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Home My WebLink AboutFinance Committee - April 16, 2020CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA - Final Council Chambers Thursday, April 16, 2020 - 3:00 PM Finance Committee Members: Will O'Neill, Chair / Mayor Joy Brenner, Council Member Diane Dixon, Council Member William Collopy, Committee Member John Reed, Committee Member Joe Stapleton, Committee Member Larry Tucker, Committee Member Staff Members: Grace K. Leung, City Manager Dan Matusiewicz, Finance Director / Treasurer Steve Montano, Deputy Director, Finance Liz McKibbin, Senior Library Clerk On March 4, 2020, Governor Newsom proclaimed a State of Emergency in California as a result of the threat of COVID-19. On March 12, 2020, Governor Newsom issued Executive Order N-25-20, which allows Finance Committee Members to attend Finance Committee meetings telephonically. Please be advised that to minimize the spread of COIVD-19, some, or all, of the Newport Beach Finance Committee members may attend this meeting telephonically. Also, please be advised that on March 17, 2020, Governor Newsom issued Executive Order N-29-20, which allows for the public to participate in any meeting of the Finance Committee telephonically or by other electronic means. Given the health risks associated with COVID-19, the City of Newport Beach has decided to not have the City Council Chambers open to the public for this meeting. As a member of the public, if you would like to participate in this meeting, you can participate via the following options: 1. You can submit your questions and comments in writing for Finance Committee consideration by sending them to the Finance Director dmatusiewicz@newportbeachca.gov. To give the Finance Committee adequate time to review your questions and comments, please submit your written comments by Wednesday, April 15, 2020, at 5:00 p.m. 2. In addition, members of the public can participate in this meeting telephonically. Specifically, the meeting will be viewable via live streamed on the City’s website. If you are watching the meeting via the live stream, during the meeting, phone numbers for the public to call and to comment on specific agenda items will be posted on the screen. When you call, you will be placed on hold until it is your turn to speak. Please note that only twenty people can remain on hold at a time. If you call in to speak on an item and the line is busy, please call back after a few moments. The City will ensure that it allows enough time per item for everyone to call in to comment. Please know that it is important for the City to allow public participation at this meeting. If you are unable to participate in the meeting via the process set forth above, please contact the Dan Matusiewicz at (949-644-3123 or dmatusiewicz@newportbeachca.gov) and he will attempt to accommodate you. While the City does not expect there to be any changes to the above process for participating in this meeting, if there is a change, the City will post the information as soon as possible to the City’s website. The City of Newport Beach thanks you in advance for continuing to take precautions to prevent the spread of the COVID-19 virus. 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. April 16, 2020 Page 2 Finance Committee Meeting I.CALL MEETING TO ORDER II.ROLL CALL III.PUBLIC COMMENTS Public comments are invited on agenda items. 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 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 All matters listed under CONSENT CALENDAR are considered to be routine and will all be enacted by one motion in the form listed below. Finance Committe Members have received detailed staff reports on each of the items recommending an action. There will be no separate discussion of these items prior to the time the Finance Committee votes on the motion unless members of the Finance Committee request specific items to be discussed and/or removed from the Consent Calendar for separate action. Members of the public who wish to discuss a Consent Calendar item should come forward to the lectern upon invitation by the Chair. MINUTES OF MARCH 12, 2020A. Recommended Action: Approve and file. DRAFT MINUTES 03122020 V.CURRENT BUSINESS PRELIMINARY COVID-19 FISCAL IMPACT ESTIMATE ON FY 2019-20 ADOPTED BUDGET A. Summary: Staff will summarize the COVID19 fiscal impact estimate on FY 2019-20 adopted budget. Recommended Action: Discuss and provide input for City Council consideration. COVID-19 FISCAL IMPACT ESTIMATE ON THE FY 2020-21 PROPOSED BUDGET B. Summary: Staff will summarize the COVID19 fiscal impact estimate on the FY 2020-21 proposed budget. Recommended Action: Discuss and provide input for City Council consideration. April 16, 2020 Page 3 Finance Committee Meeting WORKPLAN REVIEW AND REVISED FY 2020-21 BUDGET CALENDARC. Summary: Staff will review with the committee the agenda topics scheduled for the remainder of the fiscal year and as well as the revised Fiscal Year 2020-21 Budget Calendar. Recommended Action: Receive and file. ATTACHMENT A BUDGET AMENDMENTS FOR QUARTER ENDING MARCH 31, 2020D. Summary: Staff will report on the budget amendments for the prior quarter. Recommended Action: Receive and file. STAFF REPORT ATTACHMENT A 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 April 16, 2020, Finance Committee Agenda Comments These comments on items on the Newport Beach Finance Committee agenda are submitted by: Jim Mosher ( jimmosher@yahoo.com ), 2210 Private Road, Newport Beach 92660 (949-548-6229) Item III. PUBLIC COMMENTS As the notes on page 1 of the agenda indicate, the COVID-19 crisis is prompting significant changes to the conduct of the April 16 meeting, including internet live-streaming1 of the meeting from the Council Chambers with the committee members possibly appearing from unannounced virtual locations and an opportunity for members of the public to comment by phone – although the public will apparently be barred from observing or commenting from within the Council Chambers. Simultaneous with this meeting, the City’s Zoning Administrator will be conducting public hearings in the Community Room, immediately adjacent to and visible from the Council Chamber, with up to 10 members of the public admitted at a time. Considering the above, and the more general modification of work schedules prompted by the crisis, it would seem to me this would be an appropriate time to consider shifting the hour of the Finance Committee meetings to an hour that does not conflict with the Zoning Administrator meetings – say 1:00 or 5:00 p.m. That would make the Community Room available for overflow in-person participation in the meetings. Even better in my mind would be moving the meeting to an evening hour (such as 7:00 p.m.) when more of the public might be free to observe and appreciate the work of the Finance Committee. An evening hour would normally be inconvenient for City staff, but if they working from, and can appear from, home anyway, the difference in convenience and shifting their work hours would seem minimal. In addition, if the Chair can participate from home, he could be with his family, which seems to have been a motivating factor for the 3:00 p.m. hour. As to the notice on the agenda that “the City of Newport Beach has decided to not have the City Council Chambers open to the public for this meeting,” I would note that the presence around the Council Chamber of a fair amount of mask-wearing City staff seems necessary for the successful conduct of these partially virtual meetings. I believe the Finance Committee’s customary afternoon public audience of one or two attendees2 could be added to the largely vacant Council Chamber without compromising social distancing – especially if the glass doors at the rear of the Chambers are opened to allow ventilation without recirculating the air. 1 The exact URL where the live stream can be found does not appear to be indicated on the agenda. 2 Possibly less with the phone-in option. April 16, 2020, Finance Committee comments - Jim Mosher Page 2 of 4 Item IV.A. MINUTES OF MARCH 12, 2020 The Committee may wish to consider the following changes, suggested in strikeout underline format to the draft minutes passages shown in italics. Page 1 of 8 (page 4 of agenda packet), last paragraph: “MOTION: Committee Member Tucker moved to approve the minutes as presented and Committee Member Stapleton seconded. The motion carried 5 ayes – 0 noes, 1 abstention absent (O’Neill).” [As indicated under “Roll Call”, Mayor O’Neil was detained by another meeting and arrived just after the March 12 minutes had been approved.] Page 3 of 8, middle paragraph: “In response to Council Member Dixon’s inquiry, Harbor Resources Manager Chris Miller clarified grant funding can come from federal, state or local grant and grant funding is projected. Deputy Director/Finance Montano advised projected revenue revenues are listed but are not in the budget. He further clarified this helps explain how much the Harbor Fund or the General Fund would need to contribute should the grants not materialize. Council Member Dixon requested a footnote indicated indicating a grant is projected.” Page 3 of 8, end of following paragraph: “He explained the Calfornia State Lands Commission grants the Tidelands to the City and County with the City’s portion being approximately 16% and the County’s portion 14%.” [I don’t recall what was said, but this makes little sense since 16% plus 14% adds to just 30%. Was this intended to read 86% - 14% referring possibly just to the harbor? Or are 70% of the tidelands within the City limits granted to neither the City nor the County??] Page 4 of 8, paragraph 2, sentence 3: “He clarified the that revenues coming into theTidelands fund are being used to repay the General Fund over time.” Page 5 of 8, full paragraph 3: “Director/Treasurer Matusiewicz noted the Finance Committee looks to the City Council and Public Works to identify the necessary projects, then staff can look at incremental rents and grant revenue to compliment complement General Fund contributions.” Page 5 of 8, paragraph 3 from end, sentence 2: “He reported the City receives $0.17 on the dollar of the 1% Ad Valorem Tax assessed on property values which make up 47% of General Fund revenues.” Page 5 of 8, paragraph 2 from end: “In response to Council Member Dixon’s inquiry, Finance Director/Treasurer Matusiewicz explained that due to the Wayfair decision (South Dakota v. Wayfair, Inc.) any Internet Sales goes into the County pool and the City receives approximately 5.8% of the total pool but all. All Orange County cities will benefit from the Wayfair decision but it is too early to tell how much the overall collections will offset the losses generated by online sales.” April 16, 2020, Finance Committee comments - Jim Mosher Page 3 of 4 Page 6 of 8, paragraph 5, sentence 3: “She reported Property Taxes Tax growth was 5.43% for Fiscal Year 20 which was down from 7.22% the previous year and projects 5% was is realistic for Fiscal Year 21 and should know actual numbers by the end of June.” [?] Page 6 of 8, last paragraph: “In response to Council Member Dixon’s inquiry, Senior Accountant Schweitzer clarified the City is projecting a loss drop of $1 million this year and the following fiscal year for Other Taxes and Revenues. She presented an overview of the General Fund and noted the Fiscal Year 20 updated estimate is still showing slight growth over Fiscal Year 19 at 1.42%. She noted the variance between revised Fiscal Year 21 projection is down $6.5 million from the Fiscal Year 21 original projection and the revised projections is down $6.5 million.” [I assume the statement was that Other Taxes and Revenues would be $1 million lower than in previous years, not that they would appear as a negative number. And that the last sentence is about the difference in the two projections, not a change in the variance between them – which could be the same thing, but even if so adds an unnecessary extra level of complexity to the thought.] Page 7 of 8, paragraph 2, sentence 2: “City Manager Leung advised there is are a lot of Capital Improvement Program Projects (CIP) projects and it may be necessary to pull back on some of the accelerated infrastructure projects.” [Some words seem to be missing after the “and.” I am guessing they were as indicated.] Page 7 of 8, paragraph 6, last sentence: “He advised the City would continue to focus on paying down CalPERS and OPEB liabilities since they carry at much higher interest rate rates.” Page 7 of 8, paragraph 8: “Senior Accountant Schweitzer reported 99% of the Tidelands Revenue Fund come comes from Use of Money and Property which includes Parking Meter Revenue, Lease Property, Onshore and Offshore Moorings and Slip Revenues. She noted some accounts within the Tidelands Revenue Fund are capped and anything over the established baseline goes into the Harbor Capital fund. She noted none of the accounts have been adjusted for COVID-19.” Page 7 of 8, paragraph 10, sentence 3: “She encouraged residents to spend online and ordering order take-out from local restaurants.” Page 7 of 8, last sentence: “He noted he would be developing different wording to describe his intent.” Page 8 of 8, Item D, next to last paragraph: “Jim Mosher noted all the Finance Committee meetings are scheduled at the same time as Zoning Administrator meetings.” April 16, 2020, Finance Committee comments - Jim Mosher Page 4 of 4 Item V.A PRELIMINARY COVID-19 FISCAL IMPACT ESTIMATE ON FY 2019-20 ADOPTED BUDGET As of this writing at 10:00 a.m. on April 15, no information has been posted regarding this item. It is, therefore, very difficult to provide advance comments using Option 1 on the agenda which invites the public to “submit your written comments by Wednesday, April 15, 2020, at 5:00 p.m.” Since the duration of the COVID-19 shut-down is not yet known, I imagine this preliminary estimate will be very uncertain. However, a worst case scenario assuming such things as essentially no TOT or restaurant sales tax revenue through July 1 could be presented. Item V.B COVID-19 FISCAL IMPACT ESTIMATE ON THE FY 2020-21 PROPOSED BUDGET Same comments as Item V.A. In addition, unless CalPERS was very nimble and prescient with their investments, it seems probable FY20 will not end as a stellar year for their funds, and the City will, as a result, need to plan for increased pension liability in future years. Item V.C. WORKPLAN REVIEW AND REVISED FY 2020-21 BUDGET CALENDAR Please see comment on Item III, above, suggesting a change in the hour of the Finance Committee meetings. Finance Committee Meeting Minutes March 12, 2020 Page 1 of 8 CITY OF NEWPORT BEACH FINANCE COMMITTEE MARCH 12, 2020 MEETING MINUTES I. CALL MEETING TO ORDER The meeting was called to order at 3:01 p.m. in the Newport Beach Central Library, Friends Meeting Room, 1000 Avocado Avenue, Newport Beach, California 92660. II. ROLL CALL PRESENT: Mayor/Chair Will O’Neill (arrived 3:06 p.m.), Council Member Joy Brenner (arrived 3:06 p.m.), Council Member Diane Dixon, Committee Member John Reed, Committee Member Joe Stapleton, Committee Member Larry Tucker ABSENT: Committee Member William Collopy (Attending the meeting as a member of the public) STAFF PRESENT: City Manager Grace K. Leung, Finance Director/Treasurer Dan Matusiewicz, Deputy Director/Finance Steve Montano, Administrative Manager Angela Crespi, Senior Accountant Theresa Schweitzer, Harbor Resources Manager Chris Miller, Fire Chief Jeff Boyles, Accounting Manager Rukshana Virany, Revenue Manager Evelyn Tseng, Budget Analyst Amy Lewis, Budget and Payroll Supervisor Shannon Espinoza, Public Works Director Dave Webb, Administrative Specialist to the Finance Director, Marlene Burns OTHER ENTITIES: Robert Callanan, White Nelson Diehl Evans LLP Joe Ludin, White Nelson Diehl Evans LLP MEMBERS OF THE PUBLIC: Jim Mosher, Don Yahn, William Collopy III. PUBLIC COMMENTS Mr. Mosher addressed the committee regarding the City's Lobbyist Registration Ordinance and noted any speaker addressing the committee who is being paid to do so needs to register with the Office of the City Clerk which can be submitted online. He referenced the minutes of the previous meeting and reported multiple contracts for the same service are not unusual within the City and noted City Council approved three (3) on-call contracts with electrical service vendors in September 2019. He recommended the Finance Committee review the Fee Schedule Update, specifically the Appeal Fee, noticing disparate fee schedules for different departments. IV. CONSENT CALENDAR MINUTES OF FEBRUARY 13, 2020 Recommended Action: Approve and file. MOTION: Committee Member Tucker moved to approve the minutes as presented and Committee Member Stapleton seconded. The motion carried 5 ayes – 0 noes, 1 abstention (O’Neill). Finance Committee Meeting Minutes March 12, 2020 Page 2 of 8 V. CURRENT BUSINESS A. FINANCIAL STATEMENT AUDIT RESULTS AND RELATED COMMUNICATION Summary: The City’s external audit firm, White Nelson Diehl Evans LLP will meet with the Finance Committee to discuss the audit findings for the fiscal year ending 6/30/2019. The Committee will have an opportunity to discuss any potential areas of concern and the auditors can discuss any changes in accounting standards or disclosures that were relevant for the audit year. Recommended Action: Receive and file. Robert Callanan, White Nelson Diehl Evans LLP, presented the results of the City’s external audit for the fiscal year ending June 30, 2019 and noted there were no significant changes in accounting policies from year-to-year. He noted there were some additional disclosure requirements related to Debt Obligations but did not lead to a substantial change. Mr. Callanan reported the City’s financial statements contain estimates of Infrastructure Assets (which is listed in GASB Summary of Statement No. 34), Depreciation Expenses on the use of Capital Assets, Pension Obligations, Other Post-Employment Benefits (OPEB) Liabilities, and claims for General Liability and Worker's Compensation and are subject to change. Mr. Callanan reported no significant difficulties performing the audit. He noted one (1) correction of an audit-related inquiry which had to do with the General Liability and Internal Service Fund which was adjusted by $350,000 based on updated information from the City Attorney. He reported there were no disagreements with management regarding any issues or matters and reported White Nelson Diehl Evans LLP was provided with a Representation Letter which provided unfettered access to information in order to provide an opinion on the Financial Statements. He reported their opinion is an Unmodified Opinion on the City’s financial statements which is the highest form that can be provided under auditing standards. Mr. Callanan reported GASB Statement No. 84, relating to Fiduciary Activities, will be implemented in FY 19/20 and noted potential adjustments. He reported the California Governmental Accounting and Auditing Committee is developing a white paper to clarify reporting Pensions and OPEB Fiduciary activities for consistent reporting. Mr. Callanan reported an audit of the City's Federal Grant Programs was given an Unmodified Opinion. He noted a major program tested this year was Asset Forfeiture which is the share of proceeds from Police raids which must be used for specific Public Safety equipment purposes and reported there were no findings or issues with the program. He also reported the City’s Schedule of Expenditure of Federal Awards was fairly reported. In response to Council Member Dixon’s inquiry, Mr. Callanan clarified the GASB Statement No. 84 change impacts smaller pensions that are not CalPERS related and noted the City does not have any of those plans. Chair O’Neil opened public comments. Jim Mosher expressed concern the Finance Committee was not discussing specific items within the City’s Comprehensive Annual Financial Reports (CAFR). Chair O’Neil closed public comments. There was no further action taken on this item. B. HARBOR AND BEACHES MASTER PLAN Summary: Finance Committee Meeting Minutes March 12, 2020 Page 3 of 8 Staff will present a draft of Harbors and Beaches financial plans reviewing the timing, means of financing, and fiscal impacts associated with funding Council prioritized capital projects. Recommended Action: Review the Harbor and Beaches financial plans and recommend the information go to the City Council in the future for their consideration. Deputy Director/Finance Steve Montano provided a brief overview of the Harbor and Beaches Master Plan and noted it is similar to the Facilities Financial Plan (FFP). He reported the Fund Balance from 2020 through 2045 is healthy and projected to grow due to the estimated $49 million in grant funding expected in 2032. He provided an overview of the external contributions and projected expenditures covered by grants. Deputy Director/Finance Montano provided an overview of estimated revenue sources which include grant funding but is mainly funded through General Fund contributions and Incremental Revenue Projections received through leases, mooring rents, commercial and residential pier rents. Deputy Director/Finance Montano reported on Debt Service which consists of two (2) loans advanced from the General Fund to cover a dredging project and the other was to cover the construction of the Marina Park marina. Deputy Director/Finance Montano reported on expenditure by type noting a majority of projects are to support the bulkheads around the harbor. He noted the majority of projects are evenly funded through General Fund contributions and Incremental Revenue received through rents and leases. In response to Council Member Dixon’s inquiry, Harbor Resources Manager Chris Miller clarified grant funding can come from federal, state or local grant and grant funding is projected. Deputy Director/Finance Montano advised projected revenue are listed but are not in the budget. He further clarified this helps explain how much the Harbor Fund or the General Fund would need to contribute should the grants not materialize. Council Member Dixon requested a footnote indicated a grant is projected. In response to Committee Member Tucker’s inquiry, Harbor Resources Manager Miller clarified the dredging project is technically a federal project but the City is choosing to prefund the project but explained Harbor waters are federally maintained. He explained the Calfornia State Lands Commission grants the Tidelands to the City and County with the City’s portion being approximately 16% and the County’s portion 14%. In response to Committee Member Tucker’s inquiry, Harbor Resources Manager Miller advised the U.S. Army Corps of Engineers ranks all the ports and harbors in California based primarily on economic cargo ports and recreational ports tend to get lower funding. He advised the City has lobbied for more funding but it is highly unlikely to be 100% federally funded. He also noted the City would need to decide to fund all or a portion of the project but the likelihood of being reimbursed is improbable. Council Member Dixon reported Council Member Duffield and Mayor Pro Tem Avery travel to Washington annually to lobby the U.S. Army Corps of Engineers and the Appropriations Committee for dredging funding and while the City makes the list, funding is never appropriated. In response to Committee Member Tucker’s inquiry, Harbor Resources Manager Miller clarified the City has contributed funds to preload the project and is paying for all the design, engineering, permitting, and California Environmental Quality Act (CEQA) Environmental Impact Reports. He further stated the City has committed to 20% of the entire project which is $4.5 million of the City’s budget allocated towards construction costs and is hoping to receive $18 million in federal funding. He also noted the City is looked upon favorably by the Appropriations Committee by contributing to the project. Finance Committee Meeting Minutes March 12, 2020 Page 4 of 8 In response to Committee Member Tucker’s inquiry, Harbor Resources Manager Miller reported the Harbor is not at its design depth that was deemed by the Federal Government in 1917. He did report some groundings have been reported and although uncommon, there is more potential if dredging is not completed. He also noted if the dredging project is completed it will be a one-and-done type of project and will only require maintenance after certain minor storm events. In response to Council Member Dixon’s inquiry, Deputy Director/Finance Montano clarified the City is still repaying the last dredging project through the end of 2030. Director/Treasurer Matusiewicz clarified the City had a unique opportunity dispose dredging material in the past and provided a no-interest loan to the Harbor Fund so it could continue its efforts without being hindered by a lack of cash. He clarified the that revenues coming into theTidelands fund are being used to repay the General Fund over time. Deputy Director/Finance Montano advised a breakdown of revenues was listed within the Master Plan and explained it comes from the sum of leases, mooring rents, and commercial and residential pier rents. Harbor Resources Manager Miller clarified in 2010-2012 there were base rates for moorings and rents which was increased by the City Council and those incremental rents were earmarked specifically for Harbor Projects. He further clarified the incremental rents gradually increase by Consumer Price Index (CPI) but is essentially a fixed amount. Chair O’Neill noted the Finance Committee is reviewing this to determine if funding is at an appropriate level and assumed it will require General Fund contributions. He noted it should fall back to the Harbor Commission to decide how to trim some of the projects back in case the priorities were too large from a financial commitment. Chair O’Neill expressed concern regarding the City’s revenue assumptions for the next budget cycle. In response to Chair O’Neill’s inquiry, Harbor Commissioner Don Yahn advised there was not a prioritized list of projects broken down. He advised the Harbor Commission would review per City Council’s direction. He also noted the Harbor Commission identified many strategic projects such as secondary launch ramps and seawalls but feels prioritizing projects would be useful. Chair O’Neill requested an action item to review the Harbor and Beaches Master Plan with City Manager Leung along with some members of the City Council to determine if they agree with the Harbor Commission on the finance side. Harbor and Beaches projects substantially impact the budget and it must be determined if the City Council needs to notify the Harbor Commission of the City Council’s request to review their project priorities. Chair O’Neill opened public comments. Jim Mosher stated it is his understanding that navigable waters belong to the public and the State is a trustee on behalf of the people. He noted the Harbor Commission was trying to understand the dashboard and how it relates to the attached spreadsheets. He expressed concern regarding expenditures noting it was vague and asked for clarification. He requested clarification regarding the General Fund contributions net amount when corrected for Debt Service and asked for clarification for time-periods throughout the Master Plan. Lastly, he inquired if bulkhead maintenance was also the responsibility of the Federal Government. Chair O’Neill closed public comments. Chair O’Neill noted Mr. Mosher made good points about referencing potential projects and General Fund contributions. In response to Chair O’Neill’s inquiry, Finance Director/Treasurer Matusiewicz reported the City contributes $4.5 million annually to the Harbor Capital Fund and the repayment of the loan was Finance Committee Meeting Minutes March 12, 2020 Page 5 of 8 related to the previous projects discussed earlier. Deputy Director/Finance Montano clarified the first red line for $3.5 million is gross and Debt Service 2020 is $1.25 million and the sum of the two is the net addition to the Harbor capital fund. Council Member Dixon expressed her support for a long term Dredging Master Plan. In response to Council Member Dixon’s inquiry, Public Works Director Dave Webb clarified Newport Island would not qualify for federal funding and would need $3 million from the General Fund to dredge the canal. Harbor Resources Manager Miller advised the Harbor Department would be investigating how much would need to be dredged from that canal and noted the other projects are estimates. Council Member Dixon recommended dredging be a separate chart within the Harbor and Beaches Master Plan to help better understand future needs, obligations and external sources. Committee Member Tucker stated the Harbor and Beaches Master Plan is simply a plan and does not find its way to the budget until the City Council decides to fund the projects. Director/Treasurer Matusiewicz noted the Finance Committee looks to the City Council and Public Works to identify the necessary projects, then staff can look at incremental rents and grant revenue to compliment General Fund contributions. Committee Member Tucker expressed his support for prioritizing projects with input from the Harbor Commission and a decision from City Council. There was no further action taken on this item. C. DISCUSS REVENUE ASSUMPTIONS Summary: Staff will provide an overview of revenue assumptions for the FY 2020-21 Proposed Budget. Recommended Action: Receive and file. Finance Director/Treasurer Matusiewicz reported COVID-19 has changed the budget strategy. In response to Chair O’Neill’s inquiry, Finance Director/Treasurer Matusiewicz reported he has not received any information from CalPERS but believes the return on the portfolio is down significantly from the peak. He also noted CalPERS CIO Ben Meng was anticipating a downturn and was trying to position the portfolio to take advantage of those circumstances but did not have any specific intelligence at the moment. Finance Director/Treasurer Matusiewicz advised Newport Beach is better off than cities such as Anaheim whose main source of revenue is Transient Occupancy Tax (TOT). He reported the City receives $0.17 of the 1% Ad Valorem Tax assessed on property values which make up 47% of General Fund revenues. He reported the City receives 1% of the 7.75% charged in Sales Tax and makes up 16.8% of the General Fund. In response to Council Member Dixon’s inquiry, Finance Director/Treasurer Matusiewicz explained that due to the Wayfair decision (South Dakota v. Wayfair, Inc.) any Internet Sales goes into the County pool and the City receives approximately 5.8% of the total pool but all Orange County cities will benefit from the Wayfair decision but it is too early to tell how much the overall collections will offset the losses generated by online sales. Finance Director/Treasurer Matusiewicz reported TOT Tax is 10% of gross sales and represents 10.8% of the General Fund and includes hotels and residential rentals. He advised residential rentals had been increasing at double-digit rates but is anticipating the commercial side will drop significantly. He noted the COVID-19 fear factor has led to a significant drop in the corporate sector travel and attendance at sporting events. Finance Committee Meeting Minutes March 12, 2020 Page 6 of 8 Deputy Director/Finance Montano presented on the fiscal impacts of COVID-19. He reported visitor spending comes primarily from food, lodging, and retail sales. In response to Council Member Dixon’s inquiry, he explained the $337 million noted in the Visit Newport Beach reports is the economic impact and not provable numbers. Deputy Director/Finance Montano reported most visitors are domestic travelers who come for leisure and day trips and noted international visitors account for just under 5% of the total volume. Council Member Dixon reported Balboa Village Merchants bookings were holding steady but felt it was mainly due to visitors who could drive to Newport Beach. Deputy Director/Finance Montano advised there is indication certain hotels are experiencing event cancellations based on reports from Visit Newport Beach and expressed concern regarding the worldwide impact of COVID-19. He noted Newport Beach accounts for 2.7% of the County population but accounts for 5.6% of the hotel room inventory. Deputy Director/Finance Montano provided a brief overview of Property Tax revenue over time and how it is impacted by major events. He noted Sales Tax growth is more sensitive to an economic downturn. Director/Treasurer Matusiewicz noted Property Taxes will help with revenue stability since the assessed property valuations for the next fiscal year were based on a January 1 valuation date. Senior Accountant Theresa Schweitzer reported staff is meeting daily to discuss the potential outcomes from COVID-19 which is evolving every week. She reported she met with City Manager Leung to finalize the projections. She reported Property Taxes was 5.43% for Fiscal Year 20 which was down from 7.22% the previous year and projects 5% was realistic for Fiscal Year 21 and should know actual numbers by the end of June. She also reported there is less revenue coming in from Supplemental Taxes due to home prices slowing. Senior Accountant Schweitzer reported the City’s Sales Tax Consultant initially predicted a short term 30-day impact to the City’s tourism sensitive Sales Tax revenue including retail and restaurants of $279,000 but they recently increased it to a 60-day impact, which would end up being $588,000. She reported the Sales Tax Consultant is projecting at 20% reduction on General Retail and Food Products within 60 days and will result in a loss of $500,000. Chair O’Neill recommended reaching out to local restaurants to better understand the fiscal impacts. Senior Accountant Schweitzer advised staff is continuing to evaluate and make changes to the calculations as necessary. Senior Accountant Schweitzer reported the City projects Sales Tax will reduce 1.5% in Fiscal Year 21 due to the economic uncertainty surrounding COVID-19. She noted there may be some additional revenue due to the Wayfair decision and will make adjustments to estimates at that time. She also noted the Fiscal Year 20 estimate was updated down 6% for Commercial TOT and flat for Residential TOT for the remaining months of this fiscal year. She reported the City is expecting a 12% drop in Commercial TOT and a 5% increase in Residential TOT. Senior Accountant Schweitzer reported Fiscal Year 21 Other Revenues appear to be going down but noted that grants and donations are not budgeted until they are known so no adjustments have been made but may be required at a later date. In response to Council Member Dixon’s inquiry, Senior Accountant Schweitzer clarified the City is projecting a loss of $1 million this year and the following fiscal year for Other Taxes and Revenues. She presented an overview of the General Fund and noted the Fiscal Year 20 updated estimate is still showing slight growth over Fiscal Year 19 at 1.42%. She noted the variance between the Fiscal Year 21 original projection and the revised projections is down $6.5 million. Finance Committee Meeting Minutes March 12, 2020 Page 7 of 8 Chair O’Neill expressed concern as to how other cities will survive COVID-19. Council Member Dixon noted the payments to CalPERS will increase because the discount rate will decrease. Chair O’Neill noted when the item is presented to the City Council there is no need to include the Fiscal Year 21 projection. City Manager Leung agreed and noted she was making decisions on the operating side. Chair O’Neill noted if COVID-19 sustains, the worst-case scenario is $10 - $11 million in lost revenue. City Manager Leung advised there is a lot of Capital Improvement Projects (CIP) and pull back on some of the accelerated infrastructure projects. In response to Council Member Dixon’s inquiry, City Manager Leung advised there is $2.3 million unallocated from Fiscal Year 19 Surplus Funds and noted next year’s Surplus Funds may be impacted. In response to Committee Member Stapleton’s inquiry, Director/Treasurer Matusiewicz advised that CalPERS payments are made monthly. City Manager Leung noted the City is receiving more revenue from online sales tax which is a positive trend and will complete more analysis to determine consumer spending. In response to Committee Member Reed’s inquiry, Finance Director/Treasurer Matusiewicz advised the City cannot refinance the Civic Center bonds because they have a make-whole call premium associated with the bonds. He advised the City would continue to focus on paying down CalPERS and OPEB liabilities since they carry at much higher interest rate. Senior Accountant Schweitzer advised the City will have February hotel TOT information by the end of the month and will be able to determine if there is a decrease but thinks March may show the largest decrease. She advised TOT information should be available in April since the agents pay quarterly and information regarding 1st Quarter Sales Tax will be available in late May. Senior Accountant Schweitzer reported 99% of the Tidelands Revenue Fund come from Use of Money and Property which includes Parking Meter Revenue, Lease Property, Onshore and Offshore Moorings and Slip Revenues. She noted some accounts within the Tidelands Revenue Fund are capped and anything over the established baseline goes into Harbor Capital fund. She noted none of the accounts have been adjusted for COVID-19. Senior Accountant Schweitzer reported 98% of the Water Revenue Fund comes from the sale of water, fixed and usage charges, meter turn on and connection charges. Committee Member Tucker expressed concern with the revenue impacts and suggested a contingency plan in the event the revenue decrease is not $6.5 million. Council Member Dixon noted the City will need to plan for the worst-case scenario. She encouraged residents to spend online and ordering take-out from local restaurants. Chair O’Neill advised the City will be working on a messaging campaign to encourage residents to buy local over the next few weeks. Chair O’Neill opened public comments. In response to Mr. Mosher’s inquiry regarding revenue amounts, Chair O’Neill responded the City has always been good about projecting a revenue amount that turns out to be lower than the actual amount. He noted the City historically has tended to see more money coming in than in the projections and rather than being overly optimistic, he feels it is better to be less optimistic regarding revenue projections. He noted he would developing different wording to describe his intent. Finance Committee Meeting Minutes March 12, 2020 Page 8 of 8 Chair O’Neill closed public comments. There was no further action taken on this item. D. WORK PLAN REVIEW Summary: Staff and Finance Committee to review the proposed work plan and adjust as necessary. Recommended Action: Receive and file. Chair O’Neill reported the Budget Review is April 16th and meetings begin to take place semi-monthly at that time with the next meeting of the Finance Committee on April 30, 2020. He noted the Finance Committee is expected to attend the City Council meeting on May 12, 2020. Chair O’Neill called for public comments. Jim Mosher noted all meetings are scheduled at the same time. 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) None VII. ADJOURNMENT The Finance Committee adjourned at 4:30 p.m. to the next regular meeting of the Finance Committee on April 16, 2020 at 3:00 p.m. Filed with these minutes are copies of all materials distributed at the meeting. The agenda for the Regular Meeting was posted on March 5, 2020 at 7:00 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: ___________________________________ _____________________ Will O’Neill, Chair Date Finance Committee April 16, 2020, Finance Committee Agenda Comments These comments on items on the Newport Beach Finance Committee agenda are submitted by: Jim Mosher ( jimmosher@yahoo.com ), 2210 Private Road, Newport Beach 92660 (949-548-6229) Item III. PUBLIC COMMENTS As the notes on page 1 of the agenda indicate, the COVID-19 crisis is prompting significant changes to the conduct of the April 16 meeting, including internet live-streaming1 of the meeting from the Council Chambers with the committee members possibly appearing from unannounced virtual locations and an opportunity for members of the public to comment by phone – although the public will apparently be barred from observing or commenting from within the Council Chambers. Simultaneous with this meeting, the City’s Zoning Administrator will be conducting public hearings in the Community Room, immediately adjacent to and visible from the Council Chamber, with up to 10 members of the public admitted at a time. Considering the above, and the more general modification of work schedules prompted by the crisis, it would seem to me this would be an appropriate time to consider shifting the hour of the Finance Committee meetings to an hour that does not conflict with the Zoning Administrator meetings – say 1:00 or 5:00 p.m. That would make the Community Room available for overflow in-person participation in the meetings. Even better in my mind would be moving the meeting to an evening hour (such as 7:00 p.m.) when more of the public might be free to observe and appreciate the work of the Finance Committee. An evening hour would normally be inconvenient for City staff, but if they working from, and can appear from, home anyway, the difference in convenience and shifting their work hours would seem minimal. In addition, if the Chair can participate from home, he could be with his family, which seems to have been a motivating factor for the 3:00 p.m. hour. As to the notice on the agenda that “the City of Newport Beach has decided to not have the City Council Chambers open to the public for this meeting,” I would note that the presence around the Council Chamber of a fair amount of mask-wearing City staff seems necessary for the successful conduct of these partially virtual meetings. I believe the Finance Committee’s customary afternoon public audience of one or two attendees2 could be added to the largely vacant Council Chamber without compromising social distancing – especially if the glass doors at the rear of the Chambers are opened to allow ventilation without recirculating the air. 1 The exact URL where the live stream can be found does not appear to be indicated on the agenda. 2 Possibly less with the phone-in option. April 16, 2020, Finance Committee comments - Jim Mosher Page 2 of 4 Item IV.A. MINUTES OF MARCH 12, 2020 The Committee may wish to consider the following changes, suggested in strikeout underline format to the draft minutes passages shown in italics. Page 1 of 8 (page 4 of agenda packet), last paragraph: “MOTION: Committee Member Tucker moved to approve the minutes as presented and Committee Member Stapleton seconded. The motion carried 5 ayes – 0 noes, 1 abstention absent (O’Neill).” [As indicated under “Roll Call”, Mayor O’Neil was detained by another meeting and arrived just after the March 12 minutes had been approved.] Page 3 of 8, middle paragraph: “In response to Council Member Dixon’s inquiry, Harbor Resources Manager Chris Miller clarified grant funding can come from federal, state or local grant and grant funding is projected. Deputy Director/Finance Montano advised projected revenue revenues are listed but are not in the budget. He further clarified this helps explain how much the Harbor Fund or the General Fund would need to contribute should the grants not materialize. Council Member Dixon requested a footnote indicated indicating a grant is projected.” Page 3 of 8, end of following paragraph: “He explained the Calfornia State Lands Commission grants the Tidelands to the City and County with the City’s portion being approximately 16% and the County’s portion 14%.” [I don’t recall what was said, but this makes little sense since 16% plus 14% adds to just 30%. Was this intended to read 86% - 14% referring possibly just to the harbor? Or are 70% of the tidelands within the City limits granted to neither the City nor the County??] Page 4 of 8, paragraph 2, sentence 3: “He clarified the that revenues coming into theTidelands fund are being used to repay the General Fund over time.” Page 5 of 8, full paragraph 3: “Director/Treasurer Matusiewicz noted the Finance Committee looks to the City Council and Public Works to identify the necessary projects, then staff can look at incremental rents and grant revenue to compliment complement General Fund contributions.” Page 5 of 8, paragraph 3 from end, sentence 2: “He reported the City receives $0.17 on the dollar of the 1% Ad Valorem Tax assessed on property values which make up 47% of General Fund revenues.” Page 5 of 8, paragraph 2 from end: “In response to Council Member Dixon’s inquiry, Finance Director/Treasurer Matusiewicz explained that due to the Wayfair decision (South Dakota v. Wayfair, Inc.) any Internet Sales goes into the County pool and the City receives approximately 5.8% of the total pool but all. All Orange County cities will benefit from the Wayfair decision but it is too early to tell how much the overall collections will offset the losses generated by online sales.” April 16, 2020, Finance Committee comments - Jim Mosher Page 3 of 4 Page 6 of 8, paragraph 5, sentence 3: “She reported Property Taxes Tax growth was 5.43% for Fiscal Year 20 which was down from 7.22% the previous year and projects 5% was is realistic for Fiscal Year 21 and should know actual numbers by the end of June.” [?] Page 6 of 8, last paragraph: “In response to Council Member Dixon’s inquiry, Senior Accountant Schweitzer clarified the City is projecting a loss drop of $1 million this year and the following fiscal year for Other Taxes and Revenues. She presented an overview of the General Fund and noted the Fiscal Year 20 updated estimate is still showing slight growth over Fiscal Year 19 at 1.42%. She noted the variance between revised Fiscal Year 21 projection is down $6.5 million from the Fiscal Year 21 original projection and the revised projections is down $6.5 million.” [I assume the statement was that Other Taxes and Revenues would be $1 million lower than in previous years, not that they would appear as a negative number. And that the last sentence is about the difference in the two projections, not a change in the variance between them – which could be the same thing, but even if so adds an unnecessary extra level of complexity to the thought.] Page 7 of 8, paragraph 2, sentence 2: “City Manager Leung advised there is are a lot of Capital Improvement Program Projects (CIP) projects and it may be necessary to pull back on some of the accelerated infrastructure projects.” [Some words seem to be missing after the “and.” I am guessing they were as indicated.] Page 7 of 8, paragraph 6, last sentence: “He advised the City would continue to focus on paying down CalPERS and OPEB liabilities since they carry at much higher interest rate rates.” Page 7 of 8, paragraph 8: “Senior Accountant Schweitzer reported 99% of the Tidelands Revenue Fund come comes from Use of Money and Property which includes Parking Meter Revenue, Lease Property, Onshore and Offshore Moorings and Slip Revenues. She noted some accounts within the Tidelands Revenue Fund are capped and anything over the established baseline goes into the Harbor Capital fund. She noted none of the accounts have been adjusted for COVID-19.” Page 7 of 8, paragraph 10, sentence 3: “She encouraged residents to spend online and ordering order take-out from local restaurants.” Page 7 of 8, last sentence: “He noted he would be developing different wording to describe his intent.” Page 8 of 8, Item D, next to last paragraph: “Jim Mosher noted all the Finance Committee meetings are scheduled at the same time as Zoning Administrator meetings.” April 16, 2020, Finance Committee comments - Jim Mosher Page 4 of 4 Item V.A PRELIMINARY COVID-19 FISCAL IMPACT ESTIMATE ON FY 2019-20 ADOPTED BUDGET As of this writing at 10:00 a.m. on April 15, no information has been posted regarding this item. It is, therefore, very difficult to provide advance comments using Option 1 on the agenda which invites the public to “submit your written comments by Wednesday, April 15, 2020, at 5:00 p.m.” Since the duration of the COVID-19 shut-down is not yet known, I imagine this preliminary estimate will be very uncertain. However, a worst case scenario assuming such things as essentially no TOT or restaurant sales tax revenue through July 1 could be presented. Item V.B COVID-19 FISCAL IMPACT ESTIMATE ON THE FY 2020-21 PROPOSED BUDGET Same comments as Item V.A. In addition, unless CalPERS was very nimble and prescient with their investments, it seems probable FY20 will not end as a stellar year for their funds, and the City will, as a result, need to plan for increased pension liability in future years. Item V.C. WORKPLAN REVIEW AND REVISED FY 2020-21 BUDGET CALENDAR Please see comment on Item III, above, suggesting a change in the hour of the Finance Committee meetings. 1 Finance Committee Meeting PRELIMINARY COVID-19 FISCAL IMPACT ESTIMATEFY 2019-20 BUDGET April 16, 2020 22 Overview •The swift reaction by consumers and businesses to the outbreak ofcoronavirus(COVID-19)in the U.S.has caused a massive decrease inspendingoncertaingoodsandservicesinNewportBeach. •The national and state response combined with the uncertainty of howlongthepresenceoftheviruswilldisrupttheU.S.economy has madeforecastingrevenuesparticularlychallenging. •Our FY 2019-20 revenue forecast was developed after numerous newsupdatesdetailing”shelter-in-place”related impacts,comparisons topreviouseconomicdownturnsliketheGreatRecession,studying reportsandprojectionsofindustryspecificanalystsandconsideringpastcyclicaltrendsofourrevenuereceipts. •We are in extraordinary times with no assured models from the past wecanpresentlyusetopredictthefuture.There is a significant amount ofuncertaintyinourforecast. 33 REVENUES 44 General Fund Revenues 55 Property Tax •Secured property taxes are recorded as they are remitted, in large part, during December and April of each year. •They are likely to be among the least affected revenue sources by the pandemic (at least in the short term). A large secured property tax payment is expected in late April. •Most property tax revenue categories through March are thus far meeting or exceeding the prior year collection trend and the revenue category overall is 5.4% higher than at this same time last year. •Assuming there may be slightly higher than normal property tax payment delinquencies in April, we have made an allowance to absorb an additional $878,000 reduction from the budget, which may or may not come to pass. 66 Sales Tax •The City’s sales tax base is largely generated from three main industry categories including Autos and Transportation, General Consumer Goods, and Restaurants/Hotels. •Due to COVID-19, the California Department of Tax and Fee Administration (CDTFA) has allowed small businesses with less than $5 million in annual taxable sales (29.4% of businesses in Newport Beach) to defer payment on up to $50,000 of sales/use tax. •Not aware of how many local businesses may exercise this deferral option. •Expect in our larger industry categories will be significantly impacted -we made allowances in our budget to accommodate a $1.3 million reduction in sale tax revenue from our original budget projection. 77 Transient Occupancy Tax •The COVID-19 pandemic has significantly impacted the travel and leisure industry of Newport Beach. •Citing increased risk for COVID-19 exposure, the City Council has also prohibited short-term lodging rentals until May 20 or for the duration of the City’s local emergency. •TOT estimate reduced by $5.4 million to account for the anticipated decline in residential and hotel transient occupancy tax through the last quarter of the fiscal year. 88 Other Revenue •The budget for all remaining “other” General Fund revenue amounts to $57.7 million and includes such categories as service fees and charges, property income, other taxes, licenses and permits, fines and penalties, and intergovernmental revenue. •We anticipate a net decrease of $5.9 million from the original budget due largely to the cancellation of nearly all recreation classes and a reduction in estimated business license tax and marine charter tax receipts. •There will also be less revenue from facility rental fees, parking fees, and certain planning fees. 99 Other Funds •Gas Tax (Fund 121) –Due to COVID-19 we anticipate a reduction in fuel consumption. Revenues within the Gas Tax Fund are estimated to be 20% less than projected which amounts to a revenue shortfall of $500,000 for FY 2019-20. •Measure M (Fund 122) –A reduction in countywide sales activity in the second quarter of 2020 (April –June) due to COVID-19 is estimated to result in a loss of $330,000 from the Measure M2 Local Fair Share Program. •SB1 RMRA (Fund 126) –Road Maintenance and Rehabilitation Account (RMRA) revenues. State law requires these funds be used exclusively for the transportation system. A 20% reduction in projected FY 2019-20 revenues would result in a budget shortfall of approximately $150,000. •Water and Wastewater (Funds 701 and 711) –An increased number of accounts may be delinquent as a result of Governor Newsom’s Executive Order N-42-20 temporarily suspending water shut offs. However, staff does not anticipate a material impact to the Water and Wastewater Funds due to the nature of the billing, revenue is recognized at the time of the billing not receipt of payment. 1010 EXPENDITURES 1111 General Fund Expenditures Expenditures by Category A Budget B YTD Actual C=B/A % Realized D Proposed Revised Budget E=D-A Variance to Budget E/A % Variance to Budget Salary & Benefits $155,502,069 $111,915,572 72.0%$152,502,069 -$3,000,000 -2% Professional & Contract Services 25,749,546 15,116,102 58.7%$23,102,927 -2,646,619 -10% Maintenance & Repair 9,335,354 5,346,545 57.3%$8,856,705 -478,650 -5% Supplies & Materials 5,615,312 3,702,284 65.9%$5,105,426 -509,886 -9% Utilities 3,328,840 2,069,428 62.2%$2,753,193 -575,646 -17% Transfer out of Workers Comp 3,000,000 - 0.0%$1,000,000 -2,000,000 -67% General Expenses 2,250,633 1,392,561 61.9%$2,082,950 -167,683 -7% Travel & Training 967,241 586,121 60.6%$787,886 -179,355 -19% Capital 944,514 451,306 47.8%$779,646 -164,868 -17% Transfer out of 800 Mhz Radio 500,000 - 0.0%$0 -500,000 -100% Unallocated FY19 Fund Balance - - -$2,300,000 -2,300,000 Close out Completed Capital Projects - - -1,264,177 -1,264,177 Total $207,193,510 $140,579,919 67.8%$193,406,625 -$13,786,885 -7% 1212 General Fund Expenditures •With expenditures at 68%of the budget,the General Fund spending isgenerallyon-track through the third quarter of the fiscal year. •Some departments incur a greater or lower level of expenditures in the first halfoftheyearthaninthesecondhalfduetothetimingandseasonalityoftheiroperationsorprograms.This variability is generally consistent with prior years. •To align expenditures with reduced revenues,Finance Department staff workingwithalldepartmentsidentifiedGeneralFundexpenditurereductionsof$13.8million. 1313 General Fund Expenditures •To align expenditures with reduced revenues, Finance Department staff working with all departments identified General Fund expenditure reductions of $13.7 million. •In most cases,these are reductions that do not impact service levels andwouldhavematerializedassavingsatyearend. •Of this amount $7.7 million in expenditure reductions derived from: •Salary & Benefits ($3 million reduction)–Represents anticipated savings due to vacancies, attrition, retirements, and delays in hiring. •Professional &Contract Services ($2.6 million reduction)–Funds allocated for hiringanindependentcontractortoperformaspecialized,project-based service. •Maintenance &Repair ($0.5 million reduction)–Expendable materials and operatingsuppliesnecessarytoconductdepartmentaloperations. 1414 General Fund Expenditures •Supplies &Materials ($0.5 million reduction)–Office,janitorial,copy machine,tools and other supplies. •Utilities ($0.6 million reduction)–Cost incurred by using utilities such aselectricity,water,and telecommunication. •General Expenses ($0.2 million reduction)–Uniform,publications and dues,advertising and public relations,tuition reimbursement and postage •Travel &Training ($0.2 million reduction)–Costs associated with employeetravelingtrainingforthepurposeofconductingbusiness-related activities. •Capital (outlay)($0.2 million reduction)–Fixed assets which have a value of$500 or more and have a useful economic lifetime of more than one year;or,assets of any value if the nature of the item is such that it must be controlled forcustodypurposesasafixedasset. 1515 Transfers Out •A $3 million transfer from the General Fund to the Workers’Compensation Fund was allocated in the FY 2019-20 Adopted Budget toprovidefundsfortheestimatedactuarialliability. •These actuarial estimates are subject to significant uncertainties andassumptionsthataresubjecttodeviationfromexpectedresults. •Because the most recent valuation suggests relatively favorable fundingprogress,staff recommends that $2 million can be retained by theGeneralFund. 1616 Transfers Out •A total of $0.5 million was transferred to the Equipment ReplacementFundasaset-aside (savings plan)for the perpetual replacement of the800MHzCountywideCoordinatedCommunicationsSystem(CCCS). •The CCCS is Orange County's analog/digital trunked public safety radiocommunicationssystemthatprovidesradiocommunicationservicesandinteroperabilityamongCityandCountylawenforcement,fireservices,public works and lifeguard/marine safety departments inOrangeCounty. •This can be deferred for a year without significantly impacting thisreplacementplan.Staff recommends that $0.5 million can be retainedbytheGeneralFund. 1717 Summary FY 2019-20 Conservative Revenue Shortfall Estimate (13,497,311) General Fund Expenditure Reduction (13,786,886) Surplus 289,575 FY 20 Contingency Reserve Balance 52,645,373 April 16, 2020, Finance Committee Agenda Comments These comments on items on the Newport Beach Finance Committee agenda are submitted by: Jim Mosher ( jimmosher@yahoo.com ), 2210 Private Road, Newport Beach 92660 (949-548-6229) Item III. PUBLIC COMMENTS As the notes on page 1 of the agenda indicate, the COVID-19 crisis is prompting significant changes to the conduct of the April 16 meeting, including internet live-streaming1 of the meeting from the Council Chambers with the committee members possibly appearing from unannounced virtual locations and an opportunity for members of the public to comment by phone – although the public will apparently be barred from observing or commenting from within the Council Chambers. Simultaneous with this meeting, the City’s Zoning Administrator will be conducting public hearings in the Community Room, immediately adjacent to and visible from the Council Chamber, with up to 10 members of the public admitted at a time. Considering the above, and the more general modification of work schedules prompted by the crisis, it would seem to me this would be an appropriate time to consider shifting the hour of the Finance Committee meetings to an hour that does not conflict with the Zoning Administrator meetings – say 1:00 or 5:00 p.m. That would make the Community Room available for overflow in-person participation in the meetings. Even better in my mind would be moving the meeting to an evening hour (such as 7:00 p.m.) when more of the public might be free to observe and appreciate the work of the Finance Committee. An evening hour would normally be inconvenient for City staff, but if they working from, and can appear from, home anyway, the difference in convenience and shifting their work hours would seem minimal. In addition, if the Chair can participate from home, he could be with his family, which seems to have been a motivating factor for the 3:00 p.m. hour. As to the notice on the agenda that “the City of Newport Beach has decided to not have the City Council Chambers open to the public for this meeting,” I would note that the presence around the Council Chamber of a fair amount of mask-wearing City staff seems necessary for the successful conduct of these partially virtual meetings. I believe the Finance Committee’s customary afternoon public audience of one or two attendees2 could be added to the largely vacant Council Chamber without compromising social distancing – especially if the glass doors at the rear of the Chambers are opened to allow ventilation without recirculating the air. 1 The exact URL where the live stream can be found does not appear to be indicated on the agenda. 2 Possibly less with the phone-in option. April 16, 2020, Finance Committee comments - Jim Mosher Page 2 of 4 Item IV.A. MINUTES OF MARCH 12, 2020 The Committee may wish to consider the following changes, suggested in strikeout underline format to the draft minutes passages shown in italics. Page 1 of 8 (page 4 of agenda packet), last paragraph: “MOTION: Committee Member Tucker moved to approve the minutes as presented and Committee Member Stapleton seconded. The motion carried 5 ayes – 0 noes, 1 abstention absent (O’Neill).” [As indicated under “Roll Call”, Mayor O’Neil was detained by another meeting and arrived just after the March 12 minutes had been approved.] Page 3 of 8, middle paragraph: “In response to Council Member Dixon’s inquiry, Harbor Resources Manager Chris Miller clarified grant funding can come from federal, state or local grant and grant funding is projected. Deputy Director/Finance Montano advised projected revenue revenues are listed but are not in the budget. He further clarified this helps explain how much the Harbor Fund or the General Fund would need to contribute should the grants not materialize. Council Member Dixon requested a footnote indicated indicating a grant is projected.” Page 3 of 8, end of following paragraph: “He explained the Calfornia State Lands Commission grants the Tidelands to the City and County with the City’s portion being approximately 16% and the County’s portion 14%.” [I don’t recall what was said, but this makes little sense since 16% plus 14% adds to just 30%. Was this intended to read 86% - 14% referring possibly just to the harbor? Or are 70% of the tidelands within the City limits granted to neither the City nor the County??] Page 4 of 8, paragraph 2, sentence 3: “He clarified the that revenues coming into theTidelands fund are being used to repay the General Fund over time.” Page 5 of 8, full paragraph 3: “Director/Treasurer Matusiewicz noted the Finance Committee looks to the City Council and Public Works to identify the necessary projects, then staff can look at incremental rents and grant revenue to compliment complement General Fund contributions.” Page 5 of 8, paragraph 3 from end, sentence 2: “He reported the City receives $0.17 on the dollar of the 1% Ad Valorem Tax assessed on property values which make up 47% of General Fund revenues.” Page 5 of 8, paragraph 2 from end: “In response to Council Member Dixon’s inquiry, Finance Director/Treasurer Matusiewicz explained that due to the Wayfair decision (South Dakota v. Wayfair, Inc.) any Internet Sales goes into the County pool and the City receives approximately 5.8% of the total pool but all. All Orange County cities will benefit from the Wayfair decision but it is too early to tell how much the overall collections will offset the losses generated by online sales.” April 16, 2020, Finance Committee comments - Jim Mosher Page 3 of 4 Page 6 of 8, paragraph 5, sentence 3: “She reported Property Taxes Tax growth was 5.43% for Fiscal Year 20 which was down from 7.22% the previous year and projects 5% was is realistic for Fiscal Year 21 and should know actual numbers by the end of June.” [?] Page 6 of 8, last paragraph: “In response to Council Member Dixon’s inquiry, Senior Accountant Schweitzer clarified the City is projecting a loss drop of $1 million this year and the following fiscal year for Other Taxes and Revenues. She presented an overview of the General Fund and noted the Fiscal Year 20 updated estimate is still showing slight growth over Fiscal Year 19 at 1.42%. She noted the variance between revised Fiscal Year 21 projection is down $6.5 million from the Fiscal Year 21 original projection and the revised projections is down $6.5 million.” [I assume the statement was that Other Taxes and Revenues would be $1 million lower than in previous years, not that they would appear as a negative number. And that the last sentence is about the difference in the two projections, not a change in the variance between them – which could be the same thing, but even if so adds an unnecessary extra level of complexity to the thought.] Page 7 of 8, paragraph 2, sentence 2: “City Manager Leung advised there is are a lot of Capital Improvement Program Projects (CIP) projects and it may be necessary to pull back on some of the accelerated infrastructure projects.” [Some words seem to be missing after the “and.” I am guessing they were as indicated.] Page 7 of 8, paragraph 6, last sentence: “He advised the City would continue to focus on paying down CalPERS and OPEB liabilities since they carry at much higher interest rate rates.” Page 7 of 8, paragraph 8: “Senior Accountant Schweitzer reported 99% of the Tidelands Revenue Fund come comes from Use of Money and Property which includes Parking Meter Revenue, Lease Property, Onshore and Offshore Moorings and Slip Revenues. She noted some accounts within the Tidelands Revenue Fund are capped and anything over the established baseline goes into the Harbor Capital fund. She noted none of the accounts have been adjusted for COVID-19.” Page 7 of 8, paragraph 10, sentence 3: “She encouraged residents to spend online and ordering order take-out from local restaurants.” Page 7 of 8, last sentence: “He noted he would be developing different wording to describe his intent.” Page 8 of 8, Item D, next to last paragraph: “Jim Mosher noted all the Finance Committee meetings are scheduled at the same time as Zoning Administrator meetings.” April 16, 2020, Finance Committee comments - Jim Mosher Page 4 of 4 Item V.A PRELIMINARY COVID-19 FISCAL IMPACT ESTIMATE ON FY 2019-20 ADOPTED BUDGET As of this writing at 10:00 a.m. on April 15, no information has been posted regarding this item. It is, therefore, very difficult to provide advance comments using Option 1 on the agenda which invites the public to “submit your written comments by Wednesday, April 15, 2020, at 5:00 p.m.” Since the duration of the COVID-19 shut-down is not yet known, I imagine this preliminary estimate will be very uncertain. However, a worst case scenario assuming such things as essentially no TOT or restaurant sales tax revenue through July 1 could be presented. Item V.B COVID-19 FISCAL IMPACT ESTIMATE ON THE FY 2020-21 PROPOSED BUDGET Same comments as Item V.A. In addition, unless CalPERS was very nimble and prescient with their investments, it seems probable FY20 will not end as a stellar year for their funds, and the City will, as a result, need to plan for increased pension liability in future years. Item V.C. WORKPLAN REVIEW AND REVISED FY 2020-21 BUDGET CALENDAR Please see comment on Item III, above, suggesting a change in the hour of the Finance Committee meetings. 1 Finance Committee Meeting COVID-19 FISCAL IMPACT SCENARIOSFY 2020-21 BUDGET April 16, 2020 22 Overview •Anticipate spending decreases due to the outbreak of coronavirus(COVID-19)in the U.S.will continue well into,and possible through,FY2020-21. •Our FY 2020-21 revenue forecast was developed after numerous newsupdatesdetailing”shelter-in-place”related impacts,comparisons topreviouseconomicdownturnsliketheGreatRecession,studying reportsandprojectionsofindustryspecificanalystsandconsideringpastcyclicaltrendsofourrevenuereceipts. •Forecasting revenues is exceptionally challenging.Uncertainty abounds: •How long will the virus will last? •When will a vaccine be developed? •Will there be widespread testing for antibodies at some point? 3 Event Analogs FY 2018/19 108,365,261 6.67%38,502,470 9.89%24,697,446 8.16%58,247,418 1.10%229,812,594 5.87% FY 2017/18 101,593,290 7.68%35,038,846 3.96%22,833,614 2.38%57,611,715 5.75%217,077,466 5.98% FY 2016/17 94,350,181 6.19%33,702,895 -0.69%22,303,303 5.79%54,480,757 -1.61%204,837,135 2.81% FY 2015/16 88,851,313 7.96%33,937,986 3.22%21,083,199 3.53%55,373,307 10.11%199,245,805 7.22%Zika: 12/2015-9/2016 FY 2014/15 82,298,226 5.57%32,878,836 6.51%20,364,506 12.04%50,287,015 6.02%185,828,583 6.53% FY 2013/14 77,954,939 -2.11%30,869,941 10.84%18,176,369 10.16%47,431,681 1.98%174,432,930 2.31%Ebola: 2014-2016 FY 2012/13 79,638,463 13.43%27,851,655 4.58%16,500,285 11.98%46,511,429 -5.78%170,501,831 5.94% FY 2011/12 70,210,223 -0.12%26,631,088 7.61%14,734,541 13.18%49,366,852 14.79%160,942,704 6.54% FY 2010/11 70,294,563 -0.42%24,746,984 12.59%13,018,486 15.69%43,006,380 -3.58%151,066,412 1.78% FY 2009/10 70,591,886 1.77%21,980,682 -13.56%11,253,381 0.74%44,604,149 -1.35%148,430,098 -1.82% FY 2008/09 69,363,569 4.97%25,429,069 -14.88%11,170,956 -12.40%45,213,661 -17.41%151,177,256 -7.51% FY 2007/08 66,080,599 8.11%29,872,781 5.05%12,751,518 5.74%54,746,050 12.89%163,450,948 8.88% FY 2006/07 61,124,520 5.25%28,436,372 4.60%12,059,008 23.16%48,496,150 17.89%150,116,049 10.23% FY 2005/06 58,076,234 14.91%27,185,585 11.79%9,791,058 6.24%41,136,947 3.59%136,189,823 10.02% FY 2004/05 50,539,642 21.73%24,317,656 11.32%9,215,862 15.05%39,712,417 0.25%123,785,576 11.53% FY 2003/04 41,517,552 9.10%21,843,884 8.49%8,010,283 -7.53%39,613,118 7.26%110,984,837 6.94% FY 2002/03 38,054,464 18.49%20,133,598 4.84%8,662,682 12.99%36,932,573 -2.03%103,783,317 7.34%SARS - 11/2002-7/2003 FY 2001/02 32,117,091 15.23%19,204,446 -5.36%7,666,885 -12.57%37,697,413 3.70%96,685,835 3.64%September 11th: 9/11/2001 FY 2000/01 27,871,824 9.70%20,292,154 5.47%8,769,144 1.47%36,353,103 6.90%93,286,225 6.86%dot.com Recession 3/2001-11/2001 FY 1999/00 25,408,138 19,239,106 8,642,071 34,007,834 87,297,149 Great Recession: 3/2008-1/2010 Total Revenue Notable Events YOY Change Property Tax Revenue Sales Tax Revenue TOT Revenue All Other Revenue Fiscal Year (FY) YOY Chang YOY Change YOY Change YOY Change 4 Range of Revenue Shortfall Examinedof Potential Revenue Loss Examined Revenue Est.% Change $ Change FY 2019-20 Revised Estimate 234,670,869 FY 2020-21 Orginal Estimate 241,176,586 2.77% 234,670,869 0.00%6,505,717 230,069,479 -2.00%11,107,107 225,645,066 -4.00%15,531,520 221,387,612 -6.00%19,788,974 New Expected -Great Recession 217,287,842 -8.00%23,888,744 Variance Range 213,337,154 -10.00%27,839,432 209,527,562 -12.00%31,649,024 205,851,639 -14.00%35,324,947 202,302,473 -16.00%38,874,113 5 5 66 REVENUES 77 General Fund Revenues Category FY19 Actuals FY20 EST FY21 Scenario 1 FY21 Scenario 2 Property Tax 108,365,261 112,723,626 118,567,018 117,508,227 Sales Tax 38,502,470 34,411,405 30,970,265 28,690,830 Residential TOT 3,685,438 3,661,720 794,620 794,620 Hotel TOT 21,012,008 15,400,311 5,639,495 5,639,495 All Other Revenue 58,247,418 51,772,248 49,441,276 46,414,211 Total Revenue 229,812,595 217,969,310 205,412,673 199,047,384 Variance to FY19 Actuals (24,399,922)(30,765,211) -10.62%-13.39% Variance to FY20 EST (12,556,637)(18,921,927) -5.76%-8.68% Variance Scenario 2 to Scenario 1 (6,365,290) 88 Property Tax •Scenario 1 •Keeps property tax at original FY21 Budget Projection •Estimated 5% growth in Secured property taxes •Scenario 2 •Reduced estimated growth to 4% •Accounting for potential taxes not paid if we go into a recession Category FY19 Actuals FY20 EST FY21 Scenario 1 FY21 Scenario 2 Property Tax 108,365,261 112,723,626 118,567,018 117,508,227 Variance to FY19 Actuals 10,201,757 9,142,966 9.41%8.44% Variance to FY20 EST 5,843,392 4,784,601 5.18%4.24% Variance Scenario 2 to Scenario 1 (1,058,791) 99 Sales Tax Category FY19 Actuals FY20 EST FY21 Scenario 1 FY21 Scenario 2 Sales Tax 38,502,470 34,411,405 30,970,265 28,690,830 Variance to FY19 Actuals (7,532,205)(9,811,640) -19.56%-25.48% Variance to FY20 EST (3,441,141)(5,720,575) -10.00%-16.62% Variance Scenario 2 to Scenario 1 (2,279,434) •Scenario 1 •-15.5%* Decrease in sales tax by similar amount as FY 2008/09 (Beginning of the Great Recession) •Scenario 2 •-28.4%* Decrease in sales tax by same amount as combined decrease in FY 2008/09 and FY 2009/10 (Entirety of the Great Recession) * Percentage decreases were applied to the last 12 months of actuals 1010 Transient Occupancy Tax (TOT) •Residential and Hotel TOT impact calculated at the same rate •-90% 3Q2020, -80% 4Q2020, -65% 1Q2021, -50% 2Q2021 Category FY19 Actuals FY20 EST FY21 Scenario 1 FY21 Scenario 2 Residential TOT 3,685,438 3,661,720 794,620 794,620 Hotel TOT 21,012,008 15,400,311 5,639,495 5,639,495 Total Revenue 24,697,446 19,062,031 6,434,115 6,434,115 Variance to FY19 Actuals (18,263,331)(18,263,331) -73.95%-73.95% Variance to FY20 EST (12,627,916)(12,627,916) -66.25%-66.25% Variance Scenario 2 to Scenario 1 - 1111 Other Revenue •Scenario 1 •-20%* Decrease in Other Revenues •Scenario 2 •-25%* Decrease in Other Revenues * Percentage decreases were applied to the last 12 months of actuals, investment income was estimated separately Category FY19 Actuals FY20 EST FY21 Scenario 1 FY21 Scenario 2 All Other Revenue 58,247,418 51,772,248 49,441,276 46,414,211 Variance to FY19 Actuals (8,806,142)(11,833,207) -15.12%-20.32% Variance to FY20 EST (2,330,973)(5,358,037) -4.50%-10.35% Variance Scenario 2 to Scenario 1 (3,027,064) 1212 EXPENDITURES 1313 General Fund Expenditures To align expenditures with reduced revenues, Finance Department staff working with all departments identified General Fund expenditure reductions within five tiers in a total of $37 million of General Fund reductions. 1414 General Fund Expenditures 1515 General Fund Expenditures –Pre Budget Reductions •Prior to any tiered expenditure decreases (of 34.7 million),non-serviceleveloperationalreductionswereappliedtothebudgetintheamountof$3 million. •Of this amount $3 million in expenditure reductions derived from: •Professional &Contract Services ($1.8 million reduction)–Funds allocated for hiringanindependentcontractortoperformaspecialized,project-based service. •Maintenance &Repair ($270 thousand reduction)–Expendable materials andoperatingsuppliesnecessarytoconductdepartmentaloperations. •Supplies &Materials ($288 thousand reduction)–Office,janitorial,copy machine,tools and other supplies. •Utilities ($361 thousand reduction)–Cost incurred by using utilities such as electricity,water,and telecommunication. 1616 General Fund Expenditures –Pre Budget Reductions •General Expenses ($77 thousand reduction)–Uniform,publications anddues,advertising and public relations,tuition reimbursement andpostage •Travel &Training ($147 thousand reduction)–Costs associated withemployeetravelingtrainingforthepurposeofconductingbusiness-related activities. •Capital (outlay)($15 thousand reduction)–Fixed assets which have avalueof$500 or more and have a useful economic lifetime of more thanoneyear;or,assets of any value if the nature of the item is such that itmustbecontrolledforcustodypurposesasafixedasset. •These reductions do not have an impact on current service levels. 1717 General Fund Pre Budget Reductions 1818 Expenditures Reduction Tiers 1919 Expenditure Reduction Tier One: Hiring Freeze •Tier One Expenditure reductions are based on salary/benefit savings from adelayedrecruitmentofcurrentlyvacantpositions. •Hiring freeze on 23 currently vacant positions until January of 2021. 2020 Expenditures Reduction Tier 1: Hiring Freeze 2121 Expenditure Reduction Tier Two: Deferred Capital •Tier Two expenditure reductions would reduce the General Fund Transfer out forvariousCapitalImprovementProjects. •While many of these projects are budgeted in other funds,their funding derivesfrom,and can be returned to,the General Fund. •This amount is dependent on council directive of 23 general fund pending projects,and is yet to be determined. •Along with reduced capital spending the following one-time transfers in the generalfundareincluded: •Harbor Capital $4,500,000 •Facilities Maintenance $500,000 2222 Expenditures Reduction Tier Two: Deferred Capital 2323 Expenditure Reduction Tier Three:Savings Plan Reduction •Tier Three expenditure reductions would reduce intended savings to thefollowingfunds: •Worker’s Compensation $1,000,000 •Uninsured Claims $1,000,000 •Equipment Maintenance $500,000 •Information Technology $1,000,000 •800 MHz $500,000 2424 Expenditures Reduction Tier Three: Savings Plan 2525 Expenditure Reduction Tier Four:Contingency Reserve •Fiscal Year 2020 will end with a General Fund contingency reserve of$52,645,373. •A reduction of contingency reserve of $8 million will reduced the funded statusto20%in Fiscal Year 2021. •General Fund contingency reserve will become $44,645,373 at end of FiscalYear2021. 2626 Expenditure Reduction Tier Four:Contingency Reserve 2727 Expenditure Reduction Tier Five:Discretionary Trust Contributions •Tier Five expenditure reductions would reduce PERS Discretionary UALpaymentby$5,000,000. 2828 Expenditure Reduction Tier Five:Discretionary Trust Contributions 2929 CalPERS –How Investment Losses Are Amortized 3030 Expenditure Reduction Tier Six:Service Level Cuts •Tier Six expenditure reductions has been reserved for operational cuts thatwouldleadtoservicelevelreductions. 3131 Expenditures Reduction Tiers 3232 General Fund Expenditures including all five Tiered Reductions 3333 Next Budget Milestones •Tuesday,April 28 –City Council considers City Manager’s proposedamendmentstotheFY2019-20 budget. •Thursday,May 14 –Finance Committee 1st review of FY 2020-21 budget. •Thursday,May 21 –Finance Committee 2nd review of FY 2020-21 budget. •Tuesday,May 26 –Council Study Session -1st Council Review of ProposedBudget(Joint Council/Finance Committee). •Thursday,May 28 –Finance Committee to develop written comment on CityManager's Proposed FY 2020-21 Budget.Recommendations for changes toProposedbudgetwillbepresentedviaProposedBudgetRevision(PBR). •Tuesday June 9 –City Council Budget Adoption and GANN limit publichearing. April 16, 2020, Finance Committee Agenda Comments These comments on items on the Newport Beach Finance Committee agenda are submitted by: Jim Mosher ( jimmosher@yahoo.com ), 2210 Private Road, Newport Beach 92660 (949-548-6229) Item III. PUBLIC COMMENTS As the notes on page 1 of the agenda indicate, the COVID-19 crisis is prompting significant changes to the conduct of the April 16 meeting, including internet live-streaming1 of the meeting from the Council Chambers with the committee members possibly appearing from unannounced virtual locations and an opportunity for members of the public to comment by phone – although the public will apparently be barred from observing or commenting from within the Council Chambers. Simultaneous with this meeting, the City’s Zoning Administrator will be conducting public hearings in the Community Room, immediately adjacent to and visible from the Council Chamber, with up to 10 members of the public admitted at a time. Considering the above, and the more general modification of work schedules prompted by the crisis, it would seem to me this would be an appropriate time to consider shifting the hour of the Finance Committee meetings to an hour that does not conflict with the Zoning Administrator meetings – say 1:00 or 5:00 p.m. That would make the Community Room available for overflow in-person participation in the meetings. Even better in my mind would be moving the meeting to an evening hour (such as 7:00 p.m.) when more of the public might be free to observe and appreciate the work of the Finance Committee. An evening hour would normally be inconvenient for City staff, but if they working from, and can appear from, home anyway, the difference in convenience and shifting their work hours would seem minimal. In addition, if the Chair can participate from home, he could be with his family, which seems to have been a motivating factor for the 3:00 p.m. hour. As to the notice on the agenda that “the City of Newport Beach has decided to not have the City Council Chambers open to the public for this meeting,” I would note that the presence around the Council Chamber of a fair amount of mask-wearing City staff seems necessary for the successful conduct of these partially virtual meetings. I believe the Finance Committee’s customary afternoon public audience of one or two attendees2 could be added to the largely vacant Council Chamber without compromising social distancing – especially if the glass doors at the rear of the Chambers are opened to allow ventilation without recirculating the air. 1 The exact URL where the live stream can be found does not appear to be indicated on the agenda. 2 Possibly less with the phone-in option. April 16, 2020, Finance Committee comments - Jim Mosher Page 2 of 4 Item IV.A. MINUTES OF MARCH 12, 2020 The Committee may wish to consider the following changes, suggested in strikeout underline format to the draft minutes passages shown in italics. Page 1 of 8 (page 4 of agenda packet), last paragraph: “MOTION: Committee Member Tucker moved to approve the minutes as presented and Committee Member Stapleton seconded. The motion carried 5 ayes – 0 noes, 1 abstention absent (O’Neill).” [As indicated under “Roll Call”, Mayor O’Neil was detained by another meeting and arrived just after the March 12 minutes had been approved.] Page 3 of 8, middle paragraph: “In response to Council Member Dixon’s inquiry, Harbor Resources Manager Chris Miller clarified grant funding can come from federal, state or local grant and grant funding is projected. Deputy Director/Finance Montano advised projected revenue revenues are listed but are not in the budget. He further clarified this helps explain how much the Harbor Fund or the General Fund would need to contribute should the grants not materialize. Council Member Dixon requested a footnote indicated indicating a grant is projected.” Page 3 of 8, end of following paragraph: “He explained the Calfornia State Lands Commission grants the Tidelands to the City and County with the City’s portion being approximately 16% and the County’s portion 14%.” [I don’t recall what was said, but this makes little sense since 16% plus 14% adds to just 30%. Was this intended to read 86% - 14% referring possibly just to the harbor? Or are 70% of the tidelands within the City limits granted to neither the City nor the County??] Page 4 of 8, paragraph 2, sentence 3: “He clarified the that revenues coming into theTidelands fund are being used to repay the General Fund over time.” Page 5 of 8, full paragraph 3: “Director/Treasurer Matusiewicz noted the Finance Committee looks to the City Council and Public Works to identify the necessary projects, then staff can look at incremental rents and grant revenue to compliment complement General Fund contributions.” Page 5 of 8, paragraph 3 from end, sentence 2: “He reported the City receives $0.17 on the dollar of the 1% Ad Valorem Tax assessed on property values which make up 47% of General Fund revenues.” Page 5 of 8, paragraph 2 from end: “In response to Council Member Dixon’s inquiry, Finance Director/Treasurer Matusiewicz explained that due to the Wayfair decision (South Dakota v. Wayfair, Inc.) any Internet Sales goes into the County pool and the City receives approximately 5.8% of the total pool but all. All Orange County cities will benefit from the Wayfair decision but it is too early to tell how much the overall collections will offset the losses generated by online sales.” April 16, 2020, Finance Committee comments - Jim Mosher Page 3 of 4 Page 6 of 8, paragraph 5, sentence 3: “She reported Property Taxes Tax growth was 5.43% for Fiscal Year 20 which was down from 7.22% the previous year and projects 5% was is realistic for Fiscal Year 21 and should know actual numbers by the end of June.” [?] Page 6 of 8, last paragraph: “In response to Council Member Dixon’s inquiry, Senior Accountant Schweitzer clarified the City is projecting a loss drop of $1 million this year and the following fiscal year for Other Taxes and Revenues. She presented an overview of the General Fund and noted the Fiscal Year 20 updated estimate is still showing slight growth over Fiscal Year 19 at 1.42%. She noted the variance between revised Fiscal Year 21 projection is down $6.5 million from the Fiscal Year 21 original projection and the revised projections is down $6.5 million.” [I assume the statement was that Other Taxes and Revenues would be $1 million lower than in previous years, not that they would appear as a negative number. And that the last sentence is about the difference in the two projections, not a change in the variance between them – which could be the same thing, but even if so adds an unnecessary extra level of complexity to the thought.] Page 7 of 8, paragraph 2, sentence 2: “City Manager Leung advised there is are a lot of Capital Improvement Program Projects (CIP) projects and it may be necessary to pull back on some of the accelerated infrastructure projects.” [Some words seem to be missing after the “and.” I am guessing they were as indicated.] Page 7 of 8, paragraph 6, last sentence: “He advised the City would continue to focus on paying down CalPERS and OPEB liabilities since they carry at much higher interest rate rates.” Page 7 of 8, paragraph 8: “Senior Accountant Schweitzer reported 99% of the Tidelands Revenue Fund come comes from Use of Money and Property which includes Parking Meter Revenue, Lease Property, Onshore and Offshore Moorings and Slip Revenues. She noted some accounts within the Tidelands Revenue Fund are capped and anything over the established baseline goes into the Harbor Capital fund. She noted none of the accounts have been adjusted for COVID-19.” Page 7 of 8, paragraph 10, sentence 3: “She encouraged residents to spend online and ordering order take-out from local restaurants.” Page 7 of 8, last sentence: “He noted he would be developing different wording to describe his intent.” Page 8 of 8, Item D, next to last paragraph: “Jim Mosher noted all the Finance Committee meetings are scheduled at the same time as Zoning Administrator meetings.” April 16, 2020, Finance Committee comments - Jim Mosher Page 4 of 4 Item V.A PRELIMINARY COVID-19 FISCAL IMPACT ESTIMATE ON FY 2019-20 ADOPTED BUDGET As of this writing at 10:00 a.m. on April 15, no information has been posted regarding this item. It is, therefore, very difficult to provide advance comments using Option 1 on the agenda which invites the public to “submit your written comments by Wednesday, April 15, 2020, at 5:00 p.m.” Since the duration of the COVID-19 shut-down is not yet known, I imagine this preliminary estimate will be very uncertain. However, a worst case scenario assuming such things as essentially no TOT or restaurant sales tax revenue through July 1 could be presented. Item V.B COVID-19 FISCAL IMPACT ESTIMATE ON THE FY 2020-21 PROPOSED BUDGET Same comments as Item V.A. In addition, unless CalPERS was very nimble and prescient with their investments, it seems probable FY20 will not end as a stellar year for their funds, and the City will, as a result, need to plan for increased pension liability in future years. Item V.C. WORKPLAN REVIEW AND REVISED FY 2020-21 BUDGET CALENDAR Please see comment on Item III, above, suggesting a change in the hour of the Finance Committee meetings. 4/10/20 Scheduled Date Agenda Title Agenda Description Thursday, April 16, 2020 Preliminary COVID-19 Fiscal Impact Estimate on the FY 2019-20 Adopted Budget Staff will summarize the COVID19 fiscal impact estimate on the FY 2019-20 adopted budget.Preliminary COVID-19 Fiscal Impact Estimate on the FY 2020-21 Proposed Budget Staff will summarize the COVID19 fiscal impact estimate on the FY 2020-21 proposed budget Workplan Review and Revised FY 2020-21 Budget Calendar Staff will review with the committee the agenda topics scheduled for the remainder of the fiscal year and as well as the revised Fiscal Year 2020-21 Budget Calendar. Budget Amendments for Quarter Ending March 31, 2020 Staff will report on the budget amendments for the prior quarter. Tuesday, April 28, 2020 City Council Amends FY 2019-20 Budget to Reflect the Financial Impact of COVID-19 Review current year budget with recommendations for revenue and expenditure adjustments. Finance Committee Attendance Optional Thursday, April 30, 2020 Reserved if Necessary Thursday, May 14, 2020 Internal Audit Program Update Update on audit work performed to date by Moss Adams LLP (Moss Adams) that retained to assess internal control risks, conduct performance audits and management consulting services.Finance Committee 1st review of FY 2020-21 budget. Finance Committee to develop written comment on City Manager's Proposed FY 2020-21 Budget. Recommendations for changes to Proposed budget will be presented via PBR. Pursuant to Budget Policy F-3. Thursday, May 21, 2020 Finance Committee 2nd review of FY 2020-21 budget. Finance Committee to develop written comment on City Manager's Proposed FY 2020-21 Budget. Recommendations for changes to Proposed budget will be presented via PBR. Pursuant to Budget Policy F-3. Tuesday, May 26, 2020 Council Study Session - 1st Council Review of Proposed Budget (Joint Council/Finance Committee) Review Proposed FY 2020-21 Budget Thursday, May 28, 2020 Finance Committee Meets to Formulate Budget Recommendation prior to the June 9, 2020 Budget Adoption Pursuant to Budget Policy F-3. Tuesday, June 09, 2020 City Council Budget Adoption Finance Committee Attendance Optional Thursday, June 11, 2020 Internal Audit Program Update Auditors to provide an overview of enterprise risk assessments and discuss next steps Thursday, June 25, 2020 Reserved if Necessary May June April City of Newport Beach Finance Committee Work Plan 2020 I:\Users\FIN\Shared\Admin\Finance Committee\REPORTS\2020\04162020\5B_WORKPLAN\ATTACHMENTS\2020 FC Workplan 1 April 16, 2020, Finance Committee Agenda Comments These comments on items on the Newport Beach Finance Committee agenda are submitted by: Jim Mosher ( jimmosher@yahoo.com ), 2210 Private Road, Newport Beach 92660 (949-548-6229) Item III. PUBLIC COMMENTS As the notes on page 1 of the agenda indicate, the COVID-19 crisis is prompting significant changes to the conduct of the April 16 meeting, including internet live-streaming1 of the meeting from the Council Chambers with the committee members possibly appearing from unannounced virtual locations and an opportunity for members of the public to comment by phone – although the public will apparently be barred from observing or commenting from within the Council Chambers. Simultaneous with this meeting, the City’s Zoning Administrator will be conducting public hearings in the Community Room, immediately adjacent to and visible from the Council Chamber, with up to 10 members of the public admitted at a time. Considering the above, and the more general modification of work schedules prompted by the crisis, it would seem to me this would be an appropriate time to consider shifting the hour of the Finance Committee meetings to an hour that does not conflict with the Zoning Administrator meetings – say 1:00 or 5:00 p.m. That would make the Community Room available for overflow in-person participation in the meetings. Even better in my mind would be moving the meeting to an evening hour (such as 7:00 p.m.) when more of the public might be free to observe and appreciate the work of the Finance Committee. An evening hour would normally be inconvenient for City staff, but if they working from, and can appear from, home anyway, the difference in convenience and shifting their work hours would seem minimal. In addition, if the Chair can participate from home, he could be with his family, which seems to have been a motivating factor for the 3:00 p.m. hour. As to the notice on the agenda that “the City of Newport Beach has decided to not have the City Council Chambers open to the public for this meeting,” I would note that the presence around the Council Chamber of a fair amount of mask-wearing City staff seems necessary for the successful conduct of these partially virtual meetings. I believe the Finance Committee’s customary afternoon public audience of one or two attendees2 could be added to the largely vacant Council Chamber without compromising social distancing – especially if the glass doors at the rear of the Chambers are opened to allow ventilation without recirculating the air. 1 The exact URL where the live stream can be found does not appear to be indicated on the agenda. 2 Possibly less with the phone-in option. April 16, 2020, Finance Committee comments - Jim Mosher Page 2 of 4 Item IV.A. MINUTES OF MARCH 12, 2020 The Committee may wish to consider the following changes, suggested in strikeout underline format to the draft minutes passages shown in italics. Page 1 of 8 (page 4 of agenda packet), last paragraph: “MOTION: Committee Member Tucker moved to approve the minutes as presented and Committee Member Stapleton seconded. The motion carried 5 ayes – 0 noes, 1 abstention absent (O’Neill).” [As indicated under “Roll Call”, Mayor O’Neil was detained by another meeting and arrived just after the March 12 minutes had been approved.] Page 3 of 8, middle paragraph: “In response to Council Member Dixon’s inquiry, Harbor Resources Manager Chris Miller clarified grant funding can come from federal, state or local grant and grant funding is projected. Deputy Director/Finance Montano advised projected revenue revenues are listed but are not in the budget. He further clarified this helps explain how much the Harbor Fund or the General Fund would need to contribute should the grants not materialize. Council Member Dixon requested a footnote indicated indicating a grant is projected.” Page 3 of 8, end of following paragraph: “He explained the Calfornia State Lands Commission grants the Tidelands to the City and County with the City’s portion being approximately 16% and the County’s portion 14%.” [I don’t recall what was said, but this makes little sense since 16% plus 14% adds to just 30%. Was this intended to read 86% - 14% referring possibly just to the harbor? Or are 70% of the tidelands within the City limits granted to neither the City nor the County??] Page 4 of 8, paragraph 2, sentence 3: “He clarified the that revenues coming into theTidelands fund are being used to repay the General Fund over time.” Page 5 of 8, full paragraph 3: “Director/Treasurer Matusiewicz noted the Finance Committee looks to the City Council and Public Works to identify the necessary projects, then staff can look at incremental rents and grant revenue to compliment complement General Fund contributions.” Page 5 of 8, paragraph 3 from end, sentence 2: “He reported the City receives $0.17 on the dollar of the 1% Ad Valorem Tax assessed on property values which make up 47% of General Fund revenues.” Page 5 of 8, paragraph 2 from end: “In response to Council Member Dixon’s inquiry, Finance Director/Treasurer Matusiewicz explained that due to the Wayfair decision (South Dakota v. Wayfair, Inc.) any Internet Sales goes into the County pool and the City receives approximately 5.8% of the total pool but all. All Orange County cities will benefit from the Wayfair decision but it is too early to tell how much the overall collections will offset the losses generated by online sales.” April 16, 2020, Finance Committee comments - Jim Mosher Page 3 of 4 Page 6 of 8, paragraph 5, sentence 3: “She reported Property Taxes Tax growth was 5.43% for Fiscal Year 20 which was down from 7.22% the previous year and projects 5% was is realistic for Fiscal Year 21 and should know actual numbers by the end of June.” [?] Page 6 of 8, last paragraph: “In response to Council Member Dixon’s inquiry, Senior Accountant Schweitzer clarified the City is projecting a loss drop of $1 million this year and the following fiscal year for Other Taxes and Revenues. She presented an overview of the General Fund and noted the Fiscal Year 20 updated estimate is still showing slight growth over Fiscal Year 19 at 1.42%. She noted the variance between revised Fiscal Year 21 projection is down $6.5 million from the Fiscal Year 21 original projection and the revised projections is down $6.5 million.” [I assume the statement was that Other Taxes and Revenues would be $1 million lower than in previous years, not that they would appear as a negative number. And that the last sentence is about the difference in the two projections, not a change in the variance between them – which could be the same thing, but even if so adds an unnecessary extra level of complexity to the thought.] Page 7 of 8, paragraph 2, sentence 2: “City Manager Leung advised there is are a lot of Capital Improvement Program Projects (CIP) projects and it may be necessary to pull back on some of the accelerated infrastructure projects.” [Some words seem to be missing after the “and.” I am guessing they were as indicated.] Page 7 of 8, paragraph 6, last sentence: “He advised the City would continue to focus on paying down CalPERS and OPEB liabilities since they carry at much higher interest rate rates.” Page 7 of 8, paragraph 8: “Senior Accountant Schweitzer reported 99% of the Tidelands Revenue Fund come comes from Use of Money and Property which includes Parking Meter Revenue, Lease Property, Onshore and Offshore Moorings and Slip Revenues. She noted some accounts within the Tidelands Revenue Fund are capped and anything over the established baseline goes into the Harbor Capital fund. She noted none of the accounts have been adjusted for COVID-19.” Page 7 of 8, paragraph 10, sentence 3: “She encouraged residents to spend online and ordering order take-out from local restaurants.” Page 7 of 8, last sentence: “He noted he would be developing different wording to describe his intent.” Page 8 of 8, Item D, next to last paragraph: “Jim Mosher noted all the Finance Committee meetings are scheduled at the same time as Zoning Administrator meetings.” April 16, 2020, Finance Committee comments - Jim Mosher Page 4 of 4 Item V.A PRELIMINARY COVID-19 FISCAL IMPACT ESTIMATE ON FY 2019-20 ADOPTED BUDGET As of this writing at 10:00 a.m. on April 15, no information has been posted regarding this item. It is, therefore, very difficult to provide advance comments using Option 1 on the agenda which invites the public to “submit your written comments by Wednesday, April 15, 2020, at 5:00 p.m.” Since the duration of the COVID-19 shut-down is not yet known, I imagine this preliminary estimate will be very uncertain. However, a worst case scenario assuming such things as essentially no TOT or restaurant sales tax revenue through July 1 could be presented. Item V.B COVID-19 FISCAL IMPACT ESTIMATE ON THE FY 2020-21 PROPOSED BUDGET Same comments as Item V.A. In addition, unless CalPERS was very nimble and prescient with their investments, it seems probable FY20 will not end as a stellar year for their funds, and the City will, as a result, need to plan for increased pension liability in future years. Item V.C. WORKPLAN REVIEW AND REVISED FY 2020-21 BUDGET CALENDAR Please see comment on Item III, above, suggesting a change in the hour of the Finance Committee meetings. CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. -- April 16, 2020 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE FROM: Finance Department Dan Matusiewicz, Finance Director 949-644-3123 or danm@newportbeachca.gov SUBJECT: BUDGET AMENDMENTS FOR QUARTER ENDING MARCH 31, 2020 EXECUTIVE SUMMARY The purpose of this memorandum is to report on the budget amendments for the third quarter of FY 2019-20. All budget amendments are in compliance with City Council Policy F-3, Budget Adoption and Administration. DISCUSSION City Council Policy F-3, Budget Adoption and Administration, identifies how appropriations can be transferred, increased or reduced. The Finance Committee reviews a quarterly report of City Council and City Manager budget amendments including their effect on fund balance. Please find the list of budget amendments included as Attachments A. Prepared by: Submitted by: /s/ Walid Harding /s/ Dan Matusiewicz Walid Harding Dan Matusiewicz Budget Analyst Finance Director Attachments: A. Budget Amendments Fiscal Year 2019-20 Quarter Ending March 31, 2020 ATTACHMENT A BUDGET AMENDMENTS FISCAL YEAR 2019-20 QUARTER ENDING MARCH 31, 2020 BA #Date Amendment Type Fund Revenues Expenditures Net Effect on Fund Balance Increase/(Decrease)Department Explanation 025-CC 1/14/2020 City Council Measure M Fund - 185,776.70 - Public Works To transfer expenditure appropriations from the Bison Avenue Pavement Rehab Project (19R21) to the Concrete Street Pavement Repair Project (18R21). 027-CC 1/14/2020 City Council General Fund 15,000.00 15,000.00 - Fire To increase revenue estimates and expenditure appropriations from the approval and acceptance of the Hoag Memorial Hospital Presbyterian Community Benefit Program Grant to support the Fire Department's Newport Beach Surfer Awareness in Lifesaving Techniques (SALT) program. 028-CC 1/28/2020 City Council Contribution Fund 175,000.00 175,000.00 - Harbor To increase revenue estimates and expenditure appropriations to record grant revenue from State of California's Division of Boating and Waterways SAVE Grant.030-CM 1/28/2020 City Manager General Fund 2,265.00 2,265.00 - Library To increase revenue estimates and expenditure appropriations to record a donation from patrons of the Newport Beach Library. 031-CC 2/11/2020 City Council Contribution Fund 22,200.00 22,200.00 - Public Works To increase revenue estimates and expenditures to record contribution funds from Western Construction Specialist to be used towards the concrete replacement program. 032-CC 2/11/2020 City Council General Fund 75,000.00 - 75,000.00 Recreation & Senior Services To increase revenues in 0107033-511045 from the approval and acceptance of the grant from the Hoag Memorial Hospital Presbyterian Community Benefit Program to provide funding support for the OASIS Senior Center Transportation Program. 033-CC 2/11/2020 City Council Environmental Contribution Fund 1,688,731.00 1,688,731.00 - Public Works To increase revenue estimates and expenditure appropriations to record grant revenue from Newport Bay Conservancy for restoration work in Big Canyon Nature Park. 034-CC 2/25/2020 City Council Fire Equipment Fund - 254,024.62 (254,024.62) Fire To increase expenditure appropriations from unappropriated EMS Equipment Fund balance to be used towards the purchase of self- contained breathing apparatus. 035-CC 2/25/2020 City Council Water Capital Fund - 100,000.00 (100,000.00) Public Works To increase expenditure appropriations from unappropriated Water Capital Fund balance to be used toward a Professional Services Agreement with DMS Consultants Civil Engineers, Inc. for the Concrete Alley and Street Replacement Project. 036-CM 3/12/2020 City Manager General Fund 10,000.00 10,000.00 - Library To increase revenue estimates and expenditure appropriations allocated to Literacy Programming.037-CC 3/24/2020 City Council General Fund Capital Projects - 148,860.00 (148,860.00) To increase expenditure appropriations from unappropriated General Fund Capital Projects fund for traffic signal rehabilitation. 038-CC 3/24/2020 City Council General Fund 23,874.00 23,874.00 - Library To increase expenditure appropriations and record dollars received from the CA State Library for Literacy Services (CLLS). 041-CC 3/24/2020 City Council Tide & Submerged Lands Fund - 224,925.00 (224,925.00) Public Works To increase expenditure appropriations from the Tide & Submerged Lands unappropriated fund balance for the Newport Bay Water Wheel project. City of Newport Beach Budget Amendments Fiscal Year 2019-20Quarter Ending March 31, 2020