Loading...
HomeMy WebLinkAboutApproved Minutes - November 19, 2020Finance Committee Meeting Minutes November 19, 2020 Page 1 of 7 CITY OF NEWPORT BEACH FINANCE COMMITTEE NOVEMBER 19, 2020 MEETING MINUTES I. CALL MEETING TO ORDER The meeting was called to order at 3:03 p.m. via teleconference. II. ROLL CALL PRESENT: Mayor/Chair Will O’Neill, Mayor Pro Tem Brad Avery (joined via telephone 4:07 p.m.), Council Member Joy Brenner, Committee Member William Collopy, Committee Member John Reed, Committee Member Joe Stapleton, and Committee Member Larry Tucker ABSENT: None. STAFF PRESENT: City Manager Grace K. Leung, Assistant City Manager/Interim Finance Director/Treasurer Carol Jacobs, Deputy Director/Finance Steve Montano, Administrative Specialist to the Finance Director Marlene Burns, Public Works Finance/Administrative Manager Angela Crespi, Human Resources Director Barbara Salvini, Finance Revenue Manager Evelyn Tseng, Recreation and Senior Services Director Laura Detweiler, Fire Senior Fiscal Clerk Lili Melero, Fire Administrative Manager Mary Locey, IT Supervisor Avery Maglinti, Payroll Specialist Rochelle Myers, Budget Manager Shannon Espinoza, Budget Analyst Amy Lewis, and Senior Accountant Theresa Schweitzer MEMBERS OF THE PUBLIC: Riley Hayes, Charles Klobe, Terry Mag, Dan Matusiewicz, Jim Mosher, Wally Ritchie, and Nancy Scarbrough III. PUBLIC COMMENTS Jim Mosher inquired about Assistant City Manager/Interim Finance Director/Treasurer Carol Jacobs’ qualifications to run the Finance Department. He also inquired why the Deputy Director was not acting as the Interim Finance Director/Treasurer since the role acts on behalf of the Finance Director and noted succession plans should have identified this step. He acknowledged the decision to terminate Finance Director/Treasurer Matusiewicz was solely at the discretion of the City Manager and commented the Treasurer position was one of four positions that were to be appointed by the City Council which only happened during the first few years under the current City Charter. Charles Klobe seconded Mr. Mosher’s comments. He noted he was only able to see six (6) of the Committee Members on the screen. He commented that he asked for a copy of the Moss Adams presentation at the last meeting and noted Mayor/Chair O’Neill commented a copy of the presentation would be attached to the minutes but they are not attached and would still like a copy of the presentation. Mayor/Chair O’Neill requested Mr. Klobe receive a copy of the presentation. Administrative Specialist to the Finance Director Marlene Burns confirmed she emailed the presentation to Mr. Klobe immediately following the presentation and will check the email she has on file for him. Nancy Scarbrough commented the City of Costa Mesa voted to approve the homeless shelter on November 18 and, for the publics’ information, requested additional information regarding the budget source for the required $1.6 million payment to Costa Mesa. Finance Committee Meeting Minutes November 19, 2020 Page 2 of 7 In response to Ms. Scarbrough’s inquiry, Mayor/Chair O’Neill reported the City Council agenda would be available today and would contain the financial breakdown of the $1.6 million payment to Costa Mesa. IV. CONSENT CALENDAR MINUTES OF SEPTEMBER 24, 2020 Recommended Action: Approve and file. Mayor/Chair O’Neill called for public comments and hearing none, closed the public comments. MOTION: Committee Member Reed moved to approve the minutes, as amended, seconded by Committee Member Stapleton. The motion carried 6 ayes – 0 noes – 1 absent (Avery, joined meeting at 4:07 p.m.). V. CURRENT BUSINESS A. CALPERS UPDATE Summary: Staff will present the latest actuarial valuation changes to actuarial assumptions, a review of investment returns, the potential impact of future rates, and the results of employee cost sharing. Recommended Action: Receive and file. City Manager Grace Leung provided a brief overview of the CalPERS update and noted the Annual Valuation Report received in July has data as of June 30, 2019. She reported there is a two-year gap and CalPERS uses that data to set up the rates utilized for FY 2021/22. City Manager Leung reported the Investment return for June 2, 2019, was 6.7% and was just below the Assumed Rate of 7.0%. She presented CalPERS History of Investment Returns and noted the Assumed Rate has been slowly stepping down since 2000. She reported CalPERS continues to look at their asset allocation and there may be a further adjustment downwards. She noted the City’s CalPERS Actuary Kerry Worgan believes the Assumed Rate could come down to 6.75%. In response to Committee Member Collopy’s inquiry, Budget Manager Espinoza reported CalPERS is still completing the study to determine what is making up the potential 6.75% Assumed Rate. City Manager Leung noted there was general concern about the risk of their portfolio and suspects CalPERS will be looking to lower the Assumed Rate to 6% incrementally. City Manager Leung reported on the 3-year Unfunded Accrued Liability (UAL) and noted the City’s Accrued Liability went up 3.7% and reported the Funded Status also grew. She reported on Plan Maturity Measures and noted the City is an older city with many employees which also means many more retirees. She advised the ratio of Retiree Accrued Liability to Total Accrued Liability is 57% for Miscellaneous and 71% for Safety which falls in line with a mature plan. City Manager Leung reported on Pension Tiers over time and noted large growth in the number of employees enrolled in the Public Employees’ Pension Reform Act (PEPRA) pension plan. She commented the PEPRA formula is much more financially sustainable as it is a lower formula calculation and noted Total Personal Wages are capped at $153,671 and grows with Consumer Price Index (CPI). In response to Committee Member Tucker’s inquiry, City Manager Leung reported the cap on Total Personal Wages only applies to those in PEPRA. Finance Committee Meeting Minutes November 19, 2020 Page 3 of 7 City Manager Leung reported on Discount Rate Sensitivity and noted if CalPERS reduces the assumed discount rate to 6%, the City’s UAL would grow by $137 million and would require approximately $19 million annually to pay down. She estimates the City will see a 2020 Expected Investment Loss of $16.52 million. She noted the City will see Unfunded Liabilities fully funded after 2034 and commented the City is in a good place with UAL due to maintaining the required payments. City Manager Leung reported on Amortization Schedules and noted the UAL will largely be paid (97% funded) by 2034 if current assumptions hold. She also presented a variety of payment options to the Finance Committee. City Manager Leung presented Orange County Comparisons of UAL for other cities which shows the Newport Beach was one of the few cities in which the UAL went down. City Manager Leung summarized that the Return Rate is the biggest area of concern for the City and is looking forward to receiving the details of the Experience Study. She noted the CalPERS Actuary has seen a 16% increase in the Mortality Rate in the last year and commented she is interested to see the final rate. She recommends the City consider a $40 million total contribution as part of the budget development. Committee Member Collopy recommends starting the baseline at $40 million. Mayor/Chair O’Neill commented the Finance Committee would be discussing recommending the City Council authorize the additional $5 million. Mayor/Chair O’Neill clarified $5 million was held back this year as part of the City’s tiered approach in the event the economy was worse than anticipated. City Manager Leung advised the $5 million was set up in a separate restricted Reserve Fund which would need to be appropriated as an additional UAL payment. In response to Committee Member Collopy’s inquiry, City Manager Leung clarified $35 million was paid to CalPERS and the remaining $5 million was placed in a restricted Reserve Fund. Committee Member Collopy inquired if the City could afford to pay $45 million next year. Mayor/Chair O’Neill clarified the Finance Committee would be discussing whether to use the $5 million that is being held in the current fiscal year. Mayor/Chair O’Neill clarified $35 million was budgeted and the $5 million is being held in reserve and could be used to either to backfill General Fund revenue shortfall or used to supplement the planned UAL payment of $35 million this fiscal year. Committee Member Collopy stated his recollection of the $5 million for the record. Mayor/Chair O’Neill opened public comments. Mr. Klobe recommends using the $5 million in this budget year if possible and continue at the recommended $40 million pace. He commented that State of California Auditor shows Newport Beach as being ranked at 104th of 453 cities with the City’s Pension Funding, Pension Obligations, and Pension Costs being identified as high-risk. He expressed concern the City is painting a better picture to residents than what the State Auditor is presenting. Ms. Scarbrough inquired why Irvine is doing so much better than Newport Beach about the change in UAL from 2018 to 2019 depicted in the Orange County Comparison table in City Manager Leung’s report. She encouraged communication between the two cities for learning opportunities. Chair O’Neill opened public comments. In response to Mr. Kolbe’s comments, Mayor/Chair O’Neill commented the City is not painting a rosy picture of itself. He also noted Newport Beach cannot be compared to other cities that Finance Committee Meeting Minutes November 19, 2020 Page 4 of 7 do not have the Fire Department or Sherriff Department’s Unfunded Liability on the books because they are contracted with Orange County Fire Authority (OCFA) or with the Orange County Sheriff’s Department (OCSD). He commented the City is getting ahead of it through Additional Discretionary Payments (ADP). In response to Ms. Scarbrough’s inquiry, City Manager Leung reported she worked in Irvine’s Finance Department before coming to Newport Beach and reported they do ADP to pay down their UAL. She reported Irvine is a much younger plan than Newport Beach, did not go into CalPERS until 2000, and contracts out for many of its services such as Fire, Library, and Utilities. Committee Member Tucker requested City Manager Leung send the Finance Committee the valuations for both the Safety and Miscellaneous Plans for June 30, 2019. Administrative Specialist to the Finance Director Marlene Burns reported they could be found on the City’s website. There was no further action taken on this item. B. FISCAL YEAR 2019-20 AND FISCAL YEAR 2020-21 FINANCIAL UPDATES Summary: Staff will provide a fiscal year ending June 30, 2020, and first quarter FY 2020-21 budget performance update. Recommended Action: Receive and file. Deputy Director/Finance Steve Montano provided a brief update of the fiscal year ending June 30, 2020, and first quarter FY 2020-21 budget performance. He reported the economy has improved in recent months and the City is exceeding its revenue expectations in absolute terms, however, the City is realizing less revenue overall when compared to prior years. He reported General Fund Revenue actuals through September are $5.8 million which is $4 million less than the same time in FY 2019 due to a sharp decline in spending on certain goods and services and specifically for Newport Beach, a decline in Leisure, Travel and Restaurant sectors of the economy. Deputy Director/Finance Montano reported FY 2019-20 General Fund Revenues at $229.8 million, $10.9 million higher than projected, including in almost all categories. He reported General Fund revenues for the first quarter FY 2020-21 are $3.2 million higher than projected. He reported Property Taxes are the least affected revenue source by the pandemic and finished the year strong at $5 million over the prior year. He reported FY 2020-21 Property Taxes are $292,000 less than projected for the quarter due to the first three unsecured property tax payments coming in less than projected. Deputy Director/Finance Montano reported Supplemental Taxes were down significantly for the first quarter. However, he noted the November payments are up 43% over the prior year and feels it bodes well for secured property taxes over the next year. He advised the City will get a better sense of Property Tax when the tax receipts are realized in mid-late December. In response to Committee Member Collopy’s inquiry, Deputy Director/Finance Montano reported the City has always relied on the first large payment of Property Taxes in December as a good indicator of how the budget is going to end up and noted it is probably the least affected by the pandemic. He advised there is usually an 18-month lag from valuation assessment to when the City gets the money so the impact of COVID-19 will not be realized for some time. Deputy Director/Finance Montano reported Sales Tax finished $1.8 million higher than projected and first quarter FY 2020-21 Sales Tax revenues are coming in approximately Finance Committee Meeting Minutes November 19, 2020 Page 5 of 7 $824,000 higher than expected. He reported third-quarter 2020 Sales Tax clean-up payment came in at $2.5 million higher than expected. Deputy Director/Finance Montano reported Transient Occupancy Tax (TOT) was the most severely impacted revenue source, however, FY 2019-20 TOT receipts were $20.8 million which is $1.8 million higher than projected. He reported first-quarter FY 2020-21 revenues are coming in approximately $1.7 million over the projected budget. He reported Short-Term Lodging receipts were stronger than expected. Deputy Director/Finance Montano reported on All Other General Fund Revenue ended FY 2019-20 were $6.6 million higher than projected and All Other General Fund Revenues through September 30, 2020, was $899,000 higher than expected. Deputy Director/Finance Montano reported on COVID Relief Funds and reported the City has received $4 million through the Coronavirus Aid, Relief, and Economic Security (CARES) Act and reported the City has a claim in with the Federal Emergency Management Agency (FEMA) for an additional $565,000. Deputy Director/Finance Montano reported COVID-19 impacts to other funds that are subject to revenue volatility include Tidelands, Gas Tax, Measure M, SB1 RMRA (Road Maintenance and Rehabilitation Account), and the Water and Wastewater funds. He advised staff will monitor these funds and report back if significant changes are warranted. Deputy Director/Finance Montano reported General Fund Expenditures ended FY 2019-20 $3.9 million lower than projected and reported expenditures through the first quarter of the year are $3.4 million lower than projected as well. Deputy Director/Finance Montano provided a General Fund Sources and Uses overview and reported the City realized Unrestricted General Fund Resources of $23.9 million. He reported $11.5 million was comprised of the FY 2018-19 Surplus and the $12.4 million was the FY 2019- 20 Surplus. He advised staff will be proposing that City Council restore the $2.3 million of the Contingency Reserve that was used to balance the FY 2020-21 budget. In response to Council Member Collopy’s inquiry, Deputy Director/Finance Montano clarified the Contingency Reserve is 25% of the City’s Operating Budget less the ADP. Deputy Director/Finance Montano reported the City set aside a $5 million CalPERS reserve in anticipation of adverse investment results that would increase the City’s UAL contribution in the FY 2020-21 budget. He reported staff will recommend the City Council allocate the $5 million to the Operating Budget to increase the annual UAL payment to $40 million total for the Fiscal Year. Deputy Director/Finance Montano provided a brief overview of the Proposed Partial Restoration of Funds through Tier Framework. He reported Tier 5 relied on a $2.3 million draw from Contingency Reserves. He noted staff is looking to replenish the $2.3 million under City Council Policy. He reported staff recommends the replenishment of the $500,000 taken from the Equipment Replacement Fund in Tier 4. He reported Tiers 1 through 3 relied on deferred Capital Funding, a temporary hiring freeze, and various operating reductions, and no proposed restorations are recommended at this time. Deputy Director/Finance Montano reported staff will continue to monitor the performance of the City’s budget in subsequent quarters and adjust as needed. He advised staff recommends the Finance Committee review and discuss the report and provide recommendations for the City Manager and City Council consideration before the November 24, 2020, City Council meeting. Mayor/Chair O’Neill commended staff for a well-done staff report. He commented it is good to see the numbers better than anticipated. Finance Committee Meeting Minutes November 19, 2020 Page 6 of 7 In response to Mayor/Chair O’Neill’s inquiry, City Manager Leung reported she is in contact with other City Manager’s and she is hearing some positivity with TOT especially for cities that rely on tourism such as Huntington Beach. She also reported Costa Mesa has reported challenges with Sales Tax and Anaheim has reported challenges with TOT as they rely on Convention Center business for revenue. She reported Huntington Beach and Anaheim recently put an early retirement incentive program in place, so they are working with a reduced workforce. Lastly, she reported many cities are challenged at this time. In response to Mayor/Chair O’Neill’s inquiry, Senior Accountant Theresa Schweitzer has not heard when Fashion Island Hotel and the Renaissance Hotel will reopen. City Manager Leung reported the $5 million payment for CalPERS, the return of the Contingency Reserve, and the replenishment of Equipment Replacement Fund will be considered by City Council on November 24, 2020. Committee Member Collopy strongly recommends taking the recommendations to the City Council. Mayor/Chair O’Neill opened public comments. Mr. Mosher commented his understanding of the recent issuance of bonds to finance the fire station was motivated in part to preserve the City’s cash position. He inquired if these surpluses suggest that borrowing is less urgent than it seemed to be. Mayor/Chair O’Neill closed public comments. In response to Mr. Mosher’s inquiry, Deputy Director/Finance Montano reported the City was able to realize a 0.71% interest rate on the financing given its outstanding credit rating. He also noted spreading the cost over the life of the asset seems like a good idea given the City is not necessarily out of the woods from the impact of the pandemic. Mayor/Chair O’Neill also agreed it was a good idea. Committee Member Collopy cited his comments from the last meeting that paying almost nothing to borrow money seems like a wise thing to do. In response to Mayor Pro Tem Avery’s inquiry, Deputy Director/Finance Montano reported staff reviews how well Internal Services Funds are funded annually and noted most are at or near 100%. He reported the Equipment Replacement Fund was funded at 66% so staff thought it would be prudent to restore the funding. City Manager Leung advised staff has been doing a lot of work over the past year between Finance staff and Fleet staff to make sure the fleet maintenance and replacement schedule is appropriately laid out. In response to Mayor Pro Tem Avery’s inquiry, City Manager Leung confirmed this speaks to equipment specific to the fleet. There was no further action taken on this item. C. BUDGET AMENDMENTS FOR THE PREVIOUS QUARTER Summary: Staff will report on the budget amendments for the prior quarter. Recommended Action: Receive and file. The item was received and filed. Finance Committee Meeting Minutes November 19, 2020 Page 7 of 7 D. WORK PLAN REVIEW Summary: Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Recommended Action: Review and discuss the reports and provide recommendations for City Manager consideration. City Manager Leung reported no Work Plan has been laid out for 2021 and will be brought back to the Finance Committee in January. Committee Member Reed would like to see an update of the quarterly reporting on the Tier Framework. Mayor/Chair O’Neill opened public comments. Mr. Mosher commented that he had looked for other cities that allow the public to access the “Open Checkbook” of their open budget. He reported the City of Debuque, Iowa which is smaller than Newport Beach, has quite a different budget cycle. He provided a brief overview of their budget cycle which includes more public input and suggested the Finance Committee review their model to determine if it has any merit. Ms. Scarbrough commented the fire truck chassis and bodies could be replaced separately and is an option on the fire truck that is currently being purchased. Mayor/Chair O’Neill closed the public hearing. 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 4:17 p.m. The next regular meeting of the Finance Committee was not set at this time. Filed with these minutes are copies of all materials distributed at the meeting. The agenda for the Regular Meeting was posted on November 16, 2020, at 2:11 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