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HomeMy WebLinkAbout23 - FY 2016-17 Budget Adoption; City Budget Hearing; Budget Adoption; Recommendations from the Finance Committee; Budget Checklist Items; Other Financial Policy RecommendationsJune 14, 2016 Agenda Item No. 23 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dave Kiff, City Manager dkiffta-newportbeachca.gov 949-644-3001 PREPARED BY: Dan Matusiewicz, Finance Director dmatusiewicz()-newportbeachca.gov PHONE: 949-644-3126 TITLE: Resolution No. 2016-77: Fiscal Year 2016-17 Budget Adoption; City Budget Hearing; Budget Adoption; Recommendations from the Finance Committee; Budget Checklist Items; Other Financial Policy Recommendations ABSTRACT: The City's Charter requires the City Council to adopt an annual budget by resolution each year prior to June 30th. RECOMMENDATION: a) Conduct a public hearing on the City Manager's Proposed Budget for Fiscal Year 2016-17. After taking public input, discuss Council member recommendations for additions, deletions, or modifications to proposed budget and budget checklist; b) Determine that the action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because it will not result in a physical change to the environment, directly or indirectly; c) Conduct a straw vote on the "checklist" of budget revisions, including those items added, changed or removed during the public hearing. Based on the straw vote, checklist items approved will be included in the City's Fiscal Year 2016-17 Approved Budget; d) Consider and, if appropriate, approve the Finance Committee's recommendations regarding eight (8) policy or program questions raised by City Council Members at the May 24, 2016 Joint Meeting; and e) Adopt Resolution No. 2016-77, A Resolution of the City Council of the City of Newport Beach, California, Adopting the Budget for the 2096-97 Fiscal Year, as amended by Items 1 and 3 above. 23-1 FY 2016-17 Budget Adoption June 14, 2016 Page 2 FUNDING REQUIREMENTS: The City Council, upon adoption of the Budget Checklist as indicated on Attachment A and the originally proposed FY 2016-17 Budget Resolution as indicated on Attachment B, will be authorizing the total appropriations for Fiscal Year 2016-17. Projected revenues are expected to balance the proposed operating budget including the attached Budget Checklist. DISCUSSION: Pursuant to Section 1102 of the Newport Beach City Charter, and Council Policy F-3 titled Budget Adoption and Administration, the Proposed Budget for the 2016-17 Fiscal Year was first submitted to the City Council on April 28, 2016, and made available to the public on April 29, 2016. The Finance Committee met to review the budget on April 28, 2016, May 4, 2016, May 12, 2016, and June 2, 2016. A joint meeting of the Finance Committee and the City Council was held on May 24, 2016, to review the proposed budget. Budget Highlights. The annual budget serves as the foundation for financial planning and control and allows the City Council to prioritize expenditures in alignment with community values. The budget as submitted is reflective of: A strong local revenue base, from taxes (sales and use, property, hotel bed, business license, and more), rents from income properties, and various fees and charges; Healthy levels of reserves, including a contingency reserve of $47.5M by June 30, 2017, an amount equal to 25% of the City's general fund operations; Substantial use of competitive regional grant funding, especially for road projects and water quality efforts; A sound debt position, with 2010's Certificates of Participation running at less than 4.2% of general fund revenues; Significant contributions towards pension costs from our employees, with over $9M of the $40M Cal -PERS payments (22.5%) being met through employee payroll deductions. Employees are now paying between 10.9% and 14.6% of salary towards their pensions. Additional capital investment in Balboa Island's seawalls, our harbor, and roads. A significant FY 2014-15 Year End Surplus (about $14.2M), which is proposed to be allocated generally 1/2 to one-time neighborhood enhancements and 1/2 to longer term obligations, such as pensions and a shortfall in our Wastewater Enterprise Fund. Importantly, about 61% of the surplus ($8.6M) was generated by savings/expenditure reductions by departments. A slightly smaller workforce, where six (6) full-time positions would be attritioned out of the workforce if this budget is adopted (FY 2015-16 FTs were 730, FY 2016-17 proposed FTs are 724). We have not had this low a number of full-time employees since 2001-02. While the City relies heavily on part-time staff members to provide many projects and programs, there is a slight reduction in these hours as well, going from 136.83 Full -Time Equivalents (FTEs) to 129.76 FTEs (in other words, if the hours worked by 23-2 FY 2016-17 Budget Adoption June 14, 2016 Page 3 our hundreds of part-time employees were combined into 40 -hour positions, there would be 129.76 full time equivalents). Budget Challenges. We have been clear in describing some of the issues facing the City and community in the medium and long term. These primarily surround the unfunded pension obligations for the City's current and retired workforce, though a smaller portion of concern should also be with Other Post -Employment Benefits (OPEB) such as retiree health care. In short: The City's unfunded pension obligation may reach $300 million by June 30, 2016 (though this is highly dynamic and dependent in large part on the equities market's performance). A future economic downturn, or changes in mortality assumptions for our workforce, could significantly change the liability — for the worse. Legislators in Sacramento do not seem to have the same concern we (and many cities) have as we look to the future — a future with a larger and larger amount of city resources spent on retirement costs. As a result, chances for reform seem low right now, even while the best time to make careful reform is right now. We expect these retirement costs to go from $40M in this FY (with $91VI of that paid by employees) to $45.5M/yr by 2021 and $52.8M/yr by 2026 — and this assumes no dramatic changes as in bullet point #2. These expenses will start to crowd out important investment in infrastructure (such as sea wall repair and maintenance, roads, facility upkeep, more), in Newport Beach and in many other cities unless the Cal -PERS system has additional reforms. This is not a signal to panic. Instead, it is a warning sign to work collaboratively and aggressively on state reform of the Cal -PERS pension system. Dollars and Cents. The FY 2016-17 Proposed Budget for all funds is $298 million. The operating portion of that amounts to $270.7 million, which represents a 3.9%, or $10.4 million, increase over the prior year amended budget. Summary of the FY 2016-17 Proposed Budget All Funds (Millions) Operating Budget $ 270.7 New Capital Improvement Projects (CIPs) $ 27.3 New Appropriations $ 298.0 General Fund The General Fund is the key operating fund within the City's budget. The General Fund accounts for discretionary revenues and expenditures, while all other funds are used to account for enterprise activities, internal service activities, major capital improvement projects, and special revenue sources that are restricted for specific purposes. The General Fund budget as submitted is balanced and includes $199.2 million in operating revenues, $190.1 million in operating expenditures and $5.6 million in new General Fund Capital Improvement Fund expenditures. Appropriations for operating 23-3 FY 2016-17 Budget Adoption June 14, 2016 Page 4 expenditures are balanced in relation to projected revenue sources and will not over - rely on one-time revenue sources or reserves. A Summary of the FY 2016-17 Proposed General Fund budget follows. Summary of the FY 2016-17 Proposed Budget General Fund (millions) Revenue Estimated Operating Revenue $199.2 Total Revenues $199.2 Expenditures Proposed Operating Expenditures $190.1 Proposed New CIP Appropriations 5.6 Total Expenditures $195.7 Plus Transfers In ME Less Transfers Out (10.0) Less Planned Use of Reserves (2.5) Net Surplus $0.0 Revenues The General Fund operating revenues for FY 2016-17 are projected at $199.2 million. This represents a 2.6% increase from the FY 2015-16 revised budget due largely to favorable economic trends impacting the General Fund's top three revenue sources (Property Tax, Sales Tax, and Transient Occupancy Taxes). We're projecting that property taxes will increase 5.0%, Sales Taxes will decrease 2.0%1, and Transient Occupancy Taxes (TOT) will increase 5.0% over our FY 2015-16 revised revenue estimates. Revenue projections are, as always, based on conservative assumptions to minimize adverse deviation from expected results and to assure the City has adequate financial resources to meet obligations and complete the programs approved by the City Council. Operating Expenditures The total proposed General Fund operating expenditures amount to $190.1 million. This represents a $7.1 million, or 3.9%, increase from the FY 2015-16 revised budget and includes increases and decreases. Decreases include $2.0 million for the elimination of prior year one-time costs related to one-time grants and funds carried over from the prior year that can be removed from the budget as planned. The majority of expenditure increases are the result of higher salary, benefit and pension costs. Salaries and benefits are increasing $4.6 million as the result of negotiated salary and benefits changes, (including cost of living adjustments and merit Approximately $2.0 million of the projected decrease in sales tax receipts from the prior fiscal year is due to a one-time true -up payment from the state. Net of this one-time prior year receipt, the budget assumes sales taxes will grow 3.4%. 23-4 FY 2016-17 Budget Adoption June 14, 2016 Page 5 increases) as well as higher contributions toward health/dental/vision benefits. These increases are needed to keep our compensation levels at the median of the comparable local government agency market. The City's unfunded pension liability payment increased $3.0 million due largely to using a partial "Fresh Start" payment approach. This is similar to making additional mortgage payments that will reduce long-term interest cost and retire the debt faster. General Fund operating expenditures increased $1.5 million due to new programs or enhancements to existing programs (some discussed below) and the escalation of contractual service costs citywide. The Growth of Salary and Benefit Expenditures The most significant asset the City has in serving our community is our employees. Local government services are primarily delivered by employees whether they are police officers, equipment operators, librarians, or planners. It should not be surprising; therefore that 69% of the FY 2016-17 General Fund Proposed Budget is attributable to salaries and benefits. As a result of recent labor negotiations, the City will be increasing employee salaries reflecting cost of living and market driven increases aimed at placing Newport Beach employee compensation at the median of comparable California jurisdictions. The City's unfunded pension liability (UL) as of June 30, 2014 (the "date of value" for our most up to date actuarial valuation from the California Public Employees Retirement System or "PERS") is $253 million on a market value basis. Today, Newport Beach has done all that we know the law allows in terms of pension reform, and done so primarily through negotiations. We have: Reduced the overall amount of staff at the City (from 833 full-time positions in FY 2009-10 to 724 in the proposed FY 2016-17 budget). This does not affect the unfunded liability but it can slow the growth of additional pension liability from accruing. Agreed with our bargaining units to implement second tier (lower) retirement benefit formulas for future employees (2%@60 for Miscellaneous, 2%@50 for Fire and Lifeguards, and 3%@55 for Police), and changed the single highest year calculation to the highest three years for determining the actual pension benefit amount. Negotiated so that employees are now or will contribute between 18% and 38% of the City's total pension cost, which includes unfunded pension costs associated with the prior service of active and retired employees. Employees pay between 46% and 92% of their estimated prospective pension benefit (also known as the "normal" cost of their pension); Governor Brown has mandated that employees pay 50% of the normal cost by 2018. Each increase must be negotiated under California law, and payroll deductions range between 10.9% and 14.6% of employee salary. Finally, the budget further addresses the unfunded pension liability by investing more dollars earlier with a goal to fully fund the current unfunded portion of the pension plan by a date certain. 23-5 FY 2016-17 Budget Adoption June 14, 2016 Page 6 Imposition of more significant contributions or pay reductions on City staff has consequences in terms of attracting and retaining good staff. Outsourcing can help, but it doesn't remove the vested pension rights of a city employee who might be replaced by a private provider. A 401 K -style plan for new hires is a possible next step, but PERS and the Legislature need to allow us to do that. As we noted above, further statewide reform is essential — in large part because it levels the playing field between agencies that compete against each other for employees. Capital Improvement Expenditures The CIP serves as a funding plan for public improvements, special projects and many ongoing maintenance programs. Projects in the CIP include construction and rehabilitation of arterial highways, local streets, storm drains, bay and beach improvements, parks and buildings, and water and wastewater improvements. The FY 2016-17 CIP budget consists of over $27 million in new appropriations ($5.6 million of which comes from the General Fund) and an estimated $37.4 million in re -budgeted funds to be carried forward from the current fiscal year for a total CIP budget of just over $64.7 million. Specific project plans for this budget year are discussed in more detail in the CIP budget volume. Transfers Inter -fund Transfers or "transfers -in" total $8.9 million and include resources transferred from other funds, which are used to offset administrative and maintenance costs necessary to conduct particular projects or programs within the General Fund. The majority of transfers -in is from the Tidelands Fund to offset costs for activities, programs, or functions whose primary purpose benefit the Tidelands, such as Harbor Resources, Police, Fire/EMS, and lifeguarding. Remember that Newport Beach's Tidelands include the ocean beaches, and the visitor use here is high, adding revenue but also causing significant expense in terms of police, lifeguard, and emergency medical response. In addition to departmental operating expenditures, "transfers -out" total $10.0 million and include $8.5 million to the Facilities Financial Planning Reserve, $1.0 million to the Facility Maintenance Reserve, and $0.5 million to the Equipment Replacement Fund in support of the City's share of the 800 MHz Countywide Coordinated Communications System (CCCS). The CCCS is Orange County's analog/digital trunked public safety radio communications system that provides radio communications services and interoperability among City and County law enforcement, fire services, public works and lifeguard/marine safety departments in Orange County. Should the Council adopt the Budget Checklist, an additional transfer will occur that moves about $3.5 million in General Funds to the Wastewater Enterprise Fund. See later in this document for the Finance Committee's review of this concept. Municipal Code Required Position Classification and Salary Range Review Newport Beach Municipal Code (NBMC) 2.28 pertains to the City's Compensation Plan. NBMC 2.28.030 states that the City Manager shall review the provisions of the resolutions at least annually and recommend changes deemed necessary to remove 23-6 FY 2016-17 Budget Adoption June 14, 2016 Page 7 inequities or to meet the operational needs of the City. This review has been completed, and recommended changes are described below. The City Manager's Proposed FY 2016-17 Budget includes funding for 724 full-time and 129.76 full-time equivalent ("FTE" or part-time) positions, a decrease of 6 full-time and a decrease of 7.07 FTEs from FY 2015-16. Some additional position changes are being submitted for consideration on the Budget Checklist: Full-time Position Budget Checklist Changes: Reclass one (1) full-time Deputy City Clerk position to Assistant City Clerk Reclass one (1) full-time Urban Forester position to Parks Supervisor Delete one (1) full-time Civilian Fraud Investigator position Add one (1) full-time Community Services Officer position Full-time Equivalent (part-time) Position Budget Checklist Changes: Add 1.96 FTE Department Assistant positions (limited term) Delete 0.5 FTE Community Services Officer position Add 0.5 FTE Senior Public Works Inspector position for six months (limited term) Should the above position changes be approved, the authorized number of employees for FY 2016-17 will be 724 full-time and 131.72 full-time equivalent (part-time) positions. We note, too, that any agreements that are negotiated between the City and recognized bargaining units or unrepresented employees may necessitate salary range adjustments that would be presented to the City Council for approval. Updated Facilities Financial Plan City Council Policy F-28, Facilities Financing Plan (FFP), requires that staff prepare an update to the long-term facilities replacement plan annually. The Finance Committee reviewed the recently updated Facilities Financial Plan on January 14, 2016. Projects included in the FFP formed the basis of the proposed FY 2016-17 CIP program. About the Finance Committee's review. In fall 2015, Finance Committee members sought to pursue a series "deep dives" into the Fiscal Year 2015-2016 Adopted Budget. This action provided members with the context and understanding of the City's programs in advance of the Fiscal Year 2016-2017. The Committee reviewed several of the City's largest budget divisions and programs, and received explanations about the budget detail including salaries, benefits, contract service accounts, and more as indicated on the schedule below. 23-7 FY 2016-17 Budget Adoption June 14, 2016 Page 8 Fiscal Year 2015-2016 Budaet Review Summary When the Fiscal Year 2016-2017 Proposed Budget became available, the Committee also reviewed various aspects of the Fiscal Year 2016-2017 budget including economic overview, revenue projections, expenditures, revenue/expenditure trends, possible use of the FY 2014-15 surplus and the nature of budget variances from prior years. They met per the schedule below. Fiscal Year 2016-2017 Budaet Review Summary 03/10/16 Implementation of Budget Preparation Framework - Review of Fiscal 10/15/15 Year 2016 Operating Budget, Session 1 (Recreation and Senior 05/04/16 Services Department). 11/12/15 Implementation of Budget Preparation Framework - Review of Operating 05/24/16 Fiscal Year 2016 Budget, Session 2 (Police Department) 12/10/15 Implementation of Budget Preparation Framework - Review of Fiscal Year 2016 Operating Budget, Session 3 (Fire Department). 01/14/16 Implementation of Budget Preparation Framework - Review of Fiscal Year 2016 Operating Budget, Session 4 (Public Works Department). Implementation of Budget Preparation Framework - Review of Fiscal 02/11/16 Year 2016 Operating Budget, Session 5 (Municipal Operations Department) When the Fiscal Year 2016-2017 Proposed Budget became available, the Committee also reviewed various aspects of the Fiscal Year 2016-2017 budget including economic overview, revenue projections, expenditures, revenue/expenditure trends, possible use of the FY 2014-15 surplus and the nature of budget variances from prior years. They met per the schedule below. Fiscal Year 2016-2017 Budaet Review Summary 03/10/16 Review of Fiscal Year 2017 Budget Assumptions 04/28/16 First review of Fiscal Year 2017 Operating Budget 05/04/16 Second review of Fiscal Year 2017 Operating Budget 05/12/16 Third review of Fiscal Year 2017 Operating Budget 05/24/16 Joint City Council/Finance Committee Budget Study Session 06/02/16 Budget Discussion, Discussion of Policy Recommendations, Final Budget Recommendation to Council At the June 2, 2016 meeting, the Finance Committee (a) found that it had enough detail and time to make an opinion/vote about the Proposed Budget; and (b) voted 7-0 to recommend that the Council adopt the proposed FY 2016-17 Budget. Committee member Larry Tucker and Council Member Keith Curry expressed a willingness to recommend the budget's approval but dissented on the broader recommendation to use 23-8 FY 2016-17 Budget Adoption June 14, 2016 Page 9 $3.5 million of the FY 14-15 Year End Surplus as a General Fund Transfer to the Wastewater Enterprise Fund. Mayor Dixon, at the same meeting, expressed a consensus of the Committee that unfunded pension obligations in the range of $300 million were a strong and overriding concern for the City and community in the years ahead. The Committee also expressed its perspectives on eight (8) different policy or strategic comments made by Council members at the May 24, 2016 Joint meeting. A voting matrix of these issues is Attachment C, and the comments and the Committee's recommendations are as follows: 1. Consider dire cting/incentivizing departments to return annually with 1-3% in operational savings. Staff provided the Committee with a comparison of FY 14-15 "Actual" expenditures (including encumbrances) and FY 14-15 Budgeted expenditures (as revised). The chart below shows how General Fund Operating Departments returned with about 4.8% in unspent savings. For General Fund Activities Budget the Fiscal Year RevisedFY 15 BudgetEncumbrances ComparisonExpenditure Ended - 30, FY 15 Actu a Is + Ye -00M General Government 15,900,082 13,649,061 13,791,702 2,108,386 13.3% Public Safety 95,167,.536 93,289,.539 93,60.5,625 1,561,911 1.6% Community Development 11,960,796 9,729,869 10,067,665 1;893,131 15.9x'4 Publicworks 34,484,622 32,441,429 32,774,621 1,710,001 5.0% Community Services 20,149,996 18,780,350 18,821,743 1,328,253 6.6% Subtotal GF 0pe,,ti,8t 177,663,032 167,890,18$ 169,061,356 $,601,676 4.9% The Committee respected the Council members' suggestion, but believed that the current practice was appropriate. Committee members noted that the City Manager should continue to look for ways to improve efficiency to achieve similar savings each year. Additionally, the City Manager believes that his office should consider adding further incentives to the current "Innovation/Improvement Incentive" (or III) Program as outlined in Council Policy D-4 (see Attachment D) 2. Whether to examine a new model for mooring management that may involve greater use of technology and less operational hours for supervision. The Committee agreed that this was a worthwhile request, and recommends pursuing it further in consultation with the Harbor Commission. 3. Whether to sell the former City Hall site, now under construction as the Lido House Hotel. The Committee suggested that this decision and analysis is best done following the completion of the Hotel's construction, and after a period of operational time completed. The Committee offered to review any financial vetting of this question if directed to do so by the Council. 23-9 FY 2016-17 Budget Adoption June 14, 2016 Page 10 4. Whether to move to a flat business license tax of $50 and to offset that General Fund revenue reduction with an increase in the Wastewater Enterprise Fund's fees. A cursory look at the financial impacts of this decision would result in about a $3 million reduction to General Fund Revenues (current revenues from the tax are about $4 million, and the $50/business would generate about $1 million annually). The Committee did not recommend this action, stating its concern about the significant loss of a General Fund revenue source while significant pension obligations loom. Mayor Dixon asked that staff be tasked with additional ways to explain the purpose of the business license tax (to offset certain City costs associated with operating a business or drawing customers — from police to fire to road construction) and to examine ways to improve our partnership with especially small businesses in the community. 5. Whether to consider a longer replacement schedule for Newport Harbor's public piers and docks. The Committee agreed that this was appropriate to review, and suggested that the Council direct the Harbor Commission to review this with Public Works staff. 6. Whether to consider outsourcing all plan check for commercial properties' tenant improvement (TI) plans. The Committee offered to review any proposal to do this from a cost perspective. 7. Whether to conduct a new review of Capital Improvement Projects with a priority on essential efforts versus "wants." The Committee felt that this item was within the purview of the City Council versus the Committee. 8. Whether to wait on any pension "Fresh Start" decision until additional Finance Committee review occurs as to alternatives to another Fresh Start. The Committee has agendized an item that would consider bringing on an independent actuary to assist the Council, the Committee, and staff analyze the alternatives that will be before the City following the adoption of the FY 2016-17 budget. As a result, the proposed "Fresh Start" will occur (in part to avoid negative amortization of the unfunded pension liability) should the Council adopt the Committee's recommendations. That noted, Committee members felt that 2016-17 provides an important opportunity for an independent actuary to work on strategies immediately following the budget's adoption. Such strategies may include a Section 115 Benefit Trust, PERS pre- payment options, improvements to the City's OPEB program, and various incentives to reduce the pension liability. Finally, as to the transfer of $3.5 million in General Fund revenue to the Wastewater Enterprise Fund, five members of the Committee expressed an opinion (with Council Member Curry and Committee member Tucker dissenting) that this should occur, in part to lower a future rate increase and to account for the lack of an increase since the last time that the Wastewater Master Plan was adopted. 23-10 FY 2016-17 Budget Adoption June 14, 2016 Page 11 All seven (7) committee members recommended that the Council move forward to adopt a revised sewer rate increase following the infusion of the General Fund revenue, staff's re -analysis of an appropriate water use baseline, staff's consideration of the manner and scope of City facilities' participation in the wastewater rate, and proper notice and protest measurement. 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: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A — Budget Checklist Attachment B — Resolution No. 2016-77 Attachment C — Finance Committee Decision Matrix Attachment D — Council Policy D-4 23-11 Attachment A Budget Checklist - Amendments to the Proposed Budget Fiscal Year 2016-17 6/14/2016 CHANGES TO THE PROPOSED BUDGET AS PRINTED - ADMINISTRATIVE Budget Fiscal Year 2014-15 Surplus Increase (Decrease) Approved 01003-991711 Unassigned, Unrestricted General Fund Fund Balance (Transfer Out) $ (3,500,000) 71103-691010 Wastewater Operations Fund - Transfer In $ 3,500,000 TOTAL CHANGES TO THE PROPOSED BUDGET - ADMINISTRATIVE $ CHANGES TO THE PROPOSED BUDGET AS PRINTED - PERSONNEL RELATED Budget Department/Account Number/Description Increase (Decrease) Approved City Clerk 01010005-7` Add 1.96 FTE Part -Time Department Assistants (Limited Term) for Records Management $ 98,537 01010005-7* Reclass one full-time Deputy City Clerk position to full-time Assistant City Clerk $ - Fire Department 01040404-713003 Reduction in overtime funding for modified summer surge ambulance program Municipal Operations 0109032-7' Reclass one full-time Urban Forester position to full-time Parks Supervisor (80,500) Police 01035355-7" Delete full-time Civilian Fraud Investigator position (new in FY 2016-17) $ (111,062) 01035352-7" Add one full-time Community Services Officer $ 115,385 01035352-7' Delete part-time Community Services Officer (1040 hours or .5 FTE) $ (41,520) Public Works 01080801-7' Six month overfill of a Senior Public Works I 66.101 TOTAL CHANGES TO THE PROPOSED OPERATING BUDGET - PERSONNEL RELATED $ 46,941 CHANGES TO THE PROPOSED BUDGET AS PRINTED - MAINTENANCE & OPERATIONS Budget Increase (Decrease) Approved City Council 01005005-811008 Funding for "Heroes Hall" at the OC Fair and Events Center (Mayor pro Tem Muldoon) $ 25,000 01005001-811008 Expected airport analysis needs can be reduced from past years (City Manager) $ (241,000) Police/Information Technology 7657653-911024 Peninsula Wireless Mesh Network Expansion (Police & City Manager/IT) $ 150,000 Municipal Operations 7529032-911016 Funding adjustment needed based on change to proposed vehicles to be replaced $ 0109021-811032 Additional steam cleaning - McFadden Square (Mayor Dixon) $ 18,750 53503-811032 Additional steam cleaning - Balboa Village (Mayor Dixon) $ 18,750 0109062-811008 Increased cost of graffiti removal contract (prevailing wage) $ 30,000 Library & Cultural Arts 01060603-841004 Pacific Symphony on the Civic Green (Arts Commission) $ 60,000 Equipment Fund 7529032-911016 Funding adjustment needed based on change to proposed vehicles to be replaced $ (147,440) 75403-911034 Add'I funding for 800 MHz equip based on quotes rec'd after proposed budget was developed $ 13,954 TOTAL CHANGES TO THE PROPOSED OPERATING BUDGET - M&O $ (71,986) TOTAL CHANGES TO THE PROPOSED OPERATING BUDGET - PERSONNEL AND M&O $ (25,045) TOTAL CHANGES TO THE PROPOSED OPERATING BUDGET BY FUND General Fund $ (60,309) Balboa Village Parking Management Fund $ 18,750 Technology Equipment Fund $ 150,000 Equipment Fund $ (133,486) Total Changes to the Proposed Operating Budget $ (25,045) 23-12 Attachment A CHANGES TO THE PROPOSED BUDGET AS PRINTED - CIP EXPENDITURES Budget Capital Improvement Project Increase (Decrease) Approved 70201931-980000-17Wo1 Water Main Master Plan Program $ 250,000 701 01-980000-1 7W02 Water Master Plan Program $ 125,000 13501-980000-18V11 Streetlight Retrofit $ (1,200,000) TOTAL CHANGES TO THE PROPOSED CIP EXPENDITURE BUDGET $ (825,000) TOTAL CHANGES TO THE PROPOSED CIP EXPENDITURE BUDGET BY FUND Contributions Fund $ (1,200,000) Water Operations Fund $ 250,000 Water Capital Fund $ 125,000 Total Changes to the Proposed CIP Budget $ (825,000) CHANGES TO THE PROPOSED BUDGET AS PRINTED - REVENUE Department/Account Number/Description Increase (Decrease) Approved 01040402-521225 Contract with County for Haz Mat Inspections (Fire Department) $ (27,250) TOTAL CHANGES TO THE PROPOSED REVENUE BUDGET TOTAL CHANGES TO THE PROPOSED REVENUE BUDGET BY FUND General Fund Total Changes to the Proposed Revenue Budget $ (27,250) aloft, $ (27,250) 23-13 Attachment B RESOLUTION NO. 2016 - A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, ADOPTING THE BUDGET FOR THE 2016-17 FISCAL YEAR WHEREAS, the City Manager of the City of Newport Beach ("City") has prepared and submitted to the City Council a proposed annual budget for the 2016-17 Fiscal Year consistent with City Charter Article XI (Fiscal Administration); WHEREAS, the City's Finance Committee has reviewed and discussed the City Manager's proposed annual budget for the 2016-17 Fiscal Year; WHEREAS, the proposed annual budget was submitted to the City Council at least thirty-five (35) days prior to the beginning of the fiscal year as required by City Charter Section 1102; WHEREAS, the City Council has reviewed the proposed annual budget, determined the time for the holding of a public hearing thereon, and caused a notice of the public hearing to be published not less than ten (10) days prior thereto in the official newspaper of the City, and copies of the proposed annual budget were made available for inspection by the public in the Office of the City Clerk and the Finance Department at least ten (10) days prior to the public hearing; WHEREAS, the City Council held a public hearing on the proposed budget on June 14, 2016, and has made such revisions in the proposed budget as it deemed advisable; WHEREAS, the City Manager has the authority to approve budget increases not to exceed Ten Thousand Dollars ($10,000) in any Budget Activity or Capital Project, in accordance with City Council Policy F-3 (Budget Adoption and Administration); WHEREAS, the City Manager may accept certain donations and grants on behalf of the City and appropriate funds for the purpose intended, in accordance with City Council Policies; 23-14 Attachment B WHEREAS, all requirements of the City Charter and Newport Beach Municipal Code relating to the preparation and consideration of the annual budget and establishment of employee salary ranges have been complied with; and WHEREAS, all appropriations in the Capital Improvement Budget for projects currently underway and remaining unexpended as of June 30, 2016, as approved by the City Council in prior years, are hereby appropriated to the 2016-17 Fiscal Year. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The budget of the City of Newport Beach for the 2016-17 Fiscal Year, including the employee salary ranges contained therein, as revised by the City Council via the Budget checklist is hereby adopted. Total new appropriations of $298,049,649 ($278,152,029 less internal charges) plus any items on the approved Budget Checklist attached as Attachment A, and incorporated herein by reference, has been allocated to the following funds in the amounts hereinafter shown: 23-15 Fund General Fund Ackerman Fund CDBG Fund Asset Seizure Fund AQMD Fund Police Grants State Gas Tax Fund Measure M Fund Tidelands Fund Tidelands Capital Fund Contribution Fund Circulation Fund Building Excise Tax Environmental Liab. Assessment Districts Debt Service Fostering Interest In Nature Master Facilities Plan Parks & Community Centers Newport Annexation Fire Stations Facilities Maintenance Balboa Village Parking Mgmt Neighborhood Enhancement Insurance Reserve Fund Retiree Medical Fund Comp. Absence Fund IT Strategic Fund Equipment Fund Water Fund Wastewater Fund Total Appropriations Operating Budget $190,127,787 $5,000 $117,311 $162,000 $607,100 $248,837 $0 $0 $3,173,707 $0 $0 $0 $0 $199,030 $0 $10,761,822 $7,953 $0 $0 $1,200,000 $0 $0 $0 $0 $11,887,150 $7,403,000 $2,124,200 $8,790,765 $8,506,336 $21,804,442 $3,613,009 $270,739,449 Capital Budget $5,550,000 $0 $0 $0 $0 $0 $1,475,200 $1,750,000 $1,150,000 $7,985,600 $1,275,000 $0 $0 $0 $150,000 $0 $0 $0 $0 $0 $1,394,900 $1,500,000 $90,000 $1,739,500 $0 $0 $0 $0 $0 $1,650,000 $1,600,000 $27,310,200 Attachment B Total Budget $195,677,787 $5,000 $117,311 $162,000 $607,100 $248,837 $1,475,200 $1,750,000 $4,323,707 $7,985,600 $1,275,000 $0 $0 $199,030 $150,000 $10,761,822 $7,953 $0 $0 $1,200,000 $1,394,900 $1,500,000 $90,000 $1,739,500 $11,887,150 $7,403,000 $2,124,200 $8,790,765 $8,506,336 $23,454,442 $5,213,009 $298,049,649 Section 2: An interfund transfer is a governmental accounting term used to describe an internal flow of resources between the funds listed below and do not constitute an expenditure of the City. The total approved interfund transfers include the following amounts by fund: 23-16 Inte rfund Transfers Funds Transfers In General $ 7,950,283 Tide & Submergend Land Operating - Newport Annexation Fund - Debt Service 8,239,090 Facilities Financing Replacement Program 11,126,433 Lifeguard Headquarters - Facilities Miscellaneous 198,896 Neighborhood Enhancement 1,739,500 Marina Park 8,590,005 Sunset Ridge Park - Facilities Maintenance 1,000,000 Equipment Fund 800 MHz Communication 500,000 Total $ 39,344,207 Attachment B Transfer Out $ 11,739,500 7,930,688 19,595 17,027,991 61 2,626,372 $ 39,344,207 Section 3: An interfund reimbursement is an accounting term to describe "repayments from funds responsible for particular expenditures" to the funds that initially paid for them. The transfer into the General Fund, from the Tidelands Fund, as described Section 2 will be reclassified as an inter -fund reimbursement when actuals expenditures are known at the end of the fiscal year. Section 4: A copy of the approved budget, certified by the City Clerk shall be filed with the persons retained by the City Council to perform auditing functions for the City Council, and a further copy shall be placed, and shall remain on file, in the Office of the City Clerk where it shall be available for public inspection. Section 5: The budget so certified shall be reproduced and copies made available for the use of the public and of departments, offices and agencies of the City. Section 6: The recitals provided in this resolution are true and correct and are hereby incorporated into the substantive portion of this resolution. Section 7: 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 23-17 Attachment B 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 or phrases be declared invalid or unconstitutional. Section 8: The City Council finds the adoption of this resolution, annual budget and the establishment of employee salary ranges 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 9: This resolution, and the salary ranges contained therein, shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting this resolution. ADOPTED this 14 day of June, 2016. Diane B. Dixon, Mayor ATTEST: Leilani I. Brown, City Clerk Attachment: Budget Checklist 23-18 Attachment C Finance Committee Recommendation Decision Matrix 23-19 Committee Council Concept Finance Committee Recommendation vote Direction, if any 1. Incentivize departments to return The Committee did not recommend this action, noting that savings at FY 7.0 annually with 1-3% in operational 2014-15 Year End appeared to be greater than 4%, but urged the City savings Manager to continue to look at ways to reduce operational expenses. The City Manager later offered to propose an expanded incentive program (build upon the current "III Program" Council Policy D-4). 2. Examine and propose a new model for The Committee agreed that this made sense, and urged the Council to move 7-0 mooring management in Newport forward and have the Harbor Commission review it. Harbor 3. Consider selling the old city hall site at The Committee suggested waiting on this concept until the Lido House Hotel 7-0 3300 Newport Boulevard. was open and operational for a short period of time. The Committee offered to assist the Council in its review of any sale or appraisals at that time. 4. Move to flat $50.00 Business License The Committee did not recommend this action given the shortfall it would 7-0 Tax; Offset revenue reduction to GF create in the General Fund and the obligations on the General Fund (such as with an increase to Wastewater pension costs). Enterprise Fund. 5. Review a longer replacement cycle for The Committee agreed that this made sense, and urged the Council to move 7-0 Newport Harbor's public docks and forward and have the Harbor Commission review it. piers. 6. Consider outsourcing Tenant The Committee offered to review any proposal to do this should the Council 7-0 Improvement (TI) plan check for wish to move forward on it. commercial properties. 7. Conduct a new review of CIP program The Committee felt that this item was outside of the Finance Committee's 7-0 elements to prioritize essentials versus purview and deferred to the Council's wishes. desirables. S. Wait on any new pension Fresh Start To avoid negative amortization of the City's unfunded pension liability, the 7-0 until after additional Finance Committee recommended moving forward on the Proposed Budget's Fresh Committee review of alternatives to Start but said that further pension or OPEB actions should await the another Fresh Start. involvement of the Finance Committee with an independent actuary. The Committee intends to discuss this further in the coming months, following budget adoption. 23-19 Attachment D 1 CITY OF NEWPORT BEACH INNOVATION/IMPROVEMENT INCENTIVE PROGRAM PURPOSE To establish a method for employees to submit suggestions to improve City business practices. The objective of the program is to achieve efficiencies in City operations by providing employees an opportunity and incentive to contribute their ideas. Ideas resulting in measurable cost savings, increased efficiency or increased revenue to the City will be given priority over intangible suggestions. POLICY Review Committee The City Manager's Office shall designate an Innovation/ Improvement Incentive Program coordinator in addition to a five member review committee made up of three members of the management team, and one standing advisory member from both the City Manager's Office and Finance Department. The review board will review each idea submitted. Application Period Employee suggestions will be accepted by the Innovation/ Improvement Incentive Program coordinator year-round. Submittal and Review Procedure Employee suggestions will be submitted on the IIIP form to their Department Director for signature. Once approved by the Department Director, the form is forwarded to the Innovation/ Improvement Incentive Program coordinator. All ideas will be acknowledged upon receipt. The Innovation/ Improvement Incentive Program Committee will forward a copy of any approved idea to the appropriate department(s) for evaluation. After review by the affected department(s), a written response signed by the department director(s) shall be returned to the Innovation/ Improvement Incentive Program Committee with a recommendation. The affected department(s) shall provide a summary of projected cost or operational benefit to the City for suggestions recommended for adoption. The committee will make a determination to adopt, reject or defer the matter for further 1 23-20