HomeMy WebLinkAboutFinance Committee Agenda - September 16, 20151
This Finance Committee is subject to the Ralph M. Brown Act. Among other things, the Brown Act requires that the Finance Committee’s 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 Finance Committee and items not on the agenda but are within the subject matter jurisdiction of the Finance Committee. The Finance Committee may limit public comments to a reasonable amount of time, generally three (3) minutes per person.
It is the intention of the City of Newport Beach to comply with the Americans with Disabilities Act (“ADA”) in all respects. If, as an attendee or a participant at this meeting, you will need special assistance beyond what is normally provided, the City of Newport Beach will attempt to accommodate you in every reasonable manner. If requested, this agenda will be made available in appropriate alternative formats to persons with a disability, as required by Section 202 of the Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12132), and the federal rules and regulations adopted in implementation thereof. Please contact the City Clerk’s Office at least forty-eight (48) hours prior to the meeting to inform us of your particular needs and to determine if accommodation is feasible at (949) 644-3005 or cityclerk@newportbeachca.gov.
CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA
NEWPORT COAST CONFERENCE ROOM, BAY 2E 100 CIVIC CENTER DRIVE, NEWPORT BEACH
SEPTEMBER 16, 2015, 4:00 P.M.
FINANCE COMMITTEE MEMBERS: STAFF MEMBERS:
Keith Curry, Chair / Council Member
Diane Dixon, Mayor Pro Tem Tony Petros, Council Member
Bill McCullough, Committee Member William C. O’Neill, Committee Member
Larry Tucker, Committee Member John Warner, Committee Member
Dave Kiff, City Manager
Dan Matusiewicz, Finance Director / Treasurer Steve Montano, Deputy Director, Finance
Marlene Burns, Administrative Specialist to the Finance Director
____________________________________________________ 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. APPROVAL OF MINUTES A. Summary:
Approval of the August 13, 2015, Finance Committee Minutes.
Recommended Action: Approve and file.
V. CURRENT BUSINESS
A. RECOMMENDED BUDGET PRACTICES FOR THE DEVELOPMENT OF THE ANNUAL
BUDGET Summary:
Finance Committee Meeting Agenda
September 16, 2015 Page 2
During the August 13, 2015, Finance Committee meeting, members discussed three
recommended actions for bringing greater transparency and accountability during the annual budget development process. Staff will present a proposed framework for improving budget
practices. Staff will also present proposed broad community goals that can be incorporated into the Fiscal Year 2016-2017 budget.
Recommended Action:
Suggest changes to staff’s presented budget practices and, if necessary, make recommendations for submission to the City Council for approval.
B. PUBLIC EMPLOYEES RETIREMENT SYSTEM AND OTHER POST-EMPLOYMENT
BENEFITS PRIMER Summary:
Staff will provide a pension and other post-employment benefits presentation that will describe the basic mechanics and challenges associated with pension and OPEB benefit funding.
Recommended Action:
Receive and file.
VI. ADJOURNMENT
Finance Committee Meeting Minutes
August 13, 2015
Page 1 of 9
CITY OF NEWPORT BEACH
FINANCE COMMITTEE
AUGUST 13, 2015 MEETING MINUTES
I. CALL MEETING TO ORDER
The meeting was called to order at 4:00 p.m. in the Newport Coast Conference Room, Bay 2E,
100 Civic Center Drive, Newport Beach, California 92660.
II. ROLL CALL
PRESENT: Council Member Keith Curry (Chair); Mayor Pro Tem Diane Dixon;
Council Member Tony Petros; Committee Member William C. O'Neill;
Committee Member Larry Tucker; and Committee Member John Warner
ABSENT: Committee Member Bill McCullough (Excused)
STAFF PRESENT: City Manager Dave Kiff; Finance Director Dan Matusiewicz; Deputy
Finance Director Steve Montano; Administrative Specialist to the Finance
Director Marlene Burns; Deputy City Manager/HR Director Terri Cassidy;
Budget Manager Susan Giangrande; IT Manager Rob Houston;
Municipal Operations Director George Murdoch; Senior Accountant
Trevor Power; Municipal Operations Director Mike Pisani; Interim
Assistant City Manager Carol Jacobs; General Services Operations
Support Superintendent James Auger; and General Services
Administrative Manager Cynthia Owens
MEMBER OF THE
PUBLIC: Jim Mosher
OUTSIDE
ENTITY: Jayson Schmitt, Chandler Asset Management
III. PUBLIC COMMENTS
Jim Mosher spoke on Council's upcoming review of the City's Master Fee Schedule noting that
the fees are not only based on the cost of services rendered, but also multiplied by cost recovery
factors. He opined that the cost recovery table is in need of a comprehensive review. He spoke
about outsourcing street-light maintenance costs noting that Council recently approved a new
contract with a new vendor and expressed concerns with the increased costs. He questioned
whether the City can determine past costs for the same service.
Municipal Operations Director George Murdoch explained the actions taken in terms of the
original contract for street-light maintenance, cost savings, and the RFP process. He added that
the City provided materials under the old contract but, that in the new contract, the vendor
supplies the needed materials. Additionally, the new contract includes payment of prevailing
wages, which has doubled the City's costs. He added that employees' time is tracked daily, that
the vendor who provided the lowest bid from the RFP process was chosen and that the City
augmented the scope of work.
In response to an inquiry from Committee Member Tucker regarding prevailing wages, Municipal
Operations Director Murdoch stated that the City was previously exempt from paying prevailing
wages but it is no longer exempt.
Finance Committee Meeting Minutes
August 13, 2015
Page 2 of 9
IV. APPROVAL OF MINUTES
A. Summary:
Approval of the July 21, 2015, Finance Committee Minutes.
Recommended Action:
Approve and file.
Chair Curry reported corrections to the minutes were made by Committee Members Tucker and
O'Neill.
Chair Curry opened public comments.
Jim Mosher offered additional corrections to the minutes.
With no further public comments, Chair Curry closed public comments.
Committee Member Tucker moved and Council Member Petros seconded, to approve the July
21, 2015, Finance Committee Minutes, as corrected. The motion carried with 5 ayes, 1
abstention (Committee Member Warner) and 1 absent (Committee Member McCullough).
V. CURRENT BUSINESS
A. ANNUAL INVESTMENT PORTFOLIO PERFORMANCE REVIEW
Summary:
A Staff and a City investment advisor will provide of brief fixed income market review of the
past year and comment on the performance of the City's investment portfolio.
Recommended Action:
Receive and file.
Chair Curry introduced the item and deferred to staff for a report.
Finance Director Dan Matusiewicz reported that the City had outsourced the portfolio
management function since 1992 and had a contractual relationship with as many as five
investment advisors and five custody banks and added the City has now consolidated those
relationships down to two investment advisors and an one custody bank in recent years.
Chair Curry provided a brief history of the City's investments and noted that the City was not
materially affected by the Orange County bankruptcy.
At Mayor Pro Tem Dixon's request, Finance Director Matusiewicz addressed the selection of
investment advisors and the contract terms.
Finance Director Matusiewicz continued addressing the core investment portfolio, the City’s
participation in the State liquidity pool, dual-approval requirements, the City's independent
investment analytics software service, monitoring actions to ensure that the City stays within its
risk parameters and identified that the complete monthly Treasury report can be found on the
City's website.
Jayson Schmitt, Chandler Asset Management, provided a brief market overview. He addressed
the likelihood of the Federal Reserve Board raising the Federal funds rate, impacts of global
issues, volatility, decreases in the unemployment rate, labor participation and under-employment.
He addressed retail sales, consumer credit and other market measures and economic indicators.
Additionally, Mr. Schmitt reported on manufacturing, capacity utilization, Federal Reserve
mandates, inflation, Consumer Price Index (CPI), revisions in the Gross Domestic Product (GDP),
two-year Treasury Note rate and the three-month yield curve.
Finance Committee Meeting Minutes
August 13, 2015
Page 3 of 9
In response to Committee Member Warner's question, Mr. Schmitt commented that “core
inflation” is a less volatile measure of inflation when food and energy are removed from the
equation.
Mr. Schmitt reviewed the City's portfolio performance with respect to the City’s investment
objectives of safety, liquidity, and yield and compliance with the City’s investment policy.
In reply to Council Member Petros's inquiry, Mr. Schmitt stated there have been no compliance
issues within the last year.
Mr. Schmitt addressed the account profile versus benchmarks, and impacts of rising interest rates
on the City's portfolio. He discussed average purchase yields, changing trends, security types
owned by the City and investment issuers.
Responding to Committee Member Tucker's question, Finance Director Matusiewicz addressed
investment advisor fees.
Mr. Schmitt commented on the Federal Government strengthening its balance sheet. He added
that most mortgages, today, are purchased by Fannie Mae and Freddie Mac.
Brief discussion followed regarding supranationals.
Mr. Schmitt continued with his presentation addressing S&P ratings, range of distribution,
investment performance, providers of fixed income indices and holdings. He summarized the
City's universe of investments and provided highlights of same.
Finance Director Matusiewicz added that Newport Beach is generally more conservative than
what the Government Code allows for investments.
Chair Curry opened public comments.
Jim Mosher commented on the Total Rate of Return and asked whether that number is before or
after subtracting the management fee.
Mr. Schmitt reported that it is a gross number so that it is before subtracting management fees.
With no further public comments, Chair Curry closed public comments.
Council Member Petros moved, and Committee Member Warner seconded, to receive and file
the report. The motion carried with 6 ayes, and 1 absent (Committee Member McCullough).
B. ANNUAL INVESTMENT POLICY REVIEW AND UPDATE
Summary:
In furtherance of Section K-2 of Council Policy F-1, Statement of Investment Policy (the
Policy), the Finance Department has completed an annual review of the Policy to ensure its
consistency with the overall objectives of preservation of principal, liquidity and return, and its
relevance to current law and financial and economic trends. Staff is proposing two
modifications to the Investment Policy as recommended by the City’s investment advisors,
Public Financial Management (PFM) and Chandler Asset Management (Chandler), and
supported by the City’s Finance Director/Treasurer.
Recommended Action:
Review, discuss, and approve or revise staff recommendations for Council approval.
Finance Director Matusiewicz provided details of the report addressing recommended changes.
Finance Committee Meeting Minutes
August 13, 2015
Page 4 of 9
Jayson Schmitt, Chandler Asset Management, provided details of supranationals and addressed
the three organizations allowed to manage same. He explained that the organizations lend to
different countries and that the loans are project-oriented in terms of social and environmental
projects. He addressed the yield, AAA credit rating and support from a consortium of
governments. He added that these are securities that would be beneficial to the portfolio in terms
of safety, liquidity and diversification.
Brief discussion followed regarding donations and contributions to Greece.
Council Member Petros noted that Fannie Mae is backed by the U.S. Government, commented
on other instruments being limited to individual institutions at 5 percent and on the uncertainty in
international markets. He questioned whether investments should be made in a more
conservative manner
Chair Curry noted that Fannie Mae and Freddie Mac are not guaranteed by the Government. He
added that the quality of investment securities continues, at the highest level.
Mr. Schmitt added that these are not new organizations and that there has never been a default
on those securities since the beginning. He addressed how the City might begin to invest in
these securities and suggested a 10 percent allocation in two securities adding that the policy
should reflect a broader type base to be available, moving forward.
Mr. Schmitt stated that these securities are very stable and close in quality to those of U.S.
agencies. If these were risky investments, investors would demand more yield.
Mayor Pro Tem Dixon confirmed that the City will not be replacing the 26 percent in Fannie Mae
and Freddie Mac but that changes will be very gradual.
In response to Committee Member Tucker regarding the yield difference, Mr. Schmitt stated it
would be approximately 3 to 5 basis points above U.S. agencies. He added that focus should not
be just on yield, but diversification and looking towards the future.
Committee Member O'Neill suggested setting the investment at 20 percent for three years, with
the expectation that the matter would be revisited at that time.
Mr. Schmitt addressed consideration of flexibility and noted that this policy is reviewed on an
annual basis.
Chair Curry opened public comments.
Jim Mosher commented on the City being more conservative in terms of investments policies
versus being more liberal. He questioned whether there is other pending state legislation that
may impact the City's investment policies in the coming year. He noted that the Committee can
only make recommendations for Council action.
Chair Curry noted there is always pending legislation that would impact investment policy.
With no further public comments, Chair Curry closed public comments.
In response to an inquiry by Committee Member O'Neill, Mr. Schmitt stated that any changes,
outside of the City's investment policies would be communicated to the City with an appropriate
recommendation, almost immediately.
Committee Member O'Neill moved, and Council Member Petros seconded, to accept staff
recommendations but changing the maximum portfolio allocation to supranational bond
investments to 20 percent instead of 30 percent, with a review made on an annual basis and with
Finance Committee Meeting Minutes
August 13, 2015
Page 5 of 9
the ability to make changes, based on performance investment objectives. The motion carried
with 6 ayes, and 1 absent (Committee Member McCullough).
Brief discussion followed regarding the City's independent advisors and independent data
sources.
C. RECOMMENDATIONS FOR THE ANNUAL FINANCE COMMITTEE BUDGET REVIEW
PROCESS
Summary:
During the July 21, 2015, Finance Committee meeting, members discussed the need for
greater transparency and accountability during the annual budget development process. This
report provides recommendations and associated action items to improve budget
transparency and to increase the Finance Committee’s involvement during the annual review
of the City’s budget.
Recommended Action:
Review, discuss, and approve or revise staff recommendations and action items for Council
approval.
Finance Director Matusiewicz provided a PowerPoint presentation addressing the Committee's
desire to be more involved in the budget-review process, including communicating budget
priorities and principles, discussing budget assumptions and strategies prior to the development
of the budget, providing for increased transparency and greater accountability, and better
communicating the value of certain job functions. He addressed documentation reviewed during
the process and a timeline for review of other elements within the budget. This will be done in
order for the Committee to provide guidance in terms of budget priorities. He reported that there
will be a review of the City's year-end financial results as scheduled on the Finance Committee
Workplan. He addressed the need for pre-budget recommendations from the Finance Committee
to Council to develop funding strategies and assumptions.
Committee Member Tucker suggested focusing on big items, potential savings by outsourcing
and increasing efficiency in terms of staffing and operations.
Finance Director Matusiewicz agreed and suggested those items should be considered prior to
budget discussions. In addition, Finance Director Matusiewicz suggested having the Police and
Fire Chief could provide a presentation on their operations for increased understanding of their
respective departments.
Committee Member Tucker suggested an independent consultant look at the City's organization,
as a whole to determine possible efficiencies.
Mayor Pro Tem Dixon asked regarding the City's key performance indicators (KPIs) and Finance
Director Matusiewicz reported that in municipalities, those are hard to establish, but added that
some metrics could include customer satisfaction, response time and whether the City is
delivering projects in a timely fashion.
City Manager Dave Kiff commented on developing benchmarks using those of other cities and
suggested bringing these to the Finance Committee for review. He commented on the possibility
of an outside review of City operations noting that it is good in principle, but harder in practice and
explained potential challenges.
Council Member Petros recounted concerns regarding the previous budget adoption process,
provided recommendations and cautioned against making comparisons between public agencies
and private entities. He addressed customer surveys and noted that responses were 90 percent
for every one of the benchmarks identified.
Finance Committee Meeting Minutes
August 13, 2015
Page 6 of 9
Mayor Pro Tem Dixon commented on levels of service and questioned if the City is striving for
100 percent satisfaction or less.
Council Member Petros commented on the City's reserves and noted that criticism was made that
the City was hoarding money and that residents wanted money spent on capital projects. When
the City does spend, criticism is made that the City overspends and that there is no way to tell
whether the City is doing something correctly as the City is at the whim of human nature in
politics. He cautioned against using metrics to measure satisfaction.
Committee Member Tucker reiterated the need to look for efficiencies in terms of staffing.
Chair Curry offered that the City has already reduced its headcount and is in the process of
refreshing its infrastructure while maintaining the highest reserves in the City's history. He noted
that the City has a high bond rating but acknowledged there may be specific items to review that
may provide further efficiencies and opportunities to do things differently for improved processes
and for doing the things that people want. He commented on the importance of having an
economically strong and viable plan for the future.
City Manager Kiff commented on in-house reviews by Department Heads, encouraged
Committee Members to make suggestions for improvements and stated he liked the idea of
looking at distinct functions for the entire City.
Discussion followed regarding location of the survey and results, upcoming surveys, the
possibility of issuing shorter surveys on a more frequent and regular basis.
City Manager Kiff reported that the City's goal is issuing a survey every two years to determine
residents' satisfaction with the City's performance.
Mayor Pro Tem Dixon noted the need to review each recommendation, perhaps at the next
Finance Committee meeting and suggested providing suggestions for benchmarking in terms of
quality of life goals and financial metrics.
Chair Curry opened public comments.
Jim Mosher commented positively on the quality of employees in the City and agreed that more
thought needs to be given in terms of measuring the City's performance in the services it delivers.
He added that he is skeptical of surveys.
With no further public comments, Chair Curry closed public comments.
D. WASTEWATER SERVICE IN NEWPORT BEACH
Summary:
The City Council has requested a review of the City’s Wastewater Operation as part of the
City’s on-going effort to review operations for effectiveness, efficiency and cost. This report
provides the roles and responsibilities of the Division.
Recommended Action:
Provide recommendation to the City Council considering the following options:
1. Keep the Wastewater Division as an in-house municipal function.
2. Engage a consultant to review the efficiency and effectiveness of the Division.
3. Consider outsourcing the maintenance function to a third party through a Request for
Proposal Process (RFP).
4. Consider annexation of the system to another governmental entity such as a special
district.
Finance Committee Meeting Minutes
August 13, 2015
Page 7 of 9
Municipal Operations Director George Murdoch provided a PowerPoint presentation addressing a
detailed Wastewater Service Report, goals and objectives of the Wastewater Division,
maintenance of laterals, number of structures services, pump stations, responding quickly to
prevent property damage and spills, service overview, staff reductions, outsourcing and annual
contributions to the General Fund. He addressed the wastewater budget, revenues, functions
currently being outsourced, other outsourcing opportunities, and challenges in terms of finding a
pump station operations provider. Municipal Operations Director Murdoch addressed proposals
for cleaning operations and noted that it appears the City can perform this task less expensively
than by outsourcing. He commented on lateral replacements, the City's hourly rates, including
pensions, and other outsourcing options.
Council Member Petros pointed out that Costa Mesa Sanitary District recently raised its rates.
In response to Mayor Pro Tem Dixon's question regarding access to reclaimed water, Municipal
Operations Director Murdoch reported that all of the recycled water lines in the City are owned
and operated by the Orange County Water District. He added that they have agreed to expand
the program beyond the recycled program, that the City does not have the appropriate
infrastructure in place and commented on Proposition 84 funds.
Municipal Operations Director Murdoch addressed pros and cons.
Council Member Petros expressed appreciation to staff for the work and commented on getting a
second opinion. He suggested getting a consultant to review this, holistically, to see if there are
any other opportunities.
Council Member Petros departed the meeting at this juncture.
Municipal Operations Director Murdoch provided potential next steps and asked for the
Committee's comments in terms of recommendations to forward on to Council.
Discussion followed regarding the time involved in hiring a consultant to review the operation, the
possibility of issuing an informal RFP, obtaining guidance in terms of increasing rates, the
importance of having control over the function, whether staff would be comfortable outsourcing
specific functions, being able to respond to emergency situations, and budgeting.
In reply to Committee Member O'Neill's question, Municipal Operations Director Murdoch
addressed using less water because of the current drought conditions.
City Manager Kiff noted that the City has an adopted Master Plan and stated there are
consequences if the City decides not to fund it.
Chair Curry opened public comments.
Jim Mosher addressed sewage spills in the City of Newport Beach compared with those in the
City of Costa Mesa. He commented on the Costa Mesa Sanitary District conducting a
Proposition 218 rate study and suggested discussions between them and City staff, especially in
terms of annexing systems as they are currently discussing plans to move their headquarter
buildings. Regarding outsourcing, he stated that Orange County Sanitary District outsourced 100
miles for cleaning and that they have decided to do it in-house, once again. Additionally, they
have a different service model.
With no further public comments, Chair Curry closed public comments.
Discussion followed regarding after-hour calls, videoing services and key Division functions.
Finance Committee Meeting Minutes
August 13, 2015
Page 8 of 9
Chair Curry believed there is not enough current information to make recommendations to
Council to contract out the entire Department and that the Committee should direct staff to
continue providing services as they have been and outsource those functions that can be
outsourced for increased efficiency. He expressed concerns regarding directing more and more
consultant studies.
Mayor Pro Tem Dixon suggested letting Council know that staff has reviewed the matter fully to
determine functions that should and should not be outsourced.
E. CITY COUNCIL POLICY F-9 CITY VEHICLE/EQUIPMENT GUIDELINES
Summary:
City Council Policy F-9 establishes the service life of vehicles and equipment and helps
determine funding requirements for their replacement. At the request of City Council and due
to a number of changes in operations, staff requests the Finance Committee to review and
comment on the proposed changes.
Recommended Action:
Provide direction to staff on the proposed changes.
Interim Assistant City Manager Carol Jacobs provided a brief report addressing proposed
revisions to City Council Policy F-9. She noted wanting to expand the number of years in which
the City keeps vehicles. She noted the savings of approximately $1 million to the internal service
fund.
Discussion followed regarding Police patrol vehicles.
Chair Curry opened public comments.
Jim Mosher questioned some of the changes and made suggestions for additional changes and
commented on the expected service life.
With no further public comments, Chair Curry closed public comments.
Committee Member O'Neill moved and Committee Member Warner seconded, to recommend
staff forward the recommendation to the City Council. The motion carried with 5 ayes, and 2
absent (Committee Member McCullough and Council Member Petros).
F. ERP UPDATE
Summary:
ERP (Enterprise Resource Planning) software is a business management software system
that integrates all of the City’s core functional requirements for financials, human capital
management, citizen services, and revenues. The ERP implementation is scheduled to take
between 25 and 30 months and will consist of five major phases. The City has completed
Phase 1 (Financials) and is currently implementing Phase 2 (HR/Payroll) and Phase 3 (Utility
Billing/Revenue), each scheduled to be operational in January 2016 and May 2016,
respectively. The software provider of the City’s ERP is Tyler Technologies Inc. and this
project is titled “eSAIL,” short for ERP System Administration and Implementation Lineup.
Recommended Action:
Receive and file.
Deputy Finance Director Steve Montano provided an update on the City's Enterprise Resource
Planning (ERP) software. He noted phases completed and noted that the City is on schedule to
implement all phases of the ERP program by October 2016.
Brief discussion followed regarding costs.
Finance Committee Meeting Minutes
August 13, 2015
Page 9 of 9
Chair Curry opened public comments.
Chair Curry closed public comments.
G. FINANCE COMMITTEE SCHEDULE UPDATE
Summary:
The Finance Committee work plan represents the planned topics of discussion; however, is
subject to change based on the availability of Committee members, information and the need
to schedule other topics as they arise. This item allows Committee consideration of an update
to the work plan schedule.
Recommended Action:
Discuss and confirm upcoming meeting dates.
Chair Curry noted a conflict with the next Finance Committee meeting of September 10, 2015,
and suggested meeting either September 15 or 16.
There was consensus to direct staff to schedule the next Finance Committee on September 16,
2015, at 4:00 p.m.
VI. ADJOURNMENT
The Finance Committee adjourned at 6:30 p.m. to the next regular meeting of the Finance
Committee on September 16, 2015, at 4:00 p.m.
Filed with these minutes are copies of all materials distributed at the meeting.
The agenda for the Regular Meeting was posted on August 10, 2015, at 4:00 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:
___________________________________ _____________________
Keith Curry, Chair Date
Finance Committee Chair
Finance Committee Meeting Minutes August 13, 2015
Page 7 of 9
Municipal Operations Director George Murdoch provided a PowerPoint presentation addressing a detailed Wastewater Service Report, goals and objectives of the Wastewater Division, maintenance of laterals, number of structures services, pump stations, responding quickly to prevent property damage and spills, service overview, staff reductions, outsourcing and annual contributions to the General Fund. He addressed the wastewater budget, revenues, functions
currently being outsourced, other outsourcing opportunities, and challenges in terms of finding a pump station operations provider. Municipal Operations Director Murdoch addressed proposals for cleaning operations and noted that it appears the City can perform this task less expensively than by outsourcing. He commented on lateral replacements, the City's hourly rates, including pensions, and other outsourcing options.
Council Member Petros pointed out that Costa Mesa Sanitary District recently raised its rates. In response to Mayor Pro Tem Dixon's question regarding access to reclaimed water, Municipal Operations Director Murdoch reported that all of the recycled water lines in the City are owned and operated by the Orange County Water District. He added that they have agreed to expand the program beyond the recycled program, that the City does not have the appropriate infrastructure in place and commented on Proposition 84 funds. Municipal Operations Director Murdoch addressed pros and cons. Council Member Petros expressed appreciation to staff for the work and commented on getting a second opinion. He suggested getting a consultant to review this, holistically, to see if there are
any other opportunities. Council Member Petros departed the meeting at this juncture. Municipal Operations Director Murdoch provided potential next steps and asked for the Committee's comments in terms of recommendations to forward on to Council.
Discussion followed regarding the time involved in hiring a consultant to review the operation, the possibility of issuing an informal RFP, obtaining guidance in terms of increasing rates, the importance of having control over the function, whether staff would be comfortable outsourcing specific functions, being able to respond to emergency situations, and budgeting. In reply to Committee Member O'Neill's question, Municipal Operations Director Murdoch addressed using less water because of the current drought conditions. City Manager Kiff noted that the City has an adopted Master Plan and stated there are consequences if the City decides not to fund it.
Committee Member O’Neill sought clarification concerning the anticipated infrastructure spending of approximately $1,000,000 per year. Municipal Operations Director Murdoch and City Manager Kiff addressed the City’s adopted master infrastructure plan submitted to the County. City Manager Kiff noted stated that there are consequences if the City decides not to fund it.
Chair Curry opened public comments. Jim Mosher addressed sewage spills in the City of Newport Beach compared with those in the City of Costa Mesa. He commented on the Costa Mesa Sanitary District conducting a Proposition 218 rate study and suggested discussions between them and City staff, especially in terms of annexing systems as they are currently discussing plans to move their headquarter
buildings. Regarding outsourcing, he stated that Orange County Sanitary District outsourced 100 miles for cleaning and that they have decided to do it in-house, once again. Additionally, they have a different service model.
Formatted: Font: (Default) Arial, 10 pt
Finance Committee Meeting Minutes
August 13, 2015
Page 5 of 10
the ability to make changes, based on performance investment objectives. The motion carried
with 6 ayes, and 1 absent (Committee Member McCullough).
Brief discussion followed regarding the City's independent advisors and independent data
sources.
C. RECOMMENDATIONS FOR THE ANNUAL FINANCE COMMITTEE BUDGET REVIEW
PROCESS
Summary:
During the July 21, 2015, Finance Committee meeting, members discussed the need for
greater transparency and accountability during the annual budget development process. This
report provides recommendations and associated action items to improve budget
transparency and to increase the Finance Committee’s involvement during the annual review
of the City’s budget.
Recommended Action:
Review, discuss, and approve or revise staff recommendations and action items for Council
approval.
Finance Director Matusiewicz provided a PowerPoint presentation addressing the Committee's
desire to be more involved in the budget-review process, including communicating budget
priorities and principles, discussing budget assumptions and strategies prior to the development
of the budget, providing for increased transparency and greater accountability, and better
communicating the value of certain job functions. He addressed documentation reviewed during
the process and a timeline for review of other elements within the budget. This will be done in
order for the Committee to provide guidance in terms of budget priorities. He reported that there
will be a review of the City's year-end financial results as scheduled on the Finance Committee
Workplan. He addressed the need for pre-budget recommendations from the Finance Committee
to Council to develop funding strategies and assumptions.
Committee Member Tucker suggested focusing on big budget categories rather than just larger
percentage changes in categoriesitems, potential savings by outsourcing and increasing
efficiency by potentiallyin terms of reducing staffing levelsand operations.
Finance Director Matusiewicz agreed and suggested those items should be considered prior to
budget discussions. In addition, Finance Director Matusiewicz suggested having the Police and
Fire Chief could provide a presentation on their operations for increased understanding of their
respective departments.
Committee Member Tucker suggested that after staff takes a hard look at staffing levels, an
independent consultant look at the City's organization, as a whole to determine possible staffing
level reductionsefficiencies while maintaining the same level of service as presently exists. He
noted that every dollar saved in the operation is a dollar that can be spent on infrastructure that
redounds to the benefit of the entire community.
Mayor Pro Tem Dixon asked regarding the City's key performance indicators (KPIs) and Finance
Director Matusiewicz reported that in municipalities, those are hard to establish, but added that some metrics could include customer satisfaction, response time and whether the City is
delivering projects in a timely fashion.
City Manager Dave Kiff commented on developing benchmarks using those of other cities and
suggested bringing these to the Finance Committee for review. He commented on the possibility
of an outside review of City operations noting that it is good in principle, but harder in practice and
explained potential challenges.
Finance Committee Meeting Minutes
August 13, 2015
Page 6 of 10
Council Member Petros recounted concerns regarding the previous budget adoption process,
provided recommendations and cautioned against making comparisons between public agencies
and private entities. He addressed customer surveys and noted that responses were 90 percent
for every one of the benchmarks identified.
Mayor Pro Tem Dixon commented on levels of service and questioned if the City is striving for 100 percent satisfaction or less.
Council Member Petros commented on the City's reserves and noted that criticism was made that
the City was hoarding money and that residents wanted money spent on capital projects. When
the City does spend, criticism is made that the City overspends and that there is no way to tell
whether the City is doing something correctly as the City is at the whim of human nature in
politics. He cautioned against using metrics to measure satisfaction.
Committee Member Tucker reiterated the need to look for efficiencies in terms of staffing levels.
He acknowledged that staffing levels may be appropriate currently but felt the Finance Committee ought
to make an effort to look into this factor since personnel is the single biggest expense of the City’s
business.
Chair Curry offered that the City has already reduced its headcount and is in the process of
refreshing its infrastructure while maintaining the highest reserves in the City's history. He noted
that the City has a high bond rating but acknowledged there may be specific items to review that
may provide further efficiencies and opportunities to do things differently for improved processes
and for doing the things that people want. He commented on the importance of having an
economically strong and viable plan for the future.
City Manager Kiff commented on in-house reviews by Department Heads, encouraged
Committee Members to make suggestions for improvements and stated he liked the idea of
looking at distinct functions for the entire City.
Discussion followed regarding location of the survey and results, upcoming surveys, the
possibility of issuing shorter surveys on a more frequent and regular basis.
City Manager Kiff reported that the City's goal is issuing a survey every two years to determine
residents' satisfaction with the City's performance.
Mayor Pro Tem Dixon noted the need to review each recommendation, perhaps at the next
Finance Committee meeting and suggested providing suggestions for benchmarking in terms of
quality of life goals and financial metrics.
Chair Curry opened public comments.
Jim Mosher commented positively on the quality of employees in the City and agreed that more
thought needs to be given in terms of measuring the City's performance in the services it delivers.
He added that he is skeptical of surveys.
With no further public comments, Chair Curry closed public comments.
D. WASTEWATER SERVICE IN NEWPORT BEACH
Summary:
The City Council has requested a review of the City’s Wastewater Operation as part of the
City’s on-going effort to review operations for effectiveness, efficiency and cost. This report
provides the roles and responsibilities of the Division.
Recommended Action:
Provide recommendation to the City Council considering the following options:
Finance Committee Meeting Minutes
August 13, 2015
Page 8 of 10
Jim Mosher addressed sewage spills in the City of Newport Beach compared with those in the
City of Costa Mesa. He commented on the Costa Mesa Sanitary District conducting a
Proposition 218 rate study and suggested discussions between them and City staff, especially in
terms of annexing systems as they are currently discussing plans to move their headquarter
buildings. Regarding outsourcing, he stated that Orange County Sanitary District outsourced 100
miles for cleaning and that they have decided to do it in-house, once again. Additionally, they have a different service model.
With no further public comments, Chair Curry closed public comments.
Discussion followed regarding after-hour calls, videoing services and key Division functions.
Chair Curry believed there is not enough current information to make recommendations to
Council to contract out the entire Department and that the Committee should direct staff to
continue providing services as they have been and outsource those functions that can be
outsourced for increased efficiency. He expressed concerns regarding directing more and more
consultant studies.
Committee Member Tucker summarized that three important considerations came out of the
discussion: (i) Outsourcing all functions would mean that the City would have to rely on a third
party which may not be positioned locally to respond to emergency spills, rather than City staff
performing that critical function; (ii) Merger with another entity would mean the City Council would
no longer control the rate charged to rate payers; and (iii) If the City determined to not raise rates,
it may not be able to implement the adopted Master Plan, unless it identified other sources of
funds or alternatively, amended the Master Plan to a plan that could be implemented with
finances available. Committee Member Tucker suggested the Council should weigh in on the
policy issues described before the Finance Committee could make a recommendation.
Mayor Pro Tem Dixon suggested letting Council know that staff has reviewed the matter fully to
determine functions that should and should not be outsourced.
E. CITY COUNCIL POLICY F-9 CITY VEHICLE/EQUIPMENT GUIDELINES
Summary:
City Council Policy F-9 establishes the service life of vehicles and equipment and helps
determine funding requirements for their replacement. At the request of City Council and due
to a number of changes in operations, staff requests the Finance Committee to review and
comment on the proposed changes.
Recommended Action:
Provide direction to staff on the proposed changes.
Interim Assistant City Manager Carol Jacobs provided a brief report addressing proposed
revisions to City Council Policy F-9. She noted wanting to expand the number of years in which
the City keeps vehicles. She noted the savings of approximately $1 million to the internal service
fund.
Discussion followed regarding Police patrol vehicles.
Chair Curry opened public comments.
Jim Mosher questioned some of the changes and made suggestions for additional changes and
commented on the expected service life.
With no further public comments, Chair Curry closed public comments.
Finance Committee Meeting Minutes August 13, 2015
Page 7 of 9
Municipal Operations Director George Murdoch provided a PowerPoint presentation addressing a detailed Wastewater Service Report, goals and objectives of the Wastewater Division, maintenance of laterals, number of structures services, pump stations, responding quickly to prevent property damage and spills, service overview, staff reductions, outsourcing and annual contributions to the General Fund. He addressed the wastewater budget, revenues, functions
currently being outsourced, other outsourcing opportunities, and challenges in terms of finding a pump station operations provider. Municipal Operations Director Murdoch addressed proposals for cleaning operations and noted that it appears the City can perform this task less expensively than by outsourcing. He commented on lateral replacements, the City's hourly rates, including pensions, and other outsourcing options.
Council Member Petros pointed out that Costa Mesa Sanitary District recently raised its rates. In response to Mayor Pro Tem Dixon's question regarding access to reclaimed water, Municipal Operations Director Murdoch reported that all of the recycled water lines in the City are owned and operated by the Orange County Water District. He added that they have agreed to expand the program beyond the recycled program, that the City does not have the appropriate infrastructure in place and commented on Proposition 84 funds. Municipal Operations Director Murdoch addressed pros and cons. Council Member Petros expressed appreciation to staff for the work and commented on getting a second opinion. He suggested getting a consultant to review this, holistically, to see if there are
any other opportunities. Council Member Petros departed the meeting at this juncture. Municipal Operations Director Murdoch provided potential next steps and asked for the Committee's comments in terms of recommendations to forward on to Council.
Discussion followed regarding the time involved in hiring a consultant to review the operation, the possibility of issuing an informal RFP, obtaining guidance in terms of increasing rates, the importance of having control over the function, whether staff would be comfortable outsourcing specific functions, being able to respond to emergency situations, and budgeting. In reply to Committee Member O'Neill's question, Municipal Operations Director Murdoch addressed using less water because of the current drought conditions. City Manager Kiff noted that the City has an adopted Master Plan and stated there are consequences if the City decides not to fund it.
Committee Member O’Neill sought clarification concerning the anticipated infrastructure spending of approximately $1,000,000 per year. Municipal Operations Director Murdoch and City Manager Kiff addressed the City’s adopted master infrastructure plan submitted to the County. City Manager Kiff noted stated that there are consequences if the City decides not to fund it.
Chair Curry opened public comments. Jim Mosher addressed sewage spills in the City of Newport Beach compared with those in the City of Costa Mesa. He commented on the Costa Mesa Sanitary District conducting a Proposition 218 rate study and suggested discussions between them and City staff, especially in terms of annexing systems as they are currently discussing plans to move their headquarter
buildings. Regarding outsourcing, he stated that Orange County Sanitary District outsourced 100 miles for cleaning and that they have decided to do it in-house, once again. Additionally, they have a different service model.
Formatted: Font: (Default) Arial, 10 pt
Finance Committee Meeting Minutes
August 13, 2015
Page 5 of 10
the ability to make changes, based on performance investment objectives. The motion carried
with 6 ayes, and 1 absent (Committee Member McCullough).
Brief discussion followed regarding the City's independent advisors and independent data
sources.
C. RECOMMENDATIONS FOR THE ANNUAL FINANCE COMMITTEE BUDGET REVIEW
PROCESS
Summary:
During the July 21, 2015, Finance Committee meeting, members discussed the need for
greater transparency and accountability during the annual budget development process. This
report provides recommendations and associated action items to improve budget
transparency and to increase the Finance Committee’s involvement during the annual review
of the City’s budget.
Recommended Action:
Review, discuss, and approve or revise staff recommendations and action items for Council
approval.
Finance Director Matusiewicz provided a PowerPoint presentation addressing the Committee's
desire to be more involved in the budget-review process, including communicating budget
priorities and principles, discussing budget assumptions and strategies prior to the development
of the budget, providing for increased transparency and greater accountability, and better
communicating the value of certain job functions. He addressed documentation reviewed during
the process and a timeline for review of other elements within the budget. This will be done in
order for the Committee to provide guidance in terms of budget priorities. He reported that there
will be a review of the City's year-end financial results as scheduled on the Finance Committee
Workplan. He addressed the need for pre-budget recommendations from the Finance Committee
to Council to develop funding strategies and assumptions.
Committee Member Tucker suggested focusing on big budget categories rather than just larger
percentage changes in categoriesitems, potential savings by outsourcing and increasing
efficiency by potentiallyin terms of reducing staffing levelsand operations.
Finance Director Matusiewicz agreed and suggested those items should be considered prior to
budget discussions. In addition, Finance Director Matusiewicz suggested having the Police and
Fire Chief could provide a presentation on their operations for increased understanding of their
respective departments.
Committee Member Tucker suggested that after staff takes a hard look at staffing levels, an
independent consultant look at the City's organization, as a whole to determine possible staffing
level reductionsefficiencies while maintaining the same level of service as presently exists. He
noted that every dollar saved in the operation is a dollar that can be spent on infrastructure that
redounds to the benefit of the entire community.
Mayor Pro Tem Dixon asked regarding the City's key performance indicators (KPIs) and Finance
Director Matusiewicz reported that in municipalities, those are hard to establish, but added that some metrics could include customer satisfaction, response time and whether the City is
delivering projects in a timely fashion.
City Manager Dave Kiff commented on developing benchmarks using those of other cities and
suggested bringing these to the Finance Committee for review. He commented on the possibility
of an outside review of City operations noting that it is good in principle, but harder in practice and
explained potential challenges.
Finance Committee Meeting Minutes
August 13, 2015
Page 6 of 10
Council Member Petros recounted concerns regarding the previous budget adoption process,
provided recommendations and cautioned against making comparisons between public agencies
and private entities. He addressed customer surveys and noted that responses were 90 percent
for every one of the benchmarks identified.
Mayor Pro Tem Dixon commented on levels of service and questioned if the City is striving for 100 percent satisfaction or less.
Council Member Petros commented on the City's reserves and noted that criticism was made that
the City was hoarding money and that residents wanted money spent on capital projects. When
the City does spend, criticism is made that the City overspends and that there is no way to tell
whether the City is doing something correctly as the City is at the whim of human nature in
politics. He cautioned against using metrics to measure satisfaction.
Committee Member Tucker reiterated the need to look for efficiencies in terms of staffing levels.
He acknowledged that staffing levels may be appropriate currently but felt the Finance Committee ought
to make an effort to look into this factor since personnel is the single biggest expense of the City’s
business.
Chair Curry offered that the City has already reduced its headcount and is in the process of
refreshing its infrastructure while maintaining the highest reserves in the City's history. He noted
that the City has a high bond rating but acknowledged there may be specific items to review that
may provide further efficiencies and opportunities to do things differently for improved processes
and for doing the things that people want. He commented on the importance of having an
economically strong and viable plan for the future.
City Manager Kiff commented on in-house reviews by Department Heads, encouraged
Committee Members to make suggestions for improvements and stated he liked the idea of
looking at distinct functions for the entire City.
Discussion followed regarding location of the survey and results, upcoming surveys, the
possibility of issuing shorter surveys on a more frequent and regular basis.
City Manager Kiff reported that the City's goal is issuing a survey every two years to determine
residents' satisfaction with the City's performance.
Mayor Pro Tem Dixon noted the need to review each recommendation, perhaps at the next
Finance Committee meeting and suggested providing suggestions for benchmarking in terms of
quality of life goals and financial metrics.
Chair Curry opened public comments.
Jim Mosher commented positively on the quality of employees in the City and agreed that more
thought needs to be given in terms of measuring the City's performance in the services it delivers.
He added that he is skeptical of surveys.
With no further public comments, Chair Curry closed public comments.
D. WASTEWATER SERVICE IN NEWPORT BEACH
Summary:
The City Council has requested a review of the City’s Wastewater Operation as part of the
City’s on-going effort to review operations for effectiveness, efficiency and cost. This report
provides the roles and responsibilities of the Division.
Recommended Action:
Provide recommendation to the City Council considering the following options:
Finance Committee Meeting Minutes
August 13, 2015
Page 8 of 10
Jim Mosher addressed sewage spills in the City of Newport Beach compared with those in the
City of Costa Mesa. He commented on the Costa Mesa Sanitary District conducting a
Proposition 218 rate study and suggested discussions between them and City staff, especially in
terms of annexing systems as they are currently discussing plans to move their headquarter
buildings. Regarding outsourcing, he stated that Orange County Sanitary District outsourced 100
miles for cleaning and that they have decided to do it in-house, once again. Additionally, they have a different service model.
With no further public comments, Chair Curry closed public comments.
Discussion followed regarding after-hour calls, videoing services and key Division functions.
Chair Curry believed there is not enough current information to make recommendations to
Council to contract out the entire Department and that the Committee should direct staff to
continue providing services as they have been and outsource those functions that can be
outsourced for increased efficiency. He expressed concerns regarding directing more and more
consultant studies.
Committee Member Tucker summarized that three important considerations came out of the
discussion: (i) Outsourcing all functions would mean that the City would have to rely on a third
party which may not be positioned locally to respond to emergency spills, rather than City staff
performing that critical function; (ii) Merger with another entity would mean the City Council would
no longer control the rate charged to rate payers; and (iii) If the City determined to not raise rates,
it may not be able to implement the adopted Master Plan, unless it identified other sources of
funds or alternatively, amended the Master Plan to a plan that could be implemented with
finances available. Committee Member Tucker suggested the Council should weigh in on the
policy issues described before the Finance Committee could make a recommendation.
Mayor Pro Tem Dixon suggested letting Council know that staff has reviewed the matter fully to
determine functions that should and should not be outsourced.
E. CITY COUNCIL POLICY F-9 CITY VEHICLE/EQUIPMENT GUIDELINES
Summary:
City Council Policy F-9 establishes the service life of vehicles and equipment and helps
determine funding requirements for their replacement. At the request of City Council and due
to a number of changes in operations, staff requests the Finance Committee to review and
comment on the proposed changes.
Recommended Action:
Provide direction to staff on the proposed changes.
Interim Assistant City Manager Carol Jacobs provided a brief report addressing proposed
revisions to City Council Policy F-9. She noted wanting to expand the number of years in which
the City keeps vehicles. She noted the savings of approximately $1 million to the internal service
fund.
Discussion followed regarding Police patrol vehicles.
Chair Curry opened public comments.
Jim Mosher questioned some of the changes and made suggestions for additional changes and
commented on the expected service life.
With no further public comments, Chair Curry closed public comments.
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5A September 16, 2015
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949) 644-3123, danm@newportbeachca.gov
SUBJECT: Proposed Budget Preparation Framework
SUMMARY:
During the August 13, 2015, Finance Committee meeting, members discussed three
recommended actions for bringing greater transparency and accountability during the
annual budget development process. Staff believes that following a proposed budget
preparation framework consisting of budget principles, and associated strategies and tactics can be a reliable vehicle for improving the City’s budget process.
RECOMMENDED ACTION:
Review and provide comment to staff’s proposed Budget Preparation Framework, attached as Appendix A, and Broad Financial Goals attached as Appendices B.1 and
B.2.
DISCUSSION: The Finance Committee expressed an interest in having greater involvement in the
review of the proposed budget prior to its adoption by the City Council. During the
August 13, 2015, Finance Committee meeting, members discussed and generally
agreed to pursue the following for bringing greater transparency and accountability
during the annual budget development process:
• Seek City Council’s explicit statements of budgeting principles to guide the
development of the annual budget. Seek Finance Committee guidance on
budget assumptions and strategies prior to the development of the Fiscal Year 2016-2017 budget.
Proposed Budget Preparation Framework September 16, 2015
Page 2
• Prior to Budget Development, provide Finance Committee and other
stakeholders the ability to assess services, programs, and resource utilization. If
needed, involve the participation of department directors and their key staff to
describe program purposes, beneficiaries, and needs served.
• City Manager’s Office can facilitate a Finance Committee review of selected City
programs or functions that have the potential to operate more efficiently or at
lower cost if outsourced in whole or in part.
To this end, staff believes that following the proposed Budget Preparation Framework
that consists of goals, strategies and associated tactics is an ideal means of
establishing priorities, guiding program activities, and allocating resources (see
Appendix A). Goals or “budget principles” represent statements that identify the broad goals that provide overall direction for the City and serve as a basis for decision making.
Strategic objectives are major accomplishments that the City seeks to achieve over a
specified period of time to achieve its long term goals. Tactics identify what should be
done, that is, outline the specific tasks that must be accomplished to achieve the
strategic objectives.
Staff recommends that the Finance Committee review and provide comment to staff’s
proposed Budget Preparation Framework (Appendix A) and Broad Financial Goals
(Appendix B.1). The Broad Financial Goals are articulated in various Council Financial
Policies and Appendix B.1 provides some examples of quantifiable goals that are pursued annually. Staff also welcomes the Finance Committee to review the Fiscal
Year 2015-2016 budget to assess current services, programs, and resource utilization.
This will provide members with the context and understanding of the City’s programs in
advance of the Fiscal Year 2016-2017 budget process and reinforce an environment of
continual process improvement.
Prepared and Submitted by:
/s/ Dan Matusiewicz _____________________________
Dan Matusiewicz
Finance Director
Appendices:
A Proposed Budget Preparation Framework for Newport Beach
B.1 Broad Financial Goals B.2 Broad Financial Goals - Fiscal Sustainability Plan
APPENDIX A
Proposed Budget Preparation Framework for Newport Beach
Appendix A
Proposed Budget Preparation Framework for Newport Beach
1 of 3
GOALS- Our Stated Budget Principles:
• Follow the Fiscal Sustainability Plan (FSP)
• Five key budget principles of our “Shining City by the Bay”:
G.1 Keeping the community safe.
G.2 Providing the quality of and mix of services that Newport Beach residents expect in
a cost effective manner.
G.3 Keeping Newport Beach looking great.
G.4 Maintain a fiscally stable and sustainable city government (as articulated in our
broad financial goals and the FSP).
G.5 Providing Government Transparency to our citizenry1
STRATEGIC OBJECTIVES - We want to:
S.1 Attract and retain quality employees within our marketplace. (in furtherance of G.2)
S.2 Be as efficient as possible, while still providing strong customer service. (G.2)
S.3 Seek outsourced service provision where it makes good sense and saves resources
(acknowledging that prevailing wage law changes and legacy unfunded liability costs
factor in here, too). (G.2)
S.3.1 Review these concepts with the Finance Committee
S.3.2 Use outside consultants to review this for us to avoid bias
S.3.3 No sacred cows, at least for discussion purposes.
S.4 Use technology to improve customer service and reduce costs, but still have real
persons for our residents to connect with. (G.2)
S.5 Avoid the “crowd-out” – where pension and OPEB costs cause us to under-invest in
roads, buildings, parks, community safety, and other community amenities. (G.3 and
G.4)
S.6 Invest as much resources as we can in capital projects that enhance and protect
community value – such as sea walls, park upgrades, transportation systems (signals,
roads, bike lanes), water quality, and more. This can involve trying to reduce staffing
costs to provide enough funding for capital obligations. (G.3)
1 Via the City Charter, it’s still the City Manager’s role to prepare and present the budget to the City Council for
consideration. Other input is always welcomed, but a path that does not have the City Manager directly presenting the Budget to the Council is not one any city manager would ever accept.
Appendix A
Proposed Budget Preparation Framework for Newport Beach
2 of 3
S.7 Maintain low or no levels of debt, and stay current on all debt obligations. (G.4)
S.8 Be aggressive in addressing our pension obligations – in the short- and long-term. (G.4)
S.9 Manage income properties so that they recover fair market value (FMV) and/or reflect a
purposeful community benefit as an offset to FMV. (G.4)
S.10 Provide a safe and healthy environment for all community members and visitors by
maintaining adequate funding for programs that in Police, Fire, Lifeguard and Building
Safety. (G.1)
TACTICS - Preparing the Budget:
T.1 Our budget will be balanced. (G.4)
T.2 We will follow the Council’s reserve policies, the Fiscal Sustainability Plan, our
Master Plans, and the Facilities Financing Plan. (G.3 and G.4)
T.3 We will be conservative but practical in our revenue estimates. (G.4)
T.4 Will be conservative with an eye towards past performance in our expenditure
estimates. (G.4)
T.5 As a staff, we will be protective of all known sources of revenue – existing and
potential. (G.4)
T.6 Our budget will maximize, to the extent practical, our community’s capital needs.
(G.3)
T.7 Our budget and our budget process will be clear, transparent, and as available to the
public as possible. (G.5)
T.8 We welcome anyone’s questions about any aspect of the budget or the budget
process. We are here to educate, answer questions, consider new ideas, listen and
course-correct if need be. (G.5)
T.9 Our longer-term goal is to provide budget information on a program-by-program
basis, with good metrics that allow performance measurement of these programs.
This requires the new ERP to be more fully implemented.
o Why not use zero-based budgeting? It’s not a crazy approach, but it can be
an exercise with minimal value compared with the time it takes to do it. I.e.,
would you really do this with fire suppression or the traffic control program in
the PD? MOUs and labor laws complicate implementation, too.
T.10 Ways to Better Involve the Public and/or the Finance Committee (G.5):
Appendix A
Proposed Budget Preparation Framework for Newport Beach
3 of 3
T.10.1 Staff would take the Finance Committee (FC) through a series of three to
four “deep dives” into specific budget divisions or programs, with
explanations about the Budget Detail and salaries, benefits, contract
service accounts, and more. Set aside enough time to do this without
anyone feeling rushed.
• Have each member of the FC identify 2-3 areas of interest – or
questions they want answered before they have a final discussion
about the budget – and complete these to general satisfaction prior to
having the Council’s spring 2016 budget sessions for FY 16-17.
T.10.2 Provide an open public informal workshop on reading and understanding
the budget documents as well as the budget preparation process
(especially revenue assumptions, how new programs are analyzed). Take
one program to have a “deep dive” into as an example. Cover key interest
areas – PERS/OPEB, reserves, salaries and MOUs, Master Plans, more.
Encourage folks to become more expert in budget issues by answering
any and all questions.
T.10.3 Schedule the aforementioned 3-4 outsourcing reviews each year by the
FC.
APPENDIX B.1
Broad Financial Goals
Appendix B.1
Broad Financial Goals
The City’s broad Financial Goals are articulated in Council Financial Policies and the
Fiscal Sustainability Plan. Examples include but are not limited to the following:
A. Credit Ratings - The City will consider published ratings agency guidelines regarding
best financial practices and guidelines for structuring its capital funding and debt
strategies to maintain the highest possible credit ratings consistent with its current
operating and capital needs. Council Policy F-29
B. General Fund Bonded Debt – Debt service shall not exceed 8 percent of General
Fund Revenues. Council Policy F-6
C. Capital Savings – General Fund Contributions to the Facilities Financial Planning fund
shall not be less than 3 percent of General Fund Revenues. Council Policy F-28
D. Contingency Reserves – General Fund Contingency reserves shall not be less than
25 percent of the General Fund operating budget. Council Policy F-2
E. Water & Wastewater Contingency Reserves – The target level of this reserve is 50
percent of the annual operating budget. Council Policy F-2
F. Insurance Reserve Levels – The target reserve level is 100 percent of the expected
liability plus a margin to allow for a 75 percent statistical confidence level. Council
Policy F-2
G. Pension Funding – Annual Funding shall be 100 percent of the Annual Required
Contribution (ARC)
H. Revenues – Various see Council Policy F-4.
APPENDIX B.2
Broad Financial Goals – Fiscal Sustainability Plan
Appendix B.2
Broad Financial Goals – Fiscal Sustainability Plan
Resolution 2015-47, adopted on June 10, 2015, by the Newport Beach City Council set forth the below:
ELEMENTS OF THE CITY’S FISCAL SUSTAINABILITY PLAN
1. The City will proactively seek to protect and expand its tax base by encouraging a
healthy underlying local economy.
2. The City will work to enhance and protect the property values of all Newport Beach
residents and property owners.
3. The City will work to enhance and protect the City’s quality of life through strategic and sustained investment in quality capital infrastructure improvements that are both long
lasting and fiscally responsible.
4. The City will encourage shopping, dining, and visiting at Newport Beach stores,
restaurants, and hotels.
5. The City will establish and maintain appropriate cash reserves.
6. The City will manage its Facilities Financial Planning Reserve so that General Fund
contributions to the reserve shall not be less than three percent (3%) of the total General
Fund Revenue Budget.
7. City revenue performance will be reviewed no less than quarterly and appropriate
budget adjustments will be made in advance of the end of a budget year if revenue
performance is not meeting projections.
8. The City will initiate a "results-based budgeting" approach that allows the public and the
City Council to prioritize City expenditures strategically rather than simply adjusting
legacy expenditures to reflect inflation.
9. The City will implement a Performance Measurement/Management Strategy as part of
an ongoing effort to ensure high-quality and efficient performance.
10. The City will consider competitive contracting of services and equipment when appropriate and where clear, cost-effective alternatives exist.
11. The City will make it a priority to be energy efficient in its provision of public services.
12. The City will establish appropriate cost-recovery targets for its fee structure and will
annually adjust its fee structure to ensure that the fees continue to meet cost recovery
targets.
13. The City will oppose efforts of the State and County governments to divert revenues
from the City or to increase the unfunded service mandate of City taxpayers.
14. The City will work in partnership with its employees to ensure fair compensation and that costs related to pension and other benefits are appropriately allocated between
employer and employees.
15. The City will vigorously defend itself and its taxpayers against frivolous lawsuits.
16. The City will seek additional intergovernmental funding and grants, with a priority on
funding one-time capital projects. Grant-funded projects that require multi-year support
will be reviewed by the Finance Committee.
9/16/2015
1
City of Newport Beach
Finance Committee Meeting
September 16, 2015
Proposed FY 2016-17 Budget
Preparation Framework for the
City of Newport Beach
Reasons for Considering the Adoption
of a Budget Preparation Framework
•Provide the Finance Committee with greater involvement
in the review of the proposed budget prior to its adoption
by the City Council.
•Provide greater transparency into the City’s annual budget
process for all stakeholders.
•Increase confidence in the budget development process
and secure unanimous City Council adoption.
2
Item No. 5A1
Recommended Budget Practices for the Development of Annual Budget
Staff Presentation
September 16, 2015
9/16/2015
2
Purpose of a Budget Framework
•Captures the fundamental purposes for which the City
serves its citizens through broad goals that provide overall
direction and serve as the basis for resource allocation
(Budget Principles).
•Identifies major accomplishments the City seeks to
achieve (Strategic Objectives).
•Identifies what should be done – the specific tasks that
are needed in order to achieve the strategic objectives
(Tactics).
3
REVIEW OF THE BUDGET PREPARATION FRAMEWORK
4
9/16/2015
3
Recommendation
Review and provide comment to Staff’s proposed Budget
Preparation Framework and Broad Financial Goals.
5
Related Action Items
Description Assigned
To
Timeframe
Review and provide input on Budget
Principles, Strategies, Tactics, and Broad Financial Goals
FC Sep – Oct 2015
Review and provide input on Budget
Principles, Strategies, Tactics, and
Broad Financial Goals
CC Oct or Nov 2015
Participate in budget “deep dives” into
specific budget divisions or programs
FC and
staff
Oct 2015 – February
2016
Each FC member to identify 2-3 areas
of interest or budget questions
FC Oct 2015 – April 2016
Schedule 3-4 outsourcing reviews every
year
FC and
staff
Wastewater completed
8-13-15
Next planned for Nov 2015
6
9/16/2015
4
Questions & Comments
7
20 Year Amortization Applicable to Actuarial Assumption Changes
(Consider combining select amortization bases to less than or equal to 20 Yr. period.)
Interest 7.50%Interest 7.50%
Salary 3.00%Salary 3.00%
Ramp 5 Ramp 5
per 26 per 16
a(ramp)4.59855 a(ramp)4.59855
Amort Schedule & Cash Flow a(per)15.46101 a(per)11.41659
B- C
Sample 30 year 30 Year Sample Annual Sample 20 year 20 Year Sample Annual
Pmt Diff Pmt Diff
Balance Period Payment Balance Period Payment Balance Period Payment Balance Period Payment
2013
2014
1 2016 10,000,000$ 30 600,505$ 10,000,000$ 30 140,650$ 459,855$ 10,000,000$ 20 755,054$ 10,000,000$ 20 190,477$ 564,577$ (614,404)$
2 2017 10,127,383$ 29 618,520$ 10,604,171$ 29 289,740$ 328,781$ 9,967,143$ 19 777,706$ 10,552,509$ 19 392,382$ 385,324$ (487,966)$
3 2018 10,245,641$ 28 637,076$ 11,099,075$ 28 447,648$ 189,428$ 9,908,336$ 18 801,037$ 10,937,117$ 18 606,231$ 194,806$ (353,389)$
4 2019 10,353,530$ 27 656,188$ 11,467,374$ 27 614,770$ 41,419$ 9,820,928$ 17 825,068$ 11,128,847$ 17 832,557$ (7,489)$ (210,298)$
5 2020 10,449,694$ 26 675,874$ 11,690,021$ 26 791,516$ (115,642)$ 9,702,049$ 16 849,820$ 11,100,297$ 16 1,071,917$ (222,097)$ (58,304)$
6 2021 10,532,660$ 25 696,150$ 11,746,111$ 25 815,262$ (119,111)$ 9,548,590$ 15 875,315$ 10,821,433$ 15 1,104,074$ (228,760)$ (60,053)$
7 2022 10,600,825$ 24 717,035$ 11,781,788$ 24 839,719$ (122,685)$ 9,357,189$ 14 901,574$ 10,488,311$ 14 1,137,197$ (235,622)$ (61,855)$
8 2023 10,652,450$ 23 738,546$ 11,794,783$ 23 864,911$ (126,365)$ 9,124,206$ 13 928,622$ 10,095,864$ 13 1,171,313$ (242,691)$ (63,711)$
9 2024 10,685,643$ 22 760,702$ 11,782,632$ 22 890,858$ (130,156)$ 8,845,706$ 12 956,480$ 9,638,611$ 12 1,206,452$ (249,972)$ (65,622)$
10 2025 10,698,353$ 21 783,523$ 11,742,668$ 21 917,584$ (134,061)$ 8,517,434$ 11 985,175$ 9,110,631$ 11 1,242,646$ (257,471)$ (67,591)$
11 2026 10,688,356$ 20 807,029$ 11,671,997$ 20 945,112$ (138,083)$ 8,134,791$ 10 1,014,730$ 8,505,526$ 10 1,279,925$ (265,195)$ (69,618)$
12 2027 10,653,237$ 19 831,240$ 11,567,484$ 19 973,465$ (142,225)$ 7,692,806$ 9 1,045,172$ 7,816,386$ 9 1,318,323$ (273,151)$ (71,707)$
13 2028 10,590,382$ 18 856,177$ 11,425,736$ 18 1,002,669$ (146,492)$ 7,186,110$ 8 1,076,527$ 7,035,748$ 8 1,357,872$ (281,346)$ (73,858)$
14 2029 10,496,958$ 17 881,862$ 11,243,077$ 17 1,032,749$ (150,887)$ 6,608,901$ 7 1,108,823$ 6,155,558$ 7 1,398,609$ (289,786)$ (76,074)$
15 2030 10,369,895$ 16 908,318$ 11,015,531$ 16 1,063,731$ (155,413)$ 5,954,917$ 6 1,142,087$ 5,167,116$ 6 1,440,567$ (298,479)$ (78,356)$
16 2031 10,205,873$ 15 935,568$ 10,738,795$ 15 1,095,643$ (160,076)$ 5,217,394$ 5 1,176,350$ 4,061,038$ 5 1,483,784$ (307,434)$ (80,707)$
17 2032 10,001,297$ 14 963,635$ 10,408,218$ 14 1,128,513$ (164,878)$ 4,389,033$ 4 1,211,640$ 2,827,197$ 4 1,222,638$ (10,997)$ (83,128)$
18 2033 9,752,276$ 13 992,544$ 10,018,768$ 13 1,162,368$ (169,824)$ 3,461,955$ 3 1,247,990$ 1,771,578$ 3 944,488$ 303,502$ (85,622)$
19 2034 9,454,606$ 12 1,022,320$ 9,565,006$ 12 1,197,239$ (174,919)$ 2,427,659$ 2 1,285,429$ 925,181$ 2 648,548$ 636,881$ (88,190)$
20 2035 9,103,737$ 11 1,052,990$ 9,041,058$ 11 1,233,156$ (180,167)$ 1,276,972$ 1 1,323,992$ 322,140$ 1 334,002$ 989,990$ (90,836)$
21 2036 8,694,754$ 10 1,084,579$ 8,440,574$ 10 1,270,151$ (185,572)$ -$ (0)$ - -$ -$ 1,270,151$
22 2037 8,222,345$ 9 1,117,117$ 7,756,696$ 9 1,308,255$ (191,139)$ 1,308,255$
23 2038 7,680,770$ 8 1,150,630$ 6,982,020$ 8 1,347,503$ (196,873)$ 1,347,503$
24 2039 7,063,829$ 7 1,185,149$ 6,108,551$ 7 1,387,928$ (202,779)$ 1,387,928$
25 2040 6,364,827$ 6 1,220,704$ 5,127,658$ 6 1,429,566$ (208,862)$ 1,429,566$
26 2041 5,576,537$ 5 1,257,325$ 4,030,027$ 5 1,472,453$ (215,128)$ 1,472,453$
27 2042 4,691,155$ 4 1,295,044$ 2,805,607$ 4 1,213,301$ 81,743$ 1,213,301$
28 2043 3,700,261$ 3 1,333,896$ 1,758,050$ 3 937,275$ 396,621$ 937,275$
29 2044 2,594,768$ 2 1,373,913$ 918,116$ 2 643,596$ 730,317$ 643,596$
30 2045 1,364,873$ 1 1,415,130$ 319,680$ 1 331,452$ 1,083,678$ 331,452$
IRR 7.5%
Sum of Payments $28,569,288 $28,788,783 Sum of Payments $20,288,591 $20,384,001
NPV @ 3%$17,490,445 $17,751,986 NPV @ 3%$14,661,248 $14,794,320
Sum Difference $219,495 Sum Difference $95,409
NPV Difference @ 3%$261,541 NPV Difference @ 3%$133,072
Total Savings over 30 Years $8,500,192 $8,404,782
NPV Savings Over 30 Year Plan $2,829,197 $2,957,666
PV Savings between 30 Yr. Schedule with 5 Year Ramps and 20 Yr. Schedule on a Level % of Pay $3,090,738 Observations:
PV Savings Metric 30.9%a)An amortization "base" is constituted at the end of any year where actual experience differs from actuarial assumptions or when the assumption
0 Internal Rate of Return (IRR)7.50%itself is changed.
-1 NOTES:b)Amortization Schedule B is the default option when there is an experience Gain/Loss.
1 Principal balance growing (Negative Amortization)c)Amortization Schedule D is the default option when there is change in actuarial assumption.
Balance declining but outstanding balance still exceeds original principal balance d)In all cases, A, B & D schedules negatively amortize for a significant period of time.
Balance declining and outstanding balance is less than original principal balance e)The red highlights denote the period of time the outstanding balance is growing (negatively amortizing). The yellow highlights denote the time
*Internal Rate of Return (IRR) is the more precise computation of Return on Investment (ROI).the outstanding balance is larger than the original principal.
f)Amortization Schedules A & B take between 18-19 Years before the outstanding balance is less than the original principal.
g)Amortization Schedule D takes 9 years before the outstanding balance is less than the original principal.
e)Amortization Schedule C (20 Year Level Percent of Pay) starts paying down principal right from the start.
Why is this important?
1)As result of the 2014 Valuation, we will have two new bases in addition to our Fresh Start Base in which we can choose to amortize differently
than the default. These bases are in addition to our 2015 "Fresh-Start" Base, amortizing over 19 years on level percent of pay basis. One base is
negative, associated with the extended life expectancy assumption. The other is positive, associated with the 18.5% return realized FYE 6/30/2014.
2)We can shorten the amortization period and utilize the level percent of pay schedule when we choose to combine or "Fresh Start" two or more
amortization bases.
3)The IRR* of 7.5% obtained by accelerating any of these schedules is significant and result in substantial savings over time.
4) The funded status of the plans improves more rapidly when we are selective about the amortization shedule we choose.
30 Year Amortization Applicable to Experience Gains & Losses
Fixed Amort - Level % of Pay Fixed Amort with 5 Yr. Ramps
(Consider "Fresh Start" to avoid Negative Amortization inherent in 5Yr Ramp)
DCBA
SAMPLE AMORTIZATION SCHEDULES
Fixed Amort - Level % of Pay Fixed Amort with 5 Yr. Ramps
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
20
1
6
20
1
8
20
2
0
20
2
2
20
2
4
20
2
6
20
2
8
20
3
0
20
3
2
20
3
4
20
3
6
20
3
8
20
4
0
20
4
2
20
4
4
Level Payment Amortization
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
20
1
6
20
1
8
20
2
0
20
2
2
20
2
4
20
2
6
20
2
8
20
3
0
20
3
2
20
3
4
20
3
6
20
3
8
20
4
0
20
4
2
20
4
4
Level % of Pay Amortization
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
20
1
6
20
1
8
20
2
0
20
2
2
20
2
4
20
2
6
20
2
8
20
3
0
20
3
2
20
3
4
20
3
6
20
3
8
20
4
0
20
4
2
20
4
4
Level % of Pay with 5Yr Ramps
Item No. 5B2
Public Employees Retirement System and Other Post-Employment Benefits Primer
Additional Materials Received
September 16, 2015
9/17/2015
1
CompanyLOGO
FINANCE COMMITTE
PERS/OPEB PRIMER
September 16, 2015
Actual investment earnings
Change in mortality assumptions
(Increased Life Expectancy)
Recent Change in PERS Amortization Policy
City Choice to Accelerate Payment on UAL
Change in the assumed earnings/discount rate
(Now 7.5% => 6.5%)
2
Item No. 5B3
Public Employees Retirement System and Other Post-Employment Benefits Primer
Staff Presentation
September 16, 2015
9/17/2015
2
$(1,000,000)
$(800,000)
$(600,000)
$(400,000)
$(200,000)
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
25 30 35 40 45 50 55 60 65 70 75 80 85
Cumulative Retirement Contribution & Benefit
Retirement Contribution
Retirement Payments
Employer retains risk of employee outliving original life expectancy
Expected Service Life Expected Retirement Life
40
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55
Age (years)
Interest
Principal
4
9/17/2015
3
-3.1%
35.4%
24.6%
13.8%
3.9%
15.7%
9.7%
6.5%
12.5%14.5%
2.0%
16.3%
15.3%
20.1%19.5%
12.5%10.5%
-7.2%-6.1%
3.7%
16.6%12.3%
11.8%
19.1%
-5.1%
-24.0%
13.3%
21.7%
0.1%
12.5%18%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
19
8
4
19
8
5
19
8
6
19
8
7
19
8
8
19
8
9
19
9
0
19
9
1
19
9
2
19
9
3
19
9
4
19
9
5
19
9
6
19
9
7
19
9
8
19
9
9
20
0
0
20
0
1
20
0
2
20
0
3
20
0
4
20
0
5
20
0
6
20
0
7
20
0
8
20
0
9
20
1
0
20
1
1
20
1
2
20
1
3
20
1
4
Y
T
D
Dot Com Crash
Great Recession
5
6Illustrative Purposes Only – Does not Consider Cash Outflows
9/17/2015
4
Unfunded Pension Liability
44
2007 2008 2009 2010 2011 2012 2013
Accrued Pension Liability $501 $553 $617 $652 $693 $727 $755
Market Value of Assets $499 $472 $354 $395 $467 $452 $497
Unfunded Liability at Market Value $2 $82 $263 $257 $226 $275 $258
Funded Status 100% 85% 57% 61% 67% 62% 66%
$‐
$100
$200
$300
$400
$500
$600
$700
$800
Mi
l
l
i
o
n
s
Unfunded Pension Liability at Market Value
$258
6/30/2013 Valuation
8
UAL Attribution Analysis
Entry Age Normal Accrued Liability Misc Safety Total
a) Active Members [(1a) ‐(2) ‐(3)] $122,667,031 $103,621,859 $226,288,890
b) Transferred Members (1b) 11,038,358 6,922,065 $17,960,423
c) Terminated Members (1c) 11,951,694 3,472,891 $15,424,585
d) Members and Beneficiaries Receiving Payments (1d) 171,199,572 323,671,316 $494,870,888
e) Total $316,856,655 $437,688,131 $754,544,786
Active Employees 39% 24% 30%
Retired, Terminated or Transferred Plan Participants 61% 76% 70%
9/17/2015
5
What has the City done to
mitigate rising pension costs?
Staff reduction from 833 full-time positions to 730 thus reducing
liabilities. ($8-9 million reduction in salary and benefits)
Increase of employee contributions to pension payments, including
having employees pay a portion of what is traditionally the
“employer’s share” of the cost. ($8.5 million est. in FY 2015-16)
Establishment of 2nd and 3rd Tiers for new hires and transfers, with
less-generous pension benefits, later retirement ages, and
additional employee contributions. (Savings expected gradually)
Fresh Starts - Accelerating payment on UAL avoids significant
interest accumulation
45
Employees Paying Greater Share
10
Employer Share
Employee Share
9/17/2015
6
Accelerated UAL Pmt Schedule
11
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2
0
1
6
2
0
1
8
2
0
2
0
2
0
2
2
2
0
2
4
2
0
2
6
2
0
2
8
2
0
3
0
2
0
3
2
2
0
3
4
2
0
3
6
2
0
3
8
2
0
4
0
2
0
4
2
2
0
4
4
Funding Schedule Options
(Millions)
Current 19 Yr 15 Yr 10 Yr
15‐Year Former19-Year10-Year
We selected
this one.
Incremental Cost/Savings
Total
(Millions)
Years Current 19 Yr 15 Yr 10 Yr Current 19 Yr 15 Yr 10 Yr
Yrs 1‐590 113 133 181 ‐ 23 42 90
Yrs 6‐10 118 131 154 210 ‐ 13 36 91
Yrs 11‐15 137 152 179 ‐ ‐ 15 42 (137)
Yrs 16‐20 151 139 ‐ ‐ ‐ (12) (151) (151)
Yrs 21‐30 168 ‐ ‐ ‐ ‐ (168) (168) (168)
Sum 664 535 465 390 Sum (129) (198) (274)
NPV@3 %440 393 364 331 NPV@3 %(47) (76) (109)
Full UAL Payment Incremental Cost
9/17/2015
7
Estimated 15-16 PERS Costs
13
Amortization Policy Options
Fresh Start - Level % of Pay 1-30 yrs.
Negative Amortization for 1st 10 of 30 yrs.
Experience Gain/Loss – 30 yrs., 5Yr Phase-in
Negative Amortization for 8 yrs.
Outstanding balance exceeds original for 18 yrs.
Assumption Change – 20 yrs., 5Yr Phase-in
Negative Amortization for 4 yrs.
Outstanding balance exceeds original for 8 yrs.
(Refer to Hand-out)
14
9/17/2015
8
What do we expect in the 2014 Val?
15
Actuarial Impacts 6/30/2014 Default
Valuation Contribution Years Estimated Amortization
Date Rates Remaining Amortization Bases (Millions) Method
6/30/2014 2016‐17 18 Fresh Start Base $ (266.1) Level Percent of Pay *
6/30/2014 2016‐17 20 Extended Life Expectancy ‐Mortality Assumption $ (44.6) 5 Yr Ramp *
6/30/2014 2016‐17 30 18.4% Investment Return (+10.9%) $ 56.6 5 Yr Ramp **
$ (254.1)
*Consider combining under a new 18 Year Fresh Start Base, Level Percent of Pay. Would cost ~$3M more during first year.
**Consider letting this credit ride. Accrues at 7.5% and serves as a buffer agains future events.
What is in sight on the horizon?
16
Impacts 6/30/2014 Default
Valuation Contribution Years Estimated Amortization
Date Rates Remaining Amortization Bases (Millions) Method
6/30/2015 2017‐18 30 2.4% Investment Return (‐5.1%) $ (31.5) 5 Yr Ramp
Unknown Unknown Unknown Discount Rate Change to 6.5% $ (100.0) Unknown
9/17/2015
9
O
17
PERS
Benefit
Trust
Funds contributed by
City and Employees PERS issues monthly
pension benefit to
retirees
City Retirees
Fund Flows in PERS
9/17/2015
10
Retiree Health Savings Accounts (HSA)
CERBT
(Prefunding)
Benefit
Trust
Administrator bills retirees and retirees
submit reimbursement
City pays insurance providers and requests
reimbursed by the Trust
Contributes Funds to Retiree Health Savings
Administrator for1. Active Employees
2. Fixed group of
retirees
Retirees submit
qualified out-of-pocket expenditures for
reimbursement
City
Retirees
Group Insurance
Contributes Annual Required Contribution
(ARC) to CERBT Benefit Trust
Fund Flows in OPEB
Valuation summary
Valuation dated June 30, 2013 –Marilyn Jones, Nyhart Epler
Actuarial Accrued Liability (AAL)* $35,563,794
Actuarial Value ofAssets (AVA) $12,903266
Unfunded Actuarial Liability (UAL) $(22,885,895)
2014-15 Annual Required Contribution (ARC)** $2,763,005
Normal Cost** $383,836
Amortization of Unfunded Actuarial Accrued Liability** $2,379,169
Implicit Rate Subsidy Cash Flow $709,740
Total Covered Lives (Active & Retiree)* 1,274
Asset Allocation Strategy Selection Strategy 1
Discount Rate 7.25%
9/17/2015
11
Funded status comparison
Fiscal Year Ending Estimated AAL*
Market Value of
Assets Funded Ratio
6/30/2014 $35,097,051 $14,909,052 42.48%
6/30/2015 $34,600,333 $15,536,514 44.90%
* Estimated AAL represents roll forward projections of AAL to fiscal year end
Looking Ahead
Implicit Subsidy may be recognized by
employers due to recent changes in the
Actuarial Standards of Practice
Effective for actuarial work after March 31, 2015
Provides additional guidance concerning OPEB
programs participating in a pooled health plan
(Community Rated Plans)
May result in an increase in OPEB Liability;
significant increase for some employers
22
Actuarial Standards of Practice (ASOP) No. 6
9/17/2015
12
Sensitivity Analysis
23
Looking ahead
Follow up to new New Pension Standard (GASB 68) for OPEB Liabilities
Employers will report the Net OPEB Liability on their financials
The ARC is no longer relevant for accounting purposes
Annual expenses will be based on the change in Net Liability between Measurement Dates
GASB 75 overview:
9/17/2015
13
Looking ahead
Amortization periods likely to be
substantially shorter
More volatile in expenses
Significant increase in Note Disclosures
and Required Supplementary Information
Ultimately 10 years of historical reportin
Effective June 30, 2018
GASB 75 overview:
26