HomeMy WebLinkAboutFinance Committee Agenda Packet - July 26, 2023CITY OF NEWPORT BEACH
FINANCE COMMITTEE - SPECIAL MEETING AGENDA
Community Room - 100 Civic Center Drive
Wednesday, July 26, 2023 - 3:00 PM
Finance Committee - Special Meeting Members:
Will O'Neill, Chair
Noah Blom, Mayor
Joe Stapleton, Council Member
Allan 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.
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July 26, 2023
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Finance Committee - Special Meeting Meeting
I.CALL MEETING TO ORDER
II.ROLL CALL
III.PUBLIC COMMENTS ON CONSENT CALENDAR
Public comments are invited on agenda and non-agenda items generally considered to be
within the subject matter jurisdiction of the Finance Committee. Speakers must limit comments
to three (3) minutes. Before speaking, we invite, but do not require, you to state your name for
the record. The Finance Committee has the discretion to extend or shorten the speakers’ time
limit on agenda or non-agenda items, provided the time limit adjustment is applied equally to all
speakers. As a courtesy, please turn cell phones off or set them in the silent mode.
IV.CONSENT CALENDAR
MINUTES OF MAY 11, 2023A.
Recommended Action:
Approve and file.
MINUTES OF MAY 11, 2023
MINUTES OF MAY 31, 2023B.
Recommended Action:
Approve and file.
MINUTES OF MAY 31, 2023
V.CURRENT BUSINESS
2023 WATER AND WASTEWATER RATE STUDIESA.
Summary:
Utilities Director Mark Vukojevic will present the results of the Water and
Wastewater Utilities rate study.
Recommended Action:
1. Review the water and wastewater enterprise fund financial analysis and 2023
Draft Water and Wastewater Rate Study information; Provide input to staff;
2. Forward the item to City Council for discussion and consideration.
STAFF REPORT
STAFF PRESENTATION
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July 26, 2023
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Finance Committee - Special Meeting Meeting
FINANCIAL STATEMENT AUDITOR'S COMMUNICATION WITH THE FINANCE
COMMITTEE ACTING AS THE CITY'S AUDIT COMMITTEE
B.
Summary:
Marc Davis, partner with Davis Farr LLP will discuss with the Audit Committee the
planned scope and timing of the audit for the Fiscal Year Ending June 30, 2023
Recommended Action:
Receive and file.
PRESENTATION
WORK PLAN REVIEWC.
Summary:
Staff will report on the upcoming Finance Committee items.
Recommended Action:
Receive and file.
WORK PLAN
VI.ADJOURNMENT
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Finance Committee Meeting Minutes May 11, 2023
Page 1 of 5
CITY OF NEWPORT BEACH FINANCE COMMITTEE MAY 11, 2023 MEETING MINUTES I. CALL MEETING TO ORDER The meeting was called to order at 3:04 p.m. II. ROLL CALL PRESENT: Will O’Neill, Chair
Noah Blom, Mayor Joe Stapleton, Council Member Allen Cashion, Committee Member William Collopy, Committee Member
Nancy Scarbrough, Committee Member
ABSENT: 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; Sander Huang, Purchasing and Contracts Administrator; Jessica Nguyen, Budget Analyst; Eric Wilson, Budget
Analyst; Mark Vukojevic, Utilities Director; Theresa Schweitzer, Public Works Finance/Administrative Manager; and Brittany Cleberg,
Administrative Assistant
MEMBERS OF THE PUBLIC: Jim Mosher
Bill Kroenik Charles Klobe
OTHER ENTITIES:
III. PUBLIC COMMENTS
Jim Mosher requested clarification regarding the lack of an agenda item to approve meeting
minutes. Staff responded they would work with the transcription vendor regarding production timelines.
IV. CURRENT BUSINESS A. REVIEW OF FINANCE COMMITTEE AUTHORIZING RESOLUTION Recommended Action: Review and discuss the Finance Committee’s responsibilities set forth in the City Council’s
authorizing resolution 2018-71 compared to actual responsibilities the Committee takes to fulfill its charge and provide any recommendations for consideration by the City Manager and City Council.
Chair O’Neill thanked City staff for the thoroughness of the written report and opened the floor to the Finance Committee members for comment.
In response to Committee Member Scarbrough’s inquiry if the Finance Committee has ever exercised its discretion to provide written recommendations to the City Council, Chair O’Neill confirmed it has been done in the past.
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Finance Committee Meeting Minutes May 11, 2023
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Chair O’Neill opened public comment. Jim Mosher expressed support for the Finance Committee to review their authorizing resolution on a regular basis, as it was last reviewed five years ago. He requested the Finance Committee consider reviewing the description of their purpose as listed on the City’s website and clarify several items including, but not limited to their role as related to the Fiscal Sustainability Plan,
requirements to review multi-year grant applications which require City financial support, results-based budgeting recommendations, management of the ongoing process for measuring and setting goals (along with setting initiatives to meet goals). Chair O’Neill closed public comment.
Committee Member Collopy stated he does believe the new City Manager and her team have committed to performance-based budgeting and developing metrics by which the Departments can justify budget requests, rather than rely upon metrics such as inflation, to guide budgeting decisions.
Chair O’Neill suggested the Finance Committee place review and consideration of their role as
related to the Fiscal Sustainability Plan on an upcoming meeting agenda, along with a potential rewrite of the Finance Committee’s purpose statement as listed on the City’s website. This item was received and filed. There was no further action taken.
B. THIRD QUARTER BUDGET UPDATE Recommended Action: Receive and file.
Budget Manager Shelby Burguan provided a staff report and presentation which summarized the information provided in the publicly noticed agenda packet.
Committee Member Scarbrough inquired whether other cities are challenging the “accounting
pools” related to online retailing. Finance Director Al-Imam responded it is within the State’s scope of authority to challenge any misallocation of funds from the pool.
In response to an inquiry regarding the recent settlement received by the City, City Manager
Leung confirmed the settlement funds received are not restricted and can be considered as general fund money.
Discussion ensued regarding potentially utilizing the settlement, as it was related to water
quality issues, to allocate the funds toward water quality projects in the City, such as the water wheel. City Manager Leung stated the settlement funds have no restrictions, can be utilized for
any purpose, and are considered surplus funds.
Committee Member Collopy inquired if the City was going to follow Council policy regarding surplus funds by applying half of the surplus amount toward Unfunded Accrued Liability (UAL)
and the other half toward neighborhood improvement projects. City Manager Leung responded that absent any other Council direction, City staff would follow the established policy, however
there may be separate discussion regarding the settlement funds. Committee Member Collopy inquired whether the Council would entertain a change to the policy by making it a practice to split any surplus funds between long term obligations and
neighborhood improvement projects. Chair O’Neill stated he is in support of keeping the current policy in place as it forces the City Council to strategically address needs at the time, to ensure
they are applying surplus funds in the most effective manner. This item was received and filed. There was no further action taken.
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Finance Committee Meeting Minutes May 11, 2023
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C. FOLLOW-UP DISCUSSION OF PROPOSED FISCAL YEAR 2023-24 BUDGET Recommended Action: Receive and file. Budget Manager Shelby Burguan provided a staff report and presentation which summarized the information provided in the publicly noticed agenda packet.
Committee Member Collopy requested clarification regarding the difference between an Assistant City Manager and a Deputy City Manager. City staff confirmed an Assistant City Manager is a higher classification. Budget Manager Burguan opened the floor to the Finance Committee for input and questions regarding the proposed Fiscal Year 2023-24 budget document.
In response to an inquiry from Committee Member Collopy, Budget Manager Burguan clarified information on page 21 of the budget document noting one of the differences was related to the American Rescue Plan Act funding received. She also noted that the non-operating source
includes the revenue from bond proceeds. City staff will provide additional detail and clarification on these items.
Committee Member Collopy requested clarification regarding the purpose of the Uninsured Claims Fund. City staff confirmed this is a fund allocation for this purpose and City Manager Leung stated staff would take a look at the history of uninsured claims to ensure the annual
fund is justified.
In response to an inquiry from Committee Member Collopy regarding vehicle replacement funds, City staff confirmed that the funds are managed centrally. City staff noted that Police
have their own equipment funds and vehicles, which they manage separately. The rest of the City has a centralized fleet which is overseen by the Public Works Department and have their
own fleet management system.
City staff confirmed that for the donation contributions, $12 million is for the Library Lecture Hall and Junior Lifeguard Program and the non-operating source is all assessment district.
Chair O’Neill inquired as to where equipment replacement funds are held pending
disbursement for purchase of equipment, such as fire trucks. City Manager Leung confirmed the funds remain in the Internal Service Fund, but the expensing would come out of the
Department’s budget. Detail was provided as to the process for procurement as related to replacement vehicles. Additional detail was provided as to the differences between Police and
Public Works fleet management, regarding the specifications required for Police vehicle modifications.
Committee Member Collopy requested clarification for the increase in refuse costs and how
the City is projecting reduction in 2024. City Manager Leung responded increased costs are primarily related to state mandates regarding recycling, requiring restructuring and
renegotiation of the current contract. It is likely the projected decreases in costs are related to carryovers included in the revised budget.
Discussion ensued regarding paydown of the City’s unfunded pension liability. There was general consensus to have the Finance Committee review the unfunded pension obligation on an annual basis. Additional clarification was provided regarding various acronyms utilized in
the revenue section of the budget document.
Committee Member Scarbrough requested clarification as to why renewals for charging modules were projected to decrease. City staff confirmed they would provide additional information on that item.
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Finance Committee Meeting Minutes May 11, 2023
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Committee Member Scarbrough requested clarification on page 32 related to agreements with Caltrans. City staff confirmed that when the City takes over a portion of a roadway and the payment is placed in a fund, the budget reflects the interest generated. City staff confirmed there was no additional funding for the item on page 166. Committee Member Scarbrough requested clarification on page 239 for the General Plan
update, the proposal came back at a larger amount and whether it needed to be adjusted. City staff confirmed there is a remaining allocation for the General Plan update, and it will be carried forward to next fiscal year. Committee Member Scarbrough requested clarification regarding in-lieu fees for affordable housing (page 140). City staff confirmed the in-lieu fees go into a separate fund and there is
no proposal to spend that money in the upcoming fiscal year budget. The revenue side is in a separate fund. Committee Member Cashion thanked staff for their efforts as related to the budget. He
requested clarification on budget transfers included in the revised budget document. City staff confirmed the transfers include the purchase of the Police station (approximately $30 million)
and capital projects, which are placed into special capital improvement project funds to complete the specified projects. Committee Member Cashion requested, and staff confirmed, that previous years’ CIP budgets
can be provided to Committee Members. Discussion ensued regarding the nature of carryover funds as related to capital projects and the capital projects budget allocation process. City staff
also provided clarification regarding the adopted budget comparisons from year to year. City staff committed to providing general fund revenue and expenditure information back to 2016,
including a subline that goes between the transfers.
Chair O’Neill opened public comment.
Jim Mosher commented that part of the City’s philosophy is not to anticipate donations as part of the annual budget and that they are reconciled later as part of a special correction. He
inquired where he could find information on the reserve fund for Culture and Arts. He requested clarification regarding the organizational structure, functions, and staff assigned to the City
Manager’s Department, which to him appears unusually high.
City staff responded the information related to the reserve fund for Culture and Arts can be found in the ACFR document.
Chair O’Neill closed public comment.
In response to an inquiry from Committee Member Scarbrough, City staff confirmed there is no
position specifically dedicated to grant writing citywide, however each Department’s staff pursues grant opportunities as appropriate. City Manager Leung is currently evaluating the
feasibility of hiring a grant writing firm and discussion ensued on the topic. Additional clarification was provided as to the need for Department-level subject matter expertise in grant
writing and that the City does pursue opportunities that are available. City Manager Leung acknowledged the City can provide additional information regarding the grant opportunities the City does pursue and is awarded.
This item was received and filed. There was no further action taken.
D. UTILITY RATE PRIMER Recommended Action: Receive and file. Utilities Director Mark Vukojevic gave a presentation highlighting the system’s cost structure
and rate history.
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Finance Committee Meeting Minutes May 11, 2023
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Staff noted that there are some timeline issues related to getting rates into effect by January 1, and a report will come back to the Finance Committee at a special meeting in August. Utilities Director Mark Vukojevic confirmed that the City does not add developer impact or buyer fees and there are no property tax fees, where other agencies do charge some sort of property
tax component into their water and wastewater bills. The City has no property tax-based fees and staff is not recommending any. In response to an inquiry from Committee Member Collopy, Director Vukojevic confirmed the increase can only go up to 2% per year. Additionally, the City collects just two components, a fixed fee on the meter size and how much water is used.
Committee Member Collopy requested information as to how rate increases were previously approved. Staff confirmed that a five-year rate increase was approved and became automatic.
Chair O’Neill expressed concern regarding the potential results of the study, due to the impacts of inflation on costs.
In response to an inquiry from a Committee Member, Director Vukojevic noted that the City must comply with Proposition 218 rules prior to approving increases in rates. Details about the Proposition 218 process, including the majority protest component were discussed.
Chair O’Neill opened public comment. Seeing none, Chair O’Neill closed public comment.
This item was received and filed. There was no further action taken.
E. WORK PLAN REVIEW Recommended Action: Receive and file.
Discussion was had on the upcoming meeting schedule, including the potential for a special meeting in August to discuss the proposed rate structure.
Chair O’Neill opened public comment. Seeing none, Chair O’Neill closed public comment.
V. ADJOURNMENT The Finance Committee meeting adjourned at 4:44 p.m.
Attest:
___________________________________ _____________________ Will O’Neill, Chair Date
Finance Committee
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Finance Committee Meeting Minutes May 31, 2023
Page 1 of 3
CITY OF NEWPORT BEACH FINANCE COMMITTEE MAY 31, 2023 SPECIAL MEETING MINUTES I. CALL MEETING TO ORDER The special meeting was called to order at 2:00 p.m. II. ROLL CALL PRESENT: Will O’Neill, Chair
Joe Stapleton, Council Member Allen Cashion, Committee Member Nancy Scarbrough, Committee Member
ABSENT: Noah Blom, Mayor (excused) Keith Curry, Committee Member (excused)
William Collopy, 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; Raymund Reyes, Administrative Manager/Fire
Department; Theresa Schweitzer, Public Works Finance/Administrative Manager; and Brittany Cleberg, Administrative Assistant
MEMBERS OF THE PUBLIC: Jim Mosher
William Kroener
OTHER ENTITIES: III. PUBLIC COMMENTS ON CONSENT CALENDAR
Chair O’Neill opened public comments on the consent calendar and non-agenda items. Seeing none, Chair O’Neill closed public comments.
IV. CONSENT CALENDAR
A. MINUTES OF APRIL 13, 2023 Recommended Action: Approve and file.
Chair O’Neill acknowledged the receipt of proposed amendments to the minutes submitted by
Jim Mosher. MOTION: Scarbrough moved to approve the minutes of April 13, 2023, as amended, seconded by Stapleton. The motion carried as follows:
AYES: Cashion, Scarbrough, Stapleton, O’Neill
NOES: None ABSENT: Blom, Curry, Collopy ABSTAIN: None
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Finance Committee Meeting Minutes May 31, 2023
Page 2 of 3
V. CURRENT BUSINESS A. FINANCE COMMITTEE RECOMMENDATION TO THE CITY COUNCIL FOR THE FISCAL YEAR 2023-24 OPERATING BUDGET Recommended Action: It is recommended that the Finance Committee consider recommending that the City Council consider approval of the Proposed Operating Budget for Fiscal Year 2023-24.
City staff provided a brief report and presentation with the summary of all funds, expenditures and General Fund sources and uses. There have been no changes to the Fiscal Year 2023-24 operating budget subsequent to its presentation to the Finance Committee at their earlier May meeting.
City Manager Grace Leung recommended an allocation of $10 million from the budget surplus, which includes a $5 million appropriation at the time of budget adoption to bring the total paid to CalPERS towards the City’s unfunded pension liability to $45 million and to set-aside $5 million in additional funds for future capital needs.
Chair O’Neill opened public comment. Bill Kroener suggested utilizing the anticipated surplus to fund an updated historical survey of the City, as the last survey was conducted in 1988, and was inadequate, from his perspective in that it did not identify critical elements such as the Ferry. Jim Moser commented on inconsistencies in the proposed budget, from Department to Department, such as the costs for supplies and materials. He requested clarification as to how part-time and full-time employees are stated in the budget, as the fractional equivalents are hard to interpret. He also requested clarification on the cost allocation provisions between Department and services. Chair O’Neill closed public comment. MOTION: Cashion moved to forward the proposed FY 2023-24 operating budget, as recommended by the City Manager to the City Council, seconded by Scarbrough. The motion carried as follows: AYES: Cashion, Scarbrough, Stapleton, O’Neill NOES: None ABSENT: Blom, Curry, Collopy ABSTAIN: None B. WORK PLAN REVIEW Recommended Action: Receive and file. Committee discussion ensued regarding the July 26, 2023, proposed date for the Finance Committee special meeting, citing the report which would be presented concerning utility rates. Chair O’Neill commented that the Finance Committee members are only appointed for the duration of the fiscal year and would need to be reappointed for the upcoming fiscal year if they are interested in continuing service. He suggested the non-Council member appointees discuss their interest in continuing service with their respective Council members who appointed them. He reminded staff to ensure the item for appointing Finance Committee members is placed on the applicable City Council agenda. Committee discussion ensued on the various items scheduled for the upcoming months, as detailed in the agenda report. The next City Council meeting is scheduled for June 13, 2023, which will include consideration of the FY 2023-24 budget adoption.
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Finance Committee Meeting Minutes May 31, 2023
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This item was received and filed. There was no further action taken. IV. ADJOURNMENT The Finance Committee meeting adjourned at 2:23 p.m.
Attest:
___________________________________ _____________________ Will O’Neill, Chair Date Finance Committee
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ITEM NO. 4A1 PUBLIC COMMENTS
ON CONSENT CALENDAR
ATTACHMENT A
PUBLIC COMMENTS – ADDITIONAL MATERIALS RECEIVED
July 26, 2023, Finance Committee Comments
These comments on items on the Newport Beach Finance Committee agenda are submitted by:
Jim Mosher ( jimmosher@yahoo.com ), 2210 Private Road, Newport Beach 92660 (949-548-6229)
Item IV.A. MINUTES OF MAY 11, 2023
Changes to the draft minutes passages shown in italics are suggested in strikeout underline format.
Page 1, MEMBERS OF THE PUBLIC: “Bill Kroenik Kroener”
Page 2, paragraph 2, sentence 2: “He requested the Finance Committee consider reviewing the
description of their purpose as listed on the City’s website and clarify several items including,
but not limited to their role as related to the Fiscal Sustainability Plan, requirements to review
multi-year grant applications which require City financial support, results-based budgeting
recommendations, and management of the ongoing process for measuring and setting goals
(along with setting initiatives to meet goals).”
Page 3, Item C, paragraph 7: “City staff confirmed that for the donation contributions, $12
million is for the Library Lecture Hall and Junior Lifeguard Program and the non-operating
source is all assessment district districts.” [? I don’t see any $12 million item listed in the
“Donations & Contribu“ revenue section on page 28 of the proposed budget. The question about
the “non-operating source” revenue section following that appears to have been about the
continuing annual revenue from a line item listed as “611010 – Special Lighting District.” I don’t
know if the answer was it came from one district or multiple districts, or why it is non-operating.]
Page 5, paragraph 2: “Utilities Director Mark Vukojevic confirmed that the City does not add
developer impact or buyer fees and there are no property tax fees, where other agencies do
charge some sort of property tax component into their water and wastewater bills. The City has
no property tax-based fees and staff is not recommending any.” [comment: I’m not sure what
the comment was, but Item 13 on the July 25, 2023, City Council agenda is the Finance
Department’s request to put accounts on the property tax roll the recycling and wastewater fees
for 5,300 accounts that do not receive utility bills for any other services. It is the second year the
City would be doing that.]
Item IV.B. MINUTES OF MAY 31, 2023
Page 1, Item IV.A.: “MOTION: Committee member Scarbrough moved to approve the minutes
of April 13, 2023, as amended, seconded by Council member Stapleton.”
Page 2, Item V.A., paragraph 6, sentence 1: “Jim Moser Mosher commented on
inconsistencies in the proposed budget, from Department to Department, such as the costs for
supplies and materials.”
Page 2, Item V.A.: “MOTION: Committee member Cashion moved to forward the proposed FY
2023-24 operating budget, as recommended by the City Manager to the City Council, seconded
by Committee member Scarbrough.”
Item No. 4A1
Public Comments
Additional Materials Received July 26, 2023
July 26, 2023, Finance Committee comments - Jim Mosher Page 2 of 4
Item V.A. 2023 WATER AND WASTEWATER RATE STUDIES
It is great to have a chance to review the presentation before the meeting.
In addition to “When will the rate studies be posted for public review?” here are some questions
whose answers I didn’t immediately see:
Water
1. Will adjustments be proposed for recycled water and fire protection service?
2. Although the proportions of fixed versus variable revenue may not match the proportions
of fixed versus variable business costs (Slide 3), isn’t that in part a policy decision
related to water conservation? Might not the disproportionately high volume-of-use-
associated cost be intended to reduce use?
3. As to the water spouting out of the excavation in Slide 6, was this on purpose? Or was
there no way to turn it off? (I ask because earlier this year there was a knocked over fire
hydrant near my home, spouting an Old Faithful of water onto Irvine Avenue, and
although crews were promptly on scene, it appear to take several hours before anyone
turned the valve necessary to turn it off.)
4. In estimating the amount of reserved needed for prudent management (Slide 8), where
did the “$3.0/$3.3 Mil” needed for “Drought/ Stabilization” come from? Is it the
anticipated loss of revenue over expenses for a single year of drought? Or for the full
five years of the new rate structure?
Wastewater
1. I do not live in the City’s wastewater service area, so I don’t understand the “Variable
Charges” part of the revenue structure (Slide 13). Is this a separate item on the bill? And
what variable is it based on?
2. I also don’t understand why the business costs are 100% fixed. For example, don’t the
pump stations have to run longer and harder when there is more flow? And does the City
pay a fee to the OC Sanitation District based on the amount of wastewater it delivers to
them? (I know we pay an OCSD treatment fee on our property tax bill, but I don’t know
how that works)
3. The size of the City-operated system (Slide 15) is almost identical to that operated by
the Costa Mesa Sanitary District. How do the budgets compare? Would there be any
advantage to merging the systems?
4. Slides 19 and 20: Again, I don’t understand the “use charge.” Although I am not a
customer, Item 13 on the July 25 City Council agenda places the FY2023-2024
wastewater fees for certain residences on the property tax rolls. The most common
charge is $157.20, and the second most common is $184.08. Those would seem to be
$13.10 and $15.34 per month. That would indeed seem to be the fixed rate listed on the
slides (a minimum of $8.55) plus an additional amount, but that additional “use charge”
does not seem to vary by parcel.
July 26, 2023, Finance Committee comments - Jim Mosher Page 3 of 4
Item V.B. FINANCIAL STATEMENT AUDITOR'S COMMUNICATION
WITH THE FINANCE COMMITTEE ACTING AS THE CITY'S AUDIT
COMMITTEE
While I appreciate the City’s external auditor works under a multi-year contract, the timing of the
annual presentation to discuss “the planned scope and timing of the audit” has always been a
bit difficult for me to reconcile with the audit obligation stated in Section 1116 of the City Charter:
“The City Council shall employ at the beginning of each fiscal year, a qualified certified
public accountant who shall, at such time or times as may be specified by the City Council,
and at such other times as he or she shall determine, examine the books, records,
inventories and reports of all officers and employees who receive, handle or disburse public
funds and of all such other officers, employees or departments as the City Council may
direct. Within 270 days after the end of the fiscal year, a final audit and report shall be
submitted by such accountant to the City Council, …”
From that, it would seem the auditor was supposed to begin work on FY2022-2023 in July 2022
(a year ago), and now has 9 months (originally, “as soon as practicable after the end of the
fiscal year”) to complete a final report drawing conclusions from the work conducted during the
year ended June 30, 2023. Instead of being an ongoing operation throughout the fiscal year, as
implied by the Charter, it now seems the audit begins barely before the end of the year being
audited.
That said, I have these questions about issues not clear from the presentation:
1. Does the City’s adopted budget play a role in the audit? Or is it solely a review of the
accuracy of the City’s financial statements that appear in the ACFR?
2. If the budget does play a role, what version does the auditor have access to or base
conclusions on? (I ask because the “Adopted Budget” for FY2022-2023 posted on the
City website is materially different from the “Proposed Budget” book the public may have
thought the Council adopted, but which, as best I can tell, is no longer posted. In
particular, it contains much less detail about the allocation of expenses between the
various divisions within most of the City’s departments.)
3. During the budget adoption process, I questioned whether the FY2023-2024 budget
properly reflected the effect of “Internal Service Fund” transfers. In particular, an amount
said to represent the total of Internal Service Fund expenses is subtracted from the total
of all budgeted expenses to obtain the City’s expenditure to external parties. But the
amount subtracted appeared to be overstated, with a substantial amount of ISF
expenses possibly counted twice. Does the auditor detect and investigate such possible
issues?
4. On Slides 2 and 4, I hope it will be explained what a “single audit’ is.
July 26, 2023, Finance Committee comments - Jim Mosher Page 4 of 4
Item V.C. WORK PLAN REVIEW
In addition to the City’s Fiscal Sustainability Plan, scheduled for review on October 12, the
Committee should be aware the City is also supposed to have a similar sounding, but different,
Strategic Plan for Economic Sustainability.
The latter was intended to be a component of the General Plan adopted in 2006, and according
to the General Plan’s Implementation Program Imp 24.1, the Strategic Plan “should be dynamic
and reviewed and updated annually as a part of the City budget.” However, the Economic
Development Committee which developed the Plan no longer exists, and it has neither been
reviewed nor updated for many years. Especially considering the reference to the Strategic Plan
being reviewed as “a part of the City budget,” the Finance Committee would seem the logical
body to make a recommendation to the Council about the Plan’s continued relevance and the
City’s compliance with its General Plan.
CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5A July 26, 2023
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Mark Vukojevic, Utilities Director (949) 644-3011, mvukojevic@newportbeachca.gov
SUBJECT: 2023 Water and Wastewater Rate Studies
SUMMARY: The Utilities Department retained the consulting services of Black & Veatch Corporation to prepare the 2023 Water and Wastewater Rate Studies. The previous water rate study
and wastewater rate studies were completed in 2019 and 2017 respectively. The Finance
Committee reviewed preliminary information on May 11th. The purpose of this presentation is to review the preliminary results of the financial analysis and review the proposed rate structures, receive input, and seek the Committee’s direction to move the item to City Council for discussion and approval.
RECOMMENDED ACTION:
1. Review the water and wastewater enterprise fund financial analysis and 2023 Draft Water and Wastewater Rate Study information; Provide input to staff;
2. Forward the item to City Council for discussion and consideration.
DISCUSSION: At the May 11, 2023 Finance Committee meeting, staff discussed the current status of the
Water Enterprise Fund and the Wastewater Enterprise Fund and outlined the typical steps
and decision points for evaluating rates. Both Enterprise Fund are managed by the Utilities Department and the Finance Department. The goal of both studies was to maintain similar rate structures, develop a financial plan that corrects the structural deficit and sufficiently fund operations, capital projects and reserves. Industry inflation has put tremendous
pressure on the health of the funds. Attached to this staff report is a PowerPoint
presentation that reviews the current financials and the proposed rate increases. Staff is requesting that the Committee review the information presented, provide input to staff,
12
2023 Water & Wastewater Rate Studies July 26, 2023 Page 2 approve in concept and move the item forward to City Council for their consideration of the report and proposed water and wastewater rates adjustments.
Prepared and Submitted by:
/s/ Mark Vukojevic
_____________________________
Mark Vukojevic Utilities Director
Attachment: Attachment A - Water and Wastewater Rate Study PowerPoint Presentation
13
ITEM NO. 5A1 2023 WATER AND WASTEWATER RATE STUDIES ATTACHMENT A
STAFF PRESENTATION - ADDITIONAL MATERIALS RECEIVED
14
2023 Water & Wastewater
Rate Study
Presentation
Finance Committee
July 26, 2023
Presented by Mark Vukojevic and Consultant Black & Veatch
UTILITIES DEPARTMENT
Item No. 5A1 2023 Water & Wastewater Rate StudyAdditional Materials Received07/26/2023
15
UTILITIES DEPARTMENT 2023 Rate Studies 1
01
Maintain similar
rate structure –
(maintain simplified
customer
understanding)
02
Develop a financial
plan that corrects
the structural
deficit; and
sufficiently funds
operations, capital
and reserves
03
Move rates to
recover more fixed
business costs
Goals of the Study:
16
UTILITIES DEPARTMENT 2023 Rate Studies 2
Summary from May 11th Finance Committee:
Water and wastewater is a 24/7 community service, asset, and commodity
The systems operate as independent/segregated Enterprise Funds
The balance between fixed and variable costs
Current and future capital improvement projects are necessary
Operational & Capital costs continue to go up
Buying water, construction, materials, equipment, insurance, conservation, regulatory compliance
Rates need to recover costs, especially with inflation
* Operations * Capital Improvements * Reserves/Emergencies
Rate increases are needed to keep up with inflation
17
UTILITIES DEPARTMENT 2023 Rate Studies 3
•Monthly and Bimonthly Billing
•Fixed Charge and Use Charge
•Use Charge incentivizes conservation
Current Water Rates:
$64/month is the typical home water bill
Rate revenue: vs. Business costs:
~40 % Fixed Charges ~65 % Fixed Costs
~60% Variable Charges ~ 35% Variable Costs
Goal: Gradually adjust revenue % to better match business costs
Updated Slide 18
UTILITIES DEPARTMENT 2023 Rate Studies 4
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
19,000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
NEWPORT BEACH WATER PRODUCTION
Water Production over the years
(conservation and weather variables)
19
UTILITIES DEPARTMENT 2023 Rate Studies 5
Water: ~$1+mil Structural deficit
~$35million Revenues
~$36mil Expenses
* Water purchases $13 million
* Operations $17 million
* Capital $6 million
Escalation/Inflation Factors >5% over next years
* Water purchases
* Contracts
* CIP, labor & materials
* Electricity & Equipment
* Insurance
Current Revenues & Expenditures:
20
UTILITIES DEPARTMENT 2023 Rate Studies 6Updated Slide 21
UTILITIES DEPARTMENT 2023 Rate Studies 622
UTILITIES DEPARTMENT 2023 Rate Studies 723
7
Type Description 2024 /2028
Target
O&M Reserve 120 days of O&M $10.0/$11.5 Mil
Capital Reserve 75% of annual CIP $5.6/$6.8 Mil
Drought/
Stabilization
30% water use reduction $3.0/$3.3 Mil
$18.6/$21.6 Mil
Reserve Targets for Water:
UTILITIES DEPARTMENT 2023 Rate Studies 824
7
2024 2025 2026 2027 2028
Target $18.6 M $19.3 M $20.0 M $20.8 M $21.6 M
Proposed $17.9 M $17.6 M $18.9 M $19.8 M $19.9 M
Status Quo $17.9 M $15.5 M $11.4 M $5.4 M -$2.4 M
UTILITIES DEPARTMENT 2023 Rate Studies
Water Reserve ComparisonsWith Rate Increases:
Estimated 2028 Rate Revenue = 48% fixed & 52% variable
1025
UTILITIES DEPARTMENT 2023 Rate Studies 9
Typical Water Customer Impacts:
•2024 - $4.77 (previously approved rate study)
($1.87 fixed plus $2.90 variable)
•2025 - $5.50 Year 2, new rate study
($4.50 fixed plus $1.00 variable)
•2026 - $6.00 Year 3, new rate study
($5.00 fixed plus $1.00 variable)
•2027 - $6.00 Year 4, new rate study
($5.00 fixed plus $1.00 variable)
•2028 - $6.00 Year 5, new rate study
($5.00 fixed plus $1.00 variable)
monthly increase
26
UTILITIES DEPARTMENT 2023 Rate Studies 11
Monthly Fixed
Charge
Approved
2023
Approved
2024
Proposed
2025
Proposed
2026
Proposed
2027
Proposed
2028
5/8“ Meter *$25.22 $27.09 $ 31.59 $ 36.59 $41.59 $46.59
Use Charge $3.87 $4.16 $4.26 $4.36 $4.46 $4.56
Net Increase
(most common)$4.44 $4.77 $5.50 $6.00 $6.00 $6.00
Proposed Water Rates:
Updated Slide
$64/month is the typical home water bill
$25.22 + $38.70 = $63.92
* 5/8” meters represent 64% of accounts
27
UTILITIES DEPARTMENT 2023 Rate Studies 12
Monthly Fixed
Charge
Approved
2023
Approved
2024
Proposed
2025
Proposed
2026
Proposed
2027
Proposed
2028
5/8"25.22 27.09 31.59 36.59 41.59 46.59
1"39.09 41.99 50.07 58.31 66.53 74.75
1-1/2"73.69 79.15 96.28 112.60 128.88 145.17
2"115.23 123.76 151.73 177.74 203.71 229.66
3"305.61 328.23 405.88 476.34 546.65 616.92
4"523.69 562.45 697.00 818.37 939.48 1,060.51
6"1,112.15 1,194.45 1,482.55 1,741.30 1,999.50 2,257.50
8"1,942.91 2,086.69 2,591.56 3,044.27 3,495.99 3,947.37
Use Charge $3.87 $4.16 $4.26 $4.36 $4.46 $4.56
Net Increase
(most common)$4.44 $4.77 $5.50 $6.00 $6.00 $6.00
Proposed Water Rates:
Updated Slide 28
UTILITIES DEPARTMENT 2023 Rate Studies 13
•Monthly and Bimonthly Billing
•Fixed Charge and Use Charge
Current Wastewater Rates:
Rate revenue: vs. Business costs:
~50 % Fixed Charges 100 % Fixed Costs
~50% Variable Charges
Goal: Gradually adjust revenue % to better match business costs
$14/month is the typical home wastewater bill
Updated Slide 29
Wastewater: ~$1 mil Structural deficit
~$4.7mil Revenues
~$5.7mil Expenses
* Pump Stations
* Operations $5.1 mil operations
* Capital $600k CIP
Escalation/Inflation Factors~ 5% over next years
* Contracts
* CIP, labor and materials
* Equipment
* Insurance
UTILITIES DEPARTMENT 2023 Rate Studies 14
Current Revenues & Expenditures:
30
UTILITIES DEPARTMENT 2023 Rate Studies 15
Wastewater Capital needs:
200+ miles of pipelines
25,000 Laterals
21 Pump Stations
$1.1 Million Annual
Escalating Investment
31
13
Reserve Targets for Wastewater:
Type Description 2024/2028 Target
O&M Reserve 90 days of O&M $1.2/1.5 Mil
Capital Reserve 1-Year of CIP $1.1/1.3 Mil
$2.3/2.8 Mil
UTILITIES DEPARTMENT 2023 Rate Studies 1632
13
Wastewater Reserve ComparisonsWith Rate Increases:
2024 2025 2026 2027 2028
Target $2.3 M $2.4 M $2.5 M $2.7 M $2.8 Mil
Proposed $800k $200k $150k $800k $2.1 Mil
Status Quo $500k -$1.2 Mil -$3.3 Mil -$5.6 Mil -$8.3 Mil
UTILITIES DEPARTMENT 2023 Rate Studies
Estimated 2028 Rate Revenue = 70% fixed & 30% variable
1833
UTILITIES DEPARTMENT 2023 Rate Studies 17
Wastewater Typical Customer Impacts:
•2024 - $2.20 Year 1, new rate study
($2.00 fixed plus $0.20 variable)
•2025 - $2.50 Year 2, new rate study
($2.30 fixed plus $0.20 variable)
•2026 - $3.00 Year 3, new rate study
($2.80 fixed plus $0.20 variable)
•2027 - $3.50 Year 4, new rate study
($3.30 fixed plus $0.20 variable)
•2028 - $3.50 Year 5, new rate study
($3.50 fixed plus $0.20 variable)
monthly increase
34
UTILITIES DEPARTMENT 2023 Rate Studies 11
Monthly Fixed
Charge Existing
Proposed
2024
Proposed
2025
Proposed
2026
Proposed
2027
Proposed
2028
Up to 1“ Meter *$8.55 $10.55 $12.85 $15.65 $18.95 $22.25
Use Charge $0.51 $0.53 $0.55 $0.57 $0.59 $0.61
Net Increase
(most common)$2.20 $2.50 $3.00 $3.50 $3.50
Proposed Wastewater Rates:
Updated Slide
$14/month is the typical home wastewater bill
$8.55 + $5.10 = $13.65
* Up to 1” meters represent 92% of accounts
35
UTILITIES DEPARTMENT 2023 Rate Studies 20
Monthly Fixed
Charge Existing 2024 2025 2026 2027 2028
5/8"8.55 10.55 12.85 15.65 18.95 22.25
1"8.55 10.55 12.85 15.65 18.95 22.25
1-1/2"9.41 15.82 19.27 23.48 28.42 33.38
2"12.83 21.09 25.69 31.31 37.90 44.50
3"14.54 26.37 32.12 39.13 47.37 55.63
4"17.11 31.64 38.54 46.96 56.85 66.76
6"19.25 36.91 44.96 54.79 66.32 77.88
8"21.39 42.18 51.39 62.62 75.80 89.01
Use Charge $0.51 $0.53 $0.55 $0.57 $0.59 $0.61
Net Increase
(most common)$2.20 $2.50 $3.00 $3.50 $3.50
Proposed Wastewater Rates:
Updated Slide 36
UTILITIES DEPARTMENT 2023 Rate Studies 21
Recommendation:
•Review the Water and Wastewater Rate Study Information provided
•Provide Input to Staff regarding the rate structure and proposed rates
•Approve in concept the proposed rate structures
37
UTILITIES DEPARTMENT 2023 Rate Studies 22
Tentative Schedule:
•August 22, 2023, City Council Study Session
•Proposed Water and Sewer Rate Studies
•September 26th, City Council Meeting
•Approve Water & Wastewater Rate Study Reports
•Set Public Hearing for Rates Change for November 14th
•Authorize Mailed Public Notice (Prop 218 Compliance)
•Public Information and Outreach
•Public notices, direct mailings, utility bill messages & inserts, community meetings, City website
•November 14th, Public Hearing to amend Rates
•November 28th, 2nd Reading to amend Rates
•January 1st, 2024, Implement Water and Wastewater Rate Changes
38
ITEM NO. 5B FINANCIAL STATEMENT
AUDITOR’S COMMUNICATION WITH THE
FINANCE COMMITTEE ACTING AS THE CITY’S
AUDIT COMMITTEE
ATTACHMENT A
PRESENTATION
39
Initial Audit
Communication
July 26, 2023 40
2
Annual financial audit of City
Agreed-upon procedures applied to Gann
Limitation Worksheets
Single Audit
Not a fraud audit
41
3
Communications with Audit Committee
Conduct audit in accordance with GAAS
and GAGAS
Form an opinion on the financial
statements
42
4
Interim conducted week of June 26, 2023
Risk assessment
Internal controls
Gann limit
Final scheduled for October 2023
Substantive tests of balances
Single Audit scheduled for January 2024
43
5
Presentation of Results – January 2024
Violation of laws or regulations
Our views of accounting practices including policies, estimates and disclosures
Significant difficulties
Disagreements with management
Significant unusual transactions
Potential effects of uncorrected misstatements
Other matters
44
Questions
June 26, 2023 45
7/17/23
Scheduled Date Agenda Title Report Type Agenda Description
Wednesday, July 26, 2023
Special Meeting
Water Rate Study Results Presentation Utilities Director Mark Vukojevic will present the results of the Water and Wastewater Utilities rate study.
Rescheduled from May 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.
Workplan Review Receive and File Staff will report on the upcoming Finance Committee items.
Thursday, September 14, 2023
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, 2023.
Annual Review of Investment Policy Presentation Staff will provide a presentation regarding any changes proposed to the City's Investment Policy by staff or the City's investment advisor prior to the Investment Policy being approved by the City Council.
Rescheduled from May Internal Audit Program Update Presentation Presentation of reports, findings, and recommendations from the FY 2022-23 audit program.
Budget Amendments for Quarter Ending June 30, 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, October 12, 2023
Budget Amendments for Quarter Ending September 30, 2023 Receive and File Staff will report on the budget amendments from the prior quarter.
Fiscal Sustainability Plan Review
OPEB Actuarial Valuation Report Update Presentation Staff will provide the Committee with an overview of the Fiscal Year 2022-23 actuarial valuation report prepared by the City's actuary.
Workplan Review Receive and File Staff will report on the upcoming Finance Committee items.
Thursday, November 16, 2023
Rescheduled from October Year-End Budget Results and Surplus Allocation Presentation Staff will provide a presentation regarding the year-end budget results for FY
2022-23 and recommendations for allocation of any year-end budget surplus.
First Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected FY 2023-24 budget performance.
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.
Long Range Financial Forecast (LRFF) Update Presentation Staff will brief the Committee regarding the results of the updated LRFF analysis.
December 2023
Committee Recess
August 2023
September 2023
Committee Recess
July 2023
October 2023
November 2023
Newport Beach Finance Committee Work Plan
1
46