HomeMy WebLinkAboutFinance Committee - June 28, 2018CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA - Final
100 Civic Center Drive - Crystal Cove Conference Room, Bay 2D
Thursday, June 28, 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
Joe Stapleton, Committee Member
Larry Tucker, Committee Member
VACANT, 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
MINUTES OF JUNE 14, 2018A.
Recommended Action:
Approve and file.
DRAFT MINUTES 061418
June 28, 2018
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Finance Committee Meeting
V.CURRENT BUSINESS
AGREED UPON AUDIT PROCEDURES FOR INTERNAL CONTROLA.
Summary:
The Finance Department is working with the City’s audit firm, White Nelson Diehl
Evans LLP, to develop agreed upon procedures for the audit of the City’s internal
control processes and procedures. The Auditor will present the audit findings.
Recommended Action:
Direct staff to forward results to City Council.
STAFF REPORT
ATTACHMENT A
RESERVE POLICYB.
Summary:
Further discussion and consideration of Draft Report: GFOA Risk Based Analysis of
General Fund Reserve Requirements.
Recommended Action:
Receive, file and discuss next steps; direct staff to draft changes to Council Policy
F-2 (Reserve Policy), as necessary.
PENSION DISCUSSIONC.
Summary:
Agenda item reserved for any discussion regarding the status of the City's pension
liability, funding policy and Section 115 Pension Prefunding Funding Trust.
Recommended Action:
Receive, file and provide direction as necessary.
DISCUSS POTENTIAL BALLOT INITIATIVE THAT MAY REQUIRE A VOTE OF
THE ELECTORATE PRIOR TO THE ISSUANCE OF CERTAIN CERTIFICATES
OF PARTICIPATION (COPS) AND OTHER LEASE REVENUE OBLIGATIONS
D.
Summary:
On the June 26 City Council agenda, Council members will discuss a potential ballot
initiative that would require a vote of the electorate prior to the issuance of certain
COPs and other lease revenue obligations.
Recommended Action:
Discuss and develop pros and cons to City Council as necessary.
WORK PLAN REVIEWE.
Summary:
Staff will review with the Committee the agenda topics scheduled for the remainder
of the calendar year.
Recommended Action:
Receive, file provide staff input as necessary.
June 28, 2018
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Finance Committee Meeting
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
Finance Committee Meeting Minutes June 14, 2018
Page 1 of 9
CITY OF NEWPORT BEACH FINANCE COMMITTEE JUNE 14, 2018 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, 100 Civic Center Drive, Newport Beach, California 92660.
II. ROLL CALL
PRESENT: Council Member Diane Dixon (Chair), Mayor Pro Tem Will O'Neill,
Council Member Kevin Muldoon (arrived 3:08 p.m.) Committee Member William Collopy, Committee Member Joe Stapleton, and Committee
Member Larry Tucker
ABSENT: Committee Member (VACANT)
STAFF PRESENT: City Manager Dave Kiff, Assistant City Manager Carol Jacobs, Finance Director/Treasurer Dan Matusiewicz, Deputy Director/Finance Steve
Montano, Accounting Manager Rukshana Virany, Budget Manager Susan Giangrande, Revenue Manager Evelyn Tseng, Senior Accountant
Theresa Schweitzer, Human Resources Manager Briza Morales, Human Resources Director Barbara Salvini, Fire Chief Chip Duncan, Deputy
Community Development Director Samir Ghosn, Purchasing Agent Anthony Nguyen, Public Works Finance and Administrative Manager
Jamie Copeland, Fire Assistant Chief Jeff Boyles, Deputy Community Development Director Jim Campbell, Systems and Administrative
Manager Dan Campagnolo, Fire Administrative Manager Angela Velazquez, Fire EMS Division Chief Kristin Thompson, and
Administrative Specialist to the Finance Director Marlene Burns
MEMBER OF THE PUBLIC: Jim Mosher
OUTSIDE ENTITIES: Shayne Kavanagh (GFOA), Serena Sowers (Swiss Re), Rennetta Poncy
and Courtney Ramirez (Alliant)
III. PUBLIC COMMENTS
Chair Dixon informed everyone that, effective today, Committee Member Patti Gorczyca resigned
as a member of the Finance Committee.
Chair Dixon opened public comments. Noting there were no members of the public who elected to speak on this item, Chair Dixon closed public comments.
IV. CONSENT CALENDAR
A. MINUTES OF MAY 10, 2018
Recommended Action: Approve and file.
B. MINUTES OF MAY 24, 2018
Recommended Action:
Finance Committee Meeting Minutes June 14, 2018
Page 2 of 9
Approve and file. MOTION: Mayor Pro Tem O’Neill moved, and Committee Member Collopy seconded, to
approve the minutes of May 10 and May 24, 2018. The motion carried unanimously (5 -0, Muldoon absent).
AYES: Collopy, Stapleton, Tucker, O’Neill and Dixon
NOES: None. ABSENT: Muldoon
ABSTAIN: None. V. CURRENT BUSINESS E. DISCUSS POTENTIAL BALLOT INITIATIVE THAT MAY REQUIRE A VOTE OF THE ELECTORATE PRIOR TO THE ISSUANCE OF CERTAIN CERTIFICATES OF PARTICIPATION (COPS) AND OTHER LEASE REVENUE OBLIGATIONS
Summary: On the June 12 City Council agenda, Council members will discuss a potential ballot initiative
that would require a vote of the electorate prior to the issuance of certain COPs and other lease revenue obligations. Recommended Action: Discuss and develop pros and cons to City Council as necessary.
Chair Dixon proposed this item be continued to the June 28, 2018, City Council meeting as
the City Council has been advised by the City’s legal counsel to defer their discussion on this matter to the June 26, 2018, City Council meeting.
Mayor Pro Tem O’Neill noted he would need to recuse himself if there were any deeper
discussion of this item outside of continuing the meeting date.
Council Member Collopy expressed the fact that it could be moot to bring it back to Finance Committee on June 28. Mayor Pro Tem O’Neill requested to continue to the June 28 meeting
and then discuss relevancy.
Council Member Tucker clarified if comments could be taken directly to City Council on June 26; however, if Council would continue it again then it would have relevance on June 28.
Chair Dixon opened public comments.
Jim Mosher requested clarification as to why the matter could not be discussed at this
meeting.
Mayor Pro Tem O’Neill noted it was upon the recommendation of the City’s legal counsel.
Noting there were no other members of the public who elected to speak on this item, Chair Dixon closed public comments.
MOTION: Chair Dixon moved, and Mayor Pro Tem O’Neill seconded, to continue this item to
the June 28, 2018, Finance Committee Meeting.
AYES: Dixon, O'Neill, Collopy, Stapleton and Tucker NOES: None.
ABSENT: Muldoon ABSTAIN: None.
Finance Committee Meeting Minutes June 14, 2018
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F. DISCUSS POTENTIAL REORGANIZATION OF FINANCE COMMMITTEE Summary: On the June 12 City Council agenda, Council members will discuss reorganizing the Finance
Committee to be a 7-member all citizen’s committee (versus one with 3 Council Members and 4 citizens), starting July 1, 2019. Recommended Action: Discuss and develop pros and cons to City Council as necessary.
Chair Dixon announced the City Council did not act to reorganize the membership of the
Finance Committee and this matter does not require consideration. A. RESERVE POLICY Summary:
Presentation of Draft Report: GFOA Risk Based Analysis of General Fund Reserve Requirements. Recommended Action: Staff recommends that the Finance Committee direct staff to bring any reserve policy
changes for City Council approval, or continue to the next Finance Committee for further analysis and discussion.
Finance Director Dan Matusiewicz introduced GFOA consultant Shayne Kavanagh, who
participated via teleconference. A PowerPoint Presentation was displayed. Mr. Kavanagh provided an overview of the General Fund Reserve Study completed by GFOA. Council
Member Muldoon arrives (3:08 p.m.).
Shayne Kavanagh provided the definition of “risk” and noted the main categories of risk events most applicable to the City of Newport Beach (fires, floods, earthquakes, and
recessions). Sources of data analyzed in the study came from the City’s own experience, experience of similar municipalities, and interviews with relevant City staff. The combined
risks were combined into one model to display a diversified “pool” of risk, and also accounted for the unlikelihood of all extreme events happening during the same time period. The
reserve amount recommended reflects various confidence levels. According the draft report, he noted there is an “efficient” level recommended between 80% and 90% confidence, at
$10.4 million and $13.0 million, respectively. As there are “diminishing returns” in terms of the amount of money required in reserve to address very extreme circumstances, it is
recommended the City consider other strategies for those items.
Mr. Kavanagh spoke regarding the various assumptions for the report. He noted that working at the 80% to 90% confidence range is the most efficient range for use of reserve dollars. He
also suggested an integrated risk management strategy to address various risk scenarios (insurance, reserves, other capital strategies). Overall, not every potential risk scenario was
analyzed; however, all risks detailed in the City’s Disaster Plan were contemplated.
Mr. Kavanagh noted the confidence level range of similar cities and the “best value range” recommended is roughly comparable to what other cities are putting aside. The model put
forth today has the ability to analyze the financial impacts of more severe risk event scenarios. Mr. Kavanagh recommended a reserve policy that would include a range or
parameter boundary rather than a specific hard number.
Discussion ensued regarding reviewing “what-if” scenarios utilizing the model at a future Finance Committee meeting, the City Council’s appetite for risk, and recommendations for
extreme “unknown” events. Mr. Kavanagh stated the model allows for the addition of a financial “cushion” which could change the resulting values in “what-if” scenarios.
Finance Committee Meeting Minutes June 14, 2018
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Committee Member Collopy expressed concern that the report is overly simplistic, as this is
just a General Fund reserve study and only contemplated certain risks such as fire, flood, earthquake, and revenue loss in an economic downtown. He was surprised the GFOA
recommendation was significantly lower than the City’s current reserve amount, and acknowledged the 25% policy applied by staff was a metric, in combination with other
conservative budget strategies, which allowed the City to accumulate a $50 million General Fund reserve. He strongly suggested further evaluation of the City’s “appetite” for risk and to
go through the model to come up with a value or range of values that mirrors the City’s General Fund reserve risk strategy. He noted it appears from this study and other evaluation
the City may have some flexibility with reserve dollars and there may be opportunity to put those funds to better use.
City Manager Kiff noted a balanced budget has been presented each year and reserve
dollars were not utilized to “balance” the budget.
Discussion ensued regarding potential best uses for excess reserve funds, including various investments and the position of rating agencies as a result of decreasing reserve funds,
Committee Member Tucker noted the City’s limited control over certain revenues, including
property taxes, and the City’s ongoing obligations, particularly related to pensions. He also stated the City’s other reserve funds must also be reviewed. He does lean toward nominally
reducing the General Fund reserve percentage from 25% and noted he would prefer any resulting funds be for the completion of vital projects.
Mayor Pro Tem O’Neill noted he would reserve his comments until after the insurance
presentation.
Council Member Muldoon stated he would prefer any extra funds realized as a change to the reserve policy be directed toward pension costs and inquired whether there would be a better
investment of funds through the use of a Section 115 trust or other mechanism.
Chair Dixon expressed support for the reserve study, especially the review of very extreme events, making comparison to events which recently occurred in Napa, California. She is
interested in hearing about the use of insurance as part of the integrated risk strategy.
City Manager Kiff commented extra funds generating could be invested more aggressively, such as through a Section 115 trust. This would maintain the City’s reserve level; however,
liquidity could be impacted.
Discussion ensued regarding various options for potential excess reserves, if it was determined that the $50 million, or 25% metric, is too high. Comments were made regarding
investment constraints due to state and finance laws, utilizing the model to affirmatively review extreme “unknown” risk events, and the year-to-year and long-term financial impacts
of adjusting the 25% policy.
Finance Director Dan Matusiewicz commented the addition of financial assets to CalPERS has a concurrent increase in volatility.
Committee Member Collopy suggested moving forward with utilizing the financial model to
evaluate various risk scenarios, solidifying the true flexibility of reserve funds, and the potential for earnings with other forms of investment.
Council Member Muldoon expressed his strong support to consider other investment
opportunities for any excess reserve funds, in particular, focusing efforts on reducing the City’s pension liability.
Finance Committee Meeting Minutes June 14, 2018
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Committee Member Tucker noted that the Finance Committee is performing its due diligence
through review of the reserve policy, and ultimately, the City Council will have to make final decisions regarding their risk strategies and mitigation policies.
Chair Dixon opened public comments. Noting there were no members of the public who
elected to speak on this item, Chair Dixon closed public comments.
By consensus, there was no further action taken on this item and it was continued to the meeting of June 28, 2018, for further review and discussion.
B. PARAMETRIC INSURANCE Summary: Teleconference with Swiss Re and the GFOA to discuss parametric insurance options. Recommended Action: Receive and file.
Serena Sowers, Swiss Re, participated through teleconference, and provided an overview of
the parametric insurance options available to the City. A PowerPoint Presentation was displayed. She reviewed the various “perils,” or risk events, which on a larger scale, impact
local governments in a more critical way. Their company, Swiss Re, partners with local agencies to match insurance solutions with public agency concerns/risks.
Ms. Sowers described the various peril scenarios and provided data related to the steady
increase in insurance losses over the last 37 years. She detailed the “protection gap” between what can be insured and what is actually insured. Public agencies bear the brunt of
losses, as they are the “heart” of communities, and are the government source residents look to when recovering from disasters. The parametric insurance policies look to close this gap.
Ms. Sowers detailed uninsured losses, which are projected to get worse over the next 15
years. This is based on evaluation of past disaster data, models of climate change, and other associated risks. The challenge is how to plan for and address the extreme unknown events.
She commented that the Federal Government, through agencies like FEMA, are not a reliable source for economic/disaster recovery at the local level, as reimbursement or aid is
not necessarily timely, and is typically focused on humanitarian, rather than recovery, types of effort.
Ms. Sowers additional spoke regarding the “rippling” effect on local budgets in response to
natural or other types of disasters. In response to Committee Member Tucker’s inquiry regarding the type of events covered by parametric insurance, Ms. Sowers noted the policies
are “event” based coverage that can provide quickness of payment in response to a triggering event. She also reinforced justifying the premiums for such policies through
transparent data, such as that provided by other government agencies (USGS). The policies can be constructed to provide “fractional” payments at lower event thresholds.
In response to an inquiry regarding justification of losses to a disaster event, Ms. Sowers also
noted that the agency cannot have a “windfall” as a result of insurance. Discussion ensued utilizing the insurance by zip code example, and it was affirmed that a parametric policy can
be constructed to focus on general areas or strategically focused on specific areas, which would result in larger losses if a triggering event were to occur. Policies can also be
constructed that aggregate various types of risk events.
Chair Dixon opened public comments.
Jim Mosher noted that damages related to a risk event will all ultimately need to be justified regardless of when reimbursement occurs.
Finance Committee Meeting Minutes June 14, 2018
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Noting there were no other members of the public who elected to speak on this item, Chair
Dixon closed public comments.
Ms. Sowers commented the insurance payouts in California are typically in the $10 to $50 million range. There is a “payback” clause where any amounts not justified must be returned.
Losses in excess of $100 million can be addressed through other capital solutions and would generate another conversation separate from today’s discussion. Any parametric insurance
policy proposed would take into account the specifics related to the City of Newport Beach’s potential risks.
Committee Member Tucker inquired regarding typical disputes related to insurance payouts
on these types of policies. Ms. Sowers noted generally her organization works with their clients to ensure due diligence on both sides in response to a loss event and could inquire
internally as to other dispute information.
Committee Member Tucker inquired as to the process for developing premiums. Ms. Sowers noted that agency location, limits, and available budgets are the factors that go into
developing a policy and the resulting premium. Each agency and situation is unique.
Chair Dixon inquired whether separate policies would be required for different risk events. Ms. Sowers responded there is flexibility in structuring the policies and the quickness of
payment in response to an event.
Chair Dixon thanked Ms. Sowers for the presentation.
By consensus, there was no further action taken on this item.
C. MASTER FEE SCHEDULE Summary:
Staff will present the Master Fee Schedule to the Finance Committee and subsequently will present to the City Council at the July 24, 2018, meeting. Recommended Action: Staff recommends that the Finance Committee direct staff to bring the fee changes for City
Council approval or continue to the next Finance Committee for further analysis and discussion.
Senior Accountant Theresa Schweitzer provided a staff report and a PowerPoint Presentation
was displayed. She stated the methodology of establishing fees for services and related subsidies from the General Fund as directed by the City Council. There are several fees
proposed by various Departments for the Finance Committee’s review and the study related to the cost of service delivery/provision was conducted in partnership with Erin Payton, a
specialized consultant, of MGT America.
Senior Accountant Schweitzer noted every Department’s fees are study every three to five years and include the “fully-burdened” service delivery costs, inclusive of direct and indirect
costs, salaries, benefits, and overhead. This also includes the pension costs related to employee salaries.
Finance Director Matusiewicz noted current accounting standards allow for the inclusion of
pension costs in cost recovery, including voluntary increases in pension contributions.
Senior Accountant Schweitzer reviewed the proposed fees for the Fire Department, including EMS, Junior Guards, and Marine Operations, along with their past review dates. The major
changes in Fire were inclusive of changes in billing methodologies. The switch of responsibility of certain functions from Fire to Community Development resulted in changing
format of certain fees and the deletion of 37 fees. The Coastal Development permit has been
Finance Committee Meeting Minutes June 14, 2018
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reviewed over the past year and a half, since implementation. The proposed permit fee is
$2129.
Council Member Muldoon recused himself at this point in the discussion.
Senior Accountant Schweitzer mentioned the $415 fee for radio communication will be a flat fee rather than a “pass-through.”
Council Member Muldoon returned to the meeting.
Senior Accountant Schweitzer mentioned the new legislation related to payment plans for
indigent and low-income individuals as related to parking citations ($5 for indigent, $25 for all other categories). The vehicle code violation fee will be added to the penalty schedule. There
is also a recommendation to have all Department fees, which were not studied in this cycle tied to CPI increases automatically.
Chair Dixon inquired as to the other Fire Department fee increases. Fire Administrative
Manger Angela Velazquez provided detail regarding the ALS and BLS transport fees, fee recovery for when paramedic assessment vans are deployed, and the subsidies related to
non-transport services.
Chair Dixon opened public comments.
Jim Mosher noted the extensive revisions detailed in Attachment C and inquired regarding idiosyncratic percentage increases. Senior Accountant Schweitzer and staff discussion
ensued including, as directed by the City Council, certain services are more heavily subsidized to support community and quality-of-life related programs. Mr. Mosher also
expressed concern with the “one-size-fits-all” calculation for the Coastal Development Permit, noting not all permit applications are similar in scope.
Noting there were no other members of the public who elected to speak on this item, Chair
Dixon closed public comments.
Chair Dixon inquired regarding a policy on how subsidies are applied or considered. Senior Accountant Schweitzer noted a previous presentation where a “triangle” visualization was
displayed to illustrate subsidies for community benefit and staff referenced memorialization of the practice in Municipal Code Section 3.36.030.
MOTION: Committee Member Tucker moved, and Committee Member Collopy seconded, to
direct staff to bring the fee changes for City Council approval. The motion carried (5 – 0, 1 abstention by Muldoon) as follows:
AYES: Collopy, Stapleton, Tucker, O’Neill and Dixon
NOES: None. ABSENT: None.
ABSTAIN: Muldoon
D. PROPOSED REVISIONS TO COUNCIL POLICY F-14 AUTHORITY TO CONTRACT Summary:
Staff will propose changes to Policy - F14 pursuant to the specified requirements in the Federal Uniform Guidance for Federal Awards. Changes are required to be approved by the
City Council prior to June 30, 2018, for continued eligibility to receive Federal grant funding. Recommended Action:
Staff recommends that the Finance Committee direct staff to bring the policy changes for City
Council approval.
Finance Committee Meeting Minutes June 14, 2018
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Purchasing Agent Anthony Nguyen presented a staff report and referenced an updated
version of the draft Council Policy F-14. The only contemplated changes are those displayed on Page 6 forward. He noted there is a Federal deadline to change the City’s policies related
to a Uniform Guidance statement related to Federal awards on July 1, 2018. Once the changes to the policy are approved by the Finance Committee, they will be forwarded to the
City Council for adoption.
Mr. Nguyen stated the possible impacts of non-compliance, which could include the loss to the City of Federal funding for grants. Upon adoption of the policy changes, staff will follow-up
with administrative procedures and user manuals to ensure the City’s procurement and contracting practices are in line with Federal guidelines.
Mayor Pro Tem O’Neill inquired regarding the threshold for the City Manager to approve
professional service agreements and other purchases. City Manager Kiff noted the amount has been the same during his tenure as City Manager.
Finance Director Matusiewicz noted staff will return to the Finance Committee with a fuller
review of the Council’s F-14 policy subsequent to the addition of the compliance paragraph requested at this time.
Chair Dixon opened public comments.
Jim Mosher expressed support for a more thorough review of the City’s contracting policies
and the City Manager’s authority and discretion over procurement of services, especially in light of a potential new City Manager.
Noting there were no other members of the public who elected to speak on this item, Chair
Dixon closed public comments. G. WORK PLAN REVIEW Summary:
Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year.
Recommended Action: Receive and file.
Discussion ensued regarding the Work Plan items.
By unanimous consensus, the Committee will continue the conversation related to the
reserve study and final recommendations to the June 28, 2018, meeting. Staff will also propose the Committee’s work plan from September through the end of the year.
There was no further action taken on this item.
VI. FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE
PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM)
The Section 115 item will be deferred to a future meeting.
Committee Member Tucker noted he will provide his comments related to the Certificate of
Participation measure at the City Council meeting.
Finance Committee Meeting Minutes June 14, 2018
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VII. ADJOURNMENT
The Finance Committee adjourned at 5:18 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 June 11, 2018, at 2:05 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 June 14, 2018
Page 2 of 9
Approve and file.
MOTION: Mayor Pro Tem O’Neill moved, and Committee Member Collopy seconded, to
approve the minutes of May 10 and May 24, 2018. The motion carried unanimously (5 -0, Muldoon absent).
AYES: Collopy, Stapleton, Tucker, O’Neill and Dixon
NOES: None. ABSENT: Muldoon
ABSTAIN: None.
V.CURRENT BUSINESS
E.DISCUSS POTENTIAL BALLOT INITIATIVE THAT MAY REQUIRE A VOTE OF THEELECTORATE PRIOR TO THE ISSUANCE OF CERTAIN CERTIFICATES OFPARTICIPATION (COPS) AND OTHER LEASE REVENUE OBLIGATIONS
Summary:On the June 12 City Council agenda, Council members will discuss a potential ballot initiative
that would require a vote of the electorate prior to the issuance of certain COPs and other leaserevenue obligations.Recommended Action:Discuss and develop pros and cons to City Council as necessary.
Chair Dixon proposed this item be continued to the June 28, 2018, City Council meeting as the
City Council has been advised by the City’s legal counsel to defer their discussion on this matterto the June 26, 2018, City Council meeting.
Mayor Pro Tem O’Neill noted he would need to recuse himself if there were any deeper
discussion of this item outside of continuing the meeting date.
Council Member Collopy expressed the fact that it could be moot to bring it back to FinanceCommittee on June 28. Mayor Pro Tem O’Neill requested to continue to the June 28 meeting
and then discuss relevancy.
Council Member Tucker noted that comments could be takenclarified if comments could betaken directly to City Council on June 26; however, if Council would continue consideration of
the matterit again then the topic it would have relevance on June 28.
Chair Dixon opened public comments.
Jim Mosher requested clarification as to why the matter could not be discussed at this meeting.
Mayor Pro Tem O’Neill noted it was upon the recommendation of the City’s legal counsel.
Noting there were no other members of the public who elected to speak on this item, ChairDixon closed public comments.
MOTION: Chair Dixon moved, and Mayor Pro Tem O’Neill seconded, to continue this item to
the June 28, 2018, Finance Committee Meeting.
AYES: Dixon, O'Neill, Collopy, Stapleton and TuckerNOES: None.
ABSENT: MuldoonABSTAIN: None.
Proposed changes by Committee Member Larry Tucker
Item No. 4A1Draft Minutes of June 14, 2018
CorrespondenceJune 28, 2018
Finance Committee Meeting Minutes June 14, 2018
Page 4 of 9
Committee Member Collopy expressed concern that the report is overly simplistic, as this is
just a General Fund reserve study and only contemplated certain risks such as fire, flood, earthquake, and revenue loss in an economic downtown. He was surprised the GFOA
recommendation was significantly lower than the City’s current reserve amount, and acknowledged the 25% policy applied by staff was a metric, in combination with other
conservative budget strategies, which allowed the City to accumulate a $50 million General Fund reserve. He strongly suggested further evaluation of the City’s “appetite” for risk and to
go through the model to come up with a value or range of values that mirrors the City’s General Fund reserve risk strategy. He noted it appears from this study and other evaluation the City
may have some flexibility with reserve dollars and there may be opportunity to put those funds to better use.
City Manager Kiff noted a balanced budget has been presented each year and reserve dollars
were not utilized to “balance” the budget.
Discussion ensued regarding potential best uses for excess reserve funds, including various investments and the position of rating agencies as a result of decreasing reserve funds,
Committee Member Tucker noted the City’s limited control over certain revenues, including
property taxes, and the City’s ongoing obligations, particularly related to pensions. He also stated the City’s other reserve funds must also be reviewed. He said he might be willing to
supportdoes lean toward nominally reducing the General Fund reserve percentage from 25% to maybe as low as 20% but if that were to happen and noted he would prefer any resulting
funds available be used for the completion of vital projects that repaired or replaced critical infrastructure.
Mayor Pro Tem O’Neill noted he would reserve his comments until after the insurance
presentation.
Council Member Muldoon stated he would prefer any extra funds realized as a change to the reserve policy be directed toward pension costs and inquired whether there would be a better
investment of funds through the use of a Section 115 trust or other mechanism.
Chair Dixon expressed support for the reserve study, especially the review of very extreme events, making comparison to events which recently occurred in Napa, California. She is
interested in hearing about the use of insurance as part of the integrated risk strategy.
City Manager Kiff commented extra funds generating could be invested more aggressively, such as through a Section 115 trust. This would maintain the City’s reserve level; however,
liquidity could be impacted.
Discussion ensued regarding various options for potential excess reserves, if it was determined that the $50 million, or 25% metric, is too high. Comments were made regarding investment
constraints due to state and finance laws, utilizing the model to affirmatively review extreme “unknown” risk events, and the year-to-year and long-term financial impacts of adjusting the
25% policy.
Finance Director Dan Matusiewicz commented the addition of financial assets to CalPERS has a concurrent increase in volatility.
Committee Member Collopy suggested moving forward with utilizing the financial model to
evaluate various risk scenarios, solidifying the true flexibility of reserve funds, and the potential for earnings with other forms of investment.
Finance Committee Meeting Minutes June 14, 2018
Page 5 of 9
Council Member Muldoon expressed his strong support to consider other investment
opportunities for any excess reserve funds, in particular, focusing efforts on reducing the City’s pension liability.
Committee Member Tucker noted that the Finance Committee is performing its due diligence
through review of the reserve policy, and ultimately, the City Council will have to make final decisions regarding their risk strategies and mitigation policies.
Chair Dixon opened public comments. Noting there were no members of the public who elected
to speak on this item, Chair Dixon closed public comments.
By consensus, there was no further action taken on this item and it was continued to the meeting of June 28, 2018, for further review and discussion.
B.PARAMETRIC INSURANCESummary:Teleconference with Swiss Re and the GFOA to discuss parametric insurance options.
Recommended Action:Receive and file.
Serena Sowers, Swiss Re, participated through teleconference, and provided an overview of
the parametric insurance options available to the City. A PowerPoint Presentation wasdisplayed. She reviewed the various “perils,” or risk events, which on a larger scale, impact
local governments in a more critical way. Their company, Swiss Re, partners with localagencies to match insurance solutions with public agency concerns/risks.
Ms. Sowers described the various peril scenarios and provided data related to the steady
increase in insurance losses over the last 37 years. She detailed the “protection gap” betweenwhat can be insured and what is actually insured. Public agencies bear the brunt of losses, as
they are the “heart” of communities, and are the government source residents look to whenrecovering from disasters. The parametric insurance policies look to close this gap.
Ms. Sowers detailed uninsured losses, which are projected to get worse over the next 15 years.
This is based on evaluation of past disaster data, models of climate change, and otherassociated risks. The challenge is how to plan for and address the extreme unknown events.
She commented that the Federal Government, through agencies like FEMA, are not a reliablesource for economic/disaster recovery at the local level, as reimbursement or aid is not
necessarily timely, and is typically focused on humanitarian, rather than recovery, types ofeffort.
Ms. Sowers additional spoke regarding the “rippling” effect on local budgets in response to
natural or other types of disasters.
Committee Member Tucker noted at this point he is most interested in learning about howparametric insurance works so he can decide whether he believes it is a good idea. In response
to Committee Member Tucker’s inquiry regarding the type of events covered by parametricinsurance, Ms. Sowers noted the policies are “event” based coverage that can provide
quickness of payment in response to a triggering event. She also reinforced justifying thepremiums for such policies through transparent data, such as that provided by other
government agencies (USGS). The policies can be constructed to provide “fractional”payments at lower event thresholds.
Committee Member Tucker inquired if the insured has to prove its damages. In response to
an inquiry regarding justification of losses to a disaster event, Ms. Sowers also noted that theagency cannot have a “windfall” as a result of insurance. Discussion ensued utilizing the
insurance by zip code example, and it was affirmed that a parametric policy can be constructed
Finance Committee Meeting Minutes June 14, 2018
Page 6 of 9
to focus on general areas or strategically focused on specific areas, which would result in larger
losses if a triggering event were to occur. Policies can also be constructed that aggregate various types of risk events.
Chair Dixon opened public comments.
In response to a question previously asked by the Committee, Jim Mosher noted that damages
related to a risk event will all ultimately need to be justified regardless of when reimbursement occurs. He pointed out that the text of slide 17 stated that the insured has 12 months to
determine the full extent of the loss and sign a letter attesting to the actual financial loss. Committee member Tucker confirmed with Ms. Sowers that the payout cannot exceed the loss
that is shown.
Noting there were no other members of the public who elected to speak on this item, Chair Dixon closed public comments.
Ms. Sowers commented the insurance payouts in California are typically in the $10 to $50
million range. There is a “payback” clause where any amounts not justified must be returned. Losses in excess of $100 million can be addressed through other capital solutions and would
generate another conversation separate from today’s discussion. Any parametric insurance policy proposed would take into account the specifics related to the City of Newport Beach’s
potential risks.
Committee Member Tucker inquired regarding typical types of disputes related to insurance payouts thaton these types of policies generate. Ms. Sowers noted generally her organization
works with their clients to ensure due diligence on both sides in response to a loss event and could inquire internally as to other dispute information.
Committee Member Tucker inquired as to the process for developing premiums. Ms. Sowers
noted that agency location, limits, and available budgets are the factors that go into developing a policy and the resulting premium. Each agency and situation is unique.
Chair Dixon inquired whether separate policies would be required for different risk events. Ms.
Sowers responded there is flexibility in structuring the policies and the quickness of payment in response to an event.
Chair Dixon thanked Ms. Sowers for the presentation.
By consensus, there was no further action taken on this item.
C.MASTER FEE SCHEDULESummary:Staff will present the Master Fee Schedule to the Finance Committee and subsequently will
present to the City Council at the July 24, 2018, meeting.Recommended Action:
Staff recommends that the Finance Committee direct staff to bring the fee changes for CityCouncil approval or continue to the next Finance Committee for further analysis and discussion.
Senior Accountant Theresa Schweitzer provided a staff report and a PowerPoint Presentation
was displayed. She stated the methodology of establishing fees for services and relatedsubsidies from the General Fund as directed by the City Council. There are several fees
proposed by various Departments for the Finance Committee’s review and the study related tothe cost of service delivery/provision was conducted in partnership with Erin Payton, a
specialized consultant, of MGT America.
June 28, 2018, Finance Committee Agenda Comments
These comments on an item on the Newport Beach City Council Finance Committee agenda for June 28
are submitted by: Jim Mosher ( jimmosher@yahoo.com ), 2210 Private Road, Newport Beach 92660
(949-548-6229)
Item IV.A. MINUTES OF JUNE 14, 2018
Changes to the draft minutes passages shown in italics are suggested in strikeout underline format.
Page 2, middle of page: “Council Committee Member Collopy expressed the fact that it could
be moot to bring it back to the Finance Committee on June 28.”
Page 3, long paragraph in middle of page, sentence 3: “The combined risks were combined
into one model to display a diversified “pool” of risk, and also accounted for the unlikelihood of
all extreme events happening during the same time period.”
Page 4, paragraph 5 from end: “City Manager Kiff commented extra funds generating
generated could be invested more aggressively, such as through a Section 115 trust.”
Page 5, paragraph 4 from end: “Ms. Sowers additional additionally spoke regarding the
“rippling” effect on local budgets in response to natural or other types of disasters.”
Page 6, paragraph 2, sentence 2: “There is a “payback” “clawback” clause where any
amounts not justified must be returned.”
Page 6, paragraph 3 from end: “Senior Accountant Schweitzer noted every Department’s fees
are study studied every three to five years and include the “fully-burdened” service delivery
costs, inclusive of direct and indirect costs, salaries, benefits, and overhead.”
Item No. 4A2
Draft Minutes of June 14, 2018
Correspondence
June 28, 2018
Finance Committee Meeting Minutes June 14, 2018
Page 2 of 9
Approve and file.
MOTION: Mayor Pro Tem O’Neill moved, and Committee Member Collopy seconded, to
approve the minutes of May 10 and May 24, 2018. The motion carried unanimously (5 -0, Muldoon absent).
AYES: Collopy, Stapleton, Tucker, O’Neill and Dixon
NOES: None. ABSENT: Muldoon
ABSTAIN: None.
V.CURRENT BUSINESS
E.DISCUSS POTENTIAL BALLOT INITIATIVE THAT MAY REQUIRE A VOTE OF THEELECTORATE PRIOR TO THE ISSUANCE OF CERTAIN CERTIFICATES OFPARTICIPATION (COPS) AND OTHER LEASE REVENUE OBLIGATIONS
Summary:On the June 12 City Council agenda, Council members will discuss a potential ballot initiative
that would require a vote of the electorate prior to the issuance of certain COPs and other leaserevenue obligations.Recommended Action:Discuss and develop pros and cons to City Council as necessary.
Chair Dixon proposed this item be continued to the June 28, 2018, City CouncilFinance
Committee meeting as the City CouncilCommittee has been advised by the City’s legal counselto defer their discussion on this matter to the June 26, 2018, City Council meeting.
Mayor Pro Tem O’Neill noted he would need to recuse himself if there were any deeper
discussion of this item outside of continuing the meeting date.
Council Member Collopy expressed the fact that it could be moot to bring it back to FinanceCommittee on June 28. Mayor Pro Tem O’Neill requested to continue to the June 28 meeting
and then discuss relevancy.
Council Member Tucker clarified if comments could be taken directly to City Council on June26; however, if Council would continue it again then it would have relevance on June 28.
Chair Dixon opened public comments.
Jim Mosher requested clarification as to why the matter could not be discussed at this meeting.
Mayor Pro Tem O’Neill noted it was upon the recommendation of the City’s legal counsel.
Noting there were no other members of the public who elected to speak on this item, Chair
Dixon closed public comments.
MOTION: Chair Dixon moved, and Mayor Pro Tem O’Neill seconded, to continue this item tothe June 28, 2018, Finance Committee Meeting.
AYES: Dixon, O'Neill, Collopy, Stapleton and Tucker
NOES: None.ABSENT: Muldoon
ABSTAIN: None.
Item No. 4A3Draft Minutes of June 14, 2018
Correspondence
June 28, 2018
Proposed changes by Chair Diane Dixon
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5A June 28, 2018
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Dan Matusiewicz, Finance Director (949) 644-3213, danm@newportbeachca.gov
SUBJECT: FINANCE DEPARTMENT INTERNAL CONTROL UPDATE
DISCUSSION:
The City of Newport Beach Finance Department is committed to protecting the City’s assets against the
risk of loss or misuse. As a practical matter, Finance staff cannot evaluate all of its internal controls at the same time. Consequently, staff has divided its review of internal controls into workable units for designing
and evaluating controls. Staff first briefed the committee on internal controls efforts at the April 12, 2018, meeting. At that time petty cash and cash handling procedures had already been reviewed by staff.
The results of the most recent internal control evaluation is now available. The City’s external auditor,
White Nelson Diehl Evans was hired to perform agreed-upon procedures on wires transfers and automated clearing house (ACH) transactions to determine if the controls in place were adequate. The procedures and
the test criteria were prepared by staff. Some of the test procedures were for proper authorization, dual approval process and proper supporting documentation to ensure that no one individual could authorize,
initiate and approve a wire transaction.
Staff is pleased to report there were no significant findings in the tests performed. The auditors noted that although entitlement reports were reviewed in March 2018, and wire transfer templates are reviewed each
time a wire transfer is made, there are no required procedures currently in place to review these on an annual basis. Procedures have now been updated to include annual review of user entitlements and wire
templates.
You will have the opportunity to speak to the auditors to answer any questions that you might have concerning the controls over wires and automated clearing house transactions.
The report on agreed-upon-procedure is included in Attachment A.
Finance Internal Control Update June 28, 2018
Page 2 RECOMMENDED ACTION:
Receive and file.
Prepared by: Submitted by:
/s/ Rukshana Virany
/s/ Dan Matusiewicz
Rukshana Virany Dan Matusiewicz
Accounting Manager Finance Director
Attachment:
A. Independent Accountants’ Report on Applying Agreed-Upon Procedures
ATTACHMENT A
INDEPENDENT ACCOUNTANTS’ REPORT ON APPLYING AGREED-UPON PROCEDURES
2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893
Offices located in Orange and San Diego Counties
- 1 -
INDEPENDENT ACCOUNTANTS’ REPORT ON
APPLYING AGREED-UPON PROCEDURES
Mr. Dan Matusiewicz
Finance Director
City of Newport Beach
Newport Beach, California
We have performed the procedures enumerated on pages 2 to 4, which were agreed to by the City of
Newport Beach (the City), solely to assist the City in determining the adequacy of controls over
specified types of wire transfers and automated clearing house (ACH) transactions for the period from
March 1, 2017 through February 28, 2018. The City’s management is responsible for determining the
adequacy of controls over wire transfers and ACH transactions. The sufficiency of these procedures is
solely the responsibility of City management. Consequently, we make no representation regarding the
sufficiency of the procedures described below either for the purpose for which this report has been
requested or for any other purpose.
Our procedures and results are presented herein on pages 2 through 4.
This agreed-upon procedures engagement was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants. We were not engaged to and did
not conduct an examination or review, the objective of which would be the expression of an opinion or
conclusion, respectively, on the controls over wire transfers and ACH transactions. Accordingly, we do
not express such an opinion or conclusion. Had we performed additional procedures, other matters
might have come to our attention that would have been reported to you.
This report is intended solely for the information and use of the City’s management and is not intended
to be, and should not be, used by anyone other than these specified parties.
Irvine, California
May 22, 2018
- 2 -
PROCEDURES AND RESULTS
The procedures performed and the results of those procedures are as follows:
1. Obtain and review policies and procedures related to controls over wire transfers and
automated clearinghouse (ACH) transactions.
Results: We obtained and reviewed the policies and procedures related to controls over wire
transfers and ACH transactions. No findings were noted.
2. Test the controls over the following aspects of wire transfers to ensure adherence to established
policies and procedures by selecting a sample of transactions from the period March 1, 2017
through February 28, 2018:
a. Proper authorization
b. Dual process
c. Use of template for recurring wire transfers
d. Timely recording in the general ledger
e. Accurate recording in the wire transfer log
f. Proper supporting documentation
Results: We tested 8 out of 77 wire transfers that occurred during the period March 1, 2017
through February 28, 2018. No findings were noted.
3. Test assignment of rights (entitlements) surrounding wire transfers in the banking system by:
a. Verifying who has the authority to set up entitlements and make changes.
Results: We obtained the User Entitlement Rights Summary and identified City
personnel who have rights to set up entitlements and make changes. We noted that
individuals who have been assigned administrative rights are able to set up entitlements
and make changes. The following City personnel have administrative rights and have
the authority to set up entitlements and make changes: Dan Matusiewicz, Director of
Finance; Katie Wills, Fiscal Specialist; and Marlene Burns, Administrative Assistant.
b. Verifying whether second approval of new entitlements occurs prior to bank allowing
access.
Results: We observed all three individuals assigned with administrative rights attempt
to make changes to other user’s entitlement rights, and noted that the banking system
required a second approval prior to making the change effective. No findings were
noted.
- 3 -
3. Test assignment of rights (entitlements) surrounding wire transfers in the banking system by
(continued):
c. Reviewing segregation of duties for entitlements.
Results: We obtained and reviewed the user roles and the user role functions. We did
not note any segregation of duties issues.
d. Verifying entitlements are reviewed annually by an approved individual.
Results: We noted that in March 2018 the user entitlements were reviewed by both City
of Newport Beach financial management and City National Bank representatives.
However, there is no current required procedure in place to review and approve user
entitlements on an annual basis.
4. Test templates surrounding wire transfers by:
a. Verifying that wire transfer templates are reviewed annually by an approved individual.
Results: We noted that templates are reviewed and approved each time a wire transfer
is sent with a particular template. We noted that there is no current required procedure
in place to review and approve wire transfer templates on an annual basis.
b. Verifying which individuals have the authority to set up wire transfer templates.
Results: We obtained the User Entitlement Rights Summary and identified City
personnel that have rights to set up templates. We noted the following individuals that
have the authority to set up templates: Dan Matusiewicz, Director of Finance; Steve
Montano, Deputy Finance Director; and Rukshana Virany, Accounting Manager.
c. Verifying that the templates need a second approval.
Results: We observed all three users with administrative rights attempt to make
changes to wire transfer templates, and noted that the banking system required a second
approval prior to making the change effective. No findings were noted.
5. Verify who receives the bank statements and performs the bank reconciliation and determined
if these individuals have the authority to initiate and approved wire transfers.
Results: We noted that Jeremiah Lim, Accountant, receives the bank statements and
that Davnette Librando, Accountant, performs the bank reconciliations. Both
individuals only have approval rights over wire transfers and cannot initiate transactions
within the City National Bank banking system. No findings were noted.
- 4 -
6. Test the controls over ACH transactions that do not relate to payroll transactions or to
established, recurring, vendor payment transactions identified during the period from March 1,
2017 through February 28, 2018, by:
a. Verifying which individuals have rights to create a free-form ACH transaction.
Results: We obtained the User Entitlement Rights Summary and identified the
individuals who have rights to create a free-form ACH transaction. We noted that all
individuals with access to the online banking system have the ability to create a
domestic free-form ACH transaction.
b. Verifying if individuals that can create a free-form ACH transaction can alter the
account information and/or payee.
Results: We observed seven of eight users attempt to create and make modifications to
ACH transactions, and noted that the banking system required a second approval prior
to making the change and the transaction effective. No findings were noted.
c. Verifying there is a dual control.
Results: We tested the only free-form ACH transaction that occurred during the period
of March 1, 2017 through February 28, 2018. Dual control procedures for ACH
transactions were not implemented by the City until March 2018. Therefore, this free-
form ACH transaction was not subjected to dual control procedures.
F-2
1
RESERVE POLICY
PURPOSE
To establish City Council policy for the administration of Reserves defined as fund
balances in governmental funds and net working capital in proprietary funds.
BACKGROUND
Prudent financial management dictates that some portion of the funds available to the
City be reserved for future use.
As a general budget principle concerning the use of reserves, the City Council decides
whether to appropriate funds from Reserve accounts. Even though a project or other
expenditure qualifies as a proper use of Reserves, the Council may decide that it is more
beneficial to use current year operating revenues or bond proceeds instead, thereby
retaining the Reserve funds for future use. Reserve funds will not be spent for any
function other than the specific purpose of the Reserve account from which they are
drawn without specific direction in the annual budget; or by a separate City Council
action. Information regarding Annual Budget Adoption and Administration is
contained in City Council Policy F-3.
GOVERNMENTAL FUNDS AND FUND BALANCE DEFINED
Governmental Funds including the General Fund, Special Revenue Funds, Capital
Projects Funds, Debt Service Funds and Permanent Funds have a short-term or current
flow of financial resources, measurement focus and basis of accounting and therefore,
exclude long-term assets and long-term liabilities. The term Fund Balance, used to
describe the resources that accumulate in these funds, is the difference between the
fund assets and fund liabilities of these funds. Fund Balance is similar to the measure
of net working capital that is used in private sector accounting. By definition, both
Fund Balance and Net Working Capital exclude long-term assets and long-term
liabilities.
PROPRIETARY FUNDS AND NET WORKING CAPITAL DEFINED
Proprietary Funds including Enterprise Funds and Internal Service Funds have a long-
term or economic resources measurement focus and basis of accounting and therefore,
include long-term assets and liabilities. This basis of accounting is very similar to that
used in private sector. However, instead of Retained Earnings, the term Net Assets is
used to describe the difference between fund assets and fund liabilities. Since Net
Item No. 5B1
Reserve Policy
Additional Materials Received
June 28, 2018
F-2
2
Assets include both long-term assets and liabilities, the most comparable measure of
proprietary fund financial resources to governmental Fund Balance is Net Working
Capital, which is the difference between current assets and current liabilities. Net
Working Capital, like Fund Balance, excludes long-term assets and long-term liabilities.
GOVERNMENTAL FUND RESERVES (FUND BALANCE)
For Governmental Funds, the Governmental Accounting Standards Board (“GASB”)
Statement No. 54 defines five specific classifications of fund balance. The five
classifications are intended to identify whether the specific components of fund balance
are available for appropriation and are therefore “Spendable.” The classifications also
are intended to identify the extent to which fund balance is constrained by special
restrictions, if any. Applicable only to governmental funds, the five classifications of
fund balance are as follows:
CLASSIFICATIONS NATURE OF RESTRICTION
Non-spendable Cannot be readily converted to cash
Restricted Externally imposed restrictions
Committed City Council imposed commitment
Assigned City Manager assigned purpose/intent
Unassigned Residual balance not otherwise restricted
A. Non-spendable fund balance: That portion of fund balance that includes amounts
that are either (a) not in a spendable form, or (b) legally or contractually required to
be maintained intact. Examples of Non-spendable fund balance include:
1. Reserve for Inventories: The value of inventories purchased by the City but
not yet issued to the operating Departments is reflected in this account.
2. Reserve for Long Term Receivables and Advances: This Reserve is used to
identify and segregate that portion of the City’s financial assets which are not
due to be received for an extended period, so are not available for
appropriation during the budget year.
3. Reserve for Prepaid Assets: This reserve represents resources that have been
paid to another entity in advance of the accounting period in which the
resource is deducted from fund balance. A common example is an insurance
premium, which is typically payable in advance of the coverage period.
F-2
3
Although prepaid assets have yet to be deducted from fund balance, they are
no longer available for appropriation.
4. Reserve for Permanent Endowment - Bay Dredging: The endowment specifies
that the principal amount will not be depleted and represents the asset
amounts to be held in the Bay Dredging Fund.
5. Reserve for Permanent Endowment - Ackerman Fund: The endowment
specifies that the principal amount will not be depleted and represents the
asset amount to be held in the Ackerman Fund.
B. Restricted fund balance: The portion of fund balance that reflects constraints placed
on the use of resources (other than non-spendable items) that are either (a)
externally imposed by creditors, grantors, contributors, or laws or regulations of
other governments; or (b) imposed by law through constitutional provisions or
enabling legislation. Examples of restricted fund balance are:
1. Reserve for Debt Service: Funds are placed in this Reserve at the time debt is
issued. The provisions governing the Reserve, if established, are in the Bond
Indenture and the Reserve itself is typically controlled by the Trustee.
2. Affordable Housing: A principal provision of the Newport Beach Housing
Element requires developers to provide housing units for lower income
households, the number of which is to be negotiated for each development
project. In lieu of constructing affordable housing, developers have paid into
this reserve which is used at the City Council’s discretion to provide alternate
methods for the delivery of affordable housing for lower income households.
3. Park In Lieu: Per NBMC 19.52 and California Government Code Section
664777 (The 1975 “Quimby Act”), a dedication of land or payment of fees for
park or recreational purposes in conjunction with residential development is
required. The fees collected can only be used for specific park or recreation
purposes as outlined in NBMC 19.52.030 and 19.52.070.
4. Upper Newport Bay Restoration Reserve: This reserve is the repository for
funds mandated by SB573, as well as special fees charged to permit holders as
an alternative to meeting certain specified mitigation criteria. In addition to
the mitigation fees, ten percent (10%) of Beacon Bay lease revenue is placed in
this Reserve. Funds in the Reserve are restricted for Upper Newport Bay
restoration projects.
F-2
4
5. Permanent Endowment for Bay Dredging: The endowment also specifies that
the interest earnings on the principal amount can only be used for dredging
projects in the Newport Bay.
6. Permanent Endowment for Ackerman Fund: The endowment also specifies
that the interest earnings on the principal amount can only be used for
scholarships provided by the City and high-tech library equipment.
7. Oceanfront Encroachment Reserve: In the early 1990’s, it was discovered by
survey that improvements to several ocean front parcels were encroaching
onto the public beach. The encroachment was relatively minor. The
negotiated solution was for the property owners to pay a permit fee each year
to the City. Revenue thus generated may only be used for ocean front
restoration projects and incidental costs of improvements and maintenance to
enhance public access and use of ocean beaches as approved by the City
Council. This Reserve is the repository for those funds. City Council Policy L-
12 contains additional background and details about the encroachment issue
The external restriction on this balance is imposed by the Local Coastal Plan
(LCP).
C. Committed fund balance: That portion of a fund balance that includes amounts that
can only be used for specific purposes pursuant to constraints imposed by formal
action by the government’s highest level of decision making authority, and remain
binding unless removed in the same manner. The City considers a resolution to
constitute a formal action for the purposes of establishing committed fund balance.
The action to constrain resources must occur within the fiscal reporting period;
however the amount can be determined subsequently. City Council imposed
Commitments are as follows:
1. Facilities Financial Planning (FFP) Fund: In conjunction with the City’s
Facilities Financial Plan, a sinking fund has been established to amortize the
cost of critical City facilities such as, but not limited to, the Civic Center,
Police Department buildings, Fire Stations, Library Branches and other Facility
Improvement Projects.
The Facilities Financial Planning Program establishes a level charge to the
General Fund that will perpetually replenish the cash flows necessary to
finance the construction of critical City facilities. This plan will be updated
annually as part of the budget process, or as conditions change. The City shall
strive to maintain fund balance in the Facilities Financial Planning Reserve at a
level equal to or greater than the maximum annual debt service on existing
obligations.
F-2
5
The eligible uses of this reserve include the cash funding of public facility
improvements or the servicing of related debt. 2. Off Street Parking: Per NBMC 12.44.025 the City Council may direct revenues
into the off-street parking facilities fund for purposes of the acquisition,
development and improvement of off street parking facilities, and for any
expenditures necessary or convenient to accomplish such purposes.
3. In Lieu Parking: Per NBMC 12.44.125 the City requires commercial businesses
to provide adequate off-street parking or where this is not possible, businesses
are afforded the opportunity to pay an annual fee and use parking spaces in a
municipal lot, providing such a lot is located within specified proximity to the
business. These funds can only be used to provide additional parking.
4. Neighborhood Enhancement - A: Funds previously accumulated to
Neighborhood Enhancement Area “A” pursuant to a prior version of NBMC
12.44.027 shall continue to be used only for the purpose of enhancing and
supplementing services to the West Newport area. Both the nature of the
supplemental services and the definition of the area served are set forth in
NBMC 12.44.027.
5. Neighborhood Enhancement - B: Funds previously accumulated to
Neighborhood Enhancement Area “B” pursuant to a prior version of NBMC
12.44.027 shall continue to be used only for the purpose of enhancing and
supplementing services in the Balboa Peninsula. Both the nature of the
supplemental services and the definition of the area served are set forth in
NBMC 12.44.027.
6. Cable Franchise: Pursuant to the provisions of the Newport Beach Municipal
Code, Title 5, Business Licenses & Regulations, Chapter 5.44, in return for the
use of the City’s streets and public ways for the purpose of installing,
operating, maintaining, or reconstructing a cable system to provide cable
service, fees are collected by the City from cable providers. Those fees are to
be used by the City for support of Public, Education, and Government access
programming only.
7. Oil and Gas Reserve: The annual $40,000 which is being set aside from the oil
and gas field production revenues is to be used to fund abandoned wells and
facilities as they go out of service.
F-2
6
8. Capital Reappropriation: This reserve represents an administrative procedure
that recognizes a portion of fund balance is not readily available to fund new
endeavors because it has been reappropriated through the budget adoption
process or amendment process.
D. Assigned fund balance: That portion of a fund balance that includes amounts that
are constrained by the City’s intent to be used for specific purposes but that are not
restricted or committed. This policy hereby delegates the authority to the City
Manager or designee to modify or create new assignments of fund balance.
Constraints imposed on the use of assigned amounts may be changed by the City
Manager or his designee. Appropriations of balances are subject to Council Policy
F-3 concerning budget adoption and administration.
E. Unassigned fund balance:
1. Contingency Reserve: The Contingency Reserve shall have a target balance of
twenty five percent (25%) of General Fund “Operating Budget” as originally
adopted. Operating Budget for this purpose shall include current expenditure
appropriations and shall exclude Capital Improvement Projects and Transfers
Out. Appropriation and/or access to these funds are generally reserved for
emergency or unforeseen situations but may be accessed by Council by simple
budget appropriation. Examples may include but are not limited to the
following:
a. A catastrophic loss of critical infrastructure.
b. A State or Federally declared state of emergency.
c. Any settlement arising from a claim or judgment.
d. Deviation from budgeted revenue projections.
e. Any action by another government that eliminates or shifts revenues from
the City.
f. Inability of the City to meet its debt service obligations in any given year.
g. Other circumstances deemed necessary by City Council to meet the claims
and obligations of the City.
Should the Contingency Reserve be used, the City Manager shall present a plan
to City Council to replenish the reserve within five years.
F-2
7
2. Residual Fund Balance: The residual portion of available fund balance that is not
otherwise restricted, committed or assigned and is above and beyond the
Contingency Reserve target reserve balance.
PROPRIETARY FUND RESERVES (NET WORKING CAPITAL)
In the case of Proprietary Funds (Enterprise and Internal Service Funds), Generally
Accepted Accounting Principles (“GAAP”) does not permit the reporting of reserves on
the face of City financial statements. However, this does not preclude the City from
setting policies to accumulate financial resources for prudent financial management of
its proprietary fund operations. Since proprietary funds may include both long-term
capital assets and long-term liabilities, the most comparable measure of liquid financial
resources that is similar to fund balance in proprietary funds is net working capital
which is the difference between current assets and current liabilities. For all further
references to reserves in Proprietary Funds, Net Working Capital is the intended
meaning.
A. Water Enterprise Fund
1. Stabilization and Contingency Reserve: This Reserve is used to provide
sufficient funds to support seasonal variations in cash flows and in more extreme
conditions, to maintain operations for a reasonable period of time so the City
may reorganize in an orderly manner or effectuate a rate increase to offset
sustained cost increases. The intent of the Reserve is to provide funds to offset
cost increases that are projected to be short-lived, thereby partially eliminating
the volatility in annual rate adjustments. It is not intended to offset ongoing,
long-term pricing structure changes. The target level of this reserve is fifty
percent (50%) of the annual operating budget. This reserve level is intended to
provide a reorganization period of 6 months with zero income or 24 months at a
twenty-five percent (25%) loss rate. The City Council must approve the use of
these funds, based on City Manager recommendation. Funds collected in excess
of the Stabilization reserve target would be available to offset future rate
adjustments, while extended reserve shortfalls would be recovered from future
rate increases. Should catastrophic losses to the infrastructure system occur, the
Stabilization and Contingency Reserve may be called upon to avoid disruption to
water distribution.
2. Infrastructure Replacement Funding Policy: This funding policy is intended to
be a temporary repository for cash flows associated with the funding of
infrastructure replacement projects provided by the Water Master Plan. The
contribution rate is intended to level-amortize the cost of infrastructure
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replacement projects over a long period. The annual funding rate of the Water
Master Plan is targeted at an amount that, when combined with prior or future
year contributions, is sufficient to provide for the eventual replacement of assets
as scheduled in the plan. This contribution policy is based on the funding
requirements of the most current Water Master Plan. There are no minimum or
maximum balances contemplated by this funding policy. However, the
contributions level should be reviewed periodically or as major updates to the
Water Master Plan occur. Annual funding is contingent on many factors and
may ultimately involve a combined strategy of cash funding and debt issuance
with the intent to normalize the burden on Water customer rates.
B. Wastewater Enterprise Fund
1. Stabilization and Contingency Reserve: This Reserve is used to provide
sufficient funds to support seasonal variations in cash flows and in more extreme
conditions, to maintain operations for a reasonable period of time so the City
may reorganize in an orderly manner or effectuate a rate increase to offset
sustained cost increases. The intent of the Reserve is to provide funds to offset
cost increases that are projected to be short-lived, thereby partially eliminating
the volatility in annual rate adjustments. It is not intended to offset ongoing,
long-term pricing structure changes. The target level of this reserve is fifty
percent (50%) of the annual operating budget. This reserve level is intended to
provide a reorganization period of 6 months with zero income or 24 months at a
twenty-five percent (25%) loss rate. The City Council must approve use of these
funds, based on City Manager recommendation. Funds collected in excess of the
Stabilization reserve target would be available to offset future rate adjustments,
while extended reserve shortfalls would be recovered from future rate increases.
Should catastrophic losses to the infrastructure system occur, the Stabilization
and Contingency Reserve may be called upon to avoid disruption to wastewater
service.
2. Infrastructure Replacement Funding Policy: This funding policy is intended to
be a temporary repository for cash flows associated with the funding of
infrastructure replacement projects provided by the Wastewater Master Plan.
The contribution rate is intended to level-amortize the cost of infrastructure
replacement projects over a long period of time. The annual funding rate of the
Wastewater Master Plan is targeted at an amount that, when combined with
prior or future year contributions, is sufficient to provide for the eventual
replacement of assets as scheduled in the plan. This contribution policy should
be updated periodically based on the most current Wastewater Master Plan.
There are no minimum or maximum balances contemplated by this funding
policy. However, the contributions level should be reviewed periodically or as
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major updates to the Wastewater Master Plan occur. Annual funding is
contingent on many factors and may ultimately involve a combined strategy of
cash funding and debt issuance with the intent to normalize the burden on
Wastewater customer rates.
C. Internal Service Funds
Background.
Internal Service Funds are used to centrally manage and account for specific
program activity in a centralized cost center. Their revenue generally comes from
internal charges to departmental operating budgets rather than external revenue
sources. They have several functions.
--They work well in normalizing departmental budgeting for programs that have
life-cycles greater than one year; thereby facilitating level budgeting for
expenditures that will, by their nature, be erratic from year to year. This also
facilitates easier identification of long term trends.
--They act as a strategic savings plan for long-term assets and liabilities.
--From an analytical standpoint, they enable appropriate distribution of city-wide
costs to individual departments, thereby more readily establishing true costs of
various operations.
Since departmental charges to the internal service fund duplicate the ultimate
expenditure from the internal service fund, they are eliminated when consolidating
entity-wide totals.
The measurement criteria, cash flow patterns, funding horizon and acceptable
funding levels are unique to each program being funded. Policy regarding target
balance and/or contribution policy, gain/loss amortization assumption, source data,
and governance for each of the City’s Internal Service Funds is set forth as follows:
1. For all Internal Service Funds: The Finance Director may transfer part or all of
any unencumbered fund balance between the Internal Service Funds provided
that the withdrawal of funds from the transferred fund would not cause
insufficient reserve levels or insufficient resources to carry out its intended
purpose. This action is appropriate when the decline in cash balance in any fund
is precipitated by an off-trend non-recurring event. The Finance Director will
make such recommendations as part of the annual budget adoption or through
separate Council action.
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2. Equipment Maintenance Fund and Equipment Replacement Fund: The
Equipment Maintenance and Replacement Funds receive operating money from
the Departments to provide equipment maintenance and to fund the regular
replacement of major pieces of equipment (mostly vehicles) at their economic
obsolescence.
a. Equipment Maintenance Fund: The Equipment Maintenance Fund acts solely
as a cost allocation center (vs. a pre-funding center) and is funded on a pay-
as-you-go basis by departmental maintenance charges by vehicle type and
usage requirement. Because of this limited function, the target year-end
balance is zero.
Contribution rates (departmental charges) are set to include the direct costs
associated with maintaining the City vehicle fleet, including fleet
maintenance employee salary and benefits, operating expenses and
maintenance related capital outlay. Administrative overhead and
maintenance facility improvements and replacement costs are to be provided
outside of this cost unit.Governance is achieved through annual management
adjustment of contribution rates on the basis of maintenance cost by vehicle
and distribution of costs based on fleet use by department.
b. Equipment Replacement Fund: Operating Departments are charged annual
amounts sufficient to accumulate funds for the replacement of vehicles,
communications equipment, parking equipment and other equipment
replacement determined appropriate by the Finance Director. The City
Manager recommends annual rate adjustments as part of the budget
preparation process. These adjustments are based on pricing, future
replacement schedules and other variables.
The age and needs of the equipment inventory vary from year to year.
Therefore the year-end fund balance will fluctuate in direct correlation to
accumulated depreciation. In general, it will increase in the years preceding
the scheduled replacement of relatively large percentage of the equipment, on
a dollar value basis. However, rising equipment costs, dissimilar future
needs, replacing equipment faster than their expected life or maintaining
equipment longer than their expected life all contribute to variation from the
projected schedule.
Target funding levels shall be determined by the Finance Director after
considering the age, expected life and cash flow anticipated by the
replacement equipment being funded. If departmental replacement charges
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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.
3. Insurance Reserve Funds: The Insurance Reserve funds account for the activities
of general liability and workers’ compensation claims.
Background.
The City employs an actuary to estimate the liabilities associated with the general
liability and workers compensation activities. The costs typically associated with
these programs include: claims administration, legal defense, insurance
premiums, self insured retention and the establishment of appropriate loss
reserves including “incurred-but-not reported” (IBNR) claims. In a prescribed
measurement methodology, the Actuary estimates the liabilities in conformity
with Generally Accepted Accounting Principles (GAAP).
The Actuary refers to this measurement level in his report as the “Expected
Level.” However, because actuarial estimates are subject to significant
uncertainties, actuaries typically recommend that a target funding level be set at
an amount in excess of expected liability as a margin to cover contingencies. A
typical target funding level would be set to obtain a specified confidence level
(the percent chance that resources set-aside will be sufficient to cover existing
claims).
Full funding of the Actuary’s “Target Funding Level” establishes a seventy-five
percent (75%) confidence there will be sufficient resources (including projected
interest) to pay the full amount of existing claims without future contributions.
Funding at the “Expected Level” produces a confidence level of only fifty percent
to sixty-five percent (50%-65%). Therefore, the target funding of insurance
reserves should exceed the “Expected Level” to account for adverse estimate
deviation.
Policy & Practice.
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,
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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.
To lessen the impact of short-term annual rate change fluctuation, City
management may implement one-time fund transfers (rather than department
rate increases) when funding shortfalls appear to be due to unusually sharp and
non-recurring factors. Excess reserves in other areas may be transferred to the
internal service fund in these instances but such transfers should not exceed the
funding necessary to reach a seventy-five (75%) confidence level interval.
4. Compensated Absences Fund:
Background.
The primary purpose of flex leave, vacation leave and sick leave is to provide
compensated time off as appropriate and approved. However, under certain
circumstances, typically at separation from service, some employees have the
option of receiving cash-out payments for some accumulated leave balances.
The Compensated Absences Fund is utilized primarily as a budget smoothing
technique for any such leave bank liquidations. The primary purpose of the
Compensated Absences Fund is to maintain a balance sufficient to facilitate this
smoothing.
Policy and Practice.
The contribution rate 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.
Each department will make contributions to the Compensated Absences Fund
through its operating budget as a specified percentage of salary. The Finance
Director will review and recommend adjustments to the percentage of salary
required during the annual budget development process. This percentage will
be set so as to maintain the reserve within the parameters established above.
5. Post Retirement Funding Policies:
a. Pension Funding:
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(i) California Public Employees Retirement System (CalPERS): The City’s
principal Defined Benefit Pension program is provided through contract
with CalPERS. The City’s contributions to the plan include an actuarially
determined employer contribution that fluctuates each year based on an
annual actuarial plan valuation. This variable rate employer contribution
includes the normal cost of providing the contracted benefits plus or
minus an amortization of plan changes and net actuarial gains and losses
since the last valuation period.
It is the City’s policy to make contributions to the plan equaling at least
one hundred percent (100%) of the actuarially required contribution
(annual pension cost). Because the City pays the entire actuarially
required contribution each year, by definition, its net pension obligation at
the end of each year is $0. Any unfunded actuarial liability (UAL) is
amortized and paid in accordance with the actuary’s funding
recommendations. The City will strive to maintain its UAL within a range
that is considered acceptable to actuarial standards. The City Council
shall consider increasing the annual CalPERS contribution should the
UAL status fall below acceptable actuarial standards.
(ii) Laborer’s International Union of North America (LIUNA): The City
provides funds to support a supplemental pension plan for some
employee associations through contract with LIUNA. This is funded at a
fixed percentage of total compensation on a pay-as-you-go basis. The City
is not contractually required to guarantee the level of the ultimate LIUNA
benefit to retirees, nor does it do so. Therefore the City’s liability for this
program is full funded each year.
b. Other Post Employment Benefits (OPEB Funding):
Background.
The City’s OPEB funding obligations consists of two retiree medical plans.
New Plan. Effective January 2006, the City and its employee associations
agreed to major changes to the Post Employment Healthcare Plan. New
employees and all current employees participate in a program that requires
certain defined employee and employer contributions while the employee is
in active service. However, once the contributions have been made to the
employee’s account, the City has transferred a substantial portion of the
funding risk to the employee.
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Old Plan. Eligible employees who retired prior to the “New Plan” and
certain active employees were eligible to continue to receive post-retirement
medical benefits (a defined benefit plan). The cost was divided among the
City, current employees and retirees. In the past, this program was largely
funded on a pay-as-you-go basis, so there was a significant unfunded
liability. Recognizing this problem, the City began contributing to this
obligation in 2001. In 2008, these assets were placed in a pre-funding trust.
The City’s intention is to amortize the remaining unfunded liability within 20
years.
Policy & Practice.
New Plan. Consistent with agreements between the City and Employee
Associations, the new defined contribution plan will be one hundred percent
(100%) funded, on an ongoing basis, as part of the annual budget process.
Funds to cover this expenditure will be contained within the salary section of
each department’s annual operating budget.
Old Plan. The City’s policy is to pre fund the explicit (cash subsidy) portion
of the Actuarial Accrued Liability (AAL) of the remnants of the old plan over
a 20-year amortization period, or less. This amount will be based on the
Annual Required Contribution (ARC) determined by a biennial actuarial
review; subject to review and analysis by the City. The City will strive to
maintain a funded status that will be within a range that is considered
acceptable to actuarial standards. The City Council shall consider increasing
the annual OPEB contribution should the funded status fall below acceptable
actuarial standards.
Adopted - January 24, 1994
Amended - April 10, 1995
Amended - April 27, 1998
Amended - March 14, 2000
Amended – May 8, 2001
Amended – April 23, 2002
Amended – April 13, 2004
Amended – September 15, 2008
Amended – November 12, 2008
Amended – May 24, 2011
Amended – September 27, 2011
Amended – May 14, 2013
Amended – June 10, 2014
Amended – May 12, 2015
Unfunded Pension Liability
Funding Goals & Challenges
1
Item No. 5C1
Pension Discussion
Presentation
June 28, 2018
Unfunded Pension Liability Funding Goals
•Keep Amortization Schedules Under 20 Years
•Maximize Long-term Savings
•Unfunded Liability Contributions should be aggressive but mindful of current needs
•Maximize use of Additional Discretionary Payments (ADP)
•Keep contributions to CalPERS relatively level
•Don’t increase risk
•Choose most cost effective path
* New 20-year level-dollar amortization policies adopted by CalPERS are applied prospectively
unless early implemented
2
Many Bases Form Unfunded LiabilityWhere are ADPs Most Effective?
•First bullet point here
•Second bullet point here
•Third bullet point here
Base
Balance as of FY
2020 Remaining Year
1 Fresh Start Base $305M 305,410,911 15
2 Experience -2014 $(76.9M)(76,872,914)27
3 Experience -2015 $31.9M 31,961,188 28
4 Assumption Change 2016 $16.8M -7.375%16,873,600 19
5 Experience -2016 $21.5M 21,528,844 29
6 Assumption -2017 $16.4M -7.25% Est.16,338,103 20
7 Experience -2017 ($27.2M) Est.(27,217,335)30
8 Assumption -2018 $30.1M -7.0% Est.30,805,734 20
318,828,130
Apply here to longest
base to achieve
greatest L.T. savings
Apply here to achieve
greatest short-term
savings
(e.g. lower min payment)
3
Years to Final Maturity
0 10 20 30 40
1 Fresh Start Base $305M
2 Experience - 2014 $(76.9M)
3 Experience - 2015 $31.9M
4 Assumption Change 2016 $16.8M - 7.375%
5 Experience - 2016 $21.5M
6 Assumption - 2017 $16.4M - 7.25% Est.
7 Experience - 2017 ($27.2M) Est.
8 Assumption - 2018 $30.1M - 7.0% Est.
Problem
Bases
4
Balance Remaining
Yrs
FY 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Base FY 2020 1 2 3 4 5 6 7 8 9 10
1 Fresh Start Base 305,410,911 15 27,529,554 27,904,769 28,741,912 29,604,170 30,492,295 31,407,064 32,349,276 33,319,754 34,319,346 35,348,927
2 Experience -2014 (76,872,914)27 (4,021,557)(5,044,363)(5,195,694)(5,351,565)(5,512,112)(5,677,475)(5,847,800)(6,023,233)(6,203,930)(6,390,048)
3 Experience -2015 31,961,188 28 1,256,208 1,678,940 2,161,635 2,226,484 2,293,279 2,362,077 2,432,940 2,505,928 2,581,106 2,658,539
4 Assumption Chg. 2016 -7.375%16,873,600 19 615,563 932,262 1,280,307 1,648,395 1,697,847 1,748,782 1,801,246 1,855,283 1,910,942 1,968,270
5 Experience -2016 21,528,844 29 572,314 859,363 1,180,191 1,519,496 1,565,081 1,612,034 1,660,395 1,710,206 1,761,513 1,814,358
6 Assumption -2017 7.25% Est.16,338,103 20 304,722 614,310 949,110 1,303,444 1,678,184 1,728,529 1,780,385 1,833,797 1,888,811 1,945,475
7 Experience -2017 Est.(27,217,335)30 (371,727)(743,016)(1,147,960)(1,576,532)(2,029,784)(2,090,678)(2,153,398)(2,218,000)(2,284,540)(2,353,076)
8 Assumption -2018 -7.0% Est.30,805,734 20 -574,557 1,158,291 1,789,560 2,457,662 3,164,240 3,259,168 3,356,943 3,457,651 3,561,380
318,828,130 Default 25,885,077 26,776,823 29,127,793 31,163,453 32,642,452 34,254,574 35,282,211 36,340,677 37,430,898 38,553,825
Current Max.35,000,000 35,000,000 35,000,000 35,000,000 35,000,000 35,000,000 35,000,000 35,000,000 35,000,000 35,000,000
ADP 9,114,923 8,223,177 5,872,207 3,836,547 2,357,548 745,426 (282,211)(1,340,677)(2,430,898)(3,553,825)
Inclining Payment Schedules Make Level Payment Goal Challenging
*Disclaimer -Payment schedules have not been adjusted to reflect the lower payroll growth assumption of 2.75% vs 3.00%5
Default Payment vs Full Fresh Start
(20,000,000)
(10,000,000)
-
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Default Full Fresh Start Level $ 16 Years
Is this payment level palatable?
Under Utilized
Credits
6
Potential Merits and Limitations of Section 115 Pension Prefunding Trusts
7
Potential Benefits of Using a Section 115 Trust
•Trust assets can be theoretically accessed to pay CalPERS at anytime to reduce volatility
and offset unexpected rate increases (rate stabilization).
•Provides access to a broader universe of investments that the City can undertake on its
own, including stocks and longer-term bonds.
•Allows the City to maintain control and investment oversight of assets.
•Rainy Day Fund -Emergency source of funds when Employer revenues are impaired
based on economic or other conditions
•Diversifies investment assets and strategies.
8
Potential Limitations of Using a Section 115 Trust
•Does not directly reduce Net Pension Liability
•Assets not recognized when CalPERS sets contribution rates
•More expensive to administer
•Added complexities for reporting & administration
•May introduce additional risks
•Potentially short investment horizon
•Difficult to diversify a small portfolio
•Headline risk
•Assets can’t be simply transferred to CalPERS. They must be sold at current market value
•In the event of an economic downturn, when the reserve funds might need to be accessed, the market value of the trust portfolio is also likely to be negatively impacted by the downturn.
•The Trust would not likely have a material impact on overall pension asset diversification or investment return relative to the $550 million of pension assets already at CalPERS.
9
Comments From Major Provider of 115 Trusts
•There are approximately 124 public agencies in California that have adopted a 115
trust.
•Of those, we have 60 cities that have adopted our program.
•The types of city clients run the gamut from perceived wealthy cities to those not
considered as well off.
•The average deposit is probably under $1 million
•Our program has no minimum fees nor monthly minimum, so those Cities that may
not be able to contribute substantial sums can still participate.
•We simply charge a percentage of assets in the program to administer the program
(which starts at 0.6%) so those making smaller deposits would pay smaller fees.
•The smallest deposit we have from a city is $50,000.
10
Future Pension Funding Policy Decision
1) Continue with Additional Discretionary Payments (ADP)
2) Fresh Start two or more bases to bring future credits forward
3) Divert ADP contributions to Section 115 Pension Prefunding Trust
11
6/28/18
Thursday, September 13, 2018
Public Employees Retirement System (PERS)
Valuation Update
Staff will discuss latest changes to actuarial
valuation, changes to actuarial assumptions, a
review of recent investment returns, the impact on
future plan contribution rates and funding options,
including Section 115 Trust.
Annual Review of Investment Policy Review Investment Policy and Investment Portfolio
Performance.
Budget Amendments (Quarter Ended June 30,
2018)
Receive and file a staff report on the budget
amendments for the prior quarter.
Subcommittee Policy Recommendations Reserve for Subcommittee recommendations on
Council finance policies.
Review of Finance Committee Workplan Staff will review with the Committee the agenda
topics scheduled for the remainder of the calendar
year.
Thursday, October 11, 2018
Pension Discussion Continued Discussion of Pension Funding Options
including Section 115 Pension and OPEB
Prefunding Trust and or Section 115 OPEB
Prefunding Trust).
Review Workers' Compensation and General
Liability Valuations
Review Workers' Compensation and General
Liability Valuation with Actuary.
Budget Amendments (Quarter Ended
September 30, 2018)
Receive and file a staff report on the budget
amendments for the prior quarter.
Subcommittee Policy Recommendations Reserve for Subcommittee recommendations on
Council finance policies.
Review of Finance Committee Workplan Staff will review with the Committee the agenda
topics scheduled for the remainder of the calendar
year.
Thursday, November 15, 2018 Review of General Liability and Workers' Compensation Valuations, Reserve and Policy
Discussion
The City's OPEB actuary will review the City's OPEB funded status.
Long Range Financial Forecast Review & Discuss Long Range Financial Forecast
(LRFF).
Pension Discussion Agenda item reserved for any discussion regarding
the status of the City's pension liability, funding
policy and Section 115 Pension Prefunding
Funding Trust.
Subcommittee Policy Recommendations Reserve for Subcommittee recommendations on
Council finance policies.
Review of Finance Committee Workplan Staff will review with the Committee the agenda
topics scheduled for the remainder of the calendar
year.
Thursday, December 06, 2018 Reserve Policy (F-2) Discussion Finance Committee recommended revisions to
Council Reserve Policy F-2.
Subcommittee Policy Recommendations Reserve for Subcommittee recommendations on
Council finance policies.
Tuesday, January 08, 2019 Council Study Session or Council Planning
Session - NOT A FINANCE COMMITTEE
MEETING
Obtain feedback from Council on relevant FFP &
Harbor & Beaches Capital Improvement Projects.
Thursday, January 17, 2019 Discuss General Annual Closing Results and
funded status of key reserves
City Staff will provide an update on final audited
closing results, General Fund surplus and funded
status of key reserves.
Budget Amendments (Quarter Ended
December 30, 2019)
Receive and file a staff report on the budget
amendments for the prior quarter.
Review of Finance Committee Workplan Staff will review with the Committee the agenda
topics scheduled for the remainder of the calendar year.
City of Newport Beach Finance Committee Work Plan 2018-19
September
October
November
December
January
Item No. 5E1
Work Plan Review
Additional Materials Received
June 28, 2018
Thursday, February 14, 2019 Facilities Financial Plan (FFP) Review Staff will review financial aspects FFP.
Harbor & Beaches Master Plan (HBMP)Staff will review financial aspects HBMP.
Thursday, March 14, 2019 Budget Discussion Reserved for budget discussions.
FY 2018-2019 Audit Communication Discuss audit results with auditor.
Thursday, April 18, 2019 Budget Discussion Reserved for budget discussions.
Budget Amendments (Quarter Ended March
30, 2019)
Receive and file a staff report on the budget
amendments for the prior quarter.
Thursday, May 09, 2019 Budget Discussion Reserved for budget discussions.
Thursday, May 23, 2019 Budget Discussion Reserved for budget discussions.
Thursday, June 20, 2019 Internal Control Results Review internal control testwork with auditors.
February
March
April
May
June