HomeMy WebLinkAboutFinance Committee - November 10, 2022CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA - Final
100 Civic Center Drive - Community Room
Thursday, November 10, 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
Michael Gomez, Acting Finance Director/Treasurer
Amy Byrne, Administrative Assistant
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 Michael Gomez Acting Finance Director/Treasurer, at mgomez@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
mgomez@newportbeachca.gov.
November 10, 2022
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Finance Committee Meeting
I.CALL MEETING TO ORDER
II.ROLL CALL
III.PUBLIC COMMENTS
Public comments are invited on agenda items. Speakers must limit comments to three (3)
minutes. Before speaking, we invite, but do not require, you to state your name for the record.
The [Board/Committee/Commission] has the discretion to extend or shorten the speakers’ time
limit on agenda items, provided the time limit adjustment is applied equally to all speakers. As
a courtesy, please turn cell phones off or set them in the silent mode.
IV.CONSENT CALENDAR
MINUTES OF OCTOBER 20, 2022A.
Recommended Action:
Approve and file.
DRAFT MINUTES 10202022
V.CONSENT CALENDAR
YEAR END BUDGET RESULTS AND SURPLUS ALLOCATIONA.
Summary:
Staff will provide a presentation regarding the year-end budget results for FY
2021-22 and recommendations for allocation of any year-end budget surplus.
Recommended Action:
Review and discuss this report and provide any recommendations for consideration
by the City Manager and City Council.
STAFF REPORT
FIRST QUARTER BUDGET UPDATE (UPDATED)B.
Summary:
Staff will provide a presentation regarding the year-to-date and projected FY
2022-23 budget performance.
Recommended Action:
Review and discuss this report and provide any recommendations for consideration
by the City Manager and City Council.
STAFF REPORT (UPDATED)
November 10, 2022
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Finance Committee Meeting
INTERNAL AUDIT PROGRAM UPDATEC.
Summary:
Bi-monthly progress update on the internal audit program.
Recommended Action:
Receive and file.
STAFF REPORT
RECOMMENDED CHANGES TO PURCHASING POLICIESD.
Summary:
Staff will provide on overview of recommended changes to the City's purchasing
policies for the Committee's consideration, in follow-up to the Internal Audit Program
report presented to the Committee in January.
Recommended Action:
Review the draft revisions to Council Policy F-14, and recommend further changes
as needed for submission to the City Council for consideration.
STAFF REPORT
ATTACHMENT A
VI.ADJOURNMENT
Finance Committee Meeting Minutes October 20, 2022
Page 1 of 9
CITY OF NEWPORT BEACH FINANCE COMMITTEE OCTOBER 20, 2022 MEETING MINUTES I. CALL MEETING TO ORDER The meeting was called to order at 3:01 p.m. Chair O’Neil reported Mayor Pro Tem Noah Blom would be arriving late. II. ROLL CALL
PRESENT: Chair Will O’Neill, Mayor Pro Tem Noah Blom, Committee Member William Collopy, Committee Member John Reed, Committee Member Nancy Scarbrough, Committee Member Joe Stapleton.
ABSENT: Council Member Brad Avery
STAFF PRESENT: City Manager Grace K. Leung, Deputy Finance Director Michael Gomez,
Administrative Assistant Amy Byrne, Police Chief Jon Lewis, Deputy
Police Chief Joe Cartwright, Police Deputy Director John Stafford, Police
IT Manager, Tom Encheff, Police Fiscal Services/Facilities Manager,
Lisa Newman, Senior Budget Analyst Amber Haston, Budget Manager
Shelby Burguan, Management Fellow, Lorig Yaghsezian, Buyer Marlene
Burns, Budget Analyst Eric Wilson, Purchasing and Contracts
Administrator Sander Huang, Revenue Auditor Antonio Velasco
MEMBERS OF THE PUBLIC: Jim Mosher, Resident, Charles Klobe, Resident OTHER ENTITIES: None III. PUBLIC COMMENTS Jim Mosher reported there is some uncertainty on what the City Council approves when it approves the budget in June. He recounted the recent Arts Commission meeting where they were considering Cultural Arts Grants and how much budget was available for the grants. He explained the Arts Commission staff report had Policy I-10 attached to it to set up a Reserve Fund for Culture and Arts. He reported an annual contribution commitment of $55,000 per year for Cultural Arts Grants. He advised they have been receiving $40,000 annually and during the pandemic received $30,000 annually. He reported the adopted budget is not in a similar format as the proposed budget and does not include the same level of detail. He inquired about what City Council approved for the Arts Commission. He noted the adopted budget format only changed over the last few years. IV. CONSENT CALENDAR A. MINUTES OF SEPTEMBER 15, 2022 Recommended Action: Approve and file. MOTION: Committee Member John Reed moved to approve the minutes of September 15, 2022 as presented, seconded by Committee Member Joe Stapleton. The motion carried 5 ayes – 0 noes, 2 absence (Mayor Pro Tem Noah Blom, Committee Member Avery)
Finance Committee Meeting Minutes October 20, 2022
Page 2 of 9
V. CURRENT BUSINESS A. OVERVIEW OF POLICE DEPARTMENT BUDGET Summary: Staff will provide the Committee with a presentation covering the budget for the Police
Department. Recommended Action: Receive and file. Police Chief Jon Lewis presented a brief overview of the Police Department’s budget. He reported the department’s overall budget is $71.8 million of which 92% is for salary, benefits,
and overtime with the remainder supporting Maintenance and Operations (M&O) and Capital Expenditures. Committee Member Collopy inquired why Capital Expenditures have decreased. Deputy
Director Stafford noted there were years where there were large capital projects including the Firing Range and Locker Room projects that are completed. He advised the upstairs restroom
project was funded by the Facilities Financial Plan (FFP). Police Chief Lewis reported Salaries & Benefits have been consistently flat over time with minimal increase.
Committee Member Collopy inquired why it is difficult to determine if the number of sworn
employees in the department is the correct number for the size of the City.
Police Chief Lewis explained the most important metric to residents is how quickly dispatchers answer the call and how quickly the police respond to incidents. He further explained they look
at staffing numbers and response times to provide an accurate assessment of the department’s resource allocation to the Patrol Division. He reported last year the average response time was
3:16 which is very fast in the industry. He noted they also review dispatch answer times which are less than 15 seconds 99% of the time. He reported they had 161 100% responses within
15 seconds days last year. He noted that the correct metric is up for debate and there are many different ways to view it.
Committee Member Collopy inquired if Police Chief Lewis feels the department is meeting the
community’s demands. Police Chief Lewis explained he has to look at the metrics objectively and compare them to other agencies. He noted staff also listens to the community to identify
areas for deeper emphasis. He explained most of the areas identified are not policing issues such as homelessness. He reported that 15 people were placed in local shelters this month.
Chair O’Neil noted the City has more police officers than Irvine. Police Chief Lewis clarified
the City has more officers per population than Irvine, but not more officers. He advised Costa Mesa has a population of 100,000 but has more budget strength to afford more sworn
personnel.
Committee Member Nancy Scarbrough noted that she understands there are 14 sworn vacancies in the department and inquired if the budget reflects those 14 vacancies. Police Chief Lewis explained they budget by position and the budget moving forwards includes
148 sworn positions. He advised the goal is to have all of those positions filled but noted it is very rare to be at full capacity.
Police Chief Lewis provided a brief overview of overtime costs. He advised the majority of overtime is used to meet staffing levels when an officer calls in sick or has to testify at a lengthy jury trial. He noted overtime is used for critical and special events.
Finance Committee Meeting Minutes October 20, 2022
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Committee Member Collopy referenced the recent carjacking in the City and noted that the California Highway Patrol (CHP) and Orange County Sheriff’s Department responded. He inquired if the City was required to pay for their time. Police Chief Lewis explained there are mutual aid agreements in Orange County and provided examples. He advised that pre-planned events where CHP and OCSD are brought in in advance require that the City compensate them for their resources. He noted overtime does not impact retirement
calculations. Committee Member Collopy inquired if those reimbursements are fully loaded or if it is just the direct costs. City Manager Grace Leung reported it is based on a fee schedule that is fully loaded.
Deputy Director Jonathon Stafford explained there are 2 rates with one being a special event rate and the other being a fully loaded rate and both are set by the City Council. He noted the rate is usually just time and a half.
Mayor Pro Tem Noah Blom arrived at 3:18 p.m.
Chair O’Neil explained the City’s compensation structure for public safety for police is based on the Flores vs. City of San Gabriel decision out of the Ninth Circuit determined that overtime received included cash-in-lieu health benefits payments as well. He noted that has been fixed through the Memorandum of Understanding (MOU) for Police but has not been fixed for Fire.
He clarified that overtime does not play into CalPERS but is impacted by the Flores decision.
Police Chief Lewis presented a brief overview of the overtime budget and noted it increased to $4.3 million in 2022 to accommodate the adjustment for the increases seen in the MOU and
money from the Flores decision.
Mayor Pro Tem Blom inquired if the City should be budgeting closer to actuals and inquired why the budget is being kept $2 million lower than it is spending. City Manager Leung explained
that some of the overtime is based on the number of vacancies and balances out the salary side of the budget. She noted they do not want to budget in 2 places.
Police Chief Lewis explained it pencils out but noted he is not a fan of overtime for his personnel
and would rather have sworn personnel take their earned time off. He expressed concern about officers that work too much overtime from a wellness perspective.
Committee Member Collopy noted that the overtime budget will probably remain at that level
for next year.
Police Chief Lewis agreed and noted police recruiting is a competitive market. He explained the City has very high standards so the applicant pool is much smaller. He provided an
overview of what it looks like to hire a Newport Beach Police Officer which takes approximately 1 year. He reported he is losing 2 officers to Idaho and South Carolina but has not seen officers’
transitions to other local agencies. He explained the challenge is retention and being competitive. He advised they also come across great lateral candidates.
Mayor Pro Tem Blom inquired how Police Chief Lewis intends to improve upon the process to increase retention. Police Chief Lewis recommended getting as many viable applicants as possible and processing them quickly. He noted the City tests for 4 times per year for police
officer candidates but is looking to test monthly to be competitive with other agencies. He commented that the bigger question is how to retain officers and believes it comes down to the
housing issue in California and noted incentive issues especially with housing would help. Committee Member Collopy inquired if other cities offer incentives. Police Chief Lewis reported he does not know of any other cities that offer an incentive model but advised it has been done
with the military and other organizations.
Finance Committee Meeting Minutes October 20, 2022
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Mayor Pro Tem Blom inquired if the bottleneck issue is with Human Resources (HR) in terms of the application process. Police Chief Lewis clarified HR is very willing to help with recruitment but it is just a bandwidth issue and has been in discussions with City Manager Leung about getting dedicated police
recruiting support. Mayor Pro Tem Blom believes that finding a dedicated resource for police recruiting is a great place to start and expressed support for the incentive idea. He requested City Manager Leung come back to the Finance Committee with some ideas on how to find a dedicated resource for police recruiting.
Committee Member Stapleton inquired if Police Chief Lewis has seen this in other wealthy communities. Police Chief Lewis advised that all agencies are suffering from this issue. He reported he has a police officer that lives in Tennessee and commutes to work. He advised
several OCSD employees live out of state and commute.
Committee Member Scarbrough inquired if any of the sworn personnel live in the City and requested a breakdown. Police Chief Lewis reported off the top of his head that none of the City’s police officers own a
home in the City. He noted quite a few live in South Orange County and the Inland Empire but the new trend is out of state.
Committee Member Scarbrough noted she sees that as a problem for the City when there is
an emergency such as an earthquake.
Police Chief Lewis explained mutual aid will help in those situations to stabilize the situation. He advised there are plans to roll out those resources who are commuting in from a distance.
He noted they would initially rely on local resources. He clarified the majority of their sworn personnel live in California but the out-of-state employees are a concerning trend.
Chair O’Neill reported recent discussion has taken place to determine if affordable housing can
be done specifically for the City’s police officers. He advised the average police officer is making $169,000 annually and does not meet the moderate-income threshold qualification.
Deputy Director Stafford provided a brief overview of the Maintenance and Operations
operating budget. He reported the M&O budget is by dedicated accounts for dedicated purposes. He advised the base budget is carried forward through the year and adjusted with
contract increases, approved program enhancements, fleet replacements, and occasional reductions based on a change in operational needs or response to Covid-19. He reported that
staff manages the outflow and reviews them for appropriateness to ensure the budget is available. He advised certain types of purchases go into certain types of accounts and ensure
purchases meet rules and guidelines. He provided a brief overview of the purchase approval process.
Committee Member Collopy inquired if it is anticipated the M&O budget will increase or decrease should the new Police Station be approved.
Deputy Director Stafford advised that would not happen until at least 2035 but would anticipate the M&O budget to decrease in that scenario. He provided a brief overview of Contract Services
which includes professional services.
Finance Committee Meeting Minutes October 20, 2022
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Chair O’Neil recused himself at 3:47 p.m. from the helicopter discussion Committee Member Collopy inquired if the City pays a fixed fee for Helicopter services. Deputy Director Stafford explained the City has an agreement with Huntington Beach to provide helicopter services at an hourly rate. He advised patrol hours are built into the contract and on-demand hours are charged hourly.
Mayor Pro Tem Blom noted when the helicopter goes up the fee is split three ways between the City, Costa Mesa, and Huntington Beach. Police Chief Lewis explained the City used to have a helicopter program, then went to a Joint Powers Authority, and now it is achieved through a contract with Huntington Beach. He advised
the contract with Huntington Beach has been of great value. Deputy Director Stafford clarified Mayor Pro Tem Blom’s previous comment and explained when Huntington Beach 1 (HB1) goes up the costs are shared. He explained the City is strictly
on an hourly rate and includes patrol. Police Chief Lewis referenced the carjacking event and advised the helicopters used were CHPs and OCSDs and since it was mutual aid, the City will
not be billed. Committee Member Scarbrough inquired why the City is budgeting more for the helicopter than it has in the past. Deputy Director Stafford explained that HB1 was grounded due to an accident
which is why the City received cost-savings in previous years. He explained they are back in the air now but not at full capacity and noted the City will see increased costs when that
happens.
Mayor Pro Tem Blom noted part of the cost increase is that Huntington Beach acquired 3 new helicopters.
Committee Member Collopy noted that $769 per hour is a great deal for the City and noted it
is impossible that it is a fully absorbed cost for the City of Huntington Beach.
Deputy Director Stafford reported the City enters into a 5 Year agreement with Huntington Beach and they do not always adjust for inflation.
Chair O’Neil returned to the meeting at 3:52 p.m.
Deputy Director Stafford reported Professional Services include crossing guards are not
contracted out for the first time in 25 years and the department only oversees the program now. He advised Safety Ambassadors are also included in Professional Services.
Deputy Director Stafford reported the Police Department is not revenue-generating and not a
fee-for-service department. He advised Intergovernmental Revenue is grants and other supplemental funding from Orange County.
Committee Member Collopy inquired why some numbers are in brackets.
Deputy Finance Director Michael Gomez explained that Revenue is budgeted in reverse and gets smaller as it is received.
Police Chief Lewis the Police Department will go before the City Council on October 25th to ask for replacement funds for body cameras, in-car video systems, tasers, and related
equipment. He noted civilian staff will be increased to help manage data for the department for discovery purposes. He reported their Peer Support funding was also included Committee Member Scarbrough requested more details regarding Peer Support. Police Chief
Lewis explained it provides mental health services for the City’s police officers.
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Committee Member Scarbrough noted that $15,000 does not seem like enough funding for that critical service. Police Chief Lewis agreed it is not enough funding but it is the beginning of the culture change and helps identify how to help its personnel and where to find the resources.
Deputy Director Stafford noted this is not the only expense for peer support. He reported the Police Department has a Peer Support Team of approximately 20 staff which is funded through the Peace Officer Standards and Training Program (POST) budget. He provided a brief overview of the programs that are provided. Police Chief Lewis advised the City’s Human Resources Department
Chair O’Neill reported the Police Department’s Salaries and Benefits make up 29% of the City’s General Fund budget. He inquired if the benefits are inclusive of the stepped-up discretionary CalPERS payments.
Deputy Director Stafford confirmed it also includes the unfunded liability.
Chair O’Neill advised that a recent report by the State Auditor labeled the City in moderate financial distress while the remainder of the South County was in green. He noted those cities do not have a police or fire department. He advised that even with the stepped-up CalPERS
payments the General Fund for the Police Department is 35% of General Fund salaries. He noted some other South County cities are paying well over 50% to OCSD.
Chair O’Neill reported the City would be talking to CalPERS in January about the City’s annual
statement. He advised the City dropped its unfunded liability from 2016 to 2021 by approximately $100 million. He noted approximately 50% was lost due to stock market volatility
but is still much better than other cities.
Chair O’Neill recommended the budget be broken down by position as it had been done in the past.
Chair O’Neill opened public comments.
Mr. Mosher referenced his earlier comments that the adopted budget is not in a similar format
as the proposed budget and does not include the same level of detail. He inquired if the sub-budgets in the proposed budgets are still considered binding even if they were not listed in the
adopted budget and also inquired how the public could tell if they were modified or not. Lastly, he inquired if the proposed budget still exists in the City’s software somewhere.
Chair O’Neill believes it will be fixed when the budget comes back broken down by position.
Charles Klobe reported the Newport Beach Housing Trust is very close to being formed and
will address the challenges faced in hiring people in Newport Beach. He hopes to have something announced by the end of the year.
Chair O’Neill closed public comments. The item was received and filed. B. REVENUE AUDIT PROGRAM UPDATE Summary: 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. Recommended Action:
Finance Committee Meeting Minutes October 20, 2022
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Receive and file. Revenue Auditor Antonio Velasco provided a brief update on the Revenue Audit Program and advised he audits hotels for transient occupancy tax (TOT), charter boat companies for passenger tax, and solid waste franchises for the franchise fee. He reported he also audits the City’s vendors and streamlines their payments.
Revenue Auditor Velasco reported that 39 audits were conducted last year and the majority of the audits have been compliant. He believes that is in part to the increased outreach the Revenue Division has conducted over the last year. Revenue Auditor Velasco reported most hotels were in compliance but noted some hotels with
new managers have questions about exemptions. Committee Member Scarbrough requested an example of an exemption.
Revenue Auditor Velasco provided an example of an exemption where the tenant stayed beyond 30-days and does not pay the tax because they are no longer considered a short-term
stay. Revenue Auditor Velasco reported an informal review is conducted of all the late filers. He noted there was a large drop in later filers and appeals from the previous year. He advised
formal audits of the owners have been conducted and staff will now complete more front-end reviews as a result of their findings. He reported the Harbor Department has discovered new
charters that have been operating without Marine Activities Permits (MAP). He noted they are cited by the Harbor Department and then work with the Revenue Division to get in compliance.
Revenue Auditor Velasco reported the Harbor Department has been instrumental in chasing
down late filers and those who claim to have no charters. He advised the City’s consultant Michael Balliet Consulting (Balliet) has completed its round of audits and provided the findings.
Committee Member Collopy inquired if every vessel has to pay a Charter Passenger Tax.
Revenue Auditor Velasco explained there is some exemption and provided a brief overview of
the 6-pack rule which states that 6 passengers or fewer are not taxable but anything beyond that is taxable.
Committee Member Collopy inquired about the amount of underreported gross receives for
Franchise Solid Waste Hauler.
Revenue Auditor Velasco reported the City estimated $50,000 in franchise fees plus penalties and interests.
Committee Member Scarbrough inquired if those haulers are still in business and will the City
is likely to receive the $50,000.
Revenue Auditor Velasco reported the hauler's numbers did reduce from 30 to 20 active but the haulers that did have findings are still active and operating. He explained letters were sent out and the fees were collected. He explained Solid Waste Haulers have a 3-year agreement with the City for auditing purposes even if they are not active.
Committee Member Stapleton inquired if City’s ability to audit Short Term Lodgings has
anything to do with being unlicensed. Revenue Auditor Velasco explained the Short Term Lodging staff handles the discoveries. He noted those taxes are valid and will have to be paid along with fees. He explained at that time
they can be placed on the waiting list.
Finance Committee Meeting Minutes October 20, 2022
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Revenue Auditor Velasco reported some hotels keep changing management so an on-site visit will be conducted for audits. He advised reviews for Short Term Agents are being conducted on the front end as opposed to the backend. He still expects late filers but not as many as in previous years due to outreach. He noted the Harbor Department will continue to help with more discoveries. He reported Balliet will begin conducting a second round of audits for Solid
Waste Haulers that will cover 2 years. Committee Member Collopy inquired about the size of the Revenue Audit Program staff. Revenue Auditor Velasco reported he is the only Revenue Auditor but also has a part-time Fiscal Specialist to help with processing. He advised Short Term Lodging has a License
Supervisor and some part-time staff for licensing. Chair O’Neill opened public comments.
Mr. Mosher reported the bulk of the payments owed to the City is $50,000. He mentioned he looked up the City’s contract with Balliet and noted it is a 3-year contract with 1 year remaining
and can charge up to $62,000 for recovery. He noted the recovery is offset by the auditing and looks like it will be close to breaking even. He reported he spoke to the City Council about the Lobbyist Registration Program and noted it seems that there is zero compliance even though there was no fee imposed. He recommended charging a nominal fee and imposing an incentive
for lobbyists to register to bring them into compliance.
Committee Member Collopy noted Mr. Mosher inferred that to obtain $50,000 in revenue the City would have to spend $61,000. He advised the goal should be to have full compliance so
that even if the audit funds were spent it is showing 100% compliance.
Mr. Mosher agreed that compliance is important but that recovery was not as great as it needs to be.
Chair O’Neill closed public comments.
The item was received and filed. C. ANNUAL BUDGET AMENDMENTS FOR QUARTER ENDING SEPTEMBER 30, 2022 Summary: Staff will report on the budget amendments from the prior quarter. Recommended Action: Receive and file.
Chair O’Neill opened public comments. Seeing none, Chair O’Neill closed public comments.
Committee Member Collopy inquired if last year’s Surplus would be discussed. Chair O’Neill
advised it would be discussed at the next meeting.
The item was received and filed. D. 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 provided a brief overview of the work plan for the Finance Committee for this
fiscal year. He advised the Fiscal Year End would be discussed at the next meeting the
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CalPERS update would be moved to January. He advised the next meeting would also include 1st quarter budget updates, the Internal Audit Program, and recommended updates to Purchasing Policies. Committee Collopy requested to be excused from the next meeting. The item was received and filed.
VI. ADJOURNMENT The Finance Committee adjourned at 4:28 p.m. to the next regular meeting of the Finance Committee.
The agenda for the Regular Meeting was posted on October 14, at 4:13 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
CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5A November 10, 2022
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Michael Gomez, Acting Finance Director / Treasurer 949-644-3124, mgomez@newportbeachca.gov
SUBJECT: YEAR-END BUDGET RESULTS AND SURPLUS ALLOCATION
SUMMARY:
The Finance Department prepares quarterly financial reports to review in detail the status of revenues and expenditures for the City’s General Fund and to identify any concerning budgetary trends in other City funds. This report contains information on revenues,
expenditures, and estimated fund balance for the fourth quarter of Fiscal Year 2021-22. Because the City’s financial records are undergoing the customary audit review, the financial information presented in this report is preliminary in nature and subject to adjustments as the year-end close process continues through December. Any such adjustments are not anticipated to have a material impact on the financial information
presented in this report. RECOMMENDED ACTION: Review and discuss this report and provide any recommendations for consideration by
the City Manager and City Council. DISCUSSION: This fourth financial report of Fiscal Year 2021-22 provides an analysis of the financial
activity of the City from the months of July 2021 through June 2022. Based on information available at the end of the fourth quarter, staff has made positive adjustments to year-end projected revenues and preliminary expenditure savings have been identified that should result in a healthy year-end budget surplus. Year-to-date expenditure budget adjustments are fully offset by the additional projected revenues.
Year-End Budget Results and Surplus Allocation November 10, 2022 Page 2
Economic Overview Key economic indicators such as unemployment, taxable sales, and assessed property values continue to improve, which is indicative of the recent robust improvement to the
economy. While recent trends in inflation have caused concern in the broader economy
and financial markets, the City is well-positioned to weather any short-term increase in inflation thanks to the related increase in many of the City’s revenues such as sales tax and transient occupancy tax as prices increase. Additionally, long-term labor contracts with the City’s employee associations have been negotiated that provide reasonable
compensation increases that can be accommodated within projected revenue growth. General Fund Revenues Overall General Fund revenue growth has outpaced projections generated by the City’s consultants and staff that were incorporated into the adopted Fiscal Year 2021-22 budget.
Growth in sales tax and transient occupancy tax has been the most pronounced, but
growth in many other areas has contributed to a significant projected increase in General Fund revenues of $27.4 million versus the adopted budget. The following table summarizes the changes to projected General Fund revenues versus
the adopted budget for Fiscal Year 2021-22.
Fiscal Year 2021-22 Actual General Fund Revenues*
* Based on preliminary year-end close data available as of September 30, 2022
Property Tax - Property taxes are the City’s single largest General Fund revenue and
represent approximately 50% of all General Fund revenues. As these revenues are primarily dependent on the assessed valuation established in January of 2021, there is typically very little variance seen from the original budget as the year progresses. The growth rate for Fiscal Year 2021-22 was smaller than what has been seen in recent years,
A B C = B-A D = C/A
Revenues by Category PY Actual
Adopted
Budget
Unaudited
Actual Variance % Variance
Property Taxes 119,157,540 122,229,980 124,335,984 2,106,004 2%
Sales Tax 38,956,275 40,275,670 46,164,860 5,889,190 15%
Transient Occupancy Tax 16,886,197 19,027,493 26,677,331 7,649,838 40%
Other Taxes 12,849,340 10,815,117 13,263,112 2,447,995 23%
Service Fees & Charges 18,264,952 19,046,329 22,870,701 3,824,372 20%
Parking Revenue 7,074,853 5,681,942 7,213,646 1,531,704 27%
Licenses and Permits 5,133,399 5,106,646 6,067,908 961,262 19%
Property Income 5,115,255 5,044,403 6,818,121 1,773,718 35%
Fines & Penalties 4,012,568 3,292,102 4,157,305 865,203 26%
Intergovernmental 5,175,738 1,760,934 4,578,283 2,817,349 160%
Investment Earnings 1,598,624 1,112,200 (2,615,502) (3,727,702) -335%
Misc Revenues 1,359,034 734,148 2,027,802 1,293,653 176%
Total Revenues 235,583,776 234,126,964 261,559,549 27,432,585 12%
Year-End Budget Results and Surplus Allocation November 10, 2022 Page 3
primarily due to the lower 1.036% CPI factor. For Fiscal Year 2021-22, property taxes came in at $124.3 million, or $2.1 million over the adopted budget, which is an indication of timely property tax payments and higher valuations.
Sales Tax - The second largest funding source for the General Fund is sales tax revenue, making up more than 15% of General Fund revenues. The City’s sales tax base is largely generated from three industry categories – autos and transportation, general consumer goods, and restaurants/hotels. Most of these industries are also heavily impacted by
tourism.
Based on the strong growth seen in the third quarter of Fiscal Year 2021-22 and the projections from the City’s sales tax consultants, staff had increased the sales tax revenue estimate for Fiscal Year 2021-22 to $45.4 million in the third quarter budget update. Actual
sales tax receipts came in at $46.2 million, or $765,000 over staff’s most recent estimate.
This increase results from two primary drivers. First, while auto sales have slowed due to inventory shortages, price increases have more than offset this decline and have resulted in strong growth in this category of sales tax revenues of 11% over Fiscal Year
2020-21. Second, revenues from brick-and-mortar retail establishments and
restaurants & hotels have now surpassed the pre-pandemic high as consumer behavior has largely returned to normal. These revenues grew at rates of 30% and 37%, respectively, versus Fiscal Year 2020-21. Also factoring into the strong growth is revenue from fuel and service stations, with 46% growth versus the prior year due to
higher fuel prices and higher demand. Overall revenue was up 18% over the prior year,
leading to a year-end projection of 14.3% growth for the full fiscal year versus the prior fiscal year. Transient Occupancy Tax – The City has seen a steady rebound and comeback for
TOT revenues as the effects of the pandemic receded. Initially, the TOT budget for the
current fiscal year was developed in anticipation of full recovery of TOT revenues not occurring until the end of Fiscal Year 2022-23. However, staff’s revised projection in the second and third quarter budget updates estimated an increase in the budgeted revenues of $6.5 million to $25.6 million, an increase of 34.4%. Actual TOT revenues came in at
$26.7 million, or $7.7 million over the Fiscal Year 2021-22 adopted budget.
Two factors caused this significant increase in TOT revenues. First, revenue from short-term lodging businesses, which grew throughout the pandemic, is at a record high level. Second, many hotel properties are reporting record high TOT receipts and have been
doing so for multiple consecutive months. While occupancy levels have not returned to
pre-pandemic levels, they are slowly increasing. This lag in occupancy levels has been largely offset by higher daily room rates, resulting in hotel TOT revenues that are projected to approach the pre-pandemic high in Fiscal Year 2022-23. When taken together, the strong growth in residential TOT makes up for the slightly lower hotel TOT
revenue and the two in total have resulted in a record year for TOT revenues for the City.
Year-End Budget Results and Surplus Allocation November 10, 2022 Page 4
Data provided by Visit Newport Beach illustrates these very positive trends:
All Other Revenue – This category includes all other revenue sources other than the top
three (property tax, sales tax, and TOT). All Other Revenue is made up of the following:
• Other Taxes – real property transfer taxes, business license taxes, marine charter taxes, and franchise fees.
• Service Fees and Charges – plan check fees, recreation classes, emergency
medical services fees, and numerous other cost-of-service fees.
• Parking Revenue – all General Fund related metered parking fees that are
assessed throughout the various parking zones of the City.
• Licenses and Permits – fees charged to process building related permits, street closure permits, dog licenses, and police tow franchise fees.
• Property Income – City owned and managed income producing properties, long-
term ground leases to concessions, restaurants, hotels and other businesses and organizations, and rental of City facilities to the public.
• Fines and Penalties – parking citation fines collected by the City, administrative
citation fines, fines remitted to the City from the County for vehicle code violations,
and false alarm penalties.
• Intergovernmental Revenues – federal, state, and local grant revenues, which includes, but is not limited to, the City’s portion of the ½ cent sales tax revenue paid to the County for public safety, state mandate reimbursements,
reimbursement for strike teams sent to assist with fires, and revenue sharing with the County of Orange under the Waste Disposal Agreement (WDA).
• Investment Earnings – revenue generated from the investment of City funds.
• Miscellaneous Revenues – restricted revenue, damage to City property, bad debt,
donations and contributions, non-operating revenues such as proceeds from the
Year-End Budget Results and Surplus Allocation November 10, 2022 Page 5
sale of materials and equipment, and other miscellaneous revenues. Growth in other revenues as a whole is $11.8 million above the adopted budget or 22%.
Primary drivers of this growth include:
• Service fees and charges revenues exceeded the adopted budget by $3.8 million primarily due to increased revenue received from recreation fee-based classes and
the Junior Lifeguard program, as well as plan check fees and paramedic service
fees.
• Property income revenues exceeded the adopted budget by $1.7 million, primarily due to increased percentage-based rent revenues from the Lido House Hotel lease due to the hotel’s increased revenues.
• Intergovernmental revenues are projected to exceed the adopted budget by $2.8 million, primarily due to adjustments related to Fire Department mutual aid reimbursements and SB-2 Permanent Local Housing Allocation grant funds. The City received $553,300 from the State of California for staff assigned to strike team
deployments. Staff seek to align the FY 2021-22 budget with actual revenues received through the end of the fiscal year, which includes increasing revenue estimates & expenditure appropriations by $553,300 and is reflected as an increase in intergovernmental revenues.
• Property transfer tax revenues, which are included in the Other Taxes category in the chart above, exceeded the adopted budget by $1.7 million due to the strong sales activity discussed earlier in this report.
Governmental accounting standards require the City to adjust the value of the City’s
investments to market value. Because the City normally holds investments to maturity and receives the full value of securities regardless of market value fluctuations, these are paper-only gains and losses that net to $0 over time. The impact of the gains and losses associated with the change in the value of the City’s investments is recorded at year-end
as an addition to or subtraction from investment income. Because of the current volatile
and rising interest rate environment, staff anticipated a significant negative adjustment on June 30, 2022, to reflect the fair value of the City’s investments, as was reported in the third quarter report. On June 30, 2022, the recorded entry was a negative adjustment of $3.85 million to General Fund investment income to record the fair value adjustment. This
material adjustment has reduced the projected surplus as reported later in this report. As
the securities in the City’s investment portfolio turnover in the next several years, the negative adjustment in the current year will be offset by positive adjustments that will cause future investment income to be reported as higher than the actual revenue received.
General Fund Expenditures The Fiscal Year 2021-22 General Fund revised expenditure budget totals $238.9 million. Spending trends in Fiscal Year 2021-22 are generally consistent with prior years and do
Year-End Budget Results and Surplus Allocation November 10, 2022 Page 6
not indicate any cause for concern. Total expenditure savings of $10.9 million were realized, or 4.5% of the revised budget.
The table below summarizes the changes to the adopted expenditure budget for Fiscal Year 2021-22, as well as expenditure savings by budget category. Details follow highlighting the reasons for the material variances.
FY 2021-22 Actual General Fund Expenditures *
* Based on preliminary year-end close data available as of September 30, 2022
Significant expenditure budget variances are as follows:
• The revised salary and benefits budget totals $159.7 million, an increase of $7.9 million over the adopted budget. The increase is primarily due to the appropriation
of $5.0 million from Fiscal Year 2020-21 year-end budget surplus as an additional discretionary payment to CalPERS to further reduce the City’s unfunded pension liability. The remaining $2.9 million relates to recently approved contracts with the City’s employee associations. The City does not budget for unknown labor costs, which requires mid-year appropriations for negotiated salary and benefit increases
in the year in which new labor contracts are negotiated. While the budget for FY 2021-22 did include a $2.0 million vacancy factor, an additional $4.7 million in salary and benefit savings beyond the vacancy factor have been realized. Reflected in the salary and benefit projected actuals is $553,300 in overtime expenses related to staff assigned to strike team deployments. To align the
FY 2021-22 budget with actual revenues and expenses through the end of the fiscal year, budget amendment No. 22-059 includes increasing revenue estimates & expenditure appropriations by $553,300.
A B C = A-B D = C/A
Expenditures by
Category
Adopted
Budget
Revised
Budget
Projected
Actual
Savings
(Overage) % Variance
Salary & Benefits 151,713,101$ 159,704,562$ 155,030,806 4,673,756$ 2.9%
Contract Services 24,702,901 27,262,619 23,849,856 3,412,762 12.5%
Grant Operating 600,000 926,490 851,954 74,536 8.0%
Utilities 3,011,315 3,219,168 3,909,494 (690,326) -21.4%
Supplies & Materials 3,739,730 4,433,188 3,993,623 439,565 9.9%
Maintenance & Repair 12,640,923 13,160,524 11,103,973 2,056,551 15.6%
Travel & Training 814,868 832,259 664,486 167,773 20.2%
General Expenses 2,130,552 2,303,774 2,228,060 75,714 3.3%
Internal Svc Charge 25,078,890 25,093,732 25,093,732 - 0.0%
Risk Management 750,915 750,915 472,940 277,975 37.0%
Capital Expenditures 780,438 1,185,810 824,085 361,725 30.5%
Total Expenditures 225,963,632$ 238,873,040$ 228,023,008$ 10,850,031$ 4.5%
Year-End Budget Results and Surplus Allocation November 10, 2022 Page 7
• Increases to the contract services budget relate to a variety of routine mid-year adjustments previously approved by the City Council, including $0.6 million added
to the contract instructors’ budget for Recreation and Senior Services that is fully
offset by higher revenues, $0.4 million for the Be Well OC program, $0.3 million for the Medical IGT Program that is fully offset by higher revenues, and appropriations offsetting several donations. Contract services savings of $3.4 million were realized, however, $2.3 million in encumbrances for contracts was
carried over into Fiscal Year 2022-23. Staff has reserved a portion of the surplus
to account for these rolled encumbrances as is done every year, which reduces the year-end surplus available to allocate.
• Staff identified and previously reported on an issue with the City’s budgeting for
utilities. A portion of this issue was addressed with a budget amendment approved by the City Council in the first quarter. Additional overages became apparent and were reported in the third quarter report. Staff has made adjustments in the Fiscal Year 2022-23 budget to address these overages. As budget savings in other
expenditure categories fully offset the $0.7 million overage, staff is not
recommending a further adjustment to the utilities budget at this time.
• Savings of $1.6 million from the residential refuse collection contract account for
the majority of savings within the maintenance and repair category. Additional
budget for this contract was built into the adopted budget; however, the contract was not executed until January 2022, resulting in unexpected budget savings that will not be ongoing in future years.
On October 26, 2021, the City Council approved $31.0 million of recommended
appropriations from prior year unrestricted General Fund resources as follows: 1. CalPERS Unfunded Liability – $5.0 million to bring the City’s annual unfunded liability contribution to CalPERS up from $35 million to $40 million, consistent with
recent years and the recommendation of the Finance Committee.
2. Facilities and Infrastructure Replacement Liabilities – $10.5 million toward additional contributions to long-term infrastructure liabilities within the Facilities Financial Plan and Harbor and Beaches CIP.
3. CIP and Neighborhood Enhancements – $15.5 million toward the Fiscal Year 2022-23 capital improvement program, to include neighborhood enhancement projects.
Other than the previously discussed appropriation toward the City’s CalPERS unfunded
liability, the remainder of these appropriations are reflected in the budget as transfers out
of the General Fund.
Year-End Budget Results and Surplus Allocation November 10, 2022 Page 8
General Fund Sources, Uses, and Projected Surplus As a result of the strong revenue growth discussed earlier in this report, as well as the expenditure savings realized, the General Fund has a budget surplus of $24.1 million for
Fiscal Year 2021-22.
The table below illustrates the prior year sources and uses of funds as compared to the adopted budget and the projected year-end results:
Fiscal Year 2021-22 Projected General Sources, Uses, and Budget Surplus
As can be seen in the table above, even with the sizable appropriations earlier this year that allocated three prior years’ budget surpluses, current projections now reflect a $24.1
million budget surplus for the current fiscal year.
One item of note is that the transfers in from other funds has decreased by $621,000. This is due to an updated projection of the activity in the Tidelands Operating Fund, which will require a higher subsidy from the General Fund than was anticipated when the budget
was developed. A higher subsidy is necessary due to activity in the Tidelands fund such
as capital expenditures brought forward mid-year. Lastly, as discussed in the revenues section of this report, the impact from adjusting the value of the City’s investments to fair value has negatively impact revenues by $3.85
million.
Recommended Allocation for Unrestricted General Fund Resources Typically, year-end surplus funds are allocated based on the guidelines found in City Council Policy F-5, which recommends that roughly 50% of surplus funds be allocated to
A B C=B-A D=C/A
FY 2020-21 FY 2021-22 FY 2021-22 Variance % Variance
Actual Adopted Projected
BEGINNING UNRESTRICTED FUND BALANCE 26,086,333$ 31,036,884$ 31,178,957$ 142,073$ 0.5%
SOURCES:
Operating Revenues 234,708,627 234,126,964 261,557,218 27,430,254 11.7%
Less: Restricted Revenues (890,466) (1,128,513) (746,728) 381,785 -33.8%
Prior Year Resources Carried Forward 2,075,632 - 3,072,666 3,072,666 ---
Release of Restricted Funds 1,557,463 1,220,000 6,476,034 5,256,034 430.8%
Transfers In from Other Funds 21,526,628 11,977,157 11,356,595 (620,562) -5.2%
TOTAL SOURCES 258,977,884 246,195,608 281,715,785 35,520,177 14.4%
USES:
Operating Expenditures 220,647,754 225,963,632 228,023,008 2,059,376 0.9%
Transfers Out 27,467,575 20,200,000 52,813,549 32,613,549 161.5%
Resources Carried Forward to Next Fiscal Year 3,072,666 - 4,429,573 4,429,573 ---
Addition to 25% Contingency Reserve 2,697,265 - 3,535,171 3,535,171 ---
TOTAL USES 253,885,260 246,163,632 288,801,302 42,637,670 17.3%
ENDING UNRESTRICTED FUND BALANCE 31,178,957$ 31,068,860$ 24,093,441$ (6,975,419)$ -22.5%
Category
Year-End Budget Results and Surplus Allocation November 10, 2022 Page 9
long-term obligations such as pensions, debt, and other long-term needs and 50% be allocated to infrastructure or neighborhood capital improvements. As discussed, $24.1 million of unrestricted General Fund resources are available for use at the Council’s
discretion at this time. Recognizing that City Council Policy F-5 was developed with
smaller surpluses in mind and the Council already funded the Fiscal Year 2022-23 CalPERS unfunded liability contribution from the Fiscal Year 2022-23 structural surplus, staff is recommending that the Council waive policy elements C and D of City Council Policy F-5 as was done last year.
Staff’s recommendation is to use the surplus funds of $24.1 million to fund the majority of the proposed purchase of a parcel on Dove Street for a future relocation of the City’s Police Facility, as discussed in detail in a separate staff report. Staff propose funding the remaining amount of $6.7 million from available funds on hand in the Facilities Financial
Planning (FFP) Fund.
Other Funds Staff have evaluated the fiscal condition of the City’s other major operating funds (Tidelands, Water, and Wastewater). An analysis of the budget performance for the
Water and Wastewater funds indicates that no budget adjustments are necessary and
variances between budgeted and actual amounts are within reason. An analysis of the Tidelands fund has demonstrated that a higher than budgeted subsidy will be necessary to fund the current activity in the fund. There is no budgetary impact
due to the current presentation format of the Tidelands Fund, but this is reflected in the
General Fund sources and uses as a reduced transfer in as previously discussed.
Tidelands Operating Fund Activity
FY 2021-22
Projected
Available Beginning Fund Balance 2,390,852
Projected Revenues 13,578,608
Total Sources 15,969,460
Operational Expenses (1,130,636)
Capital Improvement Projects (3,862,955)
Cost Allocation Plan (17,490,906)
Total Uses (22,484,497)
Deficit (Subsidy)(8,668,939)
Projected Net Increase to GF (CAP less Subsidy)8,821,967
Budgeted Net Increase to GF (CAP less Subsidy)9,442,529
Impact on General Fund (620,562)
Year-End Budget Results and Surplus Allocation November 10, 2022 Page 10
Measure M Fund In Fiscal Year 2020-21, the City of Newport Beach received funding from the Orange County Transportation Authority (OCTA) for the Newport Bay Trash Mitigation project
expensed in Fiscal Year 2019-20. The project cost was $125,226, however only
$120,216.38 was received from OCTA. Staff is proposing transferring $5,009.62 from the General Fund in order to balance the revenues and expenses for this prior year project. American Rescue Plan Act Fund
The City of Newport Beach received funding from the American Rescue Plan Act (ARPA),
through the California State Water Resources Control Board to reimburse the City for delinquent water bills that were unpaid during the COVID-19 pandemic bill relief period. The City received approximately $123,000 for this water arrearage program, and a budget amendment is needed to appropriate the revenues and expenses within the ARPA fund.
There is also a wastewater arrearage program that will be brought forward in the Fiscal
Year 2022-23 First Quarter Report. Conclusion As a result of conservative budgeting and sound financial policies, the City remains well
positioned to continue delivering a high level of service to the community while targeting
surplus resources to key priorities at year-end as has been the case for a number of consecutive years. Staff recommends that the Finance Committee review and discuss this report and provide any recommendations for City Manager and City Council consideration prior to the November 15th City Council meeting, at which time this report
will be presented. Prepared and Submitted by:
/s/ Shelby Burguan ____________________________
Shelby Burguan Budget Manager
2021-22
Fourth Quarter Financial Report
Finance
Committee
November 10, 2022
City of Newport Beach –Finance Department 2
Actual General Fund Revenues
Adopted Budget $ 234 million
Actual Revenues $ 261.5 million
•The original budget took a very conservative
approach to forecasting COVID revenue impacts
•$26.3 million higher than the Q3 projection
•$27.4 million higher than the adopted budget -
50
100
150
200
250
300
Adopted ActualMillions
Property Tax Sales Tax TOT Other
City of Newport Beach –Finance Department 3
Property Tax
•Not significantly impacted by the
pandemic
•Represents approximately 50% of
General Fund revenues
•Positive variance of 1.4%, mostly due to
higher secured property tax revenues
•The City’s median home sale price for
single family residences stood at $3.1
million in June, 19.6% higher than the
prior year.
$97
$102
$108
$113
$119
$124
$80
$85
$90
$95
$100
$105
$110
$115
$120
$125
$130
2016-17
Actual
2017-18
Actual
2018-19
Actual
2019-20
Actual
2020-21
Actual
2021-22
ActualMillions
City of Newport Beach –Finance Department 4
Sales Tax
•Consumer spending has continuing to
strengthen and adapt
•FY 2021-22 ended as a record year for sales tax
revenues, $7.2m higher than FY 2020-21
•$5.9 million (15%) above the revised budget
•Strong performance across all categories
specifically with auto sales and brick-and-
mortar establishments and hospitality industry
•Due to higher fuel prices and higher demand,
fuel and service stations have seen strong
growth
City of Newport Beach –Finance Department 5
Transient Occupancy Tax
•Occupancy rates are still below pre-pandemic
levels
•Higher average daily rates are offsetting
•We have seen record TOT revenues for
multiple properties in recent months
•Residential TOT continues to bring in record
revenues
•Fashion Island Hotel will be remade into the
Pendry come 2023
City of Newport Beach –Finance Department 6
Other General Fund Revenues
•Other revenues exceeded the adopted budget by $11.8 million or 22%
•Property transfer tax revenues were very strong and exceeded the adopted budget
by $1.7 million or 27.9% above budget due to increased sales activity
•Fees and charges revenues were $3.8 million above budget due to increased
recreation fee-based classes, Junior Lifeguard Program, plan check fees, and
paramedic service fees
•Property income revenues were $1.7 million above budget due to continued strong
real estate activity and increasing property values, with actual revenue 75% higher
than the prior year
•Intergovernmental revenues were $2.8 million above budget due to mutual aid
reimbursements and SB-2 Allocations.
City of Newport Beach –Finance Department 7
Actual General Fund Expenditures
Adopted Budget $ 225.9 million
Final Budget $ 238.9 million
Actual Expenditures $ 228 million
•$10.9 million of actual expenditure budget savings
•$4.7 million of this amount was salary savings in addition to the $2.0 million included in
the adopted budget
•$4.4 million in encumbrances were carried into FY22-23
City of Newport Beach –Finance Department 8
General Fund Reserves
•Higher than originally
budgeted revenues and
lower than budgeted costs
have resulted in a strong
year-end budget surplus of
$24.1 million
City of Newport Beach –Finance Department 9
Recommended Uses for Surplus Funds on Hand
•City Council policy F-5 recommends that:
•Roughly 50% of surplus funds be allocated to long-term obligations
•Roughly 50% be allocated to infrastructure and neighborhood capital projects
•Staff are recommending allocation of the available $24.1 million as follows:
•To fund majority of the proposed purchase of a parcel on Dove Street for a future
relocation of the City’s Police Facility.
City of Newport Beach –Finance Department 10
Recommended Action
Staff recommends that the Finance Committee:
•Review and discuss this report
•Provide any recommendations for consideration by the
City Manager and City Council
City of Newport Beach –Finance Department 11
Questions?
CITY OF NEWPORT BEACH
FINANCE COMMITTEE
STAFF REPORT
Agenda Item No. 5B
November 10, 2022
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Michael Gomez, Acting Finance Director / Treasurer
949-644-3124, mgomez@newportbeachca.gov
SUBJECT: FIRST QUARTER BUDGET UPDATE (UPDATED)
SUMMARY:
The Finance Department prepares quarterly financial reports to review in detail the status
of revenues and expenditures for the City’s General Fund and to identify any concerning
budgetary trends in other City funds. This report contains information on revenues,
expenditures, and estimated fund balance for the first quarter of Fiscal Year 2022-23.
The first financial report of Fiscal Year 2022-23 provides an analysis of the financial
activity of the City from the months of July through September 2022. Based on information
available at the end of the first quarter, positive revenue adjustments are expected and
will be reflected in the proposed first quarter budget amendment. Several expenditure
budget adjustments are also recommended, all of which are fully offset by the additional
revenues.
RECOMMENDED ACTION:
Review and discuss this report and provide any recommendations for consideration by
the City Manager and City Council.
DISCUSSION:
Economic Overview
Key economic indicators such as unemployment, taxable sales, and assessed property
values continue to improve, which is indicative of the recent robust improvement to the
economy. While recent trends in inflation have caused concern in the broader economy
and financial markets, the City is well-positioned to weather any short-term increase in
inflation thanks to the related increase in many of the City’s revenues such as sales tax
and transient occupancy tax as prices increase. Additionally, long-term labor contracts
First Quarter Budget Update (Updated)
November 10, 2022
Page 2
with the City’s employee associations have been negotiated that provide reasonable
compensation increases that can be accommodated within projected revenue growth.
General Fund Revenues
Most revenue categories performed at or higher than their budgeted levels last year due
to more favorable economic conditions than anticipated when the budget was originally
adopted. Overall General Fund revenue growth has outpaced projections generated by
the City’s consultants and staff that were incorporated into the adopted Fiscal Year 2022-
23 budget. Growth in transient occupancy tax has been the most pronounced, but growth
in many other areas has contributed to a significant projected increase in General Fund
revenues of $3.2 million versus the adopted budget. Of note, sales tax in the categories
hardest hit by the pandemic (brick-and-mortar businesses and restaurants & hotels) has
now surpassed the record high levels seen just prior to the pandemic’s onset, and
transient occupancy tax has now exceeded the pre-pandemic high.
The following table summarizes the changes to projected General Fund revenues versus
the adopted budget for Fiscal Year 2022-23. Details follow highlighting the reasons for
the material variances.
Fiscal Year 2022-23 Projected General Fund Revenues*
* Based on preliminary year-end close data available as of September 30, 2022
Property Tax - Property taxes are the City’s single largest General Fund revenue and
represent approximately 50% of all General Fund revenues. As these revenues are
primarily dependent on the assessed valuation established in January of 2022, there is
typically very little variance seen from the original budget as the year progresses.
Projections for Fiscal Year 2022-23 property tax revenues from the City’s property tax
A B C = B-A D = C/A
Revenues by Category PY Actual
Adopted
Budget
Projected
Actual Variance % Variance
Property Taxes 124,335,985 131,403,081 132,290,053 886,972 1%
Sales Tax 46,164,860 46,526,493 46,526,493 - 0%
Transient Occupancy Tax 26,677,331 27,788,728 28,908,841 1,120,113 4%
Other Taxes 13,263,112 12,174,567 12,174,567 - 0%
Service Fees & Charges 22,870,701 22,005,339 22,654,447 649,108 3%
Parking Revenue 7,213,646 5,681,942 5,681,942 - 0%
Licenses and Permits 6,067,908 5,870,375 5,870,375 - 0%
Property Income 6,818,121 6,416,226 6,416,226 - 0%
Fines & Penalties 4,157,305 3,870,567 3,870,567 - 0%
Intergovernmental 4,578,283 1,823,903 2,372,999 549,096 30%
Investment Earnings (2,615,502) 1,300,000 1,300,000 - 0%
Misc Revenues 2,027,802 169,280 169,280 - 0%
Total Revenues 261,559,550 265,030,502 268,235,791 3,205,289 1%
First Quarter Budget Update (Updated)
November 10, 2022
Page 3
consultant reflect a 7.6% increase in assessed values in the year ahead. This strong
growth is a result of the CPI factor returning to the maximum 2.0% allowed and adding
$1.2 billion to the assessed valuation, as well as continued strong property sales activity
and price appreciation adding $5.0 billion to the assessed valuation. The City’s total
assessed valuation for Fiscal Year 2022-23 is now projected to grow from $66.2 billion to
$71.2 billion.
Sales Tax - The second largest funding source for the General Fund is sales tax revenue,
making up more than 15% of General Fund revenues. The City’s sales tax base is largely
generated from three industry categories – autos and transportation, general consumer
goods, and restaurants/hotels. Most of these industries are heavily impacted by tourism
and were impacted by the effects of the COVID-19 pandemic. The adopted budget for
this revenue source was developed in conjunction with the City’s sales tax consultant and
remains the current projection at this time.
Transient Occupancy Tax – The City has seen a steady rebound and comeback for
TOT revenues as the effects of the pandemic receded. The TOT budget for the current
fiscal year was developed in anticipation of full recovery of TOT revenues. Revenue from
short-term lodging businesses, which grew throughout the pandemic, is at a record high
level. Additionally, many hotel properties are reporting record high TOT receipts and have
been doing so for multiple consecutive months. While occupancy levels have not
returned to pre-pandemic levels, they are slowly increasing. This lag in occupancy levels
has been largely offset by higher room rates as shown in the chart provided by Visit
Newport Beach:
VEA Newport Beach is now operational, with expanded meeting space, higher room
rates, and a full complement of rooms available that have not been usable during the
renovation process this past year. Staff has conservatively not included an impact in the
TOT revenue projection from the changes to the hotel, which should result in a positive
variance beyond the Fiscal Year 2022-23 projection. The Fashion Island Hotel remains
closed but is expected to reopen in the Summer of 2023 following a sale and renovation
First Quarter Budget Update (Updated)
November 10, 2022
Page 4
as the Pendry Newport Beach. Similarly, because the timing of the Pendry’s opening is
uncertain, staff has not included any revenue from the hotel in the projection for next fiscal
year. These reopening’s, combined with the expected return of more business travelers,
are anticipated to have additional positive impact on the City’s TOT revenues in the years
ahead.
An updated analysis of the City’s TOT revenues shows an expected increase of $1.1
million, due largely to strong short term lodging businesses, which increases the current
year projection to $28.9 million. Staff will continue to monitor TOT trends and will provide
additional updates to projections as necessary in future quarterly financial reports.
All Other Revenue – This category includes all other revenue sources other than the top
three (property tax, sales tax, and TOT). All Other Revenue is made up of the following:
• Other Taxes – real property transfer taxes, business license taxes, marine charter
taxes, and franchise fees.
• Service Fees and Charges – plan check fees, recreation classes, emergency
medical services fees, and numerous other cost-of-service fees.
• Parking Revenue – all General Fund related metered parking fees that are
assessed throughout the various parking zones of the City.
• Licenses and Permits – fees charged to process building related permits, street
closure permits, dog licenses, and police tow franchise fees.
• Property Income – City owned and managed income producing properties, long-
term ground leases to concessions, restaurants, hotels and other businesses and
organizations, and rental of City facilities to the public.
• Fines and Penalties – parking citation fines collected by the City, administrative
citation fines, fines remitted to the City from the County for vehicle code violations,
and false alarm penalties.
• Intergovernmental Revenues – federal, state, and local grant revenues, which
includes, but is not limited to, the City’s portion of the ½ cent sales tax revenue
paid to the County for public safety, state mandate reimbursements,
reimbursement for strike teams sent to assist with fires, and revenue sharing with
the County of Orange under the Waste Disposal Agreement (WDA).
• Investment Earnings – revenue generated from the investment of City funds.
• Miscellaneous Revenues – restricted revenue, damage to City property, bad debt,
donations and contributions, non-operating revenues such as proceeds from the
sale of materials and equipment, and other miscellaneous revenues.
Service fees and charges revenues are projected to exceed the adopted budget by
$600,000. This is primarily due to increased revenue received from recreation fee-based
First Quarter Budget Update (Updated)
November 10, 2022
Page 5
classes. An amendment is proposed to increase both revenues and expenditures
associated with fee-based classes.
Intergovernmental revenues are projected to exceed the adopted budget by $550,000,
primarily due to adjustments related to Fire Department mutual aid reimbursements and
SB-2 Permanent Local Housing Allocation grant funds.
General Fund Expenditures
The Fiscal Year 2022-23 General Fund revised expenditure budget totals $255.7 million.
Spending trends in fiscal year 2022-23 are generally consistent with prior years and do
not indicate any cause for concern. Total expenditure savings of $330,000 are projected
at this time due to year-to-date savings from vacancies, offset by expense overages that
are addressed in Budget Amendment No. 23-027 (Attachment A), and are explained in
detail below.
The table below summarizes the changes to the adopted expenditure budget for Fiscal
Year 2022-23, as well as expenditure savings by budget category. Details follow
highlighting the reasons for the material variances.
Fiscal Year 2022-23 Projected General Fund Expenditures *
* Based on preliminary year-end close data available as of September 30, 2022
Significant expenditure budget variances are as follows:
• The revised salary and benefits budget totals $169.7 million, an increase of $6.2
million over the adopted budget. The increase is primarily due to the appropriation
of $5.0 million from the Fiscal Year 2022-23 structural budget surplus as an
A B C = A-B D = C/A
Expenditures by
Category
Adopted
Budget
Revised
Budget
Projected
Actual
Savings
(Overage) % Variance
Salary & Benefits 163,463,320$ $169,670,545 168,664,236$ 1,006,308$ 0.6%
Contract Services 26,873,734 29,498,100 30,092,600 (594,500) -2.0%
Grant Operating 548,485 552,485 552,485 - 0.0%
Utilities 3,837,745 3,837,745 3,837,745 - 0.0%
Supplies & Materials 3,902,350 4,676,788 4,676,788 - 0.0%
Maintenance & Repair 13,282,330 14,445,304 14,445,304 - 0.0%
Travel & Training 833,758 843,049 843,049 - 0.0%
General Expenses 2,178,896 2,279,465 2,279,465 - 0.0%
Internal Svc Charge 28,190,206 28,190,206 28,190,206 - 0.0%
Risk Management 255,915 255,915 255,915 - 0.0%
Capital Expenditures 1,153,666 1,409,470 1,491,970 (82,500) -5.9%
Total Expenditures 244,520,405$ 255,659,072$ 255,329,763$ 329,308$ 0.1%
First Quarter Budget Update (Updated)
November 10, 2022
Page 6
additional discretionary payment to CalPERS to further reduce the City’s unfunded
pension liability. The remaining $1.2 million relates to recently approved contracts
with the majority of the City’s employee associations. The City does not budget
for unknown labor costs, which requires mid-year appropriations for negotiated
salary and benefit increases in the year in which new labor contracts are
negotiated.
• The revised contract services budget totals $129.5 million, an increase of $2.6
million over the adopted budget. This increase is primarily due to contract
carryovers from the prior fiscal year, that pull from prior year reserved fund
balances and not current year revenues. During Fiscal Year 2020-21, the
Recreation and Senior Services department reduced their operational revenues
and expenditure budgets in response to cancelled classes relating to the COVID-
19 shutdowns. At the end of quarter one in Fiscal Year 2021-22, staff increased
expenditure appropriations due to the reinstatement of cancelled classes,
however, these increases were still below the pre-pandemic budget levels. Staff is
seeking an amendment of $594,000 to fully restore contract instructor budgets.
• Two new vehicle purchases that were approved as program enhancements were
erroneously not included in the adopted budget. Staff seek a budget amendment
to fund the purchases of these vehicles for the Fire and Utilities departments.
General Fund Sources, Uses, and Projected Surplus
The City continues to be in excellent financial health. Conservative budgeting and sound
financial policies have resulted in a trend of General Fund operating surpluses and strong
reserve levels for several years. The City is well positioned to continue delivering a high
level of service to the community while targeting surplus resources to key priorities each
year. Staff currently project that unrestricted General Fund resources will total
$719,000$1.8 million at the end of Fiscal Year 2022-23. As is the case each year, staff
anticipate that additional budget savings will be realized, and the final year-end budget
surplus will exceed this amount.
The table below illustrates the prior year sources and uses of funds as compared to the
adopted budget, the revised budget, and the projected year-end results.
First Quarter Budget Update (Updated)
November 10, 2022
Page 7
Fiscal Year 2022-23 Projected General Sources, Uses, and Budget Surplus
As can be seen in the table above, even with the sizable appropriations earlier this year
that allocated last year’s budget surplus of $24.1 million, current projections now reflect
a $1.8 million budget surplus for the current fiscal year.
Other Funds
Staff have evaluated the fiscal condition of the City’s other major operating funds
(Tidelands, Water, and Wastewater). An analysis of the budget performance for these
funds indicates that no budget adjustments are necessary and variances between
budgeted and actual amounts are within reason.
Contributions Fund
Several Capital Improvement Plan (CIP) projects in the contributions fund have received
additional revenues for portions of existing projects. These revenues fully offset additional
expenses but require budget amendments that are included in staff’s recommendation to
Council:
• Peninsula Encroachment Removal Project (22M14) – property owners were
notified they could either pay the City $7,500 for the removal of their hardscape
encroachments or remove the encroachments themselves. 3 property owners
entered in agreements for the City to remove their encroachments.
• East Coast Highway Pavement Rehabilitation (21R12) – Laguna Beach Water
District and Orange County Sanitation District are contributing to the project for
work the City did as part of the construction contract that would have been their
responsibility.
A B C=B-A D=C/A
FY 2021-22 FY 2022-23 FY 2022-23 Variance % Variance
Actual Adopted Projected
BEGINNING UNRESTRICTED FUND BALANCE 31,178,957$ 24,093,441$ 24,093,441$ -$ 0.0%
SOURCES:
Operating Revenues 261,557,218 265,030,502 268,235,791 3,205,289 1.2%
Less: Restricted Revenues (746,728) - - - 0.0%
Prior Year Resources Carried Forward 3,072,666 - 4,429,573 4,429,573 ---
Release of Restricted Funds 6,476,034 - - - 0.0%
Transfers In from Other Funds 11,356,595 18,550,724 18,550,724 - 0.0%
TOTAL SOURCES 281,715,785 283,581,226 291,216,088 7,634,862 2.7%
USES:
Operating Expenditures 228,023,008 244,520,405 255,329,763 10,809,359 4.4%
Transfers Out 52,813,549 31,597,269 58,140,710 26,543,441 84.0%
Resources Carried Forward to Next Fiscal Year 4,429,573 - - - ---
Addition to 25% Contingency Reserve 3,535,171 - - - ---
TOTAL USES 288,801,301 276,117,674 313,470,474 37,352,800 13.5%
ENDING UNRESTRICTED FUND BALANCE 24,093,441$ 31,556,994$ 1,839,055$ (29,717,938)$ -94.2%
Category
First Quarter Budget Update (Updated)
November 10, 2022
Page 8
• Additional unforeseen work was required on the Jamboree Road Pavement
Rehabilitation project (21R15) that is the responsibility of Orange County Water
District (OCWD). The City will bill OCWD for the cost of the additional work.
• Von Karman Avenue Pavement Rehabilitation (23R15) – Coronavirus Response
and Relief Supplement Appropriations Act of 2021 provided funding through
Department of Transportation with Orange County Transportation Authority
distributing the funds. The expenditure is budgeted through the Capital
Improvement Program budget. The budget amendment will add the anticipated
revenue into the budget, so the contributions fund is balanced.
American Rescue Plan Act Fund
The City of Newport Beach received funding from the American Rescue Plan Act (ARPA),
through the California State Water Resources Control Board to reimburse the City for
delinquent sewer bills that were unpaid during the COVID-19 pandemic bill relief period.
The City received approximately $50,000 for this wastewater arrearage program, and a
budget amendment is needed to appropriate the revenues and expenses within the ARPA
fund.
Conclusion
Staff recommends that the Finance Committee review and discuss this report and provide
any recommendations for City Manager and City Council consideration prior to the
November 15th City Council meeting, at which time this report will be presented.
Prepared and Submitted by:
/s/ Shelby Burguan
____________________________
Shelby Burguan
Budget Manager
2022 -23
First Quarter Financial Report
Finance
Committee
November 10, 2022
City of Newport Beach –Finance Department 2
Projected General Fund Revenues
Adopted Budget $ 265.0 million
Revised Budget $ 266.9 million
First Quarter Projection $ 268.3 million
•$3.2 million of pr0jected positive variance
•Revised estimates for Property Tax, Transient
Occupancy Tax, RSS fee-based classes, and
grants make up the updated projection. $-
$50
$100
$150
$200
$250
$300
Adopted Revised ProjectedMillions
Property Tax Sales Tax TOT Other
City of Newport Beach –Finance Department 3
Property Tax
•Represents approximately 50% of
General Fund revenues
•On track to exceed the adopted budget
based on strong assessed value growth
reflected in the final tax roll
•$800k upward adjustment to the
revenue estimate
$108
$113
$119
$124
$132
$80
$90
$100
$110
$120
$130
$140
2018-19
Actual
2019-20
Actual
2020-21
Actual
2021-22
Actual
2022-23
ProjectedMillions
City of Newport Beach –Finance Department 4
Sales Tax
•FY 2020-21 was a record year for sales tax
revenues
•Growth expected to continue, but at a slower
pace
•It is too early in the fiscal year to tell if an
adjustment to the revenue budget is
appropriate
•An upward adjustment to the revenue estimate
in the second quarter is probable $35
$39
$36
$39
$46 $47
$32
$34
$36
$38
$40
$42
$44
$46
$48
2017-18
Actual
2018-19
Actual
2019-20
Actual
2020-21
Actual
2021-22
Actual
2022-23
ProjectedMillions
City of Newport Beach –Finance Department 5
Transient Occupancy Tax
•Transient occupancy tax was the City’s most
severely impacted revenue source as a result of
the pandemic
•VEA Hotel now open, while the Pendry remains
closed
•Revenue from short-term lodging is at a record
high, and accounts for most of the increase in
the projected revenue
•Additional upward adjustments to TOT
revenues in future quarters is likely, but staff is
cautiously evaluating trends
$23 $25
$21
$17
$27
$29
$-
$5
$10
$15
$20
$25
$30
$35
2017-18
Actual
2018-19
Actual
2019-20
Actual
2020-21
Actual
2021-22
Actual
2022-23
ProjectedMillions
City of Newport Beach –Finance Department 6
Other General Fund Revenues
•Other general fund revenues projected to exceed budget by $1.2 million
•$0.6 million adjustment to service fees & charges
•Offset by increased expenditures for instructors
•$0.6 million adjustment to intergovernmental revenues
•Strike team reimbursement from the State
•SB 2 grant revenues for homeless services
City of Newport Beach –Finance Department 7
Projected General Fund Expenditures
Adopted Budget $ 244.5 million
Revised Budget $ 255.6 million
First Quarter Projection $ 255.3 million
•$5.0 million additional payment to CalPERS included in revised budget
•$4.4 million of budget carryovers
•Budget amendment to be included with the City Council staff report to appropriate:
•$0.6 million for recreation class expenses
•$80k for vehicles in the Fire and Utilities departments
City of Newport Beach –Finance Department 8
General Fund Sources and Uses
•Increase in transfers out
reflects the use of prior year
surplus to fund the purchase
of a parcel on Dove Street.
•Current projection of $1.8
million surplus, likely to
grow in future quarters
•Budget savings will likely be
identified as the year
progresses, as is usually the
case
A B C=B-A D=C/A
FY 2021-22 FY 2022-23 FY 2022-23 Variance % Variance
Actual Adopted Projected
BEGINNING UNRESTRICTED FUND BALANCE 31,178,957$ 24,093,441$ 24,093,441$ -$ 0.0%
SOURCES:
Operating Revenues 261,557,218 265,030,502 268,235,791 3,205,289 1.2%
Less: Restricted Revenues (746,728) - - - 0.0%
Prior Year Resources Carried Forward 3,072,666 - 4,429,573 4,429,573 ---
Release of Restricted Funds 6,476,034 - - - 0.0%
Transfers In from Other Funds 11,356,595 18,550,724 18,550,724 - 0.0%
TOTAL SOURCES 281,715,785 283,581,226 291,216,088 7,634,862 2.7%
USES:
Operating Expenditures 228,023,008 244,520,405 255,329,763 10,809,359 4.4%
Transfers Out 52,813,549 31,597,269 58,140,710 26,543,441 84.0%
Resources Carried Forward to Next Fiscal Year 4,429,573 - - - ---
Addition to 25% Contingency Reserve 3,535,171 - - - ---
TOTAL USES 288,801,301 276,117,674 313,470,474 37,352,800 13.5%
ENDING UNRESTRICTED FUND BALANCE 24,093,441$ 31,556,994$ 1,839,055$ (29,717,938)$ -94.2%
Category
City of Newport Beach –Finance Department 9
Recommended Action
Staff recommends that the Finance Committee:
•Review and discuss this report
•Provide any recommendations for consideration by the
City Manager and the City Council
City of Newport Beach –Finance Department 10
Questions?
CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5C November 10, 2022
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Michael Gomez, Acting Finance Director/Treasurer
949-644-3124, mgomez@newportbeachca.gov
SUBJECT: INTERNAL AUDIT PROGRAM UPDATE
SUMMARY:
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. This report provides an update for internal audit activities to date.
RECOMMENDED ACTION:
Receive and file.
DISCUSSION:
Background
In October 2019, Moss Adams was selected to assess internal controls, conduct performance audits, and provide management consulting services where appropriate. In September 2020, Moss Adams provided Enterprise Risk Assessment and Internal Controls Review reports for the Committee’s review. From these reports, 13 internal audit projects were identified, which are being addressed incrementally as part of each fiscal
year’s ongoing internal audit work plan.
In December 2021, the City issued RFP 22-27 - Internal Control Assessment and Test work, Performance Audits, and Management Consulting Services. From the received proposals, staff has selected four vendors to complete the remaining internal audit
projects identified by Moss Adams and additional audit projects identified by the Finance Committee and/or staff in the future.
Internal Audit Program Update November 10, 2022 Page 2
On June 28, 2022, the City Council awarded a multi-year on call contract for professional internal audit services to four firms to further study and complete audit focus areas identified in the Moss Adams report. The four firms awarded a contract are:
1. Moss Adams LLP 2. Sjoberg Evanshenk Consulting Inc. 3. Macias Gini & O’Connell LLP 4. TAP International
A firm or firms will be selected each year to perform the internal audits included in the work plan based on qualifications for the specific topic area to be studied. Current Progress
Staff has begun planning, meeting, coordinating, and working to implement key findings
from the first five internal audit reports. Responding to the key findings requires different types of work to be completed, including revisions to internal department procedures, intra-department policy revisions, new policy development, and training coordination. This work is underway, and staff will provide a brief verbal update to the Committee on
progress to date.
The remaining eight focus areas identified in the Moss Adams report will be reviewed in the year ahead or in future years’ internal audit programs. The focus areas and the anticipated fiscal year for their inclusion in the internal audit work plan are as follows:
1. Accounts Payable and Disbursement (Fiscal Year 2022-23) 2. Payroll (Fiscal Year 2022-23) 3. Fixed Asset Management (Fiscal Year 2022-23) 4. Police Property and Evidence Internal Controls Testing (Fiscal Year 2023-24)
5. Financial Reporting (TBD)
6. Budgeting (TBD) 7. Business Continuity and Disaster Planning Assessment (TBD) 8. Finance Customer Service Operational Review (TBD)
On September 7, 2022, staff received responses from the four internal audit on-call panel
firms to complete the focus area work identified for this fiscal year. Moss Adams was selected to complete work for the three focus areas identified for completion this fiscal year. In late October, staff and Moss Adams met to schedule the work and the reports are scheduled to be completed in February.
As discussed with the Finance Committee when the work plan was approved, staff anticipates including other topics in future work plans as identified by staff or the Committee as the topics listed in the original Moss Adams report are addressed. Staff will return in two months with another update on activities for the five completed reports,
Internal Audit Program Update November 10, 2022 Page 3
as well as an update on progress for the four focus areas to be studied in Fiscal Year 2022-23.
Prepared and Submitted by: /s/ Michael Gomez _____________________________
Michael Gomez Acting Finance Director/Treasurer
FY 2022-23
Internal Audit Program Update
Finance
Committee
November 10, 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 Complete Moss Adams
3 Information Technology Operational Review and Internal Controls Testing Complete Moss Adams
4 Inventory Management Internal Controls Testing Complete City Manager’s Office
5 Fiscal Policy Inventory and Implementation Plan Complete Moss Adams
City of Newport Beach –Finance Department 3
Procurement Policies Review Status
Remaining Findings
Update procurement and contracting policies and procedures to be consistent with one another
Increase the purchasing process limits
Updates
The findings related to procurement policies have been addressed
The revised Council Policy F-14 will be on the Finance Committee agenda for November
City of Newport Beach –Finance Department 4
Cash Handling Review Status
Remaining Findings
Establish citywide requirements for training all cash handlers
Develop citywide policies and require each site to develop specific supporting procedures
Develop minimum citywide policy that identifies the frequency cash is transferred to the Revenue Division for deposit
Establish more effective controls and education on key controls over performing daily cash reconciliations, and implement rotating cash audits at the Central Library
Updates
A draft policy has been written and is being reviewed by Finance management
The policy is expected to be finished in November/December
City of Newport Beach –Finance Department 5
Information Technology Review Status
Remaining Findings
Review, update, and finalize the policies and procedures related to systems access, to ensure all significant functions are addressed
Define the specific requirements for how role and permission changes must be requested, approved, documented, and processed, and enforce compliance with those requirements
Formally document the process for handling terminated employee and contractor systems access removal to define related roles and responsibilities, documentation requirements, and controls to ensure removals of access are processed on or before the employee’s or contractor’s departure
Updates
The policy has been shared with Finance and Human Resources for review and comments prior to becoming effective
City of Newport Beach –Finance Department 6
Fiscal Policies Review Status
Remaining Findings
There are fourteen policies that will be reviewed and revised as part of the internal audit program
Updates
The highest priority policies are in the planning and drafting stages
It is anticipated that all policy revisions will be completed within twelve months
The drafting of the remaining entirely new policies is anticipated to be completed within twenty-four months
As part of this effort, staff will be evaluating all City Council F-policies for any required revisions, as well as looking at whether any existing policies should be consolidated or split into multiple policies
City of Newport Beach –Finance Department 7
Fiscal Policies Review Status
Policy New/Existing Planning Staff Drafting Policy Management
Review Complete
Inventory New X
Procurement Existing X X X X
Revenue and Accounts Receivable New X
Accounts Payable New X
Cash Management New X X X
Debt Management Existing X
Fixed Asset Management Existing X
Grant Management Existing X
City of Newport Beach –Finance Department 8
FY 2022-23 Topics
Three topics are currently being reviewed in FY 2022-23
Beginning stages of work
Reports are projected to be complete in February
No.Topic Progress Resource
1 Accounts Payable and Disbursement Planning Meeting completed; kickoff
meeting scheduled Moss Adams
2 Fixed Assets Planning Meeting completed; kickoff
meeting scheduled Moss Adams
3 Payroll Planning Meeting completed; kickoff
meeting scheduled Moss Adams
City of Newport Beach –Finance Department 9
Questions?
CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5D November 10, 2022
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Finance Department Michael Gomez, Acting Finance Director/Treasurer
949-644-3124, mgomez@newportbeachca.gov
SUBJECT: RECOMMENDED CHANGES TO PURCHASING POLICIES
SUMMARY: The purpose of Council Policy F-14 is to establish the requirements for contract
procurement and delegate authority to enter into and execute contracts. “Entering into a contract” or “executing a contract” is the formal approval of the contract and contracts include all agreements, purchase requisitions, purchase orders, and applies regardless of whether the City is expending or receiving funds. The Finance Department recently conducted a review of Council Policy F-14 as part of recommendations from a
Procurement Operational review completed by an internal auditor. This report provides a summary of the proposed revisions to Council Policy F-14. RECOMMENDATION:
Review the draft revisions to Council Policy F-14, and recommend further changes as needed for submission to the City Council for consideration. DISCUSSION: Background In 2020, the City initiated an internal audit with Moss Adams, LLP (Moss Adams) for an inventory of all City fiscal policies and procedures. Findings from the internal audit included defining and updating requirements, approvals, and processes.
Thereafter, the City engaged with Macias Gini & O’Connell LLP (MGO) to provide a Procurement Operational Review, an in-depth review of the City’s procurement and contracting functions. The key findings were provided to staff.
Recommended Changes to Purchasing Policies November 10, 2022 Page 2
On January 13, 2022, the Finance committee was presented findings from MGO which
identified areas of improvement as it relates to policies and procedures associated with the City’s procurement and contracts. These areas include creating consistency between policies, provide clarification, update the policy and procedures to be in line with current practices, and increase procurement process limits to create efficiency. After soliciting input from Departments, and the City Attorney’s Office, staff is proposing changes to
Council Policy F-14. Proposed Changes to Council Policy F-14 Proposed changes to Council Policy F-14 fall into the following categories: updating or
improving the language, elaborate or define statement, and ensure consistency between policies. Under the guidance of City Attorney’s Office, language throughout Council Policy F-14 was updated, clarified, and improved. These changes include updating section headers,
rewording areas of the policy for further clarity, and adding language. Listed below are a summary of some changes proposed to Council Policy F-14. 1. Under the guidance of the City Attorney, the first three sections of Council Policy
F-14 were simplified. 2. The definition of contracts is expanded to include expensing and receiving funds and specific services previously mentioned are grouped under the general classification of service.
3. In Background, language was added from Charter 421 for consistency. 4. In Authority to Amend Contracts, language is added to include the maximum contract terms according to the policy. This relates specifically to Instruction and
Recreation and on-call contracts which shall not exceed five (5) years in duration. 5. Definitions and examples throughout Council Policy F-14 were moved to Administrative Procedures.
6. In Special Requirements, language is added to provide clarity between On-Call and fixed/defined maintenance and repair service contracts; include the use of co-operative agreements; and describe procedures for special services and non-standard products.
Recommended Changes to Purchasing Policies November 10, 2022 Page 3
Staff has also proposed other minor changes to Council Policy F-14 to update policy
language. Prepared and Submitted by:
/s/ Sander Huang _____________________________
Sander Huang Purchasing and Contracts Administrator
Attachment: A. Redline to City Council Policy F-14
Attachment A
Redline to City Council Policy F-14
F-14
1
CONTRACT PROCUREMENT AND AUTHORITY TO CONTRACT
Purpose and Limitation
The purpose of this policy is to set out the City's policy establishing authority for City
contracts. This policy sets forth requirements for contract procurement and City Council’s
delegation of authority for entering into contracts. “Entering into a contract” or “executing a
contract” is synonymous with the awarding and signing of a contract and means the formal
approval of the contract terms and intent to be bound thereby. “Contracts” includes all
agreements, purchase orders, and purchase requisitions, which is applicable regardless of
whether the City is expending or receiving funds.applies to all contracts, whether entered into
through standard, emergency, or other procedures, including, but not limited to, professional
services, purchase requisitions, acquisition of goods, supplies, equipment, and materials, The
types of contracts covered by this policy include, but are not limited to, settlements, right of
entry agreements, cost sharing agreements, joint defense agreements, cooperative agreements,
reimbursement agreements, grant agreements, professional services agreements, audit
services, legal and investigative services, independent instructional and recreation services,
former employee services agreements, on-call and emergency services, temporary labor
services, training services, independent instruction and recreation contracts, public works
projectscontracts, and “as-needed” or “on-call” services agreementspublic property
maintenance, installation, custodial, and repair services.
General Authority to Enter Into Contracts
Background
Provisions of the Charter govern the methods through which the City may be bound by
contracts. The Charter states that the City shall not be bound by any contract or amendment
thereto, unless the same shall be made in writing, approved by the City Council or employee
designated by the City Council and signed on behalf of the City by the Mayor and City Clerk
or by such other officer or officers employees as shall be designated by the City Council, the
City Clerk, and the City Attorney (Charter § 421). Pursuant to Charter Section 421, the City
Council may authorize the City Manager or other employees to execute contracts. The City
Attorney shall approve the form of all contracts made by the City and or amendments thereto
and all bonds given to the City, endorsing his or her approval thereon in writing (Charter§
602(e)).
The City Manager has final authority to approve any contract within the City
Manager's approval limit and may make exceptions to the City's standard contract
terms, including but not limited to, insurance and indemnification requirements,
based on operational considerations and weighing the particular risks involved. When
deciding whether to modify standard contract terms, the City Manager shall consult
with the City Attorney, Risk Manager, and Department Directors, as necessary. This
authority shall not be delegated below the Assistant City Manager level.
F-14
2
Contracts may not be written to circumvent any of the authority limits described
herein.
Delegation of Authority to Enter Into and Amend Contracts
The City Council hereby delegates its authority to contract to the City Manager and through
him or her to the Assistant City Manager, Department Directors, and to the City Attorney as
set out below. The City Manager has final authority to approve any contract within the City
Manager's approval limit.
All formalities required under the provisions of the Charter shall be applied to these contracts.
The City Manager may make exceptions to the City's standard contract terms, including but
not limited to, insurance and indemnification requirements, based on operational
considerations and weighing the particular risks involved. When deciding whether to
modify standard contract terms, the City Manager shall consult with the City Attorney, Risk
Manager, and Department Directors, as necessary. This authority shall not be delegated
below the Assistant City Manager level.
Contracts may not be written to circumvent any of the authority limits described herein.
As such, the City Attorney shall review, approve and sign all such contract documents prior
to contract award and execution and the City Clerk shall sign all such contracts attesting to
their being entered into by the City. Additionally, tThe City Manager shall in consultation
with the City Attorney, adopt and enforce administrative procedures that assure all contracts
are: (1) ensure all contracts are entered into at a reasonable, fair and competitive price to the
City; (2) ensure all necessary formalities are followed and the requirements of federal, state,
and local laws, including Council policies, are met; (3) best accounting practices are followed;
and(4) the contracting process of the City is open and transparent, and provides
accountability; and (5) assist in implementing this Council Policy.
1. Authority to Enter into Contracts
The authority to enter into original contracts is delegated as set out below.
A. The City Manager.
The City Manager is authorized to award and sign execute all contracts and
agreements for services or purchase requisitions for the acquisition of goods,
materials or equipment, without prior Council approval, in an amount not in
excess of that shall not exceed $120,000., For contracts involving expenditure of
funds, provided the services and the funds funding for the contractmust have
been was approved by the City Council as part of the annual approved budget.
With the exception of Execution of contracts for grants and donations, which are
F-14
3
covered in dshall be in accordance with City Council Policies F-3, F-25 and B-17.,
the City Manager is authorized to sign all contracts without prior Council
approval where the City is receiving or expending an amount not in excess of
$120,000. This authority shall not be delegated below the Assistant City Manager
level.
B. Department Directors.
Department Directors, including the City Attorney and City Clerk, are
authorized to award and sign execute contracts and agreements for services or
purchase requisitions for the acquisition of goods, materials or equipment,
without prior City Manager or Council approval, in an amount not in excess
of $75,000., provided that For contracts involving expenditure of funds, the
services and funds must have been were approved by the City Council or City
Manager as part of the annual approved budget. This authority may not be
delegated below the Assistant or Deputy Director level. The City Manager has
authority to approve requests for budget increases without City Council
approval at the level set forth in Policy F- 3, Section E-1 ("Budget Adoption and
Administration").
C. City Attorney.
The City Attorney is authorized to award and sign execute contracts for all
services for outside counsel, investigators, and experts related directly to and
necessary for prosecution and defense of pending litigation as defined in the
Brown Act, and for services for outside counsel, investigators, and experts
necessary to address other pending or potential legal claims or legal issues so
long as funds for outside counsel, investigators, experts and related legal
services were approved by the City Council as part of the approved annual
budget. The City Attorney shall keep Council informed regarding any such
expense that exceeds $120,000 on not less than a quarterly basis and shall seek
budget updates, if needed, within a timely fashion.
D. Human Resources Director.
The Human Resources Director shall have authority to enter into contracts to
resolve claims, litigation and other legal disputes where the City is receiving
or expending an amount not in excess of $75,000. This authority may not be
delegated below the Department Deputy Director or Risk Manager level.
2. Authority to Amend Contracts
If circumstances arise that were or are not reasonably foreseeable by the parties at the
time of contracting which make extra where additional work or material necessary for
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the proper completion of the service originally contracted for, a contract amendment
and corresponding increase in total contract amount may be necessary. Under those
circumstances, the City Manager, Department Directors, City Clerk and City Attorney
are authorized to amend contracts as set out below. For purposes of this policy, “total
contract amount” is shall be defined as the total consideration paid over the term of
the agreement, including any previous amendments to the contract. “Original contract
amount” shall be is defined as either the amount of compensation agreed upon when
the contract was first entered into or the total contract amount including the most
recent City Council-approved amendmentthe amount of compensation most recently
approved by the City Council by amendment, whichever is greater.
A. City Manager.
Contracts within the City Manager's Contracting Authority
The City Manager may sign and award execute any contract amendment,
including but not limited to, amendments to extend the term of a contract, so
long as the total contract amount as amended does not exceed $120,000 and the
maximum contract term as authorized in this policy.
Contracts approved by City Council
The City Manager may sign and award execute any contract amendment,
including but not limited to, amendments to extend the term of a contract, so
long as the total contract amount does not exceed 125 percent% of the original
contract amount or the original contract amount plus an additional $120,000,
whichever amount is less and does not exceed the maximum contract term as
authorized in this policy.
B. Department Directors.
Contracts within the Contracting Authority of the Department Director
The Department Director, including the, City Clerk, or and City Attorney, who
entered into the contract, or whose department is designated as the contract
administrator in the contract, may sign and award execute any contract
amendment, including but not limited to, amendments to extend the term of a
contract, so long as the total contract amount as amended does not exceed
$75,000 and the maximum contract term as authorized in this policy.
C. Amendments in Cases of Possible Work Stoppage or Undesirable Delay.
The City Manager is authorized to execute a contract amendment that increases
the total contract amount up to 150 percent of the original contract amount In
certain situations, a contract amendment may be needed that will cause the
total contract amount to exceed the City Manager's amendment signature
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authority, and the timing is such that in cases where a work stoppage or other
undesirable consequence will result if approval of the change amendment is
delayed until the next City Council meeting. In these situations, the City
Manager may approve an amendment that increases the total contract amount
up to 150% of the original contract amount. Within twenty-four (24) hours, the
City Manager shall notify the City Council Members of any such amendment.
D. Amendments Necessary to Address Emergency Situations.
In the event of emergency work that requires requiring an amendment to an
existing contract, the emergency contracting policy outlined below may be
followed.
Types of Contracts and Method of Award
3. Special Requirements
It is recognized that by their nature, service contracts cannot always be awarded as a
result of a competitive bid process. However, cCompetitive proposals should be
obtained for service contracts whenever possible before resorting to negotiated
awards.
A. Professional Services Contracts
Professional consultant services differ from other services in that they are
of a professional nature, and due to the ethical codes of some of the
professions involved, as well as the nature of the services provided, do not
readily fall within the competitive bidding process. Professional
consultants should be individually selected Service of a professional
nature shall be obtained through a qualifications-based selection process
for a specific project or service based on demonstrated competence and
qualifications for the types of services to be performed and with the
objective of selecting the most qualified consultant at a fair, reasonable
and verifiably appropriate cost. The procedures for achieving this goal
shall be adopted and applied by the City Manager in the Administrative
Procedures Manual.
This section shall include, but not be limited to, procurements for services in the
following fields: Engineering (civil, mechanical,electrical,structural, traffic, geotechnical,
etc.); Building plan review and grading plan review and/ or inspection services;
Architecture; Landscape Architecture; Construction Project Management Firms;
Environmental; Planning; Economic Analysis; Property Appraisals; Land Surveying;
Financial Services; Data Processing Services; Legal Services not otherwise authorized in
the section titled Authority to Enter into Contracts, A (3), of this policy; and Training and
Temporary Labor Services.
B. Services Contracts (Non-Professional)
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Non-Professional Services Contracts that are not public works under
Charter Section 1110, are used where services are not strictly professional
in nature but where such services are needed by the City. Examples
include, but are not limited to janitorial services, printing services, closed
circuit television services, steam cleaning, window washing and refuse
collection.
The City shall select services contractors though a Request for Proposal
(RFP) or a Request for Bid (RFB) process, whichever serves the City's best
interest. Contracts through thea RFB Request for Bid process shall be
awarded based solely on pricing and minimum qualifications to
determine the most responsive and responsible bidder. Contracts through
a the RFP Request for Proposal process shall be awarded based on both
qualifications and pricing to determine the best value to the City.
C. Maintenance and Repair Service Contracts
Maintenance and Repair Contracts are used where services are not strictly
professional in nature but where such maintenance and repair services
extend the life of City assets, facilities and/ or infrastructure. Examples
include, but are not limited to: pavement patching, plumbing and facilities
maintenance services.
If a contract for these types of services is under $120,000 the City shall
select services contractors though a Request for Proposal or a Request for
Bid process, whichever serves the City's best interest based on the service
to be provided. Contracts through a Request for Bid process shall be
awarded based solely on pricing and minimum qualifications to
determine the most responsive and responsible bidder. Contracts through
a Request for Proposal process shall be awarded based on both
qualifications and pricing to determine the best value to the City.
A Sservice contracts for maintenance or repair work that is fixed or of a
definite nature (not on-call) and is over $120,000 the formal bid dollar
amount in Charter Section 1110 must are considered a Public Work and
thus need to be requisitioned as a formal pPublic wWorks cContract. For
contracts not exceeding the formal bid dollar amount, the City may select
services contractors though the RFP or RFB process, whichever serves the
City's best interest based on the service to be provided.
D. Public Works Contracts
Contracts for pPublic wWorks where the total expenditures for the project
exceed$120,000 the formal bid dollar amount, shall be awarded consistent
with the provisions of Charter Section 1110 and Chapter 15.75 of the
Newport Beach Municipal Code and relevant provisions of the California
Public Contract Code. Public Works contracts are used for the construction
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or improvement of public buildings, works, streets, drains, sewers,
utilities, parks or playgrounds, and every purchase of supplies or
materials for any such project, as well as all projects for the maintenance
or repair of such facilities intended to extend their useful life.
E. Procurements and Contracts Involving Federal or Pass-Through Funding
Procurements expending funds from federal grants or awards received
directly by the City or from a pass-through agency such as the State of
California, must comply with the provisions of Title 2 of the Code of
Federal Regulations ("CFR") §Sections 200.318 through §200.326. To ensure
the City's adherence to the Federal guidelines related to these
procurements and contracts, the City Manager has adopted procurement
procedures for such projects in the Administrative Procedures Manual.
F. Independent Instructional and Recreation Contractors
Department Directors are authorized to award and sign execute contracts
with independent contractors for instructional, educational, cultural, or
recreational purposes (“Instruction and Recreation contracts”) where the
fees paid by the City are based upon either a percentage of fees collected
by City for a program or on a flat rate basis for tasks performed by the
contractor.
Instruction and Recreation Ccontracts with such independent contractors
may be up to shall not exceed five (5) years in duration but must and shall
include a termination clause granting the City the right, at its sole
discretion and with or without cause, to terminate the contract at any time
by giving seven (7) calendar days' prior written notice to the Contractor.
Should fees paid to any contractor under an Instruction and Recreation
contract exceed $75,000 during the term of the contract, the Department
Director shall provide written notice to the City Manager identifying the
program and independent contractor. The City Manager shall give written
notice to the City Council should fees paid exceed $120,000.
G. On-Call Contracts for Services (Professional or Non-Professional)
The City Manager and Department Directors are authorized to enter into
on-call (“as-needed”) agreements for obtaining services on an as needed
basis, including, but not limited to, professional services, repair and
maintenance services and emergencies, that are needed from time to time
where the need for services is contingent, does not have a set timeframe,
or where the size of the job does not warrant the expense of entering into
individual agreements for each service. Examples of service obtained on
an on-call basis include but are not limited to professional services and
maintenance and repair services.
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On-call agreements must be within the authority of the individual
entering into the agreement on behalf of the City and the initial term
cannot On-call services contracts shall not exceed five (5) years and shall
include a termination clause granting the City the right, at its sole
discretion and with or without cause, to terminate the contract at any time
by giving prior written notice of seven (7) calendar days. The City
Manager is authorized to extend the term of an on-call agreement services
contract for up to six (6) months if work has been authorized or
encumbered during the initial term but not completed. On-Call
agreements must include a termination clause granting the City the right,
at its sole discretion and with or without cause, to terminate the contract at
any time by giving seven (7) calendar days' prior written notice to the
Contractor. Procedures for entering into on-call agreements shall be
prescribed by the City Manager in the Administrative Procedure Manual.
City Council approval is required for: (1) an on-call contract that exceeds
$120,000, and (2) on-call contracts to multiple contractors stemming from a
single procurement where the combined amount of the contracts exceeds
$120,000.
On-call contracts may not be used to perform maintenance or repair work
in contravention of Charter Section 1110. For example, a project, task, job,
or work order in an amount in excess of the formal bid dollar amount in
Charter Section 1110 cannot be performed under an on-call maintenance
or repair services contract but must be requisitioned as a public works
project.
H. Emergenciesy Contracts
Services contracts obtained for purposes of responding to an emergency
(as defined inIf a contract for services is necessary under the provisions of
Newport Beach Municipal Code Section 2.20.020) that, the City Emergency
Procedures shall be followed.If the contract amount exceeds the signing
authority of the City Manager or Department Director as authorized in
this policy, then that contract shall be brought to the City Council at its
next regularly scheduled meeting for review and or authorization, if the
contract constitutes a Public Works, in accordance with Charter Section
1110.
Whenever possible, the City shall enter Emergency Contracts with contractors or
consultants who can be relied upon to assist the City in advance of any actual emergency.
Emergency Contracts, that are entered into prior to an emergency, shall be submitted to Council
for approval after being reviewed and approved by the Office of the City Attorney. After the
Emergency Contract is approved, services provided on an emergency basis under an Emergency
Contract may be retained by oral commitment of the City Manager (or, in the case of an
emergency described by Municipal Code Section 2.20.020, the Director or Assistant Director
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of Emergency Services), to be memorialized in a Letter Agreement between the parties as
soon as possible thereafter. When a written contract has been entered into in order to address
an emergency, a copy of the written contract shall be provided to the City Clerk as soon as
possible.
I. Contracts with Former Council Members and City Employees
When City Council approval is required for the following when not
more than five (5) years has passed since a person who is a former
Council Member or City employee has left service with the City:
• All professional services contracts with former Council
Member or City employees shall require approval of the City
Council; and
i.
2.ii. All City Council approval shall also be required for
professional services contracts with a corporation or other
business entity owned or operated by a former Council
Member or City employee or that employs a former Council
Member or City employee.
J. Purchase Orders for Goods, Materials or EquipmentExceptions to
Competitive Procurement Requirements
Departments shall submit requests for the purchase of goods,
materials or equipment through a Purchase Requisition that is
approved by the proper approval authority described in this policy,
based on the purchase amount.
The Finance Department shall conduct the necessary and proper
bidding or proposal process for each purchase request and issue
Purchase Orders to procure goods, materials or equipment.
K. Purchase Orders for Services
While typically used for the procurement of goods, materials or
equipment, Purchase Orders may be used for services, subject to the
following conditions:
1. Purchase Orders for services may be issued to a vendor not in
excess of
$7,500 per Purchase Order and $15,000 per vendor, per fiscal year.
2. The $7,500 per Purchase Order and $15,000 per vendor, per fiscal
year limit shall apply to each Department separately.
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L. Commodities and Unique Services
Certain commodities and service types are not subject to traditional
procurement and bidding procedures. The City Manager shall
prescribe in the AdministrativeProcedures Manual procedures to
ensure that pricing involved in these transactions is competitive.
Cooperative agreements and piggyback agreements may be used by
the City in lieu of following the City’s competitive bidding process so
long as goods, equipment, and materials are procured in accordance
with the minimum requirements of the Administrative Procedures
Manual.
The City Manager shall prescribe in the Administrative Procedures
Manual procedures for certain commodities and service types that are
not subject to traditional procurement and bidding procedures.
4. General Procedures
A. Contract Retention
The City Clerk shall retain all original executed contracts in accordance
with the City's current adopted Records Retention Schedule. Contracts
shall be posted into the City's electronic document database in order to
maintain transparency in contracting.
B. Insurance
All contracts shall be accompanied by proof of the appropriate level of
insurance at the time of execution. The insurance level required shall
be in accordance with the City's published Contract Templates (or as
otherwise approved by the City Manager or Risk Manager).
C. Reporting
At least once annually, the City Manager shall report to the Council
the summary of all contracts entered into by the City Manager and
Department Directors. The summary shall include the vendor, the
department responsible that will oversee the contract, the purpose of
the contract, and the contract amount.
Future Amendments to Policy
Any future changes in the provisions of this policy shall be made by
resolution of the City Council.
History
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Adopted F-14 - 09-22-1969 (Purchase Authority for Goods & Materials)
Reaffirmed F-14 - 03-09-1970
Reaffirmed F-14 - 02-14-1972
Amended F-14 -11-11-1974
Amended F-14 -11-24-1975
Amended F-14 -12-08-1975
Amended F-14 -11-24-1986
Amended F-14 - 05-26-1987
Adopted F-14 - 01-24-1994 (new F-14) (Authority for Contracts)
Amended F-14 - 01-24-1994 (old F-14) (changed to F-5)
Amended F-5 - 02-26-1996
Amended J-1 -11-10-1997 (Contracts with Former Employees)
Amended J-1 - 03-09-1998
Amended J-1 - 03-22-1999 (changed to F-20)
Amended F-5 - 03-14-2000
Amended F-20 - 04-08-2003
Amended F-14 - 04-13-2004
Amended F-5 -11-22-2005
Amended F-14 - 05-09-2006
Amended F-14 & F-5 - 01-25-2011
Amended F-14 - 05-12-2015
Amended F-14 - 02-23-2016 (incorporating F-5 & F-20 and renaming "Authority to
Contract")
Amended F-14 - 06-26-2018
Amended F-14 - 02-12-2019