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HomeMy WebLinkAboutApproved Minutes - May 11, 2017Finance Committee Meeting Minutes May 11, 2017 Page 1 of 7 CITY OF NEWPORT BEACH FINANCE COMMITTEE MAY 11, 2017 MEETING MINUTES I. CALL MEETING TO ORDER The meeting was called to order at 3:00 p.m. in the Crystal Cove Conference Room, Bay 2D, 100 Civic Center Drive, Newport Beach, California 92660. II. ROLL CALL PRESENT: Council Member Diane Dixon (Chair), Committee Member William Collopy, Committee Member Patti Gorczyca, Council Member Will O’Neill, and Committee Member Larry Tucker ABSENT (EXCUSED): Mayor Kevin Muldoon and Committee Member Joe Stapleton STAFF PRESENT: City Manager Dave Kiff, Assistant City Manager Carol Jacobs, Deputy City Manager Rob Houston, Finance Director/Treasurer Dan Matusiewicz, Deputy Finance Director Steve Montano, Budget Manager Susan Giangrande, Purchasing Agent Anthony Nguyen, Public Works/Finance Administrative Manager Jaime Copeland, Interim Fire Chief Chip Duncan, Accounting Manager Rukshana Virany, Budget Analyst, Shannon Espinoza, Fire Administrative Manager Angela Velazquez, Public Works Director Dave Webb, Budget Analyst Tam Ho, Budget Analyst Katherine Warnke-Carpenter, and Administrative Specialist Teri Craig III. PUBLIC COMMENTS None. IV. CONSENT CALENDAR A. MINUTES OF APRIL 27, 2017 Recommended Action: Approve and file. Discussion ensued regarding accuracy of minutes and whether they should be verbatim or action type minutes. Chair Dixon stated the burden was on each member to ensure their comments were accurately reflected. MOTION Committee Member Gorczyca moved and Committee Member Tucker seconded a motion to approve the corrected minutes of April 27, 2017. The motion carried 4-1-2, Council Member O'Neill abstaining and Committee Member Stapleton and Mayor Muldoon absent. V. CURRENT BUSINESS A. REVIEW OF FISCAL YEAR 2017-2018 PROPOSED BUDGET Summary: Staff will provide an overview of the Proposed Fiscal Year 2017-2018 Operating Budget and/or CIP. Recommended Action: Finance Committee Meeting Minutes May 11, 2017 Page 2 of 7 Review and comment on City Manager recommendations and Finance Committee’s desired next steps. City Manager Kiff presented highlights of the revenues in various categories. In response to Council Member O'Neill, City Manager Kiff stated the parking lot at Corona del Mar was owned by State Beaches. In response to Chair Dixon, Budget Manager Giangrande explained a revenue title referring to mobile home space rentals, Account 551052. Council Member O'Neill requested clarification on property transfer tax. Finance Director/Treasurer Matusiewicz clarified the revenue source was a documentary excise tax, not a true property tax and indicated it would be moved into other taxes. City Manager Kiff discussed Page R1 and the year over year comparison. Council Member O'Neill asked how the Transient Occupancy Tax (TOT) was projected. Finance Director/Treasurer Matusiewicz stated the impact on revenue was a developing topic that was being watched. Council Member O'Neill suggested the anticipated TOT revenue was overly optimistic. Finance Director/Treasurer Matusiewicz agreed but stated that revenue estimates, in their entirety, were generally conservative. Chair Dixon discussed a recent meeting at which hotel trends were discussed. Finance Director/Treasurer Matusiewicz stated he attended the Board meetings at which he would receive information from hotel general managers. He stated staff would be watching TOT closely and a midyear budget adjustment could be made if necessary. Deputy Finance Director Montano discussed his review of tax receipts in preparation of the budget. City Manager Kiff stated staff continually reviewed the numbers. Committee Member Collopy asked if it would be prudent to take a $2-4 million discount on revenues. City Manager Kiff stated that was not unreasonable but could be doubling up with the 25 percent contingency reserve. Committee Member Collopy suggested a revenue reserve. City Manager Kiff discussed means of reducing costs if the revenues were not as anticipated. Committee Member Tucker stated the City was in a good position and probably was not in need of a revenue reserve this year. Committee Member Collopy suggested the cost reserve be managed more tightly. Council Member O'Neill discussed the impact on the unfunded pension liability if the City were to place funds in a revenue reserve. He asked how fee based classes doubled. Budget Manager Giangrande stated part of the $900,000 was from Marina Park. Budget Analyst Ho stated a portion was reallocated to other divisions and included boating. In response to Chair Dixon, Council Member O'Neill explained that a revenue reserve could be established or the pension payment reduced. Finance Director/Treasurer Matusiewicz acknowledged the travel ban’s potential effect on tourism, as well as the e-commerce impact on brick and mortar retail sales tax. Committee Member Collopy stated he mentioned the possibility of a revenue reserve to start the discussion, which had occurred. He discussed the recognized risk to revenue. Finance Director/Treasurer Matusiewicz stated the work plan included a future sensitivity analysis on the revenues, as part of sizing reserve policies. Finance Committee Meeting Minutes May 11, 2017 Page 3 of 7 Committee Member Gorczyca discussed the inclusion in the work plan of a global review of reserves to identify exposures, necessary protection levels and use of insurance. City Manager Kiff discussed the Tideland Fund, including mooring fees. In response to Committee Member Collopy, City Manager Kiff explained the use of money and property. Committee Member Collopy stated the caption was unclear. City Manager Kiff reviewed special taxes and fund sources. Committee Member Tucker asked for more information on the $5.4 million under Federal Highway Bridge Program, R-8. Public Works/Finance Administrative Manager Copeland discussed the $8 million grant for the Park Avenue Bridge and estimated $5.4 million reimbursement. City Manager Kiff discussed revenue under R-10 including Newport Uptown and past developer fees. He explained the expenditure sections. Committee Member Collopy asked about the 10 percent increase on Police Patrol and Fire Operations. Budget Manager Giangrande explained the effect of increasing pension costs on police and fire department budgets In response to Committee Member Collopy, City Manager Kiff stated pension expenditures were included in salaries and benefits category of expenditures. Finance Director/Treasurer Matusiewicz stated the pension expenditures included the cost of the current period, amortization of unfunded liability and a net reduction for employee contributions. He explained the UAL and GASB Board opinion categorizing all pension expenditures as a current expense, which he disagreed with. Committee Member Collopy suggested it not be included in the department budgets. Chair Dixon discussed transperancy.gov and the appearance of high salaries due to inclusion of unfunded liability. Committee Member Collopy expressed concern with inclusion of the unfunded liability in salaries & benefits. Committee Member Gorczyca discussed the bearing on operating reserve and total pension cost. In response to Chair Dixon, City Manager Kiff stated the amounts were broken down in the detail section. Committee Member Gorczyca stated the employee contribution was not visible. Finance Director/Treasurer Matusiewicz recounted a prior discussion with a Governmental Accounting Standards Board member regarding the appropriateness of the Pension UAL’s classification as an expenditure of the current operating period. Committee Member Tucker stated the figures distorted the per capita salaries. Chair Dixon recommended requesting the process be changed. City Manager Kiff stated the transmittal letter explained the actual numbers. Finance Director/Treasurer Matusiewicz stated he would continue to lobby for a change to the current accounting standards. Council Member O'Neill discussed the transmittal letter and public facing information. In response to Council Member O'Neill, Budget Manager Giangrande explained D85, Traffic Finance Committee Meeting Minutes May 11, 2017 Page 4 of 7 Division Benefits, including the cafeteria allowance, normal employee and employer pension costs, required unfunded liability payment to PERs, and newly created discretionary UAL object codes. In response to Committee Member Collopy, Budget Manager Giangrande stated the UAL was prorated across departments. In response to Committee Member Collopy, Deputy Finance Director Montano stated a report could be generated to isolate the UAL. Committee Member Gorczyca stated some agencies isolate a debt category for long term financial planning. Deputy Finance Director Montano stated the City had that. City Manager Kiff discussed the positions, salary, benefits, and specialty pay. He reviewed overtime pay and contracts. He summarized internal services including MOD and IT employees. Council Member O'Neill discussed a recent $500,000 Police expense and prior savings for that expense. City Manager Kiff discussed the debt service, CDBG and COP for the Civic Center. In response to Chair Dixon, Budget Manager Giangrande explained retiree medical, dental and vision costs. City Manager Kiff explained the process of preparing the budget and supplemental budget requests. In response to Chair Dixon, Finance Director/Treasurer Matusiewicz explained the Park in Lieu Funds generated from new development. City Manager Kiff reviewed the fund balance tabs including reserves, non-spendable, restricted, committed and $47.5 million for emergency use to be decided by the Council. Committee Member Collopy stated he did not have an issue with a 25 percent reserve. City Manager Kiff discussed the possibility of a 115 Trust. Committee Member Gorczyca stated it was necessary to determine the reserve protection needs. In response to Council Member O'Neill, Finance Director/Treasurer Matusiewicz discussed the estimated year end fund balance. He explained the Uptown Newport Development Agreement and anticipated payments. He explained the $17 million transferred out for various capital project expenditures. In response to Committee Member Gorczyca, Finance Director/Treasurer Matusiewicz discussed payment of debt service. Finance Director/Treasurer Matusiewicz stated ending fund balances were usually understated due to conservative budgeting. In response to Committee Member Gorczyca, Budget Manager Giangrande discussed the City Attorney’s outside counsel budget. Finance Director/Treasurer Matusiewicz explained the claims and judgement internal service fund with a premium charged to each department. He differentiated the former expenditures from legal advisory services. Finance Committee Meeting Minutes May 11, 2017 Page 5 of 7 Committee Member Collopy clarified that specific judgements were not allocated to the offending department. He discussed the $6 million settlement. Committee Member Tucker discussed property and sales tax. Finance Director/Treasurer Matusiewicz reported on the recent sales tax figures in which general consumer goods were trending downward. Deputy Finance Director Montano reviewed the sales tax summary and general consumer goods as the second largest category. Finance Director/Treasurer Matusiewicz explained the pool allocation of sales tax. In response to Committee Member Gorczyca, Deputy Finance Director Montano stated the cluster of high end auto dealers helped establish Newport Beach as the 4th highest in the County. Committee Member Tucker stated the City’s exposure to decline of retail sales of soft goods was not as high. He discussed TOT and property tax. In response to Committee Member Tucker, Finance Director/Treasurer Matusiewicz discussed the potential of double counting costs with respect to internal service funds. There were no public comments. City Manager Kiff discussed the next steps at the joint City Council/Finance Committee meeting. Council Member O'Neill anticipated the Finance Committee would make its recommendation to the Council at the next Finance Committee meeting. B. PENSION DISCUSSION Summary: Agenda item reserved for any discussion regarding the status of the City's pension liability and/or the proposed budgetary pension funding approach, including a discussion of the potential use of a Section 115 prefunding trust specific to the City’s pension liability management. Recommended Action: Discuss and comment. Finance Director/Treasurer Matusiewicz provided an update on various payment levels for the City to amortize its unfunded liability. In response to Chair Dixon, Finance Director/Treasurer Matusiewicz explained that staff proposed a level payment of $33.8 million, slightly smaller than desired, in order to present a balanced budget. Chair Dixon requested a chart depicting the impact of employer pension liability on the General Fund since 2008. Committee Member Collopy asked how much of what the City spent was on pension liability. Council Member O'Neill discussed budget figures and pension costs. Chair Dixon wanted the public to understand that pension costs were taking an increasingly larger share of discretionary general fund dollars. Council Member O'Neill discussed the information he provided on unfunded pension liability and General Fund revenue when explaining the budget to the public. Chair Dixon suggested a pie chart to tell the story. Finance Committee Meeting Minutes May 11, 2017 Page 6 of 7 Committee Member Gorczyca suggested a graphic to display the rate of increase of revenue and pension liability. In response to Committee Member Tucker, Finance Director/Treasurer Matusiewicz discussed the payment on the UAL. In response to Chair Dixon, Finance Director/Treasurer Matusiewicz explained the substantial annual losses created if PERS earned only 4 percent on $900 million. Committee Member Tucker thanked staff for presenting the information. There were no public comments. C. UPDATE ON LONG-TERM FINANCIAL FORECAST Summary: Staff will review with the Committee the updates of the high-level long-term financial forecast including future assumptions and other key elements of the City’s finances. Recommended Action: Review and comment. Deputy Finance Director Montano presented the 20-year Fiscal Forecast for years 2018-2037. Finance Director/Treasurer Matusiewicz stated other benefits had been dialed back to 3 percent despite a much higher historical annual growth rate. Deputy Finance Director Montano discussed the known or likely events and need to continually update the model. Finance Director/Treasurer Matusiewicz discussed the use of level payments to the unfunded pension liability. In response to Committee Member Collopy, Finance Director/Treasurer Matusiewicz stated the chart depicted a level payment. Committee Member Gorczyca requested information from the 20 year projections prepared by John Bartel for other agencies. She discussed the potential for new liabilities over the next 5- 10 years and stated the assumptions were too optimistic. Deputy Finance Director Montano reviewed the substantial financial commitments and projected surpluses. In response to Chair Dixon, Deputy Finance Director Montano explained the $6 million allocation to the Harbor capital plan for 2018. Committee Member Tucker discussed residential opportunities and money needs. Chair Dixon asked about the surplus in past years. Deputy Finance Director Montano stated he budgeted 3 percent of salaries. There were no public comments. D. REVIEW OF FINANCE COMMITTEE WORK PLAN Summary: Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Recommended Action: