HomeMy WebLinkAboutFinance Committee Agenda Packet - November 9, 2023CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA
Community Room - 100 Civic Center Drive, Newport Beach
Thursday, November 9, 2023 - 3:00 PM
Finance Committee Members:
Will O'Neill, Chair
Noah Blom, Mayor
Joe Stapleton, Council Member
Allen Cashion, Committee Member
William Collopy, Committee Member
Keith Curry, Committee Member
Nancy Scarbrough, Committee Member
Staff Members:
Grace K. Leung, City Manager
Jason Al-Imam, Finance Director/Treasurer
Michael Gomez, Deputy Finance Director
Brittany Cleberg, 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 Jason Al-Imam, Finance Director/Treasurer, at jalimam@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
their agenda be posted at least twenty-four (24) hours in advance of each special 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
jalimam@newportbeachca.gov.
I.CALL MEETING TO ORDER
II.ROLL CALL
III.PLEDGE OF ALLEGIANCE
IV.PUBLIC COMMENTS
Public comments are invited on agenda and non-agenda items generally considered to be
within the subject matter jurisdiction of the Finance Committee. Speakers must limit comments
to three (3) minutes. Before speaking, we invite, but do not require, you to state your name for
the record. The Finance Committee has the discretion to extend or shorten the speakers’ time
limit on agenda or non-agenda items, provided the time limit adjustment is applied equally to all
speakers. As a courtesy, please turn cell phones off or set them in the silent mode.1
November 9, 2023
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Finance Committee Meeting
V.CONSENT CALENDAR
MINUTES OF OCTOBER 12, 2023A.
Recommended Action:
Approve and file.
MINUTES
VI.CURRENT BUSINESS
OPEB ACTUARIAL VALUATION REPORT UPDATEA.
Summary:
Staff will provide the Committee with an overview of the Fiscal Year 2022-23
actuarial valuation report prepared by the City's actuary.
Recommended Action:
Receive and file.
STAFF PRESENTATION
CALPERS UPDATEB.
Summary:
Staff will provide the Committee with an update on the City’s pension funded status
based on the most recent actuarial valuation report provided by CalPERS in July
2023.
Recommended Action:
Receive and file.
STAFF PRESENTATION
FISCAL SUSTAINABILITY PLAN REVIEWC.
Summary:
Review the Fiscal Sustainability Plan.
Recommended Action:
Receive and file.
STAFF REPORT
ATTACHMENT A
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November 9, 2023
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Finance Committee Meeting
FIRST QUARTER BUDGET UPDATED.
Summary:
Staff will provide a presentation regarding the year-to-date and projected Fiscal Year
2023-24 budget performance through September 30, 2023.
Recommended Action:
Review and discuss the report on the first quarter of Fiscal Year 2023-24 and
provide any recommendations for consideration by the City Manager and City
Council.
STAFF REPORT
STAFF PRESENTATION
WORK PLAN REVIEWE.
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.
WORK PLAN
VII.ADJOURNMENT
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Finance Committee Regular Meeting Minutes
October 12, 2023
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CITY OF NEWPORT BEACH
FINANCE COMMITTEE
OCTOBER 12, 2023, REGULAR MEETING MINUTES
I. CALL MEETING TO ORDER
The meeting was called to order at 3:00 p.m.
II. ROLL CALL
PRESENT: Noah Blom, Mayor
Joe Stapleton, Council Member
Allen Cashion, Committee Member
William Collopy, Committee Member
Nancy Scarbrough, Committee Member
ABSENT: Will O’Neill, Chair (excused)
Keith Curry, Committee Member (excused)
STAFF PRESENT: Grace K. Leung, City Manager; Jason Al-Imam, Finance
Director/Treasurer; Michael Gomez, Deputy Finance Director; Shelby
Burguan, Budget Manager; Jessica Nguyen, Budget Analyst; Eric Wilson,
Budget Analyst; Abigail Marin, Budget Analyst; Jennifer Anderson;
Purchasing & Contracts Administrator; Alan Rivera; Management Fellow;
Jeff Boyles, Fire Chief; Brian McDonough, Battalion Chief; Brian O’Rouke,
Assistant Chief, Lifeguards; Kristin Thompson, EMS Division Chief; Justin
Carr, Assistant Chief; Raymund Reyes, Fire Administrative Manager and
Brittany Cleberg, Administrative Assistant
MEMBERS OF THE
PUBLIC: Jim Mosher
Charles Klobe
Larry Tucker
III. PLEDGE OF ALLEGIANCE
The Pledge of Allegiance was led by Council Member Stapleton.
IV. PUBLIC COMMENTS ON CONSENT CALENDAR
Acting Chair Blom opened public comments on the consent calendar and non-agenda items.
Jim Mosher requested clarification regarding City debt service obligations, referencing the Harbor
and Beaches Master Plan, Facilities Finance Plan, and the City’s finance dashboard, and noted it
may be helpful to the various City Committees to have further clarification of same so as not to
misinterpret the data.
Mr. Mosher also commented on the minutes, requesting a grammatical correction on page one and
expanded detail in the minutes document to reference the names of the Committee Members who
are providing discussion comments.
Acting Chair Blom closed public comments, seeing no other who indicated they would like to speak.
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Finance Committee Regular Meeting Minutes
October 12, 2023
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V. CONSENT CALENDAR
A. MINUTES OF SEPTEMBER 14, 2023
Recommended Action:
Approve and file.
MOTION: Committee Member Scarbrough moved to approve the minutes of September 14,
2023, seconded by Committee Member Collopy, as amended. The motion carried as follows:
AYES: Cashion, Collopy, Scarbrough, Stapleton, Blom
NOES: None
ABSENT: Curry (excused), O’Neill (excused)
ABSTAIN: None
VI. CURRENT BUSINESS
A. OVERVIEW OF FIRE DEPARTMENT BUDGET
Recommended Action:
Receive and file.
A presentation by Fire Chief Jeff Boyles and Administrative Manager Raymund Reyes provided
an overview of the Fire Department Operations and Budget as detailed in the publicly noticed
agenda report. Information presented included overview of the Department’s organizational
and asset structure, statistics for calls for emergency services, medical services, and medical
transports, Fiscal Year 2023-24 approved budget enhancements including one new frontline
ambulance, six new firefighter paramedic positions, conversion of part-time Recreation
Coordinator to full-time, and conversion of part-time Life Safety Specialist III to full-time,
overview of full-time and part-time positions and Firefighter to Firefighter-Paramedic
conversions, breakdown of the Department’s $64,405,996 budget including divisional budgets
and expenditures by category, contracts and services, Department overtime, and revenues.
Committee Member Collopy inquired as to why the Department contracts with MetroNet for
dispatch center service. Chief Boyles responded it was a historical change dating back to the
1990’s when the City broke away from the in-house combined Police and Fire dispatch center.
Staff noted that it is more cost-effective to utilize the MetroNet joint powers authority.
Committee Member Scarbrough inquired as to the nature of the significant increases in calls
for emergency services. Chief Boyles responded that the increases were not as much related
to changes in population overall, but more as a result of the increasing numbers of residents
who are “aging in place.”
Acting Chair Blom noted for the record that the City has not seen a decrease in population, but
rather a decrease in residency. Housing stock has not decreased. It was important to note that
population data does not necessarily correlate with needs for emergency services.
Committee Member Collopy inquired if the Santa Ana Heights/Airport area station adequate to
serve the number of residences in that area, particularly as related to calls related to actual
fires. Chief Boyles responded the subject station was adequate and provided a summary of the
station’s current and projected future assets.
General discussion and comments ensued regarding the need for development agreements,
as the proceeds are utilized to ensure the City has the appropriate complement of resources
to provide for the community.
Committee Member Scarbrough inquired as to the breakdown of calls for resident versus non-
residents. Chief Boyles responded that generally there are visitors and non-resident calls
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Finance Committee Regular Meeting Minutes
October 12, 2023
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during weekends and the summer season, but generally the majority of calls are for response
into residential neighborhoods.
Committee Member Cashion inquired whether the displayed number for full-time Fire personnel
reflected the total number of positions or whether there were other vacancies not included in
that number. City staff confirmed the displayed number reflected the total number of budgeted
positions, whether vacant or not.
Committee Member Collopy inquired as to why the displayed numbers for “Services Contract
811017” seem to fluctuate quite widely. Administrative Manager Reyes did not have an explicit
answer, however, he stated he believed the fluctuations were due to the retention of nurse
educator contractors utilized by the Department.
Committee and staff discussion ensued regarding minimum staffing level requirements and the
related impacts on overtime costs to backfill positions and vacancies. It was noted that the
State does reimburse the City in certain circumstances, including for some fuel costs and wear
and tear on equipment. City staff confirmed it submits its own salary schedule to the State and
is reimbursed based upon that information. It was also confirmed that City staff cannot “spike”
their CalPERS pensions with overtime; pensions are based on the base salary.
Further discussion ensued regarding the relationship between full-staffing, with a minimum
number of vacancies, and the impacts less than full-staffing has on the costs related to overtime
due to minimum staffing level requirements. Chief Boyles stated that 35% of overtime was
probably lower than industry standards for firefighters. Chief Boyles reported he is affirmatively
pressing to get the Department fully staffed, and that only so many vacancies can be filled at
one time due to training and supervision requirements.
Chief Boyles further elaborated that the Department would be close to fully staffed by January
or February 2024. The Department has also been impacted due to the “Great Resignation”
effect which began during the COVID-19 pandemic. Additionally, there are cost impacts due to
resources required for new staff training “ramp up”, and he anticipates the overtime rate to
remain consistent for the time being, with potential for reductions in Fiscal Year 2024-25.
Committee Member Collopy inquired as to the “right” number for overtime, relative to cost-
effectiveness.
City staff confirmed all new employees hired in 2013 or after are considered “PEPRA” hires if
they are not previous CalPERS members.
Committee Member Collopy expressed concern stating the amount of overtime appeared
significantly large in comparison to the amounts budgeted each year. Finance
Director/Treasurer Al-Imam indicated that the amount budgeted in prior years for overtime was
based on anticipated savings from vacancies, which would offset budget overages incurred
due to overtime. However, since 2023, the amount budgeted for overtime was increased to
reflect the amount of anticipated overtime. It was noted that the implementation of PEPRA is
resulting in overall decreases in costs.
Acting Chair Blom commented that Council policy and the City Manager have worked
affirmatively to ensure there is appropriate recruitment and retention efforts throughout the
organization while concurrently maintaining a balanced budget. He noted the City will still have
to take the costs of living in California and other benefit package elements into consideration
when reviewing and determining staffing needs for public safety. He reiterated the relationship
between overtime costs and the challenges in filling public safety vacancies.
City Manager Leung also noted the City’s policy for accelerated hiring is helpful, but that Fire
operations must plan for overtime due to the operational impacts of various factors such as
minimum staffing levels, vacancies, vacations, emergencies, mutual aid, and injuries.
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Finance Committee Regular Meeting Minutes
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Acting Chair Blom stated the scope of this Committee is to generally focus on how the
Departments are budgeting and how to respond to that financial budgeting. He commended
the work of City staff in providing the appropriate budget adjustments in that regard. However,
he did not believe it was within the scope of this Committee to get into the specifics of Fire
operations and staffing.
Chief Boyles stated there were three elements contributing to the “sticker shock” of financial
numbers from Fiscal Year 2021-22, including the impacts of COVID-19 illness quarantines,
unprecedented back-to-back statewide fires, and the impacts of ambulance transport services
during that time period.
Committee and staff discussion ensued regarding revenues, noting the City’s policy preference
overall to employ conservative revenue projections. City staff confirmed that typically Fire
Department revenues are not budgeted for, and then when received, the budget is amended
to recognize the amount that is received. City Manager Leung confirmed staff will take a closer
look at paramedic service fees as historical data is accumulated.
Acting Chair Blom opened public comment. Seeing no individuals who indicated they would
like to speak, Acting Chair Blom closed public comment.
This item was received and filed. There was no further action taken.
B. YEAR END BUDGET RESULTS AND SURPLUS ALLOCATION
Recommended Action:
Review and discuss this report and provide any recommendations for consideration by the City
Manager and City Council.
Budget Manager Burguan and Finance Director/Treasurer Al-Imam provided an overview of
the Year End Budget Results. Information presented for the 2022-23 Fourth Quarter Financial
report included actual General Fund revenues received, breakdowns for property tax, sales tax
transient occupancy tax, other General Fund revenues, actual General Fund expenditures,
General Fund Reserves, and Recommendations for allocations of the available surplus.
Committee Member Collopy inquired whether the City should continue to retain a sales tax
consultant if in-house staff can provide the same knowledge and expertise as to sales tax
information. City staff responded that their knowledge and insight is based upon the technical
detail provided by the retained consultant.
Staff provided its recommendation for the allocation of the available $11.6 million surplus, in a
manner consistent with Council Policy F-5, which included an allocation of 50% of the surplus
($5.8 million) toward the City’s OPEB liability and an allocation of 50% of the surplus ($5.8
million) toward infrastructure or neighborhood capital improvements.
Acting Chair Blom opened public comment.
Charles Klobe inquired if the Porsche dealership is giving sales tax to Costa Mesa. City staff
provided information regarding the allocation of sales tax, citing that the City of Costa Mesa
receives the 1% sales tax if the contract was executed in Costa Mesa. City Manager Leung
stated there was a general reduction in auto sales.
Jim Mosher stated he had no recommendations for Committee action and inquired as to the
function of the City’s sales tax consultant, whether the consultant has special status to view
sales tax information for specific businesses, and whether the City has access to that
information separate from the consultant. City staff responded that certain sales tax information
is protected by the State’s Revenue and Taxation Code, noting confidentiality provisions
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Finance Committee Regular Meeting Minutes
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related to how the information is aggregated when provided to the public. The consultant
follows the same standards as City staff.
Larry Tucker inquired if City staff expected the budget surplus for next year would be in line
with prior years. City Manager Leung responded that the size of the surplus is not yet known
at this time.
Acting Chair Blom closed public comment.
Committee and staff discussion ensued regarding the proposal for allocation of 50% of the
surplus ($5.8 million) toward the City’s OPEB liability versus toward pension liability, including
the impacts of market conditions and trends.
MOTION: Committee Member Collopy moved to forward a recommendation to the City Council
to allocate 50% of the $11.6 million surplus ($5.8 million) toward the City’s OPEB liability and
50% of the surplus ($5.8 million) toward infrastructure or neighborhood capital improvements,
seconded by seconded by Committee Member Scarbrough. The motion carried as follows:
AYES: Cashion, Collopy, Scarbrough, Stapleton, Blom
NOES: None
ABSENT: Curry (excused), O’Neill (excused)
ABSTAIN: None
C. BUDGET AMENDMENTS FOR QUARTER ENDING SEPTEMBER 30, 2023
Recommended Action: Receive and file.
City staff provided a summary update of the information provided in the publicly noticed agenda
report.
In response to an inquiry by a Committee Member, City staff noted that representatives from
CalPERS would not be present during the CalPERS update scheduled for the November 9,
2023, meeting. There was general Committee consensus that a representative from CalPERS
would not be required to be in attendance.
Acting Chair Blom opened public comment. Seeing none, Acting Chair Blom closed public
comment.
This item was received and filed. There was no further action taken.
D. WORK PLAN REVIEW
Recommended Action: Receive and file.
A summary of items scheduled for upcoming meetings was provided as listed in the publicly
noticed agenda report.
Acting Chair Blom opened public comment.
Jim Mosher expressed support for the Committee’s upcoming review of the Fiscal
Sustainability Plan and inquired as to whether there will be further review of the Financial
Strategic Plan, as it was to be reviewed by the City every year. After dissolution of the City’s
Economic Development Committee, the plan has not been reviewed subsequent to the one
review previously completed.
Acting Chair Blom closed public comment.
This item was received and filed. There was no further action taken.
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Finance Committee Regular Meeting Minutes
October 12, 2023
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VII. ADJOURNMENT
The Finance Committee meeting adjourned at 4:31 p.m.
Attest:
___________________________________ _____________________
Will O’Neill, Chair Date
Finance Committee
9
ITEM NO. 6A1 OPEB ACTUARIAL VALUATION
REPORT UPDATE
ATTACHMENT A
STAFF PRESENTATION – ADDITIONAL MATERIALS RECEIVED
10
Other Post-Employment Benefits Actuarial Valuation Report Update Finance
Committee
November 9, 2023
Item No. 6A1OPEB Actuarial Valuation Report UpdateAdditional Materials ReceivedNovember 9, 2023
11
City of Newport Beach – Finance Department 2
Background
•The City provides eligible retirees and surviving spouses with certain retiree medical benefits, also known as
other post-employment benefits (OPEB).
•Benefits vary by hire date, employment status and classification. Benefits generally fall into the following
categories:
•Legacy Defined Benefit Plan – up to $450 per month is provided for eligible healthcare expenses.
The legacy plan is a closed plan, which generally includes employees and retirees who were active and
enrolled in the defined benefit plan as of 12/31/2005.
•Defined Contribution Retiree Health Savings Plan – employee and employer contributions are
required to be made to the employee’s Retiree Health Savings (RHS) account, which generally includes
new hires on or after 1/1/2006. The City has no further funding obligation to the RHS plan once the City
has made the required contributions.
•CalPERS Minimum Required Contribution (MRC) – agencies that contract with CalPERS for health
insurance coverage are required under the Public Employees’ Medical and Hospital Care Act
(PEMHCA) to contribute a minimum amount for retiree health insurance ($151/month in 2023).
12
City of Newport Beach – Finance Department 3
Implicit Rate Subsidy
•A portion of the City’s OPEB liability is in the form of an implicit rate subsidy, which results from
the pooling of non-Medicare retirees and active employees for premium purposes.
•Although retirees are solely responsible for the cost of their health insurance, retirees receive the
benefit of a lower rate. The difference between these amounts is the implicit rate subsidy.
•The accounting standards require that the value of the implicit subsidy be included in the City’s
OPEB liability, even though these costs will be paid on a pay-as-you-go basis in the future in the
form of higher premiums for active employees.
•However, the cost associated with the implicit subsidy is covered by the City’s cafeteria plan
contribution and is paid from the City’s operating budget. Therefore, the targeted funding level is
based on the value of the explicit subsidy associated with the legacy defined benefit plan and the
CalPERS MRC.
13
2023 Actuarial
Valuation Report
4City of Newport Beach – Finance Department 14
City of Newport Beach – Finance Department 5
2023 Actuarial Valuation Report
•An actuarial valuation is completed once every two years. The most recent actuarial valuation was
completed in 2022, which had a measurement date of June 30, 2021.
•An interim actuarial report is updated between valuations. In 2023 an interim valuation report with a
measurement date of June 30, 2022 was completed for inclusion in the City’s financial statements for
the fiscal year ending June 30, 2023.
•The City has set-aside funds in an OPEB trust with the California Employers’ Retiree Benefit Trust
(CERBT), which is managed by CalPERS. The OPEB Trust is invested in CERBT Strategy 1.
•In 2022 CalPERS updated its Capital Market Assumptions for CERBT Strategy 1, which has a
long-term expected rate of return of 6.0% whereas in 2018 the expected return was 6.50%.
•The interim actuarial valuation report reflects a decrease in the discount rate from 6.50% to 6.00%
based on the revised expected return.
15
City of Newport Beach – Finance Department 6
Summary of Valuation Results
•The City’s total OPEB liability increased by $2.6 million, which is largely due to the impact from
the decrease in the discount rate and an increase in health insurance premiums, which increased
at a rate that was higher than projected.
•Assets on hand with CERBT as of the measurement date of June 30, 2023 relates to balances as
of June 30, 2022, which were $3.4 million lower due to a $4.8 million unrealized loss on
investments (14%), which was partially offset with a $1.4 million City contribution to the Trust.
June 30, 2022 1 June 30, 2023 2
Total OPEB Liability $ 51,603,833 $ 54,234,204
Trust Assets ($ 34,969,715)($ 31,569,252)
Net OPEB Liability $ 16,634,118 $ 22,664,952
Funded Percentage 67.8%58.2%
1 June 30, 2021 measurement date for inclusion in the Financial Statements for the Fiscal Year Ending June 30, 2022.
2 June 30, 2022 measurement date for inclusion in the Financial Statements for the Fiscal Year Ending June 30, 2023.
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City of Newport Beach – Finance Department 7
Changes in the OPEB Liability
$0
$10
$20
$30
$40
$50
$60
06/30/2022 06/30/2023
$41.2 $42.6
$10.4 $11.6
Mi
l
l
i
o
n
s
Explicit Subsidy Implicit Subsidy
$0
$10
$20
$30
$40
$50
06/30/2022 06/30/2023
$24.9 $26.6
$16.3 $16.0
Mi
l
l
i
o
n
s
CalPERS MRC Legacy Liability
Total OPEB Liability
($2.6M Increase)Explicit Liability
Breakdown
17
City of Newport Beach – Finance Department 8
Targeted Funding Level
•City Council Policy F-2 (Reserve Policy) requires the “new plan” be 100% funded and that the
explicit portion of the “old plan” be funded over a 20-year amortization period (or less) based on
the annual required contribution determined by a biennial actuarial review. Council Policy F-2
does not directly address whether funds should be set-aside for the implicit subsidy.
•Since the cost associated with the implicit subsidy is covered by the City’s cafeteria plan
contribution and is paid from the City’s operating budget, the targeted funding level has been
based on the value of the explicit subsidy associated with the legacy defined benefit plan and the
CalPERS MRC.
•In October 2023, the City Council approved allocating $5.8 million of the General Fund’s
operating surplus for Fiscal Year 2022-23 towards paying down the City’s OPEB liability.
•The explicit subsidy is projected to be 98% funded as of June 30, 2024, which includes the $5.8
million contribution from the FY 2022-23 operating surplus and an annual contribution to the
Trust based on the annual required contribution determined by the actuarial review.
•The explicit subsidy is projected to be 100% funded in Fiscal Year 2024-25.
18
Overview of the
CERBT Trust
9City of Newport Beach – Finance Department 19
City of Newport Beach – Finance Department 10
CERBT Overview
•CERBT has three investment strategies that provide for three alternative levels of tolerance for
investment volatility risk.
•CERBT investments are managed by State Street Global Advisors in lieu of CalPERS investment
staff with investment criteria dictated by an investment policy adopted by the CalPERS Board.
•Participating agencies own units of the portfolio rather than having direct ownership of securities.
•All-inclusive charge of 10 basis points for administrative, custodial, and investment fees.
Asset Class Strategy 1 Strategy 2 Strategy 3
Global Equity 49%34%23%
Fixed Income 23%41%51%
Global Real Estate 20%17%14%
Treasury Inflation Protected Securities 5%5%9%
Commodities 3%3%3%
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City of Newport Beach – Finance Department 11
2022 Capital Market Assumptions
•In March 2022, CalPERS approved changes to the asset class allocations for the OPEB Pre-
Funding Candidate Portfolios based on the 2022 Capital Market Assumptions.
•The changes to the Strategy 1 Candidate Portfolio resulted in a shift from global equities to global
real estate to provide for diversification. However, it resulted in lower returns (7.59% to 6.0%) that
are expected over the long-term and an increase in volatility (11.8% to 12.1%).
Asset Class 2018 2022
Global Equity 59%49%
Fixed Income 25%23%
Global Real Estate 8%20%
Treasury Inflation Protected Securities 5%5%
Commodities 3%3%
Volatility 11.8%12.1%
Expected Return, Net of Fees 7.59%6.0%
Strategy 1 Portfolio Asset Allocation, Volatility and Expected Returns
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City of Newport Beach – Finance Department 12
Historical Performance of the City’s Trust Account
•Total contributions in
excess of withdrawals of
$20.8 million
•Total investment earnings
(net of fees) of $14.4
million
•Total assets of $35.2
million at 6/30/23
•Annualized net rate of
return of 5.52% from
2008-2023
$(5)
$-
$5
$10
$15
$20
$25
$30
$35
$40
Mi
l
l
i
o
n
s
Cummulative Net Contribution Assets from Investment Earnings
22
City of Newport Beach – Finance Department 13
Public Agency Retirement Services
•Approximately 500 public agencies prefund pension and other post-employment benefits
through trusts administered by Public Agency Retirement Services (PARS).
•PARS has five investment strategies that provide for alternative levels of tolerance for
investment volatility risk. PARS also allows agencies to create a customized investment
strategy, which allows for greater investment flexibility and risk diversification.
•HighMark Capital Management provides investment advisory and management services.
•Participating agencies have direct ownership of securities, which are held in individual custodial
accounts with US Bank.
•The administrative, trustee and investment management fees are assessed based on the value
of assets held in the Trust. The fee structure decreases as the asset balances increase. For
example, total fees equate to 29 basis points for a Trust with $35 million in assets whereas the
fees equate to 25 basis points for a Trust with $50 million in assets.
23
City of Newport Beach – Finance Department 14
PARS Compared to CERBT
•The PARS moderate and custom strategies provide for investment returns (net of fees) that are
comparable to CERBT. However, the PARS strategies have less volatility than CERBT.
Asset Class CERBT
Strategy 1
PARS
Moderate
Strategy
PARS
Custom
Strategy
Global Equity 49%50%55%
Fixed Income 23%45%40%
Global Real Estate 20%0%0%
Treasury Inflation Protected Securities 5%0%0%
Commodities 3%0%0%
Cash 0%5%5%
Volatility 12.1%8.75%9.43%
Expected Return, Net of Fees 6.0%5.87%6.07%
24
City of Newport Beach – Finance Department 15
Summary
•It is recommended that the city continue with the current paydown strategy,
which is projected to result in fully paying down the explicit subsidy in Fiscal
Year 2024-25.
•Staff is seeking input from the Finance Committee on whether all or a portion
of the OPEB Trust assets should be transferred from CERBT to PARS, which
would allow for greater investment flexibility and risk diversification.
25
City of Newport Beach – Finance Department 16
Questions?
26
ITEM NO. 6B1 CALPERS UPDATE
ATTACHMENT A
STAFF PRESENTATION – ADDITIONAL MATERIALS RECEIVED
27
CalPERS Update Finance
Committee
November 9, 2023
Item No. 6B1
CalPERS Update
Additional Materials Received
November 9, 2023
28
CalPERS News
2City of Newport Beach – Finance Department 29
City of Newport Beach – Finance Department 3
Fiscal Year 2022-23CalPERS Fiscal Status
Source: CalPERS
$462.8 billion in assets 6.1% net return on investments
Preliminary
72% funded status
30
June 30, 2022
Actuarial Valuation Reports
(Published in July 2023)
4City of Newport Beach – Finance Department 31
City of Newport Beach – Finance Department 5
June 30, 2022 Actuarial Valuation Reports
•2022 valuation reports set the contribution rates for FY 2024-25.
•FY 2021-22 investment return was -7.5%, underperforming the 6.8% target
•Total unfunded liability increased from $223.4 million to $347.8 million, total funded
ratio decreased from 80.5% to 70.9%
Miscellaneous Safety Total Total
Accrued Liability $ 511,530,090 $ 685,323,004 $ 1,196,853,094 $1,144,847,841
Market Value of Assets $ 378,762,975 $ 470,257,945 $ 849,020,920 $ 921,409,397
Unfunded Liability $ 132,767,115 $ 215,065,059 $ 347,832,174 $223,438,444
Funded Ratio 74.0 %68.6 %70.9%80.5%
June 30, 2022 June 30, 2021
32
City of Newport Beach – Finance Department 6
CalPERS Funding Risk Mitigation Policy
Source: CalPERS
If
investment returns outperform discount rate by:
then
resulting discount rate will be:
+2 pp 8.8%6.75%
+7 pp 13.8%6.70%
+10 pp 16.8%6.65%
+13 pp 19.8%6.60%
+17 pp 23.8%6.55%
•Uses a portion of unexpected gains to de-risk the portfolio
33
City of Newport Beach – Finance Department 7
Comparison to Other Orange County Agencies
•The funded percentage for every non-pooled plan in the County decreased in part to the investment loss in FY 2021-22, except for the following cities that issued Pension Obligation Bonds in FY 2021-22: Buena Park, La Habra & Santa Ana.
34
Pension Paydown
Strategy
8City of Newport Beach – Finance Department 35
City of Newport Beach – Finance Department 9
Pension Paydown Strategy
•The pension paydown strategy is revisited each year.
•In 2023, the Finance Committee and City Council approved the
continuation of an aggressive pension paydown strategy, and approved
staff’s recommendation to make a payment of $40 million to CalPERS as
part of the budget with the intent to allocate an additional $5 million from
the operating surplus at the time of adoption of the budget.
•The previous forecast projected the City’s pension liability being paid off
in FY 2032-33, which was dependent on CalPERS earning 6.8% over
the long-term. The expected investment gain for FY 2022-23 is 6.1%,
which is less than the 6.8% expected rate of return.
36
City of Newport Beach – Finance Department 10
Roll-Forward of Valuations to June 30, 2022
•It is expected that CalPERS will announce a 6.1% investment return for FY 2022-23 on
November 14th.
•The Actuarial Valuation at June 30, 2023 will not be available until August 2024. However, the
CalPERS Pension Outlook tool has been utilized to estimate the City’s projected funded status
as of June 30, 2023, which reflects the impact associated with the 6.1% investment gain.
June 30, 2019 June 30, 2020 June 30, 2021 June 30, 2022 June 30, 2023*
Unfunded Liability $ 326,289,861 $ 333,046,257 $ 223,438,444 $347,832,174 $332,814,000
Funded Percentage 68.7 %69.2 %79.3 %69.6%72.2%
Investment Return 6.7 %4.7 %21.3 %-7.5%6.1%
* Projected 37
City of Newport Beach – Finance Department 11
Historical Investment Returns & the City’s Funded Status
Source: CalPERS 38
City of Newport Beach – Finance Department 12
Projections for the Future
•Using the CalPERS Pension Outlook tool, staff modeled the impact of the 6.1% return for FY 2022-23 and the impact of continuing the current payment strategy
•The FY 2022-23 rate of return was 0.7% lower than expected, resulting in extending the paydown schedule to the latter part of FY 2032-33
•Current projection shows the liability will be eliminated in FY 2032-33
•FY 2023-24 projected to pay approximately $17 million more than required by CalPERS
2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2032-33
Planned Payment $ 45,000,000 $ 45,000,000 $ 45,000,000 $ 45,000,000 $ 45,000,000 $ 45,000,000 $ 23,997,965
Beginning Unfunded Liability $ 332,814,000 $ 293,578,000 $ 267,036,000 $ 238,690,000 $ 208,415,000 $ 176,083,000 $ 23,221,000
Beginning Funded Percentage 72.2 %79.6 %82.4 %85.1 %87.8 %90.5 %100 %
Investment Return 6.8 %6.8 %6.8 %6.8 %6.8 %6.8 %6.8 %
39
City of Newport Beach – Finance Department 13
Normal Cost for Active Employees
•Tier 1 (Legacy) & Tier 2 (Classic) employees in the Miscellaneous Plan contribute approximately 57% of
amounts associated with normal cost.
•Tier 1 (Legacy) & Tier 2 (Classic) employees in the Safety Plan contribute approximately 42% of amounts
associated with normal cost on average across the various bargaining groups.
•Miscellaneous PEPRA employees contribute approximately 77% of amounts associated with normal cost,
whereas Safety PEPRA employees share equally 50% in the payment of normal cost.
Miscellaneous Safety
Tier 1 “Legacy”20.1%30.6%-38.0%
Tier 2 “Classic”19.9%24.5%-34.0%
Tier 3 “PEPRA”15.5%25.0%-35.4%
Total Normal Cost Rates
(as a % of Payroll)
40
City of Newport Beach – Finance Department 14
Active Employees by Benefit Tier
Tier 1 (Classic)
2.5% @ 55 formula
3.0% @ 50 formula
Tier 2 (Classic)
2.0% @ 60 formula
3.0% @ 55 formula
Tier 3 (PEPRA)
2.0% @ 62 formula
2.7% @ 57 formula
41
City of Newport Beach – Finance Department 15
Impact of Investment Return and Additional Payments
•Last year’s CalPERS update projected the pension liability to be
paid off in FY 2032-33
•FY 2022-23 investment shortfall pushed the payoff timeline out a
few months
•It is currently projected that the pension liability will be paid off in FY
2032-33 if CalPERS can obtain a 6.8% return on investments on
average over the next 10 years
42
City of Newport Beach – Finance Department 16
Summary
•It is recommended that the city continue with the current paydown strategy by
allocating $45 million each year towards the unfunded pension liability
•The continuation of the $45 million pension paydown plan is based on a dollar
cost averaging approach where consistent contributions over the long-term are
intended to minimize the risk from market fluctuations.
43
City of Newport Beach – Finance Department 17
Questions?
44
CITY OF NEWPORT BEACH
FINANCE COMMITTEE
STAFF REPORT
Agenda Item No. 6C
November 9, 2023
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Jason Al-Imam, Finance Director/Treasurer
949-644-3123, jalimam@newportbeachca.gov
SUBJECT: REVIEW OF FISCAL SUSTAINABILITY PLAN
SUMMARY:
The Finance Committee has requested a review of the City’s Fiscal Sustainability Plan.
This report provides a forum to discuss the Fiscal Sustainability Plan’s elements
established by the City Council.
RECOMMENDED ACTION:
Review and discuss the Fiscal Sustainability Plan elements set forth in the City Council
Resolution 2015-47 and provide any recommendations for consideration by the city
manager and City Council.
DISCUSSION:
The Great Recession that negatively impacted the City’s General Fund began in 2007
and ended in 2009. On January 9, 2010, the City Council held a planning workshop that
included a discussion for a Fiscal Sustainability Plan (FSP). On January 12, 2010, the
City Council adopted Resolution No. 2010-4 establishing 15 items that the City Council
would follow to address the then-current economic situation. On June 9, 2015, the City
Council adopted a new FSP resolution. The original resolution was amended to include
a new element regarding capital infrastructure and revising an element regarding General
Fund contributions to the Facilities Financial Planning reserve.
At the May 11, 2023, Finance Committee Meeting there was public comment regarding
FSP and staff were asked to bring back to the Finance Committee a discussion regarding
the FSP.
45
Review of Fiscal Sustainability Plan
November 9, 2023
Page 2
The following table provides the elements of the FSP and outlines the strategies that have
been used to implement these initiatives.
Elements Strategies
The City will proactively seek to protect
and expand its tax base by encouraging a
healthy underlying local economy.
Maintenance of a business-friendly
city government
Partnerships with businesses and
non-profits to support the local
economy
The City will work to enhance and protect
the property values of all Newport Beach
residents and property owners.
First class city services
Beautification projects
The City will work to enhance and protect
the City’s quality of life through strategic
and sustained investment in quality capital
infrastructure improvements that are both
long lasting and fiscally responsible.
Annual review and allocation of
resources as reflected in the City’s
Capital Improvement Program,
Facilities Financial Plan and
Harbor & Beaches Master Plan
The City will encourage shopping, dining
and visiting at Newport Beach stores,
restaurants and hotels.
Shop Local, Shop Newport Beach
The City will establish and maintain
appropriate cash reserves.
Annual Review of Investment
Policy, Investment Performance &
Long-Range Financial Forecast
Periodic Review of City Council
Policy F-2 (Reserve Policy)
The City will manage its Facilities
Financial Planning Reserve so that
General Fund contributions to the reserve
shall not be less than three percent (3%)
of the total General Fund Revenue
Budget.
Annual Review of Facilities
Financial Plan
City revenue performance will be reviewed
no less than quarterly and appropriate
budget adjustments will be made in
advance of the end of a budget year if
revenue performance is not meeting
projections.
Reports
o Quarterly budget report
The City will initiate a “results-based
budgeting” approach that allows the public
and City Council to prioritize City
expenditures strategically rather than
simply adjusting legacy expenditures to
reflect inflation.
Reports
o Annual budget
o Annual Planning Session
(City Council)
46
Review of Fiscal Sustainability Plan
November 9, 2023
Page 3
Elements Strategies
The City will implement a Performance
Measurement/Management Strategy as
part of an ongoing effort to ensure high-
quality and efficient performance
Reports
o Annual budget
The City will consider competitive
contracting of services and equipment
when appropriate and where clear, cost-
effective alternatives exist.
Reports
o Homeless shelter
agreement with Costa Mesa
(City Council)
o Ambulance purchase
through Houston-Galveston
cooperative purchasing
agreement (City Council)
The City will make it a priority to be energy
efficient in its provision of public services.
Reports
o As needed LED light
conversions; fuel efficient
vehicle replacement
The City will establish appropriate cost-
recovery targets for its fee structure and
will annually adjust its fee structure to
ensure that the fees continue to meet cost-
recovery targets.
Reports
o Annual user fee update
The City will oppose efforts of the State
and County governments to divert
revenues from the City or to increase the
unfunded service mandate of City
taxpayers.
Reports
o Townsend Public Affairs
advocacy consultant for
State and County matters
(City Council)
The City will work in partnership with its
employees to ensure fair compensation
and that costs related to pension and other
benefits are appropriately allocated
between employer and employees.
Reports
o As needed employee and
employer negotiations (City
Council)
The City will vigorously defend itself and
its taxpayers against frivolous lawsuits.
Reports
o As needed (City Council)
The City will seek additional
intergovernmental funding and grants,
with a priority on funding one-time capital
projects. Grant-funded projects that
require multi-year support will be reviewed
by the Finance Committee.
Reports
o As needed (City Council)
Prepared and Submitted by:
47
Review of Fiscal Sustainability Plan
November 9, 2023
Page 4
/s/ Michael Gomez
_____________________________
Michael Gomez
Deputy Finance Director
ATTACHMENT:
Attachment A – City Council Resolution No. 2015-47
48
ATTACHMENT A
CITY COUNCIL RESOLUTION NO. 2015-47
49
50
51
52
53
CITY OF NEWPORT BEACH
FINANCE COMMITTEE
STAFF REPORT
Agenda Item No. 6D
November 9, 2023
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Jason Al-Imam, Finance Director / Treasurer
949-644-3123, jalimam@newportbeachca.gov
SUBJECT: FIRST QUARTER BUDGET UPDATE
SUMMARY:
The Finance Department prepares quarterly financial reports to review the status of
revenues and expenditures for the City’s General Fund and to monitor budgetary trends
in other City funds. This report contains information on revenues, expenditures, and
estimated fund balance for the first quarter of Fiscal Year 2023-24.
The FY 2023-24 first quarter financial report provides an analysis of the City’s financial
activity from July through September 2023. A $4.6 million unrestricted General Fund
operating surplus is projected for FY 2023-24 based on information currently available for
the end of the first quarter. Recommended budget adjustments for revenues and
expenditures are outlined in this report and will be reflected in the proposed first quarter
budget amendment.
RECOMMENDED ACTION:
Review and discuss this report and provide any recommendations for consideration by
the City Manager and City Council.
DISCUSSION:
Economic Overview
The City’s assessed property values continue to increase providing a strong revenue
base for the City. Recent trends in inflation and the inverted Treasury yield curves have
caused concern in the broader economy and financial markets. Additionally, sales tax
growth has slowed, which is discussed later in this report. Transient occupancy tax (TOT)
continues to grow, and the opening of the Pendry hotel in September 2023 should further
bolster the City’s TOT revenues. The City is well positioned to withstand the impacts of a
54
First Quarter Budget Update
November 9, 2023
Page 2
potential recession and is expected to maintain long-term fiscal sustainability.
General Fund Revenues
Most revenue categories performed at or higher than their budgeted levels last year due
to more favorable economic conditions than what was originally anticipated in the adopted
budget. Growth in many areas has led to a $3.5 million projected increase in General
Fund revenues than what was estimated in the adopted budget. Projections for property
taxes, other taxes, and service fees are offset by a decrease in sales tax projections.
The following table summarizes the changes to projected General Fund revenues versus
the revised budget for FY 2023-24. Details highlighting the reasons for the material
variances follow.
FY 2023-24 Projected General Fund Revenues
Property Tax - Property taxes are the City’s single largest General Fund revenue and
represent approximately 50% of all General Fund revenues. Property tax revenue was
projected to increase approximately 3% from $136.9 million in FY 2022-23 to $141.4
million in FY 2023-24, largely due to the inflation adjustment indexed at the 2% cap
allowed by Proposition 13 and due to changes in ownership — which was partially offset
with an anticipated decrease in property transfer tax revenue as home sales continue to
slow due to rising interest rates. Property tax revenue for FY 2022-23 totaled $138.4
million, which is $1.5 million higher than previously projected. The higher-than-projected
revenue in FY 2022-23 is largely due to supplemental property tax revenue, which was
aided by increases in assessed values related to changes in ownership and new
construction. Therefore, property tax revenue for FY 2023-24 is projected to be $1.3
million higher than previously projected due to the increase in assessed values. Staff is
recommending a budget amendment to align the revised budget with updated projections.
A B C = B-A D = C/A
Revenues by Category PY Actual Adopted
Budget
Revised
Budget
Q1 Projected
Actual Variance %
Variance
Property Taxes 138,358,730 141,373,233 141,373,233 142,715,981 1,342,748 1%
Sales Tax 46,552,459 48,532,772 48,532,772 45,257,551 (3,275,221) -7%
Transient Occupancy Tax 30,201,648 31,986,150 31,986,150 31,986,150 - 0%
Other Taxes 10,079,710 8,937,999 8,937,999 9,922,292 984,293 11%
Service Fees & Charges 25,187,124 24,429,291 24,429,291 25,029,291 600,000 2%
Parking Revenue 7,420,314 7,900,099 7,900,099 7,900,099 - 0%
Licenses and Permits 5,676,619 5,746,027 5,746,027 5,746,027 - 0%
Property Income 7,530,393 8,125,682 8,125,682 9,425,682 1,300,000 16%
Fines & Penalties 3,838,752 3,799,784 3,799,784 3,799,784 - 0%
Intergovernmental 4,379,680 2,289,407 2,382,767 2,382,767 - 0%
Investment Earnings 1,690,399 1,750,000 1,750,000 1,750,000 - 0%
Misc Revenues 3,394,938 167,293 425,362 435,362 10,000 2%
Operating Transfers In 18,428,263 19,020,967 21,251,267 21,251,267 - 0%
Total Revenues 302,739,030 304,058,704 306,640,433 307,602,252 961,820 0%
55
First Quarter Budget Update
November 9, 2023
Page 3
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 groups — autos and transportation; general consumer
goods; and restaurants/hotels. Sales tax in FY 2022-23 came in at $46.6 million, which
was lower than what was predicted in prior quarters. The FY 2023-24 budget was
developed before the trend in sales tax began declining. Staff is therefore lowering the
FY 2023-24 to $45.3 million — a decrease of $3.3 million from the FY 2023-24 adopted
budget projection. The decrease in the sales tax projection is primarily attributable to a
5.5% projected decrease in sales from autos and transportation over the prior year
compared to the previously projected decrease of 1.4% over FY 2022-23. This equates
to a $1.7 million decrease in projected sales tax revenue over what was previously
projected. Moreover, sales tax revenue is projected to be lower than the prior year due
to decreases in sales from most industry groups except for restaurants and hotels. The
projected decrease in sales tax revenue from these other industry groups is largely due
to a shift in consumer spending to nontaxable items, such as travel, leisure, and
entertainment. However, sales from restaurants and hotels remain strong with patrons
allocating around 40% of their food budget to dining out. A budget amendment is
recommended to align the revised budget with updated projections.
Transient Occupancy Tax – The third largest funding source for the General Fund is
TOT, making up more than 10% of General Fund revenues. The City has seen record
high TOT revenues in the wake of the pandemic: FY 2022-23 saw growth rates of 10%
and 24% for hotel TOT and residential TOT respectively. Staff’s projection for Q1 is in line
with the budgeted revenues, and no adjustment is recommended. 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. This category is anticipated to have increased revenues
of $984,000 from business licenses and franchise fees, which will align projections
with actual revenues received in the prior FY.
Service Fees and Charges – plan check fees, recreation classes, emergency
medical services fees and numerous other cost-of-service fees. It is anticipated
that fees will bring in an additional $600,000 in revenue above the adopted budget,
largely from paramedic service fees, as well as other fees that were increased in
the latest fee study approved by Council after the budget was adopted.
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.
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First Quarter Budget Update
November 9, 2023
Page 4
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. As was reported in the FY
2022-23 Fourth Quarter Budget Update, revenues and expenses for the Dove
Street property must be accounted for at their gross amount in our general ledger,
resulting in additional revenues and expenses that net out in the General Fund. A
budget amendment is recommended to increase the revenues and expenses by
$1.3 million to account for this activity.
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 half 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. A budget
amendment increasing revenues and expenses by $10,000 is included to accept
a donation from the Dorothy Ressel trust and appropriate it in the Fire
Department’s expenditure budget.
General Fund Expenditures
The FY 2023-24 General Fund revised expenditure budget totals $308 million. Spending
trends in FY 2023-24 are generally consistent with prior years and do not indicate any
cause for concern. Total expenditure savings of $1.4 million are projected at this time
due to year-to-date savings from vacancies and savings from transferring the purchase
of an ambulance to a different funding source, offset by expenses that are addressed in
Budget Amendment No. 24-027 (to be attached to this report when it is presented to the
City Council) and are explained in detail below.
The following table summarizes the changes to the adopted expenditure budget for FY
2023-24, as well as expenditure savings by budget category. Details highlighting the
reasons for the material variances follow.
57
First Quarter Budget Update
November 9, 2023
Page 5
FY 2023-24 Projected General Fund Expenditures
Significant expenditure budget variances are as follows:
The revised salary and benefits budget totals $178.9 million, an increase of $5.3
million over the adopted budget. The increase is primarily due to the appropriation
of $5.0 million from the FY 2023-24 structural budget surplus as an additional
discretionary payment to CalPERS to further reduce the City’s unfunded pension
liability. An analysis of salary and benefit activity for quarter one indicates that $2
million in personnel savings have been captured to date. These savings are offset
by three proposed budget increases. The adopted budget should have included
$40 million for the CalPERS UAL payment but erroneously was missing the UAL
budgets in one program, in the Fire Department, leaving the total adopted UAL
budget $215,000 short. A budget amendment is requested to fully fund the UAL
payment at the level that Council directed. It is recommended to transfer one
maintenance aide position, a position within the Public Works Department, from
the Equipment Maintenance Fund to the General Fund, as the responsibilities and
needs of the department more accurately should be funded from the General Fund.
The travel and training budget will be decreased by $20,000 as the budget
intended for Certified Access Specialist (CASp) training should be funded from
Fund 180, the Restricted Programs Fund, and was erroneously included in the
General Fund budget in FY 2023-24, despite this program being transferred to
Fund 180 in the prior FY. A budget amendment is recommended to transfer
$20,000 from the General Fund to the Restricted Programs Fund.
The budget amendment that Council approved when the Dove Street property was
purchased accounted for only the net activity of revenues and expenses. As was
reported in the FY 2022-23 Fourth Quarter Budget Update, revenues and
expenses must be accounted for at their gross amount in our general ledger,
A B C = A-B D = C/A
Expenditures by Category
Adopted
Budget
Revised
Budget
Q1 Projected
Actual
Savings
(Overage) % Variance
Salary & Benefits $173,678,368 $178,930,368 $176,906,515 $2,023,853 1.1%
Contract Services 28,455,395 33,959,690 33,959,690 - 0.0%
Grant Operating 490,000 799,298 799,298 - 0.0%
Utilities 4,365,888 4,365,888 4,365,888 - 0.0%
Supplies & Materials 3,990,531 4,721,943 4,721,943 - 0.0%
Maintenance & Repair 13,884,795 15,223,086 15,223,086 - 0.0%
Travel & Training 840,151 888,771 868,771 20,000 2.3%
General Expenses 2,455,445 2,639,158 3,939,158 (1,310,000) -49.6%
Internal Svc Charge 29,463,973 29,422,570 29,422,570 - 0.0%
Capital Expenditures 1,803,666 2,625,489 1,975,489 650,000 24.8%
Operating Transfers Out 34,489,271 34,489,271 $34,489,271 - 0.0%
Total Expenditures $293,917,485 $308,065,533 $306,671,680 1,383,853$ 0.4%
58
First Quarter Budget Update
November 9, 2023
Page 6
resulting in additional revenues and expenses that net out in the General Fund. A
budget amendment is recommended to increase the revenues and expenses by
$1.3 million to account for this activity on a gross basis.
The capital expenditures budget will be decreased by $650,000 as the purchase
of the ambulance unit that was approved in the FY 2023-24 budget is proposed to
be transferred to the Fire Equipment Fund to utilize funding from development
agreements, which is described in more detail in the Fire Equipment Fund section
of this report.
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 high
levels of services to the community while targeting surplus resources to key priorities each
year. It is currently projected that unrestricted General Fund resources will total $4.6
million at the end of FY 2023-24. As is the case each year, staff anticipate that additional
budget savings will be realized, and the final year-end budget surplus will exceed this
amount.
The table below illustrates the prior year sources and uses of funds, current year activity
and the projected year-end results.
FY 2023-24 Projected General Fund Sources, Uses, and Budget Surplus
A B C=B-A D=C/A
Category Revised Budget Q1 Projection Variance % Variance
Beginning Fund Balance Reserves 15,254,999$ 15,254,999$ -$ 0.0%
Operating Resources:
Operating Revenues 285,389,166 286,350,985 961,819 0.3%
Prior Year Resources Carried Forward 5,465,426 5,465,426 - 0.0%
Transfers In from Other Funds 21,251,267 21,251,267 - 0.0%
Repayment of Advances 1,250,000 1,250,000 - 0.0%
Total Operating Resources 313,355,859 314,317,678 961,819 0.3%
Operating Uses:
Operating Expenditures 273,576,262 272,182,409 (1,393,853)-0.5%
Transfers Out 34,489,271 34,489,271 - 0.0%
Total Operating Uses 308,065,533 306,671,680 (1,393,853)-0.5%
Net Operating Surplus 5,290,326 7,645,998 2,355,672 44.5%
Non-Operating Resources & Uses
Transfers Out for Prior Year Surplus Allocation
to Paydown OPEB and to Capital Project Funds (13,270,950)(13,270,950)- 0.0%
Transfers Out to Capital Project Funds (5,005,300)(5,005,300)- 0.0%
Total Non-Operating Resources & Uses (18,276,250)(18,276,250)- 0.0%
Net Change in Fund Balance (12,985,924)(10,630,252)- 0.0%
Ending Fund Balance Reserves 2,269,075$ 4,624,747$ 2,355,672$ 103.8%
59
First Quarter Budget Update
November 9, 2023
Page 7
Facility Financing Plan
Per the City’s Municipal Code, park dedication and in-lieu fees provide for the dedication
of land, the payment of fees in lieu thereof or a combination of both, for park or
recreational purposes in conjunction with the approval of residential development. Park
zone fees in Park Zone 9 are anticipated to total $976,701 in FY 2023-24. A budget
amendment is recommended to align the budgeted revenues in this fund with current
projections by increasing revenues in account 51303-422105.
IT Replacement Fund
The IT Replacement Internal Service Fund (ISF) was established in 2012 to set aside
funds for large technology purchases and implementations, which has over $8 million in
reserves. This fund accumulates reserves over the useful life of crucial City technology
assets so that sufficient resources are available for its eventual replacement. Typical
assets that are budgeted for replacement are enterprise business applications, PCs,
mobile devices, networking equipment, phone systems, data center servers and
hardware, as well as specialized systems like library self-checkout stations. There are
two necessary system replacements that will be included as part of the budget
amendment when this report goes before the City Council, the Fire Records Management
System (RMS) and the Lifeguard Computer Aided Dispatch (CAD) system. The
evaluation of these systems was completed after the budget was adopted.
The Fire Department, along with support from IT, requests funding to upgrade the
department’s existing Records Management System (RMS) for the Fire Operations
Division to match the County’s reporting portal. In doing so, the City will centralize its
records data under one system, modernize its records management and have the ability
to access additional software system features. A budget amendment for $118,695 will
cover the implementation and three years of licensing of the application.
The Fire Department’s Lifeguard Division has relied on a modified version of the
Computer Aided Dispatch (CAD) System used by the Police Department. However, it is
limited in capability due to its design as a police Department-specific program.
Transitioning to a new lifeguard -specific software will allow for greater operational use
and flexibility for the division and provide for better coordination with the City’s IT team. A
budget amendment for $119,511 will cover the implementation and five years of licensing
of the application.
Fire Equipment Fund
The FY 2023-24 adopted budget includes $650,000 in the General Fund for the purchase
of a new ambulance unit. It was anticipated that funding from two development
agreements that total $1 million would fund this purchase. However, due to uncertainty in
the timing of receiving those funds, the General Fund was positioned to front the cost of
purchasing the unit, with the understanding that the General Fund would be reimbursed
once the developer funds had been received. Now that a portion of developer funds have
been received for the Newport Crossings and Harbor Pointe projects, it is recommended
that the budget for the purchase and outfitting of the new ambulance be transferred to the
60
First Quarter Budget Update
November 9, 2023
Page 8
Fire Equipment Fund where it will be fully offset by the additional revenues.
Other Funds
Staff have evaluated the fiscal condition of the City’s other major operating funds
(Tidelands and Water). 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.
Personnel Changes
The departure of City personnel in the Human Resources Department provided an
opportunity to evaluate the staffing structure within the department. In this analysis,
inconsistencies in job titles for the analyst series were found. To align positions within
the series and across the organization, the city manager recommends changes to the
following job classifications to expand the existing analyst series:
Management Assistant to Assistant Management Analyst
Human Resources Specialist I to Human Resources Specialist
Human Resources Specialist II to Assistant Human Resources Analyst.
These changes will create a pathway for career development and are expected to assist
with succession planning and recruitment. No changes are proposed to the related pay
rates. The proposed changes will impact certain employee benefits, as some positions
are moving from the Newport Beach Professional and Technical Employees Association
to the Key and Management employee group, however, these changes result in nominal
cost adjustments and can be absorbed in the current fiscal year.
Conclusion
Staff recommends that the Finance Committee review and discuss this report and provide
any recommendations for city manager and City Council consideration.
Prepared and Submitted by:
/s/ Shelby Burguan
____________________________
Shelby Burguan
Budget Manager
61
ITEM NO. 6D1 FIRST QUARTER BUDGET
UPDATE
ATTACHMENT A
STAFF PRESENTATION – ADDITIONAL MATERIALS RECEIVED
62
2023-24
First Quarter Financial Report
Finance
Committee
November 9, 2023
Item No. 6D1
First Quarter Budget Presentation
Additional Materials Received
November 9, 2023
63
City of Newport Beach – Finance Department 2
Projected General Fund Revenues
Adopted Budget $ 304.1 million
Revised Budget $ 306.6 million
First Quarter Projection $ 307.6 million
•$961,820 of projected positive variance
•Revised estimates for Property Tax, Sales
Tax, other taxes, paramedic service fees, and
revenue from the Dove Street property, as
was reported on the FY 2022-23 Q4 Report.
$-
$50
$100
$150
$200
$250
$300
$350
Adopted Revised Projected
Mi
l
l
i
o
n
s
Property Tax Sales Tax TOT Operating Transfers In Other
64
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
•$1.3 million upward adjustment to
the revenue estimate
$116
$123
$128
$138
$143
$80
$90
$100
$110
$120
$130
$140
$150
2019-20Actual 2020-21Actual 2021-22Actual 2022-23Actual 2023-24Projected
Mi
l
l
i
o
n
s
65
City of Newport Beach – Finance Department 4
Sales Tax
•Slow down in growth due to decreases in
sales tax revenue from most major industry
groups except for restaurants and hotels
•Shift in consumer spending to nontaxable
items
•Recommended to reduce the budget to
align with new projections, decrease of $3.3
million.$39
$36
$39
$46
$47
$45
$32
$34
$36
$38
$40
$42
$44
$46
$48
2018-19
Actual
2019-20
Actual
2020-21
Actual
2021-22
Actual
2022-23
Actual
2023-24
Projected
Mi
l
l
i
o
n
s
66
City of Newport Beach – Finance Department 5
Sales Tax Revenue Major Industry Groups
FY 22-23
Actual
FY 23-24
Budget
FY 23-24
Projected
Autos & Transportation (5.5%)(1.4%)(5.5%)
Restaurants & Hotels 6.2%5.7%7.5%
General Consumer Goods 5.3%(3.3%)(5.2%)
State & County Pools (0.9%)3.0%(1.8%)
Revised Industry Group Projections Based on Q1
Compared to Budgeted Amounts and Prior Year Actuals
8%3%
0%-1%
14%
0%-6%-5%
-10%
-5%
0%
5%
10%
15%
09/30/22 12/31/22 03/31/23 06/30/23
Quarterly Sales Tax Trends
Statewide Newport Beach
$0
$2
$4
$6
$8
$10
$12
$14
$16
Autos &Transportation Restaurants &Hotels General ConsumerGoods State & CountyPools
Mi
l
l
i
o
n
s
Budget Projected Budget Projected Budget Projected Budget Projected
FY 2023-24 Budget Vs. Projected Amounts
67
City of Newport Beach – Finance Department 6
Transient Occupancy Tax
•Transient occupancy tax (TOT) makes up
more than 10% of General Fund revenues
•FY 2022-23 saw growth rates of 10% and
24% for hotel TOT and residential TOT,
respectively
•Pendry reopened on September 25th
•Current projections in line with budget, no
adjustment recommended.
$25
$21
$17
$27
$30
$32
$-
$5
$10
$15
$20
$25
$30
$35
2018-19Actual 2019-20Actual 2020-21Actual 2021-22Actual 2022-23Actual 2023-24Projected
Mi
l
l
i
o
n
s
68
City of Newport Beach – Finance Department 7
Other General Fund Revenues
•Other general fund revenues projected to exceed budget by $2.9 million
•Approximately $1 million from other taxes
•Business licenses and franchise fees
•$0.6 million adjustment to service fees & charges for increases included
in fee study
•Increases included in fee study
•$1.3 million adjustment to Property Income for Dove Street Property
•Increasing both revenues and expenses to reflect the gross amounts,
rather than reflecting revenues net of expenses
69
City of Newport Beach – Finance Department 8
Projected General Fund Expenditures
Adopted Budget $ 293.9 million
Revised Budget $ 308.1 million
First Quarter Projection $ 306.7 million
•$5.0 million additional payment to CalPERS included in revised budget
•$5.5 million of budget carryovers
•Budget amendment to be included with the City Council staff report to appropriate:
•$215k to fully fund CalPERS UAL in Fire Department
•$20k decrease travel and training budget in General Fund and move to Restricted Programs
Fund
•$1.3M in expenses for Dove Street Property Activity
•$650k decrease in Capital Expenditures as ambulance unit to be purchased from Fire
Equipment Fund 70
City of Newport Beach – Finance Department 9
General Fund Sources and Uses
•Current projection of $4.6
million surplus, likely to
grow in future quarters
•Budget savings will likely
be identified as the year
progresses, as is usually
the case
A B C=B-A D=C/A
Category Revised Budget Q1 Projection Variance % Variance
Beginning Fund Balance Reserves 15,254,999$ 15,254,999$ -$ 0.0%
Operating Resources:
Operating Revenues 285,389,166 286,350,985 961,819 0.3%
Prior Year Resources Carried Forward 5,465,426 5,465,426 - 0.0%
Transfers In from Other Funds 21,251,267 21,251,267 - 0.0%
Repayment of Advances 1,250,000 1,250,000 - 0.0%
Total Operating Resources 313,355,859 314,317,678 961,819 0.3%
Operating Uses:
Operating Expenditures 273,576,262 272,182,409 (1,393,853)-0.5%
Transfers Out 34,489,271 34,489,271 - 0.0%
Total Operating Uses 308,065,533 306,671,680 (1,393,853)-0.5%
Net Operating Surplus 5,290,326 7,645,998 2,355,672 44.5%
Non-Operating Resources & Uses
Transfers Out for Prior Year Surplus Allocation
to Paydown OPEB and to Capital Project Funds (13,270,950)(13,270,950)- 0.0%
Transfers Out to Capital Project Funds (5,005,300)(5,005,300)- 0.0%
Total Non-Operating Resources & Uses (18,276,250)(18,276,250)- 0.0%
Net Change in Fund Balance (12,985,924)(10,630,252)- 0.0%
Ending Fund Balance Reserves 2,269,075$ 4,624,747$ 2,355,672$ 103.8%
71
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 the City Council
72
City of Newport Beach – Finance Department 11
Questions?
73
11/2/23
Scheduled Date Agenda Title Report Type Agenda Description
Thursday, January 11, 2024
Financial Statement Audit Results and Related Communication Presentation The City’s external auditors will meet with the Finance Committee to discuss the results of their audit for the fiscal year ending June 30, 2023.
Long Range Financial Forecast (LRFF) Update Presentation Staff will brief the Committee regarding the results of the updated LRFF analysis.
Review of the Los Angeles County & Orange County Investment Pools Presentation Staff will provide the Committee with an assessment of the Los Angeles County & Orange County Investment Pools.
Budget Amendments for Quarter Ending December 31, 2023 Receive and File Staff will report on the budget amendments from the prior quarter.
Workplan Review Receive and File Staff will report on the upcoming Finance Committee items.
Thursday, February 15, 2024
Facilities Financial Plan (FFP) and Harbor & Beaches Master Plan (HBMP)Presentation Staff will provide an update on the current status of FFP and HBMP.
Second Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected FY 2023-24 budget performance.
Workplan Review Receive and File Staff will report on the upcoming Finance Committee items.
Thursday, March 14, 2024
Overview of Revenue Projections Presentation Staff will provide the Committee with an overview of the assumptions utilized to prepare revenue projections for the City's major funds as part of the FY 2024-25 budget preparation process.
Workplan Review Receive and File Staff will report on the upcoming Finance Committee items.
Thursday, April 11, 2024
Proposed FY 2024-25 Budget Overview Presentation Staff will provide the Committee with an overview of the expenditure budget for FY 2024-25 that will be presented to the City Council in May.
Budget Amendments for Quarter Ending March 31, 2024 Receive and File Staff will report on the budget amendments from the prior quarter.
Workplan Review Receive and File Staff will report on the upcoming Finance Committee items.
Thursday, May 9, 2024
Third Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected Fiscal Year 2023-24 budget performance.
January 2024
Newport Beach Finance Committee Work Plan
April 2024
February 2024
March 2024
May 2024
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11/2/23
Scheduled Date Agenda Title Report Type Agenda Description
Newport Beach Finance Committee Work Plan
Follow-Up Discussion of Proposed FY 2024-25 Budget Discussion
Staff will provide the Committee with a copy of the Fiscal Year 2024-25
proposed budget document. Should the Committee wish to continue April's
discussion of the Fiscal Year 2024-25 budget, this is also an opportunity to do so.
Tuesday, May 28, 2024 Joint City Council and Finance Committee Study Session Presentation Staff will present the FY 2024-25 proposed budget to the City Council and Finance Committee.
Thursday, May 30, 2024 Financial Statement Auditor's Communication with the Finance Committee acting as the City's Audit Committee Presentation
The City's external auditors, Davis Farr LLP, will provide an overview presentation regarding the audit process and request feedback from the Committee regarding any information that may assist them in their audit of the City's financial statements.
Committee Recommendation to Council for the FY 2024-25 Budget Discussion Discussion of the Study Session earlier in the week and formulation of any recommendations to be presented to the City Council at the budget public hearing in June.
Workplan Review Receive and File Staff will report on the upcoming Finance Committee items.
Thursday, September 12, 2024
Annual Review of Investment Performance Presentation The City's investment advisor, Chandler Asset Management, will report on the performance of the City's investment portfolio for the fiscal year ending June 30, 2024.
Annual Review of Investment Policy Presentation Staff will provide a presentation regarding any proposed changes to the City's Investment Policy prior to the Investment Policy being approved by the City Council.
Internal Audit Program Update Presentation Presentation of internal audit reports, findings, and recommendations from the
FY 2023-24 audit program.
Budget Amendments for Quarter Ending June 30, 2024 Receive and File Staff will report on the budget amendments from the prior quarter.
Workplan Review Receive and File Staff will report on the upcoming Finance Committee items.
Thursday, October 10, 2024
Budget Amendments for Quarter Ending September 30, 2024 Receive and File Staff will report on the budget amendments from the prior quarter.
Year-End Budget Results and Surplus Allocation Presentation Staff will provide a presentation regarding the year-end budget results for FY 2023-24 and recommendations for allocation of any year-end budget surplus.
Workplan Review Receive and File Staff will report on the upcoming Finance Committee items.
September 2024
October 2024
August 2024
Committee Recess
June 2024
Committee Recess
Committee Recess
July 2024
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11/2/23
Scheduled Date Agenda Title Report Type Agenda Description
Newport Beach Finance Committee Work Plan
Thursday, November 14, 2024
First Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected FY 2024-25 budget performance.
OPEB Actuarial Valuation Report Update Presentation Staff will provide the Committee with an overview of the Fiscal Year 2023-24 actuarial valuation report prepared by the City's actuary.
CalPERS Update Presentation Staff will provide the Committee with an overview of the data from the latest actuarial reports from CalPERS as well as their impact on prior projections of the paydown of the City's unfunded pension liability.
November 2024
December 2024
Committee Recess
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