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HomeMy WebLinkAboutApproved Minutes - October 10, 2019Finance Committee Meeting Minutes October 10, 2019 Page 1 of 9 CITY OF NEWPORT BEACH FINANCE COMMITTEE OCTOBER 10, 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: Mayor Pro Tem/Chair Will O’Neill, Mayor Diane Dixon, Council Member Joy Brenner, Committee Member William Collopy, Committee Member John Reed, Committee Member Joe Stapleton, and Committee Member Larry Tucker ABSENT: None STAFF PRESENT: City Manager Grace K. Leung, Finance Director/Treasurer Dan Matusiewicz, Deputy Director/Finance Steve Montano, Accounting Manager/Finance Rukshana Virany, Community Development Director Seimone Jurjis, Real Property Administrator Lauren Whitlinger, Revenue Auditor Antonio Velasco, Fire Chief Jeff Boyles, Fire Battalion Chief Brian McDonough, Budget Analyst Amy Mayfield, Administrative Manager Angela Crespi, and Administrative Specialist to the Finance Director Marlene Burns OTHER ENTITIES: None MEMBERS OF THE PUBLIC: Allen Cashion and Jim Mosher III. PUBLIC COMMENTS Chair O’Neill announced the open public comment period and Consent Calendar item would be considered at the same time. IV. CONSENT CALENDAR A. MINUTES OF JUNE 27, 2019 Recommended Action: Approve and file. Chair O’Neill opened public comments. Noting there were no other members of the public who elected to speak, Chair O’Neill closed public comments. MOTION: Chair O’Neill moved, and Committee Member Collopy seconded, to approve the minutes. The motion carried 7 ayes – 0 noes. V. CURRENT BUSINESS A. USE OF CITY PROPERTY AT LESS THAN FAIR MARKET VALUE Summary: Finance Committee Meeting Minutes October 10, 2019 Page 2 of 9 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. Community Development Director Seimone Jurjis reported that the City manages 365 different properties, of which third parties use 22 and pay less than open, fair market value rent. The real property portfolio is administered according to City Council Policy F-7, Income Property, which requires third parties using City-owned real property to be charged fair market value (“FMV”) rent. He reported that in order for a property to be charged less than FMV, a City Council waiver is required, and all 22 properties have received such waiver for unique reasons through an agreement with the City. Lastly, he advised while there were not many official appraisal reports available for the 22 properties, an estimate was derived for each property. Mayor Diane Dixon stated that it is essential for the governance of the properties for the FMV to be reviewed regularly. In response to Mayor Dixon’s inquiry, Real Property Administrator Lauren Whitlinger advised that there is no current review process for these properties. Mayor Dixon expressed the need for regular audits or reviews of the subject properties to establish their equity and the economic impact of receiving less than FMV. Chair O’Neill stated that prime real estate in Newport Beach is receiving less than FMV. In response to Committee Member Tucker’s inquiry, Community Development Director Jurjis reported the properties operate smoothly, other than occasional disputes. In response to Committee Member Tucker’s inquiry, Real Property Administrator Lauren Whitlinger clarified that the Fletcher Jones property, 3300 Jamboree Road, has use of Bayview Way under an encroachment agreement, which is a separate agreement. She stated that the land is owned by the City, as it was conveyed to the City via a deed by the Transportation Corridor Agency (TCA). Committee Member Tucker inquired as to any restrictions. Real Property Administrator Whitlinger responded that there are. It was noted that at one point it was Freeway Reservation land as it was once considered that the California State Route 73 could be expanded and have an off-ramp. Chair O’Neill opened public comments. Jim Mosher expressed concern regarding the appraisal for the Newport Beach Boys and Girls Club Facility and stated that the appraisal should have included the land, rather than the building. He also stated the land was appraised at a very low-value due to its PR (Parks and Recreation) zoning. He also stated the land could be extremely valuable to the City if it was re- zoned. Chair O’Neill closed public comments. There was no further action taken on this item. B. TOT, CHARTER TAX AND OTHER AUDITS UPDATE Summary: Staff will update the Committee on the TOT, charter tax and other audits performed to date. Recommended Action: Receive and file. Finance Committee Meeting Minutes October 10, 2019 Page 3 of 9 Finance Director/Treasurer Dan Matusiewicz introduced the item. Revenue Auditor Antonio Velasco reported that he was tasked with overseeing the Transient Occupancy Tax (TOT) and the Charter Passenger Tax audits. He advised the City has contracted with three (3) audit firms: Hinderliter, de Llamas & Associates; Davis Farr, LLP; and Gruber and Associates, to conduct several tax compliance audits of hotels and charter boats. He reported that many hotels have been audited in the past. Moving forward, the audits will be completed on two (2) or three (3) year cycles based on audit findings. He reported audit cycles could evolve depending on a change of ownership or a franchise brand change. He also reported short-term lodging agent’s audit cycles would be determined based on any major violations of the City’s code. Revenue Auditor Velasco reported short-term lodging owners/operators have not undergone an audit. He informed the Committee that one (1) owner/operator would be selected per month for an audit to ensure compliance. Revenue Auditor Velasco reported that the Charter companies would be on a two (2) to three (3) year cycle depending on the findings. He stated that a few companies are out of compliance. Staff is currently working with the Harbor Department to bring those companies into compliance. After the initial audits are complete, it is anticipated that additional audits will ensue on a continuous basis with audits of different hotel and charter companies each year. In response to Chair O’Neill, Finance Director/Treasurer Matusiewicz expects that the TOT and Charter Passenger Tax audits to be completed soon. Chair O’Neill requested a report of the offenders and an accounting of the loss. Finance Director/Treasurer Matusiewicz stated that the City Attorney had opined the results would be exempt from disclosure under the California Public Records Act. Chair O’Neill suggested the public record should include any deficiencies in record-keeping. Finance Director/Treasurer Matusiewicz stated that the City Attorney had opined fines and penalties are exempt from disclosure under the California Public Records Act. Deputy Director/Finance Steve Montano stated the above-referenced records could become publicly available through an offending-firm’s appeal of audit findings. City Manager Grace Leung expressed concern with revealing too much company detail by making the details public. While Committee Member Collopy understands the need to protect a company’s competitive edge, he would like additional clarification on why making the data a public record is of concern. Committee Member Collopy expressed concern that the City’s Charter Passenger Tax is only $1.00 compared to other cities whose tax is $8.00. He also expressed concern that the City’s TOT tax is only 10 percent compared to other cities, such as Santa Monica, whose TOT tax is 14 percent. Mayor Dixon expressed her appreciation in receiving the audit information, but would like to know the next steps for the City. Finance Director/Treasurer Matusiewicz advised once the audits are finalized, the City would assess and collect penalties, and attempt to hold each non- compliant firm accountable. In response to Mayor Dixon’s inquiry, Revenue Auditor Antonio Velasco advised there is a 10 percent penalty for the first late month, and accrues 1.5 percent interest for each late month thereafter. He also advised that the firms are made aware they have been audited. Finance Committee Meeting Minutes October 10, 2019 Page 4 of 9 In response to Committee Member Tucker’s inquiry, Revenue Auditor Antonio Velasco advised if the penalty is over a certain percentage, both on Charter Passenger Tax and TOT audits, the firm will need to reimburse the City for the audit fee. Chair O’Neill requested staff notify the Finance Committee of audit completion and the City Attorney’s opinion on audit public records. He requested if the information needs to be provided in the aggregate, and then staff should include the number of firms that fall below the standard, the amounts recovered, the number of fines, and the size of the discrepancy. He stated this information is very important to the Title 17 Municipal Code work currently underway. He stated an example of a firm losing its Marine Activity Permit as part of an unfavorable audit. Mayor Dixon expressed concern over some of the hotel and short-term lodging audit findings. Finance Director/Treasurer Matusiewicz advised that the major hotel audits were much cleaner. Revenue Auditor Velasco clarified that it may be due to a change in ownership or simple recordkeeping errors that affect the results. In response to Mayor Dixon’s inquiry, Finance Director/Treasurer Matusiewicz stated the audits will be concluding in November and a series of recommendations will be developed. Revenue Auditor Velasco added that because of the audits, firms now have a direct City connection to address any tax compliance issues. In response to Committee Member Collopy’s inquiry, Finance Director/Treasurer Matusiewicz advised the audit process is more robust due to the direction of City Manager Leung. City Manager Leung explained that there are several nuances to tax reporting and it is easy for hotels to make errors due to changes in ownership or accounting staff. She stated that regular auditing could help educate them. In response to Mayor Dixon’s inquiry, City Manager Leung advised there would be recommendations based on the findings and staff will work with the City Attorney to determine what level of information can be disseminated. In response to Committee Member Stapleton’s inquiry, Finance Director/Treasurer Matusiewicz stated the that Charter Passenger Tax revenue is approximately $2 million, but noted that he did not have the numbers available at today’s meeting. Chair O’Neill opened public comments. Jim Mosher noted that while the staff report indicates two Charter companies are operating without reporting their Charter Passenger Tax, it also says there are multiple other instances of non-reporting Charter companies. Chair O’Neill reads the report in the same fashion and stated that it is important to keep the findings in context. Chair O’Neill closed public comments. Chair O’Neill noted that it is important to continue to work with the City Attorney’s Office to develop a process to build the proper tax reporting requirements and, if a discrepancy is made, perhaps suspend the firm's Marine Activity Permit. In addition, he indicated that it needs to be addressed with the current Title 17 work. There was no further action taken on this item. C. PENSION BASICS PRIMER Summary: The Committee will acknowledge Committee Member Tucker's pension basics primer to orient new members of the Finance Committee. Finance Committee Meeting Minutes October 10, 2019 Page 5 of 9 Recommended Action: Receive and file. Chair O’Neill introduced the item and noted it was placed on the agenda to recognize the work of Committee Member Tucker. He noted the primer is a summary of the Pension basics for any new Finance Committee member and would like to see it incorporated with the City’s Primer. Committee Member Tucker requested that any revisions or comments to the Primer be forwarded to him for review. He also noted that it is a work in progress. Chair O’Neill opened public comments. Noting there were no other members of the public who elected to speak, Chair O’Neill closed public comments. In response to Mayor Dixon’s inquiry, Chair O’Neill advised agenda items regarding a Section 115 trust will not be placed before the Finance Committee anytime soon. Chair O’Neill opened public comments. Jim Mosher noted there is a new valuation available from CalPERS on the City website and stated the unfunded liability was higher than it was in the last valuation. This is despite the City’s efforts to pay it down. He noted normal costs were higher than the valuations and requested clarification. Committee Member Tucker responded to Mr. Mosher and advised the primer was simply a starting point. In response to Mayor Dixon’s inquiry, Chair O’Neill advised the document will need to have the numbers updated, and will serve as a good start for a new member of the Finance Committee. Committee Member John Reed advised as a new member of the Finance Committee, he found the document very helpful and provided feedback to Committee Member Tucker. City Manager Leung noted it should be staff’s responsibility to provide the orientation to any new Finance Committee member and they should be responsible for updating the document. Chair O’Neill closed public comments. There was no further action taken on this item. Having found the historical information, Deputy Director/Finance Steve Montano advised that the annual Charter Passenger Tax Revenue is approximately $300,000, as referenced in the discussion of Item 5B. D. ECONOMIC CONTRIBUTION OF NEWPORT BEACH TO THE ORANGE COUNTY ECONOMY Summary: Beacon Economics identifies the role that the City of Newport Beach plays in Orange County’s economy. Recommended action: Receive and file. Chair O’Neill introduced the item and noted that he agendized the item for public review. Mayor Dixon advised the Economic Impact Report was completed due to the recent engagement with the Board of Supervisors regarding the John Wayne Airport. She advised Finance Committee Meeting Minutes October 10, 2019 Page 6 of 9 that the City of Newport Beach contributes tremendously to the funding of the County discretionary account that benefits Orange County; she continued, that this economic activity should be recognized. Chair O’Neill opened public comment. Jim Mosher referenced Page 8 of the Economic Impact Report and noted that the chart was referencing “average wage by industry” in Newport Beach, and he indicated some omissions. Finally, he requested clarification regarding whether or not service workers, who service the City, were included in the report. Deputy Director/Finance Steve Montano stated he would seek clarification on the item. Chair O’Neill closed public comment. There was no further action taken on this item. E. BUDGET AMENDMENTS FOR QUARTER ENDING JUNE 30, 2019 AND SEPTEMBER 30, 2019 Summary: Staff will report on budget amendments for the prior quarters. Recommended Action: Receive and file. Chair O’Neill opened public comment. Noting there were no members of the public who elected to speak, Chair O’Neill closed public comments. There was no further action taken on this item. F. DISCUSS WHICH COUNCIL POLICIES THE FINANCE COMMITTEE MAY BE INTERESTED IN REVIEWING DURING FY 2019-20 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. Chair O’Neill introduced the item. Committee Member Collopy requested a review and rationalization of the reserves. Finance Director/Treasurer Matusiewicz reported the Investment Policy (F-1) would need to be reviewed by the Finance Committee and then reviewed by City Council only if changes are made. Mayor Dixon requested a review of the Vehicle Policy In response to Committee Member Collopy’s inquiry, Finance Director/Treasurer Matusiewicz reported that the General Fund Reserve amount is set by City Council policy. Chair O’Neill clarified that the policy needs to be waived a few times because of the increased pension payments. In response to Committee Member Brenner’s inquiry, Chair O’Neill clarified additional reporting for the F-7 policy is a function of the Finance Committee but would like it to stay “as-is” for now. Chair O’Neill opened public comment. Finance Committee Meeting Minutes October 10, 2019 Page 7 of 9 Jim Mosher requested the Finance Committee review the (F-8) Travel Policy, specifically the disclosure of travel reimbursement for elected officials, required by state law. He stated it would be useful for the Finance Committee to review the City’s Administrative Policies such as the bidding process. Lastly, he reported it would be useful for the Finance Committee to review the Finance Department’s website to ensure the information is being disseminated properly to the public. Chair O’Neil closed public comment. There was no further action taken on this item. G. INTERNAL AUDIT PROGRAM 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. Finance Director/Treasurer Matusiewicz thanked City Manager Leung for providing additional resources for an internal auditing program. He advised the Finance Department recently selected the audit firm Moss Adams LLP (Moss Adams) to commence the development of a robust internal audit program. This process will start with an audit of the enterprise risk and internal controls. Committee Member Tucker expressed support for developing an internal auditing program. Referring to a previous case of fraud at the City of Newport Beach, Finance Director/Treasurer Matusiewicz described the loss exposure to the City was based on the purchase of non-existent right-of-ways was due to poor internal auditing controls over 10 years. The former employee was incarcerated and forfeited their City pension as a result. He noted that the City was able to recuperate 1.7 million in restitution from the former employee. Committee Member Tucker expressed his support for robust internal control reviews. Chair O’Neill opened public comments. Jim Mosher expressed his support for the internal audit program and requested clarification on which line item of the budget would provide funding for this new program. Finance Director/Treasurer Matusiewicz responded that funding was appropriated from the previous year’s budget from within Finance Administration, Professional Technical Services. Chair O’Neil closed the public comments. There was no further action taken on this item. H. REVIEW AND DISCUSS 2019-20 FINANCE COMMITTEE WORKPLAN Summary: Staff and Finance Committee should review the proposed work plan and adjust as necessary. Recommended Action: Review and Comment. Chair O’Neill introduced the item. He stated that two (2) important functions of the Finance Committee are to provide advice to City Council regarding the budget and budget monitoring policies. Finance Committee Meeting Minutes October 10, 2019 Page 8 of 9 Committee Member Collopy noted that the Finance Committee spends many hours on the subjects of Unfunded Pension Liability and Budget. He suggested that the City Council to attend a meeting to see the work of the Finance Committee. Chair O’Neill clarified that City Council can attend but they may not speak due to limitations established by the Brown Act. Mayor Dixon expressed her support of having City Council members attend the Finance Committee meetings and suggested the March, April and May meetings would be appropriate. Committee Member Collopy suggested a deep-dive be completed on a few departmental budgets. Chair O’Neill suggested a review of the Public Works budget. Committee Member Collopy would like to see a deep-dive review of the Fire Department budget. Mayor Dixon noted a review of Public Safety functions needed to be conducted annually due to their larger impact on the City’s budget. She also suggested the review of all specialty funds. Chair O’Neill clarified that the Police and Public Works Departments will receive the deep-dive review. In response to Council Member Brenner’s inquiry, Finance Director/Treasurer Matusiewicz advised that the Beacon Economics Report be scheduled for January 14, 2020. Chair O’Neill requested to see more Newport Beach related numbers instead of national numbers. In response to Council Member Brenner’s inquiry, Chair O’Neill advised that the City is paying Beacon Economics for estimates of revenue assumptions and they provide an oral report of the findings to City Council. In response to Finance Director/Treasurer Matusiewicz’s inquiry, Chair O’Neill suggested he work with City Council to address some of the questions that came from the Aviation Report. In response to Committee Member Stapleton’s inquiry, Finance Director/Treasurer Matusiewicz advised that Jayson Schmitt of Chandler Asset Management would be at the next meeting to discuss economic conditions. City Manager Leung noted that half of the General Fund is based on property taxes. Property taxes tend to be more stable. In response to Mayor Dixon’s inquiry, Finance Director/Treasurer Matusiewicz advised that countywide sales tax allocations may be changed by pending legislation. Committee Member Tucker suggested that the Finance Committee review possible “reduction in cost” scenarios in the event of a recession. Finance Director/Treasurer Matusiewicz stated that the City follows best practices from the Government Finance Officers Association (GFOA). GFOA supports multiple escape plans. Deputy Director/Finance Steve Montano clarified that items such as Memorandum of Understanding (MOUs) cannot change but other items could be immediately changed. In response to Mayor Dixon’s inquiry, City Manager Leung advised the Independent Contractor Law (AB 5) may have a significant impact on the City’s employment prospects, but requires further analysis. Chair O’Neill opened public comment. Noting that there were no members of the public who elected to speak, Chair O’Neill closed public comments. Chair O’Neill opened public comments on non-agenda items. Jim Mosher suggested the entire City align on the same water rate billing cycle. Then the City can bill each user for the fixed amount needed for the infrastructure based on their fraction of the total gallons used in that cycle. He stated this would encourage water conservation. Chair O’Neill closed public comments on non-agenda items.