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HomeMy WebLinkAbout05/23/2017 - Special MeetingCITY OF NEWPORT BEACH City Council Minutes Special Joint Meeting with the Finance Conunittee May 23, 2017 I. CALL MEETING TO ORDER - 3:00 p.m. I. ROLL CALL Present: Council Member Jeff Herdman, Council Member Brad Avery, Council Member Diane Dixon, Council Member Scott Peotter, Council Member Will O'Neill, Mayor Pro Tem Duffy Duffield, Mayor Kevin Muldoon, Finance Committee Member William Collopy; Finance Committee Member Patti Gorczyca, Finance Committee Member Joseph Stapleton, Finance Committee Member Larry Tucker II. CURRENT BUSINESS A. Review of the City Manager's Fiscal Year 2017-18 Budget; Demonstration of New "Socrata" Financial Information Online Tool Council Member Dixon, Finance Committee Chair, introduced the Finance Committee Members. She stated the Finance Committee met four times to review the budget and financial details. She expressed herr appreciation to the Finance Committee and staff. She encouraged caution in budget preparation and long term planning. City Manager Kiff presented a PowerPoint presentation of the FY 2017-18 proposed budget highlights, General Fund sources and uses, and City Charter requirements. Deputy Finance Director Montano continued the PowerPoint presentation, summarizing General Fund revenues and assumptions. In response to Council Member Peotter's questions, Deputy Finance Director Montano stated the Transient Occupancy Tax (TOT) did not include the payment to Visit Newport Beach (VNB). City Manager Riff stated Page R1 of the budget detail included the amount provided to the VNB. He noted the Tourism Business Improvement District (TBID) was not included in the budget because it was not a City entity. He reported the City collected a .25% administrative fee. Council Member Peotter requested the data be shown in the budget. Deputy Finance Director Montano continued reviewing assessed valuation growth, property tax revenues, and sales tax revenues. Finance Committee Member Collopy asked why the tax was less than the assessed valuation. Deputy Finance Director Montano explained it was a mechanism of Proposition 13, restricting the increase to no more than 2% per year. City Manager Kiff added that the property tax estimate was conservative. Council Member Peotter asked why the tax did not increase by the same amount as the valuation. City Manager Kiff reported that staff used the tax advisor's recommendations and a conservative estimate. Volume 63 - Page 278 City of Newport Beach Special Joint Meeting with the Finance Committee May 23, 2017 In response to Council Member Dixon's questions, City Manager Kiff stated it was necessary to watch decreasing property taxes. He reported property tax was also based on homes being flipped, Proposition 13, and new stock. Council Member Dixon stated it was important to consider build out. Deputy Finance Director Montano discussed the TOT and hotel bed tax revenue. City Manager Kiff presented the budget priorities, including fiscal sustainability, investing more in the Harbor, keeping Newport Beach special, and providing safety in the community. In response to Council Member O'Neill's questions, City Manager Kiff explained the difference between re -budgets and Capital Improvement Program (CIP) expenditures. He explained general government operating expenditures. Council Member O'Neill pointed out the $202.5 million in expenditures included the proposed discretionary pay down on pensions. City Manager Kiff summarized General Fund expenditures by function. Council Member O'Neill pointed out the increase in spending of approximately $9 million due to pay down of pension liability. City Manager Kiff highlighted the changes in full-time positions, the full-time position trend, other staffing changes, part-time versus full-time positions, and efforts to minimize pension costs. He also discussed miscellaneous supplemental budget enhancements, the Fostering Interest in Nature (FIN) program, salaries and benefits, and typical non -safety employee pension costs. In response to Council Member Peotter's questions, City Manager Kiff explained that unfunded liability from PERS was at least 18 -months in arrears, the normal cost started to accommodate the actual experience of the unfunded liability, 70% of the unfunded liability was due to already retired employees. City Manager Kiff summarized the budgeted expenditures by department, General Fund expenditures by type, and Harbor and beaches capital funding sources. Finance Committee Member Collopy noted that budget expenditures by department were generally flat, but were contributing an additional $9.5 million toward the Unfunded Accrued Liability (UAL). Council Member Dixon stated the wages showed the additional payment into the unfunded liability. City Manager Kiff discussed funds set aside for investing in future needs and pension funding. In response to Council questions, City Manager Mff confirmed that $50 million was going towards pension. He further explained the $25 million default pension UAL. Council Member Dixon noted the $34 million unfunded liability had increased from $2 million in 2007. City Manager Kiff discussed City Council Policy F-2 which established a contingency reserve of at least 25%. He proposed a modification to Policy F-2 to leave out the additional discretionary pension payment of $9 million. Council Member Peotter asked if it was excluded because it was voluntary and could be stopped at any time. City Manager Kiff confirmed the payments were made monthly and could be stopped at any time. City Manager Kiff discussed the change in unfunded liability over time. In response to Council Member O'Neill's questions, Deputy Finance Director Montano stated 2017 was intentionally omitted from the unfunded pension liability projection. However, City Manager Kiff stated he would modify the chart for clarity. Volume 63 - Page 279 City of Newport Beach Special Joint Meeting with the Finance Committee May 23, 2017 City Manager Kiff presented a chart showing the phase-in of new amortization basis. Council Member Dixon explained that the level payment was similar to prepaying a mortgage. She discussed the transition to Public Employees' Pension Reform Action of 2013 (PEPRA) employees. City Manager Kiff stated the actuary advised the City on the matter to address the unfunded liability in 20 years. Council Member Peotter discussed the Finance Committee's charge to come up with a plan. He questioned whether $9 million is the right number and if Ca1PERS is the right investment strategy. City Manager Kiff stated the actuary had determined the unfunded liability could be addressed with an annual investment of $9.1 million. He discussed the possibility of a 115 Trust. Council Member Peotter noted Council should make the policy decision on the amount of the additional payment. City Manager Kiff indicated it was the City Manager's Proposed Budget. Council Member Dixon stated the level payment was discretionary each budget year. City Manager Kiff stated the goal was to have a 20 year level payment. Mayor Muldoon stated the City would be protected from escalating debt. He believed that the best thing for the City was to pay down its debt as quickly as possible. City Manager Kiff presented a comparison of UAL payment options and pension payment history. In response to Council Member Avery's question, City Manager Kiff anticipated only a handful of cities were making similar discretionary payments. He reported that the City had more retirees than current active employees at this time. Council Member O'Neill pointed out that South County cities are paying pension costs through the contract pass through. Deputy Finance Director Montano presented the long range financial forecast model. Council Member Dixon thanked staff for the model and Finance Committee Member Gorczyca for proposing the practice. She noted a slight adjustment of assumptions could change the deficit line. City Manager Kiff summarized the proposed budget. He discussed the Finance Committee consideration and next steps. He reported the budget documents were available online and thanked Finance staff and the Finance Committee. Committee Member Tucker stated unfunded liability was a complicated issue, reported the Finance Committee did not spend a lot of time on the capital budget because it was a policy decision for the City Council, discussed the $1 million proposed for the General Plan Update, and explained the unfunded pension liability and proposed $9.1 million level payment. Finance Committee Member Stapleton thanked the City Council for the opportunity to serve on the Finance Committee. He stated he was proud the City was fiscally conservative while providing quality of life and services for Newport Beach residents. He discussed the Finance Committee's consideration of the unfunded pension liability issue. Council Member Herdman commended the Finance Committee for its service. Council Member Peotter discussed the proposed $9.1 million additional payment to the unfunded pension liability. He emphasized the pension problem needed to be fixed by the Governor and State. Mayor Pro Tem Duffield thanked the Finance Committee for its work. He expressed appreciation to the attention and detail spent on the Harbor. Volume 63 - Page 280 City of Newport Beach Special Joint Meeting with the Finance Coimnittee May 23, 2017 Denys Oberman encouraged the City Council to continue with a conservative approach and be good policymakers. She believed a 2% delta between surplus and deficiency was too narrow and the assumption on pension return was too aggressive. She encouraged the right mix of development uses. Jim Mosher stated hard copies of the budget were available for public inspection in the libraries. He discussed the expenses and ownership of the Balboa Island seawalls and revenue from auto sales tax, and asked about the financial information online tool (Socrata) and the Mariners Mile Revitalization project. Lee Pearl complimented the City Council on the budget. He requested a chart showing a ten-year trend on surplus versus deficit, and suggested setting up a $9 million reserve fund or trust for pension liability rather than releasing it directly to PERS. City Manager Kiff stated a Socrata demonstration would be presented at the next meeting, discussed the 2% variance referenced by Ms. Oberman, and requested the City Council provide him with any checklist items. Mayor Pro Tem Duffield discussed the cost estimate to replace the entire bulkhead. He noted staff was proposing replacement of portions, which was significantly less expensive. Mayor Muldoon believed the Balboa Island seawall benefitted all residents and should not be paid for by just Balboa Island residents. Council Member Dixon thanked staff and the Finance Committee, and commended Council Member Peotter for recommending that the Finance Committee include public members. Council Member Avery requested that the Newport Heights Traffic Study be added to the checklist. III. PUBLIC COMMENTS Jim Mosher asked when the budget checklist would be available. IV. ADJOURNMENT - 4:30 p.m. The special meeting agenda was posted on the City's website and on the City Hall Bulletin Board located in the entrance of the City Cou/Chbers 0 Civic C on May 18, 2017, at 4:00 p.m. i Mayor Volume 63 - Page 281