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HomeMy WebLinkAboutFinance Committee - May 30, 2019CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA - Final 100 Civic Center Drive - Crystal Cove Conference Room, Bay 2D Thursday, May 30, 2019 - 3:00 PM Finance Committee Members: Will O'Neill, Chair / Mayor Pro Tem Diane Dixon, Mayor Joy Brenner, Council Member William Collopy, Committee Member John Reed, Committee Member Joe Stapleton, Committee Member Larry Tucker, Committee Member Staff Members: Grace K. Leung, City Manager Dan Matusiewicz, Finance Director / Treasurer Steve Montano, Deputy Director, Finance Marlene Burns, Administrative Specialist to the Finance Director The Finance Committee meeting is subject to the Ralph M. Brown Act. Among other things, the Brown Act requires that the Finance Committee agenda be posted at least seventy-two (72) hours in advance of each regular meeting and that the public be allowed to comment on agenda items before the Committee and items not on the agenda but are within the subject matter jurisdiction of the Finance Committee. The Chair may limit public comments to a reasonable amount of time, generally three (3) minutes per person. The City of Newport Beach’s goal is to comply with the Americans with Disabilities Act (ADA) in all respects. If, as an attendee or a participant at this meeting, you will need special assistance beyond what is normally provided, we will attempt to accommodate you in every reasonable manner. Please contact Dan Matusiewicz, Finance Director, at least forty-eight (48) hours prior to the meeting to inform us of your particular needs and to determine if accommodation is feasible at (949) 644-3123 or dmatusiewicz@newportbeachca.gov. NOTICE REGARDING PRESENTATIONS REQUIRING USE OF CITY EQUIPMENT Any presentation requiring the use of the City of Newport Beach’s equipment must be submitted to the Finance Department 24 hours prior to the scheduled meeting. I.CALL MEETING TO ORDER II.ROLL CALL III.PUBLIC COMMENTS ON CONSENT CALENDAR Public comments are invited on agenda and non-agenda items generally considered to be within the subject matter jurisdiction of the Finance Committee. Speakers must limit comments to three (3) minutes. Before speaking, we invite, but do not require, you to state your name for the record. The Finance Committee has the discretion to extend or shorten the speakers’ time limit on agenda or non-agenda items, provided the time limit adjustment is applied equally to all speakers. As a courtesy, please turn cell phones off or set them in the silent mode IV.CONSENT CALENDAR May 30, 2019 Page 2 Finance Committee Meeting MINUTES OF MAY 16, 2019A. Recommended Action: Approve and file. DRAFT MINUTES 051619 V.CURRENT BUSINESS RECOMMENDATION FY 2019-20 BUDGETA. Summary: Make final recommendation to the City Council on the proposed FY 2019-20 Operating Budget and or CIP. Recommended Action: Receive and file. WORK PLAN REVIEWB. Summary: Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Recommended Action: Receive and file. ATTACHMENT A VI.FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM) VII.ADJOURNMENT Finance Committee Meeting Minutes May 16, 2019   Page 1 of 8 CITY OF NEWPORT BEACH FINANCE COMMITTEE May 16, 2019 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: Chair/Mayor Pro Tem Will O'Neill, Mayor Diane Dixon, Council Member Joy Brenner, Committee Member William Collopy, Committee Member John Reed, Committee Member Joe Stapleton, and Committee Member Larry Tucker STAFF PRESENT: City Manager Grace K. Leung, Finance Director/Treasurer Dan Matusiewicz, Deputy Director/Finance Steve Montano, Utilities Director Mark Vukojevic, Public Works Administrative and Financial Manager Jamie Copeland, Accounting Manager Rukshana Virany, Senior Accountant Theresa Schweitzer, Budget and Payroll Supervisor Shannon Espinosa, Budget Manager Susan Giangrande, Administrative Manager Angela Crespi, Budget Analyst Amy Mayfield, Utilities Field Superintendent Steffen Catron, Utilities Senior Management Analyst Joshua Rosenbaum, and Administrative Specialist to the Finance Director Marlene Burns MEMBER OF THE PUBLIC: Jim Mosher OTHER ENTITIES: Robert Callanan and Joseph Ludin (White Nelson Diehl Evans, LLP) and Steve Gagnon (Raftelis) III. PUBLIC COMMENTS Chair O'Neill opened public comments. Jim Mosher referenced an upcoming meeting of the Board of Supervisors and spoke on behalf of a person who expressed concerns regarding property taxes and how much the County receives from them. It was noted that every participating agency is different, but staff will work on getting the information. IV. CONSENT CALENDAR A. MINUTES OF APRIL 25, 2019 Recommended Action: Approve and file. MOTION: Committee Member Collopy moved, and Committee Member Stapleton seconded, to approve the minutes. The motion carried, unanimously. V. CURRENT BUSINESS Finance Committee Meeting Minutes May 16, 2019   Page 2 of 8 A. FY 2017-18 AUDIT REVIEW (WITH AUDITOR) 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 6/30/2018. 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. Bob Callanan, Audit Partner, White Nelson Diehl Evans, LLP, introduced Manager Joe Ludin and reported they had an unmodified opinion relative to the City's Financial Statements for the year ending June 30, 2018, which is the highest form of opinion provided under the Audit Standards. He described significant management estimates used in the preparation of the annual report and reported there are procedures to ensure those estimates are consistently applied and reasonable. He added there were no corrections and no audit adjustments, no disagreements with management, and upcoming changes in terms of audit procedures. Joe Ludin, Manager, White Nelson Diehl Evans, LLP, thanked staff for their help and reported this year; this was the cleanest and best statements they have ever received from a city. Brief discussion followed regarding the process for preparing the CAFR. Mr. Callanan reported the auditors are allowed to compile financial statements but need to have a certain level of independence. He noted they do not audit the internal controls of the city but noted they are responsible for gaining an understanding of the internal controls and will test them to ensure they are being followed. Additionally, they are not looking for fraud; if they come across something that is risky, they are obligated to follow it through to ensure it is not a fraud issue. What is being audited are just the financial statements. Mr. Callanan continued addressing the audit process including confirmation of 100% of cash and investments as well as debt by third-party letters to lenders or the custodian of the City's assets. Committee Member Tucker thought there had been discussions about extending the scope of the audit to include some internal controls. Mr. Callanan explained there were two areas they had ask external auditors to review in terms of agreed-upon procedures; testing one procedure a year and are hiring additional external auditors to have a more robust audit of internal controls. City Manager Leung confirmed wanting to contract professionals for an internal control review. She added the contract will be specific for an internal audit review, focusing on internal control areas that are at risk. In response to Committee Member Collopy's question, Director/Treasurer Dan Matusiewicz reported the City's current internal auditor's time would be augmented by hiring external CPA firms to help the City do more in relation to the agreed-upon internal controls. Chair O'Neill invited public comments. Jim Mosher commented on the importance of the audit and the CAFR and opined that not presenting them to City Council contributes to lack of interest in the Finance Committee. He referenced a letter from the auditor, in the CAFR that speaks to internal controls and states a separate report will be submitted relative to the subject. Chair O'Neill closed public comments. B. WATER RATE DISCUSSION Finance Committee Meeting Minutes May 16, 2019   Page 3 of 8 Summary: Staff and or consultant will provide a broad overview of the water rate study process and solicit Finance Committee input as necessary. Recommended Action: Receive and file. Chair O’Neill introduced the item noting Council approved a water-rate consultant anticipating discussions regarding increasing water rates at the end of the year needed because of increases in administrative overhead, CIP increases and the cost of water. He reported Council approved a particular Water Master Plan and the City has not increased its water rates in the last five years. He asked the Committee to review the preliminary numbers on Water Enterprise funds and deferred to Finance Director/Treasurer Dan Matusiewicz for a report. Finance Director/Treasurer Matusiewicz provided a brief overview of the Water Fund income statement illustrating changes in fortune relative to revenues and noting specific years where there was a decrease in water consumption and increase in the cost of water. He addressed the City's target reserve balance and reported the City is starting to eat into its reserves and it is now time to consider a rate increase. He pointed out contributions deemed necessary to fund the Water Capital Master Plan and other increases in expenses. He addressed capital outlays under expenditures and reported the Utilities Director and Public Works Director decide which Capital Improvement Projects are related to the Master Plan and those that are not. In response to Committee Member Collopy's question, Utilities Director Mark Vukojevic reported there are two types of projects that are being built; one is identified specifically (Capital), in the Master Plan and others that are capital expenditures but are identified as Capital, Non-Master Plan. Discussion followed regarding how capital projects are funded in the Water Enterprise budget. Finance Director/Treasurer Matusiewicz explained that similar to internal service funds, Water operations sets aside approximately $4.7 million each year. The capital side could spend some or all of the capital contribution including amounts accumulated from prior years. In reply to Committee Member Tucker's question regarding the budget for FY 2019-20, Public Works Administrative and Financial Manager Jamie Copeland provided examples of capital outlays and reported in the CIP budget, there are two components: Water Enterprise component and a Capital component and explained projects under each. The two cannot be compared without a bridge. Utilities Director Vukojevic added most of the $3.6 million is funded out of the operational reserve although it shows up as a CIP program. City Manager Leung added there is probably additional capital that needs to be incorporated to get a true budget to actual. In reply to Committee Member Tucker's question regarding not needing to return soon with another increase Finance Director/Treasurer Matusiewicz noted a new Master Plan is generated every couple of years because things come up that were not previously contemplated. Utilities Director Vukojevic reported the previous rate increase was in 2008 and Council implemented a five-year rate increase. Chair O'Neill noted ideally; the City would go to a cycle of rate increases every five years. Finance Committee Meeting Minutes May 16, 2019   Page 4 of 8 Committee Member Collopy indicated he is struggling with the definition of stabilization of reserves and Finance Director/Treasurer Matusiewicz reported in the policy, it is called a contingency and stabilization reserve, but the reserve could be used to mitigate extraordinary water cost increases. He commented on the cycle of elections and noted increases may not be palatable so there is a buildup of reserves so there is time to get to a rate increase enacted. Committee Member Collopy noted stabilization reserve has increased and Finance Director/Treasurer Matusiewicz stated it is a function of increasing operating costs (50% of operating costs). Discussion followed regarding reserves and Utilities Director Vukojevic reported the real issue is structural deficit of expenditures versus revenues and the City's expenditures are higher than revenues, exclusive of the reserve. Chair O'Neill commented on the importance of the stabilization reserve, the structural deficit, costs and the unknown political will of future Councils. City Manager Leung added the primary revenue source is water sales and stressed there cannot be volatility. Finance Director/Treasurer Matusiewicz addressed decreases in residual working capital. Committee Member Collopy noted $2.5 million was for smart meters and Utilities Director Vukojevic reported the project has not started. This year it is shown as capital outlay for the first $3 million. The remaining $6 million are in the CIP. In response to Committee Member Collopy's question regarding increases in professional services and M&O, Utilities Director Vukojevic reported there is $660,000 in the budget to start a meter replacement program. The City is not spending that money because the City is doing an Advanced Meter Infrastructure project instead. He reported general liability, electricity, chemicals and maintenance costs have increased. It was noted the cost of electricity depends on where the City gets its water. Brief discussion followed regarding average rates per resident. Committee Member Reed asked if there is a way to show money coming in or out the stabilization reserve it was noted all of the revenue comes in one category, Water Sales. Finance Director/Treasurer Matusiewicz reported the stabilization bucket is filled first and everything else is residual. He addressed contributions from the operating fund and new capital fund requirements. Utilities Director Vukojevic the Committee will review what rates may look like and noted actual numbers will be reviewed at the Committee's June meeting. He commented on financial planning for drought conditions, affordability concerns and making administration of water rates easier and deferred to the City's consultant, Steve Gagnon with Raftelis for a presentation. Mr. Gagnon displayed a PowerPoint presentation addressing steps taken in the rate study, the legal environment of rate making, pass-through provision (AB 3030), legislation having to do with water conservation and Executive Order (B3716). He addressed pricing objectives, promoting revenue stability, fixed charges, administrative ease and customer understanding. He reported the City collects 30% to 40% through fixed charges and commented on minimizing the effects of a drought on water sales. The City could increase its fixed charges to have revenue stability during a drought, but that does not promote conservation and there would be concerns with affordability. The City could develop a rate stabilization fund that can be utilized during drought conditions or the City could develop drought rates by drought stage. Finance Committee Meeting Minutes May 16, 2019   Page 5 of 8 In response to Committee Member Collopy's inquiry, Utilities Director Vukojevic confirmed the rate stabilization fund is the same as the City's stabilization reserve, but currently the City does not have a drought stabilization reserve. Staff will be recommending lowering the reserve amount and having another building block that has specific line items for droughts. Mayor Diane Dixon noted there was a drought two years ago and the City did not have a drought stabilization fund and that is what the City is now experiencing. Utilities Director Vukojevic reported the stabilization fund went down $.5 million and noted things that happen during a drought including a reduction in revenue which affects fixed costs and costs are increased to try to get drought compliance. Mr. Gagnon addressed the different ways to apply drought rates including a fixed charge and a uniform rate. Utilities Director Vukojevic addressed next steps; reported the State wants to see the drought line item; noted they want to see cities continue to conserve water and indicated staff will present the actual rate structure, models and details at the June 27, 2019, Finance Committee meeting. Everything will be included in the agenda packet for Committee Members to review prior to the next meeting. Discussion followed regarding keeping systems simple while making sure the City is in compliance with all State laws. Chair O'Neill invited public comments. Jim Mosher felt it best to ask questions in public rather than Council consulting with staff prior to the meeting. Chair O'Neill closed public comments. C. PROPOSED FY 2019-20 FOLLOW-UP MEETING Summary:  Staff will be available to answer follow-up questions on the Fiscal Year 2019-20 budget. Finance Committee may discuss their impending recommendation(s) to Council. Recommended Action: Discuss and ask questions pertaining to the Fiscal Year 2019-20 Proposed Budget as necessary. If appropriate, make written recommendation(s) to the Council concerning the City Manager's Fiscal Year 2019-20 Proposed Budget. Chair O'Neill reported this item has been discussed in the previous two meetings and this is the last meeting before a recommendation will be generated to Council on the FY 2019-20 Budget. Finance Director/Treasurer Matusiewicz presented a Summary of Other Fund Balances and a Summary of significant variances on individual line items. Chair O'Neill asked various fund balances in various facility improvement funds and assessment district funds. Finance Director/Treasurer Matusiewicz reported the City had approved funds for project design or feasibility and that excess or deficit balances could be transferred to or from the FFP. Committee Member Tucker suggested this may be better-suited for a future agenda and Chair O'Neill suggested the Committee review the restricted funds in a meeting in the fall. Mayor Dixon stated she had no idea the City has money in a West Newport Community Center Fund. Finance Committee Meeting Minutes May 16, 2019   Page 6 of 8 Finance Director/Treasurer Matusiewicz reported it is an unrestricted construction fund and in response to Council Member Dixon's question regarding the possibility of moving it to a homeless fund, Finance Director/Treasurer Matusiewicz stated it would go back to the original funding source, the FFP fund. He added that Council could direct staff to transfer balances to other programs, at its discretion. Council Member Brenner suggested leaving the money there and noted it can be returned to FFP at any time. Brief discussion followed about the possibility of using the fund for neighborhood improvements. In discussing budget variances, Finance Director/Treasurer Matusiewicz discussed variances including Intergovernmental Revenues, Property Taxes, Sales Taxes, TOT, Charges for Services, Increasing Enforcement on Short-Term lodging permits and explained the last TOT ordinance allowed the City to keep a fee for collection/remittance to the destination marketing organization. That has changed and the item could be removed, but the amount going to Visit Newport Beach related to TOT is $4.5 million. Brief discussion followed regarding the economic impact Visit Newport Beach has in the City and the possibility of auditing them. It was noted they are required to do an annual presentation to Council. Chair O'Neill noted the difficulty in determining the value of the services provided by Visit Newport Beach. At the request of Committee Member Tucker, Finance Director/Treasurer Matusiewicz reviewed budget details including the FFP funding, the Insurance Reserve Fund, Uninsured Claims, and insurance acquired that is not part of the insurance liability or Workers' Compensation. Additionally, he addressed expenditures and it was noted the City had two Human Resource divisions; one for personnel and recruiting and one for risk management. The Director would prefer to have them as one division. Finance Director/Treasurer Matusiewicz explained Finance Administration, Internal/External Audits and ramping up efforts to audit self-reported taxes. He commented on the reduction of Parking contractor expenses. Committee Member Tucker asked about the different types of services and how often the City goes out for rebidding. It was noted the City rebids, depending on the service, but it is typically between three to five years. Mayor Dixon suggested it is time to review the vehicle Replacement Fund Policy. Chair O'Neill noted benefits are increasing 4.6% and Budget Manager Susan Giangrande reported benefit pays are budgeted based on current employee profiles. Finance Director/Treasurer Matusiewicz added another large component is the City increasing the internal charge/premium charged to departments for Workers Compensation. Chair O'Neill referenced Contract Services and Professional and Contracted Services and asked about the related drops and increases. It was noted the City reduced Professional Services and hired internal staff for the Community Development Department. Chair O'Neill invited public comments. Jim Mosher commented on poor public attendance at a joint meeting and felt it was partially due to a mistake in the Daily Pilot regarding the meeting starting time and commented on the annual review of the Uptown Newport Development Agreement. Finance Committee Meeting Minutes May 16, 2019   Page 7 of 8 Chair O'Neill closed public comments. D. FINANCE SUBCOMMITTEE ON BEACON BAY MARKET STUDIES Summary: Clarification of scope and other questions. Recommended Action: Discuss. Chair O'Neill noted Committee Member Stapleton's recusal of this item, based on a financial interest of a client and departed the meeting at 4:42 p.m. Committee Member Tucker reported the subcommittee has been gathering information. He noted the association's consultants have made a series of claims and the goal is to review and understand them. The subcommittee met with staff and reported on an upcoming meeting with Former Mayor and Council Member Ed Selich who was involved in the 2012 lease update and the subcommittee wants to learn the history of he subject. He added all building permits were pulled and the subcommittee has asked a series of questions of staff and he reported after the meeting with Mr. Selich, they will be in a position to meet with homeowners. Council Member Dixon asked about resident groups and Committee Member Tucker stated they were informed the subcommittee would get back with them when it was ready. He added the assignment was narrow, but the subcommittee will be presenting a lot of information. Finance Director/Treasurer Matusiewicz added that if the City does require an appraisal, there is a stipulation that the homeowner(s) would pay for it. Committee Member Tucker felt a written report would be the best way to proceed. Chair O'Neill thanked the subcommittee for its work. Committee Member Tucker reported the Irvine Company leases were requested as well. Discussion followed regarding a market assessment, a rental survey and appraised values. Chair O'Neill invited public comments. Jim Mosher stated he looks forward to the report and commented on mooring holders. Chair O'Neill closed public comments. E. 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. At this juncture, Committee Member Stapleton returned to the meeting after his recusal from Item No. 5D, Finance Subcommittee on Beacon Bay Market Studies. Chair O'Neill reported that on May 30, 2019, the Committee will discuss recommendations from the Finance Committee to City Council. It was noted Committee Member Tucker drafted a user-friendly version of a pension primer and noted the goal is to have something that sets out the information, in layman's terms. Finance Committee Meeting Minutes May 16, 2019   Page 8 of 8 Chair O'Neill added the Finance Committee will address water rates at its meeting of June 27, 2019. Discussion followed regarding Committee Member terms. Chair O'Neill opened public comments. There was no response and Chair O'Neill closed public comments. VI. FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON- DISCUSSION ITEM) None. VII. ADJOURNMENT The Finance Committee adjourned at 4:56 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 10, 2019, at 4:23 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. Attest: ___________________________________ _____________________ Will O'Neill, Chair Date Finance Committee Finance Committee Meeting Minutes May 16, 2019 Page 2 of 8 A. FY 2017-18 AUDIT REVIEW (WITH AUDITOR) 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 6/30/2018. 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. Bob Callanan, Audit Partner, White Nelson Diehl Evans, LLP, introduced Manager Joe Ludin and reported they had an unmodified opinion relative to the City's Financial Statements for the year ending June 30, 2018, which is the highest form of opinion provided under the Audit Standards. He described significant management estimates used in the preparation of the annual report and reported there are procedures to ensure those estimates are consistently applied and reasonable. He added there were no corrections and no audit adjustments, no disagreements with management, and upcoming changes in terms of audit procedures. Joe Ludin, Manager, White Nelson Diehl Evans, LLP, thanked staff for their help and reported this year; this was the cleanest and best statements they have ever received from a city. Brief discussion followed regarding the process for preparing the CAFR. Mr. Callanan reported the auditors are allowed to compile financial statements but need to have a certain level of independence. He noted they do not audit the internal controls of the city but noted they are responsible for gaining an understanding of the internal controls and will test them to ensure they are being followed. Additionally, they are not looking for fraud; if they come across something that is risky, they are obligated to follow it through to ensure it is not a fraud issue. What is being audited are just the financial statements. Mr. Callanan continued addressing the audit process including confirmation of 100% of cash and investments as well as debt by third-party letters to lenders or the custodian of the City's assets. Committee Member Tucker recalledthought there had been discussions last year about retaining the auditors specifically to review the City’sextending the scope of the audit to include some internal controls in more detail. Mr. Callanan explained there were two areas the staffthey had ask external auditors to review in terms of agreed-upon procedures; testing one procedure a year and are hiring additional external auditors to have a more robust audit of internal controls. City Manager Leung confirmed wanting to contract professionals for an internal control review. She added the contract will be specific for an internal audit review, focusing on internal control areas that are at risk. Committee Member Tucker concurred with a more detailed look at the City’s internal controls suggested by the City Manager. In response to Committee Member Collopy's question, Director/Treasurer Dan Matusiewicz reported the City's current internal auditor's time would be augmented by hiring external CPA firms to help the City do more in relation to the agreed-upon internal controls. Chair O'Neill invited public comments. Jim Mosher commented on the importance of the audit and the CAFR and opined that not presenting them to City Council contributes to lack of interest in the Finance Committee. He referenced a letter from the auditor, in the CAFR that speaks to internal controls and states a separate report will be submitted relative to the subject. Changes proposed by Committee Member Tucker. Finance Committee Meeting Minutes May 16, 2019 Page 3 of 8 Chair O'Neill closed public comments. B. WATER RATE DISCUSSION Summary: Staff and or consultant will provide a broad overview of the water rate study process and solicit Finance Committee input as necessary. Recommended Action: Receive and file. Chair O’Neill introduced the item noting Council approved a water-rate consultant anticipating discussions regarding increasing water rates at the end of the year needed because of increases in administrative overhead, CIP increases and the cost of water. He reported Council approved a particular Water Master Plan and the City has not increased its water rates in the last five years. He asked the Committee to review the preliminary numbers on Water Enterprise funds and deferred to Finance Director/Treasurer Dan Matusiewicz for a report. Finance Director/Treasurer Matusiewicz provided a brief overview of the Water Fund income statement illustrating changes in fortune relative to revenues and noting specific years where there was a decrease in water consumption and increase in the cost of water. He addressed the City's target reserve balance and reported the City is starting to eat into its reserves and it is now time to consider a rate increase. He pointed out contributions deemed necessary to fund the Water Capital Master Plan and other increases in expenses. He addressed capital outlays under expenditures and reported the Utilities Director and Public Works Director decide which Capital Improvement Projects are related to the Master Plan and those that are not. In response to Committee Member Collopy's question, Utilities Director Mark Vukojevic reported there are two types of projects that are being built; one is identified specifically (Capital), in the Master Plan and others that are capital expenditures but are identified as Capital, Non-Master Plan. Discussion followed regarding how capital projects are funded in the Water Enterprise budget. Finance Director/Treasurer Matusiewicz explained that similar to internal service funds, Water operations sets aside approximately $4.7 million each year. The capital side could spend some or all of the capital contribution including amounts accumulated from prior years. In reply to Committee Member Tucker's question regarding the budget for FY 2019-20, Public Works Administrative and Financial Manager Jamie Copeland provided examples of capital outlays and reported in the CIP budget, there are two components: Water Enterprise component and a Capital component and explained projects under each. The two cannot be compared without a bridge. Utilities Director Vukojevic added most of the $3.6 million is funded out of the operational reserve although it shows up as a CIP program. City Manager Leung added there is probably additional capital that needs to be incorporated to get a true budget to actual. In reply to Committee Member Tucker's suggestion that the rates be set so there is not a need question regarding not needing to return too soon with another increase, Finance Director/Treasurer Matusiewicz noted a new Master Plan is generated every couple of years because things come up that were not previously contemplated. And he also noted that increases usually occur gradually over several years in this type of fund. Utilities Director Vukojevic reported the previous rate increase was in 2008 and Council implemented a five-year rate increase. Finance Committee Meeting Minutes May 16, 2019 Page 7 of 8 Jim Mosher commented on poor public attendance at a joint meeting and felt it was partially due to a mistake in the Daily Pilot regarding the meeting starting time and commented on the annual review of the Uptown Newport Development Agreement. Chair O'Neill closed public comments. D. FINANCE SUBCOMMITTEE ON BEACON BAY MARKET STUDIES Summary: Clarification of scope and other questions. Recommended Action: Discuss. Chair O'Neill noted Committee Member Stapleton's recusal of this item, based on a financial interest of a client and departed the meeting at 4:42 p.m. Committee Member Tucker reported the subcommittee has been gathering information. He noted the association's consultants have made a series of claims and the goal is to review and understand the validity of each claimthem. The subcommittee met with staff and reported on an upcoming meeting with Former Mayor and Council Member Ed Selich who was involved in the 2012 lease update. and t The subcommittee wants to learn the history of the 2012 lease negotiations he subject. He added a list of all building permits was provided by staff, as well. were pulled and tThe subcommittee has asked a series of questions of staff and the City’s consultants, KMA. Committee Member Tucker furtherand he reported that after the meeting with Mr. Selich, they subcommittee will be in a position to meet with the homeowners’ representatives. Council Member Dixon asked about resident groups and Committee Member Tucker stated they were informed the subcommittee would get back with them when it was ready. He added that while the assignment of the subcommittee was narrow, but the subcommittee will be presenting a lot moreof background information. Finance Director/Treasurer Matusiewicz added that if the City does require an appraisal, there is a stipulation that the homeowner(s) would pay for it. Committee Member Tucker felt a written report to the Council would be the best way to finalize the work of the subcommitteeproceed. Chair O'Neill thanked the subcommittee for its work. Committee Member Tucker reported the Irvine Company leases were requested as well. Discussion followed regarding a market assessment, a rental survey and appraised values. Chair O'Neill invited public comments. Jim Mosher stated he looks forward to the report and commented on mooring holders. Chair O'Neill closed public comments. E. 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. 5/24/19 Scheduled Date Agenda Title Agenda Description Council Policy F-7, Income Property, Review A subcommittee of the Finance Committee was appointed to review and recommend changes if deemed necessary to select financial policies. In continuation from the December 13, 2018, meeting, the subcommittee working with staff has made additional edits to Council Policy F-7, Income Property, in order to align policy with current practice. Pension Accrued Liability Basics The City’s CalPERS actuary, Kerry Worgan, will present the major components, assumptions and plan experience considered during the development of the pension accrued liability. Section 115 Discussion An investment advisor and major provider of Section 115 pension prefunding trusts, PFM, will discuss the pros and cons; risks and benefits; and other considerations when considering the establishment of a Section 115 pension benefit trust. Budget Amendements (Quarter Ended December 31, 2018 Receive and file a staff report on the budget amendments for the prior quarter. Work Plan Review Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Discuss Items for Future Agendas Tuesday, January 22, 2019 CITY COUNCIL STUDY SESSION Beacon Economics will present its bi-annual economic and top revenue forecast for the City of Newport Beach. Saturday, February 02, 2019 CITY COUNCIL OFF-SITE PLANNING SESSION Staff will present status and funding of major programs planned for the calendar year. Harbor and Beaches Master Plan Update Review Harbor and Beaches Master Plan for financial solvency based on known Council priorities. Facilities Financial Plan Update Review Facilities Financial Plan for financial solvency based on known Council priorities. Long-Range Financial Forecast (LRFF)Staff will provide an update to the latest version of the LRFF. Work Plan Review Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Review of Operating Budget (Harbor Department)The goal of this presentation will be to familiarize members of the Finance Committee with the elements of the FY 2018-19 Harbor Department budget, provide opportunity for questions, and to gain clarity in the funding allocations for departmental programs. Finance Subcommittee to Review Beacon Bay Market Studies At the February 12, 2019, City Council Study Session, the City Council requested the Finance Committee create a subcommittee of citizen members to review/reconcile the Beacon Bay market studies prepared by the City’s consultant, Keyser Marston Associates and the resident proponent study. The subcommittee will report back to the full City Council with its recommendations. Review of Revenue Assumptions Staff will provide of an overview for revenue assumptions for the FY 2019-20 Proposed Budget. Work Plan Review Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, April 25, 2019 Proposed FY 2019-20 Budget Overview Staff will provide an overview of the Proposed FY 2019-20 Operating Budget. Budget Amendments for Quarter Ending March 31, 2019 Staff will report on the budget amendments for the prior quarter. Work Plan Review Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Tuesday, May 14, 2019 JOINT CITY COUNCIL/FINANCE COMMITTEE MEETING Thursday, May 16, 2019 FY 2017-18 Audit Review (with Auditor)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 6/30/2018. 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. Water Review Discussion Staff and or consultant will provide a broad overview of the water rate study process and solicit Finance Committee input as necessary. Proposed FY 2019-20 Follow-Up Meeting Staff will be available to answer follow-up questions on the Fiscal Year 2019-20 budget. Finance Committee may discuss their impending recommendation(s) to Council. Finance Subcommittee on Beacon Bay Market Studies Clarification of scope and other questions. Work Plan Review Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, May 30, 2019 Recommendation FY 2019-20 Budget Make final recommendation to the City Council on the proposed FY 2019-20 Operating Budget and or CIP. Work Plan Review Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, June 27, 2019 Unfunded Pension Liability - Primer for Members of the Public Staff will explain how defined benefit pension programs in California work, the drivers that impact the City's unfunded liability, and solutions implemented to lower pension costs to the taxpayer. Work Plan Review Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. City of Newport Beach Finance Committee Work Plan 2018-19 January February March April Thursday, March 14, 2019 Thursday, February 14, 2019 Thursday, January 17, 2019 June May I:\Users\FIN\Shared\Admin\Finance Committee\WORKPLAN\2019\2019 FC Workplan 1