HomeMy WebLinkAboutFinance Committee Agenda - May 7, 20121 This Finance Committee is subject to the Ralph M. Brown Act. Among other things, the Brown Act requires that the Finance
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CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA
Council Conference Room, 3300 Newport Blvd., Newport Beach Monday, May 7, 2012 – 2:00 PM
Finance Committee Members: Staff Members:
Keith Curry, Mayor Pro Tem, Chair
Leslie Daigle, Council Member
Mike Henn, Council Member
Dave Kiff, City Manager
Dana Smith, Assistant City Manager
Tracy McCraner, Finance Director
Dan Matusiewicz, Deputy Finance Director ____________________________________________________ 1) CALL MEETING TO ORDER
2) ROLL CALL 3) 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 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.
4) APPROVAL OF MINUTES
Approval of minutes of the Finance Committee meeting of February 13, 2012. 5) CURRENT BUSINESS
A. Assessment District Refunding: The Finance Deputy Director will discuss an opportunity the
City has to refinance twelve existing 1915 Act Assessment District bond issuances. The current outstanding principal for all twelve Districts is $10.8 million and the preliminary
estimates for net present value savings is $467,000, or 4.32%.
B. Quarterly Financial Status Report as of 03/31/2012: The Finance Director will review the financial status of the current fiscal year 2011-12 through quarter ending 3/31/2012. This item
will also include the proposed General Fund budget estimates for FY 2012-13.
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C. Proposed FY 2012-13 Budget: The Finance Director will provide an overview of the FY 2012-13 Proposed Budget. This will be a preview to the study session presentation scheduled for
the Council Meeting on Tuesday, May 8, 2012.
D. CPS Contract Amendment: The Finance team is recommending an amendment to the CPS parking meter contract. This amendment would 1) change the payment methodology for
CPS to be an annual $700,000 instead of the complicated structure approved in the
Original Agreement, and 2) allow the City to pay off the capital leases for parking meter infrastructure and equipment, saving the City approximately $240,000 over the five-year
term of the leases.
E. Update: GASB Proposed Change to Pension Reporting & Disclosure: The Finance Director attended the California Debt and Investment Advisory Commission (CDIAC) seminar on
Municipal Market Disclosure: Applications to Pension Obligations on Thursday May 3, 2012.
One discussion was an update from David Sundstrom (GASB Board Member) and Alan
Milligan (CALPERS Chief Actuary) regarding the proposed amendment to GASB Statement No. 25 on Pension reporting and disclosure requirements, this update will be provided to the
Finance Committee.
6) FINANCE COMMITTEE ANNOUNCEMENTS OR MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM) 7) ADJOURNMENT
All documents distributed for this meeting are available in the
administration office of the Administrative Services Department
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CITY OF NEWPORT BEACH CITY COUNCIL FINANCE COMMITTEE
MINUTES 1. CALL TO ORDER
The February 13, 2012, Finance Committee meeting was called to order at 2:12 p.m. in the Council Conference Room, 3300 Newport Blvd., Newport Beach,
California 92663.
2. ROLL CALL
Present: Mayor Pro Tem Keith Curry (Chair) and Mayor Mike Henn
Absent: Council Member Leslie Daigle (excused)
Staff present: City Manager Dave Kiff, Assistant City Manager Dana Smith,
Finance Director Tracy McCraner, Assistant City Attorney Leonie Mulvihill, Revenue Manager Evelyn Tseng and Administrative Coordinator Tammie
Frederickson
Members of the Public: Jim Mosher, Dan Purcell
3. PUBLIC COMMENTS
Mr. Mosher commented on the City’s contracting policy which he believes violates constitutional restraints, one of those being California constitution article
11 section 10 which implies contracts in California for expending public funds should have a finite scope and dollar amount set. Other restraints are found in
the City Charter that limits entering into a contract where any public official or
employee holds a financial interest in the contract and limits the number of
people who have authority to review and approve contracts on behalf of the
public.
4. APPROVAL OF MINUTES
The minutes for the Finance Committee meeting of December 12, 2011, were approved as submitted.
5. CURRENT BUSINESS
A. Review Finance Committee Roles & Responsibilities
Finance Director McCraner provided copies for review of Resolution 2007-21
which authorizes the duties and membership of the Committee.
All documents distributed for this meeting are available in the
administration office of the Administrative Services Department
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Recommendations were made to add specific responsibilities of the Committee shall include review of the structure and documentation of any proposed debt
financings and a requirement to conduct pre and post audit conference meetings with the auditors.
B. Quarterly Financial Status Report as of 12/31/2011
Ms. McCraner reviewed the mid-year financial status report as of December 31, 2011. She commented the final audited balances for Fiscal Year (FY) 2010-11
ended the year within the unaudited amount previously reported. Top 3 revenues have increased in the quarter and she provided details on all revenue
sources within the General Fund which combined with the Top 3 are overall coming in about 1% over the General Fund budget.
Ms. McCraner went on to discuss expenditures and midyear projections that
show about $1 million in budgetary savings by departments.
Mayor Pro Tem Curry noted reserves are at an all-time high within the year and increased by a net of $6 million.
Mr. Mosher raised a question about how low General Fund balances get during
the year and the duration of the contracts for the associations that are in
negotiations; he suggested looking into including a table such as used by the
City of Costa Mesa that he finds useful for the breakdown of sales tax categories;
and he asked when the Library Board of Trustees’ deadline is for review and
comment on the budget as required in their Charter.
In response to a question raised by Council Member Henn, Ms. McCraner noted
revenue projections show a slow, modest growth for FY 2012-13 over the current
fiscal year. Council Member Henn cautioned that the maturation process of
Pelican Hill Resort will result in TOT leveling out. He asked about the expense
savings goals and City Manager Kiff noted the reductions will be strategic
including possible shared services options or potential savings through contracts.
Council Member Henn reminded staff of Council Member Daigle’s request to
provide a list of Capital Improvement Projects (CIP) organized by district.
C. State Mandate Reimbursement Claims
Prior to recommending approval to the full City Council, the Committee
reviewed a proposed contract with Maximus Consulting Group for filing of claims
on behalf of the City to reimburse state-mandated costs. Fiscal years 2009-10
and 2010-11 claims are estimated at around $500,000 and the City would net
approximately $253,000 after payment to Maximus. The claims must be filed by
February 15, 2012. Filing will also be made for our mandatory reimbursement process on behalf of the City and could net $206,000, if the State pays. The
contract outlines payment to Maximus is contingent on the City receiving the actual revenue from the State.
All documents distributed for this meeting are available in the
administration office of the Administrative Services Department
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Assistant City Attorney Mulvihill explained part of the reason for having unclaimed claims is because there was a lengthy test claim on the mandate
process that took 4-5 years to resolve. Following the conclusion of the test claim process, a review of the amount of the claims and Maximus’ costs was
conducted to make a comparison of the amount that can potentially be expected for reimbursement if the State pays.
Mr. Purcell questioned the reason why there is the need for expediency. Ms
McCraner explained staff has been working with Maximus for several months on their payment request and it has taken time to verify invoices and get cost
confirmation.
Mr. Mosher commented he is bothered by the amount of money to be paid to
Maximus.
The Committee concurred with staff’s recommendation to bring the contract to
the City Council for approval on February 14, 2012.
D. 2012 Finance Committee Calendar
Ms. McCraner thanked the Committee for agreeing to go to holding quarterly
meetings and she spoke about the proposed calendar that was outlined for
coordination with distribution of the quarterly finance report. She pointed out an
extra meeting is scheduled for June for budget discussions. Ms. McCraner said at
the Committee’s request meetings can be added for any urgent issues that arise
during the year.
Mr. Mosher stated he is disappointed to see a reduction in the number of
meetings. He added he would like more details provided during the budget
review process.
6. FINANCE COMMITTEE ANNOUNCEMENTS OR MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM)
No future agenda items were discussed.
7. ADJOURNMENT
The Finance Committee adjourned at 2:50 p.m.
Filed with these minutes are copies of all material distributed at the meeting.
Attest:
All documents distributed for this meeting are available in the
administration office of the Administrative Services Department
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Tracy M. McCraner Date Finance Director
Agenda Item 5A
CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT
May 7, 2012
TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Tracy McCraner, Finance Director (949) 644-3123 or TMcCraner@NewportBeachCA.gov
Dan Matusiewicz, Deputy Finance Director
(949) 644-3126 or DanM@NewportBeachCA.gov
SUBJECT: REFINANCING OF TWELVE ASSESSMENT DISTRICTS
ABSTRACT:
Due to favorable market conditions, the City has an opportunity to refinance twelve
existing Assessment Districts into one Reassessment District. The refunding is
expected to create financial savings for remaining assessed property owners as well as reduce ongoing City administration and property owner administrative fees. With the
concurrence of the Finance Committee the Financing Team will solicit bids for bank
placement on May 9, 2012, and propose the final refinancing analysis be presented for
City Council consideration at the June 26, 2012, meeting.
OVERVIEW:
Fieldman, Rolapp & Associates, financial advisors to the City, have prepared a
preliminary analysis of the refunding for City Assessment Districts No. 68, 69, 70, 74, 75,
78, 79, 82, 86, 92, 99-2, and 101. These twelve districts include 1,561 properties. Although we have recapped some of the savings highlights here, their Memorandum,
dated April 30, 2012, provides information about the structure and technical details.
INTEREST SAVINGS
Refunding the current bonds is expected to create savings to property owners due to the favorable interest rate environment. The current outstanding principal for all twelve
Districts is $10.8 million. These bonds carry interest rates ranging up to 5.75%, and it is
estimated the bonds can be refinanced at approximately 2.90%. At this rate, the average
annual cash savings range from $91 to $704 per parcel. This amounts to a net present
value (PV) savings of $466,915 or PV savings of 4.32%.
Assessment District Refinancing May 7, 2012
Page 2 ADMINISTRATIVE SAVINGS
By consolidating the total number of active assessment districts from fourteen down to three, property owners also benefit from reduced administrative costs associated with
district administration, annual disclosure reports, arbitrage calculations, levy preparation,
delinquency management, etc.
FINANCE COMMITTEE CONCURRENCE
With the Finance Committee’s concurrence, the Financing Team will move forward with
solicitation of bids for City Council consideration on June 26, 2012.
Prepared by:
/s/Dan Matusiewicz
Dan Matusiewicz
Deputy Finance Director
Attachment: April 30, 2012 Memorandum from Fieldman, Rolapp & Associates
MEMORANDUM
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To: Tracy McCraner, Director of Finance
Dan Matusiewicz, Deputy Finance Director
City of Newport Beach
From: Thomas DeMars, Robert Porr, and Paul Pender
Fieldman, Rolapp & Associates (Financial Advisor to the City)
Re: Potential Bond Refinancing Savings for Property Owners in City Assessment Districts No.
68, 69, 70, 74, 75, 78, 79, 82, 86, 92, 99-2, 101 (12 of 14 City Districts)
Date: April 30, 2012
Summary
The City has the opportunity to refinance most of the outstanding 1915 Act assessment bonds
issued through the City’s Assessment Districts. The City currently administers the bonds for 14
such Districts, of which 12 could be refinanced. This will result in annual savings to the Districts’
property owners on their property tax bills. These 12 Districts include 1,561 properties with $10.82
million of bonds outstanding. The estimated savings range from $90-$700 per parcel per year
(averaging $177), based on current market conditions. Additional savings to property owners will be
realized from reduced administrative costs. City staff time required to administer the Districts will
be reduced as a result of consolidating 12 Districts into a new Reassessment District as part of the
refinancing process.
Refinancing Overview
The refinancing has been analyzed and structured so that it meets the legal requirements under State
law. Assessment District bonds may be refinanced if authorized by City Council, provided the
following three tests are met: 1) there must be savings in each year for each property owner, 2) the
assessment lien cannot be increased on any property and 3) the final maturity of the bonds cannot
be extended. These tests will be ensured by the Reassessment Report, which will be submitted to
Council for approval with the other refinancing legal documents.
The Reassessment Report will reallocate the existing lien among the properties participating in the
refinancing. The properties will be “reassessed” and consolidated into one new District, which under
State law is termed a “Reassessment District.” The consolidation of 12 current Districts will reduce
administrative costs and City staff time.
Savings Potential
The 12 Districts include 1,561 properties with $10.8 million of bonds outstanding, bearing interest
rates ranging up to 5.75%; in the current market it is estimated the bonds can be refinanced at
approximately 2.90%.
The refinancing will be structured to maximize savings to property owners on their upcoming
assessment installments. The attached table shows the savings broken down by several different
metrics (see attached). Taken as a whole, the average per parcel savings per year is $177, which is an
average 18% reduction on existing District assessments. Estimated total gross debt service savings
over the life of the refinancing totals $2.1 million, averaging $276,000 per year. On an annual basis,
the savings per parcel range from $91-$700. On a net present value basis, total savings are $466,000
MEMORANDUM
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with total per parcel NPV savings ranging from $31-$2,174. Differences in savings level per parcel
depend on three factors: the interest rates on the District’s outstanding bonds, the number of years
of bond repayment remaining, and the existing level of lien per parcel. There are large variations
between the Districts. For instance, ADs 68 and 69 bonds currently bear interest at 3-4%, compared
to 4.3-5.7% in ADs 92 and 99-2. Districts 74 and 78 have average liens per parcel under $3,000,
compared to $11,000 - $32,000 for Districts 92, 99-2, and 101. These factors result in higher savings
per parcel potential for Districts with higher liens and interest rates. A longer remaining bond
repayment in a given District, which ranges from 3-12 years, also increases the savings potential.
Assessment Districts No. 100 and 103 bonds were also analyzed, but did not achieve any savings.
Given the wide range of savings per parcel for each District, there is no recommended minimum
savings per parcel. Other than Districts 92, 99-2, and 101, which have the highest savings levels, the
Districts have just 3-7 years of bond repayment remaining, making a more advantageous refinancing
in the future unlikely. Districts 68 and 69 provide the lowest level of economic savings at $31-34 per
parcel or just 0.6% of the outstanding bonds. However, additional administrative cost savings to
property owners in these Districts and City staff time savings are anticipated to be gained from
consolidating 68 and 69 into the new Reassessment District.
Timing and Structure
All Districts’ bonds are callable on September 2. It is contemplated a proposed Reassessment
District and refinancing would be considered for City Council consideration on June 26.
Both a traditional public offering of bonds and a competitive bank placement structure were
analyzed for the refinancing. Based on the current market, the bank placement is anticipated to be
the more advantageous option, with an overall interest rate of 2.90% versus 3.25% for the public
offering. The public offering additionally would have issuance costs roughly $50,000 higher,
including legal costs for a bond offering document. The public offering would additionally not result
in any savings for ADs 68 or 69, and would make several other Districts’ savings levels marginal.
Banks will be solicited to provide bids to purchase the new refunding bonds. It is anticipated that
the winning bidder will provide a commitment to “lock” their bid rate of interest bid for a period of
30-45 days. This is another advantage to the bank placement, in that market risk will be reduced for
this period. It will further provide time to ensure each District meets the three tests required by
State Law based upon the rate of interest bid. The savings levels are anticipated to be known at the
time of Council consideration.
Request Bank Bids – May 9
Draft legal documents – May 11
Receive Bank Bids – May 28
City Council consideration – June 26
Close Refinancing – July 2 (funds held in escrow until 9/2 call date)
FY12-13 Assessments Determined – August 10 (based on refinancing)
Other Notes
After the potential refinancing the City will only administer three outstanding Districts, a reduction
from the current number of 14.
MEMORANDUM
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All refinancing costs will be divided among the Districts being refinanced on a proportionate basis
and are factored into the savings numbers contained herein. Total issuance costs for the competitive
bank placement
CITY OF NEWPORT BEACH
Assessment District Refunding Analysis
City
Assessment
District No.
Number of
Parcels
Bonds
Outstanding
('000)
Years to
Maturity
Gross Bond
Debt Service
Savings
Average
Annual Cash
Savings
Average
Annual Cash
Savings Per
Parcel3
Current
Annual Levy
(approx)
Annual Cash
Flow Savings
(% of levy)1
Net Present
Value Savings2
NPV
Savings %
of Bonds
NPV
Savings
Per Parcel
1 68 317 1,730 7 $223,057 $31,865 $101 $255,000 12%$9,701 0.6%$31
2 69 364 2,170 7 $316,947 $45,278 $124 $319,000 14%$12,274 0.6%$34
3 70 149 665 6 $85,329 $14,222 $95 $115,000 12%$31,541 4.7%$212
4 74 39 85 4 $18,949 $4,737 $121 $19,000 25%$3,006 3.5%$77
5 75 73 470 7 $67,721 $9,674 $133 $73,000 13%$27,035 5.8%$370
6 78 142 195 3 $99,321 $33,107 $233 $55,500 60%$5,403 2.8%$38
7 79 73 390 4 $87,550 $21,888 $300 $91,000 24%$16,185 4.2%$222
8 82 23 75 4 $29,847 $7,462 $324 $16,000 47%$2,310 3.1%$100
9 86 57 120 6 $31,229 $5,205 $91 $21,000 25%$7,517 6.3%$132
10 92 38 1,230 11 $294,428 $26,766 $704 $140,500 19%$82,599 6.7%$2,174
11 99-2 107 1,675 12 $453,152 $37,763 $353 $182,700 21%$141,265 8.4%$1,320
12 101 179 2,015 11 $424,479 $38,589 $216 $229,450 17%$128,079 6.4%$716
TOTALS 1,561 $10,820 $2,132,009 $276,556 $177 $1,517,150 18%$466,915 4.32%$299
Notes:
1. Each parcel will see a reduction in their annual assessment, starting for the FY12-13 tax levy.
2. Accounts for use of funds on hand, including reserve funds, assessment installments on hand, project fund surplus, etc.
3. Assumes refunding includes a bond reserve fund of 7% of principal amount. Actual amount expected at 5%.
Districts which are not currently feasible to refinance: ADs No. 100, 103
*based on sample bank quotes obtained on 4/6/2012. (2.50% and 3.30%, for 2018 and 2024 final maturities, respectively).
Competitive Bank Placement Scenario
Based on 2.90%* Refunding Rate plus $162,000 in issuance costs
Agenda Item V.B.
CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT
May 7, 2012
TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Tracy McCraner, Finance Director
(949) 644-3123 or tmccraner@newportbeachca.gov SUBJECT: QUARTERLY FINANCIAL REPORT – UPDATE 3/31/2012
ABSTRACT:
Finance has completed the quarterly financial status report dated 3/31/2012, as will also
reported in the City Manager’s Quarterly Business Report (QBR). We will update the committee on projected FY 2011-12 year end balances for revenues and expenditures
within the General Fund as well as provide an overview of the FY 2012-13 General
Fund proposed budget.
BACKGROUND:
In total, General Fund Revenue estimates are only slightly less optimistic than our
midyear estimate reflecting an overall decrease $100,260, now estimated at $1.4 million
over the original revenue budget. While there is continued optimism and prospect of
additional growth in Sales taxes and Transient Occupancy Tax revenues, a few concerns regarding property tax collections materialized over the last quarter.
FY 2010-11 Original Mid Year 3rd QTR Change from
Revenue Source Actuals Budget Revised Est.Revised Est.Mid Yr Est.
Property Taxes 71,630,345$ 72,155,615$ 72,612,217$ 71,629,617$ (982,600)$
Sales Tax 18,455,181 18,788,167 19,219,170 19,760,000 540,830
Property Tax - In Lieu of Sales Tax 6,284,266 6,300,000 6,500,000 6,500,000 -
Transient Occupancy Tax 13,082,451 12,786,000 14,000,000 14,181,510 181,510
Business Licenses 4,111,245 3,910,000 3,850,000 3,850,000 -
Franchises 3,730,819 3,936,000 3,498,000 3,498,000 -
Community Development 5,492,327 5,465,260 5,845,441 5,845,441 -
Other 27,948,689 25,621,741 27,120,034 27,280,034 160,000
Transfer-In 3,116,700 6,500,000 4,000,000 4,000,000 -
Total Revenues & Transfers 153,852,024$ 155,462,783$ 156,644,862$ 156,544,602$ (100,260)$
FY 2011-12 Revised Revenue Projections
Quarterly Financial Report Update May 7, 2012
Page 2 The immediate indicators that gave rise to our sharp and immediate revision to the third quarter property tax estimate are two-fold. 1) Redemptions, penalties and interest distributions have declined abruptly, projected at $500,000 below budget in the second
half of FY 2011-12, a further indicator that taxpayers have returned to a more timely
payment schedule. A note from Treasurer Tax Collector Shari Freidenrich confirmed
“the County Treasurer is on track to have the highest collection rate on secured property taxes in the past six years.” 2) Also significant, an upgrade to the Assessor’s Office electronic reporting system has caused delays in the production of the Supplemental tax
update. From a discussion with the Auditor Controllers Office, we understand the
County Assessor has only been able to produce one of four usual supplemental
assessment updates. According to a direct conversation with Mr. Guillory, on May 3, 2012, the Assessor’s Office will provide one additional supplemental assessment to the Tax Collector before June. This delay, however, may result in very little additional
Supplemental tax collections for the remainder of fiscal year 2011-12. More likely, the
delayed supplemental billing will represent an increase to FY 2012-13 supplemental
collections rather than any further revenue recognition in FY 2011-12. This estimated shortfall for FY 1012-13 also $500,000. The two estimates together have decreased our revenue estimates by $1 million since December 31, 2011.
NOTE: This information was confirmed after the production of the 2012-13 proposed
budget documents and will be presented as an amendment to the 2012-13 budget.
For the FY 11-12 budget, the City Manager requested and received $8 million in
structural budget cuts from the departments, and all departments continue to effectively
manage their budgets in accordance to the City’s Fiscal Sustainability Plan.
Currently, it is expected that Departments will achieve an additional $3 million of
operational savings. These savings are almost entirely as a result of personnel
vacancies and are expected to produce a one-time windfall in FY 11-12. Departments
are actively recruiting for these vacancies so the magnitude of these savings is not expected to reoccur in FY 2012-13.
CONCLUSION:
In summary, the General Fund FY 2011-12 is expected to close with a $4.5 million surplus
between excess revenue and expenditure savings. This money will be available for the City
Manager to assign toward FY 2012-13 Council priorities. Finance also has an overview of FY
2012-13 for the General Fund.
Prepared by:
/s/Tracy McCraner
Tracy McCraner Finance Director
Quarterly
Financial Report
city of newport beach | finance department
newportbeachca.gov | 949.644.3127
FACTORS INFLUENCING THE ECONOMY
Even though political and economic turmoil in Europe continues to create volatility in global financial
markets, European leaders have made progress in addressing the region’s debt crisis. While both Europe
and China showed signs of cooling economic activity amid weaker manufacturing data, we continue
to believe that the United States economy is continuing to improve at a relatively modest but consistent
pace. However, in an increasingly global market place, politics and economic activity abroad continue to
influence domestic economics. A severe contraction in Europe or China could still derail the progress of the
United States economic recovery.
In a recent Economic and State Budget Update presentation in Sacramento, Michael Coleman, fiscal
policy advisor to the League of California Cities stated the “U.S. Economy is recovering… gradually… and
with trepidation.” Several months of positive but modest domestic economic news support this view.
The soft recovery has contributed to a gradual but steadily improving unemployment rate. In March, the
unemployment rate fell to 8.1% from 8.3% percent in February. Albeit slow and gradual, the jobs market is
finally showing a sustained decline to its lowest level of the recovery. However, some economists warn that
the jobs market may take another three years to reach normal unemployment levels around 6%. Consumer
confidence continues to show strength despite volatility in gas prices.
While the recovery in the United States generally remains somewhat lackluster by historical standards, year
three of the 1991 and 2001 recessions proved to be a pivotal year when economic activity yielded explosive
economic growth. Wells Fargo economists are predicting that 2012 will be the “Gear Year,” the year the
reovery finally gains traction. It won’t be about explosive growth like the previous recessions but it will be
the year that national attitudes surrounding economic recovery finally agree the recovery is fully functional
and sustainable.
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REvENUE UpdATE
In total, General Fund Revenue estimates are only slightly less optimistic than our midyear estimate reflecting
an overall decrease of $100,260. While there is continued optimism and prospect of additional growth in
Sales taxes and Transient Occupancy Tax revenues, a few concerns regarding property tax collections
materialized over the last quarter and are discussed below.
pROpERTY TAx
Overall, the housing market continues to remain under pressure. Supporting this view, County Assessor Webster Guillory, stated “the real estate market took a significant downturn at the end of this year” at his
annual Orange County Property Tax Valuation update. While the secured property tax levy in Newport Beach increased 1.27% over the prior fiscal year, the Newport Beach median single family residence sales
price decreased 6.08% in 2011 to $1,197,500 and decreased another 5.43% to $1,132,500 thus far in 2012. The 2012 median is 30.30% off the 2007 high of $1,625,000 and 11.49% below 2004 levels. This is a long-term
indicator that the secured property tax levy will remain at historically suppressed levels for some time to
come.
In the last quarterly financial report, we noted that secured property tax collections had trended upward
significantly which was the primary impetus for increasing the overall property tax projection upward by
$456,000. We also noted that there was some downside risk that the higher than expected distributions
represented a simple payment trend anomaly. While we have considered that taxpayers are paying their
tax bills in a more timely fashion than in recent years and therefore, accelerating the overall distribution
trend, we have not adjusted for this possible anomaly yet.
FY 2010-11 Original Mid Year 3rd QTR Change from
Revenue Source Actuals budget Revised Est.Revised Est.Mid Yr Est.
Property Taxes 71,630,345$72,155,615$72,612,217$71,629,617$(982,600)$
Sales Tax 18,455,181 18,788,167 19,219,170 19,760,000 540,830
Property Tax - In Lieu of Sales Tax 6,284,266 6,300,000 6,500,000 6,500,000 -
Transient Occupancy Tax 13,082,451 12,786,000 14,000,000 14,181,510 181,510
Business Licenses 4,111,245 3,910,000 3,850,000 3,850,000 -
Franchises 3,730,819 3,936,000 3,498,000 3,498,000 -
Community Development 5,492,327 5,465,260 5,845,441 5,845,441 -
Other 27,948,689 25,621,741 27,120,034 27,280,034 160,000
Transfer-In 3,116,700 6,500,000 4,000,000 4,000,000 -
Total Revenues & Transfers 153,852,024$155,462,783$156,644,862$156,544,602$(100,260)$
FY 2011-12 Revised Revenue projections
Fiscal Year 2011-12
FISCAL YEAR 2011-12 REvISEd REvENUE pROjECTIONS
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SALES TAx REvENUE
Sales tax remittances continue to represent a
brighter story than property taxes. We have
nudged our sales tax estimate upward $541,000
which represents a 7% increase on a year over
year basis. This estimate is consistent with our trend
analysis and sales tax consultant estimates.
Big-ticket spending often postponed during
recessionary periods is coming back to life. Due to
previous economic fears, the age of an automobile
is near a record-setting 11 years old and is also why
the housing affordability index is not stimulating
much housing activity. Should fears begin to
subside, big ticket spending could play catch up
this year among both consumers and businesses.
Restaurants and auto sales continue to rank as
the highest sales tax generating segments. When
comparing the fourth quarter of 2011 to 2010,
new auto sales increased 12.6% and restaurants
sales improved 5.7%. While representing smaller
segments of sales tax generation, retail, apparel
stores, service stations and light industry all posted
double digit gains in this same quarter over quarter
comparison.
TRANSIENT OCCUpANCY TAx
Similar to Sales Tax, another bright spot in the City’s
budget continues to be TOT collection. In a year
over year comparison, commercial and residential
TOT revenues increased 11.6% during fiscal year
2010-11 significantly improving over the previous
double dip declines experienced during 2009 and
2010. Based on the collection trend to date, we
are expecting 2011-12 TOT revenues to increase 8%
over 2010-11 representing a $181,510 increase over
our mid-year revenue estimate and $1.4 million
over our original budget estimate. Once again,
Pelican Hills Resort is leading hoteliers in total TOT
production and year over year growth.
The immediate indicators that gave rise to our
sharp and immediate revision to the third quarter
property tax estimate are two-fold. 1) Redemptions,
penalties and interest distributions have declined
abruptly, or $500,000 below budget, a further
indicator that taxpayers have returned to a more
timely payment schedule. A note from Treasurer
Tax Collector Shari Freidenrich confirmed “the
County Treasurer is on track to have the highest
collection rate on secured property taxes in the
past six years.” 2) More significantly, an upgrade
to the Assessor’s Office electronic reporting
system has caused delays in the production of the
Supplemental tax update. From a discussion with
the Auditor Controllers Office, we understand the
County Assessor has only been able to produce
one of four usual supplemental assessment
updates. According to a direct conversation
with Mr. Guillory, on May 3, 2012, the Assessor’s
Office will provide one additional supplemental
assessment to the Tax Collector before June. This
delay, however, may result in very little additional
Supplemental tax collections for the remainder
of fiscal year 2011-12. More likely, the delayed
supplemental billing will represent an increase to
fiscal year 2012-13 supplemental collections rather
than any further revenue recognition in fiscal
year 2011-12. This information was determined
after the production of the 2012-13 proposed
budget documents and will be presented as an
amendment to the 2012-13 budget. The projected
shortfall in fiscal year 2012-13 for supplemental
revenue is a $500,000 decrease to our property tax
revenue estimates. These two estimates combined
resulted in a $1 million decrease from our mid-year
property tax revenue estimates.
4
dEpARTMENT GENERAL FUNd ExpENdITURE pERFORMANCE
department
FY 12 Original
budget Amended budget YTd as of 3/31/12
percent
Expended
YTd @ 3/31/11 -
Audited
percent
Expended
City Council 940,397$1,137,377$846,107$74%859,916$82%
City Clerk 546,465 555,365 426,015 77%337,984 68%
City Manager 1,921,739 1,944,724 1,327,193 68%1,553,932 63%
Human Resources 2,393,167 2,397,667 1,624,665 68%1,600,262 69%
City Attorney 2,292,941 2,302,827 1,424,941 62%2,114,197 81%
Finance 6,892,716 6,891,046 4,756,594 69%5,430,495 67%
Police 41,502,813 41,667,012 30,173,535 72%31,260,416 73%
Fire 34,353,768 34,725,815 25,234,970 73%25,302,249 74%
Planning 3,457,855 3,230,793 2,395,176 74%2,147,727 65%
Building 5,482,077 5,679,759 4,006,519 71%3,140,118 74%
General Services 22,212,918 22,348,925 16,210,704 73%15,993,703 68%
Library 6,889,590 7,644,001 5,203,247 68%4,805,002 67%
Recreation 8,418,226 8,491,404 6,080,204 72%6,051,082 71%
Public Works 5,834,035 6,134,766 4,360,222 71%4,092,212 70%
Electrical 774,984 796,456 693,977 87%790,402 59%
C.I.P.4,610,730 5,523,267 2,384,785 43%939,218 16%
OPEB 2,314,000 2,314,000 1,157,000 50%1,064,000 50%
FFP 4,016,812 4,016,812 4,016,812 100%31,300,000 100%
Debt Service 780,000 780,000 780,000 0%765,000 0%
Total 155,635,233$158,582,015$113,102,667$71%139,547,915$74%
FY 2011-12 FY 2010-11
General Fund Expenditures by department
dEpARTMENTAL ExpENdITURE pROjECTIONS
For the FY 11-12 budget, the City Manager requested and received $8 million in structural budget cuts from the departments, and all departments continue to effectively manage their budgets in accordance
to the City’s Fiscal Sustainability Plan.
Currently, it is expected that Departments will achieve an additional $3 million of operational savings. These savings are almost entirely as a result of personnel vacancies and are expected to produce a
one-time windfall in FY 11-12. Departments are actively recruiting for these vacancies so the magnitude
of these savings is not expected to reoccur, nor were they budgeted in FY 2012-13.
5
FISCAL YEAR 2011-12 CITY MANAGER ASSIGNMENTS
Council Policy F-2, Reserve Policy, delegates the authority to the City Manager to modify or create
new assignments of fund balance; however appropriation of those assignments must be approved by
the City Council. A schedule of City Manager Assignment activity during FY 2011-12 is below:
Estimated
Beginning Budgeted Ending
Assignment New Assignment Relinquished Assignment
City Manager Assignments Balance Assignments Uses Assignments Balance
Neighborhood Revitalization 650,000$ -$ 419,160$ 230,840$ -$
Tidelands Management 200,000 - - 200,000 -
Marian Bergeson Pool Contribution 330,000 - - 330,000 -
Airport Issues 100,000 100,000 - 100,000 100,000
MOD - Tree Replacement Program 75,000 - - 75,000 -
Economic Development 75,000 - - 75,000 -
Median Maintenance Program 50,000 - - 50,000 -
Lower Bay Dredging 2,500,000 300,000 2,500,000 - 300,000
FFP Reserve - 1,416,399 - - 1,416,399
IT Internal Service Fund - 3,000,000 - - 3,000,000
CIP FOR FY 13 - 1,600,000 - - 1,600,000
Civic Center Move/FFE - 200,000 - - 200,000
Facilities Master Plan Consultant - 250,000 - - 250,000
CPS Infrastructure Buyout - 600,000 - - 600,000
Total City Manager Assignments 3,980,000$ 7,466,399$ 2,919,160$ 1,060,840$ 7,466,399$
At the end of FY 2010-11, the City Manager assigned $3,980,000 from the General Fund-fund balance
to be carried over and available for Council approved programs during FY 2011-12. By fiscal year-end,
$2,994,160 is projected to be utilized and $985,840 is expected to be returned to fund balance and
available for new priority programs. These relinquishments have two categories: 1) assignment (fund
balance) was not needed as the responsible department performing the service was able to cover
the expenditure within their annual approved budget (neighborhood revitalization/tree replacement/
median maintenance) 2) program did not move forward during FY 2011-12 (Marian Bergeson pool/
Airport Issues).
The City Manager has made $7,466,399 in new assignments for FY 2011-12. All assignments, with the
exception of the airport issue, were intended to ensure funding is available for our core values: maintaining
our facilities and infrastructure and investing in our IT Strategic Plan. Assignments are estimates as of
the financial analysis available March 31, 2012, and will be adjusted for actual year end results in the
General Fund.
6
Fiscal Year 2012-13 Budget
estimates could be allocated to new or improved
programs and services that would support these
core values. This also supports a continued
focus on transformation of the Newport Beach
city government to a more accountable and
performance-based organization. As such, the
executive team is not only improving what we are
best at, but also what we should “not” be doing. This
budget builds in new opportunities to contract out
certain services when it can be demonstrated that
the private sector can perform these services with
the same or better level of service and for less cost.
These changes can be seen in some departmental
budgets with reduced costs for personnel and
increased costs for professional services.
OUTLOOK FOR FISCAL YEAR 2012-13
We have not only survived the recession, we have
become a stronger albeit smaller organization.
This was not without hard choices and significant
budget reductions. We have maintained our key
budget principles, and these have assisted us with
increasing our General Fund Reserves in each year
of the recession to a level that is the highest in the
more than 100 year history of Newport Beach.
Building reserves without compromising service
levels to our community, also, maintaining and
building our physical environment, and allocating
resources to our IT Strategic Plan and performance
management system to set the stage for continuing
to become a more educated, versatile and smaller
city government.
1.Adhere to 2010’s Fiscal Sustainability Plan.
2.Use the upcoming years as an opportunity to
thoughtfully and methodically change the way
our local government conducts business.
3.Our “Shining City’s” success includes our
investment in our infrastructure.
4.We should stop doing some things.
5.We must continue to address pension costs,
comprehensively and aggressively.
6.Public Safety is paramount - but there are still
smarter, better ways of delivering public safety
services without compromising safety.
FISCAL YEAR 2012-13 bUdGET GOALS
Listening to the community and City Council, the
City Manager prepares for the budget cycle by
identifying the unique qualities and specific City
services that will contribute toward becoming and
staying the Shining City by the Bay. The core values
as confirmed by Council are:
A high quality physical environment
This means the natural environment and
maintaining quality community centers, parkways
and medians, roads, trees, alleys, beaches and
more. We believe that Newport Beach has a
different look and feel from other communities as
you enter it, and we want to maintain that look.
Public safety and how City services and programs
reinforce safety
From core public safety services like police and fire
to programs (recreation and senior services, CERT
and more) and infrastructure (parks, libraries and
more) that draw people out into their community,
we give our residents great things to do and enjoy
– when people are out and about and involved,
bad elements stay away.
Civic engagement
This is a community that loves its many strong
community activities, events and groups and wants
to be actively engaged with its city government.
Accountable, Responsive City Government
We should be about superior customer service,
fiscal sustainability, accountability, transparency
and ensuring an accessible and open environment.
We want to ensure our community views us as the
standard of excellence in city government.
pRIORITIzING SCARCE RESOURCES
Communicating our core values to the organization
allows us to focus our resource allocation decisions
toward programs and services that enhance these
core values. That being said, FY 2012-13 is the third
consecutive year of minimal to flat revenue growth
in Newport Beach. In order to present a balanced
budget for FY 2012-13, the City Manager instructed
all director’s to maintain FY 2011-12 departmental
budgetary levels so that any increases in revenue
OUR bUdGET pRINCIpLES
7
GENERAL FUNd pROpOSEd FISCAL YEAR 2012-13 bUdGET
The General Fund is the key operating fund within the City’s budget and is generally of most interest to
residents as it is predominantly, 78%, funded by tax revenues.
REVENUE FORECAST
As stated previously, FY 2012-13 will be the third consecutive year of minimal to flat revenue growth in the
City of Newport Beach. Although the economy continues to gradually improve, our projections remain
conservative in keeping with our Fiscal Sustainability Plan.
We are projecting FY 2012-13 General Fund revenues at $155.8 million, an increase of approximately $3.3
million from our FY 2011-12 amended revenue budget. Property tax revenues which account for almost
47% of total General Fund revenues, or **$73.0 million, are estimated to minimally increase by 0.5% from
revised FY 2011-12 revenues, or $360,000. The housing market recession is not over, and all local and state
governments are experiencing low to negative growth in their assessed valuations (AV). Newport Beach
continues to maintain positive growth in our AV, although only +0.5% in last year’s case. This is not common
in our neighboring cities and counties, as many have experienced declines in AV during the recession and
are just now experiencing small positive growth. The Orange County Assessor continues to warn cities to be
conservative when estimating property tax revenue, he assured us at his February 2012 meeting that he was
still performing re-assessments which were decreasing property values in all areas of the County even in the
beach cities.
**SPECIAL NOTE ON PROPERTY TAX ESTIMATES FY 2012-13: As previously discussed in the quarterly financial report,
Finance recently confirmed with the County Controller’s Office that supplemental taxes will not be received for
the second half of FY 2011-12 (approximately $500,000) due to implementation challenges with a new software
in the County Assessor’s Office. These revenues should be received during the first quarter of FY 2012-13, but too
late for eligible modified-accrual accounting rules. Also confirmed, penalties/interest & redemption property tax
collections are significantly down, approximately $500,000 for Newport Beach, in the second half of FY 2011-12.
The Controller’s Office confirmed this is county-wide, and they are reporting a noticeable improvement in timely
secured collections which has caused all cities to realize significantly less in penalties/interest & redemptions. The
proposed budget does NOT include adjustments for either of these issues as it was printed before confirmation
was made. Both issues will be addressed in the final budget document.**
2011-12 Projected Proposed
Original 2011-12 FY 2012-13
Budget Year End Budget
GENERAL FUND REVENUES:
PROPERTY TAXES 72,155,615$72,612,217$72,975,146$
SALES TAXES 25,088,167$25,719,170$26,793,879$
TOT TAXES 12,786,000$13,715,150$14,390,158$
ALL OTHER GENERAL FUND REVENUES 38,926,001$40,455,757$41,642,213$
SUBTOTAL GENERAL FUND REVENUES 148,955,783$152,502,294$155,801,396$
GENERAL FUND EXPENDITURES:
GENERAL GOVERNMENT 13,379,052$13,620,633$14,477,488$
PUBLIC SAFETY 75,856,581$76,392,827$77,394,664$
PUBLIC WORKS 28,821,937$28,947,199$29,329,249$
COMMUNITY DEVELOPMENT 8,939,933$9,243,500$9,168,326$
COMMUNITY SERVICES 15,307,816$17,743,778$16,926,916$
OPEB 2,314,000$2,314,000$2,466,000$
DEBT SERVICE 780,000$780,000$750,000$
OPERATING BUDGET SAVINGS -$(3,000,000)$-$
CAPITAL PROJECTS 2,094,130$2,094,130$3,600,000$
SUBTOTAL GENERAL FUND EXPENDITURES 147,493,449$148,136,067$154,112,643$
OPERATING SURPLUS / AVAILABLE FOR ASSIGNMENT 1,462,334$4,366,227$1,688,753$
GENERAL FUND
COMPARATIVE BUDGET - Fiscal Years 2012 & 2013FISCAL YEARS 2012 ANd 2013 GENERAL FUNd COMpARATIvE bUdGET
8
REVENUE FORECAST (continued)
Sales Tax and Uniform Transient Occupancy Tax (TOT)
are the next largest components (26% cumulatively)
of the City’s General Fund. The FY 2012-13 sales tax
estimate is $20.6 million, an increase of almost $1
million or 5.0% over FY 2011-12 estimated revenue. TOT
is also estimated to increase $835,000, or 5.0%, over
the FY 2011-12 estimated final revenue. Consumer
confidence has continued to improve and our sales
and TOT taxes are reflecting that improvement. We
have almost returned to pre-recession levels in sales
tax and have surpassed those levels in TOT thanks in
large part to Newport Coast’s Pelican Hill Resort. We
have estimated conservative growth in both areas
after talking to our major hotels and our economic
consultants, and we are confident these revenues
will remain strong.
We are including a one-time revenue estimate of
$2.5 million in FY 12-13 for the sale of the Airborne
Law Enforcement Program (ABLE) helicopters and
related equipment. FY 2012-13 intergovernmental
revenue is projected to be about $600,000 less than
FY 2011-12, due to the completion of several grants.
EXPENDITURE FORECAST
In FY 2012-13, proposed General Fund expenditures,
including ‘new’ General Fund capital improvements,
pension and OPEB payments, total $154.1 million.
New General Fund capital improvement project
funding for FY 2012-13 is proposed to be $3.6 million,
an increase of $1.6 million over the previous year.
Our goal is to increase the FY 2013-14 funding for
new General Fund capital improvement projects
to $5 million, which is the level we believe, is in
keeping with our goal of maintaining our physical
environment.
The proposed FY 2012-13 General Fund operating
budget is $148 million. This represents an increase of
3.0%, or $4.3 million, from the FY 2011-12 estimated
final budget which is net of a projected $3 million
of operational savings. The City Manager required
all directors to maintain existing budget levels so
that resources could be allocated to other priority
projects that support our core values. The increases
to operating departments were primarily limited
to contractually obligated CPI adjustments within
contracts, step increases and an increase in the
contribution to the Information Technology Internal
Service fund of $1 million. The estimated $3 million in
operational savings expected for FY 2011-12 is not
included as a reduction to the FY 2012-13 proposed
budget. It is almost entirely the result of vacancies
in the public safety and miscellaneous departments
and will be needed to maintain high quality service
levels in FY 2012-13.
Reshaping the City’s workforce: To maintain our
competitive advantage we need to invest in our
employees to keep them abreast of changes in
their service areas, to stay current with technology
and to adapt the overall workforce to the needs of
the community. We don’t want to just be a smaller
organization, we want to invest in our employees to
continue to be the best, always strive to improve
service and business process and be that “smarter”
organization while maintaining our culture of
superior customer service.
In keeping with this message, the recommendation
in the proposed FY 2012-13 budget are personnel
changes that result in the net reduction of 8 full-time
positions. The City Manager instructed department
directors that in order to add or reclassify a position
they had to work together to ensure we did not grow
the organization. Each addition or reclassification
had to accompany a reduction of equal or
greater value. A position could only be reclassified
if a director could correlate how that position will
support the core values of the organization, improve
performance, reduce costs or increase resources.
With this reduction of 8 full-time positions the City
will have 755 full-time employees, down 78 positions
since our City Manager took the reins in FY 2009-10.
SUMMARY
We are committed to Fiscal Sustainability and
living within our means. We will continue to tackle
the difficult issues of pension costs, funding our
CIP program for streets, lights and signals and
neighborhood revitalization, funding our new
facilities and maintaining them, and investing in
our IT Strategic Plan so technology can be used
to continue to be that “Shining City by the Bay”.
This financial status update will be provided by the
Finance Department to the Finance Committee at
its meeting of May 7, 2012, and included as part of
the City Manager’s Quarterly Business Report May
22, 2012.
City budget and salary information is available
online at newportbeachca.gov/salary.
Agenda Item V.C.
CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT
May 7, 2012
TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Tracy McCraner, Finance Director
(949) 644-3123 or tmccraner@newportbeachca.gov SUBJECT: FISCAL YEAR 2012-13 PROPOSED BUDGET OVERVIEW
DISCUSSION:
The City Manager and Finance department have completed a balanced Fiscal Year
(FY) 2012-13 Proposed Budget for the City of Newport Beach. We will provide the Committee with the budget overview presentation also scheduled to be discussed at
Council’s Study Session on Tuesday, May 8, 2012.
BACKGROUND
The City of Newport Beach budget is intended to be a reflection of the City policies,
goals and priorities. It communicates to citizens and staff what program allocation
decisions have been made by the City Council. The proposed budget continues to
maximize existing staff resources and confirms the commitment to maintain the high
levels of service that the community expects and deserves.
Recognizing the Council and community’s interests, the City’s Management Team
worked last year to identify what makes Newport Beach unique – along with how to
protect those qualities by allocating sufficient funding and staffing. We thought of the
city as “the shining city by the bay” and identified these things as important to the Newport Beach community:
A high quality physical environment.
This means the natural environment and maintaining quality community centers, parkways and medians, roads, trees, alleys, beaches and more. We believe that Newport Beach has a different look and feel from other communities as you enter
it, and we want to maintain that look.
Public safety and how City services and programs reinforce safety.
From core public safety services like police and fire to programs (recreation and senior services, CERT and more) and infrastructure (parks, libraries and more)
that draw people out into their community, we give our residents great things to
FY 2012-12 Proposed Budget Overview May 7, 2012
Page 2 do and enjoy – when people are out and about and involved, bad elements stay away.
Civic engagement
This is a community that loves its many strong community activities, events and
groups and wants to be actively engaged with its city government.
Accountable, Responsive City Government
We should be about superior customer service, fiscal sustainability,
accountability, transparency and ensuring an accessible and open environment.
We want to ensure our community views us as the standard of excellence in city government.
CONCLUSION
This is the third consecutive year of minimal to flat revenue growth. This has again required diligent attention to priorities and the wise distribution of resources. The
proposed FY 2012-13 budget was prepared in light of the programs and activities that
support the values stated above. It also supports a continued focus on transformation of
the Newport Beach city government to a more accountable and performance-based
organization. As such, the executive team is not only improving what we are best at, but also what we should “not” be doing. This budget builds in new opportunities to contract
out certain services when it can be demonstrated that the private sector can perform
these services with the same or better level of service and for less cost.
The development of the City’s annual budget takes an enormous amount of staff time and effort. I am proud of how management staff continues to work collaboratively to
allocate resources in support of the City Council directed priorities and in support of the
core qualities that make Newport Beach special. I also want to thank my finance team;
their professionalism, dedication and technical abilities are incredible and it is an honor
and a privilege to represent such a great team. My sincere appreciation is extended to the City Council and City Manager for their leadership and support; and, to all
department directors, division managers and departmental budget liaisons for their
contributions.
Prepared by:
/s/Tracy McCraner
Tracy McCraner
Finance Director
Agenda Item 5D
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
May 7, 2012 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Tracy McCraner, Finance Director (949) 644-3123 or tmccraner@newportbeachca.gov
SUBJECT: AMENDMENT OF THE AGREEMENT FOR PARKING METER SERVICES
BETWEEN THE CITY OF NEWPORT BEACH (“CITY”) AND CENTRAL
PARKING SYSTEM, INC. (“CPS”), DATED MARCH 31, 2011 (“ORIGINAL AGREEMENT”)
ABSTRACT:
City staff and CPS find it mutually beneficial to refine and amend the Original Agreement to
eliminate finance costs incurred by the City and to adjust the payment structure based on a
full year of financial information and the final revenue collections for 2011. This proposed
amendment simplifies and provides an annual operating guaranteed payment to CPS at a fair return and it allows the City to eliminate costly financing charges for purchase of
equipment and infrastructure.
BACKGROUND
The City entered into the Original Agreement with CPS on March 31, 2011. The four key goals identified for CPS were:
• Maximize parking meter revenue
• Increase the quality of services to the public
• Modernize parking meter equipment and infrastructure; and
• Streamline and improve parking enforcement service
CPS met all four goals within its first full year of operations.
PARKING METER REVENUE
CPS has increased parking meter revenues by almost 25% in their first full
year of operation. We expect this
percentage to continue to grow. A table
comparing the parking meter revenues
collected from May 2011 through April 2012 to the previous year is provided here.
**May - April 2012 3,605,381$
May - April 2011 2,898,059
Variance 707,323$
$ Increase 707,323$
% Increase 24.41%
** denotes that amounts are net of credit card fees ($86,583)
Parking Meter Revenue
Year Ended April 2011 vs. April 2012
Parking Meter Operations May 7, 2012
Page 2 QUALITY OF SERVICES
CPS provides the city enhanced meter services that ensure frequent revenue collection and rapid repair of broken meters resulting in decreased revenue downtime. CPS also is
delivering excellent customer service as evidenced in their 24 hour response to customer
complaints and concerns. We find that they are committed to continually enhancing
customer service operations. PARKING METER EQUIPMENT & INFRASTRUCTURE
CPS installed 1,325 state-of-the-art credit card single-space and 7 multi-space meters
within the agreed upon deadline. The credit card option facilitates payment for parking, and
allows more options for customer payment which increases customer satisfaction. CPS reports show that customers are using credit cards at the meters 43% of the time.
PARKING ENFORCEMENT
CPS’ enforcement ambassadors increased collectible parking meter citation revenues by 36%, or
$341,727, while continuing to
encourage customers to pay the
meter before issuing the citation. The proposed amendment will not change the provision that the City
receive 100% of citation revenues.
It is in the City’s and CPS’ interest for customers to pay the meters rather than receive citations. In the
future, staff expects the parking citation revenue to level out as compliance with meter
payments increase.
ORIGINAL CPS AGREEMENT PAYMENT STRUCTURE
In the Original Agreement, parking revenues were to be distributed as follows, so long as
the revenues were available:
1. $3,010,351 to the City;
2. $1,186,617 to CPS ($804,855 for operating expenses and profit; $381,762 for
reimbursement for the amortized portion of the new parking meters and supporting
equipment); then
3. 11.5% remaining revenues to CPS (until March 31, 2013); 16.5% remaining revenues to CPS (from April 1, 2013 to March 31, 2015); and
21.5% remaining revenues to CPS (from April 1, 2015 until expiration/termination of
the Agreement).
Dates # of Citations Amount $
May - April 2011 17,846 959,911
May - April 2012 22,609 1,301,638
$ Increase 4,763 341,727
% Increase 26.69%35.60%
Comparison of Parking Citations Issued
Year Ended April 2011 vs. April 2012
Parking Meter Operations May 7, 2012
Page 3 AMENDMENT OF AGREEMENT
In reviewing with CPS this year’s performance and revenue collection process, we agreed
that it would be mutually beneficial to simplify the complicated payment structure in the
original agreement and replace it with a $700,000 annual payment for operating expenses
and CPS agreed to a lower annual operational reimbursement. Part of the reasons to restructure the agreement is also based on an analysis we
conducted that reviewed the foundational data used as a basis for the payment structure
adopted by Council. The City’s revenue estimates, provided to all the vendors during the
Request for Proposal process and that were used by CPS to estimate their revenue flow for seven years of operation, were optimistic. We found that unseasonably cold summer and spring weather experienced during FY 2010-11 produced an unanticipated revenue
shortfall during their first operating year. The Original Agreement inadvertently penalizes
CPS for the poor economic conditions of FY 2010-11, but the proposed amendment would
assure that CPS is adequately reimbursed for their operating costs. The bonus payments from the Original Agreement shall remain the same to incentivize
CPS, and so CPS can share in the proceeds of excess revenue of which they are a
significant contributor.
For the reasons mentioned above, this structure does not reimburse CPS adequately to cover their day-to-day operations. The City and CPS want this partnership to thrive, but it
cannot do so if CPS cannot cover their basic operational expenses in this or any year of
the Original Agreement.
In the proposed amendment, CPS will be paid $700,000 annually (on a monthly basis) for their services, and the City will retain all parking meter revenues regardless of amount.
CPS will be paid a bonus only if parking meter revenues exceed $3,400,000, then any
excess above the $3,400,000 would be shared as follows:
11.5% of revenues > $3.4 million to CPS (until April 30, 2013);
16.5% of revenues > $3.4 million to CPS (from May 1, 2013 to April 30, 2015);
21.5% of revenues > $3.4 million to CPS (from May 1, 2015 until expiration/
termination of the Agreement).
The City projects parking meter revenues for FY 2011-12 to be $3,700,000, an increase of $700,000 compared to FY 2010-11. Collectible parking citation revenues for FY 2011-12
are estimated to be $1,300,000, an increase of $340,000 over the previous year. The City
typically experiences a collection rate of 70%, this would result in actual increased citation
revenue to the City of $238,000. If the payment structure is amended, CPS will be assured their payment of $700,000 plus $34,500 of bonus revenue, and City will receive additional revenue of $938,000, all contemplated with the Original Agreement but executed in a
different manner. The net increased revenue to the City would be $203,500 in FY 2011-12.
Parking Meter Operations May 7, 2012
Page 4 EQUIPMENT PURCHASE
CPS had entered into various purchase or lease agreements in order to obtain parking meters and other related equipment for the City. Pursuant to the Original Agreement, the
City was to pay $381,762/year to CPS for the amortized portion of those leases. After
working with CPS, and reviewing their leasing arrangements, the City has determined it
could save approximately $240,000 by paying off the leases as of May 31, 2012. The payoff amount is anticipated to be $618,000 (see Exhibit “A” attached for list of equipment and amounts). The City would also like to pay cash, or self finance, all future purchases of
parking meter equipment and this amendment would allow the City to do just that.
CONCLUSION
The partnership between the City and CPS is a success, for both the City and for its community. This amendment to the Original Agreement would ensure fair compensation to
CPS and cost savings to the City by purchasing the parking meter infrastructure and
equipment outright. The City and CPS look forward to working together to continue to
enhance, improve and streamline the parking meter program for Newport Beach’s community and visitors.
Prepared by:
/s/Tracy McCraner
Finance Director
Attachments: Exhibit A – List of Equipment and Prices
Newport Beach CapEx Log
** Projected city Payout 1,031,899.28$
City Remittals to CPS (413,575.50)$
** Net Due to CPS 618,323.78$
Item Vendor Payment Direct Purchases
Previous Lease
Payments
Through 5/31/12
Lease
Buy-Outs Through
5/31/12 Total
Meter Lease Term Total 922,627$
IPS Meters & Replacements IPS Leased 192,814$ 626,309$ 819,123$ Meter Lease Residual 132,380$
3 Ford Vehicles New Concepts Leasing Leased 15,534$ 69,123$ 84,657$ 5 Year w/residual 1,055,007$
Copier/ Scanner California Office System Leased 2,799$ 8,334$ 11,134$
7 Luke Machines Digital Payment Tech Purchased 52,647$ 52,647$ Payments through 5/31 192,814$
Handhelds / Setup and Programming Duncan Parking Tech Purchased 49,466$ 49,466$ Buy Out Quote 626,309$
5 Bikes Jax Bikes Purchased 2,795$ 2,795$ ** Meter Lease Buyout Savings 235,884$
Start Up Costs Various Purchased 12,077$ 12,077$
Totals 116,985$ 211,148$ 703,766$ 1,031,899$
Vehicle Lease Term Total 71,697$
Less City Capital Avances To Central Through 5/31/12 (413,576)$ Vehicles Lease Residual 17,000$
5 Year w/residual 88,697$
Net Due to CPS 618,324$
Payments through 5/31 15,534$
Buy Out Quote 69,123$
** Vehicle Lease Buyout Savings 4,040$
Copier Lease Term Total 7,752$
Copier Lease Residual 2,800$
3 Year w/residual 10,552$
Payments through 5/31 2,799$
Buy Out Quote 8,334$
** Copier Lease Buyout Savings (581)$
** Pending verification of direct expenditures and lease amounts.** Total Gross Savings From Buyout 239,343$
** Total NPV Savings From Buyout 204,518$
IPS LEASE
Vehicle Leases
Copier Lease
Agenda Item 5E
CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT
May 7, 2012
TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Tracy McCraner, Finance Director
(949) 644-3123 or tmccraner@newportbeachca.gov SUBJECT: GASB PENSION REPORTING AND DISCLOSURE UPDATE
ABSTRACT:
The Finance Director attended the California Debt and Investment Advisory
Commission (CDIAC) seminar on Municipal Market Disclosure: Applications to Pension Obligations on Thursday, May 3, 2012. One discussion was an update from David
Sundstrom (GASB Board Member) and Alan Milligan (CalPERS Chief Actuary)
regarding the proposed amendment to GASB Statement No. 25 on Pension reporting
and disclosure requirements; this update will be provided to the Finance Committee.
BACKGROUND
The last update to the Committee on the proposed GASB change was at the September
12, 2011, meeting, along with an update in the City Manager’s Quarterly Business
Report dated September 30, 2011. That update summarized the following:
“In June 2010, the Governmental Accounting Standards Board (GASB) released
a new accounting exposure draft intended to improve the visibility and quality of
pension information contained in governmental financial statements.
In summary, if the exposure draft is approved, the City would be required to
record a liability on its Government Wide balance sheet associated with the
unfunded liability, at a market value calculation, estimated at $200 million as of
the June 30, 2010 valuation data. The City would be required to record accrued pension costs in a defined manner which will differ significantly from our actuarial funding schedule. The accounting standard may limit both the discount rate used
to measure future liabilities and the amortization period in which actuarial gains
and losses can be amortized. The cumulative impact of the proposed standard
would significantly accelerate the recognition and volatility of pension expenses. While this standard is still in draft form, if approved, the new pension reporting
standard will have some drastic impacts on future pension financial reporting and
has not been universally embraced. A coalition of 21 issuers, public pension and
GASB Pension Reporting & Disclosure Update May 7, 2012
Page 2 professional associations submitted a joint two-page comment letter, stating the draft represents “radical departure from long-held practice” and the proposal would significantly alter how state and local government account for pension
benefits and create “much confusion.” Collectively, the groups – including the
Government Finance Officers Association, the National League of Cities and the
U.S. Conference of Mayors – said GASB should “clearly and specifically articulate” that the new accounting measures are not based on, and should not be used for, government pension funding and budgeting. Separately, the GFOA
submitted a comment letter saying it “adamantly opposes” the Board’s proposal
to “abandon” the ARC as the basis for measuring pension cost. Such a move
“would mark a major step backward,” the GFOA said. In particular, the group noted, “the unfunded actuarial accrued liability is simply too volatile to display as a liability on the face of the financial statements.” The GFOA also said there was
no “cause to jettison” the ARC “in favor of an alternative approach that promises
little in the way of information of practical use to actual public-sector decision
makers.” On Thursday, May 3, 2012, GASB and CalPERS joined forces to provide an overview of
changes that have taken place since last year. GASB has heard the criticisms from the
professionals mentioned above and there have been changes to both the proposed
GASB statement and possible changes by CalPERS as well. Listed here are the more significant changes as discussed:
• Implementation will be effective fiscal years beginning after June 15, 2014, (FY 2014-15 for Newport Beach), a delay of one year from the original proposal. This
was agreed upon to allow the professionals needed to conduct the additional
actuarial valuations time to prepare, implement new systems and hire additional
staff.
• GASB also agreed to change the time delay it would accept between actuarial
dates and CAFR reporting. As proposed, GASB required a valuation dated no
more than 24 months before the fiscal year end reported. After consideration of
the time and volume of the number of valuations needed by relatively few
professionals, GASB changed that requirement to 30 months.
• Blended Rate concept: GASB has not changed the concept of a blended rate for
those trusts which are not fully-funded, to what they refer to as a more realistic
earnings assumption. However, Alan Milligan expressed his concern for this
calculation, stating it took a significant amount of actuarial time to calculate even one plan’s “blended rate.” GASB would not concede this issue, so CalPERS examined other alternative methods they could assume which would all but
eliminate the need for a blended rate calculation. The changes considered are:
30 year closed amortization (versus 30 year open)
5 year closed asset smoothing with no corridor (versus a 15 year open with 20% corridor)
GASB Pension Reporting & Disclosure Update May 7, 2012
Page 3 Mr. Milligan assured the crowd that these two assumption changes would not have a material impact to the participant’s rates for possibly more than 30 years, giving
agencies time to make other plan amendments. But these changes would eliminate the
need to perform a blended rate calculation because it would bring the longer term asset
values equivalent to what the GASB is proposing. This would require CalPERS Board approval; Mr. Milligan is recommending these changes to the Board in December, 2012. He also mentioned that this would re-align the unfunded liabilities for both funding
(actuarial) and accounting (GASB) purposes.
CalPERS remains concerned about timing. Will they have the system changes ready? Will they be able to handle the sheer volume of requests? Will they meet employer’s fiscal year end deadlines? Mr. Milligan said he was hopeful many challenges have been
reduced but some remain.
GASB is still planning to issue the Statement in June, 2012. I asked Mr. Milligan when he would be ready to provide Newport Beach a valuation using the new statement requirements; he stated not before FY 2013-14. When the GASB recommended early
implementation, Mr. Milligan just smiled and shook his head. I did meet with Mr. Milligan
after his panel and told him I would be interested in being an initial implementer and he
said he would keep that in mind. CONCLUSION
We will continue to monitor these events and work with CALPERS and our professional
organizations to prepare the City for this change. We will also be sure to be first in line at CalPERS to avoid the certain surge of requests that will be made right before June 30, 2014.
Prepared by:
/s/Tracy McCraner
Tracy McCraner
Finance Director