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HomeMy WebLinkAboutFinance Committee Agenda - March 30, 2017CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA - Final 100 Civic Center Drive - Crystal Cove Conference Room, Bay 2D Thursday, March 30, 2017 - 3:00 PM Finance Committee Members: Diane Dixon, Chair / Council Member Kevin Muldoon, Mayor Will O'Neill, Council Member William Collopy, Committee Member Patti Gorczyca, Committee Member Joe Stapleton, Committee Member Larry Tucker, Committee Member Staff Members: Dave Kiff, City Manager Carol Jacobs, Assistant City Manager Dan Matusiewicz, Finance Director / Treasurer Steve Montano, Deputy Director, Finance Marlene Burns, Administrative Specialist to the Finance Director The Finance Committee meeting is subject to the Ralph M. Brown Act. Among other things, the Brown Act requires that the Finance Committee agenda be posted at least seventy-two (72) hours in advance of each regular meeting and that the public be allowed to comment on agenda items before the Committee and items not on the agenda but are within the subject matter jurisdiction of the Finance Committee. The Chair may limit public comments to a reasonable amount of time, generally three (3) minutes per person. The City of Newport Beach’s goal is 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, we will attempt to accommodate you in every reasonable manner. Please contact Dan Matusiewicz, Finance Director, 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) 644-3123 or dmatusiewicz@newportbeachca.gov. NOTICE REGARDING PRESENTATIONS REQUIRING USE OF CITY EQUIPMENT Any presentation requiring the use of the City of Newport Beach’s equipment must be submitted to the Finance Department 24 hours prior to the scheduled meeting. I.CALL MEETING TO ORDER II.ROLL CALL III.PUBLIC COMMENTS Public comments are invited on agenda and non-agenda items generally considered to be within the subject matter jurisdiction of the Finance Committee. Speakers must limit comments to three (3) minutes. Before speaking, we invite, but do not require, you to state your name for the record. The Finance Committee has the discretion to extend or shorten the speakers’ time limit on agenda or non-agenda items, provided the time limit adjustment is applied equally to all speakers. As a courtesy, please turn cell phones off or set them in the silent mode. IV.CONSENT CALENDAR March 30, 2017 Page 2 Finance Committee Meeting MINUTES OF MARCH 16, 2017A. Recommended Action: Approve and file. DRAFT MINUTES 031617 V.CURRENT BUSINESS FISCAL YEAR 2015-2016 AUDIT REVIEW (WITH AUDITOR)A. Summary: The City’s external audit firm, White Nelson Diehl Evans LLP will meet with the Finance Committee to discuss the audit findings for the fiscal year ending 6/30/2016. The committee will have an opportunity to discuss any potential areas of concern and the auditors can discuss any changes in accounting standards or disclosures that were relevant for the audit year. Recommended Action: Receive and file. STAFF REPORT ATTACHMENT A ATTACHMENT B ATTACHMENT C HARBOR/TIDELANDS MASTER PLAN REVIEWB. Summary: Staff will present the timing, means of financing, and fiscal impacts associated with funding harbor and tidelands capital projects. Recommended Action: Receive and file. ATTACHMENT A PENSION DISCUSSIONC. Summary: The Committee will review and discuss Stanford University Professor Joe Nation's report: "Newport Beach's Pension Plans: Forecast and Key Metrics”. Recommended Action: Receive and file. ATTACHMENT A March 30, 2017 Page 3 Finance Committee Meeting OVERVIEW OF BUDGET FORECASTD. Summary: Staff will report on progress made towards the development of the Long Range Fiscal Forecast model. Recommended Action: Receive and file. REVIEW OF FINANCE COMMITTEE WORKPLANE. Summary: Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Recommended Action: Receive and file. ATTACHMENT A VI.FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM) VII.ADJOURNMENT Finance Committee Meeting Minutes March 16, 2017 Page 1 of 8 CITY OF NEWPORT BEACH FINANCE COMMITTEE MARCH 16, 2017 MEETING MINUTES I. CALL MEETING TO ORDER The meeting was called to order at 3:01 p.m. in the Crystal Cove Conference Room, Bay 2D, 100 Civic Center Drive, Newport Beach, California 92660. II. ROLL CALL PRESENT: Council Member Diane Dixon (Chair), Council Member Will O’Neill, Committee Member William Collopy, Committee Member Patti Gorczyca, Committee Member Joe Stapleton, and Committee Member Larry Tucker ABSENT (EXCUSED): Mayor Kevin Muldoon STAFF PRESENT: City Manager Dave Kiff, Finance Director/Treasurer Dan Matusiewicz, Deputy Finance Director Steve Montano, Assistant City Manager Carol Jacobs, Budget Manager Susan Giangrande, Accounting Manager Rukshana Virany, Public Works/Finance Administrative Manager Jamie Copeland, IT Applications Supervisor Jackie Luengas-Alwafai, Fire Battalion Chief Jeff Boyles, Assistant to the City Manager/Information Technology Manager Rob Houston, and Administrative Specialist to the Finance Director Marlene Burns OUTSIDE ENTITIES: John Bartel, Bartel Associates LLC MEMBERS OF THE PUBLIC: Carl Cassidy and Jim Mosher III. PUBLIC COMMENTS Chair Dixon opened public comments. Jim Mosher addressed the Committee regarding Planning Commissioner compensation with respect to classification and reporting. He also presented the County’s Citizen Financial Report as a sample “Popular Report” to engage public participation. Chair Dixon closed public comments. IV. CONSENT CALENDAR A. MINUTES OF FEBRUARY 16, 2017 Recommended Action: Approve and file. Committee Member Tucker presented corrections to the minutes. MOTION Committee Member Tucker moved and Committee Member Gorczyca seconded a motion to approve the corrected minutes of February 16, 2017. The motion carried 4-0-2-1, Committee Members Collopy and Stapleton abstaining and Mayor Muldoon absent. V. CURRENT BUSINESS Finance Committee Meeting Minutes March 16, 2017 Page 2 of 8 A. REVIEW OF BUDGET PREPARATION FRAMEWORK/PRINCIPLES Summary: The Finance Committee will review and provide comment on the Budget Preparation Framework, last reviewed by the Committee in August 2015. The Budget Preparation Framework consists of goals/principles, strategies and associated tactics to facilitate the allocation of resources. Recommended Action: Receive and file. City Manager Kiff discussed the proposed budget preparation framework and principles. He presented suggested minor edits to Appendix A. In response to Committee Member Collopy, City Manager Kiff discussed the ERP program. Deputy Finance Director, Steve Montano stated the program was 80 percent implemented, with the final module beginning in May 2017. Committee Member Collopy asked how metrics could be integrated into the budget process as part of the ERP implementation. Finance Director/Treasurer Matusiewicz stated it would be necessary to determine valuable metrics. City Manager Kiff discussed Public Works project reporting with Microsoft Project. City Manager Kiff continued to describe staff’s suggested edits. In response to Chair Dixon, City Manager Kiff stated the Task Force Subcommittee’s recommendations had been incorporated. Committee Member Tucker discussed the recommendation in Section S3.2. He discussed the $38 million crowd out of funds. He stated money for capital improvements would come from development fees, a portion of operating budget and staff reductions. He stated the needs would exceed the funds. Chair Dixon discussed the need for long term budget planning. Committee Member Tucker stressed the need to engage the community in discussions regarding land use changes and the impact on the budget. Chair Dixon expressed concern with reduced development fees and increasing pension liability. In response to Council Member O’Neill, City Manager Kiff explained that if the Committee agreed with elements in the Framework, the budget would reflect those elements. Jim Mosher addressed the Committee regarding development fees. He requested information on the current status of funds. He stated transparency was the right of the public to know how decisions were made. City Manager Kiff requested revising the document with removing staff questions within the text. . City Manager Kiff stated workshops were held and he requested guidance on future workshops. Mr. Mosher questioned whether public workshops would be held as part of the budget process. City Manager Kiff stated workshops were held and he requested guidance on future workshops. Finance Committee Meeting Minutes March 16, 2017 Page 3 of 8 Mr. Mosher stated that it was not apparent if the City had considered the future cost of providing City services to the project area. Committee Member Tucker stated property tax would offset the costs of providing City services to the development. Committee Member Gorczyca clarified that fiscal impact reports were prepared for projects. B. REVIEW OF LONG RANGE FISCAL FORECAST Summary: Staff will provide an oral update on the progress made on a long-term fiscal forecast. Recommended Action: Receive comments. Deputy Finance Director Montano demonstrated enhancements and contours of the financial forecast model. In response to Committee Member O’Neill, Finance Director/Treasurer Matusiewicz explained that the General Fund capital projects were separated out of the General Fund to the FFP. In response to Committee Member O’Neill, Finance Director/Treasurer Matusiewicz explained the facilities financial plan is funded by both development agreements and General Fund contributions. He explained that the Finance Committee would make a recommendation to the City Manager on how much to contribute to the FFP reserve. Committee Member Gorczyca discussed practices in other cities regarding funding the reserves prior to operating expenses. Deputy Finance Director Montano explained the interactive model allowing modifications to growth factors. In response to Chair Dixon, City Manager Kiff stated assumptions were currently made on property tax and sales tax based on the economy. Deputy Finance Director Montano presented sample scenarios available in the model. He anticipated actual data, scenarios and options would be presented at the next meeting. City Manager Kiff suggested economic forecasting be left to the outside experts, with Committee input on alternatives and funding options. Committee Member Collopy stated he was impressed with toggles and requested each toggle be reviewed with the Committee. Finance Director/Treasurer Matusiewicz asked if all committee members wanted to review the same granular level of detail. Committee Member Gorczyca suggested assumptions be provided to the Committee for consideration and discussion. Deputy Finance Director Montano anticipated the base budget for Fiscal Year 2018 and stated that scenarios will be presented at the next meeting. City Manager Kiff welcomed Committee input and discussed the budget timeline. C. PENSION DISCUSSION Finance Committee Meeting Minutes March 16, 2017 Page 4 of 8 Summary: Staff will prepare a presentation illustrating payment options to mitigate the City’s exposure to its long-term pension obligation. Recommended Action: Receive and file. Finance Director/Treasurer Matusiewicz introduced John Bartel. He presented a PowerPoint summarizing the existing amortization bases, a large credit from previous positive investment experience, subsequent investment experience losses, changes in actuarial assumptions and a recommendation to start paying on losses sooner than later, Mr. Bartel explained the lost opportunity cost. Mr. Bartel discussed CalPERS’ move to less risky equities in September 2016. He explained the CalPERS investment breakdown with 10 percent real estate, 30 percent bonds and 60 percent equities. Finance Director/Treasurer Matusiewicz recommended that the City should start to pay down the loss bases over 20 years, on a discretionary basis to preserve budget flexibility. Mr. Bartel discussed the possibility of combining the losses with the credit. Finance Director/Treasurer Matusiewicz discussed the five payment options. Chair Dixon clarified that the proposal was based on the City’s $372 million unfunded liability. Finance Director/Treasurer Matusiewicz stated that under the default payment plan, the payment would be $25 million annually and would steadily increase over time to $50 million per year. City Manager Kiff stated the Council would need to determine what could be paid toward pension liability without impacting current services. Mr. Bartel stated CalPERS anticipated a lower return in the short run and a higher return over the long run. He stated the 7 percent estimate was a blended rate. He suggested some level of conservatism. Committee Member Stapleton discussed current equity rates of return. Mr. Bartel stated outside consultants were informing CalPERS of expected future investment returns. Committee Member Tucker stated the City had to deal with the current shortfall, shortfall for investment performance for 2016, and future anticipated shortfalls. He suggested not contributing more based on future anticipated losses but incorporate them after they are known. Finance Director/Treasurer Matusiewicz discussed CalPERS’ inflation adjustment of 2.75 percent and its impact on the real rate of return Mr. Bartel stated the adjustment would not make a significant difference. In response to Committee Member Stapleton, Finance Director/Treasurer Matusiewicz explained monthly billing and additional discretionary contributions. In response to Committee Member Collopy, Finance Director/Treasurer Matusiewicz stated staff would return with a plan based on other needs throughout the City. Chair Dixon stated that was the purpose of the long-term budget planning process. Finance Committee Meeting Minutes March 16, 2017 Page 5 of 8 Committee Member Gorczyca asked if the additional payment would be a prepayment or fresh start. Committee Member Tucker asked if, and Finance Director/Treasurer Matusiewicz confirmed that, the payment would be applied to the base with the longest term. Mr. Bartel explained that the period would remain 30 years but the annual payment amount would be less. In response to Committee Member Tucker, Mr. Bartel provided an example of a Southern California JPA that went out of business and the retiree benefits reduced by 63 percent. Committee Member Tucker asked about a potential bailout and if the City would be disadvantaged. City Manager Kiff asked if a bailout would be smaller for Newport Beach than a city that did not work on its unfunded liability. Mr. Bartel stated he did not anticipate a bailout, but if there was, the City would have less of a bailout. He discussed the possibility of more flexibility with a supplemental pension trust. In response to Committee Member Collopy, Finance Director/Treasurer Matusiewicz discussed the difference between the default payment plan and alternative payment option 2. Finance Director/Treasurer Matusiewicz discussed the benefits of a level payment dollar plan. D. ANNUAL REVIEW OF RESERVE POLICY F-2 Summary: The Finance Committee will review and provide comment on Council Policy F-2. Recommended Action: Receive and recommend comment. Assistant City Manager Jacobs presented a PowerPoint summarizing the City’s reserve policy including purpose, governmental funds and proprietary funds, and five reserves allowed under GASB. Committee Member Collopy asked if the reserve could not be funded by some type of indemnification. Finance Director/Treasurer Matusiewicz stated the Council could choose to fund less but not all contemplated events could be covered by insurance. Finance Director/Treasurer Matusiewicz stated the recommended minimum was 15 percent and the additional reserve could be tapped in the event of an economic downturn or to help with the unfunded pension liability payment options. Committee Member Gorczyca stated governments did purchase insurance and a mix of insurance and cash was an option. Finance Director/Treasurer Matusiewicz stated that the City does have insurance policies and the risk manager and insurance could make a presentation to the Committee at a future meeting. In response to Committee Member Collopy, Assistant City Manager Jacobs stated that current Council policy maintains the reserve at 25 percent of the General Fund operating budget. City Manager Kiff discussed the need to continue day-to-day operations in a catastrophic emergency. He stated a 15 percent reserve was reasonable but expressed concern with swapping out reserves for insurance. Chair Dixon suggested exploring the options. Finance Committee Meeting Minutes March 16, 2017 Page 6 of 8 Finance Director/Treasurer Matusiewicz explained the rationale behind the increased reserve rates. Assistant City Manager Jacobs explained the means of creating the savings through transfers, taking General Fund money and moving it into specific funds for long-term needs. She discussed internal charges. In response to Committee Member Gorczyca, Assistant City Manager Jacobs explained information technology and equipment maintenance and replacement funds. She discussed the importance of planning for long-term needs. She discussed proprietary funds and related the stabilization and contingency reserves. She suggested creating a new reserve for infrastructure. City Manager Kiff stated there was a reserve designation but a minimum level was not set. Committee Member O’Neill discussed the water rate increase for capital projects. Committee Member Tucker asked about the wastewater rate study. City Manager Kiff stated the rate study was envisioning a level of reserve. Finance Director/Treasurer Matusiewicz stated the new reserve would be factored in to the rate study. Assistant City Manager Jacob discussed issues with the wastewater fund. Chair Dixon stated the last wastewater rate increase was in Fiscal Year 2005-2006. In response to Committee Member O’Neill, Finance Director/Treasurer Matusiewicz explained the proposed change on Page 11. He stated that most internal service funds include some level of administrative overhead. Chair Dixon questioned the wastewater infrastructure reserve. Finance Director/Treasurer Matusiewicz stated the Master Plan determined the amount of contributions. Assistant City Manager Jacobs presented the summary of changes on Page 11 of the staff report. With regard to the list of proposed changes to Policy F-2, Committee Member O’Neill stated he could support 1, 2, and 4. He needed to reconsider 3 based on 6. He asked the cost of 5. Finance Director/Treasurer Matusiewicz estimated the cost to be $1 million. In response to Committee Member Tucker, Finance Director/Treasurer Matusiewicz explained the actuarial work that goes into determining and necessary margin for adverse deviation as it relates to insurance reserve funding levels. Chair Dixon left the meeting at 5:06 p.m. City Manager Kiff discussed Chair Dixon’s concern about Item 6. Committee Member O’Neill stated all policies could be waived by the Council. Committee Member Gorczyca stated she thought that would be discussed at the next meeting. Committee Member O’Neill stated they were just providing input. Committee Member Tucker asked for the target funding to be at 100 percent. Finance Director/Treasurer Matusiewicz stated the goal was to be 100 percent funded. Committee Member Tucker stated the target did not mean much if there was no timeframe. Committee Member Gorczyca reminded the Committee of Mr. Bartel’s example of vector control and sanitation district and questioned the need for 100 percent funding. Committee Member Gorczyca expressed enthusiasm regarding insurance. She suggested considering the City’s exposures and consider insurance versus cash. Finance Finance Committee Meeting Minutes March 16, 2017 Page 7 of 8 Director/Treasurer Matusiewicz stated that a risk based approach to setting reserves would be an undertaking but a valuable process. In response to City Manager Kiff, Committee Member Gorczyca recommended that we consider using a consultant for the purpose. Finance Director/Treasurer Matusiewicz stated Shane Cavanaugh of the Government Financial Officers Association was a possible consultant. Jim Mosher pointed out errors in the draft policy and voiced a need for clarity. E. REVIEW OF OTHER FINANCIAL POLICIES Summary: Staff will present basic tenets of a new pension OPEB funding policy and an update to Budget Policy to account for multi-year funds and the need for long range fiscal planning. Recommended Action: Receive and file. Finance Director/Treasurer Matusiewicz stated staff was presenting the Council’s direction for a long-term financial plan as part of the budget policy. He explained multi-year funds. Committee Member O’Neill suggested an annual performance review. He discussed the rebudgeting of CIP projects. Finance Director/Treasurer Matusiewicz stated the policy would change to a project length budget rather than annual budget for certain funds. Committee Member O’Neill discussed the study session about FFP and proposed policy. City Manager Kiff explained that once the bid was awarded and actively in construction, project funding should continue into the next year. Finance Director/Treasurer Matusiewicz stated the contract would have to be awarded. Public Works/Finance Administrative Manager Copeland explained how the policy affects new and carryover projects. She stated the new budgeted items and rebudgeted items would be presented to the Council. She stated that projects are closed out upon completion. Committee Member O’Neill suggested distinguishing between projects that have broken ground versus appropriated projects within the policy. Budget Manager Giangrande provided an example of a $4.5 million construction contract plus any additional equipment, such as, $500,000 for furniture and fixtures that are essential for project completion. City Manager Kiff suggested additional work on the proposed policy. He suggested proceeding with the recommended changes except revisiting that portion of the policy to be discussed in further detail. Jim Mosher asked which funds would receive the remaining balance from completed projects. He referenced Section 113 of the City Charter and questioned whether the policy was in compliance with that section. F. DEMONSTRATION OF NEW FISCAL TRANSPARENCY SOFTWARE Summary: Staff will demonstrate “Socrata,” a new software that allows for access and transparency to City information by the public. Recommended Action: Comment as appropriate. Finance Committee Meeting Minutes March 16, 2017 Page 8 of 8 Deputy Finance Director Montano oriented the Committee to the new software that would allow the budget to be accessed in a more detailed and interactive manner. He stated the City had purchased the Open Budget module, Open Expenditure module and a back end module that retains all the data. He demonstrated the software. In response to Committee Member Stapleton, Deputy Finance Director Montano stated the program would cost $100,000 over five years. Deputy Finance Director Montano continued with the demonstration. In response to Committee Member O’Neill, Deputy Finance Director Montano stated the next step was to further validate the data and then the software would be released via the City’s web page to the community. Committee Member Collopy asked if the purpose was to make the budget more user friendly. Deputy Finance Director Montano stated the software allowed the user to go to whatever level of detail they desired. Budget Manager Giangrande explained various queries available in the software. Committee Member Gorczyca asked if filled and unfilled positions were available. Deputy Finance Director Montano stated that it only showed the dollar budget allocation of positions. Jim Mosher asked if the software required manual maintenance to refresh populated data. Deputy Finance Director Montano stated it should not require a lot of staff time for updates. IT Applications Supervisor Luengas-Alwafai explained the options for refreshing the data. VI. FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON- DISCUSSION ITEM) None. VII. ADJOURNMENT The Finance Committee adjourned at 5:49 p.m. to the next regular meeting of the Finance Committee on March 30, 2017. Filed with these minutes are copies of all materials distributed at the meeting. The agenda for the Regular Meeting was posted on March 13, 2017, at 1:17 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: ___________________________________ _____________________ Diane Dixon, Chair Date Finance Committee CITY OF NEWPORT BEACH FINANCE COMMITTEE STAFF REPORT Agenda Item No.5A March 30, 2017 TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE FROM: Finance Department Dan Matusiewicz, Finance Director (949) 644-3123, danm@newportbeachca.gov SUBJECT: FISCAL YEAR 2015-2016 AUDIT REVIEW (WITH AUDITOR) SUMMARY: In connection with the City’s financial statement audit, the auditors have expressed an “unmodified” opinion of the City’s Fiscal Year 2015-2016 financial statements, meaning they are presented fairly without reservation, in all material respects. In connection with the Single Audit, a compliance audit of federally assisted grant programs, the auditors did not note any findings or questioned costs. The auditors also have certain obligations to communicate the audit results with both City Council and management. The attached letters from the City’s auditors, White Nelson Diehl Evans, fulfill those obligations for the required communication. RECOMMENDED ACTION: Receive and file. DISCUSSION: The first audit letter (see Attachment A) is intended to communicate matters of particular significance that City Council should be aware of including: •Qualitative Aspects of Accounting Practices •Difficulties Encountered in Performing the Audit •Corrected and Uncorrected Adjustments •Disagreements with Management •Management Representations •Management Consultations with Other Independent Accountants •Other Audit Findings or Issues Fiscal Year 2015-2016 Audit Review (With Auditor) March 30, 2017 Page 2 The auditors reported no significant difficulties encountered in connection with the performance of the audit, disagreements with management or other audit findings or issues. They did report audit adjustments that were waived because they were immaterial both individually and taken together, to the financial statements taken as a whole. The second letter (see Attachment B) entitled “Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters” is intended to communicate deficiencies, significant deficiencies or material weaknesses in internal control and instances of non-compliance or other matters. We are pleased to report that the auditors did not identify any deficiencies in internal control considered to be a material weakness that would result in more than a remote likelihood of a material misstatement of the financial statements or would not otherwise be prevented by the City’s internal controls. They did not identify any instances of noncompliance or other matters that require specific communication to the governing body as promulgated by Government Auditing Standards. Items of lesser significance are documented in the third letter designated as Management Letter (see Attachment C). There was one management comment on pension expense and no instances of non-compliance concerning federal award programs as indicated below. During their analysis of the Fiscal Year 2015-2016 pension expense calculation for the City’s defined benefit pension plans, the auditors noted the City included certain prior year employer contributions that were not recorded as a deferred outflow of resources as of June 30, 2015. Explanation The Government Accounting Standards Board (GASB) and General Accepted Accounting Principles (GAAP) require different types of financial statements in the City’s Comprehensive Annual Financial Report. The Governmental Fund Financial Statements report on a modified accrual basis and have a narrower focus. The Government-Wide Financial Statements report on a full accrual basis and represent expenses rather than expenditures, with a broader focus, portraying the financial health of the City as a whole. Staff correctly captured a new pension object code used to account for an additional discretionary payment to the pension system in the Governmental Fund Financial Statements in Fiscal Year 2014-2015. However, the object code was inadvertently overlooked from the data query when staff was constructing the Government-wide financial statements for Fiscal Year 2014-2015 and should have recorded as a deferred outflow of resources as of June 30, 2015. Fiscal Year 2015-2016 Audit Review (With Auditor) March 30, 2017 Page 3 Corrective Action Staff will be sure to review the entire scope of pension related object codes before preparing the Government Wide financial statements in the future. You will have the opportunity to speak to the auditors, without staff present, to answer any questions that you might have concerning the Fiscal Year 2015-2016 Audit. Prepared by: Submitted by: /s/ Rukshana Virany /s/ Dan Matusiewicz Rukshana Virany Dan Matusiewicz Accounting Manager Finance Director Attachments: A. Auditor’s “Audit Committee Letter” B. Auditor’s Letter “Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters” C. Auditor’s “Management Letter” ATTACHMENT A Auditor’s “Audit Committee Letter” 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties - 1 - To the Honorable Mayor and Members of the City Council of the City of Newport Beach Newport Beach, California We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Newport Beach, California (the City), as of and for the year ended June 30, 2016. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter on planning matters dated August 3, 2016. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. As discussed in Note 1d to the financial statements, in fiscal year 2015-2016, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 72, “Fair Value Measurement and Application”. GASB Statement No. 72 requires the City to use valuation techniques which are appropriate under the circumstances and are either a market approach, a cost approach or income approach. GASB Statement No. 72 establishes a hierarchy of inputs used to measure fair value consisting of three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs, and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. GASB Statement No. 72 also contains note disclosure requirements regarding the hierarchy of valuation inputs and valuation techniques that were used for the fair value measurements. There was no material impact on the City’s financial statements as a result of the implementation of GASB Statement No. 72. No other accounting policies were adopted and the application of other existing policies was not changed during the year ended June 30, 2016. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. - 2 - Significant Audit Findings (Continued) Qualitative Aspects of Accounting Practices (Continued) The most sensitive estimates affecting the City’s financial statements are as follows: a. Management’s estimate of the fair value, the price that would be received to sell an asset in an orderly transaction between market participants, of investments is based on market values provided by outside sources. b. Management’s estimate of the value of capital assets (infrastructure assets) is based on industry standards. c. The estimated useful lives of capital assets for depreciation purposes are based on industry standards. d. The annual required contributions, pension expense, net pension liability and corresponding deferred outflows of resources and deferred inflows of resources for the City’s public defined benefit plans are based on actuarial valuations provided by outside resources. e. The annual required contribution and actuarial accrued liability for the City’s Other Post-Employment Benefit Plan are based on certain actuarial assumptions and methods prepared by an outside consultant. f. Management’s estimate of the claims payable liabilities related to general liability and worker’s compensation claims are based on actuarial valuations. We evaluated the key factors and assumptions used to develop these estimates in determining that they were reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were reported in Note 8 regarding claims payable, Note 10 regarding the CalPERS defined benefit plans, and Note 11 regarding the City’s Other Post-Employment Benefit Plan. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. The attached schedule summarizes uncorrected misstatements of the financial statements. Management has determined that their effects are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. - 3 - Significant Audit Findings (Continued) Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors’ report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated December 23, 2016. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to management’s discussion and analysis, and the schedules of changes in net pension liability and related ratios, and the schedules of defined benefit plan contributions related to the City’s defined benefit plans, which are required supplementary information (RSI) that supplements the financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the combining and individual non-major fund financial statements and schedules (supplementary information), which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the basic financial statements or to the basic financial statements themselves. - 4 - Other Matters (Continued) We were not engaged to report on the introductory and statistical sections, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on them. Restriction on Use This information is intended solely for the use of the City Council and management of the City of Newport Beach and is not intended to be, and should not be, used by anyone other than these specified parties. Irvine, California December 23, 2016 DESCRIPTION ASSET LIABILITY EQUITY REVENUE EXPENSE Other Aggregate Funds Prior Year Effect 131,592 Current Year Reimbursements 74,670 Accounts payable (206,262) Current Year Receivable 366,648 Deposit payable (366,648) Total Passed Adjusting Journal Entries 366,648 (572,910) 131,592 - 74,670 Overall Fund Balance Effect 206,262 Fiscal Year 2015-2016 Passed Adjusting Journal Entries City of Newport Beach To record reconciling cash items as of 6/30/16 in the Carl Warren Imprest Acct for reimbursements pending from the City for June. DEBIT (CREDIT) To accrue the June 2016 tourism bids in the agency fund, which would represent a receivable and a payable. June 30, 2016 ATTACHMENT B Auditor’s Letter “Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters” 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Honorable Mayor and Members of City Council City of Newport Beach Newport Beach, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Newport Beach, California (the City), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements and have issued our report thereon dated December 23, 2016. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted a certain matter that we have reported to management and the City Council in a separate letter dated December 23, 2016. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California December 23, 2016 ATTACHMENT C Auditor’s “Management Letter” 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties - 1 - The Honorable Mayor and Members of the City Council and Management City of Newport Beach Newport Beach, California In planning and performing our audit of the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Newport Beach, California (the City) as of and for the year ended June 30, 2016, in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, we considered the City’s internal control over financial reporting (internal control) as a basis for designing our auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. As discussed below, we identified a certain matter involving the internal control and other operational matters that is presented for your consideration. This letter does not affect our report dated December 23, 2016 on the financial statements of the City. Our comment and recommendation is intended to improve the internal control or result in other operating efficiencies. Our comment with our recommendation for improvement is summarized as follows: Pension Expense Auditors’ Comment and Recommendation During our analysis of the current year pension expense calculation for City’s defined benefit pension plans, we noted that the City included certain prior year employer contributions that were not recorded as a deferred outflow of resources as of June 30, 2015. These contributions were not identified in the prior year since they were coded to a new general ledger account that was inadvertently overlooked. - 2 - Pension Expense (Continued) Auditors’ Comment and Recommendation (Continued) We recommend that the City implement procedures to ensure that all general ledger accounts affecting the reporting of deferred inflows and outflows of resources, net pension liability and pension expense related to the City’s defined benefit pension plans are considered in the calculations. Management’s Response The City concurs with the comment and recommendation. While the expenditure was properly recorded on the City’s general ledger, a new pension object code was used to account for an additional discretionary payment to the pension system. This new object code was inadvertently omitted from the data query when staff was constructing the Government Wide financial statements. Staff will be sure to review the entire scope of pension related object codes before preparing the Government Wide financial statements in the future. City’s Response to Comment and Recommendation The City’s response to the comment and recommendation identified in our audit is described above. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. This communication is intended solely for the information and use of management, the City Council, and others within the City, and is not intended to be, and should not be, used by anyone other than these specified parties. Irvine, California December 23, 2016 ATTACHMENT A Harbor Capital Project Planning Tool I:\Users\FIN\Shared\Accounting\Funds\240_Tidelands Capital_101\Harbor Capital Project Financing Plan\Harbor_Capital Project Planning Tool_2016v3 1 of 5 HARBOR CAPITAL PROJECT PLANNING TOOL - DASHBOARD 1 2 3 4 5 -$10,000,000 $0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $80,000,000 $90,000,000 20 1 7 20 1 8 20 1 9 20 2 0 20 2 1 20 2 2 20 2 3 20 2 4 20 2 5 20 2 6 20 2 7 20 2 8 20 2 9 20 3 0 20 3 1 20 3 2 20 3 3 20 3 4 20 3 5 20 3 6 20 3 7 20 3 8 20 3 9 20 4 0 20 4 1 20 4 2 20 4 3 20 4 4 20 4 5 Harbor Capital Funding Balance $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 20 1 7 20 1 9 20 2 1 20 2 3 20 2 5 20 2 7 20 2 9 20 3 1 20 3 3 20 3 5 20 3 7 20 3 9 20 4 1 20 4 3 20 4 5 Project Expenditures 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 20 1 7 20 1 9 20 2 1 20 2 3 20 2 5 20 2 7 20 2 9 20 3 1 20 3 3 20 3 5 20 3 7 20 3 9 20 4 1 20 4 3 20 4 5 Debt Service as % of Dedicated Revenues Debt Service - as % of Revenues $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 20 1 7 20 1 9 20 2 1 20 2 3 20 2 5 20 2 7 20 2 9 20 3 1 20 3 3 20 3 5 20 3 7 20 3 9 20 4 1 20 4 3 20 4 5 All Estimated Harbor Capital Revenue Sources Periodic GF or One-time Transfers General Fund Contributions Interest Earnings Incremental Revenue Projection Bulkhead, $125,809,785 Drain, $250,000 Dredging, $37,876,755 Gate Valves, $3,650,000 Other, $12,381,301 Piers, $3,490,324 Slips, $9,928,164 Water Quality, $693,875 Harbor Capital Expenditures by Type I:\Users\FIN\Shared\Accounting\Funds\240_Tidelands Capital_101\Harbor Capital Project Financing Plan\Harbor_Capital Project Planning Tool_2016v3 2 of 5 HARBOR CAPITAL PROJECT PLANNING TOOL - PROJECT LIST 2016 ProjNo Project Category YR Built Total Units Unit Cost Current Age: Useful Life Project Estimate FY Design Start Year FY Const Start Year FV Cost Est @2.5% Growth Net Proposed Cost 1 Arches Drain: Dry Weather Diversion Drain 2016 1 $250,000 0 80 $250,000 2093 2096 $0 $250,000 2 Balboa Yacht Basin Marina (Slips): Replace Slips 1985 172 $35,000 31 40 $6,020,000 2022 2025 $7,518,155 $7,518,155 3 Bulkhead (American Legion): Replace Bulkhead 1957 336 $3,800 59 80 $1,276,800 2034 2037 $2,144,490 $2,144,490 4 Bulkhead (Balboa Island, N, S, E & GC): Boardwalk & Perimeter Drainage System only (Little Island not include ~42k SF) Bulkhead 0 92,000 $20 **80 $1,840,000 2014 2017 $1,886,000 $1,886,000 5 Bulkhead (Balboa Island, N, S, E & GC): Replace Bulkhead Bulkhead 1930 7,900 $3,800 86 80 $30,020,000 2022 2025 $37,490,866 $37,490,866 6 Bulkhead (Balboa Island, West End): Replace Bulkhead 1930 1,300 $3,800 86 80 $4,940,000 2014 2017 $5,063,500 $5,063,500 7 Bulkhead (Balboa Yacht Basin): Replace Bulkhead 1985 1,370 $3,800 31 80 $5,206,000 2062 2065 $17,457,159 $17,457,159 8 Bulkhead (Corona Del Mar): Replace Bulkhead 0 175 $3,800 **80 $665,000 2042 2045 $1,360,861 $1,360,861 9 Bulkhead (Marina Park): Replace Bulkhead 2015 857 $3,800 1 80 $3,256,600 2092 2095 $0 $3,256,600 10 Bulkhead (Promontory Bay): Replace Bulkhead 1965 1,158 $3,800 51 80 $4,400,400 2042 2045 $9,005,011 $9,005,011 11 Bulkhead (Rhine Channel): Replace Bulkhead 1960 375 $3,800 56 80 $1,425,000 2037 2040 $2,577,434 $2,577,434 12 Bulkhead (Rhine Wharf): Replace Bulkhead 0 343 $3,800 **80 $1,303,400 2046 2049 $2,944,186 $2,944,186 13 Bulkhead (Street Ends - Peninsula): Replace Bulkhead 0 2,217 $3,800 **80 $8,424,600 2053 2056 $22,620,589 $22,620,589 14 Bulkhead (West Newport): Replace Bulkhead 0 1,722 $3,800 **80 $6,543,600 2038 2041 $12,131,469 $12,131,469 15 Bulkhead Cap (American Legion): Repair Bulkhead 1957 328 $900 59 40 $295,200 2014 2017 $302,580 $302,580 16 Bulkhead Cap (Balboa Island N & S): Extend Bulkhead 1930 7,000 $900 86 50 $6,300,000 2014 2017 $6,457,500 $6,457,500 17 Dredging (Balboa Yacht Basin):Dredging 1985 25,600 $70 31 40 $1,792,000 2022 2025 $2,237,962 $2,237,962 18 Dredging (Grand Canal):Dredging 0 5,000 $70 **5 $361,000 2014 2017 $370,025 $370,025 19 Dredging Equipment Dredging 0 2 $1,000,000 **30 $2,000,000 2018 2018 $2,000,000 $2,000,000 20 Dredging: Lower Bay (Channels - Ongoing Maintenance) Dredging 0 150,000 $30 **7 $4,500,000 2016 2019 $4,846,008 $4,846,008 21 Dredging: Newport Island Area (Channels)Dredging 0 15,000 $50 **50 $750,000 2019 2022 $869,770 $869,770 22 Dredging: Upper Bay (Channels & Catch Basins)Dredging 0 650,000 $30 **20 $19,500,000 2027 2030 $27,552,990 $27,552,990 23 Entrance Jetty: Maintenance Other 1936 3,000 $1,000 80 50 $3,000,000 2033 2036 $4,915,849 $4,915,849 24 Ferry Landings (Agate Ave & Palm St): Replace?Other 0 1 $0 **?$0 0 0 $0 $0 25 Lower Castaways: Bulkhead Only Bulkhead 0 265 $3,800 **80 $1,007,000 2017 2020 $1,111,540 $1,111,540 26 Lower Castaways: Park Only Other 0 1 $4,000,000 **∞$4,000,000 2019 2022 $4,638,774 $4,638,774 27 Marina Park Slips: Replace Slips 2015 23 $40,000 1 40 $920,000 2052 2055 $2,410,009 $2,410,009 28 Navigation Markers: Convert Federal Stationary Markers to Floats Other 0 1 $50,000 **0 $50,000 2017 2020 $55,191 $55,191 29 Public Beaches (Lido Isle Bridge): Install Walkway to Beach Other 0 1 $150,000 **∞$150,000 0 0 $0 $150,000 30 Public Bay Beaches: Sand Nourishment (25k yards)Other 2016 25,000 $50 0 25 $1,250,000 2028 2031 $1,810,373 $1,810,373 31 Public Pier (15th St): Float only Piers 0 1 $50,000 **20 $50,000 2017 2020 $55,191 $55,191 32 Public Pier (15th St): Pier & Gangway Piers 0 1 $115,000 **20 $115,000 2031 2034 $179,361 $179,361 I:\Users\FIN\Shared\Accounting\Funds\240_Tidelands Capital_101\Harbor Capital Project Financing Plan\Harbor_Capital Project Planning Tool_2016v3 3 of 5 ProjNo Project Category YR Built Total Units Unit Cost Current Age: Useful Life Project Estimate FY Design Start Year FY Const Start Year FV Cost Est @2.5% Growth Net Proposed Cost 33 Public Pier (19th St): Gangway & Float Piers 0 1 $75,000 **20 $75,000 2017 2020 $82,786 $82,786 34 Public Pier (29th St): Gangway & Float Piers 0 1 $100,000 **20 $100,000 2014 2017 $102,500 $102,500 35 Public Pier (Balboa Marina West): Float only Piers 2017 1 $200,000 -1 40 $200,000 2054 2057 $550,438 $550,438 36 Public Pier (Balboa Marina West): Gangway Piers 2017 1 $50,000 -1 40 $50,000 2054 2057 $137,610 $137,610 37 Public Pier (Central Ave): Float only Piers 2017 1 $100,000 -1 20 $100,000 2034 2037 $167,958 $167,958 38 Public Pier (Central Ave): Gangway Piers 2017 1 $40,000 -1 40 $40,000 2054 2057 $110,088 $110,088 39 Public Pier (Coral Ave): Gangway & Float Piers 1985 1 $75,000 31 20 $75,000 2017 2020 $82,786 $82,786 40 Public Pier (Coral Ave): Pier only Piers 1985 1 $75,000 31 20 $75,000 2031 2034 $116,974 $116,974 41 Public Pier (Emerald Ave): Gangway & Float Piers 1986 1 $75,000 30 20 $75,000 2017 2020 $82,786 $82,786 42 Public Pier (Emerald Ave): Pier only Piers 1986 1 $75,000 30 20 $75,000 2031 2034 $116,974 $116,974 43 Public Pier (Fernando St): Gangway & Float Piers 0 1 $75,000 **20 $75,000 2017 2020 $82,786 $82,786 44 Public Pier (Fernando St): Pier only Piers 0 1 $75,000 **20 $75,000 2031 2034 $116,974 $116,974 45 Public Pier (Grand Canal, Balboa Ave): Pier Platform Piers 2012 1 $10,000 4 20 $10,000 2034 2037 $16,796 $16,796 46 Public Pier (M St): Gangway & Float Piers 0 1 $100,000 **20 $100,000 2017 2020 $110,381 $110,381 47 Public Pier (M St): Pier only Piers 1985 1 $100,000 31 20 $100,000 2031 2034 $155,966 $155,966 48 Public Pier (Opal Ave): Gangway & Float Piers 0 1 $75,000 **20 $75,000 2017 2020 $82,786 $82,786 49 Public Pier (Opal Ave): Pier only Piers 0 1 $75,000 **20 $75,000 2031 2034 $116,974 $116,974 50 Public Pier (Park Ave): Gangway & Float Piers 0 1 $75,000 **20 $75,000 2017 2020 $82,786 $82,786 51 Public Pier (Park Ave): Pier only Piers 0 1 $75,000 **20 $75,000 2031 2034 $116,974 $116,974 52 Public Pier (Rhine Channel): Float only Piers 2007 1 $175,000 9 30 $175,000 2034 2037 $293,927 $293,927 53 Public Pier (Rhine Channel): Gangway only Piers 0 1 $60,000 **40 $60,000 2044 2047 $129,000 $129,000 54 Public Pier (Sapphire Ave): Gangway & Float Piers 0 1 $75,000 **20 $75,000 2017 2020 $82,786 $82,786 55 Public Pier (Sapphire Ave): Pier only Piers 0 1 $75,000 **20 $75,000 2031 2034 $116,974 $116,974 56 Public Pier (Washington St): Gangway & Float Piers 0 1 $75,000 **20 $75,000 2017 2020 $82,786 $82,786 57 Public Pier (Washington St): Pier only Piers 0 1 $75,000 **20 $75,000 2031 2034 $116,974 $116,974 58 Public Swim Float (10th St)Other 0 1 $35,000 **20 $35,000 2017 2020 $38,633 $38,633 59 Rhine Wharf Boardwalk: Major Repair Other 0 1 $150,000 **20 $150,000 2026 2029 $206,777 $206,777 60 Tide Gate Valves (Balboa Island): Replace Gate Valves 0 34 $50,000 **25 $1,700,000 0 0 $0 $1,700,000 61 Tide Gate Valves (Peninsula): Replace Gate Valves 0 39 $50,000 **25 $1,950,000 0 0 $0 $1,950,000 62 Vessel Sewage Pumpout Facilities: Replace Water Quality 0 5 $30,000 **10 $150,000 2020 2023 $178,303 $178,303 63 Water Quality: Circulation (Newport Island Area):Water Quality 0 1 $0 **0 $0 0 0 $0 $0 64 Water Quality: TMDL Compliance:Water Quality 0 1 $350,000 **Ongoing $350,000 0 0 $0 $350,000 65 Harbor Local Coastal Plan Other 0 1 $500,000 **50 $500,000 2018 2021 $565,704 $565,704 66 Bildge Pumpout Dock Water Quality 0 1 $150,000 **15 $150,000 2017 2020 $165,572 $165,572 TOTAL $128,656,600 $186,423,603 $194,080,203 4 of 5 1 2 3 4 5 6 7 8 9 10 11 12 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 AFFORDABILITY ASSUMPTIONS Tidelands Capital Fund Revenues 2,270,428 2,304,484 2,339,052 2,374,137 2,409,750 2,445,896 2,482,584 2,519,823 2,557,620 2,595,985 2,634,924 2,674,448 Growth Assumption -7.71%1.50%1.50%1.50%1.50%1.50%1.50%1.50%1.50%1.50%1.50%1.50% HARBOR CAPITAL SOURCES EST. Beginning Harbor Capital Balance 7,453,407 6,445,102 8,581,966 7,644,905 8,683,859 11,381,598 16,445,924 20,432,982 25,676,748 27,697,264 8,557,408 (1,094,112) Sources Increment Revenue Projections 2,211,778 2,304,484 2,339,052 2,374,137 2,409,750 2,445,896 2,482,584 2,519,823 2,557,620 2,595,985 2,634,924 2,674,448 Interest Earnings 58,650 General Fund Contributions 1,500,000 2,500,000 3,500,000 4,500,000 5,500,000 6,000,000 6,000,000 5,500,000 5,500,000 5,500,000 4,500,000 Periodic GF or One-time Transfers 5,000,000 Total Sources:2,270,428 8,804,484 4,839,052 5,874,137 6,909,750 7,945,896 8,482,584 8,519,823 8,057,620 8,095,985 8,134,924 7,174,448 Uses Debt Service (882,900) (1,000,000) (1,000,000) (1,250,000) (1,250,000) (1,250,000) (1,250,000) (1,250,000) (1,250,000) (1,250,000) (1,250,000) (926,659) Other Fiscal Charges - - - - - - - - - - - - Project Uses (2,395,834) (5,667,620) (4,776,113) (3,585,184) (2,962,011) (1,631,570) (3,245,526) (2,026,057) (4,787,104) (25,985,841) (16,536,444) - Less: Cash Proj Funding Total Uses:(3,278,734) (6,667,620) (5,776,113) (4,835,184) (4,212,011) (2,881,570) (4,495,526) (3,276,057) (6,037,104) (27,235,841) (17,786,444) (926,659) Projected Harbor Capital Balance 6,445,102 8,581,966 7,644,905 8,683,859 11,381,598 16,445,924 20,432,982 25,676,748 27,697,264 8,557,408 (1,094,112) 5,153,677 HARBOR CAPITAL PROJECT PLANNING TOOL - SOURCES AND USES PROFORMA 5 of 5 AFFORDABILITY ASSUMPTIONS Tidelands Capital Fund Revenues Growth Assumption HARBOR CAPITAL SOURCES Beginning Harbor Capital Balance Sources Increment Revenue Projections Interest Earnings General Fund Contributions Periodic GF or One-time Transfers Total Sources: Uses Debt Service Other Fiscal Charges Project Uses Less: Cash Proj Funding Total Uses: Projected Harbor Capital Balance HARBOR CAPITAL PROJECT PL 13 14 15 16 17 18 19 20 21 2029 2030 2031 2032 2033 2034 2035 2036 2037 2,714,565 2,755,283 2,796,613 2,838,562 2,881,140 2,924,357 2,968,223 3,012,746 3,057,937 1.50%1.50%1.50%1.50%1.50%1.50%1.50%1.50%1.50% 5,153,677 11,847,564 15,733,822 7,622,881 4,322,191 11,069,701 18,378,644 25,212,086 31,829,295 2,714,565 2,755,283 2,796,613 2,838,562 2,881,140 2,924,357 2,968,223 3,012,746 3,057,937 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 7,214,565 7,255,283 7,296,613 7,338,562 7,381,140 7,424,357 7,468,223 7,512,746 7,557,937 (500,000) (500,000) - - - - - - - - - - - - - - - - (20,678) (2,869,026) (15,407,553) (10,639,251) (633,630) (115,415) (634,781) (895,537) (2,966,034) (520,678) (3,369,026) (15,407,553) (10,639,251) (633,630) (115,415) (634,781) (895,537) (2,966,034) 11,847,564 15,733,822 7,622,881 4,322,191 11,069,701 18,378,644 25,212,086 31,829,295 36,421,198 ATTACHMENT A NEWPORT BEACH’S PENSION PLANS: FORECAST AND KEY METRICS (JOE NATION REPORT) Newport Beach’s Pension Plans: Forecast and Key Metrics Joe Nation, Ph.D. 1 Stanford Institute for Economic Policy Research Landau Economics Building, Room 125 579 Serra Mall Stanford, CA 94305-6072 joenation@stanford.edu 1 Professor Joe Nation’s contribution to this publication was as a paid consultant and was not part of his Stanford University duties or responsibilities. This page is intentionally blank for double-sided copying. 1 INTRODUCTION This report provides a forecast of key metrics for each City of Newport Beach pension plan through the 2024-25 year. These metrics include annual contributions under CalPERS funding policy, and funded position. Following this introduction are results for the Miscellaneous and Safety plans in turn. After that we present select combined plan results, including the City’s total pension contributions as a share of its General Fund budget, and total unfunded liability on a per capita and per household basis.2 In each case, results first reflect a baseline scenario in which all of CalPERS’ actuarial assumptions are met for each year in the forecast period. Among other things, this means that after June 30, 2016, the portfolio’s investment return equals the discount rate in effect at the beginning of the year. As you may know, CalPERS recently committed to lower the discount rate from 7.500%, in place since 2012, in three steps. The new discount rates are 7.375% as of June 30, 2016, 7.25% as of June 30, 2017, and 7% effective June 30, 2018. We also consider two departures from the baseline scenario during a single year, 2017-18. What if portfolio earnings are –8.8% or 23.8%, rather than the 7.25% discount rate that will then be in effect? Based on 30 years of portfolio history,3 there appears to be a roughly 5% chance of a one-year return of –8.8% or worse, and a roughly 5% chance of a one-year return of 23.8% or better. Results for these scenarios can serve as yardsticks in estimating other potential deviations between the discount rate and actual returns.4 Assumed Investment Return for Year Negative Scenario Baseline Scenario Positive Scenario 2016-17 7.375% 7.375% 7.375% 2017-18 –8.8% 7.25% 23.8% 2018-19 and later 7% 7% 7% Table 1— Assumed Investment Return 2 We round projected annual contribution amounts to the nearest thousand dollars, and projected asset and liability amounts to the nearest hundred thousand dollars. 3 During this period, 1987 through 2016, CalPERS’ average annual investment return was just over 7.5%, with a standard deviation of 9.9%. 4 Under CalPERS’ Risk Mitigation Policy as amended in February 2017, beginning in 2020-21, a one-year return more than 2% larger than the discount rate will trigger a further drop in that discount rate, ranging from 0.05% to 0.25%. While there is no explicit policy regarding returns significantly below the discount rate, CalPERS has sometimes responded to such an event by temporarily altering the funding policy to limit the nearer-term increase in employer contributions. We assume that the alternative 2017-18 investment returns modeled here would not give rise to any further changes in discount rate or funding policy. 2 Increase in Amortization Payments Drives Contribution Increase The City’s contribution requirements grow during the forecast period — even in the baseline scenario. Increases in payments to amortize unfunded accrued liability, already the largest part of the City’s contribution, generate most of this growth. To better understand these results, the following points about CalPERS funding policy should be borne in mind. 1. The City’s normal cost contribution, together with employee contributions, funds the additional benefits that current employees are expected to earn for their future service. 2. The City’s amortization payments are determined so as to make up, over time, for the shortfall between the value of plan benefits attributable to service already rendered — “accrued liability” — and current assets. This shortfall, or unfunded accrued liability, is re-measured each year. × An initial “amortization base” was established at a past valuation date equal to the unfunded amount at that time, with future employer contributions scheduled so as to eventually amortize it. × Additional bases are established at subsequent valuation dates to reflect the difference between the new unfunded value at that date and what it was expected to be per the prior valuation. i. One new base reflects the portion of this difference due to the deviation between actual and anticipated experience in rates of death, turnover, salary increase, etc., and, most importantly, investment return. This new “experience gain or loss” base is subject to a 30-year amortization. ii. Other new bases reflect the remaining portion, if any — due to a change in actuarial assumptions (e.g., discount rate) or methods, or in plan provisions. These bases are generally subject to a 20-year amortization. The City’s total amortization payment for a year is the sum of the positive and negative amounts assigned to that year under all previously established bases.5 3. There is a two-year lag between the date of each actuarial valuation and the impact on the City’s contributions. For example, the initial discount rate drop to 7.325% and the investment loss incurred in 2015-16 will first be recognized in the June 30, 2016 5 In theory, the 30-year strings of additional amortization contributions generated by experience losses in some years are offset by strings of amortization credits due to gains in other years. Similarly, in theory the 20-year strings of additional amortization contributions generated by changes in actuarial assumptions or methods that increase accrued liability are offset by strings of amortization credits due to other changes that reduce it. However, of late experience gains have been less common than losses, and changes in actuarial assumptions and methods have only increased accrued liability. As of June 30, 2015, the total outstanding balance on amortization bases within the City’s two plans was $275.7 million; absent unexpected events, about $99.6 million will be added by June 30, 2018, largely as a result of the discount rate changes and the 2015-16 investment loss. 3 valuations when they are completed later this year. Under the policy, each event will lower the plans’ funded ratios as of that date, but will not begin to impact the City’s required contributions until the 2018-19 year. During this two-year lag, a newly established amortization base grows with interest, but no payments toward it are made. 4. For experience or assumption-change bases established since 2013, after the two-year lag, a five-year payment “ramp-up” begins, with a five-year “ramp-down” at the end. Payments are significantly reduced during these periods — during the ramp-up they are not always large enough to cover the interest that is continuing to accrue. 5. Amortization is also deferred by scheduling 3% / year payment increases throughout. As an example, consider the Miscellaneous plan. We expect the June 30, 2016 valuation to show a 2015-16 investment loss of about $17.6 million. The chart below (Figure 1) illustrates how amortization of this loss would progress under the policy just described.6 × The orange triangular points, keyed to the left axis, show annual payments: $0 for the first two years, 2016-17 and 2017-18, then $268,000 for year 3 (2018-19) ramping up to $1,510,000 for year 7 (2022-23), then continuing to increase by 3% per year to $2,809,000 for year 28 (2043-44) before ramping back down over the final five years. × The solid blue line, keyed to the right axis, shows the resulting unamortized balance: starting at $17.6 million, growing to $23.5 million by the end of year 8 (by June 30, 2024) due to the excess of accrued interest over past payments, and not reducing back to the original $17.6 million until the end of year 21 at June 30, 2037. 6 This investment loss will be combined with the impact of other experience during 2015-16, such as from the difference during that year between expected and actual salary increases, turnover, etc. It is this combined amount that will be subject to the amortization that is here illustrated just for the investment loss component. $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 Ba l a n c e Pa y m e n t Year Funding Policy 30-Year Amortization of 2015-16 Miscellaneous Plan Investment Loss Amortization Payment Unamortized Balance The City contributes $54.9 million (sum of all 30 payments shown here) between July 1, 2018 and June 30, 2048 to amortize $17.6 million 2015-16 investment loss. $17.6 million Figure 1 4 This pattern of amortization payments that emerge slowly but eventually become substantial is repeated for other large impacts on unfunded liability that will be recognized due to the discount rate changes. And it applies in the Safety plan as well. The cumulative impact is the main driver behind the expected increase in required City contributions.7 Key Forecast Assumptions 1. Except for investment return for 2015-16, and except as indicated regarding 2017-18 investment return scenarios, we assumed post-June 30, 2015 experience in agreement with CalPERS’ assumptions — i.e., other experience gains or losses were not anticipated.8 2. Other than the discount rate changes previously mentioned, we assume that CalPERS will make no changes to its actuarial assumptions during the forecast period. We also assume no changes to funding method or policy, such as further amortization re-starts, and no changes to existing plan provisions or currently scheduled employee contribution rates. 3. We assume that active payroll progresses by 3% per year, with the payroll for 2017-18 equal to the estimated value for that year included in the June 30, 2015 valuation reports. 4. We assume that infusion of PEPRA members will gradually adjust overall employee contribution and employer normal cost rates; for this purpose, a 33-year transition period was assumed for the Miscellaneous plan and a 25-year period for the Safety plan. 5. We estimated the impact of discount rate changes by reference to each plan’s weighted liability duration at June 30, 2015, which we inferred from information in the Analysis of Discount Rate Sensitivity exhibits that are included in the valuation reports.9 7 The City’s amortization schedule reflects a “fresh start” where the combined balance as of June 30, 2013, including 2012-13 losses that would otherwise have been amortized via the ramp method, is being paid down over a period ending June 30, 2034 without use of ramps. As a result, the City’s current payments are larger — and increases during this forecast period less steep — than would otherwise have been the case. 8 Actually, some other, relatively small gains and losses, mostly losses, develop in the forecast period. These result from the gap between (i) the City’s portion of the normal cost for a year (the cost of additional benefits attributable to employee service during the year), and (ii) the City’s normal cost contribution, which reflects the employer normal cost rate per the valuation as of the end of the third prior year. For example, the City’s normal cost contribution for 2018-19, based on June 30, 2016 valuation results and a 7.375% discount rate, will be smaller than its share of that year’s normal cost, which will reflect the 7% discount rate in effect as of June 30, 2018; this shortfall then becomes a loss component in the overall gain or loss recognized at June 30, 2019. 9 These durations are 13.6 years for the Miscellaneous plan and 13.1 years for the Safety plan. 5 6. We assume that each year the City will make the employer normal cost contribution and amortization payment for the years shown in this forecast.10 Caution: Future Contributions Expressed as a Percent of Payroll Projected contributions are shown both as dollar amounts and as a percent of expected payroll. But unlike contributions of normal cost, amortization payments are not a function of payroll. Suppose that for a future plan year, expected employee payroll is $10 million, the projected normal cost contribution is 10% of payroll (i.e., $1.0 million), and the contribution to amortize unfunded liability is $4.0 million. This $5.0 million total contribution shows as 50% of payroll. But this does not mean that the contribution is 50% of whatever that payroll turns out to be. × If the future payroll is $9 million rather than $10 million, then as updated the contribution is 54.4% of payroll: $4.9 million (= $0.9 million in normal cost + $4.0 million for amortization) ÷ $9 million. × If the future payroll is $11 million rather than $10 million, then as updated the contribution is 46.4% of payroll: $5.1 million (= $1.1 million in normal cost + $4.0 million for amortization) ÷ $11 million. 10 We determined the employer normal cost contribution for a year as the product of the employee payroll for that year and the employer normal cost rate developed in the valuation as of the end of the third prior year. We determined the amortization payment for a year as follows: × for 2015-16 and 2016-17, the Expected Payment amounts shown in the Schedule of Amortization Bases in the June 30, 2015 valuation reports × for later years, the sum of (1) the amount to amortize the remaining balance on the June 30, 2013 “fresh start” base over the period ending June 30, 2034, based on 3% annual payment increases and no ramps, and (2) the CalPERS default amortization payment (20- or 30-year ramp amortization, as applicable, with two-year lag and 3% annual payment increases) for all bases established after 2013. All amortization amounts are adjusted to reflect each discount rate change. 6 MISCELLANEOUS PLAN Before turning to the forecast results, Figure 2 below provides a picture of the plan’s position at June 30, 2015. It shows that at a 7.5% discount rate, plan assets covered all accrued liability for members who are no longer City employees, and a portion of the accrued liability for members who are current City employees. However, the scheduled reductions to the discount rate and the 2015-16 investment loss will result in a poorer funded position than is shown here. Figure 2 also shows that reducing the top layer on the liability side by reducing the additional benefits that current employees earn for their future service, were that possible, would only marginally impact things. In fact, it is CalPERS’ position that a reduction in the rate at which current members earn additional benefits for future service can only be achieved in the context of a termination of the contract. In that context CalPERS would measure the value of already earned benefits using risk-free rates of return, such as yields on long-term U.S. Treasuries — currently less than 3%11 — rather than the discount rates it uses for ongoing plans, greatly increasing the City’s obligation for amounts considered to be unfunded accrued liability. Baseline Forecast Results Shown below, graphically and in table form, is the baseline forecast of the annual contribution requirement, first as a dollar amount and then as a percent of expected employee payroll (again, assumed to be increasing 3% per year). 11 As of March 7, 2017, the 20-year U.S. Treasury yield was 2.85%. U.S. Treasury, https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield, retrieved March 7, 2017. $0 $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 Liability Assets Miscellaneous Plan Liability Components at 7.5% Discount Rate and Assets at June 30, 2015 current employees: benefits attributable to expected future service current employees: benefits attributable to past service transferred members former employees not yet in receipt retirees and beneficiaries in receipt accrued liability Figure 2 7 Year City: to amortize unfunded accrued liability City: normal cost Total City Employees Total, City and Employees 2015 – 16 $7,636,000 $3,292,000 $10,928,000 $3,164,000 $14,092,000 2016 – 17 8,187,000 3,446,000 11,634,000 3,230,000 14,864,000 2017 – 18 9,111,000 3,559,000 12,670,000 3,298,000 15,968,000 2018 – 19 9,389,000 3,862,000 13,251,000 3,366,000 16,617,000 2019 – 20 9,964,000 4,180,000 14,144,000 3,435,000 17,579,000 2020 – 21 10,852,000 4,761,000 15,612,000 3,506,000 19,118,000 2021 – 22 12,227,000 4,864,000 17,091,000 3,578,000 20,668,000 2022 – 23 13,503,000 4,970,000 18,473,000 3,650,000 22,123,000 2023 – 24 14,389,000 5,077,000 19,466,000 3,724,000 23,191,000 2024 – 25 15,159,000 5,186,000 20,345,000 3,799,000 24,145,000 Table 2-Miscellaneous Plan Baseline Forecast of Annual Contribution Requirement ($) $0 $3,000,000 $6,000,000 $9,000,000 $12,000,000 $15,000,000 $18,000,000 $21,000,000 $24,000,000 $27,000,000 Miscellaneous Plan Baseline Forecast of Annual Contribution Requirement: Dollar Amount Employees City: normal cost City: to amortize unfunded accrued liability Figure 3 8 Year City: to amortize unfunded accrued liability City: normal cost total City Employees total, City and Employees 2015-16 18.8% 8.1% 26.8% 7.8% 34.6% 2016-17 19.5% 8.2% 27.7% 7.7% 35.5% 2017-18 21.1% 8.2% 29.3% 7.6% 37.0% 2018-19 21.1% 8.7% 29.8% 7.6% 37.4% 2019-20 21.7% 9.1% 30.9% 7.5% 38.4% 2020-21 23.0% 10.1% 33.1% 7.4% 40.5% 2021-22 25.2% 10.0% 35.2% 7.4% 42.5% 2022-23 27.0% 9.9% 36.9% 7.3% 44.2% 2023-24 27.9% 9.8% 37.8% 7.2% 45.0% 2024-25 28.5% 9.8% 38.3% 7.2% 45.5% Table 3— Miscellaneous Plan Baseline Forecast of Annual Contribution Requirement (%) The following graph and table show the baseline forecast of the plan’s funding of its accrued liability. As a result of the discount rate changes and the 2015-16 investment loss, and despite substantial City contributions, the plan’s funded ratio drops from its June 30, 2015 level of almost 72% to about 66% as of June 30, 2018, before climbing to 75% by 2024. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Miscellaneous Plan Baseline Forecast of Annual Contribution Requirement: Percent of Expected Employee Payroll Employees City: normal cost City: to amortize unfunded accrued liability Figure 4 9 Date Funded Portion (Market Value of Assets) Unfunded Portion Total: Accrued Liability Funded Ratio 06/30/15 $255,200,000 $101,200,000 $356,400,000 71.6% 06/30/16 253,800,000 124,400,000 378,200,000 67.1% 06/30/17 269,500,000 131,500,000 401,000,000 67.2% 06/30/18 286,200,000 145,500,000 431,700,000 66.3% 06/30/19 303,000,000 146,600,000 449,600,000 67.4% 06/30/20 320,800,000 147,000,000 467,800,000 68.6% 06/30/21 340,000,000 145,900,000 486,000,000 70.0% 06/30/22 360,600,000 143,400,000 504,000,000 71.5% 06/30/23 382,200,000 139,400,000 521,700,000 73.3% 06/30/24 404,400,000 134,200,000 538,600,000 75.1% Table 4—Baseline Forecast of Miscellaneous Plan Accrued Liability Funded Position Comparison with Negative and Positive Scenarios The following charts compare the baseline (7.25% investment return for 2017-18) total City contribution and funded ratio results just shown, with results for the negative scenario (–8.8% investment return for 2017-18) and positive scenario (23.8% investment return for 2017-18). A 2017-18 investment gain or loss would be recognized in the June 30, 2018 valuation. Results from this valuation will not begin to impact contribution requirements at all until 2020-21, and not fully until after 2024 and the amortization “ramp up”. But the impact will be reflected immediately in the funded ratio, beginning with that June 30, 2018 valuation. 60% 63% 66% 69% 72% 75% 78% $0 $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 $600,000,000 Miscellaneous Plan Baseline Forecast of Accrued Liability Funded Position funded portion (market value of assets)unfunded portion funded ratio Figure 5 10 $0 $10,000,000 $20,000,000 $30,000,000 2020-21 2021-22 2022-23 2023-24 2024-25 Miscellaneous Plan Comparison of City's Contribution: Three 2017-18 Investment Return Scenarios additional required if –8.8% return for 2017-18 additional required if 7.25% return for 2017-18 (baseline) amount required if 23.8% investment return for 2017-18 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 06/30/17 06/30/18 06/30/19 06/30/20 06/30/21 06/30/22 06/30/23 06/30/24 investment return for 2017-18 = 23.8% investment return for 2017-18 = 7.25% (baseline) investment return for 2017-18 = –8.8% MiscellaneousPlan Comparison of Funded Ratios Following Three 2017-18 Investment Return Scenarios Figure 6 Figure 7 11 SAFETY PLAN Again, before turning to the forecast results, Figure 8 below provides a picture of the plan’s position at June 30, 2015. It shows that, unlike the Miscellaneous plan, here plan assets did not cover liabilities just for those already receiving benefits (bottom layer), even at a 7.5% discount rate. And, again, the scheduled reductions to the discount rate and the 2015-16 investment loss will widen this underfunding. Baseline Forecast Results Shown below, graphically and in table form, is the baseline forecast of the annual contribution requirement, first as a dollar amount and then as a percent of expected employee payroll (which is assumed to increase by 3% per year). $0 $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 $600,000,000 Liability Assets Safety Plan Liability Components at 7.5% Discount Rate and Assets at June 30, 2015 current employees: benefits attributable to expected future service current employees: benefits attributable to past service transferred members former employees not yet in receipt retirees and beneficiaries in receipt accrued liability Figure 8 12 Year City: to amortize unfunded accrued liability City: normal cost Total City Employees Total, City and Employees 2015 – 16 $13,084,000 $5,394,000 $18,478,000 $2,804,000 $21,282,000 2016 – 17 13,518,000 5,767,000 19,285,000 2,907,000 22,192,000 2017 – 18 15,398,000 5,887,000 21,284,000 3,013,000 24,297,000 2018 – 19 15,785,000 6,262,000 22,047,000 3,123,000 25,170,000 2019 – 20 16,619,000 6,654,000 23,273,000 3,237,000 26,510,000 2020 – 21 17,859,000 7,379,000 25,238,000 3,355,000 28,592,000 2021 – 22 19,775,000 7,493,000 27,268,000 3,477,000 30,745,000 2022 – 23 21,528,000 7,608,000 29,136,000 3,603,000 32,739,000 2023 – 24 22,789,000 7,723,000 30,511,000 3,734,000 34,245,000 2024 – 25 23,900,000 7,837,000 31,738,000 3,869,000 35,607,000 Table 5— Safety Plan Baseline Forecast of Annual Contribution Requirement ($) $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 Safety Plan Baseline Forecast of Annual Contribution Requirement: Dollar Amount Employees City: normal cost City: to amortize unfunded accrued liability Figure 9 13 Year City: to amortize unfunded accrued liability City: normal cost Total City Employees Total, City and Employees 2015-16 42.2% 17.4% 59.7% 9.1% 68.7% 2016-17 42.4% 18.1% 60.4% 9.1% 69.6% 2017-18 46.9% 17.9% 64.8% 9.2% 73.9% 2018-19 46.6% 18.5% 65.1% 9.2% 74.4% 2019-20 47.7% 19.1% 66.8% 9.3% 76.0% 2020-21 49.7% 20.5% 70.3% 9.3% 79.6% 2021-22 53.5% 20.3% 73.7% 9.4% 83.1% 2022-23 56.5% 20.0% 76.5% 9.5% 85.9% 2023-24 58.1% 19.7% 77.8% 9.5% 87.3% 2024-25 59.1% 19.4% 78.5% 9.6% 88.1% Table 6— Safety Plan Baseline Forecast of Annual Contribution Requirement (%) The following graph and table show the baseline forecast of the plan’s funding of its accrued liability. As a result of the discount rate changes and the 2015-16 investment loss, and despite substantial City contributions, the plan’s funded ratio drops from its June 30, 2015 level of 64.5% to 60.3% as of June 30, 2018, before climbing to 69.5% by 2024.12 12 Note also that, when significant, benefit payments in an underfunded plan depress the funded ratio even though they reduce assets and liability equally. For example, a plan with $70 of assets and $100 of accrued liability, or a 70.0% funded ratio, just prior to making $7 in benefit payments will have a lower funded ratio, 67.7% (= $63 ÷ $93), once the payments are made. Annual benefit payments in the Safety plan are now about 9% of assets. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Safety Plan Baseline Forecast of Annual Contribution Requirement: Percent of Expected Employee Payroll Employees City: normal cost City: to amortize unfunded accrued liability Figure 10 14 Date Funded Portion (Market Value of Assets) Unfunded Portion Total: Accrued Liability Funded Ratio 06/30/15 $317,500,000 $174,500,000 $492,000,000 64.5% 06/30/16 313,800,000 203,700,000 517,400,000 60.6% 06/30/17 330,800,000 213,000,000 543,800,000 60.8% 06/30/18 349,400,000 230,300,000 579,700,000 60.3% 06/30/19 367,700,000 230,800,000 598,600,000 61.4% 06/30/20 386,800,000 230,200,000 617,000,000 62.7% 06/30/21 407,100,000 227,600,000 634,800,000 64.1% 06/30/22 428,600,000 222,900,000 651,500,000 65.8% 06/30/23 450,600,000 216,000,000 666,600,000 67.6% 06/30/24 472,500,000 207,300,000 679,800,000 69.5% Table 7— Baseline Forecast of Safety Plan Accrued Liability Funded Position Comparison with Negative and Positive Scenarios The following charts compare the baseline (7.25% investment return for 2017-18) total City contribution and funded ratio results just shown, with results for the negative scenario (–8.8% investment return for 2017-18) and positive scenario (23.8% investment return for 2017-18). The 2017-18 investment gain or loss will be recognized in the June 30, 2018 valuation. Results from this valuation will not begin to impact funding policy contribution requirements until 2020-21, and not fully until after 2024 and the amortization “ramp up”. But the impact will be experienced immediately in the funded ratio beginning with that June 30, 2018 valuation. 54% 57% 60% 63% 66% 69% 72% $0 $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 $600,000,000 $700,000,000 $800,000,000 Safety Plan Baseline Forecast of Accrued Liability Funded Position funded portion (market value of assets)unfunded portion funded ratio Figure 11 15 $0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 2020-21 2021-22 2022-23 2023-24 2024-25 Safety Plan Comparison of City's Contribution: Three 2017-18 Investment Return Scenarios additional required if –8.8% return for 2017-18 additional required if 7.25% return for 2017-18 (baseline) amount required if 23.8% investment return for 2017-18 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 06/30/17 06/30/18 06/30/19 06/30/20 06/30/21 06/30/22 06/30/23 06/30/24 investment return for 2017-18 = 23.8% investment return for 2017-18 = 7.25% (baseline) investment return for 2017-18 = –8.8% Safety Plan Comparison of Funded Ratios Following Three 2017-18 Investment Return Scenarios Figure 12 Figure 13 16 COMBINED RESULTS Baseline Forecast Results Shown below is the baseline forecast of the total annual contribution requirement for the Miscellaneous and Safety plans, as a dollar amount (Figure 14 and Table 8), as a percent of combined projected payrolls (Figure 15), and as a percent of projected General Fund revenues (Figure 16 and Table 9).13 Year City: to amortize unfunded accrued liability City: normal cost Total City Employees Total, City and Employees 2015 – 16 $20,719,000 $8,687,000 $29,406,000 $5,969,000 $35,375,000 2016 – 17 21,705,000 9,214,000 30,919,000 6,137,000 37,056,000 2017 – 18 24,509,000 9,446,000 33,955,000 6,311,000 40,266,000 2018 – 19 25,174,000 10,124,000 35,298,000 6,489,000 41,787,000 2019 – 20 26,583,000 10,835,000 37,417,000 6,672,000 44,090,000 2020 – 21 28,710,000 12,140,000 40,850,000 6,861,000 47,710,000 2021 – 22 32,001,000 12,358,000 44,359,000 7,054,000 51,413,000 2022 – 23 35,032,000 12,578,000 47,609,000 7,254,000 54,863,000 2023 – 24 37,178,000 12,800,000 49,978,000 7,458,000 57,436,000 2024 – 25 39,059,000 13,024,000 52,083,000 7,669,000 59,752,000 Table 8—Baseline Forecast of Combined Plans Annual Contribution Requirement ($) 13 For this purpose, revenues are projected to increase by 4% per year (compounded) after 2015-16. $0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000 Combined Plan Basis Baseline Forecast of Annual Contribution Requirement: Dollar Amount Employees City: normal cost City: to amortize unfunded accrued liability Figure 14 17 Year City: to amortize unfunded accrued liability City: normal cost Total City 2015-16 10.4% 4.4% 14.8% 2016-17 10.5% 4.4% 14.9% 2017-18 11.4% 4.4% 15.8% 2018-19 11.2% 4.5% 15.7% 2019-20 11.4% 4.6% 16.1% 2020-21 11.8% 5.0% 16.9% 2021-22 12.7% 4.9% 17.6% 2022-23 13.4% 4.8% 18.2% 2023-24 13.6% 4.7% 18.3% 2024-25 13.8% 4.6% 18.4% Table 9—Baseline Forecast of Combined Plans Annual Contribution Requirement, Percent of Projected General Fund Revenue 0% 10% 20% 30% 40% 50% 60% 70% Combined Plan Basis Baseline Forecast of Annual Contribution Requirement: Percent of Projected Employee Payroll Employees City: normal cost City: to amortize unfunded accrued liability 0% 5% 10% 15% 20% Combined Plan Basis Baseline Forecast of Annual Contribution Requirement: Percent of Projected General Fund Revenue City: normal cost City: to amortize unfunded accrued liability Figure 15 Figure 16 18 Figure 17 shows combined baseline assets and accrued liability and funded ratio. Again, as a result of the discount rate changes and the 2015-16 investment loss, and despite substantial City contributions, the combined funded ratio drops from its June 30, 2015 level of 67.5% to 62.8% as of June 30, 2018, before climbing to 72.0% in 2024. Table 10 shows the combined baseline unfunded accrued liability on a per person and per household basis, based on projections of the City’s population.14 Date Per Person Per Household June 30, 2016 $3,274 $7,338 June 30, 2017 3,897 8,765 June 30, 2018 4,102 9,252 June 30, 2019 4,484 10,140 June 30, 2020 4,514 10,234 June 30, 2021 4,521 10,277 June 30, 2022 4,488 10,229 June 30, 2023 4,411 10,080 June 30, 2024 4,289 9,828 Table 10—Baseline Forecast Unfunded Liability, Combined Plans 14 For this purpose, the projected annual change in the number of City residents and households after 2016 equals the mean annual change for the period 2010 through 2016, or –0.223% and –0.487%, respectively. See http://dof.ca.gov/Forecasting/Demographics/Estimates/E-5. 57% 60% 63% 66% 69% 72% 75% $0 $200,000,000 $400,000,000 $600,000,000 $800,000,000 $1,000,000,000 $1,200,000,000 $1,400,000,000 Combined Plan Basis Baseline Forecast of Accrued Liability Funded Position funded portion (market value of assets)unfunded portion funded ratio Figure 17 19 Comparison with Negative and Positive Scenarios Figure 18 and Table 11 compare total City contributions under the baseline (7.25% investment return for 2017-18) scenario just shown, with results for the negative scenario (–8.8% investment return for 2017-18) and positive scenario (23.8% investment return for 2017-18). The 2017-18 investment gain or loss will be recognized in the June 30, 2018 valuation. Results from this valuation will not begin to impact contribution requirements at all until 2020-21, and not fully until after 2024 and the amortization “ramp up.” Year Investment Return for 2017-18 23.8% 7.25% –8.8% 2020-21 $39,351,000 $40,850,000 $42,303,000 2021-22 41,271,000 44,359,000 47,351,000 2022-23 42,839,000 47,609,000 52,233,000 2023-24 43,427,000 49,978,000 56,328,000 2024-25 43,649,000 52,083,000 60,259,000 Table 11— Baseline, Negative, and Positive Scenarios Forecast of Combined Plans Annual Contribution Requirement ($) $0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 2020-21 2021-22 2022-23 2023-24 2024-25 Combined Plan Basis Comparison of City's Contribution: Three 2017-18 Investment Return Scenarios additional required if –8.8% return for 2017-18 additional required if 7.25% return for 2017-18 (baseline) amount required if 23.8% investment return for 2017-18 Figure 18 ATTACHMENT A WORK PLAN I:\Users\FIN\Shared\Admin\Finance Committee\Workplan\2017\2017 FC Workplan 1 Updated March 23, 2017 Scheduled Date Agenda Title Agenda Description NO MEETINGS Thursday, February 16, 2017 Annual Investment Policy, Financial Markets and Investment Portfolio, and Investment Strategies Review Staff and/or one or more investment advisors will discuss the City’s investment policy’s conformance to the overall objectives of preservation of principal, liquidity and return, and its relevance to current law and financial and economic trends. The Committee will receive a financial markets overview and a performance report of the City’s investment portfolio through December 31, 2016. Staff will also recommend changes to the City’s investment strategy. Pension Update Staff will provide a status update of our CalPERS Pension plans based on recently announced discount rate changes. Staff will review the impact to our plans and make recommendations how to lessen the long-term cost of implementing the phased-in implementation plan contemplated by the CalPERS board. Review of Facilities Financing Program Staff will present a draft of Facilities Financing Program reviewing the timing, means of financing, and fiscal impacts associated with funding Council prioritized capital projects. Review of Initial Draft of Long-Term Financial Forecast Staff will present the bare bones of a high-level Long-term Financial Forecast that summarizes future assumptions and key elements of the City’s finances culled from other long-term plans such as the Facilities Financing Program, Pension Projections, Harbor Master plan, etc. Annual Work Plan Overview Staff will present and seek approval of the tentative Finance Committee agenda topics scheduled for the calendar year. The work plan represents the planned topics of discussion; however, is subject to change based on the availability of information and the need to schedule other topics as they arise. Budget Amendments Receive and file a staff report on the budget amendments for the prior quarter. Thursday, March 16, 2017 Review of Budget Preparation Framework/Principles The Finance Committee meeting will review and provide comment on the Budget Preparation Framework, last reviewed by the Committee in August of 2015. The Budget Preparation Framework consists of goals/principles, strategies and associated tactics to facilitate the allocation of resources. Annual Review of Reserve Policy F-2 The Finance Committee will review and provide comment on Council Policy F-2. Review of Other Financial Policies Staff will present a new pension policy and update to Budget Policy to account for multi-year funds and the need for long range fiscal planning. Review of Long Range Fiscal Forecast Staff will report on progress made towards the development of the Long Range Fiscal Forecast model.Demonstration of New Fiscal Transparency Software Staff will demonstrate “Socrata,” a new software that allows for access and transparency to City information by the public. Pension Discussion Staff will prepare a presentation illustrating payment options to mitigate the City’s exposure to its long-term pension obligation. Thursday, March 30, 2017 Harbor/Tidelands Master Plan Review Staff will present the timing, means of financing, and fiscal impacts associated with funding harbor and tidelands capital projects. FY 2015-16 Audit Review (with Auditor)The City’s external audit firm, White Nelson Diehl Evans LLP will meet with the Finance Committee to discuss the audit findings for the fiscal year ending 6/30/2016. The committee will have an opportunity to discuss any potential areas of concern and the auditors can discuss any changes in accounting standards or disclosures that were relevant for the audit year. Pension Discussion The Committee will review and discuss Stanford University Professor Joe Nation's report: "Newport Beach's Pension Plans: Forecast and Key Metrics" Overview of Budget Forecast Staff will report on progress made towards the development of the Long Range Fiscal Forecast model. Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, April 13, 2017 Pension Discussion including presentation by Senator Moorlach Agenda item reserved for any discussion regarding the status of the City's pension liability. Review of FY 2017-18 Proposed Budget #1 Staff will provide an overview of the Proposed FY 2017-18 Operating Budget and or CIP. Pension Discussion Agenda item reserved for any discussion regarding the status of the City's pension liability. Budget Amendments Receive and file a staff report on the budget amendments for the prior quarter. Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, April 27, 2017 Debt Policy F-6 Update Review and discuss mandated policy changes to Debt Policy F-6. Pension/OPEB Management Strategies An actuarial consultant and or staff will lead an ongoing review and consideration of strategies to manage the City's pension and OPEB liability. Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, May 11, 2017 Review of FY 2017-18 Proposed Budget #2 Staff will provide an overview of the Proposed FY 2017-18 Operating Budget and or CIP.Pension Discussion Agenda item reserved for any discussion regarding the status of the City's pension liability. Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, May 25, 2017 Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, June 15, 2017 Pension Discussion Agenda item reserved for any discussion regarding the status of the City's pension liability. City of Newport Beach Finance Committee Work Plan 2017 February March May June January April I:\Users\FIN\Shared\Admin\Finance Committee\Workplan\2017\2017 FC Workplan 2 Updated March 23, 2017 Scheduled Date Agenda Title Agenda Description City of Newport Beach Finance Committee Work Plan 2017 Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, June 29, 2017 Pension Discussion Agenda item reserved for any discussion regarding the status of the City's pension liability. Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. NO MEETINGS NO MEETINGS Thursday, September 14, 2017 Investment Performance Review Staff and/or one or more investment advisors will describe the performance of the City's investment portfolio. Pension Discussion Agenda item reserved for any discussion regarding the status of the City's pension liability. Budget Amendments Receive and file a staff report on the budget amendments for the prior quarter. Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, September 28, 2017 Audit Entrance Conference (Optional)Auditors will contact members of the Finance Committee individually to discuss the work plan for the fiscal year ending 6/30/2017 CAFR audit. Alternatively, the auditor may request an audience with the Finance Committee as a whole, in which case a meeting may be convened during this month. The committee will have an opportunity to discuss any potential areas of concern they wish the auditors to review and the auditors can discuss any changes in accounting standards or disclosures that may be relevant for the audit year. July August September I:\Users\FIN\Shared\Admin\Finance Committee\Workplan\2017\2017 FC Workplan 3 Updated March 23, 2017 Scheduled Date Agenda Title Agenda Description City of Newport Beach Finance Committee Work Plan 2017 Pension Discussion Agenda item reserved for any discussion regarding the status of the City's pension liability.Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, October 12, 2017 Budget Amendments Receive and file a staff report on the budget amendments for the prior quarter. Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, October 26, 2017 Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, November 09, 2017 Review of Post Employment Retiree Insurance Actuarial Valuation (AKA OPEB)The City's OPEB actuary will review the City's latest OPEB valuation and liability. Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Thursday, December 14, 2017 Year-End Closing Results Staff will present the preliminary year-end closing results for Fiscal Year 2016-2017.Review of Public Employees Retirement System (PERS) Valuation Staff will present the latest actuarial valuation changes to actuarial assumptions, a review of investment returns, the potential impact of future rates, and the results of employee cost sharing. November December October Item No. 4A1 Draft Minutes of March 16, 2017 Correspondence March 30, 2017 SUBMITTED BY COMMITTEE MEMBER TUCKER Finance Committee Meeting Minutes March 16, 2017 Finance Director/Treasurer Matusiewicz explained the rationale behind the increased reserve rates. Assistant City Manager Jacobs explained the means of creating the savings through transfers, taking General Fund money and moving it into specific funds for long-term needs. She discussed internal charges. In response to Committee Member Gorczyca, Assistant City Manager Jacobs explained information technology and equipment maintenance and replacement funds. She discussed the importance of planning for long-term needs. She discussed proprietary funds and related the stabilization and contingency reserves. She suggested creating a new reserve for infrastructure. City Manager Kiff stated there was a reserve designation but a minimum level was not set. Committee Member O'Neill discussed the water rate increase for capital projects. Committee Member Tucker asked about the wastewater rate study. City Manager Kiff stated the rate study was envisioning a level of reserve. Finance Director/Treasurer Matusiewicz stated the new reserve would be factored in to the rate study. Assistant City Manager Jacob discussed issues with the wastewater fund. Chair Dixon stated the last wastewater rate increase was in Fiscal Year 2005-2006. In response to Committee Member O'Neill, Finance Director/Treasurer Matusiewicz explained the proposed change on Page 11. He stated that most internal service funds include some level of administrative overhead. Chair Dixon questioned the wastewater infrastructure reserve. Finance Director/Treasurer Matusiewicz stated the Master Plan determined the amount of contributions. Assistant City Manager Jacobs presented the summary of changes on Page 11 of the staff report. With regard to the list of proposed changes to Policy F-2, Committee Member O'Neill stated he could support 1, 2, and 4. He needed to reconsider 3 based on 6. He asked the cost of 5. Finance Director/Treasurer Matusiewicz estimated the cost to be $1 million. In response to Committee Member Tucker, Finance Director/Treasurer Matusiewicz explained the actuarial work that goes into determining and necessary margin for adverse deviation as it relates to insurance reserve funding levels. Chair Dixon left the meeting at 5:06 p.m. City Manager Kiff discussed Chair Dixon's concern about Item 6. Committee Member O'Neill stated all policies could be waived by the Council. Committee Member Gorczyca stated she thought that would be discussed at the next meeting. Committee Member O'Neill stated they were just providing input. wJt,,dle, ,;;;t-(11/U--~ ~ Committee Member Tucker asked 1or the target funding to be at 100 percent. Finance Director/Treasurer Matusiewicz stated the goal was to be 100 percent funded. Committee Member Tucker stated the target did not mean much if there was no timeframe. Committee Member Gorczyca reminded the Committee of Mr. Bartel's example of vector control and sanitation district and questioned the need for 100 percent funding. Committee Member Gorczyca expressed enthusiasm regarding insurance. She suggested considering the City's exposures and consider insurance versus cash. Finance Pag e 6 of 8 Item No. 4A2 Draft Minutes of March 16, 2017 Correspondence March 30, 2017 CIP 5 Year Look Ahead 3 March, 2017 PARKS, HARBORS AND BEACHES Source FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 Total Parks Back Bay View Park Enhancements na 328,379$ -$ -$ -$ -$ 328,379$ Lower Sunset View Park, Pedestrian Bridge, Dog Park MFFP 301,767$ -$ 5,000,000$ 5,000,000$ -$ 10,301,767$ Newport Elementary School Park Maintenance na 468,500$ -$ -$ -$ -$ 468,500$ Park Playground Replacement and Improvements na 300,000$ 300,000$ -$ 300,000$ -$ 900,000$ Park Restoration Projects - City Park Signs na 15,000$ -$ -$ -$ -$ 15,000$ Park Walls and Staircases Rehabilitation na 500,000$ -$ 500,000$ -$ 500,000$ 1,500,000$ Veterans Park Modifications na 200,000$ -$ -$ -$ -$ 200,000$ Subtotal 2,113,646$ 300,000$ 5,500,000$ 5,300,000$ 500,000$ 13,713,646$ Harbors Abandoned Watercraft Abatement na 100,000$ -$ -$ -$ -$ 100,000$ Balboa Island Seawalls - Reserve Fund HCP -$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 8,000,000$ Balboa Island Seawall Cap - North and South Sides HCP 2,000,000$ -$ -$ -$ -$ 2,000,000$ Balboa Island Seawall Replacement - West End HCP 4,971,225$ -$ -$ -$ -$ 4,971,225$ Balboa Yacht Basin Slips HCP -$ -$ -$ -$ 602,000$ 602,000$ Beach and Bay Sand Management HCP 150,000$ -$ -$ -$ 300,000$ 450,000$ Bilge Pumpout Dock / Vessel Sewage Pumpout Facilities HCP 200,000$ 150,000$ -$ -$ -$ 350,000$ Bulkheads / Seawalls HCP -$ 100,000$ 907,000$ -$ 3,000,000$ 4,007,000$ American Legion Bulkhead HCP 1,000,000$ -$ -$ -$ -$ 1,000,000$ Central Ave Public Pier / Street End Improvement HCP 725,562$ -$ -$ -$ -$ 725,562$ Dredging - Equipment HCP -$ 1,000,000$ 1,000,000$ 75,000$ -$ 2,075,000$ Dredging - Grand Canal HCP 800,000$ -$ -$ -$ -$ 800,000$ Dredging - Harborwide HCP 500,000$ -$ TBD TBD -$ 500,000$ Dredging - Lower Bay HCP -$ 500,000$ 500,000$ 500,000$ 500,000$ 2,000,000$ Harbor Local Coastal Plan HCP -$ 250,000$ 250,000$ -$ -$ 500,000$ Harbor Maintenance / Minor Improvements na 150,000$ 100,000$ 100,000$ 100,000$ 100,000$ 550,000$ Harbor Tide Gauge HCP 50,000$ -$ -$ -$ -$ 50,000$ Newport Harbor Dredging Permit RGP54 / Testing HCP -$ -$ -$ 250,000$ -$ 250,000$ Newport Pier Building Platform and Piles na 1,306,099$ -$ -$ -$ -$ 1,306,099$ Ocean Piers Inspection and Maintenance na 706,791$ -$ 500,000$ -$ 500,000$ 1,706,791$ Public Piers HCP -$ 85,000$ 400,000$ 400,000$ -$ 885,000$ Seawall Extensions HCP 150,000$ -$ -$ -$ -$ 150,000$ Subtotal 12,809,677$ 4,185,000$ 5,657,000$ 3,325,000$ 7,002,000$ 32,978,677$ Total Parks, Harbors and Beaches 14,923,323$ 4,485,000$ 11,157,000$ 8,625,000$ 7,502,000$ 46,692,323$ Item No. 5B1Harbor/Tidelands Master Plan Review Additional Materials Received March 30, 2017