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HomeMy WebLinkAboutApproved Minutes - January 11, 2024Finance Committee Regular Meeting Minutes January 11, 2024 Page 1 of 5 CITY OF NEWPORT BEACH FINANCE COMMITTEE JANUARY 11, 2024 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, Mayor/Chair Noah Blom, Committee Member Allen Cashion, Committee Member Keith Curry, Committee Member Nancy Scarbrough, Committee Member Joe Stapleton, Mayor Pro Tem (arrived at 3:03 p.m.) ABSENT: 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; Anthony Alannouf, Budget Analyst; Jennifer Anderson; Purchasing & Contracts Administrator; Brittany Cleberg, Assistant Management Analyst MEMBERS OF THE PUBLIC: Charles Klobe III. PLEDGE OF ALLEGIANCE The Pledge of Allegiance was led by Committee Member Scarbrough. 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 NOVEMBER 9, 2023 Recommended Action: Approve and file. MOTION: Committee Member Curry moved to approve the minutes of November 9, 2023, seconded by Committee Member Cashion. The motion carried as follows: AYES: Blom, Cashion, Curry, Scarbrough, O’Neill NOES: None ABSENT: Collopy (excused), Stapleton ABSTAIN: None Finance Committee Regular Meeting Minutes January 11, 2024 Page 2 of 5 VI. CURRENT BUSINESS A. PUBLIC AGENCY RETIREMENT SERVICES OPEB TRUST Recommended Action: Review and discuss the sub-committee’s recommendation that the City establish an Other Post-Employment Benefits Trust with Public Agency Retirement Services to prefund the liability for retiree medical benefits. Finance Director/Treasurer Al-Imam gave a presentation on the Public Agency Retirement Services Other Post-Employment Benefits (OPEB) Trust. Previously, the City established an OPEB Pre-Funding Trust with California Employers’ Retiree Benefit Trust (CERBT), which is managed by CalPERS. On November 9, 2023, the Finance Committee authorized the formation of a sub-committee to evaluate and consider establishing an Other Post-Employment Benefits (OPEB) Trust with Public Agency Retirement Services (PARS). The sub-committee met with representatives from PARS and unanimously supported establishing an OPEB Trust with PARS to prefund the liability for retiree medical benefits, and to transfer the assets from the CERBT, and recommended assets be invested in the “balanced” strategy. Chair O’Neill confirmed that staff’s recommendation, based upon the sub-committee’s findings, is that the Finance Committee recommend to the City Council that the City establish an OPEB Trust with PARS to prefund the liability for retiree medical benefits and to transfer the assets from CERBT to PARS. Committee Member Scarbrough confirmed with staff that it appeared there was more flexibility afforded to the City going forward with PARS versus the CalPERS option. A straw poll was conducted in which general Finance Committee consensus was given for staff to move ahead with bringing this forward for City Council consideration. This item was received and filed. There was no further action taken. B. GENERAL FUND LONG RANGE FINANCIAL FORECAST UPDATE Recommended Action: Receive and file. Budget Manager Burguan provided an overview presentation of the General Fund Long Range Financial Forecast (LRFF). Information presented included the City is expected to be in a financially sound position over the next 20-year period and is in a strong financial position with its revenue base and reserves, Methodology for determining the LRFF, Major Assumptions, Revenue Assumptions, Expenditure Assumptions, Expenditure Growth Assumptions and Alternate Scenario Forecasting. General discussion ensued concerning the various aspects of the LRFF, including opportunities to model various scenarios, including the construction of major projects, to facilitate long-range decision-making. Additional discussion ensued concerning impacts of personnel costs, revenue growth rates, and various specific projects, such as housing, in the future and how modeling could assist in those endeavors, preparation of assumptions for revenues for the budget, the impacts of entitlements over the next ten years, the impacts of City Council decision-making on personnel matters, and examples of additional financial forecasting, including potential extra contributions to CalPERS. It was noted that staff does not include any assumptions outside of what has been directed by the City Council as related to the forecasting presented in the LRFF, including accounting for potential increases to personnel, other than including a general percentage of compensation growth. It was confirmed by staff that negotiations with the City’s established collective bargaining units will commence in 2025. Finance Committee Regular Meeting Minutes January 11, 2024 Page 3 of 5 Chair O’Neill noted the Finance Committee can review the model to discuss various assumptions or scenarios, such as the implications of new capital improvement projects and associated personnel to provide operations for that project once completed, however City staff has stated that the LRFF does not include anything at this time that the City Council has not approved, because those are policy goals within the City Council’s purview. Committee Member Scarbrough expressed interest in modeling certain scenarios at the Finance Committee level, as the City is currently entitling projects. Staff confirmed that the Finance Committee would have to provide direction in order to move forward with any modeling scenario as an exercise-only. Discussion ensued among Committee Members and staff concerning the implications of the various City Long-Range plans to ensure the City Council is paying attention to matters they know will be long-term expenses. There was general interest among the Finance Committee to utilize the model to test various assumptions. Committee Member Scarbrough stated there are a number of projects related to the City’s Housing Element, including properties that are entitled, which have revenue streams and impacts associated with them. Discussion ensued noting that there are costs and revenues associated with housing projects, and the importance of recognizing the unpredictability of the timing of development. City staff noted that at the November 2023 meeting, it was requested that staff model the impact of adding $2.5 million to the annual CalPERS UAL payment after the OPEB liability is paid off. Staff modeled this and found that if the annual UAL payment to CalPERS is increased by $2.5 million to a total of $47.5 million annually, that the City’s liability is paid down one year earlier than currently projected, and saves the city approximately $7 million over the life of the liability, assuming CalPERS meets its projected discount rate of 6.8%. Finance Director/Treasurer Al-Imam stated he would lean towards infrastructure needs at this time, rather than investing the additional surplus funds into the CalPERS UAL. Overall, the General Fund is projected to be in a strong financial position over the next 20 years, however there are some challenges ahead, including the CalPERS investment return volatility and the variability in the costs of construction for capital improvement projects. 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. REVIEW OF THE LOS ANGELES COUNTY AND ORANGE COUNTY INVESTMENT POOLS Recommended Action: Receive and file. Finance Director/Treasurer Al-Imam presented an overview of the Los Angeles and Orange County Investment Pools. Information presented included a review of each County’s respective Investment Policy, and analysis of portfolio characteristics. As a result, it is staff’s recommendation that the Los Angeles County Investment Pool be removed as an authorized investment option when the Investment Policy is reviewed by the City Council due to a variety of factors, including the extended duration of weighted average days to maturity, which is three times longer than LAIF. Committee Member Curry provided some historical detail concerning the Los Angeles County Pool, stated that the former distrust of Orange County (due to bankruptcy proceedings several decades prior) had been overcome, and noted Orange County now has a responsible Treasurer. Chair O’Neill confirmed that the reason not to add in the Orange County Investment Pool is simply because the administration of it does not have utility for the City’s own financial bookkeeping. Finance Committee Regular Meeting Minutes January 11, 2024 Page 4 of 5 Chair O’Neill requested the item return to the Committee as soon as practical with the recommended change to remove the Los Angeles County Investment Pool. As this was not a voting item at this meeting, a straw pool was conducted, with unanimous consensus, agreeing with staff’s recommendation as listed in the publicly noticed agenda report. 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. D. FINANCIAL STATEMENT AUDIT RESULTS AND RELATED COMMUNICATION Recommended Action: Receive and file. Finance Director/Treasurer Al-Imam introduced Marc Davis, Davis Farr LLP, who provided a summary overview of the Financial Statement Audit Results and Related Communication update. Information presented included the scope of the audit, including the annual financial audit of the City, single audit of Federal financial assistance, and agreed-upon procedures applied to Gann limit, management responsibilities, auditor responsibilities to express opinion on financial statements, conduct audit in accordance with Generally Accepted Accounting Principles, and plan and perform audit to obtain reasonable, not absolute, assurance that financial statements are free from material misstatement, whether due to fraud or error. Mr. Davis reported that the auditor issued an “unmodified opinion,” which is a clean audit opinion, which is what the City wants to see. There were three risk components that were included in the audit, which were the new Government Accounting Standards Board (GASB) Standard No. 96, Subscription-Based Information Technology Arrangements, capital assets additions related to construction in progress, and compliance with Federal grant requirements. Estimates used in preparing the audit included the pension liability, OPEB liability, and claims payable, all which were found to be reasonable and have a sound basis. In response to Committee Member Cashion, Finance Director/Treasurer Al-Imam stated that the City tests various internal systems and controls as part of the audit process each year, including different policies and procedures. Committee Member Curry inquired if the auditor found anything during the course of the review that the Finance Committee should be aware of or any questions that the Committee should ask of him to understand the audit and audit process. Mr. Davis responded they reach out to the Committee and a different individual Committee Member will receive the audit questionnaire each year. There was nothing further to report this year concerning Newport Beach. Committee Member Curry inquired if the City will be preparing for any “clawbacks” concerning Federal COVID-19 related funds. Finance Director/Treasurer Al-Imam stated the stated funds are obligated toward projects, and that there was no apparent concern that funds might be “clawed back”. City Manager Leung reported that the City does have an ARPA allocation which they are planning to move into a project that will be spent in a timely manner. 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. E. BUDGET AMENDMENTS FOR QUARTER ENDING DECEMBER 31, 2023 Recommended Action: Receive and file. In response to an inquiry from Committee Member Scarbrough, staff noted that the item she referred to was concerning an Americans with Disabilities Act (ADA) matter managed by the Community Development Department, with revenue going into restricted programs.