Cost (Pension + Health) 1.51% 2,752 128.44% 206,415 Total Minimum Contribution Requirement (if applicable) 6.00% 6.00% Alternate Contribution Rate (ACR) * 6.00% 126.19% Underlying Payroll (as of valuation date) 182,016 160,709 * The Alternate Contribution Rate is the sum of the positive amortization rates for Tiers 1 & 2 Pension and Health (subject to a 6% minimum) and is charged when retirees return to active status. The results above are shown both prior to and after the application of the statutory minimum contribution requirement of 6% of payroll. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 5 Development of Employer Contributions – Tier 3 Members Valuation Date June 30, 2023 June 30, 2022 Applicable to Fiscal Year Ending 2025 2024 Defined Contribution (DC) Retirement Plan Rate Dollar Rate Dollar Tier 3 DC Only Employee Cost 7.00% $ 0 7.00% $ 0 Employee Health Subsidy Program Cost 0.23% 0 0.17% 0 Employee Disability Program Cost 0.44% 0 0.45% 0 Total Employee Cost 7.67% 0 7.62% 0 Employer Cost 5.00% 0 5.00% 0 Employer Health Subsidy Program Cost 0.23% 0 0.17% 0 Employer Disability Program Cost 0.44% 0 0.45% 0 Total Employer Cost (before Legacy) 5.67% 0 5.62% 0 ER Legacy Cost of Tiers 1 & 2 Amort of Unfunded Liabilities * 0.00% 0 126.19% 0 Total Employer Cost 5.67% 0 131.81% 0 Underlying Payroll (as of valuation date) 0 0 * Pursuant to ARS § 38-891(A), the amortization of positive unfunded liabilities for Tiers 1 & 2 shall be applied to all Tier 3 payroll on a level percent basis. However, while it is statutorily required to present the rates in this manner, these are the minimums where alternate methods for paying down that unfunded liability is at the discretion of each employer. Further, to understand the effects of reform in relation to Tier 3, compare the total rate of Tier 3 before application of those legacy costs. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 6 Contribution Rate Summary Tier 1 Tier 2 Tier 3 Membership Date On or After 7/1/1986 1/1/2012 7/1/2018 Available Retirement Plan DB Plan DB Plan DB Plan 1 DC Plan Employee Contribution Rate CORP DB Rate 7.65% 7.65% N/A CORP DC Rate 2 7.00% CODCRP Health Subsidy Program Rate 0.23% CODCRP Disability Program Rate 0.44% Total EE Contribution Rate 7.65% 7.65% N/A 7.67% Employer Contribution Rate CORP DB Normal Cost 1.51% 1.51% N/A CORP DB Tier 1 & 2 Legacy Cost 3 0.00% 0.00% N/A 0.00% CORP DC Rate 5.00% CODCRP Health Subsidy Program Rate 0.23% CODCRP Disability Program Rate 0.44% Total ER Contribution Rate 1.51% 1.51% N/A 5.67% 1 Applicable to AOC Probation and Surveillance only. 2 Although the default contribution rate is 7%, Tier 3 members in the DC plan may choose an employee contribution rate anywhere between 5% and 40%. 3 Per statute (ARS § 38-891(A), any positive unfunded liability for Tiers 1 and 2 is to be applied to all Tier 3 (DB and DC) payrolls. Exhibit summarizes employee and employer contributions based on Statute and the results of June 30, 2023 actuarial valuation. Pension and health components are combined, where applicable. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 7 Impact of Additional Contributions Additional Contribution (000s) $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 Impact On Funded Status June 30, 2023 100.5% 100.8% 101.0% 101.3% 101.5% 101.8% 102.0% 102.3% 102.5% 102.8% 103.1% FYE 2025 Contribution Rate 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Table shows the hypothetical change in the funded status and contribution rate from the June 30, 2023 actuarial valuation results for Tiers 1 & 2 if an additional contribution of the amount shown had been made to the Fund on June 30, 2023. This illustration can help estimate the impact of contributing additional monies to the fund in the future. Historical Summary of Employer Rates Pension Health Valuation Date June 30 Fiscal Year Ending June 30 Normal Cost Unfunded Amortization Total Normal Cost Unfunded Amortization Total TIERS 1 & 2 2019 2021 3.03% 72.50% 75.53% 0.34% (0.34%) 0.00% 2020 2022 2.55% 76.68% 79.23% 0.33% (0.33%) 0.00% 2021 2023 2.83% 115.62% 118.45% 0.24% (0.24%) 0.00% 2022 2024 2.25% 126.19% 128.44% 0.23% (0.23%) 0.00% 2023 2025 1.51% 0.00% 1.51% 0.21% (0.21%) 0.00% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 8 III. LIABILITY SUPPORT Liabilities and Funded Ratios by Benefit - Tiers 1 & 2 Pension and health liabilities were not impacted under the lateral transfer methodology. June 30, 2023 June 30, 2022 Pension Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 2,621,942 $ 2,564,326 Vested Members 72,838 66,659 Active Members 1,309,393 1,189,106 Total Actuarial Present Value of Benefits 4,004,173 3,820,091 Actuarial Accrued Liability (AAL) All Inactive Members 2,694,780 2,630,985 Active Members 1,215,296 1,090,166 Total Actuarial Accrued Liability 3,910,076 3,721,151 Actuarial Value of Assets (AVA) 3,929,592 1,710,819 Unfunded Actuarial Accrued Liability (19,516) 2,010,332 Funded Ratio (AVA / PVB) 98.1% 44.8% Funded Ratio (AVA / AAL) 100.5% 46.0% Health Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 12,864 $ 11,893 Active Members 19,194 18,507 Total Present Value of Benefits 32,058 30,400 Actuarial Accrued Liability (AAL) All Inactive Members 12,864 11,893 Active Members 17,338 16,594 Total Actuarial Accrued Liability 30,202 28,487 Actuarial Value of Assets (AVA) 86,045 81,248 Unfunded Actuarial Accrued Liability (55,843) (52,761) Funded Ratio (AVA / PVB) 268.4% 267.3% Funded Ratio (AVA / AAL) 284.9% 285.2% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 9 Derivation of Experience (Gain)/Loss Tiers 1 & 2 Pension Health (1) Unfunded Actuarial Accrued Liability as of June 30, 2022 2,010,332 (52,761) (2) Normal Cost Developed in Last Valuation 3,616 364 (3) Actual Contributions 2,217,992 0 (4) Expected Interest On (1), (2), and (3) 66,544 (3,773) (5) Expected Unfunded Actuarial Accrued Liability as of June 30, 2023 (1)+(2)-(3)+(4) (137,500) (56,170) (6) Changes to UAAL Due to Assumptions, Methods and Benefits 0 0 (7) Change to UAAL Due to Actuarial (Gain)/Loss 117,984 327 (8) Unfunded Actuarial Accrued Liability as of June 30, 2023 (19,516) (55,843) Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 10 Amortization of Unfunded Liabilities - Tiers 1 & 2 Date Established Outstanding Balance Years Remaining Amortization Rate Pension 6/30/2019 0 13 0.00% 6/30/2021 110,053 13 6.83% 6/30/2022 151,212 14 8.97% 6/30/2023 (280,781) 15 (16.00%) Total (19,516) (0.20%) Health 6/30/2019 0 10 0.00% 6/30/2021 0 10 0.00% 6/30/2022 0 10 0.00% 6/30/2023 (52,823) 10 (3.89%) Total (52,823) (3.89%) Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 11 IV. ASSET SUPPORT Statement of Changes in Fiduciary Net Position for Year Ended June 30, 2023 Market Value Basis Tiers 1 & 2 Pension Health Additions Contributions Member Contributions $ 39,299,113 $ 0 Employer Contributions 262,826,560 0 Health Insurance Contributions 0 400,624 Total Contributions 302,125,673 400,624 Investment Income Net Increase in Fair Value 206,871,089 7,792,635 Interest and Dividends 58,536,169 2,205,001 Other Income 35,552,844 1,358,189 Less Investment Expenses (8,473,773) (264,366) Net Investment Income 292,486,329 11,091,459 Transfers In 21,041 0 Total Additions 594,633,043 11,492,083 Deductions Distributions to Members Benefit Payments 211,371,171 0 Health Insurance Subsidy 0 4,772,885 Refund of Contributions 16,641,798 0 Total Distributions 228,012,969 4,772,885 Administrative Expenses 4,015,477 144,521 Transfers Out 252,107 0 Other 0 0 Total Deductions 232,280,553 4,917,406 Net Increase / (Decrease) 362,352,490 6,574,677 Net Position Held in Trust Prior Valuation 3,713,400,295 145,825,543 Beginning of the Year Adjustment (1) 1 End of the Year 4,075,752,784 152,400,221 Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 12 Development of Pension Actuarial Value of Assets - Tiers 1 & 2 A. Investment Income A1. Actual Investment Income $ 288,470,852 A2. Expected Amount for Immediate Recognition 269,978,335 A3. Amount Subject to Amortization 18,492,517 Year Ended June 30 B. Amortization Schedule 2023 2024 2025 2026 2027 2028 2029 2023 Experience (A3 / 7) 2,641,788 2,641,788 2,641,788 2,641,788 2,641,788 2,641,788 2,641,789 2022 Experience (55,178,167) (55,178,167) (55,178,167) (55,178,167) (55,178,167) (55,178,167) 2021 Experience 57,594,125 57,594,125 57,594,125 57,594,125 57,594,122 2020 Experience (13,457,282) (13,457,282) (13,457,282) (13,457,281) 2019 Experience (5,782,115) (5,782,115) (5,782,112) 2018 Experience (1,511,828) (1,511,825) 2017 Experience 8,429,733 Total Amortization (7,263,746) (15,693,476) (14,181,648) (8,399,535) 5,057,743 (52,536,379) 2,641,789 C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2022 3,822,268,062 C2. Non-investment Net Cash Flow 73,881,638 C3. Preliminary Actuarial Value of Assets, June 30, 2023 (A2 + B + C1 + C2) 4,158,864,289 C4. Market Value of Assets, June 30, 2023 4,075,752,784 3,851,063 C5. Final Actuarial Value of Assets, June 30, 2023 (C3 Within 20% Corridor of C4) 4,158,864,289 3,929,592 D. Rates of Return D1. Market Value Rate of Return 7.7% D2. Actuarial Value Rate of Return 6.8% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 13 Development of Health Actuarial Value of Assets - Tiers 1 & 2 A. Investment Income A1. Actual Investment Income $ 10,946,938 A2. Expected Amount for Immediate Recognition 10,344,773 A3. Amount Subject to Amortization 602,165 Year Ended June 30 B. Amortization Schedule 2023 2024 2025 2026 2027 2028 2029 2023 Experience (A3 / 7) 86,024 86,024 86,024 86,024 86,024 86,024 86,021 2022 Experience (2,435,759) (2,435,759) (2,435,759) (2,435,759) (2,435,759) (2,435,757) 2021 Experience 3,479,700 3,479,700 3,479,700 3,479,700 3,479,703 2020 Experience (806,920) (806,920) (806,920) (806,919) 2019 Experience (382,214) (382,214) (382,213) 2018 Experience (81,544) (81,541) 2017 Experience 574,693 Total Amortization 433,980 (140,710) (59,168) 323,046 1,129,968 (2,349,733) 86,021 C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2022 147,004,307 C2. Non-investment Net Cash Flow (4,372,261) C3. Preliminary Actuarial Value of Assets, June 30, 2023 (A2 + B + C1 + C2) 153,410,799 C4. Market Value of Assets, June 30, 2023 152,400,221 85,478 C5. Final Actuarial Value of Assets, June 30, 2023 (C3 Within 20% Corridor of C4) 153,410,799 86,045 D. Rates of Return D1. Market Value Rate of Return 7.6% D2. Actuarial Value Rate of Return 7.4% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 14 V. MEMBER STATISTICS Valuation Data Summary – Tiers 1 & 2 June 30, 2023 June 30, 2022 Actives Number 2 2 Average Current Age 52.9 51.9 Average Age at Employment 32.3 32.3 Average Past Service 20.6 19.6 Average Annual Salary $72,947 $69,946 Actives (transferred) Number 0 0 Average Current Age N/A N/A Average Age at Employment N/A N/A Average Past Service N/A N/A Average Annual Salary N/A N/A Retirees Number 4 4 Average Current Age 67.4 66.4 Average Annual Benefit $40,267 $39,477 Beneficiaries Number 1 1 Average Current Age 69.0 68.0 Average Annual Benefit $37,785 $37,044 Disability Retirees Number 1 1 Average Current Age 52.0 51.0 Average Annual Benefit $4,886 $4,791 Inactive / Vested Number 3 3 Average Current Age 42.9 41.9 Average Accumulated Contributions $24,935 $21,431 Total Number 11 11 Former Members (transferred) 0 0 Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 15 Counts and Pay Summary by Service - Tiers 1 & 2 Past Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30+ Total Count Total Pay Average Pay < 25 0 0 0 0 0 0 0 0 0 0 25 - 29 0 0 0 0 0 0 0 0 0 0 30 - 34 0 0 0 0 0 0 0 0 0 0 35 - 39 0 0 0 0 0 0 0 0 0 0 40 - 44 0 0 0 0 0 0 0 0 0 0 45 - 49 0 0 0 0 0 0 0 0 0 0 50 - 54 0 0 0 1 0 1 0 2 145,894 72,947 55 - 59 0 0 0 0 0 0 0 0 0 0 60 - 64 0 0 0 0 0 0 0 0 0 0 65+ 0 0 0 0 0 0 0 0 0 0 Total 0 0 0 1 0 1 0 2 145,894 72,947 Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 16 In-Payment Counts and Benefit Summary - Tiers 1 & 2 Age Count Average Annual Benefit < 40 0 $ 0 40 - 44 0 0 45 - 49 0 0 50 - 54 1 4,886 55 - 59 1 46,636 60 - 64 0 0 65 - 69 2 45,284 70 - 74 1 26,210 75 - 79 1 35,436 80 - 84 0 0 85 - 89 0 0 90 - 94 0 0 95 - 99 0 0 100+ 0 0 Total 6 33,956 “In-Payment” refers to retired, beneficiary, and disabled members. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 17 VI. ACTUARIAL ASSUMPTIONS AND METHODS Interest Rate 7.20% per year. This is the assumed earnings rate on System assets, compounded annually, net of investment and administrative expenses. Salary Increases See table at the end of this section. This is an annual increase for individual member’s salary. These rates are based on a 2022 experience study using actual plan experience. Inflation 2.50%. Tier 3 Compensation Limit $72,947 for calendar 2023. Assumed increases of 2.00% per year thereafter. Cost-of-Living Adjustment 1.85%. Mortality Rates These rates are used to project future decrements from the population due to death. Active Lives: PubS-2010 Employee mortality, adjusted by a factor of 1.28 for male members and 1.11 for female members, with generational improve- ments using 85% of the most recent projection scale (currently Scale MP-2021). 100% of active deaths are assumed to be in the line of duty. Inactive Lives: PubS-2010 Healthy Retiree mortality, adjusted by a factor of 1.33 for male retirees and 1.13 for female retirees, with generational improve- ments using 85% of the most recent projection scale (currently Scale MP-2021). Beneficiaries: PubS-2010 Survivor mortality, adjusted by a factor of 0.99 for male beneficiaries and adjusted by a factor of 1.09 for female beneficiar- ies, with generational improvements with 85% of most recent projec- tion scale (currently Scale MP-2021). Disabled Lives: PubS-2010 Disabled mortality, adjusted by a factor of 1.02 for male disabled members and 0.98 for female disabled members, with generational improvements using 85% of the most recent projection scale (currently Scale MP-2021). Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 18 The mortality assumptions sufficiently accommodate anticipated future mortality improvements. Retirement These rates are used to project future decrements from the active population due to retirement. The rates below are based on a 2022 experience study using actual plan experience. Tier 1 – reaching 20 (25 for dispatchers) years of service after age 62: Age-related rates based on age at retirement: 35% per year from age 62 - 74 and 100% assumed at age 75. Tier 1 – reaching 20 (25 for dispatchers) years of service before age 62: Service-related rates based on service at retirement. See complete table of rates at the end of this section. Tier 2: Age-related rates based on age at retirement: Termination Rate These rates are used to project future decrements from the active population due to termination. Complete table of rates based on service at termination are provided at the end of this section. The rates apply to members prior to retirement eligibility and are based on a 2022 experience study using actual plan experience. Disability Rate These rates are used to project future decrements from the active population due to disability. Complete table of rates based on age at disability are provided at the end of this section. These rates are based on a 2022 experience study using actual plan experience. 80% of disablements are assumed to be duty-related. Marital Status For active members, 75% of males and 50% of females are assumed to be married. Actual marital status is used, where applicable, for inactive members. Spouse’s Age Male spouses are assumed to be two years older than female members and female spouses are assumed to be three years younger Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 19 than males members. Benefit Commencement Deferred members are assumed to commence benefits as follows:  Less than 10 years service (all tiers): immediate refund of contributions  Tier 1 (10+ years service): life annuity payable at age 62  Tier 2 (10+ years service): immediate refund of contributions Reverse DROP Election Based on experience provided by PSPRS, 20% of eligible members are assumed to elect the reverse DROP benefit. Interest is credited at 2.00% annually. Health Care Utilization For active members, 60% of retirees are expected to utilize retiree health care. Actual utilization is used for inactive members. Funding Method Entry Age Normal Cost Method. Lateral Transfers When active members transfer between employers, the new employer’s liability starts from their new date of hire with no past service liability (i.e., all liability is accrued through normal cost). Per PSPRS administrative decision, once the new employer’s liability is fully funded, the liability will reflect all past service liability. Actuarial Asset Method Method described below. Note that during periods when investment performance exceeds (falls short) of the assumed rate, the actuarial value of assets will tend to be less (greater) than the market value of assets. Tiers 1 & 2: Each year the assumed investment income is recognized in full while the difference between actual and assumed investment income are smoothed over a 7-year period subject to a 20% corridor around the market value. Funding Policy Amortization Method Tiers 1 & 2: Any positive UAAL (assets less than liabilities) is amortized using a layered approach beginning with the June 30, 2020 valuation, with new amounts determined according to a Level Dollar method over a closed period of 15 years (phased into from current period of at most 30 years). Initial layer from June 30, 2019 valuation continues to be amortized according to a Level Percentage of Payroll method. Any negative UAAL (assets greater than liabilities) is amortized according to a Level Dollar method over an open period of 20 years. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 20 Payroll Growth 1.50% per year. This is annual increase for total employer payroll. Changes to Actuarial Assumptions and Methods Since the Prior Valuation The payroll growth assumption was lowered from 2.00% to 1.50%. There were no method changes since the prior valuation. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 21 Retirement Rates Tier 1 20 (25) years before Age 62 Termination Rates Disability Rates Salary Scale Service Rate Service Tier 1 and Tier 2 Tier 3 Age Rate Rate 20 32% 0 23.0% 15.0% 20 0.020% 6.25% 21 32% 1 20.0% 13.5% 21 0.020% 6.00% 22 20% 2 16.5% 12.0% 22 0.020% 5.50% 23 17% 3 15.5% 11.0% 23 0.020% 5.25% 24 17% 4 14.0% 9.0% 24 0.020% 5.25% 25 17% 5 10.5% 8.0% 25 0.020% 5.25% 26 24% 6 10.0% 7.0% 26 0.020% 5.25% 27 17% 7 9.0% 6.0% 27 0.020% 5.00% 28 17% 8 8.0% 6.0% 28 0.020% 5.00% 29 17% 9 8.0% 6.0% 29 0.020% 5.00% 30 25% 10 8.0% 6.0% 30 0.020% 4.75% 31 25% 11 6.5% 2.5% 31 0.020% 4.75% 32 25% 12 5.0% 2.5% 32 0.020% 4.50% 33 25% 13 4.0% 2.5% 33 0.020% 4.50% 34 30% 14 3.0% 2.5% 34 0.020% 4.25% 35 30% 15 3.0% 2.5% 35 0.035% 4.25% 36 30% 16 2.0% 2.0% 36 0.035% 4.00% 37+ 100% 17 2.0% 1.5% 37 0.035% 4.00% 18 2.0% 1.0% 38 0.035% 3.75% 19 2.0% 0.5% 39 0.035% 3.75% 20+ 2.0% 0.5% 40 0.045% 3.75% 41 0.045% 3.75% 42 0.045% 3.75% 43 0.045% 3.50% 44 0.045% 3.50% 45 0.055% 3.50% 46 0.055% 3.50% 47 0.055% 3.50% 48 0.055% 3.50% 49 0.055% 3.50% 50 0.080% 3.50% 51 0.080% 3.50% 52 0.080% 3.25% 53 0.080% 3.25% 54 0.080% 3.25% 55 0.100% 3.25% 56 0.100% 3.25% 57 0.100% 3.25% 58 0.100% 3.00% 59 0.100% 3.00% 60 0.200% 3.00% 61+ 0.000% 3.00% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 22 VII. DISCUSSION OF RISK ASOP No. 51, Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions, states that the actuary should identify risks that, in the actuary’s professional judgment, may reasonably be anticipated to significantly affect the plan’s future financial condition. Throughout this report, actuarial results are determined under various assumption scenarios. These results are based on the premise that all future plan experience will align with the plan’s actuarial assumptions; however, there is no guarantee that actual plan experience will align with the plan’s assumptions. Whenever possible, the recommended assumptions in this report reflect conservatism to allow for some margin of unfavorable future plan experience. However, it is still possible that actual plan experience will differ from anticipated experience in an unfavorable manner that will negatively impact the plan’s funded position. Below are examples of ways in which plan experience can deviate from assumptions and the potential impact of that deviation. Typically, this results in an actuarial gain or loss representing the current-year financial impact on the plan’s unfunded liability of the experience differing from assumptions; this gain or loss is amortized over a period of time determined by the plan’s amortization method. When assumptions are selected that adequately reflect plan experience, gains and losses typically offset one another in the long term, resulting in a relatively low impact on the plan’s contribution requirements associated with plan experience. When assumptions are too optimistic, losses can accumulate over time and the plan’s amortization payment could potentially grow to an unmanageable level.  Investment Return: When the rate of return on the Actuarial Value of Assets falls short of the assumption, this produces a loss representing assumed investment earnings that were not realized. Further, it is unlikely that the plan will experience a scenario that matches the assumed return in each year as capital markets can be volatile from year to year. Therefore, contribution amounts can vary in the future.  Salary Increases: When a plan participant experiences a salary increase that was greater than assumed, this produces a loss representing the cost of an increase in anticipated plan benefits for the participant as compared to the previous year. The total gain or loss associated with salary increases for the plan is the sum of salary gains and losses for all active participants.  Payroll Growth: The plan’s payroll growth assumption, if one is used, causes a predictable annual increase in the plan’s amortization payment in order to produce an amortization payment that remains constant as a percentage of payroll if all assumptions are realized. If payroll does not increase according to the plan’s payroll growth assumption, the plan’s amortization payment can increase significantly as a percentage of payroll even if all assumptions other than the payroll growth assumption are realized.  Demographic Assumptions: Actuarial results take into account various potential events that could happen to a plan participant, such as retirement, termination, disability, and death. Each of these potential events is assigned a liability based on the likelihood of the event and the financial consequence of the event for the plan. Accordingly, actuarial liabilities reflect a blend of financial consequences associated with various possible outcomes (such as retirement at one of various possible ages). Once the outcome is known (e.g. the participant retires) the liability is adjusted to reflect the known outcome. This adjustment Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 23 produces a gain or loss depending on whether the outcome was more or less favorable than other outcomes that could have occurred.  Contribution risk: This risk results from the potential that actual employer contributions may deviate from actuarially determined contributions, which are determined in accordance with the Board’s funding policy. The funding policy is intended to result in contribution requirements that if paid when due, will result in a reasonable expectation that assets will accumulate to be sufficient to pay plan benefits when due. Contribution deficits, particularly large deficits and those that occur repeatedly, increase future contribution requirements and put the plan at risk for not being able to pay plan benefits when due. Impact of Plan Maturity on Risk For newer pension plans, most of the participants and associated liabilities are related to active members who have not yet reached retirement age. As pension plans continue in operation and active members reach retirement ages, liabilities begin to shift from being primarily related to active members to being shared amongst active and retired members. Plan maturity is a measure of the extent to which this shift has occurred. It is important to understand that plan maturity can have an impact on risk tolerance and the overall risk characteristics of the plan. For example, plans with a large amount of retired liability do not have as long of a time horizon to recover from losses (such as losses on investments due to lower than expected investment returns) as plans where the majority of the liability is attributable to active members. For this reason, less tolerance for investment risk may be warranted for highly mature plans with a substantial inactive liability. Similarly, mature plans paying substantial retirement benefits resulting in a small positive or net negative cash flow can be more sensitive to near term investment volatility, particularly if the size of the fund is shrinking, which can result in less assets being available for investment in the market. To assist with determining the maturity of the plan, we have provided some relevant metrics in the table following titled “Plan Maturity Measures and Other Risk Metrics.” For a better understanding of the overall Plan and the impact of these risks, please refer to the consolidated CORP valuation report. Low Default-Risk Obligation Measure ASOP No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions, was revised as of December 2021 to include a “low-default-risk obligation measure” (LDROM). This liability measure is consistent with the determination of the actuarial accrued liability shown on pages 8 and 9 in terms of member data, plan provisions, and assumptions/methods, including the use of the Entry Age Normal Cost Method, except that the interest rate is tied to low-default-risk fixed income securities. The S&P Municipal Bond 20 Year High Grade Rate Index (daily rate closest to, but not later than, the measurement date) was selected to represent a current market rate of low risk but longer-term investments that could be included in a low-risk asset portfolio. The interest rate used in this valuation was 4.13%, resulting in an LDROM of $5,855,305. The LDROM should not be considered the “correct” liability measurement; it simply shows a possible outcome if the Board elected to hold a very low risk asset portfolio. The Board actually invests the pension plan’s contributions in a diversified portfolio of stocks and bonds and other investments with the objective of maximizing investment returns at a reasonable level of risk. Consequently, the difference between the plan’s Actuarial Accrued Liability disclosed earlier in this section and the LDROM can be thought of as representing the expected taxpayer savings from investing in the plan’s diversified portfolio compared to investing only in high quality bonds. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 24 The actuarial valuation reports the funded status and develops contributions based on the expected return of the plan’s investment portfolio. If instead, the plan switched to investing exclusively in high quality bonds, the LDROM illustrates that reported funded status would be lower (which also implies that the Actuarially Determined Contributions would be higher), perhaps significantly. Unnecessarily high contribution requirements in the near term may not be affordable and could imperil plan sustainability and benefit security. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 25 Plan Maturity Measures and Other Risk Metrics – Tiers 1 & 2 6/30/2023 6/30/2022 6/30/2021 6/30/2020 Support Ratio Total Actives 2 2 2 3 Total Inactives 9 9 10 9 Actives / Inactives 22.2% 22.2% 20.0% 33.3% Asset Volatility Ratio Market Value of Assets (MVA) 3,851,063 1,662,090 1,789,608 1,414,433 Total Annual Payroll 145,894 139,892 132,031 204,074 MVA / Total Annual Payroll 2,639.6% 1,188.1% 1,355.4% 693.1% Accrued Liability (AL) Ratio Inactive Accrued Liability 2,694,780 2,630,985 2,569,215 1,777,255 Total Accrued Liability 3,910,076 3,721,151 3,551,295 3,374,933 Inactive AL / Total AL 68.9% 70.7% 72.3% 52.7% Funded Ratio Actuarial Value of Assets (AVA) 3,929,592 1,710,819 1,649,829 1,504,732 Total Accrued Liability 3,910,076 3,721,151 3,551,295 3,374,933 AVA / Total Accrued Liability 100.5% 46.0% 46.5% 44.6% Net Cash Flow Ratio Net Cash Flow * 2,032,267 (60,256) (10,257) (892) Market Value of Assets (MVA) 3,851,063 1,662,090 1,789,608 1,414,433 Net Cash Flow / MVA 52.8% (3.6%) (0.6%) (0.1%) * Determined as total contributions minus benefit payments. Administrative expenses are typically included but are considered part of the net interest rate assumption for this plan. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 26 VIII. SUMMARY OF CURRENT PLAN The following is a summary of the benefit provisions provided in Title 38, Chapter 5, Article 6 of the Arizona Revised Statutes. Membership Full-time employees of a participating employer in a designated position, whose customary employment is at least 40 hours each week. Includes employees hired after July 1, 2018 only if they are a judiciary probation or surveillance officer who makes the irrevocable election to participate in the plan. Benefit Tiers Benefits differ for members based on their hire date: Tier Hire Date 1 Hired before January 1, 2012 2 Hired on or after January 1, 2012 but before July 1, 2018 3 Hired on or after July 1, 2018 Salary Salary is the amount including base salary, shift and military differential pay, and holiday pay, paid to an employee on a regular payroll basis. For Tier 3 members, salary is limited by statutory cap ($70,000 with adjustments by the Board). Average Monthly Benefit Tier 1: Salary One-thirty-sixth of the highest total salary during a period of thirty-six consecutive months of service within the last one hundred twenty months of service. Tier 2 & 3: One-sixtieth of the highest total salary during a period of sixty consecutive months of service within the last one hundred twenty months of service. Credited Service Total periods of service, both from service other State plans and those compensated periods of service for which the member made contributions to the fund. Normal Retirement Date Tier 1: First day of the month following attainment of 1) age 62 with 10 years of Credited Service, 2) 20 (25, if dispatcher) years of Credited Service, or 3) age and Credited Service points equal to 80. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 27 Tier 2: First day of month following the attainment of 1) age 52.5 with 25 years of Credited Service, or 2) age 62 with 10 years of Credited Service. Tier 3: First day of month following the attainment of age 55 with 10 years of Credited Service. Benefit Tier 1: 2.50% times Credited Service (up to 20 years) times Average Monthly Salary. If Credited Service exceeds 20 years, an additional 2.00% accrual is provided for up to five years. If Credited Service exceeds 25 years, the additional accrual for service in excess of 20 years is increased to 2.50%. Maximum benefit equals 80% of Average Monthly Salary. Tier 2: 2.50% times Credited Service times Average Monthly Salary (maximum benefit equals 80% of Average Monthly Salary). Tier 3: Benefit multiplier (below) times Average Monthly Benefit Salary times Credited Service (maximum benefit of 80% of Average Monthly Benefit Salary): Credited Service Benefit Multiplier 10 years, but less than 15 1.25% 15 years, but less than 20 1.50% 20 years, but less than 22 1.75% 22 years, but less than 25 2.00% 25+ years 2.25% Form of Benefit For married retirees, an annuity payable for the life of the member with 80% continuing to the eligible spouse upon death. For unmarried retirees, the normal form is a single life annuity. Early Retirement Only applicable to Tier 3 members: Date Attainment of age 52.5 and 10 years of Credited Service. Benefit Actuarial equivalent of Normal Retirement benefit. Disability Benefit – Duty-Related Eligibility Total and permanent disability incurred in performance of duty. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 28 Benefit Amount The greater of 1) 50% of Average Monthly Salary, and 2) the Normal Retirement pension that the member is entitled to receive. Disability Benefit – Ordinary Eligibility Total and permanent disability not incurred in performance of duty. Benefit Amount Dispatchers Normal Retirement pension that the member is entitled to receive prorated on Credited Service (maximum 25 years) over 25. All Others Normal Retirement pension that the member is entitled to receive prorated on Credited Service (maximum 20 years) over 20. Pre-Retirement Death Benefit Payable to Eligible Survivor Payable to eligible spouse for life; payable to eligible children until adopted, age 18, or age 23 if full-time student. Note that this benefit is only payable following death of an active member. Service Incurred 100% of Average Monthly Salary Non-Service Incurred 40% of Average Monthly Salary. No survivors Two times member’s accumulated contributions. Vesting (Termination) Deferred Annuity Tier 1: For those with 10 or more years of Credited Service, an annuity based on two times member’s accumulated contributions, deferred to age 62. Member is not entitled to survivor benefits, benefit increases, or group health insurance subsidy. Return of Contributions Tier 1: Lump sum payment of accumulated contributions, plus additional amount based on years of credited service. Service Additional % of Contributions Less than 5 years 0% 5 years 25% 6 years 40% 7 years 55% 8 years 70% 9 years 85% 10+ years 100% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 29 Tiers 2 & 3: Lump sum payment of accumulated contributions, with interest at rate determined by the Board. Cost-of-Living Adjustment Payable to retired member or survivor of retired member Tiers 1 & 2 Compound cost-of-living adjustment on base benefit. First payment is made on July 1, 2018, with annual adjustments effective every July 1 thereafter. Cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan Phoenix-Mesa Consumer Price Index published by the United states Department of Labor, Bureau of Statistics. Maximum increase of 2%. Tier 3 Compound cost-of-living adjustment on base benefit beginning earlier of fist calendar year after the 7th anniversary of retirement or when the retired member reaches 60 years of age. A cost-of-living adjustment shall be paid on July 1 each year that the funded ratio for members hired on or after July 1, 2018 is 70% or more. The cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan Phoenix-Mesa Consumer Price Index published by the United States Department of Labor, Bureau of Statistics. The cost-of-living adjustment will not exceed:  2%, if funded ratio for members who are hired on or after July 1, 2018 is 90% or more;  1.5%, if funded ratio for members who are hired on or after July 1, 2018 is 80-90%;  1%, if funded ratio for members who are hired on or after July 1, 2018 is 70-80%. Reverse Deferred Retirement Option Plan (Reverse DROP): Eligibility Tier 1 and eligible for normal pension with at least 24 years of Credited Service (25 years for dispatchers). Must not have been awarded disability pension. Reverse DROP Date First day of month immediately following completion of required Credited Service or date not more than 60 consecutive months before the date the member elects to participate in the Reverse DROP, whichever is later. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 30 Benefit Amount Calculated based on Credited Service and Average Monthly Salary as of the Reverse DROP Date. Reverse DROP Lump Sum Accumulated benefit amounts (with interest) from Reverse DROP date to the date the member elected to participate in Reverse DROP. Interest is equal to the yield on five-year Treasury note as of the first day of the month, as published by the Federal Reserve Board. Post-Retirement Health Insurance Subsidy Eligibility Retired member or survivor who elect health coverage provided by the state or participating employer. Maximum Subsidy Amounts Member Only With Dependents (monthly) Medicare Eligible $100 $170 One w/ Medicare N/A $215 Not Medicare Eligible $150 $260 Employee Contributions Tiers 1 and 2: Non-dispatchers: 8.41% of salary, or 50/50 split of total employer and employee costs, whichever is lower, until the plan is 100% funded. Minimum contribution of 7.65% of salary. Dispatchers: 0.45% less than non-dispatcher rate until plan is 100% funded; equal thereafter. Tier 3: 66.7% of the Normal Cost plus 50% of a level-dollar amortization of unfunded actuarial accrued liability over a closed period not to exceed 10 years. Employer Contributions Tiers 1 & 2: Normal Cost, plus amortization of unfunded actuarial accrued liability over a closed period not to exceed 20 years. Contribution will never be less than 6% of payroll. Tier 3: 33.3% of the Normal Cost plus 50% of a level-dollar amortization of unfunded actuarial accrued liability over a closed period not to exceed 10 years. Changes to Benefit Provisions Since the Prior Valuation None. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 31 IX. ACTUARIAL FUNDING POLICY A pension plan funding policy describes how pension funding will improve for underfunded plans or maintain funded benefits for funded plans over time for those benefits defined in Arizona Revised Statutes (ARS). Those benefits defined in ARS are to be equitably managed and administered by the Arizona Public Safety Personnel Retirement System (PSPRS agency). This Actuarial Funding Policy identifies the funding objectives and elements of the actuarial funding policy set by the Board for the PSPRS agency. The Board adopted this Funding Policy to help ensure the systematic funding of future benefit payments for members of the retirement systems as established by the legislature. This policy covers all retirements systems administered by the Board: The Public Safety Personnel Retirement System (PSPRS); the Correction Officers Retirement Plan (CORP); and the Elected Officials Retirement Plan (EORP). To achieve the systematic funding of future benefits, metrics are identified to measure the progress, or the lack of progress, over time to identify trends. These trends inform the continuation of the current policies or identify areas of needed research for consideration. This funding policy is reviewed annually and adopted by the Board in accordance with ARS 38-863.02. This policy was reviewed and adopted by the Board in August 2023. PSPRS Statement of Purpose The Purpose of the Public Safety Personnel Retirement System is to provide uniform, consistent, and equitable statewide retirement programs for those who have been entrusted to our care. Funding Objectives 1. Maintain adequate assets so that current plan assets, plus future contributions and investment earnings, are sufficient to fund all benefits expected to be paid to members and their beneficiaries. a. Corollary 1a: Current and future contributions should be calculated based upon assumptions that reflect the Board’s best estimate of future experience and methods that appropriately allocate costs to address generational equity. b. Corollary 1b: While the shorter-term objective is to fully fund the Actuarial Accrued Liability (AAL) that estimates benefits earned as of the valuation date, contributions should target the long- term Present Value of Benefits (PVB) to fund all benefits and help offset risks. c. As closed plans mature, the target funding should be 110% of AAL or 100% of PVB, whichever is greater. 2. Maintain public policy goals of accountability and transparency through stakeholder communication and education. Each policy element is clear in intent and effect, and each should be considered in a balanced approach to determine how and when the funding requirements of the plan will be met. a. Corollary 2a: Board shall provide stakeholders with separate reports and tools to help explain current results as well as to help model future funding requirements. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 32 3. Promote intergenerational equity. Defined benefit pensions are designed with a long-term perspective and designed to minimize contribution volatility that cannot avoid some level of generational cost shift. However, the goal is that each generation of members and employers (taxpayers) should, to the extent possible, incur the cost of benefits for the employees who provide services to them, rather than shifting those costs to other generations of members and employers (taxpayers). a. Corollary 3a: A systematic reduction of the Unfunded Actuarial Accrued Liability (UAAL) over a reasonable time period is paramount to achieving this objective. Consideration can be given to reduce volatility, to the extent possible, of employer and employee contribution rates as long as the integrity of the objectives listed above is not compromised. Elements of Actuarial Funding Policy 1. Actuarial Cost Method a. The Entry Age Normal level percent of pay actuarial cost method of valuation shall be used in determining the AAL and Normal Cost. Differences in the past between assumed experience and actual experience (“actuarial gains and losses”) shall become part of the AAL. The Normal Cost shall be determined on an individual basis for each active member. 2. Asset Smoothing Method a. The investment gains or losses of each valuation period, resulting from the difference between the actual investment return and assumed investment return, shall be recognized annually in level amounts over five years (Tier 3) or seven years (Tiers 1 and 2) in calculating the Actuarial Value of Assets (AVA). b. The AVA so determined shall be subject to a 20% corridor relative to the Market Value of Assets (MVA). 3. Amortization Method (Unfunded Amounts) a. The AVA is subtracted from the computed AAL. Any unfunded amount is amortized as a level percent of payroll over a closed period. b. The unfunded liabilities, for EORP and Tiers 1 & 2 for both PSPRS and CORP, determined in the 6/30/2019 actuarial valuation will become the initial layer for each employer beginning with the 6/30/2020 actuarial valuation and amortized using the current closed year period for that employer and continue to decrease each year. i. The payroll growth rate assumption used to amortize the PSPRS 6/30/2019 Unfunded Liability will be decreased by 0.5% beginning with the 6/30/2021 actuarial valuation and again each year with the intention of ultimately achieving 0.0%. Once the payroll growth assumption reaches 2.0%, however, the Board will reevaluate the payroll growth assumption and decide whether to continue to let it track down to 0.0%. ii. The payroll growth rate used to amortize the Correction Officers Retirement Plan (CORP) 6/30/2019 Unfunded Liability will be 3.0% beginning with the 6/30/2020 actuarial valuation, and future years will be reduced by 0.5% until 0.0% is reached. iii. The payroll growth rate used to amortize the Elected Officials Retirement Plan (EORP) 6/30/2019 Unfunded Liability will be 2.5% beginning with the 6/30/2020 actuarial valuation, and future years will be reduced by 0.5% until 0.0% is reached. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 33 c. Gains and losses, for EORP and Tiers 1 & 2 for both PSPRS and CORP, for each employer beginning with the 6/30/2020 actuarial valuation will be amortized as a new layer over the same amortization period as the regular unfunded liability to a minimum of 15 years. Once the amortization period for each employer decreases to 15 years, each subsequent year’s gains and losses will be amortized as a new 15-year closed layer. i. The payroll growth rate used to amortize the unfunded liability for all Plans under this paragraph will be 0.0% (i.e. level-dollar amortization). d. Tier 3 amortization methods are established in ARS 38-843.G and ARS 38-891.K. 4. Amortization Method (Overfunded Amounts) a. The AVA is subtracted from the target funding level (greater of 110% of AAL or 100% of PVB). Any overfunded amount is amortized as a level dollar amount over an open 10-year period. 5. Tier 3 Rate Calculation a. Tier 3 is distinct from Tiers 1 & 2 in PSPRS and CORP as the contributions are a shared percentage (50/50 split for PSPRS: for CORP, employer 1/3 and member 2/3 of the normal cost plus 50 percent each, member and employer, of the UAAL amortization) for employers and members based on the actuarially calculated rate. To reduce the impact of volatility to rates, the Tier 3 rates will be smoothed over a 3-year rolling period based on the actuarially calculated rates for each year’s actuarial valuation. i. Beginning with the 6/30/2023 valuation, the prospective Tier 3 rates set by the Board of Trustees are planned to be a rolling average of the actuarial calculated Tier 3 rates using the 6/30/2023, 6/30/2022 and 6/30/2021 rates in the initial process. ii. As assumptions may be updated year-to-year, the prior calculated rates are not updated for those changes, the prior calculated rates are used to smooth in the new rates. b. At the May 2023 Board Meeting, the Board changed the assumed rate of return for CORP Tier 3, which was at 7.2%, to match the 7.0% assumed rate of return for PSPRS Tier 3. The Board com- mitted to continue to monitor market conditions and directions with the intent to ultimately adopt a single assumed rate of return for all investments for retirement systems/plans administered by PSPRS agency. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 34 Metrics to Monitor Funding Objectives 1. Appropriateness of Assumptions – Gain/Loss Experience (Corollary 1a) a. Metric: Do the cumulative gain/loss layers over the prior five years exceed 8% of plan assets? b. Measurement: History of annual gain/loss (split by asset and liability experience) and five-year cumulative results will be tracked. c. Action Plan: This metric assumes that a full experience study is performed at least every five years so objective of measurement is to monitor interim experience. If the metric answer is yes, a review of the sources or causes of gains and losses should be analyzed and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if assumption changes are warranted between full experience studies. 2. Funding Targets (Corollary 1b) a. Metric: Has the funded status, on both an AAL and PVB basis when compared to the MVA, increased over a five-year period? b. Measurement: History of funded status measures will be tracked. c. Action Plan: If the answer is no and not readily explainable (e.g., significant assumption change), a review of the reason(s) for the decrease should be researched and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if changes to assumptions and/or methods are warranted between full experience studies. 3. Communication with Stakeholders (Corollary 2a) a. Metric: Have reports and budgeting tools been provided to stakeholders in a timely fashion? b. Measurement: Yes/No answer based on input from PSPRS administrator. (An annual standard survey of stakeholders – 3 to 5 questions.) c. Action Plan: If the answer is no, and periodically regardless (e.g., every three years), PSPRS staff will revisit this metric to report to the Advisory Committee to provide a recommendation to the Board of Trustees if current reports / tools are sufficient and if the delivery timing is appropriate. 4. Timely Recognition of Costs (Corollary 3a) a. Metric: Has the percentage of unfunded liability subject to negative amortization decreased over a five- year lookback period? b. Measurement: History of unfunded liability subject to negative amortization as a percentage of total unfunded liability will be tracked. c. Action Plan: If the answer is no, and not readily explainable (e.g., adopted assumption changes being phased in are anticipated to address negative amortization), a review of the reason(s) for negative amortization should be researched and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if changes to assumptions and/or methods are warranted between full experience studies. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 35 X. GLOSSARY Actuarial Accrued Liability – Computed differently under different funding methods, the actuarial accrued liability generally represents the portion of the actuarial present value of benefits attributable to service credit earned (or accrued) as of the valuation date. Actuarial Present Value of Benefits – Amount which, together with future interest, is expected to be sufficient to pay all benefits to be paid in the future, regardless of when earned, as determined by the application of a particular set of actuarial assumptions; equivalent to the actuarial accrued liability plus the present value of future normal costs attributable to the members. Actuarial Assumptions – Assumptions as to the occurrence of future events affecting pension costs. These assumptions include rates of investment earnings, changes in salary, rates of mortality, withdrawal, disablement, and retirement as well as statistics related to marriage and family composition. Actuarial Cost Method – A method of determining the portion of the cost of a pension plan to be allocated to each year; sometimes referred to as the "actuarial funding method." Each cost method allocates a certain portion of the actuarial present value of benefits between the actuarial accrued liability and future normal costs. Actuarial Equivalence – Series of payments with equal actuarial present values on a given date when valued using the same set of actuarial assumptions. Actuarial Present Value - The amount of funds required as of a specified date to provide a payment or series of payments in the future. It is determined by discounting future payments at predetermined rates of interest, and by probabilities of payments between the specified date and the expected date of payment. Actuarial Value of Assets – The value of cash, investments, and other property belonging to the pension plan as used by the actuary for the purpose of the actuarial valuation. This may correspond to market value of assets, or some modification using an asset valuation method to reduce the volatility of asset values. Asset Gain (Loss) – That portion of the actuarial gain attributable to investment performance above (below) the expected rate of return in the actuarial assumptions. Amortization – Paying off an interest-discounted amount with periodic payments of interest and (generally) principal, as opposed to paying off with a lump sum payment. Amortization Payment – That portion of the pension plan contribution designated to pay interest and reduce the outstanding principal balance of unfunded actuarial accrued liability. If the amortization payment is less than the accrued interest on the unfunded actuarial accrued liability the outstanding principal balance will increase. Assumed Earnings Rate – The interest rate used in developing present values to reflect the time value of money. Decrements – Events which result in the termination of membership in the system such as retirement, disability, withdrawal, or death. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2023 – Town of Oro Valley - Dispatchers (556) 36 Entry Age Normal (EAN) Funding Method – A standard actuarial funding method whereby each member’s normal costs (service costs) are generally level as a percentage of pay from entry age until retirement. The annual cost of benefits is comprised of the normal cost plus an amortization payment to reduce the UAL. Experience Gain (Loss) – The difference between actual unfunded actuarial accrued liabilities and anticipated unfunded actuarial accrued liabilities during the period between two valuation dates. It is a measurement of the difference between actual and expected experience, and may be related to investment earnings above (or below) those expected or changes in the liability due to fewer (or greater) than expected numbers of retirements, deaths, disabilities, or withdrawals, or variances in pay increases relative to assumed pay increases. The effect of such gains (or losses) is to decrease (or increase) future costs. Funded Ratio – A measure of the ratio of the actuarial value of assets to liabilities of the system. Typically, the assets used in the measure are the actuarial value of assets as determined by the asset valuation method. The funded ratio depends not only on the financial strength of the plan but also on the asset valuation method used to determine the assets and on the funding method used to determine the liabilities. Market Value of Assets (MVA) – The value of assets as they would trade on an open market. Normal Cost – Computed differently under different funding methods, generally that portion of the actuarial present value of benefits allocated to the current plan year. Unfunded Actuarial Accrued Liability (UAAL) – The excess of the actuarial accrued liability over the valuation assets; sometimes referred to as "unfunded past service liability". UAL increases each time an actuarial loss occurs and when new benefits are added without being fully funded initially and decreases when actuarial gains occur. ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM ORO VALLEY POLICE DEPT. (122) ACTUARIAL VALUATION AS OF JUNE 30, 2023 CONTRIBUTIONS APPLICABLE TO THE PLAN/FISCAL YEAR ENDING JUNE 30, 2025 VIA E-MAIL 13420 Parker Commons Boulevard, Suite 104 Fort Myers, FL 33912 ꞏ (239) 433-5500 ꞏ Fax (239) 481-0634 ꞏ www.foster-foster.com December 2023 Board of Trustees Arizona Public Safety Personnel Retirement System Phoenix, AZ Re: Actuarial Valuation Report as of June 30, 2023 for Oro Valley Police Dept. (122) Dear Members of the Board: We are pleased to present to the Board this report of the annual actuarial valuation of the Arizona Public Safety Personnel Retirement System (PSPRS). The valuation was performed to determine whether the assets and contributions are sufficient to provide the prescribed benefits and to develop the appropriate funding requirements for the applicable plan year. This report was prepared at the request of the Board and is intended for use by PSPRS and those designated or approved by the Board. It documents the valuation of the consolidated plan and provides summary information for PSPRS participating employers. This report may be provided to parties other than PSPRS only in its entirety and only with the permission of the Board. Foster & Foster is not responsible for the unauthorized use of this report. The valuation has been conducted in accordance with generally accepted actuarial principles and practices, including the applicable Actuarial Standards of Practice as issued by the Actuarial Standards Board, and reflects laws and regulations issued to date pursuant to the provisions of Title 38, Chapter 5, Article 4 of the Arizona Revised Statutes, as well as applicable federal laws and regulations. In our opinion, the assumptions used in this valuation, as adopted by the Board of Trustees, represent reasonable expectations of anticipated plan experience. Future actuarial measurements may differ significantly from the current measurements presented in this report for a variety of reasons including changes in applicable laws, changes in plan provisions, changes in assumptions, or plan experience differing from expectations. Due to the limited scope of the valuation, we did not perform an analysis of the potential range of such future measurements. The computed contribution rates shown in the “Contribution Results” section should be considered minimum contribution rates that comply with the Board’s funding policy and Arizona Statutes. Users of this report should be aware that contributions made at that rate do not guarantee benefit security. Given the importance of benefit security to any retirement system, we suggest that contributions to the System in excess of those presented in this report be considered. The funding percentages and unfunded accrued liability as measured based on the actuarial value of assets will differ from similar measures based on the market value of assets. These measures, as provided, are appropriate for determining the adequacy of future contributions, but may not be appropriate for the purpose of settling a portion or all of the Plan’s liabilities. Board of Trustees Arizona Public Safety Personnel Retirement System | Page 2 13420 Parker Commons Boulevard, Suite 104 Fort Myers, FL 33912 ꞏ (239) 433-5500 ꞏ Fax (239) 481-0634 ꞏ www.foster-foster.com In conducting the valuation, we have relied on personnel, plan design, and asset information supplied by PSPRS through June 30, 2023 and the actuarial assumptions and methods described in the Actuarial Assumptions section of this report. While we cannot verify the accuracy of all this information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial accuracy of the information and believe that it has produced appropriate results. This information, along with any adjustments or modifications, is summarized in various sections of this report. This valuation assumes the continuing ability of the participating employers to make the contributions necessary to fund this plan. A determination regarding whether or not the participating employers are actually able to do so is outside our scope of expertise. Consequently, we did not perform such an analysis. In performing the analysis, we used third-party software to model (calculate) the underlying liabilities and costs. These results are reviewed in the aggregate and for individual sample lives. The output from the software is either used directly or input into internally developed models to generate the costs. All internally developed models are reviewed as part of the process. As a result of this review, we believe that the models have produced reasonable results. We do not believe there are any material inconsistencies among assumptions or unreasonable output produced due to the aggregation of assumptions. The undersigned are familiar with the immediate and long-term aspects of pension valuations and meet the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. All sections of this report are considered an integral part of the actuarial opinions. To our knowledge, no associate of Foster & Foster, Inc. working on valuations of the program has any direct financial interest or indirect material interest in the Arizona Public Safety Personnel Retirement System, nor does anyone at Foster & Foster, Inc. act as a member of the Board of Trustees of the Arizona Public Safety Personnel Retirement System. Thus, there is no relationship existing that might affect our capacity to prepare and certify this actuarial report. If there are any questions, concerns, or comments about any of the items contained in this report, please contact us at 239-433-5500. Respectfully Submitted, Foster & Foster, Inc. By: ________________________________ Bradley R. Heinrichs, FSA, EA, MAAA By: ________________________________ Paul M. Baugher, FSA, EA, MAAA Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) TABLE OF CONTENTS I. Summary of Report.…………………………………………………………………………….………. 1 II. Contribution Results……………………………………………………………………………………..4 III. Liability Support………………………………………………………………....................................... 9 IV. Asset Support…………………………………………………………………...................................... 13 V. Member Statistics…………………………………………………………………………….………... 18 VI. Actuarial Assumptions and Methods………………………………………………………………….. 21 VII. Discussion of Risk………………………………………………………………................................. 28 VIII. Summary of Plan………………………………………………………….....................……………. 33 IX. Actuarial Funding Policy……………………………………………………………….……………. 39 X. Glossary………………………………………………………………………….……………………. 43 Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 1 I. SUMMARY OF REPORT The regular annual actuarial valuation of the Arizona Public Safety Personnel Retirement System for the Oro Valley Police Dept., performed as of June 30, 2023, has been completed and the results are presented in this Report. The purpose of this valuation is to:  Compute the liabilities associated with benefits likely to be paid on behalf of current retired and active members. This information is contained in the section entitled “Liability Support.”  Compare accumulated assets with the liabilities to assess the funded condition. This information is contained in the section entitled “Liability Support.”  Compute the employers’ recommended contribution rates for the Fiscal Year beginning July 1, 2024. This information is contained in the section entitled “Contribution Results.” 1. Key Valuation Results The funded status as of June 30, 2023 and the employer contribution amounts applicable to the plan/fiscal year ending June 30, 2025 are as follows: Tier 1 & Tier 2 Members Tier 3 Members * Pension Health Total Pension Health Total Employer Contribution Rate 16.22% 0.00% 16.22% 8.63% 0.12% 8.75% Funded Status 95.0% 164.2% 95.8% 107.3% 212.5% 108.9% 2. Comparison of Key Results to Prior Year The chart below compares the results from this valuation with the results of the prior year’s valuation (as of June 30, 2022): Contribution Rate Tier 1 & Tier 2 Members Tier 3 Members * Valuation Date Pension Health Total Pension Health Total June 30, 2022 11.00% 0.00% 11.00% 8.69% 0.12% 8.81% June 30, 2023 16.22% 0.00% 16.22% 8.63% 0.12% 8.75% Funded Status Tier 1 & Tier 2 Members Tier 3 Members Valuation Date Pension Health Total Pension Health Total June 30, 2022 102.0% 152.2% 102.7% 110.5% 212.1% 112.1% June 30, 2023 95.0% 164.2% 95.8% 107.3% 212.5% 108.9% * The Tier 3 rates shown are the calculated rates as of the valuation date and do not reflect any Legacy costs that the employer must also contribute. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 2 3. Reasons for Change Changes in the results from the prior year’s valuation can be illustrated in the following tables along with high-level explanations for the entire System below: Contribution Rate Tier 1 & Tier 2 Tier 3 Members Pension Health Pension Health Contribution Rate Last Valuation 11.00% 0.00% 8.69% 0.12% Asset Experience 0.31% 0.00% (0.02%) 0.00% Payroll Base 0.00% 0.05% 0.00% 0.00% Liability Experience 6.02% 0.00% (0.16%) 0.00% Additional Contribution (0.10%) 0.00% 0.00% 0.00% Assumption/Method Change 0.00% 0.00% 0.00% 0.00% Actuarial Audit 0.99% 0.00% 0.33% 0.00% Other (2.00%) (0.05%) (0.21%) 0.00% Contribution Rate This Valuation 16.22% 0.00% 8.63% 0.12% Funded Status Tier 1 & Tier 2 Tier 3 Members Pension Health Pension Health Funded Status Last Valuation 102.0% 152.2% 110.5% 212.1% Asset Experience (0.3%) (0.1%) 0.3% 1.1% Liability Experience (5.9%) 14.8% 2.5% 7.2% Additional Contribution 0.1% 0.0% 0.0% 0.0% Assumption/Method Change 0.0% 0.0% 0.0% 0.0% Actuarial Audit (0.9%) 0.1% (1.6%) (0.7%) Other 0.0% (2.8%) (4.4%) (7.2%) Funded Status This Valuation 95.0% 164.2% 107.3% 212.5% Assets Experience – Asset gains and losses (relative to the assumed earnings rate) are smoothed over seven years for Tiers 1 and 2 and over five years for Tier 3. The return on the market value of assets for the year ending June 30, 2023 was 7.7% for Tiers 1 and 2 and 9.2% for Tier 3. On a smoothed, actuarial value of assets basis, however, the average return was 6.9% for Tiers 1 and 2 and 7.3% for Tier 3. These returns nearly met the 2022 assumed earnings rate for Tiers 1 and 2 of 7.2% and exceeded the 2022 assumed earnings rate for Tier 3 of 7.0%. Payroll Base – Under the current amortization policy for Tiers 1 and 2, the contribution rate is developed as a level percentage of payroll. Payroll for this purpose includes members of this plan and defined contribution plan’s members that would have been in this plan. To the extent that actual payroll is lower/greater than last year’s projected payroll, the contribution rate will increase/decrease as a result. Liability Experience – Experience overall was unfavorable, driven by salary increases that were higher than expected. Additional Contribution – Monies contributed in excess of the required contribution rate in order to pay down the unfunded liability. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 3 Assumption / Method Change – The Board continued the decrease in the payroll growth assumption from 2.50% to 2.00%. Audit Adjustment – An independent actuarial audit was performed during 2023, with recommendations made in a detailed report. Following discussions with staff, several changes (both numeric and written) were made as part of this valuation to improve the report going forward. The most notable change was prorating the COLA benefit in the first year of retirement. Other – This is the combination of all other factors that could impact liabilities year-over-year, with the primary sources being changes in benefits for continuing inactives. This also includes the change due to HB2088, which removes the “maintenance of effort” adjustment to the unfunded liability amortization. Note that Tier 3 experience will stabilize as the group matures. 4. Looking Ahead The volatility in annual returns, which have produced both gains and losses in recent years, was dampened by the asset smoothing reflected in the actuarial value of assets. The significant loss realized this year will, in the absence of other gains, put upward pressure on the contribution rate next year. If the June 30, 2023 pension valuation results were based on the market value of assets instead of the actuarial value of assets, the pension funded percentage for Tiers 1 and 2 would be 93.2% (instead of 95.0%) and the pension employer contribution requirement would be 18.03% of payroll (instead of 16.22%). 5. Conclusion The funded status for Tiers 1 and 2 will continue to improve if assumptions are met and contributions at least equal to the rates determined for each employer are made to the fund. The recent adoption of a layered amortization approach along with a plan to systematically lower the payroll growth assumption was an excellent step to improve funding and ensure the Plan is on a viable path. The funded status for Tier 3 will stabilize as the population continues to grow, as contributions appear sufficient to keep the liabilities fully funded. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 4 II. CONTRIBUTION RESULTS Contribution Requirements Development of Employer Contributions - Tiers 1 & 2 Members Valuation Date June 30, 2023 June 30, 2022 Applicable to Fiscal Year Ending 2025 2024 Rate Dollar Rate Dollar Pension Normal Cost Total Normal Cost 18.56% $ 1,166,338 18.65% $ 1,181,744 Employee Cost (7.65%) (480,737) (7.65%) (484,737) Employer (Net) Normal Cost 10.91% 685,601 11.00% 697,007 Amortization of Unfunded Liability 5.31% 333,688 0.00% 0 Total Employer Cost (Pension) 16.22% 1,019,289 11.00% 697,007 Health Normal Cost 0.34% 21,366 0.41% 25,979 Amortization of Unfunded Liability (0.34%) (21,366) (0.41%) (25,979) Total Employer Cost (Health) 0.00% 0 0.00% 0 Total Employer Cost (Pension + Health) 16.22% 1,019,289 11.00% 697,007 Alternate Contribution Rate (ACR) * 8.00% 8.00% Underlying Payroll (as of valuation date) 6,160,929 6,181,881 * The Alternate Contribution Rate is the sum of the positive amortization rates for Tiers 1 & 2 Pension and Health (subject to an 8% minimum) and is charged when retirees return to active status. The results above are based on the current amortization schedule approved by the Board of Trustees for your individual plan (see "Actuarial Assumptions and Methods"). Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 5 Development of Employer Contributions – Tier 3 Members Valuation Date June 30, 2023 June 30, 2022 Applicable to Fiscal Year Ending 2025 2024 Defined Benefit (DB) Retirement Plan Rate Dollar Rate Dollar Pension Total Normal Cost 17.25% $ 396,629 17.37% $ 197,489 Amortization of Unfunded Liability 0.00% 0 0.00% 0 Total Pension Cost 17.25% 396,629 17.37% 197,489 Employee (EE) Pension Cost 8.63% 198,315 8.69% 98,745 Employer (ER) Pension Cost 8.63% 198,315 8.69% 98,745 Health Total Normal Cost 0.23% 5,288 0.24% 2,729 Amortization of Unfunded Liability 0.00% 0 0.00% 0 Total Health Cost 0.23% 5,288 0.24% 2,729 Employee (EE) Health Cost 0.12% 2,644 0.12% 1,365 Employer (ER) Health Cost 0.12% 2,644 0.12% 1,365 Total Total Calculated Tier 3 Required EE/ER Individual Cost 8.75% 200,959 8.81% 100,110 Funding Policy Tier 3 Required EE/ER Individual Cost 1 8.89% 204,407 9.56% 108,693 ER Legacy Cost of Tiers 1 & 2 Amort of Unfunded Liabilities 2 5.31% 122,093 0.00% 0 Total Funding Policy Tier 3 Required ER Defined Benefit Cost 14.20% 326,500 9.56% 108,693 Underlying Payroll (as of valuation date) 2,254,212 1,109,226 1 The “Funding Policy” cost was adopted in 2023 and first reflected in the June 30, 2023 valuation. 2 Pursuant to ARS § 38-843(B), the amortization of positive unfunded liabilities for Tiers 1 & 2 shall be applied to all Tier 3 payroll on a level percent basis. However, while it is statutorily required to present the rates in this manner, these are the minimums where alternate methods for paying down that unfunded liability is at the discretion of each employer. Further, to understand the effects of reform in relation to Tier 3, compare the total rate of Tier 3 before application of those legacy costs. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 6 Development of Employer Contributions – Tier 3 Members Valuation Date June 30, 2023 June 30, 2022 Applicable to Fiscal Year Ending 2025 2024 Defined Contribution (DC) Retirement Plan Rate Dollar Rate Dollar Tier 2 & 3 DB / Non-Social Security Employee Cost 3.00% 3.00% Employer Cost 1 3.00% 3.00% Tier 3 DC Only Employee Cost 9.00% $ 0 9.00% $ 0 Employee Health Subsidy Program Cost 0.23% 0 0.17% 0 Employee Disability Program Cost 1.50% 0 1.43% 0 Total Employee Cost 10.73% 0 10.60% 0 Employer Cost 9.00% 0 9.00% 0 Employer Health Subsidy Program Cost 0.23% 0 0.17% 0 Employer Disability Program Cost 1.50% 0 1.43% 0 Total Employer Cost (before Legacy) 10.73% 0 10.60% 0 ER Legacy Cost of Tiers 1 & 2 Amort of Unfunded Liabilities 2 5.31% 0 0.00% 0 Total Employer Cost 16.04% 0 10.60% 0 Underlying Payroll (as of valuation date) 0 0 1 Employer rate is 4% for Tier 2 members for a period of time depending on the individual's membership date. 2 Pursuant to ARS § 38-843(B), the amortization of positive unfunded liabilities for Tiers 1 & 2 shall be applied to all Tier 3 payroll on a level percent basis. However, while it is statutorily required to present the rates in this manner, these are the minimums where alternate methods for paying down that unfunded liability is at the discretion of each employer. Further, to understand the effects of reform in relation to Tier 3, compare the total rate of Tier 3 before application of those legacy costs. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 7 Contribution Rate Summary Tier 1 Tier 2 Tier 3 Membership Date On or After 7/1/1968 1/1/2012 7/1/2017 Participates in Social Security N/A Yes No Yes No N/A Available Retirement Plan ¹ DB Only DB Only Hybrid DB Only Hybrid DC Only Employee Contribution Rate PSPRS DB Rate 7.65% 7.65% 7.65% 8.89% 8.89% PSPRS DC Rate 3.00% 3.00% 9.00% Employer Health Subsidy Program Cost 0.23% PSPDCRP Disability Program Rate 1.50% Total EE Contribution Rate 7.65% 7.65% 10.65% 8.89% 11.89% 10.73% Employer Contribution Rate PSPRS DB Normal Cost 11.25% 11.25% 11.25% 8.89% 8.89% PSPRS DB Tier 1 & 2 Legacy Cost ² 4.97% 4.97% 4.97% 5.31% 5.31% 5.31% PSPRS DC Rate ³ 4.00% 3.00% 9.00% Employer Health Subsidy Program Cost 0.23% PSPDCRP Disability Program Rate 1.50% Total ER Contribution Rate 16.22% 16.22% 20.22% 14.20% 17.20% 16.04% ¹ Employers that pay into Social Security on behalf of their members do not participate in the Hybrid Plan. ² Per statute (ARS § 38-843(B)), any positive unfunded liability for Tiers 1 and 2 is to be applied to all Tier 3 (DB and DC) payrolls. ³ The 4.00% employer match for Tier 2 Hybrid members is for a short period of time depending on the membership date of the employee at which point the rate will change to 3.00% (ARS § 38-868(C)). Exhibit summarizes employee and employer contributions based on Statute and the results of June 30, 2023 actuarial valuation. Pension and health components are combined, where applicable. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 8 Impact of Additional Contributions Additional Contribution (000s) $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 Impact On Funded Status - June 30, 2023 95.0% 96.1% 97.3% 98.5% 99.6% 100.8% 102.0% 103.1% 104.3% 105.5% 106.6% FYE 2025 Contribution Rate 16.22% 15.01% 13.80% 12.59% 11.39% 10.18% 8.97% 7.76% 6.55% 5.34% 4.14% Table shows the hypothetical change in the funded status and contribution rate from the June 30, 2023 actuarial valuation results for Tiers 1 & 2 if an additional contribution of the amount shown had been made to the Fund on June 30, 2023. This illustration can help estimate the impact of contributing additional monies to the fund in the future. Historical Summary of Employer Rates Pension Health Valuation Date June 30 Fiscal Year Ending June 30 Normal Cost Unfunded Amortization Total Normal Cost Unfunded Amortization Total TIERS 1 & 2 2019 2021 13.95% 27.67% 41.62% 0.49% (0.46%) 0.03% 2020 2022 13.19% 30.38% 43.57% 0.45% (0.45%) 0.00% 2021 2023 13.09% 30.38% 43.47% 0.45% (0.45%) 0.00% 2022 2024 11.00% 0.00% 11.00% 0.41% (0.41%) 0.00% 2023 2025 10.91% 5.31% 16.22% 0.34% (0.34%) 0.00% TIER 3 1 2019 2021 9.68% 0.00% 9.68% 0.26% 0.00% 0.26% 2020 2022 9.68% 0.00% 9.68% 0.26% 0.00% 0.26% 2021 2 2023 9.00% 0.00% 9.00% 0.12% 0.00% 0.12% 2021 2023 9.68% 0.00% 9.68% 0.26% 0.00% 0.26% 2022 2 2024 8.69% 0.00% 8.69% 0.12% 0.00% 0.12% 2022 2024 9.30% 0.00% 9.30% 0.26% 0.00% 0.26% 2023 2 2025 8.63% 0.00% 8.63% 0.12% 0.00% 0.12% 2023 2025 8.77% 0.00% 8.77% 0.12% 0.00% 0.12% 1 Rates shown are Board approved EE/ER rates, unless otherwise noted. Does not reflect Legacy costs that the employer must also contribute. 2 Rates shown are calculated EE/ER rates Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 9 III. LIABILITY SUPPORT Liabilities and Funded Ratios by Benefit - Tiers 1 & 2 Pension liabilities were increased by $725,837 and health liabilities were increased by $12,298 under the lateral transfer methodology. June 30, 2023 June 30, 2022 Pension Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 41,096,102 $ 35,501,815 DROP Members 15,941,997 10,938,945 Vested Members 636,619 439,814 Active Members 36,734,296 37,981,637 Total Actuarial Present Value of Benefits 94,409,014 84,862,211 Actuarial Accrued Liability (AAL) All Inactive Members 57,674,718 46,880,574 Active Members 27,962,146 29,557,760 Total Actuarial Accrued Liability 85,636,864 76,438,334 Actuarial Value of Assets (AVA) 81,319,622 77,967,201 Unfunded Actuarial Accrued Liability 4,317,242 (1,528,867) PVB Funded Ratio (AVA / PVB) 86.1% 91.9% AAL Funded Ratio (AVA / AAL) 95.0% 102.0% Health Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 320,282 $ 299,420 DROP Members 213,078 145,431 Active Members 648,430 787,227 Total Present Value of Benefits 1,181,790 1,232,078 Actuarial Accrued Liability (AAL) All Inactive Members 533,360 444,851 Active Members 504,338 617,877 Total Actuarial Accrued Liability 1,037,698 1,062,728 Actuarial Value of Assets (AVA) 1,704,128 1,617,538 Unfunded Actuarial Accrued Liability (666,430) (554,810) PVB Funded Ratio (AVA / PVB) 144.2% 131.3% AAL Funded Ratio (AVA / AAL) 164.2% 152.2% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 10 Liabilities and Funded Ratios by Benefit - Tier 3 June 30, 2023 June 30, 2022 Pension Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 2,783,769 $ 944,111 Vested Members 6,565,608 3,654,003 Active Members 558,509,014 403,144,180 Total Actuarial Present Value of Benefits 567,858,391 407,742,294 Actuarial Accrued Liability (AAL) All Inactive Members 9,349,377 4,598,114 Active Members 101,611,814 64,341,090 Total Actuarial Accrued Liability 110,961,191 68,939,204 Actuarial Value of Assets (AVA) 119,101,476 76,171,857 Unfunded Actuarial Accrued Liability (8,140,285) (7,232,653) PVB Funded Ratio (AVA / PVB) 21.0% 18.7% AAL Funded Ratio (AVA / AAL) 107.3% 110.5% Health Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries 0 0 Active Members 7,842,159 5,807,514 Total Present Value of Benefits 7,842,159 5,807,514 Actuarial Accrued Liability (AAL) All Inactive Members 0 0 Active Members 1,651,466 1,075,733 Total Actuarial Accrued Liability 1,651,466 1,075,733 Actuarial Value of Assets (AVA) 3,508,666 2,281,928 Unfunded Actuarial Accrued Liability (1,857,200) (1,206,195) PVB Funded Ratio (AVA / PVB) 44.7% 39.3% AAL Funded Ratio (AVA / AAL) 212.5% 212.1% The liabilities shown on this page are the liabilities for all Tier 3 members grouped together in the Risk Sharing group. These liabilities are NOT the liabilities solely for Oro Valley Police Dept. Tier 3 members. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 11 Derivation of Experience (Gain)/Loss Tiers 1 & 2 Tier 3 Pension Health Pension Health (1) Unfunded Actuarial Accrued Liability as of June 30, 2022 (1,528,867) (554,810) (7,232,653) (1,206,195) (2) Normal Cost Developed in Last Valuation 697,007 25,979 14,710,461 203,136 (3) Actual Contributions 1,446,816 0 18,581,041 1,010,859 (4) Expected Interest On (1), (2), and (3) (111,074) (38,076) (118,890) (107,979) (5) Expected Unfunded Actuarial Accrued Liability as of June 30, 2023 (1)+(2)-(3)+(4) (2,389,750) (566,907) (11,222,123) (2,121,897) (6) Changes to UAAL Due to Assumptions, Methods and Benefits 0 0 0 0 (7) Change to UAAL Due to Actuarial (Gain)/Loss 6,706,992 (99,523) 3,081,838 264,697 (8) Unfunded Actuarial Accrued Liability as of June 30, 2023 4,317,242 (666,430) (8,140,285) (1,857,200) Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 12 Amortization of Unfunded Liabilities - Tiers 1 & 2 Date Established Outstanding Balance Years Remaining Amortization Rate Pension 6/30/2019 0 13 0.00% 6/30/2021 973,631 13 1.31% 6/30/2022 (2,447,205) 14 (3.14%) 6/30/2023 5,790,816 15 7.14% Total 4,317,242 5.31% Health 6/30/2019 0 10 0.00% 6/30/2021 0 10 0.00% 6/30/2022 0 10 0.00% 6/30/2023 (522,338) 10 (0.83%) Total (522,338) (0.83%) Amortization of Unfunded Liabilities - Tier 3 Date Established Outstanding Balance Years Remaining Amortization Rate * Pension 6/30/2018 114,634 5 0.01% 6/30/2019 (1,038,772) 6 (0.09%) 6/30/2020 707,518 7 0.05% 6/30/2021 (2,409,872) 8 (0.17%) 6/30/2022 (4,031,414) 9 (0.26%) 6/30/2023 (1,482,379) 10 (0.09%) Total (8,140,285) 0.00% Health 6/30/2018 (2,431) 5 0.00% 6/30/2019 (94,973) 6 (0.01%) 6/30/2020 (179,674) 7 (0.01%) 6/30/2021 (348,185) 8 (0.02%) 6/30/2022 (479,588) 9 (0.03%) 6/30/2023 (752,349) 10 (0.04%) Total (1,857,200) 0.00% * By Statute, negative total amortization rates are not subtracted in Tier 3 rate calculations. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 13 IV. ASSET SUPPORT Statement of Changes in Fiduciary Net Position for Year Ended June 30, 2023 Market Value Basis Tiers 1 & 2 Tier 3 Pension Health Pension Health Additions Contributions Member Contributions $ 117,410,792 $ 0 $ 40,441,215 $ 0 Employer Contributions 1,211,172,334 0 40,447,269 0 Health Insurance Contributions 0 3,595,544 0 1,975,775 Total Contributions 1,328,583,126 3,595,544 80,888,484 1,975,775 Investment Income Net Increase in Fair Value 723,642,201 19,640,174 13,157,112 371,761 Interest and Dividends 205,449,236 5,576,041 3,735,435 105,547 Other Income 126,441,141 3,435,000 2,298,928 65,020 Less Investment Expenses (29,675,754) (668,527) (539,558) (12,654) Net Investment Income 1,025,856,824 27,982,688 18,651,917 529,674 Non-investment Income 32,684 0 594 0 Transfers In 66,736 0 40,465 0 Total Additions 2,354,539,370 31,578,232 99,581,460 2,505,449 Deductions Distributions to Members Benefit Payments 1,067,901,240 0 382,013 0 Health Insurance Subsidy 0 17,880,074 0 1,800 Refund of Contributions 12,146,940 0 1,476,602 0 Total Distributions 1,080,048,180 17,880,074 1,858,615 1,800 Administrative Expenses 6,611,492 206,872 120,063 3,916 Transfers Out 433,659 0 0 0 Other 0 0 0 0 Total Deductions 1,087,093,331 18,086,946 1,978,678 5,716 Net Increase / (Decrease) 1,267,446,039 13,491,286 97,602,782 2,499,733 Net Position Held in Trust Prior Valuation 13,042,796,696 374,026,053 162,622,481 4,835,416 Beginning of the Year Adjustment 0 0 0 0 End of the Year 14,310,242,735 387,517,339 260,225,263 7,335,149 Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 14 Development of Pension Actuarial Value of Assets - Tiers 1 & 2 A. Investment Income A1. Actual Investment Income $ 1,019,245,332 A2. Expected Amount for Immediate Recognition 947,861,295 A3. Amount Subject to Amortization 71,384,037 Year Ended June 30 B. Amortization Schedule 2023 2024 2025 2026 2027 2028 2029 2023 Experience (A3 / 7) 10,197,720 10,197,720 10,197,720 10,197,720 10,197,720 10,197,720 10,197,717 2022 Experience (204,451,249) (204,451,249) (204,451,249) (204,451,249) (204,451,249) (204,451,249) 2021 Experience 238,978,744 238,978,744 238,978,744 238,978,744 238,978,745 2020 Experience (68,882,158) (68,882,158) (68,882,158) (68,882,160) 2019 Experience (22,859,275) (22,859,275) (22,859,275) 2018 Experience (6,266,349) (6,266,351) 2017 Experience 33,380,148 Total Amortization (19,902,419) (53,282,569) (47,016,218) (24,156,945) 44,725,216 (194,253,529) 10,197,717 C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2022 13,397,869,480 C2. Non-investment Net Cash Flow 248,200,707 C3. Preliminary Actuarial Value of Assets, June 30, 2023 (A2 + B + C1 + C2) 14,574,029,063 C4. Market Value of Assets, June 30, 2023 14,310,242,735 79,847,757 C5. Final Actuarial Value of Assets, June 30, 2023 (C3 Within 20% Corridor of C4) 14,574,029,063 81,319,622 D. Rates of Return D1. Market Value Rate of Return 7.7% D2. Actuarial Value Rate of Return 6.9% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 15 Development of Health Actuarial Value of Assets - Tiers 1 & 2 A. Investment Income A1. Actual Investment Income $ 27,775,816 A2. Expected Amount for Immediate Recognition 26,424,570 A3. Amount Subject to Amortization 1,351,246 Year Ended June 30 B. Amortization Schedule 2023 2024 2025 2026 2027 2028 2029 2023 Experience (A3 / 7) 193,035 193,035 193,035 193,035 193,035 193,035 193,036 2022 Experience (6,416,469) (6,416,469) (6,416,469) (6,416,469) (6,416,469) (6,416,471) 2021 Experience 9,257,478 9,257,478 9,257,478 9,257,478 9,257,481 2020 Experience (2,898,713) (2,898,713) (2,898,713) (2,898,716) 2019 Experience (1,075,569) (1,075,569) (1,075,572) 2018 Experience (304,653) (304,656) 2017 Experience 1,532,136 Total Amortization 287,245 (1,244,894) (940,241) 135,328 3,034,047 (6,223,436) 193,036 C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2022 380,136,214 C2. Non-investment Net Cash Flow (14,284,530) C3. Preliminary Actuarial Value of Assets, June 30, 2023 (A2 + B + C1 + C2) 392,563,499 C4. Market Value of Assets, June 30, 2023 387,517,339 1,682,222 C5. Final Actuarial Value of Assets, June 30, 2023 (C3 Within 20% Corridor of C4) 392,563,499 1,704,128 D. Rates of Return D1. Market Value Rate of Return 7.6% D2. Actuarial Value Rate of Return 7.2% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 16 Development of Pension Actuarial Value of Assets - Tiers 3 A. Investment Income A1. Actual Investment Income $ 18,531,854 A2. Expected Amount for Immediate Recognition 14,104,250 A3. Amount Subject to Amortization 4,427,604 Year Ended June 30 B. Amortization Schedule 2023 2024 2025 2026 2027 2023 Experience (A3 / 5) 885,521 885,521 885,521 885,521 885,520 2022 Experience (3,259,379) (3,259,379) (3,259,379) (3,259,381) 2021 Experience 3,551,936 3,551,936 3,551,938 2020 Experience (351,296) (351,294) 2019 Experience 44,437 Total Amortization 871,219 826,784 1,178,080 (2,373,860) 885,520 C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2022 165,662,342 C2. Non-investment Net Cash Flow 79,070,928 C3. Preliminary Actuarial Value of Assets, June 30, 2023 (A2 + B + C1 + C2) 259,708,739 C4. Market Value of Assets, June 30, 2023 260,225,263 119,338,352 C5. Final Actuarial Value of Assets, June 30, 2023 (C3 Within 20% Corridor of C4) 259,708,739 119,101,476 D. Rates of Return D1. Market Value Rate of Return 9.2% D2. Actuarial Value Rate of Return 7.3% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 17 Development of Health Actuarial Value of Assets - Tiers 3 A. Investment Income A1. Actual Investment Income $ 525,758 A2. Expected Amount for Immediate Recognition 406,400 A3. Amount Subject to Amortization 119,358 Year Ended June 30 B. Amortization Schedule 2023 2024 2025 2026 2027 2023 Experience (A3 / 5) 23,872 23,872 23,872 23,872 23,870 2022 Experience (101,792) (101,792) (101,792) (101,790) 2021 Experience 128,963 128,963 128,961 2020 Experience (10,555) (10,557) 2019 Experience 1,508 Total Amortization 41,996 40,486 51,041 (77,918) 23,870 C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2022 4,875,299 C2. Non-investment Net Cash Flow 1,973,975 C3. Preliminary Actuarial Value of Assets, June 30, 2023 (A2 + B + C1 + C2) 7,297,670 C4. Market Value of Assets, June 30, 2023 7,335,149 3,526,686 C5. Final Actuarial Value of Assets, June 30, 2023 (C3 Within 20% Corridor of C4) 7,297,670 3,508,666 D. Rates of Return D1. Market Value Rate of Return 9.0% D2. Actuarial Value Rate of Return 7.6% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 18 V. MEMBER STATISTICS Valuation Data Summary June 30, 2023 June 30, 2022 Tiers 1 & 2 Tier 3 Tiers 1 & 2 Tier 3 Actives Number 51 26 63 15 Average Current Age 41.3 27.5 42.0 28.2 Average Age at Employment 26.2 25.6 26.6 26.3 Average Past Service 15.1 1.9 15.4 1.9 Average Annual Salary $105,725 $68,802 $87,487 $59,679 Actives (transferred) Number 8 5 8 3 Average Current Age 36.6 27.4 34.0 26.5 Average Age at Employment 25.5 24.6 24.3 23.8 Average Past Service 11.2 2.7 9.7 2.6 Average Annual Salary $80,617 $68,991 $66,358 $51,623 Retirees Number 38 0 33 0 Average Current Age 58.6 N/A 58.9 N/A Average Annual Benefit $54,583 N/A $52,659 N/A Drop Retirees Number 13 N/A 8 N/A Average Current Age 54.3 N/A 54.5 N/A Average Annual Benefit $71,794 N/A $73,738 N/A Beneficiaries Number 7 0 7 0 Average Current Age 69.5 N/A 68.5 N/A Average Annual Benefit $35,459 N/A $34,763 N/A Disability Retirees Number 12 0 12 0 Average Current Age 55.5 N/A 54.5 N/A Average Annual Benefit $41,439 N/A $40,627 N/A Inactive / Vested Number 9 3 7 3 Average Current Age 46.4 27.7 45.7 25.7 Average Accumulated Contributions $40,056 $5,527 $23,722 $4,919 Total Number 138 34 138 21 Former Members (transferred) 5 3 4 0 Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 19 Active Counts and Pay Summary - Tiers 1 & 2 Past Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30+ Total Count Total Pay Average Pay <20 0 0 0 0 0 0 0 0 0 0 20 - 24 0 0 0 0 0 0 0 0 0 0 25 - 29 0 1 0 0 0 0 0 1 97,364 97,364 30 - 34 0 11 3 0 0 0 0 14 1,403,902 100,279 35 - 39 0 3 8 3 0 0 0 14 1,406,554 100,468 40 - 44 0 3 0 11 2 0 0 16 1,639,832 102,490 45 - 49 0 0 0 6 1 0 0 7 720,866 102,981 50 - 54 0 0 0 3 1 0 0 4 446,166 111,542 55 - 59 0 0 0 0 1 0 1 2 213,196 106,598 60 - 64 0 0 0 1 0 0 0 1 109,045 109,045 65+ 0 0 0 0 0 0 0 0 0 0 Total 0 18 11 24 5 0 1 59 6,036,925 102,321 Active Counts and Pay Summary - Tier 3 Past Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30+ Total Count Total Pay Average Pay <20 0 0 0 0 0 0 0 0 0 0 20 - 24 9 0 0 0 0 0 0 9 592,974 65,886 25 - 29 16 0 0 0 0 0 0 16 1,100,425 68,777 30 - 34 5 0 0 0 0 0 0 5 371,358 74,272 35 - 39 1 0 0 0 0 0 0 1 69,048 69,048 40 - 44 0 0 0 0 0 0 0 0 0 0 45 - 49 0 0 0 0 0 0 0 0 0 0 50 - 54 0 0 0 0 0 0 0 0 0 0 55 - 59 0 0 0 0 0 0 0 0 0 0 60 - 64 0 0 0 0 0 0 0 0 0 0 65+ 0 0 0 0 0 0 0 0 0 0 Total 31 0 0 0 0 0 0 31 2,133,805 68,832 Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 20 In-Payment Counts and Benefit Summary – All Tiers Age Count Average Annual Benefit < 40 0 0 40 - 44 1 46,870 45 - 49 9 49,323 50 - 54 13 44,993 55 - 59 11 51,411 60 - 64 6 52,240 65 - 69 10 56,901 70 - 74 3 30,681 75 - 79 2 44,777 80 - 84 2 57,177 85 - 89 0 0 90 - 94 0 0 95 - 99 0 0 100+ 0 0 Total 57 49,467 “In-Payment” refers to retired, beneficiary, and disabled members. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 21 VI. ACTUARIAL ASSUMPTIONS AND METHODS Interest Rate This is the assumed earnings rate on System assets, compounded annually, net of investment and administrative expenses. Tiers 1 & 2: 7.20% per year. Tier 3: 7.00% per year. Salary Increases See table at the end of this section. This is an annual increase for individual member’s salary. These rates are based on a 2022 experience study using actual plan experience. Inflation 2.50%. Tier 3 Compensation Limit $115,868 for calendar 2023. Assumed increases of 2.00% per year thereafter. Cost-of-Living Adjustment 1.85%. Mortality Rates These rates are used to project future decrements from the population due to death. Active Lives: PubS-2010 Employee mortality, adjusted by a factor of 1.03 for male members and 1.08 for female members, with generational improvements using 85% of the most recent projection scale (currently Scale MP-2021). 100% of active deaths are assumed to be in the line of duty. Inactive Lives: PubS-2010 Healthy Retiree mortality, adjusted by a factor of 1.03 for male retirees and 1.11 for female retirees, with generational improvements using 85% of the most recent projection scale (currently Scale MP-2021). Beneficiaries: PubS-2010 Survivor mortality, adjusted by a factor of 0.98 for male beneficiaries and adjusted by a factor of 1.06 for female beneficiaries, with generational improvements using 85% of the most recent projection scale (currently Scale MP-2021). Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 22 Disabled Lives: PubS-2010 Disabled mortality, adjusted by a factor of 1.08 for male disabled members and 1.01 for female disabled members, with generational improvements using 85% of the most recent projection scale (currently Scale MP-2021). The mortality assumptions sufficiently accommodate anticipated future mortality improvements. Retirement / DROP Rates These rates are used to project future decrements from the active population due to retirement. The rates below are based on a 2022 experience study using actual plan experience. Tier 1 – reaching age 62 before attaining 20 years of service: Age-related rates based on age at retirement: Police - 40% assumed at age 62 and 63, 35% assumed at age 64, 25% assumed at ages 65 and 66, 50% assumed at ages 67 – 69, and 100% assumed at age 70. Fire - 25% assumed at age 62 and 63, 35% assumed at age 64, 25% assumed at ages 65 and 66, 50% assumed at ages 67 – 69, and 100% assumed at age 70. Tier 1 – reaching age 62 after attaining 20 years of service: Service-related rates based on service at retirement. See complete tables at the end of this section. 65% are assumed to enter the DROP program while the remaining 35% are assumed to retire and commence benefits immediately. DROP periods are assumed to be 5 years in length for future DROP elections. Tiers 2 & 3: Age-related rates based on age at retirement. 50% assumed at age 53, 30% assumed at ages 54 – 59, 60% assumed at ages 60 – 63, and 100% assumed at age 64. Termination Rate These rates are used to project future decrements from the active population due to termination. Complete table of rates based on service at termination are provided at the end of this section. The rates apply to members prior to retirement eligibility and are based on a 2022 experience study using actual plan experience. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 23 Disability Rate These rates are used to project future decrements from the active population due to disability. Complete table of rates based on age at disability are provided at the end of this section. These rates are based on a 2022 experience study using actual plan experience. 90% of disablements are assumed to be duty-related. Marital Status For active members, 85% of males and 60% of females are assumed to be married. Actual marital status is used, where applicable, for inactive members. Spouse’s Age Male spouses are assumed to be four years older than female members and female spouses are assumed to be two years younger than males members. Benefit Commencement Deferred members are assumed to commence benefits as follows:  Tier 1: immediate refund of contributions  Tiers 2 & 3 (less than 15 years service): immediate refund of contributions  Tier 2 (15+ years service): life annuity payable at age 52.5  Tier 3 (15+ years service): life annuity payable at age 55 Health Care Utilization For active members, 70% of retirees are expected to utilize retiree health care. Actual utilization is used for inactive members. Funding Method Entry Age Normal Cost Method. Lateral Transfers When active members transfer between employers, the new employer’s liability starts from their new date of hire with no past service liability (i.e., all liability is accrued through normal cost). Per PSPRS administrative decision, once the new employer’s liability is fully funded, the liability will reflect all past service liability. Actuarial Asset Method Method described below. Note that during periods when investment performance exceeds (falls short) of the assumed rate, the actuarial value of assets will tend to be less (greater) than the market value of assets. Tiers 1 & 2: Each year the assumed investment income is recognized in full while the difference between actual and assumed investment income are smoothed over a 7-year period subject to a 20% corridor around the market value. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 24 Tier 3: Each year the assumed investment income is recognized in full while the difference between actual and assumed investment income are smoothed over a 5-year period subject to a 20% corridor around the market value. Funding Policy Amortization Method Tiers 1 & 2: Any positive UAAL (assets less than liabilities) is amortized using a layered approach beginning with the June 30, 2020 valuation, with new amounts determined according to a Level Dollar method over a closed period of 15 years (phased into from current period of at most 30 years). Initial layer from June 30, 2019 valuation continues to be amortized according to a Level Percentage of Payroll method. Tier 3: Any positive UAAL (assets less than liabilities) is amortized according to a Level Dollar method over a closed period of 10 years. No amortization is made of any negative UAAL (assets greater than liabilities). Payroll Growth 2.00% per year. This is annual increase for total employer payroll. Changes to Actuarial Assumptions and Methods Since the Prior Valuation The payroll growth assumption was lowered from 2.50% to 2.00%. There were no method changes since the prior valuation. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 25 Salary Increase Rates Age Maricopa Police Pima Police Other Police Maricopa Fire Pima Fire Other Fire 20 15.00% 12.00% 14.00% 15.00% 12.00% 13.00% 21 14.00% 6.00% 12.00% 14.00% 11.00% 12.00% 22 13.00% 6.00% 10.00% 13.00% 10.00% 11.00% 23 12.00% 6.00% 9.00% 12.00% 9.50% 10.00% 24 11.00% 6.00% 8.00% 11.00% 9.00% 9.00% 25 10.00% 6.00% 7.00% 10.00% 8.50% 8.00% 26 9.00% 5.50% 6.50% 9.50% 7.50% 7.50% 27 8.00% 5.50% 6.25% 9.00% 6.50% 7.50% 28 7.50% 5.50% 6.00% 8.50% 5.75% 7.00% 29 7.00% 5.50% 5.80% 8.00% 5.75% 6.50% 30 6.50% 5.25% 5.60% 8.00% 5.50% 6.50% 31 6.00% 5.25% 5.40% 7.50% 5.50% 6.00% 32 5.50% 5.00% 5.20% 7.00% 5.00% 5.50% 33 5.10% 5.00% 5.00% 6.50% 5.00% 5.50% 34 4.90% 5.00% 4.90% 6.50% 5.00% 5.50% 35 4.70% 4.50% 4.80% 6.00% 5.00% 5.50% 36 4.50% 4.50% 4.70% 5.50% 5.00% 5.50% 37 4.30% 4.50% 4.60% 5.25% 4.50% 5.00% 38 4.10% 4.00% 4.50% 5.00% 4.50% 5.00% 39 4.00% 4.00% 4.40% 4.75% 4.50% 5.00% 40 3.90% 4.00% 4.30% 4.75% 4.50% 5.00% 41 3.80% 3.80% 4.20% 4.50% 4.50% 4.50% 42 3.70% 3.60% 4.10% 4.50% 4.00% 4.50% 43 3.60% 3.40% 4.00% 4.50% 4.00% 4.50% 44 3.50% 3.20% 3.90% 4.50% 4.00% 4.00% 45 3.50% 3.00% 3.80% 4.25% 4.00% 4.00% 46 3.50% 3.00% 3.70% 4.25% 3.75% 4.00% 47 3.50% 3.00% 3.60% 4.25% 3.75% 3.75% 48 3.50% 3.00% 3.50% 4.00% 3.75% 3.75% 49 3.50% 3.00% 3.50% 4.00% 3.50% 3.75% 50 3.25% 3.00% 3.50% 3.75% 3.50% 3.75% 51 3.25% 3.00% 3.50% 3.75% 3.50% 3.75% 52 3.25% 2.75% 3.50% 3.75% 3.50% 3.75% 53+ 3.25% 2.75% 3.50% 3.75% 3.25% 3.75% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 26 Tier 1 Retirement Rates– reaching age 62 after attaining 20 years of service Termination Rates Service Maricopa Police Pima Police Other Police Maricopa Fire Pima Fire Other Fire 0 13.0% 14.0% 13.5% 4.5% 10.0% 10.5% 1 8.0% 9.0% 11.5% 3.5% 6.0% 8.5% 2 6.0% 7.5% 10.5% 2.5% 4.5% 8.0% 3 4.5% 7.0% 9.5% 2.0% 4.0% 8.0% 4 3.6% 6.5% 9.0% 1.5% 4.0% 7.0% 5 3.3% 5.0% 8.0% 1.5% 4.0% 5.0% 6 3.3% 5.0% 7.0% 1.5% 4.0% 5.0% 7 3.3% 4.0% 6.5% 1.5% 3.0% 4.0% 8 2.4% 4.0% 6.5% 1.5% 3.0% 4.0% 9 2.4% 4.0% 6.0% 1.5% 3.0% 3.5% 10 2.4% 4.0% 5.0% 1.0% 2.0% 3.0% 11 1.8% 3.0% 4.0% 1.0% 2.0% 2.5% 12 1.8% 3.0% 4.0% 1.0% 1.5% 2.0% 13 1.3% 2.0% 3.5% 1.0% 1.0% 1.5% 14 1.3% 2.0% 3.0% 0.5% 1.0% 1.4% 15 0.8% 1.5% 2.5% 0.5% 1.0% 1.4% 16 0.8% 1.5% 2.0% 0.5% 0.5% 1.4% 17 0.8% 1.0% 2.0% 0.5% 0.5% 1.4% 18 0.8% 1.0% 1.8% 0.5% 0.5% 1.4% 19 0.8% 1.0% 1.8% 0.5% 0.5% 0.5% 20+ 0.5% 1.0% 1.8% 0.4% 0.5% 0.5% Service Maricopa Police Pima Police Other Police Maricopa Fire Pima Fire Other Fire 20 28% 28% 35% 14% 20% 20% 21 25% 25% 35% 17% 20% 25% 22 15% 16% 22% 7% 13% 15% 23 12% 12% 12% 7% 7% 10% 24 8% 9% 12% 7% 7% 10% 25 30% 22% 25% 17% 22% 30% 26 42% 42% 40% 30% 26% 30% 27 32% 30% 28% 23% 30% 30% 28 32% 30% 28% 30% 30% 30% 29 32% 20% 28% 30% 30% 30% 30 35% 25% 35% 30% 30% 35% 31 35% 33% 30% 40% 30% 35% 32 60% 50% 70% 55% 30% 35% 33 60% 50% 70% 55% 60% 60% 34+ 100% 100% 100% 100% 100% 100% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 27 Disability Rates Age Maricopa Police Pima Police Other Police Maricopa Fire Pima Fire Other Fire 20 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 21 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 22 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 23 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 24 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 25 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 26 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 27 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 28 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 29 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 30 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 31 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 32 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 33 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 34 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 35 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 36 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 37 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 38 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 39 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 40 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 41 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 42 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 43 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 44 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 45 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 46 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 47 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 48 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 49 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 50 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 51 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 52 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 53 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 54 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 55 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 56+ 1.000% 0.850% 0.900% 1.100% 0.800% 1.000% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 28 VII. DISCUSSION OF RISK ASOP No. 51, Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions, states that the actuary should identify risks that, in the actuary’s professional judgment, may reasonably be anticipated to significantly affect the plan’s future financial condition. Throughout this report, actuarial results are determined under various assumption scenarios. These results are based on the premise that all future plan experience will align with the plan’s actuarial assumptions; however, there is no guarantee that actual plan experience will align with the plan’s assumptions. Whenever possible, the recommended assumptions in this report reflect conservatism to allow for some margin of unfavorable future plan experience. However, it is still possible that actual plan experience will differ from anticipated experience in an unfavorable manner that will negatively impact the plan’s funded position. Below are examples of ways in which plan experience can deviate from assumptions and the potential impact of that deviation. Typically, this results in an actuarial gain or loss representing the current-year financial impact on the plan’s unfunded liability of the experience differing from assumptions; this gain or loss is amortized over a period of time determined by the plan’s amortization method. When assumptions are selected that adequately reflect plan experience, gains and losses typically offset one another in the long term, resulting in a relatively low impact on the plan’s contribution requirements associated with plan experience. When assumptions are too optimistic, losses can accumulate over time and the plan’s amortization payment could potentially grow to an unmanageable level.  Investment Return: When the rate of return on the Actuarial Value of Assets falls short of the assumption, this produces a loss representing assumed investment earnings that were not realized. Further, it is unlikely that the plan will experience a scenario that matches the assumed return in each year as capital markets can be volatile from year to year. Therefore, contribution amounts can vary in the future.  Salary Increases: When a plan participant experiences a salary increase that was greater than assumed, this produces a loss representing the cost of an increase in anticipated plan benefits for the participant as compared to the previous year. The total gain or loss associated with salary increases for the plan is the sum of salary gains and losses for all active participants.  Payroll Growth: The plan’s payroll growth assumption, if one is used, causes a predictable annual increase in the plan’s amortization payment in order to produce an amortization payment that remains constant as a percentage of payroll if all assumptions are realized. If payroll does not increase according to the plan’s payroll growth assumption, the plan’s amortization payment can increase significantly as a percentage of payroll even if all assumptions other than the payroll growth assumption are realized.  Demographic Assumptions: Actuarial results take into account various potential events that could happen to a plan participant, such as retirement, termination, disability, and death. Each of these potential events is assigned a liability based on the likelihood of the event and the financial consequence of the event for the plan. Accordingly, actuarial liabilities reflect a blend of financial consequences associated with various possible outcomes (such as retirement at one of various possible ages). Once the outcome is known (e.g. the participant retires) the liability is adjusted to reflect the known outcome. This adjustment Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 29 produces a gain or loss depending on whether the outcome was more or less favorable than other outcomes that could have occurred.  Contribution risk: This risk results from the potential that actual employer contributions may deviate from actuarially determined contributions, which are determined in accordance with the Board’s funding policy. The funding policy is intended to result in contribution requirements that if paid when due, will result in a reasonable expectation that assets will accumulate to be sufficient to pay plan benefits when due. Contribution deficits, particularly large deficits and those that occur repeatedly, increase future contribution requirements and put the plan at risk for not being able to pay plan benefits when due. Impact of Plan Maturity on Risk For newer pension plans, most of the participants and associated liabilities are related to active members who have not yet reached retirement age. As pension plans continue in operation and active members reach retirement ages, liabilities begin to shift from being primarily related to active members to being shared amongst active and retired members. Plan maturity is a measure of the extent to which this shift has occurred. It is important to understand that plan maturity can have an impact on risk tolerance and the overall risk characteristics of the plan. For example, plans with a large amount of retired liability do not have as long of a time horizon to recover from losses (such as losses on investments due to lower than expected investment returns) as plans where the majority of the liability is attributable to active members. For this reason, less tolerance for investment risk may be warranted for highly mature plans with a substantial inactive liability. Similarly, mature plans paying substantial retirement benefits resulting in a small positive or net negative cash flow can be more sensitive to near term investment volatility, particularly if the size of the fund is shrinking, which can result in less assets being available for investment in the market. To assist with determining the maturity of the plan, we have provided some relevant metrics in the table following titled “Plan Maturity Measures and Other Risk Metrics.” For a better understanding of the overall Plan and the impact of these risks, please refer to the consolidated PSPRS valuation report. Low Default-Risk Obligation Measure ASOP No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions, was revised as of December 2021 to include a “low-default-risk obligation measure” (LDROM). This liability measure is consistent with the determination of the actuarial accrued liability shown on pages 8 and 9 in terms of member data, plan provisions, and assumptions/methods, including the use of the Entry Age Normal Cost Method, except that the interest rate is tied to low-default-risk fixed income securities. The S&P Municipal Bond 20 Year High Grade Rate Index (daily rate closest to, but not later than, the measurement date) was selected to represent a current market rate of low risk but longer-term investments that could be included in a low-risk asset portfolio. The interest rate used in this valuation was 4.13%, resulting in an LDROM of $134,087,368 for Tiers 1 and 2 and $277,283,390 for Tier 3. The LDROM should not be considered the “correct” liability measurement; it simply shows a possible outcome if the Board elected to hold a very low risk asset portfolio. The Board actually invests the pension plan’s contributions in a diversified portfolio of stocks and bonds and other investments with the objective of maximizing investment returns at a reasonable level of risk. Consequently, the difference between the plan’s Actuarial Accrued Liability disclosed earlier in this section and the LDROM can be thought of as representing the expected taxpayer savings from investing in the plan’s diversified portfolio compared to investing only in high quality bonds. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 30 The actuarial valuation reports the funded status and develops contributions based on the expected return of the plan’s investment portfolio. If instead, the plan switched to investing exclusively in high quality bonds, the LDROM illustrates that reported funded status would be lower (which also implies that the Actuarially Determined Contributions would be higher), perhaps significantly. Unnecessarily high contribution requirements in the near term may not be affordable and could imperil plan sustainability and benefit security. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 31 Plan Maturity Measures and Other Risk Metrics - Tiers 1 & 2 1 Determined as total contributions minus benefit payments. Administrative expenses are typically included but are considered part of the net interest rate assumption for this plan. 6/30/2023 6/30/2022 6/30/2021 6/30/2020 Support Ratio Total Actives 59 71 75 78 Total Inactives 79 67 64 61 Actives / Inactives 74.7% 106.0% 117.2% 127.9% Asset Volatility Ratio Market Value of Assets (MVA) 79,847,757 75,900,900 51,161,889 38,542,634 Total Annual Payroll 6,036,925 6,042,533 6,174,801 6,262,347 MVA / Total Annual Payroll 1,322.7% 1,256.1% 828.6% 615.5% Accrued Liability (AL) Ratio Inactive Accrued Liability 57,674,718 46,880,574 41,295,836 37,987,923 Total Accrued Liability 85,636,864 76,438,334 70,792,554 67,240,526 Inactive AL / Total AL 67.3% 61.3% 58.3% 56.5% Funded Ratio Actuarial Value of Assets (AVA) 81,319,622 77,967,201 46,773,089 41,498,361 Total Accrued Liability 85,636,864 76,438,334 70,792,554 67,240,526 AVA / Total Accrued Liability 95.0% 102.0% 66.1% 61.7% Net Cash Flow Ratio Net Cash Flow 1 (1,793,766) 27,917,489 1,738,938 1,532,336 Market Value of Assets (MVA) 79,847,757 75,900,900 51,161,889 38,542,634 Net Cash Flow / MVA (2.2%) 36.8% 3.4% 4.0% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 32 Plan Maturity Measures and Other Risk Metrics - Tier 3 1 1 Tier 3 results are shown for the Risk Sharing group, where applicable. 2 Determined as total contributions minus benefit payments. Administrative expenses are typically included but are considered part of the net interest rate assumption for this plan. 6/30/2023 6/30/2022 6/30/2021 6/30/2020 Support Ratio Total Actives 3,052 2,417 2,560 1,408 Total Inactives 450 327 307 130 Actives / Inactives 678.2% 739.1% 833.9% 1,083.1% Asset Volatility Ratio Market Value of Assets (MVA) 119,338,352 74,774,123 51,992,240 22,964,925 Total Annual Payroll 226,680,964 165,151,543 115,883,115 84,448,996 MVA / Total Annual Payroll 52.6% 45.3% 44.9% 27.2% Accrued Liability (AL) Ratio Inactive Accrued Liability 9,349,377 4,598,114 2,290,610 1,173,104 Total Accrued Liability 110,961,191 68,939,204 42,733,537 23,239,599 Inactive AL / Total AL 8.4% 6.7% 5.4% 5.0% Funded Ratio Actuarial Value of Assets (AVA) 119,101,476 76,171,857 45,863,401 23,570,444 Total Accrued Liability 110,961,191 68,939,204 42,733,537 23,239,599 AVA / Total Accrued Liability 107.3% 110.5% 107.3% 101.4% Net Cash Flow Ratio Net Cash Flow 2 36,208,171 25,802,686 18,607,209 13,192,598 Market Value of Assets (MVA) 119,338,352 74,774,123 51,992,240 22,964,925 Net Cash Flow / MVA 30.3% 34.5% 35.8% 57.4% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 33 VIII. SUMMARY OF CURRENT PLAN The following is a summary of the benefit provisions provided in Title 38, Chapter 5, Article 4 of the Arizona Revised Statutes. Membership Full-time employees of an eligible group, prior to attaining age 65, who are engaged to work for more than six months in a calendar year. Tier 3 Defined Contribution members are able to elect participation in post-retirement health insurance subsidy. Benefit Tiers Benefits differ for members based on their hire date: Tier Hire Date 1 Hired before January 1, 2012 2 Hired on or after January 1, 2012 but before July 1, 2017 3 Hired on or after July 1, 2017 Compensation Compensation is the amount including base salary, overtime pay, shift and military differential pay, compensatory time used in lieu of overtime pay, and holiday pay, paid to an employee on a regular payroll basis and longevity pay paid at least every six months for which contributions are made to the System. For Tier 3 members, compensation is limited by statutory cap ($110,000 with adjustments by the Board). Average Monthly Benefit Tier 1: Compensation The highest compensation paid to member during three consecutive years out of the last 20 years of Credited Service, divided by months. Tier 2: The highest compensation paid to member during five consecutive years out of the last 20 years of Credited Service, divided by months. Tier 3: The highest compensation paid to member during five consecutive years out of the last 15 years of Credited Service, divided by months. Credited Service Total periods of service, both before and after the member’s date of participation, for which the member made contributions to the fund. Normal Retirement Date Tier 1: First day of month following attainment of 1) 20 years of service or Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 34 2) 62nd birthday and completion of 15 years of service. Tier 2: First day of month following the attainment of age 52.5 and com- pletion of 15 years of service. Tier 3: First day of month following the attainment of age 55 and comple- tion of 15 years of service. Benefit Tier 1: 50% of Average Monthly Benefit Compensation, adjusted based on Credited Service as follows (maximum benefit of 80% of Average Monthly Benefit Compensation): Credited Service Benefit Adjustment 15 years, but less than 20 Reduced 4% per year less than 20 20 years, but less than 25 Plus 2% per year between 20 and 25 25+ years Plus 2.5% per year above 20 Tier 2: Benefit multiplier (below) times Average Monthly Benefit Compensation times Credited Service (maximum benefit of 80% of Average Monthly Benefit Compensation): Credited Service Benefit Multiplier 15 years, but less than 17 1.50% 17 years, but less than 19 1.75% 19 years, but less than 22 2.00% 22 years, but less than 25 2.25% 25+ years 2.50% Tier 3: Benefit multiplier (below) times Average Monthly Benefit Compensation times Credited Service (maximum benefit of 80% of Average Monthly Benefit Compensation): Credited Service Benefit Multiplier 15 years, but less than 17 1.50% 17 years, but less than 19 1.75% 19 years, but less than 22 2.00% 22 years, but less than 25 2.25% 25+ years 2.50% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 35 Form of Benefit For married retirees, an annuity payable for the life of the member with 80% continuing to the eligible spouse upon death. For unmarried retirees, the normal form is a single life annuity. Early Retirement Only applicable to Tier 3 members: Date Attainment of age 52.5 and 15 years of Credited Service. Benefit Actuarial equivalent of Normal Retirement benefit. Disability Benefit – Accidental (duty-related) Eligibility Total and permanent disability incurred in performance of duty. Benefit Amount A maximum of: a.) 50% of Average Monthly Benefit Compensation, and; b.) The monthly Normal Retirement pension that the member is entitled to receive if he or she retired immediately. Disability Benefit – Ordinary (not duty-related) Eligibility Total and permanent disability not incurred in performance of duty. Benefit Amount Normal Retirement pension that the member is entitled to receive, prorated based on Credited Service earned over the required Credited Service for Normal Retirement (maximum ratio of 1). Disability Benefit – Other Temporary Benefit equals 1/12 of 50% of compensation during year preceding date of disability. Payments terminate after 12 months. Catastrophic Benefit equals 90% of Average Monthly Benefit Compensation. After 60 months member receives greater of 62.5% Average Monthly Benefit Compensation and accrued normal pension. Pre-Retirement Death Benefit Payable following death of active member Service Incurred 100% of Average Monthly Benefit Compensation, reduced by child’s pension. Non-Service Incurred 80% of benefit based on calculation for accidental disability retirement. Child’s Pension 10% of pension for each child (maximum 20% paid) based on calculation for accidental disability retirement. Payable to dependent child under age 18 (23 if full-time student). Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 36 Guardian’s Pension Same as spouse’s pension. Payable (along with child’s pension) when no spouse is being paid and there is at least one child under 18 (23, if full-time student). Accumulated Contributions Any contributions remaining upon the death of the last beneficiary shall be paid as a lump sum. Vesting (Termination) Vesting Service Requirement Tier 1: 10 years of Credited Service. Tiers 2 & 3: 15 years of Credited Service. Non-Vested Benefit Tier 1: Lump sum payment of accumulated contributions, plus additional amount based on years of Credited Service. Service Additional % of Contributions Less than 5 years 0% 5 years 25% 6 years 40% 7 years 55% 8 years 70% 9 years 85% 10+ years 100% Tiers 2 & 3: Lump sum payment of accumulated contributions, with interest at rate determined by the Board. Vested Benefit Tier 1: Deferred retirement annuity based on two times member’s accumulated contributions, deferred to age 62. Member is not entitled to survivor benefits, benefit increases, or group health insurance subsidy. Tiers 2 & 3: Calculated same as normal retirement pension. Payable if contributions left in fund until reach age requirement. Member is entitled to survivor benefits, benefit increases, and group health insurance subsidy. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 37 Cost-of-Living Adjustment Payable to retired member or survivor of retired member Tiers 1 & 2: Compound cost-of-living adjustment on base benefit. First payment is made on July 1, 2018, with annual adjustments effective every July 1 thereafter. Adjustment does not apply while in DROP. Cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan Phoenix-Mesa Consumer Price Index published by the United States Department of Labor, Bureau of Statistics. Maximum increase of 2%. Tier 3: Compound cost-of-living adjustment on base benefit beginning earlier of first calendar year after the 7th anniversary of retirement or when the retired member reaches 60 years of age. A cost-of-living adjustment shall be paid on July 1 each year that the funded ratio for members hired on or after July 1, 2017 is 70% or more. The cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan Phoenix-Mesa Consumer Price Index published by the United States Department of Labor, Bureau of Statistics. The cost-of-living adjustment will not exceed:  2%, if funded ratio for members who are hired on or after July 1, 2017 is 90% or more;  1.5%, if funded ratio for members who are hired on or after July 1, 2017 is 80-90%;  1%, if funded ratio for members who are hired on or after July 1, 2017 is 70-80%. Deferred Retirement Option Plan (DROP): Eligibility Tier 1 and 20 years of Credited Service. DROP Period Maximum 84 months. Member Contributions Cease upon DROP entry. Benefit Amount Calculated based on Credited Service and average monthly compensation as of the beginning of the DROP period, credited to DROP participation account for DROP period. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 38 Interest on DROP Beginning Year Interest Rate Participation Account July 1, 2016 7.40% July 1, 2018 7.30% July 1, 2022 7.20% Payment of DROP Payable as lump sum distribution to Public Safety Personnel Participation Account Defined Contribution Retirement Plan at earlier of 1) end of DROP period, 2) at termination, or 3) five years. Payment Monthly Benefit System commences payment of benefit amount at the earlier of 1) the end of the DROP period and 2) at termination. Post-Retirement Health Insurance Subsidy Eligibility Retired member or survivor who elect health coverage provided by the state or participating employer. Maximum Subsidy Amounts Member Only With Dependents (monthly) Medicare Eligible $100 $170 One w/ Medicare N/A $215 Not Medicare Eligible $150 $260 Employee Contributions Tiers 1 & 2: 7.65% (effective July 1, 2023). Tier 3: 50% of total contribution, which is Normal Cost plus a level- dollar amortization of unfunded actuarial accrued liability over a closed period not to exceed 10 years. Employer Contributions Tiers 1 & 2: Normal Cost plus amortization of unfunded actuarial accrued liability over a closed period not to exceed 20 years (subject to one-time election to extend to closed period not to exceed 30 years). Tier 3: 50% of total contribution, which is Normal Cost plus a level- dollar amortization of unfunded actuarial accrued liability over a closed period not to exceed 10 years. Changes to Benefit Provisions Since the Prior Valuation None. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 39 IX. ACTUARIAL FUNDING POLICY A pension plan funding policy describes how pension funding will improve for underfunded plans or maintain funded benefits for funded plans over time for those benefits defined in Arizona Revised Statutes (ARS). Those benefits defined in ARS are to be equitably managed and administered by the Arizona Public Safety Personnel Retirement System (PSPRS agency). This Actuarial Funding Policy identifies the funding objectives and elements of the actuarial funding policy set by the Board for the PSPRS agency. The Board adopted this Funding Policy to help ensure the systematic funding of future benefit payments for members of the retirement systems as established by the legislature. This policy covers all retirements systems administered by the Board: The Public Safety Personnel Retirement System (PSPRS); the Correction Officers Retirement Plan (CORP); and the Elected Officials Retirement Plan (EORP). To achieve the systematic funding of future benefits, metrics are identified to measure the progress, or the lack of progress, over time to identify trends. These trends inform the continuation of the current policies or identify areas of needed research for consideration. This funding policy is reviewed annually and adopted by the Board in accordance with ARS 38-863.02. This policy was reviewed and adopted by the Board in August 2023. PSPRS Statement of Purpose The Purpose of the Public Safety Personnel Retirement System is to provide uniform, consistent, and equitable statewide retirement programs for those who have been entrusted to our care. Funding Objectives 1. Maintain adequate assets so that current plan assets, plus future contributions and investment earnings, are sufficient to fund all benefits expected to be paid to members and their beneficiaries. a. Corollary 1a: Current and future contributions should be calculated based upon assumptions that reflect the Board’s best estimate of future experience and methods that appropriately allocate costs to address generational equity. b. Corollary 1b: While the shorter-term objective is to fully fund the Actuarial Accrued Liability (AAL) that estimates benefits earned as of the valuation date, contributions should target the long- term Present Value of Benefits (PVB) to fund all benefits and help offset risks. c. As closed plans mature, the target funding should be 110% of AAL or 100% of PVB, whichever is greater. 2. Maintain public policy goals of accountability and transparency through stakeholder communication and education. Each policy element is clear in intent and effect, and each should be considered in a balanced approach to determine how and when the funding requirements of the plan will be met. a. Corollary 2a: Board shall provide stakeholders with separate reports and tools to help explain current results as well as to help model future funding requirements. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 40 3. Promote intergenerational equity. Defined benefit pensions are designed with a long-term perspective and designed to minimize contribution volatility that cannot avoid some level of generational cost shift. However, the goal is that each generation of members and employers (taxpayers) should, to the extent possible, incur the cost of benefits for the employees who provide services to them, rather than shifting those costs to other generations of members and employers (taxpayers). a. Corollary 3a: A systematic reduction of the Unfunded Actuarial Accrued Liability (UAAL) over a reasonable time period is paramount to achieving this objective. Consideration can be given to reduce volatility, to the extent possible, of employer and employee contribution rates as long as the integrity of the objectives listed above is not compromised. Elements of Actuarial Funding Policy 1. Actuarial Cost Method a. The Entry Age Normal level percent of pay actuarial cost method of valuation shall be used in determining the AAL and Normal Cost. Differences in the past between assumed experience and actual experience (“actuarial gains and losses”) shall become part of the AAL. The Normal Cost shall be determined on an individual basis for each active member. 2. Asset Smoothing Method a. The investment gains or losses of each valuation period, resulting from the difference between the actual investment return and assumed investment return, shall be recognized annually in level amounts over five years (Tier 3) or seven years (Tiers 1 and 2) in calculating the Actuarial Value of Assets (AVA). b. The AVA so determined shall be subject to a 20% corridor relative to the Market Value of Assets (MVA). 3. Amortization Method (Unfunded Amounts) a. The AVA is subtracted from the computed AAL. Any unfunded amount is amortized as a level percent of payroll over a closed period. b. The unfunded liabilities, for EORP and Tiers 1 & 2 for both PSPRS and CORP, determined in the 6/30/2019 actuarial valuation will become the initial layer for each employer beginning with the 6/30/2020 actuarial valuation and amortized using the current closed year period for that employer and continue to decrease each year. i. The payroll growth rate assumption used to amortize the PSPRS 6/30/2019 Unfunded Liability will be decreased by 0.5% beginning with the 6/30/2021 actuarial valuation and again each year with the intention of ultimately achieving 0.0%. Once the payroll growth assumption reaches 2.0%, however, the Board will reevaluate the payroll growth assumption and decide whether to continue to let it track down to 0.0%. ii. The payroll growth rate used to amortize the Correction Officers Retirement Plan (CORP) 6/30/2019 Unfunded Liability will be 3.0% beginning with the 6/30/2020 actuarial valuation, and future years will be reduced by 0.5% until 0.0% is reached. iii. The payroll growth rate used to amortize the Elected Officials Retirement Plan (EORP) 6/30/2019 Unfunded Liability will be 2.5% beginning with the 6/30/2020 actuarial valuation, and future years will be reduced by 0.5% until 0.0% is reached. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 41 c. Gains and losses, for EORP and Tiers 1 & 2 for both PSPRS and CORP, for each employer beginning with the 6/30/2020 actuarial valuation will be amortized as a new layer over the same amortization period as the regular unfunded liability to a minimum of 15 years. Once the amortization period for each employer decreases to 15 years, each subsequent year’s gains and losses will be amortized as a new 15-year closed layer. i. The payroll growth rate used to amortize the unfunded liability for all Plans under this paragraph will be 0.0% (i.e. level-dollar amortization). d. Tier 3 amortization methods are established in ARS 38-843.G and ARS 38-891.K. 4. Amortization Method (Overfunded Amounts) a. The AVA is subtracted from the target funding level (greater of 110% of AAL or 100% of PVB). Any overfunded amount is amortized as a level dollar amount over an open 10-year period. 5. Tier 3 Rate Calculation a. Tier 3 is distinct from Tiers 1 & 2 in PSPRS and CORP as the contributions are a shared percentage (50/50 split for PSPRS: for CORP, employer 1/3 and member 2/3 of the normal cost plus 50 percent each, member and employer, of the UAAL amortization) for employers and members based on the actuarially calculated rate. To reduce the impact of volatility to rates, the Tier 3 rates will be smoothed over a 3-year rolling period based on the actuarially calculated rates for each year’s actuarial valuation. i. Beginning with the 6/30/2023 valuation, the prospective Tier 3 rates set by the Board of Trustees are planned to be a rolling average of the actuarial calculated Tier 3 rates using the 6/30/2023, 6/30/2022 and 6/30/2021 rates in the initial process. ii. As assumptions may be updated year-to-year, the prior calculated rates are not updated for those changes, the prior calculated rates are used to smooth in the new rates. b. At the May 2023 Board Meeting, the Board changed the assumed rate of return for CORP Tier 3, which was at 7.2%, to match the 7.0% assumed rate of return for PSPRS Tier 3. The Board com- mitted to continue to monitor market conditions and directions with the intent to ultimately adopt a single assumed rate of return for all investments for retirement systems/plans administered by PSPRS agency. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 42 Metrics to Monitor Funding Objectives 1. Appropriateness of Assumptions – Gain/Loss Experience (Corollary 1a) a. Metric: Do the cumulative gain/loss layers over the prior five years exceed 8% of plan assets? b. Measurement: History of annual gain/loss (split by asset and liability experience) and five-year cumulative results will be tracked. c. Action Plan: This metric assumes that a full experience study is performed at least every five years so objective of measurement is to monitor interim experience. If the metric answer is yes, a review of the sources or causes of gains and losses should be analyzed and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if assumption changes are warranted between full experience studies. 2. Funding Targets (Corollary 1b) a. Metric: Has the funded status, on both an AAL and PVB basis when compared to the MVA, increased over a five-year period? b. Measurement: History of funded status measures will be tracked. c. Action Plan: If the answer is no and not readily explainable (e.g., significant assumption change), a review of the reason(s) for the decrease should be researched and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if changes to assumptions and/or methods are warranted between full experience studies. 3. Communication with Stakeholders (Corollary 2a) a. Metric: Have reports and budgeting tools been provided to stakeholders in a timely fashion? b. Measurement: Yes/No answer based on input from PSPRS administrator. (An annual standard survey of stakeholders – 3 to 5 questions.) c. Action Plan: If the answer is no, and periodically regardless (e.g., every three years), PSPRS staff will revisit this metric to report to the Advisory Committee to provide a recommendation to the Board of Trustees if current reports / tools are sufficient and if the delivery timing is appropriate. 4. Timely Recognition of Costs (Corollary 3a) a. Metric: Has the percentage of unfunded liability subject to negative amortization decreased over a five- year lookback period? b. Measurement: History of unfunded liability subject to negative amortization as a percentage of total unfunded liability will be tracked. c. Action Plan: If the answer is no, and not readily explainable (e.g., adopted assumption changes being phased in are anticipated to address negative amortization), a review of the reason(s) for negative amortization should be researched and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if changes to assumptions and/or methods are warranted between full experience studies. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 43 X. GLOSSARY Actuarial Accrued Liability – Computed differently under different funding methods, the actuarial accrued liability generally represents the portion of the actuarial present value of benefits attributable to service credit earned (or accrued) as of the valuation date. Actuarial Present Value of Benefits – Amount which, together with future interest, is expected to be sufficient to pay all benefits to be paid in the future, regardless of when earned, as determined by the application of a particular set of actuarial assumptions; equivalent to the actuarial accrued liability plus the present value of future normal costs attributable to the members. Actuarial Assumptions – Assumptions as to the occurrence of future events affecting pension costs. These assumptions include rates of investment earnings, changes in salary, rates of mortality, withdrawal, disablement, and retirement as well as statistics related to marriage and family composition. Actuarial Cost Method – A method of determining the portion of the cost of a pension plan to be allocated to each year; sometimes referred to as the "actuarial funding method." Each cost method allocates a certain portion of the actuarial present value of benefits between the actuarial accrued liability and future normal costs. Actuarial Equivalence – Series of payments with equal actuarial present values on a given date when valued using the same set of actuarial assumptions. Actuarial Present Value - The amount of funds required as of a specified date to provide a payment or series of payments in the future. It is determined by discounting future payments at predetermined rates of interest, and by probabilities of payments between the specified date and the expected date of payment. Actuarial Value of Assets – The value of cash, investments, and other property belonging to the pension plan as used by the actuary for the purpose of the actuarial valuation. This may correspond to market value of assets, or some modification using an asset valuation method to reduce the volatility of asset values. Asset Gain (Loss) – That portion of the actuarial gain attributable to investment performance above (below) the expected rate of return in the actuarial assumptions. Amortization – Paying off an interest-discounted amount with periodic payments of interest and (generally) principal, as opposed to paying off with a lump sum payment. Amortization Payment – That portion of the pension plan contribution designated to pay interest and reduce the outstanding principal balance of unfunded actuarial accrued liability. If the amortization payment is less than the accrued interest on the unfunded actuarial accrued liability the outstanding principal balance will increase. Assumed Earnings Rate – The interest rate used in developing present values to reflect the time value of money. Decrements – Events which result in the termination of membership in the system such as retirement, disability, withdrawal, or death. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2023 – Oro Valley Police Dept. (122) 44 Entry Age Normal (EAN) Funding Method – A standard actuarial funding method whereby each member’s normal costs (service costs) are generally level as a percentage of pay from entry age until retirement. The annual cost of benefits is comprised of the normal cost plus an amortization payment to reduce the UAL. Experience Gain (Loss) – The difference between actual unfunded actuarial accrued liabilities and anticipated unfunded actuarial accrued liabilities during the period between two valuation dates. It is a measurement of the difference between actual and expected experience, and may be related to investment earnings above (or below) those expected or changes in the liability due to fewer (or greater) than expected numbers of retirements, deaths, disabilities, or withdrawals, or variances in pay increases relative to assumed pay increases. The effect of such gains (or losses) is to decrease (or increase) future costs. Funded Ratio – A measure of the ratio of the actuarial value of assets to liabilities of the system. Typically, the assets used in the measure are the actuarial value of assets as determined by the asset valuation method. The funded ratio depends not only on the financial strength of the plan but also on the asset valuation method used to determine the assets and on the funding method used to determine the liabilities. Market Value of Assets (MVA) – The value of assets as they would trade on an open market. Normal Cost – Computed differently under different funding methods, generally that portion of the actuarial present value of benefits allocated to the current plan year. Unfunded Actuarial Accrued Liability (UAAL) – The excess of the actuarial accrued liability over the valuation assets; sometimes referred to as "unfunded past service liability". UAL increases each time an actuarial loss occurs and when new benefits are added without being fully funded initially and decreases when actuarial gains occur.    Budget and Finance Commission 4. Meeting Date:04/16/2024   Submitted By:David Gephart, Finance SUBJECT: REVIEW, DISCUSSION AND POSSIBLE ACTION ON PROPOSED DRAFT FINANCIAL AND BUDGETARY POLICIES RECOMMENDATION: Recommend Town Council approval of draft financial and budgetary policies as presented -or- Recommend Town Council approval draft financial and budgetary policies as amended EXECUTIVE SUMMARY: Proposed changes from the last meeting are as follows: 1) Policy 1-1 Annual Budget Process: 6.2 - removed "program levels" language. 2) Policy 1-3 Fiscal Monitoring & Reporting: 2.0 - changed "presented" to "distributed". 3) Policy 1-5 Capital Expenditures and Improvements: Added "Minor Assets" definition.  Also included a new "Minor Assets" policy under 10.0. 4) Policy 1-6 PSPRS Pension Funding: Aligned language to be consistent with the latest PSPRS pension funding policy draft. 5) Policy 1-9 Debt: 2.0 - Changed the non-enterprise debt excise tax coverage ratio from three to five. 6) Policy 1-10 Fund Balance: 4.0 - Removed "Bed Tax" from table under General Fund BACKGROUND OR DETAILED INFORMATION: N/A - see executive summary FISCAL IMPACT: N/A SUGGESTED MOTION: Move to recommend draft financial and budgetary policies to Town Council for approval as presented. -or- Move to recommend draft financial and budgetary policies to Town Council for approval as amended. Attachments Draft policies (redlined)  Draft Financial and Budgetary Policies (Clean)  1 Town of Oro Valley, Arizona Financial and Budgetary Policies Guiding Principles: The Town of Oro Valley has an important responsibility to its residents to carefully account for public funds, manage its finances prudently and plan for the adequate funding of services desired by the public. Sound financial policies help ensure the Town ’s capability to adequately fund and provide government services desired by the community. The policies contained herein are designed to foster and support the continued financial strength and stability of the Town of Oro Valley. Following these policies enhances the Town’s financial health as well as its image and reputation with residents, the general public, bond and credit rating agencies and investors. The policies serve as guidelines for the Town’s overall fiscal planning and management. In addition, both the Government Finance Officers Association (GFOA) and the National Advisory Council on State and Local Budgeting (NACSLB) recommend formal adoption of financial policies by the jurisdiction’s governing board. The most recent Town Council amendment and re-adoption of the policies occurred on January 4, 2023 per Resolution (R)23-01. 2 Table of Contents 1-1 Annual Budget Process 3 1-2 Strategic Long-Range Financial Planning 6 1-3 Fiscal Monitoring & Reporting 7 1-4 Banking and Investments 8 1-5 Capital Expenditures and Improvements 14 1-6 PSPRS Pension Funding 17 1-7 Revenues 21 1-8 Expenditures 23 1-9 Debt 25 1-10 Fund Balance 27 1-11 Internal Controls 30 1-12 Grants 31 1-13 Accounting, Auditing, and Financial Reporting 32 3 Town of Oro Valley Policy Annual Budget Process 1-1 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for setting guidelines for budgeting to help ensure a financially sound, accountable, and transparent process. Scope: All personnel Definitions: Appropriations: The legal authority to spend money granted through an adopted budget. Balanced budget: A financial plan in which all resources are equal to all requirements. Budget: A financial plan estimating revenues and expenditures over a set period of time, which is usually one fiscal year. Capital budget: A financial plan specific to procurement of durable, higher value purchases which satisfy requirements of the capital threshold of the Town , along with the resources necessary to fund the capital purchases. Contingency: Planned financial reserves in a fund that are not dedicated to a particular function, department or activity, whose purpose is to mitigate uncertainty inherent in cost estimates, as well as unpredictable risk exposure. Fiscal year: A year utilized for financial reporting and budgeting purposes. For the Town, the fiscal year begins July 1 and ends June 30. Fund: A fiscal and accounting entity with a self -balancing set of accounts. One-time revenues: Revenues which are expected to only be received once, and do not provide an ongoing inflow of monies to the Town. Operating budget: A financial plan of current annual spending, along with the resources necessary to pay for it. 4 Recurring expenditures: Expenditures which are expected to be incurred regularly and routinely required by Town operations. Recurring revenues: Revenues which are expected to provide an ongoing inflow of monies to the Town. Structurally balanced budget: A budget in which all recurring revenues are sufficient to pay recurring expenditures. A structurally balanced budget is one that supports financial sustainability for multiple years into the future. Tentative Budget: A budget required by statute that is made available to the public as part of the approval process of a final adopted budget. This version of the budget builds upon the Town Manager’s Recommended Budget, taking into account newly incorpo rated data or other improvements made to the previous version. The Tentative Budget is released to the public for input and comment prior to final adoption. Policy: 1.0 Operating Budget and Capital Budget – The operating budget and capital budget shall serve as the annual financial plan of the Town. The budget shall provide staff with the resources necessary to accomplish the Town Council’s determined service levels and will serve as the policy documents of the Town Council for implementing its Strategic Leadership Plan and other plans as periodically adopted by the elected body or voted on by the community. 2.0 Budget Timelines – The Town Manager shall annually prepare and present a Town Manager’s Recommended Budget to Town Council at least two months prior to the beginning of a new fiscal year. Based upon feedback from Town Council, a Tentative Budget shall be developed and approved by Town Council prior to the beginning of a new fiscal year establishing the maximum level of spending for the new fiscal year. The final budget shall be adopted by Town Council no later than July 31. The Town Manager shall meet all budget requirements specified in State Law. 3.0 Balanced Budget – The proposed budget will be balanced for the ensuing fiscal year. Deferrals, short-term loans, or one-time revenue sources will be avoided as budget balancing techniques. 4.0 Contingency – The budget shall include contingency appropriation to provide for unanticipated increases in service delivery costs, emergencies, and needs that may arise through the fiscal year. The contingency appropriation may only be expended upon Town Council approval. 5.0 Current Funding Basis – The Town shall budget and operate on a current funding basis. Expenditures shall be budgeted and controlled so as not to exceed expected current revenues. The Town shall strive to achieve a structurally balanced budget whereby recurring expenditures are funded exclusively with recurring revenues. 5 6.0 Budget Development – The Town will prepare a budget in accordance with Government Finance Officers Association best practices and its Distinguished Budget Award Program . The proposed budget will contain the following: 6.1 Revenue estimates by major category, by fund; 6.2 Expenditure estimates by major expenditure categories, by fund; 6.3 Estimated fund balance, by fund; 6.4 Debt service, by issue, detailing principal and interest amounts; 6.5 Proposed personnel staffing levels; 6.6 A detailed schedule of capital projects; 6.7 Any additional information, data, or analysis requested of management by Town Council. 7.0 Budget Management – The Town Council shall delegate authority to the Town Manager in managing the budget after it is formally adopted, including transfer of funds within programs, categories, and departments. The Town Manager may further delegate levels of authority for the daily operation of the budget. 8.0 Level of Budget Adoption – The annual budget shall be adopted at the fund level, except in the General Fund where it shall be adopted at the department level. To provide sufficient control and accountability, budgets shall be prepared and monitored by major expenditure categories (personnel, operations and maintenance, capital outlay, debt service). 9.0 Appropriations – All appropriations shall lapse at the end of the fiscal year. There is no carryover of appropriations from year to year. 6 Town of Oro Valley Policy Strategic Long-Range Financial Planning 1-2 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for long-range forecasting and planning to help ensure a financially sound, accountable, and transparent Town. Scope: All personnel Definitions: None Policy: 1.0 Five-year Forecast of Revenues and Expenditures – A five-year forecast of revenues and expenditures of major funds, to include a discussion of significant trends affecting the Town’s financial position, shall be prepared in anticipation of the annual budget process. The forecast shall also examine critical issues facing the Town, economic conditions, and the outlook for the upcoming budget year. 7 Town of Oro Valley Policy Fiscal Monitoring & Reporting 1-3 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for preparing and presenting regular reports that analyze, evaluate, and forecast the Town’s financial performance and economic condition . Scope: All personnel Definitions: None Policy: 1.0 Financial Status and Performance Reports – Monthly reports comparing expenditures and revenues to current budget, noting the status of fund balances to include dollar amounts and percentages, and outlining any remedial actions necessary to maintain the Town’s financial position shall be prepared for review by the Town Manager and Town Council. The monthly reports shall also contain forecasts, updated on a quarterly basis, projecting expenditures and revenues through the end of the fiscal year. 2.0 Status Report on Capital Projects – A summary report on the contracts awarded, capital projects completed, and the status of the Town’s various capital programs will be prepared at least quarterly and distributed to the Town Manager and Town Council. 3.0 Compliance with Financial Policy Statements – Financial policies will be reviewed annually by the Town Council and updated, revised or refined as deemed necessary. Policy statements adopted by the Council are guidelines and occasionally exceptions may be appropriate and required. However, exceptions to stated policies will be specifically identified and the need for the exception will be documented and fully explained. 8 Town of Oro Valley Policy Banking and Investments 1-4 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for investing Town cash and investments to ensure its safety, provide for necessary liquidity, and optimize yield. Scope: All personnel Definitions: Credit risk: The risk of loss due to the failure of the security or backer and/or banks. Interest rate risk: The risk that the market value of securities will fall or rise due to changes in market interest rates. Policy: 1.0 Objective – While conforming to federal, state, and other legal requirements the primary objectives of the Town of Oro Valley investment activities shall be: Safety, Liquidity and Yield. These objectives shall be achieved through mitigating credit risk and interest rate risk. 1.1 Safety – The principal goal of the investment program is the preservation and safety of the capital of all Town Funds. Each investment transacti on shall seek to first ensure that capital losses are avoided, whether they are from security defaults or erosion of market value. 1.2 Liquidity – The Town’s investment portfolio shall remain sufficiently liquid in order to meet the operati ng requirements that may be reasonably foreseen. The investment portfolio should be composed in such a way that securities mature concurrent with cash needs to meet required demands . Furthermore, since all possible cash demand cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). Alternati vely, a portion of the portfolio may be placed in money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds. 9 1.3 Yield – The Town’s investment portfolio shall attain the highest rate of yield through budgetary and economi c cycles taking into account the constraints imposed by its safety objectives, cash flow considerations and state laws that restrict the placement of certain public funds. Yield on investment is of secondary importance compared to the safety and liquidity objectives above. The investments are limited to relatively low risk securities in anticipation of earning a fair yield relative to the risk being assumed. Securities shall generally be held until maturity with the following exceptions: 1.3.1 A security with declining credit may be sold early to minimize loss of principal. 1.3.2 A security swap that would improve the quality, expected return, or target duration in the portfolio. 1.3.3 Liquidity needs of the portfolio require that the security be sold. 1.4 Credit risk – The Town will minimize credit risk by: 1.4.1 Limiting investments to the types of securities listed in this investment policy. 1.4.2 Pre-qualifying financial institutions, brokers/dealers, intermediaries, and advisors with which the Town will do business in accordance to this policy. 1.4.3 Diversifying the investment portfolio so that the impact of potential losses from any one type of security or from any one individual issuer will be minimized. 1.5 Interest rate risk – The Town will minimize interest rate risk by: 1.5.1 Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity. 1.5.2 Investing operating funds primarily in shorter-term securities, money market mutual funds or similar investment pools limiting the average maturity in the portfolio in accordance with this policy. 2.0 Delegation of Authority – Authority to manage the investment program is granted to the Town Finance Director/CFO, under the supervision of the Town Manager. Responsibility of the operation of the daily investment program is delegated to the Finance Director/CFO , who shall carry out the operation of the investment program consistent with this investment policy. No employee may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Finance Director/CFO. 3.0 Prudence – The standard of prudence to be used by the Finance Director/CFO shall be the "prudent person" standard and shall be applied in the context of managing the overall portfolio . The Finance Director/CFO, shall exercise due diligence and not be liable for losses . The "prudent person" standard with respect to Town Investments shall be the exercise of judgment and care, with prudence , discretion and intelligence that a person would exercise in their own affairs, not for speculation, but for investment, considering the primary objectives set forth in Section 1-1 of this policy. 10 4.0 Ethics and Conflicts of Interest – Employees involved in the investment process will refrain from conducting personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees will disclose any material interests in financial institutions with which they conduct business. They will disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees shall refrain from undertaking personal investment transactions with the same individual that conducts business with the Town. 5.0 Safekeeping and Custody – To protect against potential fraud or embezzlement, the investments of the Town shall be secured through third-party custody and safekeeping procedures. Ownership shall be protected through third-party custodial safekeeping. The Town’s external auditor shall review safekeeping procedures annually. 5.1 Internal Controls – The Finance Director/CFO is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the Town are protected from loss, theft or misuse. The controls shall be designed to prevent the loss of public funds arising from fraud, employee error, third party misrepresentation, unanticipated changes in financial markets or imprudent actions by employees and officers of the Town. 5.2 Independent Financial Institution - The Town shall contract with a single, independent financial institution for custodial and safekeeping services for the Town’s investment portfolio. 5.3 Delivery vs. Payment – All trades of marketable securities will be executed by delivery vs. payment (DVP) to ensure that securities are deposited in an eligible financial institution simultaneously to the release of funds. 5.4 Authorized Financial Dealers and Institutions – The Finance Director/CFO will review the financial condition and registration of qualified bidders. Financial institutions and broker/dealers who would like to become qualified bidders for investment transactions with the Town must supply the following: • Audited financial statements • Proof of National Association of Securities Dealers (NASD) certification • Proof of stated registration with the State of Arizona pursuant to ARS 44-3101, the Financial Industry Regulatory Authority (FINRA), and the Securities and Exchange Commission under the Investment Advisor’s Act of 1940, as amended • Certification of having read and understood and agreeing to comply with the Town’s investment policy • A statement of adherence to the Code of Professional and Ethical Standards as described by the CFA Institute • Evidence of adequate insurance coverage An annual review of the financial condition and registration of all qualified financial institutions and broker/dealers wi ll be conducted by the Finance Director/CFO. If the Town utilizes an external investment advisor, the advisor may 11 be authorized to transact with its own Approved Broker/Dealer List on behalf of the Town. If the investment advisor utilizes its own Broker/Dealer List, the advisor will perform due diligence for the brokers/dealers on its Approved List. 6.0 Investment Types – Suitable and authorized investments include the following: 6.1 Authorized investments for the debt service reserve funds shall be consistent with those set forth in the trust indentures or the long-term debt issuances. 6.2 Fully insured or collateralized certificates of deposit (CD) that are FDIC-insured in eligible depositories if the interest rate bid is 103% or more of the equivalent bond yield of the offer side of treasury bills. 6.3 Interest bearing savings accounts in qualified banks and savings and loan institutions which are FDIC insured. 6.4 Repurchase agreements with maximum maturity of 180 days. 6.5 The pooled investment funds established by the State Treasurer pursuant to A.R.S. 35-326. 6.6 Bond or other evidence of indebtedness of the United States or any of its agencies or instrumentalities when the obligations are guaranteed as to principal and interest by the United States or by any agency or instrumentality of the United States. 6.7 Bonds or other evidences of indebtedness of this State, any county, city, town, or school district. Ratings of these investments must be AAA or equivalent. 6.8 Bonds, notes or evidences of indebtedness of any county or municipal district within this State which are payable from revenues or earnings specifically pledged for the payment of the principal and interest on the obligations, if they meet certain criteria as specified in A.R.S .35-323. Ratings of these investments must be AAA or equivalent. 6.9 Bonds, notes or other evidences of indebtedness issued by any municipal improvement district in this State to finance local improvements authorized by law, if the principal and the interest of the obligations are payable from assessments on real property within the local improvement district. Ratings of these investments must be AAA or equivalent. 6.10 Money market mutual funds regulated by the Securities and Exchange Commission and whose portfolios consist of dollar-denominated securities. Money market mutual funds that are treasury-based funds must always be priced at $1/share. 6.11 Commercial paper, rated in the highest tier (e.g., A-1, P-1, F-1, or D-1 or higher) by a nationally recognized rating agency . 6.12 Bonds, debentures, notes or other evidences of indebtedness that are denominated in United States dollars and that carry at a minimum an “A” or better rating at the time of purchase, from at least two nationally recognized rating agencies. 6.13 Negotiable or brokered certificates of deposit issued by a nationally or state- chartered bank or savings and loan association. Callable securities are not permitted. 12 6.14 Collateralization of 102% will be required on two types of Town investments: certificates of deposit and repurchase agreements. 7.0 Investment Parameters – Investment parameters include the following: 7.1 Diversification - The investments shall be diversified by: 7.1.1 Limiting investments to avoid over-concentration in securities from a specific issuer or business sector (excluding U.S. Treasury securities) 7.1.2 Limiting investment in securities that have higher credit risks 7.1.3 Investing in securities with varying maturities 7.1.4 Investing a portion of the portfolio in readily available funds such as local government investment pools (LGIP’s), overnight repurchase agreements, or other overnight accounts to ensure that appropriate liquidity is maintained in order to meet ongoing obligations 7.2 Maturities - Reserve funds are subject to different requirements on maximum maturities than those for other Town funds according to the terms and provisions as outlined in the trust indenture of the long-term debt issuances. To ensure liquidity the Town shall attempt to match its investments with anticipated cash flow requirements . As all possible cash demands cannot be anticipated, a portion should consist of securities with active secondary and resale markets. The Town will not invest in securities with maximum maturities greater than those allowed under A.R.S. 35-323, Investment of Public Monies. Currently, maximum maturities are: 7.2.1 Securities and deposits: 5 years 7.2.2 Repurchase agreements: 30/180 days in accordance with A.R.S 35-323. 7.3 Competitive Procurement Process/Use of Cooperative Contract - Before the Town invests any public funds, a competitive procurement process should be conducted for the necessary services or investment instruments. If a specific maturity date is required, either for cash flow purposes or in order to conform to maturity guidelines, bids will be requested for instruments which meet the maturity requirement. If no specific maturity is required, a market trend (yield curve) analysis will be conducted to determine which maturities would be most advantageous. The competitive process will follow the policies and procedures outlined in the Town’s Procurement Code and comply with A.R.S. 35 -323. The Town may also choose to use an existing cooperative contract provided the contract meets all requirements of the Town’s Procurement Standards. 8.0 Shock Test – The purpose of the shock test is to analyze the impact of changes in market interest rates on the potential value of the portfolio. The investment portfolio shall be shock tested quarterly by the safekeeping agent as part of their contract re sponsibility. At a minimum, the stress test will value the portfolio assuming interest rates rise or fall by up to 300 basis points across the entire yield curve. Information obtained from the stress test combined with current economic and interest rate forecasts will assist in determining appropriate maturities for new investments considering risks. 13 9.0 Benchmarks – The investment portfolio held by authorized financial institutions will be managed in accordance with the parameters specified within this policy. The portfolio should obtain a market average rate of return of stable interest rates which are equal to or exceed that obtained through investing in the State of Arizona Local Government Investment Pool (LGIP), which is managed by the State Treasurer. Performance will be monitored quarterly. 10.0 Banking Services – The Town will execute a contract with its financial depository which shall designate the requirements of serving as a depository for the Town, including collateralization of Town funds invested at such depository and the related safekeeping requirements of the pledged securities. The Town will evaluate and request bids on banking services every five years. 14 Town of Oro Valley Policy Capital Expenditures and Improvements 1-5 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for annually reviewing and monitoring the state of the Town’s capital equipment and infrastructure, setting priorities for its replacement and renovation based on needs, funding alternatives, and availability of resources. Scope: All personnel Definitions: Capital asset: Any item with an acquisition cost of $25,000 or more, and an estimated useful life of two or more years. Exceptions may be made depending on the requirements of certain federal or state grants. Capital improvement program (CIP): A planning document comprised of capital projects expected to be funded over the next 10 years. The purpose of the CIP is to systematically identify, plan, schedule, finance, track and monitor capital projects to ensure cost effectiveness as well as conformance to established policies and Council goals and priorities. Capital project: A project expected with an estimated cost of $150,000 or more, and expected to have a useful life of five or more years. Lease: A contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange -like transaction. Lessor: The party to a lease contract who conveys the right to use its nonfinancial asset(s) to another entity (i.e., landlord). Lessee: The party to a lease contract who acquires the right to use another entity’s nonfinancial asset(s) (i.e., tenant) 15 Minor Assets: Assets with an acquisition cost of $1,000 or more, but less than $25,000, and an estimated useful life of two or more years Subscription-based Information Technology Arrangements (SBITAs): A contract that conveys control of the right to use another party’s information technology software, alone or in combination with tangible capital assets, as specified in the contract for a p eriod of time in an exchange or exchange-like transaction. Policy: 1.0 Capital Improvements – The Town shall annually review the needs for capital improvements, including the current status of the Town infrastructure, replacement and renovation needs, and potential new projects. All projects, both ongoing and proposed, shall be prioritized based on an analysis of current needs and resource availability at the direction of the Town Manager. For every proposed capital project, all operation, maintenance, and replacement costs shall be fully costed. Proposed capital projects will not be authorized or awarded until a funding source is identified. 2.0 Capital Assets – Capital assets shall be depreciated over their estimated useful lives utilizing the straight-line method and shall be included in the operating budget. 3.0 Leases and SBITAs – Leased assets subject to GASB Statement No.87, shall be amortized over the shorter of the lease or the asset useful life. SBITAs subject to GASB Statement No.96, shall be amortized over the subscription contract term. The threshold for capitalizing lessor leases shall be $150,000. The threshold for capitalizing lessee leases and SBITAs shall be $75,000. 4.0 Capital Projects – Capital projects shall be depreciated over their estimated useful lives utilizing the straight-line method and shall be included in both the capital improvement program (CIP) and capital budget. 5.0 Capital Improvement Program (CIP) – A minimum ten-year capital improvement program will be developed and updated annually, encompassing both anticipated funding sources and any estimated operating expenditures. Estimated operating expenditures associated with capital projects will be included in the operating budget. Estimated first-year capital expenditures in the CIP shall be included in the Capital Fund budget. A quarterly status report will be prepared for Council to facilitate monitoring of each project’s progress and identify any significant issues. 6.0 Prioritization – Prioritization shall occur first at the department level, and then at the Town-wide level by a cross-departmental capital project team. Funding sources will then be identified for the projects ranking the highest based on evaluation criteria and available resources. 7.0 Minimum Funding Level – In order for the Town to provide sustainable funding for capital improvements and asset repair/maintenance needs each year, the annual budget shall include the allocation of a minimum of 5% of the Town’s General Fund estimated sales tax revenues (not including state-shared revenues) to fund these needs, subject to Council approval and funding availability. These funds will be accounted for in a separate Capital Fund. 16 8.0 Capital Expenditure Financing – The Town recognizes that there are three basic methods of paying for capital requirements. It can budget the funds from current resources (pay as you go), it can take the funds from fund balance as allowed by the Fund Balan ce Policy (another pay as you go method), or it can borrow money through debt. Debt financing includes general obligation bonds, revenue bonds, lease/purchase agreements, certificates of participation, and other debt instruments permitted under Arizona law. Guidelines for incurring debt are set forth in the Debt Policy Statements. 9.0 Audits – The Finance Department shall be responsible for verifying the actual physical existence of capital and minor assets and the accuracy of the Town’s asset database. The process will be monitored through asset audits of Town departments and division s. Any significant irregularities will be reported to the Town Manager. The Town shall strive to perform a complete inventory of capital items at least every two years. 10.0 Minor Assets – Minor assets will be recorded on an asset replacement schedule and monitored from acquisition until disposition. Such assets will neither be capitalized nor depreciated in the Town Annual Comprehensive Financial Report. 17 Town of Oro Valley Policy Public Safety Personnel Retirement System (PSPRS) Pension Funding 1-6 Last Review Review Month 2023 June Responsible for maintaining & applying this policy: Finance Next Review: June 2024 ______________________________________________________________________________ Purpose: The intent of this policy is to clearly communicate the Town Council’s pension funding objectives, its commitment to employees and the sound financial management of the Town of Oro Valley and maintain compliance with statutory requirements of ARS 38-863.01. The Council shall annually assess the status of the Town’s PSPRS trust fund and take formal action to update this policy in concert with the final annual budget approval. This policy shall also apply to the Town’s participation in the Correction Officer Retirement Plan (CORP). Scope: The Town’s sworn police employees who are regularly assigned hazardous duty participate in the PSPRS. Selected individuals who serve as dispatchers in the Oro Valley Police Department participate in the CORP plan, which is also administered by PSPRS. Definitions: Unfunded actuarial accrued liability (UAAL): The difference between trust assets and the estimated future cost of pensions earned by employees. This UAAL results from actual results (investment income, member mortality, disability rates, payroll increases, etc.) bein g different from the assumptions used in previous actuarial valuations. Annual required contribution (ARC): The annual amount required to pay into the pension funds, as determined through annual actuarial valuations. It is comprised of two primary components: normal pension cost - which is the estimated cost of pension benefits earned by employees in the current year; and amortization of UAAL - which is the cost needed to cover the unfunded portion of pensions earned by employees in previous years. The UAAL is collected over a period of time referred to as the amortization period. The ARC is a percentage of the current payroll. Funded ratio: A ratio of fund assets to actuarial accrued liability. The higher the ratio, the better funded the pension is, with 100% being fully funded based on current actuarial valuations. Intergenerational equity: A concept meant describe the policy expectation that no generation is burdened by substantially more or less pension costs than past or future generations. 18 Policy: 1.0 Public Safety Personnel Retirement System (PSPRS) 1.1 PSPRS is administered as an agent multiple-employer pension plan. An agent multiple-employer plan has two main functions: 1.1.1 To comingle assets of all plans under its administration, thus achieving economy of scale for more cost-efficient investments, and invest those assets for the benefit of all members under its administration . 1.1.2 To serve as the statewide uniform administrator for the distribution of benefits. 1.2 Under an agent multiple-employer plan, each agency participating in the plan has an individual trust fund reflecting that agencies’ assets and liabilities. Under this plan all contributions are deposited to and distributions are made from that fund’s assets, each fund has its own funded ratio and contribution rate, and each fund has a unique annual actuarial valuation. The Town of Oro Valley has one trust fund for police employees. The Town also contributes to the Correction Officer Retirement Plan (CORP), administered by the Public Safety Personnel Retirement System, on behalf of selected individuals who serve as dispatchers in the Oro Valley Police Department. CORP maintains one trust fund for dispatchers. 1.3 Oro Valley Town Council formally accepts the assets, liabilities, and current funding ratio of the Town’s PSPRS and CORP trust funds from the June 30, 20 23 actuarial valuations specified below. Trust Fund Assets Accrued Liability Unfunded Actuarial Accrued Asset/(Liability) Funded Ratio Oro Valley Police $81,319,622 $85,636,864 ($ 4,317,242) 95.0% Oro Valley Dispatchers $ 3,929,592 $ 3,910,076 $ 19,516 100.5% 1.4 PSPRS and CORP Funding Goal – Pensions that are less than fully funded place the cost of service provided in earlier periods (amortization of UAAL) on current taxpayers. Fully funded pension plans are the best way to achieve taxpayer and member intergenerational equity. 1.5 The Council’s PSPRS and CORP funding ratio goal is 100% (fully funded) by June 30, 2036 and beyond. Council establishes this goal for the following reasons: 1.5.1 The PSPRS and CORP trust funds represent only the Town of Oro Valley’s liability. 1.5.2 The fluctuating cost of an UAAL causes strain on the Town’s budget, affecting the Town’s ability to provide services. 1.5.3 A fully funded pension is the best way to achieve taxpayer and member intergenerational equity. 1.6 Council has determined that in order to achieve the 100% funding ratio goal, the following actions will be taken: 19 1.6.1 The total contribution rate to the police plan, as a baseline, will be the greater of the total contribution rate made to ASRS for non-sworn employees or the minimum contribution rate per the most recent actuarial report. This will continue until the Town achieves a 100% funding ratio. 1.6.2 The CORP plan does not require any additional contributions as it is fully funded. 1.6.3 Retain the 20-year amortization of unfunded liability. 1.6.4 Review Local board practices annually. 1.6.5 Periodically engage consultants to review actual results and recommend possible adjustments or corrections as necessary. 1.7 Payments to PSPRS will be as follows: 1.7.1 In FY25, the Town will contribute an additional 14%, above and beyond the total contribution rate prescribed above. Contributions are estimated as follows: Total Tier 1/2 Police pension employer cost at 16.22% plus additional 14% - $1,019,289 + $865,956 = $1,885,245. 1.7.2 In FY26 and beyond, the Town will reevaluate its additional percentage contributions based upon future actuarial valuations and budget capacity. 1.8 It is hereby the Town Council’s intent to achieve its goal of 100% funding by June 30, 2036, in accordance with the amortization timeline set forth by the PSPRS and CORP June 30, 2023 Actuarial Valuation. 1.9 The following shows the historical performance of the unfunded actuarial accrued liability: Unfunded Accrued Actuarial Accrued Funded Year Trust Fund Assets Liability Asset/(Liability) Ratio 2014 Oro Valley Police $23,567,852 $36,122,643 $(12,554,791) 65% 2014 Oro Valley Dispatchers $ 1,216,956 $ 2,269,744 $ (1,052,788) 54% 2015 Oro Valley Police $26,200,389 $40,452,911 $(14,252,522) 65% 2015 Oro Valley Dispatchers $ 1,205,067 $ 2,362,604 $ (1,157,537) 51% 2016 Oro Valley Police $29,296,195 $48,414,270 $(19,118,075) 61% 2016 Oro Valley Dispatchers $ 1,163,258 $ 2,524,360 (1,361,102) 46% 2017 Oro Valley Police $31,882,797 $53,037,566 $(21,154,769) 60% 2017 Oro Valley Dispatchers $ 1,260,798 $ 3,077,649 $ (1,816,851) 41% 2018 Oro Valley Police $34,172,618 $57,022,056 $(22,849,438) 60% 20 2018 Oro Valley Dispatchers $ 1,337,558 $ 2,945,307 $ (1,607,749) 45% 2019 Oro Valley Police $37,842,906 $62,278,853 $(24,435,947) 61% 2019 Oro Valley Dispatchers $ 1,424,947 $ 3,240,399 $ (1,815,452) 44% 2020 Oro Valley Police $41,498,361 $67,240,526 $(25,742,165) 62% 2020 Oro Valley Dispatchers $ 1,504,732 $ 3,374,933 $ (1,870,201) 45% 2021 Oro Valley Police $46,773,089 $70,792,554 $(24,019,465) 66% 2021 Oro Valley Dispatchers $ 1,649,829 $ 3,551,295 $ (1,901,466) 46% 2022 Oro Valley Police $77,967,201 $76,438,334 $ 1,528,867 102% 2022 Oro Valley Dispatchers $ 1,710,819 $ 3,721,151 $ (2,010,332) 46% 2023 Oro Valley Police $81,319,622 $85,636,864 $ (4,317,242) 95% 2023 Oro Valley Dispatchers $ 3,929,592 $ 3,910,076 $ 19,516 100% Source: Town Annual Comprehensive Financial Report for June 30, 2023 – Note 16. 21 Town of Oro Valley Policy Revenues 1-7 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for designating, maintaining, and administering a revenue system that assures a reliable, equitable, diversified, and sufficient revenue stream to support desired Town services. Scope: All Personnel Definitions: None Policy: 1.0 Balance and Diversification in Revenue Sources – The Town shall strive to maintain a balanced and diversified revenue system to protect it from fluctuations in any one source due to changes in local economic conditions which adversely impact that source. 2.0 User Fees and Charges – For services that benefit specific users, the Town shall establish and collect fees to recover the costs of those services. The Town Council shall determine the appropriate cost recovery level and establish the fees. Where feasible and desirable, the Town shall seek to recover full direct and indirect costs. Material user fees shall be reviewed on an annual basis to calculate their full cost recovery levels, to compare them to the current fee structure, and to recommend adjustments where necessary. 3.0 Development Impact Fees – Development impact fees for capital expenses attributable to new development will be reviewed periodically to ensure the fees recover all direct and indirect development-related expenses and be approve by Town Council. 4.0 Enterprise Revenues – The Town will establish rates and fees at levels to fully cover the total direct and indirect costs, including operations, capital outlay, debt service, debt coverage requirements and unrestricted cash reserve balances. Enterprise funds will not be used to subsidize operations of other funds. Interfund charges will be assessed for the administrative support of enterprise fund activities. 5.0 Revenue Estimates for Budgeting – To maintain a stable level of services, the Town shall use a conservative, objective and analytical approach when preparing revenue estimates. The process shall include analysis of probable economic changes and their impacts on revenues, historical collection rates, and trends in revenues. This approach should reduce 22 the likelihood of actual revenues falling short of budget estimates during the year and should avoid mid-year service reductions. 6.0 Revenue Collection and Administration – The Town shall maintain high collection rates for all revenues by keeping the revenue system as simple as possible to facilitate payment. In addition, because revenue should exceed the cost of producing it, the Town shall strive to control and reduce administrative costs. The Town shall pursue to the full extent allowed by state law all delinquent taxpayers and others overdue in payments to the Town. 7.0 Write-off of Uncollectible Accounts – The Town shall monitor payments due the Town (accounts receivable) and the Town Manager or designee shall periodically write-off accounts where collection efforts have been exhausted and/or collections efforts are not feasible or cost-effective. 8.0 Use of One-time Revenues – The Town shall discourage the use of one-time revenues for ongoing expenditures. 9.0 Use of Unpredictable Revenues – The Town shall exercise caution with the use of unpredictable revenues (ie. construction sales tax) for ongoing expenditures. 23 Town of Oro Valley Policy Expenditures 1-8 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for identifying priority services, establish appropriate service levels, and administer the expenditure of available resources to assure fiscal stability and the effective and efficient delivery of Town services. Scope: All Personnel Definitions: None Policy: 1.0 Current Funding Basis – The Town shall operate on a current funding basis. Expenditures shall be budgeted and controlled so as to not exceed current revenues plus the planned use of fund balance accumulated through prior year savings. (The use of fund balance shall be guided by the Fund Balance Policy Statements). 2.0 Avoidance of Operating Deficits (Governmental Funds) – The Town Manager shall take immediate corrective actions if, at any time during the fiscal year, expenditure and revenue re-estimates are such that an operating deficit (projected expenditures in excess of projected revenues) is projected at year-end. Corrective actions may include a hiring freeze, employee reductions, expenditure reductions, fee increases, use of fund balance within the Fund Balance Policy or other actions that may be deemed necessary and appropriate. Expenditure deferrals into the following fiscal year, short-term loans or use of one-time revenue sources shall be avoided in attempt to achieve fiscal structural balance. Corrective actions referenced above shall be presented to Town Council at the earliest possible time for approval. 3.0 Maintenance of Capital Assets – Within the resources available each fiscal year, the Town shall maintain capital assets and infrastructure at a sufficient level to protect the Town’s investment, to minimize future replacement and maintenance costs, and to continue service levels. 4.0 Periodic Program Reviews – The Town Manager shall undertake periodic staff and third - party reviews of Town programs for both efficiency and effectiveness. Privatization and contracting with other governmental agencies will be evaluated as alternative 24 approaches to service delivery. Programs which are determined to be inefficient and/or ineffective shall be reduced in scope or eliminated. 5.0 Purchasing – The Town shall conduct its purchasing and procurement functions efficiently and effectively, fully complying with applicable Federal and State laws, and the Town Procurement Code. Staff shall make every effort to maximize any discounts offered by creditors/vendors. Staff shall also utilize competitive bidding or cooperative purchasing agreements to attain the best possible price on goods and services. Procurement policy and procedures are found in Town AD 2-2. 6.0 Uniform Expenditure Reporting System – The Arizona Constitution imposes a limit on the expenditures of local jurisdictions. The Town will comply with these expenditure limitations and submit an audited expenditure limitation report, audited financial statements, and audited reconciliation report as defined by the Uniform Expenditure Reporting System to the State Auditor General within prescribed timelines in accordance with A.R.S. 41-1279.07. 7.0 Budget Amendments and Transfers – To provide flexibility in the management of department budgets for major expenditures (personnel, operations & maintenance, capital outlay, and debt service) the following amendment and transfer provisions shall apply: 7.1 Transfers of budget capacity between funds shall require the recommendation of the Town Manager and formal action by the Town Council. 7.2 Transfers of budget capacity between line items within each major expenditure category shall be permitted upon recommendation of the Department Head and approval by the Town Manager. 7.3 Transfers of budget capacity between line items or major expenditure categories to fund additional personnel or increased expenditures as a result of personnel reclassifications shall require the recommendation of the Town Manager and formal action by the Town Council. 7.4 Transfers of budget capacity that reduce or eliminate funding for items designated in the adopted Capital Improvement Program shall require the recommendation of the Town Manager and approval of the Town Council. 7.5 Transfers of budget capacity that reduce or eliminate funding for debt service shall require the recommendation of the Town Manager and approval of the Town Council. 25 Town of Oro Valley Policy Debt 1-9 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for establishing guidelines for debt financing that provides needed capital equipment and infrastructure improvements while minimizing the impact of debt payments on current revenues. Scope: All Personnel Definitions: Excise Tax: Excise taxes for purposes of debt repayment include Town Sales and Franchise Fees, Licenses and Permits, Fines, State-shared Sales Tax, and State-shared Income Tax revenues. Policy: 1.0 Use of Debt Financing – Debt financing, to include general obligation bonds, certificates of participation, lease/purchase agreements, and other obligations permitted to be issued or incurred under Arizona law, shall only be used to purchase capital assets that cannot be prudently acquired from either current revenues or fund balance. The useful life of the asset or project shall exceed the repayment schedule of any debt the Town assumes. The Town shall not use long-term debt to finance current operations. 2.0 Future Bond Proposals – Future bond proposals will be accompanied by an analysis showing how the new issue, combined with current debt, impacts the Town’s debt capacity and conformance with Town debt policies. The Town shall only issue additional non-enterprise fund debt should its excise taxes equal or exceed five times the annual debt service requirement of all its current and proposed annual debt obligations. 3.0 Bond Rating – The Town will seek to maintain, and if possible, improve current bond ratings in order to minimize borrowing costs and preserve access to credit. The Town will encourage and maintain good relations with financial bond rating agencies and will follow a policy of full and open disclosure. 4.0 Utilization of Bond Proceeds – Proceeds from bonded debt will be used in accordance with the purpose of the issuance. Funds remaining after the project is completed will be 26 used in accordance with the provisions stated in the bond ordinance that authorized the issuance of the debt. 5.0 Arbitrage Rebate – The Town shall comply with Internal Revenue Service arbitrage rebate requirements for bonded debt. 6.0 Interest Earnings on Bond Proceeds – Interest earnings on bond proceeds will be limited to 1) funding or acquiring the improvement(s), or 2) payment of debt service on the bonds. 7.0 Bond Project Eligibility – All projects funded with bonded debt must be included in the Town’s Capital Improvement Program. 8.0 Bond Refunding – When considering refunding any outstanding bonded debt, either the Town or its financial advisor will perform a cost benefit analysis to determine if the cost savings of refunding will be greater than the cost to refund. Considerations will be made with regard to existing bond covenants when refunding any bonded debt. 9.0 Pledging of Utility Revenues – When utility revenues are pledged as debt service payments, the Town will strive to maintain a 1.3 times debt service coverage ratio to ensure debt coverage in times of revenue fluctuation. This will be in addition to the required ratio of the bond indenture. 10.0 Debt Limit – Article IX, Section 8 of the Arizona Constitution limits the Town’s bonded debt capacity (outstanding principal) to a certain percentage of the Town’s secondary assessed valuation by the type of project to be constructed. The limit for general purpose municipal projects is 6%. For water, light, sewer, open space, public safety, park, law enforcement, fire and emergency services, and streets and transportation facilities projects, the limit is 20%. 11.0 Post-Issuance Compliance – The Town will comply with all post-issuance compliance requirements in conformance with federal tax laws. 12.0 Bonded Indebtedness Report – In accordance with A.R.S. 35-501 and 35-502, new bond and securities issuances will be reported to the State Treasurer within 60 days of issuance. Further, the Town will produce an annual bonded indebtedness report to the Arizona Department of Administration. 27 Town of Oro Valley Policy Fund Balance 1-10 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for maintaining the fund balance of various operating funds at sufficient levels to protect the creditworthiness of the Town as well as its financial position for emergencies. Scope: All Personnel Definitions: Nonspendable Fund Balance: That portion of a fund balance that includes amounts that cannot be spent because they are either (a) not in spendable form, such as prepaid items, supplies inventory, or loans receivable; or (b) legally or contractually require d to be maintained intact, such as the principal portion of an endowment. Restricted Fund Balance: That portion of a fund balance that reflects constraints placed on the use of resources (other than nonspendable items) that are either (a) externally imposed by creditors, such as debt covenants, grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. Committed Fund Balance: That portion of a fund balance that includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority and remain binding unless removed in the same manner. Town Council action must be taken on or before June 30 of the applicable fiscal year. Assigned Fund Balance: That portion of a fund balance that includes amounts that are constrained by the government’s intent to be used for specific purposes, but that are neither restricted nor committed. Such intent needs to be established at either the highest level of decision making, or by the Town Manager. Unassigned Fund Balance: That portion of a fund balance that includes amounts which do not fall into one of the above four categories. The General Fund is the only fund that should report this category of fund balance. 28 Policy: 1.0 Committed Fund Balance – The Town shall strive to maintain the General Fund balance at 30% of regular General Fund operating expenditures. After completion of the annual audit, if the fund balance exceeds 30%, the excess must be specifically designated for capital project funding and/or reducing the Town’s Public Safety Personnel Retirement System (PSPRS) unfunded actuarial accrued liability (UAAL). 2.0 Unassigned Fund Balance – The Town shall strive to always maintain a positive unassigned fund balance. 3.0 Use of Fund Balance – Fund Balance shall be used only for emergencies, non-recurring expenditures or major capital purchases that cannot be accommodated through current year savings. Should such use reduce the balance below the appropriate level set as th e objective for that fund, restoration recommendations will accompany the decision to utilize said balance. 4.0 Governmental Accounting Standards Board (GASB) Statement No.54 – In accordance with GASB Statement No.54, fund balances will be classified in the following components: 4.1 Nonspendable Fund Balance 4.2 Restricted Fund Balance 4.3 Committed Fund Balance 4.4 Assigned Fund Balance 4.5 Unassigned Fund Balance The following matrix depicts to which classification fund balances of Town governmental funds will be applied: Fund Restricted Committed Assigned Unassigned Comments State & Justice Seizure Funds X Restricted by State Statute Municipal Debt Service Fund X Restricted by Debt Covenants Oracle Road Improvement District Fund X Restricted by Debt Covenants Townwide Roadway Impact Fee Fund X Restricted by State Statute Parks & Recreation Impact Fee Fund X Restricted by State Statute Police Impact Fee Fund X Restricted by State Statute Highway Fund X Restricted by State Constitution & Statute PAG/RTA Fund X Restricted by PAG/RTA Grant/Contracts Fund X Restricted by Grantor/Donor Community Center Fund X Capital Fund X General Fund Council 30% Reserve Policy on Contingency X Committed by Town Council Planned Use of Fund Balance/Budget Deficit X 5.0 Town Council Authorization – Fund balance reserves may only be appropriated by authorization of the Town Council. 6.0 Utilization Priority – When multiple categories of fund balance reserves are available for expenditure (i.e. a construction project is being funded partly by a grant, funds set aside by Town Council and unassigned fund balance) the Town will start with the most 29 restricted category – spending those funds first – before moving down to the next category with available funds. 7.0 Water Enterprise Fund – The Water Enterprise Fund shall maintain a cash reserve in the operating fund of not less than 20% of the combined total of the annual budgeted amounts for personnel, operations and maintenance, and debt service. This cash reserve amount specifically excludes budgeted amounts for capital projects, depreciation, amortization and contingency. No cash reserve is required for the Water Utility Impact Fee Funds. 8.0 Annual Review – All Town budgetary fund designations and reserves will be evaluated annually for long-term adequacy and use requirements in conjunction with development of the Town’s long-term financial forecast. 30 Town of Oro Valley Policy Internal Controls 1-11 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for maintaining an internal control structure designed to provide reasonable assurance that Town assets are safeguarded and that the possibilities for material errors in the Town’s financial records are minimized . Scope: All Personnel Definitions: None Policy: 1.0 Proper Authorizations – Procedures shall be designed, implemented, and maintained to ensure that financial transactions and activities are properly monitored, reviewed, and authorized. 2.0 Separation of Duties – Job duties will be adequately separated to reduce to an acceptable level the opportunities for any person to be able to both perpetrate and conceal errors or irregularities in the normal course of assigned duties. 3.0 Proper Recording – Procedures shall be developed and maintained that will ensure financial transactions and events are properly recorded and that all financial reports may be relied upon as accurate, complete and current. 4.0 Access to Assets and Records – Procedures shall be designed and maintained to ensure that adequate safeguards exist over access to and use of financial assets and records. 5.0 Independent Checks – Independent checks and audits will be made on staff performance to ensure compliance with established procedures and proper valuation of recorded amounts. 6.0 Costs and Benefits – Internal control systems and procedures must have an apparent benefit in terms of reducing and/or preventing losses. The cost of implementing and maintaining any control system will be evaluated against the expected benefits to be derived from that system. 7.0 Information Technology – The Town will follow policies and procedures outlined in AD4- 1 Information Security and Computer Usage to minimize risk associated with electronic financial records being compromised. 31 Town of Oro Valley Policy Grants 1-12 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for seeking, applying for and effectively administering federal, state and foundation grants which address Town priorities and policy objectives. Scope: All Personnel Definitions: None Policy: 1.0 Grant Guidelines – The Town shall apply for only those grants consistent with the objectives and high priority needs previously identified by the Town Council. The potential for incurring ongoing costs, to include the assumption of support for grant - funded positions from operating revenues, will be considered prior to applying for a grant. 2.0 Indirect Costs – The Town shall attempt to recover full indirect costs unless the funding agency does not allow it to do so. The Town may waive or reduce indirect costs if it is deemed to be advantageous to the Town. 3.0 Grant Review – Anticipated grant requests will be evaluated by the Town Budget Committee. Federal or State grant requests less than $15,000 will not be considered. All grant submittals shall be reviewed for their cash match requirements, their potential impact on the operating budget, and the extent to which they meet Town policy objectives. If there are cash match requirements, the source of funding shall be identified prior to application submittal. 4.0 Grant Program Termination – The Town shall terminate grant-funded programs and associated positions when grant funds are no longer available unless alternate ongoing funding is identified. 32 Town of Oro Valley Policy Accounting, Auditing, and Financial Reporting 1-13 Last Review Review Month 2023 January Responsible for maintaining & applying this policy: Finance Next Review: January 2024 ______________________________________________________________________________ Purpose: To establish policy for complying with prevailing federal, state and local statutes and regulations, as well as current professional standards, principles and practices. Scope: All Personnel Definitions: None Policy: 1.0 Conformance to Accounting Principles and Recommended Practices – The Town accounting practices and financial reporting shall conform to generally accepted accounting principles (GAAP) as promulgated by the Governmental Accounting Standards Board (GASB), and best practices recommended by the American Institute of Certified Public Accountants (AICPA) and the Government Finance Officers Association (GFOA). 2.0 Selection of Auditors – The Town shall request proposals from qualified, independent certified public accounting firms every five years, including the current auditors if their past performance has been satisfactory. The audit firm selected shall perform an annual audit of the books of account, records and transactions, opining on the Basic Financial Statements and Single Audit Report (if necessary). 3.0 Audit Completion – The Town shall strive to have its Annual Comprehensive Financial Report (ACFR), Alternative Expenditure Limitation Report, and Single Audit Report (if necessary) completed and available within 180 days, 270 days, and 270 days, respectively, after the close of its previous fiscal year ending June 30. 4.0 Report Submission to GFOA – The Town shall annually submit its budget to the GFOA Distinguished Budget Presentation Program. Further, the Town shall also annually submit its ACFR to the GFOA Certificate of Achievement for Excellence in Financial Reporting program.    Budget and Finance Commission 5. Meeting Date:04/16/2024   Submitted By:Christopher Hutchison, Finance SUBJECT: PRESENTATION AND POSSIBLE DISCUSSION REGARDING THE TOWN'S FIVE-YEAR FINANCIAL FORECAST THROUGH FY 2028/29 RECOMMENDATION: This item is for presentation and discussion. EXECUTIVE SUMMARY: The Town's adopted financial policies provide "as a part of the annual Town budget preparation cycle, the Finance Department shall prepare a minimum five-year financial forecast of projected revenues and expenditures to measure the financial sustainability of the Town's operations and service levels." As such, staff will present the five-year financial forecast through FY 2028/29 for the General Fund, Highway Fund, Capital Fund and Community Center Fund. The forecast assumptions were compiled by referencing several sources of data, including the University of Arizona, Joint Legislative Budget Committee (JLBC), State Finance Advisory Committee, Arizona Department of Revenue, and the Arizona Department of Transportation. Staff also incorporated Town historical trend data and professional judgment into formulation of this forecast. BACKGROUND OR DETAILED INFORMATION: Please reference attachments for this item. FISCAL IMPACT: N/A SUGGESTED MOTION: This item is for presentation and discussion. Attachments Town of Oro Valley Five-Year Forecast FY25  TOWN OF ORO VALLEY ‐ SELECT FUNDS FIVE YEAR FINANCIAL FORCAST WITH PROPOSED DEBT ISSUANCE FY 23/24 Forecast FY 24/25 Forecast FY 25/26 Forecast FY 26/27 Forecast FY 27/28 Forecast FY 28/29 Forecast GENERAL FUND Revenue 58,830,757 57,254,257 57,533,657 58,777,684 60,465,268 61,686,866 Inflows 58,830,757 57,254,257 57,533,657 58,777,684 60,465,268 61,686,866 Personnel 35,007,347 35,742,353 36,771,651 37,817,797 38,986,268 40,186,655 O&M 13,443,775 14,663,279 15,421,527 16,268,004 17,021,628 17,887,241 Capital 1,342,555 680,400 374,604 397,080 416,934 437,781 Transfers Out 12,274,644 9,403,343 3,733,080 3,452,351 3,332,881 2,924,786 Outflows 62,068,321 60,489,375 56,300,862 57,935,232 59,757,711 61,436,463 Beginning Fund Balance 23,798,492 20,560,928 17,325,810 18,558,605 19,401,056 20,108,613 Ending Fund Balance 20,560,928 17,325,810 18,558,605 19,401,056 20,108,613 20,359,016 HIGHWAY FUND Revenue 4,525,233 4,485,805 4,565,042 4,697,539 4,846,993 5,074,367 Transfers In 1,500,000 4,000,000 4,000,000 5,000,000 5,000,000 2,000,000 Inflows 6,025,233 8,485,805 8,565,042 9,697,539 9,846,993 7,074,367 Personnel 1,257,857 1,334,281 1,361,028 1,388,316 1,416,153 1,444,551 O&M 1,003,930 1,281,505 1,269,832 1,342,260 1,419,034 1,486,851 Capital 4,195,000 5,481,000 6,276,300 7,228,315 7,208,000 3,583,000 Outflows 6,456,787 8,096,786 8,907,160 9,958,891 10,043,187 6,514,402 Beginning Fund Balance 878,932 447,378 836,397 494,279 232,928 36,733 Ending Fund Balance 447,378 836,397 494,279 232,928 36,733 596,698 CAPITAL FUND Revenue 2,152,540 2,396,872 1,307,428 1,477,240 1,373,580 1,263,921 Bond Proceeds - - - 11,000,000 - - Transfers In 10,000,000 7,139,787 1,441,897 1,468,442 1,488,396 1,515,075 Inflows 12,152,540 9,536,659 2,749,325 13,945,682 2,861,976 2,778,996 Personnel 254,765 - - - - - O&M 2,500 - - - - - Capital 19,153,657 10,030,338 2,666,143 3,215,553 4,190,293 3,317,493 Debt Service - - - 791,583 791,583 791,583 Transfers Out 1,500,000 4,381,448 4,329,000 5,339,000 5,349,250 2,359,750 Outflows 20,653,657 14,411,786 6,995,143 9,346,136 10,331,126 6,468,826 Beginning Fund Balance 24,550,288 15,791,906 10,916,779 6,670,960 11,270,506 3,801,356 Ending Fund Balance 15,791,906 10,916,779 6,670,960 11,270,506 3,801,356 111,526 COMMUNITY CENTER FUND Revenue 10,560,329 10,685,399 10,833,369 11,137,140 11,460,233 11,846,465 Inflows 10,560,329 10,685,399 10,833,369 11,137,140 11,460,233 11,846,465 Personnel 1,187,609 1,167,368 1,205,725 1,245,362 1,286,321 1,328,644 O&M 5,610,959 5,993,655 6,125,425 6,255,521 6,389,858 6,521,020 Capital 1,279,698 2,420,302 1,532,500 2,070,000 1,800,000 450,000 Transfers Out 1,717,203 1,717,149 1,716,268 1,717,435 1,711,661 1,714,810 Outflows 9,795,469 11,298,474 10,579,917 11,288,318 11,187,839 10,014,475 Beginning Fund Balance 1,008,233 1,562,409 726,389 743,519 341,839 348,702 Ending Fund Balance 1,562,409 726,389 743,519 341,839 348,702 1,901,884 1 TOWN OF ORO VALLEY ‐ SELECT FUNDS FIVE YEAR FINANCIAL FORCAST WITHOUT PROPOSED DEBT ISSUANCE FY 23/24 Forecast FY 24/25 Proposed FY 25/26 Forecast FY 26/27 Forecast FY 27/28 Forecast FY 28/29 Forecast GENERAL FUND Revenue 58,830,757 57,254,257 57,533,657 58,777,684 60,465,268 61,686,866 Inflows 58,830,757 57,254,257 57,533,657 58,777,684 60,465,268 61,686,866 Personnel 35,007,347 35,742,353 36,771,651 37,817,797 38,986,268 40,186,655 O&M 13,443,775 14,663,279 15,421,527 16,268,004 17,021,628 17,887,241 Capital 1,342,555 680,400 374,604 397,080 416,934 437,781 Transfers Out 12,274,644 9,403,343 3,733,080 3,452,351 3,332,881 2,924,786 Outflows 62,068,321 60,489,375 56,300,862 57,935,232 59,757,711 61,436,463 Beginning Fund Balance 23,798,492 20,560,928 17,325,810 18,558,605 19,401,056 20,108,613 Ending Fund Balance 20,560,928 17,325,810 18,558,605 19,401,056 20,108,613 20,359,016 HIGHWAY FUND Revenue 4,525,233 4,485,805 4,565,042 4,697,539 4,846,993 5,074,367 Transfers In 1,500,000 4,000,000 4,000,000 5,000,000 5,000,000 2,000,000 Inflows 6,025,233 8,485,805 8,565,042 9,697,539 9,846,993 7,074,367 Personnel 1,257,857 1,334,281 1,361,028 1,388,316 1,416,153 1,444,551 O&M 1,003,930 1,281,505 1,269,832 1,342,260 1,419,034 1,486,851 Capital 4,195,000 5,481,000 6,276,300 7,228,315 7,208,000 3,583,000 Outflows 6,456,787 8,096,786 8,907,160 9,958,891 10,043,187 6,514,402 Beginning Fund Balance 878,932 447,378 836,397 494,279 232,928 36,733 Ending Fund Balance 447,378 836,397 494,279 232,928 36,733 596,698 CAPITAL FUND Revenue 2,152,540 2,396,872 1,307,428 1,477,240 1,373,580 1,263,921 Bond Proceeds - - - - - - Transfers In 10,000,000 7,139,787 1,441,897 1,468,442 1,488,396 1,515,075 Inflows 12,152,540 9,536,659 2,749,325 2,945,682 2,861,976 2,778,996 Personnel 254,765 - - - - - O&M 2,500 - - - - - Capital 19,153,657 10,030,338 2,666,143 3,215,553 4,190,293 3,317,493 Debt Service - - - Transfers Out 1,500,000 4,381,448 4,329,000 5,339,000 5,349,250 2,359,750 Outflows 20,653,657 14,411,786 6,995,143 8,554,553 9,539,543 5,677,243 Beginning Fund Balance 24,550,288 15,791,906 10,916,779 6,670,960 1,062,089 (5,615,478) Ending Fund Balance 15,791,906 10,916,779 6,670,960 1,062,089 (5,615,478) (8,513,725) COMMUNITY CENTER FUND Revenue 10,560,329 10,685,399 10,833,369 11,137,140 11,460,233 11,846,465 Inflows 10,560,329 10,685,399 10,833,369 11,137,140 11,460,233 11,846,465 Personnel 1,187,609 1,167,368 1,205,725 1,245,362 1,286,321 1,328,644 O&M 5,610,959 5,993,655 6,125,425 6,255,521 6,389,858 6,521,020 Capital 1,279,698 2,420,302 1,532,500 2,070,000 1,800,000 450,000 Transfers Out 1,717,203 1,717,149 1,716,268 1,717,435 1,711,661 1,714,810 Outflows 9,795,469 11,298,474 10,579,917 11,288,318 11,187,839 10,014,475 Beginning Fund Balance 1,008,233 1,562,409 726,389 743,519 341,839 348,702 Ending Fund Balance 1,562,409 726,389 743,519 341,839 348,702 1,901,884 2 Town of Oro ValleyFive-Year ForecastFY 22/23 ActualFY 23/24 ForecastFY 24/25 ForecastFY 25/26 ForecastFY 26/27 ForecastFY 27/28 ForecastFY 28/29 ForecastSOURCESTaxes27,213,164$ 27,419,438$ 28,708,825$ 28,837,932$ 29,368,835$ 29,767,924$ 30,301,504$ State Shared Revenue18,969,633 22,911,519 20,580,407 20,030,171 20,977,564 22,020,528 23,132,520 Charges for Services2,897,311 2,863,987 2,966,467 3,045,234 3,126,739 3,211,060 3,297,803 Licenses & Permits2,643,013 1,920,582 1,673,022 2,257,364 1,903,656 2,026,406 1,476,695 Intergovernmental1,857,521 1,869,500 1,981,555 2,000,471 2,019,575 2,038,871 2,058,360 Grants653,525 744,251 659,982 667,645 675,447 683,390 691,479 Miscellaneous2,961,402 546,480 229,000 231,290 233,603 235,939 238,298 Fines84,454 55,000 55,000 55,550 56,106 56,667 57,233 Interest Income372,378 500,000 400,000 408,000 416,160 424,483 432,973 Total Sources57,652,401 58,830,757 57,254,257 57,533,657 58,777,684 60,465,268 61,686,866 USESPersonnel33,329,692 35,007,347 35,742,353 36,771,651 37,817,797 38,986,268 40,186,655 O&M11,944,698 13,443,775 14,663,279 15,421,527 16,268,004 17,021,628 17,887,241 Capital Outlay2,972,965 1,342,555 680,400 374,604 397,080 416,934 437,781 Transfers Out15,996,977 12,274,644 9,403,343 3,733,080 3,452,351 3,332,881 2,924,786 Total Uses64,244,332 62,068,321 60,489,375 56,300,862 57,935,232 59,757,711 61,436,463 Surplus/(Use of Fund Balance)(6,591,931) (3,237,564) (3,235,118) 1,232,795 842,452 707,557 250,403 Beginning Fund Balance30,390,423 23,798,492 20,560,928 17,325,810 18,558,605 19,401,056 20,108,613 Ending Fund Balance23,798,492$ 20,560,928$ 17,325,810$ 18,558,605$ 19,401,056$ 20,108,613$ 20,359,016$ Reserve as % of Expenditures37.0%41.3%33.9%35.3%35.6%35.6%34.8%GENERAL FUND3 $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 $50,000,000 $55,000,000 $60,000,000 $65,000,000 $70,000,000FY 23/24ForecastFY 24/25ForecastFY 25/26ForecastFY 26/27ForecastFY 27/28ForecastFY 28/29ForecastGeneral FundSources, Uses and Fund BalanceUSESSOURCESFUND BALANCERESERVE (30%)4 Sources Assumptions Local Sales Taxes 1. Estimated revenues from development at the Oro Valley Marketplace of about $1.3 million 2. Slow economic growth with no major economic downturns in the five-year outlook 3. Slight decline in construction sales tax in outer years due to reduced available land area for new development 4. Hotel/bed tax 1% growth, plus assumed revenue from OV Marketplace beginning in FY 25/26 5. Conservative levels of one-time, non-specific commercial development plus identified commercial construction 6. 3-5% growth per year in retail, restaurant/bar, utility and other categories State Shared Revenues 1. State shared revenue forecasts are provided by the Arizona League of Cities. Smart&Safe based on forecast from ADOT. 2. State shared income tax revenue reductions in FY24/25 and FY25/26 due to implementation of the 2.5% individual flat income tax, growth of 4-5% thereafter Charges for Services 1.3% growth rate in charges for services to enterprise funds 2.3-4% growth rate for Parks & Recreation related revenues 3.Development revenues tied to projected permitting activity Licenses & Permits 1.Declining single family residential (SFR) permit activity in year 1 followed by a spike in years 2-4 as known developments are expected to begin building and then a continued downward trend 2.Conservative commercial permitting activity forecast, with specific permitting for the Oro Valley Marketplace ($920,000) 3. Slowing revenues and activity in outer years attributable to reduced available land area for new development Intergovernmental 1.School resource officer funding kept flat at $90,000 2. 1% growth in RTA transit reimbursement revenue Grant Revenues/Fines 1.Police grant revenues assumed at 1% growth per year 2. Fine revenues 1% growth per year Miscellaneous 1.Consists primarily of in-lieu bed tax income; 1% growth per year Interest Income 1. 2% growth per year; subject to economic conditions and based on anticipated fund balance GENERAL FUND FORECAST ASSUMPTIONS 273 497 199 148 95 130 172 120 80 FY 19/20 Actual FY 21/22 Actual FY 22/23 Actual FY 23/24 Forecasted FY 24/25 Forecasted FY 25/26 Forecasted FY 26/27 Forecasted FY 27/28 Forecasted FY 28/29 Forecasted SFR Building Permit Forecast Category FY 24/25  Forecast %  growth FY 25/26  Forecast %  growth FY 26/27  Forecast %  growth FY 27/28  Forecast %  growth FY 28/29  Forecast %  growth Retail 9,447,680    1.0%9,731,110    3.0%10,133,303  4.1%10,436,195  3.0%10,878,604  4.2% Construction 5,875,681    17.3%5,275,643    ‐10.2%4,849,654    ‐8.1%4,567,396    ‐5.8%4,287,907    ‐6.1% Utility 4,097,824    2.5%4,187,976    2.2%4,271,736    2.0%4,357,170    2.0%4,444,314    2.0% Restaurant 2,726,271    5.0%2,862,585    5.0%3,005,714    5.0%3,156,000    5.0%3,313,800    5.0% Bed Tax 2,464,858    1.0%2,570,926    4.3%2,763,542    7.5%2,793,676    1.1%2,824,151    1.1% Other 3,380,711    3.0%3,501,050    3.6%3,643,332    4.1%3,762,949    3.3%3,865,134    2.7% Cable Franchise Fee 715,800        ‐1.0%708,642        ‐1.0%701,555        ‐1.0%694,540        ‐1.0%687,594        ‐1.0% Total 28,708,825  4.7%28,837,932  0.4%29,368,835  1.8%29,767,924  1.4%30,301,504  1.8% Category FY 24/25  Forecast %  growth FY 25/26  Forecast %  growth FY 26/27  Forecast %  growth FY 27/28  Forecast %  growth FY 28/29  Forecast %  growth State Income Tax 10,357,064  ‐19.0%9,322,675    ‐10.0%9,751,996    4.6%10,254,965  5.2%10,806,109  5.4% State Sales Tax 7,358,086    3.7%7,703,731    4.7%8,083,281    4.9%8,487,445    5.0%8,911,817    5.0% County Auto Lieu 2,530,630    4.8%2,629,952    3.9%2,731,778    3.9%2,834,022    3.7%2,940,021    3.7% Smart and Safe 334,627        14.5%373,812        11.7%410,509        9.8%444,096        8.2%474,573        6.9% Total 20,580,407  ‐10.2%20,030,171  ‐2.7%20,977,564  4.7%22,020,528  5.0%23,132,520  5.0% 5 GENERAL FUND FORECAST ASSUMPTIONS Uses Assumptions Salaries and Benefits 1. Police step increases included each year; pay adjustments included at 4.0% per year 2. Public safety pension rates kept flat at 16.22% plus additional contributions of $800,000 per year 3. Health insurance premiums increase 2% per year 4. No new positions in year 1, capacity for one new position annually in years 2 and 3, two new positions in years 4 and 5 Operations & Maintenance 1. Forecast assumes no new initiatives or changes to service levels 2. Gas prices assumed to remain stable throughout the forecast period and grow 1% annually 3. Capital outlay reflects operating capital 4. 5-6% annual growth in O&M costs CIP Funding 1.Shown as transfer out to Capital Fund 2. Annual amounts equal to 5% of projected sales tax collections, plus any remaining fund balance over the 30% reserve policy Transfers Out 1. Transfers to debt service, Capital Fund and Grants Fund 6 Town of Oro ValleyFive-Year ForecastFY 22/23 ActualFY 23/24 ForecastFY 24/25 ForecastFY 25/26 ForecastFY 26/27 ForecastFY 27/28 ForecastFY 28/29 ForecastSOURCESState Shared Revenue4,129,268$ 4,334,608$ 4,307,805$ 4,458,649$ 4,610,326$ 4,771,171$ 4,932,849$ Licenses & Permits27,56525,00025,000 25,500 25,755 26,013 26,273 Interest Income169,554 150,000 150,000 77,863 58,397 46,718 112,123 Miscellaneous10,61115,6253,000 3,030 3,060 3,091 3,122 Transfers from Capital Fund- 1,500,000 4,000,000 4,000,000 5,000,000 5,000,000 2,000,000 Total Sources4,336,998 6,025,233 8,485,805 8,565,042 9,697,539 9,846,993 7,074,367 USESPersonnel1,195,566 1,257,857 1,334,281 1,361,028 1,388,316 1,416,153 1,444,551O&M874,503 1,003,930 1,281,505 1,269,832 1,342,260 1,419,034 1,486,851Capital Outlay2,594,981 4,195,000 5,481,000 6,276,300 7,228,315 7,208,000 3,583,000Total Uses4,665,050 6,456,787 8,096,786 8,907,160 9,958,891 10,043,187 6,514,402 Surplus/(Use of Fund Balance) (328,052) (431,554) 389,019 (342,118) (261,352) (196,194) 559,965Beginning Fund Balance1,206,985878,932 447,378 836,397 494,279 232,92836,733 Ending Fund Balance878,933$ 447,378$ 836,397$ 494,279$ 232,928$ 36,733$ 596,698$ HIGHWAY FUND7 $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000FY 23/24ForecastFY 24/25ForecastFY 25/26ForecastFY 26/27ForecastFY 27/28ForecastFY 28/29ForecastHighway FundSources, Uses and Fund BalanceUSESSOURCESFUND BALANCE8 Sources Assumptions Highway User Tax 1. Highway user revenues grow 3.4-3.6% per year per ADOT forecast 2. Forecast assumes no changes in state allocation of funds to cities and towns Miscellaneous 1. Low growth; minimal amount based on current trend Interest Income 1. Subject to economic conditions and based on anticipated fund balance Transfers In 1. Transfers from Capital Fund of $20 million over five years to fund needed roadway projects Uses Assumptions Salaries and Benefits 1. Assumptions similar to General Fund for pay and benefit adjustments 2. No new positions assumed over forecast period Operations & Maintenance 1. Assumes no changes to service levels, 5-6% annual growth rate 2. New bridge maintenance program Capital Outlay 1. Per 10-year CIP program; Capital Fund subsidizes projects in years when HURF revenues are not sufficient to cover costs 2. Three bridge deck repair projects are not in this forecast: First Avenue Bridge Deck Repair ($2.7 million), Rancho Vistoso Blvd Bridge Deck Repair ($4.1 million), Tangerine Rd. Bridge Deck Repair over Big Wash ($1.7 million). Applying for outside funding Pavement Preservation 1. Assumes no significant increase in lane miles. $3.15 million base with 3% increases each year HIGHWAY FUND FORECAST ASSUMPTIONS FY 24/25  Forecast %  growth FY 25/26  Forecast %  growth FY 26/27  Forecast %  growth FY 27/28  Forecast %  growth FY 28/29  Forecast %  growth Pavement Preservation 3,150,000  26.0%3,245,000  3.0%3,343,000  3.0%3,444,000  3.0%3,548,000  3.0% 9 Town of Oro ValleyFive-Year ForecastFY 22/23 ActualFY 23/24 ForecastFY 24/25 ForecastFY 25/26 ForecastFY 26/27 ForecastFY 27/28 ForecastFY 28/29 ForecastSOURCESState Grants-$ 620,000$ 1,000,000$ -$ -$ -$ -$ Bond Proceeds- - - - 11,000,000 - - Interest Income530,338 500,000 348,382 230,933 361,138 216,683 65,005 Miscellaneous166,739 140,000 115,000 115,000 115,000 115,000 115,000 Vehicle Reserves820,008 892,540 933,490 961,495 1,001,102 1,041,897 1,083,916 Transfers from General Fund13,500,000 10,000,000 7,139,787 1,441,897 1,468,442 1,488,396 1,515,075 Transfer from Community Center Fund 4,767,786- - - - - - Total Sources19,784,871 12,152,540 9,536,659 2,749,325 13,945,682 2,861,976 2,778,996 USESPersonnel236,738 254,765- - - - - O&M8,091 2,500 - - - - - Capital Outlay18,942,684 19,153,657 10,030,338 2,666,143 3,215,553 4,190,293 3,317,493Debt Service- - - - 791,583 791,583 791,583 Transfers to Highway Fund- 1,500,000 4,000,000 4,000,000 5,000,000 5,000,000 2,000,000 Transfers to Grants Fund- - 381,448 329,000 339,000 349,250 359,750 Total Uses19,187,513 20,910,922 14,411,786 6,995,143 9,346,136 10,331,126 6,468,826 Surplus/(Use of Fund Balance)597,358 (8,758,382) (4,875,127) (4,245,819) 4,599,546 (7,469,150) (3,689,830)Beginning Fund Balance23,952,930 24,550,288 15,791,906 10,916,779 6,670,960 11,270,506 3,801,356 Ending Fund Balance24,550,288$ 15,791,906$ 10,916,779$ 6,670,960$ 11,270,506$ 3,801,356$ 111,526$ CAPITAL FUND10 $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000FY 23/24ForecastFY 24/25ForecastFY 25/26ForecastFY 26/27ForecastFY 27/28ForecastFY 28/29ForecastCapital FundSources, Uses and Fund BalanceUSESSOURCESFUND BALANCE11 Sources Assumptions Bond Proceeds 1.Bond issuance of $11 million assumed in FY 26/27 to fund projects in the forecast period Vehicle Reserves 1. General Fund is charged the replacement value of new, non-enterprise fund vehicles over the useful life 2. One new patrol vehicle annually in years 2-5 at $107,621 each Miscellaneous 1.Reflects vehicle sales and insurance recoveries; assumed flat Interest Income 1. Subject to economic conditions and based on anticipated fund balance Transfers In 1.Transfers from General Fund consist excess General Fund reserves, per adopted financial policies Uses Assumptions Capital Outlay 1.Capital outlay reflects 10-year CIP program 2.Forecast also includes capacity for new vehicles and unplanned vehicle losses Debt Service 1.Annual debt service for assumed bond issuance at 3.75% APR over a 20 year term Transfers Out 1. Transfers to the Highway Fund subsidize HURF revenue as needed for roadway projects ($21.5 million) 2. Transfers to the Grant Fund for local match of grant funded transit vehicles CAPITAL FUND FORECAST ASSUMPTIONS 12 Town of Oro ValleyFive-Year ForecastFY 22/23 ActualFY 23/24 ForecastFY 24/25 ForecastFY 25/26 ForecastFY 26/27 ForecastFY 27/28 ForecastFY 28/29 ForecastSOURCESTaxes3,713,654$ 3,803,267$ 3,879,440$ 4,014,055$ 4,151,115$ 4,293,223$ 4,459,304$ Charges for Services6,265,647 6,563,012 6,630,227 6,800,355 6,975,467 7,155,718 7,341,269 Interest Income110,723 35,000 16,682 17,459 9,042 9,762 44,345 Miscellaneous271,567 159,050 159,050 1,500 1,515 1,530 1,545 Total Sources10,361,591 10,560,329 10,685,399 10,833,369 11,137,140 11,460,233 11,846,465 USESPersonnel1,065,775 1,187,609 1,167,368 1,205,725 1,245,362 1,286,321 1,328,644 O&M5,706,520 5,610,959 5,993,655 6,125,425 6,255,521 6,389,858 6,521,020 Capital Outlay1,467,015 1,279,698 2,420,302 1,532,500 2,070,000 1,800,000 450,000 Debt Service (Leases)178,654 210,684 222,945 236,322 250,501 265,531 278,808 Transfers to Debt Service2,028,066 1,717,203 1,717,149 1,716,268 1,717,435 1,711,661 1,714,810 Transfers to Capital Fund4,767,786 - - - - - - Total Uses15,213,816 10,006,153 11,521,419 10,816,239 11,538,819 11,453,370 10,293,282 Surplus/(Use of Fund Balance) (4,852,225) 554,176 (836,020) 17,130 (401,680) 6,863 1,553,182 Beginning Fund Balance5,860,458 1,008,233 1,562,409 726,389 743,519 341,839 348,702 Ending Fund Balance1,008,233$ 1,562,409$ 726,389$ 743,519$ 341,839$ 348,702$ 1,901,884$ COMMUNITY CENTER FUND13 $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000FY 23/24ForecastFY 24/25ForecastFY 25/26ForecastFY 26/27ForecastFY 27/28ForecastFY 28/29ForecastCommunity Center FundSources, Uses and Fund BalanceUSESSOURCESFUND BALANCE14 Sources Assumptions Local Sales Taxes 1. Categories mirror General Fund forecast, where appropriate 2. Modest economic growth with no major economic downturns in the five-year outlook 3. 3-5% growth per year in retail, restaurant/bar, utility and other categories Charges for Services 1.1% growth rate for CRC membership dues, recreation programs and daily drop-ins Golf Revenues 36-Hole Golf 1.Assumption of a 36‐hole operation for FY24/25 and beyond, outside of overseeding closures 2.Golf rounds stay flat to 1% increase 3.3.5% greens fee revenue YOY growth from increased public green fee rates 4.3% dues revenue increase YOY 5.1‐2% increase in remainder of revenue categories FY25/26 and beyond Pusch Ridge Golf 1.3% increase in green fee revenue YOY from increased public green fee rates 2.Golf rounds stay flat to 1% increase 3.2.5% increase in pro shop sales, food/bev and alcohol sales YOY 4.2% dues increase YOY 5.1‐2% increase in all other revenue lines Food & Beverage 1.No major closures or interruption of The Overlook restaurant 2.3% revenue increase YOY Interest Income 1. Subject to economic conditions and based on anticipated fund balance Miscellaneous 1.Forecast assumes HOA contributions end after FY 24/25, upon completion of five-year contracts COMMUNITY CENTER FUND FORECAST ASSUMPTIONS Category FY 24/25  Forecast %  growth FY 25/26  Forecast %  growth FY 26/27  Forecast %  growth FY 27/28  Forecast %  growth FY 28/29  Forecast %  growth Retail 2,361,920 1.0%2,432,777 3.0%2,505,761 3.0%2,580,934 3.0%2,684,171 4.0% Restaurant & Bar 681,568     5.0%715,646     5.0%751,428     5.0%789,000     5.0%828,450     5.0% Hotel 208,914     1.0%211,003     1.0%213,113     1.0%215,244     1.0%217,396     1.0% Remote Seller 478,681     3.0%499,743     4.4%519,733     4.0%540,522     4.0%556,738     3.0% Other 148,357     3.0%154,885     4.4%161,081     4.0%167,524     4.0%172,549     3.0% Total 3,879,440 9.0%4,014,055 3.5%4,151,115 3.4%4,293,223 3.4%4,459,304 3.9% 15 COMMUNITY CENTER FUND FORECAST ASSUMPTIONS Uses Assumptions Salaries and Benefits 1. Assumptions similar to General Fund for pay and benefit adjustments Operations & Maintenance 1. 5-6% growth in O&M costs 2. Full staffing levels Golf operations 1. Golf operating model remains same through FY28/29 2.36 hole - 7% lease expense increase for FY26. Cart lease will need to be renewed. 3.2‐2.5% labor increase; no significant staff additions expected 4.3% cost of goods sold expense YOY increase 5.3% labor expense YOY increase 6.2% annual increase in material costs Capital Outlay 1.Capital outlay per 10-year CIP program 2.$150,000 annually for building improvements and equipment 3.Vistoso Trails Nature Preserve maintenance at $200,000 per year Transfers to Debt Service 1.Debt service on the Parks and Recreation bonds and the 2016 Community Center energy efficiency bonds 16