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HomeMy WebLinkAbout08 - Changes to the Fiscal Sustainability Plan and Council Policy F-28, Facilities Financial Planning ProgramCITY OF NEWPORT BEACH - City Council Staff Report June 09, 2015 Agenda Item No. 8 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dan Matusiewicz, Finance Director— (949) 644 -3123, dmatusiewicz @newportbeachca.gov PREPARED BY: Steve Montano, Deputy Finance Director PHONE: (949) 644 -3124 TITLE: Changes to the Fiscal Sustainability Plan and Council Policy F -28, Facilities Financial Planning Program ABSTRACT: The Finance Committee met on May 11, 2015, and recommended changes to the Fiscal Sustainability Plan to ensure that infrastructure funding is made an explicit priority. The augmentation to the Fiscal Sustainability Plan relating to infrastructure was presented to the City Council on May 26, 2015, without an accompanying resolution and the item was continued. Staff also recommends a change to policy F -28 that will provide an annual General Fund contribution floor of 3% based on the total General Fund revenue budget as opposed to the General Fund operating (expenditure) budget. Staff believes that FFPP contributions based on the General Fund's revenue budget is a better measure of affordability and also allows staff to calculate the amount of the annual FFPP contribution sooner and with greater certainty. RECOMMENDATION: a) Adopt Resolution No. 2015 -47, A Resolution of the City Council of the City of Newport Beach, California, Amending the Fiscal Sustainability Plan for Newport Beach City Government; and b) Adopt Resolution No. 2015 -48, A Resolution of the City Council of the City of Newport Beach, California, Amending City Council Policy F -28 Regarding the Facilities Financial Planning Program. FUNDING REQUIREMENTS: 01=0 DISCUSSION: Fiscal Sustainability Plan — Addition of New Infrastructure Element The City of Newport Beach has remained a fiscally responsible municipality since its inception in 1906, carefully balancing its budget year -to -year despite changes in the regional and national economy. The Great Recession that began in December 2007 and ended in June 2009 impacted the City's General Fund operations in a significant manner, causing reductions in sales tax and hotel bed tax revenue, among other s sources of revenue. On January 12, 2010, the City Council adopted fifteen (15) elements of a Fiscal Sustainability Plan and directed that the Plan be the policy of the City Council going forward into 2010 and beyond. The Plan has not been significantly changed since it was adopted over five years ago. While the City and the region have returned to a period of economic growth, the City is cognizant of its responsibility to continuously improve the organization and its services to maximize efficiency and cost - effectiveness. The Finance Committee met on May 11, 2015, and recommended the augmentation of the Fiscal Sustainability Plan to ensure that infrastructure funding is made an explicit priority. Maintaining a high - quality natural and physical environment by creating aesthetically pleasing places to live, work, recreate, and visit shall remain a key goal of the City. The augmentation to the Fiscal Sustainability Plan relating to infrastructure was presented to the City Council on May 26, 2015, without an accompanying resolution. The item was continued and it is recommended that the City Council approve the resolution in Attachment A amending the Fiscal Sustainability Plan and as indicated in the redlined version in Attachment B. Revision to Council Policy F -28, Facilities Financial Planning Program (FFPP) and Revision to Associated Fiscal Sustainability Plan Element Recognizing that critical facilities need to be replaced in perpetuity, the City strives to provide a consistent cash funding source to maintain its commitment to the FFPP while simultaneously adhering to the affordability ratios specified in the debt policy. The proposed change to policy F -28 provides an annual General Fund contribution floor of 3% based on the total General Fund revenue budget as opposed to the General Fund operating (expenditure) budget. The amount of projected revenue that is available for funding programs in any given year is closely tied to the vitality of the local economy. Staff believes that FFPP contributions based on the General Fund's revenue budget is a better measure of affordability. In addition, since there are far fewer adjustments to revenues at the time of budget adoption when compared to expenditures, staff will be able to calculate the amount of the annual FFPP contribution sooner and with greater certainty. It is recommended that the City Council approve the resolution in Attachment C amending the Policy F -28. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: Notice was provided according to the Brown Act. ATTACHMENTS: Description Attachment A - Resolution Adding New Element to Fiscal Sustainability Plan Attachment B - Redlined Version of the Amended Fiscal Sustainability Plan Attachment C - Resolution Amending City Council Policy F -28 Facilities Financial Planning Program LIM ATTACHMENT A Resolution Adding New Element to Fiscal Sustainability Plan 8 -3 RESOLUTION NO. 2015-_ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, AMENDING THE FISCAL SUSTAINABILITY PLAN FOR NEWPORT BEACH CITY GOVERNMENT WHEREAS, the City of Newport Beach ( "City ") has remained a fiscally responsible municipality since its inception in 1906, carefully balancing its budget year - to -year despite changes in the regional and national economy; WHEREAS, the City and the region have slowly returned to a period of economic growth, the City is cognizant of its responsibility to continuously improve the organization and its services to maximize efficiency and cost - effectiveness; WHEREAS, as the region may see new economic growth, the City faces significant and costly obligations in the future, including rapid increases in retirement costs and the maintenance, repair, and replacement of City facilities via the Facilities Financial Planning Program and the City's Capital Improvement Program; WHEREAS, in 2010 the City Council adopted the fifteen (15) elements of a Fiscal Sustainability Plan ( "Plan ") and directed that the Plan be the policy of the City Council going forward into 2010 and beyond; WHEREAS, contemporaneous with the amendment to the Fiscal Sustainability Plan, the City Council is amending City Council Policy F -28 to require an annual contribution from the General Fund to the Facilities Financial Planning Reserve Fund to reflect a three percent (3 %) minimum contribution of the Total General Fund Revenue Budget rather than the Total General Fund Operating Budget; and WHEREAS, maintaining a high - quality natural and physical environment by creating aesthetically pleasing places to live, work, recreate, and visit shall remain a key goal of the City. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City Council of the City of Newport Beach hereby adds Element 3 to the City's Fiscal Sustainability Plan to ensure that infrastructure funding is made an explicit priority and amends Element 6 to maintain consistency with the changes to Council Policy F -28. The following elements of the Fiscal Sustainability Plan shall be amended to read: ELEMENTS OF THE CITY'S FISCAL SUSTAINABILITY PLAN LI � 1. The City will proactively seek to protect and expand its tax base by encouraging a healthy underlying local economy. 2. The City will work to enhance and protect the property values of all Newport Beach residents and property owners. 3. The City will work to enhance and protect the City's quality of life through strategic and sustained investment in quality capital infrastructure improvements that are both long lasting and fiscally responsible. 4. The City will encourage shopping, dining, and visiting at Newport Beach stores, restaurants, and hotels. 5. The City will establish and maintain appropriate cash reserves. 6. The City will manage its Facilities Financial Planning Reserve so that General Fund contributions to the reserve shall not be less than three percent (3 %) of the total General Fund Revenue Budget. 7. City revenue performance will be reviewed no less than quarterly and appropriate budget adjustments will be made in advance of the end of a budget year if revenue performance is not meeting projections. 8. The City will initiate a "results -based budgeting" approach that allows the public and the City Council to prioritize City expenditures strategically rather than simply adjusting legacy expenditures to reflect inflation. 9. The City will implement a Performance Measurement/Management Strategy as part of an ongoing effort to ensure high - quality and efficient performance. 10.The City will consider competitive contracting of services and equipment when appropriate and where clear, cost - effective alternatives exist. 11. The City will make it a priority to be energy efficient in its provision of public services. 12.The City will establish appropriate cost - recovery targets for its fee structure and will annually adjust its fee structure to ensure that the fees continue to meet cost recovery targets. 13.The City will oppose efforts of the State and County governments to divert revenues from the City or to increase the unfunded service mandate of City taxpayers. 14. The City will work in partnership with its employees to ensure fair compensation and that costs related to pension and other benefits are appropriately allocated between employer and employees. 15. The City will vigorously defend itself and its taxpayers against frivolous lawsuits. 16. The City will seek additional intergovernmental funding and grants, with a priority on funding one -time capital projects. Grant - funded projects that require multi -year support will be reviewed by the Finance Committee. Section 2: All prior versions of the City's Fiscal Sustainability Plan that are in conflict with the amendments adopted by this resolution are hereby repealed. Section 3: If any section, subsection, sentence, clause or phrase of this resolution is for any reason held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution and each section, :ID subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses and phrases be declared unconstitutional. Section 4: The recitals provided in this resolution are true and correct and are incorporated into the substantive portion of this resolution. Section 5: The City Council finds the adoption of this resolution and the amendment of the City's Fiscal Sustainability Plan is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Section 6: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting this resolution. ADOPTED this 9th day of June, 2015. Edward D. Selich Mayor U1111111=1 Leilani I. Brown, City Clerk :3. ATTACHMENT B Redlined Version of the Amended Fiscal Sustainability Plan B-7 Formatted: Centered 19 POINT FISCAL SUSTAINABILITY PLAN for Newport Beach City Government 1. The City will proactively seek to protect and expand its tax base by encouraging a Formatted: ]ustlfied healthy underlying local economy. 2. The City will work to enhance and protect the property values of all Newport Beach residents and property owners. 3. The City will work to enhance and protect the City's quality of life through strategic and sustained investment in quality capital infrastructure improvements that are both long lasting and fiscally responsible. 5,4. The City will encourage shopping, dining, and visiting at Newport Beach stores, restaurants, and hotels. 45. The City will establish and maintain appropriate cash reserves. 5,6. The City will manage its Facilities Financial Planning Reserve so that General Fund contributions to the reserve shall not be less than three percent j30 %) of the total General Fund Gperatiag- Revenue Budget. 5,7. City revenue performance will be reviewed no less than quarterly and appropriate budget adjustments will be made in advance of the end of a budget year if revenue performance is not meeting projections. 7—.8. The City will initiate a 'results -based budgeting" approach that allows the public and the City Council to prioritize City expenditures strategically rather than simply adjusting legacy expenditures to reflect inflation. 5,9. The City will implement a Performance Measurement/Management Strategy as part of an ongoing effort to ensure high - quality and efficient performance. &10. The City will consider competitive contracting of services and equipment when appropriate and where clear, cost - effective alternatives exist. 40-.11. The City will make it a priority to be energy efficient in its provision of public services. 412. The City will establish appropriate cost - recovery targets for its fee structure and will annually adjust its fee structure to ensure that the fees continue to meet cost recovery targets. 413. The City will oppose efforts of the State and County governments to divert revenues from the City or to increase the unfunded service mandate of City taxpayers. 45,14. The City will work in partnership with its employees to ensure fair compensation and that costs related to pension and other benefits are appropriately allocated between employer and employees. 4415. The City will vigorously defend itself and its taxpayers against frivolous lawsuits. 45,16. The City will seek additional intergovernmental funding and grants, with a priority on funding one -time capital projects. Grant - funded projects that require multi -year support will be reviewed by the Finance Committee. Previously Amended by City Council Resolution 2013 -43, May 14, 2013 M ATTACHMENT C Resolution Amending City Council Policy F -28, Facilities Financial Planning Program 8 -9 RESOLUTION NO. 2015-_ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, AMENDING CITY COUNCIL POLICY F -28 REGARDING THE FACILITIES FINANCIAL PLANNING PROGRAM WHEREAS, the City Of Newport Beach ( "City ") has established a long term plan for replacement of aging General Fund supported facilities and has established City Council Policy F -28 for the administration of the City's Facilities Financial Planning Program ( "Program "); WHEREAS, the primary focus of the Program is the replacement or major renovation of existing physical infrastructure; WHEREAS, recognizing that critical physical infrastructure needs to be replaced in perpetuity, the City strives to provide a consistent cash funding source to maintain its commitment to the Program while simultaneously adhering to the affordability ratios specified in the City's debt policy; and WHEREAS, the amount of projected revenue that is available in the General Fund for funding programs in any given year is an appropriate basis for determining the annual contribution level to the Program. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City Council of the City of Newport Beach hereby amends City Council Policy F -28 to provide that General Fund annual contributions to the Facilities Financial Planning Reserve Fund shall reflect a three percent (3 %) minimum contribution of the Total General Fund Revenue Budget rather than the Total General Fund Operating Budget as shown on the attached redline policy attached to this resolution, and incorporated by reference herein (Exhibit 1); Section 2: All prior versions of City Council Policy F -28 that are in conflict with the amendments adopted by this resolution are hereby repealed. Section 3: If any section, subsection, sentence, clause or phrase of this resolution is for any reason held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses and phrases be declared unconstitutional. :dO Section 4: The recitals provided in this resolution are true and correct and are incorporated into the substantive portion of this resolution. Section 5: Except as expressly modified in this resolution, all other City Council Policies, sections, subsections, sentences, terms, clauses and phrases set forth in the Council Policy Manual shall remain unchanged and shall be in full force and effect. Section 6: The City Council finds the adoption of this resolution and the amendment of City Council Policy F -28 is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Section 7: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting this resolution. ADOPTED this 9th day of June, 2015. Edward D. Selich Mayor r_11Ir1 =1 Leilani I. Brown, City Clerk Attachment: Exhibit 1- Amended City Council Policy F -28 M EXHIBIT 1 Redlined Version of City Council Policy F -28, Facilities Financial Planning Program 8 -12 FACILITIES FINANCIAL PLANNING PROGRAM II'iIMMMJ F -28 To establish the policy for the administration of the City of Newport Beach's "Ci " Facilities Financial Planning Program ( "Program "). DISCUSSION In addition to the annual Capital Improvement Program ( "CIP" ), the City has established a long term plan for replacement of aging General Fund supported facilities. The primary focus of the Pprogram is the replacement or major renovation of existing physical infrastructure. The addition of new facilities is also a goal of the !!Program. The emphasis is on structures and adjacent grounds, rather than transportation, environmental, or other projects funded either in whole or in part by the General Fund. OBJECTIVES A. To insure that a long -term program addressing large, non - recurring projects for replacement of facilities is addressed as part of the budget process each year. B. To insure that development fees, proceeds derived from redevelopment or redeployment of existing land and capital assets owned by the City, and other non - recurring revenues are dedicated to the replacement of infrastructure facilities, rather than ongoing operating expenses. C. To provide a consistent, level funding plan that will minimize the 'peaks_ and valleys' in General Fund support levels for elements of the Pprogram. D. To insure that projects are properly prioritized and scheduled, taking into consideration the relative age, condition, and functional viability of current facilities; pairing of projects where prudent; and cost implications of immediate projects for the overall long -term Pprogram. E. Budgeting the cost of facilities while those facilities are in use is consistent with good government management practices. However, creating a legacy of 1 LM F -28 excessive fixed costs for debt service is not. Therefore one of the objectives of this P_program is to insure that future generations will not be required to carry a disproportionate fiscal burden for previously completed projects. SOURCES AND USES OF FUNDS Funding for the Pprogram comes from development fees, proceeds derived from redevelopment or redeployment of existing land and capital assets owned by the City, contributions from individuals and organizations within the community, annual budget allocations from the General Fund, net proceeds of Certificates of Participation or other financing instruments, and investment earnings on temporarily idle funds. Program funds are used for actual site acquisition, design, construction, and directly related costs; as well as debt service expenses. POLICY AND PROCEDURE A. Each year, as part of the budget process, staff shall prepare an update of the Facilities Financial Planning Tool for review, modification, and approval by the City Council. B. Unless otherwise specified in individual development agreements, other governing documents, or as otherwise specifically directed by the City Council, all development fees received by the City will be dedicated to the Facilities Financial Planning Reserve fund. C. Prudent assumptions regarding revenue and expenditure growth, inflation, and all relevant factors will be included in each year's update of the Facilities Financial Planning Tool. D. General Fund contributions to the Program shall not be less than three percent (30 %) of the total General Fund 9per -a4a Revenue Budget. If there is a shortfall in General Fund revenue due to a decline in economic activity and it is necessary to reduce expenditures, General Fund contributions to the Facilities Financial Planning Program can be temporarily modified to maintain contributions under the three percent (3 %) threshold. 2 t3Ll IM.1 E. The financing duration for any borrowed funds shall not exceed thirty 30) years or the projected life of the new facility, whichever is less. F. The Facilities Financial Planning Tool may be amended by City Council action in the event of a natural disaster or financial crisis. Adopted - August 11, 2009 Amended - May 14, 2013 Amended - Tune 9, 2015 LM