HomeMy WebLinkAboutFinance Committee - June 4, 2020CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA - Final
Council Chambers
Thursday, June 4, 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
Caitlin McCourt, Senior Pool Lifeguard
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, June 3, 2020, at 5:00 p.m.
2. In addition, members of the public can participate in this meeting in person in the Community Room. Specifically this
meeting will be viewable via video feed in the Community Room. As a member of the public, during this meeting, you
will be able to comment on specific agenda items in person from the Community Room.
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.
June 4, 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 Committee 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 MAY 21, 2020A.
Recommended Action:
Approve and file.
DRAFT MINUTES 05212020
V.CURRENT BUSINESS
RECOMMENDATION FY 2020-21 BUDGETA.
Summary:
Make final recommendation to the City Council on the City Manager's Proposed FY
2020-21 Operating and CIP Budgets.
Recommended Action:
Review, discuss, and make a recommendation to the City Council regarding the City
Manager's Proposed FY 2020-21 Budget.
STAFF REPORT
WORK PLAN REVIEWB.
Summary:
Staff will review with the Committee the agenda topics scheduled for the remainder
of the calendar year.
Recommended Action:
Receive and file.
ATTACHMENT A
June 4, 2020
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Finance Committee Meeting
VI.PUBLIC COMMENTS ON NON-AGENDA ITEMS
Public comments are invited on agenda and non agenda items generally considered to be within
the subject matter jurisdiction of the Finance Committee. Speakers must limit comments to
three (3) minutes. Before speaking, we invite, but do not require, you to state your name for the
record. The Finance Committee has the discretion to extend or shorten the speakers’ time limit
on agenda or non agenda items, provided the time limit adjustment is applied equally to all
speakers. As a courtesy, please turn cell phones off or set them in the silent mode.
VII.FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS
WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR
REPORT (NON-DISCUSSION ITEM)
VIII.ADJOURNMENT
Finance Committee Meeting Minutes May 21, 2020
Page 1 of 8
CITY OF NEWPORT BEACH
FINANCE COMMITTEE MAY 21, 2020 MEETING MINUTES
I. CALL MEETING TO ORDER
The meeting was called to order at 3:02 p.m. via teleconference.
II. ROLL CALL
PRESENT: Mayor Pro Tem/Chair Will O’Neill, Council Member Joy Brenner, Council
Member Diane Dixon (attending remotely), Committee Member William Collopy, Committee Member John Reed, Committee Member Joe
Stapleton, Committee Member Larry Tucker (attending remotely)
STAFF PRESENT: City Manager Grace K. Leung, Finance Director/Treasurer Dan Matusiewicz, Deputy Director/Finance Steve Montano, Senior Accountant
Theresa Schweitzer, Budget Analyst Amy Lewis, Budget and Acting Budget Manager Shannon Espinoza, Administrative Specialist for Finance
Director Caitlin McCourt
MEMBERS OF THE PUBLIC: Jim Mosher
III. PUBLIC COMMENTS
None
IV. CONSENT CALENDAR
MINUTES OF MAY 14, 2020
Recommended Action: Approve and file.
MOTION: Committee Member Reed moved to approve the minutes, Committee Member
Collopy seconded. The motion carried unanimously by acclamation.
V. CURRENT BUSINESS
A. INTERNAL AUDIT PROGRAM UPDATE
Summary: Update on audit work performed to date my Moss Adams LLP (Moss Adams) that was retained
to assess internal control risks, conduct performance audits and management consulting services.
Recommended Action: Review the City Manager’s proposed budget and give recommendations to the City Manager in advance of the budget’s presentation to the City Council.
Deputy Director/Finance Steve Montano reported the City’s Internal Control Auditor, Moss Adams recently completed its first draft of the Enterprise Risk Assessment which assessed the
City’s operating environment from a risk and performance perspective to develop the Internal
Audit Plan. He advised that City Manager Grace Leung and staff would be meeting with Moss Adams to discuss the findings and determine next steps. He also reported Moss Adams is
Finance Committee Meeting Minutes May 21, 2020
Page 2 of 8
reviewing the City’s internal controls to identify opportunities for strengthening and will help form the City’s long-term Audit Plan.
Deputy Director/Finance Montano advised this phase of the project began in May with expected
completion of both the Risk Assessment and the Internal Controls review by the end of June. He advised that at once completed the Internal Audit Plan will be formulated and will guide the
City’s audit activities moving forward. He reported the project is on time and within budget and will continue to provide updates as work progresses.
City Manager Leung reported the first draft was delivered a month ago but was slowed by the
COVID-19 response. She hopes to use Moss Adams to review the City’s operating efficiencies and activities as the City moves into the next phase of the budgeting process.
In response to Committee Member Collopy’s inquiry, Deputy Director/Finance Montano
clarified the Enterprise Risk Assessment and Enterprise Internal Controls Assessment will be completed in June at which time work will begin to develop the Internal Audit Plan at the end
of June.
In response to Committee Member Collopy’s inquiry, Deputy Director/Finance Montano and City Manager Leung advised Moss Adams is setting up the framework of the actual Work Plan
of the audit which will be ongoing and the size of the audit will vary.
In response to Committee Member Larry Tucker’s inquiry, Director/Treasurer Dan Matusiewicz advised the Enterprise Risk Assessment was mostly high-level interviews with department
heads and the subsequent phase consisted of high-level assessment on the internal controls. He hopes to receive a road map in June from Moss Adams that identifies the most vulnerable
areas for review.
City Manager Leung reported Moss Adams is looking broadly at External Risk, Organizational Structure and Staffing, Risk Programs, Capital Resources, and Leadership to complete their
assessment of the organization. Committee Member Tucker requested to see a more granular Internal Controls Plan once completed. He expressed his support for the assessment of the
organizational structure.
Chair O’Neill opened public comments.
Jim Mosher inquired if the Moss Adams report would be made public at the June 11th meeting. City Manager Leung responded she hopes to deliver the document by June or shortly thereafter
but could not promise a specific date.
Chair O’Neill closed public comments.
There was no further action taken on this item.
B. PROPOSED FY2020-21 BUDGET OVERVIEW
Summary: Staff will provide an overview of the Proposed FY 2020-21 Operating Budget. Recommended Action: Receive and file.
Director/Treasurer Matusiewicz reported that COVID-19 dealt a significant blow to the global
economy and the City is in the initial phases of administering financial first aid. He
acknowledged the City was in a better financial position than other cities but stressed there is much work to be done if the pandemic persists beyond the next fiscal year.
Finance Committee Meeting Minutes May 21, 2020
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Director/Treasurer Matusiewicz presented the Fiscal First Aid Roadmap which was developed by the Government Finance Officers Association (GFOA) after the last recession and reported
the City is in the Bridging Stage where short-term generic solutions are used. He advised starting July 1, the City will need to look at long-term solutions for the COVID-19 Recovery
stage.
Director/Treasurer Matusiewicz reported the City is still relying on strong Property Tax growth in this current year and continues to focus on the City’s Quality of Life and Infrastructure. He
reported the City is aggressively pursuing paying down its Unfunded Liability which represents a significant risk to the City’s financial health. He provided a review of the budget in its totality including new Capital Improvement Plan (CIP).
Director/Treasurer Matusiewicz presented on the overall Revenue and reported the City is still
looking at a 4.2% increase in Property Tax revenue and a 20% decrease in Sales Tax revenue. In response to Committee Member Collopy, Director/Treasurer Matusiewicz explained the
budget was down $1 million for FY 19/20 Property Tax and the City was accounting for potential additional Property Tax delinquencies but acknowledged that has not happened at this time.
He advised there was a slowdown in the 7th installment of Property Taxes but hopes to make up the difference on the 8th installment. Senior Accountant Theresa Schweitzer confirmed the
8th installment is July 14th, 2020.
Director/Treasurer Matusiewicz reported Transient Occupancy Tax (TOT) shows an overall 63% decrease over the next four (4) quarters and confirmed future projections is an educated
guess based on conversations with hoteliers.
Chair O’Neill clarified due the variances the TOT is down almost 75% which is significant and the same is true for Sales Tax which is down $7 million. Chair O’Neill requested City Council
be presented the variance numbers as compared to the original FY 19/20 Budget or the Actual FY 19/20 Budget as it shows the more severe drop. Committee Member Collopy suggested
the variances be shown by Quarter.
Director/Treasurer Matusiewicz stated General Fund revenues were projected to be $242 million but is now projected to be $199 million. He reported a $5 million transfer to the Capital
Program and various transfers in and out of the General Fund left an approximately $33 million shortfall but various short-term remedies have been used to close that gap. Director/Treasurer Matusiewicz reported the budget includes built-in Internal Service Charges
to set aside monies for future use. He reported it was initially thought $10 million would need to be taken from Contingency Reserves but was lowered to $2.3 million which includes the
additional $5 million payment to CalPERS. He reported the City is proposing to use $2.3 million of the Contingency Reserve and there is another $50 million available to bridge the gap or buy
the City time if the pandemic continues into the future.
In response to Chair O’Neill’s inquiry, Director/Treasurer Matusiewicz explained the $52.4 million is 25% of the Operating Budget less the Discretionary Payments Fund and clarified how
the $52.4 million was calculated for Committee Member Tucker.
In response to Chair O’Neill’s inquiry, Director/Treasurer Matusiewicz clarified the Contingency Reserved is based on the General Fund Operating Budget. Acting Budget Manager Shannon
Espinoza clarified FY 20/21 General Fund Expenditures by Department is $219.8 million. Chair O’Neill clarified the proposed General Fund Revenue is $199.5 million but the proposed
General Fund Expenditures is $219.8 million but does not include transfers out to other Master Plans and requested clarification.
In response to Chair O’Neill’s inquiry, Director/Treasurer Matusiewicz explained the $20 million
gap. He explained the proposed General Fund Revenue is $199.5 million and if all of the
Finance Committee Meeting Minutes May 21, 2020
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transfers and Internal Service Fund were included, General Fund Expenditures would be $240 million. He reported the transfers have been reduced as well as some savings plans and in
some cases money has been transferred back to the General Fund. Chair O’Neill noted he needs to be able to explain the $20 million gap.
Director/Treasurer Matusiewicz reported on solutions for bridging the $20 million gap which
would include $2.9 million netted from operating cuts in Tier 1, $2 million in hiring freezes from Tier 2, and a $21 million reduction in deferred Capital spending from Tier 3 which is almost $25
million.
In response to Chair O’Neill’s inquiry, Acting Budget Manager Espinoza clarified the $219 million in General Fund Expenditures includes Tier 1, Tier 2 and Tier 3 already being reduced.
She clarified the transfer’s in and out on Page 45 of the Proposed Budget is included in the tiers Director/Treasurer Matusiewicz referenced to bridge the gap.
In response to Chair O’Neill’s inquiry, Director/Treasurer Matusiewicz clarified $5 million of
funding to the General Fund Capital Projects Program was included and any transfers to the Master Plans are not included for the Operating Expenditures. Director/Treasurer Matusiewicz
further clarified if Tier 1 through Tier 4 were combined and $2.3 million was used from Tier 5, it would total $32.3 million.
In response to Chair O’Neill’s inquiry, Director/Treasurer Matusiewicz clarified the Operating
Expenditures are deceiving because they do not include the traditional transfers to the Master Plans necessitating the $33 million. Director/Treasurer Matusiewicz commented he would be
working on developing a better plan.
Chair O’Neill explained when trying to bridge the gap between budgets the summary of all funds must be taken into account. Director/Treasurer Matusiewicz explained the confusion
may be the transfers in and out as they show a net. He further explained the difference between Revenues and Operating Revenue is $20 million and if the transfers to the other funds are
included, it is an additional $20 million.
Committee Member Tucker explained paying Operating Expenses is not optional. He explained the report is using margin for things that would normally be funded by the General
Fund. Director/Treasurer Matusiewicz responded these are short-term savings and not long-term remedies. Committee Member Tucker hoped to better understand what the City’s long-
term sustainable numbers would be in the next couple of months.
Chair O’Neill commented the report shows FY 18/19 Revenues as $229.8 million and the General Expenditures and $208 million but knows there was not a $21 million surplus for that
year. Acting Budget Manager Espinoza clarified the $229.8 million represents all funds and the $208 million represents General Fund Only Expenditures. Committee Member Tucker
agrees there is additional General Fund monies that were spent but are not in the report.
Budget Analyst Amy Lewis clarified Page 37 does not include the transfers, but Page 40 reflects like-for-like General Fund Revenue at $214 million. Chair O’Neill commented the report needs
a better break down which explains how the gap is broken down in detail. He advised this is the first time he has ever seen a Proposed General Fund Expenditure that is higher than the General Fund Revenue. Director/Treasurer Matusiewicz explained the target differential is $30 million.
City Manager Leung explained FY 19/20 Actual General Fund Revenues were $230 million
and the proposed General Fund Revenue for FY 20/21 is $200 million which leaves a $30
million loss and the Operating Budget is only being cut by $5 million. She explained it is being shored up by transfers until there is a full understanding of the financial impact.
Finance Committee Meeting Minutes May 21, 2020
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Council Member Dixon suggested presenting two (2) different schedules; one that includes the transfers and one that does not. Chair O’Neill requested the Proposed Budget be made less
difficult to interpret for the City Council and the public. Director/Treasurer Matusiewicz explained there are many moving parts with this Proposed Budget and will work to develop a
better interpretation.
Director/Treasurer Matusiewicz presented the proposed Capital Project that would continue and be placed on hold until FY 21/22. In response to Committee Member Collopy’s inquiry,
Director/Treasurer Matusiewicz confirmed City Council has already reviewed the list of proposed CIPs. He explained the Proposed Budget includes transfers of $1 million to the
Facilities Maintenance Plan (FMP)), zero allocation to the Facilities Financial Plan (FFP), $5 million to Capital Improvement Program (CIP), and advised these transfers are not reflected as
an operating expenditure.
Director/Treasurer Matusiewicz reported on Savings Reductions and noted Internal Service Charges are reflected in the Operating Budget. He reported $5 million of the Savings
Reduction would be returned to the General Fund. Lastly, he reported the Proposed Budget reflects $50 million in Contingency Reserves which is within $2.3 million of its target.
Director/Treasurer Matusiewicz reported on Department Expenditures has increased mainly
due to the Flores vs. City of San Gabriel case which increased overtime. He reported an increase of one (1) Police Officer position is also reflected and happened in FY 19/20.
In response to Committee Member Collopy’s inquiry, Director/Treasurer Matusiewicz reported
the Police Department staffing level fluctuates every fiscal year. Acting Budget Manager Espinoza clarified there were many vacancies in FY 19/20 but the Police Department is now
almost fully staffed.
In response to Committee Member Collopy inquiry, Acting Budget Manager Espinoza was unable to determine if there were 231 or 232 staffed positions in the Police Department and
advised she will follow up with Human Resources. He suggested staffing below 100% given the current situation. Chair O’Neill clarified the Police Department is usually staffed at 100%
but all vacancies are not always filled. Director/Treasurer Matusiewicz reported $2 million in salary savings was included in the Proposed Budget.
City Manager Leung advised departments were beginning to prepare budgets when COVID-
19 struck which resulted in a hard stop of the budget process in order to begin the enhancement process. She reviewed the required items in the Proposed Budget which includes adjustments
for overtime pay due to the verdict in the Flores vs. City of San Gabriel case and Paramedic School for the Fire Department. She also explained there are some necessary positions that
are part-time or funded through specialized funds and are required due to the nature of the work. Lastly, she reported a new 10-year Street Sweeping contract was included in the budget.
Director/Treasurer Matusiewicz reported there is still a robust Capital Improvement Program
(CIP) in the proposed budget and recapped several projects included the construction of Fire Station 2 and Grant Howald Park. He advised Fire Station 2 will be financed to give the City
much needed breathing room. Chair O’Neill reported City Council approved the concept of financing Fire Station 2 by a vote of 6-0. Director/Treasurer Matusiewicz reported there were other funds which reflect reduced revenue
estimates. He noted that some Master Plans had reduced revenues but also had reduced project expenditures. He reported the transfer into the Master Plans was decreased by $1
million. He noted the graph reflects Master Plan funds pre- and post- COVID-19 and explained
there is $13 million more in Harbor and Beaches Master Plan than what is reflected in the report. He noted the budget is being balanced by reducing Capital funding and reducing Capital spending. Chair O’Neill requested a simplified report be prepared for City Council review.
Finance Committee Meeting Minutes May 21, 2020
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Committee Member Collopy requested Director/Treasurer Matusiewicz develop a simplified report quickly so it can be reviewed.
Director/Treasurer Matusiewicz discussed the Additional Discretionary Payment (ADP) to
CalPERS and explained the City likes to keep the payment below $35 million and recapped discussions to use Surplus Revenue to pay down the debt. He hopes to send CalPERS the
first $5 million in the next six (6) months and revisit the additional payments down the road.
In response to Chair O’Neill’s inquiry, Director/Treasurer Matusiewicz explained the $5 million ADP will come from reserved funds but still requires City Council approval. Chair O’Neill
recapped the report and noted the Proposed Budget shows expenditures of $219.8 million and a $5 million CIP transfer which is $224.8 million. Director/Treasurer Matusiewicz explained
how the $5 million ADP and is entered in the Proposed Budget. Chair O’Neill requested Director/Treasurer Matusiewicz be prepared to explain he used Generally Accepted
Accounting Principles (GAAP) properly when reconciling the $5 million.
Committee Member Collopy suggested reporting on All Funds to make the report easier to understand. In response to Committee Member Collopy’s inquiry, Director/Treasurer
Matusiewicz reported the ADP in FY 19/20 is $8.8 million based on an expected 7% rate of return for future years. He further explained the ADP in FY 20/21 is $5.246 million to cover
past liabilities and the $5 million is anticipatory of future capital market losses. He advised CalPERS has projected investment returns for the next 10-years to be approximately 6%.
Director/Treasurer Matusiewicz clarified the outlook was discussed in a November Finance
Committee meeting and it was agreed up to review annually but is based on a five (5) year outlook. He explained CalPERS new amortization assumes 20 years repayment starting three
(3) years out.
In response to Committee Member Collopy’s inquiry, $5.3 million from the Proposed Budget is allocated to ADP payments and the additional $5 million is being reserved. He clarified the
ADP of $10.3 million only includes $2.5 million from actual reserves.
Director/Treasurer Matusiewicz recapped the next milestones which includes creating a new presentation by May 26, 2020 for City Council review. Chair O’Neill suggested rescheduling
the next meeting to June 4th to allow additional time for Finance Committee to review the Proposed Budget and was agreed upon by all.
In response to Committee Member Stapleton, Director/Treasurer Matusiewicz explained the
he is unsure if the COVID-19 pandemic will financially similarly to the Great Recession of 2008.
In response Committee Member Reed, Director/Treasurer Matusiewicz was unable to answer if City Council would provide any financial assistant to local small businesses.
In response to Council Member Dixon’s inquiry, City Manager Leung reported COVID-19
related expenses are reimbursable from the Federal Emergency Management Agency (FEMA). She reported the Orange County Board of Supervisor allocated Coronavirus Aid, Relief, and
Economic Security (CARES) Act funding to reimburse City’s from that funding and are in current discussions to determine what would be reimbursable. She also explained any expense not reimbursed through FEMA or CARES would be an additional expense for the City.
Committee Member Tucker thanked staff for their report and is hopeful the next revision of the report is easier to follow.
Chair O’Neill opened public comments.
Finance Committee Meeting Minutes May 21, 2020
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Jim Mosher commented it would be helpful to the public if the Finance Committee had explained the budget had been posted. He also reported the agenda overlooked public
comments on non-agenda items and needs to be added into future agendas.
Chair O’Neill closed public comments.
There was no further action taken on this item.
C. WORKPLAN REVIEW
Summary: Staff will review with the Committee the agenda topics scheduled for the remainder of the
calendar year. Recommended Action:
Receive and file.
Chair O’Neill reported there may be a Finance Committee on June 11th and 25th but is dependent on budget review.
Chair O’Neill opened public comments.
Mr. Mosher inquired if the Finance Committee will be taking their usual break during the
summer given the review of the Revised Budget in July. Chair O’Neill responded that the topic will be discussed at the next Finance Committee.
Chair O’Neill closed public comments.
Chair O’Neill acknowledged there was no public comment period for non-agenda items and
opened public comments.
Mr. Mosher commented the meeting was not live-streamed although he believed that was the original intention. He also commented there was confusion regarding the meeting location
which was not noted on the agenda.
Chair O’Neill closed public comments.
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 4:53 p.m. to the next regular meeting of the Finance Committee on June 4, 2020 at 4:00 p.m. Filed with these minutes are copies of all materials distributed at the meeting.
The agenda for the Regular Meeting was posted on Thursday, May 14th, at 4:20 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.
Finance Committee Meeting Minutes May 21, 2020
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Attest:
___________________________________ _____________________ Will O’Neill, Chair Date
Finance Committee
June 4, 2020, Finance Committee Agenda Comments
These comments on an item on the Newport Beach City Council Finance Committee agenda are
submitted by: Jim Mosher ( jimmosher@yahoo.com ), 2210 Private Road, Newport Beach 92660
(949-548-6229)
Item IV.A. MINUTES OF MAY 21, 2020
Changes to the draft minutes passages shown in italics are suggested in strikeout underline format.
Page 1, Item I: “The meeting was called to order at 3:02 p.m. in the City Council Chambers
with some members attending via teleconference.”
Page 1, Item II. ROLL CALL – STAFF PRESENT: “…, Budget and Payroll Supervisor and
Acting Budget Manager Shannon Espinoza, …” [?]
Page 1, Item V.A – Summary: “Update on audit work performed to date my by Moss Adams …”
Page 1, Item V.A – Recommended Action: “Review the City Manager’s proposed budget
and give recommendations to the City Manager in advance of the budget’s presentation
to the City Council Discuss and provide input for City Council consideration.”
Page 2, first full paragraph, sentence 2: “He advised that at once completed, the Internal Audit
Plan will be formulated and will guide the City’s audit activities moving forward.”
Page 3, paragraph 2, last sentence: “He provided a review of the budget in its totality including
the new Capital Improvement Plan (CIP).”
Page 3, paragraph 5, first sentence: “Chair O’Neill clarified due to the variances the TOT is
down almost 75% which is significant and the same is true for Sales Tax which is down $7
million.” [or “from the variances”?]
Page 3, paragraph 7, sentence 2: “He reported it was initially thought $10 million would need to
be taken from Contingency Reserves but was lowered to $2.3 million which includes without
suspending the additional $5 million payment to CalPERS.” [$2.3 million could not,
mathematically, “include” $5 million. I assume the statement was that $2.3 million was the
projection with the $5 million item left in the budget?]
Page 3, paragraph 10: “In response to Chair O’Neill’s inquiry, Director/Treasurer Matusiewicz
explained the $52.4 million of General Fund Discretionary Reserves is 25% of the Operating
Budget less the Discretionary Payments Fund and clarified how the $52.4 million was calculated
for Committee Member Tucker.” [This seems to have been a reference to the item so-labeled in
the “Tiered Short-term Budgetary Solutions” slide.]
Page 3, paragraph 11, sentence 1: “In response to Chair O’Neill’s inquiry, Director/Treasurer
Matusiewicz clarified the Contingency Reserved Reserve is based on the General Fund
Operating Budget.” [alternatively, if the verb was intended: “contingency reserved” (lower case)]
Page 4, complete paragraph 2, sentence 2: “She clarified the transfer’s transfers in and out
on Page 45 of the Proposed Budget is included in the tiers Director/Treasurer Matusiewicz
referenced to bridge the gap.”
June 4, 2020, Finance Committee Item IV.A comments - Jim Mosher Page 2 of 3
Page 4, complete paragraph 7, sentence 1: “Chair O’Neill commented the report Proposed
Budget shows FY 18/19 General Fund Revenues as $229.8 million and the General Fund
Expenditures and as $208 million but knows there was not a $21 million surplus for that year.”
Page 4, complete paragraph 7, sentence 2: “Acting Budget Manager Espinoza clarified the
$229.8 million represents all funds and the $208 million represents General Fund Only
Expenditures.” [note: the 229,812,593 appears on page 24 of the Proposed Budget book and is
labeled “TOTAL GENERAL FUND” revenue. The 208,164,257 is from page 40 and labeled
“General Fund Operating Budget”. Both are labeled “2018-19 Actual”.]
Page 5, paragraph 1, sentence 2: “Director/Treasurer Matusiewicz explained there are many
moving parts with this Proposed Budget and he will work to develop a better interpretation.”
Page 5, paragraph 2, sentence 1: “Director/Treasurer Matusiewicz presented the proposed
Capital Project capital projects that would continue and those that would be placed on hold
until FY 21/22.”
Page 5, paragraph 2, sentence 3: “He explained the Proposed Budget includes transfers of $1
million to the Facilities Maintenance Plan (FMP)), zero allocation to the Facilities Financial Plan
(FFP), $5 million to the Capital Improvement Program (CIP), and advised these transfers are
not reflected as an operating expenditure.”
Page 5, paragraph 4, sentence 1: “Director/Treasurer Matusiewicz reported on Department
Expenditures has increased mainly due to the Flores vs. City of San Gabriel case which
increased overtime.”
Page 5, paragraph 6, sentence 1: “In response to Committee Member Collopy Collopy’s
inquiry, …”
Page 6, paragraph 3, sentence 3: “Director/Treasurer Matusiewicz explained how the $5 million
ADP and is entered in the Proposed Budget.”
Page 6, paragraph 5, sentence 1: “Director/Treasurer Matusiewicz clarified the outlook was
discussed in a November Finance Committee meeting and it was agreed up to review annually
but is based on a five (5) year outlook.”
Page 6, paragraph 7, sentence 2: “Chair O’Neill suggested rescheduling the next meeting to
June 4th to allow additional time for the Finance Committee to review the Proposed Budget and
it was agreed upon by all.”
Page 6, paragraph 8: “In response to Committee Member Stapleton, Director/Treasurer
Matusiewicz explained the he is unsure if the COVID-19 pandemic will be financially similarly
similar to the Great Recession of 2008.”
Page 6, paragraph 9: “In response Committee Member Reed, Director/Treasurer Matusiewicz
was unable to answer if City Council would provide any financial assistant assistance to local
small businesses.”
Page 6, paragraph 10, sentence 2: “She reported the Orange County Board of Supervisor
allocated Coronavirus Aid, Relief, and Economic Security (CARES) Act funding to reimburse
June 4, 2020, Finance Committee Item IV.A comments - Jim Mosher Page 3 of 3
City’s cities from that funding and are in current discussions to determine what would be
reimbursable.”
Page 7, Item C, paragraph 1 of text: “Chair O’Neill reported there may be a Finance Committee
meeting on June 11th and 25th but that is dependent on budget review.”
Page 7, paragraph 3, sentence 2: “Chair O’Neill responded that the topic will be discussed at
the next Finance Committee meeting.”
Page 7, Item VII, paragraph 1: “The Finance Committee adjourned at 4:53 p.m. to the next
regular meeting of the Finance Committee on June 4, 2020 at 4:00 3:00 p.m.” [?]
CITY OF NEWPORT BEACH FINANCE COMMITTEE
STAFF REPORT
Agenda Item No. 5A
June 4, 2020
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Dan Matusiewicz, Finance Director and City Treasurer 949-644-3123, dmatusiewicz@newportbeachca.gov
SUBJECT: Final Recommendation to the City Council Regarding the City
Manager’s Proposed FY 2020-21 Operating and CIP Budgets
SUMMARY: Per Council Resolution No. 2018-71, the Finance Committee is responsible for reviewing
and recommending the operating portion of the City Manager’s proposed budget,
excluding the Proposed Budget Revisions (formerly called the budget checklist) to the
City Council for approval. The Finance Committee members sought to gain context and understanding of the City’s financial position.
RECOMMENDED ACTION:
Review, discuss, and make a recommendation to the City Council regarding the City Manager's Proposed FY 2020-21 Budget.
DISCUSSION:
The annual budget serves as the foundation for financial planning and control and allows the City Council to prioritize expenditures in alignment with community values. The budget as submitted includes:
• The FY 2020-21 Proposed Budget is balanced and relies on a number of short
term tiered budgetary solutions. • The Proposed Budget assumes strong property tax growth rate while most other revenue is flat or significantly reduced.
• Budget maintains current service levels - continued focus on enhancing the
community’s quality of life and safety to the extent possible.
Final Recommendation to the City Council Regarding the City Manager’s Proposed FY 2020-21 Operating and CIP Budgets
June 4, 2020 Page 2
• Temporary suspension of funding infrastructure master plans and neighborhood
enhancement projects.
• Continued aggressive payment schedule of unfunded pension liability, still a
significant risk to financial health.
The City Manager’s FY 2020-21 Proposed Budget assumes that the decline in revenues
will be significantly impaired for the entire fiscal year. Due to the significant uncertainty,
the proposed budget has tried to build in flexibility through a “tiered” budget solution
approach should assumptions prove too optimistic.
Prior to making any recommended budget adjustments, we anticipate a budgetary
shortfall of approximately $33.2 million. To balance the projected deficit, a short-term or
"bridge" solution was developed that relies on a combination of targeted reductions in
operating accounts with underutilization trends, deferred capital project spending,
reduced transfers to other funds and a partial suspension of the City’s discretionary pension payment to CalPERS, pending Council reinstatement if the fiscal outlook
improves. This approach has been developed in recognition of an abrupt budget chasm
that we do not yet know the depth and length. Due to the City’s long-term planning
practices, short-term adjustments are available to provide us time to determine the longer-
term impacts and develop service level adjustments, including changes to personnel and service delivery models, if necessary. This will prevent us from having to make
unnecessarily deep City service cuts in the near-term that severely impact the community
and the organization.
While some budgetary challenges can be absorbed by temporary cost cutting, opportunities to cut such things as salaries and benefits, and professional contract
services expenditures, take time to evaluate, prioritize and implement, especially in order
to understand the full-service level impacts of these actions. Barring a structural deficit
that would necessitate a permanent shift in the City’s service delivery model, the
Contingency Reserve, upon Council direction, is recommended to be used in lieu, or in concert with, spending cuts in this extreme event we find ourselves in. However, this
strategy will be reevaluated as the year progresses.
Pursuant to Section 1102 of the Newport Beach City Charter, and Council Policy F-3 titled
Budget Adoption and Administration, the Proposed CIP and Operating Budget for the 2020-21 fiscal year was first submitted to the City Council and made available to the
public on May 21, 2020. Per Council Resolution No. 2018-71, the Finance Committee is
responsible for reviewing and recommending the operating portion of the City Manager’s
proposed budget, excluding the Proposed Budget Revisions (formerly called the budget
checklist) to the City Council for approval. The Finance Committee members sought to gain context and understanding of the City’s financial position.
The Finance Committee reviewed the funded status of the City’s pension plan, its latest
valuation and considered pension funding recommendations for Fiscal Year 2020-21 on
Final Recommendation to the City Council Regarding the City Manager’s Proposed FY 2020-21 Operating and CIP Budgets
June 4, 2020 Page 3
November 24, 2019; reviewed the City’s Other Post-Employment Benefit (OPEB) plan
valuation and recommended funding on January 16, 2020; reviewed the City’s Long
Range Financial Forecast update on February 13, 2019; reviewed the contours of the
Public Works Department FY 2019-20 budget to inform the Committee’s understanding
of its operation in advance of the FY 2020-21 budget presentation on February 13, 2020; reviewed a draft of the Facilities Financial Plan on February 13, 2020; reviewed a draft
the Harbor and Beaches Master plan on March 12, 2020; received an overview of revenue
assumptions for the FY 2020-21 Proposed Budget on March 12, 2020; reviewed a
summary of the COVID-19 fiscal impact estimate on the FY 2019-20 and FY 2020-21
budgets on April 16, 2020; reviewed the FY 2020-21 Proposed budget on May 14 and 21, 2020; and participated in a joint meeting with the City Council on May 26, 2020 to
review the proposed budget.
The Finance Committee is encouraged to offer any comments, perspectives and
recommendations on the upcoming decision(s) of the City Council relating to the Budget.
Prepared and Submitted by:
/a/ Steve Montano _____________________________
Steve Montano
Deputy Finance Director
6/1/20
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 was retained to assess internal control risks, conduct performance audits and management consulting services.
MEETING CONTINUED TO MAY
21, 2020
Finance Committee 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 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 - 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.
Thursday, June 04, 2020 Recommendation FY 2020-21 Budget Make final recommendation to the City Council on the City Manager's
proposed FY 2020-21 Operating and CIP Budgets. Work Plan Review Staff will review with the Committee the agenda topics scheduled for the
remainder of the calendar year.
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
MEETING CONTINUED TO JUNE
25, 2020
Thursday, June 25, 2020 Reserved if necessary
City of Newport Beach Finance Committee Work Plan 2020
April
May
June
C:\Users\cmccourt\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\QCSFWMWQ\Copy of 2020 FC Workplan 1