HomeMy WebLinkAboutFinance Committee Agenda - September 15, 2016
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Finance Committee Meeting Minutes May 12, 2016
Page 1 of 4
CITY OF NEWPORT BEACH FINANCE COMMITTEE MAY 12, 2016 MEETING MINUTES
I.CALL MEETING TO ORDER
The meeting was called to order at 4:00 p.m. in the Crystal Cove Conference Room, Bay 2D, 100 Civic Center Drive, Newport Beach, California 92660.
II.ROLL CALL
PRESENT:Council Member Tony Petros (Chair), Committee Member Patti
Gorczyca, Committee Member William C. O’Neill, Committee Member Larry Tucker, Committee Member John Warner, and Council Member
Keith Curry
ABSENT: Mayor Diane Dixon (Excused)
STAFF PRESENT: City Manager Dave Kiff, Finance Director/Treasurer Dan Matusiewicz, Deputy Finance Director Steve Montano, Administrative Specialist to the
Finance Director Marlene Burns, Administrative Manager Angela Crespi, IT Manager Rob Houston, Budget Manager Susan Giangrande, Budget
Analyst Tam Ho, Budget Analyst Katherine Warnke-Carpenter, and Assistant City Manager Carol Jacobs
MEMBERS OF THE
PUBLIC: Jim Mosher and Fred Ameri
III.PUBLIC COMMENTS
Chair Petros opened public comments.
Jim Mosher discussed the Council’s approval allocating $280,000 for a Balboa Village archwaysign and the generation of sale tax. He stated the merchants did not contribute to the sign
program.
Chair Petros discussed the investment in Balboa Village and encouraged residents to attend theBVAC meetings.
Chair Petros closed public comments.
IV.CURRENT BUSINESS
A.FISCAL YEAR 2016-2017 BUDGET DISCUSSION
Summary:Continue review of the City Manager’s Fiscal Year 2016-2017 Proposed Budget.
Recommended Action:
Staff recommends that the Committee (1) direct staff to bring the Fiscal Year 2016-2017Proposed Budget for City Council for consideration; (2) continue to review the budget at
subsequent Finance Committee meetings; or (3) both of the aforementioned options.
Chair Petros thanked the Finance Committee for its work on the budget.
Committee Member Tucker clarified the timeline for the budget.
Finance Committee Meeting Minutes May 12, 2016
Page 2 of 4
Deputy Finance Director Montano provided the variances of $250,000 compared to the prior year budget.
Committee Member Tucker requested a summary of each of the variance items.
Budget Manager Giangrande explained the increase in Contract Recreation Instructions.
Budget Analyst Tam Ho stated the revenues were just under $1 million.
Budget Manager Giangrande explained the increase in Contract Services/Park Facility and Meter Reading Services.
Committee Member Warner questioned the increase in Contract Services/Park Facility. City
Manager Kiff explained the price was significantly higher due to additional facilities and increase in price per unit.
Budget Manager Giangrande explained the decrease in Outside Counsel/Special Litigation.
Committee Member Warner expressed concern with forecasting legal expenses downward.
Finance Director/Treasurer Matusiewicz directed the Committee to the forecast for internal
services and other fees regarding attorney’s fees and settlements.
City Manager Kiff stated the information had to be provided to the public.
Budget Manager Giangrande explained the fluctuations of the expenditure category “Services Professional and Technical” due to the completion of contracts. She stated she could provide
a breakdown of the contracts. She continued review of the variances including the expenditure categories of Services Professional, Software Licenses, Special Department
Expense, Vehicle Replacement ISF, IT ISF Operating Charge, Rolling Equipment, Library Materials, Backbone Expense, Equipment Not Otherwise Categorized (NOC), Pac set and
Mobile Radios, and OPEB Payment.
In response to Committee Member Gorczyca, Finance Director/Treasurer Matusiewicz explained that contributions were being made to pay off the unfunded pension liability over an
eleven year term.
Budget Manager Giangrande discussed the PERS Employer Contribution for the Miscellaneous and Safety employee groups.
In response to Chair Petros, City Manager Kiff stated Safety percentages could not track with
portions paid by Miscellaneous and stated Safety paid 20-25 percent.
Budget Manager Giangrande reviewed the PERS Employer Contribution, Employee Contributions, Salary for Safety employees, Overtime Vacation Relief, Overtime Plan,
Salaries Part-Time, Salaries Miscellaneous, and Cafeteria Allowance.
Budget Manager Giangrande discussed the Unfunded Liability for the Miscellaneous and Safety employee groups and also described the changes in water costs.
City Manager Kiff stated ground water was less expensive. He explained that some items
were one-time expenses and most were predictably sporadic.
Committee Member O’Neill requested information on the projected negative fund balances presented at the CIP study session.
Finance Committee Meeting Minutes May 12, 2016
Page 3 of 4
Finance Director/Treasurer Matusiewicz explained negative funds borrowed from other funds.
He reviewed specific funds including the dredging fund.
Chair Petros explained the Council’s commitment to repay dredging funds. Finance Director/Treasurer Matusiewicz stated it was a zero percent loan paid back from the
Tidelands Fund to the General Fund over 15 years. In response to Committee Member Tucker, Finance Director/Treasurer Matusiewicz stated the total fund balance for the General
Fund was $89 million at June 30, of which $15 million was an interfund receivable loan to the Tidelands Fund. Committee Member Tucker discussed expenditures in the Tidelands
Management Fund. Council Member Curry stated Tidelands Programs were subsidized with General Fund money. Committee Member Gorczyca asked why the LAIF rate was not
attached to the loan. Finance Director/Treasurer Matusiewicz explained the Tidelands agreement was identified as a zero interest loan by the Council.
Committee Member Tucker recalled that the $47 million in contingency reserve funds is
available to the City for catastrophic events. Finance Director/Treasurer Matusiewicz stated the General Fund had $77.8 million in actual cash.
Committee Member O’Neill requested discussion of funding for the sewer fund. City
Manager Kiff stated the goal was to continue the Capital Program in the wastewater fund. He questioned the ability to complete projects and refill the sewer fund.
Chair Petros stated he was not opposed to a sewer fund rate adjustment in the Enterprise
Fund. He stated sewer and wastewater should not be funded from the General Fund.
Committee Member Tucker expressed concern with funding capital improvements through the General Fund.
Council Member Curry stated the sewer rates needed to be adjusted to get back in balance.
In response to Committee Member O’Neill, City Manager Kiff stated the Council could direct a
direct transfer, not a loan, and direct a rate plan based on reserve level.
Chair Petros stated Mayor Dixon hoped that the Committee would vet the pros and cons of whether or not to use $3.5 million from the General Fund for the Sewer Fund.
Committee Member O’Neill discussed the proposed rate increase from 2009 that did not
occur creating the need to backfill the fund.
Chair Petros stated he understood the argument. He discussed his experience with Council’s failing to enact ongoing rate increases required for the services rendered.
In response to Committee Warner, City Manager Kiff stated the 2009 proposed rate increase
was scaled. Council Member Curry stated it was $2 and would have been unnoticeable.
Committee Member Tucker stated the obligation runs with properties and now the proper rate needs to be paid. He stated the enterprise fund should remain separate.
Committee Member Gorczyca questioned whether the road improvement fund operated in a
deficit. Finance Director/Treasurer Matusiewicz explained that revenue from grant programs often lag, but ultimately align with expenditures.
Committee Member O’Neill asked who paid for sewer spills. He stated he would research the
issue.
Chair Petros opened public comments.
Finance Committee Meeting Minutes May 12, 2016
Page 4 of 4
Jim Mosher stated the Sanitary District had two enterprise funds, wastewater and trash
collection. He asked where Arts Funding was in the budget. He discussed Council Policy I-10 and referenced Pages 272 and 273. He questioned whether the City was paying for its
own use of the sewer. He discussed the City’s water use. City Manager Kiff recalled $30,000 net per year. He explained calculation of sewer rates.
Chair Petros requested information on Library funds be provided to Mr. Mosher following the
meeting.
Chair Petros closed public comments. B. SUBCOMMITTEE RECOMMENDATIONS Summary:
An update will be provided regarding the Finance Subcommittee. Recommended Action: Receive and file.
Committee Member Tucker stated the recommendations would be provided at the second
meeting in May. V. FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-
DISCUSSION ITEM)
Chair Petros requested the Committee focus on the budget.
VI. ADJOURNMENT
The Finance Committee adjourned at 5:04 p.m. to the next regular meeting of the Finance Committee on May 26, 2016, at 4:00 p.m.
Filed with these minutes are copies of all materials distributed at the meeting.
The agenda for the Regular Meeting was posted on May 9, 2016, 11:54 a.m., in the binder and
on the City Hall Electronic Board located in the entrance of the Council Chambers at 100 Civic Center Drive.
Attest:
___________________________________ _____________________
Tony Petros, Chair Date Finance Committee Chair
Finance Committee Meeting Minutes June 2, 2016
Page 1 of 9
CITY OF NEWPORT BEACH FINANCE COMMITTEE JUNE 2, 2016 MEETING I. CALL MEETING TO ORDER
The meeting was called to order at 4:00 p.m. in the Civic Center Council Conference Room, 100 Civic Center Drive, Newport Beach, California 92660.
II. ROLL CALL
PRESENT: Council Member Tony Petros (Chair), Council Member Keith Curry,
Mayor Diane Dixon, Committee Member Patti Gorczyca, Committee Member William C. O’Neill, Committee Member Larry Tucker, and
Committee Member John Warner
STAFF PRESENT: City Manager Dave Kiff, Finance Director/Treasurer Dan Matusiewicz, Deputy Finance Director Steve Montano, Budget Manager Susan
Giangrande, Revenue Manager Evelyn Tseng, Accounting Manager Rukshana Virany, IT Manager Rob Houston, Administrative Specialist to
the Finance Director Marlene Burns, Purchasing Agent Anthony Nguyen, Budget Analyst Tam Ho, Budget Analyst Katherine Warnke-Carpenter,
Library Services Director Tim Heatherton, Fire Chief Scott Poster, and Administrative Manager Andrea Crespi
MEMBERS OF THE
PUBLIC: Arlene Greer, Jim Mosher, and Carl Cassidy III. PUBLIC COMMENTS
Chair Petros indicated he needed leave by 5:45 p.m.
Committee Member Warner stated he had to leave early as well.
Council Member opened public comments.
Jim Mosher submitted his written comments regarding unfunded liabilities.
Chair Petros closed public comments. IV. CONSENT CALENDAR
A. MINUTES OF APRIL 28, 2016 Recommended Action:
Approve and file. B. MINUTES OF MAY 4, 2016 Recommended Action:
Approve and file.
Mayor Dixon, Committee Members Gorczyca and O’Neill, and Mr. Mosher noted corrections to the minutes of April 28, 2016.
Finance Committee Meeting Minutes June 2, 2016
Page 2 of 9
Committee Member Gorczyca moved and Committee Member Tucker seconded a motion to
approve the April 28, 2016, Finance Committee Minutes, as amended. The motion carried 6-1, Council Member Curry dissenting.
Committee Member Tucker and Mr. Mosher noted corrections to the minutes of May 4, 2016.
Committee Member Gorczyca retracted her amendment.
MOTION Committee Member O’Neill moved and Committee Member Gorczyca seconded a motion to
approve the May 4, 2016, Finance Committee Minutes, as amended. The motion carried unanimously.
Chair Petros expressed frustration with the quality of the minutes and requested comments
on minutes be submitted early.
City Manager Kiff explained that the minutes were outsourced and it may be necessary to look for a different vendor.
V. CURRENT BUSINESS A. AUDITOR RECOMMENDATION Summary: Per Council Policy F-15, External Financial Reporting, Disclosure and Annual Audits, the City
issued a Request for Proposal (RFP) for audit services dated March 21, 2016, to audit its financial statements for the fiscal year ending June 30, 2016, with the option of auditing its
financial statements for four subsequent fiscal years. After a thorough selection process, staff recommends to the Finance Committee the services of White, Nelson, Diehl, Evans LLP
as the City Auditor. Recommended Action: With Finance Committee concurrence of staff’s recommendation, staff will proceed with the
recommended action and bring the new auditor contract to the City Council for approval.
Purchasing Agent Nguyen explained the Planet Bid automated bid system and notification to potential vendors. He stated 74 pre-registered vendors were notified, plus an additional 250
outside vendors. He stated 25 of those expressed interest in bidding and 9 submitted a response. He explained that a qualifications based system was utilized. He discussed the
core criteria used to evaluate the submittals.
Committee Member Gorczyca asked if specific firms had submitted bids.
Finance Director/Treasurer Dan Matusiewicz stated Grant Thornton, McGladrey and MGO were notified but opted not to bid.
Purchasing Agent Nguyen stated White, Nelson, Diehl, Evans LLP received the highest
score.
Committee Member O’Neill questioned Davis Farr’s score based on working on the City of Bells’ audit. Finance Director/Treasurer Matusiewicz explained that Davis Farr was still a
strong candidate, but required an additional few years to work through the transition as a new company.
Purchasing Agent Nguyen explained the purpose of the reference checks.
Finance Committee Meeting Minutes June 2, 2016
Page 3 of 9
Committee Member O’Neill asked if background checks were conducted on Rogers,
Anderson, Malody & Scott. Finance Director/Treasurer Matusiewicz stated they were included in reference checks, but had issues delivering on time and negative comments.
Purchasing Agent Nguyen discussed consideration of cost proposals and presented the
proposed annual costs from each proposer.
Finance Director/Treasurer Matusiewicz discussed the rationale for five-year contracts and Council Policy F-15 allowing two consecutive five year contracts. He discussed the
qualifications of White, Nelson, Diehl, Evans LLP and reiterated reasons for selection.
Committee Gorczyca stated she preferred five-year rotations but White, Nelson, Diehl, Evans LLP appeared to be the best.
Jim Mosher stated he thought there was a promise that a new auditor would be selected. He
asked how many auditors would work for the City and how many employees Davis Farr had.
MOTION Council Member Curry moved and Committee Member Gorczyca seconded a motion to
recommend a new contract with White, Nelson, Diehl, Evans LLP be brought to the City Council for approval. The motion carried unanimously.
B. SUBCOMMITTEE RECOMMENDATIONS
Summary: An update will be provided regarding the Finance Subcommittee. Recommended Action:
Receive and file.
Chair Petros thanked the subcommittee for its work.
Committee Member Tucker explained the purpose of committee members providing a “businessman’s review” of the overall issues. He stated implementation of the suggestions
would require modification or creation of policies.
Council Member Curry stated he was impressed by the work of the subcommittee. He suggested forwarding the report to the Council prior to its consideration of the budget.
Committee Member Tucker discussed the suggestions for a performance review and audit of
non-salary benefits. He suggested the matters remain non-political.
Mayor Dixon supported the document as a guiding principle. She agreed that it may become political without specific endorsements from the Finance Committee.
Committee Member Tucker stated it was too late to affect the upcoming budget. He
suggested it go on the Council’s second meeting in June as a receive and file item.
Chair Petros suggested the Finance Committee create an action matrix with recommendations submitted to the Council.
Committee Member Tucker requested the Committee take action prior to November to
ensure the current committee members could participate.
Committee Member Warner commended Committee Member Tucker.
Finance Committee Meeting Minutes June 2, 2016
Page 4 of 9
Carl Cassidy concurred with the proposal to reduce politicization. He suggested review of
legal reserves.
Committee Member Tucker explained that the subcommittee had conducted an overall review of the budget. Mr. Cassidy encouraged the committee to review the legal reserves.
Finance Director/Treasurer Matusiewicz stated the Council Reserve policy was included in
the work plan. Mr. Cassidy suggested continual review of the unfunded pension liability.
MOTION Council Member Curry moved and Committee Member Warner seconded a motion to receive
and file with the matter returning to the Finance Committee in September. The motion carried unanimously.
C. FINANCE COMMITTEE FISCAL YEAR 2016-2017 BUDGET RECOMMENDATIONS Summary: Continue review of the City Manager’s Fiscal Year 2016-2017 Proposed Budget and
prepare/discuss Finance Committee recommendations to Council. Recommended Action: Staff recommends that the Committee (1) direct staff to bring the Fiscal Year 2016-2017
Proposed Budget to the City Council for consideration and; (2) prepare and/or transmit Finance Committee budget recommendations to Council.
City Manager Kiff presented the staff report.
Chair Petros suggested the Committee provide a recommendation on the budget as a whole,
conduct a straw vote on the eight items and make a recommendation on the $3.5 million proposed General Fund transfer to the Wastewater fund.
Committee Member Tucker asked if there were changes since the last time the Committee
reviewed the budget. City Manager Kiff stated minor changes had been made to the budget checklist. He explained the checklist were changes to the proposed budget that staff
proposed subsequent to its original submittal.
Mayor Dixon stated the checklist items were included on pages 31-34.
Committee Member O’Neill suggested the Committee determine if it felt comfortable with the information received and meetings held.
City Manager Kiff suggested examination of a new model for mooring management.
Council Member Curry indicated support for the suggestion.
Committee Member O’Neill asked if the Committee was recommending up or down vote on
the budget and/or some or all of the eight items.
Chair Petros stated he would like a recommendation from the Finance Committee that the Council approve the budget as is or with certain amendments and offering an opinion to act
on Items 1-8 or abstain for Council decision and what to do with the $3.5 million proposed transfer.
The Committee confirmed that it had enough information and had met frequently enough to
make a recommendation that the budget should be approved by the City Council.
Finance Committee Meeting Minutes June 2, 2016
Page 5 of 9
City Manager Kiff reviewed Item 1, whether to ask departments to return annually with 1-3
percent operational savings. He stated he did not think it was necessary because there are always departmental savings at year-end anyway.
Chair Petros stated the current budget was position based and it would be easier to provide
operational savings if it were program based. City Manager Kiff confirmed that savings are legitimate and not just due to staffing vacancies.
Committee Member Gorczyca questioned whether unfilled position savings were evenly
dispersed. Budget Manager Giangrande stated they were not evenly dispersed and it was difficult to predict.
Mayor Dixon asked if there was a forecast for Fiscal Year 2015-2016. Budget Manager
Giangrande stated that savings were estimated at around $1 million but that a more certain number would be available after the fiscal year end. Council Member Curry concurred that
staff was continuing to work towards saving money.
In response to Committee Member Warner, Finance Director/Treasurer Matusiewicz stated money contractually obligated was considered money spent. City Manager Kiff stated the
base budget plus the checklist would become the adopted budget. Committee Member Warner suggested reviewing selected departments to determine if additional savings were
possible.
Chair Petros clarified that it would be a simple demonstration to ask departments for additional savings.
Committee Member Warner indicated opposition to Item 1.
Committee Member Tucker stated the subcommittee recommendation was to consider
combining functions or determining if all functions were necessary through an operational audit. City Manager Kiff concurred.
Chair Petros stated that analysis was necessary as opposed to randomly establishing a
savings target.
Committee Member Warner suggested reviewing one department to determine potential cost savings.
Chair Petros stated the Finance Committee supported continued investigations into
efficiencies that would render savings across the board and in all departments.
The Committee discussed Item 2, whether to examine a new model for mooring management that may involve greater use of technology and less operational hours for supervision.
In response to Mayor Dixon, City Manager Kiff stated he would like Council direction to move
forward.
City Manager Kiff suggested the Council deal with Item 3, whether to sell the former City Hall site, now under construction as the Lido House Hotel.
Mayor Dixon recommended waiting until the hotel was built. City Manager Kiff stated a
Finance Committee recommendation was premature.
Committee Member Tucker stated the Finance Committee should analyze the matter. He suggested consider where the money would go if the asset was sold.
Finance Committee Meeting Minutes June 2, 2016
Page 6 of 9
Mayor Dixon stated it needed to be analyzed.
Committee Member Tucker recommended referring the matter to the Finance Committee for
analysis when the hotel was completed and operational.
Council Member Curry stated the property lease was a long term revenue source to the General Fund.
The Committee concurred to recommend the Council refer the matter to the Finance
Committee.
City Manager Kiff expressed concern with Item 4, whether to move to a flat business license fee of $50 (versus a business license tax).
Mayor Dixon suggested more effectively communicating the benefits of doing business in the
City to validate the purpose of the tax.
Committee Member Warner asked the cost of the business license. Revenue Manager Evelyn Tseng explained the cost for business licenses.
City Manager Kiff stated the business owners were not complaining about the cost of
business licenses. He stated the tax was to offset public safety.
In response to Mayor Dixon, City Manager Kiff stated the City of Irvine reduced its fee to $50.
Council Member Curry discussed the departments that would be impacted by reducing the fee. He stated it would be irresponsible to cut a revenue source.
Chair Petros stated the Committee concurred.
City Manager Kiff recommended deferring Item 5, whether to consider a longer replacement
schedule for Newport Harbor’s public piers and docks to the Harbor Commission. The Committee concurred.
City Manager Kiff suggested a users group to consider Item 6, whether to consider
outsourcing all plan checks for commercial properties’ tenant improvement (TI) plans. He explained that Council Member Peotter was suggesting that commercial TI plans be reviewed
by an outside contractor.
In response to Chair Petros, City Manager Kiff stated the proposal may allow reducing three-quarters of a position.
City Manager Kiff stated he could further review the matter and report back to Council
Member Peotter.
By consensus, the Committee recommended referring Item 6 to the City Manager’s office for an efficiency check.
City Manager Kiff explained that Council Member Muldoon had suggested Item 7, whether to
conduct a new review of Capital Improvement Projects with a priority on essential efforts versus “wants.” He recommended the Council discuss the matter.
Committee Member Tucker agreed that it should be vetted through the Council.
Chair Petros appreciated Council Member Muldoon’s concern but the community drove the
CIP and the representing Council Member carried it forward.
Finance Committee Meeting Minutes June 2, 2016
Page 7 of 9
Mayor Dixon clarified that the Council would consider the budget on June 14.
City Manager Kiff discussed the proposed Fresh Start. He requested the Finance Committee weigh in on Item 8, whether to wait on any pension “Fresh Start” decision until additional
Finance Committee review occurred as to alternatives to another Fresh Start.
Committee Member Gorczyca suggested an independent actuary to assist in future decisions on pension related items.
Council Member Curry indicated support for the Fresh Start proposal to avoid negative
amortization.
Committee Member O’Neill stated it would save $10 million over 15 years. Finance Director/Treasurer Matusiewicz stated the City would spend $6 million in the first couple
years to save $9 million and net $3 million.
City Manager Kiff indicated support for an independent actuary.
City Manager Kiff explained that the City should have been allocating $3.1 to the sewer fund. He suggested a wastewater fee without the subsidy of $3.5 million.
Mayor Dixon stated the rate increase would make up for lost time.
City Manager Kiff suggested determining rates during the winter.
Chair Petros stated it was not uncommon for fee changes to be delayed but it was
uncommon to use General Fund to support Enterprise Fund operations. He discussed the subcommittee’s recommendation to annually review fees.
Committee Member Tucker stated the improvements were necessary and the fee should
have been imposed all along. He suggested not using the General Fund.
Committee Member Warner stated the Council decided to not raise the rates for six years and now the funds were available. He stated he would advocate making it right and raising
the rates.
Committee Member O’Neill asked who would pay for a sewer spill. Finance Director/Treasurer Matusiewicz stated it would be covered by the sewer fund. Committee
Member O’Neill stated it was not fiscally wise to retain a negative sewer fund balance.
Committee Member Warner asked how long it would take to make the fund right. City Manager Kiff stated $3.5 million would bring it back to the reserve level and allow expending
the programmed capital for the coming year. He explained the assumption that the rate would replenish the reserve.
Mayor Dixon explained the Committee’s recommendation for a new rate was to make up for
2009 proposal which was not approved by the Council. She stated the $3.5 million would normalize the rate level as if the rate increase had been passed in 2009. She stated the
proposed rate should be the normal rate, not a catch up rate.
Chair Petros stated he was hearing a majority in support of recommending $3.5 million for wastewater fund along with the rates being revisited.
Council Member Curry questioned whether the entire City should subsidize the sewer fund
but agreed that the fee increase needed to occur.
Finance Committee Meeting Minutes June 2, 2016
Page 8 of 9
Mayor Dixon stated the rate increase needed to be approved before the end of the year.
Committee Member Tucker stated he would oppose allocating $3.5 million but the rate increase should occur. He stated he was in favor of the budget with the exception of the $3.5
million allocation to the sewer fund.
Committee Member Gorczyca suggested a loan. City Manager Kiff stated staff had discussed that but the Council was not interested.
Jim Mosher stated the budget line items were unclear. He questioned whether the budget
presented to the Council on June 14, 2016, would include a performance plan. He stated the checklist was not clear on whether the departments could cut back on their budgets. He
discussed the sewer fund and concurred with Committee Member Tucker that the General Fund should not subsidize the Sewer Fund. He suggested the City cover its portion of the
sewer use. He suggested removing the last paragraph as it is out of place.
City Manager Kiff stated details were available for each line item in the budget. Finance Director/Treasurer Matusiewicz stated there was no plan to present a performance plan as
part of the initial budget adoption.
Chair Petros stated the budget increases were due to labor costs and contract CPIs.
City Manager Kiff discussed the analysis of the City’s sewer use, estimated at $10,000 per year.
Chair Petros suggested reviewing Mr. Mosher’s recommended paragraph deletion.
City Manager Kiff explained the required CEQA finding.
Chair Petros stated he heard general unanimity on a recommendation for the budget,
direction on 8 items and direction for $3.5 million.
MOTION Chair Petros moved and Council Member Curry seconded a motion to recommend that the
City Council: 1) Approve the Fiscal Year 2016-2017 Proposed Budget as presented; 2) not incentivize departmental savings because, in fact, departments were already making
significant annual savings; 3) Consider a new model for mooring management; 4) Refer the City Hall disposition to the Finance Committee once the hotel had reached operational
equilibrium; 5) Refer the business license fee to the Finance Committee for review and analysis; 6) Refer the replacement schedule for Newport Harbor’s public piers and docks to
the Harbor Commission; 7) Refer to the City Manager’s office the investigation of whether greater efficiencies could be realized by outsourcing the plan checking for tenant
improvements; 8) Review of capital improvement projects be left to the City Council; 9) Continue with fresh start for at least this year with advisement that it be placed under further
review after actuarial analysis; and 10) Use of $3.5 million General Fund balance for the wastewater fee with proviso that there also be a concomitant review of the fee on a go
forward basis occurring this fall.
Mayor Dixon suggested adding a statement that the Finance Committee was aware of the $300 million unfunded pension liability and how that informs future financial planning.
Council Member Curry stated it was well defined in the subcommittee’s report.
Committee Member Tucker suggested referring the flat business license fee to the Finance Committee for review and analysis.
Finance Committee Meeting Minutes June 2, 2016
Page 9 of 9
The motion carried unanimously with Committee Member Tucker and Council Member Curry
noting disagreement with the proposal of utilizing $3.5 million from the General Fund to the sewer fund.
VI. FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM) Committee Member Warner requested information on the savings of eliminating one staff person
over a 20-year period.
Committee Member Tucker requested details of how unfunded pension liabilities work, particularly the 7.5 percent, on the September agenda. Mayor Dixon stated the actuarial
discussion was the precursor to answering that question.
Committee Member Tucker stated it was necessary to understand how the unfunded liabilities are developed.
Committee Member Warner asked if it was possible to utilize historical returns to forecast future
pension liabilities.
Chair Petros stated the next agenda will include a discussion on whether to hire an actuary.
Committee Member Warner left the meeting at 5:48 p.m.
Mayor Dixon thanked the committee members and encouraged them to share the information with their appointee.
VII. ADJOURNMENT
The Finance Committee adjourned at 5:50 p.m. to the next regular meeting of the Finance
Committee on June 16, 2016, at 4:00 p.m.
Filed with these minutes are copies of all materials distributed at the meeting.
The agenda for the Regular Meeting was posted on May 27, 2016, at 3:04 p.m., in the binder and on the City Hall Electronic Board located in the entrance of the Council Chambers at 100 Civic
Center Drive.
Attest:
___________________________________ _____________________ Tony Petros, Chair Date
Finance Committee Chair
Finance Committee Meeting Minutes June 16, 2016
Page 1 of 8
CITY OF NEWPORT BEACH FINANCE COMMITTEE JUNE 16, 2016 MEETING I. CALL MEETING TO ORDER
The meeting was called to order at 4:00 p.m. in the Crystal Cove Conference Room, Bay 2D, 100 Civic Center Drive, Newport Beach, California 92660.
II. ROLL CALL
PRESENT: Council Member Tony Petros (Chair), Council Member Keith Curry,
Mayor Diane Dixon, Committee Member Patti Gorczyca, Committee Member William C. O’Neill, Committee Member Larry Tucker, and
Committee Member John Warner
STAFF PRESENT: City Manager Dave Kiff, Finance Director/Treasurer Dan Matusiewicz, Deputy Finance Director Steve Montano, Budget Manager Susan
Giangrande, Revenue Manager Evelyn Tseng, Accounting Manager Rukshana Virany, Administrative Specialist to the Finance Director
Marlene Burns, Purchasing Agent Anthony Nguyen, Budget Analyst Tam Ho, Library Services Director Tim Heatherton, Administrative Manager
Angela Crespi, Municipal Operations Director Mike Pisani, Assistant City Manager Carol Jacobs, Municipal Operations Director George Murdoch,
Administrative Manager Cindy Owens, Recreation and Senior Services Director Laura Detweiler, Senior Services Manager Celeste Jardine-
Haug, Chief Building Officer Seimone Jurjis, Systems and Admin Manager Dan Campagnolo, Deputy Community Development Director
Brenda Wisniewski, Senior Accountant Theresa Schweitzer, and Deputy Recreation and Senior Services Director Sean Levin
MEMBERS OF THE
PUBLIC: Back Bay High School Student Julio Espinoza, Newport Harbor High School Student Jacky Gonzalez, Jim Mosher, Carl Cassidy, and Erin
Payton of MGT America III. PUBLIC COMMENTS
Chair Petros announced that the Council approved the budget as recommended. He commended the Committee Members for its work
Jim Mosher discussed the Council’s adoption of the budget and publication of final document. He
suggested the Committee review the City’s CAFR. He discussed the work plan and interviews by the auditor. He expressed concern of a potential Brown Act violation. He announced the
upcoming seminar on internal controls to prevent fraud.
Chair Petros closed public comments.
Chair Petros stated the Finance Committee members received the CAFR and could comment as they see fit.
Finance Committee Meeting Minutes June 16, 2016
Page 2 of 8
IV. CURRENT BUSINESS A. QUARTERLY ERP UPDATE Summary: Staff will provide the Committee with a progress report on the Enterprise Resource Plan
project. Recommended Action: Receive and file.
Deputy Finance Director Montano provided an oral report regarding the status of the ERP
project.
Mayor Dixon asked if there were issues with posting of the budget. Finance Director/Treasurer Matusiewicz stated it was no longer an issue. Mayor Dixon asked when
program costs would be more visible. Deputy Finance Director Montano discussed the RFP for fiscal transparency software.
In response to Chair Petros, Deputy Finance Director Montano stated the infrastructure and
tools were in place to provide program level budgeting. He stated he would provide quarterly updates on the status.
B. DEBT ISSUANCE BEST PRACTICES
Summary: During the April 28, 2016, Finance Committee meeting Committee Member O’Neill asked the
Committee to consider the merits of hiring a third-party consultant to assist staff implement best practices in debt issuance.
Recommended Action:
a) Consider whether to consult with an independent third-party agency (e.g., Orange County Auditor Controller’s office, Consultant, GFOA, a registered independent municipal
advisor, or other) to either (1) review the City’s debt issuance procedures and provide recommendations to improve and incorporate best practices for debt issuance and
administration into the City’s policies and procedures; (2) evaluate the economic feasibility of reducing the amount of outstanding Certificates of Participation; and/or (3)
both; b) Consider the scope, desire deliverables and contractual arrangement of proposed
services (hourly vs. fixed fee and not to exceed dollar value); and c) Make appropriate recommendation(s) to the City Manager.
Committee Member O’Neill stated the item was not related to the matter Council Member
Peotter had requested being placed on the ballot. He requested the Committee direct staff to contract with an expert to work with staff on reviewing the City’s Debt Management Policy
and practices.
Committee Member O’Neill asked if the current policy adhered to GFOA’s Debt Policy Best Practices. Finance Director/Treasurer Matusiewicz stated that it was indeed the framework
for debt policy.
Committee Member Tucker stated Policy F-6 (Debt Management) appeared to be similar to best practices. Finance Director/Treasurer Matusiewicz stated it was and had been
recognized by the California Debt and Investment Advisory Committee (CDIAC) as one of the better local agency policy examples. Committee Member Tucker suggested consideration of
anything missing from Policy F-6.
Finance Committee Meeting Minutes June 16, 2016
Page 3 of 8
Council Member Curry concurred with Committee Member Tucker. He described other debt
policy publications. He expressed pride in the City’s AAA bond rating. He stated the City’s debt policy was new and reiterated the State cited the City as an example with a good debt
policy. He suggested the possibility of a review by other agencies or the Committee. He stated he did not support a consulting agreement.
Mayor Dixon asked if GASB 68, accounting and financial reporting for pensions requirement,
was included in the policies. Finance Director/Treasurer Matusiewicz explained that the audit opinion provides assurance that the City’s Annual Financial Statements (CAFR) were written
in conformance with Generally Accepted Accounting Principles (GAAP).
Council Member Curry explained that it was a disclosure and accounting issue but irrelevant to bond issues and debt policies.
Mayor Dixon asked where the unfunded pension intersected with the financial policies. Chair
Petros stated it was not included in a debt management policy. Mayor Dixon asked where it belonged.
Chair Petros clarified that the unfunded pension liability was an accounting issue and was
independent from the policy regarding debt.
Committee Member Tucker stated the unfunded liability should not be ignored but did not pertain to the City’s debt practices.
Committee Member Tucker suggested review of Policy F-6 for compliance with GFOA best
practices.
Committee Member O’Neill agreed with Committee Member Tucker regarding the need to review debt practices.
Chair Petros asked if there was an opportunity to prepare an abstract to be sent to other
finance directors for peer review. Finance Director/Treasurer Matusiewicz stated that it could.
Committee Member Tucker suggested a subcommittee work with staff to review the policy.
Committee Member Gorczyca stated she reviewed the policy and found it to be adequate.
Chair Petros stated the thought was for a peer review by professional organizations or
finance directors within the region.
Carl Cassidy suggested sensitivity to Mayor Dixon’s comments because the public’s perception of the unfunded liability. He stated a consultant was not necessary. He discussed
the talent on the committee and staff and suggested most items could be addressed at the Committee level.
Finance Director/Treasurer Matusiewicz recommended the Committee separately consider a
pension funding policy. Chair Petros suggested an open discussion regarding the unfunded liability, allowing the public and Committee to have an open dialogue.
MOTION
Chair Petros moved and Committee Member Gorczyca seconded a motion to form a subcommittee of Committee Member O’Neill and Committee Member Gorczyca to work with
staff to develop an abstract to be sent to a professional organization of peers within the County for review of the City’s best practices. The motion carried unanimously.
Finance Committee Meeting Minutes June 16, 2016
Page 4 of 8
Committee Member O’Neill discussed the Certificates of Participation (COPs) and debt
service for the Civic Center project. He recommended the Council hire a consultant to perform the refunding analysis required by F-6.
Finance Director/Treasurer Matusiewicz estimated the update to the previous analysis would
cost approximately $3,000.
Council Member Curry stated the bonds would never be economically refundable; therefore, there was no value in analyzing the bonds.
Committee Member O’Neill suggested an independent analysis.
Council Member Curry stated the original consultant had the most interest in the refunding
work. He stated further analysis was a waste of money.
Committee Member Tucker stated his experience was not with municipal financing. He stated the make whole provision as really make better than whole. He questioned whether it
made sense to spend money on analysis. He asked if there was a possibility of saving money. Finance Director/Treasurer Matusiewicz stated he did not.
Committee Member Gorczyca discussed the anticipated subsidy. She suggested it be a
question to pose to bond counsel the possibility of restructuring due to poor performance.
Chair Petros stated Committee Member O’Neill was asking if the City should retain a consultant to perform the work under F-6. He suggested the policy did not require an outside
consultant.
Carl Cassidy asked if the policy required “independent” review. He stated the Committee and staff could provide a better review.
MOTION
Committee Member O’Neill moved and Committee Member Gorczyca seconded a motion to recommend hiring a consultant to evaluate the economic feasibility of reducing the amount of
outstanding Certificates of Participation.
Committee Member Gorczyca suggested a legal consultant be utilized. Committee Member O’Neill declined the amendment. Committee Member Gorczyca withdrew her second.
Mayor Dixon seconded the motion.
Chair Petros ruled that he had already indicated the motion died due to lack of a second.
MOTION
Mayor Dixon moved and Committee Member O’Neill seconded a motion to recommend hiring a consultant to evaluate the economic feasibility of reducing the amount of outstanding
Certificates of Participation.
Council Member Curry discussed savings with Build America bonds. He stated the analysis would be a waste of tax payer’s dollars.
Committee Member Gorczyca stated she could not support a financial firm because
restructuring was a legal question.
Committee Member O’Neill stated the requirement was annual review. He suggested hiring someone independent of the original debt issuance.
Finance Committee Meeting Minutes June 16, 2016
Page 5 of 8
Council Member Curry stated a different conclusion would not be met and it would be a waste
of money.
The motion failed 3-4, Chair Petros, Council Member Curry, Committee Member Warner and Committee Member Gorczyca dissenting.
C. PENSION AND OPEB ADVISORY SERVICES Summary: During the April 28, 2016, Finance Committee meeting Committee Member Gorczyca
proposed bringing on an independent actuary to assist the Council, the Committee, and staff to analyze various pension and OPEB funding and cost containment strategies. 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. Staff recommends that the Committee discuss the merits of engaging an independent actuary or other financial professional to provide Pension and OPEB advisory
services and provide staff direction as to an initial scope of services.
Recommended Action: a) Consider the merits of hiring an independent actuary or other financial professional to
provide various pension and OPEB advisory services; b) Consider the scope, desired deliverables and contractual arrangement of proposed
services (hourly vs. fixed fee and not to exceed dollar value); and c) Make appropriate recommendation(s) to the City Manager.
Committee Member Gorczyca suggested an independent actuary of the City’s Pension and
OPEB liability. She discussed options outside of CalPERS to advise the City. She listed clients of one independent actuary. She stated it was the prevailing practice and
recommended starting with an hourly contract, not to exceed $25,000.
Council Member Curry stated the City retained an independent actuary to review OPEB. He stated he could support the recommendation if Section 115 Benefit Trust was removed. He
stated the City should not speculate the stock market.
Committee Member Tucker stated the recommended action was unrelated to Section 115. He concurred with Committee Member Gorczyca and supported hiring an independent
actuary.
Chair Petros concurred.
Mayor Dixon stated the required payment to CalPERS would not change. She clarified that the suggestion review would provide possible options.
Carl Cassidy agreed with annual review.
Council Member Curry indicated opposition with stock market speculation.
Committee Member Gorczyca stated it provided an opportunity to consider options.
Council Member Curry stated there was no benefit if it did not beat CalPERS.
In response to a question posed by Committee Member Tucker, City Manager Kiff explained
that an RFQ would be issued.
MOTION Committee Member Tucker moved and Committee Member Warner seconded a motion to
hire an independent actuary to provide advice and education on pension and OPEB
Finance Committee Meeting Minutes June 16, 2016
Page 6 of 8
obligations and alternatives, initially scope on an hourly basis with a not to exceed value.
The motion carried 6-1, Council Member Curry dissenting due to his stated disfavor of establishing a Section 115 Benefit Trust.
D. FINANCE SUBCOMMITTEE RECOMMENDATIONS Summary: During the April 28, 2016, Finance Committee meeting Subcommittee Members presented
written recommendations as to general business practices of the City. The Committee, as a whole, provided general comments on the content and quality of the report. The Committee
will discuss each idea specifically and determine actions items associated with each recommendation. Recommended Action:
Make recommendation(s) to the City Manager as to the next steps related to the Subcommittee Report.
Committee Member Tucker suggested the Committee review each policy and determine if it
wanted to consider directing staff to come up with policy changes or new policies and/or come up with other actions.
Chair Petros asked if the summary reflected the parts to be considered.
Finance Director/Treasurer Matusiewicz stated Recommendation A.1. would be added to the
work plan to determine if the policy already existed.
Committee Member Tucker stated Recommendation A.2. should be reviewed as an action item. Chair Petros agreed with the concept but expressed concern about it being tied to the
development agreement.
Committee Member Tucker asked if an action plan should be prepared based on the recommendations. Finance Director/Treasurer Matusiewicz suggested returning with the
work plan in September and identifying the recommendations that could fit into policy.
Chair Petros suggested deferring to staff to come back with a work plan that was policy related or staff action related.
Committee Member Tucker stated Recommendations A.3. and B.1. should be Committee
practices. He discussed Recommendation B.2. and suggested the Committee decide if it should be a policy. City Manager Kiff discussed community tolerance for outsourcing.
Committee Member Tucker asked if it should be a policy or action item.
Committee Member Tucker suggested Recommendation B.3, B. 4, B.5 and B.6 were action items. He stated Recommendations C.1, C.2 and C.3 were suggestions to the Council. He
stated Recommendation C.4 was an action item. He stated Recommendations C.5 and C.6 were recommendations. He discussed Recommendation C.7 and stated it should be a
policy. Chair Petros indicated it was already included in policies. Committee Member Tucker stated Recommendation D.1 was a suggestion.
Chair Petros summarized the recommendations as actions, policies, deletions, and receive
and file statements.
Committee Member Tucker suggested a subcommittee to work with staff on the matter.
Jim Mosher expressed concern about inefficient use of staff time. He stated the cost of outsourcing was usually more expensive than anticipated.
Finance Committee Meeting Minutes June 16, 2016
Page 7 of 8
Carl Cassidy thanked the Committee for its work. He suggested the public be invited to
participate in the action plan.
Committee Member Tucker suggested the results of the annual valuation from CalPERS be presented to the Council prior to the budget presentation.
Council Member Curry left the meeting at 5:36 p.m.
Committee Member Warner requested the meeting be confined to discussion of unfunded
pension liability. E. ANNUAL FEE SCHEDULE UPDATE Summary:
In partnership with the City’s cost allocation plan consultant, staff reviewed and updated the city-wide cost allocation plan and direct user fee calculations for Recreation and Senior
Services (RSS), Library, Finance, and Municipal Operations Department (MOD), as well as analyzed the separation of mileage costs from Fire Emergency Medical Services (EMS) fees
and the establishment of flat fees for certain Community Development Department (CDD) services. The purpose of this meeting is to review staff’s recommendation to revise the
Master Fee Schedule according to CPI and to review the specific changes recommended for departmental related fees.
Recommended Action:
Staff welcomes input and recommendations on the proposed fee schedule. Based on the input and comments from Finance Committee, Finance staff will bring the proposed
recommendations to the City Council for formal action.
Senior Accountant Schweitzer presented a PowerPoint summarizing the proposed changes, authority to charge the cost of services, methodology, and proposed fees and changes by
department.
In response to Committee Member O’Neill, Senior Accountant Schweitzer confirmed that the benefits included pensions.
Chair Petros questioned the description of burden factors, including overhead.
Senior Accountant Schweitzer continued the presentation.
In response to Chair Petros, Senior Accountant Schweitzer explained the goal to retain the
same Recreation fees. Chair Petros expressed concern with reducing fees by packaging them with revenue increasing.
Revenue Manager Tseng stated it was not the intent to increase revenues by packaging fees.
City Manager Kiff stated the final report will clarify actual fee decreases.
In response to Committee Member O’Neill, Finance Director/Treasurer Matusiewicz stated the proposal was for Recreation to have the flexibility to modify fees based on demand.
In response to City Manager Kiff, Recreation and Senior Services Director Laura Detweiler
stated the fees would be approved by the City Council.
Senior Accountant Schweitzer continued the presentation.
Mayor Dixon asked if cost recovery was at the Council’s discretion. City Manager Kiff stated the Council could review the cost recovery percentage. He explained that it was based on
history. Mayor Dixon questioned the cost recovery for administrative hearing appeals. City
Finance Committee Meeting Minutes June 16, 2016
Page 8 of 8
Manager Kiff suggested staff provide the history on the cost recovery recommendations.
Mayor Dixon stated the Council should validate the percentages.
Finance Director/Treasurer Matusiewicz explained it was the Council’s prerogative to subsidize fees.
City Manager Kiff suggested reviewing a department or randomly selecting fees and the cost
recovery percentages.
In response to Committee Member O’Neill, Senior Accountant Schweitzer explained the deletion of Police fees by statute. She stated each department annually reviewed the
subsidies in Municipal Code Section 3.36.
Jim Mosher stated the fee schedule was confusing. He expressed frustration with the materials. He disagreed with changing hourly rates to flat fees. He questioned facility rental
and parking fees.
Chair Petros suggested simplicity and transparency be implemented.
Committee Member O’Neill suggested that cost recovery percentages for recreation fees up to 100 be changed to between 0 and 100.
Committee Member Tucker left the meeting at 6:08 p.m.
V. FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM)
With regard to the Finance Committee Recommendations, Mayor Dixon suggested that the
Committee go through policy review at the next meeting and determine if any further action is needed. VI. ADJOURNMENT
The Finance Committee adjourned at 6:10 p.m. to the next regular meeting of the Finance
Committee on September 15, 2016, at 4:00 p.m.
Filed with these minutes are copies of all materials distributed at the meeting.
The agenda for the Regular Meeting was posted on June 10, 2016, at 4:26 p.m., in the binder and on the City Hall Electronic Board located in the entrance of the Council Chambers at 100
Civic Center Drive.
Attest:
___________________________________ _____________________ Tony Petros, Chair Date
Finance Committee Chair
Finance Committee Meeting Minutes June 16, 2016
Committee Member O'Neill discussed the Certificates of Participation (COPs} and debt service for the Civic Center project. He recommended the Council hire a consultant to perform the refunding analysis required by F-6.
Finance Director/Treasurer Matusiewicz estimated the update to the previous analysis would cost approximately $3,000.
Council Member Curry stated the bonds would never be economically refundable; therefore, there was no value in analyzing the bonds.
Committee Member O'Neill suggested an independent analysis.
work. He stated further analysis was a waste of moneypu,f wiflt r-eJ �/ ���.
Council Member Curry stated the original consultant had the most interest in the
�
ef nding
Committee Member Tucker stated his experlvnce was not with municipal financin ·· �/?;;,id·�d the make whole provision as really_ makE9 better th, n �ole .. He · uestio�ed w .. th�r it� mad�sense to spend money on analysis. He aske · 1f there was a poss1 1h o money. Finance Director/Treasurer Matusiewicz stated ,, /JO"# �
Committee Member Gorczyca discussed the anticipated subsidy. She suggested it be a If" question to pose to bond counsel the possibility of restructuring due to poor performance.
Chair Petros stated Committee Member O'Neill was asking if the City should retain a consultant to perform the work under F-6. He suggested the policy did not require an outside consultant.
Carl Cassidy asked if the policy required "independent" review. He stated the Committee and staff could provide a better review.
MOTION Committee Member O'Neill moved and Committee Member Gorczyca seconded a motion to recommend hiring a consultant to evaluate the economic feasibility of reducing the amount of outstanding Certificates of Participation.
Committee Member Gorczyca suggested a legal consultant be utilized. Committee Member O'Neill declined the amendment. Committee Member Gorczyca withdrew her second.
Mayor Dixon seconded the motion.
Chair Petros ruled that he had already indicated the motion died due to lack of a second.
MOTION Mayor Dixon moved and Committee Member O'Neill seconded a motion to recommend hiring a consultant to evaluate the economic feasibility of reducing the amount of outstanding Certificates of Participation.
Council Member Curry discussed savings with Build America bonds. He stated the analysis would be a waste of tax payer's dollars.
Committee Member Gorczyca stated she could not support a financial firm because restructuring was a legal question.
Committee Member O'Neill stated the requirement was annual review. He suggested hiring someone independent of the original debt issuance.
Page 4 of 8
Item No. 4C1Draft Minutes June 16, 2016 Correspondence September 15, 2016
PROPOSED CHANGES BY COMMITTEE MEMBER TUCKER
Finance Committee Meeting Minutes
June 16, 2016
Council Member Curry stated a different conclusion would not be met and it would be a waste
of money.
The motion failed , Chair Petros, Council Member Curry, Committee Member Warner and
Committee Member Gorczyca dissenting.
&119/44 1,14 vitee- C. PENSION AND OPEB ADVISORY SERVICES
Summary:
During the April 28, 2016, Finance Committee meeting Committee Member Gorczyca
proposed bringing on an independent actuary to assist the Council, the Committee, and staff
to analyze various pension and OPEB funding and cost containment strategies. 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. Staff recommends that the Committee discuss the merits of engaging an
independent actuary or other financial professional to provide Pension and OPEB advisory
services and provide staff direction as to an initial scope of services.
Recommended Action:
a) Consider the merits of hiring an independent actuary or other financial professional to
provide various pension and OPEB advisory services;
b) Consider the scope, desired deliverables and contractual arrangement of proposed
services (hourly vs. fixed fee and not to exceed dollar value); and
c) Make appropriate recommendation(s) to the City Manager.
Committee Member Gorczyca suggested an independent actuary of the City's Pension and
OPEB liability. She discussed options outside of CalPERS to advise the City. She listed
clients of one independent actuary. She stated it was the prevailing practice and
recommended starting with an hourly contract, not to exceed $25,000.
Council Member Curry stated the City retained an independent actuary to review OPEB. He
stated he could support the recommendation if Section 115 Benefit Trust was removed. He
stated the City should not speculate the stock market.
Committee Member Tucker stated the recommended action was unrelated to Section 115.
He concurred with Committee Member Gorczyca and supported hiring an independent
actuary.
Chair Petros concurred.
Mayor Dixon stated the required payment to CalPERS would not change. She clarified that
the suggestion review would provide possible options.
Carl Cassidy agreed with annual review.
Council Member Curry indicated opposition with stock market speculation.
Committee Member Gorczyca stated it provided an opportunity to consider options.
Council Member Curry stated there was no benefit if it did not beat CalPERS.
In response to a question posed by Committee Member Tucker, City Manager Kiff explained
that an RFQ would be issued.
MOTION
Committee Member Tucker moved and Committee Member Warner seconded a motion to
hire an independent actuary to provide advice and education on pension and OPEB
Page 5 of 8
Finance Committee Meeting Minutes June 16, 2016
Committee Member O'Neill discussed the Certificates of Participation (COPs} and debt service for the Civic Center project. He recommended the Council hire a consultant to perform the refunding analysis required by F-6.
Finance Director/Treasurer Matusiewicz estimated the update to the previous analysis would cost approximately $3,000.
Council Member Curry stated the bonds would never be economically refundable; therefore, there was no value in analyzing the bonds.
Committee Member O'Neill suggested an independent analysis.
work. He stated further analysis was a waste of moneypu,f wiflt r-eJ �/ ���.
Council Member Curry stated the original consultant had the most interest in the
�
ef nding
Committee Member Tucker stated his experlvnce was not with municipal financin ·· �/?;;,id·�d the make whole provision as really_ makE9 better th, n �ole .. He · uestio�ed w .. th�r it� mad�sense to spend money on analysis. He aske · 1f there was a poss1 1h o money. Finance Director/Treasurer Matusiewicz stated ,, /JO"# �
Committee Member Gorczyca discussed the anticipated subsidy. She suggested it be a If" question to pose to bond counsel the possibility of restructuring due to poor performance.
Chair Petros stated Committee Member O'Neill was asking if the City should retain a consultant to perform the work under F-6. He suggested the policy did not require an outside consultant.
Carl Cassidy asked if the policy required "independent" review. He stated the Committee and staff could provide a better review.
MOTION Committee Member O'Neill moved and Committee Member Gorczyca seconded a motion to recommend hiring a consultant to evaluate the economic feasibility of reducing the amount of outstanding Certificates of Participation.
Committee Member Gorczyca suggested a legal consultant be utilized. Committee Member O'Neill declined the amendment. Committee Member Gorczyca withdrew her second.
Mayor Dixon seconded the motion.
Chair Petros ruled that he had already indicated the motion died due to lack of a second.
MOTION Mayor Dixon moved and Committee Member O'Neill seconded a motion to recommend hiring a consultant to evaluate the economic feasibility of reducing the amount of outstanding Certificates of Participation.
Council Member Curry discussed savings with Build America bonds. He stated the analysis would be a waste of tax payer's dollars.
Committee Member Gorczyca stated she could not support a financial firm because restructuring was a legal question.
Committee Member O'Neill stated the requirement was annual review. He suggested hiring someone independent of the original debt issuance.
Page 4 of 8
Item No. 4C1Draft Minutes June 16, 2016 Correspondence September 15, 2016
PROPOSED CHANGES BY COMMITTEE MEMBER TUCKER
Finance Committee Meeting Minutes
June 16, 2016
Council Member Curry stated a different conclusion would not be met and it would be a waste
of money.
The motion failed , Chair Petros, Council Member Curry, Committee Member Warner and
Committee Member Gorczyca dissenting.
&119/44 1,14 vitee- C. PENSION AND OPEB ADVISORY SERVICES
Summary:
During the April 28, 2016, Finance Committee meeting Committee Member Gorczyca
proposed bringing on an independent actuary to assist the Council, the Committee, and staff
to analyze various pension and OPEB funding and cost containment strategies. 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. Staff recommends that the Committee discuss the merits of engaging an
independent actuary or other financial professional to provide Pension and OPEB advisory
services and provide staff direction as to an initial scope of services.
Recommended Action:
a) Consider the merits of hiring an independent actuary or other financial professional to
provide various pension and OPEB advisory services;
b) Consider the scope, desired deliverables and contractual arrangement of proposed
services (hourly vs. fixed fee and not to exceed dollar value); and
c) Make appropriate recommendation(s) to the City Manager.
Committee Member Gorczyca suggested an independent actuary of the City's Pension and
OPEB liability. She discussed options outside of CalPERS to advise the City. She listed
clients of one independent actuary. She stated it was the prevailing practice and
recommended starting with an hourly contract, not to exceed $25,000.
Council Member Curry stated the City retained an independent actuary to review OPEB. He
stated he could support the recommendation if Section 115 Benefit Trust was removed. He
stated the City should not speculate the stock market.
Committee Member Tucker stated the recommended action was unrelated to Section 115.
He concurred with Committee Member Gorczyca and supported hiring an independent
actuary.
Chair Petros concurred.
Mayor Dixon stated the required payment to CalPERS would not change. She clarified that
the suggestion review would provide possible options.
Carl Cassidy agreed with annual review.
Council Member Curry indicated opposition with stock market speculation.
Committee Member Gorczyca stated it provided an opportunity to consider options.
Council Member Curry stated there was no benefit if it did not beat CalPERS.
In response to a question posed by Committee Member Tucker, City Manager Kiff explained
that an RFQ would be issued.
MOTION
Committee Member Tucker moved and Committee Member Warner seconded a motion to
hire an independent actuary to provide advice and education on pension and OPEB
Page 5 of 8
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5A
September 15, 2016
TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Dan Matusiewicz, Finance Director
(949) 644-3123 or danm@newportbeachca.gov
SUBJECT: ANNUAL INVESTMENT PORTFOLIO PERFORMANCE REVIEW
EXECUTIVE SUMMARY
The purpose of this memorandum is to report on the performance of the City’s
investment portfolio relative to the City’s investment objectives through June 30, 2016. All investments are in compliance with California Government Code and the City’s
adopted Statement of Investment Policy.
DISCUSSION
California Government Code Section 53600.5 mandates that the City Treasurer shall follow three objectives when investing, reinvesting, purchasing, acquiring, exchanging,
selling, or managing public funds. The primary objective of the City Treasurer shall be
to safeguard the principal of the funds under its control. The secondary objective shall
be to meet the liquidity needs of the City. The third objective shall be to achieve a
return on the funds under his or her control. Guided by Council Policy F-1 and constrained by California Government Code, the City’s core investment objectives are
to provide safety of the invested principal by maintaining a well-diversified, high-quality
portfolio of liquid assets while earning a market rate of return commensurate with the
City’s conservative risk profile.
CURRENT MARKET CONDITIONS
At its meeting on June 14-15, 2016, the Federal Open Market Committee (FOMC)
voted not to change the federal funds rate. The FOMC statement noted that the pace of
labor market gains slowed but economic activity picked up. Federal Reserve Chair
Janet L. Yellen opined, during her press conference, that the Federal Reserve can more effectively respond to an overshoot of inflation than they can to a weakening labor
market and/or deflation. Uncertainty surrounding the June 23, 2016, British referendum
on Britain’s European Union membership, corresponding volatility in sovereign bond
Annual Investment Portfolio Performance Review September 15, 2016
Page 2 yields, along with a disappointing May jobs report, likely contributed to the FOMC decision to leave rates unchanged. Shortly after the Brexit vote in June, the 2-year Treasury yield declined nearly 30 basis points and the 10-year Treasury yield declined
almost 38 basis points. Negative interest rates in Europe and Japan, investors’ hunt for
yield, and a global flight to quality continued to fuel demand for US Treasury securities.
As a result, the 2-Year treasury, which best reflects the weighted average life of the City’s portfolio remained below one percent for most of the year.
(Source: PFM)
According to the Bureau of Economic Analysis’s (BEA) advance estimate, real gross domestic product (real GDP) increased at an annual rate of 1.2 percent in the second quarter of calendar year 2016. The increase reflected positive contributions from
personal consumption expenditures (PCE), exports and a decrease in imports.
(Source: Chandler)
Annual Investment Portfolio Performance Review September 15, 2016
Page 3 Percentage Change of Real GDP from the Prior Calendar Quarter
Seasonally Adjusted Annual Rates
(Source: BEA) According to the US Bureau of Labor Statistics’ (BLS) establishment survey of payroll records, total nonfarm payroll employment increased by 287,000 in June. This job
growth occurred in leisure and hospitality, health care and social assistance, and
financial activities.
The unemployment rate increased from 4.7 percent in May to 4.9 percent in June. One possible explanation for the unemployment rate increasing, even though new jobs were
created, is that the number of new jobs created was less than the increase in the labor
force. The BLS survey shows the total labor force increasing by 414,000 in June
(223,000 from population increases and 191,000 from existing population returning to the labor force), which exceeds the 287,000 jobs created in the BLS establishment survey.
Unemployment Rate, Seasonally Adjusted
June 2014 – June 2016
(Source: BLS)
Annual Investment Portfolio Performance Review September 15, 2016
Page 4 Nonfarm Payroll Employment
Over-the-Month Change, Seasonally Adjusted In Thousands June 2014 – June 2016
(Source: BLS) PORTFOLIO OVERVIEW
The City’s strategy continues to focus identifying value from high quality marketable
securities among the full range of investment options ensuring the portfolio continues to
be well diversified.
As of June 30, 2016, the City’s entire investment portfolio totaled over $235 million.
These investments are pooled assets of the City Newport Beach, which includes the
General Fund, special revenue funds, internal service funds, the enterprise funds (i.e.,
Water and Wastewater) as well as various other funds. Short-Term Portfolio
The City uses a combination of demand deposit accounts (DDA) the Local Agency
Investment Fund (LAIF) and short-term securities to provide sufficient liquidity to meet
its day-to-day operating requirements. Municipal deposits in DDA accounts are 110
percent collateralized by bank assets and the City received a compensating balance credit against bank fees at an average rate of 0.44 percent. The average investment
life of the LAIF fund was 167 days for the quarter ending June 30, 2016. LAIF’s
average effective yield for the month of June was 0.576 percent.
Money that is likely to be spent in the near future, that is not needed immediately, is invested in a short-term investment account matched to specific maturity dates when
the City’s cash in-flow is at its slowest pace. This portfolio carve-out is composed of
securities that were purchased in December 2015, and are due to mature in September
and October 2016. It is anticipated that these investments will be expended
Annual Investment Portfolio Performance Review September 15, 2016
Page 5 commensurately with the City’s anticipated cash needs during that time period. By laddering short-term security purchases the City is able to earn a slightly higher rate of return than it would otherwise earn with LAIF. As of June 30, 2016, the average yield-
to-maturity at cost on this group of securities is currently 0.76 percent.
Medium-Term Portfolio
The City’s core investment portfolio of $172 million is actively managed by two individual investment advisors in accordance with the California Government Code and
the City’s investment policy. The investments are held by a custody bank and are
registered in the City’s name. The City accounts and monitors the portfolio independent
of the investment advisors, by a direct feed from the custody bank and the use of third party analytical software.
The core portfolio also follows a relatively short-term bond strategy with a weighted
average life of approximately 1.8 years. This portfolio aims to find value and maximize
yield within the high quality fixed income market within the duration range of the City’s strategic benchmarks. The City currently uses the Bank of America Merrill Lynch 1-3 YR US Treasuries index as one benchmark. The City also uses a second benchmark, the
Bank of America Merrill Lynch 1-3 YR US Gov/Corp A rated securities index, which is
more reflective of the portfolios risk and return characteristics. The use of two
benchmarks provides a means to evaluate the added value that high quality corporate bonds bring to the portfolio.
The City’s core portfolio finished the year with a total return of 1.579 percent. However,
it is important to note that the yield to maturity at cost is only 1.15 percent. The year-end
total return result is significantly inflated by price appreciation stemming from the bond rally that followed the Brexit vote late in the year. As fear spread in the equities markets, investors fled to bonds depressing yields and increasing the market value of
bonds. As illustrated by the chart on the following page, only 1.039 percent of total
return is attributable to income return while .54 percent is attributable to price
appreciation.
Annual Investment Portfolio Performance Review September 15, 2016
Page 6
*Cumulative monthly returns for fiscal year ended June 30, 2016
In the two year comparison below, the portfolio return compares favorably to both benchmarks. Since both investment advisors took a neutral position relative to the
benchmark duration the favorable comparisons was driven primarily due to active
management and security selection.
*
Annual Investment Portfolio Performance Review September 15, 2016
Page 7 The City’s entire investment portfolio of over $235 million as of June 30, 2016, is summarized below.
The full June 30, 2016, report contains portfolio diversification and risk summaries can be obtained at www.newportbeachca.gov/treasury.
Prepared by: Submitted by:
/s/Jeremiah Lim
/s/Dan Matusiewicz
Jeremiah Lim Dan Matusiewicz
Accountant Finance Director
FINANCE COMMITTEE
VISUAL AIDS
SEPTEMBER 15, 2016
Item No. 5A1Staff PresentationAnnual Investment Portfolio Performance ReviewSeptember 15, 2016
INVESTMENT PERFORMANCE
REVIEW - JUNE 30, 2016
Low Rate Environment Continued
FED talk turns dovish
on next rate increase BREXIT
Cumulative Returns
By Total Return Components
Fed Funds Rate
increased .25%
FED talk turns dovish
on next rate increase BREXIT
Good Performance Relative to
Benchmarks
Policy Compliance
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5B
September 15, 2016
TO:
FROM:
SUBJECT:
HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
Finance Department Dan Matusiewicz, Finance Director
(949)644-3123 or danm@newportbeachca.gov
INVESTMENT ADVISOR RECOMMENDATION
SUMMARY:
The Finance Department has outsourced the management of the City’s investment portfolio for more than twenty-five years. With increased staff workloads over the years, it is increasingly clear that the City’s
portfolio has benefited from full time expert management by professionally managed investment firms. As part of its due diligence, staff intends to continually evaluate the City’s comprehensive investment
program needs and conduct a complete and competitive selection process for investment advisory services at the end of every five-year contract term. The City issued a Request for Proposal (RFP) for
Investment Advisory Services on May 16, 2016. By the proposal due date of June 17, 2016, six firms submitted proposals. Staff narrowed its selection to three firms, conducted interviews, and selected
Chandler Asset Management (Chandler) as the sole investment manager. We believe Chandler to be the best overall fit for the City at this time. In moving to one investment manager from two, the City will lower
its fee structure; further optimize the investment program by better managing short-term liquidity and long-term funds under one manager; reduce coordination efforts and the number of quarterly meetings with
investment advisors from eight to four per year; conduct fewer account reconciliations and substantially reducing the incremental cost of investing from 7 basis points (bps) to 4 bps on newly invested capital.
RECOMMENDED ACTION:
Staff recommends retaining the services of Chandler and the City enter into a five-year contract based on
the firm’s new proposal for an annual savings of more than $25,000 per year as compared to a two investment advisor arrangement. In addition, staff recommends terminating the existing investment
management contract with PFM Asset Management as of December 31, 2016. With Finance Committee concurrence of staff’s recommendation, staff will proceed with the recommended action and bring the
new investment advisor contract to the City Council for approval.
DISCUSSION:
The Finance Department has outsourced the management of the City’s investment portfolio for more than twenty-five years. With increased staff workloads over the years, it is increasingly clear that the City’s
portfolio has benefited from full time expert management by professionally managed investment firms. During the last eight years, the Federal Government has kept interest rates historically low, and reduced the inventory of agency securities making investing the City’s idle money and diversifying the portfolio
more challenging. Contracting for investment advisory services avails the City to a full complement of investment services that would not be possible to do in-house without the economy of scale that full-time
Investment Advisor Recommendation September 15, 2016
Page 2
investment advisory services command. This means our investment portfolio is invested more safely because it benefits from full-time professional attention, ongoing credit analysis and the industry tools and
resources to manage public funds effectively and prudently.
The City previously engaged five separate investment managers and five separate custodial banks to oversee and safeguard its investment portfolio. In 2011, the City evaluated proposals from investment
advisory firms to evaluate the possibility of reducing its number of investment managers and custody banks greatly improving efficiency and reducing fees in the process. Based on the circumstances at that
time, the City reduced the number of service providers to Chandler, Cutwater Asset Management (Cutwater), and PFM Asset Management (PFM) who each were awarded five-year contracts. On October
6, 2014, the firm BNY Mellon, our current custody bank, announced its intention to acquire Cutwater. The City terminated its contract with Cutwater shortly after and transferred the assets previously managed by
Cutwater to Chandler and PFM proportionately. As part of its due diligence, staff intends to conduct a complete and competitive selection process for investment advisory services at the end of every five-year contract term. The contracts for Chandler and PFM, originally set to expire in June 2016, were extended through December 2016 in order to allow sufficient time to solicit new proposals from investment advisory
firms.
Staff has traditionally undertaken the task of planning, preparing and facilitating the RFP process for
investment advisory services. Since the City had already engaged two excellent firms, the task to differentiate the quality of services and best fit was going to be a difficult task. Staff thought it was prudent to hire a consultant with (1) years of industry experience who could attract a group of highly qualified firms
to respond to the RFP; (2) a demonstrated commitment to government excellence; (3) and the ability to undertake this important and detailed work during a time when staff was consumed with preparing the Fiscal Year 2016-2017 Budget and undertaking the ERP implementation. The City hired the firm Portfolio
Services for Government, LLC (PSG) to review RFP expectations and logistics with the City, prepare the RFP documents, analyze and summarize RFP responses, and facilitate the finalist interview process.
Together with PSG, the City issued a Request for Proposal (RFP) for Investment Advisory Services on
May 16, 2016. By the proposal due date of June 17, 2016, six firms submitted proposals, including: Atlanta Capital, Chandler, Eaton Vance Management, PFM, Public Trust Assets, and Reams Asset
Management. Proposals were submitted in two parts, including a written technical proposal and a separated sealed dollar cost bid. Under the coordination of the Finance Director and PSG, proposals were reviewed and ranked by a three-person Selection Committee comprised of the Finance Director, the Deputy Finance Director and a staff Accountant in charge of investment accounting and reconciliation.
The written technical proposals were reviewed and ranked by the Committee before the sealed dollar cost bids were opened and scored.
Staff evaluated and ranked each firm’s proposals based on qualifications and experience, management
approach and discipline, value added services, and fees. Due to the lower rankings assigned to Reams, Atlanta Capital, and Eaton Vance, staff did not advance these three firms for further consideration. Staff
narrowed their selection consideration to Chandler, PFM, and Public Trust – all reputable firms that have experience with meeting investment goals while providing continuity through challenging market cycles. These firms were then invited back to a finalist presentation and interview responding to sixteen specific questions that were provided to them in advance, and to respond to any other questions the Selection
Committee chose to probe further into.
While the three finalists met the qualifications; based on the technical content of the proposals, the quality and experience of the proposed engagement staff, comparable clients, and other intangibles; the
Selection Committee ranked Chandler as the top overall proposer deemed best able to meet the City’s overall needs. Sealed dollar cost bids were opened and revealed annual cost. Firms proposed a tiered
fee structure based on the total assets under management. The relative rankings, average fee rate and cost based on $185 million are summarized in the table to follow:
Investment Advisor Recommendation September 15, 2016
Page 3
While any of the three finalists would make a great choice, staff selected Chandler as the sole investment manager. The City values the relationship it has had with its past investment advisors, we believe
Chandler is currently the best fit for City at present because of their narrow focus on fixed income investments, frequent direct communication with portfolio managers, customizable solutions, favorable
pricing and other intangibles. Chandler also has proven track record of understanding and delivering on the City’s cash flow needs, a history of providing excellent service and has consistently performed well in
up and down market conditions. Since 1991, Chandler’s portfolio managers have worked diligently to invest the City’s portfolio in a manner that fulfills the specific objectives for safety, liquidity and income in a
prudent manner at a very competitive price. Chandler Asset Management is an SEC-registered investment advisor and woman-owned business enterprise with its principal place of business located in
San Diego, California. Chandler’s primary focus is managing funds for public agencies and other conservative-minded clients who are guided by the objectives of preservation of principal, access to cash, and maximization of investment outcome without undue exposure to risk.
Public Trust is a relatively new firm that has been in operation for five years. While Public Trust has highly experienced financial professionals, staff believes that having a few more years as an established
firm would make it more attractive. Although the City has been very satisfied with the past expert
performance of PFM, City Staff believes that a single investment manager could more efficiently manage its portfolio at a lower cost and streamline treasury operations without introducing new portfolio risk. In moving to one investment manager, the City will lower its fee structure from approximately $140,000 to
$114,000, a savings of over $25,000 per year based on a $185 million average balance. The City will also optimize the investment program by making better use of liquidity and long-term funds. There will be additional staff efficiency by reducing coordination efforts, reducing the number of quarterly meetings with
investment advisors year and fewer account reconciliations. The incremental cost of investing new funds is also reduced by reaching lower tiered pricing through one investment advisor.
Prepared by: Submitted by:
/s/ Steve Montano
/s/ Dan Matusiewicz
Steve Montano Dan Matusiewicz Deputy Finance Director Finance Director
Attachment:
A. Chandler Asset Management RFP Proposal
ATTACHMENT A
Chandler Asset Management RFP Proposal
FINANCE COMMITTEE
VISUAL AIDS
SEPTEMBER 15, 2016
Item No. 5B1Staff PresentationInvestment Advisor RecommendationSeptember 15, 2016
INVESTMENT ADVISOR
RECOMMENDATION
Proposers
•Atlanta Capital
•Chandler Asset Management
•Eaton Vance
•Public Funds Management (PFM)
•Public Trust
•Reams Asset Management
Evaluation
•Qualifications
•Experience
•Management Approach
•Discipline
•Value Added Services
•Fees
Finalist
•Chandler Asset Management
•Public Funds Management (PFM)
•Public Trust
Final Ranking
CITY OF NEWPORT BEACH FINANCE COMMITTEE
STAFF REPORT
Agenda Item No. 5C
September 15, 2016
TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949) 644-3123 or danm@newportbeachca.gov
SUBJECT: INVESTMENT PORTFOLIO RECOMMENDATIONS
SUMMARY:
The City segregates and accounts for its general, special and other revenue sources in individual funds to demonstrate that revenues are spent for the purpose in which they were intended. The nature, purpose
and time-horizon for their use vary greatly. However, they are pooled together for investment purposes and are invested in a one-size-fits-all manner. Staff proposes to further segment the investment portfolio
to better align assets with related objectives.
RECOMMENDED ACTION: Staff recommends the Finance Committee direct staff to return with a proposed segmentation of the
investment portfolio including a long-term segment, proposed investment strategies, and an appropriate risk analysis of the proposal.
DISCUSSION:
The City maintains many different funds to account for and demonstrate legal compliance that funds were
expended for the purpose they are intended. The nature, purpose and time horizon vary greatly by their intended use. For example, some revenues are utilized for day to day operations and others are saved
up for future capital purchases, infrastructure projects and long-term liabilities. The City has also benefited from various endowments where the principal can never be spent. It is appropriate to match
the term of investments with its intended use.
Instead of a “one-size-fits-all” portfolio, a time segmented portfolio that includes a long-term segment will allow staff more flexibility to strategically align portfolio investments with the City’s objectives for those
assets. Staff proposes to further tailor the portfolio to the City’s needs by:
a) further segmenting the City’s portfolio in three primary duration buckets (Short, Medium and
Long); b) better aligning investments along a timeline appropriate for their intended use, likely increasing
the average duration of the portfolio; and c) continuing to ladder investments to specific maturity dates to minimize the reliance on LAIF for
liquidity.
Adding a long-term segment to our portfolio will also allow our investment manager greater opportunities
to take advantage of the steeper parts of the yield curve. Additionally, securities can be transferred between portfolios as securities mature providing higher yields to the lower duration portfolios. Maturing
securities can essentially trickle down from the long-term portfolio to the medium or short term portfolio.
Investment Portfolio Recommendations September 15, 2016
Page 2
A more focused portfolio might look something like the following:
With the Finance Committee’s concurrence, staff will further refine and evaluate the merits of such a
proposal with our investment advisor and report back to you with a thorough risk analysis and estimates of the upside benefit.
Prepared by: Submitted by:
/s/ Steve Montano
/s/ Dan Matusiewicz
Steve Montano Dan Matusiewicz
Deputy Finance Director Finance Director
Short‐Term Liquidity Strategy Short‐Term Liquidity Strategy
Demand Deposit Account Daily Demand Deposit Account Daily
LAIF Pool 0 ‐ 6 Months LAIF Pool 0 ‐ 6 Months
Laddered Portfolio
(Matched to specific cash flow requirements)
0 ‐ 12 Months Laddered Portfolio
(Matched to specific cash flow requirements)
0 ‐ 36 Months
Medium‐Term Medium‐Term
Core Portfolio 1‐3 Yr Gov/Corp Core Portfolio 1‐5 Yr Gov/Corp
Long‐Term
Endowments & Long‐Term Savings 1‐10 Yr Treasury /Agency
Current Proposed ‐ Draft
FINANCE COMMITTEE
VISUAL AIDS
SEPTEMBER 15, 2016
Item No. 5C1Staff PresentationInvestment Portfolio RecommendationsSeptember 15, 2016
PORTFOLIO RECOMMENDATIONS
Portfolio Recommendations
Staff proposes to further tailor the portfolio to the City’s
needs by:
•further segmenting the City’s portfolio in three primary
duration buckets (Short, Medium and Long);
•better aligning investments along a timeline
appropriate for their intended use, likely increasing the
average duration of the portfolio; and
•continuing to ladder investments to specific maturity
dates to minimize the reliance on LAIF for liquidity.
Draft Proposal
Short-Term Liquidity Strategy Short-Term Liquidity Strategy
Demand Deposit Account Daily Demand Deposit Account Daily
LAIF Pool 0 - 6 Months LAIF Pool 0 - 6 Months
Laddered Portfolio
(Matched to specific cash flow requirements)
0 - 12 Months Laddered Portfolio
(Matched to specific cash flow requirements)
0 - 36 Months
Medium-Term Medium-Term
Core Portfolio 1-3 Yr Gov/Corp Core Portfolio 1-5 Yr Gov/Corp
Long-Term
Endowments & Long-Term Savings 1-10 Yr Treasury /Agency
Current Proposed - Draft
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5D
September 15, 2016 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949) 644-3123 or danm@newportbeachca.gov SUBJECT: IMPLEMENTATION OF FINANCE SUBCOMMITTEE RECOMMENDATIONS
SUMMARY
During the June 16, 2016, Finance Committee meeting the Committee reviewed the Subcommittee’s 16 recommendations to improve the City’s general business practices. The Subcommittee members
proposed, and the Committee as a whole assigned, each of the recommendations according to one of the following categories:
1. Incorporate into existing or new City Council policy 2. Create new or update General Plan policies
3. Action items only, no policy required 4. Comment only - no policy or action required (see Attachment A)
The Committee requested Committee Members Tucker and Warner work with staff to bring back a summary of the recommendations which appears in Attachment A. This staff report sets forth each
Subcommittee recommendation in italics (sometimes with staff added text for clarity) and staff’s comment, if any, about each recommendation appears below each recommendation. Incorporate Into Existing or New City Council Policy
The Committee recommended the following four items for incorporation into existing or new City Council
policy:
A.1 The Subcommittee recommends that fees or rents charged related to development or use of City property or assets overseen by the City also be updated on a fixed schedule to remain current (the
Subcommittee recommends every three years). The Subcommittee recommends that amounts charged by enterprise funds should also be updated on a fixed schedule to remain current (the
Subcommittee recommends at least every five years).
The Schedule of Rents, Fines, and Fees (SRFF) is a list of fees and charges that are updated annually and includes cost-of-services fees, fines and penalties, rents and other charges that are
imposed by the City or may be mandated by the State of California. The changes to the SRFF are based on an analysis or “study” of the cost of services. Fees for three to four departments are
studied, updated and approved by the City Council every year. Although there is no Council Policy that mandates any specific timeframe for updating the SRFF per se, staff generally
updates fees for each department every 3-5 years pursuant to Municipal Code Section 3.36, which states: “cost studies should be conducted at least every five years.” In the intervening
years between cost of service studies, fees for the non-studied departments are updated annually at the rate of the Consumer Price Index. The goal of cost-of-services fees is to recover the
appropriate cost of providing those services, as mandated by Municipal Code Section 3.36, Council Policy F-4 (Revenue Measures) and Item 12 of the FSP, which states: “The City will
Implementation of Finance Subcommittee Recommendations September 15, 2016
Page 2 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.”
Council traditionally had the authority to set the utility rates as part of the annual City budget or
municipal fee schedule approval process. In November 1996; however, California voters passed Proposition 218, a comprehensive constitutional amendment that set substantive and procedural
requirements for many types of property-related fees, assessments, and taxes. Under Proposition 218, most property-related fees (such as water and sewer) cannot be imposed or increased
without the approval of a majority of property owners subject to the fee or a supermajority of voters. California courts have held that water and wastewater fees like Newport Beach’s are
property-related fees subject to Proposition 218’s procedural and substantive requirements. As a result, the City must obtain property owner or voter approval before increasing water and
wastewater fees. In order to ensure that customers are equitably charged for utility fees, the City periodically performs a comprehensive rate analysis. Typically this follows the Water and Wastewater Master
Plan updates that identify infrastructure needs. The current recommended wastewater rate adjustments are based on the methodology described in the wastewater cost of service and rate
study completed by HF&H Consultants, LLC on January 12, 2016. Staff performs an annual
assessment of the financial position of the City’s water and wastewater utility fund to ensure adequate revenue to fund operations and capital improvements in compliance with the cost of service requirements. While the City currently has no policy that mandates the frequency of
utility rate increases, staff supports the timely adoption of fees that adequately recover operational and capital costs. Staff is supportive of a policy that requires the updating of enterprise master plans every five years. Staff is also supportive of a policy that requires the timely adoption of fees based on the master plan and an annual evaluation of funding adequacy
for enterprise operations.
B.2 The Subcommittee recommends that when an analysis indicates that there is expected to be little-to-no cost savings in outsourcing, the City consider outsourcing anyway to further insulate the City
against the risks associated with employment compared to contractual services. Employment services should be reserved to situations where the benefits of employment clearly outweigh the
risks. City Council may wish to consider the level of customer service prior to outsourcing to assure a high level of service, low response times, and compliance with all local, State, and Federal
regulations.
There may be instances where a City employee in a lower pension tier (the PEPRA tier, for instance) is a more cost-effective value in terms of service and total costs than a contractor with
a markup, or a contractor that courts later deem should have been in PERS regardless. The
City should develop a comprehensive model to evaluate which choice is more cost-effective at various PERS discount rates.
C.5 Unbudgeted expenditures that require amendment to the Annual Budget ought to be avoided to the extent practicable. Therefore, the Subcommittee recommends that Budget Amendments be
infrequently used especially in the second half of a fiscal year when the Annual Budget deliberations are or will shortly be underway. Consider a policy that allows the Finance Director to ask Finance
Committee for input prior to Council Budget Amendments.
Some amendments such as a large repair to the city’s infrastructure are time sensitive. The
annual budget may not provide sufficient funding to pay for large unforeseen repairs and staff may seek Council approval to use the enterprise reserves for which they were intended.
C.6 The Subcommittee recommends that enterprise funds be operated on a stand-alone basis with the
City being charged the same rates by enterprise funds as unrelated customers, and likewise the City
should charge the same amounts to an enterprise fund as are charged to unrelated customers for goods and services provided by the City. The goal should be to ensure that rates charged to
Implementation of Finance Subcommittee Recommendations September 15, 2016
Page 3
customers are sufficient to cover costs, including sufficient reserves to cover expected replacements and upgrades that will occur over time.
Operating revenue for the City’s Water and Wastewater operations is generated by fixed and
variable fees charged to payers who occupy developed properties in Newport Beach. The Governmental Accounting Standards Board requires that Water and Wastewater operations
be classified as enterprise funds that are operated in a manner similar to private business, with costs recovered primarily through user charges. The methodology used to calculate fees
for utility operations includes:
•Analysis of capital funding strategies that targets completion of near-term projectsand provides a planned approach to addressing long-term system investments, such
as rehabilitation and replacement.
•Analysis of different reserve requirements, which identifies areas to improve fiscalstability during periods of revenue uncertainty, to address unplanned events, and to
strategically fund ongoing investments in system infrastructure.
•Cost of service analysis to support the development of equitable rate structures.Equity is achieved when customers pay for utility service in proportion to their use ofthe service and the unique demands they place on the system.
Staff supports the recommendation which is aligned with the best practices used by
municipalities who provide utility services.
Create New or Updated General Plan Policies
A.2 The Subcommittee recommends that the City undertake a review of policies in the General Plan toensure that property owners who propose conversions to residential uses contribute an appropriate
amount towards infrastructure costs and maintenance.
Action Items Only, No Policy Required
The Committee classified the five recommendations below as action items not requiring a policy addition or amendment. Staff can program these recommendations into the Finance Committee work plan for
future consideration.
B.3 The City should thoroughly analyze the number of public safety employees to see if management
and administration can be streamlined, or functions can be combined internally or with other nearby
agencies.
B.4 The Subcommittee recommends that department management justify sworn personnel being usedto perform any functions other than those that require sworn personnel.
B.5 The Subcommittee recommends that the City retain an outside consultant to review the City’s
staffing practices to ensure that only the number of employees on staff is necessary to properly perform the work expected of staff.
B.6 The City might consider engaging an outside internal auditor to conduct a review of the
appropriateness of expenditures that are routinely made by departments.
C.4 Ascertain if it is possible to consolidate existing City Hall staff and thereafter to relocateadministrative staff from other facilities to City Hall in order to repurpose old facilities for community
use and/or obviate the cost of building new or larger facilities for community use.
RECOMMENDED ACTION
Make recommendation(s) to the City Manager as to the next steps related to the Subcommittee Report.
Implementation of Finance Subcommittee Recommendations September 15, 2016
Page 4 Prepared by: Submitted by:
/s/ Steve Montano
/s/ Dan Matusiewicz
Steve Montano Dan Matusiewicz Deputy Finance Director Finance Director
Attachment:
A. Finance Subcommittee Recommendations
ATTACHMENT A
Finance Subcommittee Recommendations
Finance Subcommittee Summary of Recommendations
Ref. Recommendations
Finance Committee
Comments
OVERVIEW: The summary below is a checklist of recommendations generated from the Subcommittee Report. The
Report itself is more detailed and should be consulted in evaluating each Recommendation set forth below.
A. MAXIMIZE REVENUES
A.1 The Subcommittee recommends that fees or rents charged related to
development or use of City property or assets overseen by the City be updated on
a fixed schedule to remain current (the Subcommittee recommends every three
years). The Subcommittee recommends that amounts charged by enterprise
funds should also be updated on a fixed schedule to remain current (the
Subcommittee recommends at least every five years).
Incorporate into existing
or new City Council policy.
A.2 The Subcommittee recommends that the City undertake a review of policies in
the General Plan to ensure that property owners who propose conversions to
residential uses contribute an appropriate amount towards infrastructure costs
and maintenance.
Create new or updated
General Plan Policies.
A.3 In statistical areas of the City where more than one development project is under
consideration, but they all cannot be implemented without one or more of them
being required to go through a Charter Section 423 vote of the public, all other
things being equal, the Subcommittee recommends that if the Council chooses to
prioritize the projects, the generation of maximum financial benefit to the City
should be a factor in deciding which project would have priority.
Comment only - no policy
or action required.
B. MINIMIZE COSTS
B.1 Assist the Council in finding potential strategies to reduce the financial burden of
employee benefits to the long term financial health of the City.
Comment only - no policy
or action required.
B.2 The Subcommittee recommends that when an analysis indicates that there is
expected to be little-to-no cost savings in outsourcing, the City consider
outsourcing anyway to further insulate the City against the risks associated with
employment compared to contractual services. Employment services should be
reserved to situations where the benefits of employment clearly outweigh the
risks.
Incorporate into existing
or a new City Council
policy on outsourcing.
B.3 The City should thoroughly analyze the number of public safety employees to see
if management and administration can be streamlined, or functions can be
combined internally or with other nearby agencies.
Action item only.
B.4 The Subcommittee recommends that department management justify sworn
personnel being used to perform any functions other than those that require
sworn personnel.
Action item only.
B.5 The Subcommittee recommends that the City retain an outside consultant to
review the City’s staffing practices to ensure that only the number of employees
on staff is necessary to properly perform the work expected of staff.
Action item only.
B.6 The City might consider engaging an outside internal auditor to conduct a review
of the appropriateness of expenditures that are routinely made by departments.
Action item only.
C. BUDGET PROCESS
C.1 The Subcommittee believes it would be prudent for the Council to consider
prioritizing expenditures it chooses to make in the Capital Improvement Program
on the basis of potential exposure to the City for failing to make such
expenditures in a timely fashion.
Comment only - no policy
or action required.
Ref. Recommendations
Finance Committee
Comments
C.2 To the extent the City has a master plan for a particular infrastructure type of
item, the Subcommittee recommends that the master plan be adhered to,
especially if the failure to do so could result in liability to the City for failing to
follow its own plan.
Comment only - no policy
or action required.
C.3 Funding decisions that would restrict the ability of staff to implement an
infrastructure master plan should be identified to the Council so that funding may
be provided or staff may be directed to modify the master plan to be consistent
with the funding priorities of the Council.
Comment only - no policy
or action required.
C.4 Ascertain if it is possible to consolidate existing City Hall staff and thereafter to
relocate administrative staff from other facilities to City Hall in order to
repurpose old facilities for community use and/or obviate the cost of building
new or larger facilities for community use.
Action item only.
C.5 Unbudgeted expenditures that require amendment to the Annual Budget ought
to be avoided to the extent practicable. Therefore, the Subcommittee
recommends that Budget Amendments be infrequently used especially in the
second half of a fiscal year when the Annual Budget deliberations are or will
shortly be underway.
Consider a policy that
allows Finance Director to
ask Finance Committee for
input prior to Council
Budget Amendments.
C.6 The Subcommittee recommends that enterprise funds be operated on a stand-
alone basis with the City being charged the same rates by enterprise funds as
unrelated customers, and likewise the City should charge the same amounts to an
enterprise fund as are charged to unrelated customers for goods and services
provided by the City. The goal should be to ensure that rates charged to
customers are sufficient to cover costs, including sufficient reserves to cover
expected replacements and upgrades that will occur over time.
Incorporate into existing
or new City Council policy.
D. PENSION REFORM
D.1 The Subcommittee would urge the Council to seek a leadership position in the
advocacy of comprehensive pension reform in California. The Subcommittee
recommends that the Committee stand ready to assist the Council in this
endeavor as the Council may see fit.
Comment only - no policy
or action required.
ARTICLE PROVIDED BY MAYOR DIXON
Item No. 5E2Additional Materials ReceivedCommittee Discussion of Future Pension OPEB Agenda Items September 15, 2016
.CalPERS $100k Club Up 11% in Orange County as NewportB ... Page 1 of3
PRESS RELEASES
Cal PERS $1 OOk Club Up 11 °/o in
Orange County as Newport
Beach Experiences State's
Largest Rate Hike
By mrubio (https://volceofoc.org/author/mrublo/) August 8, 2016
The following is a press release from an organization unaffiliated with Voice
of OC. The views expressed here are not those of Voice of OC
(http://voiceofoc.org/filesjzo 16 / o 6 / unnamed-3 .git)
For Immediate Release
Contact Robert Fellner, 559�462-0122 (tel:559-462-0122)
CalPERS $100k club up 11% in Orange
County as Newport Beach experiences state's largest
rate hike
Today, TransparentCalifornia.com released previously-unseen 2015 pension
payout data from the California Public Employees' Retirement System
(Ca!PERS).
The over 625,000 (http://www.npri.org/track/trackurl.asp?q-rnptacicmaot) records -
obtained via a public records request -reveal that 1,495 Orange County
retirees collected an annualized benefit worth at least $100,000, an 11%
increase from last year's report.
The Orange County cities with at least 20 full-career retirees tbat had the
highest average full-career pensions for safety officers were:
L Costa Mesa: $122,870, which was the 12th highest statewide
2.Irvine: $119,281, which was the 17th highest statewide
https://voiceofoc.org/2016/08/calpers-1 OOk-club-up-11-in-orange-. .. 9/9/2016
ARTICLE PROVIDED BY COMMITTEE MEMBER GORCZYCA
Item No. 5E3Additional Materials Received
Committee Discussion of Future Pension OPEB Agenda Items
September 15, 2016
PROVIDED BY COMMITTEE MEMBER WARNER Item No. 5E4Additional Materials ReceivedCommittee Discussion of Future Pension OPEB Agenda ItemsSeptember 15, 2016
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5F September 15, 2016
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Steve Montano, Deputy Finance Director (949) 644-3240, smontano@newportbeachca.gov
SUBJECT: QUARTERLY ERP UPDATE
SUMMARY: ERP (Enterprise Resource Planning) software is a business management software system that integrates
all of the City’s core functional requirements for financials, human capital management, citizen services, and revenues. Implementation of the Enterprise Resource Planning (ERP) software implementation
project continues. The software provider of the City’s ERP or business management software system that integrates all of the City’s core functional requirements for financials, human capital management,
citizen services, and revenues is Tyler Technologies Inc. The Tyler system known as “Munis” will replace the current FinancePlus system.
The ERP implementation consists of four major overlapping phases. The graphic below depicts the
current project phase start and planned go live dates (MMM-YY). We have completed Phases 1 and 2 and are currently working on Phases 3 and 4.
To follow is an update of recent and planned activities pertaining to each project phase.
Quarterly ERP Update September 15, 2016
Page 2 Financials – Phase 1
The financials portion of the project (including such modules as General Ledger, Purchasing, Budget, Projects and Grants and Accounts Payable) became operational on July 8, 2015. Since this time, staff
has grown accustomed to the new functionality and fine-tuning the system. A new software release (new version of the entire suite of modules) was installed on July 9, 2016.
HR/Payroll – Phase 2
The Human Resources and Payroll module became operational on December 26, 2015. An important
functionality of the module known as the Employee Self Service (ESS) allows employees to access and update their own personal information through a secure online web portal, request time off, and enter
timecards to record time worked and/or absences. The module also allows for a paperless payroll process, streamlines timesheet entry and ensures all local, state and federal requirements are met with Munis Payroll.
Utility Billing – Phase 3
Phase 3 consists of implementing new General Billing, Accounts Receivable, and Utility Billing software.
These modules will improve how we create invoices and bills for miscellaneous charges, and maintain accounts for our water and wastewater customers. The General Billing module became operational on April 28, 2016. Staff has been participating in Tyler led business processing consulting sessions to
configure the utility billing software in conformance with the City’s business needs and industry best business practices. Work on the conversion of data from the old utility billing system to the new is underway. The utility billing portion of this phase is scheduled to be completed in February 2017.
Work Orders and Fleet Management – Phase 4
The modules in Phase 4 will provide work order solutions for preventive maintenance schedules,
maintenance department inspections, departmental service requests, and citizen service requests. As a result of their integration with the Financial, Human Resources and Revenue suites, the modules will eliminate duplicate entry of labor time, journal entries and billings. Information will be up-to-date and data
input errors or missing information will be reduced. Testing and configuration of the new work order system is ongoing. Training will soon follow with an expected completion date of October 2016 for the Work Order portion and first quarter 2017 completion for the Fleet Management portion.
RECOMMENDED ACTION:
Receive and file.
/s/ Steve Montano
_______________________
Steve Montano
Deputy Director, Finance