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Home My WebLink About00 - City Council Planning Session - PowerPoint 1January 29, 2022 Planning Session �t SEW Fp�� O G Z e.. Cq�/FOF�N�P city Council January 29, 2022 Financial Overview City of Newport Beach Adopted Budget Q1 Projection Current Projection $234.1million $ 237.9 million $ 249.2 million • $15.1 million of projected positive variance • Continuing positive trends seen year to date • Primary variances from adopted budget • Property Tax + $1.2 million • Sales Tax + X2.8 million • Transient Occupancy Tax + $6.5 million • Property Transfer Tax + X1.3 million City of Newport Beach Ln $250 C: 0 $200 $150 MrATMI $50 Adopted Q1 Current Projection Projection ■ Property Tax ■ Sales Tax ■ TOT ■ Other 3 Property Tax Revenue The top three revenues C, $13° $123 o $120 account for over 75% of all $11O $113 $119 $100 $1o8 General Fund revenue $90 $102 $8o Property tax assessed 2017-18 2o18-19 2019-20 2020-21 2021-22 Actual Actual Actual Actual Projected value drove growth sales Tax Revenue projection higher o $440 $43 — Record year for sales tax $36 $39 $36 $39 $ 35 revenues with strong $32 2017_18 2°18_19 2019_20 2020_21 2021_22 growth across the board Actual Actual Actual Actual Projected TOT Revenue Hotel TOT revenues not yet Ln C $26 $26 at pre-COVI D level, but $22$�3 $18 $25 $21 offset by strong growth in $so $1' TOT 2017-18 2018-19 2019-20 2020-21 2021-22 residential Actual Actual Actual Actual Projected City of Newport Beach 4 • The Finance Committee will review the Second Quarter Budget Update on February lot", followed by City Council review on February 22nd • Departments' spending is tracking as expected • Material mid -year appropriations have included • Implementation of new labor agreements • Up -front (reimbursable) engineering costs forAD #124 • Revenue growth is anticipated to fully offset the mid -year appropriations City of Newport Beach E • Projected budget surplus is dependent on many variables • Changing revenue landscape • Size of expenditure savings • Expenditure savings will be smaller than usual, as was the case last year, due to the $2.o million vacancy factor included in the adopted budget • The projected growth in current year revenues plus likely expenditure savings should yield a sizable budget surplus if current projections are achieved City of Newport Beach 6 2020-21 Actual 2021-22 Projected 2022-23 Projected $ 235.9 million $ 249.2 million $264.7 million Ln $300 C: 0 $250 $200 • $15.5 million of projected revenue growth $150 • These are early projections and will be revised $100 • Drivers of revenue growth • Property Tax + s8.o million • Sales Tax + X2.3 million • TOT+$2.2million • Fees and other + $3.0 million City of Newport Beach $50 FY 2020- FY 2021- FY 2022- 21 22 23 ■ Property Tax ■ Sales Tax ■ TOT ■ Other 7 • Property tax revenue is projected to be 50% of General Fund revenues • Secured property tax growth projected to be 6.5% • Proposition 13 CPI factor will be the full allowable 2% • Strong sales activity has pushed the growth rate to its highest level since 2o18/1g Ln $140 +6.5% C +3.6% 0 $130 +5.2% +4.6% $131 $120 +6.7% $123 3 + $110 4• $119 $113 $100 $97 $1o8 $102 $go 2o16-17 2017-18 2o18 -1g 2019-20 2020-21 2021-22 2022-23 Actual Actual Actual Actual Actual Projected Projected City of Newport Beach 8 • Sales tax revenue is projected to be 17% of General Fund revenues • Revenue reached pre -pandemic levels last fiscal year • Cautious growth projections have turned optimistic as multiple quarters of significant growth have now been recorded • Auto sales remain strong, with inventory declines offset by price increases • Restaurant and hotel receipts have now exceeded pre -pandemic levels • Brick and mortar retail establishment receipts are back as well +5.3% Ln $46 +3.0.5% C +7.5% _ $42 -5.9% $45 +9.9% $43 +4-0% $38 $39 $39 $34 0. $35 $36 $34 $30 2o16-17 2017-18 2018-1g 2019-20 2020-21 2021-22 2022-23 Actual Actual Actual Actual Actual Projected Projected City of Newport Beach Q >,' 1117TT • Transient occupancy tax revenue is projected to be 11% of General Fund revenues • Revenue is now projected to exceed pre -pandemic levels this fiscal year • Hotel TOT revenues are projected to exceed pre -pandemic levels next fiscal year and residential TOT revenues are at a record high level and growing • Cautious growth projections have turned optimistic as multiple hotel properties are reporting record TOT collections with room rates consistently higher than in prior years • Projections do not account for any impact from the Marriott Hotel renovation and do not assume a reopening of the Fashion Island Hotel +8.7% Ln $30 -19.0% +51.4% C -15.6% $26 +8.2% $28 +i.4% $22 $25 $26 $22 $23 $18 $21 $17 $14 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 Actual Actual Actual Actual Actual Projected Projected City of Newport Beach 10 Operating Budget Development City of Newport Beach 11 mk7 Ea�-j JANUARY NOVEMBER FEBRUARY COUNCIL PLANNING SESSION DEPARTMENTAL Begin ffeevrff wrth departmemy to A7.qew AUTUMN/WINTER budgElyear as APRIL PREPARATION opinions from c=Oanmleparts for speda&e fnPrewsVrig sionomic trena!s. Start descuss6ons v&h Departments and the FINALIZE Crty Manager to)dentify areas where LIABILITIES & LONG - chor�gesin mr&e defWyy mighr be in arder. CITY MANAGER RANGE PLANNING PERSU.',.%-.- OPERATING REVIEW RmbateopenmigArabWes.sucA BUDGET DEVELOPMENT ftvawthaCfly!srewnueand as WorkersGDmpaum%,aR Genera: Co C- . ,- --.: , -, - , - -;- ;: -; : , , �:;!nrlg experldftum assuuFdms� Cky thg&kly. Pension.UndRELVE'a Mbn%,er makes pm6mkray WsyrwtE LfabMes Perzemrie.' a: eid'az ^g orer.—.!7jchonges. rKa-wNdWorm Cl LJ M% 61 — mk7 Ea�-j 0 NOVEMBER FEBRUARY REVENUE DEPARTMENTAL Begin ffeevrff wrth departmemy to A7.qew BUDGET revenue pr4eWonsondseek outside PREPARATION opinions from c=Oanmleparts for speda&e fnPrewsVrig sionomic trena!s. Start descuss6ons v&h Departments and the Crty Manager to)dentify areas where chor�gesin mr&e defWyy mighr be in arder. JUNE CITY COUNCIL REVIEW CAyCWndf1EVf9M aCYLM and VOMS unp-po-sed butet f-bft qzgram eniaanrernerus & bum mvewm MAY JULY FINANCE COMMITTEE REVIEW BUDGET F&rxvxe Commmee wY? make IMPLEMENTATION recon7nerm&mm to support or &4= ae@M FLZd Year with budgetasmvripgarn to the QyCoun& 3d0PrGdbVQW City of Newport Beach 12 Meeting Type Sat, Jan 29, 2022 Special Council Meeting Tues, March 8, 2022 Council Study Session Thurs, March 10, 2022 Thurs, April 14, 2022 Tues, May 10, 2022 Tues, May 24, 2022 Tues, June 14, 2022 Finance Committee Finance Committee City Council Planning Session Early Look at the Capital Improvement Program Overview of Revenue Projections Proposed FY 2022-23 Budget Overview Council Study Session FY 2022-23 1St Budget Review Joint Council / Finance FY 2022-23 2nd Budget Review Committee Study Session Council Public Hearing Adoption of FY 2022-23 budget City of Newport Beach 13 • Continuation of discretionary payments to CalPERS • Ensuring proper funding of long-term infrastructure maintenance and replacement • Service Needs • Police Department Equipment • Homeless Services and Initiatives • Staffing retention and managing workload demands City of Newport Beach 14 Pension Funding Update City of Newport Beach i5 • In November 2019, the Finance Committee endorsed staff's recommendation to anticipate a future drop in the discount rate $35 million ongoing contribution to the unfunded liability to remain in place as part of the baseline budget • Additional $5 million per year contribution to be added for five years with a $2 million per year contribution thereafter • The Council endorsed this strategy for the FY 2020-21 budget, with direction to revisit the plan's adequacy and the approach each year • Strategy was maintained in the FY 2021-22 budget City of Newport Beach 16 • The City's unfunded liability has not changed much in the last three years due to the ongoing actuarial changes and investment losses and in spite of the discretionary payments • Phased discount rate reduction from 7.5% to 7.0% • Two years below the target return • The 21.3% investment return in FY 2020-21 has significantly reduced the City's liability, even with a recent discount rate reduction to 6.8% Unfunded Liability Funded Percentage Investment Return * Projected $ 333,135,247 $ 326,289,861 66.9% 68.7 8.6% 6.7% City of Newport Beach $ 333,046,257 69.2% 4.7% $ 234,909,i63 79.5% 21.3% 17 • As can be seen in the chart, projections change from year to year as assumptions change and investment returns fluctuate • In 2019, staff projected that the liability would be eliminated in 2034, the projected date slipped to 2036 in 202o, and now the date has been reduced to 2030 105.0% 100.0% 95.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 — 2019 Projection — 2020 Projection — 2021 wl Additional Discretionary Payments — 2021 Projection City of Newport Beach • Staff recommends continuing with the accelerated payment strategy recommended in 2019, which is expected to: • Pay down the current liability in FY 2028-29 • Reduce long-term pension costs • The current plan calls for the baseline FY 2022-23 budget to include a $35.0 million payment toward the unfunded liability, with an additional $5.0 million payment evaluated at year-end based on the size of the FY 2021-22 budget surplus • Based on the preliminary FY 2022-23 revenue projection and depending on final budget enhancement requests, staff may recommend including the full $40.0 million payment in the baseline budget • City Council policy F-5 would still require additional year-end discretionary payments toward liabilities from surplus, which could further accelerate the City's pay -down of the pension liability City of Newport Beach 19 Infrastructure Maintenance and Replacement City of Newport Beach 20 • The City has a longstanding practice of setting aside funds to cash fund replacement of City buildings and infrastructure • Facilities Financial Plan (FFP) • Harbor &Beaches Master Plan • The City also has an ongoing program for major facility maintenance • Facility Maintenance Management Plan (FMMP) • Funds are also set aside for vehicle and equipment replacement through internal service funds (ISPs) City of Newport Beach 21 Facilities Financing Plan (FFP) Harbor & Beaches Capital Plan Facilities Maintenance Plan (FMMP $8,500,000 $6,000,000 $1,000,000 $8,500,000 $4,000,000 $1,000,000 $8,500,000 $5,500,000 $2,500,000 $8,500,000 $4,500,000 $1,000,000 $8,500,000 $4,500,000 $1,500,000 FFP contributions have been stable, and under current policy would remain at s8.5 million until 3% of General Fund revenues exceeds this amount • The Civic Center debt service annually consumes s8.o million of this amount, and with the addition of the new Fire Station COP debt the amount has increased to s8.7 million per year • Staff is recommending increasing the transfer to at least equal the amount of the debt service and highlighting the portion of the transfer that relates to debt service in the budget document and presentations • Staff is also evaluating to what extent the FFP Fund should rely on funding from development agreements, versus General Fund resources, and whether 3%of General Fund revenues is the appropriate amount for the annual transfer City of Newport Beach 22 Facilities Financing Plan (FFP) Harbor & Beaches Capital Plan Facilities Maintenance Plan (FMMP $8,500,000 $6,000,000 $1,000,000 $8,500,000 $4,000,000 $1,000,000 $8,500,000 $5,500,000 $2,500,000 $8,500,000 $4,500,000 $1,000,000 $8,500,000 $4,500,000 $1,500,000 Harbor & Beaches Capital Plan contributions have varied, but are currently $4.5 million per year • The Harbor Commission has just reviewed and updated the plan • Staff will be recommending maintaining an appropriate funding amount based on the updated plan and assuming future increases based on inflation FMMP contributions have also varied • Beginning next fiscal year, staff will be recommending a$2.5 million ongoing contribution, indexed to inflation, to ensure adequate maintenance of existing City facilities The Finance Committee will review these issues in February City of Newport Beach 23 • Following the Finance Committee's review, staff anticipates recommending additional recurring allocations to these programs in the fiscal year ahead • Funding for vehicle replacement and equipment internal service funds is also being evaluated by staff and reported to the Finance Committee to ensure: • Comprehensiveness of included assets • Planning for technology changes • Indexing contributions to inflation City of Newport Beach 24 Service Needs City of Newport Beach 25 • Body Worn Cameras • Implementation of a program comparable to many surrounding jurisdictions • Anticipate utilizing current mobile video vendor to maximize cost efficiencies, initial cost: $450,000 ($345000 for the system + $205,000 for staff) • Staff is evaluating potential reallocation of vacant City position • Ongoing costs would include: • Community Services Officer to process video sio5,000 • Annual costs for the system $195,000 • Taser Replacement - siio,000/year City of Newport Beach 26 Outreach Programs • City Response: Homeless Ad Hoc Committee, Homeless Outreach Team, Rapid Response Team, Good Giving Campaign • City Contracted Services: City Net, Costa Mesa Temporary Bridge Shelter, Be Well OC Mobile Crisis Unit, Permanent Supportive Housing, Trellis International Community Impact Team Program • Countywide Coordination within the Orange County Central Service Planning Area (SPA) • State and Federal Programs: Emergency Housing Vouchers, Project Roomkey, Project Homekey City of Newport Beach 27 Homeless Outreach Programs Expenses FY 2021-22 Budgeted FY 2022-23 Proposed Dedicated Homeless Outreach Staff Homeless Liaison Officer and Homeless Services Coordinator Salaries & Benefits $373,616 $352,815 Total $573,616 $382,818 Homeless Assistance Transportation, Meals, Temporary Hotel Stays, Clothing, COVID Testing $10,000 $20,000 Total $10100 $20,000 Contracted Services City Net $164,985 $171,555 Be Well OC Mobile Crisis Unit $1,093,180 $1,09.3,150 Trellis Cornmunity IrnpactTeam $30,000 $30,000 Costa Mesa Temporary Bridge .Shelter Partnership $1,020,000 $1,060,800 Total $2,308,165 $2,355,565 Cumulative Total $2,691,781 $2,758,383 Funding Sources: General Fund, Hoag Development Agreement, SB2, CDBG-Covid, Donations City of Newport Beach 28 Permanent Supportive Housing • Selected through Request for Proposals, Jamboree Housing and National Community Renaissance (CORE) continue to look for project sites in Newport Beach • Challenging to find financially viable sites • City committed to providing $3 million of City funds • s1 million allocated last fiscal year • Two Development Agreements include $z.1 million of funding for homelessness and affordable housing that could be utilized for this purpose City of Newport Beach 29 • The City continues to be very judicious in adding full-time positions only when necessary • As part of the annual budget process, staff reviews all positions and makes recommendations for adjustments as needed to maintain services levels and enhance efficient operations • This year, with a more competitive labor market, we are focused on the following areas: • Part-time staff positions that would be more efficient and effective as full-time positions • Contract resources that would be more cost effective as full- or part-time positions • Continued staffing in areas of high workload demands City of Newport Beach 30 • Proposed adjustments are being reviewed with departments and the highest priorities will be included in the Recommended Budget for City Council review • Fiscal impact to these adjustments are minimal, primarily conversion or reallocation of existing budgeted hours and dollars City of Newport Beach 31 Questions? City of Newport Beach —Finance Department 32