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CITY OF
NEWPORT BEACH
City Council Staff Report
November 24, 2020
Agenda Item No. 19
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
Carol Jacobs, Assistant City Manager - 949-644-3313,
cjacobs@newportbeachca.gov
PREPARED BY: Steve Montano, Deputy Finance Director,
smontano@newportbeachca.gov
PHONE: 949-644-3240
TITLE: Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
ABSTRACT:
This report contains preliminary information on revenues, expenditures and estimated
fund balance for the fiscal year ending June 30, 2020, and financial information through
the first quarter (September 2020) of FY 2020-21. Because the City's financial records
are undergoing the customary audit review, the financial information presented in this
report for the fiscal year ending June 30, 2020, is preliminary in nature and subject to
adjustments as the year-end close process continues through December. The actual
revenue results ended up much better than anticipated. General Fund revenues ended
FY 2019-20 at $229.8 million and were $10.9 million or 5% higher than the projected
budget in almost all categories. General Fund expenditures ended FY 2019-20 at $211.1
million and were $3.9 million, or 1.8%, lower than the projected budget in almost all
categories. Actual expenditures ended the year lower than budgeted due to the careful
management of operating expenditures (hiring freeze and the curtailment of other
expenditures) and budget adjustments during the last quarter of the fiscal year.
The first financial report of FY 2020-21 provides an analysis of the financial activity of the
City from the months of July through September 2020. Year to date activity of the General
Fund shows that revenues through quarter 1 are coming in higher, and expenditures
lower, than projected. As the economy continues to improve, these trends are likely to
hold; however, a great deal is unknown as the global pandemic continues.
RECOMMENDATION:
a) Determine this action is exempt from the California Environmental Quality Act (CEQA)
pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because
this action will not result in a physical change to the environment, directly or indirectly-,
b) Review the City Manager's tier framework and approve the associated recommended
budget restorations through Budget Amendment No. 21-021:
1) Appropriate $5 million from the General Fund PERS reserve to make an Additional
Discretionary Payment to PERS, as set aside for in the FY 2020-21 Budget;
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Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
November 24, 2020
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2) Allocate $500,000 from General Fund unappropriated fund balance to replenish
the Equipment Replacement Fund; and
3) Allocate $2.3 million from General Fund unappropriated fund balance to replenish
the General Fund contingency reserve.
FUNDING REQUIREMENT:
With revenues coming in stronger than projected and additional expenditure savings, the
General Fund ended FY 2019-20 $14.5 million better than anticipated. Due to these
positive results, staff recommends making the additional payment to PERS to continue
the aggressive paydown of the City's pension liabilities and replenishing the contingency
reserve and equipment replacement fund. However, with the most recent actions by the
State related to the sharp rise of COVID-19 cases statewide, the economic impacts from
the global pandemic are continuing and the extent of the impact is still unknown. Under
this current environment, staff recommends holding the other reductions made for this
FY 2020-21 Budget and continued discussion in early 2021 as the FY 2021-22 Budget is
developed and the results of the second quarter are known.
DISCUSSION/BACKGROUND:
Economic Overview
The coronavirus outbreak is causing tremendous human and economic hardship across
the United States and around the world. Following sharp declines, economic activity and
employment have picked up somewhat in recent months but remain well below their
levels at the beginning of the outbreak. Weaker demand and significantly lower oil prices
are holding down consumer price inflation. Overall financial conditions have improved in
recent months, in part reflecting policy measures to support the economy and the flow of
credit to U.S. households and businesses. California's unemployment rate averaged a
record -high 15.9 percent in the second quarter of 2020, up from 4.4 percent in the first
quarter and 3.6 percentage -points higher than the previous record of 12.3 percent during
the Great Recession. California's nonfarm jobs decreased by 2.3 million or 13.0 percent
in the second quarter. For California and the nation, job losses were largest for low-wage
sectors, with leisure and hospitality losing around 40 percent of its total jobs over one
quarter.
According to Gary Sherwin, President and CEO of Visit Newport Beach, citywide hotel
occupancy is currently averaging about 40 percent a week, when at this time of the year,
occupancy is typically about 85 percent. There are few, if any, international guests and
most business is regional. Two hotels, the Renaissance Newport Beach and Fashion
Island Hotel, remain closed and several of the other hotels are not offering all their rooms
for occupancy to promote social distancing. Properties like Lido House with its 130 rooms
are doing strong business. Overall weekend business is also showing life and the average
daily rate, a barometer of hotel health, is at $290 a night, about 15 percent lower than last
year. Restaurants with outdoor patios are doing well, although overall volume is down
with indoor dining off limits for now.
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Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
November 24, 2020
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General Fund Revenues
The swift reaction by consumers and businesses to the outbreak of coronavirus (COVID-
19) in Newport Beach caused a massive decrease in spending on certain goods and
services. The national and state response combined with the uncertainty of how long the
presence of the virus would disrupt the U.S. economy made forecasting revenues
particularly challenging. The City's revised FY 2019-20 revenue forecast and associated
budget amendment was presented to, and approved by, the City Council on April 28,
2020. General Fund revenues were reduced by $13 million and provisions were made to
realize at least $13 million in expenditure savings for the remainder of the fiscal year as
a "bridge" solution to narrow the revenue shortfall chasm. The actual revenue results
ended up being much better than anticipated. General Fund revenues ended FY 2019-
20 at $229.8 million and were, $10.9 million or 5%, higher than the projected budget in
almost all categories. The total revenue receipts nearly match that of the prior year
General Fund revenue receipts. This report also contains information on General Fund
revenues for the first quarter of FY 2020-21, which is the period from July 1, 2020, to
September 30, 2020. Revenue categories are likely to perform at or higher than their
projected levels this year due to more favorable economic conditions than anticipated
when the budget was developed in April. Higher property tax valuations within the City
are also expected.
General Fund Revenues FY 2019-20 Year -End Results
Property Taxes
108,365,261
112,723,626
113,313,535
589,909
0.5%
Sales Tax
38,502,470
34,411,405
36,232,969
1,821,564
5.3%
Transient Occupancy Tax
24,697,446
19,062,031
20,847,883
1,785,852
9.4%
Other Taxes
11, 327, 777
10, 841,170
11, 846, 082
1,004,912
9.3%
Service Fees & Charges
20,300,379
18,820,002
20,913,897
2,093,895
11.1%
Parking Revenue
4,935,024
5,442,379
5,529,753
87,374
1.6%
Licenses & Permits
5,071,609
4,567,521
4,752,252
184,731
4.0%
Property Income
4,679,578
3,493,784
4,619,106
1,125,322
32.2%
Fines & Penalties
3,454,660
3,089,260
3,659,011
569,751
18.4%
Intergovernmental Revenues
3,922,453
2,854,873
3,140,547
285,674
10.0%
Investment Earnings
1,484,828
1,505,673
1,295,547
-210,126
-14.0%
Miscellaneous Revenues
3,071,110
2,252,529
3,759,851
1,507,322
66.9%
Total Revenues
$229,812,595
$219,064,253
$229,910,433
$10,846,180
4.95%
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Q1 Financial Report
November 24, 2020
Page 4
General Fund Revenues FY 2020-21 through Q1 (September 2020)
Property Taxes
$1,959,353
$117,508,227
$2,070,771
$1,777,845
-$292,926
-14.1%
Sales Tax
3,318,814
28,690,831
2,376,040
3,200,436
824,396
34.7%
Transient Occupancy Tax
4,959,179
6,434,115
495,918
2,267,092
1,771,174
357.2%
OMer Taxes
2,900,682
9,652,973
1,680,546
1,815,674
135,128
8.0%
Service Fees & Charges
7,385,417
17,653,465
6,030,902
4,790,281
-1,240,621
-20.6%
(Parking Revenue
2,211,940
4,621,160
1,769,260
2,593,300
824,040
46.6%
Licenses & Permits
1,266,680
4,239,333
1,012,047
1,130,791
118,744
11.7%
Froperty Income
1,234,287
3,892,635
1,014,606
11213,468
198,862
19.6%
Fines & Penalties
1,121,961
3,681,031
897,397
818,067
-79,330
-8.8%
Intergovernmental Revenues
310,547
2,797,691
120,235
646,751
526,516
437.9%
Investment Earnings
295,212
1,112,200
58,039
390,533
332,494
572.9%
Miscellaneous Revenues
372,814
1,022,350
2,170
75,076
72,906
3359.7%
Total Revenues
$26,536,886
$201,306,011
$17,527,931
$20,719,314
$3,191,383
18.2%
Property Taxes - Property taxes are the single largest funding source and represent just
under 50% of all General Fund revenues. FY 2019-20 property tax revenue was over
$113.3 million, which is almost $0.6 million or 0.5% higher than projected and almost $5
million higher than prior year. Property tax revenue estimates decreased for FY 2019-20
in anticipation of economic hardship due to the pandemic and the Governor's Executive
Order (N-61-20) suspending penalties and interest of property taxes. Secured property
tax revenue, which makes up almost 85% of all property tax revenue, ended up coming
in strong despite everything. Property taxes are among the least affected revenue
sources by the pandemic (at least in the short term) as home valuations are assessed in
January of one fiscal year and payments are made the following fiscal year.
For FY 2020-21, property taxes are so far $292,000 less than projected for the quarter.
This is largely due to the City's first of three unsecured property tax payments coming in
less than projected. These are value -based taxes not secured by property (ex. business
property, boats, airplanes) and make up only about 2.6% of property tax revenue.
Supplemental taxes (levied after change in ownership or completion of new construction)
were down significantly for the first quarter; however, the first payment received in
November is up 43% over the prior year. This bodes well for future secured property
taxes. The first secured property tax payment received mid-November came in
considerably higher than prior year which is hopefully an indication of people's ability to
make their property tax payments timely.
Sales Tax - The second largest funding source for the General Fund is sales tax revenue,
making up more than 15% of General Fund revenues. Sales Tax finished the year at
$36.2 million, which is $1.8 million or 5.3% higher than projected. The City's sales tax
base is largely generated from three main industry categories including Autos and
Transportation, General Consumer Goods, and Restaurants/Hotels. Most of these
industries are also heavily impacted by tourism. At the onset of the pandemic, when
businesses were shut down, sales tax revenue potential was drastically impacted.
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Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
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Page 5
The projection for the year held that the same restrictions in place in April 2020 would
remain for the remainder of the fiscal year. Sales Tax revenues were higher than
anticipated because businesses pivoted in creative ways to reach their customers, they
were able to open at some capacity sooner than expected, and consumer spending was
relatively strong. For these reasons all three main industry categories performed better
than expected. Although FY 2019-20 wasn't as bad as budgeted, due to the severe
impacts on economic activity we saw across all industry categories, sales taxes receipts
were almost $2.3 million less than the prior year.
FY 2020-21 sales tax revenues are coming in approximately $824,000 higher than
expected. The California Department of Tax and Fee Administration (CDTFA) is using a
new methodology to calculate sales tax advances. Our 3rd Quarter 2020 sales tax cleanup
payment gets posted November 20, 2020. At the time of this meeting we will know how
our payments compare to budget for the quarter as a whole.
Transient Occupancy Tax - Transient occupancy tax (TOT) revenue was the most
severely impacted revenue source as most major hotels within the City were temporarily
closed towards the end of March 2020 and many didn't start reopening until late May or
early June. Also, short term rentals were not allowed in the City from early April 2020 until
May 20, 2020. Revenue projections for FY 2019-20 were calculated with the expectation
that hotels and short-term lodging would remain at severely reduced capacity through the
end of the fiscal year. Because hotels started opening up sooner than anticipated, FY
2019-20 transient occupancy tax receipts were $20.8 million, which is almost $1.8 million,
or 9.4%, higher than projected. Even though TOT ended higher than projected, FY 2019-
20 revenue was $3.8 million less than the prior year. Although most hotels are up and
running, with the exception of the Island Hotel and Renaissance Newport Beach, the vast
majority remain well under full capacity.
Staff budgeted FY 2020-21 TOT revenues extremely conservatively expecting to realize
in the first quarter just 10% of prior year revenue. July 2020 hotel TOT came in at 37% of
prior year and August 2020 came in at 48% of prior year. This resulted in revenues for
the first quarter of FY 2020-21 coming in approximately $1.7 million over the projected
budget for the quarter. As of September 30, 2020, the City collected a nominal amount of
residential TOT revenue because such revenue for the quarter ended September 30,
2020, is not due to the City until October 31, 2020. Residential TOT receipts due October
31, 2020, which include agent payments for July 1, 2020 through September 30, 2020
and owner payments for October 1, 2019 through September 30, 2020, came in 0.76%
higher than the prior year and approximately $2.7 million higher than projected (net of
payments to Visit Newport Beach). We suspect this better than expected revenue
performance is due to overnight visits in either hotels or short-term rentals from regional
travelers looking for a quick "staycation" close to home.
All Other Revenue — This category includes all other revenue sources other than the
Top 3 (property tax, sales tax, and TOT). All Other Revenue is made up of the following:
• Other Taxes — real property transfer taxes, business license taxes, marine charter
taxes, and franchise fees.
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• Service Fees & Charges — plan check fees, recreation classes, emergency medical
services fees, and numerous other cost -of -service fees.
• Parking Revenue — all General Fund related metered parking fees that are
assessed throughout the various parking zones of the City.
• Licenses and Permits — fees charged to process building related permits, street
closure permits, dog licenses, and police tow franchise fees.
• Property Income — City owned and managed income producing properties, long-
term ground leases to concessions, restaurants, hotels and other businesses and
organizations, and rental of City facilities to the public.
• Fines and Penalties — parking citation fines collected by the City, administrative
citation fines, fines remitted to the City from the County for vehicle code violations,
and false alarm penalties.
• Intergovernmental Revenues — federal, state, and local grant revenues, which
includes, but is not limited to, the City's portion of the '/Z cent sales tax revenue
paid to the County for public safety, state mandate reimbursements,
reimbursement for strike teams sent to assist with fires, and revenue sharing with
the County of Orange under the Waste Disposal Agreement (WDA).
• Investment Earnings — revenue generated from the investment of City funds.
• Miscellaneous Revenues — restricted revenue, damage to City property, bad debt,
donations and contributions, non-operating revenues such as proceeds from the
sale of materials and equipment, and other miscellaneous revenues.
The FY 2019-20 budget within this category was adjusted at the line item account level
based on the trends we were seeing at the beginning of the pandemic and taking a
conservative approach by estimating those trends would continue throughout the
remainder of the fiscal year. While revenue was down at alarming rates starting
mid-March through April, many of our revenues saw improvement as early as May and
into June.
There are multiple factors that contributed to Other Revenues ending higher in FY 2019-
20, such as:
Other Taxes ended the year $1 million higher than projected. Sharper declines
were budgeted in case businesses either closed down or didn't renew their
business licenses due to long term closures, home sales slowed excessively, and
people weren't able to pay their bills on time.
City Departments pivoted quickly modifying their procedures to ensure they could
continue meeting customer needs. Some examples include, the Community
Development Department and Public Works devised electronic and contactless
drop off options to continue permit operations during the City Hall closure, building
inspectors conducted remote video inspection for interiors, and Recreation and
Senior Services provided modified outdoor camps and programs as well as
created an online recreation center with virtual classes. These actions resulted in
Service Fees & Charges (adjusted for recreation class refunds) ending the year
$1.5 million higher than projected.
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Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
November 24, 2020
Page 7
• Parking revenues dropped dramatically beginning in mid-March 2020 as travel was
impacted by COVID-19, statewide shut -downs began, and beach front parking lots
were closed to the public. March 2020 parking revenues were just half of what they
were the prior year and April 2020 revenues were down 75% compared to the prior
year. However, by mid- to late -May 2020 people flocked to the beaches and we
started to see positive month over month revenue again. May 2020 parking
revenue was almost 10% higher than the prior year and June 2020 was almost
26% higher than prior year.
• At the beginning of the pandemic, the City received many inquiries and requests
for payment waiver or deferral; however, as time progressed most income
properties were able to make their scheduled payments. Between parking and
property income, this resulted in $1.2 million in additional revenue over budget.
• At the onset of the pandemic, parking citations issued by the Police Department
as well as the City's parking consultant decreased significantly. The Police
Department stopped issuing street sweeping citations since many people were
staying at home and the City's parking consultant issued less citations due to the
closure of beach front parking lots and reduced activity within the City. As the
beach parking lots opened back up in May 2020, and street sweeping enforcement
resumed mid-June 2020, citation issuance increased as well. This contributed to
Fines and Penalties ending the year over $0.5 million higher than budgeted.
• Miscellaneous Revenues ended the year $1.5 million over projected revenue, this
is primarily due to almost $770,000 in funding received from the CARES Act,
booking fair value of investments, and refunds issued for cancelled recreation
classes.
When budgeting for FY 2020-21, revenue accounts other than the Top 3 (property tax,
sales tax, and TOT) were, for the most part, reduced by 20% across the board. This was
based on historical reductions to revenues during prior recessions and with the
understanding that some accounts would come in higher than projected and others would
come in lower. All other (than the top 3) revenue through September 30, 2020 is almost
$889,000 higher than budgeted. Parking revenue in the first quarter came in incredibly
strong, $824,000 over budget. This is due to the warm weather we had through, and
beyond, summer and people seeking local options for exercise and entertainment.
Intergovernmental Revenues are $526,000 higher than budgeted due to CARES Act
funding from the California Department of Finance. Miscellaneous Revenues includes a
$210,000 donation from the Friends of the Library. Grants and donations are typically not
budgeted until awarded and therefore any new awards wouldn't have been in our original
forecast. Property Income within the first quarter is up almost $200,000 over budget and
is due to rental property revenue coming in strong as well as some revenue that was
deferred from FY 2019-20 to FY 2020-21. Other categories that are also performing over
budget are Other Taxes and Licenses and Permits. Service Fees & Charges came in
$1.2 million less than budgeted. This is due to a decrease in fees from Police activity (jail
booking, emergency response, and alarm permit) and the Libraries being closed, but
largely from Recreation summer programs and contract classes being severely limited.
This decrease was offset somewhat by Community Development Department, Public
Works, and the Fire Junior Lifeguard Services Fees & Charges revenues coming in higher
than projected. Commensurate with the decrease in recreation revenue, there is
approximately $780,000 in expenditure savings in contract instructor payments when
compared to the prior year.
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Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
November 24, 2020
Page 8
General Fund Expenditures
General Fund expenditures ended FY 2019-20 at $211.1 million and were $3.9 million,
or 1.8%, lower than the projected budget in almost all categories. Actual expenditures
ended the year lower than budgeted due to the careful management of operating
expenditures (hiring freeze and the curtailment of other expenditures) and budget
adjustments during the last quarter of the fiscal year. To align expenditures with reduced
revenues, the City Council authorized a budget amendment that resulted in General Fund
expenditure reductions of $13.8 million in FY 2019-20. Of this amount, $7.7 million in
expenditure reductions derived from most operating expenditure categories and the
remainder from transfers out to other funds and the close out of completed capital
projects. In most cases, these were reductions that did not impact service levels and
would have materialized as savings at year end. Actual expenditure reductions totaled
$17.7 million.
With 25% of the year complete, FY 2020-21 General Fund expenditures are at 21.6% of
the budget and are generally on -track. Expenditures through the first quarter of the year
are $3.4 million, or 1.5% lower than projected. Some departments incur a greater or lower
level of expenditures in the first half of the year than in the second half due to the timing
and seasonality of their operations or programs. This variability is generally consistent
with prior years. Existing appropriations are on target to fund all current operational
expenditures and no further adjustments are needed as of the end of Q1. Other significant
budget updates include the following (all currently covered with existing revised budget
appropriations):
• Department operating budgets were reduced an additional $2.9 million for FY
2020-21.
• Expenditures relating to protests, beach closures, longer than normal beach
season, increased visitation/crowds, 4th of July event, storms
surge/flooding/emergencies, and beach berm reconstruction and clean-up are
expected to be covered with existing expenditure appropriations.
• The City has received approximately $4.0 million in CARES Act funding between
fiscal years 2019-20 and 2020-21. Between March 2020 and September 30, 2020,
we received a total of $3.5 million in CARES Act funding, with another $529,569
received in October of 2020. Of the total $4.0 million received to date, $72,314 was
from the U.S. Department of Health & Human Services as part of the Provider
Relief Fund to be used for healthcare related expenses or lost revenues; $2.1
million was from the County of Orange to provide grants to small business
impacted by the pandemic; $769,758 from the County of Orange and $1.0 million
from the State of California were both used to offset public safety activities during
the pandemic. In addition to the CARES Act Funding, we also filed a $565,000
claim to the Federal Emergency Management Agency (FEMA). However, the
disposition of this claim will not be known for some time.
• Many departments have seen an increase in operating costs for janitorial and
cleaning expenses related to COVID-19, including street sweeping, public facilities
and restroom janitorial services, day porter services at the Central Library, and
power washing for temporary outdoor dining. The current budget can fund all
expenditures as of the end of Q1.
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Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
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• The Fire Department continues to provide staffing for Strike Team deployments.
Reimbursement will be requested through Cal OES and expected to be received
within the 2nd - 3rd quarters of FY 2020-21. The Fire Department has a new line
item for the transparency of Strike Team expenditures, Strike Teams/Mutual Aid -
713010, which had expenditures of $775,000 through Q1. Other increased
expenditures relating to COVID-19 for disposable medicine/EMS supplies for
personal protective equipment have been absorbed by the Fire Department
through Q1.
Salary & Benefits
$142;315;972
$145;314;954
$144,706;363
-$608;591
-0.4°fo
Contract Services
21,318,540
22,771,477
21,613,242
-1;158,235
-5.1%
Maintenance & Repair
9;469,175
8,834,182
8;464;356
-369,826
-4.2%
Supplies & Materials
4,427,660
3,895,994
3,715,045
-180,949
-4.60/c
Utilities
2.971.221
3.328.840
3.107.708
-221,132
-6.5%
General Expenses
2,209,597
2,104,868
1,970;506
-134,362
-6.40/c
Travel & Training
826.174
785.467
650;609
-134,858
-17.2%
Grant Operating
663,825
1,120,502
884;466
-236,036
-21.1%
Internal Svc Charge
22,393,942
25,160,173
24,911;535
-248,638
-1.00/0
Risk Management
760,133
848,023
430;207
-417,816
-49.3%
Capital Expenditures
808,019
779,516
612;501
-167,015
-21.4%
Total
$208,164,258
$214,943,996
$211,066,538
-$3,877,468
-1.8%
General Fund Ex
Salary & Benefits
$149,635,979
$35,525,191
$34,311,953
-$1,213,238
-3.4%
Contract Services
25,398,708
4,435,618
3,908,656
-526,962
-11.9%
Maintenance & Repair
8,987,338
1,977,052
1,191,663
-785,389
-39.7%
Supplies & Materials
4,338,054
1,160,497
998,716
-161,781
-13.9%
Utilities
2,961,757
585,194
594,072
8,878
1.5%
General Expenses
2,290,459
512,276
365,704
-146,572
-28.6%
Travel & Training
809,309
228,672
58,191
-170,481
-74.6%
Grant Operating
1,155,371
359,101
202,300
-156,801
-43.7%
Internal Svc Charge
25,977,295
6,494,324
6,494,324
0
0.0%
Risk Management
750,915
206,312
39,780
-166,532
-80.7%
Capital Expenditures
849,412
143,022
56,011
-87,011
-60.8%
Total
$223,164,597
$51,627,259
$48,221,370
-$3,406,889
-6.6%
Additional Pension Payment
The City set aside a $5 million PERS reserve in anticipation of adverse investment results
that would increase the City's unfunded actuarial liability in the FY 2020-21 budget. The
$5 million was reserved and not appropriated due to the onset of the COVID pandemic,
with the intention to ask Council for appropriation based on the on-going review of the FY
2020-21 budget to actual results.
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Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
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Page 10
It is recommended, based on quarter one results and FY 2020-21 projected revenues, to
transfer the $5 million from the PERS set aside reserve to the operating budget to
continue funding the total PERS unfunded liability budget for a total amount of $40 million
in FY 2020-21. This action will act as a buffer against adverse investment results and
continue the City's goal of realigning our budget toward further reductions to the assumed
discount rate.
General Fund Reserves
We are fortunate that the City was in excellent financial health prior to the global
pandemic. Conservative budgeting and sound financial policies have resulted in a trend
of General Fund operating surpluses and strong reserve levels for several years. This is
still no less the case even amid the significant economic downturn the City is currently
experiencing. Conservative budgeting practices coupled with better than expected
consumer demand have resulted in higher revenues and lower expenditures than
budgeted. This has contributed towards the realization of unrestricted General Fund
resources of $23.9 million at the end of Fiscal Year 2019-20 (see the General Fund
Sources and Uses table below).
Of this amount, $11.5 million derives from the FY 2018-19 surplus. Due to the time it
takes to close a fiscal year and the timing of the annual budget schedule, a prior year
surplus is not appropriated in the fiscal year that immediately follows, but in the
subsequent fiscal year. Every budget adheres to Council policy regarding the use of prior
year surplus funds. Roughly half of any surplus balance in any given year is allocated to
address long term obligations with the remaining half allocated to various neighborhood
enhancement capital projects. Due to the significant impact to the City's revenue base
resulting from the global pandemic, it was necessary to appropriate the FY 2018-19
surplus of $11.5 million to fund General Fund operations in FY 2020-21.
The remaining $12.4 million of the $23.9 million unrestricted General Fund resources
derives from the FY 2019-20 surplus (higher revenue and lower expenditure than
budgeted), net of transfers in/out and restricted revenues.
It was also necessary to balance the deficit that was projected for FY 2020-21 by using a
short-term or "bridge" solution. This tiered solution relied on a combination of targeted
reductions in operating accounts with underutilization trends, deferred capital project
spending (see Attachment C for a list of CIP deferrals), reduced transfers to other funds
and a $2.3 million draw from the Contingency Reserve.
The General Fund Sources and Uses table below depicts the performance of revenues
and expenditures, the application and flow of prior year surpluses, and the resultant
impact to the Contingency Reserve.
19-10
Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
November 24, 2020
Page 11
General Fund Sources and Uses
Because of the unknown impacts of the pandemic, the use of surplus and the tier
reduction framework utilizes one-time adjustments designed to ensure the continued
delivery of City services. Structural adjustments may be necessary, but more needs to
be known before implementing such reductions. In the meantime, the tiered framework
allows us to make some restorations based on the positive results for FY 21019-20.
Proposed Restoration of Funds Through Tier Framework
Tier 5 — Contingency Reserve
Per City Council Reserve Policy F-2, the Contingency Reserve shall have a target
balance of 25 percent of the General Fund operating budget as originally adopted,
excluding the amount allocated for additional discretionary pension payments. In order
to balance the budget and under the emergency provisions of Policy F-2, this current year
budget has a $2.3 million draw from the Contingency Reserve. Pursuant to policy, staff
must present a plan to City Council to replenish the reserve within five years after the
economy has stabilized. Based on the positive budget to actual variances realized in FY
2019-20 that resulted in a surplus, the better than expected quarter one results, and the
positive revenue results projected for FY 2020-21; the City Council may allocate $2.3
million of prior year surplus to replenish the contingency reserve.
19-11
A
B
B -A
2D19-21)
2D19.20
2D19-21)
2020.21
REVISED
ACTUAL
BUDGET TO ACT
REVISED
BUDGET
$VAR
BUDGET
SOURCES:
FY 2017-18 Surplus
11,591,448
11,591,448
FY 2018-19 Surplus
11.528.065
11.528.065
-
FY 2019-20 Surplus
-
-
23,929,262
Use of FY 2019-20 Contingency Reserve
-
-
-
2,304,399
Operating Revenues
219,064,254
229,910,433
10,846,179
201,306,011
Less: Restricted Revenues
{1,447,784}
(2,895,001)
{1,447,217}
(765,967)
Use of Restricted Revenues and Encumbrances
2,549,640
-
(2,549,640)
2,095,632
Transfers -In
13,389,413
17,207,099
3,817,686
17,560,543
TOTAL SOURCES
$
256,675,036
$
267,342,044
$
10,667,008
$
246,429,880
USES:
Operating Expenditures
214,943,995
$
211,066,539
$
(3,877,456)
$
223,154,598
Transfers Out
32,346,243
32,346,243
$
6,000,000
Set aside -PERS Reserve
-
-
5,000,000
TOTAL USES
$
247,290,238
$
243,412,782
$
(3,877,456)
$
234,154,598
UNRESTRICTED RESOURCES
$
9,384,798
$
23,929,262
$
14,544,464
$
12,275,282
CONTINGENCY RESERVE
$
$
52,618,D59
$
$
50,313,660
52,618,059
Contintency Replenishment
2,3D4,399
NET CONTINGENCY RESERVE
$
52,618,059
CONTINGENCY RESERVE TARGET
$
52,403,031
Because of the unknown impacts of the pandemic, the use of surplus and the tier
reduction framework utilizes one-time adjustments designed to ensure the continued
delivery of City services. Structural adjustments may be necessary, but more needs to
be known before implementing such reductions. In the meantime, the tiered framework
allows us to make some restorations based on the positive results for FY 21019-20.
Proposed Restoration of Funds Through Tier Framework
Tier 5 — Contingency Reserve
Per City Council Reserve Policy F-2, the Contingency Reserve shall have a target
balance of 25 percent of the General Fund operating budget as originally adopted,
excluding the amount allocated for additional discretionary pension payments. In order
to balance the budget and under the emergency provisions of Policy F-2, this current year
budget has a $2.3 million draw from the Contingency Reserve. Pursuant to policy, staff
must present a plan to City Council to replenish the reserve within five years after the
economy has stabilized. Based on the positive budget to actual variances realized in FY
2019-20 that resulted in a surplus, the better than expected quarter one results, and the
positive revenue results projected for FY 2020-21; the City Council may allocate $2.3
million of prior year surplus to replenish the contingency reserve.
19-11
Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
November 24, 2020
Page 12
Tier 4 — Internal Service Fund Charges
Funds in the amount of $4.5 million were transferred in from other funds to partially backfill
the anticipated General Fund revenue shortfall for FY 2020-21 (see Tier 4 column in
Attachment B). These funds derived from prior year internal service funds (ISF) charges
that originated from the General Fund. These charges are intended to reimburse ISF
operations related to equipment replacement charges, or centrally managed insurance
reserves and most were returned without significantly impacting the replacement
schedule or funding for liabilities. Staff recommends the replenishment of the $500,000
taken from the Equipment Replacement Fund. This would help improve the percent of
that Fund's reserve that is set aside to cover the accumulated depreciation — currently at
66%.
Tier 3 — Deferred Capital Funding
Staff recommends maintaining the reductions at this time. A review of the CIP program
is recommended in the context of developing the FY 2021-22 budget. This will be
discussed in more detail at the FY 2021-22 City Council Planning Workshop in early
January 2021.
Tier 2 — Temporary Hiring Freeze
Staff recommends resuming selected hiring with approval by City Manager. We will still
target $2 million in personnel savings, which should be obtainable.
Tier 1 — Operating Reductions
No change recommended — continue with reductions.
Other Funds
Other funds that are subject to revenue volatility include Tidelands, Gas Tax, Measure M,
SB1 RMRA (Road Maintenance and Rehabilitation Account) and the Water and
Wastewater funds. An analysis of the budget performance for these funds at Fiscal Year
ending 06/30/2020 and through the first quarter of this fiscal year indicate that no budget
adjustments are currently necessary. Staff will continue to monitor these and all funds on
a monthly basis.
Conclusion
There are varying speculative timelines of when life will return to some semblance of
normalcy. The answer to this question is unknown but staff will consider adjustments to
the operating and capital budgets in subsequent quarters should our revenue projections
prove to be either too optimistic or conservative. Any proposed adjustments will be
presented to the Finance Committee and City Council.
The Finance Committee reviewed and discussed this report during its regularly
scheduled meeting on November 19, 2020.
19-12
Year -End FY 2019-20 and FY 2020-21 Q1 Financial Report
November 24, 2020
Page 13
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California
Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not
result in a direct or reasonably foreseeable indirect physical change in the environment)
and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA
Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no
potential for resulting in physical change to the environment, directly or indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the Item).
ATTACHMENTS:
Attachment A — Budget Amendment
Attachment B — FY 2020-21 Budget Tier Framework and Quarter 1 Restorations
Attachment C — FY 2020-21 CIP Deferrals
19-13
ATTACHMENT A
Budget Amendment
19-14
� SEW �Rr
City of Newport Beach
z BUDGET AMENDMENT
Qy</ppR�P 2020-21 BA#: 21-020
Department: Finance
ONETIME: ❑/ Yes ❑ No
Requestor: Steve Montano
Approvals
❑ CITY MANAGER'S APPROVAL ONLY
Finance Director: Date
❑ COUNCIL APPROVAL REQUIRED City Clerk: Date
EXPLANATION FOR REQUEST:
To increase expenditure appropriations from committed General Fund reserve for the payment of PERS unfunded ❑ from existing budget appropriations
liability. This budget amendment also reinstates a transfer out to the Equipment Fund from unappropriated ❑ from additional estimated revenues
general fund balance that was originally a part of the tiered reductions structure. D from unappropriated fund balance
REVENUES
Fund #
Org
Object Project
Description
Increase or (Decrease) $
752
75299
1691010
INTERFUND TRANSFERS - TRANSFER IN GENERAL FUND
500,000.00
EXPENDITURES
Fund # Org
Object Project
Subtotal
Description
$ 500,000.00
Increase or Decrease $
010
JAttached
715005
- SALARY & BENEFIT SAVINGS
5,000,000.00
010
01099
991752
GENERAL FUND INTERFUND TRANSFR - TRANSFER OUT EQI
500,000.00
FUND BALANCE
Fund # Object
Description
Subtotall
$ 5,500,000.00
Increase or Decrease $
010
1300000
General Fund - FUND BALANCE CONTROL
5,500,000.00
010
330045
General Fund - RES/PERS
5,000,000.00
010
330045
General Fund - RES/PERS
5,000,000.00
752
300000
Equipment Fund - FUND BALANCE CONTROL
500,000.00
Subtotal
$ (5,000,000.00)
Fund Balance Change Required
19-15
DEPT
ORG
OBJ
BA
CITY COUNCIL
01005005
715005
4,207.00
CITY CLERK
01010005
715005
17,884.00
CITY ATTORNEY
01015005
715005
47,581.00
CITY MANAGER
01020005
715005
37,616.00
CITY MANAGER
01020201
715005
5,668.00
HR
01025005
715005
49,782.00
FINANCE
01030005
715005
23,615.00
FINANCE
01030301
715005
41,667.00
FINANCE
01030302
715005
21,461.00
FINANCE
0103031
715005
51,414.00
PD
0103511
715005
4,437.00
PD
0103522
715005
30,810.97
PD
01035351
715005
79,614.00
PD
01035352
715005
185,688.00
PD
01035353
715005
1,042,354.00
PD
01035354
715005
209,172.00
PD
01035355
715005
434,284.91
PD
01035356
715005
6,197.00
FIRE
01040005
715005
36,481.00
FIRE
01040401
715005
1,019,181.00
FIRE
01040402
715005
26,989.00
FIRE
01040403
715005
4,690.00
FIRE
01040404
715005
296,648.00
FIRE
01040406
715005
142,771.00
CDD
01050005
715005
26,668.00
CDD
0105041
715005
45,856.94
CDD
0105042
715005
74,928.00
CDD
01050501
715005
60,879.22
CDD
01050503
715005
16,734.00
CDD
01050505
715005
7,639.00
LIBRARY
01060005
715005
34,073.00
LIBRARY
0106021
715005
3,014.00
LIBRARY
0106022
715005
23,072.35
LIBRARY
0106023
715005
56,119.00
LIBRARY
0106024
715005
6,490.00
LIBRARY
01060601
715005
7,167.00
LIBRARY
01060604
715005
1,575.00
RSS
01070005
715005
18,023.00
RSS
0107010
715005
48,327.00
RSS
0107012
715005
2,561.00
RSS
0107014
715005
8,089.00
RSS
0107015
715005
2,420.73
RSS
0107016
715005
3,156.00
RSS
0107018
715005
9,494.00
RSS
0107020
715005
11,090.00
RS5
0107021
715005
5,253.00
RSS
0107023
715005
8,401.06
RSS
0107024
715005
5,075.00
RSS
0107031
715005
26,980.56
RSS
0107032
715005
3,867.00
RSS
0107033
715005
12,098.70
PW
01080005
715005
33,304.00
PW
0108011
715005
16,638.00
PW
0108012
715005
51,817.00
PW
01080801
715005
87,009.00
PW
01090005
715005
15,883.00
PW
0109021
715005
86,128.49
PW
0109031
715005
27,885.00
PW
0109032
715005
5,663.00
PW
0109041
715005
16,677.00
PW
0109062
715005
27,174.00
PW
0109063
715005
6,143.57
PW
01090901
715005
6,272.00
HARBOR
10045451
715005
25,819.00
UTILITIES
7019052
715005
119,107.00
UTILITIES
7119061
715005
31,025.00
PW
7529031
715005
28,100.00
CITY MANAGER
76420203
715005
66,091.00
5,000,000.00
19-16
ATTACHMENT B
FY 2020-21 Budget Tier Framework and Quarter 1 Restorations
19-17
FY 2020-21 Budget Tier Framework and Quarter One Restorations
Quarter 1 Restorations indicated by 0
1 Contingency Reserve reduction originally $2,316,684 in Proposed Budget, and reduced to $2,304,399 in Adopted Budget. This reduction of $12,285 is due to a reduction in approprations within the Police Department.
19-18
Operating Cuts
No Service Level
Temp Hiring
Deferred Capital
ISF Charge
Contingency
Service Level
TOTAL GAP FUNDING
Financial First Aid - Initial Bridging Options
Change
Freeze
Funding & Spend
Reductions
Reserve
Cuts
SOLUTIONS
Tier 1
Tier 2
Tier 3
Tier 4
Tier 5
Tier 6
Salaries And Benefits
Salaries, Benefits and Other Pays
(2,000,000)
(2,000,000)
Discretionary Pension Payments
Total Salaries And Benefits
(2,000,000)
(2,000,000)
Maintenance And Operations
Professional & Contract Services
(1,774,131)
(1,774,131)
Internal Service Premiums
Workers' Compensation
(1,000,000)
(1,000,000)
General Liability
Uninsured Claims
(1,000,000)
(1,000,000)
OPEB
Equipment Replacement/Maintenance
(17,511)
(517,511)
(500,000)
(2,000,000)
Information Technology
(2,000,000)
Maintenance & Repair
(179,009)
(179,009)
Supplies & Materials
(289,671)
(289,671)
Utilities
(361,201)
(361,201)
General Expenses
(98,300)
(98,300)
Travel & Training
(151,115)
(151,115)
Grant Operating Expenses
(40,000)
(40,000)
Total Maintenance And Operations
(2,910,938)
(4,500,000)
(7,410,938)
Total Transfers Out
(18,477,137)
(500,000)
(18,977,137)
Capital
(2,500,000)
(2,500,000)
Contingency Reserve'
(2,304,399)
(2,304,399)
Total by Tier
(2,910,938)
(2,000,000)
(20,977,137)
(5,000,000)
(2,304,399)
(33,192,474)
Cumulative by Tier
(2,910,938)
(4,910,938)
(25,888,075)
(30,888,075)
(33,192,474)
(33,192,474)
1 Contingency Reserve reduction originally $2,316,684 in Proposed Budget, and reduced to $2,304,399 in Adopted Budget. This reduction of $12,285 is due to a reduction in approprations within the Police Department.
19-18
ATTACHMENT C
FY 2020-21 CIP Deferrals
19-19
FY 2020-21 CIP Deferrals
Ay
Project Title Council Notes ,,, ', �
�, 4w0411�
Direction
4
PROJECFSCANCELLED/CLOSED -RETURN TO FUND BALANCE
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
BalboaVillageEnhancedMaint Cancel/Close Addedcleaning&tempararVSummerRest raoms.
$10,447
6alboaVillage Facade Program Cancel/Close No Recent Activity. PSA+ suggests closure
$8,414
DoverShoresTrafficStudy Cancel/Cluse No CommunityAgreement/PW suggests close
.....................................................................................................................................................................................................................................................................................................................................................
$3o0
.....................................................................................
Ocean Front Bike Safety Improvement C.ancel/Ckse Originally intended forminor boardwalk imp
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$75,000
Subtotal
$295,511
$0
$0
PRO] ECTSTOCONTINUE -PART IAL FY2020-21
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
AlleysReronstruction Continue Partial DeferGF_Appropriate Water &Sewer FundADll7
$1,350,006
$401),000
Facilities Maintenance Master Plan Continue Partial Retain FY20and FY21 Funds
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$2,555,724
$50D,004
Ocean Boulevard Concmte Pavement Continue Partial Retain GasTax Funds for New Sidewalk on Ocean Blvd
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$200,DOD
$1,60D,OD4
Streetlight Rehabilitation Program Continue Partial Award July. Defer $7001(forfuture circuits
$864,866
$700,(04
Vessel Pump Outs Replacement Continue Partial Retain matchingfunds forgrant.Grant award July
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$961000
$35,001)
Subtotal"PW
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$SAO5t586
$3,200AW
PROJ EM TO COPM N UE -FULL FY202021
...................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Concrete Replacement Program Continue Continue with program
$750,001)
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Grant Howald Park RehabilitationContinue Continue with bidding and award in July 2024.
$7,281,138
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Jamboree Road Pavement Rehab Continue Continue with design
$344,000
Lido Fire Station 2 Continue (Finance} Intend to Award Construction in Fall/Winter 2424
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$9,564,5M
Newport Pier Bldg_ Platform / Piles Continue Award design 5/26_ Move funding to Tidelands Cap
$1,978,051
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Slurry Seal Program Continue Continue with program
$1,1f1W=
Storm Drain System Repair Continue Continue with program
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$20,000
Via Lido Outer Ring Roadway Rehab Continue Continue with design
$]50,000
...................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Subtotal
$%% 500
$1%759,1B9
$0
PROJ EM DEFERRED - REPROG RAM TO FY 2021-22
..................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Balboa Boulevard Median Improvement Defer Continue with design only FY21 (encumbemd)
$1,872,236
Balboa Island Enhancements Defer Intended for Benches
$88,400
.........................................................................................................................................................................................................................................................................................................................................................................................................................................
Balboa Peninsula SummerTrolley Defer Defer Program - Roll FundsIGrant Related}
..................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
I
$7008761
.........................................
Central Library Lecture Hall Defer Continue with design only in FY 21 (en nim be red)
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$7,360,052
Cliff Drive Mobility Improvements Defer Defer design to FY 22
$250,000
Cliff Drive Park Clubhouse Defer Continue with design only in FY21 (encumbered}
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$540,004
Collins islands Bridge ReplacementDefer Design deferred to FY22
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$150,000
Facilities Strategic Planning Defer Proposed to use for Pool Study
$50,004
Juniar Lifeguards Building DeferContinue with design only in FY21 (encumbered}
..................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$3,179,991
Landscape Enhance mentProgram Defer Request additional funds as needed
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$623,512
Marine Ave Rehabilitation Defer Continue work on Trees, Ben ch es and Island Drainage
$231,129
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Newport Blvd Landscape Rehab Defer Continue with design only in FY21 (encumbered)
$711,270
Ocean Boardwalk/ Parking Lot Improv Defer Award deferred
$350,000
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Orange Coast River Park Vision Plan Defer City CouncilApproved Funding Match Assistance
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
$20,000
Park Walis andStaircasesRehab Defer Inten d for various deteriorated Park Walls & staircases
$50D,000
Santa Ana Avon Slope Improvements Defer Continue with design only in FY21 (encumbered)
$335,074
..................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
West Newport Park Rehabilitation Defer Replacement of glass pan els
$225,546
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
West Newport Streetscape Defer Continue with design only in FY21 (encumbered)
$486,564
WC Highway Median Landscaping Defer
$10D,OD4
Subtotal
$4
$714761
$17,073,720
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Total
$9,950,011
$17,465,536
$20,273,720
19-20