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HomeMy WebLinkAboutApproved Minutes - June 16, 2016Finance Committee Meeting Minutes June 16, 2016 Page 1 of 8 CITY OF NEWPORT BEACH FINANCE COMMITTEE JUNE 16, 2016 MEETING I. CALL MEETING TO ORDER The meeting was called to order at 4:00 p.m. in the Crystal Cove Conference Room, Bay 2D, 100 Civic Center Drive, Newport Beach, California 92660. II. ROLL CALL PRESENT: Council Member Tony Petros (Chair), Council Member Keith Curry, Mayor Diane Dixon, Committee Member Patti Gorczyca, Committee Member William C. O’Neill, Committee Member Larry Tucker, and Committee Member John Warner STAFF PRESENT: City Manager Dave Kiff, Finance Director/Treasurer Dan Matusiewicz, Deputy Finance Director Steve Montano, Budget Manager Susan Giangrande, Revenue Manager Evelyn Tseng, Accounting Manager Rukshana Virany, Administrative Specialist to the Finance Director Marlene Burns, Purchasing Agent Anthony Nguyen, Budget Analyst Tam Ho, Library Services Director Tim Heatherton, Administrative Manager Angela Crespi, Municipal Operations Director Mike Pisani, Assistant City Manager Carol Jacobs, Municipal Operations Director George Murdoch, Administrative Manager Cindy Owens, Recreation and Senior Services Director Laura Detweiler, Senior Services Manager Celeste Jardine- Haug, Chief Building Officer Seimone Jurjis, Systems and Admin Manager Dan Campagnolo, Deputy Community Development Director Brenda Wisniewski, Senior Accountant Theresa Schweitzer, and Deputy Recreation and Senior Services Director Sean Levin MEMBERS OF THE PUBLIC: Back Bay High School Student Julio Espinoza, Newport Harbor High School Student Jacky Gonzalez, Jim Mosher, Carl Cassidy, and Erin Payton of MGT America III. PUBLIC COMMENTS Chair Petros announced that the Council approved the budget as recommended. He commended the Committee Members for its work Jim Mosher discussed the Council’s adoption of the budget and publication of final document. He suggested the Committee review the City’s CAFR. He discussed the work plan and interviews by the auditor. He expressed concern of a potential Brown Act violation. He announced the upcoming seminar on internal controls to prevent fraud. Chair Petros closed public comments. Chair Petros stated the Finance Committee members received the CAFR and could comment as they see fit. Finance Committee Meeting Minutes June 16, 2016 Page 2 of 8 IV. CURRENT BUSINESS A. QUARTERLY ERP UPDATE Summary: Staff will provide the Committee with a progress report on the Enterprise Resource Plan project. Recommended Action: Receive and file. Deputy Finance Director Montano provided an oral report regarding the status of the ERP project. Mayor Dixon asked if there were issues with posting of the budget. Finance Director/Treasurer Matusiewicz stated it was no longer an issue. Mayor Dixon asked when program costs would be more visible. Deputy Finance Director Montano discussed the RFP for fiscal transparency software. In response to Chair Petros, Deputy Finance Director Montano stated the infrastructure and tools were in place to provide program level budgeting. He stated he would provide quarterly updates on the status. B. DEBT ISSUANCE BEST PRACTICES Summary: During the April 28, 2016, Finance Committee meeting Committee Member O’Neill asked the Committee to consider the merits of hiring a third-party consultant to assist staff implement best practices in debt issuance. Recommended Action: a) Consider whether to consult with an independent third-party agency (e.g., Orange County Auditor Controller’s office, Consultant, GFOA, a registered independent municipal advisor, or other) to either (1) review the City’s debt issuance procedures and provide recommendations to improve and incorporate best practices for debt issuance and administration into the City’s policies and procedures; (2) evaluate the economic feasibility of reducing the amount of outstanding Certificates of Participation; and/or (3) both; b) Consider the scope, desire deliverables and contractual arrangement of proposed services (hourly vs. fixed fee and not to exceed dollar value); and c) Make appropriate recommendation(s) to the City Manager. Committee Member O’Neill stated the item was not related to the matter Council Member Peotter had requested being placed on the ballot. He requested the Committee direct staff to contract with an expert to work with staff on reviewing the City’s Debt Management Policy and practices. Committee Member O’Neill asked if the current policy adhered to GFOA’s Debt Policy Best Practices. Finance Director/Treasurer Matusiewicz stated that it was indeed the framework for debt policy. Committee Member Tucker stated Policy F-6 (Debt Management) appeared to be similar to best practices. Finance Director/Treasurer Matusiewicz stated it was and had been recognized by the California Debt and Investment Advisory Committee (CDIAC) as one of the better local agency policy examples. Committee Member Tucker suggested consideration of anything missing from Policy F-6. Finance Committee Meeting Minutes June 16, 2016 Page 3 of 8 Council Member Curry concurred with Committee Member Tucker. He described other debt policy publications. He expressed pride in the City’s AAA bond rating. He stated the City’s debt policy was new and reiterated the State cited the City as an example with a good debt policy. He suggested the possibility of a review by other agencies or the Committee. He stated he did not support a consulting agreement. Mayor Dixon asked if GASB 68, accounting and financial reporting for pensions requirement, was included in the policies. Finance Director/Treasurer Matusiewicz explained that the audit opinion provides assurance that the City’s Annual Financial Statements (CAFR) were written in conformance with Generally Accepted Accounting Principles (GAAP). Council Member Curry explained that it was a disclosure and accounting issue but irrelevant to bond issues and debt policies. Mayor Dixon asked where the unfunded pension intersected with the financial policies. Chair Petros stated it was not included in a debt management policy. Mayor Dixon asked where it belonged. Chair Petros clarified that the unfunded pension liability was an accounting issue and was independent from the policy regarding debt. Committee Member Tucker stated the unfunded liability should not be ignored but did not pertain to the City’s debt practices. Committee Member Tucker suggested review of Policy F-6 for compliance with GFOA best practices. Committee Member O’Neill agreed with Committee Member Tucker regarding the need to review debt practices. Chair Petros asked if there was an opportunity to prepare an abstract to be sent to other finance directors for peer review. Finance Director/Treasurer Matusiewicz stated that it could. Committee Member Tucker suggested a subcommittee work with staff to review the policy. Committee Member Gorczyca stated she reviewed the policy and found it to be adequate. Chair Petros stated the thought was for a peer review by professional organizations or finance directors within the region. Carl Cassidy suggested sensitivity to Mayor Dixon’s comments because the public’s perception of the unfunded liability. He stated a consultant was not necessary. He discussed the talent on the committee and staff and suggested most items could be addressed at the Committee level. Finance Director/Treasurer Matusiewicz recommended the Committee separately consider a pension funding policy. Chair Petros suggested an open discussion regarding the unfunded liability, allowing the public and Committee to have an open dialogue. MOTION Chair Petros moved and Committee Member Gorczyca seconded a motion to form a subcommittee of Committee Member O’Neill and Committee Member Gorczyca to work with staff to develop an abstract to be sent to a professional organization of peers within the County for review of the City’s best practices. The motion carried unanimously. Finance Committee Meeting Minutes June 16, 2016 Page 4 of 8 Committee Member O’Neill discussed the Certificates of Participation (COPs) and debt service for the Civic Center project. He recommended the Council hire a consultant to perform the refunding analysis required by F-6. Finance Director/Treasurer Matusiewicz estimated the update to the previous analysis would cost approximately $3,000. Council Member Curry stated the bonds would never be economically refundable; therefore, there was no value in analyzing the bonds. Committee Member O’Neill suggested an independent analysis. Council Member Curry stated the original consultant had the most interest in the refunding work. He stated further analysis was a waste of money. Committee Member Tucker stated his experience was not with municipal financing, but with real estate financing, but he stated the make whole provision as it really makes better than whole. He questioned whether it made any sense to spend money on analysis. He asked staff if there was a possibility of saving money. Finance Director/Treasurer Matusiewicz stated, “No”. Committee Member Gorczyca discussed the anticipated subsidy. She suggested it be a question to pose to bond counsel the possibility of restructuring due to poor performance. Chair Petros stated Committee Member O’Neill was asking if the City should retain a consultant to perform the work under F-6. He suggested the policy did not require an outside consultant. Carl Cassidy asked if the policy required “independent” review. He stated the Committee and staff could provide a better review. MOTION Committee Member O’Neill moved and Committee Member Gorczyca seconded a motion to recommend hiring a consultant to evaluate the economic feasibility of reducing the amount of outstanding Certificates of Participation. Committee Member Gorczyca suggested a legal consultant be utilized. Committee Member O’Neill declined the amendment. Committee Member Gorczyca withdrew her second. Mayor Dixon seconded the motion. Chair Petros ruled that he had already indicated the motion died due to lack of a second. MOTION Mayor Dixon moved and Committee Member O’Neill seconded a motion to recommend hiring a consultant to evaluate the economic feasibility of reducing the amount of outstanding Certificates of Participation. Council Member Curry discussed savings with Build America bonds. He stated the analysis would be a waste of tax payer’s dollars. Committee Member Gorczyca stated she could not support a financial firm because restructuring was a legal question. Committee Member O’Neill stated the requirement was annual review. He suggested hiring someone independent of the original debt issuance. Finance Committee Meeting Minutes June 16, 2016 Page 5 of 8 Council Member Curry stated a different conclusion would not be met and it would be a waste of money. The motion failed 2-5, Chair Petros, Council Member Curry, Committee Member Warner, Committee Member Tucker and Committee Member Gorczyca dissenting. C. PENSION AND OPEB ADVISORY SERVICES Summary: During the April 28, 2016, Finance Committee meeting Committee Member Gorczyca proposed bringing on an independent actuary to assist the Council, the Committee, and staff to analyze various pension and OPEB funding and cost containment strategies. Such strategies may include a Section 115 Benefit Trust, PERS pre-payment options, improvements to the City’s OPEB program, and various incentives to reduce the pension liability. Staff recommends that the Committee discuss the merits of engaging an independent actuary or other financial professional to provide Pension and OPEB advisory services and provide staff direction as to an initial scope of services. Recommended Action: a) Consider the merits of hiring an independent actuary or other financial professional to provide various pension and OPEB advisory services; b) Consider the scope, desired deliverables and contractual arrangement of proposed services (hourly vs. fixed fee and not to exceed dollar value); and c) Make appropriate recommendation(s) to the City Manager. Committee Member Gorczyca suggested an independent actuary of the City’s Pension and OPEB liability. She discussed options outside of CalPERS to advise the City. She listed clients of one independent actuary. She stated it was the prevailing practice and recommended starting with an hourly contract, not to exceed $25,000. Council Member Curry stated the City retained an independent actuary to review OPEB. He stated he could support the recommendation if Section 115 Benefit Trust was removed. He stated the City should not speculate the stock market. Committee Member Tucker stated the recommended action was unrelated to Section 115. He concurred with Committee Member Gorczyca and supported hiring an independent actuary. Chair Petros concurred. Mayor Dixon stated the required payment to CalPERS would not change. She clarified that the suggestion review would provide possible options. Carl Cassidy agreed with annual review. Council Member Curry indicated opposition with stock market speculation. Committee Member Gorczyca stated it provided an opportunity to develop a strategy for funding the City’s pension and OPEB liabilities. Council Member Curry stated there was no benefit if it did not beat CalPERS. In response to a question posed by Committee Member Tucker, City Manager Kiff explained that an RFQ would be issued. Finance Committee Meeting Minutes June 16, 2016 Page 6 of 8 MOTION Committee Member Tucker moved and Committee Member Warner seconded a motion to hire an independent actuary to provide advice and education on pension and OPEB obligations and alternatives, initially scope on an hourly basis with a not to exceed value. The motion carried 6-1, Council Member Curry dissenting due to his stated disfavor of establishing a Section 115 Benefit Trust. D. FINANCE SUBCOMMITTEE RECOMMENDATIONS Summary: During the April 28, 2016, Finance Committee meeting Subcommittee Members presented written recommendations as to general business practices of the City. The Committee, as a whole, provided general comments on the content and quality of the report. The Committee will discuss each idea specifically and determine actions items associated with each recommendation. Recommended Action: Make recommendation(s) to the City Manager as to the next steps related to the Subcommittee Report. Committee Member Tucker suggested the Committee review each policy and determine if it wanted to consider directing staff to come up with policy changes or new policies and/or come up with other actions. Chair Petros asked if the summary reflected the parts to be considered. Finance Director/Treasurer Matusiewicz stated Recommendation A.1. would be added to the work plan to determine if the policy already existed. Committee Member Tucker stated Recommendation A.2. should be reviewed as an action item. Chair Petros agreed with the concept but expressed concern about it being tied to the development agreement. Committee Member Tucker asked if an action plan should be prepared based on the recommendations. Finance Director/Treasurer Matusiewicz suggested returning with the work plan in September and identifying the recommendations that could fit into policy. Chair Petros suggested deferring to staff to come back with a work plan that was policy related or staff action related. Committee Member Tucker stated Recommendations A.3. and B.1. should be Committee practices. He discussed Recommendation B.2. and suggested the Committee decide if it should be a policy. City Manager Kiff discussed community tolerance for outsourcing. Committee Member Tucker asked if it should be a policy or action item. Committee Member Tucker suggested Recommendation B.3, B. 4, B.5 and B.6 were action items. He stated Recommendations C.1, C.2 and C.3 were suggestions to the Council. He stated Recommendation C.4 was an action item. He stated Recommendations C.5 and C.6 were recommendations. He discussed Recommendation C.7 and stated it should be a policy. Chair Petros indicated it was already included in policies. Committee Member Tucker stated Recommendation D.1 was a suggestion. Chair Petros summarized the recommendations as actions, policies, deletions, and receive and file statements. Committee Member Tucker suggested a subcommittee to work with staff on the matter. Finance Committee Meeting Minutes June 16, 2016 Page 7 of 8 Jim Mosher expressed concern about inefficient use of staff time. He stated the cost of outsourcing was usually more expensive than anticipated. Carl Cassidy thanked the Committee for its work. He suggested the public be invited to participate in the action plan. Committee Member Tucker suggested the results of the annual valuation from CalPERS be presented to the Council prior to the budget presentation. Council Member Curry left the meeting at 5:36 p.m. Committee Member Warner requested the meeting be confined to discussion of unfunded pension liability. E. ANNUAL FEE SCHEDULE UPDATE Summary: In partnership with the City’s cost allocation plan consultant, staff reviewed and updated the city-wide cost allocation plan and direct user fee calculations for Recreation and Senior Services (RSS), Library, Finance, and Municipal Operations Department (MOD), as well as analyzed the separation of mileage costs from Fire Emergency Medical Services (EMS) fees and the establishment of flat fees for certain Community Development Department (CDD) services. The purpose of this meeting is to review staff’s recommendation to revise the Master Fee Schedule according to CPI and to review the specific changes recommended for departmental related fees. Recommended Action: Staff welcomes input and recommendations on the proposed fee schedule. Based on the input and comments from Finance Committee, Finance staff will bring the proposed recommendations to the City Council for formal action. Senior Accountant Schweitzer presented a PowerPoint summarizing the proposed changes, authority to charge the cost of services, methodology, and proposed fees and changes by department. In response to Committee Member O’Neill, Senior Accountant Schweitzer confirmed that the benefits included pensions. Chair Petros questioned the description of burden factors, including overhead. Senior Accountant Schweitzer continued the presentation. In response to Chair Petros, Senior Accountant Schweitzer explained the goal to retain the same Recreation fees. Chair Petros expressed concern with reducing fees by packaging them with revenue increasing. Revenue Manager Tseng stated it was not the intent to increase revenues by packaging fees. City Manager Kiff stated the final report will clarify actual fee decreases. In response to Committee Member O’Neill, Finance Director/Treasurer Matusiewicz stated the proposal was for Recreation to have the flexibility to modify fees based on demand. In response to City Manager Kiff, Recreation and Senior Services Director Laura Detweiler stated the fees would be approved by the City Council. Senior Accountant Schweitzer continued the presentation.