HomeMy WebLinkAboutFinance Committee - May 13, 2021CITY OF NEWPORT BEACH
FINANCE COMMITTEE MEETING WILL BE HELD VIA
ZOOM. PLEASE SEE SPECIAL NOTICE REGARDING
COVID-19 FOR PUBLIC COMMENT INFORMATION.
AGENDA - FinalThursday, May 13, 2021 - 3:00 PM
Finance Committee Members:
Will O'Neill, Chair
Brad Avery, Mayor
Noah Blom, 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
Scott Catlett, Finance Director/Treasurer
Steve Montano, Deputy Director, Finance
Marlene Burns, Administrative Specialist to the Finance Director
SPECIAL NOTICE REGARDING COVID-19
On March 4, 2020, Governor Newsom proclaimed a State of Emergency in California as a result of the threat of COVID-19.
On March 12, 2020, Governor Newsom issued Executive Order N-25-20, which allows Finance Committee Members to
attend Finance Commission meetings by electronic means. Please be advised that to minimize the spread of COVID-19,
Finance Committee Members may attend this meeting either electronically or telephonically.
Also, please be advised that on March 17, 2020, Governor Newsom issued Executive Order N-29-20, which allows for the
public to participate in any meeting of the Finance Committee telephonically or by other electronic means. Given the
health risks associated with COVID-19, the City of Newport Beach will conduct this meeting via Zoom. As a member of
the public, if you would like to participate in this meeting, you can participate via the following options:
1.You can submit your questions and comments in writing for the Finance Committee’s consideration by sending
them to Scott Catlett Finance Director/Treasurer, at scatlett@newportbeachca.gov. To give the Finance Committee
adequate time to review your questions and comments, please submit your written comments by Wednesday, May 26,
2021, at 5 p.m. All emails will be made part of the record.
2.You can connect with a computer by joining through Zoom. Use the link below to register for the meeting using a
valid email address. You will receive a confirmation email allowing you to join the meeting:
https://zoom.us/webinar/register/WN_cyjmkxMiRYC7-di4pyaoDg
3.Or you may connect by Phone/Audio Only by calling: 669-900-9128. The meeting ID is 966 1902 7777#
4.Attendees must raise their hand in the Zoom module if they would like to speak. If attending by phone, press *9 to
raise hand.
Please know that it is important for the City to allow public participation at this meeting. While the City does not expect
there to be any changes to the above process for participating in this meeting, if there is a change, the City will post the
information as soon as possible to the City’s website.
The City of Newport Beach thanks you in advance for continuing to take precautions to prevent the spread of the COVID
19 virus.
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.
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I.CALL MEETING TO ORDER
II.ROLL CALL
III.PUBLIC COMMENTS
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
MINUTES OF APRIL 15, 2021A.
Recommended Action:
Approve and file.
DRAFT MINUTES 04152021
V.CURRENT BUSINESS
THIRD QUARTER BUDGET UPDATEA.
Summary:
Staff will provide a presentation regarding the year-to-date and projected Fiscal Year
2020-21 budget performance.
Recommended Action:
Receive and file.
STAFF REPORT
STAFF PRESENTATION
ADDITIONAL MATERIALS RECEIVED
FOLLOW-UP DISCUSSION OF PROPOSED FISCAL YEAR 2021-22 BUDGETB.
Summary:
Staff will provide the Committee with a copy of the Fiscal Year 2021-22 proposed
budget document. Should the Committee wish to continue April's discussion of the
Fiscal Year 2021-22 budget, this is also an opportunity to do so.
Recommended Action:
Receive and file.
STAFF PRESENTATION
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INTERNAL AUDIT PROGRAM UPDATEC.
Summary:
Bi-monthly progress update on the internal audit program.
Recommended Action:
Receive and file.
WORK PLAN REVIEWD.
Summary:
Staff and Finance Committee to review the proposed work plan and adjust as
necessary.
Recommended Action:
Receive and file.
ATTACHMENT A
VI.FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS
WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR
REPORT (NON-DISCUSSION ITEM)
VII.ADJOURNMENT
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CITY OF NEWPORT BEACH FINANCE COMMITTEE APRIL 15, 2021 MEETING MINUTES I. CALL MEETING TO ORDER The meeting was called to order at 3:00 p.m. via teleconference. II. ROLL CALL PRESENT: Chair Will O’Neill, Mayor Brad Avery, Council Member Noah Blom,
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 Scott Catlett,
Deputy Director/Finance Steve Montano, Administrative Specialist to the Finance Director Marlene Burns, Budget Manager Shannon Espinoza, Senior Budget Analyst Amy Lewis, Fire Administrative Manager, and Senior Accountant Theresa Schweitzer
MEMBERS OF THE
PUBLIC: Jim Mosher and Nancy Scarbrough
OTHER ENTITIES: None III. PUBLIC COMMENTS
Chair O’Neill was participating via audio-only teleconference for the first portion of the meeting and requested that Mayor Avery serve in an Acting Chair capacity until he was able to participate via
video teleconference at a later point in the meeting.
Acting Chair Avery opened public comments.
Jim Mosher stated the City Council would be considering a major revised contract for residential trash collection and noted his understanding there is an internal City working group, not open to
the public, which has been formed to review the contract development process. He suggested the Finance Committee schedule a public review of the proposed subject contract for the purpose of
understanding the financial implications and impacts. IV. CONSENT CALENDAR MINUTES OF MARCH 11, 2021 Recommended Action:
Approve and file. Acting Chair Avery called for public comments and hearing none, closed the public comments. MOTION: Committee Member Tucker moved to approve the minutes, seconded by Committee Member Collopy, as amended to include the proposed changes by Jim Mosher. The motion
carried 7 ayes – 0 noes.
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V. CURRENT BUSINESS A. AUDIT SERVICES RECOMMENDATION Summary: Staff will propose the selection of a new external financial reporting and disclosure auditor. Recommended Action:
Receive and file. Finance Director/Treasurer Scott Catlett reported the City conducted a Request for Proposals (RFP) process to select a new auditing firm pursuant to State requirements and the City Council Policy to retain the services of a new service provider every ten years. The previous firm, Clifton Larsen Allen, formerly White Nelson Diehl Evans, had recently concluded the second five-year
term of their ten-year contract. As part of the RFP process, the City received ten proposals, conducted a review of the submitted proposals, narrowed the field to four providers, and ultimately interviewed two firms. As a result of the RFP process, the City selected Davis Farr, an auditing firm located in Orange County. The firm had previously provided specific financial
services to the City, including preparation of the City’s State Controller’s Report and other financial documents.
Acting Chair Avery opened public comments. Jim Mosher inquired if the City Council will review the proposals submitted by all auditing firms.
Separately, Mr. Mosher inquired whether the new auditing firm will be required to provide a report to the Finance Committee by October 2021, as this information was provided in the last
page of the agenda packet. He stated the City Charter allows an auditing firm nine months to provide the audit report and inquired if the new auditor would be required to provide the subject
report in four months.
Finance Director/Treasurer Catlett deferred to City Manager Grace Leung and Deputy Director/Finance Steve Montano to provide details as to the City’s typical procedures for
Request for Proposals (RFP) processes. Mr. Montano reported past practice has included the listing of the top three firms in subject staff reports. City Manager Leung stated three firms meet
the minimum requirements for RFP processes. Finance Director/Treasurer Catlett reported to address Mr. Mosher’s inquiry, staff will list the top four firms in the report. Staff discussion
ensued regarding the timeline for providing the subject audit report. Finance Director/Treasurer Catlett stated October seemed to be an early deadline and that typically the formal audit of the
City’s financials is conducted in December and a report will placed before the City Council for review in January 2022.
Acting Chair Avery called for public comments and hearing none, closed the public comments.
The item was received and filed.
B. PROPOSED FISCAL YEAR 2021-22 BUDGET OVERVIEW Summary: Staff will provide an overview of the Proposed Fiscal Year 2021-22 Operating Budget. Recommended Action: Receive and file. Finance Director/Treasurer Catlett provided a general overview report to the Finance
Committee of the City’s proposed Fiscal Year 2021-22 budget. A PowerPoint Presentation was displayed featuring highlights, graphs, and charts illustrating various aspects of the proposed
budget content and side-by-side comparisons of multi-year budget information. Mr. Catlett listed the four priority areas which guided the development of the proposed budget. The four priority areas were: providing high quality municipal services that residents expect,
providing a safe and secure neighborhood, keeping Newport Beach looking great, and
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maintaining a prosperous, fiscally sustainable, and economically viable city. Additional focus was also placed on evaluating the feasibility of restoring budget cuts made due to the COVID-19 pandemic and addressing key City Council priorities identified at the January 30, 2021, City Council Planning Session. Mr. Catlett detailed the key messages as related to the overall proposed budget and noted a
strong budget surplus is still projected for Fiscal Year 2020-21. The proposed Fiscal Year 2021-22 budget is balanced and parallel action will restore, as needed, the remaining reductions to the FY 2020-21 budget. Property tax revenue continues growth at a steady pace and sales tax and transient occupancy tax revenues remain on a strong recovery trajectory. Proposed expenditures remain relatively flat, with additional funding allocated to key City Council priorities. The City will continue with the strategy of allocating $35 million to reducing the
unfunded pension liability, with additional funding allocations likely at year-end. There will be continued funding of capital improvement projects, including neighborhood enhancement projects, with additional funding allocations likely at year-end.
A slide detailing the timeline for development of the proposed Fiscal Year 2021-22 budget was displayed. Mr. Catlett referenced the previous opportunities for public comment and review of
the proposed budget that had been offered. He further noted the upcoming public meetings in which the proposed budget will be presented. These meetings include the Thursday, April 15, 2021, Finance Committee meeting, the Tuesday, May 25, 2021, Joint City Council/Finance Committee Study Session, the Thursday May 27, 2021, Finance Committee meeting, and the
Tuesday, June 8, 2021, City Council meeting where a public hearing will be held for the final budget that will be presented for adoption by the City Council.
Finance Director/Treasurer Catlett provided the second quarter update of the Fiscal Year 2020-
21 budget. The highlights included a positive revenue variance of $17.2 million and $27.5 million of projected excess reserves. At this time $30 million remains unrestored in the current
year’s budget. As the preliminary third quarter projections show sustained improvement in revenues staff will be recommending restoration of all appropriate remaining budget reductions
for City Council consideration. These items will be detailed later in the presentation.
Finance Director/Treasurer Catlett reviewed the Tiered Budget Balancing Framework from which budget recommendations are being developed. As a recap, approximately $33 million in
budget reductions were approved. To date, approximately $3 million in reductions have been restored. As a result of the concerns regarding the second surge of the COVID-19 virus, the
plan to restore certain funding was paused. As vaccines were rolled out and re-openings were occurring, staff was comfortable then making further recommendations for restoration of budget
cuts. Staff review of the current Fiscal Year budget resulted in $4.8 million cuts in the Tier 1 and 2 section will not require restoration. $2 million of deferred hiring also creates additional
savings as Departments have absorbed those cuts. Staff is recommending bringing back some elements which were reduced in Tier 3, including transfers to the Facilities Financial Plan and
Harbor Capital Fund, funding of certain Capital Improvement Project, and completion of certain Council-directed Neighborhood Improvement projects.
Council Member Blom inquired how the recommendation not to restore the $2,758,567
influenced the budget development process for Fiscal Year 2021-22. Finance Director/Treasurer Catlett stated the Departments had to request those restorations; however, a number of those requests were held back to the degree the reductions were not detrimental to Departmental operations.
Council Member Blom requested further clarification as to the impact of the $2 million in hiring
freezes. Finance Director/Treasurer Catlett reported this question will be addressed in detail in an upcoming slide during the presentation. Finance Director/Treasurer Catlett detailed overall approximately $16.9 million is
recommended by staff for restoration in the current year budget inclusive of a $8.5 million
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contribution to Facilities Financial Plan, a $4.5 million contribution to Harbor CIP, a $1.5 million
of General Fund CIP, and $2.3 million of Neighborhood Enhancement projects. Separately,
approximately $8.6 is not recommended by staff for restoration, of which include $4.1 million
of Capital Improvement Program projects that are not canceled, however they are not ready to
move forward at this time. Additionally, a thorough analysis of the City’s internal insurance
funds indicated fund balance growth over the past few years and staff is recommending the $2
million contribution to insurance funds is not required at this time. Dialog with the IT Department
revealed approximately $2 million in funds was not required as they have a healthy fund
balance.
Acting Chair Avery inquired whether a different approach would have been taken if the
pandemic had not occurred. Finance Director/Treasurer Catlett reported an analysis of all
internal service funds would have been conducted as part of next year’s budget regardless of
the impacts of the pandemic.
Finance Director/Treasurer Catlett summarized City budget expenditures overall and noted a five-year analysis shows a minimum growth in expenditures of 0.40%. There is a 1.58% growth in overall budget. A graphical representation illustrated the majority of City expenditures come from the General Fund (73%), followed by the Capital Improvement Program (16%), Water Fund (9%), Tidelands Fund (1%), and Wastewater Fund (1%). Overall, General Fund expenditure growth is under 3%, even with program enhancements. As related to the City’s Capital Improvement Program, Finance Director/Treasurer Catlett reported that fluctuations in capital spending are routine and nearly $75 million has been budgeted for continued capital investment. All routine General Fund transfers in support of capital spending have been restored. Committee Member Collopy inquired regarding the absence of the 2021 “anticipated actuals” column in the Major Fund Operating Expenditures matrix listed on PowerPoint presentation Slide 14. Finance Director/Treasurer Catlett responded the matrix represents a comparison of budget amounts adopted and or proposed in each of the Fiscal Year listed. Staff’s quarterly budget reports provide an evaluation of actual expenditures versus the adopted budget numbers in order to address and evaluate any fluctuations in a timely fashion during each Fiscal Year. Finance Director/Treasurer Catlett provided a graphical representation of the City’s historical revenue profile. Overall, the City remains below the pre-COVID-19 projections due to the response to the pandemic. Mr. Catlett further reported the importance of property tax revenue to the City. Additionally, the revenues from Transient Occupancy Tax are anticipated to return to normal in the upcoming fiscal year as the California economic continues to reopen. Committee Member Collopy requested clarification regarding the source of the revenues listed in green on PowerPoint presentation Slide 18, inquiring whether these were anticipated COVID-19 Federal funds. Finance Director/Treasurer Catlett responded those funds represent interest revenue in other categories. He also affirmed the COVID-19 federal funds would be held in abeyance pending formal guidance from the appropriate federal agencies as to how those funds can be allocated at the local level. Mr. Catlett stated the COVID-19 federal funds are not included in the proposed budget at this time. Finance Director/Treasurer Catlett reported overall the City has been successful in weathering fluctuations in the economy, particularly as related to any fluctuations in property tax revenues. As a whole, projected General Fund revenues are described as property taxes at $122.2 million, sales tax at $40.3, transient occupancy tax at $19.0 million, other taxes at $10.8 million, charges for services at $19.0 million, and all other sources at $22.3 million. Shifting to the General Fund expenditures, Mr. Catlett reported overall projections are salaries and benefits
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at $151.7, maintenance and operations at $73.4 million, capital outlay at $0.8 million, and transfers at transfers $20.2 million. Finance Director/Treasurer Catlett detailed General Fund expenditures by Department in a year over year comparison of adopted budgets. He highlighted a few general trends, including a jump in the Public Works expenditures due to changes in the refuse and recycling contract
and expenditures out of the City Manager’s Department attributed to the operating costs of the homeless shelter. Mr. Catlett drew attention to the $2 million savings due to the freeze on hiring. At this time, staff is recommending continuing to preserve the $2 million vacancy factor through budgetary controls on the non-personnel side and to re-evaluate the hiring freeze in the following Fiscal Year. Overall, the City is well positioned with a proposed balanced budget ensuring revenues are in line with anticipated expenditures. A graphical representation
illustrated although there is a small overall increase in expenditures, the trend is flattening due to the City’s strategic approach. Finance Director/Treasurer Catlett reported all routine General Fund transfers in support of
capital spending have been restored in the current Fiscal Year and are proposed for restoration in the upcoming Fiscal Year. These routine transfers include $5 million to the General Fund
Capital Improvement Program, $8.5 million to the Facilities Financing Plan, $4.5 million to the Harbor and Beaches Capital Plan, and $1 million to the Facilities Maintenance Plan. In Fiscal Year 2021-22 an additional $500,000 is proposed as a transfer to the Facilities Maintenance Plan, thereby bringing the total proposed transfer to $1.5 million.
Committee Member Tucker inquired whether the $8.5 million transfer to the Facilities Financing
Plan includes the debt service on the COP. Finance Director/Treasurer Catlett confirmed the transfer includes the debt service payment and also includes development and park fees
beyond that debt service payment, though the majority is for the debt service payment. Discussed ensued regarding development fees. Deputy Director/Finance Montano reported
the Finance Committee received a report on development agreements a few months ago including a review of how much in development fees were projected to be realized. Discussion
ensued regarding the Uptown Newport Development second phase and the potential for extension of one of the leases. Deputy Director/Finance Montano reported the policy regarding
3% General Fund contributions to Facilities Financing Plan will continue.
Finance Director/Treasurer Catlett reported the $500,000 transfer to the 800 MHz Radio Fund is not recommended for restoration in the current or proposed Fiscal Year budgets due to a
change in funding requirements at the County level. As a result of requirements for a larger annual contribution, they will fund the capital outlay for the radios thereby eliminating the
$500,000 transfer. A review of the Internal Service Fund charges revealed a need for additional funding in the vehicle replacement fund to replace certain components of the City’s fleet.
Offsetting the increase was an anticipated reduction in contributions to the insurance fund based upon positive actuarial reports and lower claims. The City typically funds the reserve for
actual losses at a conservative 80% level. Although a reduction in funds toward insurance is recommended at this time, it will be evaluated each year and restored to a higher level when
prudent.
Committee Member Reed requested clarification regarding the insurance fund and what items are covered. Finance Director/Treasurer Catlett responded this fund covers smaller level claims, premiums above self-insured limits, and items such as repairing or replacing items or damage due to property crimes are funded through this account. Mr. Catlett further elaborated
this fund also pays for items which fall below the thresholds for the City’s other insurance to be utilized, such as certain long-term medical liabilities.
Committee Member Collopy requested clarification as to the fluctuations displayed in PowerPoint presentation Slide 24 as related to funds contributed toward the City’s OPEB obligations. Finance Director/Treasurer Catlett reported the City authorizes an updated
actuarial report every two years and fluctuations are based on the City’s responses to the
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information received in that report. Contributions went up in 2020-21 based upon interest earning projects. Additionally, Mr. Catlett confirmed there will be a new actuarial report forthcoming and will be placed on the Finance Committee’s agenda for consideration in March 2022. A graphical representation of the City’s historical changes in full-time staffing was displayed.
Finance Director/Treasurer Catlett reported full-time staffing has remained relatively flat since 2014. Although a proposed increase of two positions is recommended in the upcoming Fiscal Year, one of those positions is replacement of contract staff with a full-time employee, resulting in a net increase, budget-wise, of only 1 position. The proposed budget recommends the addition of a full-time permit technician in the Harbor Department and a full-time Senior Civil Engineer position to replace contract staff in the Community Development Department.
Additionally, 3 part-time Maintenance Aide positions are proposed to replace contract staffing in the Public Works Department in order to address concerns over performance by contract service providers. An addition of a .3 part-time Associate Engineer in Public Works is proposed to address staffing needs related to utility undergrounding projects and the continued funding
for 1.43 full-time equivalent positions included in the current budget is proposed to continue in the upcoming budget for staffing needs related to the Marina Park Community Boating
Program. Finance Director/Treasurer Catlett detailed Key General Fund Program Enhancements which were presented and discussed with the City Council in January. These included a net impact
of $1.5 million related to the City’s refuse and recycling contract and a $500,000 program enhancement related to the City’s commitment to the homeless shelter. Mr. Catlett detailed the
homeless shelter program capital contribution of $1.6 million which was funded from Affordable Housing Reserve and the Hoag Development Agreement. The remaining funding for this year
will come from accumulated funds from the Hoag 10-year contribution of $300,000 per year, with some additional ongoing funding required in future years.
Finance Director/Treasurer Catlett also addressed the $200,000 in funding for the Police
Department’s Boardwalk Ambassador Program, the goal of which serves to provide additional presence and visibility on the boardwalk to augment the PET, HLO, and Area 1 Patrol
deployments. There does continue to be complaints about the boardwalk, and it was noted the program may need to be discontinued. Additional funding for Code Enforcement contract
services was proposed to ensure service levels are maintained by augmenting City staff resources.
Further enhancements include the full-time Permit Technician position in the Harbor
Department to provide services to permittees, add subject-matter expertise, and free up existing staff time for record-keeping and insurance administrative tasks for boats and harbor
operations. In summary, Finance Director/Treasurer Catlett reported that summary of program enhancements funded through the General Fund included $500,000 for the homeless shelter,
$200,00 for the Boardwalk Ambassador Program, $123,760 for increased Code Enforcement contract staffing, and approximately $396,000 in miscellaneous personnel and non-personnel
related budget changes. The Tidelands Fund program enhancements include funding of a full-time Permit Technician and the Water Fund will allocate $40,000 toward camera and security
upgrades at the Big Canyon Reservoir. Overall, the program enhancements total is approximately $1.4 million. Finance Director/Treasurer Catlett reported overall staff is projecting to end the current Fiscal
Year with approximately $8.6 million in surplus funds. Options for use of the surplus include additional pay down of pension liabilities and other neighborhood enhancements. Mr. Catlett
stated staff is proposing the shift of City Council discussion regarding use of funds to an earlier point, such as September or October of 2021, after the current Fiscal Year books are closed. Staff is recommending the 50/50 split of surplus funds pursuant to the City Council’s F-5 Policy with 50% toward unfunded pension liability and 50% toward Neighborhood
Enhancement/Infrastructure projects. Additionally, staff is recommending $1 million toward the
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Permanent Supporting Housing Project, $650,000 toward the upcoming General Plan update, and $251,847 toward the Business Tax Waiver program. Council Member Blom requested clarification regarding the components for the $650,000 contribution toward the General Plan update. City Manager Leung confirmed the funds would be utilized for the comprehensive update of the entire General Plan, including analysis required
for the update, outreach work and the required update to the Housing Element. Finance Director/Treasurer Catlett provided historical detail on the Finance Committee’s goal of continuing to pay down the City’s unfunded pension liability to mitigate any investment losses if CalPERS lowers their discount rate. A report will be forthcoming to the City Council in September or October of this year to decide how to allocate any surplus funds.
Finance Director/Treasurer Catlett addressed an earlier question from the Committee related to programming of anticipated American Rescue Plan funds. Mr. Catlett reported the City’s anticipated return will be $9.3 million based upon a modified CDBG allocation. This formula is
based upon the City’s general economic and demographic profile. The Committee may notice smaller cities may receive a larger proportion of the Federal funds as a result of the formula.
The City anticipates receiving half of the funds, $4.5 million now, with the other half to be received one year later. At this time, guidance has not been released from the Federal government and the City is waiting for the Treasury Department and legislature’s interpretation of that guidance prior to final programming of funds. Once the guidance and interpretations are
received, staff will schedule a public report to the City Council for an informed discussion.
As related to the City’s Unfunded Pension Liability, Finance Director/Treasurer Catlett stated staff is recommending maintenance of the $35 million minimum contribution and for the City
Council to consider an additional contribution toward the CalPERS investment loss mitigation from the anticipated budget surplus at the close of the current Fiscal Year. Even without the
proposed additional $5 million contribution, which could bring the City’s total contribution up to $40 million, the City projects the unfunded liability to be reduced to zero by 2036. Additional
contributions now could offset potential future CalPERS investment losses.
Committee Member Collopy inquired whether the additional $5 million contribution would bring down from $7 million to $6.1 million.
Committee Member Tucker recalled contemplation by the City of a program for paying down
the unfunded pension liability commencing in 2017-18 with a $35 million contribution with the additional plan of addressing potential future unfunded liabilities with additional contributions
from surplus funds. He further recalled the Finance Committee acknowledging the need to evaluate contributions toward the unfunded pension liability each year as funding strategies to
address fluctuations and losses in CalPERS investments may need to be revised depending on information received. It was confirmed the Finance Committee recommended the $35
million contribution over the past two years. Mr. Tucker indicated there are always choices as to where the City’s funds can be allocated and is also curious as to the forthcoming guidance
from the Federal government as to allowable uses of the American Rescue Plan funds.
In conclusion, Finance Director/Treasurer Catlett reported a strong budget surplus is projected for Fiscal Year 2020-21, the proposed Fiscal Year 2021-22 budget is balanced, and actions are in place to restore the majority of the remaining reductions to the current year’s budget. Property tax revenue continues to grow at a steady pace and sales and transient occupancy
tax revenues are projected to remain on a strong recovery trajectory. Proposed expenditures remain relatively flat, with additional funding allocated to address key Council-directed
priorities. The City will continue with its current strategy to reduce the unfunded pension liability with additional funding allocations likely at year-end. Additionally, there will be continued funding of Capital Improvement Projects with additional funding allocations likely at year-end.
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Committee Tucker anticipated there would be the ability to operate with a leaner staff overall. City Manager Leung stated there were intensified needs during the pandemic and the City was able to maintain services. CalPERS continues to implement requirements related to contract versus City employees and the City continues to review and respond accordingly to mitigate any potential liabilities. She also reported that new employees who come in under PEPRA allow the City to reduce its pension liability costs over time.
Committee Member Tucker inquired whether the reductions in operating costs are sustainable over time. City Manager Leung commented the review conducted by the Departments, particularly of professional services costs, in order to best utilize any opportunities to preserve resources.
Committee Member Tucker stated the infrastructure investments made not only by the City, but by private organizations and entities, serve to preserve and also increase property values, thereby increasing the available revenues available to the City for projects, services, and programs. He also recognized the City’s efforts in investing in well thought out investments and
projects that continue to increase the value to residents of the City.
Mayor Avery agreed with Committee Member Tucker and noted the development occurring throughout the City which is ultimately reflected in increased property values. There is also a sense of enhanced safety and good governance. The amenities provided both publicly and privately serve to enhance the quality of life and desirability of living in Newport Beach. Mayor
Avery also addressed the opportunities provided for home ownership over time through the ability for short-term rental income to offset mortgage investments in real estate for those
looking to buy in to the Newport Beach market. He also acknowledged the refined City budgetary process and the leadership of the City’s Management Team.
Council Member Bloom expressed support for the necessary staffing required to complete the
City’s General Plan and Housing Element updates as the result of those efforts will also encourage investment in Newport Beach by private entities and individuals. He acknowledged
the work of Finance Director/Treasurer Catlett in presenting transparent and accurate financial information to the Finance Committee.
Committee Member Stapleton also affirmed the comments made by various Committee
Members as related to the significant achievements of staff and the City to reinvest in neighborhood projects and to pay down the City’s pension liabilities.
Committee Member Collopy inquired as to whether converting from contract to full-time
employee status automatically results in that employee entering the City under PEPRA. City Manager Leung noted the process is not automatic, however, given the parameters of how
CalPERS defines “new” employees under PEPRA, the majority, if not all, new conversions would result in those employees coming in under the PEPRA rules.
Chair O’Neill also acknowledged the significant efforts of staff and noted the City is in a much
better financial position than was anticipated over the past year. He expressed continued support to continuously review staffing levels, which are normally budgeted at 100%
historically. Chair O’Neill opened public comments.
Nancy Scarbrough thanked the Finance Committee for their work and made several inquiries regarding the proposed budget. Ms. Scarbrough requested clarification as to whether the bond
payments for the Peninsula Fire Station were included in the budget. She also inquired as to whether the General Plan costs listed in PowerPoint presentation Slide 36 were related to consultant costs or also included City staff costs. Last, she inquired as to how the City will address impacts on City resources such as public safety from State-requirements for
increasing housing units in the City.
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Jim Mosher stated the staff presentation referred several times to the “proposed” budget and inquired when the public would have an opportunity to review a published version. Chair O’Neill confirmed the Finance Committee has not received the proposed budget document and Finance Director/Treasurer Catlett stated the document will be publicly available prior to the joint meeting of the City Council and Finance Committee scheduled in May. Finance
Director/Treasurer Catlett also reported the fire station bond payments are budgeted in the Facilities Financing Plan Fund, just like the Civic Center. City Manager Leung confirmed the costs related to the General Plan update were primarily consultant costs. Chair O’Neill noted the question related to impacts on City services from State requirements for additional housing was a good one. The City will need to continuously review this matter to
address the variability of property tax revenues received from affordable housing projects. Committee Member Tucker stated that there is not an automatic increase in the City’s unfunded pension liability if additional staff are required to address impacts on City services related to increased housing. Mr. Tucker also noted the majority of the unfunded pension liability came
from the underperformance of the portfolio as compared to the discount rate.
Chair O’Neill confirmed that future increases in staff pension costs are nominal due to PEPRA rules, and this was confirmed by the City Manager. Ms. Leung also did confirm that conversations will need to continue, particularly as related to development impact fees as the City’s residential housing requirements increase.
Chair O’Neill closed public comments.
The item was received and filed.
C. BUDGET AMENDMENTS FOR QUARTER ENDING MARCH 31, 2021 Summary: Staff will report on the budget amendments from the prior quarter. Recommended Action: Receive and file.
There were no comments from the Finance Committee Members regarding this report.
Chair O’Neill called for public comments and hearing none, closed the public comments.
The item was received and filed.
D. WORK PLAN REVIEW Summary: Staff and Finance Committee to review the proposed work plan and adjust as necessary. Recommended Action: Receive and file.
Chair O’Neill confirmed the April 29, 2021, Finance Committee meeting would be canceled
based upon no further requests for information from the Committee Members. The next meeting will be May 13, 2021, and Finance Director/Treasurer Catlett confirmed the draft budget should be available by that time. Thereafter, there will be the May 25, 2021, joint meeting of the City Council and Finance Committee and the Finance Committee will meet to
develop recommendations to the City Council on May 27, 2021. A need for additional meetings will be determined at the May 27 meeting.
Committee Member Tucker inquired if staff has received any updates on CalPERS performance this year. Finance Director/Treasurer Catlett stated he would provide an update at the May meeting.
12
Finance Committee Meeting Minutes April 15, 2021
Page 10 of 10
Committee Member Collopy requested staff provide a regular update to the Committee on CalPERS projections, at least over the next few years, as the projections factor heavily into the Committee’s review of the City’s budget and financial plans. Chair O’Neill opened public comments.
Jim Mosher expressed concern regarding the description of the Finance Committee’s optional June meeting in their Work Plan. He believes it gives the impression the Committee can provide direction to the auditor through individual polling creating potential for a Brown Act violation. Chair O’Neill responded the Finance Committee will not violate the Brown Act in writing or otherwise and staff will review agenda item titles to ensure legal and regulatory compliance.
The item was received and filed. 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 p.m. to the next regular meeting of the Finance Committee.
The agenda for the Regular Meeting was posted on April 9, 2021, at 2:26 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
13
CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5A May 13, 2021
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Scott Catlett, Finance Director/City Treasurer 949-644-3213, scatlett@newportbeachca.gov
SUBJECT: Third Quarter Budget Update
SUMMARY:
The City of Newport Beach Finance Department prepares quarterly financial reports to review the status of revenues and expenditures for the City’s funds. This report contains information on resources through the third quarter of Fiscal Year 2020-21, which is the period between
January 1, 2021, and March 31, 2021. Year-to-date activity of the General Fund shows that revenues through the end of the third quarter are coming in higher than the revised budget, with expenditures projected to be lower than the revised budget. As the economy gradually improves, these trends are likely to continue; however, a great deal is unknown
as the global pandemic and related restrictions are still evolving.
RECOMMENDED ACTION:
Review and discuss this report and provide any recommendations for consideration by
the City Manager and City Council.
DISCUSSION:
Economic Overview
California’s unemployment rate decreased 0.2 percentage points to 8.3 percent in March as the state’s employers gained 119,600 jobs, according to data released by the California Employment Development Department (EDD). Orange County’s unemployment rate stood at 6.4% at the end of March 2021 compared to 7.4% in December 2020. The largest month over month employment increase across major
industry categories in California was attributable to leisure and hospitality (+42,400 jobs). This sector also had the largest employment gains in Orange County (+9,800 jobs). Hotel owners throughout the country are also reporting more advanced bookings. During most
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Third Quarter Budget Update May 13, 2021 Page 2
of the pandemic, bookings have been with just a few days’ notice, often by people who needed a quick “staycation.” The Baird/STR Hotel Stock Index, which tracks shares of eight hotel brands and 12 hotel real estate investment trusts, jumped 22% in February,
compared with less than a 2% increase for the S&P 500.
The automobile and transportation sector continues to recover as consumers treat themselves to new and often more expensive vehicles at a time when other spending opportunities have been curtailed by the COVID-19 pandemic. The average price of a
new car increased 6% compared to last year as attractive financing rates sustained
demand while production stoppages early in the crisis limited supply. Sales are expected to continue to grow as the economy recovers, with automotive executives hopeful the industry will return closer to normal this year. Recreational vehicle (RV) purchases continue to be a bright spot as many feel they offer a safer way to travel. Receipts for this
category were up 27% in the most recent quarter; the RV Industry Association is
projecting industry volume may grow by as much as another 20% in 2021, boosted by millennial buyers newly introduced to the land travel lifestyle during lockdowns. Many economists, along with the Federal Reserve’s policymakers, remain hopeful that
the economy will continue to improve markedly in the second half of the calendar year as
more people get vaccinated. Job growth is expected to pick up in the summer as vaccine distribution continues, better weather allows for more outdoor activities, and the State continues to loosen restrictions. Chapman University’s recent Orange County third quarter (January-March 2021) Consumer Sentiment Index indicates a 42% jump in
confidence over the prior quarter. The survey suggests this is due to the increasing
number of vaccinations, fewer positivity rates, and the continued opening of the economy. General Fund Revenues Most revenue categories have performed at or higher than their budgeted levels this year
due to more favorable economic conditions than anticipated when the budget was
developed in April 2020. This performance trend led to a $17.7 million budget amendment during the third quarter that aligned the budget with the higher anticipated results. This has significantly narrowed the budget-to-actual variance when compared to prior quarterly reports. Actual revenues are $7.5 million higher than, and 67% of, the current year-to-
date revised budget, which is consistent with prior year’s performance. Staff will remain
diligent in monitoring revenues to review if further amendments are necessary.
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Third Quarter Budget Update May 13, 2021 Page 3
FY 2020-21 Actual General Fund Revenues Through Q3 (March 2021)
Property Taxes - Property taxes are the single largest funding source and typically represent just under 50% of all General Fund revenues. Property tax revenues for FY 2020-21 were budgeted conservatively anticipating the potential for delayed payments due to economic hardship and the Governor’s Executive Order (N-61-20) suspending
penalties and interest of property taxes. For FY 2020-21, property taxes are $813,213
higher than projected through the third quarter. The City’s first of three unsecured property tax payments came in less than projected; however, the second payment, received in January 2021, came in higher than projected and overall unsecured property taxes are now back on track at 3.2% higher than the previous year. These are value-based taxes
not secured by property (e.g., business property, boats, and airplanes) and make up only
about 2.6% of property tax revenue. Supplemental taxes (levied after change in ownership or completion of new construction) continued to be down through the third quarter; however, the latest payment received in January 2021 was flat compared to the prior year. With the recent surge of home sales, this category will likely continue to
improve, which bodes well for future secured property taxes. Secured property tax
payments continue to come in strong, which is an indication of timely property tax payments. Sales Tax - The second largest funding source for the General Fund is sales tax revenue,
typically making up more than 15% of General Fund revenues. 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. Sales Tax revenues through the third quarter of FY 2020-21 are $1.1 million higher than anticipated. Businesses pivoted in
creative ways to reach their customers as they were able to open at some capacity sooner
than expected resulting in relatively strong consumer spending. For these reasons all
16
Third Quarter Budget Update May 13, 2021 Page 4
three main industry categories performed better than expected. Although third quarter revenues are higher than expected thus far, sales taxes receipts are still less than the prior year. The latest sales tax information shows that retail and restaurants have been
hit especially hard while transportation is showing quarter over quarter increases. Also,
the California Department of Tax and Fee Administration (CDTFA) has extended due dates and offered payment plans to small businesses. This has, and will continue to create, timing issues related to when revenues are received. The City’s sales tax consultant has provided an updated sales tax estimate and the revised budget for sales
tax is now $34.5 million for FY 2020-21, $5.8 million or 20.4% higher than originally
budgeted, resulting from increased consumer spending, vaccination roll-out, and reduced case counts. There is still room for additional positive improvement in sales tax revenues by the end of the fiscal year; however, staff and the City’s consultant remain conservative in projecting sales tax revenues and will wait to evaluate additional receipts before making
additional adjustments to the sales tax revenue projection. Transient Occupancy Tax – Transient occupancy tax (TOT) was the City’s most severely impacted revenue source as the pandemic unfolded, as most major hotels within the City were temporarily closed towards the end of March 2020 and many did not start
reopening until late May or early June, with some hotels remaining closed in the third
quarter. Also, short term rentals were not allowed to operate in the City from early April 2020 until May 20, 2020. Although most hotels are operational, they remain well under full capacity. The Renaissance Newport Beach hotel reopened February 1, 2021. Staff had budgeted FY 2020-21 TOT revenues very conservatively expecting to realize 10%,
20%, and 25% of prior year revenue in the first, second, and third quarters respectively.
The positive improvement in this category has led to year-to-date revenue collections reaching 56.7% of the prior year through the third quarter. Staff had anticipated that residential TOT would be similarly impacted economically, and in fact, the negative impact has been limited to hotel TOT, with residential TOT revenues through the first three
quarters of FY 2020-21 coming in 7.2% higher than prior years. The table below
illustrates a comparison of hotel TOT revenues by month this fiscal year versus the same month in the prior fiscal year. It is notable that revenues continued to improve from July through October and then had a dramatic fall in December 2020 when Governor Newsom enacted a stay at home order that largely prohibited travel. A steady improvement in
revenue and occupancy rates has been seen since December, which is anticipated to
continue given the current easing of restrictions and the anticipated return of more significant numbers of leisure, and ultimately business travelers in the months ahead. In spite of the changing restrictions, revenues through the third quarter of FY 2020-21
were approximately $3.1 million over the revised projected budget. Staff are projecting
revenues to reach 60%, a level comparable to what was seen in October, by the end of
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Third Quarter Budget Update May 13, 2021 Page 5
the fiscal year. For these reasons, staff currently estimates TOT revenues of $15.2 million for FY 2020-21, which is $8.8 million or 136.4% higher than originally budgeted.
All Other Revenue – This category includes all other revenue sources other than the top
three (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.
• 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 ½ 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. This
category will likely finish the year under budget due the sustained lowering of
interest rates by the Federal Reserve in order to stimulate growth during this period of economic decline and uncertainty.
• 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.
Revenue accounts other than the top three were reduced by 20% across the board in the FY 2020-21 budget. 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 revenue (excluding the top three)
through March 31, 2021, is $2.5 million higher than the revised budget. Parking revenue through the third quarter came in strong at $664,000 over the revised budget. Property Income through the third quarter is up $267,000 over budget due to rental property revenue coming in strong. These numbers should continue to perform well due to
18
Third Quarter Budget Update May 13, 2021 Page 6
deferred revenues to be received in the fourth quarter along with the reopening of leased city properties. Fines and Penalties are $161,000 over budget as parking fines are coming in higher than projected. Other Taxes are $870,000 above budget, with business
license taxes and property transfer taxes coming in strong, while marine charter taxes are
below budget. Strong home sales in the city have led the property transfer taxes to increase by 41% from the prior year, an increase of $700,000. Licenses and Permits revenues are almost $244,000 over budget primarily from building permits. Service Fees & Charges were coming in lower than expected in prior periods and were adjusted
accordingly in the budget. This decrease is partially due to a decrease in fees from police
activity (jail booking and alarm permit) and the libraries being closed, but largely results from recreation programs and contract classes being severely limited. These decreased revenues were also partially offset by Community Development Department, Public Works, and the Fire Junior Lifeguard Services Fees & Charges revenues coming in higher
than projected. Also partially offsetting the decrease in recreation revenue is expenditure
savings resulting from reduced contract instructor payments. The Investment Earnings category is currently below budget by $575,000 due to the fair value adjustment required by governmental accounting standards. This adjustment is offset by a release of restricted resources from positive fair value adjustments in prior years.
The following table shows staff’s projection for FY 2020-21 revenue through the end of the fiscal year and how it compares to current year budgets and prior year actuals. If revenues come in as projected below, staff estimates an additional $1.0 million beyond the revised budget amounts and $1.6 million more than was estimated in the second
quarter FY 2020-21 Projected General Fund Revenues
It should also be noted that the City has received approximately $4.0 million of CARES Act funding between fiscal years 2019-20 and 2020-21. Between March 2020 and September 30, 2020, a total of $3.5 million of CARES Act funding was received, with
A B C=B-A D=C/A
Revenues by Category PY Actual
Adopted
Budget
Revised
Budget
Projected
Actual Variance % Variance
Property Taxes 113,313,535$ 117,508,227$ 117,508,227$ 117,508,227$ -$ 0.0%
Sales Tax 36,232,969 28,690,831 34,540,800 34,540,800 -$ 0.0%
Transient Occupancy Tax 20,847,883 6,434,115 15,209,156 15,209,156 -$ 0.0%
Other Taxes 11,846,082 9,652,973 11,081,175 11,501,162 419,987$ 3.8%
Service Fees & Charges 20,913,897 17,350,903 14,898,375 15,900,048 1,001,673$ 6.7%
Parking Revenue 5,503,053 4,599,800 5,503,097 5,619,263 116,166$ 2.1%
Licenses & Permits 4,752,252 4,239,333 5,042,454 5,042,454 -$ 0.0%
Property Income 4,619,106 3,892,635 4,341,939 4,341,939 -$ 0.0%
Fines & Penalties 3,659,011 3,681,031 3,263,257 3,295,392 32,135$ 1.0%
Intergovernmental Revenues 3,910,305 1,646,716 5,105,269 5,105,269 -$ 0.0%
Investment Earnings 1,295,547 1,112,200 1,112,200 543,912 (568,288)$ -51.1%
Miscellaneous Revenues 3,059,377 775,140 1,577,982 1,600,176 22,194$ 1.4%
Total Revenues 229,953,017$ 199,583,904$ 219,183,931$ 220,207,798$ 1,023,867$ 0.5%
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Third Quarter Budget Update May 13, 2021 Page 7
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, the City also filed a $565,000 claim to the Federal Emergency Management Agency (FEMA), which given recent actions by the Biden Administration will
be revised to request reimbursement for additional eligible costs and to increase the
amount requested to 100% of the City’s costs. However, the disposition of this claim will not be known for some time. The City also received $290,000 from the County of Orange during the third quarter for economic support initiatives for the community’s small businesses. Depending on the source and guidance associated with the different
allocations of pandemic-related funding, certain portions will ultimately be transferred to
the General Fund and provide additional resources to further offset pandemic-related costs.
General Fund Expenditures
With 75% of the year complete, FY 2020-21 General Fund expenditures total $152.6
million and are at 67% of the revised budget, which is 2.3% 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, and the trends in the current fiscal year are generally consistent with prior years. Existing
appropriations are on target to fund all current operational expenditures and likely
generate year-end budget savings, with no further adjustments to the expenditure budget needed as of the end of the third quarter. Significant expenditure budget updates include the following (all currently expected to be
covered with existing revised budget appropriations):
• Many departments have seen an increase in operating costs for janitorial and cleaning expenses related to COVID-19, including street sweeping, beach clean-
up and park maintenance, public facilities and restroom janitorial services, day
porter services at the Central Library, power washing for public spaces and sidewalks including temporary outdoor dining, and additional weekly cleaning of city vehicles (mainly Public Safety departments). The current budget can fund all expenditures as of the end of Q3.
• The Fire Department continues to provide staffing for Strike Team deployments and have incurred $775,000 in strike team and mutual aid costs through the end of the third quarter. Reimbursement has been received from Cal OES and has offset this cost with increased revenues.
• Public Safety has seen increased expenditures relating to COVID-19 for disposable medicine/EMS supplies for personal protective equipment, emergency
20
Third Quarter Budget Update May 13, 2021 Page 8
cleaning services, and related supplies. These costs are expected to be fully absorbed, with CARES Act & FEMA reimbursement expected to offset any overages in department budgets at year-end.
• Departments have seen increased overtime costs relating to the pandemic for emergency clean-up services such as beach and street clean-up relating to more people enjoying the beach for outdoor recreational activities due to the shutdown orders, and staffing COVID-19 testing sites and vaccinations PODs.
FY 2020-21 Projected General Fund Expenditures
While the table reflects nearly $1.3 million of budget savings, which is $0.8 million more than in the prior quarter. It is anticipated that year-end budget savings will exceed this amount. However, it is important to note that the non-personnel budget was reduced by $2.7 million prior to adoption and $2.0 million of salary savings is already assumed.
Savings are therefore likely to be less than what is seen in a typical fiscal year.
Proposed Budget Adjustments – Transfers In Staff will recommend for City Council approval a budget amendment that transfers $281,611 and $446,656 ($728,267.00 total) from the Special Improvement District No.
95-1 and 800mhz Funds, respectively, to the General Fund. The City of Newport Beach Special Improvement District No. 95-1 (the “District”) was formed by the City on June 12, 1995, for the purpose of financing certain facilities for the benefit of the District. Between 1995 and 2001, the City issued bonds on behalf of the
District to finance facilities, which have since been repaid in full. The City has therefore ceased levying the special taxes. Following the final payment on the bonds, the City had $1.6 million of excess special tax funds remaining on hand. The City has since made a good faith effort to refund these monies to the property owners within the district and has returned all but $281,611. Because the City has exhausted all efforts to refund the
21
Third Quarter Budget Update May 13, 2021 Page 9
remaining funds and the statute of limitations has expired, staff proposes to sweep the remaining funds into the General Fund at this time so that the District can be closed out.
The City maintains an 800 MHz coordinated communications system (CCCS) and an
associated equipment replacement fund to support the City’s share of the countywide cost of this program. The CCCS is Orange County's analog/digital trunked public safety radio communications system that provides radio communication services and interoperability among City and County law enforcement, fire services, public works, and
lifeguard/marine safety departments in Orange County. Like the City’s other equipment
internal service funds, the 800Mhz fund receives annual contributions from departments to fund the regular replacement of equipment. The County recently updated its charging methodology whereby the City is no longer required to save for and acquire its own equipment. In the future, the County will assess the City for its share of the CCCS
replacement on an annual basis for its eventual replacement. The City’s related internal
service fund is therefore no longer necessary. There is currently $446,656 in the fund that can be returned to the General Fund at this time.
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 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 projected unrestricted General
Fund resources of $30.6 million at the end of Fiscal Year 2020-21 as shown in the table to follow, an improvement of $3.1 million versus the second quarter projection. General Fund Sources and Uses
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Third Quarter Budget Update May 13, 2021 Page 10
As the data presented in this report reflects 75% of the fiscal year, there remain opportunities for positive or negative variances. The risks associated with variances are further amplified by the pandemic and related restrictions. The degree to which these
restrictions are lifted or reinstated for the balance of the fiscal year will have a material
impact on revenues and possibly expenditures. While this report reflects the best information currently available to staff, variances will occur. Staff therefore recommends caution when viewing the projected ending unrestricted fund balance (surplus) of $30.6 million, which is still very much subject to revision as the year progresses.
The Tiered Budget Balancing Framework The strategy employed to balance the budget for FY 2020-21 includes utilization of a tiered budget balancing framework, which is illustrated below.
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, Council approved the replenishment
of the $2.3 million Contingency Reserve at the November 24, 2020, Council meeting. The Contingency Reserve is now fully funded pursuant to Council Policy F-2 for the FY 2020-21 fiscal year.
Tier 4 – Internal Service Fund Charges
Funds in the amount of $4.5 million were transferred in from other funds to partially backfill the anticipated General Fund revenue shortfall for FY 2020-21. These funds derived from prior year internal service funds (ISF) charges that originated from the General Fund.
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6
Operating
Cuts
Temporary
Hiring Freeze
Deferred
Capital
ISF Charge
Reductions
Contingency
Reserve
Service Level
Cuts
Professional and Contract Svcs.1,621,760$ -$ -$ -$ -$ -$ 1,621,760$
Other Non-Personnel Budgets 1,136,807 - - - - - 1,136,807
Personnel Services - 2,000,000 - - - - 2,000,000
Transfers Out - - 18,477,137 500,000 - - 18,977,137
Capital Budgets - - 2,500,000 - - - 2,500,000
Insurance - - - 2,000,000 - - 2,000,000
Equipment Replacement - - - 2,500,000 - - 2,500,000
Contingency Reserve Draw - - - - 2,304,399 - 2,304,399
Total 2,758,567$ 2,000,000$ 20,977,137$ 5,000,000$ 2,304,399$ -$ 33,040,103$
Cuts Restored in First Quarter - - - (500,000) (2,304,399) - (2,804,399)
Revised Total 2,758,567$ 2,000,000$ 20,977,137$ 4,500,000$ -$ -$ 30,235,704$
Total
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Third Quarter Budget Update May 13, 2021 Page 11
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. At the
November 24, 2020, Council meeting, Council approved the replenishment of the
$500,000 taken from the Equipment Replacement Fund, which improves the percent of that Fund’s reserve that is set aside to cover the accumulated depreciation. No further changes to the Tier 4 reductions are recommended at this time. However, staff will be making recommendations concurrently with the City Council’s review of the proposed FY
2021-22 budget regarding to what extent further restoration of Tier 4 cuts is required.
Tier 3 – Deferred Capital Funding Staff recommends maintaining the reductions at this time. A review of the CIP program is underway in the context of developing the FY 2021-22 budget. This will be discussed
in more detail as the FY 2021-22 budget is being presented to the Council, at which time
certain deferred capital projects would be approved for funding. Tier 2 – Temporary Hiring Freeze Staff recommends the continuation of selected hiring with approval by City Manager, with
the City targeting an estimated $2 million in personnel savings. Current projections are
that this savings will be achieved. Tier 1 – Operating Reductions No changes are recommended at this time. Departments have indicated that they can
complete the fiscal year without restoration of any of these 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 through the
third quarter of this fiscal year indicates that no budget adjustments are currently necessary. Staff will continue to monitor these and all funds on a monthly basis. Conclusion
Staff recommends that the Finance Committee review and discuss this report and provide
any recommendations for City Manager and City Council consideration prior to the May 25, 2021, City Council meeting, at which time this report will next be presented. Prepared and Submitted by:
/s/ Steve Montano ____________________________
Steve Montano
Deputy Finance Director
24
2020-21
Third Quarter Budget Update
Finance
Committee
May 13, 2021
25
City of Newport Beach –Finance Department 2
Economic Overview
•Economic activity and employment have
continued to improve in recent months
•Ec0nomists expect recovery during 2021, but not
to pre-pandemic levels
•Transient occupancy tax revenues rebounded to
60% of pre-pandemic levels in October before
dropping due to the new stay-at-home order, and
are now approaching the 60% level again
•Movement into the State’s orange tier and
increasing vaccination rates have had a positive
impact on sales tax and transient occupancy tax
revenues
Unemployment March 2021
United States 6.0%
California 8.3%
Orange County 6.4%
Economic Indicators 2020 2021
Leisure and Hospitality Jobs -24%+ 9%
Food and Drink Spending -24%+ 13%
Home Prices + 8%+ 4%
Vehicle Purchases -24%+ 13%
26
City of Newport Beach –Finance Department 3
Projected General Fund Revenues
Adopted Budget $ 199.6 million
Revised Budget $ 219.2 million
Third Quarter Projection $ 220.2 million
•$20.6 million of pr0jected positive variance
•$1.6 million improvement from second quarter
•Continuing positive trends seen in the third
quarter $-
$50
$100
$150
$200
$250
Adopted Revised ProjectedMillions
Property Tax Sales Tax TOT Other
27
City of Newport Beach –Finance Department 4
Historical General Fund Revenues
$235
$241
$219
$200 $204
$217
$230 $230
$220
$170
$180
$190
$200
$210
$220
$230
$240
$250
$260
$270
2016-17 Actual 2017-18 Actual 2018-19 Actual 2019-20 Actual 2020-21 ProjectedMillions
Pre-COVID Projection Initial Post-COVID Projection Actual and Current Projection
28
City of Newport Beach –Finance Department 5
Property Tax
•Minimally impacted by the pandemic
(at least in the short term)
•Represents approximately 50% of
General Fund revenues
•Variances within revenue categories,
but in total on track
•No changes have been made to the
original revenue estimate
$97
$102
$108
$113
$118
$80
$85
$90
$95
$100
$105
$110
$115
$120
$125
$130
2016-17
Actual
2017-18
Actual
2018-19
Actual
2019-20
Actual
2020-21
ProjectedMillions
29
City of Newport Beach –Finance Department 6
Sales Tax
•Sales tax revenues were impacted by the
pandemic-related restrictions and a decline in
tourism
•Businesses pivoted in creative ways to reach
their customers and generally are operating
now that the County is in the orange tier
•Consumer spending continuing to
strengthening and adapt
•$5.8 million (20.4%) projected improvement
above the $28.7 million adopted budget
•Recovery to pre-pandemic level of revenue is
imminent
$34
$35
$39
$36
$35
$30
$32
$34
$36
$38
$40
2016-17
Actual
2017-18
Actual
2018-19
Actual
2019-20
Actual
2020-21
ProjectedMillions
30
City of Newport Beach –Finance Department 7
Transient Occupancy Tax
•Transient occupancy tax was the City’s most severely
impacted revenue source as a result of the pandemic
•Business travelers have largely not returned, but leisure
travelers are coming back strong
•$8.8 million (136.4%) projected improvement above the $6.4
million adopted budget
$22 $23
$25
$21
$15
$10
$12
$14
$16
$18
$20
$22
$24
$26
2016-17
Actual
2017-18
Actual
2018-19
Actual
2019-20
Actual
2020-21
ProjectedMillions
31
City of Newport Beach –Finance Department 8
Other General Fund Revenues
•20% reduction in the adopted budget
•$6.0 million above adopted budget through March
•Parking revenues very strong
•Property transfer tax higher than expected
•Reduced fees and charges revenues primarily due to recreation programs
(partially offset by reduced expenditures)
32
City of Newport Beach –Finance Department 9
Projected General Fund Expenditures
Adopted Budget $ 219.9 million
Revised Budget $ 228.1 million
Third Quarter Projection $ 226.8 million
•$1.3 million projected expenditure budget savings
•Savings may be below typical level due to budget reductions and assumed salary savings
•Through March, 67% of revised budget expended
•All departments are performing as expected
•Additional $5 million pension payment made, bringing the total to $40 million
33
City of Newport Beach –Finance Department 10
General Fund Reserves
•Higher than originally
budgeted revenues and lower
than budgeted costs are
anticipated to result in a strong
year-end budget surplus
•Currently projected to be $30.6
million, up $3.1 million from
the second quarter
•Opportunities for positive or
negative variances remain, but
trends have been generally
positive year-to-date
34
City of Newport Beach –Finance Department 11
Context for Projected Budget Surplus
•Of the $30.5 million of currently projected year-
end surplus, only $6.5 million related to the current
fiscal year
•$24.1 million attributable to carried forward
surplus from the prior two fiscal years that was
intended to balance the budget
•$11.5 million FY 2018-19 surplus
•$12.6 million FY 2019-20 surplus
•Need has been offset by higher revenues
•Budget cuts that have not yet been restored total
$30.2 million
35
City of Newport Beach –Finance Department 12
Tiered Budget Balancing Framework
•Tier 5 and partial Tier 4 cuts
restored at the first quarter
budget review
•Tier 1 and Tier 2 cuts
expected to be achieved
•Recommendations to be
included in the upcoming FY
2021-22 budget presentation
to restore all of the remaining
cuts other than those that are
not necessary
36
City of Newport Beach –Finance Department 13
Recommended Action
Staff recommends that the Finance Committee:
•Review and discuss this report
•Provide any recommendations for consideration by the
City Manager and the City Council
37
City of Newport Beach –Finance Department 14
Questions?
38
FY 2021-22 Proposed Budget
Revised Information Finance
Committee
Meeting
May 13, 2021
39
City of Newport Beach –Finance Department 2
Revised Tiered Budget Balancing Framework
•Removed $1.5 million that
relates to projects that were not
ever funded in FY 2020-21
•Permanent Supportive
Housing
•General Plan
•Increases the “Restoration Not
Required” amount by $1.5
million to $5.6 million
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6
Operating Cuts Temporary
Hiring Freeze
Deferred
Capital
ISF Charge
Reductions
Contingency
Reserve
Service Level
Cuts
Professional and Contract Svcs.1,621,760$ -$ -$ -$ -$ -$ 1,621,760$
Other Non-Personnel Budgets 1,136,807 - - - - - 1,136,807
Personnel Services - 2,000,000 - - - - 2,000,000
Transfers Out - - 18,477,137 500,000 - - 18,977,137
Capital Budgets - - 2,500,000 - - - 2,500,000
Insurance - - - 2,000,000 - - 2,000,000
Equipment Replacement - - - 2,500,000 - - 2,500,000
Contingency Reserve Draw - - - - 2,304,399 - 2,304,399
Total 2,758,567$ 2,000,000$ 20,977,137$ 5,000,000$ 2,304,399$ -$ 33,040,103$
Cuts Restored in First Quarter - - - (500,000) (2,304,399) - (2,804,399)
Cuts To be Restored
Transfer to FFP - - (8,500,000) - - - (8,500,000)
Transfer to Harbor Capital - - (4,500,000) - - - (4,500,000)
General Fund CIP - - (1,537,060) - - - (1,537,060)
Neighborhood Enhancement - - (2,339,014) - - - (2,339,014)
Restoration Not Required (2,758,567) (2,000,000) (4,101,063) (4,500,000) - - (13,359,630)
Remaining Cuts in Place -$ -$ -$ -$ -$ -$ -$
Total
40
City of Newport Beach –Finance Department 3
Revised General Fund Sources and Uses
•Updated with FY 2020-21 third
quarter budget projections
•Same $1.5 million amount remains
in “Appropriations from Excess
Operating Reserves” line in FY
2020-21
•Funds would be set aside in
FY2020-21 for these projects along
with the $251,847 needed to offset
the business license wavier
program
•Full $10.8 million projected FY
2020-21 surplus now available for
year-end use consistent with City
Council Policy F-5
41
FY 2021-22 Proposed Budget Finance
Committee
Meeting
April 15, 2021
42
City of Newport Beach –Finance Department 2
Principles Guiding Development of the Budget
Budget Emphasizes:
•Providing high quality municipal services that residents expect
•Providing a safe and secure neighborhood
•Keeping Newport Beach looking great
•Maintaining a prosperous, fiscally sustainable, and economically viable city
Additional Focus:
•Restoring budget cuts made due to the COVID-19 Pandemic
•Addressing key City Council priorities identified at the January 30, 2021, City Council
Planning Session
43
City of Newport Beach –Finance Department 3
Straight to the Point: Key Messages
•A strong budget surplus is still projected for FY 2020-21
•The FY 2021-22 budget is balanced
•Parallel action will restore as needed the remaining reductions to the FY 2020-21 budget
•Property tax revenue continues growth at a steady pace
•Sales tax and transient occupancy tax revenues remain on a strong recovery trajectory
•Proposed expenditures remain relatively flat, with additional funding allocated to key City
Council priorities
•Continued strategy of allocating $35 million to reducing the unfunded pension liability, with
additional funding allocations likely at year-end
•Continued funding of capital improvement projects, including neighborhood enhancement
projects, with additional funding allocations likely at year-end
44
City of Newport Beach –Finance Department 4
Budget Development Timeline
Source and Use Projections
Personnel Budget Development
Departmental CIP Preparation
Departmental Budget Preparation
City Manager Review
Finance Committee Review
City Council Review
Budget Adoption
Budget Implementation
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
45
City of Newport Beach –Finance Department 5
Opportunities for Public Review of the Budget
Date Meeting Type Meeting Purpose
Saturday, January 30, 2021 Special City Council Meeting City Council Planning Session
Thursday, February 18, 2021 Finance Committee Meeting Long-Range Financial Forecast (LRFF) update
Tuesday, March 9, 2021 City Council Study Session Early look at Capital Improvement Program
Thursday, March 11, 2021 Finance Committee Meeting Review of revenue budget assumptions
Thursday, April 15, 2021 Finance Committee Meeting Review of proposed budget
Tuesday, May 25, 2021 Joint City Council / Finance Committee
Study Session Joint review of proposed budget
Thursday May 27, 2021 Finance Committee Meeting Finalize recommendations to City Council
Tuesday, June 8, 2021 City Council Meeting Public hearing and adoption of budget
46
Updated FY 2020-21
Budget Information
6City of Newport Beach –Finance Department 47
City of Newport Beach –Finance Department 7
Recap of Second Quarter Budget Update
•Positive revenue variance of $17.2 million
•$0.5 million of projected expenditure savings
•$17.7 million net improvement
•Still under the historical trendline
•$27.5 million of projected excess reserves
•$30.2 of budget cuts not yet restored
•Preliminary third quarter projections show
sustained improvement in revenues
•Staff will be recommending restoration of all
appropriate remaining budget reductions
$-
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
Adopted ProjectedMillions
Property Tax Sales Tax TOT Other
48
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6
Operating Cuts Temporary
Hiring Freeze
Deferred
Capital
ISF Charge
Reductions
Contingency
Reserve
Service Level
Cuts
Professional and Contract Svcs.1,621,760$ -$ -$ -$ -$ -$ 1,621,760$
Other Non-Personnel Budgets 1,136,807 - - - - - 1,136,807
Personnel Services - 2,000,000 - - - - 2,000,000
Transfers Out - - 18,477,137 500,000 - - 18,977,137
Capital Budgets - - 2,500,000 - - - 2,500,000
Insurance - - - 2,000,000 - - 2,000,000
Equipment Replacement - - - 2,500,000 - - 2,500,000
Contingency Reserve Draw - - - - 2,304,399 - 2,304,399
Total 2,758,567$ 2,000,000$ 20,977,137$ 5,000,000$ 2,304,399$ -$ 33,040,103$
Cuts Restored in First Quarter - - - (500,000) (2,304,399) - (2,804,399)
Cuts To be Restored
Transfer to FFP - - (8,500,000) - - - (8,500,000)
Transfer to Harbor Capital - - (4,500,000) - - - (4,500,000)
General Fund CIP - - (1,537,060) - - - (1,537,060)
Neighborhood Enhancement - - (2,339,014) - - - (2,339,014)
Restoration Not Required (2,758,567) (2,000,000) (4,101,063) (4,500,000) - - (13,359,630)
Remaining Cuts in Place -$ -$ -$ -$ -$ -$ -$
Total
City of Newport Beach –Finance Department 8
Tiered Budget Balancing Framework
•$33.0 million of reductions
approved
•$2.8 million of reductions
restored in the first quarter
•$4.8 million of tier 1 and tier 2
reductions in spending achieved
•$16.9 million of reductions
recommended for restoration
•Restoration of the remaining
$8.6 million of reductions is not
required
49
City of Newport Beach –Finance Department 9
Tiered Budget Balancing Framework
Restoration of $16.9 Million
•$8.5 million contribution to Facilities
Financial Plan (FFP)
•$4.5 million contribution to Harbor CIP
•$1.5 million of General Fund CIP
•$2.3 million of Neighborhood
Enhancement projects
Restoration Not Required of $8.6 Million
•$4.1 million of CIP projects that are not
ready to move forward
•$2.0 million of fund balance returned from
insurance funds
•$2.0 million of fund balance returned from
information technology fund
•$500,000 contribution to facilities
maintenance plan
With these restorations, all FY 2020-21 budget reductions will be addressed.
50
Budget Overview
10City of Newport Beach –Finance Department 51
City of Newport Beach –Finance Department 11
Summary of All Funds -Expenditures
FY 18 FY 19 FY 20 FY 21 FY 22
Adopted Adopted Adopted Adopted Proposed
Operating Budget 282,068,157$ 291,709,382$ 304,005,215$ 307,759,024$ 309,002,305$ 0.40%
CIP New Appropriations 25,724,200 46,807,906 45,686,890 31,377,224 35,506,078 13.16%
Total Budget 307,792,357$ 338,517,288$ 349,692,105$ 339,136,248$ 344,508,383$ 1.58%
% Variance
•Minimal growth in operating expenditures of 0.40%
•Routine fluctuations in capital spending
•1.58% growth in overall budget
52
City of Newport Beach –Finance Department 12
All Funds Operating Expenditures Trend
Adopted Adopted Adopted Adopted Proposed
$250 M
$275 M
$300 M
$325 M
$350 M
FY 18 FY 19 FY 20 FY 21 FY 22
53
City of Newport Beach –Finance Department 13
Expenditures by Fund
General Fund
73%
Tidelands
1%
Water
9%
Wastewater
1%
Other
16%
54
City of Newport Beach –Finance Department 14
Major Fund Operating Expenditures
FY 18 FY 19 FY 20 FY 21 FY 22
Adopted Adopted Adopted Adopted Proposed
General Fund 202,757,357$ 208,745,822$ 219,111,935$ 219,859,038$ 225,851,633$ 2.73%
Tidelands 3,138,803 3,299,157 2,544,989 2,955,080 3,136,238 6.13%
Water 22,606,550 24,669,005 26,584,151 27,969,925 27,933,241 -0.13%
Wastewater 3,592,976 3,824,712 3,966,734 4,284,105 3,956,840 -7.64%
Other 49,972,471 51,170,686 51,797,406 52,690,876 48,124,354 -8.67%
Total Operating Budget 282,068,157$ 291,709,382$ 304,005,215$ 307,759,024$ 309,002,306$ 0.40%
% Variance
•Minimal growth in operating expenditures of 0.40%
•General Fund growth under 3%, including program enhancements
55
City of Newport Beach –Finance Department 15
CIP Investment in Infrastructure and Facilities
•Fluctuations in capital spending are routine
•Nearly $75 million budgeted for continued capital investment
•All routine General Fund transfers in support of capital spending
have been restored
FY 18 FY 19 FY 20 FY 21 FY 22
Adopted Adopted Adopted Adopted Proposed
CIP New Appropriations 25,724,200$ 46,807,906$ 45,686,890$ 31,377,223$ 35,506,078$ 13.16%
CIP Estimated Rebudgets 35,194,809 30,757,550 47,562,633 55,774,942 39,341,387 -29.46%
Total Budget 60,919,009$ 77,565,456$ 93,249,523$ 87,152,165$ 74,847,465$ -14.12%
% Variance
56
General Fund
Budget Overview
16City of Newport Beach –Finance Department 57
City of Newport Beach –Finance Department 17
Historical General Fund Revenues
$235
$241
$219
$200 $204
$217
$230 $230
$219
$233
$170
$180
$190
$200
$210
$220
$230
$240
$250
$260
$270
2016-17 Actual 2017-18 Actual 2018-19 Actual 2019-20 Actual 2020-21 Projected 2021-22 ProjectedMillions
Pre-COVID Projection Initial Post-COVID Projection Actual and Current Projection
58
City of Newport Beach –Finance Department 18
General Fund Revenue
0%
25%
50%
75%
100%
FY 18 FY 19 FY 20 FY 21 FY 21 Proj.FY 22
Other Revenue
Charges for Services
Other Taxes
TOT
Sales Tax
Property Tax
59
City of Newport Beach –Finance Department 19
General Fund Revenue (in millions)
52%
17%
8%
5%
8%
10%Property Taxes $122.2
Sales Tax $40.3
Transient Occupancy Tax $19.0
Other Taxes $10.8
Charges for Services $19.0
All Other Sources $22.3
60
City of Newport Beach –Finance Department 20
General Fund Expenditures (in millions)
61.6%29.8%
0.3%
8.2%
Salaries & Benefits $151.7
Maintenance & Operations $73.4
Capital Outlay $0.8
Transfers $20.2
61
City of Newport Beach –Finance Department 21
General Fund Expenditures by Department
FY 18 FY 19 FY 20 FY 21 FY 22
Adopted Adopted Adopted Adopted Proposed
Police 60,632,280 62,627,537 66,040,641 67,002,345 67,401,926 0.60%
Fire 48,353,522 50,514,086 53,193,484 54,790,911 55,861,885 1.95%
Public Works 34,323,356 35,774,140 38,255,532 37,274,177 41,193,237 10.51%
Recreation and Senior Services 13,549,465 13,624,221 13,853,165 13,325,836 13,360,496 0.26%
Community Development 12,616,114 12,834,324 12,952,728 12,525,476 12,772,405 1.97%
Finance 9,070,922 9,157,560 9,461,368 9,573,969 9,667,618 0.98%
Library 8,638,644 9,021,784 9,265,651 9,559,849 9,655,108 1.00%
Utilities 4,164,163 4,336,136 4,759,656 5,033,549 5,144,631 2.21%
City Manager 3,112,978 3,022,380 3,344,155 3,543,321 4,571,940 29.03%
Human Resources 3,130,353 3,142,478 3,293,238 3,423,267 3,448,725 0.74%
City Attorney 2,526,908 2,593,143 2,623,784 2,708,230 2,725,458 0.64%
City Clerk 1,043,415 1,131,339 1,065,439 1,206,539 1,080,305 -10.46%
City Council 1,008,533 834,796 881,199 848,125 841,003 -0.84%
Misc Non Op 586,704 131,896 121,896 1,043,444 126,896 -87.84%
Vacancy Factor - - - (2,000,000) (2,000,000) 0.00%
202,757,357$ 208,745,820$ 219,111,935$ 219,859,038$ 225,851,633$ 2.73%
% Variance
62
City of Newport Beach –Finance Department 22
General Fund Operating Expenditures Trend
Adopted Adopted Adopted Adopted Proposed
$180 M
$190 M
$200 M
$210 M
$220 M
$230 M
$240 M
FY 18 FY 19 FY 20 FY 21 FY 22
63
City of Newport Beach –Finance Department 23
General Fund Transfers
•All routine General Fund transfers in support of capital spending
have been restored
•800 MHz Radio Fund transfer no longer required
FY 18 FY 19 FY 20 FY 21 FY 22
Adopted Adopted Adopted Projected Proposed
General Fund CIP 5,397,520$ 5,525,000$ 5,220,000$ 5,000,000$ 5,000,000$ 0.0%
Facilities Financing Plan (FFP)8,500,000 8,500,000 10,020,333 8,500,000 8,500,000 0.0%
Harbor & Beaches Capital Plan 6,000,000 4,000,000 5,500,000 4,500,000 4,500,000 0.0%
Facilities Maintenance Plan (FMP)1,000,000 1,000,000 2,500,000 1,000,000 1,500,000 50.0%
800 MHz Radio Fund 500,000 534,000 500,000 - - -
Other One-Time Transfers *400,000 5,350,000 8,159,919 2,200,000 700,000 -68.2%
Total 21,797,520$ 24,909,000$ 31,900,252$ 21,200,000$ 20,200,000$ -4.7%
* FY 22 amount is a transfer out of the Oceanfront Encroachment Reserve
Note: Some transfers prior to FY 21 were funded from year-end surplus.
% Variance
64
City of Newport Beach –Finance Department 24
Internal Service Fund Charges
FY 18 FY 19 FY 20 FY 21 FY 22
Adopted Adopted Adopted Adopted Proposed
Information Technology 5,756,155 5,964,619 7,149,139 7,232,902 7,307,210 1.03%
Vehicle Replacement 2,778,697 2,906,655 2,906,655 3,420,827 4,084,061 19.39%
Equipment Replacement 2,838,467 2,853,036 3,086,604 3,351,330 3,330,552 -0.62%
Insurance 6,822,155 9,992,921 11,224,997 11,225,000 8,961,000 -20.17%
OPEB 8,085,678 3,834,916 3,852,251 4,924,163 4,924,163 0.00%
Compensated Absences 2,509,457 2,549,427 2,625,002 2,669,045 2,713,272 1.66%
Total 28,790,610$ 28,101,574$ 30,844,648$ 32,823,267$ 31,320,257$ -4.58%
% Variance
•Increase in vehicle replacement charges to recommended level of
funding
•Decrease in insurance charges to draw down excess fund balance
65
City of Newport Beach –Finance Department 25
Changes in Full-Time Staffing 2009-2020
832
805
792
763
752
736 728 730 724 726 726 728 728 730
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022# of PositionsFiscal Year
66
F/T FTE F/T FTE F/T FTE F/T FTE F/T FTE
General Fund
City Clerk 4.00 2.71 5.00 1.00 5.00 1.00 5.00 1.00 5.00 1.00
City Attorney 7.00 1.00 7.00 1.00 7.00 1.60 7.00 1.60 7.00 1.60
City Manager 6.50 1.00 6.00 1.50 6.00 1.30 6.00 1.30 6.00 1.30
Human Resources 11.00 0.50 11.00 0.50 11.00 1.25 11.00 1.25 11.00 1.25
Finance 32.50 3.02 32.00 4.26 32.00 4.55 33.00 4.55 33.00 4.55
Police 229.00 13.43 231.00 14.87 232.00 14.87 232.00 14.87 232.00 14.87
Fire 143.10 41.42 143.90 42.17 143.90 43.12 143.80 43.12 143.80 42.56
Community Development 49.90 4.10 50.10 8.37 50.10 10.22 49.20 10.20 50.20 10.20
Library 36.00 22.83 36.00 22.83 36.00 22.83 36.00 22.83 36.00 22.83
Recreation and Senior Services 42.50 36.86 42.00 37.96 42.00 38.00 42.00 38.00 42.00 39.43
Public Works 92.50 4.08 90.50 5.08 85.50 5.68 85.50 5.67 85.50 9.47
Utilites 1.00 - 1.00 - 9.50 - 9.50 - 9.50 -
Total 655.00 130.95 655.50 139.54 660.00 144.42 660.00 144.39 661.00 149.06
Other Funds 70.00 9.84 70.50 11.46 68.00 13.79 68.00 15.73 69.00 15.23
Grand Total 725.00 140.79 726.00 151.00 728.00 158.21 728.00 160.12 730.00 164.29
FY 21
Adopted
FY 22
Proposed
FY 18
Adopted
FY 19
Adopted
FY 20
Adopted
City of Newport Beach –Finance Department 26
Five-Year Staffing Detail
67
Staffing Changes
and Program
Enhancements
27City of Newport Beach –Finance Department 68
City of Newport Beach –Finance Department 28
Proposed Additional Staffing
•Harbor Department
•Full-time Permit Technician
•Community Development
•Full-time Senior Civil Engineer position to replace contract staffing (offset by reduction)
•Public Works
•3.0 part-time Maintenance Aides to replace contract staffing (mostly offset by reduction)
•0.3 part-time Associate Engineer for utility undergrounding projects
•Recreation and Senior Services
•1.43 part-time FTEs approved during FY 2020-21 for the Marina Park Community Boating
Program
69
City of Newport Beach –Finance Department 29
Key General Fund Program Enhancements
•Anticipated refuse / recycling contract increase and related additional revenue included in the
base budget and not listed as a program enhancement
•Net General Fund impact of $1.5 million
•$500,000 General Fund commitment to the Costa Mesa Homeless Shelter
•20 beds allocated to Newport Beach in a 5-year agreement
•Capital contribution of $1.6 million funded from Affordable Housing Reserve and Hoag
Development Agreement
•Remaining funding this year coming from accumulated funds from the Hoag 10-year
contribution of $300,000 per year
•Some additional ongoing funding will be required in future years
70
City of Newport Beach –Finance Department 30
Key General Fund Program Enhancements
•$200,000 for the Police Department’s Boardwalk Ambassador Program
•Two 2-person teams, including a supervisor, staffed through Community Service
Corporation (CSC), which is a private contractor with boardwalk safety experience
•Staffed seven days per week in the Summer and Saturdays and Sundays during the rest
of the year with staff that are highly visible, approachable, and professionally uniformed
•Focus is to improve the quality of life for residents and visitors to the peninsula by
ensuring compliance with the municipal code and boardwalk safety rules
•Patrolling E Street to 36th Street, including the Balboa and Newport Piers
•Provide friendly advice, guidance, and directions to visitors in need of assistance
•The goal of the program is to provide additional presence and visibility on the boardwalk
to augment the PET, HLO, and Area 1 Patrol deployments
71
City of Newport Beach –Finance Department 31
Key General Fund Program Enhancements
•$123,760 for additional after hours and weekend contract hours for Code Enforcement
•Funding for seven days per week from July to September and four days per week for
the rest of the fiscal year
•Goal is to augment City staff at times when additional enforcement is required
•$107,463 for a full-time Permit Technician in the Harbor Department
•Will provide support and technical assistance for permittees
•Enhanced focus on recordkeeping including inspections, registration, and insurance
•Will add a subject matter expert to the Department in these areas
•Will free up the Code Enforcement Supervisor’s time for enforcement activities
72
City of Newport Beach –Finance Department 32
Summary of Recommended Enhancements
Fund Department Item Description Net Budget Impact
General Fund City Manager Costa Mesa Homeless Shelter Operating Costs 500,000
Police Boardwalk Ambassador Program 200,000
Community Development Increase Code Enforcement Contract Staffing 123,760
Various Miscellaneous Personnel Budget Changes 266,261
Miscellaneous Non-Personnel Budget Changes 129,887
Total General Fund 1,219,908
Tidelands Harbor Full-Time Permit Technician 107,463
Water Utilities Camera / Security Upgrade at Big Canyon Reservoir 40,000
Total Other Funds 147,463
Total FY 22 Program Enhancements 1,367,371
73
General Fund
Reserves and Surplus
33City of Newport Beach –Finance Department 74
City of Newport Beach –Finance Department 34
General Fund Sources and Uses
•Two FY 21 transfers in
•Drawdown of excess
operating reserves in FY 21
•Tier restorations
•Contingency Reserve
growth
FY 20 FY 21 FY 21 FY 22
Actual Q2 Projection Adjusted Proposed
SOURCES:
Beginning Unrestricted Fund Balance 23,119,513$ 24,081,225$ 24,081,225$ 8,646,269$
Operating Revenues 229,953,017 218,605,517 218,605,517 233,731,142
Less: Restricted Revenues (2,785,622) (765,967) (765,967) (1,128,513)
Prior Year Resources Carried Forward - 2,095,632 2,095,632 -
Transfers In from Other Funds 17,207,099 19,160,543 19,888,810 1 13,197,157
TOTAL SOURCES 267,494,007 263,176,950 263,905,217 254,446,055
USES:
Operating Expenditures 211,066,539 227,513,609 227,513,609 225,851,633
Transfers Out 32,346,243 8,200,000 8,200,000 20,200,000
Appropriations from Excess Operating Reserves - - 16,876,074 2 -
Addition to 25% Contingency Reserve - - 2,669,266 3 -
TOTAL USES 243,412,782 235,713,609 255,258,949 246,051,633
ENDING UNRESTRICTED RESOURCES 24,081,225$ 27,463,341$ 8,646,269$ 8,394,422$
1 CIOSA and 800 MHz fund balance.
2 Previously discussed restoration of budget reductions.
3 Required increase to 25% Contingency Reserve due to growth in FY 22 budget.
75
City of Newport Beach –Finance Department 35
Proposed General Fund Surplus Allocation
•Historically year-end surplus funds have been held over until the end of the fiscal year for allocation
•Staff propose shifting this discussion to September –October after the books are closed
•Allows for more timely utilization of excess resources, including for purposes outlined in City Council
Policy F-5
•The projected $8.6 million year-end surplus is likely to grow with typical budget savings
•Staff are recommending two allocations at this time
•$1.0 million toward the Permanent Supporting Housing Project (remaining $2.0 million to be funded
by development agreements and/or affordable housing funds
•$650,000 toward the General Plan update
•Decisions would be made in September –October regarding additional funding toward the City’s
unfunded pension liability and neighborhood enhancement projects / infrastructure consistent with City
Council Policy F-5
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City of Newport Beach –Finance Department 36
Proposed General Fund Surplus Allocation
Near Term Long-Term
Improvements Obligations
Available Unrestricted Resources 8,646,269$
Fund Now:
Permanent Supportive Housing 1,000,000$ -$ 1,000,000$
General Plan Update 650,000 - 650,000
Business Tax Waiver Program 251,847 - 251,847
Total to be Funded Now 1,901,847 - 1,901,847
-
Fund Later:
Unfunded Pension Liability Contribution - 3,372,211 3,372,211
Neighborhood Enhancements / Infrastructure - 3,372,211 3,372,211
Total to be Funded Later - 6,744,422 6,744,422
Total Allocation 1,901,847$ 6,744,422$ 8,646,269$
Remaining Unrestricted Resources -$
Total
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City of Newport Beach –Finance Department 37
What’s Not Included: Federal Funds
•The City expects to receive approximately $9.3 million from the $130.2 billion allocated to
cities and counties in the American Rescue Plan
•Significantly smaller allocation than many of our neighbors due to the allocation
methodology, which is based on the CDBG allocation formula
•Funds will be received over two fiscal years, with half expected before the end of the current
year in June
•Very limited guidance is available at this time regarding eligible uses
•Staff expect that the entire amount can be transferred to the General Fund as an offset to
revenue losses, but this will depend on the definition of revenue losses in the finalized
guidance
•Staff is not recommending any action regarding utilizing the funds until the finalized
guidance is available
78
Unfunded Pension
Liability
38City of Newport Beach –Finance Department 79
City of Newport Beach –Finance Department 39
Accelerated PERS Payment History (All Funds)
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
Actuals Actuals Actuals Revised Proposed
Minimum Payment $24,959,949 $25,569,840 $26,196,003 $29,078,448 $30,029,330
Base Annual Discretionary Payment 8,914,622 8,930,159 8,803,997 5,921,552 4,970,670
CalPERS Investment Loss Mitigation - - - 5,000,000 TBD
Total Planned UAL Payment 33,874,571 34,499,999 35,000,000 40,000,000 35,000,000
•Maintain $35 million minimum contribution
•Consider additional contribution toward CalPERS investment loss
mitigation from budget surplus as part of year-end results report
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City of Newport Beach –Finance Department 40
Impact of Continued $35 Million Payments
Source: CalPERS Pension Outlook Overview tool
Assumed 7% investment return
$329 $299 $283 $267 $249 $231 $211 $189 $166 $142 $115 $85 $52
$16
$0$35 $35 $35 $35 $35 $35 $35 $35 $35 $36 $37 $38 $38
73%75%77%79%80%82%84%86%89%91%93%95%97%99%100%
$-
$100
$200
$300
$400
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036
UAL Balance (Mil)Payment (Mil)Funded Status
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City of Newport Beach –Finance Department 41
Recap: Key Messages
•A strong budget surplus is still projected for FY 2020-21
•The FY 2021-22 budget is balanced
•Parallel action will restore as needed the remaining reductions to the FY 2020-21 budget
•Property tax revenue continues growth at a steady pace
•Sales tax and transient occupancy tax revenues remain on a strong recovery trajectory
•Proposed expenditures remain relatively flat, with additional funding allocated to key City
Council priorities
•Continued strategy of allocating $35 million to reducing the unfunded pension liability, with
additional funding allocations likely at year-end
•Continued funding of capital improvement projects, including neighborhood enhancement
projects, with additional funding allocations likely at year-end
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City of Newport Beach –Finance Department 42
Questions?
83
5/7/21
Scheduled Date Agenda Title Report Type Agenda Description
Thursday, May 13, 2021 Third Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected
Fiscal Year 2020-21 budget performance.
Follow-Up Discussion of Proposed FY 2021-22 Budget Discussion
Staff will provide the Committee with a copy of the Fiscal Year 2021-22
proposed budget document. Should the Committee wish to continue April's
discussion of the Fiscal Year 2021-22 budget, this is also an opportunity to
do so.
Internal Audit Program Update Verbal Update Bi-monthly progress update on the internal audit program.
Tuesday, May 25, 2021 Joint City Council / Finance Committee Budget Study Session Presentation Joint review of the FY 2021-22 proposed budget.
Thursday, May 27, 2021 Committee Recommendation to Council for the FY 2021-22 Budget Discussion
Discussion of the Study Session earlier in the week and formulation of any
recommendations to be presented to the City Council at the budget public
hearing in June.
Thursday, June 10, 2021 Financial Statement Auditor's Communication with the Finance Committee
acting as the City's Audit Committee Presentation
The City's external auditors, Davis Farr LLP, will provide an overview
presentation regarding the audit process and request feedback from the
Committee regarding any information that may assist them in their audit of
the City's financial statements.
Thursday, September 16, 2021 Annual Review of Investment Performance Presentation
The City's investment advisor, Chandler Asset Management, will report on
the performance of the City's investment portfolio for the fiscal year ending
June 30, 2021.
Annual Review of Investment Policy Presentation
Staff will provide a presentation regarding any changes proposed to the City's
Investment Policy by staff or the City's investment advisor prior to the
Investment Policy being approved by the City Council.
Year-End Budget Results Presentation Staff will provide a presentation regarding the year-end budget results for FY
2020-21.
Internal Audit Program Update Verbal Update Bi-monthly progress update on the internal audit program.
Budget Amendments for Quarter Ending June 30, 2021 Receive and File Staff will report on the budget amendments from the prior quarter.
May 2021
June 2021
Newport Beach Finance Committee Work Plan
September 2021
July 2021
August 2021
Committee Recess
Committee Recess
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5/7/21
Scheduled Date Agenda Title Report Type Agenda Description
Newport Beach Finance Committee Work Plan
Thursday, October 14, 2021 Internal Audit Program Reports Presentation Presentation of reports, findings, and recommendations from the FY 2020-21
audit program.
Revenue Audit Program Update Presentation
Staff will provide an update on audits conducted by the Revenue Division to
verify transient occupancy tax (hotels, agents and residential owners),
charter boat company, waste hauler, etc. revenue collections.
Budget Amendments for Quarter Ending September 30, 2021 Receive and File Staff will report on the budget amendments from the prior quarter.
Thursday, November 4, 2021 CalPERS Update Presentation
Staff will provide the Committee with an overview of the data from the latest
actuarial reports from CalPERS as well as their impact on prior projections of
the paydown of the City's unfunded pension liability.
First Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected FY
2021-22 budget performance.
Long Range Financial Forecast (LRFF) Update Presentation Staff will brief the Committee regarding the results of the updated LRFF
analysis.
Internal Audit Program Update Verbal Update Bi-monthly progress update on the internal audit program.
Thursday, January 13, 2022 Financial Statement Audit Results and Related Communication Presentation The City’s external auditors will meet with the Finance Committee to discuss
the results of their audit for the fiscal year ending June 30, 2021.
Budget Amendments for Quarter Ending December 31, 2021 Receive and File Staff will report on the budget amendments from the prior quarter.
Internal Audit Program Update Verbal Update Bi-monthly progress update on the internal audit program.
Thursday, February 10, 2022 Fee Study Update Presentation Staff will present the Master Fee Schedule to the City Council prior to
presenting it to the City Council.
Facilities Financial Plan (FFP), Harbor & Beaches Master Plan, and Capital
Improvement Program (CIP) Update Presentation
Staff from Public Works and Finance will provide an update on the current
status of FFP and Harbor & Beaches Master Plan funding, as well as what is
planned for inclusion in the FY 2022-23 CIP.
Internal Service Funds Update Presentation Staff will provide the Committee with an update on the health of the City's
insurance, vehicle, equipment, and other internal service funds.
January 2022
February 2022
Committee Recess
December 2021
October 2021
November 2021
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5/7/21
Scheduled Date Agenda Title Report Type Agenda Description
Newport Beach Finance Committee Work Plan
Second Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected FY
2021-22 budget performance.
Thursday, March 10, 2022 OPEB Actuarial Valuation Report Update Presentation Staff will provide the Committee with an overview of the latest actuarial
valuation report prepared by the City's actuary.
Overview of Revenue Projections Presentation
Staff will provide the Committee with an overview of the assumptions utilized
to prepare revenue projections for the City's major funds as part of the FY
2022-23 budget preparation process.
Internal Audit Program Update Verbal Update Bi-monthly progress update on the internal audit program.
Thursday, April 14, 2022 Proposed FY 2022-23 Budget Overview Presentation Staff will provide the Committee with an overview of the expenditure budget
for FY 2022-23 that will be presented to the City Council in May.
Budget Amendments for Quarter Ending March 31, 2022 Receive and File Staff will report on the budget amendments from the prior quarter.
March 2022
April 2022
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