Loading...
HomeMy WebLinkAboutApproved Minutes - March 16, 2017Finance 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. 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. Mr. Mosher stated that it was not apparent if the City had considered the future cost of providing City services to the project area. Finance Committee Meeting Minutes March 16, 2017 Page 3 of 8 Committee Member Tucker stated property tax would offset the costs of providing City services to the development. Committee Member Gorczyca inquired if fiscal impact reports were prepared for projects. City Manager Kiff indicated yes. 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 Council 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 Council 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 Summary: Staff will prepare a presentation illustrating payment options to mitigate the City’s exposure to its long-term pension obligation. Finance Committee Meeting Minutes March 16, 2017 Page 4 of 8 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 that 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. 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 Finance Committee Meeting Minutes March 16, 2017 Page 5 of 8 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 Director/Treasurer Matusiewicz explained the rationale behind the increased reserve rates. Finance Committee Meeting Minutes March 16, 2017 Page 6 of 8 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. Council 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 Council 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, Council 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. Council Member O’Neill stated that all policies could be waived by the Council. Committee Member Gorczyca stated she thought that would be discussed at the next meeting. Council Member O’Neill stated they were just providing input. Committee Member Tucker asked whether it was realistic 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. Council 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. Council 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. Council 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 1113 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.