HomeMy WebLinkAboutFinance Committee Agenda - January 11, 2018CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA - Final
100 Civic Center Drive - Crystal Cove Conference Room, Bay 2D
Thursday, January 11, 2018 - 3:00 PM
Finance Committee Members:
Diane Dixon, Chair / Council Member
Will O'Neill, Mayor Pro Tem
Kevin Muldoon, Council Member
William Collopy, Committee Member
Patti Gorczyca, Committee Member
Joe Stapleton, Committee Member
Larry Tucker, Committee Member
Staff Members:
Dave Kiff, City Manager
Carol Jacobs, Assistant City Manager
Dan Matusiewicz, Finance Director / Treasurer
Steve Montano, Deputy Director, Finance
Marlene Burns, Administrative Specialist to the Finance Director
The Finance Committee meeting is subject to the Ralph M. Brown Act. Among other things, the Brown Act requires that
the Finance Committee agenda be posted at least seventy-two (72) hours in advance of each regular meeting and that
the public be allowed to comment on agenda items before the Committee and items not on the agenda but are within
the subject matter jurisdiction of the Finance Committee. The Chair may limit public comments to a reasonable amount
of time, generally three (3) minutes per person.
The City of Newport Beach’s goal is to comply with the Americans with Disabilities Act (ADA) in all respects. If, as an
attendee or a participant at this meeting, you will need special assistance beyond what is normally provided, we will
attempt to accommodate you in every reasonable manner. Please contact Dan Matusiewicz, Finance Director, at least
forty-eight (48) hours prior to the meeting to inform us of your particular needs and to determine if accommodation is
feasible at (949) 644-3123 or dmatusiewicz@newportbeachca.gov.
NOTICE REGARDING PRESENTATIONS REQUIRING USE OF CITY EQUIPMENT
Any presentation requiring the use of the City of Newport Beach’s equipment must be submitted to the Finance
Department 24 hours prior to the scheduled meeting.
I.CALL MEETING TO ORDER
II.ROLL CALL
III.PUBLIC COMMENTS
Public comments are invited on agenda and non-agenda items generally considered to be
within the subject matter jurisdiction of the Finance Committee. Speakers must limit comments
to three (3) minutes. Before speaking, we invite, but do not require, you to state your name for
the record. The Finance Committee has the discretion to extend or shorten the speakers’ time
limit on agenda or non-agenda items, provided the time limit adjustment is applied equally to all
speakers. As a courtesy, please turn cell phones off or set them in the silent mode.
IV.CONSENT CALENDAR
January 11, 2018
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Finance Committee Meeting
MINUTES OF NOVEMBER 9, 2017A.
Recommended Action:
Approve and file.
DRAFT MINUTES 110917
V.CURRENT BUSINESS
RISK BASED RESERVE ANALYSIS OVERVIEWA.
Summary:
Consultant will provide an update and overview of the Risk-based Reserve Analysis.
Recommended Action:
Receive and file.
STAFF REPORT
ATTACHMENT A
ATTACHMENT B
ATTACHMENT C
CONSULTANT OVERVIEW OF PROPERTY AND SALES TAX REVENUESB.
Summary:
Consulting specialists in Property and Sales Tax will provide an overview of revenue
prospects.
Recommended Action:
Receive and file.
LONG RANGE FINANCIAL FORECAST (LRFF)C.
Summary:
City staff will provide an update on efforts to improve the City's Long Range Financial
Forecast and provide a comparative review of best practices to other cities.
Recommended Action:
Receive and file.
January 11, 2018
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Finance Committee Meeting
REVIEW OF FINANCE COMMITTEE RESOLUTIOND.
Summary:
The Committee will review its objectives as set forth in Council Resolution 94-110 as
amended by Council Resolution 2017-58.
Recommended Action:
Receive and file.
STAFF REPORT
ATTACHMENT A
BUDGET AMENDMENTSE.
Summary:
Receive and file a staff report on the budget amendments for the prior quarter.
Recommended Action:
Receive and file.
STAFF REPORT
ATTACHMENT A
REVIEW OF FINANCE COMMITTEE WORKPLANF.
Summary:
Staff will review with the Committee the agenda topics scheduled for the remainder
of the fiscal year and highlight those work plan items that were carried forward from
the prior fiscal year. The Committee will also consider setting up a subcommittee to
review finance related Council Policies.
Recommended Action:
Receive and file.
PENSION DISCUSSIONG.
Summary:
Agenda item reserved for discussion regarding the status of the City's pension
liability, payment strategies, CalPERS policy updates and or advocacy efforts.
Recommended Action:
Discussion if applicable.
VI.FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS
WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR
REPORT (NON-DISCUSSION ITEM)
January 11, 2018
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Finance Committee Meeting
VII.ADJOURNMENT
Finance Committee Meeting Minutes November 9, 2017
Page 1 of 11
CITY OF NEWPORT BEACH FINANCE COMMITTEE NOVEMBER 9, 2017 MEETING MINUTES
I.CALL MEETING TO ORDER
The meeting was called to order at 3:00 p.m. in the Crystal Cove Conference Room, Bay 2D, 100Civic Center Drive, Newport Beach, California 92660.
II.ROLL CALL
PRESENT:Council Member Diane Dixon (Chair), Council Member Will O'Neill,
Committee Member William Collopy, Committee Member Patti Gorczyca, Committee Member Joe Stapleton, and Committee Member Larry Tucker
ABSENT: Mayor Kevin Muldoon
STAFF PRESENT: City Manager Dave Kiff, Assistant City Manager Carol Jacobs, Finance
Director/Treasurer Dan Matusiewicz, Deputy Director, Finance Steve Montano, Budget Manager Susan Giangrande, Accounting Manager
Rukshana Virany, Purchasing Agent Anthony Nguyen, Fire Chief Chip Duncan, Public Works Finance Administrative Manager Jamie Copeland,
and Administrative Specialist to the Finance Director Marlene Burns
OUTSIDE ENTITY: Ms. Marilyn Jones (Nyhart)
MEMBERS OF THE PUBLIC: Mr. Jim Mosher
III.PUBLIC COMMENTS
There were no public comments.
IV.CONSENT CALENDAR
A.MINUTES OF OCTOBER 12, 2017Recommended Action:Approve and file.
Discussion ensued regarding the quality of the minutes. The draft minutes were tabled to a
subsequent meeting for approval.
V.CURRENT BUSINESS
A.OPEB VALUATION REVIEWSummary:
Actuary, Marilyn Jones, will provide a brief overview of our latest OPEB (Retiree InsurancePlan) actuarial valuation.
Recommended Action:Receive and file.
Chair Dixon provided an overview of the Finance Committee’s agenda and its responsibilities
for review prior to the City’s official budget planning process.
Finance Committee Meeting Minutes November 9, 2017
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Ms. Jones provided the review of the valuation report. The purpose of the updated valuation,
done every two years, is to provide updated funding requirements and information related to the City’s OPEB program. There are new funding requirements this year. The packet provided
included the funding valuation report and a separate accounting report to provide details related to compliance with the new accounting requirements. The current program provided by the
City, implemented in 2006, is a “defined contribution” Retirement Health Savings account.
Chair Dixon inquired whether the program was self-funded. Ms. Jones responded it is not 100% self-funded as the City provides supplemental funding for the program.
Ms. Gorczyca confirmed the program (RHS) is a pre-tax Health Savings Account.
Ms. Jones reviewed the four groups which participate in the program, including new hires,
employees other than new hires who elected to stay in the former program, employees already in retirement, and part-time employees who can stay in the program and receive the minimum
contribution. As a requirement of participation in CalPERS, the City must provide a minimum contribution, which will increase to $133 in 2018. The minimum contribution amount is indexed
annually to medical price inflation. Employees can use the plan to offset costs until they reach eligibility for Medicare in the CalPERS medical plan. The program is open enrollment, and
many early retirees will return to the City’s program in later years.
Mr. Matusiewicz stated the Public Employees' Medical & Hospital Care Act (PEMHCA) minimum contribution liability continues to be required as long as an individual is alive and
chooses to participate in the plan.
Ms. Gorczyca inquired whether the requirement to keep employees on retiree medical, post-retirement, comes from CalPERS.
Ms. Jones stated PEMHCA refers to the statue statute, which opened the State’s health
program to other public entities. It requires a public agency to provide the same health savings benefit to retirees as it does to active employees.
Ms. Gorczyca inquired regarding the City’s latitude as to the structure of the program. Jones
affirmed that the City must make the minimum contribution as a CalPERS condition of participation in the program.
Ms. Jones stated the City’s only obligation is to the year-to-year payment into the account.
Employees also have a minimum contribution.
Ms. Giangrande stated the employee’s contribution is 1% of base pay for all full-time employees. The City’s contribution is more complex and includes $2.50 per month based on
for age plus years of service as of December 31 of each year. The amount goes up $5.00 a month every year. In addition, each bargaining unit can elect to participate by determining a
percentage of flex leave or vacation buyout to be contributed. The IRS issued a private side letter ruling the City’s plan meets IRS guidelines.
Ms. Jones reported there are currently 591 employees in the current program. 539 are
“grandfathered-in” and have an ability to receive the defined benefit. They receive a $400 - $450 per month contribution. She responded the City’s current program is very common among
cities and eliminates liabilities related to retiree medical in the long run.
Mr. Kiff affirmed the CalPERS medical program is negotiated with the employee unions and would require negotiation for the City to opt out.
Ms. Jones displayed a chart related to premiums for various employee Medical plan options.
The liability the City pays is based upon the expected costs for retirees.
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Mr. Matusiewicz commented that since the plan has been closed, there are not many decisions the Finance Committee needs to make. The City’s obligations are minimal.
Mr. O’Neill noted there was a past question that came before the Committee as to whether the
City should change the discount rate. He reviewed some of the options presented at that time regarding the impacts of various interest rates.
Chair Dixon noted today’s presentation was just informational related to the valuation report;
however, there was merit to potentially reviewing, at a future meeting, whether the Finance Committee has a “point of view” on whether the City should continue to offer the retiree health
benefit program.
Mr. Matusiewicz commented that the City can change the defined contribution plan through the negotiation process, but it cannot change the defined benefit.
Mr. Kiff inquired whether the California Rule applies to this matter.
Ms. Gorczyca described the renegotiation of the defined benefit that occurred at the County,
where the program was structured to encourage employees to defer retirement until after the ages of between 50 and 65. The City does have negotiating ability.
Mr. Kiff explained he is in not in the hybrid plan. If he retires before Medicare eligibility he
receives $133 a month from the City which he can apply to offset the cost of the medical health insurance amount he wants. He believes it is one of the most flexible plans in terms from the
employer’s point of view.
Chair Dixon commenced in the private sector there is typically no benefit after the age of 65, apart from certain instances of supplemental executive benefits. Most private sector employees
receive no benefit after age 65.
Mr. Kiff stated the City could negotiate with the employee bargaining units to opt out of CalPERS medical. The City would then not be obligated to pay the PEMCHA minimum. The
California Rule may apply in regard to change of the benefit; however, it may be able to be done for new employees. However, the City either participates in the CalPERS medical plan
overall, or not. There is no hybrid plan.
Mr. Collopy inquired regarding the 6.5% discount rate. The Finance Committee spent considerable time reviewing the $9 million additional contribution toward the pension unfunded
liability. He inquired whether the $9 million is in a Section 115 Trust and how it is invested.
Mr. O’Neill stated the City controls the discount rate and it sets the amount the City can contribute every year.
Mr. Matusiewicz stated the City pension program is already a trust and those monies are
invested in equities. Since the City is administering the OPEB plan, if the City held the monies and did not participate in a trust, it would be subject to the California Government Code section
limiting investments to fixed income securities only. In a trust, the City can invest the funds the same way CalPERS does and currently, the City’s OPEB investment agent is CalPERS.
Mr. Matusiewicz affirmed the 6.5% discount rate applied to OPEB plan and stated that 6.5% is
more appropriate than 7% because it is a “closed plan” with only 88 active employees remaining eligible for a defined benefit. In the pension program, which is ongoing, a higher rate
of return can be expected because of the longer investment horizon. The City wants to have the OPEB trust fully funded by the time the 88th employee leaves the City.
Finance Committee Meeting Minutes November 9, 2017
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Mr. Collopy inquired whether a projection could be provided displaying the City’s contribution
obligation under a 7% scenario.
Ms. Gorczyca stated that the City’s current earnings are close to CalPERS earnings as the City chose the most aggressive option out of the three which were offered.
Chair Dixon inquired whether the Finance Committee has interest in a future discussion
regarding the structure of the ongoing OPEB program.
Mr. Kiff stated this item is placed on the Finance Committee’s agenda annually for general information purposes.
Mr. Matusiewicz commented that the City’s contribution obligation is $3.8 million per year for
the next 10 years and then drops to $500,000 per year thereafter. He inquired about the level of interest by the Finance Committee in addressing OPEB obligation further.
Mr. O’Neill stated the Finance Committee’s role in regard to OPEB should focus on how much
to be budgeted for the City’s obligations and how fast should the City pay down the liability.
Mr. Tucker commented the current obligation is for the next ten years and that the obligation is nominal.
Mr. Collopy inquired as to the assumptions behind the $3.5 million contribution.
Ms. Gorczyca commented the Finance Committee should focus on the discount rate and review
the actuarial, and not particularly, on whether the City should offer the program, which is a matter of negotiations with the bargaining units.
Ms. Jones commented that the 6.5% project is the “best guess” at this point in time.
Ms. Gorczyca inquired whether the revenues invested include employee contributions.
Ms. Jones affirmed the revenues are coming from earnings on the investments and the City’s
contributions.
Chair Dixon opened public comments.
Jim Mosher inquired whether the $450 a month contribution for the employees in the previous version of the retiree medical plan includes the $133 PEHMHA mandatory minimum
contribution or is the $133 paid in addition to that amount.
Ms. Jones confirmed the $133 is included in the $450 total payment.
There were no further public comments and there was no further discussion on this item.
B. LONG-TERM FINANCIAL FORECAST Summary:
The item is reserved for a review and discussion of budget decisions that need to be considered in conjunction with the development of the budget and revision to the Long-Term Financial
Forecast. This discussion will include proposed revenue estimate revisions, the funded status of worker’s compensation and general liability reserves and other forecast scenarios.
Recommended Action: Receive and file.
Chair Dixon stated this is a carry-over item from a previous meeting.
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Mr. Matusiewicz summarized a few of the plans and options that will be reviewed by the
Finance Committee in the upcoming months. First, he highlighted the City’s pension plan funding options and noted the Finance Committee can recommend the minimum payment of
$25.6 million, the same amount as last year ($33.8 million), or a slightly higher payment which would provide a “margin of comfort” in paying off the entire liability.
Mr. Matusiewicz stated there will be a decision required in the spring because when the City
pays down the unfunded liability in 15/16 years, it will still have “dangling” credits from investment gains that are being amortized over 30 years. If the City does nothing, he suggested
the potential of developing assets in excess of the pension obligation after the 15th or 16th year. He did note there would still be a final clarification from CalPERS as to whether the City can
proceed with such an option; however, such a plan would allow the City to bring credits forward in the next 15 years when the City needs them the most.
Chair Dixon confirmed today’s presentation is for education purposes only and that no final
decisions would be required at this time.
Mr. Matusiewicz confirmed the Finance Committee reviewed the OPEB actuarial and displayed a slide reviewing the contribution for the next 5 years. Longer term, beginning in Year 11, the
net OPEB contribution drops down to $700,000 per year including an “implicit” subsidy; the City is providing active employees a benefit that is actually deemed a retiree medical cost. Once
the unfunded liability is paid off, the City can reimburse itself if it pays full “ADC” (Actuarially Determined Contribution) from the trust. From an accounting point of view, the implied subsidy
is simply reclassifying a part of the active employee health allowance to a retiree medical cost.
Mr. Matusiewicz noted that other funds (Worker’s Compensation and General Liability) are not looked at in detail, rather just a review of the funding status is conducted. In addition, the City
will review where it is at relative to the recommended contribution levels. This review is currently conducted every two years. During the recent period of time, there has been higher safety
worker’s compensation claim experience. The City’s Risk Manager will need to review the claims and provide recommendations as to cause and what can be prevented. At this time, the
funds are being reviewed only from an actuarial point of view.
Mr. Collopy noted the line item recommended ultimately by the City Manager during the budget process will be reviewed by City Council as too high or too low based upon the City’s projected
needs.
Mr. Matusiewicz stated there will be a drastic increase if the City follows the actuary’s recommendation. However, in terms of Workers Compensation, it will be a long time before
claims are paid out (10 to 20 years). It is not necessary to rush to fully fund that program. There is a potential $16 - $19 million in reserve to pay the claims that have a long pay out period, and
that fund may be a good candidate for a longer-term investment strategy.
Mr. Collopy inquired whether there was a Workers Compensation trust set up for this purpose or are claims paid out of current funds.
Mr. Matusiewicz described the process that each Department is assessed an annual amount
for Workers Compensation. The goal is to set sufficient money aside in an Internal Service, reserve fund so that there would be enough funds available to pay remaining claims over the
next 20 years, should the City cease service.
Mr. Collopy inquired whether the Internal Service reserve yield is approximately 1%.
Mr. Matusiewicz stated the City has elected to stay in a 1 to 5 year fixed income strategy but with the City Council’s permission, it could invest in treasuries and agencies as far out as 10
years.
Finance Committee Meeting Minutes November 9, 2017
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Mr. Collopy inquired whether a Section 115 Trust is a better method for funding the Workers Compensation program.
Mr. O’Neill inquired as to the “ISF” in the context of a Section 115 Trust, as it appears to be an
enormous number for such a mechanism. Typically, an “ISF” is a restricted fund set aside for a future purpose.
Mr. Matusiewicz agreed to follow-up with legal research to this question.
Mr. Kiff explained that with Workers Compensation claims, there may be an initial large liability,
such as $300,000; however, it is paid out, via doctor’s visits and treatment, over a longer period of time.
Mr. Matusiewicz explained General Liability claims are typically paid within 3 years of the
occurrence. At this time, the General Liability account would appear to be overfunded; however, clarified there are claims to be paid that were not included by the actuary valuation, but are
known to the City. Staff recommends moving to an annual valuation to stay on top of this fund. Currently, the General Liability is overfunded approximately $1.2 million over target; however,
there are some anticipated expenses that will impact that amount. The Workers Compensation account is short approximately $3.5 million; however, staff is projecting to fully fund the program
over 3 years.
Chair Dixon inquired whether the required funding was related to actual cases or projections of worker injury.
Mr. Matusiewicz stated the actual valuation is based upon current case patterns and
projections. The “Expected liability” is lower than the funding target because in practice it is
widely understood the estimate is likely wrong. In order to achieve the 75% confidence rate,
an additional margin is added to the reserve target so there is sufficient money to pay down
the existing claims. Funding at the 90% rate would require more money. The recommended
practice is closer to 80%. The previous Finance Committee was not interested in committing
the reserve funds to achieve a higher confidence level. The current Finance Committee could
make changes.
Mr. Matusiewicz recommended the Finance Committee review the shortfall. Staff is recommending a $6.2 million per year contribution for General Liability as the annual set-aside.
Chair Dixon commented that the prior Council made the determination to fund at the 75% confidence level.
Discussion ensued regarding the actual “catch-up” amount and what would be required to remain at a 75% confidence level for funding these accounts.
Mr. Matusiewicz stated that in reviewing the valuation, there were issues with the high projections. There were unallocated costs that were not included in the rate given. For example, the biggest portion of the unallocated cost was approximately $2 million dollars of insurance
coverage, which was not attributable to a specific loss; it was in suspense. Staff “plugged” the General Liability hole, because the rate was not allocating the insurance costs. He is not as
concerned with catching up as quickly with the Worker’s Compensation. Ultimately, staff’s recommendation will be to increase the annual ongoing Department charges consistent with
the valuation and new cost allocation.
Chair Dixon stated that the Finance Committee can review the confidence levels when reviewing the Reserve Policy.
Finance Committee Meeting Minutes November 9, 2017
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Mr. Matusiewicz expressed support for having an annual valuation done annually, as well as scheduling a discussion with the City’s Risk Manager to review the claims and possibly
consider taking actions for preventable incidents.
Mr. Kiff states that all Department General Liability charges flow into the reserve fund. The overall fund is used to pay settlement, damages, attorney fees, and related costs for claims.
This policy prevents any specific Department being “hit” with the total costs for a claim.
Ms. Gorczyca inquired whether there was a trend related to an increase in claims.
Mr. Matusiewicz stated there was a dramatic increase in the amount of claims during the past year, particularly related to public safety. This was the most volatility we have seen in this
account in many years.
Mr. Matusiewicz stated that there is very detailed information that informs staff’s decisions regarding the recommendations for reserve contribution amounts. To get at the root problem
of the higher claims, staff will need to meet with Risk Manager, Human Resources, and possibly work with state legislature to evaluate “presumptive” risk areas. It was stated that a majority of
the spike in claims has come from the Police Department.
Staff stated that there is a General Liability matter which will be discussed in Closed Session.
Mr. O’Neill inquired whether a particular Department, if claims are larger or increasing in quantity, is charged at a higher rate than others.
Mr. Matusiewicz explained the cost allocation process, which includes review of Department
experience (claims) and overall payroll.
Mr. Matusiewicz stated staff is also reviewing the Facilities Financial Plan as well as the Harbor and Beach Master Plan and these projects will come before the Council sometime in March.
There may be priorities which will require funding changes. The Finance Committee does not focus on the prioritization of particular projects; however, it will review the funding mechanisms
for the priorities.
Mr. Tucker expressed concern with areas where there is a bigger obligation or liability that may result out of failure of the City to perform or complete an action it had set out as a priority. He
stated it is the City Council’s prerogative to determine where funds are spent.
Ms. Gorczyca stated it is important that the “back” years are developed enough in regard to the Capital Improvement Program and that replacement of certain projects will need to be
addressed over time.
Mr. Matusiewicz commented staff will review the Annual Workplan and bring forth recommendations to the Finance Committee.
Mr. Montano provided the historical context of the City’s top three revenue generators.
Documentation was provided and referenced throughout the discussion. The budget process will begin in November and revenue projections for the next year will come in over the next
month.
Mr. Collopy requested, through the Chair, when the Finance Committee starts a new topic if staff can provide context and expectations of the Finance Committee prior to commencing the
discussion.
Mr. Kiff responded the item today is a just a briefing.
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Chair Dixon commented that from a planning process, this matter will be preparatory for the Finance Committee’s review of the annual budget.
Mr. Montano reviewed the Property Tax tables and comparisons were given between historical
and action revenues. In 2017, $91.6 million was project and $94.3 million was realized. The year-over-year growth is $5.5 million. In 2018, $97.1 million is budget and the City’s property
tax advisor, HdL, has informed staff that the projection will likely be $99 million, representing a 5% year-over-year growth. There is a consistent growth projection of 5% over the next 3 years
(through 2020). This is the strongest projection of the top three. Valuations are strong in the City.
Mr. Montano referred to the long-range forecast and noted the City previously instituted a
conservative growth projection of 4%.
Ms. Gorczyca inquired as to the type of increases actually realized during the 2008-2009 decline so as to determine the City’s vulnerability during a potential recession.
Mr. Montano reported even at the height of the recession, the City’s valuations never fell below
zero, as most cities’ valuations did.
Mr. Kiff stated it takes some time for the impacts of a recession to impact property taxes.
Mr. Montano reviewed the Sales Tax and noted in 2018 the City budgeted $35 million. There is some variability in the auto dealership revenue stream as there is a trend toward leasing
versus buying. There are also impacts related to online sales. Currently, staff is projecting the City will be $1 million under from the initial budgeted amount.
Chair Dixon inquired whether the City has had this experience in previous years.
Mr. Kiff responded affirmatively that when consumer confidence drops there is a corresponding
decrease in sales tax revenues.
Mr. Montano continued by stating the forecast for the next two years indicates a “plateauing” of sales tax revenues, rather than an increase or decrease. We are not growing as aggressively
as in past years.
Chair Dixon stated there is some discretionary influence in sales tax generators, particularly from impacts of the state legislature and community action. She referenced the auto dealership
that was proposed on Coast Highway that ultimately located to Irvine.
Mr. Montano described the impact in 2017 of the “triple-flip.” There was a “true-up” and reconciliation which made the 2017 number artificially appear worse.
Mr. Collopy inquired if staff could provide hard numbers related to specific industry projections,
such as auto dealerships and restaurants, rather than use percentage variances, as industry forecasts tend to be very specific.
Mr. Montano stated today’s presentation is an aggregate, high level summary. Industry
forecasts can be provided to the Finance Committee in the future.
Ms. Gorczyca requested a presentation by the City’s sales tax consultant, HdL, at a future meeting.
Mr. Montano reported the Transportation Occupancy Tax (TOT) was budgeted at $24.3 million
and is projected at $23 million. This is the result of an unprecedented number of hotels closing
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rooms for renovations. In addition, there has been a downward trend in conferences and events
at the hotels due to the number of rooms available. There is not a specific downward trend in revenues, rather, it is a plateauing of revenues and growing at a slower rate.
Mr. O’Neill stated a possible means for addressing a decrease in revenues was to decrease
the discretionary payments to CalPERS.
Discussion ensued among the Committee regarding projections by organizations, including Visit Newport Beach, which projected increases in TOT due to conferences and events they
anticipated. That was one of the reasons a projected increase to the TOT was built in.
Chair Dixon affirmed that more attractive rooms will result in increased TOT revenues and attract more conferences and events. She reiterated the need to continue to prioritize high-
quality maintenance of properties and infrastructure, as it is the annual property tax revenues that continue to “save” the City when other revenue sources have downward trends.
Ms. Gorczyca mentioned the smaller areas of the City, such as Lido and Corona del Mar, which
are making wonderful contributions economically to the City; however, they continue to be impacted by parking limitations.
Mr. Montano summarized the near-term forecast is showing between 3 – 5% in growth and it
seems to be plateauing.
Mr. Collopy inquired whether there was interest to entertain increasing the TOT rate.
Mr. Kiff noted any proposed increase to the TOT would require voter approval.
Ms. Gorczyca stated the increase to the TOT benefits residents but is usually paid by non-residents staying in hotels.
Chair Dixon stated the City’s TOT charge is about in the middle of what other local cities are
charging.
Mr. Tucker commented on the influence the General Plan update will have on revenue streams in the City and noted the City’s requirement to provide housing under state law. Newport Beach
housing, land, and buildings are very valuable and he inquired if certain commercial properties, if converted into mixed-used projects, could provide additional revenue streams.
Discussion ensued regarding interest and viability of mixed-used developments as a solution
to the crowding out of small, service-based businesses.
Chair Dixon inquired how the state has determined the allocation of sales tax from online sales.
In summary, Mr. Montano stated the General Fund in 2018 is still projected to have a $2.1 million surplus and may likely be higher, especially due to other sources, such as building
permit activity.
There were no public comments on this item.
C. RESERVE STUDY STATUS UPDATE Summary:
Staff will provide a brief oral update on the status of consulting engagement to perform a risk-based analysis of General Fund reserves.
Recommended Action: Receive and file.
Finance Committee Meeting Minutes November 9, 2017
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Mr. Matusiewicz provided a status update. The item was “signed” yesterday, with the first team
meeting conducted today. A kick-off meeting will be scheduled with the consultant next week and homework assignments have been issued. Staff will continue to update the Finance
Committee with the findings and recommendations.
Ms. Gorczyca inquired whether the team will be focusing on infrastructure vulnerabilities as well.
Mr. Matusiewicz stated they will be focusing primarily on revenues; however, vulnerabilities will
also be addressed (earthquakes, etc.) which will have an impact on infrastructure.
Mr. Collopy requested a monthly presentation, possibly a simple chart, which displays the regularly “calendared,” or major revenue and expenditure items, so the Finance Committee
can understand the context of the annual variations.
Mr. Kiff stated staff monitors very closely the monthly and finite variations impacting the budget and it may not be beneficial or productive for the Finance Committee or the public to review
items which may cause confusion without explanation in detail. He would prefer an annual report; however pursuant to discussion with the Finance Committee membership, it was
determined that a twice yearly report would be feasible.
There were no public comments on this item.
D. WORK PLAN REVIEW Summary:
Staff will review with the Committee the agenda topics scheduled for the remainder of the Fiscal Year.
Recommended Action: Receive and file.
Discussion ensued among the Finance Committee regarding agenda topics and meeting dates
for the upcoming months.
Ms. Gorczyca requested a presentation from another organization, such as the City of Sunnyvale, which excels in long-term financial forecasting. The presentation could be via
conference call or the provision of documentation as to their process.
It was determined there would not be a joint Study Session with the City Council on January 9, 2018; however, Committee members could attend as individuals.
Mr. Matusiewicz will review last year’s Finance Committee calendar and recommend dates for
2018. It was determined there would likely be two meetings per month commencing in March for budget planning purposes and May 24 and May 30 were reserve for extra meeting dates
prior to the City Council’s meeting of June 12.
Chair Dixon opened public comments.
Jim Mosher inquired when the CAFR would be available.
Ms. Virany stated the final audit is being completed and the CAFR is expected the third week of December.
There were no further public comments on this item.
Finance Committee Meeting Minutes November 9, 2017
Page 11 of 11
VI. FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM) VII. ADJOURNMENT
The Finance Committee adjourned at 5:19 p.m. to the next regular meeting of the Finance
Committee.
Filed with these minutes are copies of all materials distributed at the meeting.
The agenda for the Regular Meeting was posted on November 4, 2017, at 6:57 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:
___________________________________ _____________________
Diane Dixon, Chair Date Finance Committee
Finance Committee Meeting Minutes November 9, 2017
Page 1 of 11
CITY OF NEWPORT BEACH FINANCE COMMITTEE NOVEMBER 9, 2017 MEETING MINUTES
I.CALL MEETING TO ORDER
The meeting was called to order at 3:00 p.m. in the Crystal Cove Conference Room, Bay 2D, 100Civic Center Drive, Newport Beach, California 92660.
II.ROLL CALL
PRESENT:Council Member Diane Dixon (Chair), Council Member Will O'Neill,
Committee Member William Collopy, Committee Member Patti Gorczyca, Committee Member Joe Stapleton, and Committee Member Larry Tucker
ABSENT: Mayor Kevin Muldoon
STAFF PRESENT: City Manager Dave Kiff, Assistant City Manager Carol Jacobs, Finance
Director/Treasurer Dan Matusiewicz, Deputy Director, Finance Steve Montano, Budget Manager Susan Giangrande, Accounting Manager
Rukshana Virany, Purchasing Agent Anthony Nguyen, Fire Chief Chip Duncan, Public Works Finance Administrative Manager Jamie Copeland,
and Administrative Specialist to the Finance Director Marlene Burns
OUTSIDE ENTITY: Ms. Marilyn Jones (Nyhart)
MEMBERS OF THE PUBLIC: Mr. Jim Mosher
III.PUBLIC COMMENTS
There were no public comments.
IV.CONSENT CALENDAR
A.MINUTES OF OCTOBER 12, 2017Recommended Action:Approve and file.
Discussion ensued regarding the quality of the minutes. The draft minutes were tabled to a
subsequent meeting for approval.
V.CURRENT BUSINESS
A.OPEB VALUATION REVIEWSummary:
Actuary, Marilyn Jones, will provide a brief overview of our latest OPEB (Retiree InsurancePlan) actuarial valuation.
Recommended Action:Receive and file.
Chair Dixon provided an overview of the Finance Committee’s agenda and its responsibilities
for review prior to the City’s official budget planning process.
The record needs to reflect that Purchasing Agent
Anthony Nguyen was not at the meeting and will be
stricken.
Item No. 4A1
Draft Minutes of November 9, 2017
Correspondence
January 11, 2018
Finance Committee Meeting Minutes November 9, 2017
Page 1 of 11
CITY OF NEWPORT BEACH FINANCE COMMITTEE NOVEMBER 9, 2017 MEETING MINUTES
I.CALL MEETING TO ORDER
The meeting was called to order at 3:00 p.m. in the Crystal Cove Conference Room, Bay 2D, 100Civic Center Drive, Newport Beach, California 92660.
II.ROLL CALL
PRESENT:Council Member Diane Dixon (Chair), Council Member Will O'Neill,
Committee Member William Collopy, Committee Member Patti Gorczyca, Committee Member Joe Stapleton, and Committee Member Larry Tucker
ABSENT: Mayor Kevin Muldoon
STAFF PRESENT: City Manager Dave Kiff, Assistant City Manager Carol Jacobs, Finance
Director/Treasurer Dan Matusiewicz, Deputy Director, Finance Steve Montano, Budget Manager Susan Giangrande, Accounting Manager
Rukshana Virany, Purchasing Agent Anthony Nguyen, Fire Chief Chip Duncan, Public Works Finance Administrative Manager Jamie Copeland,
and Administrative Specialist to the Finance Director Marlene Burns
OUTSIDE ENTITY: Ms. Marilyn Jones (Nyhart)
MEMBERS OF THE PUBLIC: Mr. Jim Mosher
III.PUBLIC COMMENTS
There were no public comments.
IV.CONSENT CALENDAR
A.MINUTES OF OCTOBER 12, 2017Recommended Action:Approve and file.
Discussion ensued regarding the quality of the minutes. The draft minutes were tabled to a
subsequent meeting for approval.
V.CURRENT BUSINESS
A.OPEB VALUATION REVIEWSummary:
Actuary, Marilyn Jones, will provide a brief overview of our latest OPEB (Retiree InsurancePlan) actuarial valuation.
Recommended Action:Receive and file.
Chair Dixon provided an overview of the Finance Committee’s agenda and its responsibilities
for review prior to the City’s official budget planning process.
The record needs to reflect that Purchasing Agent
Anthony Nguyen was not at the meeting and will be
stricken.
Item No. 4A1
Draft Minutes of November 9, 2017
Correspondence
January 11, 2018
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5A
January 11, 2018 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949) 644-3123 or danm@newportbeachca.gov SUBJECT: RISK BASED ANALYSIS OF GENERAL FUND RESERVE REQUIREMENTS
DISCUSSION
The Government Financial Officers Association (GFOA) was selected to assist staff with analyzing risks through an analytical framework intended to determine reserve levels appropriate for the City of Newport
Beach. GFOA, working closely with staff, will facilitate staff’s thorough examination of the City’s primary and secondary risk factors that generally influence the amount of reserves the City should hold. GFOA will
also provide recommendations on new, or changes to existing, financial policies, risk management methods, and ideas to support the General Fund Reserve strategy over the long-term.
GFOA project managers will be available via teleconference during the Finance Committee meeting on
January 11, 2018, to provide a brief project overview and answer questions the Finance Committee may have. Please see Attachments A, B and C that describe the nature and timing of the work relating to the
risk based analysis of General Fund reserve requirements.
Prepared by: Submitted by:
/s/ Steve Montano
/s/ Dan Matusiewicz
Steve Montano Dan Matusiewicz Deputy Finance Director Finance Director
Attachments: A. Scope of Work for Risk Based Analysis of General Fund Reserve Requirements
B. GFOA RFP Response and Project Description C. GFOA Project Schedule
ATTACHMENT A
SCOPE OF WORK FOR RISK BASED ANALYSIS OF GENERAL FUND RESERVE REQUIREMENTS
1
CITY OF NEWPORT BEACH, CA
SCOPE OF WORK
For Risk Based Analysis of General Fund Reserve Requirements
OVERVIEW
Reserves are the cornerstone of financial flexibility and provide the City with options to
respond to unexpected issues and afford a buffer against shocks and other forms of risk.
The City’s Contingency Reserve has a target balance of twenty five percent (25%) of
General Fund “Operating Budget” as originally adopted. Appropriations and/or access to the Contingency Reserve funds are generally reserved for emergency or unforeseen
situations but may be accessed by Council by a simple budget appropriation. A risk is
defined as the probability and magnitude of a loss, disaster, or other undesirable event.
Examples of risk that the reserve may be used to mitigate include but are not limited to
the following: a catastrophic loss of critical infrastructure; a State or Federally declared state of emergency; any settlement arising from a claim or judgment; deviation from
budgeted revenue projections; any action by another government that eliminates or shifts
revenues from the City, inability of the City to meet its debt service obligations in any
given year; and other circumstances deemed necessary by the City Council to meet the
claims and obligations of the City. Per City Council policy, if any portion of the Contingency Reserve is used, a plan to replenish the reserve within five years will be
presented to Council. The estimated contingency reserve balance for Fiscal Year 2018 is
approximately $48.5 million.
The City is seeking consultant services to assist staff analyze risks through an analytical
framework intended to determine reserve levels appropriate for the City of Newport Beach. The Consultant, working closely with staff, will facilitate staff’s thorough
examination of the City’s primary and secondary risk factors that generally influence the
amount of reserves the City should hold. The Consultant will also provide
recommendations on new, or changes to existing, financial policies, risk management
methods, and ideas to support the General Fund Reserve strategy over the long-term.
BACKGROUND
The City of Newport Beach was incorporated September 1, 1906 and the current City
Charter was adopted in 1954. The City operates under a Council-Manager form of
government. The City is located in the County of Orange and serves a population of
approximately 86,000 people. The City covers a land area of approximately 26 square miles, with an additional 25.5 square miles of ocean, bay, and harbor waters. Located in the coastal center of Orange County, Newport Beach benefits from its proximity to the
substantial southern California economy. Major business sectors include tourism, health
care, biotechnology, and computer software and hardware. The estimated 2017
2
population of 84,915 generally increases to well over 100,000 during the summer months. The City's participation in the regional economy and high affluence support a stable and
diverse revenue framework highlighted by strong growth characteristics. The City's legal
ability to raise revenues is constrained by state propositions that require voter approval
for tax increases. The local economy benefits from the City's mature, wealthy tax base and strong employment among regional financial and insurance firms, as well as retail shopping and tourism activity. The University of California, Irvine, is located adjacent to
the City and has provided a catalyst for recent growth in the professional, technical, and
scientific services. Home values are among the highest in the country. Infill development
and property appreciation contributed to positive assessed valuation (AV) performance over the past two decades, and spurred recent AV growth. We anticipate continued positive taxable assessed value trends in the intermediate term. City unemployment is
exceptionally low. Income metrics are more than double national and state averages.
Population growth has moderated after a period of strong expansion, reflecting the built
out nature of the City.
SCOPE OF WORK
As directed by the City, the Consultant will provide the City with advisory services as
described in this Scope of Work. The Consultant shall perform all the duties and services
specifically set forth herein and shall provide such other services as it deems necessary
or advisable.
In particular, the Consultant will facilitate City staff’s thorough examination of the City’s primary and secondary risk factors that generally influence the amount of reserves the
City should hold for the City’s General Fund. Respondents shall also provide a separate
quote for analyzing risk factors for the following additional funds:
• Workers’ Compensation Fund
• General Liability Fund
• Compensated Absences Fund
• Equipment Replacement Funds
• Water Fund
• Wastewater Fund
Primary Risk Factors
With key staff members, facilitate the identification, review and assessment of primary
risk factors that generally influence the amount of reserves the City should hold. Work
shall include:
• Identification of the City’s most significant and volatile revenue sources that might
call for a higher reserve level in order to avoid the need for sudden service
cutbacks should revenues drop unexpectedly. Help the City understand the level
and nature of volatility in its revenue sources.
3
• Assess the financial impact of potential infrastructure failure and the reserve levels
necessary to repair or replace assets that fail unexpectedly.
• Assess the City’s financial vulnerability to extreme events and public safety concerns. Identify the fiscal impact of any natural disasters the City is vulnerable to and the public safety programs that must be funded during the occurrence of an
extreme event, and the federal or state programs that would help.
• Obtain an understanding of the City’s reserve and other relevant financial policies.
• Obtain an understanding of the City’s insurance policies and risk management
strategies.
• Help improve the City’s understanding of the risks it faces and its overall financial
risk profile.
• Provide a thorough examination of primary risk factors that leads to a customized
reserve target size.
Secondary Risk Factors
With key staff members, facilitate the identification, review and assessment of risk factors that are less complex or of lower magnitude than the primary risk factors, but that also
have implications for the City’s reserve strategy. Work shall include:
• Determine the extent to which the City’s leverage may call for higher reserves.
Leverage includes long-term debt, pension obligations, and obligations for post-employment health care.
• Identify how potential spikes in expenditure, usually arising from a special, non-
recurring circumstance might create expenditure volatility. Account for the risk
associated with extraordinary law suits in the City’s reserves.
• Provide a thorough examination of secondary risk factors that leads to a
customized reserve target size.
Recommendations
Services shall also include, but are not limited, to the following:
• Recommend a reserve target for the City of Newport Beach based on an analysis
of risk factors and best practices.
• Identify risk management methods that might alleviate or transfer risk.
• Recommend any new, or changes to existing, financial policies based on the
findings of the analysis.
• Provide ideas to support the General Fund reserve strategy over the long-term.
ATTACHMENT B
GFOA RFP RESPONSE AND PROJECT DESCRIPTION
Washington, DC Office
660 N. Capital Street, NW Washington, DC 20001 202.393.8020 fax: 202.393.0780
www.gfoa.org
PROPOSAL:
SCOPE OF
WORK
RFP 18-03: Risk-Based
Analysis of General
Fund Reserve
Requirements
Prepared for:
Procurement Division
100 Civic Center Drive
Newport Beach, CA 92660
Date Prepared:
8/18/2017
*This proposal and description of GFOA methodologies is intended exclusively for the entity listed above.
Government Finance Officers Association
Research and Consulting Center
GFOA and PSD: Risk‐based Reserves Analysis Proposal
DATE: August 18, 2017
Anthony Nguyen
Purchasing Agent
City of Newport Beach, California
EMAIL: anguyen@newportbeachca.gov
Dear Mr. Nguyen,
The Government Finance Officers Association (GFOA) is pleased to provide a proposal to
the City of Newport Beach, California (the City) in response to Request for Proposal
(RFP) 18‐03 for analytical assistance in determining appropriate reserve levels.
We understand that the City would like to assess what constitutes adequate levels of
reserves, accounting for special conditions it faces, including revenue volatility and risk
of extreme weather or other emergency events. GFOA has developed a distinctive risk‐
based approach to analyzing reserves that takes into account specific risk conditions
faced by a local government and the associated need to mitigate risk by holding
reserves.
We very much look forward to the opportunity to work with you on this project. If there
are any questions, please contact: Shayne Kavanagh, Senior Manager of Research, who
would manage this project, at 312‐578‐2276 or skavanagh@gfoa.org.
Sincerely,
Mike Mucha
Director, Research and Consulting
Government Finance Officers Association
Phone: 312.977.9700
Fax: 312.977.4806
Email: mmucha@gfoa.org
Table of Contents
Section 1: Qualifications Overview 4
Section 2: Organizational Information 10
Section 3: References/Recent Project History 13
Section 4: Project Approach/Methodology 18
A.General Fund Analysis 18
B. Analysis of Other Funds 24
C. Asset Management Risk 27
D. Timing of the Project 34
E. Project Assumptions 34
Section 5: Contract Requirements 36
Section 6: Attachments 37
3 of 37
Section 1: Qualifications Overview
Overview of the Government Finance Officers Association
The Government Finance Officers Association (GFOA) is the leading association for
public sector finance professionals in the United States and Canada. Founded in 1906,
GFOA currently has over 19,000 members that look to the organization as the gold
standard for identifying,
developing, and communicating
best practices in government
management. As a non-profit
organization, GFOA’s mission is
to enhance and promote
excellence in state and local
government financial
management for the public
benefit. GFOA accomplishes this
mission by identifying and
developing policies and
practices and promoting them
through education, training, consulting and leadership.
Since 1977, GFOA’s Research and Consulting Center (RCC) has been nationally
recognized for its comprehensive analytical and advisory services, as well as for research
on issues specific to state and local government financial, human resource,
procurement, and operational management.
GFOA Capabilities and Experience on Risk-based Reserve Analysis
GFOA has led the way in using risk analysis to optimize the size of local governments’
reserves. Perhaps one of our best known projects is the risk analysis we performed for
the City of Colorado Springs, CO, which was published as a publicly available whitepaper
at www.gfoa.org. We have also written about the use of risk analysis in one of our best-
selling books, Financial Polices, published in 2012.
Our development of risk-based reserve analysis is an outgrowth of our extensive body of
work in local government long-term financial planning and financial policies. GFOA
began consulting in long-term financial planning and policies in 2002 as our members
realized the need for a longer-term perspective on resource use. From there, GFOA
produced leading publications on long-term financial planning and policies, including
Financing the Future and the aforementioned Financial Policies. As result of GFOA’s on-
GFOA Snapshot
Year Founded: 1906
Form of Organization: 501(c)(3) Non-Profit
Offices: HQ in Chicago, IL and Federal Liaison
Office in Washington, D.C.
Number of employees: 48 Full-time, 4 Part-
time
Area of Expertise: GFOA specializes in local
government financial management with a
particular emphasis on budgeting and financial
policies.
4 of 37
going consulting and research, GFOA learned that many local governments would
benefit from a more customized approach to determining the appropriate level of
reserves for their circumstances than was available through the existing body of public
finance knowledge. This led to our development of risk-based reserve analysis in 2012.
Just as our first risk-based reserve analysis projects evolved from our prior experiences
with financial planning, our current risk-based reserve analysis projects continue to
evolve based on our experiences. As our reference section demonstrates, GFOA has
analyzed revenues in other California cities similar to Newport Beach. We have a
thorough understanding of California’s unique tax code, and have worked on projects
that dealt with specifics like the “Triple Flip” exchanges, transient occupation taxes
(TOT), and local sales tax policies. Our experience with the nuances of California tax
policies puts us in a position to assess risk with all appropriate factors in mind. Perhaps
the most significant feature of our current approach is the use of “Probability
Management.” Probability Management is an open standard for developing and
communicating probabilistic analysis. This standard is promulgated by
ProbabilityManagement.org, of which GFOA is a research partner. The standard has a
number of advantages for Newport Beach’s project.
The first advantage is that Probability Management is designed to calculate probabilistic
assessments of risk, which will allow Newport Beach to make more nuanced decisions
about the amount of risk it wishes to cover with reserves and the amount it might wish
to treat in other ways (e.g., insurance). To illustrate, we can examine a real-life
application from one of our most recent clients, a county government. We will focus on
the risk of extreme snowfall because this example is very straightforward and easy to
understand. Though snowfall is not a concern for Newport Beach, the underlying
concept is directly transferable to other kinds of extreme events that any local
government might face. The chart below is a representation of 40 years’ worth of
snowfall data in the county. The amount of snow assumes the shape of a normal
distribution or a “bell curve.” The normal distribution is commonly found in natural
phenomena. For example, heights of American men follow a normal distribution, where
5’9” is the most common height and is, therefore, found in the middle of the
distribution. Heights much greater or much less than 5’9” are less common, so are
found closer to the “tails” of the distribution, where the curve is lower – representing
less frequent values.
Similarly, we can see on the chart that the most common single average annual snowfall
is 54 inches. This means there is a 50% chance of annual snowfall being less than this
and a 50% chance of it being greater than this amount in a given year. Our analysis
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showed that the county typically budgeted an amount sufficient to address a slightly
above average snowfall. This left the question of how much the county should hold in
reserve to address extreme snowfalls (probable cost was estimated based on actual
costs incurred to address historical snowfalls). The distribution helps us think through
this question. For example, if the county held a reserve sufficient to cover 84 inches of
snow, it could be 95% confident it’d be prepared for any snow emergency in a given
year. If it held a reserve sufficient for 78 inches, it’d be 90% confident. Probabilistic
estimates allowed the county to make a more informed decision of how much risk it
wanted to cover with reserves versus other methods. For example, for our clients where
earthquakes or hurricanes are an important risk, it often makes sense to consider
insurance or a line of credit to provide financial preparedness for the most extreme
risks.
Average Snowfall:
54 in
Total Annual Snowfall
(inches)
Frequency
90% of the time
annual snow fall is
less than 78 in
Half of the time
annual snow fall is
less than 54 in
95% of the time
annual snow fall is
less than 84 in
78 in 84 in
County s typical budget
would cover everything to
the left of this point
The second advantage of Probability Management is that it allows multiple distributions
to easily be added together to arrive at a holistic view of risk over multiple years. For
example, imagine that there were multiple distributions covering multiple risks such as
wildfires, earthquakes, floods, etc. Not only would considering each distribution
separately require a lot of time and energy from decision-makers, it could also lead
decision-makers to substantially overestimate the amount of risk they are subject to. To
illustrate, imagine that a local government is subject to three different types of risks,
where there is a 5% chance of each occurring in a given three-year period. Looking at
each separately would lead a government to separately prepare for a 5% chance of each
6 of 37
occurring. However, because reserves can be used to respond to any extreme event, the
optimal strategy is to think about the total risk from all extreme events. There is a very
small chance (less than 1%) of all three events occurring within a single three-year
period (5% x 5% x 5%). This is a simplistic example, but it illustrates the importance of
considering the entire “forest” of risk, and not just looking at the “trees.” The
Probability Management standard allows a nuanced examination of the combined risk
from multiple kinds of extreme events.
The third and final advantage of Probability Management is that it is an open standard
that is optimal for use within Microsoft Excel, without any add-ins. This means that
Newport Beach can easily replicate or repeat the analysis on its own – for example, to
update the analysis in the future. It also means that the City can have full access to
GFOA’s analytical methods because there is no proprietary software involved.
GFOA proposes to use our accumulated experience and expertise, as well as our most
recent methods, such as Probability Management, to help Newport Beach analyze the
level of risk it is subject to, make recommendations for how exposure to risk impacts the
City’s reserve strategies across multiple funds (with emphasis on the general fund),
make additional recommendations on how the City might manage this risk using
reserves or other methods, and make recommendations for how financial management
policies might support the risk management strategy. You can read more details about
our methodology in Section 4 of this proposal.
Summary: GFOA Advantages
Expertise in public finance. GFOA is the unparalleled authority in matter of local
government financial planning and policies.
Leader in risk-based reserve analysis for local government. GFOA pioneered the
use of risk analysis for optimizing local government reserves and continues to
evolve this technique.
Probability Management. This open standard allows for probabilistic analysis of
risk that can be easily accessed and replicated by the City. There are no
proprietary technologies to increase cost or create a barrier to using our analysis.
7 of 37
Overview of Public Sector Digest
GFOA proposes to partner with Public Sector Digest (PSD) on this project. PSD and GFOA
have worked together on a number of risk analysis projects, including the
aforementioned project with Colorado Springs, CO. PSD has special expertise in risk
assessment for infrastructure, and will analyze that particular risk.
PSD was established in 2003 with the mission to provide intelligence for the public
sector. Today, PSD has become an internationally recognized subject matter expert in
infrastructure and asset
management. PSD’s staff of
50 includes former
municipal executives, senior
managers, and technical
specialists with decades of
hands-on experience in the
fields of public works, asset
management, and local
government finance. PSD
partners with major
associations across Canada
and the United States to
develop workshops on asset
management, and regularly present as keynote speakers at national and international
industry conferences, including GFOA.
PSD’s client base is geographically and demographically diverse, and includes cities
throughout North America with varying population sizes. PSD has completed over 150
asset management plans in accordance with legislative standards, and over 300 asset
management and financial planning software implementations across Canada and the
United States.
PSD’s products and services are designed to provide data-rich, strategic infrastructure
information. This helps clients ensure that their asset management program is judicious
and efficient, producing the highest asset value at the lowest total lifecycle cost. PSD’s
portfolio of products and services includes:
The Publication (Public Sector Digest). The principle objective of the Digest is to
advance public management and administration by enhancing the managerial capacity
GFOA and PSD:
Relationship for Risk Analysis Project
GFOA and PSD propose to partner on this project to
meet the requirements set forth in the City’s RFP. This
means that both GFOA and PSD would sign contracts
with the City and would then work together on the
project. GFOA and PSD would integrate their respective
analyses into a single report for the City. The Colorado
Springs, Colorado, report, available at www.gfoa.org, is
an example of an integrated report that GFOA and PSD
collaborated on. GFOA and PSD have submitted
separate copies of all relevant forms required by the
City as part of this proposal.
8 of 37
of government executives. Areas of focus include economics and finance, organizational
performance, leadership, and asset and infrastructure management.
Software Solutions (CityWide). CityWide is the software development arm of PSD. It
develops advanced applications specifically for the public sector. These include asset
management, sophisticated financial modeling, performance measurement, geographic
information systems (GIS), and asset maintenance and management solutions. All
applications are web hosted and licensed for enterprise-wide implementation.
Consulting Services and Advisory. PSD works with decision-makers to refine
organizational systems, programs and processes for better outcomes. The two primary
risks to municipal financial sustainability are the lifecycle costs of infrastructure and
establishing levels of services that exceed fiscal capacity. PSD’s advisory services are
designed to mitigate organizational risks associated with capital assets and augment
performance over time.
PSD maintains two offices in south central Ontario from which resources would be
assigned to this project. Its headquarters is located in London, Ontario with a satellite
office in Burlington, Ontario. All product development and technical support are
delivered from either of our two offices.
9 of 37
Section 2: Organizational Information
Shayne Kavanagh, Project Manager. Shayne is the Senior Manager of Research for
GFOA and has been a leader in developing the practice and technique of long-term
financial planning and policies for local government. He started GFOA’s long-term
financial planning and policy consulting offering in 2002 and has been working with
governments on financial planning and policies ever since. Shayne has worked with
many local governments on financial planning and policies, including counties, cities,
and school districts. Notable features of his approach to consulting includes:
High Customer Satisfaction. References’ testimonial quotes and high rates of
repeat business speak for themselves.
Innovation and Adaptable Solutions. Shayne seeks to understand the unique
issues each client has and craft solutions that will best fit the situation.
Continuous Improvement. Shayne constantly learns from consulting
engagements as well as research with other GFOA member governments and
applies these lessons to current and new clients.
Shayne’s financial planning experience also drives his research at GFOA. He is the author
of a number of influential publications on financial planning, including:
Informed Decision-Making through Forecasting: A Practitioner’s Guide, a book on
overcoming the common forecasting challenges.
The leading and highly regarded book about long-term financial planning in local
government, Financing the Future.
Financial Policies: Design and Implementation, GFOA’s flagship publication on the
topic.
An Elected Officials Guide to Long-Term Financial Planning, a book that focuses on
the pivotal role of elected officials in the planning process.
A number of articles on long-term financial planning, financial policies, budget
reform, using technology to improve efficiency, and other related topics for
magazines including Government Finance Review, Public Management, School
Business Affairs, and Public CIO.
Shayne is also a sought-after speaker on the topic of financial planning, having spoken at
a number of conferences on the topic, including: the national GFOA conference, the
International City/County Managers Association, the National League of Cities, and the
National Tax Association.
Prior to joining GFOA, Shayne was the Assistant City Manager for the City of Palos Park,
Illinois, where he was responsible for managing all aspects of financial management
10 of 37
operations, including budgeting, utility billing, payroll, and accounting. He received his
MPA degree from Northern Illinois University.
Elizabeth Fu, Manager. Elizabeth is a Manager at GFOA and will be involved in research
and analysis for this project. Elizabeth has worked with the City of Monterey, CA; City of
Poway, CA; City of Napa, CA; City of Burlingame, CA; Kaua’i County, HI; and Village of
Palmetto Bay, FL on risk-based reserve analysis projects. At GFOA, Elizabeth focuses on
long-term financial planning and financial policies. Prior to coming to GFOA, Elizabeth
worked for a consulting firm specializing in economic development. She performed fiscal
impact and market demand analyses on behalf of the City of Louisville, KY; Town of
West Springfield, MA; and Village of Bedford Park, IL. She has also worked with the
Chicago Inspector General’s Office conducting reviews of the City’s regulatory and
economic development programs. Elizabeth holds a B.A. in political science from Wake
Forest University and a Master’s in urban planning and policy from the University of
Illinois-Chicago.
Genevieve Carter, Consultant. Genevieve is a GFOA Consultant with experience in risk
analysis, program evaluation and performance management. Genevieve works on GFOA
consulting projects, research publications and trainings. She has experience in both
quantitative and qualitative analysis of municipal performance and risk, and has conduct
policy analyses with both public and non-profit entities, including the City of Chicago, IL;
the City of Madison, WI; the State of Wisconsin; the Aspen Institute and AARP.
Genevieve holds both a B.A. in political science and strategic communications and an
MPA from the University of Wisconsin.
Mike Mucha, Director. Mike Mucha joined GFOA in 2006 and is Director of the Research
and Consulting Center. In this role, Mike oversees GFOA consulting projects, research
activities, the Government Finance Review, planning for GFOA training and conference,
the GFOA website, and other initiatives for GFOA. Mike is also actively involved in
GFOA’s consulting practice and focuses on providing guidance to local governments on
how to use technology more effectively to improve business processes and
administrative practices. He leads GFOA’s efforts to help governments with system
assessment, procurement, selection, contract negotiation, and implementation. Mike
has conducted projects for both large and small governments, regularly speaks at GFOA
training events, and has written numerous articles on public sector enterprise
technology applications. Some recent clients included Pasco County Schools (FL), City of
Spokane (WA), City of Hayward (CA), Sonoma County (CA), Yolo County (CA), Douglas
County (KS), the City of Westerville (OH), and Bernalillo County (NM) among others.
Mike also leads GFOA’s efforts to promote best practices in performance management,
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budgeting, capital planning, and cost benefit analysis/fiscal impact analysis and is the
staff liaison to GFOA's Treasury and Investment Management Committee. He has a
MSPPM from Carnegie Mellon University and a BBA from the University of Iowa.
Matthew Dawe, Consultant. Matt is the Vice-President of Public Sector Digest and an
industry leader in municipal asset management. He has been the project manager for
more than 250 local government installations of CityWide Asset Manager software.
Matt is certified from the Institute of Asset Management (IAM) as an Asset Manager and
is a best practice leader is risk assessment, lifecycle planning, and financial planning.
Proven ability to research, coherently and accurately communicate and publish material
specific to local government. Significant experience working with senior levels of elected
and appointed local government leaders.
He is a published expert on Tangible Assets and Long-Term Capital Planning. Matthew is
a full time employee, officer and shareholder with PSD. He has worked for the company
since 2003 and graduated from the University of Western Ontario with a degree in
Economics.
Speaking Engagements:
Government Finance Officers Association, Asset Management – Toronto,
Ontario, Canada
A Canadian Perspective of Asset Management within Local Governments, The
Institute of Asset Management 2011 Conference – London, UK
Asset Management and Long-term Planning, Ministry of Municipal Affairs and
Housing
Capital and Infrastructure Planning, Municipal Finance Officers Association
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Section 3: References/Recent Project History
Over the past several years, the GFOA has provided risk-analysis and policy services to a
number of local governments. We have provided a sampling of recent clients below for
which our work is complete.
City of Monterey, California
Population:
28,454
Time Frame: Winter 2016 through Spring 2017
Synopsis: GFOA analyzed the City of Monterey’s risk of revenue volatility and vulnerability to
extreme events, particularly floods and earthquakes. The report also included analysis of the
City’s rising pension cost and general fund dependency through the lens of risk analysis and
financial stability. Finally, the report provides comprehensive recommendations for a reserves
strategy moving forward, including ways for the City to enhance its existing financial policies.
Project Contact: Michael Andersen
Title: Finance Analyst
E-mail: mandersen@monterey.org
Phone: 831.646.3948
Michael’s Thoughts on GFOA
Services
“I found the experience to be eye-opening. Even
though Monterey had a good start on a reserve policy,
the process with GFOA highlighted a few areas we
could strengthen like our replacement strategy for
restoring reserves to policy minimums. It also provided
a good foundation of understanding of the risks that
Monterey has in regard to our regular funding
ventures. The GFOA is well-equipped and
communicative in helping to understand your unique
funding circumstances. Their follow through from
data gathering to presentation was impressive. I'd
definitely recommend them as a resource.”
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City of Poway, California
Population 49,417
Time Frame: Spring 2015 through Summer 2015
Synopsis: GFOA worked with the City to help identify a general fund reserve policy specific to
the risks it faces. The process comprised of a review of the City’s risk factors, including
revenue volatility related to property and sales taxes, possibility of experiencing an
earthquake, and capital repairs/replacement needs of its sewer, water, and storm networks.
GFOA recommended a target reserves level as well as identified strategies to mitigate risk
potential.
Project Contact: Scott Edwards (Mr. Edwards is no longer at the City of Poway)
Title: Director of Administrative Services (Former)
Scott’s Thoughts on GFOA
Services
“The end product is exactly what we needed to help frame a
discussion on the appropriate reserve for Poway.”
City of Burlingame, California
Population: 28,168
Time Frame:
Spring 2014 through Summer 2014
Synopsis: GFOA worked with the City to identify risks to the City’s financial condition that
could be mitigated by holding reserves. GFOA found that the most important risks were
volatility in sales and transient occupancy tax revenues and susceptibility to earthquakes.
Secondary risks such as pension liabilities were also assessed. GFOA estimated an ideal level
of general fund reserves to provide the City with an adequate hedge against perceived risks
without holding excessive reserves. This was compared to the amounts held by comparable
governments. The City is utilizing GFOA’s recommendation to review its reserve policy.
Project Contact: Carol Augustine
Title: Finance Director
E-mail: CAugustine@burlingame.org
Phone: 650.558.7222
Carol’s Thoughts on
GFOA Services
“The City contracted with GFOA for assistance in conducting a risk-
based analysis of its General Fund reserve levels. The analysis covered
a range of risks, including revenue volatility, extreme events such as
earthquakes, and many others. The City Council will be able to rely on
the fact that the recommended level of reserves are adequate for
most any contingency.”
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Parkland County, Alberta
Population:
30,000
Time Frame: Winter 2016 through Spring 2017
Synopsis: GFOA analyzed a number of extreme event risks including wildfires, tornados, train
derailments, and extreme snowfalls. Also, the County had exposure to risk from the potential
closure of major local tax payers (local energy plants). The report analyzed these individual
risks and then developed a holistic reserve strategy to account for them.
Project Contact: Jeff Dyck, CPA, CA
Title: Manager, Financial Services
E-mail: jdyck@parklandcounty.com
Phone: 780.968.8468
Jeff’s Thoughts on GFOA Services “The GFOA worked diligently to identify and quantify
risks faced by the County as well as to recommend
appropriate reserves to help mitigate them. The team
showed an excellent knowledge of local government
requirements and effectively led administration
through the review. As a result, the County is very
pleased with the recommendations received and has
already begun to implement them. This is an excellent
process and very worthwhile for any government
looking to mitigate risks with reserves. GFOA was
exceptional at working with administration to identify
key risks and were very responsive to all of our
queries.”
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City of Colorado Springs, Colorado
Population:
416,427
Time Frame: Summer 2012
Synopsis: GFOA worked with the City to identify risks to the City’s financial condition, which
included volatility in sales tax revenue, vulnerabilities in a portion of the City’s bridge and
storm sewer assets, and exposure to wild fires and floods. Pension liabilities and exposure to
lawsuits were identified as secondary risks and were also assessed. Applying principles for
decision making under uncertainty, GFOA recommended an ideal amount of general fund
reserves for an adequate hedge against the risks and compared it to the amounts held by
similar governments. GFOA also recommended other strategies, besides holding reserves, to
help mitigate the risks that the City was facing.
Project Contact: Kara Skinner (Ms. Skinner is no longer at the City of Colorado Springs)
Title: Chief Financial Officer (Former)
Kara’s Thoughts on
GFOA Services
“The City of Colorado Springs was extremely pleased with the work
GFOA performed in its analysis of the City’s financial condition and
appropriate reserve levels. GFOA representatives brought tremendous
expertise; were thorough, timely and responsive; and produced quality
products. It was a pleasure working with Shayne as the lead consultant.
The City would contract with GFOA again, if needed, and unequivocally
recommends GFOA as a resource.”
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Additional Risk Reserve Analyses
County of Kaua’i, Hawaii
Spring 2016-Spring 2017
GFOA worked with the County to identify a targeted general fund balance as
well as additional financial policies to strengthen its overall risk strategy. The
report included an assessment of the County’s property tax revenue
volatility as well as its risk for extreme events, particularly hurricanes and
tsunamis. The reserve recommendations accounted for the County’s capital
and maintenance needs, pension obligations, and the State’s discretion on
local revenues.
City of Napa, California
Winter 2014-Spring 2015
GFOA analyzed the City’s risk of extreme events, including earthquakes. The
report also included an analysis of the City’s existing reserves, indebtedness,
and reliance on general fund revenues. Finally, GFOA provided
recommendations for the City’s reserves strategy based on the likelihood of
extreme events and City’s fiscal health.
City of Soldotna, Alaska
Winter 2013-Spring 2014
GFOA worked with the City to conduct a detailed assessment of the target
fund balance to be maintained by the City, including a review of sales tax
revenue. The report compares Soldotna to other Alaskan cities and analyzed
the City’s past experiences and current environment against a number of
technical factors that would influence the ideal fund balance level.
City of Sharonville, Ohio
Winter 2013-Spring 2014
GFOA reviewed the City’s volatile income tax revenues to identify the risk
associated with the potential closure of a major employer and its potential
impact to both the City’s general and fire funds. The report reviewed risks
related to extreme events, including tornados and floods, as well as the
potential impacts of accumulated sick leave liability.
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Section 4: Project Approach/Methodology
This section of our response to the City’s RFP includes the following sub-sections.
“A. General Fund Analysis” covers the tasks necessary to develop a target level of
reserves for the City.
Our approach to analyzing risk in the other funds in the City’s RFP appears
immediately following, in “B. Analysis of Other Funds”.
“C. Asset Management Risk” focuses on the methodology of Public Sector Digest
(PSD), GFOA’s partner for analyzing infrastructure risk.
“D. Project Schedule” discusses timeframe over which the tasks will take place.
“E. Project Assumptions” describes key assumptions that our proposal is based
on.
A. General Fund Analysis
Below is our proposed approach to analyze risk in the City’s general fund.
Task 1 – Risk Preliminary Analysis
GFOA will gather information on the primary risk factors at Newport Beach and conduct
a preliminary analysis. We anticipate that the following risks will be addressed:
Primary Risks
Revenue volatility. In the general fund, property tax is the most important part
of the City’s revenue portfolio. Property tax is usually a relatively stable revenue
source. The City also has some reliance on sales taxes. Sales taxes can be more
volatile, especially when retailers like car dealerships are an important part of
the tax base. Finally, the transient occupancy tax is also a significant part of the
City’s general fund revenue. This tax also is often a source of volatility – for
example, changes in tourism patterns can impact revenue greatly. GFOA will
examine historical data the City’s revenues to find out which revenues have
historically created the most volatility. We will also talk with City staff to
determine which revenues might be subject to new sources of volatility in the
future. For example, California has had a history of legislative actions that
introduced volatility into local government revenues (e.g., The Triple Flip).
Vulnerability to extreme events. The City is subject to a number of extreme
events, such as earthquakes, hazardous material spills, floods (e.g., tidal surge,
sea wall failure), oil spills, aircraft accidents, and tsunamis. For example,
Newport Beach appears in the Federal Emergency Management Assistance
database for one flood in 2011 and two severe storms in 2005. GFOA will look at
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historical records for Newport Beach and at extreme events that that have
befallen analogous cities in order to assess the risk that Newport Beach is subject
to.
Potential infrastructure failure. GFOA is partnering with Public Sector Digest
(PSD), a specialist in local government infrastructure risk assessment, in order to
analyze the risk of infrastructure failure. You can read more about PSD’s
methods in subsection “C. Asset Management Risk.”
Secondary Risks
Leverage. The City is subject to sources of leverage. GFOA will examine the City’s
debt pension and post-employment health care policies to determine their
impact on the City’s financial flexibility. For example, GFOA’s experience with
other California cities has shown that it is prudent to have some reserve for the
possibility of an unexpected increase in contributions (as might occur during an
economic downturn, if CalPERS’ investment return assumptions are not met).
Expenditure spikes. Expenditure spikes typically concern lawsuits. The City’s past
experience can be a guide and any currently on-going lawsuits should be
accounted for.
Impacts of other funds. Other funds in the City of Newport Beach are subject to
risks. If those funds don’t have sufficient reserves (or other risk mitigation
strategies) then the general fund may be required to “backstop” these funds.
You can learn more about how we propose to analyze the risk in these funds in
sub-section “B. Analysis of Other Funds.”
Other secondary risk factors. GFOA has found that the following risks are
sometimes salient to local governments. Though these risk factors do not appear
to be a significant concern for the City, GFOA will briefly examine and verify their
implications for Newport Beach:
o Liquidity. In GFOA’s experience, the revenue structure of most California
cities is such that this is not a concern. However, given that Newport Beach
relies heavily on property taxes, we will verify the role of liquidity risk.
o Growth. GFOA does not believe that Newport Beach is expecting rapid
growth. However, GFOA will verify that there are not any expected new
developments that would stretch city resources.
o Other claims on fund balance. Fund balances can have many potential uses
besides risk-mitigation. For example, some portion might be set aside for
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capital projects. GFOA will examine the extent to which other claims on fund
balances might reduce the availability of fund balances for risk mitigation.
For example, an examination of the City’s 2016 CAFR shows that the City has
about $7 million in the committed and assigned categories of fund balance
and a much larger amount in non-spendable and restricted categories.
After we have gathered information on the primary and secondary risks and performed
an initial examination, we will share preliminary results at a meeting. The goals of this
meeting are:
A. Share preliminary findings and get feedback from the City. This will help ensure
the GFOA and the City staff stay in sync during the course of the project. We can
confirm the risk factors and get staff’s feedback on the preliminary analysis
results.
B. Identify any additional data requirements. During the course of the analysis, we
might uncover new requirements for data that were not knowable before
starting the analysis. We will decide how to incorporate this new information
into the analysis.
C. Review probabilistic methods that will be used in the rest of the analysis.
Probabilistic analysis is not common in public finance so we will review the
methods to help make City staff more comfortable with what they will see as we
go through the project.
Task 2 – Complete Analysis of Risk
Based on the risk factors and direction confirmed in Task 1 and subsequent
conversations, GFOA will complete an analysis of each risk factor. Below are more
details about how GFOA will approach the analysis of the primary risk factors.
Revenues. GFOA will gather from the City historical data for major revenue sources (i.e.,
property, sales, TOT). Ideally, this data will show monthly revenues and will extend back
to the year 2000. This will allow us to see the impact of two recessions on the City’s
revenues and the monthly data gives us more insight into when, exactly, revenues started
to decline and recover and by how much. We will also examine changes to the general
fund as a whole. We will also examine data on what types of taxpayers compose the tax
base to better understand how the composition of the tax base might impact tax yield
volatility. For example, a sales tax base composed primarily of luxury goods would
typically be more volatile than one comprising consumer essentials.
The objective is to discover which revenues are the largest sources of volatility and under
what conditions. We also will discover which revenues impart stability to the City’s
general fund. By seeing how these various components of the City’s revenue base have
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behaved in the past, we can get a sense of how those sources might behave in the future.
For example, how might past recessions inform what a future recession might look like?
Have past extreme events in the City interrupted revenues? We can estimate the
potential length and depth of future revenue downturns based on these experiences,
which then informs the size of reserve necessary to guard against these risks. An example
of sales tax analysis for the City of Monterey is below. It shows the length and depth of
sales tax downturns during two recessions.
Extreme Events and Public Safety Concerns. Newport Beach is at risk for natural and
man-made extreme events, such as earthquakes, hazardous material spills, floods (e.g.,
City of Monterey’s Quarterly Sales Tax Revenues and Trend Cycle (1993 Q3 – 2016
Q4)
The City’s sales tax revenues are strongly impacted by cyclical forces. The Great Recession had
a greater impact on the City’s sales tax revenues than the Dot Com Recession. The trend cycle
for sales tax by 10.8% between fourth quarter 2007 and third quarter 2009, compared 9.3%
between fourth quarter 2000 and third quarter 2003.
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
92
Q
3
93
Q
3
94
Q
3
95
Q
3
96
Q
3
97
Q
3
98
Q
3
99
Q
3
00
Q
3
01
Q
3
02
Q
3
03
Q
3
04
Q
3
05
Q
3
06
Q
3
07
Q
3
08
Q
3
09
Q
3
10
Q
3
11
Q
3
12
Q
3
13
Q
3
14
Q
3
15
Q
3
16
Q
3
Mi
l
l
i
o
n
s
Business Cycle Sales Tax Revenues 4-Quarter Moving Average
Source: City of Monterey, CA
21 of 37
tidal surge, sea wall failure), oil spills, aircraft accidents, and tsunamis. GFOA gathers
information for the impact of extreme events through two primary sources: historical
events within Newport Beach and analogues in other cities. Our examination of FEMA
records shows that Newport Beach has, fortunately, not experienced a number of the
extreme events that it is at risk for. This means that we will look at analogues. For
example, several cities in Orange County experienced floods and serve storms in 2005 and
2011, which would give us a rich data set to draw from. There are also many cities in
California that have actually experienced earthquakes. By seeing how these cites compare
to the circumstances faced by Newport Beach, we can estimate the impact Newport
Beach might see from similar extreme events.
Other kinds of extreme events are not very common. For example, aircraft accidents large
enough to constitute a major disaster are relatively rare. As such, there might be very few
analogues available. In these cases, we can confer with the City’s public safety and
budgeting staff to estimate ranges of costs to supplement the analogue data from other
cities that we are able to find. We have used this technique in the past to estimate risk
from hazardous material spills, for example.
In all cases, the goal of the analysis is to develop a probability distribution for extreme
events, similar in concept to the distribution for snowfall we showed in Section 1 of this
proposal. The distribution for each event type will have its own unique shape. We can
then add these distributions together to get a sense of the overall risk faced by the City.
Potential Infrastructure Failure. You can read about Public Sector Digest’s method in
subsection “C. Asset Management Risk”.
Secondary risks. The risk posed by secondary sources of risk are analyzed and estimated
using the following approaches:
Leverage – Debt. GFOA will compare Newport Beach’s level of debt to
comparable cities in Orange County in order determine the extent to which
existing debt could constrain Newport Beach’s future freedom of action.
Leverage – Pension. GFOA will review the financial health of CalPERS and its
estimated future rate increases. GFOA will look at how past rate increases have
related to economic downturns to see how future downturns might impact
future rate increases.
Leverage – Post-employment medical. GFOA will review the city’s post-
employment medical plan and compare it to resources that have been set aside
to pay for these benefits.
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Expenditure spikes – lawsuits. GFOA will examine the City’s historical payouts
for lawsuits to establish a range of potential payouts over multiyear period. We
will adjust this historical experience for any known current lawsuits that seem
likely to result in a cost to the City.
Impact of other funds on general fund. GFOA’s examination of the other funds
in the City’s RFP will inform our assessment of risk for the general fund.
Liquidity. GFOA will examine historical timing of payables versus receivables.
Growth. GFOA will discuss potential for future growth with the City’s community
development staff to determine what risk, if any, future growth poses to the
City’s financial stability.
Other claims on fund balance. GFOA will work with City staff to specify other
claims that might prohibit some portion of fund balance from being use for a
risk-mitigating reserve.
Task 3 – Develop Recommendations
Using the results of the analysis, GFOA will develop and document a target range of
reserves for the City. GFOA recommends a range of potential reserve targets for clients
because the precise amount of reserves to maintain will depend partially on the client’s
risk-appetite. Meaning, if the City is willing to live with a higher level of risk, then it
might choose to hold fewer reserves aside. If the City is more risk averse, then it might
choose to hold more reserves aside. Our recommendation will include pointers that can
help the City decide if a target at the lower or upper end of the range would be more
appropriate for its circumstances.
GFOA will also document any other recommendations that we believe might benefit the
City. The content of our recommendations depend on what we learn during the course
of our analysis, but in our experience two common types of recommendations we often
make are:
Financial policies. Often, we find opportunities to improve a government’s
governance over reserves or related financial management practices. We will
examine the City’s financial policies and make recommendations for specific
policy changes that we believe could help improve the City’s long-term financial
stability.
Alternatives to fund balances. Fund balances are just one financial tool to
mitigate risk. Insurance or borrowing are two others. Though GFOA does not
offer actuarial or insurance brokerage services, we might find instances where
the City could make more effective use of insurance, rather than relying on its
own reserves. This is usually most germane to the situation of low-frequency,
high-consequence extreme events like earthquakes. It would be impractical for a
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local government to accumulate sufficient reserves to be prepared for the worst
possible occurrences of these events. Hence, it may be wise for the City to
establish lines of credit or acquire a parametric1 insurance policy, for example.
Task 4 – Draft Report
Based on GFOA’s analysis risk affecting the City’s general fund reserve as well as a review
of its existing financial policies, we will develop a draft report of its findings and
recommendations. In addition to the draft report, GFOA will present the findings to City
staff. The presentation will also serve as an opportunity for City staff to provide feedback
and ask questions about the findings and recommendations. The draft report will include
analysis of the worker’s compensation, general liability, compensated absences, and
equipment replacement funds. The analysis of these funds is described subsection “B”,
below. The report will also include the analysis of asset management risk, performed by
Public Sector Digest, as described in subsection “C”, below.
Task 5 – Final Report
GFOA will take into account feedback received during the presentation to the City and
revise the report appropriately. GFOA will work collaboratively with the City on the
changes before submitting a final report. GFOA focuses on concision and clarity in its
reports. GFOA will make itself available to present the results to the City’s Finance
Committee and City Council. GFOA’s standard price includes a presentation by web-
meeting. This has proven sufficient for the vast majority of our previous clients. We have
provided optional pricing for an in-person presentation, should the City desire it.
B. Analysis of Other Funds
Below is our proposed approach to analyzing other funds.
Workers’ Compensation and General Liability Funds
The City’s answers to the questions posed about the RFP by potential proposers
indicated that the City is satisfied with its existing actuarial services. Further, the City
indicated that its main interest in this project is to address the potential impact of the
insurance funds on the general fund. Therefore, GFOA proposes to estimate the
potential impact of the City’s policy for insurance funds (see below) on the general fund:
1 A parametric insurance policy pays out whenever an event of a given magnitude occurs and is not linked
to damage to a physical facility.
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“The City should target funding of its risk management obligations at not less than the
Expected Level, described above; and not more than an amount sufficient to establish a
seventy-five percent (75%) Confidence Level. Actuarial losses should be recovered over a
rolling 3-year basis while actuarial gains should be amortized over a rolling 5-year basis.
As part of the operating budget, each department will be charged a rate equal to its
proportionate share of the total “revenue” required to fund the Insurance Reserve Fund
at this level.”
GFOA will examine the history of these funds to see inflows and outflows. The goal is to
see the extent to which the City’s existing practices have been sufficient cover the City’s
risk and assess the potential for the General Fund to be required to backstop these
funds.
Equipment Replacement Funds
It is our understanding that the City’s current policy is that:
“the target funding level for this fund is determined by the City’s Finance Director after
considering the age, expected life and cash flow anticipated by the replacement
equipment being funded. If departmental replacement charges for equipment prove to
be excessive or insufficient with regard to this target funding level, new rates established
during the next budget cycle will be adjusted with a view toward bringing the balance
back to the target level over a three-year period.”
We believe this is a sound policy. Therefore, we do no propose extensive analysis of the
equipment replacement fund reserve. Instead we will examine the variability of the
rates that the equipment replacement fund charges to the general fund and their
implications for the stability of the general fund. If the rates are found to be highly
variable, GFOA will make recommendations for smoothing out the rates or otherwise
mitigating the impacts of the variability.
Compensated Absences Fund
We understand that it is the City’s policy to:
“…permit employees to accumulate earned but unused vacation and limited amounts of
earned but unused sick leave benefits, which will be paid to employees upon separation
from City service. The City’s general leave plan permits a maximum of three years’
accrual for every employee, above which the excess is paid out as current compensation.
Compensated absences are accrued in the Compensated Absence Internal Service Fund
when employee services have been rendered and when it becomes probable that the City
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will compensate the employees for benefits through paid time off or cash payments at
termination or retirement.”
We also understand that the City’s policy for its compensate absences fund is that:
“The contribution rate for the compensated absences fund will be set to cover estimated
annual cash flows based on a three-year trailing average. The minimum cash reserve
should not fall below that three-year average. The maximum cash reserve should not
exceed fifty percent (50%) of the long term liability. The target cash reserve shall be the
median difference between the minimum and maximum figures.”
GFOA will work with the City to verify that the policy above will be sufficient to ensure
the financial stability of the general fund. GFOA will work with the City to analyze
potential turnover and its impact on compensated absences payout. The detail of this
analysis will be dictated by the level of detail available in the City’s payroll database. The
goal is to find out if a three-year trailing average will be sufficient to keep this fund
stable (and, hence, protect the general fund). For example, perhaps a three-year trailing
average will be insufficient if the City is expecting waves of impending retirements that
cause its turnover rates to rise above historic levels.
Water and Waste Water Funds
Enterprise funds are subject to a different set of risks than general operations funds.
Additionally, utility funds are generally expected to be self-sufficient. This means that
utility funds typically have their own unique risk factors. Here are primary and
secondary risk factors that are usually the most salient to a water and waste water fund:
Cash cycles. A water or waste water enterprise fund may experience significantly
higher levels of cash on hand during certain months (e.g., perhaps more in the
summer months than during the winter). Volatile cash cycles call for higher levels
of reserves. Another consideration is billing cycle length. A longer billing cycle
would call for higher levels of working capital because the enterprise fund will
have longer periods between major cash infusions.
Control over rates and revenues. If a utility can’t control its rates, it would have
lower financial flexibility. We understand that Newport Beach conducts water
rate studies and updates is rates regularly, so this is probably not a risk for
Newport Beach.
Asset age and condition. Older infrastructure has greater exposure to
extraordinary repair needs. Utility funds with newer and/or well-maintained
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capital assets may be able to operate with less working capital than other utility
funds.
Volatility of expenses. Water or waste water enterprise funds may be more
vulnerable to large expense spikes from extreme events. For Newport Beach,
many of the extreme events we propose to analyze for the general fund may be
relevant for the water and waste water funds.
Control over expenses. For Newport Beach, the primary risk here might be the
sources of its water. If Newport Beach’s costs are outside of its control and in the
hands of suppliers, it might need reserves to gain greater flexibility.
Management plans for working capital. If there are management plans for the
utilities’ working capital, other than risk mitigation, then the City will need to
adjust its risk management strategy appropriately.
The process for analyzing the risks associated with the water and wastewater funds
would be almost identical to the process used for the general fund, except that we
would focus on the risks listed above. We expect that there might be some economies
of scale in analyzing all three funds as part of one project, but utility funds have many
unique risks that require a separate dedicated analysis. As such, GFOA proposes to treat
the water and wastewater risk analyses as separate from the general fund. Our pricing
includes break-out pricing and these analyses will proceed on a separate schedule, but
following the same steps described for the general fund.
C. Asset Management Risk
This section explains the method to be used by Public Sector Digest (PSD) to analyze the
risk posed by infrastructure failure for the general, water, and wastewater funds.
Risk analysis is a key element of good asset management. An asset manager can
determine which infrastructure is critical and can also rank and rate the level of risk
associated with infrastructure stock. This can be done for the whole organization or by
asset category, or by the individual asset and asset component.
A good risk model will assist with the prioritization of available resources. It will:
Ensure vital services are available
Prioritize and streamline inspection and condition assessment programs
Prioritize and optimize operations and maintenance programs
Prioritize and optimize capital budget processes and program delivery
Ensure that available money and resources are applied to the right asset at the
right time
Establish attainable levels of service.
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Risk is defined by the following equation:
RISK = PROBABILITY OF FAILURE x CONSEQUENCE OF FAILURE
A high level of risk represents an elevated threat of total asset failure and ultimately
service disruption.
Probability of Failure (PoF):
The probability of failure (PoF) relates to the current state of each asset, whether they
are new or old, or in excellent, good, fair or poor condition, as this is a good indicator
regarding their future risk of failure. Additional parameters can also contribute to the
PoF of an asset such as the average daily traffic count on specific roads within the road
network. The following is a general list of parameters that are often used for PoF:
Condition data
% of asset life consumed
Known operational issues
Other parameters contributing to asset deterioration (e.g. traffic counts, soil
types)
Consequence of Failure (CoF):
The consequence of failure relates to the magnitude, or overall effect, that an asset’s
failure will cause. For instance, a small diameter water main break in a subdivision may
cause a few customers to have no water service for a few hours, whereby a large trunk
water main break outside a hospital could have disastrous effects and would be a front
page news item. The CoF parameters should address the economic, social and
environmental impacts of asset failure in order to fully quantify the overall risk to the
organization. The summary of these impacts are as follows:
Economic – impact of the asset’s failure on financial resources
Social – impact of the asset’s failure to the general population and society
Environmental – impact of the asset’s failure on the environment.
The following is a general list of parameters that are often used for CoF:
Economic (cost of rehabilitation or replacement)
o Asset type (e.g. road or pipe material)
o Asset size (e.g. number of road lanes or pipe diameter)
o Overall replacement cost
Social (number of people or critical services affected)
o Land use (e.g. industrial, commercial, residential)
o Bus / truck / emergency route
28 of 37
o Asset carrying capacity (e.g. traffic counts, pipe diameter)
Environmental (impact to environment)
o Proximity to water bodies
o Proximity to environmentally sensitive areas
o Asset carrying capacity (e.g. traffic counts, pipe diameter)
Tasks:
Create asset inventory (All City owned assets)
Provide date of install/purchase of assets, estimated useful life and replacement
cost.
Define probability of failure metrics for each asset. This is typically directly
related to the condition of the asset. If field assessment condition information is
available, then it will be used. Otherwise, the percentage of asset life consumed
is used.
Define consequence of failure metrics for each asset. This is related to the
economic, social and environmental impact of failure.
An overall risk grade will be calculated between 1-10 (Low-High). This can then
be aggregated at the asset class level or organizational level to determine the
valve of risk exposure within each risk rating. (See sample risk heat map below)
The City can then define its risk tolerance and based on the value of assets that
are at a high or very high level of risk this can be used as one of the metrics to
help determine the appropriate reserve funding.
Risk Matrices:
Once both the probability of failure and the consequence of failure has been established
for each asset the results can be aggregated to obtain a high-level view of asset risk at
an organizational level and for each major asset class. Risk matrices provide a valuable
overview of asset risk and serve as an important device to communicate where and to
what extent risk is present within the City’s asset portfolio.
29 of 37
Sample Risk Heat Map
30 of 37
Sample Results Risk and Criticality Model (Water)
The following three maps display the results of the risk matrix developed for the water distribution network. They include a map
displaying just the “probability of failure” scores, a map displaying just the “consequence of failure” scores, and finally a map
displaying “overall risk” which is a factor of both probability and consequence of failure.
Water Distribution – Probability of Failure
31 of 37
Water Distribution – Consequence of Failure
32 of 37
Water Distribution – Overall Risk
33 of 37
D. Timing of the Project
In our experience in working with other cities, the schedule for a risk analysis project is
highly dependent on the city staff’s availability to participate in discussions and to share
data with GFOA. The schedule is also dependent on the relative priority of the risk
analysis project versus other obligations that the city staff may have. In fact, we have
found that cities often need to speed up or slow down the project at different points in
order to accommodate city staff’s other obligations. Hence, we have not proposed
specific dates for this work, but propose to work with Newport Beach staff to develop a
schedule that fits with the staff’s availability.
Per the City’s addendum to the RFP, the desired completion date is October/November
2017. However, we generally find that an analysis of the general fund takes about three
months, though this timeframe might be extended if the city staff’s schedule does not
permit adequate participation. If the City also chooses to proceed with a risk analysis of
the water and wastewater funds, we would add additional time to complete those
analyses (likely another three months). That said, we will be willing to work with the City
to develop a project schedule that addresses the needs driving the proposed
October/November goal while still performing a quality analysis.
E. Project Assumptions
Scope of Work
Base scope of work does not include any visits to the City premises. All of GFOA’s
prior risk analysis engagements have been successfully completed using web
meetings between GFOA and our client governments. However, in the event that
a visit becomes necessary (for example, if the City would like an in-person
presentation of the results). The scope of work includes two (2) optional visits by
GFOA staff to City premises, including review of the preliminary analysis results
and presentation of draft report.
If it becomes necessary for the City to request additional resources or expand
scope beyond what is listed in this proposal, such additional work shall be
secured as an amendment to the contract between City and the GFOA, and the
work will be performed at prices customary for such work by GFOA.
Data Provided
Data for the benchmarking analysis will come from publicly available
comprehensive annual financial report documents.
The City will endeavor to provide in a timely fashion the data from City records
needed by GFOA or PSD for the analysis.
34 of 37
Neither GFOA nor PSD will collect original data on asset conditions or physically
inspect assets.
Expectations
City staff will be available for meetings and calls as planned.
Review of PSD and GFOA’s deliverables will be completed by the City within two
weeks or will be deemed accepted.
As an educational, nonprofit, professional membership association, GFOA
reserves the right to publish non-confidential documents describing the results
of, or created during, the services described in this scope of work. GFOA will not
publish any item with the name of the City without obtaining prior written
consent of the government.
Contract Requirements
GFOA and PSD shall each execute separate contracts with the City. GFOA and
PSD shall not have a contractor/subcontractor relationship.
The City recognizes that PSD and GFOA’s role is to provide information, analysis
and advisory services. The City will be responsible for making all decisions based
on the information provided by GFOA and PSD.
GFOA is a nonprofit membership association made up of members representing
organizations like the City. GFOA’s liability and indemnification under any
agreement reached with your organization will be limited to the extent of fees
paid by insurance coverage currently in force. This limitation applies to all
exposures under this engagement.
See Section 5 for detailed Contract Requirements.
Payment and Fees
GFOA and PSD will bill the City upon completion of any payment milestones as
identified in this proposal or in subsequent agreements.
GFOA and PSD have proposed all services listed for a fixed fee based on
completion of deliverables (unless noted). GFOA and PSD will invoice monthly for
the amount listed in this proposal for tasks/milestones completed within the
previous month.
The fees set forth in this proposal do not include any tax or other governmental
imposition including, without limitation, sales, use, or excise tax. Additionally,
GFOA has not included costs to acquire any necessary state or local permits or
business licenses that may be required to do business with the City.
35 of 37
Section 5: Contract Requirements
Section 3 – Time of Performance
GFOA prefers not to agree to requirements stating that time is of the essence. Our
project will be completed consistent with a mutually agreed upon project plan. In
addition, our project requires collaboration with City staff and the schedule may need to
be adjusted based on allowing time for decision making, additional analysis, or other
unforeseen circumstances.
Section 4 – Compensation to Consultant
GFOA has proposed our project on a fixed fee milestone completion basis where the
City only pays for completed deliverables. All expenses have been included in fees.
GFOA feels that this is to the City’s advantage as the city is given a firm price for the
project and GFOA takes on any risk of additional costs (for agreed upon scope).
Section 9 – Hold Harmless
GFOA is a nonprofit membership association made up of members representing
organizations like the City. Therefore, the GFOA’s liability and indemnification under any
agreement reached with your organization will be limited to the extent of claims paid by
insurance coverage currently in force.
Section 17 – Ownership of Documents
GFOA conducts ongoing research and consulting services to other governments and has
accumulated expertise in this field and consultant will retain all right, title, and interest
in and to all concepts, ideas, methods, processes, techniques, tools, solutions, trade
secrets, research data, or know-how that GFOA has developed before and during this
engagement (collectively, and together with any of consultant’s proprietary assessment
tools the “GFOA Intellectual Property”). This knowledge, experience, and content
provides the value that the City will be able to leverage and GFOA will need to retain the
right to offer the same to other cities in the future. GFOA will grant the City a perpetual
license to use and share any report, plan, document, or other writing produced for or
provided to the City.
Other
The City recognizes that GFOA’s role is to provide information, analysis and advisory
services. All decisions are the sole responsibility of the City.
36 of 37
Section 6: Attachments
Please find the following supplemental documents attached:
1. Proof of Insurance (GFOA and PSD)
2. Proposer Information Form (GFOA and PSD)
3. Statement of Compliance (GFOA and PSD)
Cost File submitted separately.
37 of 37
ATTACHMENT C
GFOA PROJECT SCHEDULE
Project Schedule
The proposed dates are based on our experiences with working with other governments and the
necessary data gathering and review process for the City and GFOA. Additional tasks, e.g.,
conference calls, will be requested and scheduled to clarify questions and considerations
determined through the analysis.
Note, in our experience in working with other cities, the schedule for a risk analysis project is
highly dependent on the city staff’s availability to participate in discussions and to share data
with GFOA. The schedule is also dependent on the relative priority of the risk analysis project
versus other obligations that the City staff may have. In fact, we have found that cities often need
to speed up or slow down the project at different points in order to accommodate City staff’s
other obligations. We will work with the City to accommodate changes to the project schedule.
Estimated Dates
Task 1 – Review of Preliminary Analysis
Provide preliminary data 11/13/2017
Kick off call 11/17/2017
Extreme risk call 11/21/2017
GFOA methodology call 11/30/2017
Task 2 – Complete Analysis of Risk
GFOA to provide City with draft of secondary risk factors analysis Late January 2018
GFOA to provide City with draft of primary risk factors analysis February 2018
GFOA to present preliminary analysis in-person (optional) February 2018
City to provide GFOA with feedback on secondary risk factor analysis Late February 2018
City to provide GFOA with feedback on primary risk factor analysis Late February 2018
Task 3 – Develop Recommendations
GFOA to provide City with draft financial policies and other recommendations Mid-March 2018
City to provide GFOA with feedback on draft financial policies and other recommendations Late March 2018
Task 4 – Draft Report
GFOA to provide City with full draft report April 2018
GFOA to present draft report to City in-person (optional) April 2018
City to provide GFOA with feedback on draft report April/May 2018
Task 5 – Final Report
GFOA to provide final report to City May/June 2018
Session 13 - Financial Policies 1
General Fund Reserves:
How Much is Enough?
Government Finance Officers
Association
1
A Reserve is a Hedge Against Risk
Current
services?
Preparing
for Risk?
But how much is enough?
Item No. 5A1
Risk Based Analysis Overview
Presentation
January 11, 2018
Session 13 - Financial Policies 2
A Definition of Risk*
The probability and magnitude of
a loss, disaster, or other
undesirable event
3
*Definitions on this and previous slide from Doug Hubbard in The Failure of Risk Management
The Normal
Distribution
4
Average
5’ 9”
Height
7’ 2”4’ 5”
Session 13 - Financial Policies 3
Normal Distribution in Cities
5
SnowpocalypseThe “Tails” of a distribution are often of great interest in risk analysis
Lognormal Distribution
6
Earthquakes
Tremors
Earthquakes
“The Big One”
Session 13 - Financial Policies 4
“Subway” Uncertainty*
*Terminology from Spyros Mikridakis, et al. Dance with Chance
“Meteorite” Uncertainty
88
Earthquakes
Tremors
Earthquakes
“The Big One”
Reserves
Debt Insurance
Session 13 - Financial Policies 5
Cumulative Probability Chart
Floods
9
Risks aren’t Additive
Session 13 - Financial Policies 6
11
Our Method
Triple-A Approach to Uncertainty
Accept
Uncertainty is inevitable
Assess
Find potential impact, using reference
cases – historical or analogues
Augment
Uncertainty will usually be underestimated!
12
Session 13 - Financial Policies 7
Probability Management
Open-source standard for probabilistic analysis
Works in 100% native Microsoft Excel
Free set of tools gives you shortcuts
Makes “Monte Carlo” analysis more accessible
than ever before
13
Monte Carlo Analysis
Computerized equivalent of developing your
own custom set of dice to represent the
likelihood of an undesirable event, and then
rolling them thousands of times to see what
happens
14
Session 13 - Financial Policies 8
Our Risk Analysis Process
15
Model Development Phases
16
Phase 1 Phase 2 Phase 3 Phase 4
Revenue
Instability
+
Extreme Events
=
Sales Tax
TOT
Property Tax
Other
Earthquakes
Floods
Wild fires
Landslides
High winds
Risk
Inter-
dependencies
Multi-year
Outlook
1/9/2018
1
Sales Tax Trends and Influences
City of Newport Beach
Finance Committee
January 11, 2018
Newport Beach vs. Orange County vs. California
Per Capita Taxable Sales
Item No. 5B1
Consultant Overview of Property and Sales Tax Revenues
Presentation
January 11, 2018
1/9/2018
2
CALIFORNIA SALES TAX TREND –% Annual Growth Rate
History Adjusted for Payment Errors and One‐Time Corrections
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
16‐1715‐1614‐1513‐1412‐1311‐1210‐11
State of CA Sales Tax Growth Rate by Fiscal Year
NEWPORT BEACH SALES TAX TREND –% Annual Growth Rate
History Adjusted for Payment Errors and One‐Time Corrections
1/9/2018
3
Newport Beach Sales Tax by Category –FY 16/17
Category 1: Autos & Transportation
1/9/2018
4
Autos: % Annual Change in National Registrations
Newport Beach Auto‐Transportation Sales Tax
History Adjusted for Payment Errors and One‐Time Corrections
1/9/2018
5
Category 2: Restaurants & Hotels
Restaurants:
Statewide Trend in Year ‐Over‐Year Sales Growth
1/9/2018
6
Newport Beach Restaurant‐Hotel Sales Tax
History Adjusted for Payment Errors and One‐Time Corrections
1/9/2018
7
Category 3: General Consumer Goods
BRICK & MORTAR VS. ONLINE SALES
GENERAL CONSUMER GOODS
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
MIL
L
I
O
N
S
Brick and Mortar Online
AB 155, requiring out‐of‐state (online) retailers to collect and remit local sales tax, went into effect in September 2012.
14% growth
60% growth;
13% share
State of California ‐Local 1% Sales Tax by Calendar Year
1/9/2018
8
California Department Store Sales
Year‐over‐Year Percentage Change (Adjusted for Payment Errors)
Newport Beach Consumer Goods Sales Tax
History Adjusted for Payment Errors and One‐Time Corrections
1/9/2018
9
SUMMARY
2. National economic growth continues, but the recovery is near record length
3. Cyclical forces are slowing auto sales and most other major sales tax
revenue categories throughout the State
5. The State’s antiquated tax system is not keeping up with changes in the modern
economy
4. Internet shopping is shifting sales tax away from brick‐and‐mortar stores to the
County pool allocation system, or to jurisdictions with large fulfillment centers.
1. Modestsales tax growth is projected for next year
Thank you!
Ken Brown
kbrown@hdlcompanies.com
Phone: 909.861.4335
www.hdlcompanies.com
Diamond Bar | Fresno | Pleasanton
2017/18 GROWTH BY USE CATEGORY
THE CITY OF NEWPORT BEACH
2016/17 to 2017/18 Value Growth by Use Category
2016/17 Net Taxable Value 2017/18 Net Taxable ValueCategory $ Change % Change
7.1%(83.5%)$41,906,453,386 $44,861,653,142 $2,955,199,756Residential29,89629,810
5.7%(10.9%)$5,549,137,292 $5,863,867,272 $314,729,980Commercial1,2951,211
-6.9%(2.7%)$1,572,309,987 $1,463,980,226 -$108,329,761Unsecured[11,603][12,115]
3.8%(1.4%)$743,076,589 $771,483,293 $28,406,704Cross Reference [39,008][38,990]
26.7%(1.2%)$489,594,517 $620,533,592 $130,939,075Vacant341398
3.5%(0.2%)$116,680,789 $120,766,130 $4,085,341Industrial6161
1.0%(0.1%)$49,486,643 $49,996,981 $510,338Agricultural3536
2.0%(0.0%)$2,009,451 $2,049,639 $40,188Miscellaneous22
0.0%(0.0%)$53,310 $53,310 $0SBE Nonunitary [8][8]
0.0%(0.0%)$0 $0 $0Exempt4,7864,752
TOTALS $53,754,383,585$50,428,801,964 $3,325,581,621 6.6%(100.0%) 36,270 36,416
Numbers in blue are parcel/assessment counts
$0
$5,000,000,000
$10,000,000,000
$15,000,000,000
$20,000,000,000
$25,000,000,000
$30,000,000,000
$35,000,000,000
$40,000,000,000
$45,000,000,000
Residential Commercial Unsecured Cross
Reference
Vacant Industrial Agricultural
Use Category
Ne
t
V
a
l
u
e
Assessed Value by Major Use Category
2016/17
2017/18
This report is not to be used in support of debt issuance or continuing disclosure
statements without the written consent of HdL, Coren & Cone
Prepared On 10/19/2017 By MV Data Source: Orange County Assessor 2017/18 Combined Tax Rolls
Page 2
Item No. 5B2
Consultant Overview of Property and Sales Tax Revenues Additional Materials Received
January 11, 2018
Newport-Mesa Unified General Fund 34.4%
Newport Beach General Fund 16.8%
Educational Revenue Augmentation Fund 16.2%
Coast Community College General Fund 8.9%
Orange County General Fund 6.1%
Irvine Ranch Water District ID #204 3.0%
Orange County Flood Control District 2.2%
O.C. Sanitation #5 Operating 2.1%
O.C. Dept. of Education- General Fund 1.7%
O.C. Harbors Beaches & Parks CSA 26 1.7%
Others 6.9%
Total:100.0%
THE CITY OF NEWPORT BEACH
2017/18 WEIGHTED AVERAGE SHARES
ATI Revenue by Agency for all NON SA TRAs within Selected Agency
Agency Description Weighted Avg ShareAgency
Newport-Mesa Unified General Fund 34.367713%UGA.01
Newport Beach General Fund 16.833325%A58.01
Educational Revenue Augmentation Fund 16.159469%664.01
Coast Community College General Fund 8.949292%VAA.01
Orange County General Fund 6.103358%100.01
Irvine Ranch Water District ID #204 3.030344%C34.07
Orange County Flood Control District 2.178215%400.01
O.C. Sanitation #5 Operating 2.123139%C90.05
O.C. Dept. of Education- General Fund 1.685734%ZAA.01
O.C. Harbors Beaches & Parks CSA 26 1.683686%405.01
Santa Ana Unified General Fund 1.408646%ULA.01
Laguna Beach Unified General Fund 1.366579%UEA.01
South Orange County Community College Dist-General 1.171441%VDA.01
Irvine Ranch Water District ID #104 1.132824%C34.06
Irvine Unified General Fund 0.645179%UDA.01
Rancho Santiago Community College General Fund 0.309758%VCA.01
Orange County Transit Authority 0.309118%C89.01
O.C. Sanitation #6 Operating 0.195952%C90.06
Orange County Vector Control District 0.123000%C66.01
Orange County Water District 0.059038%C87.01
O.C. Sanitation #7 Operating General Fund 0.058145%C90.07
Orange County Cemetery Fund- General 0.054760%754.01
Irvine Ranch Water Dist.- General Fund 0.028811%C34.01
Newport Beach Balboa St. Light. Dist. #50 0.016264%A58.02
Costa Mesa Sanitary District- General Fund 0.002492%C16.01
Irvine Ranch Water District ID #1 0.002341%C34.02
Orange County Water District- Water Reserve 0.000886%C87.02
Orange County Public Library 0.000490%120.01
100.000000%
NOTES: The share calculations do not take into account any override revenue. In counties where ERAF is not included in the TRA factors it may not be represented in the listing above. In those counties, the shares for non-school
and non-fire district taxing entities will likely be adjusted by the Auditor-Controller and will be lower than shown.
This report is not to be used in support of debt issuance or continuing disclosure statements without the written consent of HdL, Coren & Cone
Prepared On 10/19/2017 By MV Data Source: 2017/18 Combined Tax Rolls
Page 22
2017/18 USE CATEGORY SUMMARY
THE CITY OF NEWPORT BEACH
BASIC PROPERTY VALUE TABLE
Category Parcels RevenueNet Taxable Value
$44,861,653,142 $74,194,260.98 Residential (83.5%)(83.7%)29,896
$5,863,867,272 $9,446,457.20 Commercial (10.9%)(10.7%)1,295
$120,766,130 $209,492.99 Industrial (0.2%)(0.2%)61
$49,996,981 $86,823.91 Agricultural (0.1%)(0.1%)35
$2,049,639 $2,976.00 Miscellaneous (0.0%)(0.0%)2
$620,533,592 $970,604.05 Vacant (1.2%)(1.1%)341
$0 $0.00 Exempt (0.0%)(0.0%)4,786
$53,310 $95.25 SBE Nonunitary (0.0%)(0.0%)[8]
$771,483,293 $1,320,319.67 Cross Reference (1.4%)(1.5%)[39,008]
$1,463,980,226 $2,451,679.21 Unsecured (2.7%)(2.8%)[11,603]
TOTALS 36,416 $53,754,383,585 $88,682,709.27
83.7%
Residential
10.7%
Commercial
2.8%
Unsecured
2.9%
Others
Revenue
83.5%
Residential
10.9%
Commercial
2.7%
Unsecured
2.9%
Others
Net Taxable Value
This report is not to be used in support of debt issuance or continuing disclosure statements without the
written consent of HdL, Coren & Cone
Prepared On 10/19/2017 By MV Data Source: Orange County Assessor 2017/18 Combined Tax Rolls
Page 18
City of Newport Beach
Property Tax Revenue - 2017-18
Secured Taxable Value 51,119,957,650
Unsecured Taxable Value 1,423,462,322
Total Taxable Value 52,543,419,972
Tax Revenue @ 1% 525,434,200
City Tax Revenue @ 16.83% 88,448,047
Aircraft Revenue 2,813
County Project Area BY Value 124,061,913
Tax Revenue @ 1% 1,240,619
City Tax Revenue @ 18.69% 231,850
Combined City Tax Revenue 88,682,709
Unitary Revenue 861,093
Property Tax In Lieu of VLF 9,205,283
Total Estimated Property Tax Revenue 98,749,086
1/11/2018
1
LONG-RANGE FINANCIAL FORECAST
A REVIEW OF LONG RANGE FORECASTS OF SELECT CITIES AND BEST PRACTICES
CITY OF NEWPORT BEACH FINANCE COMMITTEE MEETING JANUARY 11, 2018
CITY OF SUNNYVALE LONG-RANGE FINANCIAL PLAN
Item No. 5C1
Long Range Financial Forecast (LRFF)
Presentation
January 11, 2018
1/11/2018
2
CITY OF SUNNYVALE RESOURCE ALLOCATION PLAN
Fiscal strategies represent the increased revenue and reduced expenses the city needs to realize in order to balance its financial plan.
The city sets the twenty-year “RAP” reserve to
stabilize service levels by providing funding in lean years and absorbing ordinary surpluses in good years. equal to zero for the twentieth year of its plan. The city will run down its RAP
reserve to 0 over the course of the twenty-year plan in order to cover annual deficits occurring throughout the plan.
After spending down the twenty-year RAP
reserve, the city is left with remaining deficit amounts that must be covered by revenue enhancements and/or expenditure reductions
(i.e., fiscal strategies).
1/11/2018
3
1/11/2018
4
BEST PRACTICES IN LONG-TERM PLANNING FOR LOCAL
GOVERNMENT
1/11/2018
5
GFOA RECOMMENDATIONS FOR LONG-TERM FINANCIAL PLAN
A long-term financial plan should include these elements:
Time Horizon. A plan should look at least five to ten years into the future. Governments may elect to extend their planning horizon further if conditions warrant.
Scope. A plan should consider all appropriated funds, but especially those funds that are used to account for the issues of top concern to elected officials and the community.
Frequency. Governments should update long-term planning activities as needed in order to provide direction
to the budget process, though not every element of the long-range plan must be repeated.
Content. A plan should include an analysis of the financial environment, revenue and expenditure forecasts, debt position and affordability analysis, strategies for achieving and maintaining financial balance, and plan monitoring mechanisms.
Visibility. The public and elected officials should be able to easily learn about the long-term financial prospects
of the government and strategies for financial balance.
GFOA RECOMMENDED STEPS IN THE DEVELOPMENT OF A LONG-TERM FINANCIAL PLAN
Phase Description Examples
Mobilization Phase •Raise awareness of special issues
•Understand service priorities•Use financial polices to set baseline
standards
•Seawalls, Unfunded Liability
•Sustained commitment to FFP •Adherence to Policies: F2- Reserves,
F-5 Surplus Utilization, F-28 FFP
Analysis Phase •Information gathering
•Trend projection
•Analysis of projected deficits
•Scenario analysis
•Historical revenue and exp actuals
•CAGR,Actuarial Valuation
•Understand drivers of proj deficits
•Presentation of optimistic, base and
pessimistic cases
Decision Phase Determine how information will be
used. Involve elected officials and other
stake holders
Schedule review by City Manager and
Finance Committee. Input informs the
budget development process.
Execution Phase •Allocate funding to achieve plan
goals
•Monitor regularly
•Additional FFP and UAL
contributions,
•Monitor change in unfunded pension
liability, growth in FFP balances,
General Fund contingency balances.
1/11/2018
6
STEPS IN THE PLANNING PROCESS
A long-term plan should include
these steps:
1.Mobilization Phase
2.Analysis Phase
3.Decision Phase
4.Execution Phase
Why Whitebirch?
Needed more stable product than
Excel
Delivered in the cloud – no
software to maintain
Built for collaboration – no version
control issues
Best practice approach – leverages
PFM’s long history helping local
governments analyze financial
information
1/11/2018
7
Review Historical Fiscal Drivers - Review your historical
trends and understand your major fiscal drivers
Major Baseline Assumptions -Apply the major assumptions
needed to create your baseline projection
Refine Baseline Assumptions - Review detailed assumptions as
warranted to adjust down to the line item level
Sensitivity Analysis & Alternative Assumptions - Create
alternate sets of assumptions that vary from the base
Initiative Development - Create strategic initiatives which can
be layered on top of a baseline plan
Multi-Year Strategic Plan - Summary report and overview of
the baseline projection
Scenario Comparison - Comparison report to analyze full
projection scenarios against one another
LONG-RANGE FINANCIAL FORECAST
BEST PRACTICES AND TOOLS USED
CITY OF NEWPORT BEACH FINANCE COMMITTEE MEETING JANUARY 11, 2018
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5D
January 11, 2018 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949) 644-3123 or danm@newportbeachca.gov SUBJECT: CITY COUNCIL RESOLUTION - FINANCE COMMITTEE PURPOSE AND RESPONSIBILTIES
DISCUSSION
The attached resolution, last amended by the City Council on September 17, 2017, describes the Finance
Committee’s purpose and responsibilities.
RECOMMENDATION Receive and file.
Prepared by: Submitted by:
/s/ Steve Montano
/s/ Dan Matusiewicz
Steve Montano Dan Matusiewicz
Deputy Finance Director Finance Director
Attachment:
A. City Council Resolution 2017-58 - Finance Committee Purpose and Responsibilities
ATTACHMENT A
CITY COUNCIL RESOLUTION 2017-58 - FINANCE COMMITTEE PURPOSE AND RESPONSIBILITIES
RESOLUTION NO. 2017-58
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
NEWPORT BEACH, CALIFORNIA, AMENDING THE TERM
OF THE FINANCE COMMITTEE'S CITIZEN APPOINTEES
WHEREAS, the City Council of the City of Newport Beach ("City") has a long and
established history of being good guardians and stewards of the public's money;
WHEREAS, appropriations, expenditures and other budgetary matters are a
primary concern of the City Council;
WHEREAS, the City Council has adopted various policies regarding financial
matters;
WHEREAS, the City Council has adopted policies regarding income property and
annexations, which may have an impact on the City's finances;
WHEREAS, on December 12, 1994, the City Council adopted Resolution No. 94-
110 establishing the Finance Committee, whose duties and responsibilities have been
amended throughout the years to further protect and safe guard the public's money;
WHEREAS, the Finance Committee is charged with a variety of tasks including,
but not limited to, reviewing and monitoring events and issues that may affect the financial
status of the City and making recommendations to the City Council regarding
amendments to financial and budgetary policies;
WHEREAS, the existing Finance Committee is composed of three City Council
Members, appointed by the Mayor subject to City Council approval, and four citizen
members, appointed by City Council Members not on the Finance Committee subject to
City Council approval ("Citizen Appointees"); and
WHEREAS, the City Council desires to amend the Finance Committee to:
1) modify the term of its Citizen Appointees to align with the fiscal year; and (2) clarify
the duration of a Citizen Appointee's term to be one year or until a Citizen Appointee's
successor is appointed and qualified.
NOW, THEREFORE, the City Council of the City of Newport Beach resolves as
follows:
Section 1: The City Council hereby amends the Finance Committee as described
in the Finance Committee Description, which is attached hereto and incorporated herein
by reference.
Section 2: The City Council hereby repeals all resolutions related to the Finance
Committee that are in conflict with this resolution.
Resolution No. 2017-58
Page 2 of 5
Section 3: If any section, subsection, sentence, clause or phrase of this
resolution is for any reason held to be invalid or unconstitutional, such decision shall not
affect the validity or constitutionality of the remaining portions of this resolution. The City
Council hereby declares that it would have passed this resolution and each section,
subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or
more sections, subsections, sentences, clauses and phrases be declared invalid or
unconstitutional.
Section 4: The recitals provided in this resolution are true and correct and are
incorporated into the substantive portion of this resolution.
Section 5: The City Council find the adoption of this resolution and the
amendment of the Finance Committee is not subject to the California Environmental
Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a
direct or reasonably foreseeable indirect physical change in the environment) and
15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA
Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no
potential for resulting in physical change to the environment, directly or indirectly.
Section 6: This resolution shall take effect immediately upon its adc
City Council, and the City Clerk shall certify the vote adopting this yhsoyttion.
ADOPTED this 12th day of September, 2017.
Kevin
Mayor
ATTEST- I
Leilani I. Brown
City Clerk
APPROVED AS TO FORM:
Aaron C. Hal
City Attorney
Attachment: Finance Committee Description
Resolution No. 2017-58
Page 3 of 5
FINANCE COMMITTEE
AUTHORIZATION: Established by Resolution No. 94-110 adopted on
December 12, 1994. Modified by Resolution No. 96-100
adopted on December 9, 1996. Disbanded by Resolution
No. 98-32 adopted on May 11, 1998. Re-established by
Resolution No. 2000-103 adopted on December 12, 2000.
Duties and membership amended by Resolution No. 2007-21
adopted on April 10, 2007. Purpose and responsibilities
amended by Resolution No. 2013-32 adopted on April 9,
2013. Membership, qualifications and term of members, and
purpose and responsibilities amended by Resolution
No. 2015-5 adopted on January 13, 2015. Administrative
practices amended by Resolution No. 2015-40 adopted on
May 26, 2015. Term of citizen appointees amended by
Resolution No. 2017-58 adopted on September 12, 2017.
MEMBERSHIP: Seven (7) total. Three (3) Council Members appointed by the
Mayor subject to full City Council approval. Four (4) citizen
members appointed by the Council Members not on the
Committee subject to approval of the full City Council ("Citizen
Appointees"). Citizen Appointees have equal voting status.
The Mayor shall appoint the chairperson subject to
confirmation of the full City Council.
Staff support shall be provided primarily by the City Manager
and the Finance Director and by other staff as necessary.
Meetings shall be held as required by the business needs of
the Finance Committee in the City Council Chambers or such
other locations as allowed by the Ralph M. Brown Act, on
weeknights or weekdays (M -Th) at a time that is convenient
for the Finance Committee and the public to encourage public
participation.
TERM OF COUNCIL
MEMBERS: Indefinite pending City Council action.
TERM OF CITIZEN
APPOINTEES: Appointed annually on a fiscal year (July 1 to June 30) basis.
Citizen Appointees shall serve for a one-year term or until their
successor is appointed and qualified.
QUALIFICATIONS OF
CITIZEN APPOINTEES:
Resolution No. 2017-58
Page 4 of 5
1. Must be a resident of the city of Newport Beach.
2. Must be a registered voter in Newport Beach.
3. Must be appointed by a City Council Member.
4. Recommended, but not required, that the appointee be
a CPA, CFA or Business/Finance major or other such
designation as may be appropriate.
PURPOSE &
RESPONSIBILITIES: A. Review and monitor events and issues which may
affect the financial status of the City;
B. Make recommendations to the City Council regarding
amendments to financial and budgetary policies;
C. In accordance with Sections 504 & 1101 of the City
Charter, review the City Manager's proposed budget
and give recommendations to the City Manager in
advance of the budget's presentation to the City
Council. The Committee's recommendations shall be
provided in writing to the City Council along with the
City Manager's presented budget;
D. Recommend for Council approval, and manage an on-
going process for measuring and setting goals
designed to maximize the City's revenues consistent
with existing taxation structures and inter-
governmental funding opportunities, fee generation
consistent with market rate charges for City provided
services and market rate fees for utilization of City
owned assets. Recommend to Council major initiatives
to accomplish identified goals;
E. Recommend for Council approval, and manage an on-
going process for measuring and setting goals
designed to minimize the City's cost to provide core
services and required activities, consistent with the
desired service level for residents and other internal
and external customers. Recommend to Council major
initiatives to accomplish identified goals;
F. Review with staff on an annual basis the timing, means
of financing, and fiscal impacts associated with funding
the high-priority projects designated in the Facilities
Financing Plan. After approval by the City Council,
identify, review and annually recommend to Council
the most advantageous methods to fund the City
Council's approved Facilities Financing Plan;
Resolution No. 2017-58
Page 5 of 5
G. Identify, review and annually recommend to Council
the most advantageous methods to fund the City's long
term compensation and benefit program liabilities;
H. Review and recommend to Council policies related to
the setting of funding goals for reserves, and review
on-going progress related thereto;
Review the structure and documentation of any
proposed debt financing to assess the risk associated
with debt usage;
J. Conduct audit conference meeting(s) with the auditors
to provide independent review and oversight of the City
of Newport Beach's financial reporting processes,
framework of internal control, and to provide a forum in
which auditors can candidly discuss concerns in the
absence of staff; and
K. Recommend for Council approval, monitor, and review
activities related to Investment Guidelines for City
Reserve and investment funds.
STATE OF CALIFORNIA }
COUNTY OF ORANGE } ss.
CITY OF NEWPORT BEACH }
I, Leilani I. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the
whole number of members of the City Council is seven; that the foregoing resolution, being Resolution
No. 2017-58 was duly introduced before and adopted by the City Council of said City at a regular meeting
of said Council held on the 121h day of September, 2017, and that the same was so passed and adopted
by the following vote, to wit:
AYES: Council Member Jeff Herdman, Council Member Brad Avery, Council Member Diane
Dixon, Council Member Scott Peotter, Council Member Will O'Neill, Mayor Pro Tem
Duffy Duffield, Mayor Kevin Muldoon
NAYS: None
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of
said City this 131h day of September, 2017.
dd a j- bvp,=
Leilani . Brown
City Clerk
Newport Beach, California
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5E
January 11, 2018 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949) 644-3123 or danm@newportbeachca.gov SUBJECT: BUDGET AMENDMENTS
EXECUTIVE SUMMARY
The purpose of this memorandum is to report on the budget amendments for the second quarter of Fiscal
Year 2017-2018. All budget amendments are in compliance with City Council Policy F-3, Budget Adoption and Administration.
DISCUSSION
The Finance Committee requested that staff provide a quarterly report of budget amendments including their effect on fund balance. City Council Policy F-3, Budget Adoption and Administration, identifies how
appropriations can be transferred, amended or reduced. Please find the list of budget amendments for the quarter ending December 31, 2017, as Attachment A.
Prepared by: Submitted by:
/s/ Susan Giangrande
/s/ Dan Matusiewicz
Susan Giangrande Dan Matusiewicz
Budget Manager Finance Director
Attachment:
A. Budget Amendments Fiscal Year 2017-2018 Quarter Ending December 31, 2017
ATTACHMENT A
BUDGET AMENDMENTS FISCAL YEAR 2017-2018 QUARTER ENDING DECEMBER 31, 2017
Date Amount
Amendment
Type Fund
Net Effect on Fund
Balance
Increase/(Decrease)Department Explanation
General Fund (8,239.65)
Water Fund (1,760.35)
10/18/17 4,320.00 City Manager General Fund -
Recreation
Department
To increase revenue estimates and expenditure appropriations
related to the Per Player Field Maintenance Agreement for the
Adult Soccer Leagues Fall 2017 Season.
10/18/17 4,042,840.00 City Manager Retiree Med Fund - Finance Department
To transfer expenditure appropriations for the FY18 OPEB
Budget. This transfer is to accommodate Socrata reporting.
10/24/17 137,700.00 City Council Tidelands Fund (137,700.00) Public Works
To increase expenditure appropriations for the Basin Marine
contract to perform marina management services at Marina
Park.
10/27/17 937,000.00 City Council
Tidelands Capital
Fund (937,000.00) Public Works
To increase expenditure appropriations for the Ocean Piers Maintenance and Emergency Repairs project.
11/06/17 73,615.29 City Manager General Fund - Community Development
To transfer expenditure appropriations for contracting of
planning staff augmentation during the absence of an Associate
Planner.
Facilities Financing (200,000.00)
Parks & Community
Centers -
11/14/17 95,000.00 City Council General Fund (95,000.00)
Fire
Department
To increase expenditure appropriations for Fire Operations Planned Overtime per NBFA MOU Agreement. The Department has identified the need to train one additional paramedic. This covers increased overtime hours to backfill.
11/14/17 73,090.00 City Council CDBG Fund (65,755.00) Public Works
To increase expenditure appropriations and transfer expenditureappropriations from the CdM Concrete Pavement Reconstruction Phase 2 Project for the Citywide ADA Improvements project.
11/14/17 125,000.00 City Council Contributions Fund - Public Works
To increase revenue estimates and expenditure appropriations to record grant revenue from the State of California's Division of Boating and Waterways SAVE grant.
11/28/17 6,500.00 City Manager General Fund -
Community
Development
To transfer expenditure appropriations from professional services to Part Time Employee budget to be used for additional Student Aide.
11/28/17 13,084.00 City Council General Fund (13,084.00)
Police
Department
To increase expenditure appropriations by recording grant
funding for the 2016 FEMA EMPG Grant - a FEMA pass-
through grant through the County of Orange. Revenue
estimates already budgeted.
11/28/17 165,000.00 City Council General Fund -
Municipal
Operations
To transfer appropriations between budget classifications from Parks Division Salary & Benefit, and Maintenance & Operations accounts into Parks/Facilities Contract Services for Mariposa Landscape Contract
11/28/17 300,000.00 City Council Equipment Fund (300,000.00)
Fire
Department
To increase expenditure appropriations for the purchase of an ambulance.
Equipment Fund (385,584.12)
AQMD Fund (100,000.00)
11/28/17 1,574,200.00 City Council Water Capital Fund (1,574,200.00) Public Works
To increase expenditure appropriations for Phase I of the
Balboa Island Water Main Replacement Project.
11/28/17 304,000.00 City Council State Gas Tax Fund - Public Works
To transfer expenditure appropriations from the Newport Blvd
32nd St. Modification Project to the Arterial Highway Pavement
Repair Program.
11/28/17 202,305.00 City Council Tideland Capital Fund (202,305.00) Public Works
To increase expenditure appropriations for sediment testing to
support future maintenance dredging within the Lower Bay
Federal Channels.
General Fund CIP (272,615.94)
Tidelands Capital (244,672.51)
Gas Tax Fund (851,024.57)
Measure M Fund (37,619.20)
Contributions Fund (12,369.00) PCH Fund (67,665.37)
Circulation &
Transportation (129,170.92)
Marina Park Fund (1,337,018.13)
Water Fund (521,950.60)
Water Capital (205,868.15)
11/30/17 (3,986,064.95) City Manager Wastewater Fund (306,090.56) Public Works
To decrease expenditure appropriations in multiple funds for contracts completed on Capital Improvement Projects.
12/22/17 1,307,517.00 City Manager General Fund - Public Works
To transfer revenue appropriations for the FY18 Corona Del
Mar Parking Lot Budget. This transfer is to move the last
Uplands Revenue in Harbor Resources to the correct Finance (Parking) Division.
12/22/17 6,142.00 City Manager Contributions Fund - Public Works
To increase revenue estimates and expenditure appropriations
due to increased revenue receipted from the Orange County
Sanitation District for the Big Canyon Restoration and Water Quality Improvement Project.
City of Newport Beach
Budget Amendments
Fiscal Year 2017-18
Quarter Ending December 31, 2017
To increase expenditure appropriations for the purchase of a
vactor "CNG" sewer cleaner.
To increase expenditure appropriations for City facilities' fixed sewer rates and sewer usage that were not budgeted in FY18.10/18/17 10,000.00 City Manager
Municipal Operations - Utilities
11/28/17 485,584.12 City Council Municipal Operations
11/14/17 200,000.00 City Council
Recreation
Department
To increase expenditure appropriations in the Parks &
Community Centers Capital Improvement Fund for the
purchase and installation of shade structures, play elements,
and accessibility surfacing improvements for five playgrounds.
I:\Users\FIN\Shared\Admin\Finance Committee\WORKPLAN\2018\2018 FC Workplan 1
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Scheduled Date Agenda Title Agenda Description
Tuesday, January 09, 2018 Council Study Session 9th - Economic Overview (Optional)Broad Local Economic Overview to be provided by Beacon Economics.
Thursday, January 11, 2018 Risk Based Reserve Analysis Overview Consultant will provide an update and overview of the Risk -based Reserve
Analysis.
Consultant Overview of Property and Sales Tax Revenues Consulting specialists in Property and Sales Tax will provide an overview of
revenue prospects.
Long Range Financial Forecast (LRFF)City staff will provide an update on efforts to improve the City's Long Range
Financial Forecast and provide a comparative review of best practices to other
cities.
Review of Finance Committee Resolution The Committee will review its objectives as set forth in Council resolution 94-
110 as amended by 2017-58.
Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the
remainder of the fiscal year and highlight those work plan items that were
carried forward from the prior fiscal year. The Committee will also consider
setting up a subcommittee to review finance related Council Policies.
Monday, January, 29, 2018 Council Goal Setting Session - (FYI Only)
Thursday, February 15, 2018 Debt Discussion Review Subcommittee revisions fo Debt Policy and discuss Next Steps
Year-End Closing Results Staff will present year-end closing results for Fiscal Year 2016-2017.
Review of Police Department Budget to Actual Results In preparation of the 2018-19 Budget, staff will review budget assumptions
against actual results for fiscal year 2016-17.
Thursday, March 15, 2018
Review of the Harbor Operations Division Review Harbor Operation Division activities
Harbor & Beaches Master Plan Review Harbor & Beaches Master Plan for financial solvency based on known
Council Priorities
Review of Fire Department Budget to Actual Results In preparation of the 2018-19 Budget, staff will review budget assumptions
against actual results for fiscal year 2016-17.
Facilities Financial Plan Review Facilities Financial Plan for financial solvency based on known Council
Priorities
Thursday, April 5, 2018 Submit Budget Documents to Finance Committee - Information
Only ** NOT A MEETING DATE **
Information Only - Not a meeting date.
Thursday, April 12, 2018 Finance Committee Budget Review
City of Newport Beach Finance Committee Work Plan 2017-18 - DRAFT
January
FEBRUARY
MARCH
APRIL
May
Item No. 5F1Review of WorkPlan
Additional Materials ReceivedJanuary 11, 2018
I:\Users\FIN\Shared\Admin\Finance Committee\WORKPLAN\2018\2018 FC Workplan 2
Updated 1/11/2018
Scheduled Date Agenda Title Agenda Description
City of Newport Beach Finance Committee Work Plan 2017-18 - DRAFT
Thursday, May 10, 2018 Finance Committee Budget Review
Tuesday May 22, 2018 Council Budget Study Session (Joint FC Study Session ?)
Thursday, May 24, 2018 Reserve For Policy Discussion(s)
Tuesday, June 12, 2018 Council Budget Adoption
Thursday June 21, 2018 Reserve For Policy Discussion(s)
OR
Thursday June 28, 2018 Reserve For Policy Discussion(s)
June