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HomeMy WebLinkAboutApproved Minutes - May 10, 2018Finance Committee Meeting Minutes May 10, 2018 Page 1 of 9 CITY OF NEWPORT BEACH FINANCE COMMITTEE MAY 10, 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 Joe Stapleton, and Committee Member Larry Tucker ABSENT: Council Member Kevin Muldoon (excused) and Committee Member Patti Gorczyca (excused) STAFF PRESENT: City Manager Dave Kiff, Assistant City Manager Carol Jacobs, Finance Director/Treasurer Dan Matusiewicz, Deputy Finance Director Steve Montano, Budget Manager Susan Giangrande, Fire Chief Chip Duncan, Public Works Finance Administrator Jamie Copeland, Angela Crespi, Budget and Payroll Supervisor Shannon Espinoza, Senior Accountant Theresa Schweitzer, 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 expressed concern with the lack of background material for the public to review in advance of today’s meeting. Noting there were no other members of the public who elected to speak on this item, Chair Dixon closed public comments. IV. CONSENT CALENDAR A. MINUTES OF APRIL 12, 2018 Recommended Action: Approve and file. MOTION: Committee Member Tucker moved, and Committee Member Collopy seconded, to approve the minutes, as revised. The motion carried (5 – 0, Muldoon, Gorczyca absent). V. CURRENT BUSINESS A. FINANCE COMMITTEE BUDGET REVIEW Summary: The Finance Committee has had the opportunity to review the City Manager’s 2018-2019 proposed Budget documents and a brief power point presentation. Staff will provide a high- level variance analysis to the Committee members and will address certain questions raised Finance Committee Meeting Minutes May 10, 2018 Page 2 of 9 by the Finance Committee during the April meeting. Staff will be available to answer any further questions the Committee may have pertaining to the 2018-2019 City Manager Proposed Budget. Recommended Action: Discuss and ask questions as necessary. Finance Director Matusiewicz provided an introduction noting the purpose of the agenda item was to address any specific questions and follow up on questions the Finance Committee members may have on various budget-related topics. Committee Member Tucker inquired regarding pension tiers. Staff responded there are approximately 75% active employees in Tier I (classic), 9% are transfers (Tier II - classic members transferred from outside agencies), and 119 current PEPRA employees. Some cities have adopted a Tier II system, and some have not, which may place Newport Beach in a difficult recruitment position in future years, especially for high-level positions requiring extensive or technical experience. High value candidates may not want to transfer to Newport if they are faced with a lower tier, reduce their pension benefit. City Manager Kiff stated that there has not yet been difficulty in recruitment overall due to Tier II and PEPRA. However, in future years, the decision for candidates to come to Newport Beach will likely factor more heavily on quality of life, rather than the level of benefits. Fire Chief Duncan commented the Fire Department has not had difficulty recruiting quality candidates due to the new pension formulas. Chair Dixon inquired as to the rate of attrition for classic Tier I employees. Finance Director Matusiewicz presented a slide, which detailed the decline in the number of classic employees over time. Currently, there is an approximate 5.8% attrition rate per year for the miscellaneous plan. City Manager Kiff has allowed the Police Department, on a case-by-case basis, to bring in lateral employees (Tier II) to fill positions requiring specialized training and experience. Committee Member Collopy inquired as to why the information presented did not cover the years in-between 2016 and 2019, as that information would support the understanding of trends. Chair Dixon inquired as to the benefit of utilizing actuarial numbers versus headcount numbers in analyzing costs related to personnel and pensions. Finance Director Matusiewicz stated the years in between 2016 and 2019 are not used in calculating a compound annual growth/attrition rate and that actuarial data was used in lieu for payroll records because the information was simply readily available. Finance Director Matusiewicz presented a slide detailing the General Liability and Workers Compensation trends. The cash balance for Workers Compensation is more stable while the cash balance for General Liability tends to be more volatile. Committee Member Collopy inquired as to the factor utilized to establish the Workers Compensation reserve fund. Finance Director Matusiewicz stated he establishes the baseline target by utilizing actual claim results (20 years). As a result of doing business in a particular year (i.e., the year in which a claim occurs), there are costs that may be paid out related to that claim over several years. The actuary projects loss based upon expected and actual claims paid, and recommend a confidence level for cities to be able to plan financially for actual costs which may vary significantly from expected costs. Previous Finance Committees have selected a 75% confidence level. Finance Director Matusiewicz further noted there are two existing situations, which were not included in the information under analysis by the actuary. With regard to this information, City staff is making a separate accounting for the claims not included in the valuation. One claim was a previously settled claim, and the other matter still pending. For budget purposes, he conservatively recommends using the Finance Department projection. He further explained that the reserve fund is funded by Departments contribution rates based on claims experience. Finance Committee Meeting Minutes May 10, 2018 Page 3 of 9 He also relies on cash transfers to fund short-falls that appear to be anomalies. Overall, he increased the amount charged to Departments, which is in line with the increasing trend for liability. Cash infusions are utilized to cover shortfalls on a one-time basis. Mayor Pro Tem O’Neill cautioned that certain liability information cannot be discussed outside of closed session. Generally, it was discussed that there could be an opportunity for the reallocation of funds based upon future scenarios. Finance Director Matusiewicz prefers to continue the process of funding liability to be at 100% of the target to reach the 75% confidence level in the liability reserve. Committee Member Tucker inquired regarding the 6.5% increase in the General Liability fund budget. Finance Director Matusiewicz responded this increase is based upon the potential outflow for the year for attorney’s fees and paying out claims versus to the amount charged to departments annually. Committee Member Collopy inquired as to why prior Finance Committees settled upon the 75% confidence level. Finance Director Matusiewicz responded that the actuary recommends a range at least a 70 to 85% confidence level for the liability reserve and the Finance Committee picked 75% somewhat arbitrarily as the target. Finance Director Matusiewicz stated there will now be an annual vs. bi-annual actuarial valuation based the volatility and severity of claims the City has incurred lately. Committee Member Tucker inquired why this was not part of the reserve study. Finance Director Matusiewicz noted the City pays an actuary to determine the amount the City should set-aside each year for liability costs. The GFOA study will cover catastrophic circumstances. Finance Director Matusiewicz stated the City is responsible for the first $500,000, per event. Committee Member Collopy inquired whether the actuary’s analysis includes Workers Compensation. Finance Director Matusiewicz responded the actuary provide a separate valuation for General Liability and Workers Compensation. Committee Member Collopy expressed support for ensuring the correct number is budgeted to responsibly address the City’s liability costs. Finance Director Matusiewicz stated he is recommending a conservative number based upon information known to City staff. The long- term target for Workers Compensation is $19 million, and current working capital is $16 million. Finance Director Matusiewicz stated Workers Compensation claims tend to be slower paying and the gap does not present as much of a concern as does the General Liability volatility. Committee Member Collopy received affirmation that each Department is paying into the fund annually and shortfalls are covered by reserves. Finance Director Matusiewicz is increasing the rate charge to each Department by approximately $1 million; however, this is still short of the actuary’s recommendation. Chair Dixon inquired as to the proposed increases for the upcoming fiscal year. Finance Director Matusiewicz responded $3.4 million is being set-aside annually for Workers Compensation. Discussion ensued regarding the presumptive job-related nature of certain claims. Chair Dixon affirmed there are significant impacts related to costs paid out in claims by public agencies, and whether these costs could potentially affect other City programs and services. Committee Member Tucker expressed concern that the numbers are increasing and inquired as to causes, especially in regard to legislation. City Manager Kiff responded that there is a presumptiveness of certain work activities, and there is limited control by the City or its medical consultants. Most claims are for safety-related positions. Finance Director Matusiewicz detailed the various claim trends. Finance Committee Meeting Minutes May 10, 2018 Page 4 of 9 City Manager Kiff detailed the presumptive nature of certain claims, including the impact of judicial and legislative action, which is directly translatable to a payable claim. He described various scenarios. Discussion ensued regarding the City’s involvement at the legislative level, through organizations such as the League of California Cities, and other joint efforts by local cities, to address presumptive claims. City Manager Kiff stated that subrogation of claims are part of the City’s Workers Compensation activities. Finance Director Matusiewicz reviewed revenue comparisons and variances on City-wide funds. There are currently no cost of living adjustments or vacancy savings factored into the proposed budget. Committee Member Collopy inquired as to the amount of the City’s merit increases in the proposed budget. City Manager Kiff responded there is not a separate merit budget, as employee step increases are part of the annual budgeting process. Chair Dixon affirmed code enforcement activities related to short-term rentals and various revenue sources. She inquired as to the ongoing process for these revenue generating activities. Finance Director Matusiewicz noted City staffing-up proactively to uncover non-reported short-term lodging activities and other self-reported business activities, which can generate revenue. Committee Member Collopy inquired as to the agreement with the School District for law enforcement patrol around schools and requested the City consider formalizing those types of service through a specific agreement. City Manager Kiff stated there is a formal agreement for the School Resource Officers. They are a resource at the school, and not assigned to patrol. Their role is to proactively work within the school population. The additional officers would spend more time around the school during the opening and release time. He does understand there is an interest in exploring establishing a stronger role for officers at the school and this matter will be discussed at the City Council meeting on May 22, 2018. Committee Member Stapleton inquired as to the decrease in business tax and Finance Director Matusiewicz responded that there was a cut back on staffing resulting in a decline in revenues. Staff is proposing a staff person dedicated to enhance compliance in this area. Committee Member Collopy and Chair Dixon discussed and expressed interest in remaining competitive in tax revenue, particularly the Transiency Occupancy Tax (TOT). Chair Dixon requested a comparative analysis of the TOT rates for other cities in the region. Discussion ensued regarding the status of various hotels remodels and additional room inventory coming back online in the community. Chair Dixon opened public comments. Jim Mosher expressed concern regarding understanding the percent change in the budget documentation provided. Deputy Finance Director Steve Montano noted there was a formatting error in the printed version. The PowerPoint slide reflects the correct formatting. Committee Member Collopy inquired as to the greatest concern the City Manager has regarding the proposed Fiscal Year 2018-2019 budget. City Manager Kiff supports the proposed budget and is comfortable with the City’s position on pensions. He does not have concern pension funding will impact service delivery in other operational areas. He is always concerned about adding new positions; however, he does acknowledge the new PEPRA formula allows the City to bring in new employees to address specific services. He does urge caution in relation to the Court’s recent decision regarding contract employees, which, if interpreted to the extreme, could result in a determination that contractors are actually City employees. If it is a City function, there is an argument the contractors are City employees. City Manager Kiff noted there are existing independent contractors who are now being brought in- Finance Committee Meeting Minutes May 10, 2018 Page 5 of 9 house as employees. Chair Dixon requested this matter be monitored and brought back to the Committee for review. Chair Dixon inquired as to any reduction in services as a result of the additional pension paydown programs. She does support further accelerated payments. City Manager Kiff does not believe services are shortchanged as the result of the pension payments. The City staff is currently at the maximum they can handle work-load wise and he is cautious about balancing resources and service delivery expectations. Committee Member Collopy is very interested in the results of the reserve study, and is hopeful the results will allow the City to free up any funds that are available to redirect to other needs. Jim Mosher expressed concern with correlating the adopted budget with the breakdown that is available on the City’s website, particularly as related to employee costs. He inquired if there is a relationship between the City’s management structure and the organization of the budget and whether the public was aware of the organizational restructure that is being proposed for the City. Finance Director Matusiewicz responded staff will likely include the net difference of the employee costs as related to the proposed restructuring as a revision to the proposed budget. He referred to the upcoming Joint Meeting of the City Council/Finance Committee where proposed revisions will be reviewed. Committee Member Collopy inquired as to costs related to any proposed reorganization of City organizational structure. City Manager Kiff noted various proposed changes in the organization structure, included information regarding revenue increase potential, and a net cost increase to the budget of approximately $180,000 to $200,000. A three-year plan will be proposed relative to operations and revenue. The Department changes will be on the checklist. Chair Dixon stated the City Council had been made aware of the net costs and gave preliminary direction at a previous City Council meeting. The PowerPoint Presentation and audio for the meeting are now live on-demand via the City’s website for the public’s review. Noting there were no further members of the public who elected to speak on this item, Chair Dixon closed public comments. There was no further action taken on this item. B. LONG RANGE FINANCIAL FORECAST Summary: Staff will provide a preview and update on the latest draft of our new Long Range Financial Forecast. Recommended Action: Receive and file. Deputy Finance Director Montano demonstrated the new PFM Whitebirch long range forecasting software program, which allows for analysis of various assumptions, including growth, recession, and special circumstances, as related to the City’s long-range financial planning. He demonstrated the “what-if” scenario capabilities and other alternatives regarding baselines. Deputy Finance Director Montano generally addressed the impacts of various financial factors, including adopted Memorandum of Understanding with bargaining units. Committee Member Collopy inquired as to the purpose of the software in terms of the duties and responsibilities of staff and the Finance Committee. Deputy Finance Director Montano Finance Committee Meeting Minutes May 10, 2018 Page 6 of 9 Montano stated the software allows for confirmation staff is operating and planning in the “right” direction, especially in regard to pension funding decisions. Finance Director Matusiewicz confirmed the City is ramping up pension contributions to the appropriate level and ramp-up contributions for the Harbor and Beaches Capital Plan. In the first years of the ramp-up, staff will be utilizing the surplus to balance the budget; however, this is not the plan for future years. The software’s modeling feature allows for viewing various scenarios and confirms staff’s projections. He suggested the software be utilized to inform the budget planning process on an annual basis, rather than monthly review, and suggested an annual Fall review. In response to Committee Member Collopy, City Manager Kiff confirmed the surplus is composed of approximately 60% from expense savings and 40% from excess revenues. Mayor Pro Tem O’Neill confirmed the City is not facing real structural deficits, and that conservative planning results in a surplus. Discussion ensued regarding revenue projections. Chair Dixon opened public comments. Noting there were no members of the public who elected to speak on this item, Chair Dixon closed public comments. There was no further action taken on this item. Chair Dixon excused herself from the meeting (4:36 p.m.) and Mayor Pro Tem O’Neill presided over the remainder of the meeting. C. AGREED UPON PROCEDURES (AUP) ON INTERNAL CONTROLS Summary: Staff will provide an oral update on AUP performed by City auditors, White Nelson Diehl Evans. The intent of the AUP is to test the City’s internal control processes and procedures of Wire Transfers and certain other electronic payments. Recommended Action: Receive and file. Finance Director Matusiewicz provided a brief report. The auditors spent two days with City staff to ensure internal controls were robust. They will return with a report and further work on internal controls. The report will be presented to the Finance Committee and upon recommendation of the Committee, the staff will forward information to the City Council. Mayor Pro Tem O’Neill opened public comments. Noting there were no members of the public who elected to speak on this item, Mayor Pro Tem O’Neill closed public comments. There was no further action taken on this item. D. ASSESSMENT DISTRICT (AD) 117 UPDATE Summary: Staff will provide an oral update on the progress of AD 117. This AD was formed by property owners within the area bounded by Bayside Drive, Avocado Ave, Coast Highway and Carnation Avenue with the intent to underground overhead utilities. Property owners were provided the option of paying their assessment in cash. The balance of the assessment will be financed by the City secured by the real property of the property owners. This is “No-Commitment Debt” meaning neither the faith nor credit of the City of the Newport Beach will be pledged as collateral or as a further backstop for the proposed financing. Recommended Action: Receive and file. Finance Committee Meeting Minutes May 10, 2018 Page 7 of 9 Finance Director Matusiewicz noted several undergrounding financing projects had costs come in higher than expected as compared to the amount voted upon by property owners. Previous Finance Committee’s have not wanted to review smaller finance smaller financings and assessment districts, but staff wanted to inform the committee as relative to the $4 million project since the last assessment district financing was in 2012. Property owners have the option of paying their portion in full, or financing balances through special assessments. There is no commitment on the part of the City, as this is debt secured solely on land-secured financing. One-hundred percent of the direct financing costs are absorbed by approximately 250 homes. There is no action required by the Finance Committee other than to receive and file the information. Mayor Pro Tem O’Neill opened public comments. Noting there were no individuals who elected to speak on this item, Mayor Pro Tem O’Neill closed public comments. There was no further action taken on this item. E. UPTOWN NEWPORT COMMUNITY FACILITIES DISTRICT (CFD) UPDATE Summary: The Uptown Newport development agreement stated that staff would work cooperatively to form a CFD to finance the undergrounding of overhead electrical power transmission lines. Staff will brief the Finance Committee on the topic as the project appears to be moving forward for Council consideration soon. The proposed financing is secured by the real property currently owned by the developer(s). The is “No-Commitment Debt” meaning neither the faith nor credit of the City of the Newport Beach will be pledged as collateral or as a further backstop for the proposed financing. Recommended Action: Receive and file. This item was continued to a future meeting due to potential lack of quorum. F. RISK BASED RESERVE STATUS UPDATE Summary: Staff will provide an oral update on the Risk Based Reserve Study being performed by the Government Finance Officers’ Association (GFOA) of the United States and Canada. Recommended Action: Receive and file Staff provided a status update regarding the risk-based reserve study. The GFOA consultant is processing the various elements of the report and is meeting with staff for preliminarily review to ensure the model’s assumptions are correct. The report is anticipated to come before the Finance Committee within the next month. Mayor Pro Tem O’Neill opened public comments. Noting there were no individuals who elected to speak on this item, Mayor Pro Tem O’Neill closed public comments. There was no further action taken on this item. G. WORK PLAN REVIEW Summary: Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Recommended Action: Receive and file The Finance Committee and staff reviewed and approved the following meeting schedule: Finance Committee Meeting Minutes May 10, 2018 Page 8 of 9 May 22, 2018, 4:30 p.m.-6:00 p.m. Joint Meeting with City Council/Finance Committee May 22, 2018 City Council meeting where the budget public hearing will be set for June 12, 2018. May 24, 2018 Finance Committee meeting where there will be a review of recommendations that will be presented to City Council, related to budget. Finance Director Matusiewicz inquired if there were any other matters the Finance Committee would like to see as part of their review of the proposed budget. Discussion ensued as to the contents of staff’s checklist, a document, which details proposed revisions/modifications to the currently proposed budget. Mayor Pro Tem O’Neill confirmed that the “checklist” is a supplement to the currently proposed budget that includes items the City Council has already agreed upon, including items such as new agreements with vendors, and other items, which have not yet been approved; however, are pending City Council review. Mayor Pro Tem O’Neill opened public comments. Jim Mosher requested clarification regarding the proposed budget and public hearing date. It was confirmed the City Council will set the initial public hearing on the budget for June 12, 2018, at which time it is anticipated the City Council will adopt the budget. The City Council does have the ability to adopt the budget at the second meeting in June, if necessary; however, they prefer to have it adopted well in advance of the June 30, 2018, deadline. Noting there were no further individuals who elected to speak on this item, Mayor Pro Tem O’Neill closed public comments. There was no further action taken on this item. VI. FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM) Chair Dixon proposed a review of any charter amendment as related to debt issuance at a future Finance Committee meeting. There was consensus from the Committee to place it on a next meeting. VII. ADJOURNMENT The Finance Committee adjourned at 4:52 p.m. to the next regular meeting of the Finance Committee. Filed with these minutes are copies of all materials distributed at the meeting. The agenda for the Regular Meeting was posted on May 7, 2018, at 1:37 p.m., in the binder and on the City Hall Electronic Board located in the entrance of the Council Chambers at 100 Civic Center Drive.