The URL can be used to link to this page

Home My WebLink AboutFinance Committee - January 13, 2022CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA - Final 100 Civic Center Drive - Community Room Thursday, January 13, 2022 - 3:00 PM Finance Committee Members: Will O'Neill, Chair Noah Blom, Mayor Pro Tem Brad Avery, Council Member William Collopy, Committee Member John Reed, Committee Member Nancy Scarbrough, Committee Member Joe Stapleton, Committee Member Staff Members: Grace K. Leung, City Manager Scott Catlett, Finance Director/Treasurer Marlene Burns, Administrative Specialist to the Finance Director 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 Director/Treasurer 24 hours prior to the scheduled Finance Committee meeting. NOTICE REGARDING PUBLIC PARTICIPATION Questions and comments may also be submitted in writing for the Finance Committee’s consideration by sending them to Scott Catlett Finance Director/Treasurer, at scatlett@newportbeachca.gov. To give the Finance Committee adequate time to review your questions and comments, please submit your written comments by no later than 5 p.m. the day prior to the Finance Committee meeting. All correspondence will be made part of the record. NOTICE TO THE PUBLIC 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. It is the intention of the City of Newport Beach 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, the City of Newport Beach will attempt to accommodate you in every reasonable manner. If requested, this agenda will be made available in appropriate alternative formats to persons with a disability, as required by Section 202 of the Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12132), and the federal rules and regulations adopted in implementation thereof. Please contact the City Clerk’s Office 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) 644-3127 or scatlett@newportbeachca.gov. 1 January 13, 2022 Page 2 Finance Committee Meeting I.CALL MEETING TO ORDER II.ROLL CALL III.PUBLIC COMMENTS Public comments are invited on agenda and non-agenda items generally considered to be within the subject matter jurisdiction of the Finance Committee. Speakers must limit comments to three (3) minutes. Before speaking, we invite, but do not require, you to state your name for the record. The Finance Committee has the discretion to extend or shorten the speakers’ time limit on agenda or non-agenda items, provided the time limit adjustment is applied equally to all speakers. As a courtesy, please turn cell phones off or set them in the silent mode. IV.CONSENT CALENDAR MINUTES OF NOVEMBER 4, 2021A. Recommended Action: Approve and file. DRAFT MINUTES 11042021 4A1_CORRESPONDENCE_DRAFT MINUTES 11042021 4A2_CORRESPONDENCE_DRAFT MINUTES 11042021 4A3_CORRESPONDENCE_AGENDA V.CURRENT BUSINESS FINANCIAL STATEMENT AUDIT RESULTS AND RELATED COMMUNICATION A. Summary: The City’s external auditors will meet with the Finance Committee to discuss the results of their audit for the fiscal year ending June 30, 2021. Recommended Action: Receive and file. STAFF REPORT ATTACHMENT A ATTACHMENT B ATTACHMENT C PRESENTATION 2 January 13, 2022 Page 3 Finance Committee Meeting INTERNAL AUDIT PROGRAM REPORTSB. Summary: Presentation of reports, findings, and recommendations from the Fiscal Year 2020-21 audit program. Recommended Action: Receive and file. STAFF REPORT ATTACHMENT A ATTACHMENT B ATTACHMENT C PRESENTATION INTERNAL AUDIT PROGRAM WORK PLAN REVIEWC. Summary: Selection of audit topics for the Fiscal Year 2021-22 audit program. Recommended Action: Receive and file. STAFF REPORT PRESENTATION LONG RANGE FINANCIAL FORECAST (LRFF) UPDATED. Summary: Staff will brief the Committee regarding the results of the updated LRFF analysis. Recommended Action: Receive and file. STAFF REPORT ATTACHMENT A PRESENTATION 3 January 13, 2022 Page 4 Finance Committee Meeting TIDELANDS FUND BUDGET PRESENTATION OPTIONSE. Summary: Staff will provide the Committee with an overview of the current method of reflecting cost allocations to the Tidelands Fund in the City's budget and several recommended options to improve transparency in the budget document relative to these interfund allocations. Recommended Action: Receive and file. STAFF REPORT PRESENTATION BUDGET AMENDMENTS FOR QUARTER ENDING DECEMBER 31, 2021F. Summary: Staff will report on the budget amendments from the prior quarter. Recommended Action: Receive and file. STAFF REPORT ATTACHMENT A WORK PLAN REVIEWG. Summary: Staff and Finance Committee to review the proposed work plan and identify matters that members would like placed on a future Agenda for discussion, action, or report. Recommended Action: Receive and file. ATTACHMENT A VI.ADJOURNMENT 4 Finance Committee Meeting Minutes November 4, 2021 Page 1 of 13 CITY OF NEWPORT BEACH FINANCE COMMITTEE NOVEMBER 4, 2021 MEETING MINUTES I. CALL MEETING TO ORDER The meeting was called to order at 3:00 p.m. in the Civic Center Crystal Cove Conference Room, Bay 2D, 100 Civic Center Drive, Newport Beach, California 92660. II. ROLL CALL PRESENT: Chair Will O’Neill, Committee Member Brad Avery (arrived at 3:22 p.m.), Committee Member Noah Blom, Committee Member William Collopy, Committee Member John Reed, Committee Member Nancy Scarbrough, and Committee Member Joe Stapleton ABSENT: None STAFF PRESENT: City Manager Grace K. Leung, Finance Director/Treasurer Scott Catlett, Deputy Director/Finance Steve Montano, Administrative Manager Mary Locey, Administrative Specialist to the Finance Director Marlene Burns, Budget Manager Shannon Espinoza, Public Works Finance/Administrative Manager Theresa Schweitzer, Senior Budget Analyst Amber Haston, and Revenue Auditor Antonio Velasco MEMBERS OF THE PUBLIC: Laura Curran, Charles Klobe, and Jim Mosher OTHER ENTITIES: Gary Sherwin and Lily Pearson (Visit Newport Beach) Debbie Snavely (General Manager Newport Beach Marriott Hotel & Spa, Visit Newport Beach Chairperson, Permanent Member), Homer Bludau (Visit Newport Beach Vice Chairperson), and Sharon Wood (Visit Newport Beach Board of Directors, City Appointee Member at Large) III. PUBLIC COMMENTS None IV. CONSENT CALENDAR MINUTES OF OCTOBER 14, 2021 Recommended Action: Approve and file. Chair O’Neill called for public comments and hearing none, closed public comments. MOTION: Committee Member Stapleton moved to approve the minutes, as amended, seconded by Committee Member Scarbrough. The motion carried 5 ayes, 0 noes, 1 abstention (Committee Member Collopy), 1 absence (Mayor Avery) 5 Finance Committee Meeting Minutes November 4, 2021 Page 2 of 13 V. CURRENT BUSINESS A. Overview of Historical Funding Provided to Visit Newport Beach Summary: Staff will provide the Committee with historical information on the transient occupancy tax revenues generated in the City, as well as the portion passed through to Visit Newport Beach, to inform a discussion regarding the resources currently allocated to tourism marketing. Representatives from Visit Newport Beach will also be present to discuss the ways in which these resources are allocated in their budget to various categories of expenditures. Recommended Action: Receive and file. Finance Director/Treasurer Scott Catlett introduced the item. He reported 18% of Transient Occupancy Tax (TOT) is transmitted to Visit Newport Beach (VNB), which comes out of the 10% rate that is charged on hotel stays. He advised there has been healthy growth in the City's TOT. He reported that Short Term Rentals (STRs) make up approximately 30% of the overall revenue and have had a very strong growth rate. He explained the Tourism Business Improvement District (TBID) is a separate assessment of 3% of revenue on a subset of the hotels, which provides an additional revenue source for different programming that VNB undertakes. Debbie Snavely, Board Chair for VNB, reported the VNB's Board of Directors consists of 24 members, including hotel general managers, representatives from other tourism-based businesses in Newport Beach, and City staff and appointees. She advised the Marketing Committee is comprised of all of the Directors of Sales and Marketing from area hotels and the TBID Board is comprised of all the General Managers from the member hotels. She noted these groups help set the stage for how VNB will sell the hotels and market the City as a destination. She advised Newport Beach is completely different from other markets because there is one marketing voice. She explained the TBID Board members have sales and marketing teams on property that focus on property sales and bringing the big groups and leisure to Newport Beach. However, she advised VNB also helps sell the destination because many groups are just as interested in the destination as they are in the hotels. She noted Newport Beach differentiates itself by keeping visitors in the City through cross-selling hotels, which keeps the money and revenue in the City. Gary Sherwin, President and CEO of VNB, reported VNB is aligned with the private sector and working within the hospitality community to address what they see as the most important business segments that VNB needs to address to generate as much hotel occupancy and drive as many high-quality visitors to Newport Beach as possible. He noted VNB sees itself as the economic development entity for the City to help drive revenue into the community. He advised while TOT plays a significant role, it aligns with sales tax generated from visitors coming into town, staying in hotels, shopping, and purchasing items. Mr. Sherwin reported VNB’s philosophy is the belief in a public-private partnership as reflected in their funding. He reported TOT revenues were good for 2019 and 2020 but dropped dramatically in 2021 due to the pandemic, which caused hotel closures and disruption in local and international business travel. He noted that group meetings and conventions are what sustain the hotels economically. He advised in 2009 the hotels came together to form the TBID and explained 100% of the TBID money is allocated towards meetings and conventions. He emphasized that approximately 60% of the City’s large hotels are meeting dependent. He explained VNB needs to be aggressively going after that market and noted they have already seen a phenomenal Return on Investment (ROI). Committee Member Collopy’s inquired if any of the TOT is allocated for meetings and conventions. Mr. Sherwin explained TOT is not allocated for that use and is for leisure travel, brand building, international, and leisure-driven business. He noted VNB’s marketing in Southern California, Phoenix, Arizona, and Las Vegas, Nevada was all funded through TOT. 6 Finance Committee Meeting Minutes November 4, 2021 Page 3 of 13 In response to Committee Member Collopy’s inquiry about VNB’s operations due to their decreased budget, Mr. Sherwin advised they laid off a third of their 22 person workforce and cut a lot of the programming and stopped initiatives that were impacted by the pandemic. He advised they eliminated programming for international travel and noted their leisure dollars became much more targeted and regional in scope geared towards visitors who were driving into the area and willing to pay high room rates just to get out of the house. He also noted that regional travel artificially inflated the TOT and he referred to it as the Sugar High Summer. He noted it is not sustainable. He advised that meetings have not come back to any large degree this year but is seeing momentum for next year and noted VNB is relying on transient business. Committee Member Collopy inquired if Ms. Snavely had worked with a TBID-like organization in other cities she has worked with and if TOT contributions were received. Ms. Snavely reported Costa Mesa did not provide TOT contributions, so marketing was funded through a TBID and noted, in that case, it was a privately funded TBID for marketing and sales to get business and be competitive to the outside areas. She explained it was not enough to compete against cities such as Huntington Beach or Newport Beach. She confirmed Anaheim has both a TOT contribution and a TBID. She explained that this funding is important for VNB to sell the destination. Committee Member Collopy inquired if the City's TOT at 10% has made a difference in attracting business versus Anaheim or Huntington Beach who have significantly larger TOT's. Ms. Snavely explained that as long as she has been a hotel, no one has ever commented regarding TOT or TBID amounts. Mr. Sherwin advised many other cities have TOT rates of 16% or more. Ms. Snavely advised Newport Beach is very competitive against other cities because it is a destination rather than just a location for a meeting, and groups can also enjoy the destination. Committee Member Blom noted the City has a tactical advantage because the bottom line is less expensive. Ms. Snavely explained businesses care what the room rate is but are not looking specifically at the taxes when making a decision. She explained for 90% of the groups that visit the City, the rooms are being paid for by the individual and not the company, so visitors base their decision on the room rate. Mr. Sherwin noted when a meeting planner is looking at Newport Beach, they look at room rental costs and assistance in getting the food and beverage costs under control. He advised they are not concerned with the room rate unless the room has an extremely high taxation rate. Committee Member Blom inquired if the hotel group decides on lessening room rates and food and beverage costs to win business or if they are being given marketing dollars to cover these incentives. Ms. Snavely advised that sometimes TBID funds are used for incentives such as discounts on food and beverage. Committee Member Blom inquired if any of the percentage decrease in the room rate and/or food and beverage are given back to the hotel as an incentive to lower room rates. She confirmed the room rates discounts are not subsidized. Committee Member Collopy noted the Fiscal Year 2021-22 adopted VNB TOT allocation in the City’s budget was $4.2 million and was not in alignment with VNB's TOT revenue budget. Finance Director/Treasurer Catlett explained VNB develops its budget so it would not necessarily be in alignment with the City's budget. Ms. Snavely advised the titles in the slide labeled Total Annual Revenue for TOT and TBID were transposed which may also add to the confusion. In response to Committee Member Collopy's inquiry, Mr. Sherwin confirmed VNB received $3 million in 2021 and not $3.7 million. Finance Director/Treasurer Catlett explained the numbers in the City’s report are directly from the General Ledger. Lily Pearson, VNB Vice President of 7 Finance Committee Meeting Minutes November 4, 2021 Page 4 of 13 Finance, added that VNB only books on the actual cash basis of what it receives so there will be a variance to the City’s accrued revenues. Committee Member Collopy inquired if VNB plans on hiring back employees and bringing back international programming. Mr. Sherwin advised all of their programming took a hit and noted VNB let two people go and furloughed three others. He reported the three furloughed employees have returned as of June 2021 and they are just beginning the process of filling the two vacant positions. He advised VNB's goal is to manage its resources carefully and conservatively. He explained a lot of VNB's work is labor-intensive and requires people to be in the office. He advised business travel-focused efforts are going to be coming back this month and they are hopeful they can restart international efforts in the spring. He noted while VNB does not spend a lot of money on international marketing, those visitors stay longer and spend more money in the City. He advised international visitors made up 16% of the overall visitation to the City pre-COVID. Mr. Sherwin explained TOT is not always collected because in some cases, international visitors will stay more than 30 days and leave a large economic footprint in terms of what they spend in the City. Committee Member Collopy inquired if VNB is anticipating a return to normal for meetings and conventions in terms of pandemic protocols. Mr. Sherwin anticipates meetings and conventions being a little bit different. He explained hybrid meetings are going to be a reality for some time until people get comfortable with traveling again. He advised the groups being booked in 2022 are smaller in size. Committee Member Collopy inquired how the TBID fees are determined. Mr. Sherwin explained every guest pays 3% to TBID in their room rate. Ms. Snavely confirmed guests at her hotel are effectively paying a 13% TOT which is still lower than many of the big cities. Mr. Sherwin presented VNB’s annual Marketing Plan and advised it is first developed with the staff and then through the Marketing Committee. He advised it includes programs, budgets, metrics, and goals. He reported it is approved by the Board of Directors and then submitted to the City for approval. He explained they run on a two-year marketing plan cycle and produce a supplement if there are changes to the plan. Committee Member Collopy inquired if City staff reviews the Marketing Plan. Chair O'Neill advised the Marketing Plan is a receive and file document. He advised City Council gives opinions, but the staff does not. He advised the City Council appointed Sharon Wood to the VNB Board and Finance Director/Treasurer Catlett also sits on the Board. VNB Board Vice Chair Homer Bludau explained the VNB Marketing Committee is made up of sales and marketing representatives of the local hotels, businesses, and restaurants around the City. Committee Member Blom inquired if there were any Short Term Rental (STR) operators on the board. Mr. Sherwin reported there are no STR operators on the board now and it depends on if there is an open seat and if someone is willing to serve. He noted Craig Bately from Burr White Realty has been on and off the board for years. He advised every hotel representation on the board has a permanent seat, while the remainder of the seats are open and have three-year terms which can be renewed for an additional three years. He confirmed STR operators are very involved and are an important part of the City's hospitality lodging mix. He noted VNB sees STRs as a continuing growth segment and advised VNB will gladly support including legitimate operators in their lodging package. He acknowledged that Airbnb does not always play by the rules and pay the taxes so VNB will not promote them unless they have an agreement with the City that they will pay their taxes and adhere to zoning laws. Committee Member Blom noted the City should promote good STR operators but would need them on the board and Marketing Committee to help identify good operators. He advised it is important as a marketing wing for the City to have a focus on STRs so the City is seen as a 8 Finance Committee Meeting Minutes November 4, 2021 Page 5 of 13 luxury city for STRs and not a party city. He believes VNB is light on promoting the luxury side of Newport Beach and feels that the STR market has a lack of representation on the board. Mr. Sherwin advised if there is a legitimate STR operator who wants to join the marketing committee VNB is happy to have them. Mr. Sherwin reported there has been a slow recovery of meetings and conventions and had it not been for the delta variant, he believes the City would be ahead of pace right now. He explained there were challenges in obtaining reopening guidelines from the Governor’s Office to allow VNB to book conventions and meetings, which caused some business to be lost to other states and set the City back in its recovery. He reported VNB has started to build back a base of business and noted it will be a slow effort although it is building momentum. He believes the momentum will be reflected in the next year. Mr. Sherwin reported renovations at the Marriott will be a major game changer and will elevate the City to a new luxury tier along with whatever happens with the Fashion Island Hotel. He advised Newport Beach has always been an aspirational luxury destination and sees the City being elevated to an entirely new level similar to Cannes, France. He explained the Marriott will have fewer rooms but will generate more TOT because it will have a higher room rate. He noted VNB is looking for the right kind of visitor who will pay the right room rate and have the maximum impact on the City. He noted the mix of shops at Fashion Island is in alignment with this new luxury mentality and product and predicted a very transformational 3 to 4 years in Newport Beach's hospitality industry. He advised before the Resort at Pelican Hill came on board in 2008 there was no luxury tier product in the area and noted other hotels in the area have started to up their game. He explained that also means VNB will need to go after different segments of business including incentive business and international business. Mr. Sherwin reported TOT is off the charts right now, but he explained that tourism needs conventions, international travel, incentive travel, and corporate business travel to function well and have a healthy tourism economy. He noted only a few segments are doing well right now. He does not believe the City is past the difficult period but believes a lot of progress has been made. He advised the immediate goals are to stabilize all of these different markets moving into the luxury tier area and assist hotels with repositioning their products. He reported VNB also helps with strategy and noted they helped the Marriott, the Lido House, and the Balboa Bay Resort with their branding. Mr. Sherwin reported VNB is increasing outreach to media planners and dealing with issues such as the recent oil spill. He advised they developed a partnership with Laguna Beach and Huntington Beach after the oil spill and created a crisis communications platform. He noted the national media hurt the City by reporting incorrect spill numbers and advised VNB helped control that. Mr. Sherwin reported VNB conducts leisure-oriented campaigns, which are measured by a third-party company that measures incremental trips, the associated room nights, and the economic impact of those leisure room nights. He explained there is a company called Adara that can track cell phones and determine whether or not a hotel was booked, or a person traveled to Newport Beach. Committee Member Collopy inquired how an incremental trip is measured by these third-party companies. Mr. Sherwin advised that third-party companies could determine the flow based on the time of year and what the hotel would normally get in addition to being able to measure based on the additional messaging in the marketplace and how people are responding. He explained in addition to mass marketing VNB can provide targeted messages about Newport Beach based on what the individual likes and if their cell phone is coming to the city. He clarified VNB spends part of its budget on targeted marketing. 9 Finance Committee Meeting Minutes November 4, 2021 Page 6 of 13 Committee Member Collopy inquired if the Resort at Pelican Hill is included in the statistics. Mr. Sherwin confirmed they are included and clarified they have representation on the board of directors and the executive committee but are not part of the TBID. Chair O’Neill explained everyone who rents below 30 days is part of the TOT and advised VNB is the entity that receives the money from TOT. Mr. Sherwin explained VNB was created as an independent 501(c)6 in 1989 and at the time was known as the Newport Beach Conference and Visitor's Bureau, which promoted leisure business in the city. He advised in 2011 they were approached by the City to come up with a more holistic way of being able to become a city-wide integrated marketing arm. He reported the City Manager at the time asked if they would be interested in running Newport Beach TV. He explained they did not want to complicate the contract they had with the City on the VNB side, so the board created an umbrella organization called Newport Beach and Company that serves as the City’s marketing agency. Mr. Sherwin explained Visit Newport Beach has a leisure side which is TOT and then there is TBID to focus on meetings and conventions. Committee Member Blom noted it is important to remember TBID is voluntary. Mr. Sherwin explained the Resort at Pelican Hill is included in the statistics because this is a leisure-oriented campaign, not meetings and conventions. Chair O'Neill explained there are only 9 hotels in the TBID, and they have opted to voluntarily add 3% on top of TOT. Mr. Snavely explained if a visitor was staying at the Resort at Pelican Hill, they would pay 10%, not 13% since they do not participate in TBID. Mr. Sherwin explained, for example, that VNB’s salespeople will meet with Apple to bring a meeting into Newport Beach. He advised Apple will meet with the meeting planner at Apple to determine what their interests are and then VNB brings that person to town for a site inspection and then works with a hotel of their choice to develop a contract. He advised sometimes a client needs help making sure this is the right destination by getting them on the harbor or putting in a small amount of money to help host the opening reception which is funded by TBID. He explained a form then goes to the hotel to track the rooms and food and beverage. He advised the hotel revenue is what the hotels report to VNB based on those numbers. He noted they use an industrywide calculator to develop the overall economic impact. He confirmed it is all driven and signed off on by the hotels and is 100% TBID. Chair O’Neill inquired how the Fiscal Year 2021 actual is $1.7 million when the hotel revenue is $5 million. Ms. Snavely explained the amount includes the 3% TBID on rooms plus catering. Mr. Sherwin explained the $1.7 million is not for the same year. He advised VNB books meetings years out so there is not a correlation between the timing of the revenue received and the booking. Finance Director/Treasurer Catlett clarified the TBID is also being assessed on every room night regardless of purpose, which was confirmed by Ms. Snavely. Committee Member Collopy inquired if VNB receives any funding from the Chamber of Commerce. Mr. Sherwin advised in addition to TOT and TBID, the Chamber of Commerce provides $25,000 per year to market the boat parade. He confirmed VNB has a contract with the City for Newport Beach TV for $200,000. Committee Member Collopy expressed concern that the TOT is too low at 10%. Mr. Sherwin explained the City is keeping 82% of the money collected by the hotels from the taxpayers paying the TOT. He clarified for Committee Member Collopy that VNB collects 18% of the 10% TOT and the City collects 82% of the 10% TOT collected. Committee Member Collopy acknowledged that 82% is coming back to the City but 18% is being used to fund marketing. Ms. Snavely advised it is used to generate more TOT for the City. 10 Finance Committee Meeting Minutes November 4, 2021 Page 7 of 13 Committee Member Collopy inquired how the City rationalizes and whether it fully understands the marketing dollars it is spending. He advised it is the City Council's responsibility to understand that and make the right decision. He noted the 10% TOT does not entice or discourage visitors one way or another and neither does the 3% TBID. Ms. Snavely advised the 3% TBID does not discourage visitors but brings them in since VNB is selling a destination. Mr. Sherwin referenced a case where the Mayor of San Diego shut down marketing for the City for the better part of a year and in turn, they lost meetings, conventions, and their leisure business. He reported Sea World and the San Diego Zoo had to step up to supplement it because they were losing business because other destinations were asking for the customer’s business. He argued the City needs to sell itself and simply cannot rest on its laurels. He explained every major city across the United States is going after the same visitors. Committee Member Scarbrough inquired which local cities have an organization similar to VNB. Mr. Sherwin reported Huntington Beach, Santa Monica, Irvine, Santa Ana, and Costa Mesa all have similar organizations. He advised most organizations are set up with TBID, TOT, or a combination of the two. Committee Member Collopy inquired if the City has a contract with VNB. Mr. Sherwin confirmed VNB has a five-year contract through 2024. He advised the TOT percentage varies depending on the community and the need. Mr. Bludau noted there is a real disadvantage in Newport Beach that it does not have a convention center. He referenced a statistic from eight years prior that listed Newport Beach as number 48 of the top 50 cities in the United States as far as the number of group rooms. He noted that was quite an accomplishment given the City does not have a convention center. Ms. Snavely reported before the TBID, VNB was doing over 9,000 group rooms and in 2019 did 110,000 group rooms. She noted it is a huge ROI for hotels to invest 3% in the TBID. Mr. Sherwin reported the 2014 Bowl Championship Series (BCS) impacted every hotel in the City and was the largest single piece of business VNB ever had and that was in direct competition with Los Angeles. Chair O’Neill opened public comments. Charles Klobe inquired about raising the TOT a couple of percent and using that money to fund Code Enforcement for STRs, Police, and City staff to audit STRs to increase the income to Newport Beach and Company as they would get 18% of a larger number. Jim Mosher reported he has a philosophical concern about the government being involved in private marketing efforts at all. He noted this concern derives from the kind of naive idea when the government collects taxes and TOT, it should be distributed equitably and in alignment with some kind of publicly debated and decided upon rules. He advised in this case taxes are being collected and being very opaquely distributed. Mr. Mosher expressed concern that the Resort at Pelican Hills has a big say in how TOT money is being spent. He advised he does not know the rule that gives them a bigger voice than STR owners or anybody else. He also noted he is not surprised but concerned that part of the 18% is being used tonight to throw a private party and advised the City Manager could not use any part of the 82% of the 10% to throw a party for private partners and believes it is an odd use of government-collected taxes. He inquired if the Finance Committee should recommend the City divert some of its General Fund money into this marketing effort and pay off some of its unfunded pension liabilities or other liabilities as it seems like a money-making machine and since the City receives such a large ROI for what it puts into VNB. He inquired why the Finance Committee is not recommending the City divert some of the City’s sales tax revenue into hiring 11 Finance Committee Meeting Minutes November 4, 2021 Page 8 of 13 a marketing firm to promote other kinds of businesses in Newport Beach such as auto sales. He noted he has philosophical, logical, and financial concerns. Laura Curran reported she has followed VNB over the years and noted the report lists the budget amounts and the expenditures, but the public does not always get a lot of color on the marketing, what the actual types of expenditures were, and how the ROI relates. She requested to see more detail in future reports. She advised this report is the Fiscal Year 2019 Actual being compared to the Fiscal Year 2022 budget and noted it should probably include the 2020 budget and 2021 budget. She noted there will be anomalies due to the pandemic, but the public will still want to see the trends. Ms. Curran advised the net number for Fiscal Year 2022 is break even and that is after $188,000 in carry-over from the cash reserves. She noted in the past there was a $200,000 surplus and for this year there is a $200,000 deficit before the cash carryover. She inquired if this was going to be an ongoing part of the budget. She encouraged having the STR owners in the mix and holding them accountable for having high-quality programs and outreach. She recommended taking some of the money they would bring in and using it for amenities that benefit the entire visitor-serving community. Chair O’Neill closed public comments. The item was received and filed. B. CALPERS UPDATE Summary: Staff will provide the Committee with an overview of the data from the latest actuarial reports from CalPERS as well as their impact on prior projections of the paydown of the City's unfunded pension liability. Recommended Action: Receive and file. Finance Director/Treasurer Catlett reported CalPERS had quite a bit more in assets than last year and advised their funded status across the whole plan went from 71% to 82%. He advised that is a huge jump in one year but is reflective of that 21.3% return CalPERS got this year, which is the best that they have done in quite a while. He advised CalPERS received a 36% return on their stock investments versus 43% on private equity. He noted a 21% net return on investments was a very good number. He advised this is almost CalPERS' best year ever although they underperformed the last two years. Committee Member Collopy inquired if CalPERS was underwater on private equity. Finance Director/Treasurer Catlett clarified they were under their benchmark. He explained CalPERS has a benchmark they use as an index they construct themselves of what they think private equity should do and it did not do as well as they thought it would. He further explained if looking at the Standard and Poor’s (S&P) 500, CalPERS underperformed it at 36% but they constructed their index for public equity and deducted out classifications of assets the board requested they divest from cigarette makers, as an example. Committee Member Collopy inquired if CalPERS is using mark-to-market (MTM) on those treasuries. Finance Director/Treasurer Catlett advised interest rates were changing during this time so whatever the rates were for the securities they already held would vary from the market rates as the interest rate environment changed. Finance Director/Treasurer Catlett presented CalPERS historical investment returns and noted the discount rate has been going down because they consistently reduced their assumption about their investment earnings over the last 10 or 12 years. He reported the CalPERS Risk Mitigation Policy was triggered as of June 30 and it says that if returns exceed 7% then it 12 Finance Committee Meeting Minutes November 4, 2021 Page 9 of 13 triggers an adjustment to the discount rate. He explained it creates an element of de-risking but results in higher contribution rates for the City. Committee Member Collopy inquired if the discount rate itself triggers a change in investment mix or is a policy change required. Finance Director/Treasurer Catlett explained if CalPERS did not have their Asset Liability Management process going on in parallel, it would have triggered the investment people at CalPERS to change their mix to earn 6.8% versus 7%. He noted by July 2022, CalPERS would have had to remix the portfolio to earn a lower rate. He explained the thought process is to use part of the big gain to achieve a lower risk in the long term. Committee Member Stapleton inquired if the City’s CalPERS funds are split 70% equities and 30% fixed income, including private equity and public securities. Finance Director/Treasurer Catlett clarified it is about 50% public equities with the balance of the 70% including private equity and real estate assets. Committee Member Avery inquired if CalPERS is on the right track with this philosophy on risk mitigation. Finance Director/Treasurer Catlett advised CalPERS was under a lot of pressure to avoid big swings in rates and noted there is logic to it. He referenced Committee Member Collopy’s previous remarks that they have had a big windfall and are ignoring part of it. Finance Director/Treasurer Catlett reported what is happening in parallel right now is that every four years CalPERS looks at that discount rate. He advised that even with the current asset mix, CalPERS is advising they can only earn 6.2% so to achieve 6.8% they need to change their mix of assets. He advised if CalPERS does nothing then they will have to lower the discount rate to 6.2% next year and the City will have another actuarial loss. In response to Committee Member Collopy’s inquiry, Finance Director/Treasurer Catlett clarified CalPERS by policy only does this process every four years and it is separate from the Risk Mitigation Policy process and is CalPERS’ normal periodic review of the discount rate. Committee Member Collopy inquired if CalPERS intends to change the discount rate to 6.6% next year or is it 6.8% for the next four years. Finance Director/Treasurer Catlett explained the 6.8% trigger is outside of the four-year cycle and is a separate policy effective immediately. He noted the four-year study is ongoing and will be decided by the end of this fiscal year but believes they will stay at 6.8% or initiate a further reduction. Chair O’Neill reported when he met with CalPERS at a stakeholder meeting in 2019, he was pressing them hard on this issue and told them they were not being realistic and needed to lower the discount rate. He advised their reply was if they did that, they would bankrupt cities. He advised CalPERS could reduce the discount rate down to 6% and the normal cost is going to skyrocket on a bunch of cities as well as the unfunded pension liability. He noted the City could absorb it, but other cities would get crushed, and Anaheim would be bankrupt, probably. Finance Director/Treasurer Catlett reported the CalPERS board has taken 6.2% off the table and advised they are not willing to go below 6.5% assuming they stick with what they said at their first discussion of the topic. He advised they are looking to increase the private equity allocation and perhaps leveraging a portion of the portfolio by borrowing money and reinvesting it to earn higher rates of return. Finance Director/Treasurer Catlett reported CalPERS conducted an experience study that looked at all of the other actuarial factors besides the investment return. He advised there is no big impact from that this time around. Finance Director/Treasurer Catlett advised CalPERS has made some preliminary comments about a willingness to have different portfolio options for cities that are well funded. He explained it is not really on the table yet and is unsure if it will get legs. 13 Finance Committee Meeting Minutes November 4, 2021 Page 10 of 13 Finance Director/Treasurer Catlett reported he expects the normal cost to go up because of the discount rate reduction and the minor changes from the experience study. He advised these were probably going to be small increases and manageable. He noted half of the costs are being passed on to Public Employees' Pension Reform Act (PEPRA) employees. Finance Director/Treasurer Catlett presented the blended normal cost, which is the rate the City is paying for all of its employees. He advised it is trending downward over time as the number of PEPRA employees increases. Finance Director/Treasurer Catlett reported the City receives separate valuation reports for the miscellaneous and safety plans. He advised the Fiscal Year 2019-20 investment return was 4.7% and underperformed the 7.0% target. He explained the unfunded liability went up, but the funded percentage also went up. He noted the City implemented fresh starts in 2013 and 2018 with 20-year amortizations. He reported Newport Beach is one of two cities whose funded percentage went up and noted the other city is Irvine. He advised they also made extra payments towards unfunded liabilities but suspended the plan during the pandemic. Committee Member Collopy inquired which cities in California are fully funded. Finance Director/Treasurer Catlett did not have the information available on which California cities may be fully funded. Chair O'Neill advised there is a chance that Transportation Corridor Agencies (TCA) is fully funded. Finance Director/Treasurer Catlett reported the 21.3% return and risk mitigation policy discount rate change will be reflected in the June 30, 2021, valuation reports to be received in August 2022. He cautioned that investment earnings can be volatile and should not assume that this is the way the world is going to stay. He advised CalPERS has the Asset Liability Management (ALM) process underway and could drop the discount rate to 6.5% and noted the experience study will have a small effect on rates coming up soon. Finance Director/Treasurer Catlett presented the Orange County CalPERS Plans Funded Status and advised the Miscellaneous Non-Pooled plans are almost 90% funded with the Safety Non-Pooled at approximately 82% funded. He explained pooled means agencies that are so small they pool their liabilities together. Finance Director/Treasurer Catlett reported in November 2019, the Finance Committee endorsed City staff's recommendation to anticipate a future drop in the discount rate. He advised $35 million per year has been in the base budget for several years now and an additional $5 million has been added for the last two years. He advised the City Council endorsed this strategy for the Fiscal Year 2020-21 budget with a plan to revisit the plan's adequacy and approach each year. Finance Director/Treasurer Catlett presented the roll-forward of valuations to June 30, 2021. He noted this is just a roll-forward of the investment gain and other things going on with the actuarial changes are not included in the numbers and advised the number in the next valuation will be different. He advised this is a reasonably good tracking point to see where the City is a year forward from the valuation that was received and is a reflection of that 21% investment return. He reported the modeling was also done with the 6.8% discount rate going forward. Committee Member Collopy noted the prior chart said the City is committed to $5 million per year for the next three years. Finance Director/Treasurer Catlett clarified the City Council has said they will revisit that every year and decide on an annual basis. He reported the City would be able to pay off the unfunded liability in 2029 using the base payment plan. He advised if the payments were $40 million per year, the City would be able to pay off the unfunded liability in 2028 and would save $8 million off of those payments in the future in interest costs. Committee Member Collopy inquired what the valuation requires the City to pay. Finance Director/Treasurer Catlett believes the valuation requires the City to pay $30 million per year. 14 Finance Committee Meeting Minutes November 4, 2021 Page 11 of 13 He explained as the City pays the extra money each year the minimum required contribution decreases. He noted in those last years the minimum contribution is approximately $10 million. Committee Member Collopy commended the Finance Committee for its brilliant move. Finance Director/Treasurer Catlett reminded the Finance Committee that projections can change. He reported two years ago staff shared a projection with the Finance Committee of a 2034 payoff date for the unfunded liability and noted staff shared a projection of 2036 last year due to underperformance of the portfolio. He hopes it will continue to be comparable to the current projection next year but cautioned things can change. He outlined a variety of factors that could change the projection. He recommends continuing with the strategy the Finance Committee endorsed in 2019 which will keep the City on target to pay down the unfunded liability in Fiscal Year 2028-29. He noted the City will investigate another fresh start after the ALM process to determine if it makes sense and will bring that back to the Finance Committee as part of next year’s conversations. Chair O’Neill opened public comments. Laura Curran inquired why CalPERS continues to have an Interim Chief Investment Officer. Finance Director/Treasurer Catlett commented that it likely does not pay as well as doing the same work for a firm in New York, but beyond that has no insight. Chair O’Neill closed public comments. Chair O’Neill noted the Finance Committee and staff are not rosy when it comes to assuming CalPERS will continue to even hit 6.8% which is another reason the City will continue to make the additional discretionary payments because that $35 million only takes into account past unfunded liabilities. He noted any additional amount above that is the City’s hedge against believing CalPERS is not going to be able to hit their anticipated amounts. Committee Member Scarbrough inquired how CalPERS would treat other cities if they had to file for bankruptcy and would it impact the City. Finance Director/Treasurer Catlett advised he does not think it would impact the City and noted San Bernardino was a good test case for that scenario. He explained CalPERS advised San Bernardino if they did not pay the result would be impaired pensions for its retirees. Chair O’Neill explained any city that tries to get out of CalPERS would pay a 1% to 2% discount rate that balloons the amount owed to CalPERS by a staggering amount. His understanding is that the only liability that did not get cut in the San Bernardino bankruptcy was the CalPERS obligation. Committee Member Collopy inquired if CalPERS could put covenants on a city that files bankruptcy. Finance Director/Treasurer Catlett explained CalPERS was treated like any other creditor in the bankruptcy process, but the reason San Bernardino treated them favorably as a creditor was the squeeze CalPERS was going to put on their retirees and employees if they withheld their payments. Chair O’Neill noted every city that went bankrupt in the last decade or two had pension obligation bonds. The item was received and filed. C. FIRST QUARTER BUDGET UPDATE Summary: Staff will provide a presentation regarding the year-to-date and projected Fiscal Year 2021-22 budget performance. Recommended Action: 15 Finance Committee Meeting Minutes November 4, 2021 Page 12 of 13 Receive and file. Finance Director/Treasurer Catlett reported the budget was adopted with projected revenue of $234 million and City staff is now projecting $238 million. He advised the biggest change in the big three revenues would be property tax, which is due to the higher than originally assumed assessed valuation. He reported the City’s consultants are seeing positive trends in sales tax and noted there will likely be an increase to the revenue projection in the second quarter. He believes it is safe to say the City can hit its TOT number in the budget and it is just a question of to what degree the projection is increased later in the fiscal year. He noted there are no assumptions in the budget that the Fashion Island Hotel will be opening. At 4:53 p.m., Committee Member Avery left the Finance Committee meeting. Finance Director/Treasurer Catlett believes there will be positive news about revenue in the second quarter although he advised the City is tracking below where it was in the pre-pandemic projections. He reported a positive expense adjustment and revenue adjustment for recreation classes and facility rentals and noted they are back strongly. He reported a couple of minor adjustments to the City’s intergovernmental revenues. He advised expenses are tracking higher than the revised budget because of the offset to those recreation classes, which has revenue associated, as well as some expenditure that are being reimbursed by those intergovernmental revenues. Committee Member Collopy noted the biggest single variance in expenses is Salaries and Wages. Finance Director/Treasurer Catlett advised that is the $5 million pension payment added to the budget from prior year budget surplus and that there is also $3.1 million of carryover expenditures that were added to the budget and funded from prior year revenues. Finance Director/Treasurer Catlett reported on General Fund Sources and Uses and noted there is an increase in transfers out that reflects the use of prior year surplus for the Facilities Financial Plan (FFP) and the Capital Improvement Program (CIP) that the City Council approved at their last meeting. He noted staff is projecting a $1.1 million surplus on June 30, 2022, which will hopefully increase as the year progresses. Chair O’Neill called for public comments and hearing none, closed public comments. The item was received and filed. D. LONG RANGE FINANCIAL FORECAST (LRFF) UPDATE Summary: Staff will brief the Committee regarding the results of the updated LRFF analysis. Recommended Action: Receive and file. Deputy Director/Finance Steve Montano announced his retirement effective December 3, 2021. Committee Member Collopy thanked Deputy Director/Finance Montano for doing a great job and noted his contributions have been invaluable. The item was continued to the January 13, 2022, meeting of the Finance Committee. E. INTERNAL AUDIT PROGRAM UPDATE Summary: Bi-monthly progress update on the internal audit program. Recommended Action: Receive and file. 16 Finance Committee Meeting Minutes November 4, 2021 Page 13 of 13 Finance Director/Treasurer Catlett reported that there were no updates to share regarding the internal audit program and that audit reports would be presented to the Committee on January 13, 2022. F. WORK PLAN REVIEW Summary: Staff and Finance Committee to review the proposed work plan and identify matters that members would like placed on a future Agenda for discussion, action, or report. Recommended Action: Receive and file. Chair O’Neill reported the Finance Committee will be talking through the financial statement audit results and related communications. He advised the external auditors will be in attendance to discuss the results for Fiscal Year 2020-21. He noted the committee will also be reviewing internal audit program reports, talking about the Tidelands Fund Budget presentation, and reviewing the long-range financial forecast update. He reported budget season will then be underway. He advised the fee study will be reviewed later in the year and noted the Committee will be talking through the FFP and CIP to ensure there is funding necessary over the next few years. He advised an internal services fund update, budget update, and revenue projection discussion will also be conducted. In response to Committee Member Collopy's inquiry, Chair O'Neill reported the Tideland Funds discussion will take place of one of the department deep dives. Committee Member Collopy recommended next doing a deep dive into the Police Department. Chair O’Neill called for public comments and hearing none, closed public comments. The item was received and filed. VI. ADJOURNMENT The Finance Committee adjourned at 5:02 p.m. to the next regular meeting of the Finance Committee. The agenda for the Regular Meeting was posted on October 29, 2021, at 12:40 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 17 January 13, 2022, Finance Committee Item IV.A Comments These comments on an item 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 IV.A. MINUTES OF NOVEMBER 4, 2021 Changes to the draft minutes passages shown in italics are suggested in strikeout underline format. Page 2 (agenda packet page 6), last paragraph, sentence 1: “Committee Member Collopy’s Collopy inquired if any of the TOT is allocated for meetings and conventions.” Page 3 (agenda packet page 7), paragraph 3, sentence 2: “Ms. Snavely explained that as long as she has been a hotel employee, no one has ever commented regarding TOT or TBID amounts.” Page 4 (agenda packet page 8), paragraph 5, sentence 2: “Mr. Sherwin explained every guest pays 3% to the TBID in their room rate.” Page 6 (agenda packet page 10), paragraph 4, sentence 1: “Mr. Sherwin explained Visit Newport Beach has a leisure side which is TOT and then there is the TBID to focus on meetings and conventions. Committee Member Blom noted it is important to remember the TBID is voluntary.” Page 6 (agenda packet page 10), paragraph 5, sentence 2: “Mr. Ms. Snavely explained if a visitor was staying at the Resort at Pelican Hill, they would pay 10%, not 13% since they do not participate in the TBID.” Page 8 (agenda packet page 12), Item B, paragraph 1, sentences 2 and 3: “He advised that is a huge jump in one year but is reflective of that 21.3% return CalPERS got this year, which is the best that they have done in quite a while. He advised CalPERS received a 36% return on their public stock investments versus 43% on private equity.” [Aren’t “private equities” also stock investments, but in a private (“non-public”) company or in a public company by a non-traded means? CalPERS uses the terms “public equity” and “private equity” in their press release.] Page 8 (agenda packet page 12), Item B, paragraph 2: “Committee Member Collopy inquired if CalPERS was underwater on private equity.” [note: Was this actually the term used? I do not understand how the 43% return mentioned in the previous sentence could be described as “underwater.” It might be below expectations, but if so, the expectations for the year must have been very high. Or was the question about CalPERS’ return since inception, assuming the recent gains were insufficient to offset losses in prior years? (something that doesn’t seem to be the case, for according to the Sacramento Bee, private equities have been CalPERS’ best-performing asset short- and long-term)] 18 January 13, 2022, Finance Committee Item IV.A comments - Jim Mosher Page 2 of 2 Page 9 (agenda packet page 13), paragraph 2: “Committee Member Stapleton inquired if the City’s CalPERS funds are split 70% equities and 30% fixed income, including private equity and public securities. Finance Director/Treasurer Catlett clarified it is about 50% public equities with the balance of the 70% including private equity and real estate assets.” [note: I can’t reconcile these two sentences. 50% and 70% don’t add to 100%. Was the second sentence intended to read: “Finance Director/Treasurer Catlett clarified it the 70% is about 50% public equities with the balance of the 70% including private equity and real estate assets”?] Page 12 (agenda packet page 16), paragraph 3: “At 4:53 p.m., Committee Member Avery left the Finance Committee meeting.” [note: The roll call on page 1 indicates Mr. Avery “arrived at 3:22 p.m.” but there is no comparable line to this indicating where in the minutes that occurred.] Page 12 (agenda packet page 16), paragraph 4, last sentence: “He advised expenses are tracking higher than the revised budget because of the offset to those recreation classes, which has revenue associated, as well as some expenditure that are is being reimbursed by those intergovernmental revenues.” Page 13 (agenda packet page 17), Item F, paragraph 2, sentence 1: “In response to Committee Member Collopy's inquiry, Chair O'Neill reported the Tideland Funds discussion will take the place of one of the department deep dives.” 19 January 13, 2022, Finance Committee Item IV.A Comments These comments on an item 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 IV.A. MINUTES OF NOVEMBER 4, 2021 Changes to the draft minutes passages shown in italics are suggested in strikeout underline format. Page 2 (agenda packet page 6), last paragraph, sentence 1:“Committee Member Collopy’s Collopy inquired if any of the TOT is allocated for meetings and conventions.” Page 3 (agenda packet page 7), paragraph 3, sentence 2: “Ms. Snavely explained that as long as she has been a hotel employee, no one has ever commented regarding TOT or TBID amounts.” Page 4 (agenda packet page 8), paragraph 5, sentence 2: “Mr. Sherwin explained every guest pays 3% to the TBID in their room rate.” Page 6 (agenda packet page 10), paragraph 4, sentence 1:“Mr. Sherwin explained Visit Newport Beach has a leisure side which is TOT and then there is the TBID to focus on meetings and conventions. Committee Member Blom noted it is important to remember the TBID is voluntary.” Page 6 (agenda packet page 10), paragraph 5, sentence 2: “Mr. Ms.Snavely explained if a visitor was staying at the Resort at Pelican Hill, they would pay 10%, not 13% since they do not participate in the TBID.” Page 8 (agenda packet page 12),Item B, paragraph 1, sentences 2 and 3: “He advised that is a huge jump in one year but is reflective of that 21.3% return CalPERS got this year, which is the best that they have done in quite a while. He advised CalPERS received a 36% return on their public stock investments versus 43% on private equity.” [Aren’t “private equities” also stock investments, but in a private (“non-public”) company or in a public company by a non-traded means? CalPERS uses the terms “public equity”and “private equity”in their press release.] Page 8 (agenda packet page 12), Item B, paragraph 2: “Committee Member Collopy inquired if CalPERS was underwater on private equity.” [note: Was this actually the term used? I do not understand how the 43% return mentioned in the previous sentence could be described as “underwater.” It might be below expectations, but if so, the expectations for the year must have been very high. Or was the question about CalPERS’return since inception, assuming the recent gains were insufficient to offset losses in prior years? (something that doesn’t seem to be the case, for according to the Sacramento Bee, private equities have been CalPERS’best-performing asset short- and long-term)] c sto ’t derw actu 1 2 20 Summary of Comments on 4A2_CORRESPONDENCE_DRAFT MINUTES 11042021.pdf Page: 1 Number: 1Author: SCatlett Subject: Sticky Note Date: 01/12/2022 5:00:43 PM I think what I probably said was "stock market investments" rather than "public stock investments". Number: 2Author: SCatlett Subject: Sticky Note Date: 01/12/2022 5:01:20 PM He was referring to versus the benchmark I believe, so this is correct as written. 21 January 13, 2022, Finance Committee Item IV.A comments - Jim Mosher Page 2 of 2 Page 9 (agenda packet page 13), paragraph 2: “Committee Member Stapleton inquired if the City’s CalPERS funds are split 70% equities and 30% fixed income, including private equity and public securities. Finance Director/Treasurer Catlett clarified it is about 50% public equities with the balance of the 70% including private equity and real estate assets.” [note: I can’t reconcile these two sentences. 50% and 70% don’t add to 100%. Was the second sentence intended to read: “Finance Director/Treasurer Catlett clarified it the 70%is about 50% public equities with the balance of the 70%including private equity and real estate assets”?] Page 12 (agenda packet page 16), paragraph 3:“At 4:53 p.m., Committee Member Avery left the Finance Committee meeting.” [note: The roll call on page 1 indicates Mr. Avery “arrived at 3:22 p.m.” but there is no comparable line to this indicating where in the minutes that occurred.] Page 12 (agenda packet page 16), paragraph 4, last sentence: “He advised expenses are tracking higher than the revised budget because of the offset to those recreation classes, which has revenue associated, as well as some expenditure that are is being reimbursed by those intergovernmental revenues.” Page 13 (agenda packet page 17), Item F, paragraph 2, sentence 1: “In response to Committee Member Collopy's inquiry, Chair O'Neill reported the Tideland Funds discussion will take the place of one of the department deep dives.” e of are 1 2 22 Page: 2 Number: 1Author: SCatlett Subject: Sticky Note Date: 01/12/2022 5:02:22 PM This was correct as written. I was referring to 50% of the total, which is within the 70% of the total. The balance being 20% of the total. We were always speaking about the composition of the 70%. Number: 2Author: SCatlett Subject: Sticky Note Date: 01/12/2022 5:02:49 PM Should be "some expenditureS that are". The S was missing 23 CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA - Final 100 Civic Center Drive - Community Room Thursday, January 13, 2022 - 3:00 PM Finance Committee Members: Will O'Neill, Chair Noah Blom, Mayor Pro Tem Brad Avery, Council Member William Collopy, Committee Member John Reed, Committee Member Nancy Scarbrough, Committee Member Joe Stapleton, Committee Member Staff Members: Grace K. Leung, City Manager Scott Catlett, Finance Director/Treasurer Marlene Burns, Administrative Specialist to the Finance Director 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 Director/Treasurer 24 hours prior to the scheduled Finance Committee meeting. NOTICE REGARDING PUBLIC PARTICIPATION Questions and comments may also be submitted in writing for the Finance Committee’s consideration by sending them to Scott Catlett Finance Director/Treasurer, at scatlett@newportbeachca.gov. To give the Finance Committee adequate time to review your questions and comments, please submit your written comments by no later than 5 p.m. the day prior to the Finance Committee meeting. All correspondence will be made part of the record. NOTICE TO THE PUBLIC 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. It is the intention of the City of Newport Beach 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, the City of Newport Beach will attempt to accommodate you in every reasonable manner. If requested, this agenda will be made available in appropriate alternative formats to persons with a disability, as required by Section 202 of the Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12132), and the federal rules and regulations adopted in implementation thereof. Please contact the City Clerk’s Office 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) 644-3127 or scatlett@newportbeachca.gov. Scrivener's error now updated. 24 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5A January 13, 2022 TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Finance Department Scott Catlett, Finance Director/Treasurer 949-644-3213, scatlett@newportbeachca.gov SUBJECT: FINANCIAL STATEMENT AUDIT RESULTS AND RELATED COMMUNICATION SUMMARY: The City is audited annually by an independent auditing firm, presently Davis Farr LLP. The audit process takes several months, beginning after the books are closed (typically in September) and concluding several months later once the financial statements have been prepared. A copy of the city’s Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2021, has been provided to the Committee and is attached to this report. Also attached are the auditors’ required communications with the Finance Committee in their capacity as the City’s Audit Committee and the auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters. RECOMMENDED ACTION: Receive and file. DISCUSSION: The auditors’ opinion letter can be found within the ACFR (Attachment A), which reflects an unmodified or “clean” audit opinion, meaning that the financial statements are presented fairly, in all material respects, and in conformity with generally accepted accounting principles. 25 Financial Statement Audit Results and Related Communication January 13, 2022 Page 2 The first letter, included as Attachment B, is intended to communicate to the Finance Committee and the City Council matters of particular significance as required by auditing standards. These include:  Qualitative Aspects of Accounting Practices  Difficulties Encountered in Performing the Audit  Corrected and Uncorrected Misstatements  Disagreements with Management  Management Representations  Management Consultations with Other Independent Accountants  Other Audit Findings or Issues The auditors reported no significant difficulties encountered in connection with the performance of the audit, no material corrected and uncorrected misstatements, no disagreements with management, and no other audit findings or issues. The second letter, included as Attachment C, is intended to communicate information regarding deficiencies in internal control, instances of non-compliance, and other related matters as required by auditing standards. The auditors did not identify any deficiencies in internal control that would need to be communicated to the Committee, nor did they identify any instances of noncompliance or other matters to report. The Single Audit, a compliance audit of federally assisted grant programs, is still ongoing. While no audit findings are anticipated as a result of the Single Audit, staff will communicate any findings, should they occur, to the Finance Committee at a future meeting. Representatives of Davis Farr LLP will be present for the Finance Committee meeting and will make a presentation regarding the results of their audit of the City’s financial statements. Staff and the auditors will then be available for questions from the Committee and the public. Additionally, should the Committee wish to discuss any matters related to the Fiscal Year 2020-21 Audit with the auditors without staff present, such an opportunity can be afforded at the conclusion of the item. Prepared by: Submitted by: /s/ Trevor Power /s/ Scott Catlett Trevor Power Scott Catlett Accounting Manager Finance Director/Treasurer Attachments: A. Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2021 26 Financial Statement Audit Results and Related Communication January 13, 2022 Page 3 B. Auditor’s Required Communications with the Audit Committee C. Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters 27 ATTACHMENT A ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2021 28 C I T Y O F N E W P O R T B E A C H ANNUAL COMPREHENSIVE FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2021 29 30 Annual Comprehensive Financial Report For the Fiscal Year Ended June 30, 2021 Prepared by the Finance Department Scott Catlett, Finance Director/Treasurer 31 The City of Newport Beach was incorporated September 1, 1906 The present City Seal was adopted July 22,1957 32 INTRODUCTORY SECTIONINTRODUCTORY SECTION 33 This page left blank intentionally. 34 CITY OF NEWPORT BEACH Annual Comprehensive Financial Report Year Ended June 30, 2021 TABLE OF CONTENTS INTRODUCTORY SECTION (Unaudited) Table of Contents ....................................................................................................................... 1 Letter of Transmittal ................................................................................................................... 5 GFOA Certificate of Achievement for Excellence in Financial Reporting ................................ 20 List of City Officials .................................................................................................................. 21 Organization Chart ................................................................................................................... 22 FINANCIAL SECTION Independent Auditors' Report............................................................................................ 25 Management’s Discussion and Analysis .......................................................................... 31 (Required Supplementary Information) Basic Financial Statements Government-wide Financial Statements: Statement of Net Position ............................................................................................... 53 Statement of Activities ..................................................................................................... 54 Fund Financial Statements: Governmental Funds: Balance Sheet .............................................................................................................. 60 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position....................................................................................... 63 Statement of Revenues, Expenditures and Changes in Fund Balances ...................... 64 Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities .............. 67 Budgetary Comparison Statements: General Fund ......................................................................................................... 68 Tide and Submerged Land – Operating Fund ........................................................ 70 Tide and Submerged Land – Harbor Capital Fund ................................................ 71 Proprietary Funds: Statement of Net Position............................................................................................. 76 Statement of Revenues, Expenses and Changes in Net Position ............................... 77 Statement of Cash Flows ............................................................................................. 78 Fiduciary Funds: Statement of Fiduciary Net Position ............................................................................. 82 Statement of Changes in Fiduciary Net Position .......................................................... 83 Notes to the Financial Statements ..................................................................................... 86 1 35 Required Supplementary Information Defined Benefit Plan For Miscellaneous Employees: Schedule of Changes in the Net Pension Liability and Related Ratios ......................... 152 Schedule of Contributions ............................................................................................. 154 Defined Benefit Plan For Safety Employees: Schedule of Changes in the Net Pension Liability and Related Ratios ......................... 156 Schedule of Contributions ............................................................................................. 158 Post-Employment Health Care Benefits (OPEB): Schedule of Changes in the Net OPEB Liability and Related Ratios ............................ 160 Schedule of Contributions ............................................................................................. 161 Supplementary Schedules Other Governmental Funds: Combining Balance Sheet ............................................................................................. 168 Combining Statement of Revenues, Expenditures and Changes in Fund Balances .............................................................................................................. 176 Budgetary Comparison Schedules: State Gas Tax Fund ...................................................................................................... 184 SB1 Gas Tax RMRA Fund ............................................................................................ 185 Asset Forfeiture Fund ................................................................................................... 186 OTS DUI Grant Fund .................................................................................................... 187 Circulation and Transportation Fund ............................................................................. 188 Building Excise Tax Fund .............................................................................................. 189 Community Development Block Grant Fund ................................................................. 190 Air Quality Management District Fund .......................................................................... 191 Environmental Liability Fund ......................................................................................... 192 Supplemental Law Enforcement Fund .......................................................................... 193 Contributions Fund…………………………………………………………………………… 194 FIIN Fund…………………………………………………………………………… .............. 195 Small Business Grant Fund……………………………………………………… ............... 196 Measure M Fund……………………………………………………… ................................ 197 Internal Service Funds: Combining Statement of Net Position ........................................................................... 202 Combining Statement of Revenues, Expenses and Changes in Net Position .............. 203 Combining Statement of Cash Flows ............................................................................ 204 Fiduciary Funds: Combining Statement of Fiduciary Net Position ............................................................ 207 Combining Statement of Changes in Fiduciary Net Position......................................... 208 STATISTICAL SECTION (Unaudited) Financial Trends: Net Position by Component ................................................................................................ 212 Changes in Net Position ...................................................................................................... 214 Fund Balances of Governmental Funds .............................................................................. 216 Changes in Fund Balance of Governmental Funds ............................................................ 218 Revenue Capacity: Assessed Value and Estimated Actual Value of Taxable Property ..................................... 222 2 36 Property Tax Rates, Direct and Overlapping Governments ................................................ 223 Principal Property Taxpayers .............................................................................................. 224 Property Tax Levies & Collections ...................................................................................... 225 Debt Capacity: Ratios of Outstanding Debt by Type ................................................................................... 228 Ratios of General Bonded Debt .......................................................................................... 230 Schedule of Direct and Overlapping Debt ........................................................................... 231 Computation of Legal Debt Margin ..................................................................................... 232 Demographic and Economic Information: Demographic and Economic Statistics ................................................................................ 236 Principal Employers ............................................................................................................ 237 Operating Information: Full-Time City Employees by Function ................................................................................ 241 Operating Indicators by Function ........................................................................................ 242 Capital Asset Statistics by Function .................................................................................... 244 Water Sold by Customer Type ............................................................................................ 246 Utility Rates ......................................................................................................................... 247 Major Water Customers ...................................................................................................... 248 3 37 This page left blank intentionally. 4 38 Finance Department CITY OF NEWPORT BEACH 100 Civic Center Drive Newport Beach, California 92660 949 644‐3127 | 949 644‐3339 FAX newportbeachca.gov/finance December 23, 2021 Honorable Mayor, Members of the City Council, and Residents of the City of Newport Beach, California The City Charter and California state law require that the City of Newport Beach (“City”) issue a complete set of financial statements annually and that an independent firm of certified public accountants audit this report in conformance with generally accepted auditing standards (GAAS). The Annual Comprehensive Financial Report (ACFR) of the City of Newport Beach for the year ended June 30, 2021, is hereby submitted. The ACFR was prepared in conformance with generally accepted accounting principles (GAAP) as promulgated by the Governmental Accounting Standards Board (GASB). This report consists of City management’s representations concerning the finances of the City of Newport Beach. Responsibility for the accuracy and completeness of the data presented rests with the City. Management of the City is also responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the government are protected from loss, theft, or misuse, and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. We believe the information presented in this report is complete and accurate in all material respects, and that it is reported in a manner designed to fairly present the financial position and results of operations of the various activities of the City of Newport Beach. The City of Newport Beach’s financial statements have been audited by DavisFarr LLP, a firm of licensed certified public accountants. The goal of the audit was to provide reasonable assurance that the financial statements of the City of Newport Beach for the fiscal year (FY) ended June 30, 2021 are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based on the audit, that there was a reasonable basis for rendering an unmodified opinion that the City of Newport Beach’s financial statements for the year ended June 30, 2021, are fairly presented in 5 39 conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. A narrative introduction, overview, and analysis accompany the basic financial statements in the form of the Management’s Discussion and Analysis (MD&A). The letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Newport Beach MD&A can be found immediately following the report of the independent auditors and will provide further information regarding the format and content of this report. PROFILE OF THE CITY Newport Beach is a community located in the coastal center of Orange County, in the heart of Southern California, with Los Angeles County to the north and San Diego County to the south. There are currently 34 cities within the county. In terms of population, Orange County is the third largest county in California trailing Los Angeles and San Diego. It is the sixth largest county in the nation. The general vicinity of Newport Beach and Orange County relative to the counties of Los Angeles, San Bernardino, Riverside, and San Diego is illustrated on the map below: 6 40 Newport Beach surrounds Newport Bay, well known for its picturesque islands and one of the greatest recreational harbors in the world, accommodating about 9,000 recreational and sports charter boats docked within its 21-square-mile harbor. The bay and the ten miles of ocean beach offer outstanding fishing, swimming, surfing, and aquatic sports activities. The city has a permanent population of 85,865, which typically grows to well over 100,000 during the summer months, including 20,000 to 100,000 or more tourists daily. There are fine residential areas, modern shopping facilities, and a quality school system. The University of California, Irvine, is located immediately adjacent to the city, and several other colleges are within a 30-mile radius. The following map illustrates the communities within Newport Beach; the upper bay, the recreational harbor, and beachfront topography; and the city’s location relative to the bordering cities of Costa Mesa to the north, Irvine to the east, and Laguna Beach to the south. Newport Beach was incorporated on September 1, 1906. The City Charter was originally adopted in 1954 but has been updated and amended over time. The City operates under a Council-Manager form of government. Council Members are elected by district but voted on by the population as a whole, and serve four-year staggered terms. The governing council consists of the Mayor and six other members and is responsible for, 7 41 among other things, policy-making, passing local ordinances, adopting the budget, appointing committees, and hiring the City Manager, City Attorney, and City Clerk. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City, and for appointing heads of departments. The City of Newport Beach is a full service city providing its residents and visitors with the following functional services: general governance, legal, financial, information technology, and administrative management; police, fire, paramedic, lifeguard, and emergency medical transport services; engineering, construction, and maintenance of public facilities, public streets, beaches, and parks; planning, zoning, and economic development services; building inspection, plan check, and code enforcement services; libraries and cultural and arts services; recreation and senior services; and water, wastewater, and street light utility services. The City provides water and wastewater service to most areas within the city limits, but it does not provide gas, cable television, electrical, or other utility services. Public elementary and secondary education is provided by the Newport-Mesa Unified School District and the Laguna Beach Unified School District. Component Unit: The City’s financial statements present the financial activity of the City of Newport Beach (the primary government) and the Newport Beach Public Facilities Corporation (a component unit of the City). The Corporation is blended into the City’s financial statements because of its operational and financial relationship with the City. Even though it is a legally separate organization, City of Newport Beach elected officials are accountable for fiscal matters of the Corporation. Additional information about the Newport Beach Public Facilities Corporation and the reporting entity in general can be found in Note (1a) of the notes to the financial statements. DEMOGRAPHICS Reflective of a mature community, vacant land has become increasingly scarce and the city is relatively built-out. Currently at 85,865, the population has been very stable as indicated by the following chart. 8 42 The effective buying income and median household income are generally higher in Newport Beach than in other areas of the State and the U.S. overall. As illustrated by the table below, Newport Beach median household income is nearly twice that of the U.S. median household income. The leading industries here are professional, scientific, health care, finance, insurance, legal, and travel/tourism. Unemployment in the city stands at 4.0% due to the remaining economic impacts associated with the COVID-19 pandemic, but is significantly lower when compared to the state, 7.3% and the county, 4.7%, as illustrated in the following chart. More detailed information concerning the city’s demographics and statistics are contained within the Statistical Section of this report. LOCAL ECONOMY Financial activity at the end of the fiscal year indicates that revenues came in higher, and expenditures lower, than the revised budget. This is a reflection of both the City’s conservative budgeting and projection methodologies, consistent with City Council Policy F-3 – Budget Adoption and Administration, and a more rapid improvement in the economy than had been initially anticipated. Newport Beach’s hotel occupancy rate stands at 60.7% as of August 21st and is 37.9% higher than at the same time last year. When California reopened its economy in mid- June and dropped several COVID-related restrictions, hotel occupancy shot up. In Anaheim, the home of Disneyland, hotel occupancy was at 70% in June, compared to City of Newport Beach $128,294 Orange County 95,934 California 80,444 USA 65,712 2020 Median Household Income 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* Calendar Year Historical Unemployment Rates (Rates are not seasonally adjusted) Newport Beach Orange County California * through October 31, 2021 9 43 45% the previous year, according to the global hospitality data and analytics company STR. However, some hoteliers remain concerned about the lingering impacts of the COVID-19 pandemic on tourism as well as a slow return of business travelers. Automobile sales as a major industry group has experienced a classical V-shaped recovery in the aftermath of the COVID-19 recession. New car sales dropped 68% or more at many dealers around the State in the initial weeks after the State’s pandemic shutdown order in March 2020. Sales have since steadily rebounded and are now in 2021 13% higher than the same period in 2019, a year before the crisis began. Limited supply has been overwhelmed by strong demand. Consumers are treating themselves to more expensive models, with new cars reported to be 8% more costly this year. The California New Car Dealers Association reports that Porsche, Mercedes, and Tesla have been the most sought-after brands in 2021. S&P Global and other research firms are forecasting continued growth in the 15% range for the remainder of the year before sales begin to flatten out in 2022. The Conference Board expects consumer spending to continue to improve in the second half of 2021, especially on in-person services, but the overall growth contribution derived from consumer spending will moderate as much of the recovery in this facet of the economy has already been achieved. However, continued consumer uncertainty in reaction to the identification of new COVID-19 variants presents a downside risk to consumer spending. While it is unlikely that a new round of severe government-mandated mobility restrictions will be implemented to contain these variants, cyclical fluctuations in the public’s comfort interacting in public spaces does have the potential to affect consumer confidence and in-person spending. TOP THREE REVENUE SOURCES Most revenue categories performed at or higher than their budgeted levels this year due to more favorable economic conditions than anticipated when the budget was developed in April 2020. This performance trend led to a $17.7 million budget amendment during the third quarter that aligned the revenue budget with the higher anticipated results projected at that time. Actual revenues were $16.1 million or 7.3% higher than anticipated. As discussed in more detail below, the primary positive variances were in sales tax and service fees & charges. The top three individual revenue sources, Property Taxes, Sales Taxes and Sales Tax in Lieu, and Transient Occupancy Taxes (TOT), represent 74% of all General Fund revenues. Tax revenues in total, including business licenses, franchise fees, and other taxes represent nearly 80% of all General Fund revenues, while only 20% is generated from other revenue sources. 10 44 Property Taxes Unlike many cities, property taxes, not sales taxes, are the number one source of revenue for the City of Newport Beach, representing more than half (51%) of all General Fund revenues. Due to the limited supply of scenic coastal property and the unique access to Newport Bay, the Newport Beach community has been developed into affluent residential neighborhoods and high-end commercial districts. Consistent and vigorous demand for coastal property has allowed the City to enjoy long-term growth trends with its number one revenue source. Property tax revenues for FY 2020-21 were budgeted conservatively anticipating the potential for delayed payments due to economic hardship and the Governor’s Executive Order suspending penalties and interest for delinquent property tax payments. These concerns did not come to pass, and FY 2020-21 property taxes came in $1.6 million or 1.4% higher than budgeted. Secured property tax payments came in strong, $1.3 million over budget, which is an indication of timely property tax payments and higher valuations. Despite new record price levels, statewide growth in home sales slowed and pending sales dropped in the second quarter of 2021 for the first time since May 2020. Higher priced markets like Newport Beach continued to do well while sales of lower priced properties remained below last year’s levels. The median home sales price of detached single-family residences in Newport Beach was $3.1 million on June 30, 2021, up 15.9% from the prior quarter and 25% higher than the prior year. With the recent surge of home prices, this category will likely continue to improve, which bodes well for future secured property tax revenues. Estimated average single-family home values of $3,193,863 in Newport Beach far exceed the countywide average value of $1,350,087. 51% 17% 7% 5% 20% General Fund Revenues Property Taxes Sales Taxes Transient Occupancy Taxes Other Taxes All Other Sources 11 45 After Californians passed Proposition 13 in 1978, assessed property value is reassessed to market value only when the property changes ownership. Otherwise, the assessed value (AV) grows by no more than two percent per year. This practice creates a constant lag and buffer between assessed and market values, effectively insulating the tax base from more market volatility. While property tax growth rates fell sharply during the Great Recession, the City has experienced positive AV growth during each of the past 20 years (see chart below with the past 15 years of AV growth demonstrated). This positive growth occurred while many other cities experienced decreases in their AV during 2008 through 2011. Note that while growth slowed, the assessed value never declined throughout the recession. Value changes in Newport Beach show continued appreciation in property values in FY 2020-21. Over the past 10 years, assessed valuation increased an average of 5.5% per Home % Year Value Change 2012 1,666,362$ 3.18% 2013 1,930,565$ 15.86% 2014 2,027,552$ 5.02% 2015 2,173,786$ 7.21% 2016 2,318,400$ 6.65% 2017 2,589,204$ 11.68% 2018 2,727,520$ 5.34% 2019 2,650,832$ -2.81% 2020 2,879,248$ 8.62% 2021 3,193,863$ 10.93% *Source: HdL CITY OF NEWPORT BEACH Single Family Home Values* 12 46 year and 6.2% over a twenty-year period. Newport Beach’s assessed property values increased 4.8%, with a local assessed value of $63.7 billion for FY 2020-21. Sales Taxes The second largest funding source for the General Fund is sales tax revenue, typically making up more than 15% of General Fund revenues. The City’s sales tax base is largely generated from three main industry categories including Autos and Transportation, General Consumer Goods, and Restaurants/Hotels. Most of these industries are also heavily impacted by tourism. The latest sales tax information shows that retail and restaurants have been hit especially hard this past year while autos and transportation is showing quarter over quarter increases. Also, the California Department of Tax and Fee Administration (CDTFA) has extended due dates and offered payment plans to small businesses. This has, and will continue to create, timing issues related to when revenues are received. The City’s sales tax consultant provided an updated sales tax estimate at the end of the third quarter, which resulted in an upwardly revised sales tax budget of $34.5 million. This came as the result of increased consumer spending amid an environment of reduced COVID-19-related restrictions. Actual Sales Tax revenues came in $4.4 million or 12.8% higher than anticipated and surpassed the previous highest annual sales tax revenues in FY 2018-19 of $38.5 million and the prior year receipts of $36.2 million. Businesses pivoted in creative ways to reach their customers as they were able to open at some capacity sooner than expected resulting in relatively strong consumer spending, and significantly increased online retail activity resulted in strong revenues from the county sales tax pool. All three main industry categories performed better than expected, with particularly strong growth seen in the fourth quarter. The City’s sales tax base is generated from a relatively diverse business community and is not dependent on any one merchant or industry. The following chart demonstrates the diversity of the City sales tax revenue. The largest segment, “Transportation,” accounts for 37% of total sales taxes. The next largest segments, “Food Products” and “General Retail,” account for 19% and 36% of total sales taxes, respectively. The next largest sales tax segment, “Business to Business” accounts for 7% of total sales. 13 47 Transient Occupancy Taxes (TOT) TOT accrues to the City at a rate of 10% of room charges with 18% of this collection going to the local destination marketing organization (Newport Beach & Company) to promote Newport Beach as a tourist destination. The City distinguishes its transient occupancy taxpayers in two broad property type categories, commercial and residential property. The commercial category is composed of approximately 20 hotels and resorts and accounts for 80 percent of TOT revenues. The residential category is made up of approximately 1,500 vacation rentals representing 20 percent of TOT revenue. TOT was the City’s most severely impacted revenue source as the pandemic unfolded, as most major hotels within the City were temporarily closed towards the end of March 2020 and many didn’t start reopening until late May or early June, with some hotels remaining closed in the third quarter. Also, short term rentals were not allowed to operate in the City from early April 2020 until May 20, 2020. All but one hotel are now operational, and the latest tax receipts (July) indicate several hotels are reporting their highest monthly tax receipts ever. Staff had budgeted FY 2020-21 TOT revenues very conservatively, expecting to realize 10%, 20%, and 25% of prior year revenue in the first, second, and third quarters respectively. Staff had anticipated that residential TOT would be similarly impacted economically, but in fact, the negative impact has been limited to hotel TOT, with residential TOT revenues coming in at just under $1 million higher than budgeted. The table below illustrates a comparison of hotel TOT revenues by fiscal year and quarter. It is remarkable to note the precipitous revenue increase during in the last quarter accounted for 38.6% of revenue for FY 2020-21. The fourth quarter receipts are much higher than the previous year and somewhat narrowed the revenue loss gap when compared to prior years. The positive improvement in this category has led to year-end revenue collections for this category reaching 81% of the prior year actuals. Revenues through the end of the fiscal year were approximately $1.7 million or 11.0% over the revised budget. Transient Occupancy Tax Receipts by Quarter FY18-FY21 A steady improvement in revenue and occupancy rates combined with daily room rates that have been consistently higher than in recent years have been seen since December, which is anticipated to continue given the current easing of restrictions and the anticipated return of more significant numbers of leisure, and ultimately business, travelers in the months ahead. Actual Received % o f Actuals Actual Received % o f Actuals Actual Received % o f Actuals Actual Received % o f Actuals 1st Quarter 2,267,092 13.43% 4,959,179 23.79% 4,820,281 19.52% 4,340,572 19.01% 2nd Quarter 5,523,645 32.71% 7,730,446 37.08% 6,313,511 25.56% 5,962,939 26.11% 3rd Quarter 2,579,739 15.28% 5,545,740 26.60% 5,759,862 23.32% 5,217,752 22.85% 4th Quarter 6,515,721 38.59% 2,612,517 12.53% 7,803,792 31.60% 7,312,352 32.02% TOTAL $16,886,197 100% $20,847,883 100% $24,697,446 100% $22,833,614 100% Fiscal Year 2020 - 21 Fiscal Year 2019 - 20 Fiscal Year 2018 - 19 Fiscal Year 2017 - 18 14 48 LONG TERM FINANCIAL PLANNING The City continues to be in excellent financial health due to its strong underlying tax base, disciplined fiscal decisions, and stable governance. Conservative budgeting and sound financial policies have resulted in a trend of General Fund operating surpluses and strong reserve levels for several years. This is still no less the case even amid the significant economic downturn the City experienced during the COVID-19 pandemic. The City annually completes a Long-Range Financial Forecast covering the next 20 years pursuant to City Council Policy F-3 – Budget Adoption and Administration. That forecast shows positive General Fund results in each of the next 20 years and does no indicate any long-term financial trends of concern. The City’s long-term financial planning has been guided by its strong financial policies, prudent budgeting decisions, and proactive planning in such critical areas as facilities replacement and pensions. These policies are regularly evaluated and updated as conditions and needs change. Financial Policies The City Council has adopted prudent fiscal policies concerning its investments, reserves, budget administration, revenue initiatives, competitive contracting, facility replacement planning, and more. The budget surplus utilization policy directs the use of surplus funds resulting from unrestricted General Fund annual revenues exceeding total actual expenditures, encumbrances, and commitments for that year. Roughly fifty percent of the budget surplus is used to address long-term obligations such as pension liabilities, other post-employment benefits, bonded debt, lease obligations, and other long-term needs. The remaining surplus is used to address one-time infrastructure or neighborhood capital improvements, guided by a philosophy that these expenditures improve the community’s safety, aesthetics, transportation, or quality of life. The City’s debt policy establishes criteria for the issuance of debt and assures that the amount of any debt is affordable and cost effective. The City’s debt policy was recognized by the California Debt and Investment Advisory Commission as one of only 14 counties and cities in California whose policies have 20 or more debt management best practice elements. The City’s debt and other financial policies can be found on the City’s website in the City Council section under City Government at: www.newportbeachca.gov/policies 15 49 Annual Budget The annual budget serves as the foundation for the City of Newport Beach’s financial planning and control and allows the City Council to prioritize City expenditures so that they are aligned with core community values. The City of Newport Beach, along with other local jurisdictions, states, and the federal government faced an exceptionally challenging economic environment as a result of the COVID-19 Pandemic. As previously mentioned, actual revenue results ended up much better than anticipated and actual expenditures ended the year lower than budgeted due to the careful management of operating expenditures (implementation of a hiring freeze and the curtailment of other expenditures). Per current policy, appropriations for operating expenditures are balanced in relation to current revenue sources and do not rely on one-time revenue sources or reserves. When significant uncertainty exists concerning revenue volatility or threatening/pending obligations, the City Council and City Manager reserve the right to impose any special fiscal control measures, including personnel hiring freezes, and other spending controls, as was the case in FY 2019-20 and in the development of the FY 2020-21 budget. As a result of early retirement plans, attrition, outsourcing, and lay-offs implemented in the years following the onset of the Great Recession, the full-time work force was reduced by approximately 4% between FY 2012-13 and FY 2016-17 as depicted in the chart below. In the years since, thoughtful additions to the City’s workforce have been implemented with a continued focus on fiscal discipline and maintaining balanced budgets. The City has traditionally taken a conservative approach to forecasting revenues, often assuming only modest growth. This fiscal conservatism has created a stable financial base. As a result, even in a downturn, the City of Newport Beach is able to maintain its services at a high level, while reducing expenses to accommodate reduced revenues. The City’s fiscal discipline has allowed it to prepare balanced budgets and to save, both 16 50 during prosperous and difficult economic periods. As the economy continues to improve, these trends are likely to continue. The City Council may authorize the use of Contingency reserves during emergency situations as set forth by the Council Reserve Policy. Current policy requires that the Contingency Reserve equal 25 percent of the General Fund annual “Operating Budget.” Credit rating agencies consider a high level of available “fund balance” to be a credit strength. In 2021, Moody’s rating agency reaffirmed the City’s AAA credit rating noting the City’s extensive tax base, a very strong wealth and income profile, and a robust financial position. It also noted the City’s moderate debt burden and an elevated pension burden in its rationale. The City’s has aggressively attacked its unfunded pension liability and has made regular discretionary payments to reduce that liability at a more rapid pace than is required by CalPERS, as further described in the Pension section below. Facilities Financial Plan (FFP) Commitment & Major Construction Initiatives The City’s FFP is a comprehensive master facilities replacement schedule that projects the timing of construction of facility projects; projects the schedule of any planned debt issuance; includes all relevant revenue sources and expenditures on a yearly, project-by- project basis; and determines the long-term “level funding” annual budget commitment that is required to support the program. The FFP was the winner of the prestigious “Helen Putnam Award – Internal Administration” category from the League of California Cities in 2008. The City continued its financial commitment to the Facilities Financial Planning Reserve (FFPR) in FY 2020-21 by allocating resources to debt service, fire stations, parks and community centers, and other projects. Overall, the FFPR balance is increasing by $11.0 million from the prior fiscal year. Beginning Balance 7/1/20 17,046,839$ Sources Licenses, Permits and Fees 313,195 Property Income 263,188 Donations 5,150,000 Transfer In from General Fund 19,844,644 Investment Income 263,817 Net increase in fair value of investments (241,649) Total Sources 25,593,195 Uses 2010 Civic Center COPs Debt Service 1 (7,646,138) Parks and Community Centers (6,901,299) Total Uses (14,547,437) Ending Balance 6/30/21 28,092,597$ 1 The transfer is net of the Build America Bonds subsidy, which is recorded in the Debt Service Fund Facilities Financial Planning Reserve Fund 17 51 Pensions As of the actuarial valuation date of June 30, 2020, the City had an Unfunded Accrued Liability (UAL) of $333 million. The City has taken a number of actions in recent years to mitigate the impact of rising pension costs including: Established lower benefit formulas for new hires. Eliminated the Employer Paid Member Contribution (EPMC). Through negotiated cost sharing, saw employees contribute 58% of the Normal Cost of the plan, or $10.5 million in FY2020-21. Adopted a fixed and shorter amortization period for the unfunded liability. Made Additional Discretionary Payments (ADPs) Contributed no less than Actuarial Determined Contribution (ADC) each & every year. Analyzed the schedule of amortization bases annually in an effort to avoid negative amortization. Amortized all gains/losses no longer than a 20-year closed period. Avoided asset smoothing or “rate phase-in” schedules if possible. Otherwise, the City’s goal is to not exceed 5 years for any one smoothing cycle. Established a General Fund Surplus Utilization Policy F-5 to set aside one-half of any annual budget surplus to fund debts such as the pension liability. Maintained a contingency reserve to protect against economic recessions and to avoid negative impacts of asset smoothing and rate phased-in schedules. Local governments with pensions have a total pension liability, which is the obligation to pay deferred pension benefits in the future. When the total pension liability is greater than the pension plan’s assets there is a net pension liability, also known as unfunded pension liability. As required by GASB 68, the City reports the net pension liability in the government wide financial statements, as well as in the proprietary fund statements, in the ACFR – see Note (10) of Notes to the Financial Statements. The City implemented GASB 75 in FY2017-18, which requires local governments offering other post-employment health care benefits (OPEB) to report net OPEB liability in the government wide financial statements, as well as in the proprietary fund statements, in the ACFR – see Note (11) in the Notes to the Financial Statements. When the total OPEB liability is greater than the OPEB plan’s assets there is a net OPEB liability, also known as unfunded OPEB liability. As with past practice, the City will continue to fund its pension and OPEB obligations at an amount equal to or greater than the minimum employer contribution rate. The City has not and will never intentionally short-fund its pension and OPEB obligations. Annually the City evaluates the cost and benefits of paying down the unfunded pension and OPEB liabilities on a faster schedule. Currently, the City Council has committed to a fixed $35 million per year contribution toward the unfunded pension liability, which is approximately $9 million more than is required by CalPERS. Additionally, for two years in a row the City 18 52 19 53 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Newport Beach California For its Annual Comprehensive Financial Report For the Fiscal Year Ended June 30, 2020 Executive Director/CEO 20 54 Newport Beach City Officials Kevin Muldoon Mayor District 4 Will O’Neill Council Member District 7 Joy Brenner Council Member District 6 Diane B. Dixon Council Member District 1 Brad Avery Council Member District 2 Duffy Duffield Council Member District 3 Noah Blom Mayor Pro Tem District 5 City Council Members City Executive Staff Grace K. Leung City Manager Aaron Harp City Attorney Leilani Brown City Clerk Tara Finnigan ............................................................................................................................. Deputy City Manager Scott Catlett ......................................................................................................................Finance Director/Treasurer Seimone Jurjis ...................................................................................................... Community Development Director Jeff Boyles.....................................................................................................................................................Fire Chief Paul Blank ............................................................................................................................................. Harbormaster Barbara Salvini .................................................................................................................. Human Resources Director Tim Hetherton ...................................................................................................................... Library Services Director Jon T. Lewis .............................................................................................................................................. Police Chief Dave Webb ............................................................................................................................... Public Works Director Laura Detweiler ............................................................................................... Recreation & Senior Services Director Mark Vukojevic ..................................................................................................................................Utilities Director 21 55 Board of Library Trustees Building & Fire Code of Appeals City Arts Commission Civil Service Board Harbor Commission Parks, Beaches & Recreation Commission Planning Commission ELECTORATE CITY MANAGER MAYOR & COUNCIL CITY CLERK CITY ATTORNEY Community Development Finance Fire Human Resources Harbor Library Services Public Works Utilities Police Recreation & Senior Services City Committees 22 56 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONINDEPENDENT AUDITORS’ REPORTINDEPENDENT AUDITORS’ REPORT 23 57 This page left blank intentionally. 24 58 INDEPENDENT AUDITOR’S REPORT The Honorable Mayor and Members of the City Council City of Newport Beach Newport Beach, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Newport Beach, California, as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 25 59 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Newport Beach, California, as of June 30, 2021, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter The financial statements for the year ended June 30, 2021 reflect certain prior period adjustments as described further in note 18 to the financial statements. Our opinion is not modified with respect to this matter. As described further in note 1 to the financial statements, during the year ended June 30, 2021, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 84. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and budgetary comparison information for the General Fund and each major special revenue fund and Schedule of Changes in the Net Pension Liability and Related Ratios – Miscellaneous Plan, Schedule of Contributions – Miscellaneous Plan, Schedule of Changes in the Net Pension Liability and Related Ratios – Safety Plan, Schedule of Contributions – Safety Plan, Schedule of Changes in the Net OPEB Liability and Related Ratios, Schedule of Contributions – OPEB, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the GASB who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Newport Beach’s basic financial statements. The combining and individual nonmajor fund financial statements, the introductory section and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. 26 60 The combining and individual nonmajor fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section and the statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 23, 2021 on our consideration of the City of Newport Beach's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Newport Beach’s internal control over financial reporting and compliance. Irvine, California December 23, 2021 27 61 This page left blank intentionally. 28 62 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONMANAGEMENT’S DISCUSSION AND ANALYSIS 29 63 This page left blank intentionally. 30 64 MANAGEMENT’S DISCUSSION AND ANALYSIS This section of the City of Newport Beach’s Annual Comprehensive Financial Report (ACFR) presents management’s discussion and analysis of the City’s financial performance during the fiscal year that ended on June 30, 2021. This analysis should be read in conjunction with the Transmittal Letter at the front of this report and the accompanying Basic Financial Statements. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the Annual Comprehensive Financial Report contains the following information: Independent Auditors’ Report, Management’s Discussion and Analysis (this section), the Basic Financial Statements, the Required Supplementary Information, and the Supplementary Information section, an optional section that presents combining and budgetary schedules for individual non-major funds. The Basic Financial Statements are comprised of three components: 1) Government-wide Financial Statements, 2) Fund Financial Statements, and 3) Notes to the Financial Statements. Management’s Discussion and Analysis is intended to be an introduction to the Basic Financial Statements. BASIC FINANCIAL STATEMENTS Government-wide Financial Statements – The Government-wide Financial Statements use the economic resources measurement focus and accrual basis of accounting, which is similar to the accounting standard used by private sector companies. The Government-wide Financial Statements are intended to provide a “Big Picture” view of the City. With the economic resources measurement focus and accrual basis of accounting, changes in net position are recognized as soon as the event occurs regardless of the timing of related cash flows. The Statement of Net Position includes all of the City’s assets (including non-spendable assets like streets, roads, and land rights), deferred outflows of resources, liabilities (including long-term liabilities that may be paid over twenty years), and deferred inflows of resources. All of the current year revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. The Government-wide Financial Statements report the City’s net position and how they have changed. Net position – the difference between the City’s assets, deferred outflows of resources, liabilities and deferred inflows of resources – is one way to measure the City’s financial health. Over time, increases or decreases in the City’s net position are an indicator of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the City, one should also consider additional non-financial factors such as changes in the City’s property tax base and the condition of its facilities and other major infrastructure. The Government-wide Financial Statements of the City are divided into two categories: Governmental Activities – This category depicts the extent to which programs are self- supporting and the net amount provided by property taxes and other general revenues. Most of the City’s basic services are included in this category such as the public safety, public works, community development, community services, and general administration. Taxes and other general revenues finance most of these activities. 31 65 Business-type Activities – The City accounts for its Water and Wastewater utilities as business enterprises. The City charges fees to customers to recover the cost of providing Water and Wastewater services. Fund Financial Statements – A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements such as State and Federal law or bond covenants. Other funds are utilized simply to control and manage resources intended for particular purposes. The Fund Financial Statements provide more detailed information about the City’s most significant funds (major funds) but not the City as a whole. Fund Financial Statements have a short-term focus measuring inflows of current spendable assets. The resulting net difference between current financial assets and deferred outflows of resources, and current financial liabilities and deferred inflows of resources, otherwise known as fund balance (or net working capital in the private sector) is a measure of the City’s ability to finance activities in the near term. The City utilizes three broad categories of funds: Governmental Funds – Unlike Government-wide Financial Statements, Governmental Fund Financial Statements utilize the financial resources measurement focus and thus concentrate on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Consequently, the Governmental Fund Financial Statements provide a detailed short-term view that helps a reader determine whether there are more or fewer financial resources that can be spent in the near future to finance City programs. Also included in the Governmental Funds are Permanent Funds. These funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support City programs. Proprietary Funds – Business-like services for which the City provides goods or services to the general public are generally reported in Proprietary Funds (Enterprise Funds and Internal Service Funds). Like the Government-wide Financial Statements, these funds provide both long and short-term financial information utilizing the economic resources measurement focus. The City’s Enterprise Funds (Water and Wastewater Funds) are individual funds represented in the combined presentation of Business-type Activities in the Government-wide Financial Statements. The individual fund presentation provides more detailed information about each business segment, its operating statements, and statements of cash flow. The City also uses Internal Service Funds that are utilized to report and allocate the cost of certain centrally managed and operated activities (e.g. fleet maintenance and other equipment, risk management, retiree insurance, telecommunications systems, information technology services, etc.). Because the Internal Service Funds primarily serve the government, they are reported with Governmental Activities rather than the Business-type Activities in the Government-wide Financial Statements. Fiduciary Funds – The City utilizes Fiduciary Funds to account for assets held by the City in a trustee capacity, or as an agent for other governmental entities, private organizations, or individuals. All of the City’s fiduciary activities are reported in a separate statement of fiduciary net position, and a statement of changes in fiduciary net position. We exclude 32 66 these activities from the City’s Government-wide Financial Statements because the City cannot use these assets to finance its operations. Notes to the Financial Statements – The financial statements also include the Notes to the Financial Statements that provide important narrative details about the information contained in the financial statements. Information contained in the Notes to the Financial Statements is critical to a reader’s full understanding of the Government-wide and Fund Financial Statements. Required Supplementary Information – In addition to the Basic Financial Statements, we have included a Required Supplementary Information section, which includes the Schedule of Changes in Net Pension Liability and Related Ratios, the Schedule of Changes in Net Post-employment Health Care Benefits (OPEB) Liability and Related Ratios, and the related Schedules of Contributions for the Pension and OPEB plans. Supplementary Information – In addition to the required elements of the Basic Financial Statements, we have also included a Supplementary Information section, which includes budgetary and combining schedules that provide additional details about the City’s Other Governmental Funds, Internal Service Funds, and Fiduciary Funds. ANALYSIS OF GOVERNMENT-WIDE FINANCIAL STATEMENTS The Government-wide Financial Statements provide long-term and short-term information about the City’s overall financial condition. This analysis addresses the financial statements of the City as a whole. Net Position Discussion As shown in Figure 1, the City’s combined net position for the year ended June 30, 2021 was $2.4 billion, increasing $28.6 million or 1.2% over the prior year. Net position can serve as an important indicator of whether the City’s overall financial condition is improving or deteriorating over time. Current and other assets increased $27.0 million. This increase is primarily due to increases in cash and investments, accounts receivable (net of allowance), intergovernmental receivables, and prepaid items, offset by a decrease in interest receivable. Capital assets increased $10.8 million, mostly due to new infrastructure related to the water and wastewater systems. Current liabilities increased $12.7 million primarily due to increases in accounts payable and unearned revenue. The increase in unearned revenue was due to the receipt of federal funds through the American Rescue Plan Act that had not been spent by the end of the fiscal year. Long-term liabilities increased $6.9 million. The increase is primarily due to increases in outstanding certificates of participation due to a new debt issuance and a small increase to the City’s net pension liability. See Note (6) and Note (10) of the Notes to the Financial Statements for more information. 33 67 Figure 1 Net Position (in thousands) The largest portion of the City’s net position, at $2.4 billion of net position, reflects the net investment in capital assets (e.g., land, right of way, street trees, buildings, infrastructure, and equipment) less accumulated depreciation and any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to residents. Therefore, they do not represent a financial resource to the City and consequently are not readily available for funding current obligations. Restricted net position totaled only $67.2 million of net position and remained relatively constant with a slight decrease of $519,000 from the prior year. As of June 30, 2021, unrestricted net position had a deficit of $45.3 million. The deficit decreased $14.7 million from the prior year primarily due to an increase in the receipt of unrestricted revenues such as property taxes and sales taxes that were not spent or restricted by the end of the fiscal year. Governmental Activities Business-Type Activities Total 2020 2021 2020 2021 2020 2021 Current and other assets 298,255$ 327,609$ 42,604$ 40,271$ 340,859$ 367,880$ Capital assets 2,318,827 2,324,346 120,769 126,028 2,439,596 2,450,374 Total assets 2,617,082 2,651,955 163,373 166,299 2,780,455 2,818,254 Deferred Outflows of Resources 66,119 70,434 1,863 2,304 67,982 72,738 Current liabilities 25,177 35,627 3,833 6,100 29,010 41,727 Long-term liabilities 456,589 463,424 10,600 10,671 467,189 474,095 Total liabilities 481,766 499,051 14,433 16,771 496,199 515,822 Deferred Inflows of Resources 6,088 878 234 17 6,322 895 Net Position Net investment in capital assets 2,217,853 2,227,573 120,292 124,776 2,338,145 2,352,349 Restricted 67,708 67,189 - - 67,708 67,189 Unrestricted (90,214) (72,302) 30,277 27,039 (59,937) (45,263) Total net position 2,195,347$ 2,222,460$ 150,569$ 151,815$ 2,345,916$ 2,374,275$ 34 68 GOVERNMENTAL ACTIVITIES Governmental activities are generally financed through taxes, intergovernmental revenues, and other non-exchange revenues. The Statement of Activities is intended to illustrate how the cost of governmental activities is financed and determines the annual change in net position. Figure 2 Changes in Net Position (in thousands) Revenues Associated with Governmental Activities Discussion Figure 2 illustrates in detail how the $278.1 million in Governmental Activities revenue was derived. Figure 3 summarizes this revenue by major source. As shown on Figures 2 and 3, $58.1 million, or 20.9%, of the revenues were recovered from those who directly benefited from the programs as a charge for service. Another $28.3 million, or 10.2%, of the revenues were generated by contributions and grants received from governmental organizations, developers, and property owners for both capital and operating activities. The remaining $191.7 million, or 68.9%, represented general revenues of the City including taxes, intergovernmental revenues, and other miscellaneous revenues. Governmental Activities Business-Type Activities 2020 2021 2020 2021 2020 2021 Revenues: Program Revenues: Charges for services 57,670$ 58,113$ 31,211$ 35,358$ 88,881$ 93,471$ Operating grants and capital contributions 14,659 20,362 - - 14,659 20,362 Capital grants and contributions 7,352 7,658 - - 7,352 7,658 Total program revenues 79,681 86,133 31,211 35,358 110,892 121,491 General Revenues: Taxes: Property taxes 113,314 119,157 - - 113,314 119,157 Sales tax 36,233 38,956 - - 36,233 38,956 Transient occupancy taxes 21,097 16,886 - - 21,097 16,886 Other taxes 11,869 12,852 - - 11,869 12,852 Investment related income 5,142 518 1,358 55 6,500 573 Other 2,117 3,355 - - 2,117 3,355 Total general revenues 189,772 191,724 1,358 55 191,130 191,779 Total revenues 269,453 277,857 32,569 35,413 302,022 313,270 Expenses: General government 20,714 20,394 - - 20,714 20,394 Public safety 119,194 119,185 - - 119,194 119,185 Public works 60,055 63,689 - - 60,055 63,689 Community development 12,842 12,157 - - 12,842 12,157 Community services 26,668 28,214 - - 26,668 28,214 Interest 7,065 7,105 - - 7,065 7,105 Water - - 27,387 28,943 27,387 28,943 Wastewater - - 4,292 5,223 4,292 5,223 Total expenses 246,538 250,744 31,679 34,166 278,217 284,910 Increases in net position 22,915 27,113 890 1,247 23,805 28,360 Net position at beginning of year 2,172,432 2,195,347 149,678 150,568 2,322,110 2,345,915 Net position at end of year 2,195,347$ 2,222,460$ 150,568$ 151,815$ 2,345,915$ 2,374,275$ Total 35 69 Figure 3 Governmental Activities Revenue Sources Year Ended June 30, 2021 As illustrated in Figure 2, program revenues related to Governmental Activities increased $6.5 million from the prior year. This increase was primarily attributable to an increase in operating grants and capital contributions received for a utility undergrounding district project and the restoration of vegetation in a nature park, in addition to funding received from other governmental agencies in response to economic challenges created by the COVID-19 global pandemic. The City’s general revenues related to Governmental Activities increased about $2.0 million from the prior year primarily due increases in property taxes, sales taxes, and other general revenues, which included a delayed reimbursement payment from the federal government due to the pandemic, offset by decreases in transient occupancy taxes due to the pandemic and investment income. Property tax is the largest individual revenue source for the City and collections finished the year $5.8 million higher than the previous year. This increase was mostly due to an increase in secured taxes as a robust demand for coastal property continued driving property values higher. At $39.0 million, sales taxes represent the second largest individual revenue source for the City. Sales taxes increased $2.7 million from the previous year. This was due to the easing of pandemic related restrictions and strong consumer spending as businesses found creative ways to reach their customers. Transient occupancy taxes (TOT), the City’s third largest revenue source, finished the year at $16.9 million, which is a decrease of $4.2 million from the previous fiscal year. The net decrease stems mostly from a decrease in hotel TOT due to falling occupancy rates and closures of hotels because of the coronavirus global pandemic, offset by an increase in residential (short-term lodging-related) TOT. 21% 10% 68% 1% Charges for Services Contributions and grants Taxes Other 36 70 Investment income, comprised of both interest income and unrealized gains, totaled $518,000, a decrease of about $4.6 million from the prior fiscal year. Most of the decrease is from a net decrease in the fair value of investments, which is consistent with the fiscal year’s generally increasing interest rate environment. Expenses Associated with Governmental Activities Discussion The City is a full service city providing residents and visitors with the following functional services: General Government is comprised of six departments (City Council, City Clerk, City Manager, City Attorney, Human Resources, and Finance) providing general governance, information technology services, executive management, legal services, records management, risk management, finance, and accounting. Public Safety is comprised of two departments (Police and Fire) providing general law enforcement, fire suppression and prevention services, paramedic and medical transport services, disaster preparedness, and ocean lifeguard services. Public Works is comprised of two departments (Public Works and Utilities) providing engineering, construction and maintenance of public streets, highways, buildings, beaches, parks, facilities and related infrastructure; as well as traffic engineering and street lighting. Community Development is comprised of one department (Community Development) that provides planning, building, and zoning services, economic development services, and building plan check and code enforcement services. Community Services is comprised of three departments (Library Services, Recreation & Senior Services, and Harbor) providing library services, cultural and arts programs, recreation services, senior social and transportation services and harbor programs and services. Business Enterprise Operations are overseen by the Utilities Department providing water and wastewater services. These are considered business-type activities and are discussed further in the Business-Type Activities section. Figure 2 illustrates in detail how the $250.7 million of Governmental Activities expense was derived. The increase of $4.2 million from the prior year is mostly due to an increase in spending related to the COVID pandemic, including providing economic support to small businesses, and an increase in maintenance type capital improvement projects. 37 71 Figure 4 below summarizes the governmental activities expense shared across function. Figure 4 Governmental Activities Functional Expenses Year Ended June 30, 2021 Figures 5 and 6 illustrate the net cost of each service. The net cost represents the amount that governmental activities are subsidized by taxes and other general revenues of the City. Figure 5 Governmental Activities (in thousands) 48% 25% 11% 8% 5%3% Public Safety Public Works Community Services General Government Community Development Interest Total Cost Net Cost Total Cost Net Cost of Service of Service of Service of Service General government 20,714$ (15,497)$ 20,394$ (16,342)$ Public safety 119,194 (94,767) 119,185 (93,945) Public works 60,055 (38,463) 63,689 (38,984) Community development 12,842 (2,860) 12,157 (1,205) Community services 26,668 (8,204) 28,214 (7,029) Interest 7,065 (7,065) 7,105 (7,105) 246,538$ (166,856)$ 250,744$ (164,610)$ 2020 2021 38 72 Figure 6 Program Expenses and Revenue – Governmental Activities Year Ended June 30, 2021 (in millions) BUSINESS-TYPE ACTIVITIES As noted earlier, the City combines the Water Enterprise Fund and Wastewater Enterprise Fund into Business-type Activities for the presentation of the Government-wide Financial Statements. Business-type activities are mainly funded by charging fees to customers to recover the cost of providing services. Revenues Associated with Business-Type Activities Discussion As displayed in Figure 2, total revenues related to Business-type activities totaled $35.4 million, of which, all is related to program revenues. As shown in Figure 7 on the following page, Water activities represents about $30.8 million (87.0%) of program revenues, while Wastewater activities represents $4.6 million (13.0%) of program revenues. $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 $80.0 $90.0 $100.0 $110.0 $120.0 $130.0 General Government Public Safety Public Works Community Development Community Services Interest Total Expenses Program Revenues 39 73 Figure 7 Program Expenses and Revenue – Business-type Activities Year Ended June 30, 2021 (in millions) Expenses Associated with Business-Type Activities Discussion Current year expenses for Business-type activities totaled $34.2 million, an increase of about $2.5 million over prior year as shown in Figure 2. This is attributable to an increase in general and system maintenance and miscellaneous expenses. Major Business-type expenses in the current fiscal year included the following: Water Of the $28.9 million in water related expenses, $11.2 million (38.8%) is for the purchase of water, $5.2 million (18.0%) covers employee related costs, $6.2 million (21.5%) is for maintenance, supplies, and depreciation of the water system, $2.8 million (9.7%) is for professional services, $2.0 million (6.8%) is for utility payments and the remaining $1.5 million (5.3%) is collectively attributable to other miscellaneous expenses. Wastewater Of the $5.2 million in wastewater related expenses, $2.5 million (47.8%) is for maintenance, supplies, and depreciation of the wastewater system, $1.5 million (29.2%) is for employee related costs, and the remaining approximately $1.2 million (23.0%) is attributable to professional services, utility payments and other miscellaneous expenses. Figure 7 summarizes Business-type expenses separately for Water and Wastewater activities. $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 Water Wastewater Total Expenses Program Revenues 40 74 FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City uses fund accounting to highlight available financial resources and to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds Utilizing the financial resources measurement focus, the City’s Governmental Funds provide information on near-term inflows, outflows, and balances of spendable resources. This information is useful in assessing the City’s financing requirements and may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Fund Balance – As shown in Figure 8, the City’s Governmental Funds reported combined fund balances of $222.3 million, an increase of $17.3 million from the prior year. The increase is the net result of increases in fund balances in the General Fund, Facilities Financial Planning Reserve Fund, Civic Center COP Fund, Tide and Submerged Land – Operating Fund, Tide and Submerged Land – Harbor Capital Fund, and other permanent funds in aggregate; offset by decreases in the other special revenue funds, and other capital projects funds in aggregate. The General Fund represented $106.0 million or 47.7% of the combined fund balances of the Governmental Funds. Figure 8 Governmental Funds Fund Balance (in thousands) The following describes the classification of fund balance as of June 30, 2021. Additional information on the City’s fund balance can be found in Note (16) of the Notes to the Financial Statements. Nonspendable Fund Balance – The City has $15.3 million in fund balance classified as nonspendable to indicate that it cannot be readily converted to cash. Of the $15.3 million nonspendable fund balance, $978,644 is for prepaid items, $309,343 is for inventories, $9.4 million is for long-term loan receivables, and $4.6 million is for permanent endowments. Restricted Fund Balance – The City has $68.8 million in fund balance classified as restricted to indicate that it has an externally imposed restriction on how the money may be spent. Of the $68.8 million restricted fund balance, $4.9 million is restricted in the General Fund, of which $212,877 is for Affordable Housing, $1.7 million is for Oceanfront Encroachment and $3.0 million is restricted for support of public access channel programming, training, and community benefits; 2020 2021 Change General Fund 99,083$ 105,953$ 6,870$ Tide and Submerged Land - Operating 2,872 4,313 1,441 Tide and Submerged Land - Harbor Capital 16,399 23,608 7,209 Facilities Financial Planning Reserve 17,047 28,093 11,046 Civic Center COP 1,159 2,256 1,097 Non-major special revenue 23,056 21,798 (1,258) Non-major capital projects 38,740 29,608 (9,132) Non-major permanent 6,667 6,673 6 205,023$ 222,302$ 17,279$ 41 75 $3.6 million is restricted in the Tide and Submerged Land – Operating Fund, of which $2.4 million is restricted for capital projects and maintenance and repairs, and $1.2 million is restricted for the Upper Newport Bay restoration; $23.6 million is restricted in the Tidelands and Submerged Land – Harbor Capital Fund for capital projects; and $2.3 million is restricted for Civic Center COP debt service. Of the remaining $34.5 million in restricted fund balance, $21.7 million is restricted for various special revenue funds, $2.9 million is restricted for the Assessment District Fund, $7.9 million is restricted for the Fire Station Fund, and $2.0 million of fund balance is restricted for permanent funds. Committed Fund Balance – The City has $51.1 million in fund balance classified as committed to indicate that the City Council has committed how the money will be spent. Of the $51.1 million committed fund balance, $3.2 million is committed in the General Fund for encumbrances and miscellaneous projects; $760,000 is committed in the Tide and Submerged Land – Operating Fund; $28.1 million is committed in the Facilities Financial Planning Reserve Fund; $121,334 is committed in the Fire Station Fund, $7.0 million is committed in the Unrestricted Capital Improvements Fund; $4.7 million is committed in the Parks and Community Center Fund, $497,985 is committed in the Civic Center Fund, $2.2 million is committed to the Facilities Maintenance Fund; $3.1 million is committed in the Neighborhood Enhancement Fund; and $1.4 million is committed in Balboa Village Parking Management District Fund. Assigned Fund Balance – The City has $1.5 million in fund balance which is not restricted or committed and is classified as assigned to indicate the City Manager’s intent to be used for specific purposes. Currently, the assignments are intended to be used for items related to arts and culture. Unassigned Fund Balance – The remaining $85.6 million in fund balance is classified as unassigned to indicate that it is the residual balance not otherwise restricted, committed, or assigned. Major Governmental Funds results for the year included the following:  General Fund revenues finished $4.8 million or 2.1% higher than prior year mostly due to a $5.8 million increase in property taxes as the City’s assessed valuation continued to increase due primarily to the appreciation of home values, and a $2.7 million increase in sales taxes as consumer spending increased as pandemic related restrictions eased. These two major increases were offset by a $4.0 million pandemic related decrease in transient occupancy taxes revenues. General Fund expenditures finished $8.4 million or 4.3% higher than the prior year mostly due to a $5.7 million increase in pension related costs, primarily due to additional discretionary payments to pay down the City’s unfunded liability sooner; and a $1.2 million increase in public safety strike team and mutual aid costs that will be offset by future reimbursements. In total, fund balance in the General Fund increased $6.9 million and ended the year at $106.0 million.  Fund balance for the Tide and Submerged Land - Operating Fund increased $1.4 million and ended the current year with $4.3 million in fund balance. The increase was due to the City’s General Fund subsidizing the operations of the Tide and Submerged Land - Operating Fund.  Fund balance for the Tide and Submerged Land – Harbor Capital Fund increased $7.2 million ending at $23.6 million. This was largely due to a transfer from the General Fund 42 76 for harbor related capital improvements and net results from operations as the fund accumulates resources for future harbor related uses.  Fund balance for the Facilities Financial Planning Reserve Fund increased $11.0 million to end the current year at $28.1 million in fund balance. This was mainly due to the revenue from donations and transfers of unexpended appropriations from various Capital Projects Funds that relate to completed or ultimately debt-financed capital projects.  Fund balance for the Civic Center COP Fund increased $1.1 million ending at $2.3 million. The increase was mostly due to the receipt of a delayed Build America Bond subsidy payment from the federal government. Proprietary Funds The City’s Proprietary Funds (Enterprise and Internal Service Funds) presented in the Fund Financial Statements section basically provides the same type of information in the Government- wide Financial Statements, but also include information for individual funds. Enterprise Fund results for the year included the following:  Net position in the Water Fund increased $2.0 million mainly due to increases in both water rates and water usage. Associated expense increases were manageable, because the City was allowed to purchase more groundwater than usual. Groundwater generally costs less than imported water.  Net position in the Wastewater Fund decreased $489,429 mainly due to expenses exceeding revenues. The implementation of a multi-year rate increase is ongoing. Major Internal Service Fund activity in the current fiscal year included the following:  Total net position in the Internal Service Funds increased $2.7 million in the current year. This was mostly due to operating income of $6.6 million, which included increases in revenue from charges for services for retiree insurance and equipment maintenance. Operating income’s contribution to net position was reduced by the net effect of non- operating revenue and net transfers, which combined reduced net position by approximately $3.9 million. Approximately $4.5 million was transferred to the General Fund following an analysis of certain Internal Service Funds that had excess reserves on hand that could be returned to the General Fund as part of the budget-balancing strategy to address the COVID-19 pandemic. GENERAL FUND BUDGETARY HIGHLIGHTS Changes to Original Budget Final budgeted revenues for the General Fund increased $19.1 million from the original budget during the year ended June 30, 2021. Factors contributing to this fluctuation are highlighted as follows:  Sales tax revenue estimates were increased $5.8 million based on more favorable economic conditions than expected when the budget was developed. Certain industry 43 77 categories, such as autos and transportation saw record highs, even as others, such as restaurants were hit especially hard.  The transient occupancy tax budget was increased by $8.8 million as most major hotels and short-term lodging reopened after the budget was developed. Short-term lodging revenues very quickly rebounded and achieved record highs, while hotel-related revenues rebounded faster over time than anticipated as occupancy rates improved. The revenue impact of these lower occupancy rates was partially offset by sustained higher-than typical daily room rates.  Final budgeted intergovernmental revenue increased $3.5 million due to an increase in grants from other governmental agencies, specifically from the CARES Act, California Office of Emergency Services, and Medi-Cal Intergovernmental Transfer program.  Service Fees & Charges decreased from the adopted budget, in the amount of $3.0 million. The most significant portion of these reductions were from fee-based recreation classes that were canceled or scaled back due to the pandemic.  Other Taxes, which includes Property Transfer Tax, Business License Tax, and Franchise Taxes increased by $1.4 million. These revenue sources performed better than expected when the budget was developed and the impact from the COVID-19 pandemic was still unknown.  Miscellaneous revenues, licenses and permits, and property income all were adjusted upward from the adopted budget by a total of $2.6 million. These revenues had been adjusted downward by 20% across the board in response to the pandemic. Ultimately building construction activity remained strong, parking revenues hit record highs as visitors flocked to the beaches in lieu of other vacation destinations, and property income continued to be received without any measurable delinquencies. Final budgeted expenditures for the General Fund increased $7.8 million from the original budget during the year ended June 30, 2021. The significant factors contributing to the increase are as follows:  The addition of $5.0 million to the benefits budget associated with an additional discretionary payment toward the City’s unfunded pension liability.  An increase of $1.2 million related to the City’s contribution to a new homeless shelter to be operated by the City of Costa Mesa in partnership with the City of Newport Beach. Variance with Final Budget Actual General Fund revenues came in at $16.1 million above final budgeted revenues for the year ended June 30, 2021. Significant factors contributing to this favorable variance are summarized as follows:  A favorable variance of $1.6 million in property taxes was mostly due to secured property taxes coming in above expectations. 44 78  A favorable variance of $4.4 million in sales tax revenue was due to strong consumer spending in certain industries such as autos and transportation, despite restrictions in place for restaurants, as well as increased revenues from the Orange County sales tax pool from online purchases.  A favorable $1.7 million variance in transient occupancy tax was due to the aforementioned positive variances in hotel occupancy rates and nightly room rates.  Other Taxes ended the year $1.8 million higher than projected due primarily to strong growth in property transfer taxes related to a very active housing market.  Charges for services ended the year $3.9 million higher due primarily to receipts for paramedic service fees that were $1.6 million more than the revised budget. This was caused by a higher number of transports and a reduction in collection times for these fees. Additionally, plan check fees came in higher than anticipated due to steady activity in the construction field, including large projects such as the Newport Beach Marriot Hotel & Spa renovation and other sizable developments. Actual General Fund expenditures of $203.5 million were less than final budgetary estimates of $210.6 million. The $7.1 million favorable variance was due to routine savings in salaries as well as contract services. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City’s capital assets for governmental and business-type activities as of June 30, 2021, amounts to $2.4 billion, net of accumulated depreciation. This is comprised of a broad range of capital assets including land, buildings, machinery and equipment, park facilities, road improvements, storm drains, piers, oil wells, sound walls, an 800 MHz radio communications system, parking pay stations and meters, and bridges. The total capital assets increased $10.8 million over the prior fiscal year. Figure 9 Capital Assets at Year End (net of depreciation, in thousands) 2020 2021 2020 2021 2020 2021 Land 1,897,520$ 1,897,520$ 2,219$ 2,219$ 1,899,739$ 1,899,739$ Structures 190,481 186,077 424 409 190,905 186,486 Equipment 18,774 18,428 167 154 18,941 18,582 Infrastructure 206,039 210,945 115,104 122,831 321,143 333,776 Work in progress 6,013 11,375 2,855 415 8,868 11,790 Totals 2,318,827$ 2,324,345$ 120,769$ 126,028$ 2,439,596$ 2,450,373$ Activities Activities Governmental Business-Type Total 45 79 Major capital asset events during the current fiscal year included the following:  Capital asset additions totaled $39.2 million in both the Governmental and Business Type Activities in the current year. Of the $39.2 million, $23.7 million represents additions of infrastructure assets mostly related to the road system and water system; and $4.0 million is related to equipment additions. The remaining $15.5 million is comprised of additions of non-depreciable assets such as work in progress, $10.6 million, along with depreciable structure additions of $873,519.  Of the $28.4 million of additions in governmental assets in the current year, additions in infrastructure contributed $13.4 million, which was mostly due to upgrades in the road system. The remaining $15.0 million added in the current year as governmental assets, is comprised of $873,519 million of structure additions which is mostly related to a new gun range at the police station, $10.2 million of work in progress, mostly related to the ongoing construction of a new fire station, enhancements to an existing park and upgrades to the road system, and $4.0 million of equipment additions mostly related to vehicle purchases and the purchase of parking pay stations.  The $10.7 million of business-type asset additions in the current year is comprised of $10.3 million in water and sewer system infrastructure additions, $12,007 in equipment additions, and $414,590 of work in progress additions related to water system improvements. Additional information on the City’s capital assets can be found in Note (5) of the Notes to the Financial Statements. Long-term Debt Figure 10 Outstanding Debt at Year End (in thousands) The City’s total debt increased $5.9 million during the current fiscal year. The increase is the result of the issuance of new debt, partially offset by debt service payments and amortization of bond premiums. Additional information on the City’s long-term debt obligation can be found in Note (6) of the Notes to the Financial Statements. 2020 2021 2020 2021 2020 2021 Certificates of participation 100,695$ 105,490$ -$ -$ 100,695$ 105,490$ Bond premium - 1,291 - - - 1,291 CDBG Loan 585 403 - - 585 403 Totals 101,280$ 107,184$ -$ -$ 101,280$ 107,184$ Activities Activities Governmental Business-Type Total 46 80 FACTORS AFFECTING NEXT YEAR’S BUDGET Economy The Conference Board recently forecasted that that the US economy will grow by 3.5 percent (year-over-year) in 2022 and 2.9 percent (year-over-year) in 2023. This forecast is a downgrade from the prior outlook despite the recent approval of a large bipartisan infrastructure package by Congress. While this package will certainly benefit growth in 2022 and 2023, the forecast had already assumed it would pass for several months. The downgrade is due to two concerns. 1) Despite progress in the vaccination campaign, some resurgence in COVID-19 in Q1 2022 is expected due to colder weather and more time spent indoors. This seasonal pattern was seen in early 2021 and it is expected that a similar, though muted, wave of infections early next year may slow consumer spending growth. 2) It is expected that the US Federal Reserve (the Fed) will begin to raise interest rates earlier and incrementally more frequently than previously anticipated. The persistence of high inflation rates and a recent rebound in hiring are likely to result in the Fed reigning in supportive monetary policy more rapidly. While these two factors will moderate growth in 2022 and 2023, it is important to note that projections still show robust economic expansion over the next two years. Next year, the bulk of economic growth will be associated with continued expansion in consumer spending. However, economists expect support from business investment and, critically, a rebound in private inventories. Government spending should also grow more rapidly as money associated with the infrastructure package begins to be spent. Finally, economists are also increasing their inflation outlook for 2022. Recent bottlenecks in supply chains, elevated demand for some goods and services, and higher energy prices appear to be more persistent than previously thought. Local Revenue Trend Residential and commercial property values are among the highest in the country. Our overall assessed valuation (AV) has been stable despite the economic downturn between 2009 and 2012, with growth in the each of the last 26 years. Property tax revenues in Newport Beach are expected to continue to grow in the 5% to 6% range in the year ahead. This positive growth is primarily being driven by a strong real estate market with the limited inventory of coastal and view homes seeing strong demand. The reassessment of homes that are sold to the current market value has a significantly positive impact on the City’s property tax revenues as homes that have been owned by the same owner for 10, 20, or more years are sold at prices that substantially exceed the assessed valuation of the homes as limited by Proposition 13. Automobile sales as a major industry group has experienced a classical V-shaped recovery in the aftermath of the COVID-19 recession. New car sales dropped 68% or more at many dealers around the State in the initial weeks after the State’s pandemic shutdown order in March 2020. Sales have since steadily rebounded and are now in 2021 13% higher than the same period in 2019, a year before the crisis began. Limited supply has been overwhelmed by strong demand. Consumers are treating themselves to more expensive models, with new cars reported to be 8% more costly this year. The California New Car Dealers Association reports that Porsche, Mercedes, and Tesla have been the most sought-after brands in 2021, all of which have retail locations in Newport Beach. S&P Global and other research firms are forecasting that sales will begin to flatten out in 2022, but the sizable number of automobile dealers in the City is anticipated to have a continued positive impact on the City’s sales tax revenues in the year ahead. Fiscal 47 81 year 2020-21 saw the City achieve a record for sales tax revenues. It is anticipated that strong automobile sales combined with the continued rebound of in-person retail establishments and restaurants will push the City’s sales tax revenues to a new high next fiscal year. Discretionary Appropriations The annual budget serves as the foundation for financial planning and control, and allows the City Council to prioritize expenditures in alignment with core community values. The budget as adopted is reflective of strong revenues, healthy reserves, and a sound debt position. This budget reflects a strong local economy that continues to provide stable revenues that support a wide variety of programs and initiatives. It also includes competitive wages for City employees that will further the City’s goal of attracting and retaining a well-qualified workforce to meet the high expectations of our community. The City Council adopted a fiscal year 2021-22 budget that maintains a deliberate resource balance between these important municipal expenses:  Addressing long-term obligations such as pension liabilities, post-employment health care benefits, and debt service;  Keeping a level of operations that reflects the community’s desire for an active, safe, and attractive community; and  Investing in infrastructure to maintain a high-quality natural and physical environment. An aspect of the City’s balanced approach to fiscal management is managing resources as efficiently as possible, responsibly managing debt, and working collaboratively with employees to recalibrate the compensation structure and share in the costs of pension obligations. Overall, the City’s total debt burden is low and remains affordable. The economy benefits from the City's mature, wealthy tax base and strong employment among a diversity of business sectors, as well as retail shopping and tourism activity. Fiscal year 2021-22 will mark another year of an accelerated plan to pay down the City’s unfunded pension liability. Increasing the City’s pension contribution now will result in a lower, level-dollar payment in the future, so the adopted budget also includes an additional $10.2 million discretionary payment towards the City’s unfunded liability. Overall, the City’s total debt burden is low and remains affordable. The economy benefits from the City's mature, wealthy tax base and strong employment among a diversity of business sectors, as well as retail shopping and tourism activity. Residential and commercial property values are among the highest in the country. Our overall assessed valuation (AV) has been stable despite the economic downturn between 2009 and 2012, with growth in the each of the last 26 years. A strong financial profile is a particularly important factor considered by rating agencies in their evaluation of the creditworthiness of local government debt. The rating agencies Fitch, Moody's, and Standard & Poor's which have all assigned the City the highest quality credit rating of AAA. Moody’s reaffirmed their AAA ratings in 2021. Expenditure controls within the past decade have included early retirement incentive plans, increased employee contributions to pension plans, contracting services, and freezing vacant positions when necessary, usually during recessionary periods. Financial operations produced net surpluses (after transfers) in the last ten years due to conservative budgeting and a stable and growing tax revenue base. The City has used surpluses 48 82 for important one-time purposes, like paying more towards retirement obligations and investing in IT and communications infrastructure. Financial management policies are robust and have continued to improve in recent years. CONTACTING THE CITY’S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City’s Finance Department, 100 Civic Center Drive, Newport Beach, CA 92660, (949) 644-3146. The City’s Budgets, Annual Comprehensive Financial Reports, as well as other City financial information can be found on the City’s website at: www.newportbeachca.gov/financialinfo 49 83 This page left blank intentionally. 50 84 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONGOVERNMENT-WIDE FINANCIAL STATEMENTS 51 85 This page left blank intentionally. 52 86 Governmental Business-type Activities Activities Total Assets: Cash and investments (note 4) 279,418,393$ 34,052,547$ 313,470,940$ Receivables: Accounts (net of allowance) 8,814,538 6,663,749 15,478,287 Interest 824,791 99,552 924,343 Intergovernmental receivables 13,171,502 99,863 13,271,365 Restricted cash and investments with fiscal agent (note 4) 18,373,724 - 18,373,724 Internal balances 644,587 (644,587) - Investment in joint ventures (note 14) 256,862 - 256,862 Inventory 756,798 - 756,798 Prepaid items 5,347,783 - 5,347,783 Capital assets (note 5): Non-depreciable 1,908,895,494 2,634,040 1,911,529,534 Depreciable 685,353,555 197,210,256 882,563,811 Accumulated depreciation (269,902,749) (73,815,846) (343,718,595) Total assets 2,651,955,278 166,299,574 2,818,254,852 Deferred Outflows of Resources: Deferred amount from pension plans (note 10) 62,371,001 1,864,920 64,235,921 Deferred amount from OPEB (note 11) 8,062,754 438,601 8,501,355 Total deferred outflows of resources 70,433,755 2,303,521 72,737,276 Liabilities: Accounts payable 14,889,650 5,886,750 20,776,400 Accrued payroll 5,233,135 182,887 5,416,022 Accrued interest payable 3,590,292 - 3,590,292 Deposits payable 2,583,151 29,940 2,613,091 Unearned revenue 9,330,752 - 9,330,752 Noncurrent liabilities (note 6): Due within one year 13,867,383 - 13,867,383 Due in more than one year: Net pension liability (note 10) 300,459,059 9,622,652 310,081,711 Net OPEB liability (note 11) 19,248,798 1,048,642 20,297,440 Other 129,848,285 - 129,848,285 Total liabilities 499,050,505 16,770,871 515,821,376 Deferred Inflows of Resources: Deferred amount from pension plans (note 10)693,186 6,875 700,061 Deferred amount from OPEB (note 11)185,275 10,078 195,353 Total deferred inflows of resources 878,461 16,953 895,414 Net Position: Net investment in capital assets 2,227,572,605 124,775,772 2,352,348,377 Restricted for: Public safety 734,689 - 734,689 Public works 25,660,079 - 25,660,079 Community services 31,648,834 - 31,648,834 Community development 216,184 - 216,184 Debt service 2,255,795 - 2,255,795 Permanent funds: Nonexpendable 4,629,781 - 4,629,781 Expendable 2,043,658 - 2,043,658 Unrestricted (72,301,558) 27,039,499 (45,262,059) Total net position 2,222,460,067$ 151,815,271$ 2,374,275,338$ CITY OF NEWPORT BEACH Statement of Net Position June 30, 2021 See accompanying notes to basic financial statements 53 87 CITY OF NEWPORT BEACH Statement of Activities Year Ended June 30, 2021 Operating Capital Total Charges for Grants and Grants and Program Expenses Services Contributions Contributions Revenues Functions/Programs Primary government: Governmental activities: General government 20,394,278$ 2,914,007$ 1,137,923$ -$ 4,051,930$ Public safety 119,184,958 22,038,904 3,201,135 - 25,240,039 Public works 63,689,155 5,067,478 12,104,521 7,532,825 24,704,824 Community development 12,157,226 10,491,970 458,013 2,005 10,951,988 Community services 28,214,205 17,601,288 3,460,028 123,557 21,184,873 Interest on long-term debt 7,104,816 - - - - Total governmental activities 250,744,638 58,113,647 20,361,620 7,658,387 86,133,654 Business-type activities: Water 28,943,243 30,739,726 - - 30,739,726 Wastewater 5,223,245 4,618,186 - - 4,618,186 Total business-type activities 34,166,488 35,357,912 - - 35,357,912 Total primary government 284,911,126$ 93,471,559$ 20,361,620$ 7,658,387$ 121,491,566$ General revenues: Taxes: Property tax Sales tax Transient occupancy tax Business license tax Franchise tax Other taxes Investment income Net decrease in fair value of investments Other Total general revenues Change in net position Net position at beginning of year Net position at end of year Program Revenues See accompanying notes to basic financial statements 54 88 Governmental Business-type Activities Activities Total (16,342,348)$ -$ (16,342,348)$ (93,944,919) - (93,944,919) (38,984,331) - (38,984,331) (1,205,238) - (1,205,238) (7,029,332) - (7,029,332) (7,104,816) - (7,104,816) (164,610,984) - (164,610,984) - 1,796,483 1,796,483 - (605,059) (605,059) - 1,191,424 1,191,424 (164,610,984) 1,191,424 (163,419,560) 119,157,057 - 119,157,057 38,956,275 - 38,956,275 16,886,197 - 16,886,197 4,481,349 - 4,481,349 4,204,224 - 4,204,224 4,166,549 - 4,166,549 2,603,982 525,295 3,129,277 (2,086,189) (469,799) (2,555,988) 3,354,808 - 3,354,808 191,724,252 55,496 191,779,748 27,113,268 1,246,920 28,360,188 2,195,346,799 150,568,351 2,345,915,150 2,222,460,067$ 151,815,271$ 2,374,275,338$ Net (Expense) Revenue and Changes in Net Assets Primary Government See accompanying notes to basic financial statements 55 89 This page left blank intentionally. 56 90 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONFUND FINANCIAL STATEMENTS GOVERNMENTAL FUNDS 57 91 This page left blank intentionally. 58 92 GOVERNMENTAL FUNDS Major Funds The General Fund is used to account for fiscal resources that are dedicated to governmental operations of the City, and not required to be accounted for in another fund. The Tide and Submerged Land – Operating Fund is a Special Revenue Fund used to account for revenues related to the operation of the City’s tidelands, including beaches and marinas, and the related expenditures. Revenue from tideland operations includes, but is not limited to, rents from moorings, piers, and leases, as well as income from parking lots, meters, and the sale of oil. The Tide and Submerged Land – Harbor Capital Fund is a Special Revenue Fund used to account for incremental increases in revenue from certain property lease, pier, and mooring rentals that exceed Council designated base year revenue amounts, as well as other designated revenues and the related expenditures for capital projects, maintenance, and servicing of loan advances from the General Fund. The American Rescue Plan Act Fund is used to account for federal funding received through Coronavirus State and Local Fiscal Recovery Funds under the American Rescue Plan Act. The Facilities Financial Planning Reserve Fund is used to account for the receipt and expenditure of funds for the replacement of facilities. In prior years, this fund was called the Facilities Replacement Fund. The Civic Center COP Fund is used to account for debt service transactions related to the Certificates of Participation issued to finance the construction of the Civic Center. Other Governmental Funds Other governmental funds are those governmental funds that do not meet the criteria of a major fund. For reporting purposes in this section, they are combined as Other Governmental Funds. 59 93 Tide and Tide and Submerged Submerged American General Land - Operating Land - Harbor Capital Rescue Plan Act Assets Cash and investments (note 4)94,479,951$ 4,593,441$ 33,053,540$ 5,070,636$ Receivables: Accounts (net of allowance)5,148,723 1,464,333 - - Interest 322,461 45,467 75,395 - Intergovernmental receivables 10,971,734 - - - Restricted cash and investments with fiscal agent (note 4)- - - - Advance to other funds (note 12)9,426,659 - - - Due from other funds (note 12)439,194 - - - Prepaid items 901,095 - - - Inventory 309,343 - - - Total assets 121,999,160$ 6,103,241$ 33,128,935$ 5,070,636$ Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable 5,971,016$ 824,660$ 94,280$ -$ Accrued payroll 4,914,760 25,576 - - Deposits payable 2,394,195 188,956 - - Unearned revenue 2,498,846 751,292 - 5,070,636 Advance from other funds (note 12)- - 9,426,659 - Due to other funds (note 12)- - - - Total liabilities 15,778,817 1,790,484 9,520,939 5,070,636 Deferred Inflows of Resources: Unavailable revenue 266,945 - - - Total deferred inflows of resources 266,945 - - - Fund balances (deficits): Nonspendable: Prepaid items 901,095 - - - Inventories 309,343 - - - Long-term loan receivable 9,426,659 - - - Permanent endowment - - - - Restricted: Affordable housing 212,877 - - - Oceanfront encroachment 1,707,188 - - - Upper Newport Bay restoration - 1,161,905 - - Other 2,955,960 2,390,852 23,607,996 - Committed: Oil and gas - 760,000 - - Other 3,235,746 - - - Assigned 1,489,350 - - - Unassigned 85,715,180 - - - Total fund balances 105,953,398 4,312,757 23,607,996 - Total liabilities, deferred inflows of resources and fund balances 121,999,160$ 6,103,241$ 33,128,935$ 5,070,636$ (continued) Special Revenue Funds CITY OF NEWPORT BEACH Governmental Funds Balance Sheet June 30, 2021 Page 1 of 2 See accompanying notes to basic financial statements 60 94 Capital Project Fund Debt Service Fund Facilities Other Financial Planning Civic Center Governmental Reserve COP Funds Totals Assets Cash and investments (note 4)21,524,441$ -$ 53,376,807$ 212,098,816$ Receivables: Accounts (net of allowance)- - 986,123 7,599,179 Interest 58,350 - 125,876 627,549 Intergovernmental receivables - - 2,199,768 13,171,502 Restricted cash and investments with fiscal agent (note 4)- 8,651,423 9,722,301 18,373,724 Advance to other funds (note 12)- - - 9,426,659 Due from other funds (note 12)6,531,812 - - 6,971,006 Prepaid items - - 77,549 978,644 Inventory - - - 309,343 Total assets 28,114,603$ 8,651,423$ 66,488,424$ 269,556,422$ Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable -$ 115$ 5,550,699$ 12,440,770$ Accrued payroll - - 3,342 4,943,678 Deposits payable - - - 2,583,151 Unearned revenue 22,006 - 987,972 9,330,752 Advance from other funds (note 12)- - - 9,426,659 Due to other funds (note 12)- 6,395,513 222,657 6,618,170 Total liabilities 22,006 6,395,628 6,764,670 45,343,180 Deferred Inflows of Resources: Unavailable revenue - - 1,644,087 1,911,032 Total deferred inflows of resources - - 1,644,087 1,911,032 Fund balances (deficits): Nonspendable: Prepaid items - - 77,549 978,644 Inventories - - - 309,343 Long-term loan receivable - - - 9,426,659 Permanent endowment - - 4,629,781 4,629,781 Restricted: Affordable housing - - - 212,877 Oceanfront encroachment - - - 1,707,188 Upper Newport Bay restoration - - - 1,161,905 Other - 2,255,795 34,498,079 65,708,682 Committed: Oil and gas - - - 760,000 Other 28,092,597 - 19,010,557 50,338,900 Assigned - - - 1,489,350 Unassigned - - (136,299) 85,578,881 Total fund balances 28,092,597 2,255,795 58,079,667 222,302,210 Total liabilities, deferred inflows of resources and fund balances 28,114,603$ 8,651,423$ 66,488,424$ 269,556,422$ CITY OF NEWPORT BEACH Governmental Funds Balance Sheet June 30, 2021 Page 2 of 2 See accompanying notes to basic financial statements 61 95 This page left blank intentionally. 62 96 Fund balances of governmental funds 222,302,210$ Amounts reported for governmental activities in the statement of net position are different because: Capital assets net of accumulated depreciation have not been included as financial resources in governmental fund activity. Amount excludes capital assets from internal service funds which are added below.2,308,183,827 Long-term debts have not been reported in the governmental fund activity. Amounts exclude long-term debt activity from internal service funds which have been added below: Certificates of participation payable - Series 2010B (97,630,000) Certificates of participation payable - Series 2020A (7,860,000) Bond premium - Series 2020A (1,291,026) CDBG loan (403,000) Pension related debt applicable to the governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. Deferred outflows of resources and deferred inflows of resources related to pension are only reported in the Statement of Net Position as the changes in these amounts affect only the government-wide statements for governmental activities. Amounts exclude internal service fund activity which has been added below: Deferred outflows of resources 61,144,383 Deferred inflows of resources (688,663) Pension liability (294,129,932) OPEB related debt applicable to the governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. Deferred outflows of resources and deferred inflows of resources related to OPEB are only reported in the Statement of Net Position as the changes in these amounts affect only the government-wide statements for governmental activities. Amounts exclude internal service fund activity which has been added below: Deferred outflows of resources 7,774,270 Deferred inflows of resources (178,645) OPEB liability (18,559,067) Accrued interest payable for the current portion of interest due on long-term debt has not been reported in the governmental funds.(3,590,292) Some of the revenue will be collected after year-end, but is not available soon enough to pay for the current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds.1,911,032 Internal service funds are used by management to charge the costs of certain activities, such as self-insurance, workers' compensation, compensated absences, retiree insurance, fleet management and information technology, to individual funds. The assets (including capital assets) and liabilities of the internal service funds must be added to the statement of net position.44,573,521 Investment in joint ventures is not a current financial resource and therefore not reported in the governmental funds.256,862 Internal balance created by the consolidation of internal service fund activities related to enterprise funds is not reported in the governmental funds.644,587 Net position of governmental activities 2,222,460,067$ CITY OF NEWPORT BEACH Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position June 30, 2021 See accompanying notes to basic financial statements 63 97 Tide and Tide and Submerged Submerged American General Land - Operating Land - Harbor Capital Rescue Plan Act Revenues: Taxes and assessments: Property tax 119,157,057$ -$ -$ -$ Sales tax 38,956,275 - - - Transient occupancy tax 16,886,197 - - - Other taxes 12,852,122 - - - Intergovernmental 5,175,738 - - - Licenses, permits and fees 5,167,349 87,955 - - Charges for services 18,423,745 10,694 - - Fines and forfeitures 3,887,782 35,944 - - Investment income 1,598,624 146,455 404,878 - Net decrease in fair value of investments (1,221,105) (147,649) (357,700) - Property income 12,167,053 12,778,430 3,633,703 - Donations 241,871 - - - Other 1,415,919 - - - Total revenues 234,708,627 12,911,829 3,680,881 - Expenditures: Current: General government 16,254,262 1,117,041 - - Public safety 111,542,840 13,637,963 - - Public works 40,525,674 3,087,944 - - Community development 12,726,565 3,019 - - Community services 22,469,259 1,856,593 - - Capital outlay - 479,994 967,233 - Debt service (note 6): Principal - - - - Interest and fiscal charges - - - - Total expenditures 203,518,600 20,182,554 967,233 - Excess (deficiency) of revenues over expenditures 31,190,027 (7,270,725) 2,713,648 - Other financing sources (uses): Transfers in (note 13)10,335,111 8,711,959 4,500,000 - Transfers out (note 13)(34,655,212) - (4,184) - Certificates of participation issued - - - - Premium on certificates of participation issued - - - - Total other financing sources (uses)(24,320,101) 8,711,959 4,495,816 - Net change in fund balances 6,869,926 1,441,234 7,209,464 - Fund balances, beginning, as restated 99,083,472 2,871,523 16,398,532 - Fund balances, ending 105,953,398$ 4,312,757$ 23,607,996$ -$ (continued) Special Revenue Funds CITY OF NEWPORT BEACH Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2021 Page 1 of 2 See accompanying notes to basic financial statements 64 98 Capital Project Fund Debt Service Fund Facilities Other Financial Planning Civic Center Governmental Reserve COP Funds Totals Revenues: Taxes and assessments: Property tax -$ -$ -$ 119,157,057$ Sales tax - - - 38,956,275 Transient occupancy tax - - - 16,886,197 Other taxes - - 499,406 13,351,528 Intergovernmental - 3,380,852 13,677,282 22,233,872 Licenses, permits and fees 313,195 - 998,056 6,566,555 Charges for services - - - 18,434,439 Fines and forfeitures - - - 3,923,726 Investment income 263,817 36,298 751,304 3,201,376 Net decrease in fair value of investments (241,649) - (666,579) (2,634,682) Property income 263,188 - - 28,842,374 Donations 5,150,000 - 100,000 5,491,871 Other - - 2,088,184 3,504,103 Total revenues 5,748,551 3,417,150 17,447,653 277,914,691 Expenditures: Current: General government - - - 17,371,303 Public safety - - 825,510 126,006,313 Public works - - 3,203,675 46,817,293 Community development - - 267,256 12,996,840 Community services - - 2,419,337 26,745,189 Capital outlay - - 32,280,858 33,728,085 Debt service (note 6): Principal - 3,065,000 182,000 3,247,000 Interest and fiscal charges - 6,901,879 187,468 7,089,347 Total expenditures - 9,966,879 39,366,104 274,001,370 Excess (deficiency) of revenues over expenditures 5,748,551 (6,549,729) (21,918,451) 3,913,321 Other financing sources (uses): Transfers in (note 13)19,844,644 7,646,138 19,341,972 70,379,824 Transfers out (note 13)(14,547,437) - (16,758,179) (65,965,012) Certificates of participation issued - - 7,860,000 7,860,000 Premium on certificates of participation issued - - 1,373,936 1,373,936 Total other financing sources (uses)5,297,207 7,646,138 11,817,729 13,648,748 Net change in fund balances 11,045,758 1,096,409 (10,100,722) 17,562,069 Fund balances, beginning, as restated 17,046,839 1,159,386 68,180,389 204,740,141 Fund balances, ending 28,092,597$ 2,255,795$ 58,079,667$ 222,302,210$ CITY OF NEWPORT BEACH Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2021 Page 2 of 2 See accompanying notes to basic financial statements 65 99 This page left blank intentionally. 66 100 17,562,069$ Amounts reported for governmental activities in the statement of activities differ from the amounts reported in governmental funds because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets is allocated over their estimated useful lives 5,237,027 as depreciation expense. This is the amount by which depreciation exceeded capital outlay in the current period. The issuance of long-term debt provides current financial resources to governmental funds, while repayment of the principal and issuance costs of long-term debt consumes the current financial resources of the governmental funds. Issuance of bond principal is an other financing source and repayment of bond principal is an expenditure in governmental funds, but the issuance increases long-term liabilities and the repayment reduces long-term liabilities in the Statement of Net Position. The amounts are the net effect of these differences in the treatment of long-term debt: Certificates of participation issued - Series 2020A (7,860,000) Repayment of principal 3,247,000 Premium on bonds is recognized as revenues in the period received; however, in the statement of activities, it is amortized over the life of the bond. Bond premium - Series 2020A (1,373,936) Amortization of bond premium - Series 2020A 82,910 Accrued interest for debt service is the net change in accrued interest for the current period.(98,379) Pension expense reported in the governmental funds includes the employer contributions made. In the Statement of Activities, pension expense includes the change in the net pension liability and related change in pension amounts for deferred outflows of resources and deferred inflows of resources.4,872,162 OPEB expense reported in the governmental funds includes the employer contributions made. In the Statement of Activities, OPEB expense includes the change in the net OPEB liability and related change in OPEB amounts for deferred outflows of resources and deferred inflows of resources.3,292,279 Some of the revenue will be collected after year-end, but is not available soon enough to pay for the current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds. This is the net change in unavailable revenue for the current period.(867,071) Internal service funds are used by management to charge the costs of certain activities, such as self-insurance, workers' compensation, compensated absences, retiree insurance and fleet management, to individual funds. The net revenue of the internal service funds is reported in the statement of activities.2,743,371 Investment in joint ventures creates an explicit, measurable equity interest reported only in the statement of activities.10,392 Internal balance created by the consolidation of internal service funds activities related to enterprise funds is reflected as a reduction of revenues in the statement of activities.265,444 Change in net position of governmental activities 27,113,268$ Net change in fund balances - total governmental funds CITY OF NEWPORT BEACH Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended June 30, 2021 See accompanying notes to basic financial statements 67 101 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Taxes and assessments: Property 117,508,227$ 117,508,227$ 119,157,057$ 1,648,830$ Sales 28,690,831 34,540,800 38,956,275 4,415,475 Transient occupancy 6,434,115 15,209,156 16,886,197 1,677,041 Other taxes 9,674,739 11,083,175 12,852,122 1,768,947 Intergovernmental 1,646,716 5,109,769 5,175,738 65,969 Licenses, permits and fees 4,194,661 5,093,067 5,167,349 74,282 Charges for services 17,521,798 14,477,586 18,423,745 3,946,159 Fines and forfeitures 3,536,151 3,144,524 3,887,782 743,258 Investment income 1,112,200 1,112,200 1,598,624 486,424 Net decrease in fair value of investments - - (1,221,105) (1,221,105) Property income 8,706,310 10,109,836 12,167,053 2,057,217 Donations 113,000 525,155 241,871 (283,284) Other 445,156 734,127 1,415,919 681,792 Total revenues 199,583,904 218,647,622 234,708,627 16,061,005 Expenditures: General government: City council 832,892 839,658 622,965 216,693 City clerk 1,141,782 1,162,143 1,116,925 45,218 City attorney 2,535,945 2,587,242 2,360,181 227,061 City manager 3,386,595 3,678,398 2,948,796 729,602 Finance 7,092,263 6,550,074 6,374,397 175,677 Human resources 3,243,014 3,302,699 2,830,998 471,701 Total general government 18,232,491 18,120,214 16,254,262 1,865,952 Public safety: Police 67,002,345 65,413,679 62,900,635 2,513,044 Fire 54,790,910 46,920,623 48,642,205 (1,721,582) Total public safety 121,793,255 112,334,302 111,542,840 791,462 Public works: Public works - general services 26,387,118 26,746,503 26,815,801 (69,298) Public works 10,666,858 8,812,475 8,680,675 131,800 Utilities 5,033,549 5,109,739 5,029,198 80,541 Total public works 42,087,525 40,668,717 40,525,674 143,043 CITY OF NEWPORT BEACH General Fund Budgetary Comparison Statement For the Year Ended June 30, 2021 Budgeted Amounts See accompanying notes to basic financial statements 68 102 Variance with Final Budget Positive Original Final Actual (Negative) Community development: Community development 11,751,729 12,106,768 11,775,668 331,100 Code and water quality enforcement 993,947 953,842 950,897 2,945 Total community development 12,745,676 13,060,610 12,726,565 334,045 Community services: Parking operations 2,114,404 2,476,564 1,901,731 574,833 Library services 9,559,849 10,294,909 9,160,027 1,134,882 Recreation and senior services 13,325,836 13,617,021 11,407,501 2,209,520 Total community services 25,000,089 26,388,494 22,469,259 3,919,235 Total expenditures 219,859,036 210,572,337 203,518,600 7,053,737 Excess of revenues over expenditures (20,275,132) 8,075,285 31,190,027 23,114,742 Other financing sources (uses): Transfers in 9,623,249 10,616,723 10,335,111 (281,612) Transfers out (6,000,000) (34,655,212) (34,655,212) - Total other financing sources (uses) 3,623,249 (24,038,489) (24,320,101) (281,612) Net change in fund balance (16,651,883) (15,963,204) 6,869,926 22,833,130 Fund balance, beginning 99,083,472 99,083,472 99,083,472 - Fund balance, ending 82,431,589$ 83,120,268$ 105,953,398$ 22,833,130$ CITY OF NEWPORT BEACH Budgetary Comparison Statement General Fund (continued) Budgeted Amounts For the Year Ended June 30, 2021 See accompanying notes to basic financial statements 69 103 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Licenses, permits and fees 48,785$ 66,507$ 87,955$ 21,448$ Charges for services 8,608 12,050 10,694 (1,356) Fines and forfeitures 15,144 17,843 35,944 18,101 Investment income 192,208 192,208 146,455 (45,753) Net decrease in fair value of investments - - (147,649) (147,649) Property income 10,224,109 11,885,165 12,778,430 893,265 Total revenues 10,488,854 12,173,773 12,911,829 738,056 Expenditures: General government - 1,104,658 1,117,041 (12,383) Public safety - 12,420,766 13,637,963 (1,217,197) Public works 746,736 3,189,116 3,087,944 101,172 Community development - - 3,019 (3,019) Community services 2,208,344 2,339,878 1,856,593 483,285 Capital outlay 780,000 1,293,095 479,994 813,101 Total expenditures 3,735,080 20,347,513 20,182,554 164,959 Excess (deficiency) of revenues over expenditures 6,753,774 (8,173,740) (7,270,725) 903,015 Other financing sources: Transfers in - 8,711,959 8,711,959 - Net change in fund balance 6,753,774 538,219 1,441,234 903,015 Fund balance, beginning 2,871,523 2,871,523 2,871,523 - Fund balance, ending 9,625,297$ 3,409,742$ 4,312,757$ 903,015$ CITY OF NEWPORT BEACH Tide and Submerged Land - Operating Budgetary Comparison Statement For the Year Ended June 30, 2021 Budgeted Amounts See accompanying notes to basic financial statements 70 104 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Investment income 436,141$ 436,141$ 404,878$ (31,263)$ Net decrease in fair value of investments - - (357,700) (357,700) Property income 2,320,035 2,320,035 3,633,703 1,313,668 Total revenues 2,756,176 2,756,176 3,680,881 924,705 Expenditures: Capital outlay 1,946,972 12,233,890 967,233 11,266,657 Excess (deficiency) of revenues over expenditures 809,204 (9,477,714) 2,713,648 12,191,362 Other financing sources (uses): Transfers in - 4,500,000 4,500,000 - Transfers out - (4,184) (4,184) - Total other financing sources (uses) - 4,495,816 4,495,816 - Net change in fund balance 809,204 (4,981,898) 7,209,464 12,191,362 Fund balance, beginning 16,398,532 16,398,532 16,398,532 - Fund balance, ending 17,207,736$ 11,416,634$ 23,607,996$ 12,191,362$ CITY OF NEWPORT BEACH Tide and Submerged Land - Harbor Capital Budgetary Comparison Statement For the Year Ended June 30, 2021 Budgeted Amounts See accompanying notes to basic financial statements 71 105 This page left blank intentionally. 72 106 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONFUND FINANCIAL STATEMENTS PROPRIETARY FUNDS 73 107 This page left blank intentionally. 74 108 PROPRIETARY FUNDS Business-type Activities The Water Fund is a Major Fund used to account for the operations of the City’s water utility, a self-supporting activity which is entirely financed though user charges. The Wastewater Fund is a Major Fund used to account for the operations of the City’s wastewater system, a self-supporting activity which is entirely financed through user charges. Governmental Activities The Internal Service Funds are used to allocate the cost of providing goods and services by one department to other departments on a cost reimbursement basis. 75 109 Governmental Total Activities Enterprise Internal Service Assets and Deferred Outflows of Resources Water Wastewater Funds Funds Current assets: Cash and investments 31,398,142$ 2,654,405$ 34,052,547$ 67,319,577$ Receivables: Accounts (net of allowance) 5,721,383 942,366 6,663,749 1,215,359 Interest 91,778 7,774 99,552 197,242 Intergovernmental receivables 99,863 - 99,863 - Inventories - - - 447,455 Prepaid items - - - 4,369,139 Total current assets 37,311,166 3,604,545 40,915,711 73,548,772 Noncurrent assets: Capital assets (note 5): Land 2,219,450 - 2,219,450 - Structures 688,396 - 688,396 39,581 Equipment 301,193 35,988 337,181 41,859,340 Software - - - 3,603,419 Infrastructure 147,358,085 48,826,594 196,184,679 - Work in progress 264,425 150,165 414,590 462,981 Less accumulated depreciation (53,832,521) (19,983,325) (73,815,846) (29,802,848) Total capital assets (net of accumulated depreciation) 96,999,028 29,029,422 126,028,450 16,162,473 Total assets 134,310,194 32,633,967 166,944,161 89,711,245 Deferred outflows of resources: Deferred amount from pension plans 1,347,450 517,470 1,864,920 1,226,618 Deferred amount from OPEB 316,901 121,700 438,601 288,484 Total deferred outflows of resources 1,664,351 639,170 2,303,521 1,515,102 Liabilities and Deferred Inflows of Resources Current liabilities: Accounts payable 5,808,573 78,177 5,886,750 2,448,880 Accrued payroll 138,683 44,204 182,887 289,457 Deposits payable 29,940 - 29,940 - Due to other funds (note 12)- - - 352,836 Workers' compensation - current - - - 2,716,603 General liability - current - - - 2,679,733 Compensated absences - current - - - 4,336,047 Total current liabilities 5,977,196 122,381 6,099,577 12,823,556 Noncurrent liabilities: Workers' compensation (note 6)- - - 12,036,397 General liability (note 6)- - - 5,585,902 Compensated absences (note 6)- - - 9,176,960 Net pension liability (note 10)6,952,631 2,670,021 9,622,652 6,329,127 Net OPEB liability 757,672 290,970 1,048,642 689,731 Total noncurrent liabilities 7,710,303 2,960,991 10,671,294 33,818,117 Total liabilities 13,687,499 3,083,372 16,770,871 46,641,673 Deferred inflows of resources: Deferred amount from pension plans 4,967 1,908 6,875 4,523 Deferred amount from OPEB 7,282 2,796 10,078 6,630 Total deferred inflows of resources 12,249 4,704 16,953 11,153 Net Position Net investment in capital assets 95,781,695 28,994,077 124,775,772 19,627,040 Unrestricted 26,493,102 1,190,984 27,684,086 24,946,481 Total net position 122,274,797$ 30,185,061$ 152,459,858 44,573,521$ Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds (644,587) Net position of business-type activities 151,815,271$ CITY OF NEWPORT BEACH Proprietary Fund Statement of Net Position June 30, 2021 Enterprise Funds See accompanying notes to basic financial statements 76 110 Governmental Total Activities Enterprise Internal Service Water Wastewater Funds Funds Operating revenues: Charges for sales and services: Water sales 30,413,190$ -$ 30,413,190$ -$ Charges for services - - - 32,823,267 Sewer service and connection fees - 4,586,512 4,586,512 - Retiree reimbursements - - - 141,862 Employee contributions - - - 59,084 Other 326,536 31,674 358,210 1,046,058 Total operating revenues 30,739,726 4,618,186 35,357,912 34,070,271 Operating expenses: Purchase of water 11,156,173 - 11,156,173 - Salaries and benefits 5,241,360 1,526,710 6,768,070 3,444,472 Depreciation 1,648,246 651,414 2,299,660 3,500,207 Professional services 2,796,812 466,669 3,263,481 281,592 Maintenance and supplies 2,453,903 968,865 3,422,768 2,884,280 System maintenance 2,136,803 876,922 3,013,725 - Utilities 1,969,678 75,672 2,045,350 - Fleet parts and supplies - - - 299,837 Telecommunication - - - 153,434 Hardware - - - 436,613 Software - - - 237,204 Workers' compensation - - - 1,917,334 Claims and judgments - - - 5,604,723 Compensated absences - - - 2,866,959 OPEB ARC - cash subsidy - - - 5,819,883 Other 1,386,664 545,153 1,931,817 - Total operating expenses 28,789,639 5,111,405 33,901,044 27,446,538 Operating income (loss) 1,950,087 (493,219) 1,456,868 6,623,733 Nonoperating revenues: Investment income 480,092 45,203 525,295 957,868 Net decrease in fair value of investments (428,386) (41,413) (469,799) (865,084) Gain on sale of capital assets - - - 441,666 Total nonoperating revenues 51,706 3,790 55,496 534,450 Income (loss) before transfers 2,001,793 (489,429) 1,512,364 7,158,183 Transfers in (note 13)- - - 531,764 Transfers out (note 13)- - - (4,946,576) Total transfers - - - (4,414,812) Change in net position 2,001,793 (489,429) 1,512,364 2,743,371 Net position, beginning of year 120,273,004 30,674,490 41,830,150 Net position, end of year 122,274,797$ 30,185,061$ 44,573,521$ Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds (265,444) Change in net position of business-type activities 1,246,920$ CITY OF NEWPORT BEACH Proprietary Fund Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2021 Enterprise Funds See accompanying notes to basic financial statements 77 111 CITY OF NEWPORT BEACH Statement of Cash Flows For the Year Ended June 30, 2021 Governmental Total Activities Enterprise Internal Service Water Wastewater Funds Funds Cash flows from operating activities: Cash received from customers or user departments 29,954,995$ 4,507,796$ 34,462,791$ 33,545,836$ Cash payments to employees for services (5,656,512) (1,686,265) (7,342,777) (8,773,870) Cash payments to suppliers for goods and services (18,175,318) (2,469,435) (20,644,753) (17,389,115) Cash payments for other operating activities (1,060,128) (513,479) (1,573,607) - Cash received for other operating activities - - - 1,630,277 Net cash provided (used) by operating activities 5,063,037 (161,383) 4,901,654 9,013,128 Cash flows from noncapital financing activities: Cash received from other funds - - - 1,997,853 Cash paid to other funds - - - (6,427,541) Net cash (used) by noncapital financing activities - - - (4,429,688) Cash flows from capital and related financing activities: Acquisition of capital assets (7,136,340) (422,423) (7,558,763) (3,782,403) Proceeds from sale of capital assets - - - 441,666 Net cash (used) for capital and related financing activities (7,136,340) (422,423) (7,558,763) (3,340,737) Cash flows from investing activities: Investment (loss)(40,072) (3,984) (44,056) (104,458) Net cash (used) by investing activities (40,072) (3,984) (44,056) (104,458) Net increase (decrease) in cash and cash equivalents (2,113,375) (587,790) (2,701,165) 1,138,245 Cash and cash equivalents, beginning 33,511,517 3,242,195 36,753,712 66,181,332 Cash and cash equivalents, ending 31,398,142$ 2,654,405$ 34,052,547$ 67,319,577$ Reconciliation to the statement of net position: Cash and investments reported on statement of net position 31,398,142$ 2,654,405$ 34,052,547$ 67,319,577$ Cash and cash equivalents 31,398,142$ 2,654,405$ 34,052,547$ 67,319,577$ Reconciliation of operating income to net cash provided by operating activities: Operating income (loss)1,950,087$ (493,219)$ 1,456,868$ 6,623,733$ Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation 1,648,246 651,414 2,299,660 3,500,207 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (457,475) (78,716) (536,191) 580,707 Decrease in intergovernmental receivables 1,226 - 1,226 525,135 (Increase) in inventories - - - (34,440) (Increase) in prepaid items - - - (3,384,759) Increase (decrease) in accounts payable and accrued payroll 2,346,692 (78,110) 2,268,582 1,631,956 (Decrease) in deposits payable (1,946) - (1,946) - (Decrease) in workers' compensation - - - (768,000) Increase in general liability - - - 304,687 Increase in compensated absences - - - 419,688 (Decrease) in net pension liability and deferred cash flows (289,552) (111,199) (400,751) (263,585) (Decrease) in net OPEB liability and deferred cash flows (134,241) (51,553) (185,794) (122,201) Total adjustments 3,112,950 331,836 3,444,786 2,389,395 Net cash provided by operating activities 5,063,037$ (161,383)$ 4,901,654$ 9,013,128$ Noncash investing, capital and financing activities: Net (decrease) in fair value of investments (428,386)$ (41,413)$ (469,799)$ (865,084)$ Total of noncash activities (428,386)$ (41,413)$ (469,799)$ (865,084)$ Proprietary Fund Enterprise Funds See accompanying notes to basic financial statements 78 112 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONFUND FINANCIAL STATEMENTS FIDUCIARY FUNDS 79 113 This page left blank intentionally. 80 114 FIDUCIARY FUNDS Custodial Funds, a type of Fiduciary Funds, are used to account for assets held by the City as an agent for other government entities, private organizations, or individuals. 81 115 Custodial Funds Assets Cash and investments (note 4) 1,224,273$ Restricted cash and investments with fiscal agent (note 4) 1,333,345 Receivable: Accounts (net of allowance) 336,687 Interest 1,490 Intergovernmental receivable 18,283 Total assets 2,914,078 Liabilities Due to others 776,511 Total liabilities 776,511 Net Position Restricted for: Individuals, organizations, and other governments 2,137,567 Total net position 2,137,567$ CITY OF NEWPORT BEACH Fiduciary Funds Statement of Fiduciary Net Position June 30, 2021 See accompanying notes to basic financial statements 82 116 Custodial Funds Additions Special assessments 1,283,969$ Investment earnings 1,236 Other 70,395 Total additions 1,355,600 Deductions Debt service 1,130,047 Unclaimed property 281,611 Administrative 59,767 Other 18,208 Total deductions 1,489,633 Net (decrease) in fiduciary net position (134,033) Net position, beginning of year as restated 2,271,600 Net position, end of year 2,137,567$ CITY OF NEWPORT BEACH Fiduciary Funds Statement of Changes in Fiduciary Net Position June 30, 2021 See accompanying notes to basic financial statements 83 117 This page left blank intentionally. 84 118 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONNOTES TO THE FINANCIAL STATEMENTS 85 119 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 (1) Summary of Significant Accounting Policies The basic financial statements of the City of Newport Beach (the “City”) have been prepared in conformity with generally accepted accounting principles (“GAAP”) as applicable to government units. The Governmental Accounting Standards Board (“GASB”) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. a. Reporting Entity The City of Newport Beach was incorporated on September 1, 1906. The current City Charter was adopted in 1954. Since adoption, the Charter has been amended several times. The most recent Charter amendment was approved by the voters on November 2, 2010. The City operates under a Council-Manager form of government and provides the following services: public safety (police, fire, and marine), highway and streets, cultural and recreation, public improvements, planning and zoning, utilities, and general administrative services. The financial statements present the financial activity of the City of Newport Beach (the primary government) and its component unit. The component unit discussed below is included in the City's reporting entity because of the significance of its operational or financial relationship with the City. This entity is legally separate from the City. However, the City of Newport Beach’s elected officials have continuing full or partial accountability for fiscal matters of the component unit. The financial reporting entity consists of: (1) the City, (2) organizations for which the City is financially accountable, and (3) organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval by the primary government. In a blended presentation, a component unit’s balances and transactions are reported in a manner similar to the balances and transactions of the City. Component units are presented on a blended basis when the component unit's governing body is substantially the same as the City's or the component unit provides services almost entirely to the City. Blended Component Unit The financial statements of the City of Newport Beach include the financial activities of the Newport Beach Public Facilities Corporation (the "Corporation"). The Corporation was formed on March 9, 1992, for the purpose of assisting the City of Newport Beach in the financing of public improvements, including the City’s Central Library, Civic Center, and most recently the new Fire Station No. 2 Project. The Corporation is governed by a Board of Directors, which is comprised of the seven City Council Members of the City of Newport Beach. The Corporation's 86 120 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 financial data and transactions are included in the debt service fund. Separate financial statements are not prepared for the Corporation. The debt service fund is used solely to account for the activities of the Corporation and contains no other City debt financing activities. b. Basis of Accounting and Measurement Focus The basic financial statements of the City are composed of the following:  Government-wide financial statements  Fund financial statements  Notes to the financial statements Government-wide Financial Statements Government-wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business-type activities of the primary government (including its blended component units). The City of Newport Beach has no discretely presented component units. Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). However, general government expenses have not been allocated as indirect expenses to the various functions of the City. Government-wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the reporting government are reported in the government-wide financial statements. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Program revenues include charges for services, special assessments, and payments made by parties outside of the reporting government’s citizenry if that money is restricted to a particular program. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. Amounts paid to acquire capital assets are capitalized as assets in the government-wide financial statements, rather than reported as an expenditure. Proceeds of long-term debt are recorded as a liability in the government-wide financial statements, rather than as an other financing source. Amounts paid to 87 121 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 reduce long-term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure. Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s practice to consider restricted-net position to have been depleted before unrestricted – net position is applied. Fund Financial Statements The underlying accounting system of the City is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self- balancing accounts that comprise its assets, liabilities, deferred inflows/outflows of resources, fund equity, revenues, and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Fund financial statements for the primary government’s governmental, proprietary, and fiduciary funds are presented after the government-wide financial statements. These statements display information about major funds individually and non- major funds in the aggregate for governmental and enterprise funds. Fiduciary funds are excluded from government-wide financial statements. Fiduciary statements include financial information for fiduciary funds. Fiduciary funds of the City primarily represent assets held by the City in a custodial capacity for other individuals or organizations. Governmental Funds In the fund financial statements, governmental funds are presented using the modified-accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The City uses an availability period of 60 days for all revenues. Property taxes, sales taxes, franchise taxes, gas taxes, motor vehicle license fees, transient occupancy taxes, grants, and interest associated with the current fiscal period are all considered to be subject to accrual and so have been recognized as revenues of the current fiscal period to the extent normally collected within the 88 122 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 availability period. Other revenue items are considered to be measurable and available when cash is received by the City. Revenue recognition is subject to the measurability and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes place. Imposed non-exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government-mandated and voluntary non-exchange transactions are recognized as revenues when all applicable eligibility requirements have been met. In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and deferred outflows of resources, and current liabilities and deferred inflows of resources are generally included on their balance sheets. The reported fund balance is considered to be a measure of “available spendable resources”. Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balance. Accordingly, they are said to present a summary of sources and uses of “available spendable resources” during a period. Non-current portions of long-term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by non-current liabilities. Since they do not affect “available spendable resources”, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term debt are recorded as other financing sources rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures. Permanent Funds, also referred to as Endowment Funds, are governmental funds used to report resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support City programs. The amount of net appreciation on investments that is available to support City programs is $2,043,658. The amount of investment earnings available for expenditure is reported as Restricted Fund Balance in the fund level financial statements. The endowment principal is reported as Nonspendable for Permanent 89 123 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Endowments in the Balance Sheet. The State law governing the spending of endowment funds investment earnings is California Probate Code Section 18504. The authority for spending investment earnings for scholarships resides with the City Manager, and the authority for periodic maintenance dredging in the Newport Bay resides with the City Council. Proprietary & Fiduciary Funds The City’s enterprise and internal service funds are proprietary funds. In the fund financial statements, proprietary and fiduciary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the economic resources measurement focus. This means that all assets, deferred outflows of resources, all liabilities and deferred inflows of resources (whether current or non- current) associated with their activity are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net position. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as subsidies, taxes, and investment earnings result from non-exchange transactions or ancillary activities. Amounts paid to acquire capital assets are capitalized as assets in the proprietary fund financial statements, rather than reported as expenditures. Proceeds of long-term debt are recorded as a liability in the proprietary fund financial statements, rather than as other financing sources. Amounts paid to reduce long-term indebtedness of the proprietary funds are reported as reductions of the related liabilities, rather than as expenditures. When both restricted and unrestricted resources are combined in a proprietary fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources. Fiduciary funds are also reported using the economic resources measurement focus and the accrual basis of accounting. 90 124 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 c. Fund Classifications The City utilizes the following broad categories of funds: Major Funds – Major funds are those funds which are either material or of particular importance. Major Governmental Funds – Governmental funds are generally used to account for tax supported activities. The following governmental funds meet the criteria of a major fund: General Fund The General Fund is the general operating fund of the City. It is used to account for all activities, except those required to be accounted for in another fund. Special Revenue Funds Tide and Submerged Land – Operating The Tide and Submerged Land – Operating Fund is a special revenue fund used to account for revenues related to the operation of the City’s tidelands, including beaches and marinas, and the related expenditures. Revenue from tideland operations includes, but is not limited to, rents from moorings, piers, and leases, as well as income from parking lots, meters, and the sale of oil. Tide and Submerged Land – Harbor Capital The Tide and Submerged Land - Harbor Capital Fund is used to account for incremental increases in revenue from certain property lease, pier, and mooring rentals that exceed Council designated base year revenue amounts, as well as other designated revenues and the related expenditures for capital projects, maintenance, and servicing of loan advances from the General Fund. American Rescue Plan Act Fund The American Rescue Plan Act Fund is used to account for federal funding received through Coronavirus State and Local Fiscal Recovery Funds under the American Rescue Plan Act. Capital Project Funds Facilities Financial Planning Reserve Fund The Facilities Financial Planning Reserve Fund is used to account for the receipt and expenditure of funds for the replacement of facilities. In prior years, this fund was called the Facilities Replacement Fund. 91 125 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Debt Service Funds Civic Center COP The Civic Center COP Fund is used to account for debt service transactions related to the Certificates of Participation issued to finance the construction of the City’s Civic Center Complex. Major Proprietary Funds – Proprietary funds are used to report an activity for which a fee is charged to external users to recover the cost of operation. Water Fund The Water Fund is an enterprise fund used to account for the activities associated with the transmission and distribution of potable water by the City to its users. Wastewater Fund The Wastewater Fund is an enterprise fund used to account for the activities associated with providing sewer services by the City to its users. Other Governmental Funds – Other Governmental Funds are those funds which do not meet the criteria of a major fund. Other Governmental Funds used by the City fall into the following governmental fund types: Other Special Revenue Funds – Other Special Revenue Funds are used to account for the proceeds of specific revenue sources which are legally restricted to expenditures for specified purposes. Other Capital Projects Funds – Other Capital Projects Funds are used to account for resources used for the acquisition and construction of capital facilities by the City, except those financed by Enterprise Funds. Permanent Funds – Permanent Funds are used to report resources that are legally restricted for the extent that only earnings, not principal, may be used for purposes that support the reporting government’s programs. Internal Service Funds – The Internal Service Funds are used to account for the City’s self-insured general liability and workers’ compensation, compensated absences, and retiree insurance liabilities; the cost of maintaining and replacing the City’s rolling stock fleet, parking equipment, coordinated communications systems equipment, certain fire equipment, and recreation equipment; and the cost of maintaining and replacing the City’s information technology systems. City departments are the primary users of these services and are charged a fee on a cost reimbursement basis. Fiduciary Funds – The Custodial Funds, a type of Fiducuiary Fund, are used to account for assets held by the City as an agent for property owners with special 92 126 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 assessments, local businesses in business improvements districts, and monies held by the police department in a custodial capacity. d. New Accounting Pronouncements Current Year Standards In fiscal year 2020-21, the City implemented the following Government Accounting Standards Board (GASB) Statements:  GASB Statement No. 84 – “Fiduciary Activities”, effective for periods beginning after December 15, 2019. The result of implementing this statement was changes to the accounting and presentation of fiduciary funds. Fiduciary fund net position at July 1, 2020 increased $500,160.  GASB Statement No. 89 – “Accounting for Interest Cost Incurred before the End of a Construction Period”, effective for periods beginning after December 15, 2020. This statement did not impact the City.  GASB Statement No. 90 – “Majority Equity Interests”, effective for periods beginning after December 15, 2019. This statement did not impact the City.  GASB Statement No. 98 – “The Annual Comprehensive Financial Report”, effective for fiscal years ending after December 15, 2021. The result of implementing this statement was changing the name of the Comprehensive Annual Financial Report to Annual Comprehensive Financial Report. Pending Accounting Standards GASB has issued the following statements, which may impact the City’s financial reporting requirements in the future:  GASB Statement No. 87 –“Leases”, effective for periods beginning after June 15, 2021.  GASB Statement No. 91 – “Conduit Debt Obligations”, effective for periods beginning after December 15, 2021.  GASB Statement No. 92 – “Omnibus 2020”, primarily effective for periods beginning after June 15, 2021.  GASB Statement No. 93 – “Replacement of Interbank Offered Rates”, effective for periods beginning after June 15, 2021 93 127 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021  GASB Statement No. 94 – “Public-Private and Public-Public Partnerships and Availability Payment Arrangements”, effective for periods beginning after June 15, 2022.  GASB Statement No. 96 – “Subscription-Based Information Technology Arrangements”, effective for fiscal years beginning after June 15, 2022.  GASB Statement No. 97 – “Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans – an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32”, effective for fiscal years beginning after June 15, 2021, except for the requirements of paragraphs 4 and 5. e. Accounts Receivable Accounts receivable represent all service and capital project billings other than intergovernmental receivables stated below. As of June 30, 2021, accounts receivable deemed to be uncollectible with an outstanding balance over 120 days past due were written off the City’s accounting records to ensure that the income statement and balance sheet are fairly stated at the amount expected to be collected in receivables. Receivables with governmental organizations are generally excluded from the write-off as they are more likely to be received due to the governments’ creditworthiness. f. Cash and Investments Cash and Cash Equivalents Cash and cash equivalents are defined to be cash on hand, demand deposits and highly liquid investments with a maturity of three months or less from the date of purchase. Investments Investments are generally stated at fair value which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Cash and investments are pooled to maximize investment yields. The net change in fair value and interest earned on the investments is allocated to the respective funds based on each fund’s average monthly cash and investments balance. The City’s investment in LAIF is $64,004,389 at June 30, 2021. This investment value is based on information provided by the State Treasurer’s Office. The carrying value of the City’s position in the fund is materially consistent with the fair 94 128 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 value of the fund shares. This pool is under the regulatory oversight of the State Treasurer’s Office. The LAIF Board consists of five members as designated by Statute. The Chairman is the State Treasurer, or her designated representative. Two members qualified by training and experience in the field of investment or finance, and two members who are treasurers, finance or fiscal officers, or business managers employed by any county, city or local district, or municipal corporation of this state, are appointed by the State Treasurer. The term of each appointment is two years, or at the pleasure of the appointing authority. g. Intergovernmental Receivables Intergovernmental receivables represent grant reimbursement requests, capital project billings, and pending transfers of taxes and fees collected by other government agencies. As of June 30, 2021, the balance of these accounts totaled $13,271,365. h. Inventories and Prepaid Items Inventories are valued at cost, which approximates market, using the first-in, first- out method. The City follows the consumption method for inventory control. The costs of governmental fund and internal service fund inventories are recorded as expenditures when consumed. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. The City follows the consumption method for prepaid items. i. Capital Assets Capital assets, which include land, structures, equipment, and infrastructure assets, are reported in the applicable governmental or business-type activities columns in the Government-wide Financial Statements. Capital assets are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Equipment purchased in excess of $5,000 is capitalized if it has an expected useful life in excess of one year. Buildings, infrastructure, and improvements are capitalized if cost is in excess of $30,000 and the expected useful life is in excess of one year. The cost of normal maintenance and repairs that do not add to the value of the asset’s life are not capitalized. The City chose to value and report on infrastructure assets in their entirety (e.g. prior to 1980). Major capital outlays for capital assets and improvements are capitalized as projects are constructed. Capital assets acquired through lease obligations are valued at the present value of future lease payments at the date acquired. Contributed capital assets are valued at their estimated acquisition value at the date of contribution. 95 129 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method in the government-wide financial statements and in the fund financial statements of the proprietary funds. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the respective balance sheet. The ranges of useful life for depreciation purposes for each capital asset class are as follows: Structures 15-75 years Equipment 3-15 years Infrastructure 20-75 years j. Claims and Judgments The City accounts for material claims and judgments and associated legal and administrative costs when it is probable that the liability claim has been incurred and the amount of the loss can be reasonably estimated. The City records the estimated loss liabilities in the Internal Service Fund. Included therein are claims incurred but not reported, which consists of (a) known loss events expected to be presented as claims later, (b) unknown loss events that are expected to become claims, and (c) expected future development on claims already reported. This is based upon historical actual results that have established a reliable pattern supplemented by specific information about current matters. Small dollar claims and judgments are recorded as expenditures when paid. k. Property Taxes The assessment, levy, and collection of property taxes are the responsibility of the County of Orange. The City records property taxes as revenue when received from the County, except at year-end, when property taxes received within 60 days are accrued as revenue. Property taxes are assessed and collected each fiscal year according to the following property tax calendar: Lien date Jan 1 Levy date July 1 Due dates November 1 1st installment March 1 2nd installment Collection dates December 10 1st installment April 10 2nd installment l. Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation and limited amounts of earned but unused sick leave benefits, which will be paid to employees upon separation from City service. Beginning in fiscal year 96 130 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 1990, the City adopted a general leave plan to replace the traditional vacation and sick leave plan. The City uses a general leave plan that permits a maximum of three years’ accrual for every employee, above which the excess either stops accruing or is paid out as current compensation. All employees hired prior to January 1,1990, were given the option of remaining in the traditional vacation and sick leave plan or enrolling in the general leave plan. All employees hired on or after January 1,1990, are automatically enrolled in the general leave plan. Compensated absences are accrued in the Compensated Absence Internal Service Fund when employee services have been rendered and when it becomes probable that the City will compensate the employees for benefits through paid time off or cash payments at termination or retirement. Benefits that have been earned but are not yet available for use because employees have not met certain conditions are accrued to the extent it is probable that the employees will meet the conditions for compensation in the future. m. Deposits Payable In the government-wide and fund-level financial statements, deposits payable represents monies collected for developer deposits, demolition deposits, planning deposits and others, for services which have not yet been performed. These unspent portions are reported as liabilities on the financial statements. n. Unearned Revenue Unearned revenues are those where asset recognition has been met, but the revenue recognition criteria have not been met. o. Deferred Inflows/Outflows of Resources In addition to assets, the statement of net position and the governmental funds balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense) until that time. The City has three items that qualify for reporting in this category. The first item is the deferred outflows related to employer pension and OPEB contributions made after the measurement date. The second item is a deferred outflow related to pensions and OPEB resulting from changes in assumptions. This amount is amortized over a closed period equal to the average of expected remaining service lives of all employees that are provided pensions and OPEB through the plans. The third item is a deferred outflow related to pensions and OPEB resulting from the difference between expected and actual experience. This amount is amortized over a closed period equal to the average of expected remaining service lives of all employees that are provided pensions and OPEB through the plans. 97 131 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 In addition to liabilities, the statement of net position and the governmental funds balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The City has five items that qualify for reporting in this category. The first item is unavailable revenues, which is only reported in the governmental funds balance sheet. The governmental funds report unavailable revenues from two sources: grants receivable and rent collections. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The second item is a deferred inflow related to pensions resulting from the difference between actual and expected experience. This amount is amortized over a closed period equal to the average of the expected remaining service lives of all employees that are provided pensions through the plans. The third item is a deferred inflow related to pensions resulting from the change in assumptions. This amount is amortized over a closed period equal to the average of expected remaining service lives of all employees that are provided pensions through the plans. The fourth item is a deferred inflow resulting from the net difference in projected and actual earnings on investments of the OPEB plan fiduciary net position. This amount is amortized over five years. The fifth item is the net difference in projected and actual earnings on investments of the pension plan’s fiduciary net position. This amount is amortized over five years. p. Fund Balance Classifications The governmental fund balance is made up of different classifications and the following provides explanations as to the nature and purpose of each classification: Nonspendable fund balance That portion of fund balance that typically includes amounts that are either (a) not in a spendable form such as inventories and prepaid items, or (b) legally or contractually required to be maintained intact such as endowments. Restricted fund balance The portion of fund balance that reflects constraints placed on the use of resources (other than nonspendable items) that are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. Committed fund balance That portion of a fund balance that includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action by the government’s highest level of decision making authority, and remain binding unless removed in the same manner. The City Council has authority to establish or modify a fund balance commitment by legislation (Council action) and can only rescind a fund balance commitment by new legislation requiring the same voting 98 132 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 consensus. The City considers a resolution to constitute a formal action of the City Council for the purposes of establishing committed fund balance. Assigned fund balance That portion of a fund balance that includes amounts that are constrained by the City’s intent to be used for specific purposes and do not meet the criteria to be classified as restricted or committed. Constraints imposed on the use of assigned amounts are more easily removed or modified than those imposed on amounts classified as committed. The City’s Reserve Policy gives the City Manager the authority to establish, modify, or rescind a fund balance assignment. Unassigned fund balance The residual portion of a fund balance that is not otherwise restricted, committed, or assigned. Positive unassigned fund balance is available to be used for any purpose. Only the general fund may report a positive unassigned fund balance. Funds, except the general fund, may report negative unassigned fund balance in certain circumstances. In the governmental fund statements, when expenditures are incurred for purposes for which both restricted and unrestricted (committed, assigned, or unassigned) fund balances are available, the City uses the most restrictive funds first. The City uses the appropriate funds in the following order: restricted, committed, assigned, and finally unassigned amounts. q. Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets, deferred outflows of resources, liabilities and deferred inflows of resources, disclosure of contingent assets and liabilities, and the related amounts of revenues and expenditures. Actual results could differ from those estimates. Management believes that the estimates are reasonable. r. Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City of Newport Beach’s California Public Employees’ Retirement System (CalPERS) plans (Plans) and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 99 133 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 GASB 68 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used. Valuation Date (VD) June 30, 2019 Measurement Date (MD) June 30, 2020 Measurement Period (MP) July 1, 2019 to June 30, 2020 s. Post-Employment Health Care Benefits (OPEB) For purposes of measuring the net OPEB liability and deferred outflows/inflows of resources related to OPEB and OPEB expense, information about the fiduciary net position of the City of Newport Beach’s California Public Employees’ Retirement System (CalPERS) Health Plan and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. GASB 75 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used. Valuation Date (VD) June 30, 2019 Measurement Date (MD) June 30, 2020 Measurement Period (MP) July 1, 2019 to June 30, 2020 (2) Reconciliation of Government-wide and Fund Financial Statements a. Explanation of Differences Between Governmental Funds Balance Sheet and the Statement of Net Position The “total fund balances” of the City’s governmental funds $222,302,210 differs from “net position” of governmental activities $2,222,460,067 reported in the statement of net position. This difference primarily results from the long-term economic focus of the statement of net position versus the current financial resources focus of the governmental funds balance sheet. Capital Related Items When capital assets (property, plant, and equipment) that are to be used in governmental activities are purchased or constructed, the costs of those assets are reported as expenditures in governmental funds. However, the statement of net position includes those capital assets among the assets of the City as a whole. 100 134 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Cost of capital assets $2,548,283,728 Accumulated depreciation (240,099,901) Total capital assets, net* $2,308,183,827 *Amount excludes net capital assets of $16,162,473 from Internal Service funds Long-term Debt Transactions Long-term liabilities applicable to the City’s governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. All liabilities (both current and long-term) are reported in the statement of net position. Balances at June 30, 2021 were: Certificates of participation – Series 2010B $97,630,000 Certificates of participation – Series 2020A 7,860,000 Bond premium – Series 2020A 1,291,026 CDBG loan 403,000 Total $107,184,026 Accrued Interest Accrued liabilities in the statement of net position differ from the amount reported in governmental funds due to accrued interest on outstanding debt payable (see Note 6). Accrued interest added $3,590,292 Investment in Joint Venture Investment in joint venture is not a current financial resource and hence reported only in the statement of net position. Net equity in joint venture $256,862 Unavailable Revenue Some of the revenue will be collected after year-end, but is not available soon enough to pay for the current period’s expenditures, and therefore is reported as unavailable revenue in the governmental funds. Unavailable revenue $1,911,032 101 135 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Internal Service Funds Internal service funds are used by management to charge the costs of certain activities (such as equipment management and self-insurance authorities) to individual funds. The assets (including capital assets) and liabilities of the internal service funds are included in governmental activities in the statement of net position because they primarily serve governmental activities of the City. Internal Service Funds $44,573,521 Deferred Outflows of Resources, Deferred Inflows of Resources and Net Pension Liability – GASB 68 Pension related debt applicable to the governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. Deferred outflows of resources and deferred inflows of resources related to pension are only reported in the Statement of Net Position as the changes in these amounts effects only the government-wide statements for governmental activities. Internal service funds amounts are excluded. Deferred Outflows of Resources $61,144,383 Deferred Inflows of Resources (688,663) Pension Liability (294,129,932) Deferred Outflows of Resources, Deferred Inflows of Resources and Net Post- Employment Health Care Benefits Liability – GASB 75 Post-employment health care benefits (OPEB) debt applicable to the governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. Deferred outflows of resources and deferred inflows of resources related to OPEB are only reported in the Statement of Net Position as the changes in these amounts effects only the government-wide statements for governmental activities. Internal service funds amounts are excluded. Deferred Outflows of Resources $7,774,270 Deferred Inflows of Resources (178,645) OPEB Liability (18,559,067) Internal Balance Internal balances created by the consolidation of internal service fund activities related to enterprise funds are not reported in the governmental funds. Internal Balance $644,587 102 136 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Reclassifications and Eliminations Interfund balances must generally be eliminated in the government-wide statements, except for net residual amounts due between governmental activities. Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once in the function in which they are allocated. 103 137 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Total Capital Long-term Governmental Related Accumulated Debt Funds Items Depreciation Transactions Assets and Deferred Outflows of Resources Cash and investments 212,098,816$ -$ -$ -$ Receivables: Accounts (net of allowance) 7,599,179 - - - Advances to other funds 9,426,659 - - - Interest 627,549 - - - Intergovernmental receivables 13,171,502 - - - Restricted cash and investments with fiscal agent 18,373,724 - - - Interfund balances 6,971,006 - - - Investment in joint venture - - - - Inventory 309,343 - - - Prepaid items 978,644 - - - Capital assets - 2,548,283,728 - - Accumulated depreciation - - (240,099,901) - Total assets 269,556,422$ 2,548,283,728$ (240,099,901)$ -$ Deferred Outflows of Resources: Deferred amount from pension plans - - - 61,144,383 Deferred amount from OPEB - - - 7,774,270 Total deferred outflows of resources - - - 68,918,653 Total assets and deferred outflows of resources 269,556,422$ 2,548,283,728$ (240,099,901)$ 68,918,653$ Liabilities, Deferred Inflows of Resources and Fund Balances/Net Position Liabilities: Accounts payable 12,440,770$ -$ -$ -$ Accrued payroll 4,943,678 - - - Accrued interest payable - - - - Deposits payable 2,583,151 - - - Claims payable - - - - Workers' compensation payable - - - - Compensated absences payable - - - - Unearned revenue 9,330,752 - - - Due to other funds 6,618,170 - - - Advance from other funds 9,426,659 - - - Long-term liabilities - - - 419,873,025 Total liabilities 45,343,180 - - 419,873,025 Deferred Inflows of Resources: Unavailable revenue 1,911,032 - - - Deferred amount from pension plans - - - 688,663 Deferred amount from OPEB - - - 178,645 Total deferred inflows of resources 1,911,032 - - 867,308 Fund balances / net position 222,302,210 2,548,283,728 (240,099,901) (351,821,680) Total liabilities, deferred inflows of resources and fund balances / net position 269,556,422$ 2,548,283,728$ (240,099,901)$ 68,918,653$ Explanation of Differences Between Government Funds Balance Sheet and the Statement of Net Position 104 138 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Investment Internal Reclassifications Interest in Joint Unavailable Service and Statement of Payable Venture Revenue Funds Eliminations Net Position -$ -$ -$ 67,319,577$ -$ 279,418,393$ - - - 1,215,359 - 8,814,538 - - - - (9,426,659) - - - - 197,242 - 824,791 - - - - - 13,171,502 - - - - - 18,373,724 - - - - (6,326,419) 644,587 - 256,862 - - - 256,862 - - - 447,455 - 756,798 - - - 4,369,139 - 5,347,783 - - - 45,965,321 - 2,594,249,049 - - - (29,802,848) - (269,902,749) -$ 256,862$ -$ 89,711,245$ (15,753,078)$ 2,651,955,278$ - - - 1,226,618 - 62,371,001 - - - 288,484 - 8,062,754 - - - 1,515,102 - 70,433,755 -$ 256,862$ -$ 91,226,347$ (15,753,078)$ 2,722,389,033$ -$ -$ -$ 2,448,880$ -$ 14,889,650$ - - - 289,457 - 5,233,135 3,590,292 - - - - 3,590,292 - - - - - 2,583,151 - - - 2,679,733 - 2,679,733 - - - 2,716,603 - 2,716,603 - - - 4,336,047 - 4,336,047 - - - - - 9,330,752 - - - 352,836 (6,971,006) - - - - - (9,426,659) - - - - 33,818,117 - 453,691,142 3,590,292 - - 46,641,673 (16,397,665) 499,050,505 - - (1,911,032) - - - - - - 4,523 - 693,186 - - - 6,630 - 185,275 - - (1,911,032) 11,153 - 878,461 (3,590,292) 256,862 1,911,032 44,573,521 644,587 2,222,460,067 -$ 256,862$ -$ 91,226,347$ (15,753,078)$ 2,722,389,033$ 105 139 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 b. Explanation of Differences Between Enterprise Funds and Government-wide Statement of Net Position The net position of the City’s Enterprise Funds of $152,459,858 differs from the net position of the business-type activities of $151,815,271 as reported in the government-wide statement of net position. The difference of $644,587 results from consolidating internal service fund activities related to the enterprise funds. Total Internal Government-wide Enterprise Service Statement of Funds Funds Net Position Assets and Deferred Outflows of Resources Cash and investments 34,052,547$ -$ 34,052,547$ Receivables: Accounts (net of allowance) 6,663,749 - 6,663,749 Interest 99,552 - 99,552 Intergovernmental receivables 99,863 - 99,863 Interfund balances - (644,587) (644,587) Capital assets, net 126,028,450 - 126,028,450 Total assets 166,944,161 (644,587) 166,299,574 Deferred outflows of resources: Deferred amount from pension plans 1,864,920 - 1,864,920 Deferred amount from OPEB 438,601 - 438,601 Total deferred outflows of resources 2,303,521 - 2,303,521 Total assets and deferred outflows of resources 169,247,682$ (644,587)$ 168,603,095$ Liabilities and Deferred Inflows of Resources Liabilities: Accounts payable 5,886,750$ -$ 5,886,750$ Accrued payroll 182,887 - 182,887 Deposits payable 29,940 - 29,940 Net pension liability 9,622,652 - 9,622,652 Net OPEB liability 1,048,642 - 1,048,642 Total liabilities 16,770,871 - 16,770,871 Deferred inflows of resources: Deferred amount from pension plans 6,875 - 6,875 Deferred amount from OPEB 10,078 - 10,078 Total deferred inflows of resources 16,953 - 16,953 Total liabilities and deferred inflows of resources 16,787,824$ -$ 16,787,824$ Net Position Net investment in capital assets 124,775,772$ -$ 124,775,772$ Unrestricted 27,684,086 (644,587) 27,039,499 Total net position 152,459,858$ (644,587)$ 151,815,271$ Explanation of Differences Between Enterprise Funds and Government-wide Statement of Net Position 106 140 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 c. Explanation of Differences Between Governmental Fund Operating Statements and the Statement of Activities The “net change in fund balances” for governmental funds $17,562,069 differs from the “change in net position” for governmental activities $27,113,268 reported in the statement of activities. The differences arise primarily from the long-term economic focus of the statement of activities versus the current financial resources focus of the governmental funds. The effect of the difference is illustrated below. Capital Related Items When capital assets that are to be used in governmental activities (excluding those reported in Internal Service Funds) are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. In governmental funds, significant maintenance projects are reclassified as functional expenses in the statement of net assets. Also, contributed capital is not recorded in governmental funds; therefore, it is added to the statement of net activities. Capital outlays 24,611,910$ Transfers out of WIP (4,833,875) Capital outlays, net 19,778,035 Governmental funds - asset deletions (3,147,591) Net change in capital related items 16,630,444 Depreciation expense (13,516,221) Deletions in governmental funds accumulated depreciation 2,122,804 Net change in accumulated depreciation (11,393,417) Total 5,237,027$ 107 141 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Long-Term Debt Transactions Payment of debt service is reported as an expenditure in governmental funds and has the effect of reducing fund balance because current financial resources have been used. Issuance of debt is reported as an other financing source in governmental funds and increases fund balance. For the City as a whole, however, the principal payments reduce the liabilities, and proceeds from long-term debt increase liabilities in the statement of net position. Certificates of participation – Series 2010B $3,065,000 CDBG loan 182,000 Certificates of participation – Series 2020A (7,860,000) Bond premium – Series 2020A (1,373,936) Amortization of bond premium – Series 2020A 82,910 Total debt proceeds ($5,904,026) Accrued Interest Interest accrued on outstanding debt payable is not recorded as an expenditure in governmental funds and has been added to the statement of activities. Net change in accrued interest ($98,379) Investment in Joint Venture The City’s investment in a joint venture creates an explicit, measurable equity interest reported only in the statement of activities. Net change in investment in joint venture $10,392 Unavailable Revenue Some of the revenue will be collected after year-end, but is not available soon enough to pay for current-period expenditures. This amount is reported as unavailable revenue in the governmental funds. Net change in unavailable revenue ($867,071) 108 142 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Pension Expense Pension expense reported in the governmental funds includes the annual required contribution. In the statement of activities, pension expense includes the change in the net pension liability and related change in the pension amounts for deferred outflows of resources and deferred inflows of resources. Pension expense $4,872,162 Post-Employment Health Care Benefits Expense Post-employment health care benefits (OPEB) expense reported in the governmental funds includes the annual required contribution. In the statement of activities, OPEB expense includes the change in the net OPEB liability and related change in the OPEB amounts for deferred outflows of resources and deferred inflows of resources. OPEB expense $3,292,279 Internal Service Funds Internal service funds are used by management to charge the costs of certain activities, such as equipment management and self-insurance activities, to individual funds. The adjustments for internal service funds “close” those funds by reimbursing or charging additional amounts to participating departments in individual funds for costs over or under charged for those activities. Net change in internal service funds $2,743,371 Reclassification and Eliminations Interfund balances must generally be eliminated in the government-wide financial statements, except for net residual amounts due between governmental and business-type activities. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once – in the function in which they are allocated. Amounts involving fiduciary funds should be reported as external transactions. Reclassifications and eliminations are used by management to consolidate internal service funds into the statement of activities. Net change in reclassifications and eliminations to consolidate internal service funds $265,444 109 143 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Total Capital Long-term Governmental Related Accumulated Debt Funds Items Depreciation Transactions Revenues: Taxes and assessments 188,351,057$ -$ -$ -$ Intergovernmental 22,233,872 - - - Licenses and permits 6,566,555 - - - Charges for services 18,434,439 - - - Fines and forfeitures 3,923,726 - - - Investment income 3,201,376 - - - Net decrease in fair value of investments (2,634,682) - - - Property income 28,842,374 - - - Share of joint venture net gain - - - - Donations 5,491,871 - - - Gain on sale of capital assets - - - - Other 3,504,103 - - - Total revenues 277,914,691 - - - Expenditures: Current: General government 17,371,303 - 2,556,843 (1,024,795) Public safety 126,006,313 354,973 548,594 (4,622,339) Public works 46,817,293 2,736,716 5,895,566 (1,160,858) Community development 12,996,840 - 5,082 (615,607) Community services 26,745,189 55,902 2,387,332 (740,842) Capital outlay 33,728,085 (19,778,035) - - Debt service: Principal retirement 3,247,000 - - (3,247,000) Interest and fiscal charges 7,089,347 - - - Amortization of debt premium - - - (82,910) Total expenses 274,001,370 (16,630,444) 11,393,417 (11,494,351) Other financing sources (uses): Transfers in 70,379,824 - - - Transfers out (65,965,012) - - - Certificates of participation issued 7,860,000 - - (7,860,000) Premium on certificates of participation issued 1,373,936 - - (1,373,936) Total other financing sources (uses)13,648,748 - - (9,233,936) Net change in fund balances / net position 17,562,069 16,630,444 (11,393,417) 2,260,415 Fund balances / net position, beginning of year as restated 204,740,141 2,531,653,284 (228,706,484) ` (354,082,095) Fund balances / net position, end of year 222,302,210$ 2,548,283,728$ (240,099,901)$ (351,821,680)$ Operating Statement and the Statement of Activities Explanation of Differences Between Government Funds 110 144 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Investment Internal Reclassifications Interest in Joint Unavailable Service and Statement of Payable Venture Revenue Funds Eliminations Activities -$ -$ -$ -$ -$ 188,351,057$ - - (867,071) - - 21,366,801 - - - - - 6,566,555 - - - - 265,444 18,699,883 - - - - - 3,923,726 - - - 957,868 - 4,159,244 - - - (865,084) - (3,499,766) - - - - - 28,842,374 - 10,392 - - - 10,392 - - - - - 5,491,871 - - - 441,666 - 441,666 - - - - - 3,504,103 - 10,392 (867,071) 534,450 265,444 277,857,906 - - - (1,225,833) 2,716,760 20,394,278 - - - (3,524,382) 421,799 119,184,958 - - - (720,552) 10,120,990 63,689,155 - - - (392,774) 163,685 12,157,226 - - - (760,192) 526,816 28,214,205 - - - - (13,950,050) - - - - - - - 98,379 - - - - 7,187,726 - - - - - (82,910) 98,379 - - (6,623,733) - 250,744,638 - - - 531,764 (70,911,588) - - - - (4,946,576) 70,911,588 - - - - - - - - - - - - - - - - (4,414,812) - - (98,379) 10,392 (867,071) 2,743,371 265,444 27,113,268 (3,491,913) 246,470 2,778,103 41,830,150 379,143 2,195,346,799 (3,590,292)$ 256,862$ 1,911,032$ 44,573,521$ 644,587$ 2,222,460,067$ 111 145 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 d. Explanation of Differences Between Enterprise Funds Operating Statement and the Statement of Activities The change in net position for the City’s enterprise funds of $1,512,364 differs from the change in net position of the business-type activities of $1,246,920 as reported in the government-wide statement of activities. The difference of $265,444, results from consolidating internal service fund activities related to the enterprise funds. Total Internal Business-type activities Enterprise Service Statement of Funds Fund Activities Operating revenues: Charges for sales and services: Water sales 30,413,190$ -$ 30,413,190$ Sewer service and connection fees 4,586,512 - 4,586,512 Other 358,210 - 358,210 Total operating revenues 35,357,912 - 35,357,912 Operating expenses: Purchase of water 11,156,173 - 11,156,173 Salaries and wages 6,768,070 - 6,768,070 Depreciation 2,299,660 - 2,299,660 Professional services 3,263,481 - 3,263,481 Maintenance and supplies 3,422,768 265,444 3,688,212 System maintenance 3,013,725 - 3,013,725 Utilities 2,045,350 - 2,045,350 Other 1,931,817 - 1,931,817 Total operating expenses 33,901,044 265,444 34,166,488 Operating income 1,456,868 (265,444) 1,191,424 Nonoperating revenues (expenses): Investment income 525,295 - 525,295 Net decrease in fair value of investments (469,799) - (469,799) Total nonoperating revenues (expenses)55,496 - 55,496 Change in net position 1,512,364 (265,444) 1,246,920 Net position, beginning of year 150,947,494 (379,143) 150,568,351 Net position, end of year 152,459,858$ (644,587)$ 151,815,271$ Explanation of Differences Between Enterprise Funds Operating Statement and the Statement of Activities 112 146 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 (3) Budgetary Control and Compliance The City adheres to the following general procedures in establishing the budgetary data reflected in the financial statements:  During May, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them. Public hearings are conducted at City Council meetings to obtain citizen comments. Prior to July 1, the budget is legally adopted through passage of an appropriation resolution.  Budgets are adopted on an annual basis consistent with generally accepted accounting principles for General and Special Revenue Funds.  The City of Newport Beach does not present budget information on Capital Projects Funds since the City approves project-length budgets. These project- length budgets authorize total expenditures over the duration of a construction project rather than through year-by-year budgeting.  The City of Newport Beach does not present budget information on Debt Service and Permanent Funds since the City is not required to and does not adopt an annual budget for these funds. No budget was adopted for the American Rescue Plan Act Fund because neither revenues or expenditures were recognized during the fiscal year.  The budget is formally integrated into the accounting system and employed as a management control device during the year.  The legal level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted amounts between departments within any fund; however, any revisions which alter the total appropriations of any fund must be approved by the City Council.  At fiscal year-end, budget appropriations lapse. Budget appropriations for incomplete capital projects are re-budgeted in the following fiscal year by City Council action and are included in the revisions noted above. Projects that are not started during the budget year are re-evaluated in the following year.  Encumbrances represent commitments related to unperformed contracts for goods and services. The City utilizes an encumbrance system as a management control technique to assist in controlling expenditures. Under this system, encumbrance accounting for the expenditure of funds is recorded in order to indicate outstanding commitments and is employed in the governmental fund types. Encumbrances outstanding at year-end are reported as committed or restricted fund balances since they do not constitute expenditures or liabilities. 113 147 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Encumbrances and their related budgets are honored in the subsequent year to fulfill these commitments and are presented in the original adopted budget. Expenditures exceeded appropriations in the following governmental funds: The following funds reported deficit fund balances: The City’s intention for the Junior Lifeguards Fund is to eliminate the deficit fund balance through an interfund transfer. For the Compensated Absences Fund, the City’s Reserve Policy sets the maximum cash reserve at 50% of the long-term compensated absences liability and targets a lesser amount that is the median between that amount and a three-year average of the actual payments made for the cash-out of accumulated leave balances. Accordingly, this deficit fund balance is intentional and in compliance with the City Council-approved Reserve Policy. (4) Cash and Investments Cash and investments as of June 30, 2021, are classified in the accompanying financial statements as follows: Statement of net position: Cash and investments $ 313,470,940 Restricted cash and investments with fiscal agent 18,373,724 Fiduciary funds: Cash and investments 1,224,273 Restricted cash and investments with fiscal agent 1,333,345 Total cash and investments $ 334,402,282 Appropriations Expenditures Variance Supplemental Law Enforcement 200,000$ 205,263$ (5,263)$ Other Governmental Funds Junior Lifeguards 136,299$ Internal Service Funds Compensated Absences 8,212,322$ 114 148 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Cash and investments as of June 30, 2021, consist of the following: Cash on hand $ 24,235 Deposits with financial institutions 13,700,479 Investments 320,677,568 Total cash and investments $ 334,402,282 Investments Authorized by the California Government Code and the Entity’s Investment Policy The table below identifies the investment types that are authorized for the City by the California Government Code (or the City’s investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the City’s investment policy, whichever is more restrictive) that address interest rate risk and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustees that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City’s investment policy. Authorized Investment Type Maximum Maturity* Maximum Percentage of Portfolio* Maximum Investment in One Issuer* Local Agency Bonds 5 years 30% 5% U.S. Treasury Obligations 5 years No Limit No Limit U.S. Agency Securities 5 years No Limit No Limit Banker's Acceptances 180 days 40% 5% Commercial Paper 270 days 25% 5% Negotiable Certificates of Deposit 2 years 30% 5% Repurchase Agreements 30 days No Limit 5% Reverse Repurchase Agreements 30 days 10% 5% Medium-Term Notes 5 years 30% 5% Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 20% Mortgage Pass-Through Securities 5 years 20% 5% LA County Pooled Investment Funds N/A 5% 5% Local Agency Investment Fund (LAIF) N/A $75 million $75 million Supranationals 5 years 20% 10% * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. 115 149 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Investments Authorized by Debt Agreements Investments of debt proceeds held by bond trustees (i.e., fiscal agents) are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City’s investment policy. The table below identifies the investment types that are authorized for investments held by bond trustees. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk. Authorized Investment Type Maximum Maturity Maximum Percentage Allowed Maximum Investment in One Issuer U.S. Treasury Obligations 6 months – No Limit No Limit No Limit U.S. Agency Securities 6 months – No Limit No Limit No Limit Banker's Acceptances 6 months – 1 Year 0% - No Limit No Limit Commercial Paper 180 days - 6 months No Limit 10% Money Market Mutual Funds N/A No Limit No Limit Investment Agreements 6 months – No Limit No Limit No Limit Certificates of Deposit 6 months – No Limit No Limit No Limit Demand Deposits 6 months – No Limit No Limit No Limit Time Deposits 6 months – No Limit No Limit No Limit Local Agency Bonds 6 months – No Limit No Limit No Limit Forward Delivery Agreement 6 months – No Limit 0% - No Limit No Limit Forward Purchase Agreement 6 months – No Limit 0% - No Limit No Limit Repurchase Agreements 6 months – No Limit No Limit No Limit Local Agency Investment Fund (LAIF) N/A No Limit No Limit Municipal Obligations 6 months – No Limit No Limit No Limit County Pooled Investment Funds N/A 0% - No Limit No Limit Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the City’s investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the City’s investments by maturity: 116 150 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Some of the City's investments may have call features where the investments' principal may be paid down before its maturity. Such investments include asset backed securities, investments with make whole call provisions, and investments with call dates. The City's asset backed securities pay monthly coupons, at which time principal may be paid down. As of June 30, 2021, the City held asset backed securities of $13,071,449. Investments with make whole call provisions generally may be called any time, but the terms of the call price generally mitigate the financial impact of a call. As of June 30, 2021, the City held corporate and municipal bonds with make whole call provisions as summarized below: Maturity Value July 2021 $ 2,000,880 January 2023 1,036,110 May 2023 1,037,500 January 2024 1,607,610 February 2024 2,077,600 May 2024 4,735,831 $ 12,495,531 Investments with call dates may be called anytime on or after the call date. As of June 30, 2021, the City held corporate bonds with call dates as summarized below: Maturity Value Call Date December 2021 $ 1,008,370 November 2021 January 2022 1,011,650 December 2021 February 2022 1,758,214 January 2022 August 2023 1,035,480 June 2023 February 2024 2,141,980 January 2024 $ 6,955,694 Investment Maturities (In Years) Fair Value Less than 1 1 to 3 3 to 5 More than 5 Total Investment Type Money Market Funds 108,586$ 108,586$ -$ -$ -$ 108,586$ U.S. Treasuries 71,239,771 13,214,614 43,017,409 15,007,748 - 71,239,771 U.S. Agency Bonds 100,225,493 15,808,544 84,416,949 - - 100,225,493 Asset Backed Securities 13,071,449 42,765 7,205,066 5,823,617 - 13,071,449 Corporate Bonds 44,211,043 9,907,119 28,097,609 6,206,316 - 44,211,043 Municipal Bonds 2,077,600 - 2,077,600 - - 2,077,600 LAIF 64,004,389 64,004,389 - - - 64,004,389 Supranationals 6,032,212 - 6,032,212 - - 6,032,212 Investments with Fiscal Agent: Money Market Funds 10,645,891 10,645,891 - - - 10,645,891 LAIF 9,061,135 9,061,135 - - - 9,061,135 320,677,568$ 122,793,042$ 170,846,845$ 27,037,681$ -$ 320,677,568$ Assuming callable securities (if any) will not be called. 117 151 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Investments may have both a make whole call provision and a regular call date. As of June 30, 2021, the City held corporate bonds with both a make whole call provision and a regular call date as summarized below: Maturity Value Call Date February 2022 $ 2,016,500 November 2021 December 2022 1,033,190 October 2022 March 2023 1,037,680 January 2023 June 2023 2,116,540 May 2023 March 2024 2,242,488 February 2024 March 2024 1,644,205 March 2023 June 2024 999,400 June 2023 July 2024 470,316 July 2022 March 2025 2,123,920 March 2024 June 2025 998,080 June 2024 $ 14,682,319 About $5.8 million of the investments with both a make whole call provision and a regular call date, also have interest rate reset dates. If these securities are not called by their call date, then these securities will revert to floating rate securities tied to a benchmark index. Prior to their call date, these securities pay a fixed rate of interest. Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations As of June 30, 2021, the City did not have any investments (including investments held by fiscal agent) whose fair values were highly sensitive to interest rate fluctuations. Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented in the following schedule is the minimum rating (where applicable) required by the California Government Code, the City’s investment policy, or debt agreements, and the actual rating by Standard & Poor’s as of the June 30, 2021 for each investment type. Investment Type Fair Value Minimum Legal Rating AAA AAAm AA+ AA AA- A+ A A- Not Rated Money Market Funds 108,586$ AAAm -$ 108,586$ -$ -$ -$ -$ -$ -$ -$ U.S. Treasuries 71,239,771 None - - 71,239,771 - - - - - - U.S. Agency Bonds 100,225,493 None - - 100,225,493 - - - - - - Asset Backed Securities 13,071,449 AAA 8,529,718 - - - - - - - 4,541,731 Corporate Bonds 44,211,043 A-- - 1,037,500 4,986,890 1,033,190 9,282,716 19,096,417 8,304,015 470,316 Municipal Bonds 2,077,600 A-- - 2,077,600 - - - - - - LAIF 64,004,389 N/A - - - - - - - - 64,004,389 Supranationals 6,032,212 AA-6,032,212 - - - - - - - - Investments with Fiscal Agent: Money Market Funds 10,645,891 AAm - 10,645,891 - - - - - - - LAIF 9,061,135 N/A - - - - - - - - 9,061,135 320,677,568$ 14,561,930$ 10,754,477$ 174,580,363$ 4,986,890$ 1,033,190$ 9,282,716$ 19,096,417$ 8,304,015$ 78,077,571$ 118 152 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Concentration of Credit Risk The investment policy of the City and the California Government Code limit the amount that can be invested in any one issuer as previously discussed. Investments in any one issuer (excluding U.S. Treasury Bills, U.S. Treasuries, mutual funds, and pooled investments) that represent 5% or more of total City’s investments are as follows: Issuer Investment Type Reported Amount FHLB Federal agency securities $34,883,840 FFCB Federal agency securities $29,375,069 FNMA Federal agency securities $19,492,225 FHLMC Federal agency securities $16,474,358 Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The fair value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2021, none of the City’s deposits with financial institutions in excess of federal depository amounts were held in uncollateralized accounts. For investments identified herein as restricted cash with fiscal agent, the fiscal agent selects the investment under the terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the reporting government. Investment in State Investment Pool The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City’s investment in this pool is reported in the accompanying financial statements at amounts based upon the City’s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting 119 153 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated. Limitations and restrictions apply to the City’s investment in LAIF. Up to 15 transactions with LAIF are permitted each month. Balances in LAIF may not exceed $75 million, with the exception of bond accounts. LAIF requests one day prior notice for withdrawals of $10 million or more. Fair Value Measurements The City categorizes its fair value measurement within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs. Most of the City’s investments are in Level 2 of the fair value hierarchy. Examples of Level 2 valuation inputs include: a) Quoted prices for similar assets or liabilities in active markets b) Quoted prices for identical or similar assets or liabilities in markets that are not active c) Inputs other than quoted prices that are observable for the asset or liability d) Inputs that are derived principally from or corroborated by observable market data by correlation or other means. Following are the City’s recurring fair value measurements as of June 30, 2021: Fair Value Investments That Are Not Subject to Fair Value Hierarchy Quoted Prices in Active Markets for Identical Assets (Level 1) Quoted Prices for Similar Assets in Active Markets (Level 2) Significant Unobservable Inputs (Level 3) Money Market Funds 108,586$ 108,586$ -$ -$ -$ U.S. Treasuries 71,239,771 - - 71,239,771 - U.S. Agency Bonds 100,225,493 - - 100,225,493 - Asset Backed Securities 13,071,449 - - 13,071,449 - Corporate Bonds 44,211,043 - - 44,211,043 - Municipal Bonds 2,077,600 - - 2,077,600 - LAIF 64,004,389 64,004,389 - - - Supranationals 6,032,212 - - 6,032,212 - Investments with Fiscal Agent: Money Market Funds 10,645,891 10,645,891 - - - LAIF 9,061,135 9,061,135 - - - 320,677,568$ 83,820,001$ -$ 236,857,568$ -$ 120 154 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 (5) Capital Assets Capital asset activity for the year ended June 30, 2021, was as follows: Governmental Activities: Governmental Activities capital assets net of accumulated depreciation at June 30, 2021 are comprised of the following: Beginning Balance Balance Additions Deletions June 30, 2021 Non-depreciable: Land and rights of way 1,897,520,485$ -$ -$ 1,897,520,485$ Work in progress 6,012,710 10,196,174 (4,833,875) 11,375,009 1,903,533,195 10,196,174 (4,833,875) 1,908,895,494 Depreciable: Structures 239,878,560 873,519 (279,570) 240,472,509 Equipment 53,837,634 4,015,989 (2,674,669) 55,178,954 Infrastructure 379,083,520 13,355,288 (2,736,716) 389,702,092 672,799,714 18,244,796 (5,690,955) 685,353,555 Less accumulated depreciation for: Structures (49,397,226) (5,173,158) 175,192 (54,395,192) Equipment (35,063,735) (4,271,342) 2,584,244 (36,750,833) Infrastructure (173,044,871) (7,571,928) 1,860,075 (178,756,724) (257,505,832) (17,016,428) 4,619,511 (269,902,749) Net Depreciable 415,293,882 1,228,368 (1,071,444) 415,450,806 Net Capital Assets 2,318,827,077$ 11,424,542$ (5,905,319)$ 2,324,346,300$ General Capital Assets, net $ 2,308,183,827 Internal Service Fund Capital Assets, net 16,162,473 $ 2,324,346,300 121 155 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Business-type Activities: Depreciation expense was charged in the following functions in the Statement of Activities: Beginning Balance Balance Additions Deletions June 30, 2021 Non-depreciable: Land and rights of way 2,219,450$ -$ -$ 2,219,450$ Work in progress 2,855,174 414,590 (2,855,174) 414,590 5,074,624 414,590 (2,855,174) 2,634,040 Depreciable: Structures 688,396 - - 688,396 Equipment 325,174 12,007 - 337,181 Infrastructure 186,551,195 10,311,610 (678,126) 196,184,679 187,564,765 10,323,617 (678,126) 197,210,256 Less accumulated depreciation for: Structures (264,141)(15,357) - (279,498) Equipment (158,310)(24,690) - (183,000) Infrastructure (71,447,591) (2,259,613) 353,856 (73,353,348) (71,870,042) (2,299,660) 353,856 (73,815,846) Net Depreciable 115,694,723 8,023,957 (324,270) 123,394,410 Net Capital Assets 120,769,347$ 8,438,547$ (3,179,444)$ 126,028,450$ Governmental Business-type Activities*Activities General government 5,206,070$ -$ Public safety 1,463,225 - Public works 174,848 - Community development 513,094 - Community service 9,659,191 - Water - 1,648,246 Wastewater - 651,414 17,016,428$ 2,299,660$ *Internal Service Fund depreciation of $3,500,207 is allocated to governmental functions above. 122 156 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 (6) Long-Term Liabilities Changes in Long-Term Liabilities The long-term liabilities for the year ended June 30, 2021, are as follows: Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. Also, liabilities for workers’ compensation, claims and judgments, compensated absences, and net OPEB obligation are typically liquidated from the internal service funds through resources collected from individual funds. Governmental Activities  2010 Certificates of Participation In Fiscal Year 2010-11, the City issued $20,085,000 of Series 2010A (Tax Exempt) and $106,575,000 of Series 2010B (Federally Taxable Direct Pay Build America Bonds) Certificates of Participation. The 2010A Certificates were issued to prepay the $3,990,000 principal outstanding on the 1998 Library Certificates of Participation. Accordingly, the 1998 Library Certificates have been defeased and are no longer outstanding. The remaining proceeds from the Series 2010A Certificates were used to finance the acquisition, improvement and equipping of the Civic Center Project. The Series 2010B Certificates were issued to provide additional financing for the Civic Center Project. The proceeds of the Certificates also were applied to pay certain costs of issuance incurred in connection with the Certificates. Amounts Beginning Ending Due Within Balance Additions Deletions Balance One Year Governmental activities: Other debt: Certificates of participation payable - Series 2010B 100,695,000$ -$ (3,065,000)$ 97,630,000$ 3,165,000$ Certificates of participation payable - Series 2020A - 7,860,000 - 7,860,000 775,000 Bond premium - Series 2020A - 1,373,936 (82,910) 1,291,026 - Direct borrowing: CDBG loan 585,000 - (182,000) 403,000 195,000 Other long-term liabilities: Workers' compensation payable 15,521,000 1,917,334 (2,685,334) 14,753,000 2,716,603 Claims and judgments payable 7,960,948 5,604,723 (5,300,036) 8,265,635 2,679,733 Compensated absences 13,093,319 2,866,959 (2,447,271) 13,513,007 4,336,047 Total governmental activities 137,855,267$ 19,622,952$ (13,762,551)$ 143,715,668$ 13,867,383$ 123 157 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 The lease payments made by the City are held by a trustee who makes semi-annual payments on the Certificates of Participation. The lease payments began January 1, 2011, and are in amounts sufficient to cover the payment of principal and interest of the Certificates. Interest on the Certificates is payable semiannually on January 1 and July 1 of each year. The 2010A Certificates have been defeased and are no longer outstanding. The 2010B Certificates interest rates range from 4.45% to 7.17%. The City has designated the Series 2010B Certificates as “Build America Bonds” (BABs) under the provisions of the American Recovery and Reinvestment Act of 2009. Thus, the City receives refundable credits from the United States Treasury on the interest paid on the 2010B Certificates. As of June 30, 2021, the City has received $25,127,584 of BABs Subsidy from the United States Treasury and expects to receive subsidy equal to about 33% on future interest payable on the 2010B Certificates. Principal payments are payable annually on July 1 of each year. The remaining principal payments for the Series 2010B Certificates, which are payable through July 1, 2040, range from $3,165,000 to $7,245,000. The total outstanding balance at June 30, 2021 amounted to $97,630,000. The use of the following assets has been pledged as security for the outstanding balance: the Central Library and the Civic Center. The annual amortization requirements of the outstanding Series 2010B Certificates of Participation are as follows:  2020 Certificates of Participation In Fiscal Year 2020-21, the City issued $7,860,000 of Series 2020A Certificates of Participation. The 2020A Certificates were issued to finance the acquisition, improvement, and equipping of the Fire Station 2 Project. The proceeds of the Certificates also were applied to pay certain costs of issuance incurred in connection with the Certificates. The lease payments made by the City are held by a trustee who makes semi-annual payments on the Certificates of Participation. The lease payments began June 15, 2021, and are in amounts sufficient to cover the payment of principal and interest of the Certificates. Interest on the Certificates is payable semiannually on January 1st and July 1st of each year. The 2020A Certificates’ interest rate is 4.00%. Principal Year Ending June 30 Principal Interest Total 2022 3,165,000$ 6,733,265$ 9,898,265$ 2023 3,275,000 6,556,869 9,831,869 2024 3,390,000 6,365,978 9,755,978 2025 3,510,000 6,142,971 9,652,971 2026 3,675,000 5,889,360 9,564,360 2027-2031 21,090,000 25,200,799 46,290,799 2032-2036 26,390,000 16,776,346 43,166,346 2037-2041 33,135,000 6,154,266 39,289,266 97,630,000$ 79,819,854$ 177,449,854$ 124 158 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 payments are payable annually on July 1st of each year. The remaining principal payments of the Series 2020A Certificates, which are payable through July 1, 2030, range from $665,000 to $915,000. The total outstanding balance at June 30, 2021 amounted to $7,860,000. The use of the following assets has been pledged as security for the outstanding balance: Fire Station 5 and Fire Station 7. The annual amortization requirements of the outstanding Series 2020A Certificates of Participation are as follows:  CDBG Loan In fiscal year 2003, the City received $2,400,000 in Section 108 loan proceeds to assist with the funding for the Balboa Village Improvement Program. The loan is collateralized by future Community Development Block Grant allocations. The original loan was refinanced in fiscal year 2015 lowering the average interest rate from 6.5% to 1.5%. Future principal payments range from $195,000 to $208,000 through June 30, 2023. The outstanding balance at June 30, 2021, amounts to $403,000. The annual amortization requirements for the CDBG Loan are as follows:  Claims and Judgments The City retains the risk of loss for general liability and workers’ compensation claims as described in Note (8). These amounts represent estimates of amounts to be paid for reported general liability and workers' compensation claims including incurred-but- not-reported claims based upon past experience, modified for current trends and information. While the ultimate amount of losses incurred through June 30, 2021, is dependent on future developments based upon information from the City’s attorney, the City's claims administrators, and others involved with the Year Ending June 30 Principal Interest Total 2022 775,000$ 318,987$ 1,093,987$ 2023 665,000 270,100 935,100 2024 695,000 242,900 937,900 2025 725,000 214,500 939,500 2026 755,000 184,900 939,900 2027-2031 4,245,000 437,500 4,682,500 7,860,000$ 1,668,887$ 9,528,887$ Year Ending June 30 Principal Interest Total 2022 195,000$ 7,387$ 202,387$ 2023 208,000 2,548 210,548 403,000$ 9,935$ 412,935$ 125 159 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 administration of the programs, City management believes the accrual is adequate to cover such losses. The estimated liability at June 30, 2021, for general liability amounted to $8,265,635 and for workers’ compensation was $14,753,000.  Compensated Absences The City's policies relating to compensated absences are described in Note (1). This liability at June 30, 2021, is $13,513,007. Compensated absences are liquidated from the Compensated Absences internal service fund.  Unused Credit The City has a letter of credit in the amount of $317,922. (7) Limited Obligation Bonds Special Assessment Districts Bonds The City has issued certain Assessment District and Community Facilities District Bonds. Although the City collects and disburses funds for these districts, the City has no obligation or duty to pay any delinquency out of any available funds of the City. Neither the faith and credit nor the taxing power of the City is pledged to the payment of the bonds, and therefore the bonded indebtedness is not shown in the financial statements of the City. The City holds reserve funds on behalf of bondholders, and the assets are recorded in the Special Assessment Agency Fund. Bonds outstanding at June 30, 2021, for each district under the Bond Acts of 1911 and 1915 are as follows: Assessment District Original Issue Bonds Outstanding June 30, 2021 Reassessment District 2012 $13,583,436 $2,582,521 Assessment District No. 117 $ 2,955,000 $2,620,000 Assessment District No. 116 $ 1,575,000 $1,510,000 Assessment District No. 116B $ 665,000 $ 640,000 Assessment District No. 111 $ 2,412,000 $2,412,000 (8) Risk Management – General Liability and Workers’ Compensation The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The City carries commercial insurance with independent third parties for loss risks associated with real and personal property, and automotive liability. The City purchases fidelity bonds for employees in key positions. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. 126 160 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 The City utilizes Public Risk Innovation, Solutions, and Management (PRISM), formerly called California State Association of Counties – Excess Insurance Authority (CSAC-EIA), a joint powers authority, to provide excess insurance for the general liability and workers’ compensation programs. PRISM provides coverage under the terms of a joint-powers agreement with the City as follows: Type of Coverage Self-Insured Retention (SIR) Coverage Limits General Liability $500,000 $25,000,000 Workers’ Compensation $500,000 Statutory PRISM was established for the purpose of creating a risk management pool for all California public entities. PRISM is governed by a Board of Directors consisting of representatives of its member public entities. The Insurance Reserve fund was established to account for costs associated with general liability and workers’ compensation. The Insurance Reserve fund is accounted for as an internal service fund where assets are set aside for risk management, administration, claim settlements and benefit distribution. A premium is charged to each fund that accounts for part-time or full-time employees. The total charge allocated to each of the funds is calculated using trends in actual experience after considering unexpected and unusual claims. Fund liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR). Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amounts of payouts and other economic and social factors. The total liability claims payable was $23,018,635 at June 30, 2021, which represents the discounted present value of all outstanding claims. The claims are discounted using an interest rate of 3%. (9) Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to set aside a portion of their salary and defer taxation on the contributions and any investment earnings until future years. June 30, 2020 June 30, 2021 June 30, 2020 June 30, 2020 Unpaid claims, beginning of fiscal year 6,951,907$ 7,960,948$ 16,270,000$ 15,521,000$ Incurred claims (including IBNR)6,559,117 5,604,723 1,646,315 1,917,334 Claim payments (5,550,076) (5,300,036) (2,395,315) (2,685,334) Unpaid claims, end of fiscal year 7,960,948$ 8,265,635$ 15,521,000$ 14,753,000$ General Liability Workers' Compensation 127 161 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Section 457 plan assets were placed in trust for the exclusive benefit of all employees and their beneficiaries. Therefore, all employee assets held in Section 457 plans are not the property of the City and are not subject to the claims of the City’s general creditors. The assets under the plan, which are not included in the accompanying financial statements, totaled $151,034,783 at June 30, 2021. (10) Pension Plans a. General Information about the Pension Plans Plan Descriptions – All qualified permanent and probationary employees are eligible to participate in the City of Newport Beach’s separate Safety (police and fire) and Miscellaneous (all other) Employee Pension Plans, agent multiple-employer defined benefit pension plans administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and Local Government resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided – CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 50 to 62 with statutorily reduced benefits. PEPRA miscellaneous members become eligible for service retirement upon attainment of age 52 with at least 5 years of service. All members are eligible for non-duty disability benefits after 5 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1959 Survivor Benefit, the Optional Settlement 2W Death Benefit, or the 1957 Survivor Benefit. Safety members can receive a special death benefit if the member dies while actively employed and the death is job-related. Fire members may receive the alternate death benefit in lieu of the Basic Death Benefit or the 1957 Survivor Benefit if the member dies while actively employed and has at least 20 years of total CalPERS service. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law. 128 162 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 The Plans’ provisions and benefits in effect for the measurement period ended June 30, 2020 are summarized as follows: Employees Covered – At the measurement date of June 30, 2020, the following employees were covered by the benefit terms for each Plan: Contributions – Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers are determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate Prior to On or after On or after Hire date November 24,2012 November 24,2012 January 1, 2013 Benefit formula 2.5%@55 2.0%@60 2.0%@62 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 - 55 50 - 63 52 - 67 Monthly benefits, as a % of eligible compensation 2.0% to 2.5% 1.092% to 2.418% 1.0% to 2.5% Required employee contribution rates 12.35% - 13.0% 12.35% - 13.0% 12.35% - 13.0% Required employer contribution rates 32.57% - 33.22% 29.15% - 29.80% 28.65% - 29.30% Prior to On or after On or after Hire date November 24,2012 November 24,2012 January 1, 2013 Benefit formula 3.0%@50 2.0%@50; 3.0%@55 2.7%@57 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 - 55 50 - 55 50 - 57 Monthly benefits, as a % of eligible compensation 3.0% 2.0% - 2.7%; 2.4% - 3.0% 2.0% to 2.7% Required employee contribution rates 12.0% - 14.6% 12.0% - 14.6% 12.0% - 14.6% Required employer contribution rates 68.58% - 71.18% 68.58% - 71.18% 71.08% - 73.68% Miscellaneous Safety Miscellaneous Safety Inactive employees or beneficiaries currently receiving benefits 688 447 Inactive employees entitled to but not yet receiving benefits 607 93 Active employees 526 268 Total 1,821 808 129 163 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 of employees. City contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contributions requirements are classified as plan member contributions. b. Net Pension Liability The City’s net pension liability for each Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of each of the Plans is measured as of June 30, 2020, using an annual actuarial valuation as of June 30, 2019 rolled forward to June 30, 2020 using standard update procedures. The General Fund, Tidelands Funds, Water Fund, and Wastewater Fund have typically been used in prior years to liquidate the net pension liability. A summary of principal assumptions and methods used to determine the net pension liability is shown below. Actuarial Assumptions – The total pension liabilities in the June 30, 2019 actuarial valuations were determined using the following actuarial assumptions: All other actuarial assumptions used in the June 30, 2019 valuation were based on the results of an actuarial experience study for the period from 1997 to 2015, including Miscellaneous Safety Valuation Date June 30, 2019 June 30, 2019 Measurement Date June 30, 2020 June 30, 2020 Actuarial Cost Method Actuarial Assumptions: Discount Rate 7.15%7.15% Inflation 2.625%2.625% Payroll growth 2.875%2.875% Projected salary Increase Investment Rate of Return 7.25% (1)7.25% (1) (1) Net of pension plan investment and administrative expenses, including inflation. (2) The mortality table was developed based on CalPERS’ specific data. The table includes 15 years of mortality improvements using Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website. Mortality Rate Table (2) Post Retirement Benefit Increase Entry-Age Normal Cost Method Derived using CalPERS’ Membership Date for all Funds Contract COLA up to 2.0% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.5% thereafter Varies by Entry Age and Service 130 164 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at the CalPERS website under Forms and Publications. Discount Rate – The discount rate used to measure the total pension liability was 7.15%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Long-term Expected Rate of Return – The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses. The expected real rates of return by asset class are as follows: Assumed asset Real return Real Return Asset class (1)allocation Years 1-10 (2)Years 11+(3) Global equity 50.00%4.80%5.98% Fixed income 28.00%1.00%2.62% Inflation assets -0.77%1.81% Private equity 8.00%6.30%7.23% Real assets 13.00%3.75%4.93% Liquidity 1.00% - -0.92% (2) An expected inflation of 2.0% used for this period. (3) An expected inflation of 2.92% used for this period. (1) In the CalPERS' CAFR, Fixed Income is included in Global Debt Securities; Liquidity is included in Short-term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities. 131 165 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. c. Changes in the Net Pension Liability The changes in the Net Pension Liability for each Plan for the measurement period follow: Miscellaneous Plan: Total Pension Plan Fiduciary Net Pension Liability Net Position Liability/(Asset) Balance at June 30, 2019 $ 434,210,401 $ 322,592,679 $ 111,617,722 Changes in the year: Service cost 7,347,708 - 7,347,708 Interest on the total pension liability 30,565,919 - 30,565,919 Changes in benefit terms - - - Changes of assumptions - - - Differences between expected and actual experience 369,351 - 369,351 Net Plan to Plan Resource Movement - - - Contribution – employer 16,346,284 (16,346,284) Contribution – employee - 4,067,751 (4,067,751) Net investment income - 16,074,793 (16,074,793) Benefit payments, including refunds of employee contributions (21,516,515) (21,516,515) - Administrative Expense - (454,777) 454,777 Other Miscellaneous Income/(Expense) - - - Net changes 16,766,463 14,517,536 2,248,927 Balance at June 30, 2020 $ 450,976,864 $ 337,110,215 $ 113,866,649 Increase (Decrease) 132 166 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Sensitivity of the Net Pension Liability to Changes in the Discount Rate – The following presents the net pension liability of the City for each Plan, calculated using the discount rate for each Plan, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: Safety Plan: Total Pension Plan Fiduciary Net Pension Liability Net Position Liability/(Asset) Balance at June 30, 2019 $ 590,087,083 $ 394,985,375 $ 195,101,708 Changes in the year: Service cost 9,622,985 - 9,622,985 Interest on the total pension liability 41,449,511 - 41,449,511 Changes in benefit terms - - - Changes of assumptions - - - Differences between expected and actual experience 957,686 - 957,686 Net Plan to Plan Resource Movement - - - Contribution – employer - 28,539,301 (28,539,301) Contribution – employee - 3,249,005 (3,249,005) Net investment income - 19,685,354 (19,685,354) Benefit payments, including refunds of employee contributions (32,285,653) (32,285,653) - Administrative Expense - (556,832) 556,832 Other Miscellaneous Income/(Expense) - - - Net changes 19,744,529 18,631,175 1,113,354 Balance at June 30, 2020 $ 609,831,612 $ 413,616,550 $ 196,215,062 Increase (Decrease) Miscellaneous Safety 1% Decrease 6.15%6.15% Net Pension Liability $173,337,179 $275,078,734 Current Discount Rate 7.15%7.15% Net Pension Liability $113,866,649 $196,215,062 1% Increase 8.15%8.15% Net Pension Liability $64,708,268 $130,938,202 133 167 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Pension Plan Fiduciary Net Position – Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. d. Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the year ended June 30, 2021, the City recognized pension expense of $45,448,494 ($13,983,368 Miscellaneous Plan and $31,465,126 Safety Plan). At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 18,730,840 $ - Differences between expected and actual experience 453,174 - Changes in assumptions - (81,359) Net differences between projected and actual earnings on plan investments 2,883,943 - Total Miscellaneous Plan $ 22,067,957 $ (81,359) Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 32,251,903 $ - Differences between expected and actual experience 4,118,233 (152,975) Changes in assumptions 2,100,724 (465,727) Net differences between projected and actual earnings on plan investments 3,697,104 - Total Safety Plan $ 42,167,964 $ (618,702) Grand Total $ 64,235,921 $ (700,061) Miscellaneous Plan Safety Plan 134 168 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 $50,982,743 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2022. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: e. Payable to the Pension Plan At June 30, 2021, the City had no outstanding amount of contributions to the pension plan required for the year ended June 30, 2021. f. Plan Description - Defined Contribution Plan Pursuant to City Council Resolution No. 91-106, the City entered into a defined contribution plan administrated by the private administrator known as Public Agency Retirement System ("PARS") for all of its part-time employees, pursuant to the requirements of Section 11332 of the Social Security Act. The City Council has the authority for establishing and amending the plan’s provisions per the Resolution, including establishing and amending contribution requirements. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5% to a retirement plan, and City Council resolved to match the employees' contributions of 3.75%. The City's contributions for each employee (and interest earned by the accounts) are fully vested immediately. For the year ended June 30, 2021, the City's covered payroll for employees participating in the plan was $3,309,541. Employees made contributions of $124,108 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $2,735,070 at June 30, 2021. (11) Post-Employment Health Care Benefits (OPEB) The following description of the City of Newport Beach Retiree Health Savings (“RHS”) Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions. Year Ending Total June 30 Misc. Safety Amount 2022 $ (895,669) $ 2,405,425 $ 1,509,756 2023 1,053,890 2,681,277 3,735,167 2024 1,720,348 2,488,566 4,208,914 2025 1,377,189 1,722,091 3,099,280 Thereafter - - - 135 169 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Plan Description In January 2006, the City and employee associations agreed to major changes in the Post- Employment Health Care Plan. All employees hired after January 1, 2006, and certain employees hired prior to this date, as well as employees who elected to fully convert to a defined contribution formula (hereafter fully converted employees), participate in a program that requires mandatory employee and employer contributions. However, once these contributions have been made to the employee’s account, the City has no further funding obligation to the Plan on their behalf, except for the Public Employees’ Medical and Hospital Care Act (“PEMHCA”) minimum, which is the responsibility of the City. These employees and eligible retirees participate in a Retiree Health Savings (“RHS”) Plan sponsored by the City, the single employer of the plan. Plan assets are held in trust and managed by MissionSquare Retirement (Trustee), under IRS Revenue Ruling 2002-41 (June 26, 2002) and IRS Notice 2002-45 (June 26, 2002). Certain employees hired prior to January 1, 2006, had the option to retain a hybrid of the former defined benefit plan, or to fully convert to the new Plan. Employees electing to retain a hybrid of the former defined benefit formula participate in a program requiring mandatory defined contributions by employees and the City, as well as a defined benefit consisting of an ongoing contribution from the City to the participant’s RHS account each month after retirement. Additionally, these employees are eligible to receive health care benefits under the City’s group health care plans. In order to receive these benefits, these employees are required to pay the City $100 per month up until their retirement to offset the unfunded portion of post-employment health care benefits existing at the inception of the plan. For fully converted employees, the City made a one-time contribution into their individual RHS account of $100 per month for every month the employee contributed to the previous defined benefit plan up to a maximum of 15 years. For employees who elected to retain a hybrid plan, the City made a one-time contribution into their individual RHS account of $75 per month for every month the employee contributed to the previous defined plan up to a maximum of 15 years. In order to receive these contributions, the employee must retire from the City. At June 30, 2021, the liability for the conversion part of the RHS Plan was $1,432,500. This amount is not included in the Net OPEB Liability, but is included in the compensated absences liability. See Note (6). Employees who retired prior to January 1, 2006, continue to receive an ongoing defined benefit consisting of a contribution made by the City to the participant’s RHS account each month. The defined benefit portion of the plan is closed to new participants. The City has elected to participate in the California Employers’ Retiree Benefit Trust (“CERBT”) Fund to prefund its OPEB liability. CERBT is managed by CalPERS and invests in global equity, global debt securities, inflation assets, commodities, and REITs. By placing funds in trust to fund future City contributions before those future contributions are due, the City earns investment income that will help pay those future contributions and thereby reduce the City’s long-term OPEB budgetary requirements. 136 170 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Employees Covered As of the measurement date June 30, 2020, the following current and former employees were covered by the benefit terms under the plan: Contributions Contribution requirements are established by City policy and may be amended by the City Council. The annual contribution is based on the actuarially determined contribution. For the year ended June 30, 2021, the City’s cash contributions were $5,665,649 to the trust in premium payments and $845,896 for the estimated implicit subsidy, resulting in a total payment of $6,511,545. Net OPEB Liability The City’s net OPEB liability was measured as of June 30, 2020, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation dated June 30, 2019. The General Fund, Tidelands Funds, Water Fund, and Wastewater Fund have typically been used in prior years to liquidate the net OPEB liability. A summary of the principal assumptions and methods used to determine the total OPEB liability is shown below. Actuarial Assumptions The total OPEB liability as of June 30, 2019 actuarial valuation was determined using the following actuarial assumptions and applied to all periods included in the measurement, unless otherwise specified: Inactive employees, spouses, or beneficiaries currently receiving benefits 605 Inactive employees or beneficiaries entitled to but not yet receiving benefits 53 Active employees 790 Total 1,448 Valuation Date June 30, 2019 Measurement Date June 30, 2020 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 6.50% Inflation 2.50% Projected Salary Increase 2.75% per annum, in aggregate Expected long term investment rate of return 6.50% Healthcare Cost Trend Rates 6.00% HMO/6.00% PPO Post Retirement Turnover Derived from CalPERS pension plan Mortality Derived from CALPERS pension plan updated to reflect most recent experience study 137 171 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 The actuarial assumptions used in the June 30, 2019, valuation were based on a standard set of assumptions the actuary has used for similar valuations, modified as appropriate for the City. The long-term expected rate of return was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. The asset class percentages are taken from the current composition of the CERBT Fund, and the expected yields are taken from a recent CalPERS publication for the pension fund: Discount Rate The discount rate used to measure the total OPEB liability is 6.50% per annum. This is the expected long-term rate of return on City assets using investment strategy 1 within CERBT. The projection of cash flows used to determine the discount rate assumed that the City contribution will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan’s fiduciary net position is projected to cover all future OPEB payments. Therefore, the discount rate was set equal to the long- term expected rate of return. Asset Class Target Allocation Long-Term Expected Real Rate of Return CERBT Global Equity 59.00% 5.50% Global Debt Securities 25.00% 2.35% Inflation Assets 5.00% 1.50% Commodities 3.00% 1.75% REITs 8.00% 3.65% Total 100.00% 138 172 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Changes in the Net OPEB Liability The changes in the net OPEB liability are as follows: Change of Assumptions There was no change of assumption. Change of Benefit Terms There was no change of benefit terms. Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Sensitivity of the Total OPEB Liability to Changes in the Discount Rate The following presents the total OPEB liability of the City, calculated using the discount rate for the Plan, as well as what the City’s total OPEB liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: Total OPEB Liability Plan Fiduciary Net Position Net OPEB Liability (a) (b) (a) - (b) Balance at June 30, 2019 46,635,812$ 24,021,071$ 22,614,741$ Changes in the year: Service cost 521,285 - 521,285 Interest on the total OPEB liability 2,944,050 - 2,944,050 Changes of benefit terms - - - Changes of assumptions - - - Differences between expected and actual experience (219,772) - (219,772) Contributions - employer - 4,674,814 (4,674,814) Contributions - employees - - - Net investment income - 900,087 (900,087) Benefit payments, including refunds of employee contributions (3,787,663) (3,787,663) - Administrative expenses - (12,037) 12,037 Other expense - - - Net changes (542,100) 1,775,201 (2,317,301) Balance at June 30, 2020 46,093,712$ 25,796,272$ 20,297,440$ Increase (Decrease) 139 173 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Sensitivity of the Net OPEB Liability to Changes in Health-Care Cost Trend Rates The following presents the total OPEB liability of the City, as well as what the City’s total OPEB liability would be if it were calculated using healthcare cost trend rates that are 1- percentage point lower (5.0% HMO/5.0% PPO) or 1-percentage point higher (7.0% HMO/7.0% PPO) than current healthcare cost trend rates: OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the year ended June 30, 2021, the City recognized OPEB expense of $2,206,286. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: The differences between expected and actual experience are amortized over a six-year period or a nine-year period, depending on the fiscal year the difference occurred. Changes of assumptions are amortized over a six-year period. The net difference between projected and actual earnings on plan investment is amortized over a five-year period. An amount of $6,511,545, which is reported as deferred outflows of resources related to contributions subsequent to the measurement date, will be recognized as a reduction of the net OPEB liability in the year ending June 30, 2022. 1% Decrease Current Discount Rate 1% Increase 5.50%6.50%7.50% Net OPEB Liability 24,892,589$ 20,297,440$ 16,395,020$ 1% Decrease Current Healthcare 1% Increase Cost Trend Rates (5.0%HMO/5.0%PPO (6.0%HMO/6.0%PPO (7.0%HMO/7.0%PPO decreasing to decreasing to decreasing to 3.5%HMO/3.5%PPO) 4.5%HMO/4.5%PPO) 5.5%HMO/5.5%PPO) Net OPEB Liability 18,386,736$ 20,297,440$ 22,939,327$ Description Deferred Outflows of Resources Deferred Inflows of Resources OPEB contributions subsequent to measurement date 6,511,545$ -$ Differences between expected and actual experience 1,688,213 (195,353) Changes of assumptions 76,207 - Net difference between projected and actual earnings on OPEB plan investments 225,390 - Total 8,501,355$ (195,353)$ 140 174 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Payable to the OPEB Plan At June 30, 2021, the City had no outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2021. (12) Interfund Receivables and Payables At June 30, 2021, interfund advances receivable and payable were as follows: The General Fund advance to the Tide and Submerged Land – Harbor Capital Fund was utilized for dredging within the City’s Tidelands. Repayment of the advance to the General Fund is funded from incremental revenue increases generated from certain leases, mooring rents, commercial and residential pier rents, and parking meter revenues. Year Ending June 30 Amount 2022 318,279$ 2023 476,501 2024 542,812 2025 554,541 2026 (24,419) Thereafter (73,258) Advance from Advance to General Fund 9,426,659$ -$ Tide and Submerged Land - Harbor Capital Fund - 9,426,659 Total 9,426,659$ 9,426,659$ 141 175 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 The annual amortization of the repayment of the advance is as follows: At June 30, 2021, interfund receivables and payable were as follows: The above balances are primarily due to reclassification of negative cash balances in the city-wide cash pool. Fiscal Year Advance #1 Dredging Projects Repayment Advance #2 Marina Park Project Repayment Total Repayment 2022 750,000$ 500,000$ 1,250,000$ 2023 750,000 500,000 1,250,000 2024 750,000 500,000 1,250,000 2025 750,000 500,000 1,250,000 2026 750,000 500,000 1,250,000 2027 750,000 500,000 1,250,000 2028 426,659 500,000 926,659 2029 - 500,000 500,000 2030 - 500,000 500,000 Total 4,926,659$ 4,500,000$ 9,426,659$ Harbor Capital Fund Advance - Repayment Terms (Zero Interest Advance) Due from Due to General Fund 439,194$ -$ Facilities Financial Planning Reserve Fund 6,531,812 - Civic Center COP - 6,395,513 Internal Service Funds - 352,836 Other Governmental Funds - 222,657 Total 6,971,006$ 6,971,006$ 142 176 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 (13) Interfund Transfers Interfund transfers at June 30, 2021, consisted of the following: The City typically uses transfers to fund ongoing subsidies and to set aside resources for long-term needs such as capital facilities replacement and major maintenance. The General Fund transferred:  $8,711,959 to subsidize the maintenance and operation of the Tide and Submerged Land – Operating Fund;  $4,500,000 to the Tide and Submerged Land – Harbor Capital Fund to cash fund Harbor Capital projects;  $8,500,000 to the Facilities Financial Planning Reserve Fund to cash fund construction projects for General Fund supported facilities;  $531,764 to internal service funds, of which $500,000 was to the Equipment Maintenance Fund for vehicle replacement and $31,764 was to the Information Technology Fund for a wireless phone system;  and $12,411,489 to Other Governmental Funds, which includes $2,508,176 to the Neighborhood Enhancement Fund to fund construction projects and acquire Rule 20A credits, $1,366,254 to the Facilities Maintenance Fund, $8,137,059 to the Unrestricted Capital Improvements Fund to cash fund General Fund capital improvements, and $400,000 to the Assessment District Fund for assessment district expenditures. Tide and Submerged Land – Harbor Capital transferred $4,184 to Other Governmental Funds for costs associated with the removal of abandoned or surrendered vessels from the waters of Newport Harbor. General Fund Tide and Submerged Land - Operating Tide and Submerged Land - Harbor Capital Facilities Financial Planning Reserve Civic Center COP Internal Service Funds Other Governmental Funds Total General Fund -$ 8,711,959$ 4,500,000$ 8,500,000$ -$ 531,764$ 12,411,489$ 34,655,212$ Tide and Submerged Land - Harbor Capital - - - - - - 4,184 4,184 Facilities Financial Planning Reserve - - - - 7,646,138 - 6,901,299 14,547,437 Internal Service Funds 4,946,576 - - - - - 4,946,576 Other Governmental Funds 5,388,535 - - 11,344,644 - - 25,000 16,758,179 Total 10,335,111$ 8,711,959$ 4,500,000$ 19,844,644$ 7,646,138$ 531,764$ 19,341,972$ 70,911,588$ Transfers In Transfers Out143 177 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 The Facilities Financial Planning Reserve Fund transferred $7,646,138 to the Civic Center COP Fund for the debt service payments related to the Civic Center Certificates of Participation and $6,901,299 to Other Governmental Funds to cash fund construction projects related to parks and community centers. Internal Service Funds transferred $4,500,000 of excess reserve funds on hand to the General Fund, which were identified during the budget balancing strategy in response to the COVID-19 pandemic. The transfers include $2,000,000 from the Insurance Reserve Fund; $500,000 from the Equipment Maintenance Fund; and $2,000,000 from the Information Technology Fund. The Equipment Maintenance Fund transferred an additional $446,576 to the General Fund as expected equipment replacement was deemed unnecessary. Other Governmental Funds transferred $5,388,535 of unappropriated fund balances to the General Fund, which includes $2,765,286 from the Capital Projects Fund and $2,623,249 from the Neighborhood Enhancement Fund related to capital projects that were either postponed or eliminated. These transfers were also related to the budget balancing strategy in response to the pandemic. Other Governmental Funds also transferred $11,344,644 of unappropriated fund balances to the Facilities Financial Planning Reserve, which includes $1,222,853 from the Civic Center and Park Fund; $14,983 from the Miscellaneous Facilities Financing Fund; $343,884 from the West Newport Community Center Fund; $105,858 from the Sunset Ridge Park Fund; $157,066 from the Strategic Planning Fund; and $9,500,000 from the Fire Stations Fund. The funds returned from the Fire Stations Fund resulted from the City deciding to finance the construction of a fire station in lieu of cash funding the project, while the remainder of the funds were excess funds on hand related to completed projects that had originally been funded from the Facilities Financial Planning Reserve. (14) Joint Venture Agreements Bonita Canyon Public Facilities Financing Authority The Bonita Canyon Public Facilities Financing Authority (Authority) is a joint powers authority comprised of the City of Newport Beach and the Newport-Mesa Unified School District. The Authority’s Board is comprised of two members appointed by each of the member agencies. The Authority created Community Facilities District 98-1 to finance public facilities that will benefit the properties within the District’s boundaries. In 1998, the Authority issued $45,000,000 of special tax bonds to be repaid by special assessments. $30,577,712 (81.7%) of the proceeds were used to pay for the costs of the City acquiring and constructing public facilities including parks and road improvements. In Fiscal Year 2011-12, the Authority issued $38,330,000 of special tax refunding bonds to refinance the 1998 Series. In Fiscal Year 2017-18, the Authority issued $28,245,000 of special tax refunding bonds to refinance the 2012 series; the City is not obligated in any manner to repay the bonds. As of June 30, 2021, the contributions from property owners have been fully spent and no funds are held in trust by the fiscal agent. The City does not make any 144 178 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 annual contributions to the Authority and does not include the Authority as a component unit, as the City is not financially accountable for the Authority’s activities and the Authority is not fiscally dependent on the City. The City’s equity interest in the Authority is not readily determinable. Complete separate financial statements can be obtained at the Newport Mesa Unified School District, 2985 Bear Street, Suite 8M, Costa Mesa, California. Metro Cities Fire Authority The City of Newport Beach is a participant in a joint venture consisting of the cities of Anaheim, Brea, Fountain Valley, Fullerton, Huntington Beach, and Orange for the operation of a communication network utilized by fire suppression, emergency medical assistance, and rescue services. The oversight board consists of one voting member and one alternate appointed by the governing body of each member agency. The City of Newport Beach’s costs are based each fiscal year upon the number of recorded incidents attributable to the City divided by the recorded incidents attributable to all members during the year, and are recorded in the General Fund as an expenditure for service. Upon termination of the agreement, the proceeds from the sale of the property and assets of the joint venture will be paid to each member agency pursuant to their fair share percentage. Annually, the amounts paid by the City to this joint venture are approximately $750,051. The City’s 11.26% interest in the net equity of this joint venture at June 30, 2021, amounts to $256,862. Complete separate financial statements can be obtained at the Metro Cities Fire Authority offices at 201 S. Anaheim Boulevard, Suite 302, Anaheim, California. Integrated Law and Justice Agency of Orange County The City is a participant in a joint venture with several other public agencies in Orange County for the operation of the Integrated Law and Justice Agency of Orange County (ILJAOC). The ILJAOC was established in fiscal year 2006-07 and consists of 23 member agencies, with an oversight board consisting of 12 members from the participating agencies. Annually, each member agency pays a percentage of the operating and replacement costs for the ILJAOC. The City’s annual contribution and interest in the net equity of this joint venture was immaterial as of June 30, 2021. The City of Newport Beach acted as the Treasurer/Controller of the ILJAOC from inception through the end of fiscal year 2010-11. Beginning July 1, 2011, the City of Brea, another member agency, was appointed to serve as Treasurer/Controller, and assumed responsibility for all operating activities of the ILJAOC. Complete separate financial statements can be obtained from the City of Brea, 1 Civic Center Circle, Brea, California 92821. 145 179 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 (15) Commitments and Contingencies Claims and Judgments Numerous claims and suits have been filed against the City in the normal course of business. The estimated liability under such claims, based upon information received from the City Attorney, contracted attorneys, and the Risk Manager, has been estimated and recorded as accrued claims and judgments payable. (See Notes 6 and 8.) Operating Agreements The City of Newport Beach first entered into an agreement with Visit Newport Beach Inc. (“VNB”), a legally separate non-profit marketing organization, in 1987. The primary responsibility of VNB is to attract additional visitor business by promoting the City as the premier tourist and business destination in Orange County. VNB is governed by an Executive Committee comprised of seven individuals not appointed by the City Council of the City of Newport Beach. The current agreement was entered into on September 27, 2011, and subsequently amended on January 28, 2014, extending the agreement through December 31, 2024. The City pays VNB 18% of the Total Transient Occupancy Tax collected during the fiscal year. For the Fiscal Year ending June 30, 2021, the City paid VNB $3,654,036. The City of Newport Beach entered into an agreement with the City of Costa Mesa to share a homeless shelter that would enable both agencies to provide services to their respective homeless populations without duplicating efforts. The current agreement was entered into on December 15, 2020 and has a five-year term until December 15, 2025, with two optional extension terms of five years each. The agreement provides the City of Newport Beach exclusive use of 20 temporary shelter beds in exchange for one-time funding of $1,600,000 towards capital improvements and furniture, fixtures and equipment for the new shelter; and an initial annual contribution of $1,000,000 towards shelter operational costs upon project completion. The annual operational contribution is subject to increases in relation to the consumer price index, however, it shall increase by a minimum of 2.0% and a maximum of 4.0% annually. For the fiscal year ending June 30, 2021, the City paid the City of Costa Mesa $1,600,000. 146 180 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 Contractual Commitments Construction and contractual commitments for major construction projects are as follows: At fiscal year end, the City’s encumbrances with contractors were as follows: Annual Project YTD Unexpended Budget Expenditures Commitments Lido Fire Station 2 9,548,841$ 2,864,779$ 5,497,891$ Advanced Metering Infrastructure 6,377,973 3,620,612 2,757,360 Transmission Main Valves Replace 3,205,537 86,300 3,090,557 UUD 22 Phase 2 5,195,420 2,397,555 2,797,865 Bay Crossing Water Main Replc 1,403,186 - 1,222,533 WCH Hwy Intersection Imp Ped Bridge 1,199,237 70,717 1,127,104 General Plan Update 1,762,569 671,855 938,198 Balboa Island Drainage Master Plan 2,254,600 73,585 760,859 Tide and Tide and Special Capital Submerged Submerged Revenue Project Permanent General Land Operating Land Harbor Capital Funds Funds Funds Total Drainage -$ -$ -$ -$ 923,452$ -$ 923,452$ Streets 6,971 3,743 37,500 2,061,693 2,060,804 - 4,170,711 Facilities 57,100 - - - 227,731 - 284,831 Miscellaneous and studies - - - - 1,073,123 - 1,073,123 Parks 200,384 32,730 - - 1,325,581 - 1,558,695 Contract services 1,627,377 - - - - - 1,627,377 Supplies and materials 323,368 - - - - - 323,368 Maintenance and repairs 688,168 - - - 641,393 - 1,329,561 General 169,299 - - - 270 - 169,569 Beaches - 141,776 425,111 - - - 566,887 Equipment - 185,375 29,450 196,393 - - 411,218 Total encumbrances 3,072,667$ 363,624$ 492,061$ 2,258,086$ 6,252,354$ -$ 12,438,792$ Other Governmental FundsMajor Governmental Funds 147 181 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 (16) Fund Balance Governmental Fund Balance at June 30, 2021, is classified as follows: Tide and Tide and American Facilities Special Capital Submerged Submerged Rescue Plan Financial Planning Civic Center Revenue Project Permanent General Land - Operating Land - Harbor Capital Act Reserve COP Funds Funds Funds Totals Nonspendable: Prepaid items (legally restricted)901,095$ -$ -$ -$ -$ -$ 77,549$ -$ -$ 978,644$ Inventories (legally restricted)309,343 - - - - - - - - 309,343 Long-term loan receivable (form restricted)9,426,659 - - - - - - - - 9,426,659 Permanent endowment (legally restricted)- - - - - - - - 4,629,781 4,629,781 Restricted: Affordable housing 212,877 - - - - - - - - 212,877 Oceanfront encroachment 1,707,188 - - - - - - - - 1,707,188 Upper Newport bay restoration - 1,161,905 - - - - - - - 1,161,905 Cable franchise reserve 2,436,995 - - - - - - - - 2,436,995 Community development 518,965 - - - - - - 3,307 - 522,272 Streets and highways - - - - - - 1,369,670 - - 1,369,670 Public safety - - - - - - 369,519 - - 369,519 Parks - - - - - - 44,213 - - 44,213 Facilities - - - - - - 44,212 7,875,501 - 7,919,713 Transportation - - - - - - 2,674,161 - - 2,674,161 Air quality improvement - - - - - - 947,783 - - 947,783 Environmental liability mitigation - - - - - - 8,496,962 - - 8,496,962 Dredging - - 13,283,824 - - - - - 1,602,911 14,886,735 Libraries - - - - - - - - 216,872 216,872 Scholarships - - - - - - - - 223,875 223,875 Fiin - - - - - - 1,335,109 - - 1,335,109 Debt service - - - - - 2,255,795 - - - 2,255,795 Capital re-appropriations - 2,027,228 9,832,111 - - - 4,181,210 2,854,688 - 18,895,237 Encumbrance reserve: Beaches - 141,776 425,111 - - - - - - 566,887 Streets - 3,743 37,500 - - - 2,061,693 - - 2,102,936 Equipment - 185,375 29,450 - - - 196,393 - - 411,218 Parks - 32,730 - - - - - - - 32,730 Committed: Strategic planning - - - - - - - - - - Facilities replacement - - - - 28,092,597 - - - - 28,092,597 Facilities maintenance - - - - - - - 3,837,544 - 3,837,544 Civic center and park - - - - - - - 497,985 - 497,985 Fire station - - - - - - - - - - Oil and gas liabilities - 760,000 - - - - - - - 760,000 Parks and community centers - - - - - - - 31,819 - 31,819 Parking management 163,079 - - - - - - 962,271 - 1,125,350 Neighborhood enhancement - - - - - - - 2,141,506 - 2,141,506 Capital re-appropriations - - - - - - - 5,287,078 - 5,287,078 Encumbrance reserve: Drainage - - - - - - - 923,452 - 923,452 Streets 6,971 - - - - - - 2,060,804 - 2,067,775 Facilities 57,100 - - - - - - 227,731 - 284,831 Miscellaneous and studies - - - - - - - 1,073,123 - 1,073,123 Parks 200,384 - - - - - - 1,325,581 - 1,525,965 Contract services 1,627,377 - - - - - - - - 1,627,377 Supplies and materials 323,368 - - - - - - - - 323,368 Maintenance and repairs 688,168 - - - - - - 641,393 - 1,329,561 General 169,299 - - - - - - 270 - 169,569 Assigned: Recreation and senior services 710,250 - - - - - - - - 710,250 Fair value adjustment reserve 779,100 - - - - - - - - 779,100 Unassigned:85,715,180 - - - - - - (136,299) - 85,578,881 Total fund balances 105,953,398$ 4,312,757$ 23,607,996$ -$ 28,092,597$ 2,255,795$ 21,798,474$ 29,607,754$ 6,673,439$ 222,302,210$ Other Governmental Funds 148 182 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 (17) Tax Abatements The City may enter into sales tax abatement agreements with automobile dealerships under City Council Resolution 99-64. Under that Resolution, the City may rebate sales taxes “for the sole purpose of reimbursing [automobile dealerships] for costs incurred for a project necessary to make the project financially feasible”. Automobile dealerships must covenant “to complete the project, to remain and operate the project for a specified period of time… [, and] to maximize the City as the point-of-sale…”. Automobile dealership sales tax rebates are based on negotiations that require City Council approval. On an accrual basis, for the fiscal year ended June 30, 2021, the City rebated sales taxes to automobile dealerships totaling $619,315 under this program. (18) Net Position / Fund Balance Restatement Governmental fund revenue that is not available soon enough after the end of a fiscal year should be recorded as a deferred inflow of resources called unavailable revenue. Unavailable revenue is not included in fund balance. July 1, 2020’s fund balance has been restated for an amount that should have been recorded as unavailable revenue. Governmental Accounting Standards Board Statement No. 84 "Fiduciary Activities" changed the accounting and reporting standards of fiduciary activities. Consistent with Statement No. 84, the beginning net position of the City's fiduciary funds has been restated as of July 1, 2020 to summarize Statement No. 84's effect on fiduciary net position as if Statement No. 84 had been applied retroactively. Governmental Funds: Other Governmental Funds Fund balance at June 30, 2020, as previously reported 68,462,889$ Deferral of prior period revenue (282,500) Fund balance at July 1, 2020, as restated 68,180,389$ Fiduciary Funds: Custodial Funds Net position at June 30, 2020, as previously reported -$ Adjustment for implementation of GASB Statement No. 84 2,271,600 Net position at July 1, 2020, as restated 2,271,600$ 149 183 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2021 (19) Subsequent Events Limited Obligation Bond Issue for Assessment District No. 113 On July 20, 2021 the City issued $4,565,000 of Assessment District No. 113 Limited Obligation Improvement Bonds pursuant to the provisions of the Improvement Bond Act of 1915. The bonds are issued in serial maturities over twenty years ranging from 1.75% to 3.0%. The bond proceeds will primarily be used to provide financing to underground power, telephone and cable facilities in the Improvement Area. Bond proceeds will also be used to establish a debt service reserve fund and pay costs of issuance and capitalized interest on the bonds. Although the City will be collecting and disbursing funds for this district, the City has no obligation or duty to pay any delinquency out of any available funds of the City. Neither the faith and credit nor the taxing power of the City is pledged to the payment of the bonds. 150 184 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONREQUIRED SUPPLEMENTARY INFORMATION 151 185 2021 2020 Measurement Period June 30, 2020 June 30, 2019 Total Pension Liability Service cost 7,347,708$ 7,084,444$ Interest on total pension liability 30,565,919 29,409,624 Differences between expected and actual experience 369,351 403,676 Changes in assumptions - - Changes in benefits - - Benefit payments, including refunds of employee contributions (21,516,515) (20,129,701) Net Change in Total Pension Liability 16,766,463 16,768,043 Total Pension Liability - beginning 434,210,401 417,442,358 Total Pension Liability - ending (a)450,976,864$ 434,210,401$ Plan Fiduciary Net Position Contributions - employer 16,346,284$ 15,700,833$ Contributions - employee 4,067,751 3,955,144 Net investment income 16,074,793 19,895,019 Administrative expense (454,777) (216,502) Other miscellaneous income/(expense)- 700 Plan to plan resource movement - 1,570 Benefit payments (21,516,515) (20,129,701) Net change in Plan Fiduciary Net Position 14,517,536 19,207,063 Plan Fiduciary Net Position - beginning 322,592,679 303,385,616 Plan Fiduciary Net Position - ending (b)337,110,215$ 322,592,679$ Net pension liability - ending (a)-(b)113,866,649$ 111,617,722$ Plan fiduciary net position as a percentage of the total pension liability 74.75%74.29% Covered payroll 43,902,594$ 42,153,383$ Net pension liability as percentage of covered payroll 259.36%264.79% Notes to Schedule: * Fiscal year 2015 was the first year of implementation, therefore only seven years are shown. Benefit Changes: Change in Assumptions: Page 1 of 2 SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS Last Ten Fiscal Years* CITY OF NEWPORT BEACH an Agent Multiple-Employer Defined Benefit Pension Plan As of June 30, 2021 Last 10 Years * Defined Benefit Plan for Miscellaneous Employees The figures above include any liability impact that may have resulted from voluntary benefit changes that occurred after the June 30, 2019 valuation. However, offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes) that occurred after the June 30, 2019 valuation date are not included in the figures above, unless the liability impact is deemed to be material by the plan actuary. None in 2019 or 2020. In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions December 2017. There were no changes in the discount rate. In 2017, the discount rate was reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5 percent discount rate. 152 186 2019 2018 2017 2016 2015 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 June 30, 2014 7,334,861$ 7,151,754$ 6,303,642$ 6,087,960$ 6,523,874$ 28,226,598 27,069,673 26,375,073 25,427,094 24,624,559 2,243,854 (4,912,853) (2,686,814) (4,736,006) - (2,522,093) 22,616,424 - (6,309,248) - - - - - - (18,458,539) (17,249,398) (16,714,022) (16,374,370) (15,290,340) 16,824,681 34,675,600 13,277,879 4,095,430 15,858,093 400,617,677 365,942,077 352,664,198 348,568,768 332,710,674 417,442,358$ 400,617,677$ 365,942,077$ 352,664,198$ 348,568,767$ 15,797,595$ 10,509,243$ 9,904,636$ 6,615,920$ 5,793,768$ 3,979,337 4,134,130 4,206,942 4,321,646 4,319,336 23,855,196 28,349,491 1,241,432 5,687,908 38,237,161 (435,499) (375,172) (155,791) (287,862) - (827,021) - - - - (700) - (2,387) 26,981 - (18,458,539) (17,249,398) (16,714,022) (16,374,370) (15,290,340) 23,910,369 25,368,294 (1,519,190) (9,777) 33,059,925 279,475,247 254,106,953 255,626,143 255,635,920 222,575,995 303,385,616$ 279,475,247$ 254,106,953$ 255,626,143$ 255,635,920$ 114,056,742$ 121,142,430$ 111,835,124$ 97,038,055$ 92,932,847$ 72.68%69.76%69.44%72.48%73.34% 41,468,634$ 41,727,563$ 40,031,404$ 38,512,011$ 37,775,051$ 275.04%290.32%279.37%251.97%246.02% Defined Benefit Plan for Miscellaneous Employees Page 2 of 2 CITY OF NEWPORT BEACH an Agent Multiple-Employer Defined Benefit Pension Plan As of June 30, 2021 Last 10 Years * 153 187 2021 2020 Actuarially determined contribution 14,600,178$ 13,080,630$ Contributions in relation to the actuarially determined contributions (18,730,840) (16,351,592) Contribution deficiency (excess)(4,130,662)$ (3,270,962)$ Covered payroll 44,809,856$ 43,902,594$ Contributions as a percentage of covered payroll 41.80%37.25% Notes to Schedule: Valuation date:06/30/2018 06/30/2017 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age Entry age Amortization method (1)(1) Asset valuation method Market Value Market Value Inflation 2.50% 2.625% Salary increases (2)(2) Investment rate of return 7.00% (3)7.25% (3) Retirement age (4)(4) Mortality (5)(5) (1) Level percentage of payroll, closed (2) Depending on age, service, and type of employment (3) Net of pension plan investment and administrative expense; includes inflation (4) (5) *Fiscal year 2015 was the first year of implementation, therefore only seven years are shown. Retirement assumptions are based on retirement rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board Defined Benefit Plan for Miscellaneous Employees SCHEDULE OF CONTRIBUTIONS Last Ten Fiscal Years* Page 1 of 2 CITY OF NEWPORT BEACH an Agent Multiple-Employer Defined Benefit Pension Plan As of June 30, 2021 Last 10 Years * 154 188 2019 2018 2017 2016 2015 12,374,026$ 11,924,053$ 10,412,963$ 9,943,342$ 7,117,065$ (15,713,898) (15,742,587) (10,412,963) (9,943,342) (7,117,065) (3,339,872)$ (3,818,534)$ -$ -$ -$ 42,153,383$ 41,468,634$ 41,727,563$ 40,031,404$ 38,512,011$ 37.28%37.96%24.95%24.84%18.48% 06/30/2016 06/30/2015 06/30/2014 06/30/2013 06/30/2012 Entry age Entry age Entry age Entry age Entry age (1)(1)(1)(1)(1) Market Value Market Value Market Value Market Value Market Value 2.75% 2.75% 2.75% 2.75% 2.75% (2)(2)(2)(2)(2) 7.375% (3)7.5% (3)7.5% (3)7.5% (3)7.5% (3) (4)(4)(4)(4)(4) (5)(5)(5)(5)(5) CITY OF NEWPORT BEACH an Agent Multiple-Employer Defined Benefit Pension Plan As of June 30, 2021 Last 10 Years * Defined Benefit Plan for Miscellaneous Employees Page 2 of 2 155 189 2021 2020 Measurement Period June 30, 2020 June 30, 2019 Total Pension Liability Service cost 9,622,985$ 9,292,715$ Interest on total pension liability 41,449,511 40,081,524 Differences between expected and actual experience 957,686 4,798,077 Changes in assumptions - - Changes in benefits - - Benefit payments, including refunds of employee contributions (32,285,653) (30,443,097) Net Change in Total Pension Liability 19,744,529 23,729,219 Total Pension Liability - beginning 590,087,083 566,357,864 Total Pension Liability - ending (a)609,831,612$ 590,087,083$ Plan Fiduciary Net Position Contributions - employer 28,539,301$ 28,344,445$ Contributions - employee 3,249,005 3,162,044 Net investment income 19,685,354 24,254,890 Administrative expense (556,832) (263,991) Plan to plan resource movement - (1,570) Benefit payments (32,285,653) (30,443,097) Other miscellaneous income/(expense)- 855 Net change in Plan Fiduciary Net Position 18,631,175 25,053,576 Plan Fiduciary Net Position - beginning 394,985,375 369,931,799 Plan Fiduciary Net Position - ending (b)413,616,550$ 394,985,375$ Net pension liability - ending (a)-(b)196,215,062$ 195,101,708$ Plan fiduciary net position as a percentage of the total pension liability 67.82%66.94% Covered payroll 34,279,062$ 33,935,043$ Net pension liability as percentage of covered payroll 572.40%574.93% Notes to Schedule: * Fiscal year 2015 was the first year of implementation, therefore only seven years are shown. Benefit Changes: Change in Assumptions: The figures above include any liability impact that may have resulted from voluntary benefit changes that occurred after the June 30, 2019 valuation. However, offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes) that occurred after the June 30, 2019 valuation date are not included in the figures above, unless the liability impact is deemed to be material by the plan actuary. None in 2019 or 2020. In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions December 2017. There were no changes in the discount rate. In 2017, the discount rate was reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5 percent discount rate. Page 1 of 2 SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS Last Ten Fiscal Years* CITY OF NEWPORT BEACH an Agent Multiple-Employer Defined Benefit Pension Plan As of June 30, 2021 Last 10 Years * Defined Benefit Plan for Safety Employees 156 190 2019 2018 2017 2016 2015 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 June 30, 2014 9,223,465$ 9,015,985$ 8,075,553$ 8,077,826$ 8,091,585$ 38,458,387 37,083,966 36,239,226 35,098,055 33,807,462 3,278,018 (2,192,667) (1,613,985) (316,827) - (1,630,045) 30,110,384 - (8,359,009) - - - - - - (29,183,598) (28,074,414) (27,447,982) (25,838,982) (24,529,802) 20,146,227 45,943,254 15,252,812 8,661,063 17,369,245 546,211,637 500,268,383 485,015,571 476,354,508 458,985,263 566,357,864$ 546,211,637$ 500,268,383$ 485,015,571$ 476,354,508$ 26,779,897$ 19,260,537$ 18,496,776$ 21,529,513$ 12,089,637$ 3,104,318 2,967,318 2,826,831 2,969,503 3,122,237 29,064,749 34,814,011 1,561,480 7,049,577 47,151,493 (532,480) (462,427) (193,780) (357,866) - (855) - 2,387 - - (29,183,598) (28,074,414) (27,447,982) (25,838,982) (24,529,802) (1,011,188) - - - - 28,220,843 28,505,025 (4,754,288) 5,351,745 37,833,565 341,710,956 313,205,931 317,960,219 312,608,474 274,774,909 369,931,799$ 341,710,956$ 313,205,931$ 317,960,219$ 312,608,474$ 196,426,065$ 204,500,681$ 187,062,452$ 167,055,352$ 163,746,034$ 65.32%62.56%62.61%65.56%65.63% 32,866,620$ 32,450,020$ 30,816,246$ 30,189,633$ 29,944,665$ 597.65%630.20%607.03%553.35%546.83% Page 2 of 2 CITY OF NEWPORT BEACH an Agent Multiple-Employer Defined Benefit Pension Plan As of June 30, 2021 Last 10 Years * Defined Benefit Plan for Safety Employees 157 191 2021 2020 Actuarially determined contribution 25,341,788$ 22,980,289$ Contributions in relation to the actuarially determined contributions (32,251,903) (28,531,744) Contribution deficiency (excess)(6,910,115)$ (5,551,455)$ Covered payroll 34,863,204$ 34,279,062$ Contributions as a percentage of covered payroll 92.51%83.23% Notes to Schedule: Valuation date:06/30/2018 06/30/2017 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age Entry age Amortization method (1)(1) Asset valuation method Market Value Market Value Inflation 2.50% 2.625% Salary increases (2)(2) Investment rate of return 7.00% (3)7.25% (3) Retirement age (4)(4) Mortality (5)(5) (1) Level percentage of payroll, closed (2) Depending on age, service, and type of employment (3) Net of pension plan investment and administrative expense; includes inflation (4) (5) * CITY OF NEWPORT BEACH an Agent Multiple-Employer Defined Benefit Pension Plan As of June 30, 2021 Last 10 Years * Defined Benefit Plan for Safety Employees Fiscal year 2015 was the first year of implementation, therefore only seven years are shown. SCHEDULE OF CONTRIBUTIONS Last Ten Fiscal Years* Retirement assumptions are based on retirement rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board Page 1 of 2 158 192 2019 2018 2017 2016 2015 22,227,698$ 21,524,636$ 19,338,360$ 18,466,207$ 13,393,374$ (28,346,069) (26,620,697) (19,338,360) (18,466,207) (20,993,374) (6,118,371)$ (5,096,061)$ -$ -$ (7,600,000)$ 33,935,043$ 32,866,620$ 32,450,020$ 30,816,246$ 30,189,633$ 83.53%81.00%59.59%59.92%69.54% 06/30/2016 06/30/2015 06/30/2014 06/30/2013 06/30/2012 Entry age Entry age Entry age Entry age Entry age (1)(1)(1)(1)(1) Market Value Market Value Market Value Market Value Market Value 2.75% 2.75% 2.75% 2.75% 2.75% (2)(2)(2)(2)(2) 7.375% (3)7.5% (3)7.5% (3)7.5% (3)7.5% (3) (4)(4)(4)(4)(4) (5)(5)(5)(5)(5) CITY OF NEWPORT BEACH an Agent Multiple-Employer Defined Benefit Pension Plan As of June 30, 2021 Last 10 Years * Defined Benefit Plan for Safety Employees Page 2 of 2 159 193 2021 2020 2019 2018 Measurement Period June 30, 2020 June 30, 2019 June 30, 2018 June 30, 2017 Total OPEB Liability Service cost 521,285$ 524,717$ 509,434$ 478,341$ Interest 2,944,050 2,795,490 2,814,685 2,830,153 Differences between expected and actual experience (219,772) 2,532,319 - - Changes in assumptions - 114,311 - - Changes in benefits terms - - - - Benefit payments, including refunds of member contributions (3,787,663) (3,627,695) (3,641,715) (3,513,406) Net change in Total OPEB Liability (542,100) 2,339,142 (317,596) (204,912) Total OPEB Liability - beginning 46,635,812 44,296,670 44,614,266 44,819,178 Total OPEB Liability - ending (a)46,093,712$ 46,635,812$ 44,296,670$ 44,614,266$ Plan fiduciary net position Contributions - employer 4,674,814$ 4,460,937$ 4,675,193$ 4,594,772$ Contributions - member - - - - Net investment income 900,087 1,495,861 1,605,114 1,875,536 Benefit payments, including refunds of member contributions (3,787,663) (3,627,695) (3,641,715) (3,513,406) Administrative expense (12,037) (4,980) (11,076) (9,452) Other expense - - (25,258) - Net change in plan fiduciary net position 1,775,201 2,324,123 2,602,258 2,947,450 Plan fiduciary net position - beginning 24,021,071 21,696,948 19,094,690 16,147,240 Plan fiduciary net position - ending (b)25,796,272$ 24,021,071$ 21,696,948$ 19,094,690$ City's Net OPEB liability - ending (a)-(b)20,297,440$ 22,614,741$ 22,599,722$ 25,519,576$ Plan fiduciary net position as a percentage of the total OPEB liability 55.96%51.51%48.98%42.80% Covered- employee payroll (1)77,637,171$ 75,814,626$ 73,999,059$ 74,484,613$ City's Net OPEB liability as percentage of covered-employee payroll 26.14%29.83%30.54%34.26% Notes to Schedule: (1) Covered-employee payroll is used because contributions are not entirely based on a measure of pay. * Fiscal year 2018 was the first year of implementation, therefore only four years are shown. Last Ten Fiscal Years* CITY OF NEWPORT BEACH Post-Employment Health Care Benefits (OPEB) Retirement Plan As of June 30, 2021 Last 10 Years * SCHEDULE OF CHANGES IN THE CITY'S NET OPEB LIABILITY AND RELATED RATIOS 160 194 2021 2020 2019 2018 Actuarially determined contribution 4,108,719$ 3,834,916$ 3,827,337$ 3,925,087$ Contributions in relation to the actuarially determined contributions (6,511,545) (5,379,799) (5,133,062) (5,309,626) Contribution deficiency (excess)(2,402,826)$ (1,544,883)$ (1,305,725)$ (1,384,539)$ Covered-employee payroll (1)78,621,426$ 77,637,171$ 75,814,626$ 73,999,059$ Contributions as a percentage of covered-employee payroll -8.28% -6.93% -6.77% -7.18% Notes to Schedule: Valuation date: June 30, 2019 June 30, 2017 June 30, 2017 June 30, 2015 (1) Covered-employee payroll is used because contributions are not entirely based on a measure of pay. * Fiscal year 2018 was the first year of implementation, therefore only four years are shown. Last Ten Fiscal Years* SCHEDULE OF CONTRIBUTIONS CITY OF NEWPORT BEACH Post-Employment Health Care Benefits (OPEB) Retirement Plan As of June 30, 2021 Last 10 Years * 161 195 This page left blank intentionally. 162 196 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONSUPPLEMENTARY INFORMATION OTHER GOVERNMENTAL FUNDS 163 197 This page left blank intentionally. 164 198 OTHER GOVERNMENTAL FUNDS Other Special Revenue Funds Special Revenue Funds are used to account for the proceeds of specific revenue sources which are legally restricted to expenditures for specified purposes. The City of Newport Beach Special Revenue Funds are as follows: The State Gas Tax Fund accounts for all State Gas Tax related revenues and expenditures, including street repair, construction, and maintenance. State law requires that these funds be used exclusively for maintenance of the street and highway system. The SB1 Gas Tax RMRA Fund accounts for all Road Maintenance and Rehabilitation Account related revenues and expenditures. State law requires that these funds be used exclusively for the transportation system. RMRA revenues are from fuel and vehicle registration taxes imposed by the state’s Road Repair and Accountability Act of 2017. The Asset Forfeiture Fund was established to account for all revenues resulting from the seizure of assets in conjunction with criminal cases (primarily drug trafficking) in which judicial proceedings have been completed. All such funds are property of the City, and it is the City's policy that these funds shall be used for enhancement of law enforcement programs. The Office of the Traffic Safety (OTS) DUI Grant Fund is used to account for federal funding of the Selective Traffic Enforcement Program (STEP). These funds are used exclusively for DUI enforcement. The Circulation and Transportation Fund is used to account for fair share revenues collected from developers and restricted for capital improvement projects meeting the circulation element of the City’s General Plan. The Building Excise Tax Fund is used to account for revenues received from builders or developers on building or remodeling projects within the City. Expenditures from this fund are used exclusively for public safety, libraries, parks, beaches, or recreational activities. The Community Development Block Grant Fund is used to account for revenues and expenditures relating to the City's Community Development Block Grant program. These funds are received from the Federal Department of Housing and Urban Development and must be expended exclusively on programs for low or moderate income individuals/families. The Air Quality Management District Fund is used to account for revenues received from the South Coast Air Quality Management District restricted for the use of reducing air pollution. The Environmental Liability Fund is used to account for solid waste fees restricted for mitigation of future environmental liability relating to the handling of solid waste. The Supplemental Law Enforcement Services Fund (SLESF) is used to account for revenues received from the county to be used exclusively for front line law enforcement services. The Contributions Fund is used to account for revenues received from other government agencies or private developers and expended for specific streets, highway, construction, or water quality projects. 165 199 The Fostering Interest in Nature (FIIN) Fund is restricted for recreation and education programming as a mitigation effort by the California Coastal Commission. The Small Business Grant Fund is used to account for funding received from the County of Orange for the use of economic support to small businesses in connection with the COVID-19 pandemic. The Measure M Fund is used to account for the revenues and expenditures of funds received from the Orange County Transportation Authority. Expenditures from this fund are used exclusively for transportation related purposes. Other Capital Projects Funds Capital Projects Funds are used to account for resources used for the acquisition and construction of capital facilities by the City, except those financed by Enterprise Funds. The City of Newport Beach Capital Projects Funds are as follows: The Assessment District Fund is used to account for the receipt and expenditure of funds received from 1911 Act and 1915 Act Assessment Districts for capital improvement projects. The Fire Station Fund is used to account for the design and construction of new fire stations. The Civic Center and Park Fund is used to account for the design and construction of a new Civic Center Complex. In prior years, this fund was called City Hall Improvements Fund. The Sunset Ridge Park Fund is used to account for the design and construction of the Sunset Ridge Park. The Strategic Planning Fund is used to account for expenditures for study and concept development needed to further refine the Facilities Financing Planning Program. It includes developing both interim and long-term use plans for the old City Hall site on Newport Boulevard. The Newport Uptown Undergrounding Fund is used to account for the receipt and expenditures related to the development within the Newport Uptown Planned Community Development Plan. The Miscellaneous Facilities Financing Fund is used to account for expenditures for small scale facility rehabilitation, expansion and/or replacement in accordance with the Facilities Financing Planning Program. The Parks and Community Centers Fund is used to account for expenditures for park and community center rehabilitation, expansion and/or replacement in accordance with the Facilities Financing Planning Program. The West Newport Community Center Fund is used to account for the design and construction of the West Newport Community Center. The Balboa Village Parking Management District Fund is used to account for revenues and expenditures associated with parking management improvements in Balboa Village. The Facilities Maintenance Fund is used to account for revenues and expenditures associated with the maintenance of existing facilities. The Neighborhood Enhancement Fund is used to account for projects that will enhance neighborhood aesthetics and functionality. 166 200 The Junior Lifeguards Fund is used to account for capital improvement projects related to the Junior Lifeguards program. The Unrestricted Capital Improvements Fund is used to separately account for general fund capital improvement projects. Other Permanent Funds Permanent Funds are used to report resources that are legally restricted for the extent that only earnings, not principal, may be used for purposes that support the reporting government’s programs. The City of Newport Beach Permanent Funds are as follows: The Bay Dredging Fund is used to account for the receipt of permanent endowments intended to fund the ongoing cost of maintaining and dredging of the Upper Newport Bay. The Ackerman Fund is used to account for the receipt of permanent endowments intended as follows: 75% of the fund’s investment proceeds will be used for the purchase of high-tech library equipment while the remaining 25% will be used for scholarships for needy students. 167 201 State SB1 Gas Tax Asset OTS Gas Tax RMRA Forfeiture DUI Grant Assets Cash and investments $ 2,990,838 $ 127,001 $ 538,488 $ - Receivables: Accounts (net of allowance) - - - - Interest 8,935 379 922 - Intergovernmental receivables - 289,786 - 46,358 Restricted cash and investments with fiscal agent - - - - Prepaid items - - - - Total assets $ 2,999,773 $ 417,166 $ 539,410 $ 46,358 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable $ 83,994 $ - $ 1,733 $ - Accrued payroll - - - - Unearned revenue - - - - Due to other funds - - - 46,358 Total liabilities 83,994 - 1,733 46,358 Deferred inflows of resources: Unavailable revenue - - - - Fund balances (deficits): Nonspendable: Prepaid items - - - - Permanent endowment - - - - Restricted 2,915,779 417,166 537,677 - Committed - - - - Unassigned - - - - Total fund balances (deficits) 2,915,779 417,166 537,677 - Total liabilities, deferred inflows of resources and fund balances $ 2,999,773 $ 417,166 $ 539,410 $ 46,358 (continued) CITY OF NEWPORT BEACH Combining Balance Sheet Other Governmental Funds June 30, 2021 Special Revenue Page 1 of 8 168 202 Circulation Building Community Air Quality and Excise Development Management Transportation Tax Block Grant District Assets Cash and investments $ 3,024,625 $ 392,848 $ - $ 1,294,984 Receivables: Accounts (net of allowance) - - - - Interest 9,035 1,175 - 3,868 Intergovernmental receivables - - 93,210 28,481 Restricted cash and investments with fiscal agent - - - - Prepaid items - - - - Total assets $ 3,033,660 $ 394,023 $ 93,210 $ 1,327,333 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable $ - $ - $ 53,210 $ 44,453 Accrued payroll - - - - Unearned revenue - - - - Due to other funds - - 40,000 - Total liabilities - - 93,210 44,453 Deferred inflows of resources: Unavailable revenue - - - 28,481 Fund balances (deficits): Nonspendable: Prepaid items - - - - Permanent endowment - - - - Restricted 3,033,660 394,023 - 1,254,399 Committed - - - - Unassigned - - - - Total fund balances (deficits) 3,033,660 394,023 - 1,254,399 Total liabilities, deferred inflows of resources and fund balances $ 3,033,660 $ 394,023 $ 93,210 $ 1,327,333 (continued) CITY OF NEWPORT BEACH Special Revenue Combining Balance Sheet Other Governmental Funds June 30, 2021 Page 2 of 8 169 203 Supplemental Environmental Law Liability Enforcement Contributions FIIN Assets Cash and investments $ 8,567,846 $ - $ 1,362,917 $ 1,331,133 Receivables: Accounts (net of allowance) 2,342 - 983,781 - Interest 25,576 - 4,349 3,976 Intergovernmental receivables - - 739,186 - Restricted cash and investments with fiscal agent - - - - Prepaid items 77,549 - - - Total assets $ 8,673,313 $ - $ 3,090,233 $ 1,335,109 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable $ 88,850 $ - $ 854,865 $ - Accrued payroll 3,342 - - - Unearned revenue - - 450,000 - Due to other funds - - - - Total liabilities 92,192 - 1,304,865 - Deferred inflows of resources: Unavailable revenue - - 1,044,034 - Fund balances (deficits): Nonspendable: Prepaid items 77,549 - - - Permanent endowment - - - - Restricted 8,503,572 - 741,334 1,335,109 Committed - - - - Unassigned - - - - Total fund balances (deficits) 8,581,121 - 741,334 1,335,109 Total liabilities, deferred inflows of resources and fund balances $ 8,673,313 $ - $ 3,090,233 $ 1,335,109 (continued) CITY OF NEWPORT BEACH Combining Balance Sheet Other Governmental Funds June 30, 2021 Page 3 of 8 Special Revenue 170 204 Small Business Assessment Grant Measure M District Fire Station Assets Cash and investments -$ $ 2,742,957 $ 2,643,011 $ 120,973 Receivables: Accounts (net of allowance)- - - - Interest - 8,541 7,660 361 Intergovernmental receivables - 1,002,747 - - Restricted cash and investments with fiscal agent - - 651,138 9,071,163 Prepaid items - - - - Total assets $ - $ 3,754,245 $ 3,301,809 $ 9,192,497 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable $ - $ 56,495 $ 447,121 $ 1,195,662 Accrued payroll - - - - Unearned revenue - 537,972 - - Due to other funds - - - - Total liabilities - 594,467 447,121 1,195,662 Deferred inflows of resources: Unavailable revenue - 571,572 - - Fund balances (deficits): Nonspendable: Prepaid items - - - - Permanent endowment - - - - Restricted - 2,588,206 2,854,688 7,875,501 Committed - - - 121,334 Unassigned - - - - Total fund balances (deficits) - 2,588,206 2,854,688 7,996,835 Total liabilities, deferred inflows of resources and fund balances $ - $ 3,754,245 $ 3,301,809 $ 9,192,497 (continued) CITY OF NEWPORT BEACH Capital Projects Other Governmental Funds Combining Balance Sheet June 30, 2021 Page 4 of 8 Special Revenue 171 205 Newport Civic Center Sunset Strategic Uptown and Park Ridge Park Planning Undergrounding Assets Cash and investments $ 497,092 $ - $ - $ 3,297 Receivables: Accounts (net of allowance) - - - - Interest 1,336 - 10 Intergovernmental receivables - - - - Restricted cash and investments with fiscal agent - - - - Prepaid items - - - - Total assets $ 498,428 $ - $ - $ 3,307 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable $ 443 $ - $ - $ - Accrued payroll - - - - Unearned revenue - - - - Due to other funds - - - - Total liabilities 443 - - - Deferred inflows of resources: Unavailable revenue - - - - Fund balances (deficits): Nonspendable: Prepaid items - - - - Permanent endowment - - - - Restricted - - - 3,307 Committed 497,985 - - - Unassigned - - - - Total fund balances (deficits) 497,985 - - 3,307 Total liabilities, deferred inflows of resources and fund balances $ 498,428 $ - $ - $ 3,307 (continued) CITY OF NEWPORT BEACH Combining Balance Sheet Other Governmental Funds June 30, 2021 Page 5 of 8 Capital Projects 172 206 Balboa Village Parks and West Newport Parking Misc Facilities Community Community Management Financing Centers Center District Assets Cash and investments $ - $ 4,975,484 $ - $ 1,419,579 Receivables: Accounts (net of allowance) - - - - Interest - 14,863 - 4,014 Intergovernmental receivables - - - - Restricted cash and investments with fiscal agent - - - - Prepaid items - - - - Total assets $ - $ 4,990,347 $ - $ 1,423,593 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable $ - $ 318,441 $ - $ 37,321 Accrued payroll - - - - Unearned revenue - - - - Due to other funds - - - - Total liabilities - 318,441 - 37,321 Deferred inflows of resources: Unavailable revenue - - - - Fund balances (deficits): Nonspendable: Prepaid items - - - - Permanent endowment - - - - Restricted - - - - Committed - 4,671,906 - 1,386,272 Unassigned - - - - Total fund balances (deficits) - 4,671,906 - 1,386,272 Total liabilities, deferred inflows of resources and fund balances $ - $ 4,990,347 $ - $ 1,423,593 (continued) CITY OF NEWPORT BEACH Combining Balance Sheet Other Governmental Funds June 30, 2021 Page 6 of 8 Capital Projects 173 207 Unrestricted Facilities Neighborhood Junior Capital Maintenance Enhancement Lifeguards Improvements Assets Cash and investments $ 2,547,249 $ 3,637,739 $ - $ 8,500,299 Receivables: Accounts (net of allowance) - - - - Interest 7,611 3,374 - - Intergovernmental receivables - - - - Restricted cash and investments with fiscal agent - - - - Prepaid items - - - - Total assets $ 2,554,860 $ 3,641,113 $ - $ 8,500,299 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable $ 332,754 $ 530,119 $ - $ 1,500,339 Accrued payroll - - - - Unearned revenue - - - - Due to other funds - - 136,299 - Total liabilities 332,754 530,119 136,299 1,500,339 Deferred inflows of resources: Unavailable revenue - - - - Fund balances (deficits): Nonspendable: Prepaid items - - - - Permanent endowment - - - - Restricted - - - - Committed 2,222,106 3,110,994 - 6,999,960 Unassigned - - (136,299) - Total fund balances (deficits) 2,222,106 3,110,994 (136,299) 6,999,960 Total liabilities, deferred inflows of resources and fund balances $ 2,554,860 $ 3,641,113 $ - $ 8,500,299 (continued) Capital Projects CITY OF NEWPORT BEACH Other Governmental Funds Combining Balance Sheet June 30, 2021 Page 7 of 8 174 208 Total Other Ackerman Governmental Bay Dredging Donation Funds Assets Cash and investments $ 5,443,649 $ 1,214,798 $ 53,376,807 Receivables: Accounts (net of allowance) - - 986,123 Interest 16,262 3,629 125,876 Intergovernmental receivables - - 2,199,768 Restricted cash and investments with fiscal agent - - 9,722,301 Prepaid items - - 77,549 Total assets $ 5,459,911 $ 1,218,427 $ 66,488,424 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities: Accounts payable $ - $ 4,899 $ 5,550,699 Accrued payroll - - 3,342 Unearned revenue - - 987,972 Due to other funds - - 222,657 Total liabilities - 4,899 6,764,670 Deferred inflows of resources: Unavailable revenue - - 1,644,087 Fund balances (deficits): Nonspendable: Prepaid items - - 77,549 Permanent endowment 3,857,000 772,781 4,629,781 Restricted 1,602,911 440,747 34,498,079 Committed - - 19,010,557 Unassigned - - (136,299) Total fund balances (deficits) 5,459,911 1,213,528 58,079,667 Total liabilities, deferred inflows of resources and fund balances $ 5,459,911 $ 1,218,427 $ 66,488,424 CITY OF NEWPORT BEACH Combining Balance Sheet Other Governmental Funds June 30, 2021 Page 8 of 8 Permanent Fund 175 209 State SB1 Gas Tax Asset OTS Gas Tax RMRA Forfeiture DUI Grant Revenues: Other taxes -$ -$ -$ -$ Intergovernmental 1,878,891 1,590,236 45,133 246,826 Licenses, permits and fees - - - - Investment income 41,006 5,128 12,536 - Net decrease in fair value of investments (37,296) (5,128) (10,973) - Donations - - - - Other - - 1,748 - Total revenues 1,882,601 1,590,236 48,444 246,826 Expenditures: Current: Public safety - - 373,421 246,826 Public works - - - - Community development - - - - Community services - - - - Capital outlay 1,689,543 2,781,222 - - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures 1,689,543 2,781,222 373,421 246,826 Excess (deficiency) of revenues over expenditures 193,058 (1,190,986) (324,977) - Other financing sources (uses): Transfers in - - - - Transfers out - - - - Certificates of participation issued - - - - Premium on certificates of participation issued - - - - Total other financing sources (uses)- - - - Net change in fund balances 193,058 (1,190,986) (324,977) - Fund balances (deficits), beginning, as restated 2,722,721 1,608,152 862,654 - Fund balances (deficits), ending 2,915,779$ 417,166$ 537,677$ -$ (continued) CITY OF NEWPORT BEACH Other Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2021 Special Revenue Page 1 of 8 176 210 Circulation Building Community Air Quality and Excise Development Management Transportation Tax Block Grant District Revenues: Other taxes -$ -$ -$ -$ Intergovernmental - - 455,836 110,813 Licenses, permits and fees 398,284 196,039 - - Investment income 43,353 6,031 - 19,203 Net decrease in fair value of investments (38,647) (5,405) - (17,089) Donations - - - - Other - - - - Total revenues 402,990 196,665 455,836 112,927 Expenditures: Current: Public safety - - - - Public works - - - - Community development - - 262,356 - Community services - - - - Capital outlay 6,292 299,847 - 81,013 Debt service: Principal - - 182,000 - Interest and fiscal charges - - 11,480 - Total expenditures 6,292 299,847 455,836 81,013 Excess (deficiency) of revenues over expenditures 396,698 (103,182) - 31,914 Other financing sources (uses): Transfers in - - - - Transfers out - - - - Certificates of participation issued - - - - Premium on certificates of participation issued - - - - Total other financing sources (uses)- - - - Net change in fund balances 396,698 (103,182) - 31,914 Fund balances (deficits), beginning, as restated 2,636,962 497,205 - 1,222,485 Fund balances (deficits), ending 3,033,660$ 394,023$ -$ 1,254,399$ (continued) CITY OF NEWPORT BEACH Other Governmental Funds Combining Statement of Revenues, Special Revenue Expenditures and Changes in Fund Balances For the Year Ended June 30, 2021 Page 2 of 8 177 211 Supplemental Environmental Law Liability Enforcement Contributions FIIN Revenues: Other taxes 499,406$ -$ -$ -$ Intergovernmental - 205,263 4,592,469 - Licenses, permits and fees - - - - Investment income 132,208 - 25,686 20,397 Net decrease in fair value of investments (117,600) - (22,747) (18,220) Donations - - 100,000 - Other 68,575 - 1,043,991 - Total revenues 582,589 205,263 5,739,399 2,177 Expenditures: Current: Public safety - 205,263 - - Public works 606,652 - - - Community development - - - - Community services - - - - Capital outlay - - 6,829,350 - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures 606,652 205,263 6,829,350 - Excess (deficiency) of revenues over expenditures (24,063) - (1,089,951) 2,177 Other financing sources (uses): Transfers in - - 4,184 - Transfers out - - - - Certificates of participation issued - - - - Premium on certificates of participation issued - - - - Total other financing sources (uses)- - 4,184 - Net change in fund balances (24,063) - (1,085,767) 2,177 Fund balances (deficits), beginning, as restated 8,605,184 - 1,827,101 1,332,932 Fund balances (deficits), ending 8,581,121$ -$ 741,334$ 1,335,109$ (continued) For the Year Ended June 30, 2021 CITY OF NEWPORT BEACH Other Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances Special Revenue Page 3 of 8 178 212 Small Business Assessment Grant Measure M District Fire Station Revenues: Other taxes -$ -$ -$ -$ Intergovernmental 2,413,427 2,138,388 - - Licenses, permits and fees - - - - Investment income 5,585 37,980 35,731 29,757 Net decrease in fair value of investments (3,294) (33,877) (32,507) (27,824) Donations - - - - Other - - 973,870 - Total revenues 2,415,718 2,142,491 977,094 1,933 Expenditures: Current: Public safety - - - - Public works - - 2,597,023 - Community development - - - - Community services 2,419,337 - - - Capital outlay - 1,033,307 - 2,884,521 Debt service:- Principal - - - - Interest and fiscal charges - - - 173,965 Total expenditures 2,419,337 1,033,307 2,597,023 3,058,486 Excess (deficiency) of revenues over expenditures (3,619) 1,109,184 (1,619,929) (3,056,553) Other financing sources (uses): Transfers in - 25,000 400,000 - Transfers out - - - (9,500,000) Certificates of participation issued - - 7,860,000 Premium on certificates of participation issued - - 1,373,936 Total other financing sources (uses)- 25,000 400,000 (266,064) Net change in fund balances (3,619) 1,134,184 (1,219,929) (3,322,617) Fund balances (deficits), beginning, as restated 3,619 1,454,022 4,074,617 11,319,452 Fund balances (deficits), ending -$ 2,588,206$ 2,854,688$ 7,996,835$ (continued) Other Governmental Funds For the Year Ended June 30, 2021 CITY OF NEWPORT BEACH Capital Projects Combining Statement of Revenues, Expenditures and Changes in Fund Balances Page 4 of 8 Special Revenue 179 213 Newport Civic Center Sunset Strategic Uptown and Park Ridge Park Planning Undergrounding Revenues: Other taxes -$ -$ -$ -$ Intergovernmental - - - - Licenses, permits and fees - - - - Investment income 7,188 106 50 50 Net decrease in fair value of investments (7,866) (199) (223) (45) Donations - - - - Other - - - - Total revenues (678) (93) (173) 5 Expenditures: Current: Public safety - - - - Public works - - - - Community development - - - - Community services - - - - Capital outlay 53,973 - - - Debt service: Principal - - - - Interest and fiscal charges 2,023 - - - Total expenditures 55,996 - - - Excess (deficiency) of revenues over expenditures (56,674) (93) (173) 5 Other financing sources (uses): Transfers in - - - - Transfers out (1,222,853) (105,858) (157,066) - Certificates of participation issued - - - - Premium on certificates of participation issued - - - - Total other financing sources (uses)(1,222,853) (105,858) (157,066) - Net change in fund balances (1,279,527) (105,951) (157,239) 5 Fund balances (deficits), beginning, as restated 1,777,512 105,951 157,239 3,302 Fund balances (deficits), ending 497,985$ -$ -$ 3,307$ (continued) CITY OF NEWPORT BEACH Other Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2021 Capital Projects Page 5 of 8 180 214 Balboa Village Parks and West Newport Parking Misc Facilities Community Community Management Financing Centers Center District Revenues: Other taxes -$ -$ -$ -$ Intergovernmental - - - - Licenses, permits and fees - - - 403,733 Investment income 31 128,422 29 18,951 Net decrease in fair value of investments (44) (104,627) (426) (16,810) Donations - - - - Other - - - - Total revenues (13) 23,795 (397) 405,874 Expenditures: Current: Public safety - - - - Public works - - - - Community development - - - - Community services - - - - Capital outlay - 6,092,871 - 63,929 Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures - 6,092,871 - 63,929 Excess (deficiency) of revenues over expenditures (13) (6,069,076) (397) 341,945 Other financing sources (uses): Transfers in - 6,901,299 - - Transfers out (14,983) - (343,884) - Certificates of participation issued - - - - Premium on certificates of participation issued - - - - Total other financing sources (uses)(14,983) 6,901,299 (343,884) - Net change in fund balances (14,996) 832,223 (344,281) 341,945 Fund balances (deficits), beginning, as restated 14,996 3,839,683 344,281 1,044,327 Fund balances (deficits), ending -$ 4,671,906$ -$ 1,386,272$ (continued) CITY OF NEWPORT BEACH Other Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2021 Page 6 of 8 Capital Projects 181 215 Unrestricted Facilities Neighborhood Junior Capital Maintenance Enhancement Lifeguards Improvements Revenues: Other taxes -$ -$ -$ -$ Intergovernmental - - - - Licenses, permits and fees - - - - Investment income 51,403 28,442 - - Net decrease in fair value of investments (45,260) (29,465) (12) - Donations - - - - Other - - - - Total revenues 6,143 (1,023) (12) - Expenditures: Current: Public safety - - - - Public works - - - - Community development - - - - Community services - - - - Capital outlay 1,707,838 1,734,183 86,150 6,936,819 Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures 1,707,838 1,734,183 86,150 6,936,819 Excess (deficiency) of revenues over expenditures (1,701,695) (1,735,206) (86,162) (6,936,819) Other financing sources (uses): Transfers in 1,366,254 2,508,176 - 8,137,059 Transfers out - (2,623,249) - (2,790,286) Certificates of participation issued - - - - Premium on certificates of participation issued - - - - Total other financing sources (uses)1,366,254 (115,073) - 5,346,773 Net change in fund balances (335,441) (1,850,279) (86,162) (1,590,046) Fund balances (deficits), beginning, as restated 2,557,547 4,961,273 (50,137) 8,590,006 Fund balances (deficits), ending 2,222,106$ 3,110,994$ (136,299)$ 6,999,960$ (continued) Capital Projects CITY OF NEWPORT BEACH Other Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2021 Page 7 of 8 182 216 Total Other Ackerman Governmental Bay Dredging Donation Funds Revenues: Other taxes -$ -$ 499,406$ Intergovernmental - - 13,677,282 Licenses, permits and fees - - 998,056 Investment income 83,415 18,616 751,304 Net decrease in fair value of investments (74,385) (16,610) (666,579) Donations - - 100,000 Other - - 2,088,184 Total revenues 9,030 2,006 17,447,653 Expenditures: Current: Public safety - - 825,510 Public works - - 3,203,675 Community development - 4,900 267,256 Community services - - 2,419,337 Capital outlay - - 32,280,858 Debt service: Principal - - 182,000 Interest and fiscal charges - - 187,468 Total expenditures - 4,900 39,366,104 Excess (deficiency) of revenues over expenditures 9,030 (2,894) (21,918,451) Other financing sources (uses): Transfers in - - 19,341,972 Transfers out - - (16,758,179) Certificates of participation issued - - 7,860,000 Premium on certificates of participation issued - - 1,373,936 Total other financing sources (uses)- - 11,817,729 Net change in fund balances 9,030 (2,894) (10,100,722) Fund balances (deficits), beginning, as restated 5,450,881 1,216,422 68,180,389 Fund balances (deficits), ending 5,459,911$ 1,213,528$ 58,079,667$ Page 8 of 8 Permanent Funds CITY OF NEWPORT BEACH Other Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2021 183 217 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental 1,863,809$ 1,863,809$ 1,878,891$ 15,082$ Investment income 21,669 21,669 41,006 19,337 Net decrease in fair value of investments - - (37,296) (37,296) Total revenues 1,885,478 1,885,478 1,882,601 (2,877) Expenditures: Capital outlay 1,980,995 4,533,068 1,689,543 2,843,525 Net change in fund balance (95,517) (2,647,590) 193,058 2,840,648 Fund balance, beginning 2,722,721 2,722,721 2,722,721 - Fund balance, ending 2,627,204$ 75,131$ 2,915,779$ 2,840,648$ CITY OF NEWPORT BEACH Budgetary Comparison Schedule State Gas Tax Special Revenue Fund For the Year Ended June 30, 2021 Budgeted Amounts 184 218 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental 1,481,900$ 1,481,900$ 1,590,236$ 108,336$ Investment income 3,321 3,321 5,128 1,807 Net decrease in fair value of investments - - (5,128) (5,128) Total revenues 1,485,221 1,485,221 1,590,236 105,015 Expenditures: Capital outlay - 2,781,222 2,781,222 - Net change in fund balance 1,485,221 (1,296,001) (1,190,986) 105,015 Fund balance, beginning 1,608,152 1,608,152 1,608,152 - Fund balance, ending 3,093,373$ 312,151$ 417,166$ 105,015$ CITY OF NEWPORT BEACH Budgetary Comparison Schedule SB1 Gas Tax RMRA Fund For the Year Ended June 30, 2021 Budgeted Amounts 185 219 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental 1,438$ 1,438$ 45,133$ 43,695$ Investment income 14,333 14,333 12,536 (1,797) Net decrease in fair value of investments - - (10,973) (10,973) Other - - 1,748 Total revenues 15,771 15,771 48,444 32,673 Expenditures: Public safety 40,000 555,218 373,421 181,797 Net change in fund balance (24,229) (539,447) (324,977) 214,470 Fund balance, beginning 862,654 862,654 862,654 - Fund balance, ending 838,425$ 323,207$ 537,677$ 214,470$ Budgeted Amounts CITY OF NEWPORT BEACH Budgetary Comparison Schedule Asset Forfeiture Special Revenue Fund For the Year Ended June 30, 2021 186 220 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental -$ 280,346$ 246,826$ (33,520)$ Expenditures: Public safety - 280,346 246,826 33,520 Net change in fund balance - - - - Fund balance, beginning - - - - Fund balance, ending -$ -$ -$ -$ Budgeted Amounts CITY OF NEWPORT BEACH Budgetary Comparison Schedule OTS DUI Grant Special Revenue Fund For the Year Ended June 30, 2021 187 221 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Licenses, permits and fees 150,989$ 150,989$ 398,284$ 247,295$ Investment income 43,015 43,015 43,353 338 Net decrease in fair value of investments - - (38,647) (38,647) Total revenues 194,004 194,004 402,990 208,986 Expenditures: Capital outlay 365,790 365,790 6,292 359,498 Net change in fund balance (171,786) (171,786) 396,698 568,484 Fund balance, beginning 2,636,962 2,636,962 2,636,962 - Fund balance, ending 2,465,176$ 2,465,176$ 3,033,660$ 568,484$ CITY OF NEWPORT BEACH Budgetary Comparison Schedule Circulation and Transportation Special Revenue Fund For the Year Ended June 30, 2021 Budgeted Amounts 188 222 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Licenses, permits and fees 202,950$ 202,950$ 196,039$ (6,911)$ Investment income 3,006 3,006 6,031 3,025 Net decrease in fair value of investments - - (5,405) (5,405) Total revenues 205,956 205,956 196,665 (9,291) Expenditures: Capital outlay 300,000 628,361 299,847 328,514 Net change in fund balance (94,044) (422,405) (103,182) 319,223 Fund balance, beginning 497,205 497,205 497,205 - Fund balance, ending 403,161$ 74,800$ 394,023$ 319,223$ Budgeted Amounts CITY OF NEWPORT BEACH Budgetary Comparison Schedule Building Excise Tax Special Revenue Fund For the Year Ended June 30, 2021 189 223 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental 359,743$ 793,610$ 455,836$ (337,774)$ Total revenues 359,743 793,610 455,836 (337,774) Expenditures: Community development 117,311 600,128 262,356 337,772 Capital outlay - 52,942 - 52,942 Debt service: Principal 182,000 182,000 182,000 - Interest and fiscal charges 11,480 11,480 11,480 - Total expenditures 310,791 846,550 455,836 390,714 Net change in fund balance 48,952 (52,940) - 52,940 Fund balance, beginning - - - - Fund balance (deficit), ending 48,952$ (52,940)$ -$ 52,940$ CITY OF NEWPORT BEACH Budgetary Comparison Schedule Community Development Block Grant Special Revenue Fund For the Year Ended June 30, 2021 Budgeted Amounts 190 224 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental 100,000$ 100,000$ 110,813$ 10,813$ Investment income 16,734 16,734 19,203 2,469 Net decrease in fair value of investments - - (17,089) (17,089) Total revenues 116,734 116,734 112,927 (3,807) Expenditures: Capital outlay - 342,998 81,013 261,985 Net change in fund balance 116,734 (226,264) 31,914 258,178 Fund balance, beginning 1,222,485 1,222,485 1,222,485 - Fund balance, ending 1,339,219$ 996,221$ 1,254,399$ 258,178$ CITY OF NEWPORT BEACH Budgetary Comparison Schedule Air Quality Management District Special Revenue Fund For the Year Ended June 30, 2021 Budgeted Amounts 191 225 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Other taxes 600,000$ 600,000$ 499,406$ (100,594)$ Investment income 153,829 153,829 132,208 (21,621) Net decrease in fair value of investments - - (117,600) (117,600) Other revenue 40,000 40,000 68,575 28,575 Total revenues 793,829 793,829 582,589 (211,240) Expenditures: Public works 657,762 657,762 606,652 51,110 Capital outlay - 6,610 - 6,610 Total expenditures 657,762 664,372 606,652 57,720 Net change in fund balance 136,067 129,457 (24,063) (153,520) Fund balance, beginning 8,605,184 8,605,184 8,605,184 - Fund balance, ending 8,741,251$ 8,734,641$ 8,581,121$ (153,520)$ Budgeted Amounts CITY OF NEWPORT BEACH Budgetary Comparison Schedule Environmental Liability Special Revenue Fund For the Year Ended June 30, 2021 192 226 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental 200,000$ 200,000$ 205,263$ 5,263$ Expenditures: Public safety 200,000 200,000 205,263 (5,263) Net change in fund balance - - - - Fund balance, beginning - - - - Fund balance, ending -$ -$ -$ -$ Budgeted Amounts CITY OF NEWPORT BEACH Budgetary Comparison Schedule Supplemental Law Enforcement Special Revenue Fund For the Year Ended June 30, 2021 193 227 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental 431,000$ 12,563,188$ 4,592,469$ (7,970,719)$ Investment income 36,533 36,533 25,686 (10,847) Net decrease in fair value of investments - - (22,747) (22,747) Donations 106,500 556,500 100,000 (456,500) Other - 1,688,731 1,043,991 (644,740) Total revenues 574,033 14,844,952 5,739,399 (9,105,553) Expenditures: Capital outlay 2,369,740 16,440,767 6,829,350 9,611,417 Excess (deficiency) of revenues over expenditures (1,795,707) (1,595,815) (1,089,951) 505,864 Other financing sources: Transfers in - 4,184 4,184 - Net change in fund balance (1,795,707) (1,591,631) (1,085,767) 505,864 Fund balance, beginning 1,827,101 1,827,101 1,827,101 - Fund balance, ending 31,394$ 235,470$ 741,334$ 505,864$ CITY OF NEWPORT BEACH Budgetary Comparison Schedule Contributions Fund Special Revenue Fund For the Year Ended June 30, 2021 Budgeted Amounts 194 228 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Investment income 23,910$ 23,910$ 20,397$ (3,513)$ Net decrease in fair value of investments - - (18,220) (18,220) Total revenues 23,910 23,910 2,177 (21,733) Expenditures: Community services 147,000 147,000 - 147,000 Net change in fund balance (123,090) (123,090) 2,177 125,267 Fund balance, beginning 1,332,932 1,332,932 1,332,932 - Fund balance, ending 1,209,842$ 1,209,842$ 1,335,109$ 125,267$ CITY OF NEWPORT BEACH Budgetary Comparison Schedule FIIN Special Revenue Fund For the Year Ended June 30, 2021 Budgeted Amounts 195 229 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental -$ 2,413,427$ 2,413,427$ -$ Investment income - - 5,585 5,585 Net decrease in fair value of investments - - (3,294) (3,294) Total revenues - 2,413,427 2,415,718 2,291 Expenditures: Community services - 2,413,427 2,419,337 - Net change in fund balance - - (3,619) (3,619) Fund balance, beginning 3,619 3,619 3,619 - Fund balance, ending 3,619$ 3,619$ -$ (3,619)$ CITY OF NEWPORT BEACH Budgetary Comparison Schedule Small Business Grant Special Revenue Fund For the Year Ended June 30, 2021 Budgeted Amounts 196 230 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Intergovernmental 5,806,189$ 3,456,589$ 2,138,388$ (1,318,201)$ Investment income 7,123 7,123 37,980 30,857 Net decrease in fair value of investments - - (33,877) (33,877) Total revenues 5,813,312 3,463,712 2,142,491 (1,321,221) Expenditures: Capital outlay 3,038,500 4,641,614 1,033,307 3,608,307 Excess (deficiency) of revenues over expenditures 2,774,812 (1,177,902) 1,109,184 2,287,086 Other financing sources: Transfers in - 25,000 25,000 - Net change in fund balance 2,774,812 (1,152,902) 1,134,184 2,287,086 Fund balance, beginning, as restated 1,454,022 1,454,022 1,454,022 - Fund balance, ending 4,228,834$ 301,120$ 2,588,206$ 2,287,086$ CITY OF NEWPORT BEACH Budgetary Comparison Schedule Measure M For the Year Ended June 30, 2021 Budgeted Amounts 197 231 This page left blank intentionally. 198 232 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONSUPPLEMENTARY INFORMATION INTERNAL SERVICE FUNDS 199 233 This page left blank intentionally. 200 234 INTERNAL SERVICE FUNDS The Internal Service Funds are used to allocate the cost of providing goods and services by one department to other departments on a cost reimbursement basis. The City of Newport Beach Internal Service Funds are listed below: The Insurance Reserve Fund is used to account for the City's self- insured general liability and workers' compensation program. The Compensated Absences Fund is used to account for the City’s accumulated liability for compensated absences. The Retiree Insurance Fund is used to account for the cost of providing post-employment health care benefits. The Equipment Maintenance Fund is used to account for the cost of maintaining and replacing the City’s rolling stock fleet, parking equipment, coordinated communications system equipment, fire equipment and recreation equipment. The Information Technology Fund is used to account for the cost of maintaining and replacing the City’s computers, printers, copiers and telecommunication services to other departments. 201 235 Total Insurance Compensated Retiree Equipment Information Internal Assets Reserve Absences Insurance Maintenance Technology Service Funds Current assets: Cash and investments $ 38,784,627 $ 5,758,686 $ 773,824 $ 12,911,483 $ 9,090,957 $ 67,319,577 Receivables: Accounts (net of allowance)1,019,942 -6,376 189,041 - 1,215,359 Interest 114,381 15,731 1,825 38,437 26,868 197,242 Inventories ---447,455 -447,455 Prepaid items 64,464 -253,195 3,593,783 457,697 4,369,139 Total current assets 39,983,414 5,774,417 1,035,220 17,180,199 9,575,522 73,548,772 Noncurrent assets: Capital assets: Equipment --- 38,538,452 3,320,888 41,859,340 Structures ---39,581 -39,581 Software ----3,603,419 3,603,419 Work in progress ----462,981 462,981 Less accumulated depreciation --- (24,091,486) (5,711,362) (29,802,848) Total capital assets (net of accumulated depreciation)--- 14,486,547 1,675,926 16,162,473 Total assets 39,983,414 5,774,417 1,035,220 31,666,746 11,251,448 89,711,245 Deferred outflows of resources: Deferred amount from pension plans ---408,277 818,341 1,226,618 Deferred amount from OPEB ---96,021 192,463 288,484 Total deferred outflows of resources ---504,298 1,010,804 1,515,102 Liabilities Current liabilities: Accounts payable 1,524,756 473,732 - 383,100 67,292 2,448,880 Accrued payroll 28,959 -162,853 28,092 69,553 289,457 Due to other funds --352,836 --352,836 Workers' compensation - current 2,716,603 ----2,716,603 General liability - current 2,679,733 ----2,679,733 Compensated absences - current - 4,336,047 --- 4,336,047 Total current liabilities 6,950,051 4,809,779 515,689 411,192 136,845 12,823,556 Noncurrent liabilities: Workers' compensation 12,036,397 ----12,036,397 General liability 5,585,902 ----5,585,902 Compensated absences - 9,176,960 --- 9,176,960 Net pension liability --- 2,106,617 4,222,510 6,329,127 Net OPEB liability ---229,572 460,159 689,731 Total noncurrent liabilities 17,622,299 9,176,960 - 2,336,189 4,682,669 33,818,117 Total liabilities 24,572,350 13,986,739 515,689 2,747,381 4,819,514 46,641,673 Deferred inflows of resources: Deferred amount from pension plans ---1,506 3,017 4,523 Deferred amount from OPEB ---2,206 4,424 6,630 Total deferred inflows of resources ---3,712 7,441 11,153 Net Position Invested in capital assets --- 17,951,114 1,675,926 19,627,040 Unrestricted 15,411,064 (8,212,322)519,531 11,468,837 5,759,371 24,946,481 Total net position $ 15,411,064 $ (8,212,322) $ 519,531 $ 29,419,951 $ 7,435,297 $ 44,573,521 CITY OF NEWPORT BEACH Internal Service Funds Combining Statement of Net Position June 30, 2021 202 236 Total Insurance Compensated Retiree Equipment Information Internal Reserve Absences Insurance Maintenance Technology Service Funds Operating revenues: Charges for services $ 11,225,000 $ 2,669,045 $ 4,924,163 $ 6,772,157 $ 7,232,902 $ 32,823,267 Retiree reimbursements --141,862 --141,862 Employee contributions --59,084 --59,084 Other 321,505 -652,306 72,208 39 1,046,058 Total operating revenues 11,546,505 2,669,045 5,777,415 6,844,365 7,232,941 34,070,271 Operating expenses: Salaries and wages ---920,461 2,524,011 3,444,472 Depreciation --- 2,940,381 559,826 3,500,207 Professional services ---19,246 262,346 281,592 Maintenance and supplies --- 1,539,242 1,345,038 2,884,280 Fleet parts and supplies ---299,837 -299,837 Telecommunication ----153,434 153,434 Hardware ----436,613 436,613 Software ----237,204 237,204 Workers' compensation 1,917,334 ---- 1,917,334 Claims and judgments 5,604,723 ---- 5,604,723 Compensated absences - 2,866,959 --- 2,866,959 OPEB -- 5,819,883 -- 5,819,883 Total operating expenses 7,522,057 2,866,959 5,819,883 5,719,167 5,518,472 27,446,538 Operating income (loss)4,024,448 (197,914)(42,468) 1,125,198 1,714,469 6,623,733 Nonoperating revenues: Investment income 519,187 83,765 19,214 206,762 128,940 957,868 Net decrease in fair value of investments (470,668)(74,032)(16,319) (186,805) (117,260) (865,084) Gain on sale of capital assets ---441,666 -441,666 Total nonoperating revenues 48,519 9,733 2,895 461,623 11,680 534,450 Income (loss) before transfers 4,072,967 (188,181)(39,573) 1,586,821 1,726,149 7,158,183 Transfers in ---500,000 31,764 531,764 Transfer out (2,000,000)-- (946,576) (2,000,000) (4,946,576) Total transfers (2,000,000)-- (446,576) (1,968,236) (4,414,812) Change in net position 2,072,967 (188,181)(39,573) 1,140,245 (242,087) 2,743,371 Net position, beginning 13,338,097 (8,024,141)559,104 28,279,706 7,677,384 41,830,150 Net position, ending $ 15,411,064 $ (8,212,322) $ 519,531 $ 29,419,951 $ 7,435,297 $ 44,573,521 CITY OF NEWPORT BEACH Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2021 203 237 Total Insurance Compensated Retiree Equipment Information Internal Reserve Absences Insurance Maintenance Technology Service Funds Cash flows from operating activities Receipts from user departments $ 11,955,935 2,669,045$ $ 5,095,412 $ 6,592,542 $ 7,232,902 $ 33,545,836 Payments to employees (2,665,003) (2,281,270) - (1,046,358) (2,781,239) (8,773,870) Payments to suppliers (3,844,693) - (5,811,065) (4,786,556) (2,946,801) (17,389,115) Other operating cash receipts 321,505 - 711,390 597,343 39 1,630,277 Net cash provided (used) by operating activities 5,767,744 387,775 (4,263) 1,356,971 1,504,901 9,013,128 Cash flows from noncapital financing activities: Cash received from other funds - - 1,466,089 500,000 31,764 1,997,853 Cash paid to other funds (2,000,000) - (1,480,965) (946,576) (2,000,000) (6,427,541) Net cash (used) by noncapital financing activities (2,000,000)-(14,876)(446,576)(1,968,236)(4,429,688) Cash flows from capital and related financing activities: Acquisition of capital assets - - - (3,618,719) (163,684) (3,782,403) Proceeds from sale of capital assets - - - 441,666 - 441,666 Net cash (used) for capital and related financing activities - - - (3,177,053) (163,684) (3,340,737) Cash flows from investing activities: Investment income (loss)(65,862)(5,998)1,070 (18,480)(15,188) (104,458) Net cash (used) by investing activities (65,862)(5,998)1,070 (18,480)(15,188)(104,458) Net increase (decrease) in cash and cash equivalents 3,701,882 381,777 (18,069) (2,285,138) (642,207) 1,138,245 Cash and cash equivalents, beginning 35,082,745 5,376,909 791,893 15,196,621 9,733,164 66,181,332 Cash and cash equivalents, ending $ 38,784,627 $ 5,758,686 773,824$ 12,911,483$ 9,090,957$ 67,319,577$ Reconciliation to the statement of net position: Cash and investments reported on statement of net position 38,784,627$ 5,758,686$ 773,824$ 12,911,483$ 9,090,957$ 67,319,577$ Cash and cash equivalents 38,784,627$ 5,758,686$ 773,824$ 12,911,483$ 9,090,957$ 67,319,577$ Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) $ 4,024,448 $ (197,914) $ (42,468) $ 1,125,198 $ 1,714,469 $ 6,623,733 Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation - - - 2,940,381 559,826 3,500,207 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 730,935 -29,387 (179,615)-580,707 Decrease in intergovernmental receivable ---525,135 -525,135 (Increase) in inventories ---(34,440)-(34,440) (Increase) decrease in prepaid items (21,194)-1,729 (3,083,881)(281,413)(3,384,759) Increase (decrease) in accounts payable and accrued payroll 1,496,868 166,001 7,089 192,602 (230,604) 1,631,956 (Decrease) in workers' compensation (768,000)----(768,000) Increase in general liability 304,687 ----304,687 Increase in compensated absences -419,688 ---419,688 (Decrease) in net pension liability and deferred cash flows ---(87,734) (175,851) (263,585) (Decrease) in net OPEB liability and deferred cash flows --(40,675)(81,526) (122,201) Total adjustments 1,743,296 585,689 38,205 231,773 (209,568)2,389,395 Net cash provided by operating activities $ 5,767,744 $ 387,775 $ (4,263) $ 1,356,971 $ 1,504,901 $ 9,013,128 Noncash investing, capital, and financing activities: Net (decrease) in fair value of investments $ (470,668) $ (74,032) $ (16,319) $ (186,805) $ (117,260) $ (865,084) Total of noncash activities $ (470,668) $ (74,032) $ (16,319) $ (186,805) $ (117,260) $ (865,084) CITY OF NEWPORT BEACH Combining Statement of Cash Flows For the Year Ended June 30, 2021 Internal Service Funds 204 238 FINANCIAL SECTION FINANCIAL SECTIONFINANCIAL SECTIONSUPPLEMENTARY INFORMATION FIDUCIARY FUNDS 205 239 FIDUCIARY FUNDS Fiduciary Funds are used to account for assets held by the City in a trustee capacity, or as an agent for other government entities, private organizations, or individuals. The City of Newport Beach Fiduciary Funds are listed below: The Special Assessment District Fund is used to account for funds received from affected property owners and payable to holders of 1911 Act and 1915 Act special assessment bonds. The Tourism Business Improvement Fund is used to account for the Newport Beach Tourism Business Improvement District’s special assessment on short term room rental revenue collected by the City for Visit Newport Beach Inc. The Other Business Improvement Fund is used to account for monies collected from local business districts for district property improvements and business enhancement. The Police Custodial Fund is used to account for monies received by the City’s police department in a custodial capacity, such as warrants and items pending adjudication. 206 240 Custodial Funds Special Tourism Other Total Assessment Business Business Police Custodial District Improvement Improvement Custodial Funds Assets Cash and investments 514,653$ 269,601$ 168,615$ 271,404$ 1,224,273$ Restricted cash and investments with fiscal agent 1,333,345 - - - 1,333,345 Receivable: Accounts (net of allowance)- 336,687 - - 336,687 Interest 1,490 - - - 1,490 Intergovernmental receivable 18,283 - - - 18,283 Total assets 1,867,771 606,288 168,615 271,404 2,914,078 Liabilities Due to others 962 606,288 168,615 646 776,511 Total liabilities 962 606,288 168,615 646 776,511 Net Position Restricted for: Individuals, organizations, and other governments 1,866,809 - - 270,758 2,137,567 Total net position 1,866,809$ -$ -$ 270,758$ 2,137,567$ CITY OF NEWPORT BEACH Fiduciary Funds Combining Statement of Fiduciary Net Position June 30, 2021 207 241 Custodial Funds Special Tourism Other Total Assessment Business Business Police Custodial District Improvement Improvement Custodial Funds Additions Special assessments 1,283,969$ -$ -$ -$ 1,283,969$ Investment earnings 1,214 - - 22 1,236 Other - - - 70,395 70,395 Total additions 1,285,183 - - 70,417 1,355,600 Deductions Debt service 1,130,047 1,130,047 Unclaimed property 281,611 - - - 281,611 Administrative 59,767 - - - 59,767 Other - - - 18,208 18,208 Total deductions 1,471,425 - - 18,208 1,489,633 Net (decrease) in fiduciary net position (186,242) - - 52,209 (134,033) Net position, beginning of year as restated 2,053,051 - - 218,549 2,271,600 Net position, end of year 1,866,809$ -$ -$ 270,758$ 2,137,567$ CITY OF NEWPORT BEACH Fiduciary Funds Combining Statement of Changes in Fiduciary Net Position June 30, 2021 208 242 STATISTICAL SECTIONSTATISTICAL SECTION 209 243 This page left blank intentionally. 210 244 FINANCIAL TRENDS This section of the City of Newport Beach’s Annual Comprehensive Financial Report (ACFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. The statistical information presented herein is un-audited. The following schedules contain trend information illustrating how the City’s financial performance and well-being has changed over time: • Net Position by Component • Changes in Net Position • Fund Balances of Governmental Funds • Changes in Fund Balance of Governmental Funds Sources: Unless otherwise noted, the information in these schedules is derived from the Annual Comprehensive Financial Reports and underlying accounting records for the relevant years. 211 245 20121 2013 20142 20153 Net investment in capital assets 2,098,349,998$ 2,124,797,794$ 2,148,942,928$ 2,176,644,408$ Restricted 61,923,719 72,119,674 59,998,344 45,689,702 Unrestricted 82,515,232 77,966,414 (184,990,765) (150,532,773) 2,242,788,949$ 2,274,883,882$ 2,023,950,507$ 2,071,801,337$ Business-type activities: Net investment in capital assets 108,981,237$ 111,177,135$ 115,948,522$ 113,914,514$ Restricted - - - - Unrestricted 15,089,798 19,172,398 13,160,611 21,756,124 124,071,035$ 130,349,533$ 129,109,133$ 135,670,638$ Primary government: Net investment in capital assets 2,207,331,235$ 2,235,974,929$ 2,264,891,450$ 2,290,558,922$ Restricted 61,923,719 72,119,674 59,998,344 45,689,702 Unrestricted 97,605,030 97,138,812 (171,830,154) (128,776,649) 2,366,859,984$ 2,405,233,415$ 2,153,059,640$ 2,207,471,975$ 1 2 3 4 5 6 The City of Newport Beach implemented GASB 63 and GASB 65 for the fiscal year ended June 30, 2013. The City of Newport Beach implemented GASB 68 for the fiscal year ended June 30, 2015. The City of Newport Beach implemented GASB 75 for the fiscal year ended June 30, 2018. Fiscal Year Reflects restatement of net position due to the implementation of GASB 65 in fiscal year ended June 30, 2013. Reflects restatement of net position due to the implementation of GASB 68 in fiscal year ended June 30, 2015 and an adjustment to record deferred amount from gain on refunding. Reflects restatement of net position due to compensated absences and deferred outflow adjustments related to fiscal year ended June 30, 2016. CITY OF NEWPORT BEACH Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) Governmental activities: Total governmental activities Total business-type activities Total primary government Reflects restatement of net position due to deferred outflow adjustments related to fiscal year ended June 30, 2017. Reflects restatement of net position due to implementation of GASB 75 in fiscal year ended June 30, 2018. Reflects restatement of net position due to adjustments for capital assets and compensated absences liability in fiscal year ended June 30, 2019. 212 246 20164 20175 20186 2019 2020 2021 2,193,773,102$ 2,201,552,683$ 2,208,832,391$ 2,218,040,304$ 2,217,852,660$ 2,227,572,605$ 44,033,677 45,753,736 49,791,908 56,426,811 67,708,225 67,189,020 (130,468,268) (133,461,197) (122,024,754) (102,035,181) (90,214,086) (72,301,558) 2,107,338,511$ 2,113,845,222$ 2,136,599,545$ 2,172,431,934$ 2,195,346,799$ 2,222,460,067$ 117,055,576$ 116,238,944$ 119,375,596$ 119,346,350$ 120,291,689$ 124,775,772$ - - - - - - 23,430,189 28,890,311 29,183,382 30,331,669 30,276,662 27,039,499 140,485,765$ 145,129,255$ 148,558,978$ 149,678,019$ 150,568,351$ 151,815,271$ 2,310,828,678$ 2,317,791,627$ 2,328,207,987$ 2,337,386,654$ 2,338,144,349$ 2,352,348,377$ 44,033,677 45,753,736 49,791,908 56,426,811 67,708,225 67,189,020 (107,038,079) (104,570,886) (92,841,372) (71,703,512) (59,937,424) (45,262,059) 2,247,824,276$ 2,258,974,477$ 2,285,158,523$ 2,322,109,953$ 2,345,915,150$ 2,374,275,338$ Fiscal Year CITY OF NEWPORT BEACH Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) 213 247 2012 2013 2014 2015 14,325,966$ 15,830,575$ 18,834,165$ 24,558,041$ 75,696,570 83,235,188 87,676,062 96,945,872 48,913,412 47,794,631 42,953,118 45,774,939 9,365,676 9,223,098 10,283,481 10,073,248 21,554,696 22,244,661 21,357,271 22,418,287 8,204,928 7,989,339 7,888,192 7,711,334 Total governmental activities expenses 178,061,248 186,317,492 188,992,289 207,481,721 18,358,646 20,208,300 22,037,284 21,175,954 3,360,418 3,462,165 3,368,656 3,452,398 Total business-type activities expenses 21,719,064 23,670,465 25,405,940 24,628,352 Total primary government expenses 199,780,312 209,987,957 214,398,229 232,110,073 General government 2,593,741 2,759,306 3,046,232 3,647,210 Public safety 16,240,135 16,008,421 19,124,113 19,386,017 Public works 4,576,208 5,019,835 5,517,103 5,276,991 Community development 6,202,080 7,057,010 8,043,390 8,608,645 Community services 14,119,869 13,176,050 13,270,316 13,667,775 Operating grants and contributions:11,418,147 11,290,989 15,196,696 10,673,286 Capital grants and contributions:14,838,783 25,613,846 1 563,786 38,157,665 2 69,988,962 80,925,457 64,761,636 99,417,589 Water 23,877,685 26,795,767 29,397,882 27,705,129 Wastewater 3,382,905 3,450,638 3,438,670 3,326,362 27,260,590 30,246,405 32,836,552 31,031,491 97,249,552 111,171,862 97,598,188 130,449,080 (108,072,286) (105,392,035) (124,230,653) (108,064,132) 5,541,526 6,575,940 7,430,612 6,403,139 (102,530,760)$ (98,816,095)$ (116,800,041)$ (101,660,993)$ General revenues and other changes in net position: Property tax 71,546,249$ 81,603,194$ 79,889,346$ 84,121,461$ Sales tax 20,107,597 20,764,204 23,142,065 24,832,412 Sales tax in-lieu 6,523,492 7,078,517 7,727,876 8,046,424 Transient occupancy tax 14,798,191 16,500,285 18,176,369 20,369,158 Business license tax 4,073,725 4,145,666 4,156,130 4,141,282 Franchise tax 3,845,901 3,820,723 3,998,943 4,189,130 Motor vehicle license fees 42,911 - - - Other taxes 278,521 286,880 216,604 354,919 Investment income 405,674 219,091 542,915 437,272 Net increase (decrease) in fair value of investments 246,119 - 53,783 61,337 Other 2,789,471 2,748,524 3,803,728 3,161,567 Change in accounting estimates 8,484,000 - - - Capital contributions 7,352 319,884 - - Transfers - - - - 133,149,203 137,486,968 141,707,759 149,714,962 Investment income 49,718 22,442 128,439 123,445 Net increase (decrease) in fair value of investments 67,696 - 18,199 34,921 Other - - - - Capital contributions (7,352) (319,884) - - Transfers - - - - 110,062 (297,442) 146,638 158,366 133,259,265 137,189,526 141,854,397 149,873,328 25,076,917 32,094,933 17,477,106 41,650,830 5,651,588 6,278,498 7,577,250 6,561,505 30,728,505$ 38,373,431$ 25,054,356$ 48,212,335$ 1 2013 data varies from trend because of increased capital assets related to contribution from State of California. 2 Data varies from trend because of one-time receipt of developer contributions. CITY OF NEWPORT BEACH Changes in Net Position Last Ten Fiscal Years Interest on long-term debt (accrual basis of accounting) Fiscal Year Expenses: Governmental activities: General government Public safety Public works Community development Community services Total governmental activities program revenues Business-type activities: Charges for services: Total business-type activities program revenues Business-type activities: Water Wastewater Program revenues: Governmental activities: Charges for services: Total primary government program revenues Net revenues (expenses): Governmental activities Business-type activities Total net revenues (expenses) Changes in net position Governmental activities Business-type activities Total primary government Governmental activities: Taxes: Total governmental activities Business-type activities: Total business-type activities Total primary government 214 248 2016 2017 2018 2019 2020 2021 19,335,275$ 20,443,569$ 19,011,099$ 20,549,224$ 20,714,050$ 20,177,482$ 91,046,455 102,494,314 107,647,562 111,556,065 119,194,302 119,184,958 45,443,988 54,039,601 47,615,000 53,339,878 60,054,860 63,689,155 9,943,868 12,056,086 12,377,394 11,493,204 12,842,020 12,157,226 22,700,052 26,583,440 27,307,115 27,758,097 26,668,079 28,214,205 7,615,094 7,472,188 7,381,743 7,187,971 7,064,521 7,321,612 196,084,732 223,089,198 221,339,913 231,884,439 246,537,832 250,744,638 21,605,197 22,004,013 23,724,918 26,898,075 27,387,120 28,943,243 3,818,165 4,218,926 4,158,155 4,222,228 4,291,755 5,223,245 25,423,362 26,222,939 27,883,073 31,120,303 31,678,875 34,166,488 221,508,094 249,312,137 249,222,986 263,004,742 278,216,707 284,911,126 3,722,557 5,089,123 5,355,887 5,887,265 3,846,962 2,914,007 19,108,222 19,899,242 20,733,883 21,979,376 22,232,248 22,038,904 5,319,510 5,214,426 5,789,579 5,778,441 5,054,694 5,067,478 8,419,588 10,838,114 9,956,226 9,902,445 9,599,848 10,491,970 13,964,018 13,653,466 13,974,329 13,556,360 16,936,285 17,601,288 17,826,914 11,632,188 11,943,941 14,021,506 14,659,016 20,361,620 2,717,504 27,993,317 2 1,815,464 6,638,356 7,352,407 7,658,387 71,078,313 94,319,876 69,569,309 77,763,749 79,681,460 86,133,654 24,499,952 25,371,307 26,931,193 26,843,751 27,100,429 30,739,726 3,065,762 3,161,114 3,445,772 4,069,265 4,110,815 4,618,186 27,565,714 28,532,421 30,376,965 30,913,016 31,211,244 35,357,912 98,644,027 122,852,297 99,946,274 108,676,765 110,892,704 121,491,566 (125,006,419) (128,769,322) (151,770,604) (154,120,690) (166,856,372) (164,610,984) 2,142,352 2,309,482 2,493,892 (207,287) (467,631) 1,191,424 (122,864,067)$ (126,459,840)$ (149,276,712)$ (154,327,977)$ (167,324,003)$ (163,419,560)$ 91,516,611$ 96,964,060$ 101,593,290$ 108,365,261$ 113,313,535$ 119,157,057$ 33,937,986 33,702,895 36,373,253 37,168,063 36,232,969 38,956,275 2,870,474 - - - - - 21,083,199 22,382,361 22,857,737 24,697,446 21,097,384 16,886,197 4,024,386 4,149,016 4,282,935 4,428,440 4,882,419 4,481,349 4,047,584 4,026,005 4,228,469 4,286,496 4,394,156 4,204,224 - - - - - - 327,009 358,209 3,346,987 2,633,720 2,592,369 4,166,549 584,259 589,001 632,808 2,644,319 2,621,488 2,603,982 376,311 - - 2,234,249 2,520,033 (2,086,189) 4,001,486 2,290,482 3,416,348 3,495,085 2,116,884 3,354,808 - - - - - - - - - - - - - (3,500,000) - - - - 162,769,305 160,962,029 176,731,827 189,953,079 189,771,237 191,724,252 216,576 77,752 184,906 713,970 732,099 525,295 148,527 - - 612,358 625,864 (469,799) 2,375,000 - - - - - 22,516 - - - - - - 3,500,000 - - - - 2,762,619 3,577,752 184,906 1,326,328 1,357,963 55,496 165,531,924 164,539,781 176,916,733 191,279,407 191,129,200 191,779,748 37,762,886 32,192,707 24,961,223 35,832,389 22,914,865 27,113,268 4,904,971 5,887,234 2,678,798 1,119,041 890,332 1,246,920 42,667,857$ 38,079,941$ 27,640,021$ 36,951,430$ 23,805,197$ 28,360,188$ CITY OF NEWPORT BEACH Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 215 249 2012 2013 2014 2015 General fund: Nonspendable 7,854,478$ 9,919,486$ 16,316,499$ 15,784,396$ Restricted 2,263,049 2,410,373 3,939,751 5,389,810 Committed 29,673,333 29,371,507 12,782,235 1 11,847,852 Assigned 19,431,475 6,843,417 1,326,170 1,421,225 Unassigned 20,570,023 32,585,375 51,015,820 1 55,509,258 Total general fund 79,792,358$ 81,130,158$ 85,380,475$ 89,952,541$ All other governmental funds: Nonspendable 5,396,436$ 4,697,220$ 4,629,781$ 4,669,269$ Restricted 30,957,184 27,433,342 33,243,790 29,842,384 Committed 70,500,156 33,961,163 19,513,389 26,159,261 Assigned - - - - Unassigned (11,339,671) (15,723,261) (14,291,969) (12,495,729) Total all other governmental funds 95,514,105$ 50,368,464$ 43,094,991$ 48,175,185$ Total all governmental funds 175,306,463$ 131,498,622$ 128,475,466$ 138,127,726$ 1 2 3 Data varies from trend due to the moving of general fund capital projects to a separate capital project fund. Data varies from trend due to additional funds set aside for seawall construction and pension related items. Data varies from trend due to the reclassification of the contingency reserve from committed fund balance to unassigned fund balance per council approval. CITY OF NEWPORT BEACH Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 216 250 2016 2017 2018 2019 2020 2021 15,210,896$ 14,434,017$ 14,050,930$ 13,147,221$ 11,864,115$ 10,637,097$ 3,083,133 3,797,009 4,412,302 4,757,437 5,710,434 4,876,025 2,726,020 2 10,570,638 3 13,444,487 13,335,675 2,210,811 3,235,746 4,201,311 567,132 590,368 1,199,682 2,598,828 1,489,350 56,618,041 60,009,244 61,415,049 64,146,123 76,699,284 85,715,180 81,839,401$ 2 89,378,040$ 3 93,913,136$ 96,586,138$ 99,083,472$ 105,953,398$ 4,629,781$ 4,666,256$ 4,787,243$ 4,715,545$ 4,646,529$ 4,707,330$ 33,662,859 31,950,139 38,629,419 45,958,167 53,310,518 63,914,627 40,248,977 49,510,047 41,731,742 40,732,124 48,032,259 47,863,154 - - - - - - (15,422,984) (6,308,331) (376,162) (253) (50,137) (136,299) 63,118,633$ 79,818,111$ 84,772,242$ 91,405,583$ 105,939,169$ 116,348,812$ 144,958,034$ 169,196,151$ 178,685,378$ 187,991,721$ 205,022,641$ 222,302,210$ CITY OF NEWPORT BEACH Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year $- $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Fund Balances Total General Fund Total all other Governmental Funds 217 251 2012 2013 2014 2015 Revenues: Taxes 121,710,955$ 134,733,550$ 137,910,879$ 146,664,903$ Intergovernmental 12,122,963 11,393,589 16,825,839 11,813,208 Licenses, permits and fees 6,691,125 7,682,555 6,659,203 14,676,754 Charges for services 16,020,825 16,254,399 16,864,092 16,914,210 Fines and forfeitures 3,795,787 3,649,532 3,272,951 3,732,405 Investment income 1,142,935 372,514 1,136,062 928,729 Net increase (decrease) in fair value of investments 704,656 - 124,439 177,485 Property income 17,458,143 19,847,371 22,214,256 21,406,667 Donations 13,977,850 587,445 1,170,171 22,249,427 Other 691,125 3,543,894 1,400,048 6,984,418 Total revenues 194,316,364 198,064,849 207,577,940 245,548,206 Expenditures: Current: General government 12,896,492 13,671,480 14,471,167 14,060,512 Public safety 75,377,871 80,546,969 82,642,988 94,568,122 Public works 32,399,178 32,451,624 32,414,457 33,694,578 Community development 8,939,825 8,994,710 9,768,928 9,876,706 Community services 19,296,505 18,872,022 19,047,813 20,235,546 Capital outlay 80,617,948 72,133,582 33,572,193 47,169,671 Debt service: Principal 4,529,854 3,998,000 4,091,000 4,183,000 Interest and fiscal charges 8,320,500 8,152,488 8,052,927 7,957,811 Total expenditures 242,378,173 238,820,875 204,061,473 231,745,946 (48,061,809)(40,756,026)3,516,467 13,802,260 Other financing sources (uses): Transfers in 24,640,318 47,875,107 41,223,727 53,281,956 Transfers out (24,953,767)(50,926,922)(47,245,283)(57,431,956) Proceeds from sale - - - - Certificates of participation issued - - - - Premium on certificates of participation issued - - - - Proceeds from loan issuance - - - 1,339,000 Payment to refunded loan escrow agent - - - (1,339,000) (313,449)(3,051,815)(6,021,556)(4,150,000) Net change in fund balances (48,375,258)$ (43,807,841)$ (2,505,089)$ 9,652,260$ Debt service as a percentage of 8.3%15.8%6.9%6.6% CITY OF NEWPORT BEACH Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) noncapital expenditures Excess (deficiency) of revenues over (under) expenditures Total other financing sources (uses) Fiscal Year 218 252 2016 2017 2018 2019 2020 2021 158,386,385$ 162,184,218$ 171,982,240$ 183,455,182$ 182,983,069$ 188,351,057$ 17,262,147 17,073,653 16,148,754 15,818,543 12,672,931 22,233,872 6,571,123 9,844,908 6,405,668 6,302,603 5,783,862 6,566,555 18,827,991 19,197,065 19,828,786 19,472,866 21,125,622 18,434,439 3,684,602 3,590,700 3,181,823 3,347,714 3,509,883 3,923,726 1,157,539 772,546 1,143,210 3,490,992 3,765,753 3,201,376 769,460 - - 2,938,136 3,477,299 (2,634,682) 22,259,425 23,553,188 25,430,217 26,674,107 25,651,360 28,842,374 4,190,822 16,827,889 414,123 402,709 795,561 5,491,871 2,982,924 2,277,322 2,893,770 5,173,716 5,950,279 3,504,103 236,092,418 255,321,489 247,428,591 267,076,568 265,715,619 277,914,691 14,629,672 15,086,397 16,099,310 16,769,920 15,968,085 17,154,507 96,225,784 98,750,981 109,760,129 116,054,531 118,290,847 126,006,313 36,000,905 35,961,024 38,012,230 44,132,877 45,730,965 46,817,293 10,913,205 11,696,779 12,979,656 12,310,621 12,612,751 12,996,840 21,784,680 23,607,284 25,538,966 26,372,495 24,474,242 26,745,189 31,934,463 30,822,972 24,054,866 26,347,312 20,376,106 33,728,085 4,272,000 4,401,000 3,335,000 3,470,000 3,576,000 3,247,000 7,839,341 7,704,957 7,617,107 7,428,469 7,265,703 7,306,143 223,600,050 228,031,394 237,397,264 252,886,225 248,294,699 274,001,370 12,492,368 27,290,095 10,031,327 14,190,343 17,420,920 3,913,321 48,523,132 45,342,446 45,308,862 54,664,532 40,373,981 70,379,824 (54,185,192)(49,390,226)(45,850,962)(59,548,532)(40,763,981)(65,965,012) - 995,802 - - - - - - - - - 7,860,000 - - - - - 1,373,936 - - - - - - - - - - - - (5,662,060)(3,051,978)(542,100)(4,884,000)(390,000)13,648,748 6,830,308$ 24,238,117$ 9,489,227$ 9,306,343$ 17,030,920$ 17,562,069$ 7.2%6.0%5.3%4.8%4.8%4.2% CITY OF NEWPORT BEACH Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 219 253 This page left blank intentionally. 220 254 REVENUE CAPACITY This section of the City of Newport Beach’s Annual Comprehensive Financial Report (ACFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. The statistical information presented herein is un-audited. The following schedules present factors affecting the City’s ability to generate its own revenue and its most significant local revenue source, the property tax: • Assessed Value and Estimated Actual Value of Taxable Property • Direct and Overlapping Property Tax Rates • Principal Property Tax Payers • Property Tax Levies and Collections Sources: Unless otherwise noted, the information in these schedules is derived from the Annual Comprehensive Financial Reports and underlying accounting records for the relevant years. 221 255 Fiscal Year Ended June 30 Residential Commercial Other Unsecured Total Taxable Assessed Value Change Total Direct Tax Rate 2012 31,603,505,416 4,504,291,343 1,442,600,505 1,565,104,496 39,115,501,760 0.94%1.000% 2013 32,522,843,119 4,627,463,458 1,435,546,888 1,597,277,039 40,183,130,504 2.73%1.000% 2014 34,678,952,381 4,688,189,694 1,489,111,147 1,484,909,241 42,341,162,463 5.37%1.000% 2015 36,814,891,583 5,007,508,388 1,348,136,131 1,581,520,801 44,752,056,903 5.69%1.000% 2016 39,263,791,190 5,264,898,550 1,394,764,145 1,465,016,213 47,388,470,098 5.89%1.000% 2017 41,834,060,284 5,539,551,197 1,398,481,252 1,569,593,832 50,341,686,565 6.23%1.000% 2018 44,862,969,434 5,953,148,011 1,499,414,812 1,464,683,763 53,780,216,020 6.83%1.000% 2019 48,246,937,786 6,466,645,074 1,474,416,367 1,513,162,553 57,701,161,781 7.29%1.000% 2020 50,791,887,238 6,807,750,346 1,552,189,492 1,592,979,478 60,744,806,554 5.27%1.000% 2021 53,636,707,086 6,979,031,018 1,428,005,141 1,645,923,436 63,689,666,681 4.85%1.000% NOTE: Source: HdL, Coren & Cone CITY OF NEWPORT BEACH Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years In 1978,the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed.Each year,the assessed value of property may be increased by an "inflation factor"(limited to a maximum increase of 2%).With few exceptions, property is only re-assessed as a result of new construction activity or at the time it is sold to a new owner.At that point,the property is reassessed based upon the added value of the construction or at the purchase price or economic value of the property sold.The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above. Secured 222 256 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1.000$ 1.000$ 1.000$ 1.000$ 1.000$ 1.000$ 1.000$ 1.000$ 1.000$ 1.000$ Total City Direct Rate 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Overlapping Rates: Water districts 0.081 0.081 0.081 0.047 0.047 0.047 0.047 0.047 0.032 0.047 0.155 0.165 0.170 0.182 0.183 0.173 0.176 0.161 0.173 0.186 Total Overlapping Rate 0.236 0.246 0.251 0.229 0.230 0.220 0.223 0.208 0.205 0.233 Total Direct & Overlapping Rate 1.236$ 1.246$ 1.251$ 1.229$ 1.230$ 1.220$ 1.223$ 1.208$ 1.205$ 1.233$ NOTE: Source: HdL, Coren & Cone CITY OF NEWPORT BEACH Direct and Overlapping Property Tax Rates (Rate per $100 of assessed value) Last Ten Fiscal Years In 1978, California voters passed Proposition 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of other debt obligations. School districts City Direct Rates: City basic rate Fiscal Year 223 257 Taxpayer Taxable Assessed Value Rank Percent of Total City Taxable Assessed Value Taxable Assessed Value Rank Percent of Total City Taxable Assessed Value The Irvine Company 1,183,524,147$ 1 1.86%1,869,769,413$ 1 4.78% PH Finance LLC 307,523,372 2 0.48%N/A -0.00% Villas at Fashion Island 273,018,084 3 0.43%N/A -0.00% HG Newport Owner LLC 183,630,600 4 0.29%N/A -0.00% 520 Newport Center Drive LLC 181,250,908 5 0.28%N/A -0.00% Newport Bluffs LLC 164,352,920 6 0.26%138,854,048 2 0.36% 650 Newport Center Drive LLC 164,191,333 7 0.26%N/A -0.00% Balboa Bay Club Ventures LLC 150,719,813 8 0.24%103,052,382 7 0.26% WJ Newport LLC 144,514,518 9 0.23%N/A -0.00% UDR Newport Beach North LP 140,860,998 10 0.22%118,405,791 3 0.30% 2,893,586,693$ 4.55%2,230,081,634$ 5.70% Source: HdL, Coren & Cone CITY OF NEWPORT BEACH Principal Property Taxpayers Current Year and Nine Years Ago 2021 2012 224 258 CITY OF NEWPORT BEACH Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year Ended June 30 Taxes Levied for the Fiscal Year Amount 1 Percent of Levy Collections in Subsequent Years 2 Amount Percent of Levy 2012 71,157,295 69,435,794 97.58%985,344 70,421,138 98.97% 2013 74,165,333 72,532,734 97.80%736,983 73,269,717 98.79% 2014 79,195,727 77,758,504 98.19%650,273 78,408,777 99.01% 2015 83,843,488 82,191,604 98.03%642,292 82,833,896 98.80% 2016 84,166,940 81,762,526 97.14%612,863 82,375,389 97.87% 2017 86,264,321 84,019,053 97.40%574,124 84,593,177 98.06% 2018 92,139,181 90,279,099 97.98%581,969 90,861,068 98.61% 2019 98,471,700 96,356,203 97.85%646,203 97,002,406 98.51% 2020 102,636,451 100,701,002 98.11%371,100 101,072,102 98.48% 2021 107,647,017 105,781,072 98.27%- 3 105,781,072 98.27% 1 2 3 Source: Orange County Auditor Controller's Office The total amount of Fiscal Year 2021 delinquent taxes collected in subsequent years was not available as of the date the information was collected for the City's Annual Comprehensive Financial Report. Collected within the Fiscal Year of Levy Total Collections to Date Exclusive of penalty charges. Net collections reflect deductions for refunds and impoundments. 225 259 This page left blank intentionally. 226 260 DEBT CAPACITY This section of the City of Newport Beach’s Annual Comprehensive Financial Report (ACFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. The statistical information presented herein is un-audited. The following schedules exhibit the City’s levels of outstanding debt over time, to help readers assess the affordability of the current level of outstanding debt, and the City’s ability to issue additional debt: • Ratios of Outstanding Debt by Type • Ratios of General Bonded Debt Outstanding • Direct and Overlapping Debt • Legal Debt Margin Information Sources: Unless otherwise noted, the information in these schedules is derived from the Annual Comprehensive Financial Reports and underlying accounting records for the relevant years. 227 261 Fiscal Year Ended June 30 Certificates of Participation 1 Note Payable Pre- Annexation Agreement CDBG Loan Capital Leases Purchase Agreement Payable 2012 125,884,424 - 6,000,000 1,686,000 - - 2013 123,073,871 - 4,800,000 1,578,000 - - 2014 120,178,318 - 3,600,000 1,462,000 - - 2015 117,197,765 - 2,400,000 1,339,000 - - 2016 114,137,212 - 1,200,000 1,207,000 - - 2017 110,956,659 - - 1,066,000 - - 2018 107,651,106 - - 916,000 - - 2019 104,220,553 - - 756,000 - - 2020 100,695,000 - - 585,000 - - 2021 106,781,026 - - 403,000 - - 1 2 These ratios are calculated using personal income and population for the prior calendar year. Amounts include any applicable bond premium. Governmental Activities Note: This schedule excludes claims and judgments, employee compensated absence,OPEB and Early Retirement Incentive Plan Liabilities.Details regarding the City's outstanding debt can be found in the notes to the financial statements. CITY OF NEWPORT BEACH Ratios of Outstanding Debt by Type Last Ten Fiscal Years 228 262 Total Governmental Activities Water Revenue Bonds Total Business- type Activities Total Primary Government Percentage of Personal Income 2 Debt Per Capita 2 133,570,424 - - 133,570,424 2.30%1,553 129,451,871 - - 129,451,871 1.85%1,498 125,240,318 - - 125,240,318 1.81%1,442 120,936,765 - - 120,936,765 1.77%1,386 116,544,212 - - 116,544,212 1.77%1,383 112,022,659 - - 112,022,659 1.66%1,319 108,567,106 - - 108,567,106 1.48%1,245 104,976,553 - - 104,976,553 1.36%1,204 101,280,000 - - 101,280,000 1.24%1,181 107,184,026 - - 107,184,026 1.31%1,248 Business-type Activities CITY OF NEWPORT BEACH Ratios of Outstanding Debt by Type Last Ten Fiscal Years 229 263 Fiscal Year Ended June 30 Certificates of Participation1 Amounts restricted for debt service Total Percent of Assessed Value2 General Bonded Debt Per Capita 2012 125,884,424 (2,532,561) 123,351,863 0.32%1,434 2013 123,073,871 (1,157,250) 121,916,621 0.30%1,410 2014 120,178,318 (2,352,746) 117,825,572 0.28%1,356 2015 117,197,765 (2,350,210) 114,847,555 0.26%1,316 2016 114,137,212 (2,362,904) 111,774,308 0.24%1,326 2017 110,956,659 (2,364,034) 108,592,625 0.22%1,279 2018 107,651,106 (2,384,338) 105,266,768 0.20%1,207 2019 104,220,553 (2,362,228) 101,858,325 0.18%1,168 2020 100,695,000 (1,159,389) 99,535,611 0.16%1,160 2021 106,781,026 (2,255,795) 104,525,231 0.16%1,217 1 2 Assessed value was used because the actual value of taxable property is not readily available in the State of California. CITY OF NEWPORT BEACH Ratios of General Bonded Debt Last Ten Fiscal Years Amounts include any applicable bond premium. 230 264 City Net Assessed Valuation:63,689,666,681$ Percentage Applicable (1)Outstanding Debt 6/30/21 Estimated Share of Overlapping Debt OVERLAPPING DEBT: Metropolitan Water District 1.951%26,830,000$ 523,453$ Coast Community College District 34.407%886,289,825 304,945,740 Rancho Santiago Community College District 2.900%215,876,119 6,260,407 Rancho Santiago Community College District School Facilities Improvement District No. 1 5.447%159,970,000 8,713,566 Laguna Beach Unified School District 15.038%15,920,000 2,394,050 Laguna Beach Unified School District Community Facilities District No. 98-1 100.000%7,460,000 7,460,000 Newport Mesa Unified School District 73.245%240,675,638 176,282,871 Newport Mesa Unified School District Community Facilities District No. 90-1 100.000%1,240,000 1,240,000 Santa Ana Unified School District 6.716%351,580,064 23,612,117 Irvine Ranch Water District Improvement Districts 2.875% - 100.000%435,837,400 50,459,189 100.000%21,165,000 21,165,000 100.000%8,300,000 8,300,000 City of Newport Beach 1915 Act Bonds 100.000%9,764,521 9,764,521 Orange County Newport Coast Assessment District No. 01-1 100.000%3,826,000 3,826,000 Orange County Newport Coast Reassessment District No. 17-1R 100.000%23,545,000 23,545,000 Orange County General Fund Obligations 9.716%381,885,000 37,103,947 Orange County Pension Obligation Bonds 9.716%485,318,204 47,153,517 Orange County Board of Education General Fund Obligations 9.716%12,310,000 1,196,040 Coast Community College District General Fund Obligations 34.407%2,240,000 770,717 Coast Community College District Pension Obligation Bonds 34.407%2,280,000 784,480 Santa Ana Unified School District General Fund Obligations 6.716%58,729,304 3,944,260 Overlapping Tax Increment Debt (Successor Agencies):3.718% - 71.387%8,850,000 4,592,190 TOTAL OVERLAPPING DEBT 3,359,892,075$ 744,037,065$ DIRECT DEBT: City of Newport Beach Certificates of Participation 100.000%106,781,026$ 106,781,026$ Community Development Block Grant Loan 100.000%403,000 403,000 TOTAL DIRECT DEBT 107,184,026$ 107,184,026$ TOTAL DIRECT AND OVERLAPPING DEBT 851,221,091$ GROSS COMBINED TOTAL DEBT (2)851,221,091$ 1 2 Ratios to 2020-21 Net Assessed Valuation: Total Overlapping Debt 1.17% Total Direct Debt ($107,184,026)0.17% Gross Combined Total Debt 1.34% Ratios to Redevelopment Incremental Valuation ($1,409,620,816) Total Overlapping Tax Increment Debt 0.33% Source: California Municipal Statistics, Inc. The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the district's total taxable assessed value. Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. CITY OF NEWPORT BEACH Direct and Overlapping Debt June 30, 2021 Bonita Canyon Public Facilities Financing Authority Community Facilities District No. 98-1 California Statewide Communities Development Authority Community Facilities District No. 2018-3 231 265 2012 2013 2014 2015 39,115,501,760$ 40,183,130,504$ 42,341,162,463$ 44,752,056,903$ 25%25%25%25% 9,778,875,440 10,045,782,626 10,585,290,616 11,188,014,226 15%15%15%15% 1,466,831,316 1,506,867,394 1,587,793,592 1,678,202,134 General obligation bonds - - - - 1,466,831,316$ 1,506,867,394$ 1,587,793,592$ 1,678,202,134$ as a percentage of debt limit 0.0%0.0%0.0%0.0% NOTE: Source: City Finance Department CITY OF NEWPORT BEACH Legal Debt Margin Information Last Ten Fiscal Years Assessed valuation Conversion percentage Adjusted assessed valuation Debt limit Fiscal Year Total net debt applicable to limit: Legal debt margin Total debt applicable to the limit Debt limit percentage The State of California Government Code Section 43605 provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981-82 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time that the legal debt margin was enacted by the State of California for local governments located within the state. 232 266 2016 2017 2018 2019 2020 2021 47,388,470,098$ 50,341,686,565$ 53,780,216,020$ 57,701,161,781$ 60,744,806,554$ 63,689,666,681$ 25%25%25%25%25%25% 11,847,117,525 12,585,421,641 13,445,054,005 14,425,290,445 15,186,201,639 15,922,416,670 15%15%15%15%15%15% 1,777,067,629 1,887,813,246 2,016,758,101 2,163,793,567 2,277,930,246 2,388,362,501 - - - - - - 1,777,067,629$ 1,887,813,246$ 2,016,758,101$ 2,163,793,567$ 2,277,930,246$ 2,388,362,501$ 0.0%0.0%0.0%0.0%0.0%0.0% Fiscal Year CITY OF NEWPORT BEACH Legal Debt Margin Information Last Ten Fiscal Years 233 267 This page left blank intentionally. 234 268 DEMOGRAPHIC AND ECONOMIC INFORMATION This section of the City of Newport Beach’s Annual Comprehensive Financial Report (ACFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. The statistical information presented herein is un-audited. The following schedules depict demographic and economic indicators to assist the reader in understanding the socio-economic, environment in which the City’s financial activities take place: • Demographic and Economic Statistics • Principal Employers Sources: Unless otherwise noted, the information in these schedules is derived from the Annual Comprehensive Financial Reports and underlying accounting records for the relevant years. 235 269 Fiscal Year Population1 Personal Income (in thousands) Per Capita Income(2) Unemployment Rate2(3) 2012 85,990 5,809,828 67,564 5.1% 2013 86,436 6,995,784 80,936 4.2% 2014 86,874 6,926,725 79,733 3.6% 2015 87,249 6,848,523 78,494 4.0% 2016 84,270 6,574,071 78,012 3.4% 2017 84,915 6,736,392 79,331 3.1% 2018 87,182 7,334,970 84,134 2.9% 2019 87,180 7,704,445 88,374 2.6% 2020 85,780 8,183,755 95,404 4.6% 2021 85,865 8,175,464 95,213 (4)6.0% 1 2 Sources: CITY OF NEWPORT BEACH Demographic and Economic Statistics Last Ten Fiscal Years (4) HdL, Coren & Cone (2) U.S. Census Bureau - American Community Survey 1-Year Estimates (3) State of California, Employment Development Department (1) California State Department of Finance, E-4 Population Estimates for Cities, Counties and State 2008-2010; and, E-1 Population Estimates for Cities, Counties and State January 1, 2015 - 2021. Population estimates are as of January 1 of the year shown and do not reflect revised estimates made available after the date the information was collected for the City's Annual Comprehensive Financial Report. Unemployment rate represents an average of all monthly unemployment rates within a fiscal year. 236 270 Employer Number of Employees Rank Percent of Total Employment Number of Employees Rank Percent of Total Employment Hoag Memorial Hospital 5,292 1 6.43%3,987 1 4.89% PIMCO Advisors 1,258 2 1.53%1,103 2 1.35% Pacific Life Insurance 1,250 3 1.52%1,013 4 1.24% Glidewell Dental 1,008 4 1.23%1,100 3 1.35% Irvine Management Company 895 5 1.09%N/A 2 -N/A Tower Semiconductor 868 6 1.05%690 8 0.85% Resort at Pelican Hill 798 7 0.97%750 7 0.92% Newport-Mesa Unified School District 780 8 0.95%791 5 0.97% City of Newport Beach 728 9 0.88%763 6 0.93% Fletcher Jones Motor Cars Inc.465 10 0.57%458 11 0.56% Balboa Bay Club and Resort 427 11 0.52%463 10 0.57% Marriott Newport Coast Villas 371 12 0.45%N/A 2 -N/A 1 2 Source: Data obtained from companies listed and compiled by City Finance Department. Figures reflect number of employees of employer at the time the information was collected. Company listed was unable to provide employee data for 2012. CITY OF NEWPORT BEACH Principal Employers1 Current Year and 9 years ago 2021 2012 237 271 This page left blank intentionally. 238 272 OPERATING INFORMATION This section of the City of Newport Beach’s Annual Comprehensive Financial Report (ACFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. The statistical information presented herein is un-audited. The following schedules present information on the City’s operations and resources including service and infrastructure data to facilitate the readers’ understanding of how financial statement information relates to the services the City provides and the activities it performs: • Full Time City Employees by Functions • Operating Indicators by Function • Capital Asset Statistics by Function • Water Sold by Customer Type • Utility Rates • Major Water Customers Sources: Unless otherwise noted, the information in these schedules is derived from the Annual Comprehensive Financial Reports and underlying accounting records for the relevant years. 239 273 This page left blank intentionally. 240 274 Function 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 General government 95 94 79 78 77 77 79 80 78 80 Public safety 359 357 366 370 374 371 372 375 375 376 Community development 58 56 53 52 52 52 53 53 53 52 Public works 130 128 119 109 104 99 98 96 99 98 Community services 68 70 74 75 79 81 79 78 78 78 Water 38 32 32 31 32 31 33 33 33 33 Wastewater 15 15 13 13 12 13 11 11 11 11 Total 763 752 736 728 730 724 725 726 727 728 Source: City Finance Department CITY OF NEWPORT BEACH Full-time City Employees by Function Last Ten Fiscal Years 241 275 2012 2013 2014 2015 Police: 2,982 3,161 2,794 3,472 55,418 58,823 51,609 59,753 Fire: 201 342 356 305 4,315 4,338 3,352 1,281 General Services: 2,246 1,708 2,408 2,711 34,000 37,607 37,607 27,175 Recreation & Senior Services: 257,322 293,938 294,000 303,152 15,264 13,112 13,956 13,740 Water: 35 54 72 187 15.15 14.02 15.96 16.39 Sewer: 15 14 22 20 248 215 245 260 Library Services: 1,582,953 1,582,914 1,689,870 1,610,818 1 2 Source: City of Newport Beach Fiscal Year CITY OF NEWPORT BEACH Operating Indicators by Function Last Ten Fiscal Years Data varies with trend due to COVID-19 restrictions in 2021. Fire Inspections Adult Arrests Parking Citations Issued Fire Responses New Connections Miles of Pipe Cleaned Library Circulation of Materials Street Patching (tons of mix) Sidewalk Repair (square feet) Co-Sponsored Youth Organization Attendance Senior Transportation Services New Connections Average Daily Consumption (hundred cubic feet) Data varies with trend due to inclusion of responses to fires, hazardous materials, medical and other emergencies. 242 276 2016 2017 2018 2019 2020 2021 3,158 3,178 3,266 3,520 3,093 2,872 64,762 69,246 56,685 67,048 73,372 86,439 300 247 248 209 11,913 1 12,204 1,201 1,216 1,307 1,033 2,842 475 2 1,890 1,439 1,403 1,402 913 920 27,000 20,490 22,925 14,840 11,729 7,805 305,000 425,000 437,751 469,959 439,954 455,442 14,000 13,500 13,071 13,386 9,300 6,287 194 229 210 210 256 160 11.66 13.80 14.07 13.75 13.44 14.87 17 41 137 46 10 25 250 202 211 196 221 240 1,575,000 1,464,640 1,424,594 1,376,041 1,084,206 1,043,629 Fiscal Year CITY OF NEWPORT BEACH Operating Indicators by Function Last Ten Fiscal Years 243 277 2012 2013 2014 2015 Police: Stations 1 1 1 1 Fire: Fire Stations 8 8 8 8 Lifeguard Headquarters 1 1 1 1 Public works: Streets (miles)395 395 395 395 Streetlights 5,977 5,977 5,977 5,977 Traffic Signals 808 808 808 808 Recreation & Senior Services: Parks 63 64 64 64 Community Centers (includes leased property)14 14 14 14 Aquatic Center 1 1 1 1 Water: Water Mains (miles)303.25 303.25 298.37 299.58 Maximum Daily Capacity (thousands of gallons)27,508 26,916 27,704 27,800 Wastewater: Sanitary Sewers (miles)202.40 202.40 202.62 202.64 Storm Sewers (miles)95.40 95.40 70.62 94.14 Library Services: Libraries 4 4 4 4 Source: City of Newport Beach CITY OF NEWPORT BEACH Capital Asset Statistics by Function Last Ten Fiscal Years Fiscal Year 244 278 2016 2017 2018 2019 2020 2021 1 1 1 1 1 1 8 8 8 8 8 8 1 1 1 1 1 1 399 400 400 400 400 400 5,978 5,978 5,978 5,971 5,972 5,973 808 808 808 808 808 808 64 64 64 65 65 65 15 15 15 15 15 15 1 1 1 1 1 1 299.77 300.64 300.30 300.88 300.82 301.23 27,800 27,800 27,800 27,800 27,800 27,800 202.75 202.72 203.56 203.99 204.10 204.13 92.08 94.74 95.12 95.35 95.89 96.18 4 4 4 4 4 4 Fiscal Year CITY OF NEWPORT BEACH Capital Asset Statistics by Function Last Ten Fiscal Years 245 279 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Type of Customer: Residential 4,001,344 3,890,973 3,902,007 3,853,566 3,072,589 3,564,203 3,603,927 3,439,655 3,747,408 3,811,231 Commercial 2,369,492 2,389,822 2,525,169 2,560,620 1,847,372 2,142,952 2,201,254 2,075,812 2,081,860 2,231,809 Government 374,091 394,787 455,251 396,605 263,116 305,214 289,738 256,398 270,638 299,442 Total 6,744,927 6,675,582 6,882,427 6,810,791 5,183,077 6,012,369 6,094,919 5,771,865 6,099,906 6,342,482 Total direct rate per 100 cubic ft.2.73$ 2.96$ 3.08$ 3.08$ 3.08$ 3.08$ 3.08$ 3.08$ 3.11$ 1 3.35$ 2 1 Reflects increase in commodity rate effective January 1, 2020 2 Reflects increase in commodity rate effective January 1, 2021 Source: City Utilities Department Fiscal Year CITY OF NEWPORT BEACH Water Sold by Type of Customer Last Ten Fiscal Years (in hundred cubic feet) 246 280 Fiscal Year Ended June 30 Monthly Base Rate Rate per 100 cubic ft 2012 19.61 3.08 2013 21.13 3.31 2014 21.77 3.43 2015 21.77 3.43 2016 21.77 3.43 2017 21.77 3.43 2018 23.73 3.46 2019 24.34 3.50 2020 28.09 3.57 2021 30.25 3.85 1 Source: City Revenue Division CITY OF NEWPORT BEACH Utility Rates1 Last Ten Fiscal Years Rates are based on 5/8" or 3/4" meter, which are the standard household meter sizes.Rates include sewer service. The City charges an excess-use rate above normal demand. 247 281 Water Customer Water Charges Rank Percent of Total Water Revenues Water Charges Rank Percent of Total Water Revenues Irvine Company Apartment 676,580$ 1 2.20%161,752$ 2 0.68% Irvine Company Office 623,020 2 2.02%150,563 4 0.63% Big Canyon Country Club 366,871 3 1.19%155,940 3 0.65% Newport Beach Country Club 358,526 4 1.16%122,674 5 0.51% Bluffs Homeowners Association 344,392 5 1.12%74,528 9 0.31% Hoag Memorial Hospital 342,220 6 1.11%174,311 1 0.73% UDR Newport Beach 259,914 7 0.84%85,736 6 0.36% Park Newport Ltd 246,218 8 0.80%82,656 7 0.35% Newport-Mesa Unified School District 231,845 9 0.75%75,353 8 0.31% Pacific View - Pierce Bros.216,726 10 0.70%54,657 10 0.23% Irvine Company Retail 211,309 11 0.69%51,008 11 0.21% Newport Dunes Resort 156,282 12 0.51%38,096 13 0.16% Jasmine Creek Community Association 135,509 13 0.44%30,619 20 0.13% Villa Balboa Community Association 125,475 14 0.41%30,956 18 0.13% One Ford Road Community Association 122,102 15 0.40%24,030 26 0.10% 4,416,989$ 14.34%1,312,879$ 5.49% Source: City Revenue Division CITY OF NEWPORT BEACH Major Water Customers Current Year and Nine Years Ago 2021 2012 248 282 283 City of Newport Beach 100 Civic Center Drive Newport Beach, CA 92660 (949)644-3123 www.newportbeachca.gov/acfr 284 ATTACHMENT B AUDITOR’S REQUIRED COMMUNICATIONS WITH THE AUDIT COMMITTEE 285 1 REQUIRED AUDIT COMMUNICATIONS The Honorable Mayor and Members of the City Council City of Newport Beach Newport Beach, California We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Newport Beach (City) for the year ended June 30, 2021. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards Government Auditing Standards and the Uniform Guidance, as well as certain information related to the planned scope and timing of our audit. We have communicated such information during the Finance Committee meeting of May 27, 2021. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. During the year, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 84 related to the Fiduciary Funds. The cumulative effect of the implementation of GASB Statement No. 84 as of the beginning of the year is described further in Notes 1 and 18 to the financial statements. The City also implemented GASB Statement No. 98 to replace the term and acronym for Comprehensive Annual Financial Report with Annual Comprehensive Financial Report (ACFR). We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the City’s financial statements were: • Judgments involving the calculation of the pension liability. • Judgments involving the calculation of the other post-employment benefit (OPEB) liability. • Judgments involving estimates of the claims payable liabilities related to general liability and workers’ compensation claims. 286 The Honorable Mayor and Members of the City Council City of Newport Beach Newport Beach, California 2 Management’s estimate of the pension liability, OPEB liability and claims payable liabilities are based on actuarial valuation reports. We evaluated the key factors and assumptions used to develop the pension liability, OPEB liability and claims payable liabilities in determining that it is reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were: • Disclosures of the net pension liability and related amounts • Disclosures of the net OPEB liability and related amounts The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, which could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated December 23, 2021. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. 287 The Honorable Mayor and Members of the City Council City of Newport Beach Newport Beach, California 3 Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to management’s discussion and analysis, budgetary comparison information for the General Fund and each major special revenue fund, Schedule of Changes in the Net Pension Liability and Related Ratios – Miscellaneous Plan, Schedule of Contributions – Miscellaneous Plan, Schedule of Changes in the Net Pension Liability and Related Ratios – Safety Plan, Schedule of Contributions – Safety Plan, Schedule of Changes in the Net OPEB Liability and Related Ratios, Schedule of Contributions - OPEB, which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on combining and individual nonmajor fund financial statements, which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory section and the statistical section, which accompany the financial statements but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Restriction on Use This information is intended solely for the information and use of City Council and management of the City and is not intended to be, and should not be, used by anyone other than these specified parties. Irvine, California December 23, 2021 288 ATTACHMENT C AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS 289 1 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards The Honorable Mayor and Members of the City Council City of Newport Beach Newport Beach, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Newport Beach (“City”), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated December 23, 2021. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 290 The Honorable Mayor and Members of the City Council City of Newport Beach Newport Beach, California 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California December 23, 2021 291 01/13/2022 1 Presentation of Results of Audits January 13, 2022 2 Scope of Audit Management Responsibilities Auditor Responsibilities Results of Audit 1 2 292 01/13/2022 2 3 Annual financial audit of the City Single Audit of Federal financial assistance Agreed-upon procedures applied to Gann limit 4 Preparation and fair presentation of financial statements, including notes Prepared in accordance with generally accepted accounting principles Design, implement and maintain a system of internal control Financial statements free from material misstatement, whether due to fraud or error 3 4 293 01/13/2022 3 5 Express opinion on financial statements Conduct audit in accordance with generally accepted auditing standards and Government Auditing Standards Plan and perform audit to obtain reasonable, not absolute assurance, that financial statements are free from material misstatement Procedures performed based on auditor’s judgment 6 Initial communication to Finance Committee at 5/27/21 meeting Timing Interim – July 2021 Final – October through December 2021 Unmodified opinion issued 5 6 294 01/13/2022 4 7 Assets increased $37.8 million Deferred Outflows increased $4.8 million Liabilities increased $19.6 million Deferred Inflows decreased $5.4 million Net position increased $28.4 million Revenues increased $11.2 million Expenses increased $6.7 million 8 Implemented GASB 84 – fiduciary activities Implemented GASB 98 – term and acronym for financial statements Estimates in preparing statements Pension liability, OPEB liability and claims payable All found to be reasonable and have a sound basis 7 8 295 01/13/2022 5 9 1 best practice recommendation offered 2 immaterial audit adjustments No disagreements with management Management provided representations to us at the end of the audit No consultations with other accountants We remain available as a resource throughout the year Questions January 13, 2022 9 10 296 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5B January 13, 2022 TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Scott Catlett, Finance Director/Treasurer 949-644-3123, scatlett@newportbeachca.gov SUBJECT: INTERNAL AUDIT PROGRAM REPORTS SUMMARY: In the spirit of continuous improvement and with support and direction from the City Manager’s Office, the Finance Department was charged with developing an ongoing comprehensive internal audit program. Audit firm Moss Adams previously prepared a recommended internal audit program for Fiscal Year 2020-21 that focused on addressing priorities identified as part of the City’s risk assessment and internal controls review. This report summarizes the internal audit activities and recommended improvement opportunities for three of the five internal control areas of focus recommended for Fiscal Year 2020-21. The final two reports for the Fiscal Year 2020-21 program are nearing completion, and staff anticipates presenting these reports to the Finance Committee in February. RECOMMENDED ACTION: Review and discuss the reports and provide recommendations for City Manager consideration. DISCUSSION: Background While the City has managed a great many financial statement and compliance audits over the years, the City has not historically had a robust internal audit program. The current program was initiated in 2020 with an enterprise risk assessment and initial evaluation of internal control risks. These processes served as the primary building blocks to inform and develop a work plan to further assess and test internal controls, conduct performance audits, and provide management consulting services when appropriate. From this work plan, an internal audit program was developed for Fiscal Year 2020-21, and the remaining 297 Internal Audit Program Reports January 13, 2022 Page 2 components of the work plan that were not undertaken during Fiscal Year 2020-21 will be reviewed in future fiscal years. Current Progress Of the work plan components identified by Moss Adams, the Fiscal Year 2020-21 Internal Audit Program included the focus areas summarized in the table below, three of which (Nos. 1,4, and 5) have been recently completed, with assessments of areas 1 and 4 completed by audit firms Moss Adams and Macias Gini & O’Connell LLP (MGO), respectively, and an assessment of area 5 completed by the Assistant City Manager. Assessments of the remaining two focus areas are expected to be completed in January 2022, with the final summary reports anticipated to be presented to the Finance Committee in February 2022. No. Key Controls Progress Task Resource 1 Procurement Operational Review and Internal Controls Testing Complete MGO 2 Cash Handling Internal Controls Testing Expected January 2022 Moss Adams 3 Information Technology Operational Review and Internal Controls Testing Expected January 2022 Moss Adams 4 Fiscal Policy Inventory and Implementation Plan Complete Moss Adams 5 Inventory Management Internal Controls Testing Complete City Manager’s Office The final summary reports for the three completed assessment areas are included with this staff report, with the report for area 5 prepared by the City Manager’s Office and the other two reports reviewed in detail by City staff. Detailed observations were provided to City staff in separate internal management reports for each assessment area with specific recommendations regarding opportunities for improvement in accordance with best practices. An overview of each document is provided below. Procurement Operational Review and Internal Controls Testing City staff retained MGO to complete a review and assessment of the City’s procurement operations, with objectives including:  Solicit constructive, fact-based feedback on procurement challenges and opportunities; 298 Internal Audit Program Reports January 13, 2022 Page 3  Evaluate the City’s procurement and contracting functions relative to best practices and policies in peer agencies, including purchasing thresholds, internal controls, and policies and procedures;  Review existing and/or recommend appropriate performance metrics to evaluate operational effectiveness and efficiency; and  Provide recommendations for improvement opportunities and/or increased efficiencies, including identification of training and tools that can better aid departments on purchasing responsibilities and practices. As part of this assessment, MGO reviewed existing policies, procedures, and workflows, reviewed the City’s vendor contract for insurance certification, interviewed staff in twelve different departments, analyzed the results of these efforts, and prepared a final report summarizing the analysis and recommendations. As outlined in the final summary report, MGO summarized its recommendations to cover communication, documentation, and streamlining of processes. Key findings were as follows:  Enhance communication protocols to include consistent and regular communication to departments on process changes or policy updates.  Provide clear direction on the roles and responsibilities for participants in the procurement process.  Update procurement and contracting policies and procedures to be consistent with one another as well as reflective of current practices.  Increase the purchasing thresholds.  Implement changes to streamline existing procurement processes. City staff concurs with the findings and recommendations from MGO as outlined in Attachment A and has created a corresponding work plan for implementation of the recommendations, which considers the risk level and related priority of each improvement opportunity. Recommendations on policy changes, including updates to the purchasing thresholds, will be presented to the Finance Committee for consideration, and subsequently to the City Council for approval, prior to implementation. Staff currently anticipate presenting these recommendations to the Finance Committee in September 2022. Fiscal Policy Inventory and Implementation Plan Moss Adams completed an inventory of the City’s fiscal policies and procedures (P&Ps) specific to the finance and accounting areas, a gap analysis to identify what gaps in coverage exist, and prepared a prioritized work plan to aid the City in addressing the identified gaps. Beyond the identification of potential gaps in coverage, the gap analysis included an assessment of opportunities to improve the overall content and flow/structure to provide effective resources for employees. As reflected in the results and work plan, Moss Adams categorized the significance and extent of the identified gaps as follows: full gaps, major gaps, or minor gaps. An associated risk level and recommended priority level was 299 Internal Audit Program Reports January 13, 2022 Page 4 assigned to each of the identified gaps. In addition, areas that only require an update were noted as such. The categories ranked high or moderate risk include:  High Risk: o Inventory o Procurement o Revenue and Accounts Receivable  Moderate Risk: o Accounts Payable o Cash Management o Contract Management o Debt Management o Fixed Assets Management o Grant Management The remaining thirteen policy areas were rated as low risk. City staff concurs with the findings and recommendations from Moss Adams as outlined in Attachment B. It is important to note; however, that the City does have appropriate internal controls in place relative to the areas identified as high and moderate risk, which is validated by the clean audit opinions from the City’s financial statement auditors in recent years relative to internal controls. Nevertheless, it is clear that additional documentation is needed, and in accordance with the recommendations City staff will work towards addressing all of the recommendations. This process will include creating a standard template and structure for all levels of P&P documents and implementing the prioritized work plan over the next few years. Updates relating to City Council policies will be presented to the Finance Committee for consideration, and subsequently to the City Council for approval, prior to implementation. Inventory Management Internal Controls Testing The City Manager’s Office completed an internal audit of the City’s centralized warehouse and auto parts inventory operations. This review included identifying strengths and weaknesses of the operations and making recommendations on how to maximize efficiencies with current resources. As part of the analysis, interviews were conducted with Finance Department staff responsible for the operations as well as relevant staff in various departments that participate in the processes under review. In addition, a variety of materials and data were utilized as part of this audit, including current inventory usage and accounting records for the prior three years, internal controls documentation, and operational procedures. This internal audit yielded several recommendations on improvement opportunities that are outlined in Attachment C and relate to the following key areas: staffing, accounting, warehouse management, auto parts inventory management, fleet management, and Utilities Yard inventory management. Since completion of this audit, a work plan has been created to address each improvement opportunity, with many of the identified items either 300 Internal Audit Program Reports January 13, 2022 Page 5 already implemented or in the process of being implemented. The following improvements were identified for implementation:  The Purchasing and Contracts Administrator position now provides more direct supervision of the central warehouse and auto parts inventory staff, with this position splitting time between City Hall and the City Warehouse.  A full inventory of auto parts and reconciliation against the inventory management system has been conducted and staff in the Finance and Public Works departments are currently in the process of purging unused or infrequently used parts.  Staffing at the City Warehouse has been evaluated to ensure that resources are best utilized and assigned.  A review of the inventory in the City Warehouse is in process to evaluate which items it is appropriate to stock versus order on demand or have vendors order as part of service and maintenance contracts.  Instructions, forms, and processes related to requests for proposals and bids were improved to streamline the procurement and contracting process. As this report was the first to be completed, many of the recommendations have already been implemented. Staff anticipates completing implementation of the report’s recommendations within the next six months. Concurrent with the implementation of the identified improvement opportunities for these three internal control areas of focus, City staff will continue undertaking audit work for additional focus areas, with a report on the selection of topics for Fiscal Year 2021-22 included with today’s agenda. The final two reports from the Fiscal Year 2020-21 internal audit program are anticipated to be presented to the Finance Committee in February. Prepared and Submitted by: /s/ Amber Haston _____________________________ Amber Haston Senior Budget Analyst Attachments: A. Procurement Operational Review Final Summary Report B. Fiscal Policy Inventory and Implementation Plan Final Summary Report C. Inventory Management Internal Controls Testing Final Summary Report 301 ATTACHMENT A PROCUREMENT OPERATIONAL REVIEW FINAL SUMMARY REPORT 302 www.mgocpa.com Macias Gini & OConnell LLP 111 Pacifica, Suite 300 Irvine, CA 92618 1 The Honorable Chair and Members of the Finance Committee City of Newport Beach Newport Beach, California Macias Gini &OConnell LLP (MGO) was engaged by the City of Newport Beach (City) to provide a procurement operational review and internal control testing services of the Citys procurement and contracting functions for the fiscal years ended June 30, 2020 and 2021. The objectives of the engagement were to: Evaluate the Citys procurement and contracting functions, including purchasing thresholds, internal controls, and policies and procedures. Compare the current procurement and contracting functions to best practices. Identify training and tools that could be developed to aid departments in taking on more of the purchasing responsibilities and workload. Review existing, and/or recommend appropriate, performance metrics to evaluate operational effectiveness and efficiency on an ongoing basis. Provide recommendations for improvement opportunities and/or increased efficiencies. The scope of the engagement included purchase requisitions/purchase orders issued and contracts executed during fiscal years 2020 and 2021. MGO performed the following procedures for the engagement: Interviewed staff in 12 departments, including the Finance Department, City Attorneys Office, City Clerks Office, Information Technology, and the Citys Risk Manager. Reviewed procurement and contracting documentation, such as related reports, policies and procedures, contract worksheets, and contract templates. Performed data analysis on purchase requisitions/purchase orders and contracts. Reviewed workflows in the Finance System for purchase requisitions/purchase orders,vendors invoices, and contracts. Reviewed the Citys vendor contract for insurance certification. Reviewed procurement thresholds and insurance requirements for the following peer cities: Beverly Hills, Costa Mesa, Huntington Beach, Irvine, and Orange. Reviewed the Finance Departments performance metrics report,Purchasing and Contracting Metrics: January June 2020. 303 2 The Citys procurement and contracting processes require the collaboration of multiple City departments as well as external third parties. Therefore, engaging in regular communication and providing current documentation are vital for ensuring all parties involved know and understand the processes, including roles and responsibilities related to procurement and contracting. In addition, streamlining procurement and contracting processes and analyzing the performance of those processes are key to optimizing the use of City resources. MGO identified the following opportunities for operational improvements and increased efficiencies in the Citys procurementandcontractingfunctionsrelatedtocommunication,documentation, streamlining of processes, and performance metrics. Observations Communication 1. Changes in procurement and contracting processes are not consistently and regularly communicated to departments. 2. Roles,responsibilities,andexpectationsforparticipantsintheprocurementand contractingprocess are not documented or communicated effectively. Documentation 1. City Council Policy F 14 contains purchasing thresholds for service purchase requisitions/purchase orders, but does not address thresholds for the other purchasing methods. 2. There are conflicts between the Administrative Policies and City Council Policy F 14, as well as conflicts among the Administrative Policies. 3. Administrative Policies are out of date and do not reflect all current practices. Furthermore, Administrative lack procedural documentation to assist staff in consistently executing the processes. 4. The purchasing thresholds in the Administrative Policies are too low based on the Citys current purchasing and contracting needs. 5. Forms, templates and other tools available to assist departments are not current and do not fully meet the needs of the departments. Streamlining of Procurement and Contracting Processes 1. Some processes related to issuing requests for proposals, bids, or quotes are inefficient and can result in unnecessary delays. 2. Some processes related to vendor/contractor insurance certification are inefficient and can result in unnecessary delays. 3. Processes related to approving purchase requisitions/purchase orders are time consuming and create inefficiencies in the timely initiation of procurements. Performance Metrics 1. Munis purchase requisitions/purchase orders data is appropriate for analyzing the performance of purchasing functions, but analysis is not frequently initiated. This data should be used to monitor performance in a process of continuous improvement. 2. The Finance Department should continue collecting data on the solicitation process and use it to create additional performance metrics. 304 3 The City should consider the following recommendations: Enhance communication protocols related to procurement and contracting citywide through the use of email, the intranet, workgroups, and training. More thoroughly document the roles, responsibilities, and expectations for procurement and contracting functions and disseminate to all parties involved in those functions. Update procurement and contracting policies, procedures, and documentation to be consistent with current practices and provide clarity to departments. Increase the purchasing thresholds. Implement changes to procurement and contracting processes to streamline functions and increase efficiencies. Analyze and report on the performance of the procurement and contracting functions. Detailed observations and recommendations were provided to the Finance Department in a separate internal management report. Irvine, California December 17, 2021 305 ATTACHMENT B FISCAL POLICY INVENTORY AND IMPLEMENTATION PLAN FINAL SUMMARY REPORT 306 FINAL REPORT City of Newport Beach FISCAL POLICY INVENTORY AND GAP ANALYSIS November 19, 2021 Moss Adams LLP 999 Third Avenue, Suite 2800 Seattle, WA 98104 (206) 302-6500 307 Fiscal Policy Inventory and Gap Analysis FOR INTERNAL USE OF CITY OF NEWPORT BEACH ONLY Table of Contents Background, Scope, and Methodology 1 A. Background 1 B. Scope and Methodology 1 Overall Results 3 Prioritized P&P Work Plan 4 Summary of Recommendations 5 308 Fiscal Policy Inventory and Gap Analysis | 1 FOR INTERNAL USE OF CITY OF NEWPORT BEACH ONLY BACKGROUND, SCOPE, AND METHODOLOGY The City of Newport Beach (the City) requested that Moss Adams LLP (Moss Adams), as the City’s internal auditor, perform an inventory of all City fiscal policies and procedures (P&Ps), perform a gap analysis to determine what gaps in coverage exist, and develop a prioritized P&P work plan to support the City in addressing identified gaps. The objectives of this project were to:  Determine which fiscal areas were adequately covered by comprehensive, current P&Ps.  Identify policy gaps, including areas where no policies to support fiscal functions are documented, existing policies are outdated, present internal control or coverage gaps are missing key components, and existing policies are in need of minor updates or additions.  Prioritize the policy gaps, based on overall risk, and develop an implementation plan to provide the City with recommendations for prioritizing and addressing the identified policy gaps. This engagement was performed in accordance with Standards for Consulting Services established by the American Institute of Certified Public Accountants. Accordingly, we provide no opinion, attestation, or other form of assurance with respect to our work or the information upon which our work is based. This report was developed based on our assessment of the City’s fiscal P&Ps as of August 2021. The procedures we performed do not constitute an examination in accordance with generally accepted auditing standards or attestation standards. This project was limited in scope to the City’s finance and accounting functional areas. All fiscal P&P’s available as of September 2021 were provided to Moss Adams to assess as part of this project. Other P&P documents, such as those at the department/program level, or informal process or guideline documents that are not approved formal P&Ps at the City level, may exist; however, they were not included in this analysis and are therefore not included in the results presented in this report. The procedures performed included:  Fiscal P&P Inventory – We worked with City management and other key stakeholders to develop the full listing of finance and accounting policy areas that were applicable to the City and that would be included in the scope of this project. For each area, we performed the following: ○ Obtained all supporting/related P&P documents available, including applicable City Council policies, general policies, administrative procedures, and exhibits. ○ Documented a full inventory of the current existing P&P documents, including a summary of the coverage areas of each. ○ Discussed the full inventory of results with management to ensure that all P&P documents were provided and included in the inventory.  P&P Gap Analysis – We assessed the inventory results and performed a full gap analysis, including: ○ Assessed the current content of each area to identify potential gaps in coverage. 309 Fiscal Policy Inventory and Gap Analysis | 2 FOR INTERNAL USE OF CITY OF NEWPORT BEACH ONLY ○ Assessed the existing P&P documents for opportunities to improve the overall content and flow/structure, to incorporate best practices, and to improve internal controls, where possible, to provide for effective resources for employees. ○ Summarized the gaps identified for each P&P area. ○ Categorized the significance and extent of the identified gaps as follows: full gaps, major gaps, or minor gaps. We also noted areas only in need of an update.  Prioritized P&P Work Plan Development – Based on the results of the P&P inventory and gap analysis performed, we developed detailed recommendations, by area, for the City to use as a road map for developing, amending, or updating P&Ps. We assigned a risk level (high, medium, or low), as described in the table below, and a recommended priority order by phase based on the risk level. We discussed the prioritized P&P work plan with management, gathered input on the work plan, and made updates, as appropriate. Gaps identified during the analysis were categorized as follows:  Full Gap – Documented policies and procedures do not exist for the area.  Major Gaps – Some P&P documentation exists; however, there are major gaps in the overall coverage.  Minor Gaps – P&Ps cover most of the key areas but require some updating or additional coverage.  Update Needed – The P&P needs to be reviewed for potential updates. The assessed risk level, category descriptions, and recommended phases/timing for addressing the gaps and related recommendations are described in the table below. The risk levels were assigned based on our understanding of the City, insights gained from management, the inherent risk in each area, and the level and significance of gaps identified. Assessed Risk-Level Category Description Recommended Phase/Timing High Risk ● Area is inherently high risk ● Gaps identified were either full gaps (i.e., no P&P coverage) or major gaps ● The area is a high priority for the City’s operations and structure Phase One (within 12 months) Medium Risk ● Area is inherently high or medium risk; however, a lack of documented P&Ps may only represent a medium risk to the City ● Gaps identified were either full gaps or major gaps ● The area is a high priority for the City’s operations and structure Phase Two (within 18 months) Low Risk ● Area is inherently low risk ● Gaps identified were either minor in significance or magnitude or the area only needed review or updating ● The area is a low priority for the City’s operations and structure Phase Three (within 24 months) 310 Fiscal Policy Inventory and Gap Analysis | 3 FOR INTERNAL USE OF CITY OF NEWPORT BEACH ONLY OVERALL RESULTS Throughout the P&P inventory and gap analysis, we found that there are a variety of P&P documents (City Council policies, general policies, administrative procedures, exhibits, etc.) at the City; however, they are not consistently utilized, structured, or based on standard templates. The City does not have a defined P&P framework and, as a result, in many cases, it was unclear what level of policy (e.g., City Council, administrative) a document falls under. The City should begin the process of addressing their P&P gaps by creating a standard template and structure for all levels of P&P documents, so that employees know which type of resource to use or reference. Specifically, the City should develop:  An overall P&P framework that defines the various uses for each level of policy or procedure (City Council-level policies, management policies, administrative procedures, etc.).  A standard template for each type of document in the P&P framework (i.e., all Management policies have the same components/structure such as name, ID number, effective date, last revised date, definitions, references, policies, and appendices). Utilizing a defined P&P framework with standard templates will help to streamline the City’s policy and procedure resources and can be used to define responsibilities at both the City Council and management level. The Prioritized P&P Work Plan, presented on the following page, can be utilized by the City to carry out their efforts to develop and update the City’s fiscal P&Ps. In addition to the summarized table below, we have provided Management with a detailed Prioritized P&P Work Plan, which includes all results from the inventory and gap analysis performed, including detailed recommendations by area. 311 Fiscal Policy Inventory and Gap Analysis | 4 FOR INTERNAL USE OF CITY OF NEWPORT BEACH ONLY PRIORITIZED P&P WORK PLAN Policy Area Type of Gap Associated Risk Recommended Priority Level Inventory Full Gap High 1 Procurement Major Gaps High 1 Revenue and A/R Full Gap High 1 Accounts Payable Full Gap Moderate 2 Cash Management Full Gap Moderate 2 Contract Management Major Gaps Moderate 2 Debt Management Major Gaps Moderate 2 Fixed Assets Management Major Gaps Moderate 2 Grant Management Major Gaps Moderate 2 Accounting and Financial Reporting Major Gaps Low 3 Asset Forfeiture/Seizure Update Needed Low 3 Budgeting Major Gaps Low 3 Conflicts of Interest Update Needed Low 3 Financial Planning Programs Update Needed Low 3 General Fund Surplus Update Needed Low 3 Income/Other Property Update Needed Low 3 Investment Management Minor Gaps Low 3 Payroll & Timekeeping Minor Gaps Low 3 P-Cards Minor Gaps Low 3 Petty Cash Minor Gaps Low 3 Tax Bond Compliance Update Needed Low 3 Travel & Expense Reimbursement Minor Gaps Low 3 312 Fiscal Policy Inventory and Gap Analysis | 5 FOR INTERNAL USE OF CITY OF NEWPORT BEACH ONLY SUMMARY OF RECOMMENDATIONS Below is a summary of the recommendations related to high and moderate risk policy areas. A detailed listing of full recommendations was provided to management. Policy Area Summary of Recommendations Inventory Inventory Management P&P’s should be developed covering the following key areas:  Inventory assets defined.  Procedures for receiving inventory, recording related expenditures, and documenting receipt for tracking purposes.  Overall responsibilities for inventory monitoring and oversight, including performing trend analysis, usage report reviews, etc.  Tracking of inventory.  Spot checks/regular inventory counts or reasonableness checks/monitoring.  Safeguarding inventory and access restrictions.  Physical inventory count process including how it is conducted, how often, who performs and reviews/approves and how variances are assessed and addressed. Procurement Consolidate existing procurement-related P&Ps and ensure adequate coverage of the following areas:  Defined thresholds and related due diligence thresholds;  Approval thresholds and the related workflow process;  Sole source and emergency purchase criteria and requirements;  Required use of purchase requisitions and purchase orders;  Receiving requirements;  Documentation requirements and methods of storing procurement records;  Suspension and debarment check responsibilities and documentation;  Specific requirements related to certain high-risk purchases; and,  Specific restrictions and unallowable purchases. Revenue and Accounts Receivable (A/R) City-wide Revenue and Accounts Receivable (A/R) P&Ps should be developed to address the following:  The specific types of revenue throughout the City and referencing individual policies, where appropriate.  The City's requirements around billing and collection activities including defining roles, responsibilities, documentation, frequency, etc.  Use of collection service providers and the related responsibilities for monitoring performance/collections.  Revenue recognition and accounting for revenue.  A/R management including tracking and reporting, aging analysis, reporting on delinquent accounts, etc. 313 Fiscal Policy Inventory and Gap Analysis | 6 FOR INTERNAL USE OF CITY OF NEWPORT BEACH ONLY  Systems access related to A/R management systems to ensure proper segregation of duties.  Customer account setup and requirements.  Allowance for doubtful accounts including establishing requirements, recording bad debt expense, monitoring and accounting for estimates, etc.  Refund and account credit handling including required documentation, approvals, etc. Accounts Payable Develop full, comprehensive AP P&P’s that include all significant areas within the AP function including:  New vendor setup and vendor changes;  Invoice receipt and approval;  Reconciliation between invoice, purchase requisition/order, and receiving documentation;  Invoice coding and system entry;  A/P processing including required reviews/approvals, invoice tie out, and pre and post check registers;  Check printing, signature, and check stock maintenance controls;  Check mailing and record retention; and,  Monitoring controls over the disbursement function such as vendor file changes/addition reviews, trend analysis, etc. Cash Management A comprehensive set of Cash Management P&Ps should be developed and cover, at a minimum, the following:  Bank account setup, closing, access monitoring, etc.  Bank reconciliations including responsibility for preparing the reconciliation, supporting documentation required, outstanding items monitoring, variance handling, review and approvals.  Bank account signature authority.  Payment acceptance including types of payments accepted (cash, checks, credit cards, etc.) and the requirements for processing/accepting each type.  Cash reconciliations, deposits and variance handling and reporting (reporting overages/shortages).  Counterfeit detection requirements  Required frequency for remitting deposits to Cashiering and monitoring of location deposit frequency and volumes.  Segregation of duties.  Accountabilities and handling of non-compliance.  Minimum security requirements for transporting deposits.  Petty cash and change fund handling. Contract Management The current P&Ps related to contract administration should be reviewed, consolidated and expanded to ensure the following are addressed:  Overall process for initiating a contract;  Review and approval process (legal and other) including authority levels; 314 Fiscal Policy Inventory and Gap Analysis | 7 FOR INTERNAL USE OF CITY OF NEWPORT BEACH ONLY  Types of contracts;  Contract tracking including expiration dates, deliverables, payments, etc.;  The contract monitoring process and defining responsibilities such as monitoring contractor performance; and,  The contract close-out process. Debt Management Review the existing policy to determine if updates are required and specifically ensure coverage of the following:  Accounting for capital leases and considerations with new lease accounting standards;  Structure of debt (terms, rapidity of debt payment, level payment, serial/term/capital appreciation bonds, reserve funds);  Criterion for issuance and repayment of debt;  Covenant compliance monitoring and requirements; and,  Other methods of sale, credit rating, limitation of indebtedness, refunding debt, investment of bond proceeds, and other. Fixed Assets Management Develop detailed Fixed Assets Management P&Ps covering, at a minimum, the following:  Capitalization thresholds, depreciation recording, and expense monitoring;  Asset receipt and tagging including responsibilities, tracking of issued/unissued tags, etc.;  Responsibilities for custodians and monitoring;  Annual inventory process;  Asset disposals, transfers, or instances of lost/stolen assets;  Construction-in-process;  Surplus inventory;  Asset replacements; and,  Overall monitoring and tracking of assets Grant Management Expand and update existing P&Ps and ensure the following key areas are addressed:  Grant management roles and responsibilities - Specifically define accountability (program/grant managers, finance, etc.)  Grant tracking, monitoring and reporting - expand on these areas to provide specific "how to" guidance for personnel responsible for grants.  Compliance requirements – Define who is responsible for compliance and keys to ensuring requirements are adhered to. Expand guidance to address specific compliance requirements such as reporting (how to develop reports, who prepares/reviews, etc.).  Revenue and expense tracking, by grant/award.  Program objective and milestone tracking and related programmatic responsibilities. 315 316 ATTACHMENT C INVENTORY MANAGEMENT INTERNAL CONTROLS TESTING FINAL SUMMARY REPORT 317 1 JANUARY 6,2020 Prepared by: City Manager’s Office City of Newport Beach Executive Summary Review of Warehouse Operations 318 2 Project Scope and Methodology As part of the City’s commitment to providing premium services to the community in a cost-effective and expedient manner, various operations are audited to determine their efficiency and effectiveness. This review focused on the City’s centralized warehouse and auto parts inventory operations. Several areas were identified that should be addressed to create highly functioning, effective, and efficient central warehouse and auto parts inventory operations. This review involved collecting information, identifying strengths and weaknesses of the operations, and making recommendations on how to maximize efficiencies. To facilitate the review and analysis, interviews were conducted with Finance Department staff responsible for these operations, as well as with relevant staff from other City Departments that regularly interact with the Finance Department staff. A variety of materials, including current inventory usage and accounting records for the past three fiscal years, internal controls documentation, and operational processes, were also reviewed. Background Warehouse and auto parts inventory operations are governed by City Charter Sections 1106 (Centralized Purchasing) and 1111 (Purchasing Supplies); City Council Policies F-9 (City Vehicle / Equipment Replacement Guidelines), F-11 (Custody and Disposal of Controlled Property), F-14 (Authority to Contract); and Administrative Policies AP-001 (Contracting for the Procurement of Services) and AP-002 (Purchasing Procedures for Goods, Equipment, and Materials). The City’s purchasing functions are managed by the City’s Purchasing and Contracts Administrator, which is a supervisory position reporting to the Finance Director. The purchasing staff includes four additional employees, each of which spends some portion of their time dedicated to the warehouse and auto parts functions. • 1.0 Senior Buyer • 1.0 Buyer 319 3 • 1.0 Senior Fiscal Clerk • 1.0 Fiscal Specialist (shared position with the Budget Division) The warehouse currently stocks 1,100 items with a value of just over $200,000. The number of individual items issued in a year is over 40,000; however, there are over 400 items that are only needed between 1 and 50 times per year. On the high end of usage, there are two items picked 4,000-9,000 times per year. Batteries are the most frequently utilized inventory item, followed closely by toilet seat covers and toilet paper. Departments identified janitorial and cleaning supplies, landscaping supplies, and batteries as items they prefer to have warehoused for easy accessibility and discounted cost. Although the warehouse does not deliver, having inventory available at the warehouse eliminates the need for non-warehouse personnel to take time out of their day to purchase directly from an outside vendor. This is a significant convenience for City staff. Additionally, the warehouse is useful for departments that do not have the storage capacity to store items that are heavily used and/or bulky. The warehouse staff are also responsible for disposing of obsolete property. Aside from the Police Department, which has its own surplus property process, surplus items are dropped off at the warehouse. Upon receipt, warehouse staff remove tagged fixed assets from the accounting records, and when there are enough items to surplus a contracted auction company is called, and the items are picked up and sold at auction. The proceeds from the auction are then disbursed to the City. The Public Works Department manages the City’s Fleet operations and is served by a small auto parts warehouse located next to the auto shop. Although the auto parts inventory is smaller than the warehouse, the items are of greater value and access to them is more time sensitive due to the need to keep fleet vehicles and equipment in service. The auto parts inventory carries approximately 780 unique parts to service the City’s fleet of over 400 vehicles and pieces of equipment. The majority of inventory items are pulled between 1 and 10 times per year. 716 items were pulled 1 to 10 times in FY 2019-20 and 998 items were pulled 1 to 10 times in FY 2018-19. It seems likely there are many parts that could be secured pursuant to a daily auto parts call and removed from the inventory. 320 4 Recommendations Following detailed review of all of the applicable policies and procedures, field visits to the facilities, and interviews with purchasing staff and customers, the below recommendations were developed to improve the efficiency and effectiveness of the City’s warehouse and auto parts inventory operations. Staffing – The Finance Department staff located at the Corporation Yard should receive more direct and regular supervision from management. Accounting – Internal controls related to warehouse operations are inadequate and should be evaluated in comparison to best practices. Accounting adjustments at year- end should be justified with reasons documented for any adjustments to inventory. Warehouse Management – Opportunities exist to revise the system for pulling items from the warehouse to be more efficient, eliminate infrequently used inventory items, provide a process for requesting new items to be added to inventory, provide an intranet listing of warehouse items for reference purposes, enhance monthly reporting of warehouse use by City Departments, standardize forms, conduct an annual user survey, and evaluate offering a delivery service. Auto Parts Inventory Management – A full inventory of all parts on hand should be conducted, the parts storage area should be cleaned and organized, actual inventory should be reconciled against the inventory management system, and unused or infrequently used parts should be purged from the inventory. Fleet Management – A flow chart for new vehicle purchases should be created that highlights responsibilities and DMV paperwork management should be a responsibility of the Finance Department. Utilities Yard Inventory Management – Certain inventory items stored at the Utilities Yard should be tracked and counted regularly. 321 01/13/2022 1 FY 2020-21 Internal Audit Program Reports Finance Committee January 13, 2022 City of Newport Beach – Finance Department 2 Background The City’s internal audit program was initiated in 2020 Goal to continuously review various areas of City operations with both financial and operational reviews Five topics were identified for review in FY 2020-21 No. Topic Progress Task Resource 1 Procurement Operational Review and Internal Controls Testing Complete MGO 2 Cash Handling Internal Controls Testing Expected January 2022 Moss Adams 3 Information Technology Operational Review and Internal Controls Testing Expected January 2022 Moss Adams 4 Fiscal Policy Inventory and Implementation Plan Complete Moss Adams 5 Inventory Management Internal Controls Testing Complete City Manager’s Office 1 2 322 01/13/2022 2 City of Newport Beach – Finance Department 3 Procurement Review: Goals and Methodology The procurement operational review was completed by Macias, Gini, & O’Connell (MGO) Objectives included: Soliciting feedback on procurement challenges and opportunities Evaluating the City’s procurement and contracting functions relative to best practices and policies in peer agencies Reviewing and recommending performance metrics to evaluate operational effectiveness and efficiency Providing recommendations for improvement opportunities MGO reviewed existing policies, procedures, and workflows and conducted interviews with staff throughout the City City of Newport Beach – Finance Department 4 Procurement Review: Results Key findings of the MGO review included identifying a need to: Enhance communication protocols to include consistent and regular communication to departments on process changes and policy updates Provide clear direction on the roles and responsibilities for participants in the procurement process Update procurement and contracting policies and procedures to be consistent with one another as well as reflective of current practices Increase the purchasing thresholds Implement changes to streamline existing procurement processes Staff concur with the MGO findings and recommendations and have created a work plan for implementation, prioritized by risk level Policy recommendations will be presented to the Finance Committee for consideration in September 2022 3 4 323 01/13/2022 3 City of Newport Beach – Finance Department 5 Fiscal Policies Review: Goals and Methodology The fiscal policies operational review was completed by Moss Adams Objectives included: Identifying gaps in the City’s financial policies based on best practices Preparation of a prioritized work plan to assist in closing the gaps The Moss Adams review: Categorized gaps as full, major, or minor Prioritized gaps as high, moderate, or low risk City of Newport Beach – Finance Department 6 Fiscal Policies Review Results The Moss Adams review categorized the City’s policy areas as follows: High Risk – Inventory High Risk – Procurement (separately addressed in the MGO review) High Risk – Revenue and Accounts Receivable Moderate Risk – 6 areas Low Risk – 13 areas Staff concur with the Moss Adams findings and recommendations and have developed a work plan to implement the required policy revisions Standardized templates and structure for all policy documents Phased approach over approximately a two-year period to implement recommendations It is also important to note that the City does have appropriate internal controls in place relative to the identified high and moderate risk areas 5 6 324 01/13/2022 4 City of Newport Beach – Finance Department 7 Inventory Management Review: Goals and Methodology The inventory management operational review was completed by Assistant City Manager Carol Jacobs Objectives included: Identifying strengths and weaknesses of the warehouse and auto parts inventory operations Recommending how to maximize efficiencies given current resources The internal review: Included interviews with Finance Department staff as well as staff in departments utilizing the warehouse and auto parts inventory Analyzed inventory usage, accounting records, internal controls documentation, and procedures Generated recommendations for improvements in staffing utilization, accounting, inventory management, and fleet management City of Newport Beach – Finance Department 8 Inventory Management Review: Results Key findings of the internal review included: Providing more direct supervision of the central warehouse and auto parts inventory staff Conducting a full inventory of auto parts, reconciling the inventory to the inventory management system, and purging unused or infrequently used parts Evaluating staffing to ensure that resources are best utilized and assigned Evaluating which inventory items are appropriate to stock versus order on demand or have vendors order as part of service and maintenance contracts Improving instructions and forms to streamline the procurement and contracting process. Staff concurred with the findings and recommendations and have implemented or are in the process of implementing the recommendations Implementation will be complete within six months 7 8 325 01/13/2022 5 City of Newport Beach – Finance Department 9 Recommendation and Next Steps Three reports have been presented to the Finance Committee in today’s report The Committee may wish to provide feedback to the City Manager regarding these reports The two remaining reports from the FY 2020-21 internal audit program will be presented to the Finance Committee at the February meeting Cash Handling Internal Controls Testing IT Operational Review and Internal Controls Testing (limited to the City’s financial system) City of Newport Beach – Finance Department 10 Questions? 9 10 326 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5C January 13, 2022 TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Finance Department Scott Catlett, Finance Director/Treasurer 949-644-3123, scatlett@newportbeachca.gov SUBJECT: INTERNAL AUDIT PROGRAM WORK PLAN REVIEW SUMMARY: It is anticipated that risk assessment and audit work will be conducted on a continuous basis as risk levels are reassessed annually. There is sufficient funding in the Finance Department budget for undertaking a review of up to three focus areas for Fiscal Year 2021-22. Staff recommends undertaking audit work for Accounts Payable and Payroll next. As staff do not have a definitive recommendation for a third review, the Finance Committee may wish to recommend a third focus area that it deems relevant to pursue. RECOMMENDED ACTION: Review and discuss internal audit areas, confirm or revise staff’s two recommended areas of focus, and select one area of focus in addition to the two selected by staff to pursue in Fiscal Year 2021-22. DISCUSSION: In the spirit of continuous improvement and with support and direction from the City Manager’s office, the Finance Department has been charged to develop a comprehensive internal audit program. While the City has managed a great many financial statement and compliance audits over the years, the City has not historically had a robust internal audit program. The current program was initiated in 2020 with an enterprise risk assessment and initial evaluation of internal control risks. These processes served as the primary building blocks to inform and develop workplans to further assess and test internal controls, conduct performance audits, and provide management consulting services when appropriate. 327 Internal Audit Program Work Plan Review January 13, 2022 Page 2 Audit firm Moss Adams completed the enterprise internal controls review to determine the general adequacy of internal controls and identify areas warranting more in-depth review in the future. As part of the assessment, Moss Adams conducted planning activities, completed fieldwork and data collection, analyzed the results of their fieldwork, and prepared the results of their analysis in a report as summarized for the Finance Committee on September 24, 2020. From this preliminary fieldwork, an inventory of future focus areas based on potential risk was developed. Audit firms MGO and Moss Adams have recently completed work in areas 1-4 listed in the table below and several final summary reports are before the Finance Committee for review today. An assessment of area 5 was completed by the Assistant City Manager in 2020, and an executive summary report of that effort is also included with today’s agenda. Internal Control Areas of Focus It is anticipated that risk assessment and audit work will be conducted on a continuous basis as risk levels are reassessed annually. Other priority areas identified and that remain for further assessment include the areas listed above (6-13). Key Controls Progress Task Resource 1 Purchasing and Contracts Management Complete MGO 2 Cash, Billing, Collections, and Accounts Receivable - Daily Reconciliation and Reporting Complete January 2022 Moss Adams 3 Information Technology - System Security, Help Desk Workflow, System Support and Monitoring Complete January 2022 Moss Adams 4 Fiscal Policy Inventory and Implementation Plan Complete Moss Adams 5 Inventory Management - Central Warehouse and Automotive Inventory Management Complete City Manager's Office 6 Accounts Payable and Disbursements - Evaluate Vendor Changes, Weekly Check Batch Controls, Segregation of Duties 7 Payroll - Employee Timecard Processing 8 Fixed Asset Management - Physical Inventory Process and Asset Record Maintenance 9 Financial Reporting - System Access, Segregation of Duties, Account Reconciliation and Financial Reporting Documentation 10 Budgeting - Budget to Actual Reporting, Budget Amendment Process, Budget Process 11 Business Continuity and Disaster Planning Assessment 12 Police Property and Evidence Internal Controls Testing - Review how operation handles all evidence, found property or property held for safekeeping to ensure integrity for criminal prosecutions 13 Finance Customer Service Operational Review 328 Internal Audit Program Work Plan Review January 13, 2022 Page 3 There is sufficient funding in the Finance Department budget for undertaking up to three additional focused reviews for Fiscal Year 2021-22. Staff recommends undertaking audit work for Accounts Payable (item 6) and Payroll (item 7) next. The Finance Committee is welcome to recommend a third focus area that it deems relevant to pursue from the list above. Alternatively, the Committee may wish to suggest another topic for review that is not included on the original list provided by Moss Adams. Staff are in the process of completing a request for qualifications process to identify multiple audit firms to conduct the future internal audits. Through the creation of an on- call panel of firms, staff will be able to assign the audits on a rotating basis to ensure that a variety of perspectives are obtained from different auditors. In the future, staff anticipate conducting internal audits on a recurring annual cycle, with reports provided to the Finance Committee in January of each year on the prior calendar year’s work and the selection of new topics for the upcoming year at the same time. Prepared and Submitted by: /s/ Scott Catlett _____________________________ Scott Catlett Finance Director/Treasurer 329 01/13/2022 1 Internal Audit Program Work Plan Review Finance Committee January 13, 2022 City of Newport Beach – Finance Department 2 Background The City’s internal audit program was initiated in 2020 Goal to continuously review various areas of City operations with both financial and operational reviews With the reports for last year’s program nearly complete, it is time to identify topics for the current year’s program Staff are recommending creation of a panel of audit firms to facilitate future reviews An RFP process is underway to select the panel firms Will facilitate both fresh perspectives and more cost-effective proposals 1 2 330 01/13/2022 2 City of Newport Beach – Finance Department 3 Moss Adams Assessment The original Moss Adams report outlined 13 areas of focus for future reviews Five reviews are complete or nearly complete Eight topics have not yet been reviewed Key Controls Progress Task Resource 1 Purchasing and Contracts Management Complete MGO 2 Cash, Billing, Collections, and Accounts Receivable - Daily Reconciliation and Reporting Complete January 2022 Moss Adams 3 Information Technology - System Security, Help Desk Workflow, System Support and Monitoring Complete January 2022 Moss Adams 4 Fiscal Policy Inventory and Implementation Plan Complete Moss Adams 5 Inventory Management - Central Warehouse and Automotive Inventory Management Complete City Manager's Office 6 Accounts Payable and Disbursements - Evaluate Vendor Changes, Weekly Check Batch Controls, Segregation of Duties 7 Payroll - Employee Timecard Processing 8 Fixed Asset Management - Physical Inventory Process and Asset Record Maintenance 9 Financial Reporting - System Access, Segregation of Duties, Account Reconciliation and Financial Reporting Documentation 10 Budgeting - Budget to Actual Reporting, Budget Amendment Process, Budget Process11Business Continuity and Disaster Planning Assessment 12 Police Property and Evidence Internal Controls Testing - Review how operation handles all evidence, found property or property held for safekeeping to ensure integrity for criminal prosecutions 13 Finance Customer Service Operational Review City of Newport Beach – Finance Department 4 FY 2021-22 Internal Audit Program Sufficient funding is available to undertake three reviews this fiscal year Staff recommends initiating two additional reviews from the Moss Adams assessment Accounts payable and disbursements Payroll The Finance Committee’s input is requested to select the third review topic An additional topic can be selected from the Moss Adams list (need not be in order) The Committee may desire to conduct a financial or operational review on a specific topic not included on the Moss Adams list 3 4 331 01/13/2022 3 City of Newport Beach – Finance Department 5 Recommendation and Next Steps Staff request the Finance Committee’s concurrence with staff’s two selections and feedback regarding a third selection Once topics have been selected and the RFP process for audit firms has been concluded, staff will initiate the three reviews for FY 2021-22 Reports to the Finance Committee can be anticipated in January or February 2023 At that time, topics will be selected for the FY 2022-23 internal audit program City of Newport Beach – Finance Department 6 Questions? 5 6 332 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5D January 13, 2022 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE FROM: Finance Department Scott Catlett, Finance Director/Treasurer 949-644-3123, scatlett@newportbeachca.gov SUBJECT: LONG RANGE FINANCIAL FORECAST (LRFF) UPDATE EXECUTIVE SUMMARY The City is projected to be in a financially sound position over the next 20-year period and is in excellent financial position relative to most other local agencies with a revenue base and reserves unparalleled by any similar size City in the County. The forecast projects a surplus balance (revenues net of expenditures) in each year over the next 20 years. Any short term deficits that may arise as a result of an economic downturn or other unforeseen event likely will be absorbed without long-term reliance on the Contingency Reserve – no structural deficit is apparent. DISCUSSION Strategic planning begins with determining the City’s fiscal capacity based upon long- term financial forecasts of recurring available revenues and future financial obligations. Prior to the adoption of the annual budget, the Finance Department annually prepares a General Fund Long-Range Financial Forecast (LRFF) that evaluates known internal and external issues impacting the City’s financial condition. The LRFF is intended to help the City attain and maintain financial sustainability; sufficient long-term information to guide financial decisions; and sufficient resources to provide programs and services for the community. Methodology The Finance Department utilizes a three-step step process when preparing the LRFF. First, a baseline growth scenario for the various revenue and expenditure categories is established by analyzing historical compound annual growth rates (CAGR), historical average growth rates and/or other assumptions of future growth based on the latest information from consultants and other sources. Some allowance is made in assuming higher near-term growth rates for our rapidly recovering post-COVID 19 revenue sources such as sales tax and transient occupancy tax. Next, line items that may vary from the 333 Long Range Financial Forecast (LRFF) Update January 13, 2022 Page 2 typical escalation patterns are segregated and are increased by their unique defined schedule (dollar or percentage growth basis). These items include such items as additional discretionary pension payments which are on a fixed annual contribution schedule, interest income, known and expected ground lease revenue from various properties, transfers out to support the various master financing plans (Facilities Financing Plan, Harbor and Beaches Master Plan, Facilities Master Plan), and any emerging commitments the City has on the horizon. Finally, the model is designed to be flexible enough to model one or more alternate baseline scenarios or fiscal impacts should there be a need. Major Assumptions Major assumptions used in the model include the following: The Fiscal Year 2021-22 adopted budget, stripped of one-time items, was used as a base budget from which forward growth assumptions were launched. Annual General Fund transfers-out in support of:  FFP – $8.5m up to $12.5m in out years annually  CIP – $5.0m annually  Facilities Maintenance – $1.5m annually  Tidelands Harbor Capital – $4.5m annually  Contingency Reserve funding annually (25% of expenditures, less discretionary pension funding) In spite of having realized year-end surpluses in excess of $10 million over the past several years, we did not program future surpluses in our projections. Surpluses that appear in the forecast represent the net operating result of annual revenues less forecast expenditures (there is no assumed expenditure savings or revenues exceeding budget as is typically realized each year – the forecast assumes all revenues and expenditures are fully realized as presented). Revenue Assumptions The methodology used for calculating revenue changes from Fiscal Year 2022-23 to Fiscal Year 2041-42 is initially based on historical revenue trends using CAGR or the annual average growth for each revenue category, depending on which seems most applicable for the particular revenue growth category based on how it may change going forward. This methodology is adjusted based on staff’s knowledge of known one-time past events and other extraneous factors. Then an outlook is developed that factors in the ebb and flow of economic cycles. As the result, this approach provides variable, as opposed to static and linear, forecast growth patterns. This mitigates the compounding effect that can tend to distort revenue growth over time. The General Fund’s top three revenue sources (Property Tax, Sales Tax, and Transient Occupancy Tax) account for 75% of total General Fund revenues. Consequently, the 334 Long Range Financial Forecast (LRFF) Update January 13, 2022 Page 3 future growth assumptions for these top revenue sources can sway the forecast considerably. Property Taxes While the COVID-19 pandemic delayed some home and property sales in the 2020 calendar year, it did not significantly impact property tax revenue growth due to transfer of ownership, higher sale prices, and the construction/renovation of properties over the past year. The stay-at-home orders, business closures, and economic impacts did impact the overall growth experienced, as the annual consumer price index adjustment calculated by the State was only 1.036%, or roughly ½ of the 2% maximum allowable growth factor seen in most years. However, we project continued consistent and vigorous demand for Newport Beach’s coastal property over the long run. This demand has allowed the City to enjoy long-term growth trends with its number one revenue source, which remains the least impacted by COVID-19. Value changes in Newport Beach show continued appreciation in property values in Fiscal Year 2021-22. Over the past 10 years, assessed valuation increased an average of 5.5% per annum and 6.2% over a twenty- year period. Newport Beach’s assessed property values increased 4.5 percent in Fiscal Year 2021-22, with a local assessed value of $63.3 billion. The average annual 17-year growth for all items in this category including secured property tax, unsecured property tax, supplemental taxes, redevelopment agency residual and prior year penalties and interest is 6.1%. Staff conservatively forecast 5% annual growth for property taxes as a whole. 335 Long Range Financial Forecast (LRFF) Update January 13, 2022 Page 4 Sales Tax The second largest funding source for the General Fund is sales tax revenue, which is largely generated from three main industry categories including autos and transportation, general consumer goods, and restaurants/hotels. These industries are also heavily impacted by tourism. At the onset of the pandemic when businesses were shut down, sales tax revenue potential appeared drastically diminished. Staff’s initial projections held the ongoing assumption that the restrictions in place in April 2020 would remain for the rest of the fiscal year. However, sales tax revenues were higher than anticipated because businesses pivoted in creative ways to reach their customers – they were able to open at some capacity sooner than expected, and consumer spending was relatively strong. Online car sales increased and sales at local dealerships have picked up significantly. RVs and boat sales became more popular as families could not travel internationally. Online sales increased dramatically, resulting in significant growth in the City’s county pool allocation. An uptick in sales related to home improvement projects was also evident. For these reasons actual sales tax revenues came in at $4.4 million or 12.8% higher than anticipated in Fiscal Year 2020-21 and surpassed the previous highest annual sales tax revenues in Fiscal Year 2018-19 of $38.5 million and the prior year receipts of $36.2 million. Looking ahead, sustained sales tax growth is still anticipated through the end of the 2021 calendar year and will resume its traditional growth trend in 2022 and beyond. However, inflationary effects are showing up in the cost of many taxable products. Pent up demand for travel and experiences, the return of commuters and more costly fuel, and labor shortages having upward pressure on prices may begin to consume more disposable income and tighten growth by the start of 2022. The post-Great Recession CAGR through Fiscal Year 2018-19, excluding the economic aberration of COVID-19 in Fiscal Years 2019-20 and 2020-21 is 4.3%. The economic outlook for the City’s largest industry segments appears positive for the foreseeable future. We conservatively forecast 4% annual growth for sales tax. 336 Long Range Financial Forecast (LRFF) Update January 13, 2022 Page 5 Transient Occupancy Tax Transient occupancy tax (TOT) was the City’s most severely impacted revenue source as the pandemic unfolded. However, the City has seen a steady rebound and comeback with the City recording the highest TOT tax rate ever through August 2021. Revenues received during the last quarter of the Fiscal Year 2020-21 fiscal year accounted for 38.6% of all revenue received for the entire fiscal year. The fourth quarter receipts were much higher than the previous year and somewhat narrowed the revenue loss gap when compared to prior years, which led to year-end revenue collections reaching 81% of the prior year actuals. A steady improvement in occupancy rates combined with an increase in daily room rates is estimated to dramatically improve TOT revenue over the next two years. We project receipts of $23.8 million in Fiscal Year 2022-23. This amount represents a 25% increase over the Fiscal Year 2021-22 adopted budget but remains only 96% of the actual revenues received in Fiscal Year 2018-19. Continued strong growth of 15% is anticipated in Fiscal Year 2023-24 and staying generally consistent with historical trends, we project growth of 4% every year thereafter. 337 Long Range Financial Forecast (LRFF) Update January 13, 2022 Page 6 Other revenues (service fees and charges, fines and penalties, property income, transfers in, and other miscellaneous revenues) which make up 27% of the total are projected to grow modestly at 2.6% on average over the next 20 years. This assumption is based on the average growth from the preceding 15 years. Expenditure Assumptions Regular salaries for both miscellaneous and public safety are on average assumed to grow at 2% annually. This is based on the most recent negotiated MOU agreements. The forecast assumes no growth in personnel headcount. Special and other pays (certification pay, bilingual pay, motor office pay, scholastic achievement, etc.) is projected to grow commensurately with salaries at 2% annually, with the exception of Fiscal Year 2022-23 which has a 20% increase from the prior year due to the elimination of an assumed $2,000,000 vacancy-related salary savings that was included in the budget during the two fiscal years most impacted by the pandemic. The benefits category which consists of various stipends, life insurance, Medicare fringes, retiree health plan contribution, and the City’s pension contributions to CalPERS among other miscellaneous benefits is projected to grow on average at just over 1% annually based on negotiated MOU increases for the early part of the forecast and then grow at over 4% annually thereafter. The forecast assumes continued funding of the City’s unfunded actuarial liability at the $35 million level through Fiscal Year 2028-29, after which the liability is eliminated assuming no dramatic changes in either future CalPERS experience studies or the discount rate. This assumes that the City Council authorizes additional contributions through future surplus balances of $5.0 million tapering to $2.0 million after five years. This is consistent with City Council action in recent years with the recommendation of the Finance Committee. This additional allocation to CalPERS is not 338 Long Range Financial Forecast (LRFF) Update January 13, 2022 Page 7 reflected in the forecast as it is considered discretionary for City Council action on an annual basis and would be funded from prior year surplus. General Fund Expenditure Forecast FY23 – FY27 Non-personnel costs include contract services, utilities, supplies and materials, maintenance and repair, and transfers-out. These expenditures are projected to grow on average at 5.4% annually. Conclusion The City is in excellent financial position relative to most other local agencies with a revenue base and reserves unparalleled by any similar size City in the County. The LRFF projects a surplus balance (revenues net of expenditures) of $2.5 million in Fiscal Year 2022-23. Surpluses are also projected for the remaining years of the model. This is partly due to the compounding effect of constant positive annual growth factors projected for the City’s top three revenue sources. The compounding was mitigated by introducing variable, as opposed to static and linear, growth patterns that more closely align with the normal “ups and downs” of the economic cycle. FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 Regular Salaries 80,216,297$ 81,820,623$ 83,457,035$ 85,126,176$ 86,828,699$ Growth Rate 2.0%2.0%2.0%2.0%2.0% Special and Other Pays 13,713,472$ 13,987,741$ 14,267,496$ 14,552,846$ 14,843,903$ Growth Rate 19.8%2.0%2.0%2.0%2.0% Benefits 1 61,889,034$ 62,158,256$ 62,432,862$ 63,589,024$ 64,803,353$ Growth Rate 0.4%0.4%0.4%1.9%1.9% Non-Personnel Costs 2 107,580,106$ 112,098,583$ 117,438,663$ 123,341,037$ 129,403,997$ Growth Rate 6.0%4.2%4.8%5.0%4.9% Total General Fund Expenditures 263,398,909$ 270,065,202$ 277,596,056$ 286,609,083$ 295,879,952$ Growth Rate 4.0%2.5%2.8%3.2%3.2% Surplus (Deficit)2,502,519$ 8,798,552$ 12,163,260$ 16,214,406$ 18,849,873$ 1 Assumes CalPERS unfunded liability payment remains at a flat $35 million per year through 2029. 2 Assumes transfers out to FFP, CIP, etc. remain flat and includes funds set aside for growth in contingency reserve. 339 Long Range Financial Forecast (LRFF) Update January 13, 2022 Page 8 The City currently has a contingency reserve of $55.3 million, which represents 25% of operating expenditures. This reserve serves as a means to respond to unexpected deviations in operating trends for the 20-year term of the forecast. Historically, the City has not utilized its contingency reserve to balance its annual budgets and only did so recently to cover revenue shortfall during the COVID-19 pandemic. The small proposed draw of less than $3 million from the contingency reserve during Fiscal Year 2020-21 was quickly reversed with the first quarter budget update that year. However, the City is not without its fiscal challenges. Although revenue receipts have improved considerably since the Great Recession and are again recovering quickly from the depths of the COVID-19 pandemic, future recessions or shifts in consumer habits (such as retail purchases or hotel stays) may alter the course of revenues and new patterns may emerge that differ significantly from our past results. Agencies dependent on traditional brick-and-mortar retail stores for a major portion of their sales tax will be facing new challenges in the coming years as merchants retrench and downsize to cope with a rapidly changing environment. Generational preferences for experiences over merchandise, plus the growing costs of health care, education, and housing, are reducing discretionary spending for taxable goods while time-challenged consumers are opting for the convenience of online shopping. The City routinely faces financially impactful events such as significant increases to CalPERS pension plans, unfunded state mandates, and the need to ramp-up savings to meet substantial near-term facilities maintenance and replacement obligations in accordance with our long-term infrastructure financing plans. Fortunately, the City’s revenue strength provides the Council with the ability to make strategic decisions each year that deploy new revenues toward the most critical needs of our citizens. 340 Long Range Financial Forecast (LRFF) Update January 13, 2022 Page 9 In summary, the General Fund is projected to be in a financially sound position over the next 20-year period. Any short term deficits that may arise can be absorbed without long- term reliance on Contingency Reserve – no structural deficit is apparent. Attachment: A. 20-Year LRFF Table and Associated Graph Submitted by: /s/ Scott Catlett Scott Catlett Finance Director/Treasurer 341 ATTACHMENT A 20-YEAR LRFF TABLE AND ASSOCIATED GRAPH 342 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2031-32 FY 2032-33 FY 2033-34 FY 2034-35 FY 2035-36 FY 2036-37 FY 2037-38 FY 38-39 FY 2039-40 FY 2040-41 FY 2041-42 Property Tax 128,341,479$ 134,758,553$ 141,496,481$ 148,571,305$ 155,999,870$ 160,679,866$ 167,107,061$ 175,462,414$ 184,235,534$ 193,447,311$ 203,119,677$ 211,244,464$ 217,581,798$ 226,285,069$ 237,599,323$ 249,479,289$ 261,953,254$ 275,050,916$ 288,803,462$ 300,355,600$ Growth Rate 5.0%5.0%5.0%5.0%5.0%3.0%4.0%5.0%5.0%5.0%5.0%4.0%3.0%4.0%5.0%5.0%5.0%5.0%5.0%4.0% Sales Tax 42,047,799$ 43,309,233$ 44,608,510$ 45,946,766$ 47,325,169$ 48,271,672$ 49,237,106$ 50,714,219$ 52,235,645$ 53,802,715$ 55,416,796$ 57,079,300$ 58,220,886$ 59,385,304$ 61,166,863$ 63,001,869$ 64,891,925$ 66,838,683$ 68,843,843$ 70,220,720$ Growth Rate 4.4%3.0%3.0%3.0%3.0%2.0%2.0%3.0%3.0%3.0%3.0%3.0%2.0%2.0%3.0%3.0%3.0%3.0%3.0%2.0% Transient Occupancy Tax 23,784,366$ 27,352,021$ 28,446,102$ 29,583,946$ 30,767,304$ 31,690,323$ 32,324,130$ 32,647,371$ 33,300,318$ 34,299,328$ 35,671,301$ 37,098,153$ 38,211,098$ 38,975,319$ 39,365,073$ 40,152,374$ 41,356,945$ 43,011,223$ 44,731,672$ 46,520,939$ Growth Rate 25.0%15.0%4.0%4.0%4.0%3.0%2.0%1.0%2.0%3.0%4.0%4.0%3.0%2.0%1.0%2.0%3.0%4.0%4.0%4.0% Other Revenues 71,727,783$ 73,443,947$ 75,208,223$ 78,721,473$ 80,637,483$ 85,830,941$ 87,476,532$ 89,668,255$ 91,422,726$ 93,821,749$ 96,210,067$ 98,667,292$ 101,124,192$ 103,650,837$ 106,416,254$ 109,169,781$ 112,003,754$ 114,920,726$ 117,923,337$ 120,888,353$ Growth Rate 0.01%2.4%2.4%4.7%2.4%6.4%1.9%2.5%2.0%2.6%2.5%2.6%2.5%2.5%2.7%2.6%2.6%2.6%2.6%2.5% Total General Fund Revenue 265,901,427$ 278,863,754$ 289,759,316$ 302,823,490$ 314,729,825$ 326,472,802$ 336,144,828$ 348,492,258$ 361,194,224$ 375,371,103$ 390,417,840$ 404,089,209$ 415,137,973$ 428,296,530$ 444,547,513$ 461,803,313$ 480,205,877$ 499,821,548$ 520,302,315$ 537,985,612$ Growth Rate 5.0%4.9%3.9%4.5%3.9%3.7%3.0%3.7%3.6%3.9%4.0%3.5%2.7%3.2%3.8%3.9%4.0%4.1%4.1%3.4% FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2031-32 FY 2032-33 FY 2033-34 FY 2034-35 FY 2035-36 FY 2036-37 FY 2037-38 FY 38-39 FY 2039-40 FY 2040-41 FY 2041-42 Regular Salaries 80,216,297$ 81,820,623$ 83,457,035$ 85,126,176$ 86,828,699$ 88,565,273$ 90,336,579$ 92,143,310$ 93,986,177$ 95,865,900$ 97,783,218$ 99,738,883$ 101,733,660$ 103,768,333$ 105,843,700$ 107,960,574$ 110,119,786$ 112,322,181$ 114,568,625$ 116,859,997$ Growth Rate 2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0% Special and Other Pays 13,713,472$ 13,987,741$ 14,267,496$ 14,552,846$ 14,843,903$ 15,140,781$ 15,443,597$ 15,752,469$ 16,067,518$ 16,388,868$ 16,716,646$ 17,050,979$ 17,391,998$ 17,739,838$ 18,094,635$ 18,456,527$ 18,825,658$ 19,202,171$ 19,586,215$ 19,977,939$ Growth Rate 19.8%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0% Benefits 1 61,889,034$ 62,158,256$ 62,432,862$ 63,589,024$ 64,803,353$ 66,079,113$ 67,419,762$ 35,718,387$ 37,200,010$ 38,758,161$ 40,397,182$ 42,121,676$ 43,936,512$ 45,846,848$ 47,858,147$ 49,976,194$ 52,207,113$ 54,557,395$ 57,033,910$ 59,643,938$ Growth Rate 0.4%0.4%0.4%1.9%1.9%2.0%2.0%-47.0%4.1%4.2%4.2%4.3%4.3%4.3%4.4%4.4%4.5%4.5%4.5%4.6% Non-Personnel Costs 2 107,580,106$ 112,098,583$ 117,438,663$ 123,341,037$ 129,403,997$ 136,097,163$ 143,232,957$ 143,721,640$ 158,900,069$ 167,494,890$ 176,594,116$ 186,281,810$ 196,598,100$ 207,585,946$ 219,291,347$ 231,763,560$ 245,055,338$ 259,223,184$ 274,327,626$ 290,433,508$ Growth Rate 6.0%4.2%4.8%5.0%4.9%5.2%5.2%0.3%10.6%5.4%5.4%5.5%5.5%5.6%5.6%5.7%5.7%5.8%5.8%5.9% Total General Fund Expenditures 263,398,909$ 270,065,202$ 277,596,056$ 286,609,083$ 295,879,952$ 305,882,330$ 316,432,895$ 287,335,807$ 306,153,774$ 318,507,819$ 331,491,162$ 345,193,347$ 359,660,270$ 374,940,966$ 391,087,829$ 408,156,855$ 426,207,895$ 445,304,932$ 465,516,376$ 486,915,382$ Growth Rate 4.0%2.5%2.8%3.2%3.2%3.4%3.4%-9.2%6.5%4.0%4.1%4.1%4.2%4.2%4.3%4.4%4.4%4.5%4.5%4.6% Surplus (Deficit)2,502,519$ 8,798,552$ 12,163,260$ 16,214,406$ 18,849,873$ 20,590,472$ 19,711,933$ 61,156,451$ 55,040,450$ 56,863,284$ 58,926,678$ 58,895,862$ 55,477,703$ 53,355,564$ 53,459,683$ 53,646,458$ 53,997,982$ 54,516,616$ 54,785,939$ 51,070,230$ 1 Assumes CalPERS unfunded liability payment remains at a flat $35 million per year through 2029. 2 Assumes transfers out to FFP, CIP, etc. remain flat and includes funds set aside for growth in contingency reserve. CITY OF NEWPORT BEACH GENERAL FUND LONG-RANGE FISCAL FORECAST FY 2023 - FY 2042 FY 23 FY 24 FY 25 FY 26 FY 27 FY 28 FY 29 FY 30 FY 31 FY 32 FY 33 FY 34 FY 35 FY 36 FY 37 FY 38 FY 39 FY 40 FY 41 FY 42 NET OPERATING RESULT $2.5 $8.8 $12.2 $16.2 $18.8 $20.6 $19.7 $61.2 $55.0 $56.9 $58.9 $58.9 $55.5 $53.4 $53.5 $53.6 $54.0 $54.5 $54.8 $51.1 ENDING CONTINGENCY FUND BALANCE $57.4 $59.2 $61.0 $63.1 $65.3 $67.7 $70.1 $65.7 $68.4 $71.3 $74.4 $77.6 $81.1 $84.7 $88.5 $92.6 $96.9 $101.4 $106.3 $111.4 TOTAL REVENUES $265.9 $278.9 $289.8 $302.8 $314.7 $326.5 $336.1 $348.5 $361.2 $375.4 $390.4 $404.1 $415.1 $428.3 $444.5 $461.8 $480.2 $499.8 $520.3 $538.0 TOTAL EXPENDITURES $263.4 $270.1 $277.6 $286.6 $295.9 $305.9 $316.4 $287.3 $306.2 $318.5 $331.5 $345.2 $359.7 $374.9 $391.1 $408.2 $426.2 $445.3 $465.5 $486.9 $- $100.0 $200.0 $300.0 $400.0 $500.0 $600.0 $ MILLIONSGENERAL FUND REVENUES, EXPENDITURES & NET OPERATING RESULT (SURPLUS/DEFICIT) FY 23 -FY 42 343 01/13/2022 1 City of Newport Beach General Fund Long Range Financial Forecast Fiscal Years 2023-2042 Finance Committee January 13, 2022 City of Newport Beach – Finance Department 2 Methodology Establish baseline growth scenario for major revenue and expenditure categories Develop unique growth factors for rev/exp items that vary from baseline Create alternate baseline scenarios to model potential fiscal impacts (if needed) 1 2 344 01/13/2022 2 City of Newport Beach – Finance Department 3 Major Assumptions The FY 2021-22 adopted budget, stripped of one-time items, was used as a base budget from which forward growth assumptions were projected Annual General Fund transfers out in support of: FFP – $8.5 million up to $12.5 million in out years annually CIP – $5.0 million annually Facilities Maintenance – $1.5 million annually Tidelands Harbor Capital – $4.5 million annually Contingency Reserve funding annually (maintained at 25% of expenditures) No programing of future surpluses in projections – the forecast assumes all revenues and expenditures are fully realized as presented City of Newport Beach – Finance Department 4 Revenue Assumptions – Property Tax Average annual historical growth: 6.1% Projected future growth: 5.0% 3 4 345 01/13/2022 3 City of Newport Beach – Finance Department 5 Revenue Assumptions – Sales Tax Annual average growth: 4.4% Projected future growth: 4.0% City of Newport Beach – Finance Department 6 Revenue Assumptions – Transient Occupancy Tax Annual average growth: 7.6% Projected future growth: 4.0% Average growth 2017-2019: 5.4% 5 6 346 01/13/2022 4 City of Newport Beach – Finance Department 7 Revenue Assumptions – Other Revenue Top 3 Revenues Other Revenue Projected to grow modestly at 2.6% on average over the next 20 years City of Newport Beach – Finance Department 8 Expenditure Assumptions - Salaries Regular salaries for both miscellaneous and public safety are on average assumed to grow at 2% annually The forecast assumes no growth in personnel headcount Special and other pays (certification pay, bilingual pay, motor office pay, scholastic achievement, etc.) are projected to grow commensurately with salaries at 2% annually FY 2022-23 has a 20% increase from the prior year due to the elimination of an assumed $2,000,000 vacancy-related salary savings that was included in the budget during the two fiscal years most impacted by the pandemic 7 8 347 01/13/2022 5 City of Newport Beach – Finance Department 9 Expenditure Assumptions – Benefits Benefits (stipends, life insurance, Medicare fringes, retiree health plan contribution, CalPERS contributions, etc.) are projected to grow on average at just over 1% annually based on negotiated MOU increases for the early part of the forecast and then grow at over 4% annually thereafter Continued funding of the City’s unfunded actuarial liability at the $35 million level through FY 2028-29, after which the liability is eliminated assuming no dramatic changes in either future CalPERS experience studies or the discount rate This assumes that the City Council authorizes additional contributions through future surplus balances of $5.0 million tapering to $2.0 million after five years This additional allocation to CalPERS is not reflected in the forecast as it is considered discretionary for City Council action on an annual basis and would be funded from prior year surplus City of Newport Beach – Finance Department 10 Expenditure Assumptions – Non-Personnel Non-personnel costs include contract services, utilities, supplies and materials, maintenance and repair, and transfers out These expenditures are projected to grow on average at 5.4% annually 9 10 348 01/13/2022 6 City of Newport Beach – Finance Department 11 Expenditure Growth Assumptions FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 Regular Salaries 80,216,297$ 81,820,623$ 83,457,035$ 85,126,176$ 86,828,699$ Growth Rate 2.0% 2.0% 2.0% 2.0% 2.0% Special and Other Pays 13,713,472$ 13,987,741$ 14,267,496$ 14,552,846$ 14,843,903$ Growth Rate 19.8% 2.0% 2.0% 2.0% 2.0% Benefits 61,889,034$ 62,158,256$ 62,432,862$ 63,589,024$ 64,803,353$ Growth Rate 0.4% 0.4% 0.4% 1.9% 1.9% Non-Personnel Costs 107,580,106$ 112,098,583$ 117,438,663$ 123,341,037$ 129,403,997$ Growth Rate 6.0% 4.2% 4.8% 5.0% 4.9% Total General Fund Expenditures 263,398,909$ 270,065,202$ 277,596,056$ 286,609,083$ 295,879,952$ Growth Rate 4.0% 2.5% 2.8% 3.2% 3.2% City of Newport Beach – Finance Department 12 Projected Future Budget Surpluses or Deficits 11 12 349 01/13/2022 7 City of Newport Beach – Finance Department 13 Conclusion and Other Considerations • The General Fund is projected to be in a financially sound position over the next 20- year period • Any short-term deficits can be absorbed without long-term reliance on the Contingency Reserve – No structural deficit is apparent • The City is not without its fiscal challenges and could face potentially financially impactful events in the near term: • Additional CalPERS pension costs due to future investment losses • Future recessions • Shifts in consumer habits impacting brick and mortar stores or hotels • Near-term facilities maintenance and replacement obligations in accordance with long-term infrastructure financing plans City of Newport Beach – Finance Department 14 Questions? 13 14 350 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5E January 13, 2022 TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Finance Department Scott Catlett, Finance Director/Treasurer 949-644-3123, scatlett@newportbeachca.gov SUBJECT: TIDELANDS FUND BUDGET PRESENTATION OPTIONS SUMMARY: The City of Newport Beach manages and administers the Tidelands on behalf of the people of California through legislative grants administered by the State Lands Commission. The City, as trustee, is required to account for the revenues generated from these lands and the related expenditures independently form the City’s General Fund. This is accomplished through segregation of the related revenues and expenditures into the City’s Tidelands Operating and Capital Funds. Some of the largest expenditures within the Tidelands Operating Fund are allocated costs from the General Fund for Police, Fire, Lifeguard, and other services performed by the City for the benefit of the Tidelands. These allocated costs have been historically presented within the City’s budget and financial statements in two different formats. Staff are recommending a change to bring the budget presentation format in line with the financial statement presentation format in an effort to reduce complexity and increase transparency related to the City’s financial information. RECOMMENDED ACTION: Concur with staff’s recommended changes to the budget presentation format of the Tidelands Operating Fund cost allocations from the General Fund, which will be incorporated into the Fiscal Year 2022-23 City budget. DISCUSSION: Over the past year, Finance Department staff have evaluated the City’s budget and financial statements with a focus on simplification of format, presentation, and structure as well as alignment with best practices. A significant item identified during this review is 351 Tidelands Fund Budget Presentation Options January 13, 2022 Page 2 the presentation of the cost allocations from the General Fund to the Tidelands Operating Fund within the City’s budget document. Currently, the presentation of this information is inconsistent with the presentation of the same information in the City’s financial statements. Staff believe that this historical presentation difference originated from a past sensitivity to highlighting the fact that the Tidelands Operating Fund does not generate sufficient revenues to offset its full costs, including the cost allocations from the General Fund. However, the revenues generated are more than sufficient to fully offset the direct costs accounted for within the Tidelands Operating Fund. The allocated costs currently amount to approximately $16 million per year, and include the following components: Allocated Cost Amount Lifeguard Services $ 6,500,000 Police Services 3,500,000 Fire Operations 2,300,000 Street Maintenance 2,200,000 Parking Management 700,000 Facilities Maintenance 400,000 Other 400,000 Total $ 16,000,000 While the expenditure budget for the Tidelands Operating Fund varies from year to year, additional expenses including salaries and benefits, contract services, and oil and gas well operations typically amount to around $2.6 million, bringing the total budget for the Tidelands Operating Fund, in this example, to $18.6 million. Revenues generated from the Tidelands that are allocated to the Tidelands Operating Fund are less, at approximately $12.0 million. This results in a deficit of revenues versus expenditures (including allocated costs from the General Fund) of approximately $6.6 million. The presentation format currently utilized in the City’s budget document nets the $6.6 million deficit against the $16.0 million amount of the identified cost allocations and reflects a transfer to the General Fund from the Tidelands Operating Fund of $9.4 million. In the City’s financial statements, a cost allocation from the General Fund to the Tidelands Fund equal to the full $16.0 million of allocated costs is shown, along with an offsetting reduction of $6.6 million to cover the deficit. While these two presentation formats are different, the net impact on the fund balance of the two funds is the same. However, as a result of the presentation differences, budget to actual data is confusing to analyze without explanation. In an effort to reduce complexity and improve transparency, staff are, therefore, recommending that both the City’s budget and financial statements present the full amount of the cost allocations as a transfer into the General Fund and the amount required to cover the deficit as a transfer 352 Tidelands Fund Budget Presentation Options January 13, 2022 Page 3 out of the General Fund so that budget to actual comparison is in sync and does not require explanation. The impact of the change on the General Fund budget is illustrated below. Current Budget Revised Budget Operating Revenues $ 234,000,000 $ 234,000,000 Transfers In – Tidelands 9,400,000 16,000,000 Transfers In – Other Funds 2,600,000 2,600,000 Total Sources $ 246,000,000 $ 252,600,000 Current Budget Revised Budget Operating Expenditures 226,000,000 226,000,000 Transfers Out – Tidelands (Subsidy) --- 6,600,000 Transfers Out – Other Funds 20,000,000 20,000,000 Total Uses $ 246,000,000 $ 252,600,000 As a result of this change, both the revenue and expenditure budget for the City’s General Fund will increase by the amount of the subsidy provided to the Tidelands Operating Fund, which in this example is $6.6 million. The change will have no impact on the actual net amount of funds moving between the General Fund and the Tidelands Operating Fund each year. Prepared and Submitted by: /s/ Scott Catlett _____________________________ Scott Catlett Finance Director/Treasurer 353 01/13/2022 1 Tidelands Fund Budget Presentation Options Finance Committee January 13, 2022 City of Newport Beach – Finance Department 2 Background The Tidelands Operating Fund includes budgets for: Harbor Department staff and operations Management of Tidelands property Oil well operations Costs allocated from the General Fund Allocated costs include:Allocated Cost Amount Lifeguard Services $ 6,500,000 Police Services 3,500,000 Fire Operations 2,300,000 Street Maintenance 2,200,000 Parking Management 700,000 Facilities Maintenance 400,000 Other 400,000 Total $ 16,000,000 1 2 354 01/13/2022 2 City of Newport Beach – Finance Department 3 Current Financial Reporting The Tidelands Operating Fund requires an ongoing operating subsidy Revenues $ 12.0 million Expenditures $ 18.6 million $2.6 operations / $16.0 allocations Subsidy $ 6.6 million / year Currently the cost allocations and subsidy are presented differently in the City’s budget and financial statements Budget – The subsidy is netted against the cost allocations as a transfer into the General Fund from the Tidelands Fund of $9.4 million ($16.0 million of allocations less $6.6 million subsidy) Financial Statements – Cost allocations of $16.0 million are recorded as negative expenditures in the allocating departments and the subsidy is shown as a transfer out of the General Fund of $6.6 million, netting to the same $9.4 million City of Newport Beach – Finance Department 4 Proposed Financial Reporting Staff propose a change to make the budget and financial statements consistent The full amount of the cost allocation will be reflected as a transfer into the General Fund The full amount of the subsidy will be reflected as a transfer out of the General Fund Records will clearly illustrate the budgeted and actual allocations and subsidy for each year There is no net impact on either fund as a result of this change Current Budget Revised Budget Operating Revenues $ 234,000,000 $ 234,000,000 Transfers In –Tidelands 9,400,000 16,000,000 Transfers In –Other Funds 2,600,000 2,600,000 Total Sources $ 246,000,000 $ 252,600,000 Operating Expenditures 226,000,000 226,000,000 Transfers Out –Tidelands (Subsidy) ---6,600,000 Transfers Out –Other Funds 20,000,000 20,000,000 Total Uses $ 246,000,000 $ 252,600,000 3 4 355 01/13/2022 3 City of Newport Beach – Finance Department 5 Recommendation Staff are requesting the Finance Committee’s concurrence with the proposed presentation change The change would be incorporated into the FY 2022-23 budget and financial statements City of Newport Beach – Finance Department 6 Questions? 5 6 356 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5F January 13, 2022 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE FROM: Finance Department Scott Catlett, Finance Director/Treasurer 949-644-3123 or scatlett@newportbeachca.gov SUBJECT: BUDGET AMENDMENTS FOR QUARTER ENDING DECEMBER 31, 2021 EXECUTIVE SUMMARY The purpose of this memorandum is to report on the budget amendments for the second quarter of Fiscal Year 2021-22. 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 Attachment A. Prepared by: Submitted by: /s/ Lisa Abbaszadeh /s/ Scott Catlett Lisa Abbaszadeh Scott Catlett Budget Analyst Finance Director/Treasurer Attachment: A. Budget Amendments Fiscal Year 2021-22 Quarter Ending December 31, 2021 357 ATTACHMENT A BUDGET AMENDMENTS FISCAL YEAR 2021-22 QUARTER ENDING DECEMBER 31, 2021 358 BA #Date Amendment Type Fund Revenues Expenditures Net Effect on Fund Balance Increase/(Decrease)Department Explanation 005 11/16/2021 City Council GENERAL FUND 3,613,276.13 1,155,507.64 2,457,768.49 Finance To increase revenue estimates and expenditure appropriations relating to the fiscal year 2021-22 quarter one staff report.016 10/12/2021 City Council TIDE & SUBMERGED LANDS FUND - 350,000.00 (350,000.00) Public Works To increase expenditure appropriations from unappropriated Tidelands Maintenance fund balance to fund the Beach and Bay Sand Management CIP Account to allow for the remaining known funding needs through the contract period. 017 10/12/2021 City Council ASSESSMENT DIST #120 37,500.00 37,500.00 - Public Works GENERAL FUND - 37,500.00 (37,500.00) 018 11/16/2021 City Council GENERAL FUND - 77,310.37 (77,310.37) Human Resources TIDE & SUBMERGED LANDS FUND - 663.15 (663.15) WATER ENTERPRISE FUND - 1,030.49 (1,030.49) IT ISF - 7,097.83 (7,097.83) 019 10/26/2021 City Council FACILITIES FINANCING PLAN 10,500,000.00 - 10,500,000.00 Finance GENERAL FUND CAPITAL PROJECTS 15,500,000.00 - 15,500,000.00 GENERAL FUND - 31,000,000.00 (31,000,000.00) 020 10/26/2021 City Council GENERAL FUND - 215,000.00 (215,000.00) City Clerk To increase expenditure appropriations to cover the cost of the Special Election which proposes a Charter Amendment to provide for the direct election of the Mayor of the City of Newport Beach. 021 11/18/2021 City Council GENERAL FUND 579,129.00 310,177.00 268,952.00 Fire To increase revenue estimates and expenditure appropriations related to the Medi-Cal Intergovernmental Transfer (IGT) Program. Federal funds received are used to offset previously unreimbursed costs for providing Medi-Cal plan members emergency medical and transport services. 022 11/16/2021 City Council TIDE & SUBMERGED LANDS FUND - 140,000.00 (140,000.00) Public Works To appropriate $140,000 from Tidelands Capital Fund unappropriated fund balance to Tidelands Maintenance Fund.023 10/20/2021 City Manager TIDELANDS HARBOR CAP FUND - 3,611.75 (3,611.75) Public Works To increase expenditure appropriations from Tidelands unappropriated fund balance to cover the final payment and reimbursement request on the current SAVE grant. 024 11/01/2021 City Manager GENERAL FUND - 75,000.00 - Public Works To transfer existing expenditure appropriations from fire operation expense accounts to fire operations equipment account to pay for the purchase and installation of a plymovment system for Project 15F13 - Fire Station.025 11/09/2021 City Manager GENERAL FUND 1,600.00 1,600.00 - Library To increase revenue estimates and expenditure appropriations from the Literacy Services Special Deposit Account. Funds will be allocated to various Literacy Services accounts. 026 12/14/2021 City Council GENERAL FUND 40,292.00 40,292.00 - Library To increase revenue estimates and expenditure appropriations from the California Literacy Campaign. Funds will be allocated to various Library Literacy Services accounts. 027 11/10/2021 City Manager TIDE & SUBMERGED LANDS FUND - 2,000.00 - Harbor To transfer existing expenditure appropriations from harbor department print services other vendor to harbor department office furniture/fixtures. 028 11/16/2021 City Manager CONTRIBUTIONS FUND 1,042,000.00 1,042,000.00 - Public Works To increase expenditure and revenue appropriations to fund the contingency for contract 7833-1. Fees collected from utility companies offset the increase in project cost. The City Manager signed the memo dated October 14, 2021 approving the contingency.029 11/30/2021 City Council GENERAL FUND - 50,000.00 (50,000.00) City Manager To increase expenditure appropriations to City Council's professional services budget. Appropriations will be used to retain a government relations consultant to represent the City of Newport Beach on matters related to group residential uses. To allocate unrestricted General Fund resources toward CalPERS unfunded liability, Facilities Financial Plan infrastructure liabilities, and neighborhood enhancement projects. City of Newport BeachFiscal Year 2021-22 Budget Amendments Quarter Ending December 31, 2021 To increase expenditure appropriations in Assessment District #120 with an advance from General Fund unappropriated fund balance to have the assessment engineer prepare a new Engineer's Report and to circulate ballots for property owners votes on the revised assessments. To increase salaries and benefit expenditure appropriations from General Fund, Water, and Information Technology unappropriated fund balance to provide funding levels commesurate with the new Memorandum of Understanding with the City Employee's Association (CEA) and Profession Technology Association (Prof-Tech). The budget amendment provides the additional funding for the first 13 pay periods of the contract (January 1, 2022 - June 30,2022). Future fiscal year budgets will be developed to include the full cost increases associated with the contract. 359 BA #Date Amendment Type Fund Revenues Expenditures Net Effect on Fund Balance Increase/(Decrease)Department Explanation City of Newport BeachFiscal Year 2021-22 Budget Amendments Quarter Ending December 31, 2021 030 12/14/2021 City Council GENERAL FUND - 469,638.00 (469,638.00) Human Resources To increase salary & benefit appropriations to fund the new MOU with Newport Beach Fire Association (NBFA).031 12/14/2021 City Council GENERAL FUND - 891,724.11 (891,724.11) Human Resources To increase salary & benefit appropriations to fund the new MOU with Newport Beach Police Association (NBPA).032 12/06/2021 City Manager GENERAL FUND 2,337.00 2,337.00 - Library To increase revenue estimates and expenditure appropriations to record a check received from Santiago Library System to augment the current collection. 033 12/15/2021 City Manager GENERAL FUND 7,272.72 7,272.72 - Fire To increase revenue and expenditure budgets to reflect the donation from ABC7 and contribution to various charities as participation in the Spark of Love event. 360 1/6/22 Scheduled Date Agenda Title Report Type Agenda Description Thursday, January 13, 2022 Financial Statement Audit Results and Related Communication Presentation The City’s external auditors will meet with the Finance Committee to discuss the results of their audit for the fiscal year ending June 30, 2021. Internal Audit Program Reports Presentation Presentation of reports, findings, and recommendations from the FY 2020-21 audit program. Internal Audit Program Work Plan Review Presentation Selection of audit topics for the FY 2021-22 audit program. Rescheduled from November Long Range Financial Forecast (LRFF) Update Presentation Staff will brief the Committee regarding the results of the updated LRFF analysis. Tidelands Fund Budget Presentation Options Presentation Staff will provide the Committee with an overview of the current method of reflecting cost allocations to the Tidelands Fund in the City's budget and several recommended options to improve transparency in the budget document relative to these interfund allocations. Budget Amendments for Quarter Ending December 31, 2021 Receive and File Staff will report on the budget amendments from the prior quarter. Thursday, February 9, 2022 Facilities Financial Plan (FFP), Harbor & Beaches Master Plan, and Capital Improvement Program (CIP) Update Presentation Staff from Public Works and Finance will provide an update on the current status of FFP and Harbor & Beaches Master Plan funding, as well as what is planned for inclusion in the FY 2022-23 CIP. Internal Service Funds Update Presentation Staff will provide the Committee with an update on the health of the City's insurance, vehicle, equipment, and other internal service funds. Internal Audit Program Reports (Part 2)Presentation Presentation of reports, findings, and recommendations from the FY 2020-21 audit program. Second Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected FY 2021-22 budget performance. Thursday, March 10, 2022 Fee Study Update Presentation Staff will present the Master Fee Schedule to the Finance Committee prior to presenting it to the City Council. OPEB Actuarial Valuation Report Update Presentation Staff will provide the Committee with an overview of the latest actuarial valuation report prepared by the City's actuary. Overview of Revenue Projections Presentation Staff will provide the Committee with an overview of the assumptions utilized to prepare revenue projections for the City's major funds as part of the FY 2022-23 budget preparation process. Internal Audit Program Update Verbal Update Bi-monthly progress update on the internal audit program. Newport Beach Finance Committee Work Plan January 2022 February 2022 March 2022 I:\Users\FIN\Shared\Admin\Finance Committee\WORK PLAN\2022\WORK PLAN 2021 - 1-6-2022 1361 1/6/22 Scheduled Date Agenda Title Report Type Agenda Description Newport Beach Finance Committee Work Plan Thursday, April 14, 2022 Proposed FY 2022-23 Budget Overview Presentation Staff will provide the Committee with an overview of the expenditure budget for FY 2022-23 that will be presented to the City Council in May. Budget Amendments for Quarter Ending March 31, 2022 Receive and File Staff will report on the budget amendments from the prior quarter. Thursday, May 12, 2022 Third Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected Fiscal Year 2021-22 budget performance. Follow-Up Discussion of Proposed FY 2022-23 Budget Discussion Staff will provide the Committee with a copy of the Fiscal Year 2022-23 proposed budget document. Should the Committee wish to continue April's discussion of the Fiscal Year 2022-23 budget, this is also an opportunity to do so. Internal Audit Program Update Verbal Update Bi-monthly progress update on the internal audit program. Thursday, May 26, 2022 Financial Statement Auditor's Communication with the Finance Committee acting as the City's Audit Committee Presentation The City's external auditors, Davis Farr LLP, will provide an overview presentation regarding the audit process and request feedback from the Committee regarding any information that may assist them in their audit of the City's financial statements. Committee Recommendation to Council for the FY 2022-23 Budget Discussion Discussion of the Study Session earlier in the week and formulation of any recommendations to be presented to the City Council at the budget public hearing in June. Thursday, September 15, 2022 Annual Review of Investment Performance Presentation The City's investment advisor, Chandler Asset Management, will report on the performance of the City's investment portfolio for the fiscal year ending June 30, 2022. Annual Review of Investment Policy Presentation Staff will provide a presentation regarding any changes proposed to the City's Investment Policy by staff or the City's investment advisor prior to the Investment Policy being approved by the City Council. New Item Overview of Police Department Budget Presentation Staff will provide the Committee with a presentation covering the budget for the Police Department. Internal Audit Program Update Verbal Update Bi-monthly progress update on the internal audit program. April 2022 June 2022 May 2022 Committee Recess July 2022 Committee Recess August 2022 September 2022 Committee Recess I:\Users\FIN\Shared\Admin\Finance Committee\WORK PLAN\2022\WORK PLAN 2021 - 1-6-2022 2362 1/6/22 Scheduled Date Agenda Title Report Type Agenda Description Newport Beach Finance Committee Work Plan Budget Amendments for Quarter Ending June 30, 2022 Receive and File Staff will report on the budget amendments from the prior quarter. I:\Users\FIN\Shared\Admin\Finance Committee\WORK PLAN\2022\WORK PLAN 2021 - 1-6-2022 3363 1/6/22 Scheduled Date Agenda Title Report Type Agenda Description Newport Beach Finance Committee Work Plan Thursday, October 20, 2022 Year-End Budget Results Presentation Staff will provide a presentation regarding the year-end budget results for FY 2021-22. Revenue Audit Program Update Presentation Staff will provide an update on audits conducted by the Revenue Division to verify transient occupancy tax (hotels, agents and residential owners), charter boat company, waste hauler, etc. revenue collections. Budget Amendments for Quarter Ending September 30, 2022 Receive and File Staff will report on the budget amendments from the prior quarter. Thursday, November 10, 2022 CalPERS Update Presentation Staff will provide the Committee with an overview of the data from the latest actuarial reports from CalPERS as well as their impact on prior projections of the paydown of the City's unfunded pension liability. First Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected FY 2022-23 budget performance. Long Range Financial Forecast (LRFF) Update Presentation Staff will brief the Committee regarding the results of the updated LRFF analysis. Internal Audit Program Update Verbal Update Bi-monthly progress update on the internal audit program. November 2022 December 2022 Committee Recess October 2022 I:\Users\FIN\Shared\Admin\Finance Committee\WORK PLAN\2022\WORK PLAN 2021 - 1-6-2022 4364