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HomeMy WebLinkAboutApproved Minutes - June 2, 2016Finance Committee Meeting Minutes June 2, 2016 Page 1 of 9 CITY OF NEWPORT BEACH FINANCE COMMITTEE JUNE 2, 2016 MEETING I. CALL MEETING TO ORDER The meeting was called to order at 4:00 p.m. in the Civic Center Council Conference Room, 100 Civic Center Drive, Newport Beach, California 92660. II. ROLL CALL PRESENT: Council Member Tony Petros (Chair), Council Member Keith Curry, Mayor Diane Dixon, Committee Member Patti Gorczyca, Committee Member William C. O’Neill, Committee Member Larry Tucker, and Committee Member John Warner STAFF PRESENT: City Manager Dave Kiff, Finance Director/Treasurer Dan Matusiewicz, Deputy Finance Director Steve Montano, Budget Manager Susan Giangrande, Revenue Manager Evelyn Tseng, Accounting Manager Rukshana Virany, IT Manager Rob Houston, Administrative Specialist to the Finance Director Marlene Burns, Purchasing Agent Anthony Nguyen, Budget Analyst Tam Ho, Budget Analyst Katherine Warnke-Carpenter, Library Services Director Tim Heatherton, Fire Chief Scott Poster, and Administrative Manager Andrea Crespi MEMBERS OF THE PUBLIC: Arlene Greer, Jim Mosher, and Carl Cassidy III. PUBLIC COMMENTS Chair Petros indicated he needed leave by 5:45 p.m. Committee Member Warner stated he had to leave early as well. Council Member opened public comments. Jim Mosher submitted his written comments regarding unfunded liabilities. Chair Petros closed public comments. IV. CONSENT CALENDAR A. MINUTES OF APRIL 28, 2016 Recommended Action: Approve and file. B. MINUTES OF MAY 4, 2016 Recommended Action: Approve and file. Mayor Dixon, Committee Members Gorczyca and O’Neill, and Mr. Mosher noted corrections to the minutes of April 28, 2016. Finance Committee Meeting Minutes June 2, 2016 Page 2 of 9 Committee Member Gorczyca moved and Committee Member Tucker seconded a motion to approve the April 28, 2016, Finance Committee Minutes, as amended. The motion carried 6-1, Council Member Curry dissenting. Committee Member Tucker and Mr. Mosher noted corrections to the minutes of May 4, 2016. Committee Member Gorczyca offered amendments and a retraction on one question. MOTION Committee Member O’Neill moved and Committee Member Gorczyca seconded a motion to approve the May 4, 2016, Finance Committee Minutes, as amended. The motion carried unanimously. Chair Petros expressed frustration with the quality of the minutes and requested comments on minutes be submitted early. City Manager Kiff explained that the minutes were outsourced and it may be necessary to look for a different vendor. V. CURRENT BUSINESS A. AUDITOR RECOMMENDATION Summary: Per Council Policy F-15, External Financial Reporting, Disclosure and Annual Audits, the City issued a Request for Proposal (RFP) for audit services dated March 21, 2016, to audit its financial statements for the fiscal year ending June 30, 2016, with the option of auditing its financial statements for four subsequent fiscal years. After a thorough selection process, staff recommends to the Finance Committee the services of White, Nelson, Diehl, Evans LLP as the City Auditor. Recommended Action: With Finance Committee concurrence of staff’s recommendation, staff will proceed with the recommended action and bring the new auditor contract to the City Council for approval. Purchasing Agent Nguyen explained the Planet Bid automated bid system and notification to potential vendors. He stated 74 pre-registered vendors were notified, plus an additional 250 outside vendors. He stated 25 of those expressed interest in bidding and 9 submitted a response. He explained that a qualifications based system was utilized. He discussed the core criteria used to evaluate the submittals. Committee Member Gorczyca asked if specific firms had submitted bids. Finance Director/Treasurer Dan Matusiewicz stated Grant Thornton, McGladrey and MGO were notified but opted not to bid. Purchasing Agent Nguyen stated White, Nelson, Diehl, Evans LLP received the highest score. Committee Member O’Neill questioned Davis Farr’s score based on working on the City of Bells’ audit. Finance Director/Treasurer Matusiewicz explained that Davis Farr was still a strong candidate, but required an additional few years to work through the transition as a new company. Purchasing Agent Nguyen explained the purpose of the reference checks. Finance Committee Meeting Minutes June 2, 2016 Page 3 of 9 Committee Member O’Neill asked if background checks were conducted on Rogers, Anderson, Malody & Scott. Finance Director/Treasurer Matusiewicz stated they were included in reference checks, but had issues delivering on time and negative comments. Purchasing Agent Nguyen discussed consideration of cost proposals and presented the proposed annual costs from each proposer. Finance Director/Treasurer Matusiewicz discussed the rationale for five-year contracts and Council Policy F-15 allowing two consecutive five year contracts. He discussed the qualifications of White, Nelson, Diehl, Evans LLP and reiterated reasons for selection. Committee Gorczyca stated she preferred five-year rotations but White, Nelson, Diehl, Evans LLP appeared to be the best. Jim Mosher stated he thought there was a promise that a new auditor would be selected. He asked how many auditors would work for the City and how many employees Davis Farr had. MOTION Council Member Curry moved and Committee Member Gorczyca seconded a motion to recommend a new contract with White, Nelson, Diehl, Evans LLP be brought to the City Council for approval. The motion carried unanimously. B. SUBCOMMITTEE RECOMMENDATIONS Summary: An update will be provided regarding the Finance Subcommittee. Recommended Action: Receive and file. Chair Petros thanked the subcommittee for its work. Committee Member Tucker explained the purpose of committee members providing a “businessman’s review” of the overall issues. He stated implementation of the suggestions would require modification or creation of policies. Council Member Curry stated he was impressed by the work of the subcommittee. He suggested forwarding the report to the Council prior to its consideration of the budget. Committee Member Tucker discussed the suggestions for a performance review and audit of non-salary benefits. He suggested the matters remain non-political. Mayor Dixon supported the document as a guiding principle. She agreed that it may become political without specific endorsements from the Finance Committee. Committee Member Tucker stated it was too late to affect the upcoming budget. He suggested it go on the Council’s second meeting in June as a receive and file item. Chair Petros suggested the Finance Committee create an action matrix with recommendations submitted to the Council. Committee Member Tucker requested the Committee take action prior to November to ensure the current committee members could participate. Committee Member Warner commended Committee Member Tucker. Finance Committee Meeting Minutes June 2, 2016 Page 4 of 9 Carl Cassidy concurred with the proposal to reduce politicization. He suggested review of legal reserves. Committee Member Tucker explained that the subcommittee had conducted an overall review of the budget. Mr. Cassidy encouraged the committee to review the legal reserves. Finance Director/Treasurer Matusiewicz stated the Council Reserve policy was included in the work plan. Mr. Cassidy suggested continual review of the unfunded pension liability. MOTION Council Member Curry moved and Committee Member Warner seconded a motion to receive and file with the matter returning to the Finance Committee in September. The motion carried unanimously. C. FINANCE COMMITTEE FISCAL YEAR 2016-2017 BUDGET RECOMMENDATIONS Summary: Continue review of the City Manager’s Fiscal Year 2016-2017 Proposed Budget and prepare/discuss Finance Committee recommendations to Council. Recommended Action: Staff recommends that the Committee (1) direct staff to bring the Fiscal Year 2016-2017 Proposed Budget to the City Council for consideration and; (2) prepare and/or transmit Finance Committee budget recommendations to Council. City Manager Kiff presented the staff report. Chair Petros suggested the Committee provide a recommendation on the budget as a whole, conduct a straw vote on the eight items and make a recommendation on the $3.5 million proposed General Fund transfer to the Wastewater fund. Committee Member Tucker asked if there were changes since the last time the Committee reviewed the budget. City Manager Kiff stated minor changes had been made to the budget checklist. He explained the checklist were changes to the proposed budget that staff proposed subsequent to its original submittal. Mayor Dixon stated the checklist items were included on pages 31-34. Committee Member O’Neill suggested the Committee determine if it felt comfortable with the information received and meetings held. City Manager Kiff suggested examination of a new model for mooring management. Council Member Curry indicated support for the suggestion. Committee Member O’Neill asked if the Committee was recommending up or down vote on the budget and/or some or all of the eight items. Chair Petros stated he would like a recommendation from the Finance Committee that the Council approve the budget as is or with certain amendments and offering an opinion to act on Items 1-8 or abstain for Council decision and what to do with the $3.5 million proposed transfer. The Committee confirmed that it had enough information and had met frequently enough to make a recommendation that the budget should be approved by the City Council. Finance Committee Meeting Minutes June 2, 2016 Page 5 of 9 City Manager Kiff reviewed Item 1, whether to ask departments to return annually with 1-3 percent operational savings. He stated he did not think it was necessary because there are always departmental savings at year-end anyway. Chair Petros stated the current budget was position based and it would be easier to provide operational savings if it were program based. City Manager Kiff confirmed that savings are legitimate and not just due to staffing vacancies. Committee Member Gorczyca questioned whether unfilled position savings were evenly dispersed. Budget Manager Giangrande stated they were not evenly dispersed and it was difficult to predict. Mayor Dixon asked if there was a forecast for Fiscal Year 2015-2016. Budget Manager Giangrande stated that savings were estimated at around $1 million but that a more certain number would be available after the fiscal year end. Council Member Curry concurred that staff was continuing to work towards saving money. In response to Committee Member Warner, Finance Director/Treasurer Matusiewicz stated money contractually obligated was considered money spent. City Manager Kiff stated the base budget plus the checklist would become the adopted budget. Committee Member Warner suggested reviewing selected departments to determine if additional savings were possible. Chair Petros clarified that it would be a simple demonstration to ask departments for additional savings. Committee Member Warner indicated opposition to Item 1. Committee Member Tucker stated the subcommittee recommendation was to consider combining functions or determining if all functions were necessary through an operational audit. City Manager Kiff concurred. Chair Petros stated that analysis was necessary as opposed to randomly establishing a savings target. Committee Member Warner suggested reviewing one department to determine potential cost savings. Chair Petros stated the Finance Committee supported continued investigations into efficiencies that would render savings across the board and in all departments. The Committee discussed Item 2, whether to examine a new model for mooring management that may involve greater use of technology and less operational hours for supervision. In response to Mayor Dixon, City Manager Kiff stated he would like Council direction to move forward. City Manager Kiff suggested the Council deal with Item 3, whether to sell the former City Hall site, now under construction as the Lido House Hotel. Mayor Dixon recommended waiting until the hotel was built. City Manager Kiff stated a Finance Committee recommendation was premature. Committee Member Tucker stated the Finance Committee should analyze the matter. He suggested consider where the money would go if the asset was sold. Finance Committee Meeting Minutes June 2, 2016 Page 6 of 9 Mayor Dixon stated it needed to be analyzed. Committee Member Tucker recommended referring the matter to the Finance Committee for analysis when the hotel was completed and operational. Council Member Curry stated the property lease was a long term revenue source to the General Fund. The Committee concurred to recommend the Council refer the matter to the Finance Committee. City Manager Kiff expressed concern with Item 4, whether to move to a flat business license fee of $50 (versus a business license tax). Mayor Dixon suggested more effectively communicating the benefits of doing business in the City to validate the purpose of the tax. Committee Member Warner asked the cost of the business license. Revenue Manager Evelyn Tseng explained the cost for business licenses. City Manager Kiff stated the business owners were not complaining about the cost of business licenses. He stated the tax was to offset public safety. In response to Mayor Dixon, City Manager Kiff stated the City of Irvine reduced its fee to $50. Council Member Curry discussed the departments that would be impacted by reducing the fee. He stated it would be irresponsible to cut a revenue source. Chair Petros stated the Committee concurred. City Manager Kiff recommended deferring Item 5, whether to consider a longer replacement schedule for Newport Harbor’s public piers and docks to the Harbor Commission. The Committee concurred. City Manager Kiff suggested a users group to consider Item 6, whether to consider outsourcing all plan checks for commercial properties’ tenant improvement (TI) plans. He explained that Council Member Peotter was suggesting that commercial TI plans be reviewed by an outside contractor. In response to Chair Petros, City Manager Kiff stated the proposal may allow reducing three-quarters of a position. City Manager Kiff stated he could further review the matter and report back to Council Member Peotter. By consensus, the Committee recommended referring Item 6 to the City Manager’s office for an efficiency check. City Manager Kiff explained that Council Member Muldoon had suggested Item 7, whether to conduct a new review of Capital Improvement Projects with a priority on essential efforts versus “wants.” He recommended the Council discuss the matter. Committee Member Tucker agreed that it should be vetted through the Council. Chair Petros appreciated Council Member Muldoon’s concern but the community drove the CIP and the representing Council Member carried it forward. Finance Committee Meeting Minutes June 2, 2016 Page 7 of 9 Mayor Dixon clarified that the Council would consider the budget on June 14. City Manager Kiff discussed the proposed Fresh Start. He requested the Finance Committee weigh in on Item 8, whether to wait on any pension “Fresh Start” decision until additional Finance Committee review occurred as to alternatives to another Fresh Start. Committee Member Gorczyca suggested an independent actuary to assist in future decisions on pension related items. Council Member Curry indicated support for the Fresh Start proposal to avoid negative amortization. Committee Member O’Neill stated it would save $10 million over 15 years. Finance Director/Treasurer Matusiewicz stated the City would spend $6 million in the first couple years to save $9 million and net $3 million. City Manager Kiff indicated support for an independent actuary. City Manager Kiff explained that the City should have been allocating $3.1 to the sewer fund. He suggested a wastewater fee without the subsidy of $3.5 million. Mayor Dixon stated the rate increase would make up for lost time. City Manager Kiff suggested determining rates during the winter. Chair Petros stated it was not uncommon for fee changes to be delayed but it was uncommon to use General Fund to support Enterprise Fund operations. He discussed the subcommittee’s recommendation to annually review fees. Committee Member Tucker stated the improvements were necessary and the fee should have been imposed all along. He suggested not using the General Fund. Committee Member Warner stated the Council decided to not raise the rates for six years and now the funds were available. He stated he would advocate making it right and raising the rates. Committee Member O’Neill asked who would pay for a sewer spill. Finance Director/Treasurer Matusiewicz stated it would be covered by the sewer fund. Committee Member O’Neill stated it was not fiscally wise to retain a negative sewer fund balance. Committee Member Warner asked how long it would take to make the fund right. City Manager Kiff stated $3.5 million would bring it back to the reserve level and allow expending the programmed capital for the coming year. He explained the assumption that the rate would replenish the reserve. Mayor Dixon explained the Committee’s recommendation for a new rate was to make up for 2009 proposal which was not approved by the Council. She stated the $3.5 million would normalize the rate level as if the rate increase had been passed in 2009. She stated the proposed rate should be the normal rate, not a catch up rate. Chair Petros stated he was hearing a majority in support of recommending $3.5 million for wastewater fund along with the rates being revisited. Council Member Curry questioned whether the entire City should subsidize the sewer fund but agreed that the fee increase needed to occur. Finance Committee Meeting Minutes June 2, 2016 Page 8 of 9 Mayor Dixon stated the rate increase needed to be approved before the end of the year. Committee Member Tucker stated he would oppose allocating $3.5 million but the rate increase should occur. He stated he was in favor of the budget with the exception of the $3.5 million allocation to the sewer fund. Committee Member Gorczyca suggested a loan. City Manager Kiff stated staff had discussed that but the Council was not interested. Jim Mosher stated the budget line items were unclear. He questioned whether the budget presented to the Council on June 14, 2016, would include a performance plan. He stated the checklist was not clear on whether the departments could cut back on their budgets. He discussed the sewer fund and concurred with Committee Member Tucker that the General Fund should not subsidize the Sewer Fund. He suggested the City cover its portion of the sewer use. He suggested removing the last paragraph as it is out of place. City Manager Kiff stated details were available for each line item in the budget. Finance Director/Treasurer Matusiewicz stated there was no plan to present a performance plan as part of the initial budget adoption. Chair Petros stated the budget increases were due to labor costs and contract CPIs. City Manager Kiff discussed the analysis of the City’s sewer use, estimated at $10,000 per year. Chair Petros suggested reviewing Mr. Mosher’s recommended paragraph deletion. City Manager Kiff explained the required CEQA finding. Chair Petros stated he heard general unanimity on a recommendation for the budget, direction on 8 items and direction for $3.5 million. MOTION Chair Petros moved and Council Member Curry seconded a motion to recommend that the City Council: 1) Approve the Fiscal Year 2016-2017 Proposed Budget as presented; 2) not incentivize departmental savings because, in fact, departments were already making significant annual savings; 3) Consider a new model for mooring management; 4) Refer the City Hall disposition to the Finance Committee once the hotel had reached operational equilibrium; 5) Refer the business license fee to the Finance Committee for review and analysis; 6) Refer the replacement schedule for Newport Harbor’s public piers and docks to the Harbor Commission; 7) Refer to the City Manager’s office the investigation of whether greater efficiencies could be realized by outsourcing the plan checking for tenant improvements; 8) Review of capital improvement projects be left to the City Council; 9) Continue with fresh start for at least this year with advisement that it be placed under further review after actuarial analysis; and 10) Use of $3.5 million General Fund balance for the wastewater fee with proviso that there also be a concomitant review of the fee on a go forward basis occurring this fall. Mayor Dixon suggested adding a statement that the Finance Committee was aware of the $300 million unfunded pension liability and how that informs future financial planning. Council Member Curry stated it was well defined in the subcommittee’s report. Committee Member Tucker suggested referring the flat business license fee to the Finance Committee for review and analysis.