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HomeMy WebLinkAbout04/25/2000 - Study Session0 CITY OF NEWPORT BEACH City Council Minutes Study Session April 25, 2000 - 4:00 p.m. ROLL CALL Present: Thomson, Glover, Adams, Debay, Ridgeway, O'Neil, Mayor Noyes Absent: None 1. CLARIFICATION OF ITEMS ON THE CONSENT CALENDAR - None. 2. PRESENTATION BY TWO OF THE CITY'S INVESTMENT ADVISORS. City Manager Bludau reported that Mayor Pro Tem Adams requested that Council be made more aware of the City's investment strategies about two months ago. Administrative Services Deputy Director Kurth reported that the City's investment portfolio is $61,114,486.19, plus some accrued interest. This is • near seasonal peak, but noted that other factors cause interim volatility (i.e. debt issuance, large capital projects, oil recovery money, and bankruptcy recovery money). He pointed out that the long term trend and the size of the City's investment portfolio is definitely up and that the audited financial reports for the past few years tells the City it is doing better. He indicated that the $61 million portfolio is as large as it has been at any time during his 10 years with the City and has at some point been less than half that amount. He stated that stronger revenues today have certainly helped the City but the main reason for the improved financial posture is because the City has been adhering to Council's new reserve policy goals as part of the budget appropriations process. Mr. Kurth reported that about 75 percent of the investment portfolio is managed by four investment advisors. Two are in attendance today. He indicated that each of the gentlemen are responsible for 20 percent of the investment portfolio. He indicated that these types of presentations were previously given to the Council Finance Committee on a quarterly basis and suggested to Brad Craig of Wells Fargo and Richard Babbe of Public Financial Management that they follow the same general format as before; however, Council can modify the format for future presentations. Mr. Kurth indicated that, even though the City's investment policy contains restrictive parameters, the advisors have room to disagree on such things as the optimum maturity target and the right mix between corporates and governments. • In response to Council Member Debay's question, Mr. Kurth reported that book -to- market refers to whether the City shows the balance of the portfolio at a book figure or a market figure. He stated that, if the City is holding Volume 53 - Page 295 INDEX Investment Advisors (40) City of Newport Beach Study Session Minutes April 25, 2000 11011%1 • securities that bear lower interest in a rising interest rate market, the actual value is reflected. Therefore, if they have to be liquidated, the City would not get the same amount that shows on the books. He indicated that the City deals with this situation by reporting both book value and market value. He added that this is not too much of an issue right now because maturities are so short and the City is so liquid. He pointed out that this was not the situation for the County. Mayor Pro Tern Adams stated that he has looked at the investment policy with a couple of independent asset managers and that they will be bringing something back to Council within the next month. He expressed concern relative to certificates of deposits (CDs), but Mr. Kurth assured him that CDs are authorized by the policy and that there are restrictive parameters. Council Member Ridgeway asked who establishes the investment criteria for charter cities. Mr. Kurth reported that the State has public law that establishes criteria for all cities within the State. However, the City's policy goes beyond the State's minimum criteria. Mr. Bludau added that Council Policies are established by resolution and that those are reviewed annually. Council Member Glover reported that the Finance Committee worked for quite some time on the investment policy and reviewed it after the County bankruptcy and two years following that. She stated that the Committee tried to be cautious and noted that there are laws on several levels that the e City must follow. Mr. Kurth reported that the policy was reviewed on March 24 and that only minor changes were made, noting that it has been a few years since the policy underwent significant changes. He indicated that they spoke with Mayor Pro Tem Adams several times to possibly do a more significant update and that they look forward to working with him on this. Brad Craig, Wells Capital Management, representing the investment advisory for Wells Fargo Bank, stated that they are a wholly owned subsidiary of the bank created in 1997, and its primary business deals with institutional funds management. He clarified that they do not act as the principle broker in any transaction, are paid a fee as the buying and selling agent in the market, and are mandated to deliver results to an investment policy. Regarding Council Member Ridgeway's concern, Mr. Craig stated that with public agency accounts, unless they are given specific direction, they default to California Code §53601 which specifies permissible investments for public agencies. He indicated that the intent of the code is to restrict maturities to five years and to maintain an average maturity of two years or less. He emphasized that, with those restrictions, unrealized losses and market volatility are minimized significantly. Mr. Craig stated that they measure the performance of a client's portfolio on a total rate of return method that has been increasingly adapted by public agencies. The results are not yield only and measure the changes in the • principal value of the portfolio in addition to the interest income. He noted that interest rates were rising in 1999 as the Federal reserve commenced on an effort to slow down the U.S. economy. He reported that last year's results were positive and that they delivered a 3.37 percent total rate of return to Volume 53 - Page 296 City of Newport Beach Study Session Minutes April 25, 2000 11011 **4 • the Merrill Lynch One to Three Year Treasury Index benchmark. He indicated that they are tracking well to the benchmark for the fist quarter of this year, but are not too concerned about quarterly comparisons since they are driven by long term results. In response to Mayor Pro Tem Adams' questions, Mr. Craig indicated that the financial manager could set the benchmark that is based on the City's need for liquidity and the risk tolerance within the California Code parameters. He confirmed that benchmarks are commonly part of an investment policy for fiduciary agent managers like Wells Capital Management. He expressed the opinion that the City's policy does not have to state a benchmark, but the individual manager will often have its own guideline statement which condenses or captures the essence of the investment policy. They will then usually ask for some performance measurements beyond the document so that the financial manager receives guidance on an appropriate amount of risk on the fund management. Regarding a Merrill Lynch One to Three Year Treasury Index with an approximate average maturity of 1.5 years, Mr. Craig stated that they have a policy in which they will not be longer or shorter than the duration by more than 30 percent. He reiterated that their goal is to deliver a consistent return, net the fee that they charge, and to deliver the expectation. Mr. Bludau asked if the benchmark should be changed depending on the economic situation. Mr. Craig stated that they would like to keep the same • benchmark and that the only factor that would cause the benchmark to be altered would be a different need for liquidity. If the money is more stable, as is the City's portfolio, they can manage well with a longer index and have shown some historical benchmark returns that demonstrate that this index will deliver a higher net return in the long run. Further, it also adds to the income by delivering higher interest income. In response to Council Member Ridgeway's question regarding the 30 percent duration, Mr. Craig stated that when a financial manager is given a benchmark, it has a constant duration or average maturity. The manager will dynamically adjust the duration of the portfolio to be measured against the benchmark to take more risk or have longer securities in the portfolio if conditions in the economy warrant that. If the benchmark duration is 1.5 years, it means that they would be pushing the duration out to two years and would enhance the return as interest rates come down. The City would own longer securities in the portfolio that would re -price to their interest rates and appreciate. He assured him that the 30 percent is an internal limit to prevent them from monetary control. He clarified that the City's portfolio is a short duration portfolio and that the duration would always be short and would never differ by more than 30 percent of the benchmark duration. Mr. Craig reported that the annualized compound return of 5.63 percent is the earning stream of the portfolio measured on the latest quarterly data and is rapidly heading toward 6 percent since they have been able to • reinvest at higher rates as interest rates increase. Regarding the 5.22 percent Local Agency Investment Fund (LAIF), he stated that this is a gross number and is tracking close to LAIF when their management fee is backed out. However, LAIF is a one -year- and -under type of fund and will Volume 53 - Page 297 • City of Newport Beach Study Session Minutes April 25, 2000 INDEX give them the opportunity, on an interest income basis, to significantly outperform the LAIF option. Mr. Bludau indicated that a positive about LAIF is that it is very liquid. Mr. Craig indicated that all the securities that they invest in are extremely liquid. He reported that the types of securities they would use in the City's portfolio are U.S. Treasuries, U.S. Federal agencies, investment -grade corporate bonds (minimally rated single -A), short term commercial paper, and cash equivalence. He stated that, if the portfolio were liquidated tomorrow at current market prices, the funds could be wired tomorrow. He noted that the duration for the portfolio is a little above 1.5 years and that the number tracks very well with the City's price risk per interest rate move. He explained that a one percent adverse move in the interest rate would impact the principal by about 1.5 percent. He emphasized that they would like to avoid unrealized losses, even on an unrealized basis, but it is inevitable when trying to enhance the income stream. He reiterated that the portfolio is not risky in that the securities used are very short. In fact, Wells Capital Management does not have many securities that go beyond three years because they do not see a reason to take undo risk or use the maximum permissible limit of five years. In response to Council Member Thomson's question regarding the annualized compound realized return, Mr. Craig indicated that the figures are gross figures and that the March statement shows that the gross yield is • 5.94 percent, but would be about 5.70 percent with fees. When comparing the fee base with money market funds, he indicated that money market funds typically charge a similar basis point management fee imbedded within the fund. However, their service includes a custody relationship with a manager and risk consulting, making them a better value on a relationship basis for the fee. Mr. Craig clarified that he is not a star manager since he does not have individual responsibility for the decisions made in the portfolio. Wells Capital Management is organizationally driven, they conduct monthly strategy meetings, and even meet weekly to discuss conditions in the market. He is a relationship manager who is the primary point of contact for discussing results and making sure that the investment policy is being followed. He indicated that the portfolio manager is in San Francisco and that his only focus is the buying and selling of securities. He added that the administrative officer is primarily responsible for financial reporting and the movement of funds. The results are very predictable since they are based on a top -down approach to managing that corresponds to the interest rates. Council Member Ridgeway stated that the portfolio contains different duration maturities and asked if Wells Capital Management breaks that down by percentage. Mr. Craig clarified that their strategy is to simultaneously hold some of the securities longer on the yield curve which flattens out after two years. He added that they are also holding quite a bit of near term cash in their managed portfolios. The blended weighted average of the assets and cash ends up at a duration target which matches • the benchmark. He stated that they forecast some increased short term rates from the Federal reserve. Volume 53 - Page 298 City of Newport Beach Study Session Minutes April 25, 2000 • Council Member Glover stated that she sits on the South Coast Air Quality Management District Governing Board which reviewed the City's investment policy. She indicated that Newport Beach had the highest earnings and was the only entity that hired outside investors when compared to Orange County, Los Angeles County and City, San Bernardino County and City, Riverside County and City, Montclair, and Santa Monica. She attributed the earnings to the City hiring the investors. Mr. Craig believed that the fiduciary nature of how they manage funds gives the City complete objectivity on the decisions being made on behalf of the portfolio. He explained that some abusive situations with public agency funds has been driven by an abnormal relationship with a brokerage firm and an individual doing directed trades. He reported that they deliver the results and that Mr. Kurth institutes a monthly overview of the results and verification that they are in compliance with the investment policy. He stated that the combination of how Wells Capital Management is structured and the internal oversight will continue to meet the expectation. Referencing Section 2 of the handout, Mr. Craig reviewed the Treasury Yield curve and noted that the slope is due to the U.S. Treasury buying back their debt. He indicated that they forecast that the Federal reserve will increase rates another 25 basis points next month and sequentially raise them another 25 basis points in the summer. He pointed out that the agencies, corporates, and asset backed securities are higher than U.S. Treasuries, and noted that those are total rate of return figures calculated for last year. is Referencing Section 3 of the handout, Mr. Craig reported that the red bar of the first graph is measuring the latest cycle by the Federal reserve to raise rates, reiterating that they have raised rates five times (25 basis points each time) over a period since October 1998. He believed that there will be two more rate hikes by the end of the year. Further, he indicated that the wage costs remain low because productivity has been very high as a result of technology. He reported that a driver of the economy that is making it grow so rapidly is personal wealth gains and that the Federal reserve is trying to contain enthusiasm about the economy and prevent overspending. Regarding oil prices, Mr. Craig stated that their chart indicates that oil stocks have sometimes caused recessions, but that they are not suggesting this by any means. However, if oil prices were to spike higher and stay there, it could disrupt some of the economic models. Mr. Craig concluded by stating that, since the economy is subsequently slowing, the Federal reserve will continue to raise rates. He reiterated that the longer term yields are related to the dynamics of the Treasury buying back debt, but believes that the curve will reflect increased tightening by the Federal reserve. He indicated that the strategy is to be neutral to the duration target, favor short term investments because of the continued inversion in the U.S. Treasury curve, and continue to use corporate and asset backed securities since they outperform Treasuries. He pointed out that the last chart is a composition of the City's portfolio. He assured that, if the City needed money, it could probably work out of the portfolio and • minimize losses. Richard Babbe, Senior Managing Consultant with Public Financial Management (PFM), stated that they are one of the leading public agency Volume 53 - Page 299 INDEX u City of Newport Beach Study Session Minutes April 25, 2000 LIU17�/:1 investment advising firms, have been doing this for over 20 years, manages nationwide, and handles over $10 billion in public funds. He indicated that they manage money exclusively for public agencies because it gives them a better understanding of the City's needs and strengths. He added that they also utilize the resources of 50 to 60 brokers. Like Wells Capital Management, Mr. Babbe reported that PFM is independent, not a broker /dealer, and manages for a fee. Further, they are an independent investment advisor that advocates active management but does not speculate. He stated that they actively look at the market, reposition the portfolios as necessary, and take the necessary action. Mr. Babbe pointed out that the economic environment for the first quarter of 2000 is given on Pages A -1 and A -2 of the Performance Review. He indicated that the yield curves for December 31, 1999 and March 31, 2000 indicate that there were dramatic changes in the U.S. Treasury Yield Curve. The short end was responding to two moves by the Federal reserve to raise interest rates 25 basis points each. As previously indicated, he stated that the longer end is due to the Treasury buying back existing long term debt. He indicated that they also saw a lot of stock market volatility during the quarter. On a total return basis, he stated that this means that U.S. Treasury indices outperformed a portfolio that would be comprised of other types of securities, like the City's portfolio. Mr. Babbe highlighted the Detail of Securities sheet and reported that the • City has a very well- diversified, high quality portfolio. He noted that a predominant portion of the City's portfolio is either in AAA or A -1 securities, which are the highest credit qualities. He stated that, in PFM's approach to managing public funds, they emphasize a balance of risk and reward in focusing on very high quality securities for its clients. He stated that, on the yield to maturity at cost level, the total portfolio at quarter end was performing at 6.31 percent (gross of fees). Further, at a total return basis, he noted that the portfolio performed at 4.4 percent for the quarter on an annualized basis. Council Member Ridgeway requested clarification on the relationship between the two 25 basis point raises by the Federal reserve and the Treasuries decrease. Noting that the Federal reserve is acting on short term rates, Mr. Babbe stated that short term rates increased correspondingly to about 50 basis points over the quarter. On the intermediate and longer term of the yield curves, he indicated that the basis points are responding more to supply and demand in other actions within the economic environment, explaining that this is why those rates declined during the quarter. Council Member Ridgeway asked if there is a corresponding event between the Federal reserve raising the short term rates and the Treasuries long term rates. Mr. Babbe stated that, when talking about short term rates, one is really looking at what is going to be happening in the next six to twelve months. However, over time, you are looking at what their expectations are and what they anticipate to happen in the economy over that longer time period even though higher rates on a short term are expected. • Council Member Thomson requested clarification regarding the accrued interest in the Detail of Securities chart. Mr. Babbe indicated that the amount listed is the interest that is accrued to be paid on that security since Volume 53 - Page 300 • • City of Newport Beach Study Session Minutes April 25, 2000 the last time interest was paid. On coupon securities, interest is paid every six months. He added that, if it has been three months since the last interest payment was paid to the City, the City would have accrued three months worth of interest. He also confirmed that the accrued interest is an unrealized credit. Council Member Thomson expressed concern relative to the market value. Mr. Babbe stated that, if the security was sold at this time based on the market values on the chart, the City would receive the market value (last column of the chart) plus any accrued interest up to the time it settled. This would be how much the City would actually realize in funds transferred to the account. Council Member Thomson asked if coupons and accrued interests are reinvested in the same factor or if they go into another pool of money. Mr. Babbe indicated that it is paid back to the account and would become liquid funds. He stated that those funds become available to the City when they are paid to the custodian account. If PFM receives direction that those fund are to be reinvested, then PFM would reinvest the funds. He confirmed that PFM is fee based, based on the portfolio, but does not include custodian services because the City properly uses a third party custodian (who is accounted for and paid for separately) to hold the securities in its name. Council Member Ridgeway asked if custodial account moneys earn interest. Mr. Babbe stated that a custodian typically will have a very short term money market fund in which interest is paid. He reiterated that PFM is an independent firm and is owned by the members of the firm. 3. SAN JOAQUIN RESERVOIR CAPACITY TRANSFER. Public Works Director Webb stated that Paul Jones, Manager of the Irvine Ranch Water District (IRWD), Greg Heiertz, Director of Engineering and Planning, and Mike Hoolihan, Assistant Director of Engineering and Planning, are present today. He reported that the City owns about 1.18 percent of the capacity rights (36 acre feet of about 3,000 acre feet) within the reservoir which is currently empty. Council Member Debay pointed out that the staff report indicates that Newport Beach and Huntington Beach have not yet agreed to accept IRWD's offer. Mr. Webb clarified that the City has not accepted the offer because it has not been presented to Council until now. He indicated that staff feels it is a good idea to accept the proposal with the conditions listed in the staff report. Mr. Jones added that The Irvine Company, who has a small ownership capacity, is also in the process of reviewing the offer. Regarding Huntington Beach, he stated that the issue has been agendized for their May 1 meeting. Mr. Jones reported that a Power Point presentation will be used to review the history and condition of the San Joaquin Reservoir and to discuss IRWD's proposal to convert the reservoir to a reclaimed water storage facility. • Mr. Heieritz reported that San Joaquin Reservoir is located between the Harbor Ridge development and the currently developing Newport Ridge area, and was started in 1962. He stated that the original 1962 agreement funded the reservoir construction at a capacity of 3,050 acre feet (af). 300 of Volume 53 - Page 301 `II�117�11 San Joaquin Reservoir (89) City of Newport Beach Study Session Minutes April 25, 2000 • went to Metropolitan Water District (MWD) to meet their peak requirements for East Orange County Feeder No. 2, which serves a number of cities including Irvine and Newport Beach. He noted that the reservoir was originally owned by IRWD, but operated by MWD. Mr. Heiritz stated that the current agreements that govern the reservoir are the 1980 San Joaquin Reservoir Trust Storage Agreement (Agreement) and a 1990 memorandum of understanding (MOU) that deals with the covering of the reservoir. The 1980 Agreement was a settlement of legal issues that evolved out of the 1962 agreement surrounding how the reservoir was owned and operated. He reported that MWD was made the trustee of the reservoir in 1980 for the mutual benefit of the seven public agency owners. He pointed out that most important aspects of the Agreement are that it redistributed ownership in proportion to the original lease amount and that the owners created an advisory committee to provide input to MWD on how the reservoir was to be operated. He emphasized that today's issue requires unanimous consent from all the owners in order to make a major change in the reservoir. Regarding ownership distribution, Mr. Heiritz reported that IRWD has the highest ownership at 47.9 percent (1,461 af) and the City has the lowest ownership at 1.18 percent (36 af). He noted that the Mesa Consolidated Water District, Huntington Beach, MWD, Laguna Beach County Water District, The Irvine Company, and South Coast Water District also have • ownership of the reservoir. Mr. Heiritz discussed water quality issues, including the midge fly infestation that caused turbidity problems in the late 1970s, the accidental introduction of the African clawed frog, and contaminations due to the reservoir being uncovered. MWD installed chlorination in the mid -1980s which solved some of the immediate water quality problems. Also by this time, the Department of Health Services was aware of the water quality problems and requested a water quality improvement plan. He reported that the 1990 MOU was primarily a response to the water quality issues. He indicated that options for addressing these issues included covering the reservoir and providing a treatment plant downstream from the reservoir to treat the water. It was determined that the most cost effective approach was to install a floating cover on the reservoir for $17 million. MWD offered to pay the entire cost, with the condition that all the owners sell back half of their capacity so that MWD would become a majority owner of the reservoir. The sales proceed would then be used to fund the owners' portion for the covering. He reported that the 1990 MOU was to become effective when MWD awarded construction contracts; however, these were never awarded and, therefore, the MOU does not affect how the reservoir is operated. In the process of implementing the 1990 MOU, Mr. Heiritz reported that MWD was involved in a lengthy CEQA process to proceed with the covering. MWD subsequently identified the need for additional facilities to make the cover feasible. Unfortunately, in 1995, a major landslide took the reservoir • out of service. He indicated that the cost to restore the reservoir for drinking water storage was estimated at about $32 million. MWD determined that covering the reservoir would not be a cost effective solution since the cost almost doubled. Mr. Heiritz showed photos of the reservoir before and after Volume 53 - Page 302 INDEX J City of Newport Beach Study Session Minutes April 25, 2000 IN the landslide. tie reported that the owners realized that something had to be done about the landslide problem, commissioned a number of studies, and designed a stabilizing buttress. Mr. Heiritz indicated that MWD determined that they do not intend to cover the reservoir, use the reservoir to store drinking water, or build a treatment plant downstream from the reservoir. Today, the three options for the reservoir are to do nothing which will keep the reservoir unusable and out of service; restore the site and allow the reservoir property to revert back to The Irvine Company; or transfer all joint interests in furtherance of IRWD's proposal to use for the seasonal storage of reclaimed water. Regarding The Irvine Company, he reported that the original deed includes a reversionary clause in the event the owners stop using the reservoir for water reservoir purposes. He indicated that the City would be paying 1.18 percent of the $100,000 to $200,000 annual maintenance cost for Option 1, the owners are potentially liable for the restoration costs ($5 million) in Option 2, but there would be no cost to the City in Option 3 and the City would realize $13,000 from the sale of its storage interest. He reported that IRWD started negotiating with the reservoir owners about a year ago and that a number of them believed that the reservoir was actually a liability, not an asset, because of the geotechnical problems and the potential of reversion to The Irvine Company and wanted to get out of the reservoir at any price. The price for storage in the reservoir was negotiated to be $100 /af for the first owners, but noted that Huntington Beach, Mesa Consolidated Water • District, and the City first wanted to look at their historical costs. Based on the book value, minus future liabilities for maintenance, geotechnical problems, etc., he stated that IRWD came up with a value of about $280 1af. However, that value was subsequently negotiated to $360 /af. He reported that the Mesa Consolidated Water District's Board has taken an action to accept $360 /af and Huntington Beach's staff indicated that $360 /af is an acceptable amount. Mr. Hieritz stated that IRWD feels that $360 /af is a fair offer based on the potential liability and its book value, and intends to pay all of the owners the same amount even though $100 /af was negotiated earlier with some of the other owners. Mr. Hieritz reported that IRWD proposes to use the San Joaquin Reservoir for the seasonal storage of reclaimed water (maximize storage during the winter and withdraw water during the summer), with a minimum level of 300 af. He utilized photos to demonstrate the maximum and minimum reservoir levels. In order to not become a nuisance to the surrounding community and to continually maintain good water quality, he stated that they intend to use the existing circulation system at the facility and will install treatment facilities to prevent odors. He noted that IRWD has a long history of operating reclaimed water reservoirs adjacent to residential areas. He reported that the reservoir water will be used to supply reclaimed water to Irvine, Newport Coast, and possibly Newport Beach. Mr. Hieritz believed that the benefits of the proposal are that it eliminates the need for the cover, restores the water view to the surrounding residents, • increases the reclaimed water supply, reduces the need to discharge reclaimed water into the bay, and the City would realize $13,000 from the sale of its storage rights. He reiterated that a significant change such as this requires unanimous approval from all the owners. He reported that IRWD Volume 53 - Page 303 City of Newport Beach Study Session Minutes April 25, 2000 • has already started preparing an environmental analysis and that there will be a kickoff meeting next week. He added that IRWD will also need to complete the transfer agreements to terminate the existing Agreement, design and construct the modifications and downstream facilities, and then begin operations. Mr. Hieritz reported that IRWD hopes to have the agreements approved by June 2000; the environmental analysis completed and the mitigation measures formulated by July 2000; complete the facility designs by January 2001; complete construction by December 2001; begin filling the reservoir by January 2002; and reach full capacity by May 2002. In response to Council Member Debay's questions, Mr. Hieritz stated that they have anticipated that they will incorporate landscaping into the design since it is a feature of most of their facilities and helps soften the impact of these types of water facilities. He also pointed out that the reservoir water will be treated to drinking water standards. He indicated that the water starts out as domestic wastewater /sewage; undergoes a multi -step process to remove the solids, organics, and nutrients; is filtered; chlorinated; and then stored in the reservoir. He clarified that reverse osmosis is generally intended to remove salt from water and would really not be required since the water will be used for irrigation. Mayor Noyes asked if the water from the plant is being pumped up into the reservoir. Mr. Hieritz stated that all the water would essentially be produced at the Michaelson Water Reclamation Plant (sea level) and then • pumped into the reservoir (470 feet above sea level). In response to Council Member Ridgeway's questions, Mr. Hieritz indicated that no one knows how the African clawed frogs got into the reservoir, but there is speculation that they may have been released from UCI. He stated that they have not seen a frog problem in recent years. Further, MWD underwent a major eradication program in 1985, refilled the reservoir, and did not have a subsequent problem with the frog. He hoped that there will not be a reintroduction of the frogs since the reservoir has been empty for over five years. Regarding the midge flies, Mr. Hieritz stated that they are native to this area and expect that they will have some midges on the lake; however, they do not become as much of an issue in this sort of facility because IRWD will not be using the water for drinking. Council Member Thomson thanked Mr. Jones and Mr. Hieritz for the thorough tour they gave him around several reclaimed water reservoirs. He explained that his main concern dealt with the odors that might be emitted from the facility, but noted that he could not smell any odors during his tour. He believed, however, that there will eventually be some smell from sediment falling into the water unless there is circulation or aeration. He indicated that he has asked several times for assurances that there would be aeration within this contract for the future residents of that area. Council Member Thomson took issue with the offer, noting that the MOU values the City's share at $408,000. Further, he emphasized that the City needs to be assured that IRWD will not dump any recycled water into the bay if the City • gives up ownership of the reservoir and allows IRWD to have reclaimed water in the reservoir. Regarding the landslides, he noted that the asphalt caps on the reservoir are held down by the water inside the reservoir, and that landslides occur when reservoirs are emptied. Council Member Volume 53 - Page 304 INDEX • City of Newport Beach Study Session Minutes April 25, 2000 Thomson concluded by stating that real studies and discussions need to be INDEX conducted and that the City needs to receive assurances in the agreement that there will be no air quality problems, that the City is being paid the correct amount, and that no recycled water will ever enter the bay. In response to Mayor Pro Tem Adams' question, Mr. Hieritz indicated that IRWD has begun the environmental impact analysis and intends to incorporate the City's comments into the document. He stated that they hope to circulate a draft mitigated negative declaration sometime in June, receive comments, incorporate those comments, and adopt a document. John Skinner, 1724 Highland Drive, reported that IRWD's system was designed to be a closed system in 1960 and that all the water was to be used for reclamation. As expansion occurred, storage became more problematic because there was no market for it. He expressed concern that IRWD plans to do a plant expansion from 15 million gallons a day to 27 million gallons a day, which will cause a problem for winter storage. He reemphasized that there will not be a need to discharge into the bay since they have storage in two reservoirs, Green Acres, and possibly the San Joaquin Reservoir. He believed that the City should take a stand on this issue and complimented Council Member Thomson for bringing this point forward. Council Member Glover agreed with Mr. Skinner that the City should be in a position to have no discharge enter the bay and also concurred with Council • Member Debay that IRWD should work with the citizens around the reservoir on landscaping. Regarding Mayor Noyes' question relative to notification about the environmental document, Mr. Webb stated that IRWD is not required to notify residents 300 feet from the facility. The notification would be a general publication in the newspaper and then IRWD would conduct public meetings to receive comments. Mr. Hieritz stated that IRWD welcomes public involvement, will conduct a general notice, and will also mail notices to property owners within 1,000 feet of the reservoir. Nancy Skinner, 1724 Highland Drive, expressed faith that IRWD can keep the odors down and the midge flies and frogs under control; however, agreed that there is never a need to discharge into the bay. Council Member Ridgeway stated that he supports what Council Member Thomson, Mayor Noyes, and Council Member Glover have stated. He believed that there is probably a fairly clear direction for IRWD to work with staff and take the comments into consideration. Mayor Noyes believed that, when he first heard about this proposal, the no discharge factor was a prerequisite for even starting discussions. 4. JOINT MEETING WITH THE LIBRARY BOARD OF TRUSTEES. Library Board of Trustees Library Board of Trustee Chair Wood stated that the library strategic (24) • planning process, entitled "Commitment to Excellence: Library Services 2000 - 2005," consists of 50 community members and a professional facilitator that focuses on what the library would like to look like 10 years from now. Volume 53 - Page 305 • City of Newport Beach Study Session Minutes April 25, 2000 WNPOWN He reported that the members represent the youth, Newport Beach Fubhc Library Foundation, Friends of the Library, City government, Library Board of Trustees, Newport -Mesa School District, Coastline College, Chamber of Commerce, Daily Pilot, library users, and those that do not frequent the library, and have conducted five meetings which have each lasted 2.5 to 3 hours. He indicated that the areas the group is working on are new and increased funding sources, increased technology services and resources, library's role as a cultural center, physical facilities including the branches, and community awareness. When the meetings are concluded, he stated that they hope to have a report that will be presented to, and hopefully accepted by, the Trustees so that a working goal will be established for the next five years. Library Board of Trustees Vice Chair Ryan discussed expanded services to the youth, stating that a crisis exists since young people are not reading. She indicated that reading enhances the powers of concentration, thinking skills, and ability to analyze; develops creativity; and disseminates knowledge. She indicated that it is everyone's job to encourage teens to read. She reported that the library is bringing back teen services, has two young adult librarians in the teen center, and the teen reading program visits high school classes to encourage reading. In response to Council questions, Ms. Ryan stated that teens no longer spend hours at the library since they utilize the internet more than ever. • Additionally, teens find reading boring, but believed that they would get hooked on reading if they find one author they liked. She stated that there will be a population of uneducated adults in 20 to 30 years if the youth do not exercise their minds and believed that this is a social issue that may take a long time to change. Council Member Thomson stated that his 13 year old enjoys reading condensed versions of novels and believed that this will probably lead him to read full sized novels. He recommended that the library consider purchasing condensed versions of novels. Regarding promoting community awareness of the library, Council Member Debay suggested that the library invite homeowner associations to conduct their monthly board meetings at the library. Council Member Thomson asked about library security, non - resident use, and parking. Mr. Wood stated that the library does rent out space to assist with the revenue stream; however, finding a parking space is sometimes difficult. Council Member Thomson expressed concern relative to financial institutions renting space and then advertising that their event is "City sponsored." City Manager Bludau indicated that how income is being generated is discussed in Council Policy I -21, but can be reviewed. Library Board of Trustees Member Saar- Kranzley stated that everyone is proud of the library and that they have received a lot of recognition. She • emphasized that they find out what customers think about the library and determine their needs by telephoning library cardholders during study sessions and by distributing a survey. She stated that they always incorporate the results and feedback into their plans, study sessions, and Volume 53 - Page 306 City of Newport Beach Study Session Minutes April 25, 2000 • staff programs. She reported that some of the responses showed that people are not aware of some of the programs the library offers. Ms. Saar - Kranzley indicated that some of the issues that need to be addressed over time deal with parking and the difficulty in finding materials at the Central Library. She stated that they are looking ahead to ensure that the library is relevant to the communty five years from now since the world is changing, the internet is making more things accessible, and people are being more visually stimulated than ever before. Library Board of Trustees Member Bartolic read a portion of a brochure, entitled "The Center for the Book ", and reported that the Newport Beach Public Library was chosen as one of the sites for the California Center for the Book. The program hopes to heighten public interest in books and printing, promote reading and literacy, and encourage the interdisciplinary study of print and the electronic culture. He indicated that this is a great honor for the library because it is only bestowed on just a handful of public libraries in the nation. Regarding special collections and events, Mr. Bartolic stated that the Building Excise Tax for last two years ($100,000 a year) has been used to purchase American history and arts collections, and that they intend to purchase a literature collection with next year's allocation. Mr. Wood noted that Council has yet to budget this year's Excise Tax. Mr. Bartolic added that the library also has a nautical collection. Discussion ensued relative to • the process for picking and purchasing collections. Library Board of Trustees Member Knox thanked the Martin Witte family and others for their assistance in reaching the third year of the Distinguished Speakers Lecture Series and the Distinguished Panel Discussion Series, which are joint efforts by the Newport Beach Public Library and the Newport Beach Public Library Foundation. He reported that three well attended and interesting Panel Series programs were presented last fall (Tale of Three Cities, Law and Crime in Orange County, and Eye on Orange County Education). He stated that this year's Distinguished Speakers Lecture Series featured Susan Faludi and Orville Schell, and reported that Tom Brokaw is the speaker on April 28 and Jay Gould will be speaking on May 19. Mr. Knox stated that they added a Saturday afternoon presentation at a greatly reduced ticket price since Friday night presentations have been sold out two years straight. He reported that the committee's budget was about $90,000 and that they are financially secure due to sponsor assistance. Mr. Knox reported that Tom Brokaw has donated back $10,000 of his honorarium to the library but will be donating the other $10,000 to two different charities. He indicated that the Trustees voted to use the funds to bring the library into the 218E Century by offering 500 a -books at an inexpensive cost. He assured everyone that they still believe in the bound book, but that this gives another valuable choice to the community. In response to Council Member Debay's question, Mr. Knox indicated that they will be showing a video of Tom Brokaw on Saturday because he cannot attend, but arrangements have also been made for Jess Marlow, Stan Chambers, and Vikki Vargas to be in attendance at Saturday's series. Volume 53 - Page 307 INDEX • t City of Newport Beach Study Session Minutes April 25, 2000 Regarding video taping the other speakers, he believed that the writers would probably want more money. Jene Witte, Distinguished Speaker Series Underwriter, stated that the Witte family is proud of the Distinguished Speaker Series and grateful that they could honor Martin Witte. However, she stated that the committee was led to believe that Tom Brokaw would waive all of his honorarium or return it to the committee, and took issue that $10,000 of the honorarium was going to two charities outside the City. She asked who is going to tell the major contributors that they were not going to get this money back since they already budgeted it into next year's budget. Further, she noted that the committee raised the money and was not made aware it was going to be used to purchase e- books, believing this would be an improper use of funds. Mr. Knox reported that the honorarium for someone like Tom Brokaw is normally between $50,000 and $100,000. Adele Mann, Friends of the Library, announced that the library book store is always in need of used books and reported that the store made over $12,000 in March. PUBLIC COMMENTS - None. ADJOURNMENT - 6:25 p.m. The agenda for the Study Session was posted on April 19, 2000, at 2:20 p.m. on the City Hall Bulletin Board located outside of the City of Newport Beach Administration Building. City Clerk Recording Secretary O� Ma or Volume 53 - Page 308 INDEX