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HomeMy WebLinkAboutApproved Minutes - March 15, 2018Finance Committee Meeting Minutes March 15, 2018 Page 1 of 10 CITY OF NEWPORT BEACH FINANCE COMMITTEE MARCH 15, 2018 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), Mayor Pro Tem Will O'Neill, Committee Member William Collopy, Committee Member Patti Gorczyca, Committee Member Joe Stapleton, and Committee Member Larry Tucker ABSENT: Council Member Kevin Muldoon (excused) STAFF PRESENT: City Manager Dave Kiff, Assistant City Manager Carol Jacobs, Finance Director/Treasurer Dan Matusiewicz, Deputy Director, Finance Steve Montano, Budget Manager Susan Giangrande, Fire Chief Chip Duncan, Assistant Fire Chief Jeff Boyles, Assistant Fire Chief Rob Williams, Battalion Chief Justin Carr, Battalion Chief Brian McDonough, Administrative Manager Angela Crespi, Senior Fiscal Clerk Julie Liang, Harbor Resources Manager Chris Miller, Public Works Director Dave Webb, Deputy Public Works Director Mark Vukojevic, Public Works Finance Administrative Manager Jamie Copeland, and Administrative Specialist to the Finance Director Marlene Burns MEMBER OF THE PUBLIC: Jim Mosher III. PUBLIC COMMENTS Chair Dixon opened public comments. Jim Mosher referred to the City Council’s General Plan update implementation program. He noted an item, which may be relevant to the Finance Committee, Section 24.1, adopting a strategic plan for economic sustainability. He expressed it had not been reviewed on an annual basis, as specified, nor had the impact fees to properly cover infrastructure costs. Staff was directed to report back as to the process for updating the City’s impact fees. Chair Dixon closed public comments. IV. CONSENT CALENDAR A. MINUTES OF FEBRUARY 15, 2018 Recommended Action: Approve and file. MOTION: Tucker moved, and O’Neill seconded, to approve the minutes. The motion carried (4 – 0, 1 abstention Gorczyca, Muldoon absent). Finance Committee Meeting Minutes March 15, 2018 Page 2 of 10 V. CURRENT BUSINESS A. AUDIT CLOSING Summary: The City’s external audit firm, White Nelson Diehl Evans LLP will meet with the Finance Committee to discuss the audit findings for the fiscal year ending June 30, 2017. The committee will have an opportunity to discuss any potential areas of concern and the auditors can discuss any changes in accounting standards or disclosures that were relevant for the audit year. Recommended Action: Receive and file. Mr. Callahan, White Nelson Diehl Evans, presented the audit findings for the Fiscal Year ending June 30, 2017. He mentioned the Committee should remain aware of “significant estimates,” subject to fluctuations, which are relative to the fair value of investments, the estimated value of capital assets (infrastructure assets, in particular), depreciation of capital assets, and various items related to pension contributions, liabilities, and expenses. Additionally, the claims payable information was provided. These represent the significant audit areas. There were no significant changes in methodologies, the information was consistent from year-to-year, and there were no difficulties in performing the audit. There were no disagreements with management on reporting issues or matters. Mr. Callahan noted the firm does not audit the entire CAFR; City staff is responsible for a certain portion. The audit covers the financial statements and supplementary schedules. There are eight topic areas that are discussed, and he agrees with the steps; however, his firm does not fully audit the CAFR. Committee Member Gorczyca inquired whether the audit performed was typical or included elements such as fraud auditing. Mr. Callahan stated this is a standard auditing process and he is obligated to report anything irregular; however, this is not a fraud audit. He is working with staff on other projects related to internal control standards and procedures. The financial statement audit is not an audit of internal controls; however, internal controls are taken into consideration in performing the overall audit. Committee Member Gorczyca inquired whether the audit reviewed the OPEB status as related to upcoming GASB requirements. Mr. Callahan responded the Fiscal Year 2018 financial statements will include a number for the OPEB lability and it will be reviewed with that year’s financial statements audit. Mr. Callahan noted one significant deficiency, which had to do with the pension plan and the calculation of the deferred outflow of resources related to the pension contribution line item. The reason for the adjustment, which was found by City staff, had to do with retroactive pay that occurred. From a financial reporting standpoint, it was not appropriate to list the payment as it was, and it needed to be adjusted. Mr. Callahan worked with staff, and the numbers will match going forward with what is found on the employer contributions page of the CalPERS website, as related to Newport Beach. Committee Member Tucker inquired whether the City has moved forward with review of internal controls, as directed by the Finance Committee. Finance Director Matusiewicz affirmed the audit firm would work with staff on internal controls during their interim fieldwork in the spring. The first wave of review will include electronic fund transfers, ACH, and other forms of electronic payments. The following year will include accounts payables, procedures, and transactions. Mr. Collopy expressed interest in having the Finance Committee review the scope of the internal controls review and have an opportunity to provide input, if necessary. Finance Committee Meeting Minutes March 15, 2018 Page 3 of 10 Chair Dixon referenced the May 10 Finance Committee agenda, which displayed an item related to internal control procedures. Finance Director Matusiewicz responded City staff has initiated the review of electronic transfers and payments, as well as other major processes to identify areas of potential risk. Committee Member Tucker requested the Finance Committee have an opportunity to be informed as to the areas of potential risk identified by City staff. In addition, in light of the City’s new system, it would be a good time for the Finance Committee to review procedures and be informed of how transfers and payments are conducted. Finance Deputy Director Montano stated a future agenda will feature a first report on the agreed upon procedures. The audit will test procedures and transactions and report the results. Committee Member Collopy inquired whether the Finance Committee’s review of internal controls should be placed on the agenda more than once per year. The Committee receives a monthly update on pension and internal controls are extremely important, especially in light of how often staff is meeting on this issue. Finance Director Matusiewicz reported that staff is still in the process of assessing risk and adjusting/documenting procedures in order to begin a “testing” process. Committee Member Tucker noted that once a year would be a formal review and a summary can be provided as to what staff is looking at in terms of internal controls. The auditor is also being asked to complete interim review of internal controls as additional work. This will be a continuous process. Chair Dixon requested that this is a continuous improvement process and update the Finance Committee, as necessary, at least once per year. Committee Member Collopy inquired whether the City had an internal auditor position or internal audit function. Finance Director Matusiewicz Certified Internal Auditor on staff utilized to look at external operations, such as external self-reported taxes, but spent most of last year looking at internal controls. Preference is to keep her out in the field in order to encourage taxpayer compliance. The position reports to the Revenue Manager. Committee Member Gorczyca stated a report to the City Manager or CFO would be her preferred practice. Committee Member Collopy inquired whether Mr. Callahan had seen an internal auditor for cities such as Newport Beach. Mr. Callahan stated very few have internal audit functions. In cases where there are problems, the item is typically referred to the City Manager. Chair Dixon opened public comments. Jim Mosher expressed surprise the auditors have difficultly reconciling retroactive pay, and expressed concerns, citing the California Constitution, which he alleges prohibits compensating employees for work that has already been performed. In regard to the audit, he is aware that there may have been other issues within the City’s financial reports that did not rise to the level of warranting inclusion in the auditor’s final report. He cited State Senator Moorlach suggested review of the CAFR and net position, as listed on Page 53 of the report. Mr. Callahan stated unrestricted net position is the availability of resources the City has going forward with no strings attached. It is negative right now because the net pension liability is having an impact. Committee Member Gorczyca stated she had similar concerns and did not understand the complication on how the City of Newport Beach scored so low on the ranking provided by Senator Moorlach. Finance Committee Meeting Minutes March 15, 2018 Page 4 of 10 Seeing no other individuals who elected to make comments, the Chair closed public comments. There was unanimous consensus to receive and file this report. B. REVIEW OF THE FIRE DEPARTMENT BUDGET TO ACTUAL RESULTS Summary: In preparation of the 2018-2019 Fiscal Year budget, staff will review budget assumptions against actual results for Fiscal Year 2016-2017. Recommended Action: Receive and file. Fire Chief Chip Duncan and Administrative Manager Angela Crespi presented the staff report. A PowerPoint presentation was displayed. Salary and benefits make up approximately 82% of the Department’s budget, and uniquely, they have ten remote facilities. He mentioned maintenance and capital outlay allocations of the budget. Fiscal Year 2016-2017 included use of approximately 97.5% of the budget and the Department prides itself on consistently coming in “under-budget” overall. Chief Duncan stated the Department currently has 114 suppression employees, and there were some vacancies in the lifeguard section. The Department was at 100% staffing up until a few months ago, where a few employees did not pass the probationary period. Civilian non-sworn positions are considered under the administration portion of the budget. Mayor Pro Tem O’Neill inquired whether the 114 suppression employees included the civilian positions. Chief Duncan noted the civilian positions are separate from the suppression employees. He confirmed there were 114 sworn employees, and inquired as to how many lifeguards are in the Department. City Manager Dave Kiff reported that several of the lifeguards are sworn part-time employees. Discussion ensued as to the number of sworn full-time and part-time and how they are classified Chief Duncan explained the constant staffing policy that requires a minimum number of personnel per type of equipment. He noted the Department is fully staffed and operational 365 days a year, 24 hours per day. Vacancies must be filled to keep a piece of equipment in service. Training is a large part of their operations and mandated by law, such as OSHA. In-house training keeps costs down, while keeping staff on duty. The current year’s fire season was prolific and impacted the budget. Committee Member Stapleton inquired as to the reimbursement process for strike teams. Chief Duncan responded that paperwork is submitted to the OES, and they are reimbursed including a 10 % administrative fee, which is returned to the General Fund. Chief Duncan provided comments on Marine operations and deferred to Chief Williams as to staffing. Training is mostly done in-house while employees are on-duty. Committee Member Collopy inquired as to the cause of the 25% overtime overrun and whether it was blended. Administrative Manager Crespi responded the overtime costs are for the entire Department, primarily related to operations and constant staffing required. There were five vacancies during that particular year; however, there were savings due to the vacancies as well. Administrative Manager Crespi also confirmed there are 15 civilian positions. Committee Member Gorczyca inquired as to Fire Marshal position, especially as related to code enforcement activities. City Manager Kiff commented the position will be considered in the upcoming budget review and clarified it is the building staff that is responsible for code enforcement. Finance Committee Meeting Minutes March 15, 2018 Page 5 of 10 Committee Member Gorczyca preferred the autonomy of a separate Fire Marshal position. Mayor Pro Tem O’Neill stated Chief Duncan is the City’s Fire Marshal, although some of the functions have been moved over to the Community Development Department. Committee Member Stapleton inquired as to the Fire Department hiring probation process. Chief Duncan reviewed the hiring process which includes qualifications for hiring (EMT, academy- trained hires), driver’s license requirements, and the 18 month probationary testing program, which includes two batteries of tests (at eight months and 16 months). There are currently two probationary classes, one at month 15 and the other at month seven, each of which had a probationary hire terminated from the program for performance. Chief Duncan stressed the point of the probationary process is to ensure the hire will be successful and the organization will be safe. The terminations are usually due to an inability to perform operational duties, rather than attitude. Mr. Callahan noted the Department is back to two vacancies. Mayor Pro Tem O’Neill stated the unfunded pension liability hits the Police and Fire Departments harder than other City Departments. Their budget, especially on the benefits side, is higher than it would have been had the City Council not taken the action in 2014 to pay down the unfunded liability. Chair Dixon mentioned the inflated Transparent California numbers, which she understands will now be corrected to reflect accurate numbers. Mayor Pro Tem O’Neill stated that the budget now has the Unfunded Actuarial Liability (UAL) broken down by Department. Chief Duncan stated the paramilitary nature of the Department, which has a strict hierarchy, especially in terms of operations and budget. He described the budget and oversight procedures in the Department, including preventative maintenance to provide savings. He elaborated on the preventative maintenance strategies related to facilities and equipment. Extended warranties are purchased on higher value equipment. He also mentioned the maintenance of various equipment, including breathing apparatus and ballistic protection carried on vehicles. Committee Member Gorczyca inquired whether the Department has looked at stocking equipment in advance to take advantage of savings. Chief Duncan noted the Department does try to stock equipment as needed. Chair Dixon inquired whether the Department has systems in place to identify erratic or unusual transactions. Administrative Manager Crespi responded the Department utilizes the Tyler Munis program and the two-step invoice approval process. Purchasing card transactions are reviewed by the original purchaser, and Ms. Crespi provides a secondary review. Budget Manager Giangrande also reviews batches and credit card transactions for anomalies. A monthly report is sent to Finance Director Matusiewicz that includes any anomalies. There are fraud detection modules in the software. Administrative Manager Crepsi also offers education to the Department members on purchasing card policies. Chief Duncan detailed the cost-sharing/savings realized through their call-center partnership with the Joint Powers Authority. The Department also generates revenue, particularly through the deployment of strike teams. The Department recovers between from 99 through 112% of personnel costs. This also includes the backfill of strike team members to maintain operations in the City when the strike team is deployed. Committee Member Stapleton inquired whether the UAL payment, or a portion of it, can be included in the calculation for reimbursement for strike team members. Finance Committee Meeting Minutes March 15, 2018 Page 6 of 10 Finance Director Matusiewicz raised this issue with the members of the Governmental Accounting Standards Board. Ultimately, it can be recovered and at least today. City Manager Kiff stated that the State could also elect not to use Newport Beach employees if their costs are too high, and the employees would miss out on the training opportunity. Discussion ensued related to whether other agencies have included the UAL payment in their calculations for strike team reimbursement, and whether this has excluded other agencies from participating in those types of deployments due to their higher costs. Committee Member Gorczyca mentioned there must be some authority that articulates what costs are permissible for inclusion in the reimbursement calculation. Finance Director Matusiewicz spoke to a member of the GASB board member, to inquire why it is not classified like debt service. Currently all unfunded liability payments are considered a cost of the current operating period. Committee Member Collopy stated that if this is the case, then it should be billable. Finance Director Matusiewicz stated that other agencies may not be as aggressive as Newport Beach in paying off the unfunded liability. Chair Dixon suggested running the numbers so as not to knock the employees out of the opportunity to train, but to at least gain some reimbursement for the City’s cost of the UAL. There was consensus by the Finance Committee and agreement by City Manager Kiff to perform a cost-analysis for the reimbursements. Chief Duncan detailed the Department’s relationship with Santa Ana College, and reimbursement for average daily attendance. False alarm reimbursements are also a source of revenues. He noted the Department also receives revenue from the “GEMT” and “IGT” programs and paramedic services transports. The Department is preparing for a fee study analysis. The Department also has a write-down program, directed by Council, to reduce costs for those in need. Committee Member Gorczyca observed that more paramedics have been travelling without an engine and inquired as to whether paramedics are being allowed to travel without an engine. Chief Duncan stated there is an increase in medical calls, and she may be noticing paramedics moving out of their district to cover for another agency. Chief Duncan noted there is a large revenue source from the Junior Lifeguard program, which exceed the costs of running the program. Chief Duncan noted various upcoming projects and issues affecting the Department, including the development in the City of high-rise buildings. Additional staff will likely be necessary to deal with the complicated building systems and operational impacts. He mentioned installing the appropriate equipment, locating of ingress/egress points, and other development issues that will impact Department operations. Committee Member Collopy inquired whether Station No. 7 has capabilities that will be sufficient to respond to any needs for a high-rise facility. Chief Duncan described the history of the building and the high number of medical calls. The best augmentation for that facility will be the addition of a paramedic unit. Committee Member Gorczyca inquired whether former Redevelopment Agency (RDA) funds can be used to recover costs for the facility. City Manager Kiff noted there is not much in the way of surplus funds; most of the funds are utilized toward the County debt service on RDA debt. Chief Duncan noted the Department’s sensitivity toward vegetation and brush management. City Manager Kiff noted the City pays $300-$400 thousand per year for maintenance in certain zones. Chief Duncan mentioned the opportunity to work with Harbor Operations and a study that will be undertaken. They are also reviewing call volumes and alternate destination programs. He Finance Committee Meeting Minutes March 15, 2018 Page 7 of 10 mentioned the Health Information Exchange Act, which will place an individual’s medical information in an electronic, transferable form. The Department conducted a study on the program and is looking to make it a permanent part of operations. Chair Dixon inquired regarding the impacts on local emergency rooms, especially as it relates to the homeless and the opioids crises. Fire Assistant Chief Jeff Boyles reported that the City has a higher rate of assistance in cardiac arrest care. Chief Duncan reported on the status of the various Fire station construction projects. There was unanimous consensus to receive and file this report. C. FACILITIES FINANCIAL PLAN Summary: Review Facilities Financial Plan for financial solvency based on known Council Priorities. Recommended Action: Recommend forwarding to City Council for review and approval. Finance Director Matusiewicz presented the staff report, noting it was based on staff’s best guess of “known” City Council priorities. The proposed projects are funded through General Fund contributions and Development Agreement Fees. The debt service does start dropping in 2021, when the Library component of bonded debt will be complete. Staff expects contributions will exceed $8.5 million by 2029 and will start growing at the rate of revenue growth. At that time, approximately 3% will be dedicated to the Facilities Financial Plan (FFP). Chair Dixon stated the public should understand that development is currently at a low in Newport Beach. Finance Director Matusiewicz stated that only projects with signed Development Agreements are included in the current projections. Finance Director Matusiewicz noted the only year the City will likely not meet its target for reserve balance would be 2037, due to the proposed construction for the Police Station. Although it is unlikely to be realized, he suggested a solution to finance a portion of the cost to spread debt service over several years. Discussion ensued regarding various projects, which do not yet have signed Development Agreements. Committee Member Gorczyca inquired whether staff should include a debt service layer on top of the pension debt. Finance Director Matusiewicz stated this report is specifically for facilities, and that suggestion would be best included in the Long Range Financial Forecast. Committee Member Tucker stated this is debt voluntarily incurred. The UAL will not necessarily always go up. If there is positive growth in the stock market, the UAL may go down. Committee Member Matusiewicz stated the purpose of the Long Range Financial Forecast, is to aggregate all planned city expenditures and savings plan to determine whether the plans are feasible given long-term revenue projections. Chair Dixon inquired as to the timeline and the Finance Committee’s responsibility to advise the City Council on this matter. Finance Director Matusiewicz stated the Finance Committee should be looking at solvency and asking questions as to how items fit into the larger scheme of the budget. The City Council should make policy decisions as to which projects and programs should be ultimately implemented including the timing of building construction. He therefore suggested the Council review the list of contemplated projects first before the Finance Committee makes a judgement on the financial feasibility of the replacement plan. Finance Committee Meeting Minutes March 15, 2018 Page 8 of 10 Public Works Director Dave Webb stated that if the Finance Committee identifies facility needs in the future, it should be included so staff can start planning for the financing. Committee Member Collopy stated the Finance Committee should look at and opine on affordability. Public Works Director Webb stated staff looks at the status of facilities and adjusts the plan accordingly. Chair Dixon noted that the City Council has not yet directed staff as to which projects should be implemented. Public Works Director Webb appreciates the general direction so staff can know which facilities to look at. The process starts in January with the Finance Committee and the community, and then moves to the City Council budget discussion in March. Staff has traditionally made a recommendation from Finance, which includes review by the Finance Committee. Discussion ensued regarding the process for reviewing, planning for, and funding facility improvements and construction costs. Committee Member Tucker stated the Finance Committee is looking at general information and assisting the City Council in making the final decisions. Public Works Director Webb stated these are only planning numbers and they are adjusted as costs go up or down, including costs for construction by square foot. He mentioned projects such as Corona Del Mar, which has a relocation cost, and Lido, which does not. These are not exact numbers. Various projects were discussed; however, it was noted that the numbers presented are for long-term planning, and not as precise as the City Council budget which is adopted each year. Chair Dixon inquired whether the Finance Committee should change their review schedule. Finance Director Matusiewicz suggested that the Finance Committee would approve the financial plan for the year and have it forwarded to the City Council as part of the budget process. Committee Member Gorczyca suggested color-coding to denote whether the City is meeting targets and tracking for the financial plan for certain projects. Chair Dixon opened public comments. Mr. Jim Mosher expressed confusion over the numbering of the pages in the report. He mentioned the 5-year capital plan, which is tabbed in the Capital Improvement document, noting it is only a concept of how money should be spent. He inquired whether the two lists are coordinated. He expressed confusion as to the purpose of the plan, as it was not a commitment to proceed with particular projects. He is still unclear as to the actual 5-year plan. Finance Deputy Director Montano noted the cost-per-year aggregate, which is included in the document. Mr. Mosher inquired about the Development Fee issue and what the City should be charging for the impacts. He reviewed the Government Code, which articulated the method for entering into Development Agreements. The concept, post-Proposition 13, was an advance on property taxes, which were expected. It states the developer will be reimburse the City over time. Chair Dixon closed public comments. Finance Director Matusiewicz noted Development Impact funds have to be spent on particular purposes, such as transportation or parks, depending on their source. Committee Member Gorczyca stated that she has seen, on occasion, situations where developers must move forward on a particular project and they will be reimbursed by subsequent developers over time. Staff noted those are reimbursement agreements. There was unanimous consensus to forward the Facilities Financial Plan to the City Council. Finance Committee Meeting Minutes March 15, 2018 Page 9 of 10 D. HARBOR & BEACHES MASTER PLAN Summary: Review current Harbor & Beaches Master Plan for financial solvency based on known Council Priorities. Recommended Action: Recommend forwarding to City Council for review and approval. Finance Director Matusiewicz noted this is a recommendation from the Harbor Commission related to proposed projects. Mr. Webb commented on various discussions that occurred related to projects that are not necessarily approved, but were placed for future consideration as to not fall off the radar. Chair Dixon inquired as to the funding for the various programs. City Manager Kiff responded that there are various resolutions related to increases in marine operations fees. Chair Dixon’s point was that there is no corresponding policy that is driving the Harbor and Beaches Master Plan like the one that drives the funding for the Facilities Financial Plan. She inquired whether there should be a minimum funding threshold policy. Committee Member Tucker inquired whether the financial plans should be integrated or remain segregated, except for circumstances where funding/fees are legally tied to specific uses, such as, Tidelands revenue. He suggested that all project and programs should compete equally for General Fund dollars. Committee Member Gorczyca stated she has seen facilities financial plans that include various subsets to cover the diversity of projects. Committee Member Tucker stated there is limited control over revenues, except for Transient Occupancy Tax and Business License, to a certain degree. The Finance Committee’s responsibility is to review items where there is a higher amount of financial risk. Finance Director Matusiewicz stated that the plans should be kept separate as the stakeholders and lifecycles are different. A custom system would have to be created to facilitate the integration. Discussion ensued regarding Council Policy F-28, planning for future costs, and whether to integrate the various financial and master plans. Ultimately, it was determined that the City Council must provide the final approval for any financing and projects. Discussion ensued regarding the 3% policy to fund projects. Mayor Pro Tem O’Neill noted the policy was written pre-COP’s. There were no individuals who elected to provide public comments. There was unanimous consensus to receive and file this item. E. PENSION DISCUSSION Summary: Agenda item reserved for any discussion regarding the status of the City's pension liability. Recommended Action: Receive and file. Mayor Pro Tem O’Neill commented regarding Senator Moorlach’s position on pension liability and increases in Orange County Sheriff’s contracts for service. Committee Member Tucker commented on amounts that are shown on various balance sheets for City’s who have pension liabilities.