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HomeMy WebLinkAboutApproved Minutes - November 9, 2023Finance Committee Regular Meeting Minutes November 9, 2023 Page 1 of 5 CITY OF NEWPORT BEACH FINANCE COMMITTEE NOVEMBER 9, 2023 REGULAR MEETING MINUTES I. CALL MEETING TO ORDER The meeting was called to order at 3:00 p.m. II. ROLL CALL PRESENT: Will O’Neill, Chair Allen Cashion, Committee Member William Collopy, Committee Member Keith Curry, Committee Member Nancy Scarbrough, Committee Member ABSENT: Noah Blom, Mayor Joe Stapleton, Council Member (arrived at approximately 3:04 p.m.) 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; Abigail Marin, Budget Analyst; Jennifer Anderson; Purchasing & Contracts Administrator; Theresa Schweitzer, Public Works Finance/Administrative Manager; Alan Rivera, Management Fellow; and Brittany Cleberg, Administrative Assistant MEMBERS OF THE PUBLIC: Jim Mosher Charles Klobe III. PLEDGE OF ALLEGIANCE The Pledge of Allegiance was led by Committee Member Curry. IV. PUBLIC COMMENTS Chair O’Neill opened public comments on agenda and non-agenda items. Seeing none, Chair O’Neill closed public comments. V. CONSENT CALENDAR A. MINUTES OF OCTOBER 12, 2023 Recommended Action: Approve and file. MOTION: Committee Member Collopy moved to approve the minutes of October 12, 2023, seconded by Committee Member Cashion. The motion carried as follows: AYES: Cashion, Collopy, Scarbrough, O’Neill NOES: None ABSENT: Stapleton, Blom ABSTAIN: Curry Finance Committee Regular Meeting Minutes November 9, 2023 Page 2 of 5 VI. CURRENT BUSINESS A. OPEB ACTUARIAL VALUATION REPORT UPDATE Recommended Action: Receive and file. Finance Director Al-Imam provided a presentation and summary of the OPEB Actuarial Valuation Report Update as detailed in the publicly noticed agenda report. Information presented included detail on the employee benefit programs which vary by hire date, employment status and classification, implicit rate subsidy, 2023 Actuarial Valuation Report, summary of valuation results, changes in the OPEB liability, targeted funding levels required by City Council Policy F-2, overview of the CERBT Trust, 2022 Capital Market Assumptions, historical performance of the City’s Trust Account, Public Agency Retirement Services (PARS), PARS compared to CERBT, and continuing the City’s current paydown strategy. Committee and staff discussion ensued regarding impacts of implicit subsidies on active and retired employees, Governmental Accounting Standards requirements to calculate subsidies for City financial reporting purposes, and methods for calculating the City’s true unfunded OPEB liability. Finance Director Al-Imam requested input from the Finance Committee on whether all or a portion of the OPEB Trust assets should be transferred from CERBT to PARS, allowing for greater investment flexibility and risk diversification. Chair O’Neill opened public comments. Seeing none, Chair O’Neill closed public comments. In order for the Finance Committee and staff to work through in-depth questions and to develop recommendations for consideration by the full membership of the Finance Committee, Chair O’Neill formed an ad hoc subcommittee comprised of Committee Members Collopy, Curry, and Scarbrough. The ad hoc subcommittee will work with staff on various options and development of recommendations related to whether all or a portion of the OPEB Trust assets should be transferred from CERBT to PARS, allowing for greater investment flexibility and risk diversification. A report from the ad hoc subcommittee will be scheduled on a future agenda for Finance Committee review and consideration. This item was received and filed. There was no further action taken. B. CALPERS UPDATE Recommended Action: Receive and file. Finance Director Al-Imam provided an overview of the CalPERS information detailed in the publicly noticed agenda report. Information presented included Fiscal Year 2022-23 CalPERS Fiscal Status, June 30, 2022 Actuarial Valuation Reports (Published in July 2023), CalPERS Funding Risk Mitigation Policy, Comparison to Other Orange County Agencies, Pension Paydown Strategy, Roll-Forward of Valuations to June 30, 2022, Historical Investment Returns & the City’s Funded Status, Projections for the Future, Normal Cost for Active Employees, Active Employees by Benefit Tier, and Impact of Investment Return and Additional Payments. Chair O’Neill clarified that cities which issued pension obligation bonds are likely worse off at this point, given the percentage differential they have to pay to make up for the decrease in CalPERS rate of return. Committee and staff discussion ensued concerning this topic, including noting that Newport Beach is a full-service city, unlike other Orange County cities which contract for public safety services, and bears direct responsibility for payment of their public safety personnel pension obligations. Finance Committee Regular Meeting Minutes November 9, 2023 Page 3 of 5 Given the information presented, which leaned toward the negative outcome to cities who issued pension obligation bonds, Committee Member Collopy inquired if a recommendation to the City Council could be forwarded from the Finance Committee to adopt a resolution proclaiming the City will not issue pension obligation bonds as a method for addressing the unfunded pension liability. Discussion ensued regarding the implications of such action if overturned by future City Councils or the need for a City Charter amendment to stop a pension obligation bond. Finance Director Al-Imam reported the City is committed to an aggressive pension payment strategy. Committee Member Collopy stated it would be interesting to have similar pension information from the Orange County Fire Authority and Orange County Sheriff’s Department. Finance Director Al-Imam stated the City’s funding status is largely dependent on CalPERS investment returns and when returns fall short, each agency is responsible for making up the difference. Committee Member Scarbrough confirmed with staff that the 72% funded status shown on Slide 2 was the average, and Finance Director/Treasurer Al-Imam also responded the City of Newport Beach is a full-service City with pension obligations for its own public safety personnel. In comparison, cities that contract with the County of Orange for public safety are required to pay for pension related costs in the form of contractual fees; however, the liability associated with public safety pensions are not reflected on the balance sheet of those cities that contract with the County of Orange for public safety. Therefore, the comparison of cities and their funded status is not a perfect comparison since some cities contract with the county for public safety. Chair O’Neill noted the 72% is blended and includes the public safety and miscellaneous pension plans, with the miscellaneous being more funded and also having a smaller unfunded liability. The public safety plan is less than 72% and the miscellaneous is higher, with 72% being the average. Finance Director/Treasurer Al-Imam also responded that the various City retirement benefit tiers are able to be pooled as they are very similar and the City is projected to pay off its unfunded pension obligations within the next ten years. The City is still committed to paying $45 million per year, with an additional $17 million above and beyond the annual payment. Committee Member Collopy inquired whether the City would consider escalating the $45 million annual payment. Chair O’Neill responded the policy direction given by the Finance Committee to the City Manager would have to change. Discussion ensued regarding past Finance Committee direction provided to staff on this topic. Committee Member Cashion inquired whether there was a report available that shows what CalPERS has projected versus what they have achieved. Chair O’Neill explained that CalPERS projects returns over a 10-year horizon, pegging costs to cities at a certain discount rate. Committee and staff discussion ensued regarding the policy versus politics of unfunded pension liabilities, and it was noted that part of the reason the City makes a discretionary payment is that it budgets conservatively. Finance Director Al-Imam reported the positive impact to the City of its pension reform policies. He noted that it is recommended the City continue its current paydown strategy which is based on a dollar cost averaging approach where consistent contributions over the long-term are intended to minimize the risk from market fluctuations. Chair O’Neill inquired if Finance Director/Treasurer Al-Imam could provide a projection of the result of an annual $2.5 million increase to the pension contribution at either the January or February Finance Committee meeting. Finance Committee Regular Meeting Minutes November 9, 2023 Page 4 of 5 Committee and staff discussion ensued on the impacts of pension reform on the City, including comments from City Manager Leung concerning the challenges related to recruiting individuals, such as Department Directors, who would have to be hired at the Tier 2 level, despite having Tier 1 status in another agency. Chair O’Neill opened public comments. Seeing none, Chair O’Neill closed public comments. This item was received and filed. There was no further action taken. C. FISCAL SUSTAINABILITY PLAN REVIEW Recommended Action: Receive and file. Deputy Finance Director Gomez provided an overview of the Fiscal Sustainability Plan Review information detailed in the publicly noticed agenda report. He noted that on May 11, 2023, there was public comment regarding the Fiscal Sustainability Plan (FSP) and staff was requested to schedule an agenda item on the FSP for Finance Committee review and consideration. Chair O’Neill deferred to Committee Member Curry who was a member of the City Council at the time that the FSP was adopted via Resolution No. 2015-17. Committee Member Curry stated the policies adopted in the FSP have stood the test of time and continue to serve the City well. Chair O’Neill thanked Mr. Jim Mosher for his May 11, 2023 public comments concerning the FSP, which allowed for the Finance Committee to have the opportunity to review the document again. Committee Member Collopy stated he would prefer a more robust strategy from staff regarding performance measurements, especially as related to the budgeting process (Elements 8 and 9 in the FSP). Chair O’Neill inquired whether meeting attendee Jim Mosher, who made the original May 11, 2023 public comments concerning the FSP, could forward him his comments that contained hyperlinks to other documents. Chair O’Neill opened public comment. Jim Mosher stated he would forward the information to Chair O’Neill after the meeting and thanked the Finance Committee for taking the time to review the FSP. He suggested it would be a good practice to review the document periodically. Charles Klobe inquired if the City was working on having AutoNation finalize their construction in order to return to Newport Beach. He stated the project was approved at the Planning Commission but has not been moving forward. Seeing no others, Chair O’Neill closed public comments. Committee Member Scarbrough inquired whether the City has considered placing a temporary sales office in Fashion Island where sales agreements could be completed in Newport Beach. City Manager Leung responded that staff has researched the feasibility of the request and there are strict rules regarding how sales tax is allocated for the sale of autos. This item was received and filed. There was no further action taken.