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HomeMy WebLinkAboutFinance Committee - October 10, 2019CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA - Final 100 Civic Center Drive - Crystal Cove Conference Room, Bay 2D Thursday, October 10, 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 October 10, 2019 Page 2 Finance Committee Meeting MINUTES OF JUNE 27, 2019A. Recommended Action: Approve and file. DRAFT MINUTES 062719 V.CURRENT BUSINESS USE OF CITY PROPERTY AT LESS THAN FAIR MARKET VALUEA. Summary: At the March 14, 2019, Finance Committee meeting, Council Member Brenner requested a report regarding the value of the properties rented for charitable purposes and expressed a desire to see a Finance Policy on how often the City should conduct a market analysis of the leased properties. Chair O’Neill recommended an item be placed on a future agenda to discuss a potential F-Policy update and requested a discussion with Community Development Department staff. Recommended Action: Review the list of properties and agreements with less than open fair market value rent, and provide input to staff. STAFF REPORT ATTACHMENT A ATTACHMENT B ATTACHMENT C TOT, CHARTER TAX AND OTHER AUDITS UPDATEB. Summary: Staff will update the Committee on the TOT, charter tax and other audits performed to date. Recommended Action: Receive and file. STAFF REPORT ATTACHMENT A October 10, 2019 Page 3 Finance Committee Meeting PENSION BASICS PRIMERC. Summary: The Committee will acknowledge Committee Member Tucker's pension basics primer to orient new members of the Finance Committee. Recommended Action: Receive and file. ATTACHMENT A ECONOMIC CONTRIBUTION OF NEWPORT BEACH TO THE ORANGE COUNTY ECONOMY D. Summary: Beacon Economics identifies the role that the City of Newport Beach plays in Orange County’s economy. Recommended Action: Receive and file. STAFF REPORT ATTACHMENT A BUDGET AMENDMENTS FOR QUARTER ENDING JUNE 30, 2019 AND SEPTEMBER 30, 2019 E. Summary: Staff will report on budget amendments for the prior quarters. Recommended Action: Receive and file. STAFF REPORT ATTACHMENT A ATTACHMENT B DISCUSS WHICH COUNCIL POLICIES THE FINANCE COMMITTEE MAY BE INTERESTED IN REVIEWING DURING FY 2019-20 F. Summary: Staff and Finance Committee should discuss which financial policies may warrant a review and update at subsequent Finance Committee meetings. Examples include a compulsory review of investment policy (F-1), changes to the Reserve Policy (F-2) that may be necessitated by the newly proposed by the Water rate structure or other policies that Finance Committee members may be interested in. Recommended Action: Direct staff to bring recommended updates to financial policies if necessary. October 10, 2019 Page 4 Finance Committee Meeting INTERNAL AUDIT PROGRAMG. Summary: In the spirit of continuous improvement, the City of Newport Beach Finance Department recently selected the audit firm Moss Adams LLP (Moss Adams) to assess internal control risks, conduct performance audits and management consulting services where appropriate. Recommended Action: Receive and file. STAFF REPORT REVIEW AND DISCUSS 2019-20 FINANCE COMMITTEE WORKPLANH. Summary: Staff and Finance Committee should review the proposed work plan and adjust as necessary. Recommended Action: Review and Comment. 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 June 27, 2019 Page 1 of 5 CITY OF NEWPORT BEACH FINANCE COMMITTEE June 27, 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 (3:03 p.m.), Council Member Joy Brenner, Committee Member William Collopy, Committee Member John Reed, Committee Member Joe Stapleton, 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, Budget Manager Susan Giangrande, Water Conservation Coordinator Shane Burckle, Assistant City Engineer Michael Sinacori, Field Superintendent II Steffen Catron, Administrative Specialist to the Finance Director Marlene Burns, and Senior Management Analyst Joshua Rosenbaum MEMBERS OF THE PUBLIC: Jim Mosher OTHER ENTITIES: Sanjay Gaur and Khanh Phan of Raftelis Financial Consultants, Inc., Khanh Phan, Raftelis Financial Consultants, Inc. III. PUBLIC COMMENTS Chair O'Neill opened public comments. Jim Mosher referenced comments he made in a previous meeting regarding a discrepancy in the budget relative to how much is being budgeted to be paid to Council Members and since then he has been informed that the correct amount has been paid, according to the City Charter. Additionally, he commented on the rate paid to the Mayor (50 percent above what other Council Members receive) and noted that it complied with a previous Charter amendment. In addition, he reported the term of several Committee Members will expire soon and asked about the status of making new appointments, as last year, appointments were made before terms expire. It was noted appointments would be made during City Council's meeting on July 9, 2019. IV. CONSENT CALENDAR A. MINUTES OF MAY 30, 2019 Recommended Action: Approve and file. MOTION: Committee Member Stapleton moved, and Committee Member Tucker seconded, to approve the minutes. The motion carried, with 5 ayes – 0 noes, 2 abstentions (Brenner and Collopy). Finance Committee Meeting Minutes June 27, 2019 Page 2 of 5 V. CURRENT BUSINESS A. 2019 WATER RATE STUDY Summary: The Utilities Department retained the consulting services of Raftelis Financial Consultants Inc. to prepare the 2019 Water Rate Study. The previous water rate study was completed in 2009 and the last rate increase for water users was in 2014. The purpose of this presentation is to review the preliminary results of the draft water rate study, receive input, and seek the Committee's direction to move the item to City Council for discussion and approval. Recommended Action: a) Review the water enterprise fund financial analysis and 2019 Draft Water Rate Study information and provide input to staff; and b) Forward the item to City Council for discussion and consideration. Director/Treasurer Dan Matusiewicz introduced Sanjay Gaur, Vice President and Khanh Phan, Senior Consultant with Raftelis Financial Consultants, Inc. Chair O'Neill presented a brief overview of the item addressing the City's various funds; noting this is an enterprise fund and all revenue needs to go through an offset on expenses and that increases in water rates, must go through a Proposition 218 analysis. Sanjay Gaur, Vice President, Raftelis Financial Consultants, Inc., addressed the rate-study framework and prior meetings with Council Members and Committee Members noting direction is needed relative to Reserve policies and how much revenue the City would want to collect on fixed and variable components. He commented on the process, addressing customer impacts and developing an administrative record. Mr. Gaur provided background including the most-recent drought, dealing with droughts in the future and presented several approaches including increasing fixed costs to reflect fixed revenues, establishing a rate-stabilization fund, or implementing a dropped rate. He explained pros and cons for each approach and recommended establishing a rate-stabilization fund and considering fixed costs/fixed revenue policies. In addition, he discussed droughts and how to allocate water during drought conditions; explained lessons learned noting penalties help people cut down on their water use and some form of penalties will be needed in the next drought and commented on assessing penalties. Another approach would be to use a water budget framework and Mr. Gaur discussed the process including setting benchmark standards. Committee Member Tucker asked whether that is something Council will be voting on and Utilities Director Mark Vukojevic reported the penalty assessment is not a Proposition 218 item but rather has more to do with Code Enforcement. He noted the timing has not yet been set but it will be an independent and parallel Council consideration. Chair O'Neill added it is an alternative to having a drought rate. Committee Member Tucker noted, at this point, that the discussion is about using penalties as an alternative but that the manner in which to penalize has not been decided. Committee Member Collopy added that there has been no decision on the basis for the drought rate and in response to his inquiry; Utilities Director Mark Vukojevic stated input is needed at this point, but staff does not want to confuse the issue with too many decisions. Direction is needed in terms of either building a drought rate into the model or implementing Code Enforcement drought penalties. Brief discussion followed regarding avoiding public confusion. Finance Committee Meeting Minutes June 27, 2019 Page 3 of 5 Mr. Gaur discussed the need for a reserve to deal with cash flow risks and risks of future droughts and noted clean water, pressurizing water and transporting is costly; and maintaining the water infrastructure has costs as well. He addressed various types of reserves including operational, CIP and rate stabilization. Committee Member Collopy asked about the CIP and in response to his question, Utilities Director Mark Vukojevic reported that the City's CIP has averaged about $5 million per year and that it is increasing to $7.2 million. It was noted that the latter is the set-aside amount for future construction, not the actual dollars being expended. Mr. Gaur continued with the presentation addressing the three types of reserves recommended. Committee Member Collopy clarified it is a revenue loss reserve in the event of a drought. Mr. Gaur recommended $2.7 million as the revenue loss reserve and explained the reserve policy in terms of rate stabilization. In addition, he reported that the Council reserve policy talks about a capital reserve, but it is currently undefined. He proposed defining the capital reserve at 75 percent of the five-year CIP, or $17 million. Committee Member Collopy asked why the revenue loss reserve has to be inflationary and it was noted it is because the cost associated with purchasing the water will be increasing. Mr. Gaur presented details of the financial model, commented on challenges in purchasing water on importing systems and noted the need for some type of revenue adjustment to address those challenges. Committee Member Tucker asked for clarification of Slide 12 and Utilities Director Vukojevic explained it tracks the annual operating costs without capital spending. He added that the slide would be modified to show the whole picture including capital costs. Mr. Gaur recommended doing a 7.5 percent increase in revenues for the next five years and although reserves will be going down, the City would continue to be above the target. He added that they are looking at a five-year rate adjustment. In response to Committee Member Tucker's comment on the City spending another $14 million of the reserves during those first five years to get down to the target. Committee Member Tucker stated that there is a backlog of projects worth $13 million and that in order to land at the projected target reserves the City also needed to increase 7.5 percent in revenues. He stated it would be important to prepare a schedule that shows those increases are pass-through increases. Committee Member Tucker opined it would be helpful to account for what part of the 7.5 percent per annum for five years is because of the schedule. Discussion followed regarding whether the Committee is comfortable with the 7.5 percent, the recommended reserve levels, capital costs and fixed and variable costs. Utilities Director Vukojevic addressed another rate structure, which consists of building a pass-through into the actual rate, but noted staff is not recommending it. He opined it is better to calculate the math, upfront and show the actual rates. Assistant City Engineer Michael Sinacori interjected that it has been five years since the last rate increase and in response to his question, it was noted that with Proposition 218, a pass-through could only be five years. Mr. Gaur addressed the cost structure, different types of meters and rate options including maintaining a 31 percent fixed versus variable cost or do a slight increase to 34 percent. Finance Committee Meeting Minutes June 27, 2019 Page 4 of 5 Chair O'Neill explained that if the fixed rate is increased, substantially, people who care about the environment become upset as it takes away the incentive of people to reduce their water consumption. Mr. Gaur recommended removing $1.00 per month per unit charged for multi-family meters and commented on justifying rates, the compounding effect and various scenarios of fiscal impacts. Chair O'Neill indicated the City has to get to a point where there is a higher fixed rate (34 percent) and noted the need for public outreach to explain it in an articulate way. He added costs are going up and the City needs to be able to provide clean water in a way that revenue balances with expenses. He recommended adoption of Option 2 at 34 percent. Committee Member Tucker agreed with Chair O'Neill. Committee Member Brenner asked how a "safe" reserve could be determined. Utilities Director Vukojevic stated that the City is well above its reserve policy, currently, but it is depleting, rapidly and he explained how the new reserve amount is determined using the analogy of having a water reservoir. Having reserves allows stability, going forward. Chair O'Neill stated the target is being increased to 17 percent from 12.5 percent as a finance policy approved by Council. The goal is 17 percent but it is anticipated that after five years, it will be at 22 percent. Discussion followed regarding 2009 rate increases and spending on the CIP side. Utilities Director Vukojevic reported staff would go back and develop a history of how the 34 percent was generated. Committee Member Tucker added he would be more inclined to focus on where the money will go from $31 million to a target of $17 million, the need for rate increases in the future and a starting point could determine where the money is needed and where the excess reserve will go. Chair O'Neill opened public comments. Jim Mosher commented on the $2.7 million revenue loss reserve, based on a 30 percent drop in revenues and asked whether the drop is for one year rather than five and staff confirmed it would be 30 percent over one year or 10 percent over three years. Additionally, he stated in a Proposition 218, the City is supposed to charge the cost of providing service and suggested the City will charge more than what it costs to provide the service. He questioned how building up a reserve squares with the Prop 218 idea. He commented on fixed and variable costs and wondered if the term "fixed" is being used in two different senses, with respect to the water bill versus the water system. Chair O'Neill reported that once the rate study is generated, the discussion about reserves and the analysis of Proposition 218 would be included. In terms of fixed costs on the expenses side and the revenues side, staff explained the water enterprise fund has 55 percent of its cost is fixed and the other 45 percent is variable. On the revenue side, there is a fixed cost of 31 percent and 69 percent variable. If they were made equal, there would be a significant impact to customers. Additionally, it was noted that Proposition 218 states there must be logic and rationality regarding rates. Chair O'Neill closed public comments. MOTION: Chair O'Neill moved, and Committee Member Collopy seconded, to forward the item to City Council for discussion and consideration and recommend to City Council that it adopt rate option 2. The motion carried, unanimously, with 7 ayes – 0 noes. Finance Committee Meeting Minutes June 27, 2019 Page 5 of 5 B. 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. Chair O'Neill announced appointments for Committee Members will be made at the next City Council meeting and the Finance Committee will meet again in September, adding that notices will be sent. He thanked everyone for their service. 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 4:14 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 June 21, 2019, at 12:45 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 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5A October 10, 2019 TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Seimone Jurjis, Community Development Director 949-644-3200, sjurjis@newportbeachca.gov SUBJECT: USE OF CITY PROPERTY AT LESS THAN FAIR MARKET VALUE SUMMARY: The Finance Committee is charged with a variety of tasks including, but not limited to, reviewing and monitoring issues that may affect the financial status of the City of Newport Beach (“City”), and making recommendations to the City Council regarding amendments to financial policies. The purpose of this presentation is to review agreements for use of City-owned real property, which have rents set at less than open fair market value. At the March 14, 2019, Finance Committee meeting, Council Member Brenner requested a report regarding the value of the properties rented for charitable purposes and expressed a desire to see a Finance Policy on how often the City should conduct a market analysis of the leased properties. Chair O’Neill recommended an item be placed on a future agenda to discuss a potential F-Policy update and requested a discussion with Community Development Department staff. RECOMMENDED ACTION: Review the list of properties and agreements with less than open fair market value rent, and provide input to staff. DISCUSSION: The City owns or holds in trust a portfolio of real property assets, both income and non- income producing. The income producing properties vary in use and include residential developments, restaurants, yacht basins, commercial marinas, office space, tidelands, and telecommunications sites. The non-income producing properties in the portfolio include parks, open space, beaches, and municipal use properties like fire stations and libraries. Use of City Property at Less Than Fair Market Value October 10, 2019 Page 2 The real property portfolio is managed pursuant to City Council Policy F-7, Income Property (“Policy”) (Attachment A), which requires third parties using City-owned real property to be charged fair market value (“FMV”) rent. The Policy considers circumstances in which a property may be used for charitable or other public uses, and collecting FMV rent is not feasible or would outweigh other benefits. In such instances, the City Council shall make certain findings, outlined in the Policy, Section F, numbers 1 through 7. FMVs are based on a number of different factors that are different for each property. They include but are not limited to the zoning, location, parking availability, similar comparable properties, age of improvements, or revenue generation. The FMV of a property is established by a certified appraiser with expertise or knowledge of the type property being appraised. For discussion purposes, City staff obtained an appraisal report from an MAI (Member Appraisal Institute) certified appraiser for the Boys’ and Girls’ Club (“BGC”) property at Eastbluff Park, 2555 Vista Del Oro (Attachment B). The BGC holds a long-term lease from the City. They pay no monthly rent, but the FMV of the lease has been appraised at $55,800 per year. This is significantly less than the FMV that would be calculated for an equivalent office building. The reason for the difference in FMV is the BGC property is zoned Parks and Recreation (PR). PR zoned properties are limited in their use and, hence, have a lower FMV than a property zoned for commercial office use. The BGC originally leased the property from the City in 1971, constructed the building and gymnasium, and in exchange for a $1.00 per year lease, operated a boys’ club (later updated to include girls) with the facility also serving as a community center available for programming by the City’s Recreation and Senior Services Department. The City Council approved a new lease in 1998, with rent and use terms similar to the previous agreements – including the less than FMV rent, as the facility was continuing to provide a service to the community. Properties Below Fair Market Value An inventory of existing agreements for use of City-owned or managed real property, with rent set at less than FMV is provided as Attachment C. The document estimates the equivalent FMV rent for each property. This was established based on existing appraisal reports, or if an appraisal report was not applicable then staff provided an estimate. Staff requests the Committee review the information presented, and provide input and direction to staff. Prepared and Submitted by: /s/ Seimone Jurjis_____________________ Seimone Jurjis Community Development Director Use of City Property at Less Than Fair Market Value October 10, 2019 Page 3 Attachments: A. City Council Policy F-7, Income Property B. Appraisal Report, Market Rental Value Study for Newport Beach Boys and Girls Club Facility, prepared by R.P. Laurain & Associates, Inc., dated April 23, 2019 C. Real Property Inventory of Below Fair Market Value Rent ATTACHMENT A CITY COUNCIL POLICY F-7, INCOME PROPERTY F-7 INCOME AND OTHER PROPERTY The City owns and manages an extensive and valuable assortment of property including streets, parks, beaches, public buildings and service facilities. The City also owns or ground leases and/or operates a yacht basin, resort hotel and apartment property, a luxury residential development and various other income-producing properties. Much of the income property is tidelands, filled tidelands or waterfront. Unencumbered fee value of income property is substantial. As owner/manager of property, the City is the steward of a public trust, and state law requires the City to maximize its returns on state -managed property or be subject to a charge of making a gift of public funds. Nevertheless, the City Council recognizes the importance of this property not only as a revenue generator, but also as a means to provide otherwise financially less feasible uses and facilities that benefit the community. In managing its property, the City will continually evaluate the potential of all City owned property to produce revenue. This may include leasing or licensing unused land, renting vacant space, and establishing concessions in recreation areas or other similar techniques. The City Council will evaluate the appropriateness of establishing new income generating opportunities on City controlled areas using sound business principles and after receiving input from neighbors, users and the public. The policy of the City Council is that income and other property be held and managed in accordance with the following: A. Whenever a lease, license, management contract, concession or similar action regarding income property is considered by the City, an analysis shall be conducted to determine the maximum or open market value of the property. This analysis shall be conducted using appraisals or other techniques to determine the highest and best use of the property and the highest income generating use of the property. B. All negotiations regarding the lease, license, management contract, concession, or similar action regarding income property shall include review of an appraisal or analysis of the use being considered for the property conducted by a reputable and independent professional appraiser, real estate consultant, or business consultant. C. The City shall seek, whenever practical and financially advantageous, both in the short and long term, to operate or manage all property and facilities directly with City staff or contractors, provided staff have the expertise needed to competently do so, or to oversee the work of contractors. 11 F-7 D. In most negotiations regarding the lease, license, management contract, concession, or similar action regarding an income or other property, the City shall seek revenue equivalent to the open market value of the highest and best use; and, whenever practicable the City shall conduct an open bid or proposal process to ensure the highest financial return. E. However, in some circumstances the City may determine that use of a property by the public for recreational, charitable or other nonprofit purpose is preferred and has considerable public support, in which case the City may determine that non- financial benefits justify not maximizing revenue from such property. In such circumstances, the City has a vested interest in ensuring that the lessee of such property operates the activities conducted on or from the property in the manner that has been represented to the City throughout the duration of any lease or contract with the City. F. Whenever less than the open market or appraised value is received or when an open bid process is not conducted, the City shall make specific findings setting forth the reasons thereof. Such findings may include but need not be limited to the following: 1. The City is prevented by tideland grants, Coastal Commission guidelines or other restrictions from converting the property to another use. 2. Redevelopment of the property would require excessive time, resources, expertise and costs, which would outweigh other financial benefits. 3. Converting the property to another use or changing the operator, manager, concessionaire, licensee, or lessee of the property would result in excessive vacancy, relocation or severance costs, real estate commissions, tenant improvement allowances, expenses or rent concessions which would outweigh other financial benefits. 4. Converting residential property to another use or opening residential leases to competitive bid would create recompensable liabilities and other inequities for long-term residents. 5. The property provides an essential or unique service to the community or a clearly preferred use that enjoys substantial support in the community that might not otherwise be provided were full market value of the property be required. 2 F-7 6. The property serves to promote other goals of the City such as affordable housing, preservation of open space, uses available to the public or marine related services. 7. If the lessee is not (a) a statewide or national nonprofit organization, or (b) a public entity or subdivision thereof, then the City finds that the By -Laws and charter documents of such lessee (i) establishes a procedure wherein the election of directors of such lessee is accomplished by an open, democratic and transparent process that allows members to vote, (ii) has a governance and operational structure that is consistent with best practices for non-profit public benefit corporations as determined by the City Council, and (iii) cannot be amended to affect subparts (i) or (ii) without the prior written consent of the City as lessor. G. Generally, lengths of licenses, leases, management contracts, concessions, or similar agreements will be limited to the minimum necessary to meet market standards or encourage high quality improvements and will contain appropriate reappraisal and inflation protection provisions. Also, all agreements shall contain provisions to assure complete audits periodically through their terms. H. All negotiations regarding the license, lease, management contract, concession or similar action regarding income property shall be conducted by the City Manager or his/her designee under the direction of any appropriate City committees. I. To provide an accurate accounting of actual net revenues generated by the City's income property, all costs directly attributable or allocable to the management of a specific income property shall be charged against the gross revenues collected on that property in the fiscal year the costs are incurred. Costs so chargeable include, but are not limited to, property repairs and maintenance, property appraisals, and consultant fees, as authorized by the City Council, City Manager, or by this Income Property Policy. J. The City Manager or his/her designee is authorized to sign a license, lease, management contract, concession, or similar agreement or any amendment thereto, on behalf of the City. Notwithstanding the foregoing, the City Manager or his/her designee, or a City Council member, may refer any license, lease, management contract, concession or similar agreement or any amendment thereto, to the City Council for its consideration and/or action. K. The City's portfolio of quality income producing properties adds an element of diversification to a portfolio otherwise invested primarily in financial assets. Certain of those income properties are restricted from sale by their terms of grant, state agency regulations or rules, other federal and state guidelines, private 3 F-7 covenant or agreement or otherwise. For those properties not so restricted from sale, an analysis shall be prepared to determine the following prior to such income producing property being offered for sale: 1. The maximum open market value of the City's interest in the property in its as is condition. 2. If the property is in an important location, a determination of the possible future consequences of the City no longer controlling that property. 3. If the current rent is contractually low and significant rent increases are likely within a finite period. 4. The likelihood of significant increases in the ability of the property to generate income after the expiration of any current lease of the property. 5. The likelihood of a lease extension being requested by the tenant and the ability to substantially increase rents or require significant improvements to enhance the utility and the value of the property as consideration for granting such an extension. 6. The value of the revenue stream from (i) lease income over the life of an existing lease and/or (ii) likely lease revenue if an existing lease were to be renewed or the property re -let to a different tenant; and/or (iii) lease income from the property if it were to be converted to its highest and best use, compared with the financial benefits of the use of the proceeds of a sale and if, considering the totality of the circumstances, such use of the proceeds of a sale is preferable to retaining the property in question. Adopted - July 27,1992 Amended - January 24,1994 Amended - February 27,1995 Amended - February 24,1997 Amended - May 26,1998 Amended - August 11, 2009 Amended - May 14, 2013 Amended - February 12, 2019 Formerly F-24 11 ATTACHMENT B APPRAISAL REPORT, MARKET RENTAL VALUE STUDY FOR NEWPORT BEACH BOYS AND GIRLS CLUB FACILITY, PREPARED BY R.P. LAURAIN & ASSOCIATES, INC., DATED APRIL 23, 2019 APPRAISAL REPORT MARKET RENTAL VALUE STUDY NEWPORT BEACH BOYS AND GIRLS CLUB FACILITY 2555 VISTA DEL ORO NEWPORT BEACH, CALIFORNIA APN: PORTION OF 440-161-01 R. P. LAURAIN & ASSOCIATES INCORPORATED R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS APPRAISAL REPORT MARKET RENTAL VALUE STUDY NEWPORT BEACH BOYS AND GIRLS CLUB FACILITY 2555 VISTA DEL ORO NEWPORT BEACH, CALIFORNIA APN: PORTION OF 440-161-01 Effective Date of Market Value Study April 10, 2019 Prepared for CITY OF NEWPORT BEACH 100 Civic Center Drive Newport Beach, California 92660 Prepared by R. P. LAURAIN & ASSOCIATES, INC. 3353 Linden Avenue, Suite 200 Long Beach, California 90807 Date of Report April 23, 2019 3353 LINDEN AVENUE, SUITE 200 LONG BEACH, CALIFORNIA 90807 TELEPHONE (562) 426-0477 FACSIMILE (562) 988-2927 R. P. LAURAIN & ASSOCIATES INCORPORATED APPRAISERS - ANALYSTS April 23, 2019 Ms. Lauren Wooding Whitlinger Real Property Administrator City of Newport Beach Community Development Department 100 Civic Center Drive Newport Beach, California 92660 Subject: Market Rental Value Study Newport Beach Boys and Girls Club Facility 2555 Vista Del Oro Newport Beach, California APN: Portion of 440-161-01 Dear Ms. Wooding Whitlinger: In accordance with your request and authorization, I have personally appraised the above-referenced property as of a current date. The appraisal study included (1) an inspection of the subject property, (2) a review of market data in the immediate and general subject market area, and (3) a valuation analysis. The purpose of this appraisal is to estimate the fair market rental rate applicable to the subject property, based on the existing special purpose use (Boys and Girls Club). Further, the appraisal sets forth the allocation of rent for that portion of the site vested with the Newport Mesa Unified School District (NMUSD). The subject lease site is part of a larger public park (Eastbluff Park) which larger public park is identified as APN 440-161-01, containing 13.87± acres of land area, per Assessor’s Mapping. The subject lease site, however, contains 41,500± total square feet, per the City of Newport Beach. It should also be noted that approximately 2,560 square feet of land area is vested with the Newport Mesa Unified School District (NMUSD). The subject lease site is improved with a community recreation building containing 12,393 total square feet, consisting of (1) 6,161 square feet of classroom, game room, and office space, as well as restrooms and a kitchen area, and (2) a gymnasium containing 6,232 square feet. The building was constructed circa 1975, was remodeled in 2008, and is in overall below average condition. Ms. Lauren Wooding Whitlinger Real Property Administrator City of Newport Beach April 23, 2019 Page 2 R. P. LAURAIN & ASSOCIATES INCORPORATED The subject site is located in the PR (Public Recreation) zone district, and is considered a special purpose property. Given the lack of comparable sale and rental properties, the market rental value is based on a rate of return applied to the otherwise market value of the subject property. The Sales Comparison Approach has been utilized to estimate the underlying land value considering the public open space/recreation nature of the subject site. The market value of the building and on-site improvements is based on the Cost Approach. Refer to the accompanying report for a complete description of the subject property. The purpose of the appraisal study is to set forth the market rental rate applicable to (1) the subject lease site as a whole, plus (2) that portion of the lease site vested with the Newport Mesa Unified School District (NMUSD). For each rental value study, the market rental value is allocated between (1) the underlying land and (2) the building and on-site improvements. After considering the various factors which influence value, the market rental value of the subject lease site, as of April 10, 2019, is summarized as follows: Property as a Whole: Annual Rent, land only: 3,600$ Annual Rent, building and site improvements:52,200 Total Annual Rent:55,800$ Total Monthly Rent:$4,650 Allocation of School District Portion: Annual Rent, land only: 230$ Annual Rent, basketball court improvements: 864 Total Annual Rent: 1,094$ Total Monthly Rent: $91.17 Ms. Lauren Wooding Whitlinger Real Property Administrator City of Newport Beach April 23, 2019 Page 3 R. P. LAURAIN & ASSOCIATES INCORPORATED The foregoing values are subject to the assumptions and limiting conditions set forth in the Preface Section and the valuation study in the Valuation Analysis Section. No portion of this report shall be amended or deleted. This appraisal report is submitted in accordance with the Uniform Standards of Professional Appraisal Practice, per Standard Rule 2-2(a), as a complete narrative Appraisal Report. If you require any additional information from our file, it would be appreciated if you would contact the undersigned at your convenience. Very truly yours, R. P. LAURAIN & ASSOCIATES, INC. John P. Laurain, MAI, ASA Certified General Real Estate Appraiser California Certification No. AG 025754 JPL:cl R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS TABLE OF CONTENTS Title Page Letter of Transmittal Table of Contents PREFACE Location Map Date of Value Purpose of the Appraisal Property Rights Appraised Client Intended User of Appraisal Intended Use of Appraisal Appraiser’s Certification Scope of the Appraisal Assumptions and Limiting Conditions Terms and Definitions SUBJECT PROPERTY DESCRIPTION Lessor Lessee Property Address Legal Description Aerial Site Plan Exhibit Plat Map Aerial Photograph Site Description Building Improvements Building Drawing and Floor Plan Drawings Other Improvements Furniture, Fixtures, and Equipment Ownership History Assessment Data Tenant Data Appraisal Inspection Neighborhood Environment TABLE OF CONTENTS (Continued) R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS VALUATION ANALYSIS Highest and Best Use Analysis Valuation Methods Sales Comparison Approach Cost Approach Market Rent Final Estimate of Rental Value ADDENDA Additional Photographs Qualifications of Appraiser R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS PREFACE DeLorme Street Atlas USA® 2015 LOCATION MAP Data use subject to license. © DeLorme. DeLorme Street Atlas USA® 2015. www.delorme.com TN MN (11.7°E) 0 ½1 1½2 0 1 2 3 mikm Scale 1 : 81,250 1" = 1.28 mi Data Zoom 12-0 1-1 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS DATE OF VALUE The date of value (effective date) employed in this report, and all opinions and computations expressed herein, are based on April 10, 2019. Said date being generally concurrent with the valuation analysis process. PURPOSE OF THE APPRAISAL The purpose of this appraisal report is to express an estimate of market rental value applicable to the subject site. The definitions of market value and rental value are set forth in the following portion of this section, following the heading “Terms and Definitions.” Further, it is the purpose of this appraisal report to describe the subject property, and to render an opinion of the highest and best use based on (1) the character of potential development of the property appraised, (2) the requirements of local governmental authorities affecting the subject property, (3) the reasonable demand in the open market for properties similar to the subject property, and (4) the location of the subject property considered with respect to other existing and competitive districts within the immediate and general subject market area. Further, it is the purpose of this appraisal report to provide an outline of certain factual and inferential information which was compiled and analyzed in the process of completing this appraisal study. PROPERTY RIGHTS APPRAISED The property rights appraised herein are those of the fee simple interest in the subject property. Fee simple is defined as, "An absolute fee; a fee without limitation to any particular class of heirs, or restrictions, but subject to the limitations of eminent domain, escheat, police power, and taxation. An inher- itable estate.” 1-2 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS CLIENT The client for the subject appraisal assignment is the City of Newport Beach. INTENDED USER OF APPRAISAL The intended user of this appraisal is the City of Beach, including representatives thereof. INTENDED USE OF APPRAISAL It is understood that this appraisal will be utilized to establish the fair market rental rate applicable to the subject property, for the possible lease negotiations with the existing tenant, and/or for budgetary purposes. 1-3 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS CERTIFICATION The undersigned does hereby certify that: I have personally inspected the subject property; I have no present or contemplated future interest in the real estate which is the subject of this appraisal report. Also, I have no personal interest or bias with respect to the subject matter of this appraisal report, or the parties involved in this assignment. My engagement in this assignment and the amount of compensation are not contingent upon the reporting or development of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a predetermined or stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. Also, to the best of my knowledge and belief the statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are based, are true and correct. This appraisal report sets forth all of the assumptions and limiting conditions (imposed by the terms of this assignment or by the undersigned), affecting my personal, impartial, and unbiased professional analyses, opinions, and conclusions. The reported analyses, opinions, and conclusions, were developed, and this report has been prepared, in conformity with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institutes, and the Uniform Standards of Professional Appraisal Practice. As of the date of this report I have completed the continuing education program for Designated Member of the Appraisal Institute, the State of California and the American Society of Appraisers; note that duly authorized representatives of said organizations have the right to review this report. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. No one other than the undersigned prepared the analyses, conclusions, and opinions for this appraisal study. No other person provided significant professional assistance. I have not appraised or provided any other services pertaining to the subject property in the last three years. ______________________________ John P. Laurain, MAI, ASA Certified General Real Estate Appraiser California Certification No. AG 025754 Renewal Date: April 16, 2021 1-4 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS SCOPE OF THE APPRAISAL The appraiser, in connection with the following appraisal study, has: 1. Been retained, and has accepted the assignment, to make an objective analysis and valuation study, in order to determine the fair market rental rate applicable to the subject property. The subject property is particularly described in the following portion of this report in the section entitled Subject Property Description. 2. Toured the general area by automobile to become acquainted with the extent, condition, and quality of nearby developments, sales and offerings in the area, density and type of development, topographical features, economic conditions, trends toward change, etc. 3. Walked within the subject area, and some of the nearby neighborhood, to become acquainted with the current particular attributes, or shortcomings, of the subject property. 4. Completed an on-site inspection of the subject property for the purpose of becoming familiar with certain physical charac- teristics. 5. Made a visual observation concerning public streets, access, drainage, and topography of the subject property. 6. Obtained information regarding public utilities and sanitary sewer available at the subject site. 7. Made, or obtained from other qualified sources, calculations on the area of land contained within the subject property. Has made, or caused to be made, plats and plot plan drawings of the subject property, and has checked such plats and plot plan drawings for accuracy and fair representation. 8. Taken photographs of the subject property, together with photographs of the immediate environs. 9. Made, or caused to be made, a search of public records for factual information regarding recent sales of the subject property. SCOPE OF THE APPRAISAL (Continued) 1-5 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS 10. Reviewed current maps, zoning ordinances, and other material for additional background information pertaining to the subject property, and sale properties. 11. Attempted to visualize the subject property as it would be viewed by a willing and informed buyer, as well as a willing and informed seller. 12. Interviewed various persons, in both public and private life, for factual and inferential information helpful in this appraisal study. 13. Formed an opinion of the highest and best use applicable to the subject property appraised herein. 14. Made, or caused to be made, a search for recent sales of comparable properties. Has viewed, confirmed the sale price, and obtained certain other information pertaining to each sale property contained in this report. 15. Formed an estimate of the market rental rate applicable to the subject property, as of the date of value expressed herein, by application of the Sales Comparison Approach, Cost Approach, and by employing an appropriate rate of return to the indicated market value. 16. Prepared and delivered this appraisal report in accordance with the Uniform Standards of Professional Appraisal Practice, and in summation of all the activities outlined above. 1-6 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS ASSUMPTIONS AND LIMITING CONDITIONS This appraisal is made with the following understanding as set forth in items No. 1 through 17, inclusive: 1. That this narrative Appraisal Report is intended to comply with reporting requirements set forth in the Uniform Standards of Professional Appraisal Practice, under Standard Rule 2-2(a), for an Appraisal Report. The information contained in this appraisal report is specific to the needs of the client; no responsibility is assumed for the unauthorized use of this report. 2. That title to the subject property is assumed to be good and merchantable. Liens and encumbrances, if any, have not been deducted from the final estimate of value. The subject property has been appraised as though under responsible ownership. The legal description is assumed accurate. 3. That the appraiser assumes there are no hidden or unapparent conditions of the subject property, subsoil, structures, or other improvements, if any, which would render them more or less valuable, unless otherwise stated. Further, the appraiser assumes no responsibility for such conditions or for the engineering which might be required to discover such conditions. That mechanical and electrical systems and equipment, if any, except as otherwise may be noted in this report, are assumed to be in good working order. The property appraised is assumed to meet all governmental codes, requirements, and restrictions, unless otherwise stated. 4. That no soils report of the subject property was provided to the appraiser; therefore information, if any, provided by other qualified sources pertaining to these matters is believed accurate, but no liability is assumed for such matters. Further, information, estimates and opinions furnished by others and contained in this report pertaining to the subject property and market data were obtained from sources considered reliable and are believed to be true and correct. No responsibility, however, for the accuracy of such items can be assumed by the appraiser. ASSUMPTIONS AND LIMITING CONDITIONS (Continued) 1-7 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS 5. That unless otherwise stated herein, it is assumed there are no encroachments, easements, soil toxics/contaminants, or other physical conditions adversely affecting the value of the subject property. 6. That no report(s) pertaining to mold, organic toxins, or chemical substances at the subject property was provided to the appraiser; therefore, information, if any, provided by other qualified sources pertaining to these matters is believed accurate, but no liability is assumed by the appraiser for such matters. That unless otherwise stated herein, the subject property has been appraised assuming the absence of mold, organic toxins, the presence of asbestos, or other organic and/or chemical substances which may adversely affect the value of the subject property. 7. That no opinion is expressed regarding matters which are legal in nature or which require specialized investigation or knowledge ordinarily not employed by real estate appraisers, even though such matters may be mentioned in the report. 8. That no oil rights have been included in the opinion of value expressed herein. Further, that oil rights, if existing, are assumed to be at least 500 feet below the surface of the land, without the right of surface entry. 9. That the distribution of the total valuation in this report between land and improvements, if any, applies only under the existing program of utilization. The separate valuations for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. 10. That the valuation of the property appraised is based upon economic and financing conditions prevailing as of the date of value set forth herein. Further, the valuation assumes good, competent, and aggressive management of the subject property. 11. That the appraiser has conducted a visual inspection of the subject property and the market data properties. Should subsequent information be provided relative to changes or differences in (1) the quality of title, (2) physical condition or characteristics of the property, and/or (3) governmental ASSUMPTIONS AND LIMITING CONDITIONS (Continued) 1-8 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS restrictions and regulations, which would increase or decrease the value of the subject property, the appraiser reserves the right to amend the final estimate of value. 12. That the appraiser, by reason of this appraisal, is not required to give testimony in court or at any governmental or quasi- governmental hearing with reference to the property appraised, unless contractual arrangements have been previ- ously made therefor. 13. That drawings, plats, maps, and other exhibits contained in this report are for illustration purposes only and are not necessarily prepared to standard engineering or architectural scale. 14. That this report is effective only when considered in its entire form, as delivered to the client. No portion of this report will be considered binding if taken out of context. 15. That possession of this report, or a copy thereof, does not carry with it the right of publication, nor shall the contents of this report be copied or conveyed to the public through advertising, public relations, sales, news, or other media, without the written consent and approval of the appraiser, particularly with regard to the valuation of the property appraised and the identity of the appraiser, or the firm with which he is connected, or any reference to the Appraisal Institute, or the American Society of Appraisers, or designations conferred by said organizations. 16. That the form, format, and phraseology utilized in this report, except the Certification, and Terms and Definitions, shall not be provided to, copied, or used by, any other real estate appraiser, real estate economist, real estate broker, real estate salesperson, property manager, valuation consultant, invest- ment counselor, or others, without the written consent and approval of Ronald P. Laurain. 17. That this appraisal study is considered completely confidential and will not be disclosed or discussed, in whole or in part, with anyone other than the client, or persons designated by the client. 1-9 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS TERMS AND DEFINITIONS Certain technical terms have been used in the following report which are defined, herein, for the benefit of those who may not be fully familiar with said terms. MARKET VALUE (or Fair Market Value): Market value is sometimes referred to as Fair Market Value; the latter is a legal term, and a common synonym of Market Value. Market value as defined in Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) is defined as follows: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowl- edgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. Buyer and seller are typically motivated; 2. Both parties are well informed or well advised, and acting in what they consider their own best interests; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." RENTAL VALUE: The definition of rental value is based generally on the concept of market value, i.e. willing and informed parties, neither party being under duress or compulsion to act, etc. The definition of rental value is as follows: "A fair, proper and reasonable rental which would result from informed, intelligent, and prudent negotiations in the usual course of business; the rental which could be expected if the property were available, under competitive market conditions, as of a certain date." TERMS AND DEFINITIONS (Continued) 1-10 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS SALES COMPARISON APPROACH: One of the three accepted methods of estimating Market Value. This approach consists of the investigation of recent sales of similar properties to determine the price at which said properties sold. The information so gathered is judged and considered by the appraiser as to its comparability to the subject properties. COST-SUMMATION APPROACH: Another accepted method of estimating Market Value. This approach consists of estimating the new construction cost of the building and yard improvements and making allowances for appropriate amount of depreciation. The depreciated reconstruction value of the improvements is then added to the Land Value estimate gained from the Sales Comparison Approach. The sum of these two figures is the value indicated by the Cost-Summation Approach. INCOME CAPITALIZATION APPROACH: The Income Capitalization Approach consists of capitalizing the net income of the property under study. The capitalization method studies the income stream, allows for (1) vacancy and credit loss, (2) fixed expenses, (3) operating expenses, and (4) reserves for replacement, and estimates the amount of money which would be paid by a prudent investor to obtain the net income. The capitalization rate is usually commensurate with the risk, and is adjusted for future depreciation or appreciation in value. DEPRECIATION: Used in this appraisal to indicate a lessening in value from any one or more of several causes. Depreciation is not based on age alone, but can result from a combination of age, condition or repair, functional utility, neighborhood influ- ences, or any of several outside economic causes. Depreciation applies only to improvements. The amount of depreciation is a matter for the judgment of the appraiser. HIGHEST AND BEST USE: Used in this appraisal to describe that private use which will (1) yield the greatest net return on the investment, (2) be permitted or have the reasonable probability of being permitted under applicable laws and ordinances, and (3) be appropriate and feasible under a reasonable planning, zoning, and land use concept. R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS SUBJECT PROPERTY DESCRIPTION 2-1 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS SUBJECT PROPERTY View looking northwesterly at the subject property from Vista Del Oro. See aerial photograph on the following page, and additional photographs in the Addenda Section. LESSOR: City of Newport Beach LESSEE: Newport Beach Boys and Girls Club PROPERTY ADDRESS: 2555 Vista Del Oro Newport Beach, California 92660 LEGAL DESCRIPTION: Portion of Lot 223, Block 52, Irvine Subdivision, per Miscellaneous Maps recorded in Book 1, Page 88, in the office of the County Recorder, County of Orange, California. A complete metes and bounds legal description was not provided for review. Refer to the aerial map exhibit on the following page. Feet Every reasonable effort has been made to assure the accuracy of the data provided, however, The City of Newport Beach and its employees and agents disclaim any and all responsibility from or relating to any results obtained in its use. Disclaimer: 12/19/2018 0 8040 2-2 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Portion of APN 440-161-01 2-3 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS SITE DESCRIPTION COMMENT: The subject lease site is part of a larger public park (Eastbluff Park) which larger public park is identified as APN 440-161-01, containing 13.87± acres of land area, per Assessor’s Mapping. The subject lease site, however, contains 41,500± total square feet, per the City of Newport Beach. It should also be noted that approximately 2,560 square feet of land area is in turn leased from the Newport Mesa Unified School District (NMUSD). LOCATION: The subject property is located on westerly side of Vista Del Oro, near the terminus intersection of Vista Del Sol, in the City of Newport Beach. LAND SHAPE: Irregular land configuration. LAND AREA: The subject lease site appraised herein contains 41,500 square feet of land area, per the City of Newport Beach. As stated, approximately 2,560 square feet of land area is vested with the Newport Mesa Unified School District (NMUSD), representing a portion of APN 440-221-02. TOPOGRAPHY: Effectively level and generally at street grade. SOIL STABILITY: Appears to be adequate based on develop- ments in the immediate area. A soils report, however, was not provided for review. SOIL CONTAMINATION: None known or observed, however, an environ- mental assessment report was not provided for review. The subject site has been appraised as though free of soil contaminants requiring remediation. DRAINAGE: Appears to be adequate. . SITE DESCRIPTION (Continued) 2-4 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS EARTHQUAKE FAULT: The subject site does not appear to be located within an earthquake fault, however, the greater Southern California area is prone to earthquakes. Inasmuch as no seismic or geological studies were provided for review, the appraisers assume no responsibility for the possible impact that seismic activity or earthquakes may have on the subject site. FRONTAGE/ACCESS: The subject property has frontage on, and vehicular access from, Vista Del Oro. RIGHT OF WAY WIDTH: Vista Del Oro: 60 feet STREET IMPROVEMENTS: Asphalt paved traffic lanes. Concrete curb, gutter and sidewalk (each side of street). STREET LIGHTS: Mounted on ornamental standards. PUBLIC UTILITIES: Water, gas, electric power, telephone service, and sanitary sewer are available to the site. ENCROACHMENTS: None apparent, however, a survey of the subject property was not provided for review. EASEMENTS: A preliminary title report was not provided for review. Easements, if existing, are assumed to be located along the property boundaries, not interfering with the existing or future highest and best use development of the subject property. It is assumed that there are no “cross-lot” or “blanket” easements located over the subject site. ILLEGAL USES: None observed. PRESENT USE: Community recreation building (Newport Beach Boys and Girls Club). SITE DESCRIPTION (Continued) 2-5 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS ZONING: The subject property is located in the PR (Parks and Recreation) zone district of the City of Newport Beach. The PR zone district is intended to provide for land areas utilized for public and private recreational uses, such as public parks, aquatic facilities, golf courses, marina support facilities, private recreational facilities such as tennis clubs, and similar recreational facilities. As such, residential development of the subject site would not be permitted under the current zoning. Note that all uses in the PR zone district require a Conditional Use Permit (CUP) or a Minor Use Permit (MUP) with the exception of minor utilities, which are permitted by right. The development standards are established during review of the required permit. HIGHEST AND BEST USE: The reader is referred to the first portion of the Valuation Analysis Section for a discussion regarding the highest and best use of the subject property. 2-6 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS BUILDING IMPROVEMENTS BUILDING LAYOUT: The subject building represents a community recreation building consisting of a gymnasium and various classrooms, small office rooms, an open reception/game room, restrooms, and a former kitchen area (utilized for storage purposes). Refer to the building drawing and evacuation floor plan drawing on the following pages. TYPE OF STRUCTURE: Single tenant community recreation building. YEAR BUILT: Originally constructed circa 1975; remodeled in 2008. NO. OF STORIES: One story. BUILDING SIZE: Per the on-site inspection, the subject building contains 12,393 total square feet, as follows: Classrooms/offices: 6,161 sq. ft. Gymnasium: 6,232 sq. ft. Total: 12,393 sq. ft. CONSTRUCTION QUALITY: Average quality Class D (wood frame) construction. FOUNDATION: Perimeter concrete foundation. EXTERIOR WALLS: Painted stucco over wood framing. ROOF: Rolled asphalt roofing, tarred at joints. Mission tile mansards. FLOORS: Concrete slab floor with sheet vinyl and vinyl tile flooring in classroom, game room, and office area; assumed to be ceramic tile in restrooms BUILDING IMPROVEMENTS (Continued) 2-7 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Subject Community Recreation Building .. @ BOYS & GIRLS CLUBS OF CENTRAL ORANGE CO.AST C<l<lt•M-11"'1 ... I NINPOlt BNcll ~I Slltt.t AM Parking Lot ~ t I llirls Bathroo m ~ ll I Closet Boys Bathroo m I " ' ' ~ ~ Janitor's Clos e t II I Primary Raam ~ ----+--I • , . , N e w p o r t B e a c h E m e r g e n c y E v a c u a t i o n P l a n • K i t c h e n I I G y m I I . . , . . , o r c : I A t h l e t i c D f f l c e I + C l a s s r o o m I I I G a m e s R o o m c c " ' " ' , . . . . a ! ! I . ~ e r : : ! 1 ~ " ' C " ' l c : C l c : ; a . ~ - I - - - = - - H a n w a y 1 - - - r - 1 - - - - - - - - - , " ' ~ ~ - D f f i c e G a m e s R o a m C l a s s r o o m C l a s s r o o m _ _ . I BUILDING IMPROVEMENTS (Continued) 2-8 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS INTERIOR WALLS: Painted drywall interior walls in classroom and office areas. CEILINGS: Painted drywall and sprayed acoustic ceilings in classroom and office areas. DOORS: Plate glass set in anodized and metal sheathed entry doors; double flush solid core and natural wood solid core interior doors. WINDOWS: Plate glass set in anodized frame and aluminum frame sliding windows; certain classrooms have interior partition wall windows set in wood frames. ELECTRICAL: Conventional electrical system; incandescent and fluorescent lighting. HEATING AND COOLING: Per information provided by employees, the easterly (front) “Primary Room” is the only room with an operating forced air heating and cooling system. It is assumed the roof- mounted central forced air heating and cooling units for the remainder of building require replacement. PLUMBING: Conventional plumbing system. There are two restroom facilities having a total of 9 fixtures. There is also a sink in the kitchen area, however, the kitchen area is in fair condition and appears to be utilized for storage purposes. Fire sprinkler system throughout GYMNASIUM: As stated, the gymnasium contains 6,232 square feet and includes wood flooring, open wood beam ceiling with skylights, wood panel and drywall walls, with some damage to certain drywall, basketball hoops, bleachers, and an electronic scoreboard. CONDITION: The subject building is in overall below average condition, considering the age. 2-9 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS OTHER IMPROVEMENTS ON-SITE PARKING: The subject property includes an asphalt paved parking lot containing five standard parking spaces, one handicap space, and approx- imately 5,500 square feet of paved area, inclusive of driveways and the drive aisle. OTHER: Other on-site improvements include: Concrete walkways: 4,950± sq.ft. Outdoor basketball court: 5,760± sq.ft. Concrete block trash enclosure: 20± ln.ft. Concrete curbing: 375± ln.ft. In addition, there is certain irrigated grass, shrubbery, and tree landscaping. FURNITURE, FIXTURES, AND EQUIPMENT COMMENT: Furniture, fixture, and equipment (FF&E) items specific to the existing Boys & Girls Club facility have been excluded from the appraisal study (furniture, play equipment, pool tables, ping pong tables, supplies, etc.). OWNERSHIP HISTORY COMMENT: The subject property has been vested with the City of Newport Beach for more than 20 years. ASSESSMENT DATA COMMENT: The subject property represents a portion of APN 440-161-01. The assessed land value is $1,645,016; the assessed improvement value is $514,390. The property is tax exempt as vested with a public agency. 2-10 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS TENANT DATA COMMENT: It is understood the subject lease site appraised herein is currently leased to the Newport Beach Boys and Girls Club for $1 per year. APPRAISAL INSPECTION COMMENT: The appraisal inspection was conducted on March 21, 2019, with the permission of the tenant. NEIGHBORHOOD ENVIRONMENT LOCATION: The subject property is located in the northwest portion of the City of Newport Beach; the City of Costa Mesa boundary is located westerly of the subject neighborhood and the City of Irvine boundary is located north and northeasterly of the subject neighborhood. The City of Newport Beach was incorporated in 1906 and includes 16,654 acres of land area, 14,894 acres of ocean water area, 800 acres of Bay water area, and 800 acres of Harbor water area. LAND USES: The predominant uses in the City of Newport Beach are single family and multiple family residential developments, which account for approximately 50% of the total land area, followed by open space and recreational uses which account for 36±% of the total land area. Commercial, institutional, and industrial uses generally account for remaining land area. There are also a number of hotel developments within the City. The John Wayne Airport is located adjacent to the extreme northerly portion of the City boundary. The University of California Irvine campus is located within two miles easterly of the subject property. NEIGHBORHOOD ENVIRONMENT (Continued) 2-11 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS LAND USES: (Continued) Commercial office, retail, and restaurant uses are located on primary street. Fashion Island, a major retail center, is located within 1 ½ miles south of the subject property. Upper Newport Bay and an ecological preserve are located immediately westerly of the subject neighborhood. The Big Canyon Country Club and golf course is located within one mile southeasterly of the subject neighborhood. ACCESS: Primary thoroughfares in the general subject neighborhood include Coast Highway, Jamboree Road, MacArthur Boulevard. The San Joaquin Hills Transportation Corridor (73) Freeway, a toll road, is located at the northerly boundary of the City. The Costa Mesa (55) Freeway is located approximately 1/2 mile northwesterly of the westerly City Boundary, and terminates on Newport Boulevard. The San Diego (405) Freeway is located approximately one mile north of the extreme northerly portion of the City. Said freeways are part of the freeway network serving the Southern California region. OCCUPANCY: Residential: 75±% owners 25±% tenants Commercial: 25± owners 75± tenants PRICE RANGE: Older single family and low density multiple family residential properties, generally range in value from $1,000,000 to exceeding $5,000,000 for properties having close proximity to the beach or bay. Residential properties at the lower end of the range generally represent older dwellings that are acquired based on the underlying land value. Single family and multiple family properties having frontage on the beach or bay, can range in value from $3,000,000 to exceeding $20,000,000. NEIGHBORHOOD ENVIRONMENT (Continued) 2-12 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS TREND: Real estate values, in general, were declining between 1991 and 1995. The value trend, however, generally stabilized during 1996 and 1997. Beginning in 1998, there was evidence of increased real estate market activity. There was an upward value trend affecting residential properties within the immediate and general subject market area, from 2003 through the mid portion of 2006, after which property values generally stabilized. In the early part of 2007, residential property values began to decrease significantly, and the decrease continued through the mid to latter portion of 2009, due primarily to the subprime credit and housing crisis. The residential real estate market generally stabilized in the latter portion of 2009. Begin- ning in 2010, certain markets began to experience varying monthly increases and decreases in sales volumes and pricing, due primarily to abnormally low interest rates and first time home buyer’s tax credits. Overall, property values remained relatively stable from the first portion of 2010 through the latter portion of 2012, after which property values and sales activity began to experience increases through the mid to latter portion of 2018. It appears the property values have begun to stabilize in recent months. AGE RANGE: The age range of all types of improved prop- erties is rather broad. Generally, the age range for single family residences is effectively new to 30 years. Certain commercial and mixed use properties were constructed as far back as the early 1900s, however, commercial and mixed use properties typically undergo significant renovation in the immediate subject area (as opposed to demolition and clearing for new development). As such, the effective age of commercial and mixed use properties ranges widely from 5 years to exceeding 50 years. NEIGHBORHOOD ENVIRONMENT (Continued) 2-13 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS PROPERTY MAINTENANCE: Property maintenance in the immediate and general neighborhood, evidenced by an on- going maintenance program, ranges from above average to very good. PUBLIC/PRIVATE FACILITIES: The availability and adequacy of public facilities, transportation, schools, commercial facilities, recreational opportunities, and resi- dential housing are rated average. The City of Newport Beach provides police and fire protection. R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS VALUATION ANALYSIS 3-1 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS VALUATION ANALYSIS The purpose of this appraisal is to estimate the fair market rental rate applicable to the subject property, based on the existing special purpose use (Boys and Girls Club) and taking into consideration the location of the site within a larger public park (Eastbluff Park). Prior to the application of the appraisal process, it is necessary to determine the highest and best use of the subject property. HIGHEST AND BEST USE ANALYSIS: The 14th Edition of The Appraisal of Real Estate, by the Appraisal Institute, defines highest and best use on Page 332, as follows: "The reasonably probable use of property that results in the highest value.” In the analysis of which uses are reasonably probable, three criteria are applied in the following order to develop adequate support for the determination of highest and best use: 1. Physically possible 2. Legally permissible 3. Financially feasible These criteria are generally considered sequentially; however, the tests of phys- ical possibility and legal permissibility can be applied in either order, but they must both be applied before the test of financial feasibility. Uses that meet all three criteria of being reasonably probable are then tested for economic pro- ductivity, to identify the maximally productive use. The reasonably probable use with the highest value (i.e. maximally productive) is the highest and best use. In the process of forming an opinion of highest and best use, consideration must be given to various factors such as zoning restrictions, probability of zone change, private deed restrictions, location, land size and configuration, topogra- phy, and the character/quality of land uses in the subject market area. Conclusion: The subject lease site is part of a larger public park (Eastbluff Park), which public park is identified as APN 440-161-01, containing 13.87± acres of land area, per Assessor’s Mapping. The subject lease site, however, contains 41,500 total square feet, per the City of Newport Beach. It should also be noted that approximately 2,560 square feet of land area is vested with the Newport Mesa Unified School District (NMUSD). VALUATION ANALYSIS (Continued) HIGHEST AND BEST USE ANALYSIS: (Continued) 3-2 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Both the subject lease site, as well as the greater Eastbluff Park site, have irregular land configurations, and an effective inside location on a secondary street. The topography at the subject site is effectively level. All public utilities including water, gas, electric power, telephone, and sanitary sewer are available in the immediate area. The physical characteristics of the subject parcel are considered adequate to accommodate legally permissible uses. Land uses in the immediate area include low and medium density residential uses on secondary streets. Commercial uses are located on primary streets; however, the subject site is located in a residential neighborhood and commercial or industrial uses are not considered reasonably probable. Further, the subject property is located in the PR (Parks and Recreation) zone district of the City of Newport Beach. The PR zone district is intended to provide for land areas utilized for public and private recreational uses, such as public parks, aquatic facilities, golf courses, marina support facilities, private recreational facilities such as tennis clubs, and similar recreational facilities. As such, residential development of the subject site would not be permitted under the current zoning. While the purpose of the appraisal study is to estimate the fair market rent of the subject Boys & Girls club facility (land and improvements), it is also noted that the highest and best use of the subject site, as presently zoned, is limited to an open space (public park) or similar recreational use. As such, the existing Boys & Girls Club building, and related site improvements, are considered the highest and best use under the current zoning. The subject lease site has been appraised accordingly. VALUATION METHODS: There are three conventional methods (approaches) which can be used to estimate value. They are the Sales Comparison Approach, Cost Approach, and Income Capitalization Approach. The reader is referred to the last portion of the Preface Section, following the heading "Terms and Definitions," for a description of each approach to value. VALUATION ANALYSIS (Continued) VALUATION METHODS: (Continued) 3-3 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Inasmuch as the subject property is located within the Parks and Recreation zone district, and is developed with a non-profit use (Boys and Girls Club), the subject lease site is considered a special use property. Special-purpose properties are unique with respect to design, construction, and/or utility; they generally fall within one of two categories, i.e. those capable of producing income and having an economic value (until such time as the improvements become functionally obsolete), and those which are private service, public service, or community amenity properties. Those having economic value (capable of generating net income to support the value of the land and improvements) include special processing and manufacturing plants, airports, marinas, athletic stadiums, amusement and theme parks, convention facilities, etc.; those without economic production capabilities include houses of worship, service club facilities, nonprofit community facilities, public schools, public parks, and public buildings, e.g. library, city hall, fire station, community center, police station, public health service building, court building, etc. Special-purpose properties are limited-market properties; they rarely, if ever, sell. Likewise, there is a lack of rental data in which to derive market rental rates for special purpose properties. The conventional and long-standing method of appraising special-purpose private and public properties has been employed in the subject case. The method includes, as indicated above, (1) the valuation of the land based on the limited effective open space and/or recreational use, plus (2) the addition of the depreciated value of the improvements. Said method describes the characteristics of the Cost Approach, one of the three conventional valuation methods. The value of the subject land, one of the components of the Cost- Summation Approach, is based on the fair market value concept by the application of the Sales Comparison Approach; the depreciated value of the improvements is based on the cost new, less depreciation from all causes (age, condition, functional inutility, etc.). Lastly, in the subject case the purpose of the appraisal study is to set forth the market rental rate applicable to (1) the subject lease site as a whole, plus (2) that portion of the lease site vested with the Newport Mesa Unified School District (NMUSD). As such, and given that there is a lack of direct rental data pertaining to the subject site, the market rent estimated is based a market rate of return applied to the indicated market value of the underlying land and improvements (as derived via the Sales Comparison and Cost Approaches). VALUATION ANALYSIS (Continued) 3-4 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS SALES COMPARISON APPROACH: In the Sales Comparison Approach, the value of a property is estimated by comparing it with similar, recently sold properties in the surrounding area. Inherent in this approach is the principle of substitution, which holds that when a property is replaceable in the market, its value tends to be set by the cost of acquiring an equally desirable substitute property, assuming that no costly delay is encountered in making the substitution. Thus, the Sales Comparison Approach attempts to equate the subject property with sales of comparable properties by analyzing and weighing the various elements of comparability. The Sales Comparison Approach has been applied to the subject property after an investigation was conducted of comparable vacant land parcels which sold in the subject market area. The reader is referred to the summary of Recreational and Open Space Land Value Indicators on the following page. Due to the limited sales data, and infrequency of recreational and open space land sales, both the chronological time frame and the geographic search area were expanded, in order to obtain a representative number of comparable sale properties. A detailed discussion of each land sale utilized herein is contained in the latter portion of this section, as part of the overall analysis. The properties surveyed consist of vacant land parcels ranging in size from 1.20 to 688.00 acres. The purchase prices per square foot of land area range from $0.39 to $6.43. The sales are set forth in chronological order and took place between October 2011 and October 2018. Data 1, 3 and 4 represent recreation use sites, however Data 3 sold as improved with a golf course. Data 5 represents a limited entertainment use site. Data 2,6 and 7 represent open space sites. R. P. LAURAIN & ASSOCIATES APPRAISERS – ANALYSTS 3-5 Re c r e a t i o n a l a n d O p e n S p a c e L a n d V a l u e I n d i c a t o r s : Da t a D a t e Z o n i n g Us e S a l e P r i c e $ P e r S F 1 1 0 - 1 1 R e c 4 , 3 3 4 , 6 5 6 s f 99 . 5 1 a c . c a m p g ro u n d $ 5 , 2 5 0 , 0 0 0 $ 1 . 2 1 23 1 0 0 - 2 3 8 0 0 E a s t F o r k R d . , A z u s a 2 8 - 1 4 O S 2 5 , 7 0 0 s f 0. 5 9 a c . O p e n S p a c e $ 1 0 , 0 0 0 $ 0 . 3 9 39 ± L a P a z R d . , a d j ac e n t t o r a i l r o a d , M i s s i o n V i e j o 3 1 1 - 1 4 O S P R 2 , 0 7 0 , 4 0 7 s f 47 . 5 3 a c . G o l f c o u r s e $ 8 , 4 0 0 , 0 0 0 $ 4 . 0 6 16 7 8 2 G r a h a m S t . , H u n t i n g to n B e a c h w i t h 1 1 , 1 4 9 s f c l u b h o u s e 4 1 - 1 5 O C G P , P 2 9 , 9 6 9 , 2 8 0 s f 6 8 8 . 0 0 a c . r e c r e a t i o n / $ 1 9 , 1 7 1 , 0 0 0 $ 0 . 6 4 Po r t i o n o f O r a n g e C o u n t y G r e a t P a r k , I r v i n e p a r k l a n d 5 5 - 1 6 E C S P 3 8 0 , 8 5 0 s f 8. 7 4 a c . B u t t e r f l y $ 2 , 4 5 0 , 0 0 0 $ 6 . 4 3 77 1 1 - 3 3 B e a c h B l v d . , B u e n a P a r k P a l a d i u m 6 8 - 1 6 O S 5 2 , 2 7 2 s f 1. 2 0 a c . O p e n S p a c e $ 3 0 , 0 0 0 $ 0 . 5 7 10 0 ± P a c i f i c C o a s t H w y . , D a n a P o i n t 7 1 0 - 1 8 G O S 74 , 0 5 2 s f 1. 7 0 a c . O p e n S p a c e $ 7 0 , 0 0 0 $ 0 . 9 5 SE C C a m i n o L a s R a m b l a s a n d V i a C a l i f o r n i a , S a n J u a n C a p i s t r a n o La n d S i z e VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-6 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS The first adjustments applied to the sale properties, when warranted, are known as transactional adjustments. Said transactional adjustments are generally applied to the sale properties in the sequence listed below, and are made cumu- latively (i.e. the base changes before applying the next adjustment). Following is the list of transactional adjustments:  Property rights conveyed  Financing (cash equivalency)  Conditions of sale  Expenditures after sale  Market conditions Property Rights Conveyed: An adjustment is required when a sale transaction conveyed a different set of property rights, compared to the property rights being appraised, such as leased fee estate vs. fee simple estate. None of the comparable land sales utilized herein required an adjustment for property rights conveyed, as all of the land sale properties conveyed title to the fee simple interest in each property. Financing and Cash Equivalency: Sale properties are adjusted for financing arrangements involved in transactions which are not market-typical. A cash equivalency adjustment is required when the financing of a particular property caused a higher purchase price. Common examples include seller financing, or assumption of existing financing, at non- market terms. Inasmuch as all of the sales involved all cash transactions, a cash equivalency adjustment is not warranted for any of the sale transactions. Conditions of Sale: An adjustment for conditions of sale is required when a property sold under atypical conditions, such as (1) a seller being under duress (REO transactions or other distressed sales), (2) a property selling as part of a bulk portfolio sale, (3) a developer paying a premium to acquire an adjacent property as part of assembling a larger development site, or (4) other similar situations where the motivation of a buyer or seller affects the price paid for a property. None of the sale properties required an adjustment for conditions of sale. VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-7 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Expenditures after Sale: An adjustment is required when a buyer anticipates a particular expenditure that he/she will have to expend shortly after purchasing a property; the price paid by a knowledgeable buyer considers any required expenditures. Such expenditures can include (1) the cost to remediate known environmental conta- mination, (2) the cost to cure deferred maintenance at a building, or (3) similar costs that a buyer anticipates making upon purchase of a property, such as demolition costs when an improved site is purchased for redevelopment. While demolition costs can be accounted for as expenditures after sale, in the subject case, building improvements at the various sales, if any, were accounted for on a qualitative basis, in the “elements of comparability” portion of this report. As such, none of the land sales required an adjustment for expenditures after sale. Market Conditions: Consideration of the market conditions (date of sale) is appropriate when sales occur during a rising or declining market. Said consideration is based upon observation of the real estate market and value appreciation/declining cycles dating back more than 15 years. Residential real estate values in the subject market area were largely flat (level) from the latter portion of 2009 through the mid to latter portion of 2013, after which residential real estate values began increasing. Said price increase has generally continued through the mid to latter portion of 2018, due in part to the continued availability of low mortgage interest rates. Certain residential markets, however, appear to have stabilized from the first portion of 2019, through the present time. The following graph, which was obtained from truila.com, sets forth the median sale price of single family homes and condominiums in the City of Newport Beach, over the past five years. As noted, there can be fluctuations in the median price due, in part, to the large fluctuation in home values in differing portions of Newport Beach. VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-8 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Note that recreational land, along with other nonutilitarian or limited-utility land (i.e. open space, agricultural land, etc.), does not appreciate in value as quickly as conventional-use properties offering increased economic benefits (i.e. land zoned for residential, commercial, or industrial use). The market conditions adjustments utilized herein are based on (1) discussions with various market participants (brokers, property managers, etc.), (2) observations of local real estate market trends (sales activity, development activity, etc.) and (3) a review of sale prices and current asking prices at comparable vacant land parcels in the immediate and general subject market area. While there has been an upward trend in single family residential values over the last few years as stated the open space, agricultural, recreational, and related markets for limited utility property do not typically experience the same extent of price appreciation, due primarily to the more speculative nature of open space land sale acquisitions. Based on the foregoing, adjustments are applied to the various sale properties based on an annual appreciation rate of 3.0% per year (0.25% per month) for those years seeing more substantial residential price appreciation, and 0% (level) per year for those years seeing more moderate residential price appreciation, as follows: VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-9 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS The adjustments applied to the sale properties for market conditions are based on the following schedule: January-December 2012: 0.0% per year or 0.00% per month January-December 2013: 0.0% per year or + 0.00% per month January-December 2014: +3.0% per year or + 0.25% per month January-December 2015: +3.0% per year or + 0.25% per month January-December 2016: +3.0% per year or + 0.25% per month January-December 2017: +3.0% per year or + 0.25% per month January-December 2018: 0.0% per year or 0.00% per month January-March 2019: 0.0% per year or 0.00% per month Elements of Comparability: After considering the transactional adjustments, the appraiser analyzed the fol- lowing elements of comparability at the sales, as compared to the subject site: General location Land configuration/utility Access Topography Land size Improvements Best use/zoning Plans/entitlements Land Sales Comparison Analysis: The comparability adjustments applied to the sale properties are judgment estimates which are intended to equate the subject land parcel with the respective land sale properties. Adjustments for the various elements of comparability were applied on a qualitative basis due to the lack of direct market evidence regarding quantitative adjustments in the subject market. The reader is referred to the Land Sales Comparison Grid on the following page. As can be noted, Data 1 through 6 required adjustments for market conditions, ranging from 4.0% to 12.0%. None of the sales required adjustments for property rights, financing, conditions of sale, or expenditures after sale. R. P. LAURAIN & ASSOCIATES APPRAISERS – ANALYSTS 3-9 D a t a1 2 3 4 5 6 7 Pu r c h a s e p r i c e : $5 , 2 5 0 , 0 0 0 $ 1 0 , 0 0 0 $ 8 , 4 0 0 , 0 0 0 $ 1 9 , 1 7 1 , 0 0 0 $ 2 , 4 5 0 , 0 0 0 $ 3 0 , 0 0 0 $ 7 0 , 0 0 0 R a t e p e r s q . f t . : $1 . 2 1 $ 0 . 3 9 $ 4 . 0 6 $ 0 . 6 4 $ 6 . 4 3 $ 0 . 5 7 $ 0 . 9 5 P r o p e r t y r i g ht s : fe e s i m p l e f e e s i m p l e f e e s i m p l e f e e s i m p le f e e s i m p l e f e e s i m p l e f e e s i m p l e f e e s i m p l e C o n d i t i o n s o f s a l e : - - - - - - 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % F i n a n c i n g : - - - - - - 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % D a t e o f s a l e : - - - - - - 1 0 - 1 1 8 - 1 4 1 1 - 1 4 1 - 1 5 5 - 1 6 8 - 1 6 1 0 - 1 8 M a r k e t c o n d i t i o n s : - - - - - - 1 2 . 0 0 % 1 0 . 0 0 % 9 . 2 5 % 8 . 7 5 % 4 . 7 5 % 4 . 0 0 % 0 . 0 0 % Ad j us t e d u n i t r a t e : R a t e p e r s q . f t . : $ 1 . 3 6 $ 0 . 4 3 $ 4 . 4 4 $ 0 . 7 0 $ 6 . 7 4 $ 0 . 5 9 $ 0 . 9 5 Su b j ec t Co m p a r a b i l i t y : Sa l e i s : S a l e i s : S a l e i s : S a l e i s : S a l e i s : S a l e i s : S a l e i s : G e n e r a l l o c a t i o n : a v e r a g e i n f e r i o r s i m i l a r s i m i l a r s i m i l a r i n f e r i o r s u p e r i o r s i m i l a r A c c e s s : a v e r a g e s i m i l a r f a r i n f e r i o r s i m i l a r s i m i l a r s i m i l a r s i m i l a r s i m i l a r L a n d s i z e ( a c . ) : 1 3 . 8 7 a c i n f e r i o r s i m i l a r s i m i l a r f a r i n f e r i o r s i m i l a r s i m i l a r s i m i l a r B e s t u s e / z o n i n g : re c r e a t i o n s i m i l a r i n f e r i o r s u p e r i o r s i m i l a r f a r s u p e r i o r i n f e r i o r i n f e r i o r L a n d c o n f i g ur a t i o n / u t i l i t y : a v e r a g e i n f e r i o r f a r i n f e r i o r s i m i l a r s i m i l a r s i m i l a r s i m i l a r s i m i l a r T o p o g ra p h y : le v e l s i m i l a r s i m i l a r s i m i l a r s i m i l a r s i m i l a r i n f e r i o r i n f e r i o r I m p r o v e m e n t s : as v a c a n t s i m i l a r s i m i l a r f a r s u p e r i o r i n f e r i o r s i m i l a r s i m i l a r s i m i l a r P l a n s / e n t i t l e m e n t s : no n e s i m i l a r s i m i l a r s i m i l a r s i m i l a r s i m i l a r s i m i l a r s i m i l a r D a t a1 2 3 4 5 6 7 fa r f a r fa r fa r Ov e r a l l c o m p a r a b i l i t y : in f e r i o r i n f e r i o r s u p e r i o r i n f e r i o r s u p e r i o r i n f e r i o r i n f e r i o r LA N D C O M P A R I S O N G R I D VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-11 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Lastly, note that while subject lease site contains 41,500 square feet of land area, or 0.953± acres, the larger park parcel contains 13.87± acres. Larger parcels, whether vacant or improved, typically sell at overall lower rates per square foot of land area. As such, Data 1, containing 99.51 acres, and Data 4, containing 688 acres, are deemed inferior and far inferior regarding land size. Following are comments and aerial photographs regarding the various sale properties. Data 1 – Follows Campground Data 1 represents the sale of Follows Camp, a former RV campground that suffered significant flood damage, was effectively vacant at the time of sale, and was declared a public nuisance. The property is zoned for Recreational and Resort use, though portions of the site are within the A-1 (agricultural) and W (watershed) zone districts. The site has an extremely large land area of just under 100 acres, is located in unincorporated Los Angeles County, in the Angeles National Forest (Azusa mailing address) and was purchased by the City of Industry for undisclosed purposes. The site is not currently being utilized, and is being considered for potential disposition by the City. The site has limited economic potential via potential camping fees, however, it would require significant rehabilitation, per published records. VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-12 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS The purchase price was $5,250,000, all cash, which equates to $1.21 per square foot of land area. The market conditions adjusted purchase price is $1.36 per square foot of land area. The deed recorded October 24, 2011, as Document No. 139268. Data 1 is considered inferior to the subject property, due primarily to the land size, rural location, irregular and non-contiguous land area, and overall condition. Data 2 – Open Space site, Mission Viejo The sale property is a remnant open space land parcel, and represents a strip of land located between a railroad right of way and public park. The site is below the grade (bridge) of adjacent La Paz Road; there is no physical vehicular access to the site. The property is zoned OS (Open Space) consistent with the zoning of the adjacent park. The site was acquired on a speculative basis. The purchase price was $10,000, all cash, which equates to $0.39 per square foot of land area. The market conditions adjusted purchase price is $0.43 per square foot of land area. The deed recorded August 4, 2014, as Document No. 310724. Data 2 is considered far inferior to the subject property, due primarily to the far inferior access, and configuration, as well as the inferior best use/zoning. VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-13 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Data 3 – Golf Course Data 3 represents the sale of the Meadowlark Golf Course facility in Huntington Beach. The facility is relatively small for a golf course, containing only 47.530 acres of land area. The site is zoned OSPR (Open Space Parks and Recreation) and is improved with an 18-hole golf course, club house building containing 11,149 square feet, constructed in 1980±, and related on-site improvements. The purchase price equates to $4.06 per square foot of land area, as improved with the existing golf course facility, implying the underlying recreation land area, as vacant, would be significantly less than $4.06 per square foot. It is noted that the subject PR (Parks and Recreation) zone district does allow golf course facilities, however, the subject site is considered to be too small in land size to support a golf course. Regardless, Data 3 does have a similar zone, and is in a similar inland area. VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-14 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS The purchase price was $8,400,000, all cash, which equates to $4.06 per square foot of land area. The market conditions adjusted purchase price is $4.44 per square foot of land area. The sale occurred November 19, 2014, as an LLC company transfer. Data 3 is considered far superior to the subject property, due primarily to the existing golf course improvements and superior best use (as the sale OSPR zone, and land size combined, allow for golf course use). Data 4 – Great Park, Irvine Data 4 represents the sale of a portion of the former El Toro Marine Corps base, which portion is commonly known as the “Great Park.” The site is zoned for OCGP (Orange County Great Park) and P (Preservation), and contains 688 acres of land area. The site was acquired by a home developer, from the City of Irvine, for related open space use, and will be developed and utilized for various sports fields as part of a public park, a wildlife corridor, a golf course, and some agricultural use. Note however, the buyer is responsible for approximately $10,000,000 in infrastructure costs applied toward Marine Way. VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-15 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS The purchase price was $19,171,000, all cash, which equates to $0.64 per square foot of land area. The market conditions adjusted purchase price is $0.70 per square foot of land area. The deed recorded January 30, 2015, as Document No. 48405. Data 4 is considered far inferior to the subject property, due primarily to the extraordinarily large land size which is deemed far inferior (on a rate per square foot basis), and the inferior improvements, due to the required infrastructure costs. Data 5 – Butterfly Palladium, Buena Park Data 5 represents the sale of the former Movieland Wax Museum site, which use was vacated in 2005. Data 5 is located in Subdistrict B2(a) of the ECSP, which subdistrict only allows entertainment uses as a primary use; museums, hotels, and restaurants are permitted as incidental uses. The site was improved with the former Movieland Wax Museum building containing over 67,000 square feet of building area, plus ancillary buildings. Further, the southerly portion of the site is encumbered with a KV highline. VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-16 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS The site required extensive demolition, and the former museum building included asbestos; the sale price of $2,450,000 was “net” of estimated demolition costs of $1,360,000. The site is currently being developed with a Butterfly Palladium, which will include (1) a 40,000± square foot building consisting of a rainforest atrium, honey bee exhibit, Amazon-Aqua life presentation, 3-D theater, education room, party room, café, gift shop, and related exhibits, (2) a 10,000 square themed restaurant and family entertainment center, and/or (3) a future skydiving experience venue. Note that restaurant use is only permitted in conjunction with an entertainment use (i.e. independent restaurant development is not permitted under the current entertainment zoning). The purchase price was $2,450,000, all cash, which equates to $6.43 per square foot of land area. The market conditions adjusted purchase price is $6.74 per square foot of land area. The deed May 4, 2016, as Document No. 198773. Data 5 is considered far superior to the subject property, due primarily to the far superior entertainment zoning which allows a greater variety of economic uses, which is considered to more than offset the inferior location. Data 6 – Open Space site, Dana Point VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-17 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS The sale property is a remnant open space land parcel, and represents a relatively long and narrow parcel of land located on the north side of Pacific Coast Highway, across from the ocean, in the City of Dana Point. The site is zoned OS (Open Space) and does not permit development. The seller was a real estate agent that had previously obtained a permit to utilize the site for real estate sales/signage purposes. The site has level to sloping topography, with no drive apron access. The site was acquired on a speculative basis and could reasonably be utilized for signage purposes or for potential sale to adjacent (northerly) property owners as a backyard extension. The purchase price was $30,000, all cash, which equates to $0.57 per square foot of land area. The market conditions adjusted purchase price is $0.59 per square foot of land area. The deed recorded August 31, 2016, as Document No. 414988. Data 6 is considered inferior to the subject property, due primarily to the inferior best use/zoning and topography, which is considered to outweigh the superior beach location. Data 7 – Open Space site, San Juan Capistrano VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-18 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS The sale property is a remnant open space land parcel, and represents a relatively long and narrow parcel of land located in close proximity to the ocean, in the City of San Juan Capistrano. The site is zoned GOS (General Open Space) and does not permit development. The site was marketed and sold as a non- developable site, on a speculative basis, and could reasonably be utilized for (1) potential sale to adjacent (southerly) property owners as a backyard extension, or (2) speculative zone change or variance for potential one dwelling site near the corner intersection. The purchase price was $70,000, all cash, which equates to $0.95 per square foot of land area. An adjustment for market conditions was not warranted. The deed recorded October 10, 2018, as Document No. 368414. Data 6 is considered inferior to the subject property, due primarily to the inferior best use/zoning and topography. Refer to the following array of land sales, which have been placed in the array by rating with respect to overall comparability. The rates applicable to Data 1 to Data 6 have been adjusted for market conditions (date of sale); an adjustment for market conditions was not warranted for Data 7. The adjusted rates range from $0.43 to $6.74 per square foot, as follows: Overall Rate Per Data Comparability SF Land 5 far superior $6.74 3 far superior $4.44 Subject - - - $1.50 1 inferior $1.36 7 inferior $0.95 4 far inferior $0.70 6 inferior $0.59 2 far inferior $0.43 VALUATION ANALYSIS (Continued) SALES COMPARISON APPROACH: (Continued) 3-19 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Land Value Conclusion: Based on the foregoing analysis, the rate applicable to the subject property is estimated at $1.50 per square foot of land area, as follows: 41,500 SF @ $1.50 = $62,250 Adjusted: $60,000 FINAL ESTIMATE OF LAND VALUE: Based on the foregoing analysis, the market value of the fee simple interest in the subject land parcel, as of April 10, 2019, is $60,000. See Cost Approach beginning on the following page. VALUATION ANALYSIS (Continued) 3-20 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS COST APPROACH: The Cost Approach is based on the replacement cost new of the subject building and on-site improvements, less accrued depreciation, plus the value of the underlying land parcel. The replacement costs new of the subject property have been categorized as (1) direct building costs, (2) indirect building costs, and (3) entrepreneurial profit. The value of the underlying land parcel was estimated in the preceding Sales Comparison Analysis. Direct and Certain Indirect Building Costs: The direct cost estimates employed in the following Cost Approach Analysis are based on (1) development projects wherein construction costs were available, and (2) cost estimates obtained from Marshall & Swift, a national cost service handbook that provides building costs and site improvement costs for a wide variety of construction classes and materials. The national cost service is considered a guide for estimating replacement costs, plus other related costs. It should be noted, however, that Marshall & Swift does not generally include an allocation between the direct and indirect costs. Further, cost estimates published by Marshall & Swift generally exclude the following: (1) legal and accounting fees, as well as recording fees, (2) consulting fees to obtain required reports, such as environmental impact report (EIR), a geotechnical report, traffic studies, etc., (3) real estate taxes, (4) a contingency factor, (5) financing points, and (6) entrepreneurial profit. Direct costs are those expenditures for labor and materials directly employed in the construction of the improvements. The overhead and profit of the general contractor and various subcontractors are part of the usual construction contract, and represent direct costs. Other costs associated with a project such as the subject development will include the following:  Architectural, design, and engineering fees  Building permit and review fees  Materials, products, and equipment  Labor force  Security during construction  Temporary contractor's office and fencing  Material storage facilities  Powerline installation and utility costs  Contractor’s overhead and profit  Developer’s administrative expenses  Performance bond(s) VALUATION ANALYSIS (Continued) COST APPROACH: (Continued) 3-21 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS The base direct replacement cost includes regional and local adjustments. The “base” cost new for the subject building, based on average quality Class D (wood frame and stucco) construction, and allocating between (1) the gymnasium portion of the building, containing 6,232 square feet, and (2) the remaining building area (classrooms, offices, game rooms, etc.), containing 6,161 square feet, is estimated at: Classrooms: $138.00 per square foot Gymnasium: $110.00 per square foot Additional Indirect Building Costs: In addition to the direct building costs (which include certain indirect costs), a number of additional indirect building costs or allowances will be encountered when developing an industrial warehouse similar to the subject property. Said indirect costs, while necessary for construction, (1) are not typically included in the base (direct) building cost rates, and (2) include the following: Professional services (legal/accounting) Consulting (EIR, geotechnical, etc.) Real estate taxes Contingency factor Financing points In the subject case, additional indirect costs, exclusive of profit, are based on 10% of the base construction costs and are in the total amount of $153,574. Entrepreneurial Profit: Entrepreneurial profit, or developer's profit, reflects the amount a developer expects to receive for his or her contribution in a particular project. Additionally, it represents the degree of risk and expertise associated with the development. Developers and real estate brokers familiar with the intricacies of real estate development indicate that the pro forma profit margins for building develop- ments are generally within a relatively wide range of 10% to exceeding 20% of the direct and indirect development costs. The actual profit margin, upon completion of a particular project, however, can vary considerably depending on a number of factors such as cost overruns, unanticipated additional expenses, labor force negotiations, etc. VALUATION ANALYSIS (Continued) COST APPROACH: (Continued) 3-22 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS After considering current economic conditions, an entrepreneurial profit based on 15% of the total direct and indirect building costs has been employed in the subject cost study. The entrepreneurial profit for the subject development is estimated at $253,397. Accrued Depreciation: Accrued depreciation is a loss in property value due to any cause. The five basic types of accrued depreciation that affect building structures are summarized as follows:  Curable physical deterioration  Incurable physical deterioration  Curable functional obsolescence  Incurable functional obsolescence  External obsolescence Depreciation resulting from incurable physical deterioration has been based upon an effective age-life technique, which is a straight line method. The depreciation was estimated after (1) conducting a physical interior and exterior inspection of the subject building, and (2) considering the effective age and remaining physical and economic life of the building improvements, based on the physical characteristics, as well as the immediate environmental influences, land values in the subject market, trends pertaining to industrial redevelopment, etc. Note that the remaining “life” of the subject building takes into consideration all of the factors which influence the remaining economic life, including the location of the subject property, land values in the subject vicinity, the current cost necessary to redevelop the subject site, the physical condition of the building and overall functional utility, the state of the current real estate market, plus the state of the local and national economy. The subject building was originally constructed in 1975±, having an actual age of approximately 44 years, however, the building was remodeled in 2008. Considering the below average condition of the subject building, the overall effective age of the subject building is estimated at 30 years. The remaining life, considering the present utility and contributory benefit to the land, is estimated at 20 years. The indicated overall depreciation attributable to the subject building, therefore, is 60% (30/50). VALUATION ANALYSIS (Continued) COST APPROACH: (Continued) 3-23 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Cost Approach Analysis: The Cost Approach Analysis applicable to the existing subject development is set forth following; the land value was estimated in the preceding portion of this section. Cost Analysis: Recreation Center Building: Direct and Certain Indirect Costs: Classrooms/offices/game rooms: 6,161 sf x $138.00 = 850,218 Gymnasium: 6,232 sf x $110.00 = 685,520 Subtotal: $1,535,738 Additional indirect costs (10%): 153,574 Total direct and indirect costs:$1,689,312 Entrepreneurial Profit (15%):253,397 Total building cost new:$1,942,709 Depreciation: Typical Age/Life: 60%- 1,165,625 Deprecaited value of building:$777,084 Depreciated value of on-site improvements: Asphalt paving (driveways and pkg lot): 5,500 sf x $2.15 x 0.75* = 8,869$ Concrete walkways: 4,950 sf x $8.00 x 0.75* = 29,700 Outdoor basketball court: 5,760 sf x $7.50 x 0.75* = 32,400 Trash enlcosure, conc. blk., 6' high: 20 lf x $115 x 0.50* = 1,150 Concrete curbing: 375 lf x $20.50 x 0.75* = 5,766 Subtotal: 77,885$ Contributory value of landscaping:15,000 * Reciprocal of depreciation rate. Total, depreciated value of on-site improvements:92,885 Total, depreciated value of building and on-site improvements:$869,969 Adjusted: $870,000 Land value (via Sales Comparison Approach): 60,000 Total market value of subject property:$930,000 VALUATION ANALYSIS (Continued) 3-24 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS MARKET RENT: The purpose of this appraisal is to estimate the market rent applicable to the subject property. Further, an allocation is included for the NMUSD portion of the site containing 2,560 square feet of land area, and improved with a portion of the existing basketball court. As noted, there is a lack of comparable recreation and/or community center properties in the open market in which a market rental rate can be derived via direct comparison. As such, in order to estimate the rental value of the subject property, it is necessary to apply an appropriate rate of return to the market value of the subject property (land and improvements). Rate of Return: In determining the appropriate rate of return to apply to the subject property, the appraiser considered (1) gross annual rates of return received by public agencies and large land-holding private corporations, (2) national capitalization rates and yield rates, obtained by large private real estate investment firms, and (3) range of capitalization rates for conventional properties in the immediate and general subject market area. Following is the gross annual return rates received by public agencies and large real estate corporations: City of Long Beach: 7-10% City of Los Angeles: 8-10% County of Los Angeles: 6-9% County of Orange: 8-10% Irvine Company: 9-10% Watson Land Company: 8-10% Newhall Land Company: 8-10% The rates in the above-mentioned table effectively represent those rates which the public agency seeks to obtain at their sites over a long-term holding period (20+ years). Sites located in areas of high demand and/or limited availability can achieve the higher rates (as quoted in the table above), while sites which are more “typical” or “common” are often leased at lower rates. Further, note that short term capitalization rates are generally 2% to 4% lower than the public agency rates of return. VALUATION ANALYSIS (Continued) MARKET RENT: (Continued) 3-25 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS As stated, in addition to the rates of return sought by public agencies and private real estate companies, a review was conducted of national yield rates (internal rates of return) obtained by private real estate investors, on a quarterly basis. The rates were obtained from the Price Waterhouse Cooper (PWC) Investor Survey. The overall capitalization rates, as well as the investment yield rates (also known as discount rates) were obtained from the PwC Investor Survey, First Quarter, 2019. The PWC is a quarterly publication based on a survey of real estate investors and developers. Said survey includes economic and financial information, plus rates produced by acquisitions and dispositions of large income-producing properties. Following is a summary of certain average yield rates, as obtained from Korpacz: Cap Rate Yield Rate Los Angeles Office Market: 5.98% 7.63% National Net Lease Market 6.77% 7.52% National Strip Shopping Center Market: 6.63% 7.73% Pacific Region Apartment Market: 4.54% 6.63% As noted, the overall yield rates (discount rates) are generally 1% to 2.5% greater than the capitalization rates (which are based on a single year income). Note, however, the yield rates are generally based on long term investments, and include the return on capital and appreciation of the underlying real estate investment. As such, in the subject case, the capitalization rate range is deemed more appropriate, which range (excluding apartments) is 5.98% to 6.77%. As will be demonstrated, however, capitalization rates for conventional commercial property (office and retail), in the Orange County and Newport Beach area, are generally at the lower end of the range, as follows: Cap Rate Orange County Office Market: 5.5%-5.7% Orange County Retail Market 5.2%-5.4% Newport Beach Office Market: 5.3%-5.4% Newport Beach Retail Market: 4.6%-5.1% VALUATION ANALYSIS (Continued) MARKET RENT: (Continued) 3-26 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Although the capitalization rates for conventional retail properties in Newport Beach and Orange County are at the lower end of the range, the subject Boys and Girls Club is an atypical special use property which, by nature, has a lower value and higher risk (i.e. higher rate of return). As such, the rate of return deemed applicable to the subject property, as applied to both the underlying land and the existing improvements, is estimated at 6.0%. Market Rent Conclusion – Property as a whole: Based on the foregoing analysis, the market rent deemed applicable to the subject property as a whole, allocated between the underlying land and improvements, is estimated at $55,800 per year, or $4,650 per month, as follows: Fair market rent - Property as a whole: Land Value: $60,000 Rate of Return: 6.0% Annual Rent, land only: $3,600 Monthly Rent, land only: $300 Value of building and site improvements: $870,000 Rate of Return: 6.0% Annual Rent, building and site improvements: $52,200 Monthly Rent, building and site improvements: $4,350 Reconciliation - property as a whole: Annual Rent, land only: 3,600$ Annual Rent, building and site improvements: 52,200 Total Annual Rent: 55,800$ Total Monthly Rent: $4,650 VALUATION ANALYSIS (Continued) MARKET RENT: (Continued) 3-27 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Allocation of School District Portion: As stated, the appraisal study also sets forth the market rent for the allocated portion of the Newport Mesa Unified School District (NMUSD) site. Said NMUSD site contains 2,560 square feet of land area, valued at $1.50 per square foot ($3,840). The NMUSD site is improved with a portion of the basketball court, which site improvement is valued at $7.50 per square foot (cost new), and depreciated 25%. The rate of return applied to the allocated portion of the NMUSD is 6.0% (as part of the whole). Market Rent Conclusion – NMUSD Allocated Portion: Based on the foregoing analysis, the market rent deemed applicable to the NMUSD portion of the site, allocated between the underlying land and improvements, is estimated at $1,094 per year, or $91.17 per month, as follows: Allocation of Newport Mesa Unified School District portion: Land Value: 2,560 sf x $1.50 = 3,840$ Rate of Return: 6.0% Annual Rent, land only: $230 Monthly Rent, land only: $19.17 Value of allocated basketball court improvements: 2,560 sf x $7.50 x 0.75* = 14,400 Rate of Return: 6.0% Annual Rent, land only: $864 Monthly Rent, land only: $72.00 Reconciliation - Allocation of School District portion: Annual Rent, land only: 230$ Annual Rent, basketball court improvements: 864 Total Annual Rent: 1,094$ Total Monthly Rent: $91.17 VALUATION ANALYSIS (Continued) 3-28 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS FINAL ESTIMATE OF RENTAL VALUE: Based on the foregoing analysis, the fair market rental rate applicable to the subject property, as of April 10, 2019, is summarized as follows: Said rental rates are based on a triple net (NNN) rental arrangement wherein the lessee (tenant) would be responsible for the payment of real estate taxes (if any), insurance premiums, utilities, maintenance, etc. Further, the applicable rental rate would be subject to annual adjustments, typically based on the Consumer Price Index (CPI), with re-adjustment to market levels at set intervals (every 3, 5 or 10 years). Property as a Whole: Annual Rent, land only: 3,600$ Annual Rent, building and site improvements:52,200 Total Annual Rent:55,800$ Total Monthly Rent:$4,650 Allocation of School District Portion: Annual Rent, land only: 230$ Annual Rent, basketball court improvements: 864 Total Annual Rent: 1,094$ Total Monthly Rent: $91.17 ADDENDA 5-1 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS See Photo No. 1 on first page of Subject Property Description Section.                             PHOTO NO. 2: View looking southwesterly at the subject property from Vista Del Oro.. PHOTO NO. 3: View looking southeasterly at the rear elevation of the subject building and basketball court. 5-2 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS PHOTO NO. 4: Interior view of main game room. PHOTO NO. 5: Interior view of typical classroom. 5-3 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS PHOTO NO. 6 Interior view of gymnasium. PHOTO NO. 7: Interior view of hallway. 5-4 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS PHOTO NO. 8: Interior view of kitchen area. PHOTO NO. 9: View looking southerly along Vista Del Oro from a point adjacent to the subject property. R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS QUALIFICATIONS OF APPRAISER 1 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS BACKGROUND AND QUALIFICATIONS John P. Laurain, MAI, ASA Certified General Real Estate Appraiser California Certification No. AG 025754 PRESIDENT: R. P. Laurain & Associates, Inc. 3353 Linden Avenue, Suite 200 Long Beach, California 90807 Office: (562) 426-0477 - Fax: (562) 988-2927 rpla@rplaurain.com PROFESSIONAL ORGANIZATION AFFILIATIONS: The Appraisal Institute MAI Designated Member American Society of Appraisers Senior member; hold professional endorsement and designation “ASA” in urban real estate. American Arbitration Association Associate arbitrator in title insurance matter. Certified General Real Estate Appraiser by the Office of Real Estate Appraisers, State of California. Certification No. AG 025754. APPRAISAL BACKGROUND: Real estate appraisal and valuation consultation services conducted for public purposes include eminent domain studies, street widening and grade separation (bridge) projects, public school and university expansion projects, relocation studies, housing and public loan programs, Navy housing, senior housing, public bond measures, leasing of publicly-owned properties, Quimby Act park fee studies, Fair Political Practices Commission analyses, budgetary studies, and transfers (exchanges) of properties between public agencies. Private real estate appraisal services have been conducted for lending institutions, insurance companies, attorneys, estates for tax and donation purposes, private subdivision development studies, and other private uses. BACKGROUND AND QUALIFICATIONS (Continued) APPRAISAL BACKGROUND: (Continued) 2 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Residential Property: Residential properties appraised include single family, condominiums, own- your-own, townhouse, low and medium density multiple family, 100+ unit apartment complexes, waterfront properties, boat docks, mobile home parks, vacant single-family lot and acreage parcels, and low to high density vacant land parcels. Commercial and Industrial Property: Commercial property appraisal studies have included single and multi-tenant retail, strip centers, shopping centers, low-rise and high-rise office buildings, medical offices, restaurants and fast-food developments, nightclubs, con- venience stores, theaters, automobile repair and service facilities, service stations, truck fueling and washing stations, car wash facilities, automobile sales, mixed-use properties including single resident occupancy (SRO) developments, as well as hotel and motel properties, and vacant land. Industrial property appraisals have included warehouses, light and heavy manufacturing, distribution and transit facilities, food processing, cold storage, lumber yards, recycling centers, open storage, vacant land, remnant and landlocked parcels, properties encumbered with oil and water injection wells, sites with soil contamination and land fill properties. Special Purpose and Special Use Properties: Appraisal services and valuation studies of public, quasi-public, special use, and nonprofit facilities include, among others, seaport properties, airport properties (FBO, hangars, warehouse, office, land, etc.), submerged land, river rights-of- way, reservoirs, agricultural land, conservation/mitigation and wetland properties, utility and railroad rights-of-way, flood control channels, city hall buildings and civic center complexes, courthouses, libraries, fire and police stations, post offices, public parking structures, parks, public and private schools, adult learning centers, athletic facilities and gyms, bowling alleys, tennis centers, youth homes, after school facilities, daycare facilities, hospitals, skilled nursing facilities, churches, meeting halls and veteran facilities. Valuation Methodologies: In addition to the three conventional valuation methods (Sales Comparison Approach, Cost-Summation Approach, and Income Capitalization Approach), valuation methodologies have included discounted cash flow analyses, leased fee, and leasehold analyses, absorption discounts, deferred maintenance, cost- to-cure, bonus value, excess rent, across-the-fence, value-in-use, fractional interests, hypothetical valuations, and reuse studies. BACKGROUND AND QUALIFICATIONS (Continued) APPRAISAL BACKGROUND: (Continued) 3 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Property interests appraised for eminent domain purposes include full and partial takings, as well as severance damage and project benefit studies. Valuation of various types of easements have included permanent surface, street, temporary construction, slope, utility, pipeline and subsurface, aerial, bridge structure, signal light, exclusive and nonexclusive surface rights, multi- layered, battered pilings, tie-back, railroad, drainage ditch, and flood control easements. Clients: Real estate research, analysis and appraisal services performed on projects for the following public agencies and private corporations while associated with R. P. Laurain & Associates, Inc., since 1986: Cities: City of Alhambra City of Artesia City of Azusa City of Baldwin Park City of Bell City of Bell Gardens City of Bellflower City of Buena Park City of Burbank City of Carson City of Cathedral City City of Chino Hills City of Compton City of Covina City of Cudahy City of Cypress City of Diamond Bar City of Downey City of El Monte City of El Segundo City of Glendale City of Hawaiian Gardens City of Huntington Beach City of Huntington Park City of Industry City of Irwindale City of La Mirada City of Lawndale City of Long Beach City of Los Alamitos City of Los Angeles City of Monrovia City of Monterey Park City of Newport Beach City of Norwalk City of Ontario City of Palmdale City of Palm Springs City of Paramount City of Pasadena City of Riverside City of Rosemead City of San Juan Capistrano City of Santa Ana City of Santa Fe Springs City of Seal Beach City of Signal Hill City of South El Monte City of South Gate City of Tustin City of Upland City of West Hollywood City of Whittier BACKGROUND AND QUALIFICATIONS (Continued) APPRAISAL BACKGROUND: (Continued) 4 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS Other Public and Quasi-Public Agencies: Alameda Corridor Engineering Team Alameda Corridor Transportation Authority California High Speed Rail Authority Caltrans Castaic Lake Water Agency Hawthorne School District Kern County Long Beach Community College District Long Beach Airport Long Beach Unified School District Long Beach Water Department Los Angeles County Department of Beaches and Harbors Los Angeles County Chief Executive Office Los Angeles County Internal Services Department Los Angeles County Metropolitan Transportation Authority Los Angeles County Public Works Los Angeles Unified School District Los Angeles World Airports Lynwood Unified School District Orange County Transportation Authority Orange County Public Works Port of Los Angeles Port of Long Beach Riverside County Transportation Commission San Bernardino County Southern California Edison State of California, Santa Monica Mountains Conservancy U. S. Department of the Navy U. S. Postal Service Other: Various attorneys, corporations, lending institutions, and private individuals. Gold Coast Appraisals, Inc.: Associate appraiser, as independent contractor, during portions of 1991 and 1992, specializing in appraisal of single family residential through four-unit residential properties. BACKGROUND AND QUALIFICATIONS (Continued) 5 R. P. LAURAIN & ASSOCIATES APPRAISERS - ANALYSTS EXPERT WITNESS: Qualified as an expert witness in the Los Angeles County Superior Court, Central District. Qualified as an expert witness Orange County Superior Court. Qualified as an expert witness in an arbitration matter before Judicial Arbitration and Mediation Services in the Counties of Los Angeles and Orange. Provided testimony as an expert witness in conjunction with eminent domain matters before the San Bernardino and Riverside County Superior Courts. ACADEMIC BACKGROUND: Cypress Community College - Basic curriculum. Long Beach Community College - Basic curriculum. Real estate and related courses taken through and at various Community Colleges, Universities, the Appraisal Institute, and business schools, in accordance with the Continuing Education Requirements of the State of California, as follows: Fundamentals of Real Estate Appraisal Appraisal Principles and Techniques California Real Estate Principles Real Estate Appraisal: Residential Principles of Economics California Real Estate Economics Basic Income Capitalization Approach Advanced Income Capitalization Approach Advanced Market Analysis and Highest & Best Use Advanced Applications Advanced Concepts and Case Studies Real Estate Escrow California Real Estate Law Uniform Standards of Professional Appraisal Practice, Part A Uniform Standards of Professional Appraisal Practice, Part B Federal and State Laws and Regulations Uniform Appraisal Standards for Federal Land Acquisitions (Yellow Book) Valuation of Conservation Easements ATTACHMENT C REAL PROPERTY INVENTORY OF BELOW FAIR MARKET VALUE RENT 1 0 5 0 ‐ 2 1 0 ‐ 0 2 Ba l b o a   Y a c h t   B a s i n   ‐   S l i p   B 2 82 9   H a r b o r   I s l a n d   D r i v e Sa i l i n g   F a s c i n a t i o n Y e s Sa i l i n g l e s s o n s a n d r i d e s f o r d i s a b l e d , in c l u d i n g v e t e r a n s . V o l u n t e e r s f r o m Fr i e n d s   o f   O a s i s . TS ‐ T i d e l a n d s a n d S u b m e r g e d L a n d s , Wa t e r 2 0   f o o t   s l i p Slip Rental Agreement 04/09/2013 ‐ 04/09/2023 $ 1 . 0 0   $ 5 , 9 1 3 . 6 0   20 foot slip, FY19‐20 $24.64 per foot per month 2 4 2 3 ‐ 2 5 5 ‐ 0 2 Lid o   I s l e   S t r e e t   E n d   P a r k s St r e e t   E n d s   ‐   L i d o   I s l a n d Lid o   I s l e   C o m m u n i t y   A s s o c i a t i o n Y e s St r e e t ‐ e n d p a r k s , e x c l u s i v e u s e b y H O A me m b e r s , w i t h s i d e w a l k s f o r p u b l i c a c c e s s to   t i d e l a n d s . P R   ‐   P a r k s   a n d   R e c r e a t i o n 1 1 6 , 5 6 6   s f   Lease 4/1/2000 ‐ 3/31/2025  $ 0 . 0 0   R a n g e   $ 1 0 , 4 9 0 . 9 4   ‐   $ 2 7 , 9 7 5 . 8 4 Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 3 0 5 0 ‐ 2 2 1 ‐ 0 2 Be a c o n   B a y   C o m m o n   A r e a s 1  B e a c o n   B a y   ( a p p r o x i m a t e ) Be a c o n   B a y   C o m m u n i t y   A s s o c i a t i o n Y e s En t r y w a y l a n d s c a p i n g , s t r e e t s , s i d e w a l k s , pa r k w a y s , b e a c h e s , t e n n i s c o u r t s a n d co m m o n   p a r k i n g . PR ‐ P a r k s a n d R e c r e a t i o n . O S ‐ O p e n Sp a c e . 1 9 6 , 0 7 8   s f Lease 02/08/2005 ‐ 07/01/2044 $ 0 . 0 0   R a n g e   $ 1 7 , 6 4 7 . 0 2   ‐   $ 4 7 , 0 5 8 . 7 2 Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 4 1 1 7 ‐ 8 0 1 ‐ 1 0 Lo w e r   C a s t a w a y s   P a r k 10 0   D o v e r   D r i v e   ( p o r t i o n   o f   p a r c e l ) Ne w p o r t   O u t r i g g e r   C a n o e   C l u b Y e s C a n o e   s t o r a g e . CM ‐ R e c r e a t i o n a l a n d M a r i n e Co m m e r c i a l ,   P C 3 7   C a s t a w a y s   M a r i n a 6 , 9 9 2   s f Lease Automatic Renewal ‐ 1 year term $ 2 , 4 0 0   $ 8 8 , 0 9 9 . 2 0   January 2017, General Commercial property on PCH, appraised land value as if vacant $210 sf, @ 6% return = $88,099.20 Comparable locations listed for lease on CoStar:Recreational and Marine Commercial on Bayside Drive at $51‐63 sf/year for office space. 5 1 1 7 ‐ 8 0 1 ‐ 1 0 Lo w e r   C a s t a w a y s   P a r k 10 0   D o v e r   D r i v e   ( p o r t i o n   o f   p a r c e l ) (P e n d i n g )   C a s t a w a y s   O u t r i g g e r   C a n o e   C l u b Y e s C a n o e   s t o r a g e . CM ‐ R e c r e a t i o n a l a n d M a r i n e Co m m e r c i a l ,   P C 3 7   C a s t a w a y s   M a r i n a 2 , 6 1 3   s f Lease Automatic Renewal ‐ 1 year term $ 2 , 4 0 0   5 4 2 4 ‐ 4 0 1 ‐ 1 1 15 t h   S t r e e t   E x t e n s i o n   a t   1 4 9 9   M o n r o v i a 14 9 9   M o n r o v i a PC H S   F a c i l i t i e s   L L C   ( P a c i f i c a   C h r i s t i a n   H i g h   Sc h o o l ) N o S i t e   a c c e s s   a n d   p a r k i n g . R M   ‐   M u l t i p l e ‐ U n i t   R e s i d e n t i a l 13 , 1 9 5   s f License Agreement 09/26/2014‐09/26/2024  Optional extension to 2034 $ 0 . 0 0   $ 6 3 , 3 3 6   March 2014, Public Facilities property in West Newport (less than 250 feet from property) appraised land value as if vacant $80 sf, @ 6% return = $63,336 2017 sale at $6,850,000 for 34,960 sf, $195.94/sf. $196 x 12,707 = $2,490,572 @ 6% return = $149,434 6 4 4 2 ‐ 0 7 1 ‐ 2 2 33 0 0   J a m b o r e e   R d   33 0 0   J a m b o r e e   R d Fl e t c h e r   J o n e s   M o t o r   C a r s ,   I n c . N o Au t o m o b i l e d e a l e r s h i p a n d a n c i l l a r y u s e s , su b j e c t t o S L U R S , w h i c h p r o h i b i t s co n s t r u c t i o n o f a b u i l d i n g . E n c r o a c h m e n t Ag r e e m e n t f o r 6 6 , 0 8 5 s f p o r t i o n o f Ba y v i e w W a y r i g h t ‐ o f ‐ w a y u s e d a s pa r k i n g , s h u t t l e s t o p , a n d s t a g i n g f o r n o fe e . CG ‐ G e n e r a l C o m m e r c i a l , P C 4 2 S a n D i e g o Cr e e k   N o r t h 1 1 2 , 7 6 8   s f Lease 05/20/1996 ‐ 5/20/2046 Optional extension to 2066 $ 1 . 0 0   $ 1 , 4 2 0 , 8 7 6   January 2017, General Commercial property on PCH, appraised land value as if vacant $210 sf, @ 6% return = $1,420,876.80 Office Airport on Quail and Campus $23.40 sf/year for light industrial building.General Commercial on PCH in Mariner's Mile $66‐81 sf/year for retail building.  7 4 4 0 ‐ 1 3 2 ‐ 4 2   /   4 4 0 ‐Ba c k   B a y   S c i e n c e   C e n t e r 60 0   S h e l l m a k e r   R o a d Mu l t i p l e   A g e n c i e s   ‐   C i t y   o f   N e w p o r t   B e a c h ,   St a t e   o f   C a l i f o r n i a ,   C o u n t y   o f   O r a n g e ,   Un i v e r s i t y   o f   C a l i f o r n i a   a t   I r v i n e P u b l i c   A g e n c i e s Ed u c a t i o n a l a n d r e s e a r c h p r o g r a m s a n d ex h i b i t s . W a t e r Q u a l i t y L a b t o b e ma i n t a i n e d b y C o u n t y o f O r a n g e . C i t y ma n a g e s a n d p e r f o r m s r e g u l a r ma i n t e n a n c e a n d j a n i t o r i a l w o r k , a n d ho l d s p o l i c i e s o f i n s u r a n c e f o r t h e pr o p e r t y . U C I t o p r o v i d e 1 / 3 o f a n n u a l co s t t o m a i n t a i n c o m m o n p a r k i n g a r e a . Ca p i t a l p r o j e c t s a n d i m p r o v e m e n t s t o b e pla n n e d a n d p a i d f o r b y a l l a g e n c i e s pu r s u a n t   t o   F a c i l i t i e s   W o r k i n g   G r o u p . S t a t e   t i d e l a n d s ,   n o   G e n e r a l P l a n   o r   Z o n i n g La n d   ‐   9 5 , 9 0 3   s f Bu i l d i n g   ‐   1 2 , 4 0 9   s f Master Lease Agreement 01/01/2008‐01/01/2033 Optional extension to 2048 $ 0 . 0 0    Land ‐ Range $8,631.27 ‐ $23,016.72 Building ‐ $52,241.89 Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year.Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year, and value for building $70.20/sf, at 6% return = $4.21/sf/year.Notes Sit e   # Current Payment $/year AP N P r o j e c t   N a m e Estimated Annual FMV Rent Pr o p e r t y   A d d r e s s T e n a n t   N a m e N o n ‐ P r o f i t   D e s c r i p t i o n   o f   U s e Agreement/Term Ar e a Ge n e r a l   P l a n   &   Z o n i n g In v e n t o r y   o f   A g r e e m e n t s   ( R e n t   <   F a i r   M a r k e t   V a l u e ) Pa g e   1   o f   3 Notes Sit e   # Current Payment $/year AP N P r o j e c t   N a m e Estimated Annual FMV Rent Pr o p e r t y   A d d r e s s T e n a n t   N a m e N o n ‐ P r o f i t   D e s c r i p t i o n   o f   U s e Agreement/Term Ar e a Ge n e r a l   P l a n   &   Z o n i n g In v e n t o r y   o f   A g r e e m e n t s   ( R e n t   <   F a i r   M a r k e t   V a l u e ) 8 0 4 8 ‐ 1 3 3 ‐ 1 6 Ba l b o a   A n g l i n g   C l u b   20 0   A   S t r e e t ,   B a l b o a Ba l b o a   A n g l i n g   C l u b Y e s Ma n a g e a n d o p e r a t e a n o n ‐ p r o f i t a n g l i n g clu b t o f u r t h e r t h e p u r p o s e o f r o d a n d r e e l fi s h i n g , f i s h c o n s e r v a t i o n , a n d g o o d w i l l o f pe r s o n s i n t h e f i s h i n g i n d u s t r y . M u s t in c l u d e h o s t i n g a n d p r o m o t i n g o f c i v i c , re c r e a t i o n a l , a n d e d u c a t i o n a l p r o g r a m s , an d m a k e s e r v i c e s , p r o g r a m s , a n d f a c i l i t i e s av a i l a b l e   t o   p u b l i c   a t   c o s t .   C V   ‐   C o m m e r c i a l   V i s i t o r ‐ S e r v i n g 3 , 5 56   s f Lease 5/10/1999 ‐ 5/10/2024 $ 0 . 0 0    Range ($31/sf) $110,236 ‐ ($47.40/sf) $168,554.40 Comparable properties for lease, as listed on CoStar:Mixed Use ‐ Water Related in Lido Marina Village at $31‐38 sf/year Mixed Use ‐ Visitor Serving in Balboa Village at $43.33 sf/year up to $63 sf/year for restaurant Commercial Visitor‐Serving on Newport Boulevard (not waterfront) at $47.40 sf/year 9 4 4 0 ‐ 1 6 1 ‐ 0 1 Bo y s   &   G i r l s   C l u b   o f   H a r b o r   A r e a 25 5 5   V i s t a   D e l   O r o Bo y s '   a n d   G i r l s '   C l u b   o f   t h e   H a r b o r   A r e a Y e s Ex i s t i n g l e a s e ‐ M a n a g e a n d o p e r a t e a bo y s ' a n d g i r l s ' c l u b t o i n s t r u c t c h i l d r e n o f al l a g e s i n a t h l e t i c s , h a n d i c r a f t s a n d sp o r t s m a n s h i p . A l l s e r v i c e s , p r o g r a m s a n d fa c i l i t i e s s h a l l b e m a d e a v a i l a b l e t o t h e pu b l i c   o n   f a i r   a n d   r e a s o n a b l e   t e r m s . P R   ‐   P a r k s   a n d   R e c r e a t i o n La n d   ‐   4 1 , 5 0 0   s f Bu i l d i n g   ‐   1 2 , 3 9 3   s f Lease 6/22/1998‐6/30/2023 $ 0 . 0 0   $ 5 5 , 8 0 0 . 0 0   Per appraisal ‐ land rent $3,600/year for 41,500 sf, building $52,200/year for 12,393 sf. 6% return. 10 N o   A P N Co r o n a   d e l   M a r   F a r m e r s '   M a r k e t Ba y s i d e   P a r k   P a r k i n g   L o t s Ric k   H e i l ,   D B A   C o r o n a   d e l   M a r   C e r t i f i e d   Fa r m e r s '   M a r k e t Y e s O p e r a t i o n   o f   a   c e r t i f i e d   f a r m e r s '   m a r k e t . Pa r k a n d p u b l i c p a r k i n g l o t , n o G e n e r a l Pla n   o r   Z o n i n g 1 9 , 4 1 6   s f License Agreement 05/13/2014‐05/12/2024 $ 3 , 9 7 4 . 2 8 $ 1 3 9 , 8 1 6 . 8 0   $120 sf land value, $2,330,280, @ 6% return. 11 0 4 7 ‐ 3 0 0 ‐ 0 1 Do r y   F i s h e r m a n ' s   F l e e t 21 1 1   W e s t   O c e a n   F r o n t   ( a p p r o x i m a t e ) Do r y   F i s h e r m a n ' s   F l e e t N o Lo c k e r s f o r s t o r a g e o f f i s h i n g g e a r a n d eq u i p m e n t , a n d s t a l l s f o r w h o l e s a l e f i s h ma r k e t ,   o p e n   t o   t h e   p u b l i c .   P R   ‐   P a r k s   a n d   R e c r e a t i o n La n d   ‐   5 , 8 7 8   s f Bu i l d i n g   ‐   2 , 1 1 0   s f Permit 11/23/2018 ‐ 11/23/2028 $ 0 . 0 0   Land ‐ Range $529.02 ‐ $1,410.72 Building ‐ $8,883.10Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 12 0 4 7 ‐ 1 9 0 ‐ 0 9 Gir l   S c o u t   C o u n c i l   o f   O r a n g e   C o u n t y 17 0 0   W e s t   B a l b o a   B o u l e v a r d Gi r l   S c o u t   C o u n c i l   o f   O r a n g e   C o u n t y Y e s Co n s t r u c t i o n , o p e r a t i o n a n d m a i n t e n a n c e of a G i r l S c o u t p r o g r a m f a c i l i t y u s e d f o r tr o o p m e e t i n g s , o t h e r y o u t h g r o u p me e t i n g s , a n d o v e r n i g h t s t a y s . U s e w i l l pr o v i d e   e x p e r i e n t i a l   l e a r n i n g   a c t i v i t i e s   t h a t   em p h a s i z e t h e e n v i r o n m e n t , c o n s e r v a t i o n an d   s u s t a i n a b i l i t y .   P R   ‐   P a r k s   a n d   R e c r e a t i o n ,   M a r i n a   P a r k 4 9 , 5 9 4  s f Lease 06/27/2013 ‐ 06/27/2063 $ 1 . 0 0   R a n g e   ‐   $ 4 , 4 6 3 . 4 6   ‐   $ 1 1 , 9 0 2 . 5 6 Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 13 4 2 3 ‐ 1 2 3 ‐ 0 3 Lid o   M a r i n a   V i l l a g e   34 5 0   V i a   O p o r t o   ( a p p r o x i m a t e ) Lid o   M a r i n a   V i l l a g e   C e r t i f i e d   F a r m e r s '   Ma r k e t N o O p e r a t i o n   o f   a   c e r t i f i e d   f a r m e r s '   m a r k e t . Pu b l i c R i g h t ‐ o f ‐ W a y , n o G e n e r a l P l a n o r Zo n i n g 2 7 , 7 3 9   s f License Agreement 06/25/2019 ‐ 06/24/2024 $ 4 , 2 0 0   $ 4 8 , 1 6 4 . 1 5   [Lot at Central Ave ‐ $1.60/hour, 8am to 6pm, daily, 2hour max, 25 spaces] FY19 Revenue ‐ $54,397 = 37.3% utilization ($400/day, $146,000/year, $54,397/146,000)] [1 parking space = 143sf. 27739sf/143=194 parking spaces] [Market hours 11am to 7pm, 8 hours ‐‐194 spaces x ($1.60/hr x 8 hours=$12.80)=$2,483.20/day or $129,126.40/year]  14 0 4 7 ‐ 3 0 0 ‐ 0 1 Mc F a d d e n   S q u a r e   P l a z a 1  N e w p o r t   P i e r   ( a p p r o x i m a t e ) Sp r o u t s   o f   P r o m i s e   F o u n d a t i o n   ‐   F a r m e r s '   Ma r k e t Y e s O p e r a t i o n   o f   a   c e r t i f i e d   f a r m e r s '   m a r k e t . Pu b l i c R i g h t ‐ o f ‐ W a y , n o G e n e r a l P l a n o r Zo n i n g 7 , 1 1 0   s f License Agreement 09/13/2015 ‐ 09/13/2024 $ 3 , 9 2 9 . 5 2 $ 1 3 , 1 8 5 . 9 0   [Bayside Lot ‐ $2.30/hour, 8am to 6pm, daily, 211 spaces] FY19 Revenue ‐ $434,309 = 24.5% utilization (2.30x10x211x365=$1,771,345)] [7110/143=50 parking spaces][Market hours 7am‐4pm, 9 hours ‐‐50 spaces x ($2.30/hrx9hours=$20.70)=$1,035/day or $53,820/year] 15 0 4 8 ‐ 3 0 1 ‐ 0 7 "N "   S t r e e t   B e a c h 21 4 4 ‐ 2 2 0 4   B a l b o a   B l v d   E Ba l b o a   P e n i n s u l a   P o i n t   A s s o c i a t i o n Y e s Re c r e a t i o n a l u s e o f b e a c h , f o r e x c l u s i v e us e   b y   m e m b e r s   o f   a s s o c i a t i o n . P R   ‐   P a r k s   a n d   R e c r e a t i o n 3 0 , 0 9 2   s f Lease 08/12/1969 ‐ Automatic Renewal ‐ 1 year term $ 0 . 0 0   $ 1 5 , 6 4 7 . 8 4   Using residential pier rates of $0.52 per square foot per year. Pa g e   2   o f   3 Notes Sit e   # Current Payment $/year AP N P r o j e c t   N a m e Estimated Annual FMV Rent Pr o p e r t y   A d d r e s s T e n a n t   N a m e N o n ‐ P r o f i t   D e s c r i p t i o n   o f   U s e Agreement/Term Ar e a Ge n e r a l   P l a n   &   Z o n i n g In v e n t o r y   o f   A g r e e m e n t s   ( R e n t   <   F a i r   M a r k e t   V a l u e ) 16 1 1 7 ‐ 3 8 1 ‐ 0 6 Ne w p o r t   A q u a t i c   C e n t e r 1  W h i t e c l i f f s   D r i v e Ne w p o r t   A q u a t i c   C e n t e r Y e s Fa c i l i t i e s t o p r o m o t e s p o r t s i n v o l v i n g hu m a n ‐ p o w e r e d w a t e r c r a f t , i n c l u d i n g bo a t s t o r a g e , m u l t i ‐ p u r p o s e a r e a a n d me e t i n g r o o m , w e i g h t t r a i n i n g r o o m , sm a l l o f f i c e s f o r c o n d u c t a n d o p e r a t i o n o f fa c i l i t y , l o c k e r r o o m s , a n d s u c h o t h e r fa c i l i t i e s i n c i d e n t a l t o t h e o p e r a t i o n in c l u d i n g a b u l k h e a d , l o w ‐ l y i n g d o c k s , la n d s c a p e , a n d a p p r o p r i a t e p u b l i c p a r k i n g , re s t r o o m f a c i l i t i e s , a n d a c c e s s t o t h e be a c h . P R   ‐   P a r k s   a n d   R e c r e a t i o n La n d   ‐   1 7 3 , 8 0 4   s f Bu i l d i n g   ‐   1 8 , 2 2 8   s f Lease 10/27/1998‐10/27/2023 $ 0 . 0 0   Land ‐ Range $15,642.36 ‐ $41,712.96 Building ‐ $76,739.88Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year.Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year, and value for building $70.20/sf, at 6% return = $4.21/sf/year. 17 0 4 7 ‐ 2 9 0 ‐ 0 3 Ne w p o r t   E l e m e n t a r y   S c h o o l   P l a y f i e l d   (N M U S D ) 13 2 7   O c e a n   F r o n t   W Ne w p o r t   M e s a   U n i f i e d   S c h o o l   D i s t r i c t P u b l i c   A g e n c i e s Pla y g r o u n d a r e a f o r u s e b y c h i l d r e n pa r t i c i p a t i n g i n a c t i v i t e s o f t h e p u b l i c sc h o o l , a n d f o r u s e b y t h e p u b l i c f o r p a r k an d p l e a s u r e p u r p o s e s w h e n n o t b e i n g us e d   b y   t h e   s c h o o l . P R   ‐   P a r k s   a n d   R e c r e a t i o n 1 5 1 , 6 7 6   s f Lease 02/10/2015 ‐ 02/10/2065 $ 0 . 0 0   R a n g e   ‐   $ 1 3 , 6 5 0 . 8 4   ‐   $ 3 6 , 4 0 2 . 2 4 Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 18 4 2 3 ‐ 1 2 3 ‐ 0 2 Ne w p o r t   H a r b o r   E l k s   L o t 34 5 6   V i a   O p o r t o Ne w p o r t   H a r b o r   E l k s ,   L o d g e   1 7 6 7 Y e s Pa r k i n g f a c i l i t i e s w i t h s h a r e d u s e b y t h e Cit y a n d E l k s , w i t h p u b l i c p a r k i n g o v e r t h e pr o p e r t y f r o m 6 a m t o 6 p m d a i l y , a n d pa r k i n g r e s e r v e d f o r t h e E l k s f r o m 6 p m t o 6a m , d a i l y . O p t i o n f o r e x c l u s i v e u s e b y El k s o v e r a 2 4 ‐ h o u r p e r i o d , u p t o s i x t i m e s pe r   c a l e n d a r   y e a r ,   f o r   s p e c i a l   e v e n t s . P F   ‐   P u b l i c   F a c i l i t i e s 7 , 2 08   s f Lease 01/01/2007 ‐ 12/31/2021 $ 0 . 0 0   $ 2 7 , 1 9 8 . 5 0   FY19 Revenue for parking lot ‐ $54,397. Shared use at 12 hours. 19 4 2 5 ‐ 4 7 1 ‐ 4 4 Ne w p o r t   T h e a t r e   A r t s   C e n t e r 25 0 1   C l i f f   D r i v e   Fr i e n d s   o f   t h e   N e w p o r t   T h e a t r e   A r t s   Ce n t e r Y e s Op e r a t e a n d m a i n t a i n a c o m m u n i t y th e a t e r p r o g r a m , w i t h n e c e s s a r y t h e a t r i c a l st a g e l i g h t i n g a n d s o u n d e q u i p m e n t . T h e pr o g r a m s h a l l o f f e r n o t l e s s t h a n f o u r th e a t r i c a l p r o d u c t i o n s d u r i n g e a c h y e a r , th a t s h a l l b e o p e n t o t h e p u b l i c a t a re a s o n a b l e a d m i s s i o n p r i c e , a n d s h a l l in c l u d e a v a r i e t y o f t h e a t r i c a l , c u l t u r a l o r ar t i s t i c p r o d u c t i o n s . T h e f a c i l i t i y m a y a l s o be u s e d f o r c o m m u n i t y m e e t i n g s co n d u c t e d b y a n d / o r o n b e h a l f o f co m m u n i t y o r g a n i z a t i o n s t h a t w i l l b e n e f i t an d s e r v e t h e i n t e r e s t s o f n e a r b y re s i d e n t s . P R   ‐   P a r k s   a n d   R e c r e a t i o n La n d   ‐   7 0 , 3 5 6   s f Bu i l d i n g   ‐   7 , 9 4 7   s f Management Agreement 05/01/2001 ‐ 04/30/2011, two 5‐year extensions Automatic Renewal ‐ 1 year term $ 0 . 0 0   Land ‐ Range $6,332.04 ‐ $16,885.44 Building $33,456.87Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year.Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year, and value for building $70.20/sf, at 6% return = $4.21/sf/year. 20 N o   A P N No r t h   S t a r   B e a c h   ‐   I M U A   O u t r i g g e r   C a n o e   Cl u b 1  W h i t e c l i f f s   D r i v e   ( a p p r o x i m a t e ) Im u a   O u t r i g g e r   C a n o e   C l u b Y e s C a n o e   s t o r a g e . P R   ‐   P a r k s   a n d   R e c r e a ti o n 1 5 , 6 8 5   s f Permit Automatic Renewal ‐ 1 year term $ 0 . 0 0   R a n g e   ‐   $ 1 , 4 1 1 . 6 5   ‐   $ 3 , 7 6 4 .40Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 21 0 4 8 ‐ 1 1 6 ‐ 0 6 Pa l m   S t r e e t   L o t 60 0   E a s t   B a l b o a   B o u l e v a r d Di s c o v e r y   S c i e n c e   C e n t e r   O r a n g e   C o u n t y Y e s Op t i o n t o g r o u n d l e a s e t h e C i t y ' s p u b l i c pa r k i n g l o t , t o c o n s t r u c t a n e w m u l t i ‐ l e v e l pa r k i n g s t r u c t u r e . N e w s t r u c t u r e t o in c l u d e p u b l i c p a r k i n g , a n d p a r k i n g f o r u s e by t e n a n t i n o p e r a t i o n o f a n e x p a n d e d ex p e r i e n t i a l o c e a n l i t e r a c y c e n t e r o p e n t o th e   g e n e r a l   p u b l i c   o n   a d j a c e n t   p r o p e r t y .   PF ‐ P u b l i c F a c i l i t i e s , w i t h B a l b o a V i l l a g e Pa r k i n g   M a n a g e m e n t   O v e r l a y   D i s t r i c t 3 3 , 8 5 8   s f Option to Ground Lease Agreement 11/25/2014 ‐ 12/31/2021,Three 1‐year extensions availableInitial term ‐ $2,500, or $357.14/year,Each option $2,500/year $ 1 7 3 , 6 0 6   F Y 1 9   R e v e n u e   f o r   p a r k i n g   l o t . 22 4 5 8 ‐ 0 2 2 ‐ 0 6 Sa n   J o a q u i n   H i l l s   P a r k   &   L a w n   B o w l i n g   Ce n t e r 15 5 0   C r o w n   D r i v e   N o r t h Ne w p o r t   H a r b o r   L a w n   B o w l i n g   A s s o c i a t i o n Y e s Po r t i o n o f p a r k p r o p e r t y d e v o t e d t o t h e sp o r t o f l a w n b o w l i n g , i n c l u d i n g a clu b h o u s e , b o w l i n g g r e e e n s , a n d o t h e r fa c i l i t i e s a n d i m p r o v e m e n t s t o b e op e r a t e d f o r t h e b e n e f i t o f i t s m e m b e r s , th e C i t y , a n d i t s c i t i z e n s . W h e n n o t i n u s e by i t s m e m b e r s , t h e c l u b h o u s e i s a v a i l a b l e to c i v i c , c u l t u r a l a n d e d u c a t i o n a l g r o u p s wit h i n t h e C i t y . P u b l i c r e s t r o o m s a r e a l s o av a i l a b l e   o n   t h e   p r o p e r t y .   PR ‐ P a r k s a n d R e c r e a t i o n , P C 1 3 J a s m i n e Cr e e k La n d   ‐   8 8 , 2 4 2   s f Bu i l d i n g   ‐   3 , 2 0 0   s f Agreement 07/01/1998 ‐ 06/30/2023 $ 0 . 0 0   Land ‐ Range $7,941.78 ‐ $21,178.08 Building $13,472Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year.Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year, and value for building $70.20/sf, at 6% return = $4.21/sf/year. Pa g e   3   o f   3 Page | 1 SITE 1 Sailing Fascination Balboa Yacht Basin – Slip B2 829 Harbor Island Drive 20 foot slip Page | 2 SITE 2 Lido Isle Street End Parks 116,566 sf Page | 3 SITE 3 Beacon Bay Common Areas Beacon Bay Community Association 1 Beacon Bay (approximate) 196,078 sf Property SF LOT A 10,776 LOT B 13,363 LOT C 8,345 LOT D 12,039 LOT E 7,707 LOT F 11,056 LOT G 6,589 LOT H 38,772 LOT I 29,123 LOT J 8,340 LOT 62 20,039 BULKHEAD 29,551 Amendment 1 378 TOTAL 196,078   Page | 4 SITE 4 Newport Outrigger Canoe Club 100 Dover Drive 6,992 sf Page | 5 SITE 5 15th Street Extension at 1499 Monrovia Pacific Christian High School Facilities 1499 Monrovia 13,195 sf Page | 6 SITE 6 Fletcher Jones Fletcher Jones Motor Cars, Inc. 3300 Jamboree Rd 112,768 sf Page | 7 SITE 7 Back Bay Science Center 600 Shellmaker Road 95,903 sf Page | 8 SITE 8 Balboa Angling Club 200 A St 3,556 sf Page | 9 SITE 9 Boys & Girls Club of the Harbor Area 2555 Vista Del Oro 41,500 sf Page | 10 SITE 10 Corona Del Mar Farmer’s Market Bayside Park Parking Lots 19,416 sf Page | 11 SITE 11 Dory Fishermen’s Fleet 2111 West Ocean Front (approximate) 5,878 sf Page | 12 SITE 12 Girl Scout Council of Orange County 1700 West Balboa Boulevard 49,594 sf Page | 13 SITE 13 Lido Marina Village Lido Marina Certified Farmers’ Market 3450 Via Oporto (approximate) 27,739 sf Page | 14 SITE 14 McFadden Square Plaza Sprouts of Promise Foundation Farmers’ Market 1 Newport Pier (approximate) 7,110 sf Page | 15 SITE 15 “N” Street Beach Balboa Peninsula Point Association 2144-2204 Balboa Blvd E 30,092 sf Page | 16 SITE 16 Newport Aquatic Center 1 Whitecliffs Drive 173,804 sf Page | 17 SITE 17 Newport Elementary School Playfield Newport Mesa Unified School District 1327 Ocean Front W 151,675.92 sf Page | 18 SITE 18 Newport Harbor Elks Lot Newport Harbor Elks, Lodge 1767 3456 Via Oporto 7,208 sf Page | 19 SITE 19 Newport Theatre Arts Center Friends of the Newport Theatre Arts Center 2501 Cliff Drive 70,356 sf Page | 20 SITE 20 Imua Outrigger Canoe Club North Star Beach 1 Whitecliffs Drive (approximate) 15,685 sf Page | 21 SITE 21 Palm Street Lot Discovery Science Center Orange County 600 East Balboa Blvd 33,858 sf Page | 22 SITE 22 San Joaquin Hills Park & Lawn Bowling Center Newport Harbor Lawn Bowling Association 1550 Crown Drive North 88,242 sf 1 0 5 0 ‐ 2 1 0 ‐ 0 2 Ba l b o a   Y a c h t   B a s i n   ‐   S l i p   B 2 82 9   H a r b o r   I s l a n d   D r i v e Sa i l i n g   F a s c i n a t i o n Y e s Sa i l i n g l e s s o n s a n d r i d e s f o r d i s a b l e d , in c l u d i n g v e t e r a n s . V o l u n t e e r s f r o m Fr i e n d s   o f   O a s i s . TS ‐ T i d e l a n d s a n d S u b m e r g e d L a n d s , Wa t e r 2 0   f o o t   s l i p Slip Rental Agreement 04/09/2013 ‐ 04/09/2023 $ 1 . 0 0   $ 5 , 9 1 3 . 6 0   20 foot slip, FY19‐20 $24.64 per foot per month 2 4 2 3 ‐ 2 5 5 ‐ 0 2 Lid o   I s l e   S t r e e t   E n d   P a r k s St r e e t   E n d s   ‐   L i d o   I s l a n d Lid o   I s l e   C o m m u n i t y   A s s o c i a t i o n Y e s St r e e t ‐ e n d p a r k s , e x c l u s i v e u s e b y H O A me m b e r s , w i t h s i d e w a l k s f o r p u b l i c a c c e s s to   t i d e l a n d s . P R   ‐   P a r k s   a n d   R e c r e a t i o n 1 1 6 , 5 6 6   s f   Lease 4/1/2000 ‐ 3/31/2025  $ 0 . 0 0   R a n g e   $ 1 0 , 4 9 0 . 9 4   ‐   $ 2 7 , 9 7 5 . 8 4 Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 3 0 5 0 ‐ 2 2 1 ‐ 0 2 Be a c o n   B a y   C o m m o n   A r e a s 1  B e a c o n   B a y   ( a p p r o x i m a t e ) Be a c o n   B a y   C o m m u n i t y   A s s o c i a t i o n Y e s En t r y w a y l a n d s c a p i n g , s t r e e t s , s i d e w a l k s , pa r k w a y s , b e a c h e s , t e n n i s c o u r t s a n d co m m o n   p a r k i n g . PR ‐ P a r k s a n d R e c r e a t i o n . O S ‐ O p e n Sp a c e . 1 9 6 , 0 7 8   s f Lease 02/08/2005 ‐ 07/01/2044 $ 0 . 0 0   R a n g e   $ 1 7 , 6 4 7 . 0 2   ‐   $ 4 7 , 0 5 8 . 7 2 Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 4 1 1 7 ‐ 8 0 1 ‐ 1 0 Lo w e r   C a s t a w a y s   P a r k 10 0   D o v e r   D r i v e   ( p o r t i o n   o f   p a r c e l ) Ne w p o r t   O u t r i g g e r   C a n o e   C l u b Y e s C a n o e   s t o r a g e . CM ‐ R e c r e a t i o n a l a n d M a r i n e Co m m e r c i a l ,   P C 3 7   C a s t a w a y s   M a r i n a 6 , 9 9 2   s f Lease Automatic Renewal ‐ 1 year term $ 2 , 4 0 0   $ 8 8 , 0 9 9 . 2 0   January 2017, General Commercial property on PCH, appraised land value as if vacant $210 sf, @ 6% return = $88,099.20 Comparable locations listed for lease on CoStar:Recreational and Marine Commercial on Bayside Drive at $51‐63 sf/year for office space. 5 4 2 4 ‐ 4 0 1 ‐ 1 1 15 t h   S t r e e t   E x t e n s i o n   a t   1 4 9 9   M o n r o v i a 14 9 9   M o n r o v i a PC H S   F a c i l i t i e s   L L C   ( P a c i f i c a   C h r i s t i a n   H i g h   Sc h o o l ) N o S i t e   a c c e s s   a n d   p a r k i n g . R M   ‐   M u l t i p l e ‐ U n i t   R e s i d e n t i a l 13 , 1 9 5   s f License Agreement 09/26/2014‐09/26/2024  Optional extension to 2034 $ 0 . 0 0   $ 6 3 , 3 3 6   March 2014, Public Facilities property in West Newport (less than 250 feet from property) appraised land value as if vacant $80 sf, @ 6% return = $63,336 2017 sale at $6,850,000 for 34,960 sf, $195.94/sf. $196 x 12,707 = $2,490,572 @ 6% return = $149,434 6 4 4 2 ‐ 0 7 1 ‐ 2 2 33 0 0   J a m b o r e e   R d   33 0 0   J a m b o r e e   R d Fl e t c h e r   J o n e s   M o t o r   C a r s ,   I n c . N o Au t o m o b i l e d e a l e r s h i p a n d a n c i l l a r y u s e s , su b j e c t t o S L U R S , w h i c h p r o h i b i t s co n s t r u c t i o n o f a b u i l d i n g . E n c r o a c h m e n t Ag r e e m e n t f o r 6 6 , 0 8 5 s f p o r t i o n o f Ba y v i e w W a y r i g h t ‐ o f ‐ w a y u s e d a s pa r k i n g , s h u t t l e s t o p , a n d s t a g i n g f o r n o fe e . CG ‐ G e n e r a l C o m m e r c i a l , P C 4 2 S a n D i e g o Cr e e k   N o r t h 1 1 2 , 7 6 8   s f Lease 05/20/1996 ‐ 5/20/2046 Optional extension to 2066 $ 1 . 0 0   $ 1 , 4 2 0 , 8 7 6   January 2017, General Commercial property on PCH, appraised land value as if vacant $210 sf, @ 6% return = $1,420,876.80 Office Airport on Quail and Campus $23.40 sf/year for light industrial building.General Commercial on PCH in Mariner's Mile $66‐81 sf/year for retail building.  7 4 4 0 ‐ 1 3 2 ‐ 4 2   /   4 4 0 ‐Ba c k   B a y   S c i e n c e   C e n t e r 60 0   S h e l l m a k e r   R o a d Mu l t i p l e   A g e n c i e s   ‐   C i t y   o f   N e w p o r t   B e a c h ,   St a t e   o f   C a l i f o r n i a ,   C o u n t y   o f   O r a n g e ,   Un i v e r s i t y   o f   C a l i f o r n i a   a t   I r v i n e P u b l i c   A g e n c i e s Ed u c a t i o n a l a n d r e s e a r c h p r o g r a m s a n d ex h i b i t s . W a t e r Q u a l i t y L a b t o b e ma i n t a i n e d b y C o u n t y o f O r a n g e . C i t y ma n a g e s a n d p e r f o r m s r e g u l a r ma i n t e n a n c e a n d j a n i t o r i a l w o r k , a n d ho l d s p o l i c i e s o f i n s u r a n c e f o r t h e pr o p e r t y . U C I t o p r o v i d e 1 / 3 o f a n n u a l co s t t o m a i n t a i n c o m m o n p a r k i n g a r e a . Ca p i t a l p r o j e c t s a n d i m p r o v e m e n t s t o b e pla n n e d a n d p a i d f o r b y a l l a g e n c i e s pu r s u a n t   t o   F a c i l i t i e s   W o r k i n g   G r o u p . S t a t e   t i d e l a n d s ,   n o   G e n e r a l   P l a n   o r   Z o n i n g La n d   ‐   9 5 , 9 0 3   s f Bu i l d i n g   ‐   1 2 , 4 0 9   s f Master Lease Agreement 01/01/2008‐01/01/2033 Optional extension to 2048 $ 0 . 0 0    Land ‐ Range $8,631.27 ‐ $23,016.72 Building ‐ $52,241.89 Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year.Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year, and value for building $70.20/sf, at 6% return = $4.21/sf/year. In v e n t o r y   o f   A g r e e m e n t s   ( R e n t   <   F a i r   M a r k e t   V a l u e ) Notes Si t e   # Current Payment $/year AP N P r o j e c t   N a m e Estimated Annual FMV Rent Pr o p e r t y   A d d r e s s T e n a n t   N a m e N o n ‐ P r o f i t   D e s c r i p t i o n   o f   U s e Agreement/Term Ar e a Ge n e r a l   P l a n   &   Z o n i n g Pa g e   1   o f   3 Item No. 5A1 Use of City Property at Less Than Fair Market Value Additional Materials Received October 10, 2019 In v e n t o r y   o f   A g r e e m e n t s   ( R e n t   <   F a i r   M a r k e t   V a l u e ) Notes Sit e   # Current Payment $/year AP N P r o j e c t   N a m e Estimated Annual FMV Rent Pr o p e r t y   A d d r e s s T e n a n t   N a m e N o n ‐ P r o f i t   D e s c r i p t i o n   o f   U s e Agreement/Term Ar e a Ge n e r a l   P l a n   &   Z o n i n g 8 0 4 8 ‐ 1 3 3 ‐ 1 6 Ba l b o a   A n g l i n g   C l u b   20 0   A   S t r e e t ,   B a l b o a Ba l b o a   A n g l i n g   C l u b Y e s Ma n a g e a n d o p e r a t e a n o n ‐ p r o f i t a n g l i n g clu b t o f u r t h e r t h e p u r p o s e o f r o d a n d r e e l fi s h i n g , f i s h c o n s e r v a t i o n , a n d g o o d w i l l o f pe r s o n s i n t h e f i s h i n g i n d u s t r y . M u s t in c l u d e h o s t i n g a n d p r o m o t i n g o f c i v i c , re c r e a t i o n a l , a n d e d u c a t i o n a l p r o g r a m s , an d m a k e s e r v i c e s , p r o g r a m s , a n d f a c i l i t i e s av a i l a b l e   t o   p u b l i c   a t   c o s t .   C V   ‐   C o m m e r c i a l   V i s i t o r ‐ S e r v i n g 3 , 5 56   s f Lease 5/10/1999 ‐ 5/10/2024 $ 0 . 0 0    Range ($31/sf) $110,236 ‐ ($47.40/sf) $168,554.40 Comparable properties for lease, as listed on CoStar:Mixed Use ‐ Water Related in Lido Marina Village at $31‐38 sf/year Mixed Use ‐ Visitor Serving in Balboa Village at $43.33 sf/year up to $63 sf/year for restaurant Commercial Visitor‐Serving on Newport Boulevard (not waterfront) at $47.40 sf/year 9 4 4 0 ‐ 1 6 1 ‐ 0 1 Bo y s   &   G i r l s   C l u b   o f   H a r b o r   A r e a 25 5 5   V i s t a   D e l   O r o Bo y s '   a n d   G i r l s '   C l u b   o f   t h e   H a r b o r   A r e a Y e s Ex i s t i n g l e a s e ‐ M a n a g e a n d o p e r a t e a bo y s ' a n d g i r l s ' c l u b t o i n s t r u c t c h i l d r e n o f al l a g e s i n a t h l e t i c s , h a n d i c r a f t s a n d sp o r t s m a n s h i p . A l l s e r v i c e s , p r o g r a m s a n d fa c i l i t i e s s h a l l b e m a d e a v a i l a b l e t o t h e pu b l i c   o n   f a i r   a n d   r e a s o n a b l e   t e r m s . P R   ‐   P a r k s   a n d   R e c r e a t i o n La n d   ‐   4 1 , 5 0 0   s f Bu i l d i n g   ‐   1 2 , 3 9 3   s f Lease 6/22/1998‐6/30/2023 $ 0 . 0 0   $ 5 5 , 8 0 0 . 0 0   Per appraisal ‐ land rent $3,600/year for 41,500 sf, building $52,200/year for 12,393 sf. 6% return. 10 N o   A P N Co r o n a   d e l   M a r   F a r m e r s '   M a r k e t Ba y s i d e   P a r k   P a r k i n g   L o t s Ric k   H e i l ,   D B A   C o r o n a   d e l   M a r   C e r t i f i e d   Fa r m e r s '   M a r k e t Y e s O p e r a t i o n   o f   a   c e r t i f i e d   f a r m e r s '   m a r k e t . Pa r k a n d p u b l i c p a r k i n g l o t , n o G e n e r a l Pla n   o r   Z o n i n g 1 9 , 4 1 6   s f License Agreement 05/13/2014‐05/12/2024 $ 3 , 9 7 4 . 2 8 $ 1 3 9 , 8 1 6 . 8 0   $120 sf land value, $2,330,280, @ 6% return. 11 0 4 7 ‐ 3 0 0 ‐ 0 1 Do r y   F i s h e r m a n ' s   F l e e t 21 1 1   W e s t   O c e a n   F r o n t   ( a p p r o x i m a t e ) Do r y   F i s h e r m a n ' s   F l e e t N o Lo c k e r s f o r s t o r a g e o f f i s h i n g g e a r a n d eq u i p m e n t , a n d s t a l l s f o r w h o l e s a l e f i s h ma r k e t ,   o p e n   t o   t h e   p u b l i c .   P R   ‐   P a r k s   a n d   R e c r e a t i o n La n d   ‐   5 , 8 7 8   s f Bu i l d i n g   ‐   2 , 1 1 0   s f Permit 11/23/2018 ‐ 11/23/2028 $ 0 . 0 0   Land ‐ Range $529.02 ‐ $1,410.72 Building ‐ $8,883.10Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 12 0 4 7 ‐ 1 9 0 ‐ 0 9 Gir l   S c o u t   C o u n c i l   o f   O r a n g e   C o u n t y 17 0 0   W e s t   B a l b o a   B o u l e v a r d Gi r l   S c o u t   C o u n c i l   o f   O r a n g e   C o u n t y Y e s Co n s t r u c t i o n , o p e r a t i o n a n d m a i n t e n a n c e of a G i r l S c o u t p r o g r a m f a c i l i t y u s e d f o r tr o o p m e e t i n g s , o t h e r y o u t h g r o u p me e t i n g s , a n d o v e r n i g h t s t a y s . U s e w i l l pr o v i d e   e x p e r i e n t i a l   l e a r n i n g   a c t i v i t i e s   t h a t   em p h a s i z e t h e e n v i r o n m e n t , c o n s e r v a t i o n an d   s u s t a i n a b i l i t y .   P R   ‐   P a r k s   a n d   R e c r e a t i o n ,   M a r i n a   P a r k 4 9 , 5 9 4  s f Lease 06/27/2013 ‐ 06/27/2063 $ 1 . 0 0   R a n g e   ‐   $ 4 , 4 6 3 . 4 6   ‐   $ 1 1 , 9 0 2 . 5 6 Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 13 4 2 3 ‐ 1 2 3 ‐ 0 3 Lid o   M a r i n a   V i l l a g e   34 5 0   V i a   O p o r t o   ( a p p r o x i m a t e ) Lid o   M a r i n a   V i l l a g e   C e r t i f i e d   F a r m e r s '   Ma r k e t N o O p e r a t i o n   o f   a   c e r t i f i e d   f a r m e r s '   m a r k e t . Pu b l i c R i g h t ‐ o f ‐ W a y , n o G e n e r a l P l a n o r Zo n i n g 2 7 , 7 3 9   s f License Agreement 06/25/2019 ‐ 06/24/2024 $ 4 , 2 0 0   $ 4 8 , 1 6 4 . 1 5   [Lot at Central Ave ‐ $1.60/hour, 8am to 6pm, daily, 2hour max, 25 spaces] FY19 Revenue ‐ $54,397 = 37.3% utilization ($400/day, $146,000/year, $54,397/146,000)] [1 parking space = 143sf. 27739sf/143=194 parking spaces] [Market hours 11am to 7pm, 8 hours ‐‐194 spaces x ($1.60/hr x 8 hours=$12.80)=$2,483.20/day or $129,126.40/year]  14 0 4 7 ‐ 3 0 0 ‐ 0 1 Mc F a d d e n   S q u a r e   P l a z a 1  N e w p o r t   P i e r   ( a p p r o x i m a t e ) Sp r o u t s   o f   P r o m i s e   F o u n d a t i o n   ‐   F a r m e r s '   Ma r k e t Y e s O p e r a t i o n   o f   a   c e r t i f i e d   f a r m e r s '   m a r k e t . Pu b l i c R i g h t ‐ o f ‐ W a y , n o G e n e r a l P l a n o r Zo n i n g 7 , 1 1 0   s f License Agreement 09/13/2015 ‐ 09/13/2024 $ 3 , 9 2 9 . 5 2 $ 1 3 , 1 8 5 . 9 0   [Bayside Lot ‐ $2.30/hour, 8am to 6pm, daily, 211 spaces] FY19 Revenue ‐ $434,309 = 24.5% utilization (2.30x10x211x365=$1,771,345)] [7110/143=50 parking spaces][Market hours 7am‐4pm, 9 hours ‐‐50 spaces x ($2.30/hrx9hours=$20.70)=$1,035/day or $53,820/year] 15 0 4 8 ‐ 3 0 1 ‐ 0 7 "N "   S t r e e t   B e a c h 21 4 4 ‐ 2 2 0 4   B a l b o a   B l v d   E Ba l b o a   P e n i n s u l a   P o i n t   A s s o c i a t i o n Y e s Re c r e a t i o n a l u s e o f b e a c h , f o r e x c l u s i v e us e   b y   m e m b e r s   o f   a s s o c i a t i o n . P R   ‐   P a r k s   a n d   R e c r e a t i o n 3 0 , 0 9 2   s f Lease 08/12/1969 ‐ Automatic Renewal ‐ 1 year term $ 0 . 0 0   $ 1 5 , 6 4 7 . 8 4   Using residential pier rates of $0.52 per square foot per year. Pa g e   2   o f   3 In v e n t o r y   o f   A g r e e m e n t s   ( R e n t   <   F a i r   M a r k e t   V a l u e ) Notes Sit e   # Current Payment $/year AP N P r o j e c t   N a m e Estimated Annual FMV Rent Pr o p e r t y   A d d r e s s T e n a n t   N a m e N o n ‐ P r o f i t   D e s c r i p t i o n   o f   U s e Agreement/Term Ar e a Ge n e r a l   P l a n   &   Z o n i n g 16 1 1 7 ‐ 3 8 1 ‐ 0 6 Ne w p o r t   A q u a t i c   C e n t e r 1  W h i t e c l i f f s   D r i v e Ne w p o r t   A q u a t i c   C e n t e r Y e s Fa c i l i t i e s t o p r o m o t e s p o r t s i n v o l v i n g hu m a n ‐ p o w e r e d w a t e r c r a f t , i n c l u d i n g bo a t s t o r a g e , m u l t i ‐ p u r p o s e a r e a a n d me e t i n g r o o m , w e i g h t t r a i n i n g r o o m , sm a l l o f f i c e s f o r c o n d u c t a n d o p e r a t i o n o f fa c i l i t y , l o c k e r r o o m s , a n d s u c h o t h e r fa c i l i t i e s i n c i d e n t a l t o t h e o p e r a t i o n in c l u d i n g a b u l k h e a d , l o w ‐ l y i n g d o c k s , la n d s c a p e , a n d a p p r o p r i a t e p u b l i c p a r k i n g , re s t r o o m f a c i l i t i e s , a n d a c c e s s t o t h e be a c h . P R   ‐   P a r k s   a n d   R e c r e a t i o n La n d   ‐   1 7 3 , 8 0 4   s f Bu i l d i n g   ‐   1 8 , 2 2 8   s f Lease 10/27/1998‐10/27/2023 $ 0 . 0 0   Land ‐ Range $15,642.36 ‐ $41,712.96 Building ‐ $76,739.88Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year.Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year, and value for building $70.20/sf, at 6% return = $4.21/sf/year. 17 0 4 7 ‐ 2 9 0 ‐ 0 3 Ne w p o r t   E l e m e n t a r y   S c h o o l   P l a y f i e l d   (N M U S D ) 13 2 7   O c e a n   F r o n t   W Ne w p o r t   M e s a   U n i f i e d   S c h o o l   D i s t r i c t P u b l i c   A g e n c i e s Pla y g r o u n d a r e a f o r u s e b y c h i l d r e n pa r t i c i p a t i n g i n a c t i v i t e s o f t h e p u b l i c sc h o o l , a n d f o r u s e b y t h e p u b l i c f o r p a r k an d p l e a s u r e p u r p o s e s w h e n n o t b e i n g us e d   b y   t h e   s c h o o l . P R   ‐   P a r k s   a n d   R e c r e a t i o n 1 5 1 , 6 7 6   s f Lease 02/10/2015 ‐ 02/10/2065 $ 0 . 0 0   R a n g e   ‐   $ 1 3 , 6 5 0 . 8 4   ‐   $ 3 6 , 4 0 2 . 2 4 Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 18 4 2 3 ‐ 1 2 3 ‐ 0 2 Ne w p o r t   H a r b o r   E l k s   L o t 34 5 6   V i a   O p o r t o Ne w p o r t   H a r b o r   E l k s ,   L o d g e   1 7 6 7 Y e s Pa r k i n g f a c i l i t i e s w i t h s h a r e d u s e b y t h e Cit y a n d E l k s , w i t h p u b l i c p a r k i n g o v e r t h e pr o p e r t y f r o m 6 a m t o 6 p m d a i l y , a n d pa r k i n g r e s e r v e d f o r t h e E l k s f r o m 6 p m t o 6a m , d a i l y . O p t i o n f o r e x c l u s i v e u s e b y El k s o v e r a 2 4 ‐ h o u r p e r i o d , u p t o s i x t i m e s pe r   c a l e n d a r   y e a r ,   f o r   s p e c i a l   e v e n t s . P F   ‐   P u b l i c   F a c i l i t i e s 7 , 2 08   s f Lease 01/01/2007 ‐ 12/31/2021 $ 0 . 0 0   $ 2 7 , 1 9 8 . 5 0   FY19 Revenue for parking lot ‐ $54,397. Shared use at 12 hours. 19 4 2 5 ‐ 4 7 1 ‐ 4 4 Ne w p o r t   T h e a t r e   A r t s   C e n t e r 25 0 1   C l i f f   D r i v e   Fr i e n d s   o f   t h e   N e w p o r t   T h e a t r e   A r t s   Ce n t e r Y e s Op e r a t e a n d m a i n t a i n a c o m m u n i t y th e a t e r p r o g r a m , w i t h n e c e s s a r y t h e a t r i c a l st a g e l i g h t i n g a n d s o u n d e q u i p m e n t . T h e pr o g r a m s h a l l o f f e r n o t l e s s t h a n f o u r th e a t r i c a l p r o d u c t i o n s d u r i n g e a c h y e a r , th a t s h a l l b e o p e n t o t h e p u b l i c a t a re a s o n a b l e a d m i s s i o n p r i c e , a n d s h a l l in c l u d e a v a r i e t y o f t h e a t r i c a l , c u l t u r a l o r ar t i s t i c p r o d u c t i o n s . T h e f a c i l i t i y m a y a l s o be u s e d f o r c o m m u n i t y m e e t i n g s co n d u c t e d b y a n d / o r o n b e h a l f o f co m m u n i t y o r g a n i z a t i o n s t h a t w i l l b e n e f i t an d s e r v e t h e i n t e r e s t s o f n e a r b y re s i d e n t s . P R   ‐   P a r k s   a n d   R e c r e a t i o n La n d   ‐   7 0 , 3 5 6   s f Bu i l d i n g   ‐   7 , 9 4 7   s f Management Agreement 05/01/2001 ‐ 04/30/2011, two 5‐year extensions Automatic Renewal ‐ 1 year term $ 0 . 0 0   Land ‐ Range $6,332.04 ‐ $16,885.44 Building $33,456.87Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year.Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year, and value for building $70.20/sf, at 6% return = $4.21/sf/year. 20 N o   A P N No r t h   S t a r   B e a c h   ‐   I M U A   O u t r i g g e r   C a n o e   Cl u b 1  W h i t e c l i f f s   D r i v e   ( a p p r o x i m a t e ) Im u a   O u t r i g g e r   C a n o e   C l u b Y e s C a n o e   s t o r a g e . P R   ‐   P a r k s   a n d   R e c r e a ti o n 1 5 , 6 8 5   s f Permit Automatic Renewal ‐ 1 year term $ 0 . 0 0   R a n g e   ‐   $ 1 , 4 1 1 . 6 5   ‐   $ 3 , 7 6 4 .40Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year. Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year. 21 0 4 8 ‐ 1 1 6 ‐ 0 6 Pa l m   S t r e e t   L o t 60 0   E a s t   B a l b o a   B o u l e v a r d Di s c o v e r y   S c i e n c e   C e n t e r   O r a n g e   C o u n t y Y e s Op t i o n t o g r o u n d l e a s e t h e C i t y ' s p u b l i c pa r k i n g l o t , t o c o n s t r u c t a n e w m u l t i ‐ l e v e l pa r k i n g s t r u c t u r e . N e w s t r u c t u r e t o in c l u d e p u b l i c p a r k i n g , a n d p a r k i n g f o r u s e by t e n a n t i n o p e r a t i o n o f a n e x p a n d e d ex p e r i e n t i a l o c e a n l i t e r a c y c e n t e r o p e n t o th e   g e n e r a l   p u b l i c   o n   a d j a c e n t   p r o p e r t y .   PF ‐ P u b l i c F a c i l i t i e s , w i t h B a l b o a V i l l a g e Pa r k i n g   M a n a g e m e n t   O v e r l a y   D i s t r i c t 3 3 , 8 5 8   s f Option to Ground Lease Agreement 11/25/2014 ‐ 12/31/2021,Three 1‐year extensions availableInitial term ‐ $2,500, or $357.14/year,Each option $2,500/year $ 1 7 3 , 6 0 6   F Y 1 9   R e v e n u e   f o r   p a r k i n g   l o t . 22 4 5 8 ‐ 0 2 2 ‐ 0 6 Sa n   J o a q u i n   H i l l s   P a r k   &   L a w n   B o w l i n g   Ce n t e r 15 5 0   C r o w n   D r i v e   N o r t h Ne w p o r t   H a r b o r   L a w n   B o w l i n g   A s s o c i a t i o n Y e s Po r t i o n o f p a r k p r o p e r t y d e v o t e d t o t h e sp o r t o f l a w n b o w l i n g , i n c l u d i n g a clu b h o u s e , b o w l i n g g r e e e n s , a n d o t h e r fa c i l i t i e s a n d i m p r o v e m e n t s t o b e op e r a t e d f o r t h e b e n e f i t o f i t s m e m b e r s , th e C i t y , a n d i t s c i t i z e n s . W h e n n o t i n u s e by i t s m e m b e r s , t h e c l u b h o u s e i s a v a i l a b l e to c i v i c , c u l t u r a l a n d e d u c a t i o n a l g r o u p s wit h i n t h e C i t y . P u b l i c r e s t r o o m s a r e a l s o av a i l a b l e   o n   t h e   p r o p e r t y .   PR ‐ P a r k s a n d R e c r e a t i o n , P C 1 3 J a s m i n e Cr e e k La n d   ‐   8 8 , 2 4 2   s f Bu i l d i n g   ‐   3 , 2 0 0   s f Agreement 07/01/1998 ‐ 06/30/2023 $ 0 . 0 0   Land ‐ Range $7,941.78 ‐ $21,178.08 Building $13,472Using Kiley appraisal of slough parcel value is $3.99/sf, @ 6% return = $0.24/sf/year.Using BGC appraisal, value for land $1.50/sf, @ 6% return = $0.09/sf/year, and value for building $70.20/sf, at 6% return = $4.21/sf/year. Pa g e   3   o f   3 I Finance Committee October 10, 2019 Real Property at Below Fair Market Rent Community Development Department Real Property -Management ►City Council Policy F-7, Income and Other Property City Council Policy B-1, Park Fee Policy ►City Council Policy B-6, Newport Theatre Arts Center ►City Council Policy B-13, Public Use of City Facilities ►City Council Policy H-4, Dory Fishermen's Fleet 10/10/2019 1 Item No. 5A2 Use of City Property at Less Than Fair Market Value Staff PresentationOctober 10, 2019 Real Property -Inventory ►22 properties at below fair market value rent ►Each has its own UNIQUE story Property -3300 Jamboree Road Fletcher Jones Motor Cars, Inc. ►112,768 square feet of land, 2. 59 acres ►Zoned CG -General Commercial, PC42 San Diego Creek North ►Rent per agreement -$1.00/year ►Estimated market rent -$1 .4M/year 10/10/2019 2 Property -2555 Vista Del Oro Boys' & Girls' Club ►41,500 square feet of land, 0.95 acres ►12,393 square feet of building ►Zoned PR -Parks and Recreation ►Rent per agreement -$0.00/year ►Appraised market rent -$55,800/year ►Land $3,600/year ►Building $52,200/year Property -2111 West Ocean Front Dory Fisherman's Fleet ►5,878 square feet of land, 0.13 acres ►2,110 square feet of building ►Zoned PR -Parks and Recreation ►Rent per agreement -$0.00/year ►Estimated market rent ►Land $529 -$1,410/year ►Building $8,883/year 10/10/2019 3 Property -1327 Ocean Front W Newport Elementary School (NMUSD) ►151,676 square feet of land, 3.48 acres ►Zoned PR -Parks and Recreation ►Rent per agreement -$0.00/year ►Estimated market rent -$13,650 -$36,402/year Property -2501 Cliff Drive Newport Theatre Arts Center ►70,356 square feet of land, 1.62 acres ►7,947 square feet of building ►Zoned PR -Parks and Recreation ►Rent per agreement -$0.00/year ►Estimated market rent ► Land $6,332 -$16,885/year ► Building $33,456/year 10/10/2019 4 I I ., __ ..., ..... 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'--•':-r.,.1::.:�"•�UI.I• -....:.�:;-:,�1,.._,-,,.,.., •-•"11 ...... ,. .. ,i, �.:.'":;::::: .. -1 .... , .. -.Moc, ___ ..,,_ 11-•n-,,--.-.,...,,. ....,.,,.. __ ..,.,_r_ ....... 11-•"-· ...... , .. , __ ..,. __ ,..,.,:,n-.,•n-• �: ............ ..... -._ ............ ,_ 1;:.�.::� ... �;,�=�� I��-:-��';:,:=. ..··-••·-·---­•--•l•n .• n--l,fj .......... .. ..,., __ ... __ .......... ,_ .....__•-•ll""'·••"-• :au ... � .. _____ , ............ _ 1, ...... A--•�-..... , . __ ,.,.,,, .. ,to.jut"• -•7i:-;�j--"A ,, ,,., ' c 'C ; 6 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5B October 10, 2019 TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Finance Department Antonio Velasco, Revenue Auditor 949-644-3143, avelasco@newportbeachca.gov SUBJECT: TOT, CHARTER TAX AND OTHER AUDITS UPDATE SUMMARY: Staff will update the committee on the Transient Occupancy Tax, Charter Passenger Tax and other audits performed to date. RECOMMENDED ACTION: Receive and file. DISCUSSION: The City has contracted with the audit firms Hinderliter, De Llamas & Associates; Davis Farr, LLP; and Gruber and Associates to conduct several tax compliance audits of hotels and charter boats. Additionally, the City’s Revenue Auditor is currently conducting compliance audits of City contracted service providers. Please see Attachment A for a status update of the audit work conducted to date. Prepared and Submitted by: /a/ Antonio Velasco _____________________________ Antonio Velasco Revenue Auditor TOT, Charter Tax and Other Audits Update October 10, 2019 Page 2 Attachment: A. Status of Charter Passenger Tax, Transient Occupancy Tax, and Other Audits ATTACHMENT A STATUS OF CHARTER PASSENGER TAX, TRANSIENT OCCUPANCY TAX, AND OTHER AUDITS Status of Charter Passenger Tax, Transient Occupancy Tax, and Other Audits October 2019 Charter Passenger Tax Audits Under an agreement between the City of Newport Beach and Hinderliter, De Llamas & Associates (HdL), HdL will conduct nine (9) Charter Passenger Tax Audits on behalf of the City. The City Revenue Auditor accompanied HdL during site visits to answer questions pertaining to the Municipal Code, exemptions, and filing returns. As of this writing, HdL has conducted 8 out of the 9 audits and has submitted 4 audits for review. A majority of the Charter audits were discovered not to be in compliance with record keeping. Upon initial site visits, about half of the companies had asked for clarification on the City code and Charter Tax reporting requirements. The submitted audits are under review and have not been finalized. It was discovered that two additional charter companies have been operating without reporting Charter Tax. In addition, with the help of the Harbor Department, multiple discoveries of non- reporting Charter companies are being made. New Charter Passenger Tax accounts will be created for all new discoveries. Transient Occupancy Tax Davis Farr Under an agreement between the City of Newport Beach and Davis Farr LLP (DF), DF will conduct twenty Transient Occupancy Tax audits on behalf of the City. Of those twenty audits, 11 are hotels, 8 are Short-Term Lodging Agents, and 1 is a Short-Term Lodging Owner/Operator. The majority of the hotels have been audited in the past. However, the short-term lodging agents or owner/operators have never been audited. The City Revenue Auditor accompanied DF during site visits to answer questions pertaining to the Municipal Code, exemptions, and filing returns. As of this writing, Davis Farr has submitted eight hotel audits, five short-term agent audits and one additional owner/operator audit for review. Davis Farr has conducted 95% of the requested audits. Conducted audits are being reviewed by Davis Farr management prior to submitting to the City for final review. Davis Farr has submitted eight hotel audits, five short-term agent lodging audits, and one owner/operator audit for final review. The majority of the hotel and short-term lodging audits were discovered not to be in compliance with reporting fees or record keeping. The audits are under review and are not finalized. Gruber & Associates Under an agreement between the City of Newport Beach and Gruber & Associates (Gruber), Gruber will conduct twenty transient occupancy tax audits on behalf of the City. Of those twenty audits: 10 are for hotels, 9 are for short-term lodging agents, and 1 is for a short-term lodging owner/operator. The majority of the hotels have been audited in the past. However, the short-term lodging agents or owner/operators have never been audited. The City Revenue Auditor accompanied Gruber during site visits to answer questions pertaining to the Municipal Code, exemptions, and filing returns. Currently, Gruber & Associates has completed four hotel audits and has scheduled the remaining hotel audits. As of this writing, these audits have not been submitted to the City. Internal Audit The Revenue Auditor has conducted two contract compliance audits of City contracted service providers. The contract compliance audit involves reviewing contracted scope of services and whether the service provider is delivering all contracted services. These audits have not been finalized. 1 Summary of Pension Basics June 12, 2019 [Used Valuation Year Ending June 30, 2017 for Illustrative Purposes] Purpose of Summary: The largest single obligation the City of Newport Beach has is to its current and former employees for pensions. While the basic concept of unfunded accrued pension liabilities is easy to grasp, the working details of pension liabilities is more complex. This Summary was written by a member of the Finance Committee primarily to provide a starting point for new members of the Finance Committee to gain an understanding of this most important obligation of the City. Accordingly, generally speaking, exceptions and nuances to some of the basic concepts have not been included in an effort to make this Summary easier to follow. The most recent CalPERS Annual Actuarial Valuation Report (“Valuation Report”) as of the time of this writing was issued in July 2018 for the fiscal year ended June 30, 2017. So, information from the June 30, 2017 Valuation Report were used in this Summary. The numbers used in this Summary are also set forth in tabular form in the schedules attached to this Summary. Background: Upon an employee’s initial enrollment into the City’s pension plans, the City provides CalPERS (as the benefits administrator of the plans) with certain demographic information about that participating employee such as his/her age, gender, occupation, salary and other pertinent details so CalPERS actuaries may determine a participant’s expected benefit over his/her life expectancy. Each pay period thereafter the City provides updated salary information and hours worked necessary for CalPERS to determine the retirement credit due for the service of each such employee. CalPERS maintains a database of both active and former employees to actuarially calculate the present value of the future pension obligations of the City to those current and former employees. The calculation is complicated and makes historically based “educated” assumptions about the expected length of employment, salary increases, age at retirement, life expectancy and the like (collectively, the “Employee Actuarial Assumptions”). The Employee Actuarial Assumptions are updated yearly as the data justifies. The difference between the present value of future obligations of the City to fund pensions and the amount of assets the City has on deposit with CalPERS is referred to as the “unfunded accrued liability” (“UAL”) of the City in its pension plans. UAL amounts are treated as if they were a loan obligation of the City and therefore the City is charged “interest” on the UAL amount. The rate charged is the assumed rate of return as described below. Each year CalPERS also computes the amount the City must contribute to its plans to fund the assumed pension obligations for the fiscal year in question. This annual contribution has two components. One of the components is called the “Normal Cost.” The Normal Cost is calculated by CalPERS and is expressed as a percentage of expected payroll for active employees for a given fiscal year. The Normal Cost payments plus the assumed investment return expected to be earned on the aggregate Normal Cost payments made throughout the life of each plan beneficiary is expected to amount to a future value of projected benefits that upon retirement will fully fund a defined installment benefit for the remainder of the beneficiary’s life. The second component is an Unfunded Liability Contribution. The Unfunded Liability Contribution is a fixed payment to amortize (usually over 20 years) the historical aggregate of shortfalls in funds of the City on deposit with CalPERS. These shortfalls are due primarily to a failure of the City fund balance to achieve the expected rate of return in a given year, but can also include shortfalls in the funds of the City with CalPERS due to changes in the rate of return that is assumed will be earned on City assets with CalPERS as 2 well as changes to Employee Actuarial Assumptions and any other assumptions made by CalPERS. The shortfalls are referred to as “experience losses.” Although rarer, if the assumptions for a given year exceed expectation, it is called an “experience gain.” The City technically has two different pension plans, one is called the Safety Plan which is for Police and Fire and Lifeguard personnel while the remainder of the City’s employees are covered under a plan called the Miscellaneous Plan. The Normal Cost payroll rate is considerably higher for the Safety Plan than the Miscellaneous Plan (e.g. projected 2019/2020 Normal Cost at 28.1% of payroll for Safety v. 16.9% of payroll for Miscellaneous) because safety personnel may retire earlier with a larger percentage of their last salary as the basis for their pension benefit than other employees of the City. Valuation Reports from CalPERS: Each fiscal year CalPERS provides the City with a Valuation Report for each of the City’s two plans. The Valuation Reports are detailed and time consuming to prepare. The Valuation Reports for each Fiscal Year are sent to the City approximately 12-15 months after the end of a Fiscal Year. The Valuation Reports provide a summary of activity in the City plans and commentary on the assumptions made. Importantly, the Valuation Reports set the Normal Cost rate and the required UAL contribution for the ensuing Fiscal Year for each plan. The timeline for the City’s receipt of its Valuation Reports and the consequences of the timing works as follows. For the Fiscal Year ended June 30, 2019, the City will receive the Valuation Reports for its plans between July 2020 and September 2020. The Valuation Reports will set the contribution requirements for both Normal Costs and for Unfunded Accrued Liabilities for the Fiscal Year commencing July 1, 2021. It is only upon receipt of the Valuation Reports for a Fiscal Year ended June 30, 2019 that the City would be informed of the exact amount of the changes to UAL as of the Fiscal Year ended June 30, 2019. This information is located in the Funding Status section of the Valuation Reports. So, for example, if there were a shortfall for the Fiscal Year ended June 30, 2019, the City would find out the specific amount when the Valuation Reports are issued in July-September 2020. The UAL payments required for that shortfall would be scheduled to start the following Fiscal Year, that is July, 2021. However, the addition to a shortfall for a fiscal year begins to accrue interest as of the first day after the end of the fiscal year in which the shortfall occurs. So, if there were a shortfall for the Fiscal Year ended June 30, 2019, interest at the discount rate would commence to accrue as of July 1, 2019, two years before payments would be scheduled to begin in July 2021. The payment amount to be amortized would be the shortfall plus 2 years of interest that had accrued on the new shortfall. Fiscal 2019/2020 Estimated Numbers: The following information is easiest to follow by looking at Schedule 1 in the attachment to this Summary. The initial fiscal year 2019-2020 budget estimate for aggregate contributions to be made to the City’s plans is expected to be approximately $52.4M. However, under the various bargaining unit MOU’s, each employee also is obligated to contribute towards his/her pension. The employees would pay approximately $10,6M of the pension costs, leaving the City to pay approximately $41.4M out of the General Fund. Of the City payment of $41.4M, $6.4M will be for net Normal Costs for the year (the City’s share of Normal Costs after the employees’ contributions), with the remaining $35M going towards paydown of the City’s UAL accrued through June 30, 2017. Approximately $26.5M of that UAL paydown amount is required by CalPERS (called the “Default Amount”) and the remaining $8.5M UAL paydown is an additional discretionary payment (ADP). Payment of ADP’s enables the City to pay down UAL faster than CalPERS requires. It should be noted that ADP’s are not mandatory payments so the City is able to cease paying these amounts in whole or in part at any time. The amount of the General Fund dedicated to payment of pensions costs has been on the rise for years. The General Fund revenue for fiscal year 2019-2020 is expected to be approximately $228M. So, the 3 yearly pension payment for fiscal 2019-2020 payable out of the General Fund is expected to be approximately 18.16% of General Fund revenue ($41.4/$228M). The amount of General Fund revenues attributable to various taxes ($173.7M) plus income generated by the City’s owned properties (primarily rents and royalties) and interest income (collectively, $11.1M) equals $184.8M. The Past: For historical perspective, as of June 30, 2007, the UAL of the City was approximately $2M. As of June 30, 2017, the UAL of the City was $319.7M. What happened over the course of a 10-year period to cause UAL to rise exponentially?! The answer lies in the reasons UALs occur. The three main reasons causing UALs are: (i) The failure to achieve the return on investments that is assumed will be earned, (ii) Changes in actuarial and other assumptions including the Employee Actuarial Assumptions that increase the accrued pension liabilities of the City and (iii) Lowering the rate of return that is assume will be earned on investments (aka, the discount rate). As is typical of all CalPERS member agencies, the money deposited with CalPERS is also invested by CalPERS. In establishing the amount required to be contributed to towards pensions each year by each agency, it is assumed by CalPERS that the money invested on behalf of the City’s plans will generate a certain rate of return. The more money that is available to cover pension obligations that is generated by investment returns, the less money a member agency will need to contribute to cover pension obligations. So, the amount of money necessary to fully fund pension obligations will come in part from money each agency earns on funds invested on its behalf by CalPERS. That assumed rate of return had been 7.5% for many years, although CalPERS recently lowered the assumed rate of return over three years to 7% as discussed below. If the amount earned on CalPERS investments falls short of the assumed rate of return, then the agency has to cover the shortfall. That earnings shortfall has been a big part of the increase of the City’s UAL over the past 10 years (approximately $180M of the $319.7M shortfall). In order to ensure the continuing validity of its calculations of each agency’s obligations to its employees, CalPERS also formally reviews its actuarial assumptions from time to time. If it finds, for instance, that life expectancies of the current or expected beneficiaries are lengthening, or salaries have increased more than expected, or for other reasons, then CalPERS would update its calculations of the obligations of an agency and could determine that the amount an agency set aside in the past is no longer sufficient to pay the obligations of the agency. CalPERS revised its actuarial assumptions a few years ago and those revisions increased UAL of the City by approximately $37.3 million. More recently, CalPERS was under pressure to recognize that its assumed annual rate of return, called the discount rate, of 7.5% was not realistically achievable over time. Starting with fiscal year 2015-2016, the CalPERS Board decided to lower the discount rate over a three-year period from 7.5% to 7.375%, then to 7.25% and finally to 7%. So, agency funds invested by CalPERS that had been assumed would return 7.5% per annum had to instead be assumed would earn less. Since money held by CalPERS comes from only two sources, employer/employee payments to CalPERS and earnings on funds held by CalPERS, the change of the assumed rate of return meant more money needed to come from agency payments to CalPERS since less is now expected to come from earnings on CalPERS investments. For Newport Beach, the reduction in the discount rate from 7.5% to 7% over the past 3 years caused UAL to increase by $65.6M. Staff has informed the Finance Committee that historically investment earnings have accounted for roughly 67% of the ultimate benefit due each employee. If investment earnings do not meet assumed rates, the employer is obligated for the shortfall. Likewise, if the employees are living longer than initially actuarially expected, or if the assumed future investment earnings rate is reduced, the employer is also obligated to contribute more so the total amount set aside for each beneficiary funds the required benefit. In short, each net downside deviation from expected results over upside deviations creates a new layer 4 of loss. The sum of all net loss layers equals the overall UAL. CalPERS expects the employer to repay each loss not offset by a gain over a set period of time beginning with the year in which the increase in UAL occurs. That is because each layer of loss represents funds that are not with CalPERS that were supposed to have been, and further were supposed to be earning the assumed rate of return while with CalPERS. See Schedule 2 attached which sets forth the City’s Funding Status. The Future: The reasons for the dramatic increase in UAL for the City of Newport Beach has affected all CalPERS member agencies. All agencies have been impacted by lower than assumed investment returns, actuarial changes and changes in the discount rate. It should be noted however that older agencies with many retired employees and/or a larger staff have more exposure than newer agencies with smaller staffs (and more functions contracted out). In the case of the City, the present value of the future projected benefit obligations to current and former employees as of June 30, 2017 was $939.5M. As of June 30, 2017, the value of City assets held by CalPERS was $619.8M, so the amount that the City should have also had on deposit with CalPERS but wasn’t is the UAL of $319.7M. Again, to the extent that money invested by CalPERS does not earn at the discount rate, the City has to make up the difference since the amount of the City’s yearly contributions assumes CalPERS will earn the discount rate on money entrusted to it. Because of the size of the City’s plan assets, shortfalls that might not seem dramatic as a percentage end up being a large absolute dollar amount. For example, if the City were to earn 3% on its $619.8M invested by CalPERS instead of 7%, that would create a new UAL of $24.8M ($619.8M x 4%) in just one year. The interest obligation on the $24.8M shortfall would commence to accrue at the beginning of the fiscal year after the fiscal year in which the investment return came up short. As for the UAL amounts which of course are not being invested by CalPERS (i.e. they have not been funded), totaling $319.7M as of June 30, 2017, those amounts are also assumed to be earning at the discount rate, 7% per annum. Because those funds are not with CalPERS, the 7% per annum return has to come from somewhere else, and unfortunately, that somewhere else is from the City. So, if the City did not owe any UAL, it obviously would not have to pay 7% since there would be no sum that was supposed to be with CalPERS that was not. Therefore, it is generally in the best interest of the City to not have any UAL. One twist to note with UAL amounts is that an agency is actually “better off” with UAL in years in which CalPERS investments lose money. As an example, say the City repays all of its $319.7 UAL (which of course would happen over time, but let’s assume it happened all at one time). CalPERS would invest that repaid money and that money would be assumed to earn a rate of return of 7% per annum in determining the City’s yearly contribution. However, if CalPERS were to have a negative return for a fiscal year on that sum (i.e. a loss), then the City would actually lose more than if that amount remained as a UAL. That is because a UAL has to be debt served at the discount rate, which is 7% on $319.7M. But if the UAL were paid off, then CalPERS would invest that same sum. If CalPERS lost 5% of the money invested, the new UAL from that loss would be 7% on $319.7 that was not earned, plus 5% on that amount that was an investment loss. One last concept that will be mentioned only briefly is an accounting election called a “Fresh Start” or “Partial Fresh Start.” This election has its own set of rules. The most recent Partial Fresh Start was elected to reduce loss layers from investment losses, actuarial changes and discount rate reductions by investment gains, all of which arose between 2013 and 2019. The exact workings of Fresh Starts will be left to Staff to explain to Finance Committee members when the next opportunity for a Fresh Start arises. 5 The Finance Committee believes as a general rule that it is better to pay down UAL than to have UAL. In Q2, 2019, the Council adopted a payment schedule to address the City’s UAL accrued as of June 30, 2017 with a goal of repaying the UAL accrued through June 30, 2017 within 15 years. But the Council has retained flexibility in the payment schedule in that a significant part of the payments are ADPs which are not obligatory. It should be further noted, unfortunately, if net investment returns after June 30, 2017 fall short of the assumed rate of return of 7% per annum, or for instance life expectancies are increased again or if CalPERS lowers the discount rate further (as some believe it should), a new UAL will arise and will have to be debt served at 7% per annum (or a new discount rate) until such new UAL is paid off. Conclusion: This Summary has been prepared as an introduction to the topic of unfunded pension liabilities. It is not intended as a comprehensive study of the topic. Rather it is intended to be used to provide new members of the Finance Committee with a starting point in understanding a complicated issue by providing some background and examples related to the topic. Staff has considerably more expertise on the topic and of course is happy to explain the details as members of the Finance Committee may desire. Summary of Pension Basics Schedule 1 2018/19 2019/20 2018/19 2019/20 Dollars Percent Misc 16.2%16.9%7,205,087 7,685,811 480,724 6.7% Safety 27.4%28.1%9,082,071 10,213,403 1,131,332 12.5% Total Expected Normal Cost 16,287,158 17,899,213 1,612,055 9.9% 2018/19 2019/20 Dollars Percent Minimum Payment of on UAL 25,698,507 26,196,003 497,496 1.9% Additional Discretionary Payment (ADP)8,801,493 8,803,997 2,504 0.0% Total Planned UAL Payment 34,500,000 35,000,000 500,000 1.4% 2018/19 2019/20 Dollars Percent Total Expected PERS Contribution 50,787,158 52,899,213 2,112,055 4.2% Less: Expected Employee Contributions 10,324,540 10,604,998 280,458 2.7% Net Employer Cost "Projected"40,462,618 42,294,215 1,831,597 4.5% Total Expected Pension Cost Change ChangeExpected Normal CostNormal Cost Rate Amortization of UAL Change Summary of Pension Basics Schedule 2 Miscellaneous Safety Total Total Accrued Liability 396,834,941 542,668,920 939,503,861 887,481,877 Less: Market Value of Assets 278,869,980 340,964,919 619,834,899 566,016,065 Unfunded Accrued Liability (UAL) 117,964,961 201,704,001 319,668,962 321,465,812 Funded Status 70.3%62.8%66.0%63.8% ADP Breakdown 36.9%63.1%100.0% 2017 2016 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5D October 10, 2019 TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Finance Department Dan Matusiewicz, Finance Director and City Treasurer 949-644-3123, dmatusiewicz@newportbeachca.gov SUBJECT: ECONOMIC CONTRIBUTION OF NEWPORT BEACH TO THE ORANGE COUNTY ECONOMY SUMMARY: In the attached study, Beacon Economics identifies the role that the City of Newport Beach plays in Orange County’s economy. RECOMMENDED ACTION: Receive and file. Prepared and Submitted by: /a/ Steve Montano _____________________________ Steve Montano Deputy Finance Director Attachment: A. Economic Contribution of Newport Beach to the Orange County Economy ATTACHMENT A ECONOMIC CONTRIBUTION OF NEWPORT BEACH TO THE ORANGE COUNTY ECONOMY Economic Contribution of Newport Beach to the Orange County Economy April 2019 City of Newport Beach | Newport Beach, CA MAY City of Newport Beach | Economic Impact2 Executive Summary Orange County is one of the wealthiest, most vibrant communities in the United States. With a population of 3.2 million, it is the sixth largest county in the nation and the third largest in California. In terms of GDP, the county ranks eighth nationally. In the State of California, only Los Angeles and Santa Clara Counties generate more economic output. Orange County accounts for approximately one in every 10 jobs in Cali- fornia. The county’s economy is strong in high-technology, finance, healthcare and tourism, highly prized sectors throughout the nation. Orange County’s economic strength is rooted in the performance of its 34 cities, each one of which con- tributes to the county’s economic ecosystem, with its unique set of industries, workers, amenities, and other assets. Within this county setting, the coastal City of Newport Beach stands out as a key component in the county’s economic engine. In this study, Beacon Economics identifies the role that the City of Newport Beach plays in Orange Coun- ty’s economy. It finds that Newport Beach is home to a number of the county’s leading industries and companies. It is a job-rich community, to which many county residents from outside of the city commute. It also draws visitors from the county and beyond, attracted by recreational opportunities and a number of popular shopping destinations, which generate millions of dollars in taxes for the city and county. This report finds that the performance and achievements of the city’s industries and residents make valuable contributions to the vitality of the Orange County economy. As such, the city and county have a vested interest in maintaining their mutual success and prosperity. Highlights: • Orange County is home to a number of Fortune 500 companies, including Ingram Micro, First Amer- ican Corporation, Broadcom, and Western Digital. As the presence of these companies suggests, the county boasts relative strength in the sought-after sectors of high-technology, finance, healthcare and tourism. In that vein, firms such as Hoag Memorial Hospital Presbyterian, PIMCO, and Pacific Life have chosen to make Newport Beach their home base. • With a population of 87,000, Newport Beach is the eleventh largest city in Orange County. By employ- ment, it is the county’s seventh largest with nearly 76,000 payroll workers. While the city population accounts for 3% of the county total, its payroll jobs account for 5% of the county total. • While the city has 6,500 payroll employers, its business community is much larger. The city has nearly 20,000 licensed businesses, including 12,400 local businesses. • Newport Beach is an important contributor to Orange County’s economy and, accordingly, makes a significant fiscal contribution to the county’s finances. In 2017, the properties in Newport Beach 3City of Newport Beach | Economic Impact had an assessed value of $50.2 billion, second among the county’s cities. Newport Beach generated nearly $76 million in property taxes, of which $4.5 million was channeled to the county government. • Newport Beach accounts for 15% of all property tax revenue generated by the county’s incorporated cities, making it the largest property tax revenue generator among the county’s cities. • Newport Beach is also the fifth largest sales tax revenue generator among Orange County cities, gen- erating $34 million in 2017. Of this amount, nearly $1.1 million was received by the Orange County Transportation Authority for county-related projects. • In per capita terms, which accounts for differences in size across cities, Newport Beach was the sec- ond largest contributor to property taxes at $879 per person, compared to an average of $168 per person across all 34 of the county’s cities. Similarly, Newport Beach was the third largest contributor to sales tax revenues at $394 per person, more than double the average of $179 for all incorporated cities. • The healthcare sector accounts for the largest share of jobs in the city’s economy. With total employ- ment of 12,100 jobs, the sector represents 16% of the city’s payroll jobs. • Fifteen percent (around 11,000 jobs) of the city’s employment is found in Accommodation and Food Services, which is both a byproduct of the City’s tourism industry and a manifestation of the purchas- ing power of Newport Beach residents and those of nearby communities. • Finance and Insurance – a particularly high-paying sector of the economy – is the third largest indus- try in the city, accounting for 11% of jobs, which equates to 8,600 positions. • The city’s employers accounted for 8% of countywide job gains over the period 2010 through 2018, including 36% of the jobs added in Finance and Insurance, 28% of the jobs added in Manufacturing, and 18% of the jobs added in Retail Trade. • With two-thirds of its residents holding a bachelor’s degree or higher, Newport Beach contributes to the county’s valuable labor pool. Thirty-nine percent of the county’s residents hold a bachelor’s degree or higher, compared to the state-wide average of 32% and the nation-wide average of 33%. • One way to determine Newport Beach’s contribution to countywide economic activity is an economic impact analysis, which measures the multiplier, or ripple effect, of spending by the city’s businesses, households and tourists. Beacon Economics estimated that Newport Beach has the following impacts on the Orange County economy. The city: • Generates over $42 billion in economic output • Supports 270,230 jobs (full- and part-time positions) • Generates nearly $16 billion in labor income City of Newport Beach | Economic Impact4 Introduction Orange County is one of the wealthiest, most vibrant communities in the United States. With a population of 3.2 million residents, the county is the sixth largest in the nation and the third largest in California. In terms of GDP, the county ranks eighth nationally. In the State of California, only Los Angeles and San- ta Clara Counties generate more economic output than Orange County. Thirty-nine percent of Orange County residents hold a bachelor’s degree or better, which is higher than the statewide average of 32%. The County’s economy has a relative strength in high-technology, finance, healthcare and tourism sec- tors, all sought after industries throughout the nation. Orange County’s strength lies in the performance of its cities, which are pillars upon which the county’s economy rests. In this study, Beacon Economics identifies the role that the City of Newport Beach plays in Orange County’s economy. The City of Newport Beach is a coastal community in Orange County, California. In 2018, the City of Newport Beach was the 11th largest city in Orange County with over 87,000 residents. For decades, it has ranked among California’s most visited tourist spots. It is renowned for its miles of coastline and well-maintained beaches, its busy harbor and piers, fine dining, a wide array of retail shopping experienc- es, its high-end automotive dealerships, and its surfing community. In 2018, Newport Beach was home to roughly 76,000 private sector jobs, ranking it seventh among all cities in Orange County. It is home to two of the county’s largest employers: Hoag Memorial Hospital Presbyterian and Pacific Life. This study finds that Newport Beach is a job-rich community, to which many county residents from out- side of the city commute. The city also draws visitors to Orange County from across the nation and be- yond, generating taxes for the county as well as the city. 5City of Newport Beach | Economic Impact The City of Newport Beach • In 2018, the City of Newport Beach had 87,128 residents, making it the 11th most populous city in Orange County. The city accounts for around 3% of the county’s total population. Its population has grown by about 2% since 2010, slightly slower than the Orange County average. As an established city, Newport Beach has a slower growth rate than newly developed parts of the county. • In 2018, there were nearly 76,000 workers in the City of Newport Beach, working at approximately 6,500 private payroll establishments. Newport Beach ranks seventh among all cities in Orange County in terms of payroll jobs. • The city has nearly 20,000 licensed businesses, including 12,400 local businesses within the city and 5,600 located elsewhere. • Newport Beach is a job-rich community, meaning that it has a high number of jobs relative to its population. Among the largest cities in Orange County, it has the second highest number of jobs per resident. 250,000 150,000 200,000 300,000 350,000 400,000 Source: U.S. Census Bureau Business Patterns, California Department of Finance Demographic Research Unit, Analysis by Beacon Economics ORANGE COUNTY CITIES WITH LARGEST EMPLOYMENT Population, Jobs, and Jobs Per Thousand Residents, 2016 Irvine Population Employment Jobs Per 1,000 Residents 100,000 Anahe i m Santa A n a Orang e Costa M e s a Huntin g t o n Beach Newpo r t Beach Fuller t o n People, Economy, Amenities People and Jobs Garde n G r o v e 50,000 0 800 400 600 1,000 1,200 1,400 200 0 Brea City of Newport Beach | Economic Impact6 • Orange County employers pay the second highest wages in the region, $61,000 per year, and within the county, employers in Newport Beach pay higher wages, $84,000 per year in 2016, than in any other city in the county. • These high-paying jobs are of significant benefit to the Orange County economy. Newport Beach residents account for only 7.6% of the positions filled by employers in the city. Based on city-specific commuting data from 2015, 58% of positions were filled by residents from other Orange County com- munities, meaning that thousands of workers find employment in Newport Beach, then spend their earnings in residential communities elsewhere in the county and the broader region. $40,000 $20,000 $30,000 $50,000 $60,000 $70,000 Source: US Bureau of Labor Statistics Analysis by Beacon Economics AVERAGE PRIVATE INDUSTRY WAGE BY COUNTY Los Angeles 2016 2017 $10,000 $0 Orange Riverside San Bernardino San Diego Location % of Total Newport Beach 7.6% Elsewhere in OC 57.8% Rest of Southern CA 11.9% Source: U.S. Census Bureau, Longitudinal Employer-Household Dynamics Analysis by Beacon Economics NEWPORT BEACH WORKERS LIVE IN... (2015) Other (includes telecommuting)22.6% Total 100.0% 7City of Newport Beach | Economic Impact Source: U.S. Bureau of the Census, Zip Code Business Patterns, Analysis by Beacon Economics AVERAGE ANNUAL WAGE (000S) Top Cities in Orange County (2016) $60 $40 $50 $70 $80 $90 Newport Beach $30 $20 $10 $0 Irvine Aliso Viejo Foothill Ranch Seal Beach La Palma Cypress East Irvine Costa Mesa Rancho Santa Margarita 84.1 83.3 76.9 68.5 65.3 62.9 62.5 59.5 54.8 54.3 A number of Orange County’s leading industries are well-represented in Newport Beach, each making contributions to the city and county. Among them are local-population-serving industries such as Health Care; external facing industries such as Finance and Insurance; and industries such as Accommodation and Food Services which serve both the local population and the many tourists who visit Orange County and, in particular, Newport Beach. • The healthcare sector accounts for the largest share of jobs in the city’s economy, contributing 16% of total employment of 12,100 jobs. • Hoag Hospital accounts for much of the city’s relative strength in the healthcare sector. It treats 30,000 inpatients and 425,000 outpatients annually, as well as the 113,070 people who visit the hos- pital’s E.R. One of the leading hospitals in California, it is ranked eighth in the state by US News and World Report, and is the highest ranked hospital in Orange County. Nationally, the Hoag is among the top 50 hospitals for treatment of gastroenterology & GI surgery, orthopedics, urology and geriatrics. • Fifteen percent (around 11,000 jobs) of the city’s employment is found in Accommodation and Food Services, which is both a byproduct of the City’s tourism industry and a manifestation of the purchas- ing power of Newport Beach residents and those of nearby communities. • Finance and Insurance – a particularly high-paying sector of the economy – is the third largest indus- try in the city, accounting for 11% of jobs, which equates to 8,600 positions. Key Industries City of Newport Beach | Economic Impact8 Source: Employment Development Department of California, Analysis by Beacon Economics PRIVATE EMPLOYMENT AND AVERAGE WAGE BY INDUSTRY IN NEWPORT BEACH Industry IndustryEmployment 2018 Health Care and Social Assistance 16% Accommodation and Food Services 15% Finance and Insurance 11% Professional, Scientific, and Technical Services 10% Retail Trade 8% Manufacturing 7% Administrative Services 7% Real Estate and Rental and Leasing 5% Other Services (except Public Administration)4% Construction 4% Management of Companies and Enterprises 3% Arts, Entertainment, and Recreation 2% Educational Services 1% Wholesale Trade 1% Information 1% Transportation and Warehousing 1% Agriculture, Forestry, Fishing and Hunting 0% Total 100% Share of Total AnnualWages 2018 $68,378 $29,295 $202,205 $96,426 $44,453 $57,186 $51,389 $117,481 $39,078 $85,040 $203,538 $36,043 $52,460 $90,455 $85,153 $65,901 $35,354 $83,817 12,132 11,191 8,653 7,623 6,266 5,203 4,949 4,097 2,954 2,828 2,482 1,407 1,066 857 846 751 10 73,315 Some of the county’s leading industries have a particularly large presence in Newport Beach. This may be represented by industry location quotients, which measure the city’s concentration of industry employ- ment relative to that of the county. Location quotients are an industry specific measure. For a particular industry, a location quotient compares the city’s share of employment found in an industry to the coun- ty’s share. So if a location quotient is 1 for a particular industry, this means the industry makes up the same share of employment in city as it does in the county. By contrast, if a location quotient is greater than 1, this means a higher share of the city’s employment is found in an industry compared to the county and the opposite is true if the number is less than one. Management of Companies and Enterprises Professional, Scientific, and Technical Services 9City of Newport Beach | Economic Impact • Finance and Insurance, along with its closely related counterpart, Real Estate and Rental and Leasing, have the two largest location quotients: 2.32 and 2.25 respectively, meaning that the concentration of employment for these two industries is more than twice that of the county as a whole. • Newport Beach also has a significant presence of Accommodation and Food Services (1.41); Profes- sional Scientific and Technical Services jobs, which have a location quotient of 1.29; and Management of Companies and Enterprises, 1.49. Finance and Insurance Management of Companies and Enterprises Real Estate and Rental and Leasing Accommodation and Food Services Other Services (except Public Administration) Health Care and Social Assistance Retail Trade Professional, Scientific, and Technical Services Source: Employment Development Department of California, Analysis by Beacon Economics EMPLOYMENT CONCENTRATION OF SELECTED NEWPORT BEACH INDUSTRIES (Relative to Orange County) 2.32 2.25 1.49 1.41 1.38 1.36 1.29 0.89 0.0 0.5 1.0 1.5 2.0 2.5 • Newport Beach’s relative industrial specialization does much to explain the high wages earned by the city’s wage and salary workers relative to other locations. Finance and Insurance, Real Estate and Leasing, and Management of Enterprises, in which the city specializes, are very high-paying sectors of the economy. • Over the period 2010-2018, employers in California added close to 2.9 million jobs. Orange County added 257,000 jobs over the same period, accounting for 9% of statewide employment growth. In turn, the City of Newport Beach add about 21,000 jobs and accounted for about 5% of all job growth in Orange County. • Employers in the City of Newport Beach have benefited from overall growth of the county and nation- al economy. At the same time, the city has been a significant contributor to the performance of some sectors in the county’s economy. City of Newport Beach | Economic Impact10 Source: California Employment Development Department, Analysis by Beacon Economics JOB CHANGES BY INDUSTRY, 2010- 2018 Industry Employment Change Finance and Insurance 81% Health Care and Social Assistance 41% Accommodation and Food Services 32% Retail Trade 42% Manufacturing 62% Management of Companies and Enterprises 351% Administrative Services 61% Professional, Scientific, and Technical Services 25% Other Services (except Public Administration)96% Construction 56% Educational Services 143% Arts, Entertainment, and Recreation 22% Transportation and Warehousing 40% Agriculture, Forestry, Fishing and Hunting 43% Information -35% Transportation and Warehousing -38% Real Estate and Rental and Leasing -15% Total 3,879 3,518 2,694 1,849 1,992 1,932 1,866 1,534 1,449 1,014 628 252 215 3 -451 -524 -730 21,120 Newport Beach Percentage Change 2010-2018 Employment Change Orange County Percentage Change 2010-2018 16% 44% 28% 7% 5% 57% 29% 19% -3% 56% 22% 41% 15% -55% 5% 3% 13% 10,731 58,065 37,943 10,349 7,031 12,954 32,601 19,762 -1,503 37,537 5,248 14,666 3,298 -2,541 1,305 1,971 4,525 257,290 All Industries Prof., Scientific, and Tech. Services Transportation and Warehousing 11City of Newport Beach | Economic Impact • For example, as the table above reveals, finance and Insurance added 3,879 jobs in Newport Beach, more than any other sector over the period 2010-2018. The city accounted for approximately 36% of the county’s job gains in the industry over that period. • The next fastest growing sectors were Healthcare and Social Assistance, where employers in Newport Beach added 3,518 jobs over the same period, followed by Accommodation and Food Services where 2,694 jobs were added. • While job counts in Retail Trade have experienced pressure from online retailers and distribution, Orange County destinations have bucked the trend, with employment growing by 53% in Newport Beach, around 1,800 jobs. • Manufacturing has a relatively low-key presence in Newport Beach, but the city is home to 5,200 jobs, accounting for 7% of total payroll employment. This sector added 2,000 jobs between 2010 and 2018, an increase of 65%, and an absolute increase equivalent to around one quarter of countywide gains in the industry. Finance and Insurance Retail Trade Manufacturing Management of Companies All Industries Educational Services Accommodation and Food Services Prof., Scientific, and Tech. Services Source: Employment Development Department of California, Analysis by Beacon Economics NEWPORT BEACH SHARE OF OC JOBS ADDED-SELECTED INDUSTRIES, 2010-18 (Relative to Orange County) 36% 0%5%10%15%20%25% Health Care and Social Assistance Transportation and Warehousing 30%35%40% 28% 18% 15% 12% 8% 8% 7% 7% 6% City of Newport Beach | Economic Impact12 Orange County is home to a number of the most envied resources in California, some of which are locat- ed in Newport Beach. The City’s maintenance and stewardship of these resources is a significant boon for the residents of Orange County and attract visitors from around the world. • Newport Beach is also home to a harbor, two piers, and a 10.5 mile Back Bay loop trail which is pop- ular with cyclists and runners. In addition to the hundreds of thousands of visitors to the Back Bay each year, educational programs offered by Newport Bay Conservancy attract over 50,000 visitors per year. Newport Beach’s preservation of this amenity attracts people to Orange County from across Southern California and beyond. Of the community’s two ocean view golf courses, Pelican Hill was ranked the ninth best public golf course in California by golf.com in 2016. • In addition to its beachfront attractions, Newport Beach is also home to a number of world-class retail and dining destinations. Fashion Island has 150 tenants, and features upscale retailers, and fashion- able new eateries that attract over 16 million visitors per year. • The city hosts a number of exciting events, including the annual Newport Beach Film Festival, annual Newport Beach Boat Show, and the Newport Beach Wine and Food Festival, all of which draw visitors to Orange County from across the world. • These amenities attract millions of visitors to Newport Beach every year. In 2016, of the 48.2 million visitors to Orange County, 7.3 million people visited Newport Beach. These out-of-town visitors spent a combined $1.2 billion in the city, which equates to $3.2 million per day1 . • Taken together, these attractions generate millions of dollars in taxes for the city and the county, which will be examined in greater detail below. • Next to Anaheim, Newport Beach generates the county’s second highest level of Transient Occupancy Tax collections, a tax levied on travelers who rent accommodation. Based on this, the city is the sec- ond most visited place by overnight visitors who tent to spend more than day visitors. Amenities 1 https://www.latimes.com/socal/daily-pilot/news/tn-dpt-me-newport-tourism-20170929-story.html 13City of Newport Beach | Economic Impact The ability of the county and its elected officials to serve the interests of their constituents depends on the resources at their disposal. In the state of California, counties rely heavily on property and sales tax- es. They use these funds to support county programs while working to provide services for the county’s residents. • Orange County generates income from a variety of sources, primarily from property tax and sales tax. • In 2017, the assessed value of Newport Beach property stood at $50.2 billion, second only to Irvine. • This equated to $75.8 million in property taxes for the city, which is equivalent to almost 15% of the $514.9 million generated in property taxes across the county’s 34 incorporated cities, the largest of all incorporated cities in the county. • On average, 6% of the property tax revenue generated by a city is channeled into a county’s general fund. This means that Newport Beach’s high property values directly benefit Orange County. Based on the property tax revenues generated in the city, in 2017 $4.6 million in property tax revenue was generated for the County’s general fund. Fiscal Contribution of City to County Source: State Controller's Office, Analysis by Beacon Economics TOP CITIES BY PROPERTY TAX REVENUE City Amount $Pct. of OC Per CapitaContribution to County (6%) Newport Beach Huntington Beach Anaheim Irvine Santa Ana Laguna Beach Fullerton Costa Mesa San Clemente Mission Viejo Balance of County Cities Total-Incorporated OC Cities $75,793,698 $48,936,441 $38,090,742 $33,546,620 $32,403,883 $27,943,244 $25,034,973 $24,137,059 $21,909,091 $21,248,820 $165,819,957 $514,864,528 14.7% 9.5% 7.4% 6.5% 6.3% 5.4% 4.9% 4.7% 4.3% 4.1% 32.2% 100.0% $4,547,622 $2,936,186 $2,285,445 $2,012,797 $1,944,233 $1,676,595 $1,502,098 $1,448,224 $1,314,545 $1,274,929 $9,949,197 $30,891,872 $879 $242 $107 $126 $96 $1,202 $174 $210 $337 $221 $120 $168 Per Sq. Mile $2,915,142 $1,773,059 $746,877 $508,282 $1,182,623 $3,139,690 $1,117,633 $1,527,662 $1,190,711 $775,504 $711,368 $982,566 City of Newport Beach | Economic Impact14 • Newport Beach’s attractiveness to retail shoppers, car buyers, and tourists generates a large amount of taxable sales and sales tax revenues. This is a direct benefit to the public revenues of the county as well as the city. In 2017, the city’s establishments generated $33.9 million in sales tax revenues, sixth highest among the county’s cities and equivalent to 6.2% of the $551.4 in sales tax revenues generat- ed by the county’s cities. • Due to Measure M, 0.25% of a city’s taxable sales revenue is passed on to the Orange County Trans- portation Authority. In 2017, this meant $1.1 million was generated for county transportation projects due to sales generated in Newport Beach. • In per capita terms, Newport Beach generated the second highest property tax revenue and third highest sales tax revenue among the county’s 34 cities. • Newport Beach ranked first in the county in terms of assessed value per square mile, second in terms of property tax per square mile, and third in terms of sales tax per square mile. Source: Orange County, Assessor Analysis by Beacon Economics TOP CITIES IN ORANGE COUNTY BY ASSESSED VALUE City Amount $Pct. of OC Per Sq. Mile Irvine Newport Beach Anaheim Huntington Beach Santa Ana Orange Fullerton Costa Mesa Mission Viejo San Clemente Balance of County Cities Total Incorporated $65,533,602,712 $50,248,667,001 $41,135,508,038 $35,835,108,563 $23,730,884,541 $19,435,751,948 $17,887,384,481 $17,433,298,559 $15,701,835,879 $15,190,871,569 $193,799,258,603 $495,932,171,894 13.2% 10.1% 8.3% 7.2% 4.8% 3.9% 3.6% 3.5% 3.2% 3.1% 39.1% 100.0% $992,933,374 $1,932,641,039 $808,163,223 $1,298,373,499 $866,090,677 $753,323,719 $798,543,950 $1,103,373,327 $872,324,216 $825,590,846 $859,420,216 $946,796,815 15City of Newport Beach | Economic Impact Source: State Controller's Office, Analysis by Beacon Economics TOP CITIES BY SALES TAX REVENUE City Amount $Pct. of OC Per CapitaContribution to County Anaheim Irvine Costa Mesa Santa Ana Orange Newport Beach Huntington Beach Tustin Brea Fullerton Balance of Cities Total-Incorporated OC Cities $67,386,247 $53,236,455 $46,772,382 $39,160,532 $34,050,309 $33,937,986 $33,890,155 $19,753,923 $18,581,617 $18,343,169 $186,241,602 $551,354,377 12.2% 9.7% 8.5% 7.1% 6.2% 6.2% 6.2% 3.6% 3.4% 3.3% 33.8% 100.0% $2,173,750 $1,717,305 $1,508,787 $1,263,243 $1,098,397 $1,094,774 $1,093,231 $637,223 $599,407 $591,715 $6,007,794 $17,785,625 $189 $199 $407 $116 $242 $394 $168 $240 $415 $128 $144 $179 City of Newport Beach | Economic Impact16 Orange County is among the top 10 largest county economies in the country, generating over $260 billion dollars in annual gross county product.2 To what extent does Newport Beach contribute to countywide economic activity? One way to approach this question is an economic impact analysis, which measures the multiplier, or ripple effect, of spending by the city’s businesses, households and tourists. As an example, a business that operates in Newport Beach hires workers and purchases goods and ser- vices. Its workers and suppliers may be located in the city, elsewhere in the county, or outside the county altogether. In turn, the suppliers themselves patronize their own set of firms and have their own employ- ees. Therefore, when a firm makes a purchase from a supplier, it triggers a ripple of economic activity in the local economy and beyond. Similarly, when workers at these businesses spend their earnings, they trigger additional ripple effects on the local economy and beyond, ultimately generating a total economic impact that is much larger than the initial spending. The size of the impact on the local, or Orange Coun- ty, economy depends on the extent to which expenditures on goods, services, and payroll stay local. The more links to local businesses and local labor pools, the greater the economic impact. Economic Impact Contribution of Newport Beach to the Orange County Economy 2 Based on the latest data (2015) from the US Bureau of Economic Analysis, measured in nominal (current-dollar) terms. This pattern of expenditures and impacts on the local economy can be described in terms of three effects: • First, there is a direct effect on the industry itself, resulting from the initial increase in spending on goods and services. • Second, the direct effects trigger indirect effects in the form of expenditures by suppliers tapping into their supply chains. • Third, there are induced effects that arise when employees in the target industry and in those supply- ing it workers earn wages that are spent on goods and services, both locally and elsewhere. The total economic impact is obtained by combining these individual impacts. This section estimates the economic impact of the City of Newport Beach on the Orange County econo- my. Beacon Economics estimated spending by Newport Beach businesses and residents, and the tourists who visit the city, and then analyzed the economic impact of this activity on the county as a whole: • Business spending was inferred from job counts for the Newport Beach industries that were obtained from the California Employment Development Department. • Household spending was derived from estimated city household income and spending based upon the U.S. Bureau of the Census American Community. 17City of Newport Beach | Economic Impact 3 The Economic Impact of Tourism in Newport Beach, California, by Tourism Economics, September 2018. • Tourism figures were derived from a study of tourism in Newport Beach that was completed in late 20183. The combined impact of the city’s business activity, household spending, and tourism expenditures was measured in terms of job creation, generation of earnings for workers, and increases in regional econom- ic output. 4 Beacon Economics used the above data as inputs to an economic impact model of Orange County, and estimated that Newport Beach has the following impacts on the Orange County economy: • Generates over $42 billion in economic output • Supports 270,230 jobs (full- and part-time positions) • Generates nearly $16 billion in labor income 4 Beacon Economics used the IMPLAN model of the Orange County economy, which is described in more detail in the corresponding report appendix. Adjust- ments were made to the individual components of this analysis (industry, household, and visitor) to avoid double-counting. Source: State Controller's Office, Analysis by Beacon Economics TOP CITIES BY SALES TAX REVENUE Type Output ($B) Direct Effect 163,370 Indirect Effect 60,260 Induced Effect 46,600 Total Impact 270,230 Employment Labor Income ($B) 10.034 4.303 1.633 $15.971 26.615 11.210 4.485 $42.310 • Of the $42.3 billion in economic output generated in Orange County by the city’s business activity, household spending, and tourism expenditures, $26.6 billion represents direct spending, $11.2 bil- lion represents secondary spending by businesses via the indirect effect, and $4.5 billion represents worker-related spending. • Of the 270,230 jobs supported in Orange County by the business, household, and tourist spending in Newport Beach, 163,370 are jobs directly associated with Newport Beach economic activity, 60,260 are associated with secondary job creation by businesses via the indirect effect, and 46,600 are due to worker-related spending. • •Of the $16 billion in labor income generated in Orange County as a result of the city’s business, household, and tourist spending, $10 billion corresponds to direct wages, $4.3 billion correspond to indirect wages, and $1.6 billion is generated as a result of worker-related spending. City of Newport Beach | Economic Impact18 While the city’s industries employ over 75,000 workers as noted earlier in the report, jobs are also created elsewhere in Orange County because of spending on the part of Newport Beach residents and tourists. Specifically, while 75,930 of the 163,370 jobs in the direct impact were wage and salary jobs in the City of Newport Beach, the remaining 88,370 direct jobs were generated elsewhere in the county. These jobs were mainly tied to expenditures by Newport Beach residents and visitors and accounted for $3.6 billion of the $10.0 billion in direct wages. Put simply, spending on the part of Newport Beach residents and visitors takes place throughout the county, creating more jobs in other Orange County communities than in Newport Beach itself. Conclusion • Newport Beach benefits greatly from its location in one of the largest counties in the United States. • The city is not a closed economy. Just as Newport Beach gains value from the economic strength of its neighbors, it is also a significant contributor to the county’s economy. • The City of Newport Beach is immersed in the Orange County economic ecosystem, and contributes to its strength in high-technology, finance and insurance, healthcare and tourism. • Newport Beach is also a significant revenue generator for the county, accounting for significant shares of property tax and sales tax revenue countywide. Newport Beach accounts for 15% of the property tax revenues and 6.2% of all sales tax revenues generated by the county’s incorporated cities. • In addition, the city is an amenity-rich community that serves Orange County residents and visitors, making contributions culturally and recreationally as well as economically. • Ultimately, there is a powerful relationship between the City of Newport Beach and Orange County. The continued success of both city and county depends on maintaining that relationship and leverag- ing their relative strengths for the continued improvement of the local economy, thus benefiting the county’s residents, businesses, and visitors. 19City of Newport Beach | Economic Impact AppendixImplan Economic Impact Model The economic contribution of Newport Beach to the Orange County economy was estimated using a regional Input-Output model. Beacon Economics employed Version 3 of Minnesota IMPLAN Group’s Impacts for Planning (IMPLAN) input-output model, because it uses the most up-to-date underlying data and is highly customizable. This model has been in use for years and is a generally accepted tool by researchers on all sides of the political spectrum. It is recognized by government evaluators and commonly used in the private sector. Impact studies assume that any increase in spending has three effects. First, a direct effect on the industry itself results from the additional output of goods or services. Second, indirect effects are made on all the industries whose outputs are used by the industry under observation. These are the impacts generated by a business’s supply chain. Third, induced effects arise when employment in- creases and household spending patterns expand. These impacts follow from the additional income earned in producing this output, both by employees in the target industry and by those supplying it. Using the IMPLAN modeling system, Beacon Economics estimated the direct, indirect and induced impact of economic activity in Newport Beach on the Orange County economy. The direct, indirect, induced and total economic impacts were measured in terms of the following economic indicators: • Employment: The number of full-time-equivalent jobs created in connection with construction activities and operations, including their allocation across several broad industry clusters. • Output: The increase in economic activity for Orange County, measured in value (dollar) terms. • Earnings: The increased income generated in connection with construction and operations; a component of value added. City of Newport Beach 100 Civic Center Drive PO Box 1768 Newport Beach, CA 92658 CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5E October 10, 2019 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE FROM: Finance Department Dan Matusiewicz, Finance Director 949-644-3123 or danm@newportbeachca.gov SUBJECT: BUDGET AMENDMENTS FOR QUARTER ENDING JUNE 30, 2019 AND SEPTEMBER 30, 2019 EXECUTIVE SUMMARY The purpose of this memorandum is to report on the budget amendments for the fourth quarter of FY 2018-19 and first quarter of FY 2019-20. All budget amendments are in compliance with City Council Policy F-3, Budget Adoption and Administration. DISCUSSION City Council Policy F-3, Budget Adoption and Administration, identifies how appropriations can be transferred, increased or reduced. The Finance Committee reviews a quarterly report of City Council and City Manager budget amendments including their effect on fund balance. Please find the list of budget amendments included as Attachments A and B. Prepared by: Submitted by: /s/ Susan Giangrande /s/ Dan Matusiewicz Susan Giangrande Dan Matusiewicz Budget Manager Finance Director Attachments: A. Budget Amendments Fiscal Year 2018-19 Quarter Ending June 30, 2019 B. Budget Amendments Fiscal Year 2019-20 Quarter Ending September 30, 2019 ATTACHMENT A BUDGET AMENDMENTS FISCAL YEAR 2018-19 QUARTER ENDING JUNE 30, 2019 Page 1 of 3 Date Amount Amendment Type Fund Net Effect on Fund Balance Increase/(Decrease)Department Explanation 4/9/2019 $23,666.00 City Council General Fund - Library To increase revenue estimates and expenditure appropriations and accept funding from the California State Library for Literacy Services (CLLS) annual grant program. General Fund (338,813.03)Various Water Enterprise Fund (11,773.80)Utilities Wastewater Fund (3,038.94)Utilities Equipment Fund (2,088.80)Internal Services Tidelands Fund (4,412.56)Harbor Information Technology (12,615.82)Internal Services CIP General Fund (940,907.00)CIP Contributions Fund - CIP General Fund (250,000.00)CIP CIP General Fund - CIP Contributions Fund - CIP 4/9/2019 $20,183.96 City Council General Fund (20,183.96) City Clerk; City Atty; City Manager To increase salaries and benefit expenditure appropriations from General Fund unappropriated fund balance to provide funding levels commensurate with the new agreement with appointed employees at the City of Newport Beach. The budget amendment provides the additional funding needed for the first six months of the agreement. 4/9/2019 $13,580.00 City Council General Fund (13,580.00) Fire; Police To increase salaries and benefit expenditure appropriations from General Fund unappropriated fund balance to provide funding levels commensurate with the new agreement with appointed safety employees at the City of Newport Beach. The budget amendment provides the additional funding needed for the first six months of the agreement. 4/9/2019 $2,372,732.00 City Council To increase salaries and benefit expenditure appropriations from General, Water, Wastewater, Equipment, Tidelands, and IT Fund's unappropriated fund balance to provide funding levels commensurate with the new K&M MOU costs for April 2009 through June 2009. To appropriate increased expenditure appropriations from the CIP General Fund unappropriated fund balance to be used towards MacArthur Blvd. and University Dr. pavement rehabilitation project (18R23). This budget amendment also increases revenue estimates and expenditure appropriations and accepts funding from Irvine Ranch Water District, as well as Mesa Water District. To appropriate increased expenditure funding for Assessment District 116 and 116B from unappropriated fund balance. Funds to be transferred from General Fund unappropriated fund balance into CIP unappropriated fund balance. To receive additional revenue from various utility companies and increase expenditure funding within the Contribution Fund. City of Newport Beach Budget Amendments Fiscal Year 2018-19 Quarter Ending June 30, 2019 4/9/2019 $372,742.95 City Council 4/9/2019 $956,781.00 City Council Page 2 of 3 Date Amount Amendment Type Fund Net Effect on Fund Balance Increase/(Decrease)Department Explanation City of Newport Beach Budget Amendments Fiscal Year 2018-19 Quarter Ending June 30, 2019 Water Capital Fund (300,000.00)CIP Contributions Fund - CIP General Fund (1,428,885.00)Neighborhood Enhancement Neighborhood Enhancement Fund - CIP 20A Credit Purchase 4/9/2019 $550,000.00 City Council General Fund (550,000.00) Utilities To increase expenditure appropriations from General Fund unappropriated fund balance to provide emergency work and repairs due to heavy rains. 4/23/2019 $28,000.00 City Council CIP General Fund - CIP To increase expenditure appropriations from General Fund CIP unappropriated fund balance for the Playground Improvement Project (19P01). These funds were made available by the closure of the Jasmine Creek Maintenance Road Reconstruction Project. 4/23/2019 $168,600.00 City Council CIP General Fund (168,600.00) CIP To increase expenditure appropriations from General Fund CIP unappropriated fund balance for the award of contract for the Slurry Seal Program (19R04). 4/23/2019 $40,000.00 City Council General Fund (40,000.00) Public Works To increase expenditure appropriations from General Fund unappropriated fund balance for the award and approval of ongoing weed abatement services. 5/14/2019 $182,000.00 City Council General Fund (11,000.00) Fire To increase expenditure appropriations to GEMT QAF from the General Fund unappropriated balance and increase revenue estimates in fiscal year 2019/20 from the Paramedic Service Fee. 6/11/2019 $125,226.00 City Council Measure M - Competitive Fund - CIP To increase revenue estimates and expenditure appropriations from grant funds awarded by the Orange County Transportation Authority (OCTA) as part of their Environmental cleanup Program. These grant funds will pay for the purchase and installation of 425 CPS units. This budget amendment authorizes the transfer of a portion of the 2017/18 General Fund surplus to the Neighborhood Enhancement Fund where these funds will be appropriated for the acquisition of SCE Rule 20A Credits from the City of Lynwood. City Council$1,428,885.004/9/2019 To appropriate increased expenditure appropriations from the Water Capital unappropriated fund balance to be used toward the Bayside Drive and Jamboree Road/Marine Ave Improvements project (19W05). This budget amendment also increases revenue estimates and expenditure appropriations and accepts funding from OC Sanitation District into the Contributions Fund. 4/9/2019 $356,946.00 City Council Page 3 of 3 Date Amount Amendment Type Fund Net Effect on Fund Balance Increase/(Decrease)Department Explanation City of Newport Beach Budget Amendments Fiscal Year 2018-19 Quarter Ending June 30, 2019 4/17/2019 $3,060.00 City Manager General Fund - Recreation &Senior Services To increase revenue estimates and expenditure appropriations related to the Per Player Field Maintenance Agreement for the Adult Soccer League's Spring 2019 Season. From Spring 2019 registration, the contribution for field maintenance was $180 x 17 teams = $3,060.00 5/6/2019 $100,000.00 City Manager Tidelands Fund - Harbor To transfer expenditure appropriations from Tidelands CIP Expense (Harbor Maintenance and Minor Improvements) to Harbor Department Property Management to fund Basin Marine. 5/10/2019 $11,282.08 City Manager General Fund - Recreation & Senior Services To transfer expenditure appropriations from Maintenance and Repair of Buildings to Equipment NOC for the purchase of equipment material. CIP General Fund 20,000.00 Public Works Tidelands Fund 0.23 Public Works Measure M 123 225,000.00 Public Works Contributions Fund 0.01 Public Works Environmental Liability Fund 121,690.00 Public Works Fire Station Fund 19,351.70 Public Works Facilities Maintenance Fund 8,510.65 Public Works Strategic Planning Fund 100,000.00 Public Works Water Capital Fund 102,500.00 Public Works Sewer Capital Fund 900,000.00 Public Works 5/21/2019 $10,000.00 City Manager General Fund - Library To increase revenue estimates and expenditure appropriations to accept donations from the Literacy Services Special Deposit Account. Funds will be allocated to Literacy Programming. 5/30/2019 $19,648.68 City Manager FiiN Fund (8,905.57) Recreation & Senior Services To increase expenditure appropriations from FiiN unappropriated fund balance and to transfer funds from salary savings to operating expense. 5/21/2019 $1,497,052.59 To close completed projects and return unused funding to fund balance. City Manager ATTACHMENT B BUDGET AMENDMENTS FISCAL YEAR 2019-20 QUARTER ENDING SEPTEMBER 30, 2019 Date Amount Amendment Type Fund Net Effect on Fund Balance Increase/(Decrease)Department Explanation 7/9/2019 $25,000.00 City Council General Fund - Police To increase revenue estimates and expenditure appropriations from the approval and acceptance of the California Department of Alcoholic Beverage Control (ABC) 2019-20 Alcohol Policing Partnership Program (APP) Grant. 7/9/2019 $643,254.00 City Council General Fund 321,486.00 Fire To increase revenues & expenditures related to Medi-Cal IGT Program. 7/1/2019 $3,790.00 City Manager General Fund (3,790.00) To increase expenditure appropriations from the General Fund unappropriated fund balance to be used towards Trico lease agreement (Contract 8018-1). This contract was neglected to receive known rent increase during the budget process. General Fund (65,401.00)Various Tidelands (9,475.00)Harbor Water (818.00)Water System Service Equipment Fund (150.00)Equipment Maintenance IT ISF (304.00)City Manager Information Technology 7/1/2019 $146,555.30 City Manager General Fund (146,555.30) Police To increase expenditure appropriations after the approval of one Police Officer FTE to the Police Department Patrol Division. 7/1/2019 $451,000.00 City Manager General Fund 161,000.00 Fire To increase expenditure appropriations to the GEMT QAF and increase estimated revenues to Paramedic Service Fees in FY 2019-20. 7/1/2019 $400.00 City Manager General Fund 400.00 CDD To increase revenue estimates from the Lido Marina Village Certified Farmers' Market. 7/1/2019 $19,087.00 City Manager General Fund (19,087.00) Fire To increase expenditure appropriations to fund the first twelve months of the NBFMA contract, excluding pension unfunded actuarial liability and compensated absences (per Finance Director). 7/1/2019 $205,450.00 City Manager Uninsured Claims Fund - Internal Services To transfer expenditure appropriations for Excess Insurance, Crime Insurance, Other Bodily Injury, and Broker Fees after they were reclassed from Fund 751 GL to Fund 749 Uninsured Claims, per request from HR Director. 8/13/2019 $200,534.71 City Council General Fund (200,543.71) CIP To increase expenditure appropriations from the General Fund capital fund project surplus unappropriated fund balance to be used towards the purchase and installation of a new outdoor warning system. 8/13/2019 $490,000.00 City Council General Fund (350,000.00) Utilities To increase expenditure appropriations from the General Fund unappropriated fund balance and transfer appropriations within Public Works Operating budget to be used towards a janitorial services agreement with Ed Building Maintenance 9/10/2019 $185,000.00 City Council General Fund - Library To increase revenue estimates and expenditure appropriations by accepting a check from the Friends of the Newport Beach Library to supplement Library operations and fund library materials and programming. 8/16/2019 $80,000.00 City Manager IT Strategic - IT To transfer funds from IT Strategic ERP - Services Professional to IT Strategic - Equipment N.O.C. for server acquisition in support of ERP operations and maintenance. City Manager To increase expenditure appropriations to provide funding for the first twelve months of the Part Time Employees Association of Newport Beach (PTEANB) contract. The difference between amount of budget amendment and cost identified in the staff report are due to staffing changes approved in the FY 2019-20 budget, a reduced number of employees eligible to receive the cafeteria increase, and direction from the Finance Director to exclude appropriations for the pension unfunded actuarial liability. City of Newport Beach Budget Amendments Fiscal Year 2019-20 Quarter Ending September 30, 2019 7/1/2019 $76,148.00 Date Amount Amendment Type Fund Net Effect on Fund Balance Increase/(Decrease)Department Explanation City of Newport Beach Budget Amendments Fiscal Year 2019-20 Quarter Ending September 30, 2019 9/24/2019 $250,000.00 City Council General Fund - Police To increase revenue estimates and expenditure appropriations to accept the 2020 State of California, Office of Traffic Safety (OTS) Selective Traffic Enforcement Program (STEP) Grant (#PT20091) for increasing DUI Enforcement and Awareness and funding additional traffic safety enforcement, as well as DUI Sobriety Checkpoints. Funds will be used to pay for overtime costs specifically used for this program and related costs for travel, training, and supplies. 9/24/2019 $62,449.00 City Council General Fund (62,449.00) Fire To increase salaries and benefit expenditure appropriations from General Fund unappropriated fund balance to provide funding levels commensurate with the Newport Beach Lifeguard Management Association Memorandum of Understanding with the City. The budget amendment provides the additional funding needed for the remainder of Fiscal Year 2019-20. The Fiscal Year 2020-21 budget will be developed to include the full cost increases associated with the contract. 9/5/2019 $10,000.00 City Manager PD Equipment (10,000.00) Police To increase expenditure appropriations from unappropriated Police Department Equipment fund balance for the use of a requested key management system inadvertently left out of the police vehicle replacement schedule. 9/5/2019 $10,000.00 City Manager General Fund - Police To increase revenue estimates for SB 2 Planning Grant Program funds to partially reimburse the cost of the new Permit System. This budget amendment will then transfer existing appropriations for the Permit System in the IT Strategic Fund to the GF CIP fund to fund the General Plan Update. 9/19/2019 $3,000.00 City Manager General Fund (3,000.00) Fire To increase expenditure appropriations for ANBOL Bilingual pay per the MOU (inadvertently left out of the FY 20 budget). 9/19/2019 $4,826.00 City Manager General Fund - Library To increase revenue estimates and expenditure appropriations for the approval and acceptance of a donation from the Santiago Library System to be used towards eBook and library intends. General Fund CIP - CIP IT Replace - Internal Services General Fund (300,000.00) Interfund Transfers General Fund CIP - CIP 9/24/2019 $577,647.54 City Council Fire Equipment Fund - Fire To increase revenue estimates and expenditure appropriations for the approval and acceptance of a Federal Emergency Management Agency (FEMA) Assistance to Firefighters Grant. The grant requirement of 10% matching funds will be transferred from existing appropriations within the Fire Equipment Fund. To increase revenue estimates for SB 2 Planning Grant Program funds to partially reimburse the cost of the new Permit System. This budget amendment will then transfer existing appropriations for the Permit System in the IT Strategic Fund to the GF CIP fund to fund the General Plan Update. 9/24/2019 $310,000.00 City Council 9/24/2019 $1,500,000.00 City Council To allocate funds from the Affordable Housing Reserve to be used towards the design of an emergency shelter. CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No. 5G October 10, 2019 TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Finance Department Dan Matusiewicz, Finance Director and City Treasurer 949-644-3123, dmatusiewicz@newportbeachca.gov SUBJECT: Internal Audit Program SUMMARY: In the spirit of continuous improvement and with support and direction from the City Manager’s office, the Finance Department has been charged to develop a comprehensive internal audit program. While the City has managed a great many financial statement and compliance audits over the years, the City has never had a robust internal audit program. The program will be initiated with an enterprise risk assessment and initial evaluation of internal control risks. These processes will serve as the primary building block to inform and develop workplans to further assess and test internal controls, conduct performance audits and provide management consulting services when appropriate. Each project will take three to four months to complete and can be performed in parallel or in series. After the initial projects are complete, it is anticipated that internal audit and performance review work will ensue on a continuous basis with a few areas of focus each year. RECOMMENDED ACTION: Receive and file. DISCUSSION: RFQ Process After a thorough request for qualifications process, the Finance Department recently selected the audit firm Moss Adams LLP (Moss Adams) to start the development of a robust internal audit program. Internal Audit Program October 10, 2019 Page 2 The City published a Request for Qualifications (RFQ) solicitation, inviting submittals from qualified proposers with experience in providing internal control, internal assessment, performance audits and management consulting services. An evaluation panel consisting of the City’s Finance Department staff convened to rate responses and to make a recommendation for award. Of the ten (10) responses received by the City, eight (8) proposers earned at least 70 percent of the available technical score points assigned by the panel, making them eligible for award consideration, as shown in Table A below. TABLE A – PROPOSER TECHNICAL SCORE & RANKING PROPOSER TOTAL SCORE OVERALL RANK MOSS ADAMS 87.67 1 MGO 86.00 2 SJOBERG EVASHENK CONSULTING 80.67 3 BAKER TILLY 77.67 4 MATRIX CONSULTING GROUP 76.00 5 DAVIS FARR, LLP 74.00 6 GRANT THORNTON 71.33 7 TAP INTERNATIONAL 70.33 8 Staff performed detailed reference checks for the top three qualified proposers (Moss Adams, MGO and Sjoberg Evashenk Consulting). While all of the reference checks produced positive feedback, the references for Moss Adams in particular resonated with the evaluation panel because of the wealth of positive internal audit project history cited for local agencies such as the cities of Santa Monica, Culver City and Redondo Beach. Each of these agencies cited Moss Adams’ ability to draw resources from a deep “bench” of subject matter experts on their staff, enabling them to assess internal control issues as well as performance measures with efficiency. The overall high quality of report deliverables from Moss Adams following assessments or reviews was also regularly mentioned by all references as a highlight of the company’s deliverables. The reference check process served to confirm the panel’s rankings of the proposers as shown in Table A. In accordance with Qualifications-Based Selection (QBS) procedures for professional services, the panel proceeded to unseal the cost submittal from Moss Adams to assess the proposed costs for reasonableness and fairness. The panel also unsealed the costs from MGO and Sjoberg Evashenk Consulting in order to provide the proper context in which to assess and compare the costs from Moss Adams. The three finalists provided pricing on three situational audits encompassing cash handling, payroll, check preparation and a performance management review. These costs are shown in Table B. Despite another proposer, MGO, offering a lower blended hourly rate for the situational audits and assessment, staff believes that Moss Adams will approach the City’s internal control audits with a level of thoroughness that necessitates additional hours. While Sjoberg Evashenk proposed the lowest blended hourly rate among the three finalists, staff found their approach to require a significant amount of project hours. Following this RFQ evaluation process, staff recommends the award of this project and contract to Moss Adams. Internal Audit Program October 10, 2019 Page 3 TABLE B – UNSEALED FEE SCHEDULES PROPOSER HOURS TO COMPLETE PROJECT PRICING BLENDED HOURLY RATE MOSS ADAMS 462 $115,500 $250 MGO 355 $78,100 $220 SJOBERG EVASHENK CONSULTING 1540 $211,100 $137 Project Scope Initial discovery work will be divided into two major projects that can be conducted in parallel, in series, or partially overlapped (see below). The specific scope and contract is currently in process. Project schedules will be forthcoming. Project 1: Enterprise Risk Assessment Work Plan • Phase 1: Confirm process, deliverable, and interviewees. Interviewees to focus on Council members, City Manager’s Office, and Department Heads. • Phase 2: Perform fact finding, including submittal of document request, review documents, schedule and conduct interviews, develop and administer a confidential survey (manager/supervisor level and up), and develop preliminary risk ratings. • Phase 3: Prepare risk assessment, including functional descriptions, risk profile, mitigating activities, and residual risks. • Phase 4: Prepare draft and final risk reports and presentation. • Duration: approximately three to four months. • Cost: $40,000, plus expenses (estimate 10% of fees). Project 2: Enterprise Internal Controls Review Work Plan • Phase 1: Confirm process, deliverable, and interviewees. Interviewees to focus on functional leaders for key controls such as AP, AR, Payroll, close and reconciliation, cash handling, revenue, procurement, grants management, and technology. • Phase 2: Perform fact-finding, including submittal of document request, review documents, schedule and conduct interviews and walkthroughs, and develop preliminary findings. • Phase 3: Prepare controls matrix, including control objectives, findings, and recommendations. • Phase 4: Prepare draft and final controls reports and presentation. • Duration: approximately three to four months. • Cost: $40,000, plus expenses (estimate 10% of fees). Internal Audit Program October 10, 2019 Page 4 Moss Adams will translate the risk assessment and internal controls review into an internal audit plan, which will guide future internal audit activities. It is anticipated that risk assessment and audit work will be conducted on a continuous (annual) basis as other areas are reviewed. Future areas of focus may include accounting and financial reporting, asset management, capital programs, policy compliance, governance, human resources, maintenance and operations, management, operations and service delivery, organization and staffing, process and procedures, procurement, public safety, and risk management. After Projects 1 and 2 are completed, Moss Adams will examine the practices of the departments or programs to determine if they are achieving economy, efficiency and effectiveness in the employment of available resources. There is sufficient funding in the FY 2019-20 Finance Department budget for this contract. Prepared and Submitted by: /a/ Steve Montano _____________________________ Steve Montano Deputy Finance Director I:\Users\FIN\Shared\Admin\Finance Committee\WORKPLAN\2019\2019 FC Workplan 1 10/4/19 Scheduled Date Agenda Title Agenda Description Thursday, October 10, 2019 Use of City Property at Less Than Fair Market Value At the March 14, 2019, Finance Committee meeting, Council Member Brenner requested a report regarding the value of the properties rented for charitable purposes and expressed a desire to see a Finance Policy on how often the City should conduct a market analysis of the leased properties. Chair O’Neill recommended an item be placed on a future agenda to discuss a potential F- Policy update and requested a discussion with Community Development Department staff. TOT, Charter Tax and Other Audits Update Staff will update the committee on the TOT, charter tax and other audits performed to date. Pension Basics Primer The Committee will acknowledge Committee Member Tucker's pension basics primer that is meant to orient new members of the Finance Committee. Economic Contribution of Newport Beach to the Orange County Economy Beacon Economics identifies the role that the City of Newport Beach plays in Orange County’s economy. Budget Amendments for Quarter Ending June 30, 2019 and September 30, 2019 Staff will report on the budget amendments for the prior quarters. Discuss Which Council Policies the Finance Committee may be Interested in Reviewing During FY 2019-20 Staff and Finance Committee should discuss which financial policies may warrant a review and update at subsequent Finance Committee meetings. Examples include a compulsory review of investment policy (F-1), changes to the Reserve Policy (F-2) that may be necessitated by the newly proposed by the Water rate structure or other policies that Finance Committee members may be interested in. Internal Audit Program In the spirit of continuous improvement, the City of Newport Beach Finance Department recently selected the audit firm Moss Adams LLP (Moss Adams) to assess internal control risks, conduct performance audits and management consulting services. Review and Discuss 2019-20 Finance Committee WorkPlan Staff and Finance Committee should review the proposed work plan and adjust as necessary. Thursday, November 14, 2019 CalPERS Update Staff will update the committee with the latest information regarding pension actuarial valuations and CalPERS capital market assumptions. Investment Policy Review Staff and/or one or more investment advisors will discuss the City’s investment policy’s conformance to the overall objectives of preservation of principal, liquidity and return, and its relevance to current law and financial and economic trends. Investment Performance Review Staff and/or one or more investment advisors will describe the performance of the City's investment portfolio. Thursday, December 12, 2019 Review of OPEB Actuarial Valuation Actuary will provide a review of the City's latest retiree insurance OPEB obligation. Reserve Status Update Staff will provide an update of reserves balances relative to target balances and discuss adjustments as pessary. Tuesday, January 14, 2020 Council Study Session - Economic Update by Beacon Economics Dr. Chris Thornberg to provide Council a brief regional economic update. Finance Committee Attendance Optional Thursday, January 16, 2020 Review proposed changes to Council Reserve Policy (F-2) and others as necessary. Budget Amendments for Quarter Ending December 31, 2019. Saturday, January 25, 2020 Special Council Meeting - Council Planning Session (Tentative)Staff will present status and funding of major programs planned for the calendar year. Finance Committee Attendance Optional Thursday, February 13, 2020 Facilities Financial Plan (FFP) and Harbor & Beaches Master Plan Updates Staff will present a draft of Facilities and Harbors/Beaches Financial Plans reviewing the timing, means of financing, and fiscal impacts associated with funding Council prioritized capital projects. Fee Study Update Staff will present the Master Fee Schedule to the Finance Committee and subsequently will present to the City Council. Long Range Fiscal Forecast Staff will provide an update to the latest version of the LRFF. Tuesday, March 10, 2020 Council Study Session - Capital Improvement Plan Early Look Finance Committee Attendance Optional Thursday, March 12, 2020 Financial Statement Audit Results & Related Communication Discuss Revenue Assumptions Staff will provide of an overview of revenue assumptions for the FY 2020-21 Proposed Budget. Thursday, April 16, 2020 Proposed FY 2020-21 Budget Overview Staff will provide an overview of the Proposed FY 2020-21 Operating Budget. Budget Amendments for Quarter Ending March 31, 2020 Staff will report on the budget amendments for the prior quarter. Thursday, April 30, 2020 Proposed FY 2020-21 Budget Overview (Tentative - If Needed)Tentative meeting (if needed) to answer follow-up questions concerning the FY 2020-21 budget. Tuesday, May 12, 2020 Joint Council/Finance Committee Study Session - 1st Council Review of Proposed Budget Review Proposed Budget. Thursday, May 14, 2020 Internal Audit Program Update December October November City of Newport Beach Finance Committee Work Plan 2019-20 January February March April May I:\Users\FIN\Shared\Admin\Finance Committee\WORKPLAN\2019\2019 FC Workplan 2 10/4/19 Scheduled Date Agenda Title Agenda Description City of Newport Beach Finance Committee Work Plan 2019-20 Finance Committee to develop written comment on City Manager's Proposed Budget. Pursuant to Budget Policy F-3. Tuesday, May 26, 2020 Council Study Session - 2nd Council Review of Proposed Budget if necessary Review Proposed Budget Finance Committee Attendance Optional Thursday, May 28, 2020 Reserved if Necessary Tuesday, June 9, 2020 City Council Budget Adoption Finance Committee Attendance Optional Thursday, June 11, 2020 Internal Audit Program Update Auditors to provide an overview of enterprise risk assessments and discuss next steps Thursday, June 25, 2020 Reserved if Necessary June