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HomeMy WebLinkAboutApproved Minutes - February 9, 2022Finance Committee Meeting Minutes February 9, 2022 Page 1 of 9 CITY OF NEWPORT BEACH FINANCE COMMITTEE FEBRUARY 9, 2022 MEETING MINUTES I.CALL MEETING TO ORDER The meeting was called to order at 3:00 p.m. in the Newport Beach Central Library, Friends MeetingRoom, 1000 Avocado Avenue, Newport Beach, CA 92660. II.ROLL CALL PRESENT:Chair Will O’Neill, Mayor Pro Tem Noah Blom, Council Member Brad Avery, 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, Administrative Specialist to the Finance Director Marlene Burns, Deputy Finance Director Michael Gomez, Public Works Finance/Administrative Manager Theresa Schweitzer, Budget Manager Shelby Burguan, Senior Budget Analyst Amber Haston, Purchasing and Contracts Administrator Sander Huang, Police Support Services Administrator Jonathan Stafford, Management Assistant/Fire Lili Melero, Fire Administrative Manager Mary Locey, Public Works Director Dave Webb, Deputy Public Works Director/City Engineer Jim Houlihan, Public Works Administrative Manager Chris Miller, and IT Manager Avery Maglinti MEMBERS OF THE PUBLIC: Jim Mosher, Charles Klobe, and Harbor Commissioner Don Yahn OTHER ENTITIES: None III.PUBLIC COMMENTS Jim Mosher encouraged staff to advise the public when a substantial change is made, especiallyregarding financial information, and noted the Finance Committee should also be apprised of thechange. He referenced a website that listed all approved contracts that were approved in the previous 30-days and advised it disappeared last summer. He inquired if the Finance Committeeshould have been notified of the change. He reported the budget no longer shows individualpositions within a department and anticipated employee expense and believes the FinanceCommittee should have been apprised of the change. He advised the link for the Open Budget had been deleted from the City Budget and Salary information site and when searching for the contractfor Open Budget has not been renewed. He encouraged the Finance Committee to investigate the changes. Charles Klobe reported Supervisor Katrina Foley has publicly requested input on how to spend theCounty’s allocation of $300 million of American Rescue Plan Act (ARPA) funds and inquired if the staff was communicating with her on how those funds may benefit the City. Finance Director/Treasurer Scott Catlett reported he will investigate what happened to the contractspage on the website. Finance Committee Meeting Minutes February 9, 2022 Page 2 of 9 Chair O’Neill confirmed the budget does not have individual salary information and expense information and requested the information be made available back into the budget. He advised the ARPA funds will be discussed during the meeting. IV. CONSENT CALENDAR MINUTES OF JANAURY 13, 2022 Recommended Action: Approve and file. Chair O’Neill called for public comments and hearing none, closed the public comments. MOTION: Mayor Pro Tem Noah Blom moved to approve the minutes, as amended, seconded by Committee Member Collopy. The motion carried 6 ayes – 0 noes, 1 abstention (Committee Member Reed) V. CURRENT BUSINESS A. CAPITAL IMPROVEMENT PROGRAM (CIP) UPDATE Summary: Staff from Public Works will provide an update on what is planned for inclusion in the Fiscal Year 2022-23 CIP. Recommended Action: Receive and File. Public Works Director Dave Webb provided a brief overview of the CIP process and reported an early look will be presented to the City Council on March 8, 2022. Deputy Public Works Director/City Engineer Jim Houlihan reported the preliminary CIP budget is $87 million and includes 91 projects, programs, and studies. He noted that includes $63 million in new funding and $24 million in re-budgets. He advised 80% of the budget is spent on Facilities, Streets and Drainage, and Parks, Harbors, and Beaches. He provided a brief overview of the sources of funding, which includes surplus funds. Committee Member Collopy inquired about the re-budgets from the prior year. Deputy Public Works Director/City Engineer Houlihan clarified that these funds are carry-over funds from the prior year’s budget. Committee Member Collopy inquired about Parks, Harbors, and Beaches CIP and the differences between the new budget of $3.5 million and the re-budget of $10.6 million. Deputy Public Works Director/City Engineer Houlihan clarified the difference is primarily due to the $5 to $7 million available for Harbor dredging within the re-budgeted amounts. Public Works Director Webb reported the City Council provided Public Works direction to program additional funds during the planning session. Chair O’Neill clarified neighborhood enhancement funding comes from the General Fund Surplus. Deputy Public Works Director/City Engineer Houlihan reported $15.5 of the proposed General Fund Surplus will be allocated to neighborhood enhancements and other CIP projects and provided a list to the Finance Committee. He reported $10 million will be put towards the Facilities Financial Plan (FFP) and would help fund the upcoming fire station and branch library project. He advised the City received $10.1 million in ARPA funding and is looking to use those funds for the Library Lecture Hall and Junior Lifeguard Building. He provided a brief overview of upcoming CIP projects over the next few years, which include the land purchase for a replacement police facility. He noted there is potential to use a portion of the existing police Finance Committee Meeting Minutes February 9, 2022 Page 3 of 9 facility site for the Santa Barbara Drive fire station replacement once the police facility has been relocated. Committee Member Nancy Scarbrough inquired about the existing size of the police facility site. Deputy Public Works Director/City Engineer Houlihan clarified the current site is approximately 4 acres and noted the City will be evaluating options for additional parking on the current site but explained there is a need for additional site space for the future police facility. Public Works Director Webb explained the City Council will form a Council Working Group to further explore the options for the land purchase. Chair O’Neill reported if the City is able to eliminate its Unfunded Pension Liability by 2033 then there may be additional funds for this purpose. Chair O’Neill referenced the earlier public comment that Supervisor Foley was looking for recommendations for how to spend county ARPA funds and inquired if Public Works had investigated. Public Works Director Webb advised this is the first he has heard that ARPA funds may be available from the County, and he will investigate. Chair O’Neill opened public comments. Mr. Mosher noted that many of the projects listed on Page 5 and 6 of the presentation are really funded from General Fund dollars that have been transferred into other funds. He inquired how much of the CIP is comprised of grant funds and inquired why the use of Measure M grant funds has been reduced to zero this year. Public Works Director Webb advised the items that are using General Fund monies are notated with a “GF” in the presentation and explained General Fund money flows into the FFP and the Facilities Maintenance Plan. He clarified that Measure M funds are allocated on a competitive basis and award of these funds to the City fluctuates annually based on the projects included in the CIP. He further confirmed that there is no money allotted as part of this fiscal year’s CIP. Chair O’Neill closed public comments. B. FACILITIES FINANCIAL PLAN (FFP) AND HARBOR & BEACHES MASTER PLAN Summary: Staff will provide an update on the current status of FFP and Harbor & Beaches Master Plan funding. Recommended Action: Review and discuss this report, provide feedback and recommendations regarding the presented options for assumed long-term funding for the FFP, concur with staff’s recommended funding level for the HBMP in Fiscal Year 2022-23, and provide any other related recommendations for consideration by the City Manager and City Council. Finance Director/Treasurer Catlett reported the Harbor & Beaches Master Plan (HBMP) was reviewed by the Harbor Commission on January 12 and the CIP and FFP components were preliminarily discussed by the City Council at the Planning Session held on January 29. Finance Director/Treasurer Catlett reported the FFP is outlined in City Council Policy F-28 and noted the funds are set aside for the renovation and/or replacement of existing City facilities or the addition of new facilities. He advised the current contribution is $8.5 million from the General Fund and explained it will stay at $8.5 million until 3% General Fund revenues exceed that amount, which is projected to be in 2028. He explained debt service also comes out of this fund and reported the current debt service payment for the Civic Center is $7.7 million and $0.9 million for Fire Station No. 2 for a total of $8.6 million. He reported staff recommends the minimum annual transfer be increased to match the annual debt service amount. He further reported staff recommends the transfer from the General Fund to the FFP Fund be split into two components, one for debt service, and one for a cash contribution to fund balance, in an effort to increase transparency. Finance Committee Meeting Minutes February 9, 2022 Page 4 of 9 Finance Director/Treasurer Catlett reported the FFP relies on Development Agreement Fees as an additional funding source. He reported Community Development gives the Finance Department a projection of the fees by project by year. He explained that under the current Reserve Policy, the minimum fund balance for the FFP Fund cannot drop below the maximum annual amount of debt service. He presented scenarios of what the required General Fund contribution would be if the assumed development fees did not materialize on the schedule anticipated in staff’s projection. Chair O’Neill inquired if these were estimated development fees. Finance Director/Treasurer Catlett clarified this would include estimated development fees that have not yet been approved by the City Council but are on staff’s radar as well as development fees for projects that have been previously approved but for which the timing and certainty of future development is not definitive. Chair O’Neill noted that no development fees seems like an unlikely scenario. Chair O’Neill reiterated that once the unfunded pension liability is retired future City Councils will have additional resources to work with that could fund facilities projects and he hopes funds would be saved for this purpose. He expressed concern regarding the decision point. Committee Member Collopy recommended not making a decision now regarding increasing FFP contributions to compensate for the timing of receipt of future development fees, given that the 50% scenario does not show a need to increase contributions for several years. Finance Director/Treasurer Catlett confirmed that the difference between the baseline scenario and the 50% of fees received scenario is the higher contributions above $8.6 million would start sooner and would be indexed on a higher percentage of General Fund Revenues. Committee Member Collopy recommended having this discussion in a few years when that decision point is reached. Finance Director/Treasurer Catlett advised it is an option for the Finance Committee and added that until this analysis was conducted it was not clear when and if such a decision point would be necessary. Finance Director/Treasurer Catlett provided a brief overview of the Harbor & Beaches Master Plan and reported staff has comprehensively updated the project list. He advised staff also evaluated the adequacy of the current $4.5 million contributions which was shown to be adequate but recommended that future contributions be indexed to inflation, which would result in the Fiscal Year 2022-23 contribution increasing to $4.6 million. Committee Member Scarbrough inquired how it is known that grants will be available in 2030, 2032, 2034. Public Works Administrative Manager Chris Miller explained the numbers are based on the funding the Federal Government has given the City for dredging projects. Finance Director/Treasurer Catlett noted staff is recommending increasing maintenance funding to the Facilities Maintenance Master Plan (FMMP) by $1 million per year as part of next fiscal year’s budget. Chair O’Neill recommended the FFP Council Policy be updated. He agreed with the staff’s recommendation that the transfer from the General Fund to the FFP be split into two components, one for debt service, and one for a cash contribution to fund balance, to increase transparency. He also recommended this report be brought to the Finance Committee next year at the same time. Committee Member Collopy expressed surprise that the two piers need to be replaced. Chair O’Neill reported the recommendation came from a Council subcommittee recommendation. Mayor Pro Tem Blom explained it makes more sense to look at the piers holistically and Finance Committee Meeting Minutes February 9, 2022 Page 5 of 9 determine what can be done over the next 10 to 15 years. Chair O’Neill clarified it was a City Council Ad Hoc Committee. Committee Member Reed inquired if the Council Policy should have changed before approving the issuance of the Fire Station debt. Chair O’Neill explained the contributions from the City were necessitated with approval of the bond documents. He noted the Council Policy should have been updated when the City approved the issuance of the Fire Station Certificates of Participation. Chair O’Neil opened public comments. Mr. Mosher noted the FFP in the agenda packet differs from what is posted on the City’s website. He advised the summary of near-term projects is missing as well as the details regarding the expected development that will occur over the life of the FFP. He inquired if this is a new format for the FFP. Chair O’Neill closed public comments. Finance Director/Treasurer Catlett advised if a page of the FFP attachment that was included in the Finance Committee packet in a prior year was not included this year, the omission was unintentional and there is not a new format. The item was received and filed. Chair O’Neill thanked Harbor Commissioner Don Yahn for his attendance at the Finance Committee meeting. C. SECOND QUARTER BUDGET UPDATE Summary: Staff will provide a presentation regarding the year-to-date and projected Fiscal Year 2021-22 budget performance. Recommended Action: Receive and file. Finance Director/Treasurer Catlett provided a brief overview of Projected General Fund Revenues and noted Second Quarter Projections are $250 million with a $15.9 million positive variance. He advised Property Tax grew at a smaller rate this year due to the Consumer Price Index (CPI) adjustment. He advised the projected growth for Fiscal Year 2022-23 is 6.5%. He reported Fiscal Year 2020-21 was a record year for Sales Tax and noted auto sales remain strong. He advised this was the first quarter where brick and mortar retail, restaurants, and hotel Sales Tax exceeded pre-pandemic levels. He reported Transient Occupancy Tax (TOT) revenue is now projected to exceed pre-pandemic levels this fiscal year. He noted residential TOT from Short-Term Rentals (STRs) is at a record high. Committee Member Collopy inquired how the City ensures STRs pay their TOT. Finance Director/Treasurer Catlett explained the City has a Revenue Audit Program. He advised most people are paying their TOT and noted that while the number of permits has not increased, the revenue for each permit has increased. He advised the projections do not include the reopening of the Fashion Island and Marriott Hotels. Mayor Pro Tem Blom reported the Marriott Hotel will see even higher rates when their rooms come back online. He believes the hotels themselves are moving into a higher tier of hotel properties. Finance Director/Treasurer Catlett highlighted the trend in Historical General Fund Revenues and noted that if things continue on their current trajectory the actual experience may soon Finance Committee Meeting Minutes February 9, 2022 Page 6 of 9 exceed the Pre-Covid Projection. He reported Other General Fund Revenues are projected to exceed the adopted budget by $5.4 million or 10.2%. Finance Director/Treasurer Catlett provided a brief overview of Projected General Fund Expenditures and noted staff projects a budget savings of $4.4 million, which will likely increase. He advised if things stay as projected there will be a $15 million surplus at the end of the year. He advised staff will remain cautious and continue to evaluate trends and new information. Chair O’Neill explained the $31 million surplus from last year has been allocated to the unfunded pension liability and appropriated to FFP and CIP. Committee Member Collopy inquired when someone sells their home in Beacon Bay how much the Beacon Bay rent increases. Finance Director/Treasurer Catlett advised the turnover in housing at Beacon Bay was not assumed in the mid-year adjustment, but he would need to investigate. He confirmed changes from lease revenues are reviewed annually. Committee Member Reed inquired if this considers employee salary and benefit inflation. Finance Director/Treasurer Catlett advised most employee associations have entered into four-year contracts, and so inflation is accounted for in the mid-year adjustment. He noted the highest increases for salaries is 2% per year. Chair O’Neill called for public comments and hearing none, closed public comments. Chair O’Neill noted the increase is incredible and is attributable to the health of the local economy. The item was received and filed. D. INTERNAL SERVICE FUNDS UPDATE Summary: Staff will provide the Committee with an update on the health of the City's insurance, vehicle, equipment, and other internal service funds. Recommended Action: Receive and file. Finance Director/Treasurer Catlett provided a brief update of the Internal Service Funds (ISFs) and noted their use is a best practice in government agencies. He explained they are funded by annual contributions from each department. He advised the ISF categories include Insurance, Compensated absences, Other Post-Employment Benefits (OPEB), Equipment, and Information Technology. Finance Director/Treasurer Catlett reported the Insurance ISFs had become overfunded, and rates were reduced in the current year to gradually draw down the excess fund balance. He noted the rates and fund balances are now evaluated annually. He reported the Compensated Absences ISF is funded from regular transfers equal 3.5% of payroll and advised no changes to the funding methodology are recommended at this time. He advised the two OPEB-related ISFs are the Operating ISF and the Conversion ISF and with the implementation of the City’s OPEB trust with CalPERS these funds are no longer necessary. Committee Member Collopy inquired if this fund is being used to pay into the CalPERS Trust. Finance Director/Treasurer Catlett clarified it is used to run the money through, but it does not stay there. He noted the change will be that the funds run through the payroll clearing fund to CalPERS. He noted the Finance Committee will receive a detailed OPEB update at the March meeting. Finance Committee Meeting Minutes February 9, 2022 Page 7 of 9 Committee Member Collopy inquired if there was a Section 115 Trust for OPEBs. Finance Director/Treasurer Catlett clarified that he was referring to that trust and CalPERS holds and invests the funds on behalf of the City. He clarified the Section 115 Trust is not accounted for in the General Ledger because the cash is not on hand with the City. He explained these are OPEB legacy funds from when the funds were managed differently in the past and are part of the City’s cash pool. Chair O’Neill provided additional clarification that the change will simply get rid of the pass-through fund. Committee Member Collopy inquired about the yield on the Section 115 Trust and Finance Director/Treasurer Catlett advised it did better than CalPERS last year due to a more aggressive investment strategy. Finance Director/Treasurer Catlett explained the majority of the City’s ISFs relate to the City’s Equipment and Vehicles. He advised the Finance Department is recommending a $288,000 increase to the Police Equipment ISF to cover additional equipment. Committee Member Collopy inquired if the Police Department manages the Police Equipment ISF and Finance Director/Treasurer Catlett confirmed they do. Committee Member Collopy requested Finance Director/Treasurer Catlett identify who the funds are managed by moving forward. Finance Director/Treasurer Catlett reported the Equipment Maintenance - All Other Fund is utilized for vehicle replacement and the adequacy of the rates was evaluated last year. He advised it is managed by Public Works and noted the rates do not need any further adjustments at this time. He reported the Recreation ISF is adequately funded but an ongoing study of the inventory of recreation equipment and minor facilities may result in a need to increase the contribution. He advised the Recreation ISF and Fire and Parking ISF are adequately funded, and no changes are required at this time. Finance Director/Treasurer Catlett reported the Information Technology ISF rates are set by the IT Division staff based on operating costs and an analysis of long-term hardware and software needs. He advised there are no increased costs or rate methodology changes anticipated. He recommended the Finance Committee review and discuss the report and provide feedback to staff. Chair O’Neill opened public comments. Mr. Mosher inquired if any other departments help fund the Police Equipment ISF or is it entirely funded by the Police Department. He noted the Uninsured Claims ISF includes an account for non-tort litigation and related claim settlements and inquired examples. Finance Director/Treasurer Catlett reported an example of Uninsured Claims could be land- use litigation that is not insured by the City’s General Liability policy. He clarified the Police Equipment ISF is only funded from the Police Department’s budget. Chair O’Neill closed public comments. The item was received and filed. E. INTERNAL AUDIT PROGRAM REPORTS (PART 2) Summary: Presentation of reports, findings, and recommendations from the Fiscal Year 2020-21 audit program. Recommended Action: Receive and file. Finance Committee Meeting Minutes February 9, 2022 Page 8 of 9 Finance Director/Treasurer Catlett reported the IT Controls review was completed by Moss Adams. He reported key findings included identifying a need to review, update, and finalize the policies and procedures related to system access. He advised Moss Adams recommended an enhanced training process and additional clarity on documentation and workflow. Lastly, they recommended the City formally document the process for handling terminated employees and contractor system access. He reported staff concurred with the Moss Adams findings and recommendations and will create a work plan for implementation. Finance Director/Treasurer Catlett provided a brief overview of Cash Handling Controls and reported Moss Adams recommended the City establish requirements for training all cash handlers, centralize the tracking of training completed within the Revenue Division, and establish regular communication between the individual sites and the Revenue Division. He advised they also recommend the City consider performing a PCI (Payment Card Industry) assessment to evaluate compliance and related security risks. He reported staff concurred with the Moss Adams findings and recommendations and will create a work plan for implementation. Committee Member Collopy inquired if the City should consider going 100% cashless. Finance Director/Treasurer Catlett explained there is not a staff workload problem but a need to be consistent in the procedure. City Manager Grace Leung agreed some situations warrant the City continuing to accept cash. Finance Director/Treasurer Catlett reported he has seen a dwindling usage of cash but there are still residents who use it. He noted online payments have changed the frequency of when cash is used. Chair O’Neill advised for parking, the City decided to get rid of as many paid meters as possible and got a centralized app and credit card payment method. Chair O’Neill opened public comments. Mr. Mosher agreed with City Manager Leung that library patrons would like to pay their fines with cash. He inquired if the controls being recommended include the branch libraries and not just the Central Library. He inquired if there are any controls around contractors working on the City’s Enterprise Resource Planning (ERP) system. Finance Director/Treasurer Catlett advised the issue at the Central Library was with access to the cash registers due to the number of staff and the need to define a policy for closeout at the end of the day. IT Manager Avery Maglinti explained contractor access is turned off once the work is complete along with building access. He advised there is system monitoring software in place as well. Chair O’Neill closed public comments. The item was received and filed. 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 next meeting will include the Fee Study Update, OPEB, an overview of Revenue Projections, and the Internal Audit Update. He advised the Finance Committee will receive the budget overview in April and vote to recommend a budget to the City Council in May. Chair O’Neill called for public comments and hearing none, closed public comments.