HomeMy WebLinkAboutFinance Committee Agenda - September 14, 2017CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA - Final
100 Civic Center Drive - Crystal Cove Conference Room, Bay 2D
Thursday, September 14, 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
September 14, 2017
Page 2
Finance Committee Meeting
MINUTES OF JUNE 29, 2017A.
Recommended Action:
Approve and file.
DRAFT MINUTES 062917
V.CURRENT BUSINESS
INVESTMENT ADVISOR CONTRACT DISCUSSION AND RECOMMENDATIONA.
Summary:
Staff respectfully requests that the Finance Committee reconsider its
recommendation to award contracts to two investment advisors and award a
contract solely to Chandler Asset Management (Chandler) on the basis that the
City’s invested assets will remain sufficiently diverse and safe under one investment
advisor; the use of one investment advisor is efficient, less costly and appropriate for
a City of Newport Beach’s size; and Chandler manages assets for several agencies
with assets in excess of $100 million and has shown greater responsiveness to the
City’s needs over the years.
Recommended Actions:
(1)Retain the services of Chandler Asset Management as the City’s sole investment
advisor and enter into a five-year contract based on the firm’s proposal for an annual
savings of more than $25,000 per year as compared to a two-investment advisor
arrangement and (2) Terminate the existing investment management contract with
PFM Asset Management.
STAFF REPORT
ATTACHMENT A
REVIEW OF PUBLIC EMPLOYEES RETIREMENT SYSTEM (PERS)
VALUATION
B.
Summary:
Staff will discuss the latest actuarial valuation, changes to actuarial assumptions,
review investment returns, the potential impact of future rates, and the results of
employee cost sharing.
Recommended Action:
Receive and file.
September 14, 2017
Page 3
Finance Committee Meeting
ENGAGING CALPERSC.
Summary:
The Chair will provide a brief oral update on her plans and recent activities to
engage CalPERS staff and policymakers with the intent to influence future pension
policies and practices.
Recommended Action:
Receive and file.
OPPOSITION LETTER TO CALPERS BOARD IMPOSED DIVESTMENT
DIRECTIVES
D.
Summary:
From time to time, the CalPERS Board imposes divestment directives on the
CalPERS Investment Office to promote certain social objectives. Divestment
directives can create enormous opportunity costs to the pension system at a time
when the system, plan sponsors and plan participants cannot afford to compromise
investment return.
Recommended Action:
With the Finance Committee’s concurrence, staff will seek the support of the Mayor
and Finance Committee Chair to urge the CalPERS Board to cease and reverse
divestment directives that create artificial barriers for the Investment Office and
lessen potential investment return.
STAFF REPORT
ATTACHMENT A
LONG RANGE FINANCIAL PLANNINGE.
Summary:
As another input to the City’s Long Financial Planning model, staff will provide a brief
demonstration of the “GovInvest” software tool that the City is using to assist in the
modeling of long-term pension plan costs and liability projections.
Recommended Action:
Receive and file.
September 14, 2017
Page 4
Finance Committee Meeting
BONITA CANYON COMMUNITY FACILITIES DISTRICT UPDATEF.
Summary:
The City entered into a Joint Powers Agreement (JPA) to form a Community
Facilities District (CFD) in 1997 to finance certain road, park and school
improvements associated with the Bonita Canyon development. The JPA board
believes there is an opportunity to refinance outstanding bonds of the JPA on a
current refunding basis to provide an economic benefit to the assessed property
owners in excess of $2.5 million. The Committee will be provided a brief report
summarizing the financing effort.
Recommended Action:
Receive and file.
STAFF REPORT
ATTACHMENT A
BUDGET AMENDMENTSG.
Summary:
Receive and file a staff report on the budget amendments for the prior quarter.
Recommended Action:
Receive and file.
STAFF REPORT
ATTACHMENT A
REVIEW OF FINANCE COMMITTEE WORKPLANH.
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 June 29, 2017
Page 1 of 8
CITY OF NEWPORT BEACH FINANCE COMMITTEE JUNE 29, 2017 MEETING MINUTES I. CALL MEETING TO ORDER
The meeting was called to order at 3:00 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), Committee Member William
Collopy, Committee Member Patti Gorczyca, Committee Member Joe Stapleton, Council Member Will O’Neill, and Committee Member Larry
Tucker
ABSENT: Mayor Kevin Muldoon
STAFF PRESENT: City Manager Dave Kiff, Assistant City Manager Carol Jacobs, Finance
Director/Treasurer Dan Matusiewicz (via teleconference), Deputy Finance
Director Steve Montano, Budget Manager Susan Giangrande, Accounting
Manager Rakshana Virany, Municipal Operations Director George
Murdoch, Deputy Public Works Director Mark Vukojevic and
Administrative Specialist to the Finance Director Marlene Burns
MEMBER OF THE
PUBLIC: Jim Mosher
OTHER ENTITIES: John Farnkopf and Geoffrey Michalczyk (HF&H Consultants, LLC) and
Hillary Davis (Daily Pilot)
III. PUBLIC COMMENTS
None.
IV. CONSENT CALENDAR
A. MINUTES OF JUNE 1, 2017 Recommended Action:
Approve and file. Chair Dixon indicated that amendments were submitted by Committee Member Tucker and
Committee Member Gorczyca. Council Member O'Neill requested that a sentence on Page 2 of 5 regarding the 2008 reserves
be struck and corrected.
MOTION
Committee Member Gorczyca moved and Committee Member Tucker seconded a motion to approve the corrected minutes of June 1, 2017. The motion carried 5-1-1, Committee Member Collopy abstaining and Mayor Muldoon absent.
Finance Committee Meeting Minutes June 29, 2017
Page 2 of 8
V. CURRENT BUSINESS
A. WASTEWATER RATE INCREASE Summary: The Municipal Operations Department retained the consulting services of HF&H Consultants,
LLC (HF&H) to prepare a wastewater rate study. The purpose of this presentation is to review the results of the wastewater rate study, receive input, and seek the Committee’s direction to
move the item to City Council for discussion and approval. Recommended Action:
a) Review the results of the wastewater rate study; and b) Move the item to City Council for discussion and direction to proceed with setting a
Proposition 218 Public Hearing for the adoption of the proposed wastewater rates.
Municipal Operations Director Murdoch introduced John Farnkopf and Geoffrey Michalczyk HF&H Consultants. He explained that the tables in the staff report were amended. He
explained the need to restudy and establish a basis of establishing new rates. He discussed difficulty in measuring wastewater and developing sewer rates. He presented a PowerPoint
providing background on sewer rates,
In response to Chair Dixon, Municipal Operations Director Murdoch stated that the Wastewater Master Plan recommended spending $1 million each year. He stated that $750,000 was spent
this year.
In response to Committee Member Gorczyca, Municipal Operations Director Murdoch explained the opportunity to replace sewer lines during alley replacements.
Council Member O'Neill explained the Council’s approval of the 2010 Master Plan and
structural deficit. He stated rates had only been raised once since 1996.
Chair Dixon stated the Council transferred $3.5 million from the budget surplus into the wastewater fund.
Municipal Operations Director Murdoch explained Proposition 218 and the need to restructure
fees. He stated that there was no majority opposition to the rate increase. He explained the need to restudy the fees, revenue requirements, difference between the Sewer Enterprise Fund
and General Fund, and Council Policy F-2 regarding reserves.
In response to Chair Dixon, Municipal Operations Director Murdoch suggested the plan be updated every five years.
In response to Committee Member Collopy, Municipal Operations Director Murdoch stated that
the reserve should be $1.8 million. City Manager Kiff stated that in comparison, there was $48 million in Undesignated Reserves available in the General Fund, which could be used in a
catastrophic event. Council Member O'Neill stated the Sewer Fund should be treated as a separate entity, similar to Irvine Ranch Water District (IRWD).
Municipal Operations Director Murdoch discussed the importance of rate stabilization.
In response to Committee Member Collopy, Municipal Operations Director Murdoch stated that
the reserve had decreased to $50, at one point.
Municipal Operations Director Murdoch presented a pie chart on expenditures and revenue requirements. He discussed the proposed contribution for CIP.
In response to Committee Member Collopy, Municipal Operations Director Murdoch stated
salaries decreased due to reorganization and reduction.
Finance Committee Meeting Minutes June 29, 2017
Page 3 of 8
Chair Member Dixon discussed the Finance Committee’s prior review of the cost of outsourcing versus in-house employees. Municipal Operations Director Murdoch explained the in-house
staff and indicated that he was comfortable with staffing levels.
In response to Committee Member Collopy, Municipal Operations Director Murdoch discussed comparisons between the City of Newport Beach and other cities and differences based on
topography, maintenance of laterals and proximity to the Bay.
Municipal Operations Director Murdoch discussed the $3.5 million General Fund contribution and impact of not increasing rates.
John Farnkopfof HF&H, discussed the current rate structure.
In response to Chair Dixon, Mr. Farnkopf stated that 97 percent of residents received both
sewer and water service.
John Farnkopf recommended a graduated rate in proportion to the water meter, along with the monthly use charge. He stated the surcharges would be incorporated into the monthly service
charges. He discussed efforts to correlate the fixed costs of operation and revenue from fixed charges and variable costs of the sewer system to correspond to variable revenue. He
presented the proposed rate structure.
In response to Committee Member Tucker, Municipal Operations Director Murdoch explained the logic of charging based on meter size.
In response to Committee Member Gorczyca, Municipal Operations Director Murdoch stated
public property was charged the same rate.
Chair Dixon asked if the average homeowner would have a nine percent rate increase. Municipal Operations Director Murdoch stated the nine percent was the overall increase to the
entire revenue stream.
Mr. Farnkopf continued with the presentation explaining the fee structure for sewer only customers.
Council Member O'Neill discussed the possibility of a sewer only rate for hotel and other
commercial properties. Municipal Operations Director Murdoch stated the Airport area and converted properties would be problematic.
In response to Chair Dixon, Municipal Operations Director Murdoch discussed the four-inch
connections, including hotels. He discussed efforts to equalize rates.
Council Member O'Neill stated the goal was to offset the cost based on Proposition 218. Municipal Operations Director Murdoch discussed the recent Court decision allowing
assumptions based on averages.
In response to Committee Member Tucker, Municipal Operations Director Murdoch stated Newport Coast did not receive water or sewer services. City Manager Kiff estimated 10-12
percent of residents did not receive water or sewer from the City. Municipal Operations Director Murdoch stated the Airport area was mixed. Committee Member Tucker explained that
Newport Coast was formerly Irvine Coast and the City annexed the property.
John Farnkopf continued the presentation explaining the proposed rate structure. He discussed anticipated revenue from sewer only customers. He presented sample monthly bills.
Finance Committee Meeting Minutes June 29, 2017
Page 4 of 8
Committee Member Tucker stated a rate increase smoothed over time was more palatable.
Council Member O'Neill discussed the point in time analysis and the effort to reach the reserve goal. City Manager Kiff explained the difference between large changes or smoothing over five
years.
Committee Member Tucker stated the Enterprise Fund should stand on its own and the $3.5 million should be repaid to the General Fund. Committee Member Collopy asked if the full
value or future value should be returned to the General Fund. City Manager Kiff stated the City did not charge itself interest.
Council Member O'Neill discussed the Finance Committee’s consideration of transferring
money from the General Fund to the Enterprise Fund. He stated the Council voted to grant, not loan, the funds.
Committee Member Tucker stated that it was important for the Enterprise Fund to stand on its
own.
Committee Member Stapleton asked if it was a moot point since it was a grant.
City Manager Kiff asked if including the repayment would impact the Proposition 218 study. John Farnkopf explained that the rates had to be proportionally set.
Council Member O'Neill stated that the Council would have to classify the $3.5 million as a
loan.
Committee Member Tucker stated the rate increase needed to be effectuated and repayment considered separately. He suggested repayment begin in five years with a 15-year
amortization.
Committee Member Gorczyca suggested creating a policy and implementing practices going forward.
Committee Member Stapleton stated that the Council had approved the budget and had not
classified the $3.5 million as a loan.
Municipal Operations Director Murdoch stated he did not think repayment could be built into the rate. Chair Dixon suggested referring the matter to legal, for review.
Municipal Operations Director Murdoch presented the proposed timeline including community
outreach, study session, Proposition 218 notice, 45-day review, protest hearing, and ordinance amendment.
In response to Chair Dixon, Municipal Operations Director Murdoch stated Proposition 218
allowed rate adjustments for five years. He suggested review of the master plan every three years along with a rate study.
Municipal Operations Director Murdoch discussed the money lost in the drought.
In response to Committee Member Gorczyca, Municipal Operations Director Murdoch stated
the rate study could only go out five years.
Committee Member Stapleton agreed with the proposed rates.
Finance Committee Meeting Minutes June 29, 2017
Page 5 of 8
Jim Mosher discussed his prior comments regarding inequity to residential customers. He
suggested the committee consider basing the sewer rate on the wintertime water usage. He discussed inequity of sewer only customers. He asked if the rate study would be posted and
available to the public. He suggested comparison of rates between comparable agencies. He stated the Enterprise Fund could not give the money back to the General Fund.
Municipal Operations Director Murdoch explained the beneficial use of winter data but limitation
due to the billing system. He suggested separating indoor from outdoor usage. He stated the report would be posted.
MOTION
Committee Member Tucker moved and Committee Member Collopy seconded a motion to move the matter forward to the Council. The motion carried 6-1, Mayor Muldoon absent.
B. UPDATE ON LONG-TERM FINANCIAL FORECAST Summary: Staff will review with the Committee an updated high-level long-term financial forecast including
future assumptions and other key elements of the City’s finances. Recommended Action: Review and comment.
Deputy Finance Director Montano presented the item explaining key assumptions of the model,
base scenario and a recession scenario.
In response to Committee Member Collopy, Deputy Finance Director Montano explained the meaning of a three percent annual salary savings.
Deputy Finance Director Montano discussed the impact of the recession on sales tax and real
estate.
Committee Member Collopy stated the recession information should correlate to reserve discussions.
Deputy Finance Director Montano stated the impact on the General Fund was significantly
reduced when there is a reduction in the key expenditure areas described.
Chair Dixon stated the model was a good tool for financial analysis.
C. SCOPE OF WORK FOR RISK BASED ANALYSIS OF GENERAL FUND RESERVE REQUIREMENTS Summary: The City is seeking consultant services to assist staff analyze risks through an analytical
framework intended to determine a custom reserve level appropriate for the City of Newport Beach. The Consultant will provide a thorough examination of the City’s primary and secondary
risk factors that generally influence the amount of reserves the City should hold. The Consultant will also provide recommendations on new, or changes to existing, financial
policies, risk management methods, and ideas to support the General Fund Reserve strategy over the long-term.
Recommended Action:
a) Review and comment on staff’s proposed Scope of Work for Risk Based Analysis of General Fund Reserve Requirements; and
b) Direct staff to issue a Request for Proposal for consulting services to appropriately size City reserve levels considering insurance coverage and other risk transfer options based
on a thoughtful risk-based analysis of events that may create financial exposure to the City.
Finance Committee Meeting Minutes June 29, 2017
Page 6 of 8
Deputy Finance Director Montano presented the staff report outlining the intent to hire a consultant to assist in reviewing the primary and secondary risk factors, policies and risk
management methods to determine the appropriate General Fund reserve.
In response to Committee Member Collopy, Finance Director/Treasurer Matusiewicz stated a cost estimate would be determined once the scope of work was established.
Committee Member Collopy stated he struggled with the need to hire consultants. Deputy
Finance Director Montano estimated the consultant would cost less than $20,000. Committee Member Collopy asked if indemnification would be included in the review. Deputy Finance
Director Montano stated insurance needs would be included in the analysis.
Committee Member Gorczyca discussed the benefit of a third-party review. She stated the goal was to consider reserves along with insurance, cash, and other kinds of mitigations.
In response to Committee Member Stapleton, Deputy Finance Director Montano stated the
reserve had been 15 percent until 2014, when it was increased to 25 percent.
Committee Member Gorczyca stated a 1994 GFOA reference with a smaller population was used. She stated many cities’ reserves were higher than the City of Newport Beach. She
suggested peer review be included in the consultant’s work. She reminded the Committee of the need to be mindful of the City’s AAA rating.
Committee Member Tucker questioned where the accumulated money would go. He asked if
more reserves should be spent on capital improvements or paying down the debt.
Committee Member Collopy concurred but stated it was necessary to determine adequate reserves first.
Committee Member Tucker stated the City had a responsibility to ensure adequate reserves
for a catastrophic event.
Committee Member Gorczyca anticipated the study would not be too expensive. She stated the consultants could assist with FEMA reimbursements.
Committee Member Tucker agreed with a consultant if the price was right.
Deputy Finance Director Montano anticipated the consultant to cost less than $20,000.
Jim Mosher stated the consultant was reviewing seven different funds.
Committee Member Gorczyca suggested some funds be reviewed later.
Chair Dixon suggested reviewing the General Fund.
Finance Director/Treasurer Matusiewicz explained the problem with looking at the General
Fund in a vacuum.
The Committee decided to focus the study on the General Fund, with a cap of $25,000.
Committee Member Collopy questioned what the AAA rating was saving the City in borrowing costs. Finance Director/Treasurer Matusiewicz explained that maintaining good credit allows
access to capital markets at lower interest rates than lower-rated agencies.
Finance Committee Meeting Minutes June 29, 2017
Page 7 of 8
D. TREASURY REPORT Summary: The Finance Committee requested that staff provide the monthly Treasury Report for periodic
review. As of May 31, 2017, the City’s entire investment portfolio totaled over $269 million. The report can be accessed at www.newportbeachca.gov/treasury.
Recommended Action:
Receive and file.
Committee Member Collopy stated he would ask his questions offline. E. PENSION DISCUSSION Summary:
Agenda item reserved for any discussion regarding the status of the City's pension liability and/or the proposed budgetary pension funding approach.
Recommended Action:
Review and comment on discussion as necessary.
Chair Dixon stated the Committee would consider the pension discussion in September.
In response to Committee Member Tucker, Deputy Finance Director Montano stated the pension liability was paid bi-weekly. He stated it was not prepaid due to market volatility.
Committee Member Tucker asked if there was a benefit with paying upfront. F. REVIEW OF FINANCE COMMITTEE WORK PLAN Summary:
Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year.
Recommended Action:
Review and comment.
Chair Dixon reviewed the Committee Work Plan.
Finance Director/Treasurer Matusiewicz suggested the General Fund Reserve discussion come back in October.
Committee Member Gorczyca suggested inviting the new CalPERS CEO to walk through the
City’s portfolio. 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 5:36 p.m. to the next regular meeting.
Filed with these minutes are copies of all materials distributed at the meeting.
The agenda for the Regular Meeting was posted on June 22, 2017, at 5:54 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.
Finance Committee Meeting Minutes June 29, 2017
Page 8 of 8
Attest:
___________________________________ _____________________ Diane Dixon, Chair Date
Finance Committee
September 14, 2017, Finance Committee Agenda Comments
These comments on an item on the Newport Beach City Council Finance Committee agenda are
submitted by: Jim Mosher ( jimmosher@yahoo.com ), 2210 Private Road, Newport Beach 92660 (949-
548-6229)
Item IV.A. MINUTES OF JUNE 29, 2017
Changes to the draft minutes passages shown in italics are suggested in strikeout underline format.
Page 2, paragraph 7 from end: “Municipal Operations Director Murdoch explained Proposition
218 and the need to restructure fees. He stated that there was no majority opposition to the
rate increase.”
I don’t remember what was said, but since the current notice hadn’t been issued, there
would have been no way to know in June if there was a majority protest. I’m guessing it
might have been either “He stated that there was needed to be no majority opposition
to the rate increase” or “He stated that there was no majority opposition to the rate
increase in 2005.”
Page 3, line 1: “Chair Member Dixon discussed the Finance Committee’s prior review of the
cost of outsourcing versus in-house employees.”
Page 3, paragraph 5: “In response to Chair Dixon, Mr. Farnkopf stated that 97 percent of
residents residential sewer customers received both sewer and water service.” [a later
paragraph (2 from the end) estimates that 10-12% of Newport Beach residents receive neither
sewer or water service from the City]
Page 3, paragraph 3 from end: “Council Member O'Neill stated the goal, based on Proposition
218, was to offset the cost based on Proposition 218.”
Page 5, Item B, paragraph 2: “In response to Committee Member Collopy, Deputy Finance
Director Montano explained the meaning of a three percent annual salary savings.”
Portions of the Finance Committee minutes continue to be frustratingly difficult to read.
In situations like this one, it would be helpful for the minutes to say not just that an
explanation was given, but to summarize what the explanation was. Otherwise, readers
like me (and probably, a year from now, the Committee members themselves) won’t
have the slightest idea what this conversation was about or what the Committee gleaned
from it. As here, the minutes continue to include sections that seem more a list topics
discussed than an intelligible record of what was said (and learned) about them.
Item No. 4A1
Draft Minutes of June 29, 2017
Correspondence
September 14, 2017
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5A
September 14, 2017 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Dan Matusiewicz, Finance Director
(949) 644-3123 or danm@newportbeachca.gov
SUBJECT: INVESTMENT ADVISOR DISCUSSION AND RECOMMENDATION
SUMMARY:
Staff respectfully requests that the Finance Committee reconsider its recommendation to award contracts to two investment advisors and award a contract solely to Chandler Asset Management
(Chandler) on the basis that the City’s invested assets will remain sufficiently diverse and safe
under one investment advisor. The use of one investment advisor is efficient, less costly and appropriate for a City of Newport Beach’s size; and Chandler manages assets for several
agencies with assets in excess of $100 million and has shown greater responsiveness to the
City’s needs over the years.
RECOMMENDATIONS:
(1) Retain the services of Chandler Asset Management as the City’s sole investment advisor and
enter into a five-year contract based on the firm’s proposal for an annual savings of more than $25,000 per year as compared to a two-investment advisor arrangement. (2) Terminate the existing investment management contract with PFM Asset Management.
With Finance Committee concurrence of staff’s recommendation, staff will proceed with the
recommended action and bring the new investment advisor contract with Chandler to the City
Council for approval.
DISCUSSION:
As part of its due diligence, staff conducts a complete and competitive selection process for
investment advisory services at the end of every five-year contract term. The contracts for the
City’s two investment advisory firms Chandler Asset Management (Chandler) and PFM Asset Management (PFM), were originally set to expire in June 2016, but were extended through
December 2017, in order to allow sufficient time to solicit new proposals from investment advisory
firms. The City issued a Request for Proposal (RFP) for Investment Advisory Services on May 16, 2016. By the proposal due date of June 17, 2016, six firms submitted proposals. The City hired
the firm Portfolio Services for Government, LLC (PSG) to review RFP expectations and logistics with the City, prepare the RFP documents, analyze and summarize RFP responses, and facilitate the finalist interview process.
Investment Advisor Contract Discussion and Recommendation September 14, 2017
Page 2 Staff evaluated proposals from investment advisory firms to evaluate the possibility of reducing
its number of investment managers in order to greatly improve efficiency and reduce fees in the
process. During the September 15, 2016, Finance Committee meeting, staff recommended retaining the investment advisory services of Chandler Asset Management (Chandler) as its sole investment advisor and that the City enter into a five-year contract based on the firm’s new
proposal. (See Attachment A).
The Finance Committee recommended the City Council enter into five-year contracts with two
firms, PFM and Chandler, and expressed the following concerns with hiring only one investment advisor:
• The City would not realize a diversification of asset classes through the use of only one
investment advisory firm.
• Maintaining two investment advisors provides the means to evaluate the relative
performance of each firm (check and balance) and facilitate a spirit of competition that will
result in higher performance.
• Chandler is a relatively small firm that has few clients with assets under management
greater than $100 million, or at least the size of Newport Beach’s portfolio.
Staff respectfully requests that the Finance Committee reconsider its recommendation and award
the investment advisor contract solely to Chandler based on the additional information provided below.
The City’s Invested Assets Will Remain Sufficiently Diverse and Safe Under One
Investment Advisor
California Government Code contains very specific provisions regarding the types of investments and practices permitted and statute specifies a percentage restriction on a certain categories of
investment. These legal requirements are designed to meet the broad requirement of preserving principal and maintaining liquidity before seeking yield. As the result, there is no variability in the asset classes used by PFM and Chandler and only differences in the relative size of the asset
classes utilized by each firm. Market performance for both firms over the years has been nearly the same. Lastly, the City’s assets are registered in the City’s name and held by a custodial bank
so the likelihood of embezzlement is eliminated.
Investment Advisor Contract Discussion and Recommendation September 14, 2017
Page 3 The Use of One Investment Advisor is Efficient, Less Costly and Appropriate for a City of Newport Beach’s Size
In moving to one investment manager from two, the City will lower its fee structure; further optimize the investment program by better managing short-term liquidity and long-term funds under one manager; reduce coordination efforts and
the number of quarterly meetings with investment advisors from eight to four per year; conduct fewer
account reconciliations and substantially reducing the
incremental cost of investing from 7 basis points (bps) to 4 bps on newly invested capital. Chandler’s
proposal would provide an annual savings of more
than $25,000 per year as compared to the City’s current two-investment advisor arrangement.
Responding firms proposed a tiered fee structure based on the total assets under management. The relative rankings, average fee rate and cost based on
$185 million are summarized in the table to the right. Staff was not successful with negotiating a lower fee
structure than was originally proposed by PFM. When asked, Chandler did accept a lower counter
fee proposal. Staff surveyed all
Orange County cities and found
that Newport
Beach is the only City in the County
that uses more
than one investment advisor
and approximately half manage their investments in-
house. Six cities in Orange County
have portfolios
larger than Newport Beach.
Chandler Manages Assets for Several Agencies with Assets in Excess of $100 Million
and Has Shown Greater Responsiveness to the City’s Needs Over the Years
Chandler manages assets for 22 public agencies in California with assets greater than Newport
Beach, and for nine agencies with assets greater than $300 million. While PFM is a larger firm,
Chandler has a higher qualitative dedication of portfolio management resources. The average number of accounts served per portfolio manager for Chandler is 21 while for PFM it is 40. This
may explain why PFM has experienced a greater rate of client attrition than Chandler. The number of discontinued firm’s services in the last three years for Chandler has been three; whereas for PFM the number is 31.
Investment Advisor Contract Discussion and Recommendation September 14, 2017
Page 4
Chandler is currently the best fit for City at present because of their narrow focus on fixed income
investments, frequent direct communication with portfolio managers, customizable solutions, favorable pricing when compared to PFM and other intangibles. Chandler, unlike PFM, also has
a proven track record of understanding and delivering on the City’s cash flow needs. Chandler also has a history of providing excellent service and has consistently performed well in up and down market conditions. Since 1991, Chandler’s portfolio managers have worked diligently to
invest the City’s portfolio in a manner that fulfills the specific objectives for safety, liquidity and income in a prudent manner at a very competitive price.
Prepared by: Submitted by:
/s/ Steve Montano
/s/ Dan Matusiewicz
Steve Montano Dan Matusiewicz Deputy Finance Director Finance Director
Attachment:
A. Investment Advisor Recommendation Staff Report to the Finance Committee, September 15, 2016
ATTACHMENT A
INVESTMENT ADVISOR RECOMMENDATION STAFF REPORT TO THE FINANCE COMMITTEE, SEPTEMBER 15, 2016
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5B
September 15, 2016
TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949)644-3123 or danm@newportbeachca.gov
SUBJECT: INVESTMENT ADVISOR RECOMMENDATION
SUMMARY:
The Finance Department has outsourced the management of the City’s investment portfolio for more than twenty-five years. With increased staff workloads over the years, it is increasingly clear that the City’s
portfolio has benefited from full time expert management by professionally managed investment firms. As part of its due diligence, staff intends to continually evaluate the City’s comprehensive investment
program needs and conduct a complete and competitive selection process for investment advisory services at the end of every five-year contract term. The City issued a Request for Proposal (RFP) for
Investment Advisory Services on May 16, 2016. By the proposal due date of June 17, 2016, six firms submitted proposals. Staff narrowed its selection to three firms, conducted interviews, and selected
Chandler Asset Management (Chandler) as the sole investment manager. We believe Chandler to be the best overall fit for the City at this time. In moving to one investment manager from two, the City will lower
its fee structure; further optimize the investment program by better managing short-term liquidity and long-term funds under one manager; reduce coordination efforts and the number of quarterly meetings with
investment advisors from eight to four per year; conduct fewer account reconciliations and substantially reducing the incremental cost of investing from 7 basis points (bps) to 4 bps on newly invested capital.
RECOMMENDED ACTION:
Staff recommends retaining the services of Chandler and the City enter into a five-year contract based on
the firm’s new proposal for an annual savings of more than $25,000 per year as compared to a two investment advisor arrangement. In addition, staff recommends terminating the existing investment
management contract with PFM Asset Management as of December 31, 2016. With Finance Committee concurrence of staff’s recommendation, staff will proceed with the recommended action and bring the
new investment advisor contract to the City Council for approval.
DISCUSSION:
The Finance Department has outsourced the management of the City’s investment portfolio for more than twenty-five years. With increased staff workloads over the years, it is increasingly clear that the City’s
portfolio has benefited from full time expert management by professionally managed investment firms. During the last eight years, the Federal Government has kept interest rates historically low, and reduced the inventory of agency securities making investing the City’s idle money and diversifying the portfolio
more challenging. Contracting for investment advisory services avails the City to a full complement of investment services that would not be possible to do in-house without the economy of scale that full-time
Investment Advisor Recommendation September 15, 2016
Page 2 investment advisory services command. This means our investment portfolio is invested more safely because it benefits from full-time professional attention, ongoing credit analysis and the industry tools and
resources to manage public funds effectively and prudently.
The City previously engaged five separate investment managers and five separate custodial banks to oversee and safeguard its investment portfolio. In 2011, the City evaluated proposals from investment
advisory firms to evaluate the possibility of reducing its number of investment managers and custody banks greatly improving efficiency and reducing fees in the process. Based on the circumstances at that
time, the City reduced the number of service providers to Chandler, Cutwater Asset Management (Cutwater), and PFM Asset Management (PFM) who each were awarded five-year contracts. On October
6, 2014, the firm BNY Mellon, our current custody bank, announced its intention to acquire Cutwater. The City terminated its contract with Cutwater shortly after and transferred the assets previously managed by
Cutwater to Chandler and PFM proportionately. As part of its due diligence, staff intends to conduct a complete and competitive selection process for investment advisory services at the end of every five-year contract term. The contracts for Chandler and PFM, originally set to expire in June 2016, were extended through December 2016 in order to allow sufficient time to solicit new proposals from investment advisory
firms.
Staff has traditionally undertaken the task of planning, preparing and facilitating the RFP process for
investment advisory services. Since the City had already engaged two excellent firms, the task to differentiate the quality of services and best fit was going to be a difficult task. Staff thought it was prudent to hire a consultant with (1) years of industry experience who could attract a group of highly qualified firms
to respond to the RFP; (2) a demonstrated commitment to government excellence; (3) and the ability to undertake this important and detailed work during a time when staff was consumed with preparing the Fiscal Year 2016-2017 Budget and undertaking the ERP implementation. The City hired the firm Portfolio
Services for Government, LLC (PSG) to review RFP expectations and logistics with the City, prepare the RFP documents, analyze and summarize RFP responses, and facilitate the finalist interview process.
Together with PSG, the City issued a Request for Proposal (RFP) for Investment Advisory Services on
May 16, 2016. By the proposal due date of June 17, 2016, six firms submitted proposals, including: Atlanta Capital, Chandler, Eaton Vance Management, PFM, Public Trust Assets, and Reams Asset
Management. Proposals were submitted in two parts, including a written technical proposal and a separated sealed dollar cost bid. Under the coordination of the Finance Director and PSG, proposals were reviewed and ranked by a three-person Selection Committee comprised of the Finance Director, the Deputy Finance Director and a staff Accountant in charge of investment accounting and reconciliation.
The written technical proposals were reviewed and ranked by the Committee before the sealed dollar cost bids were opened and scored.
Staff evaluated and ranked each firm’s proposals based on qualifications and experience, management
approach and discipline, value added services, and fees. Due to the lower rankings assigned to Reams, Atlanta Capital, and Eaton Vance, staff did not advance these three firms for further consideration. Staff
narrowed their selection consideration to Chandler, PFM, and Public Trust – all reputable firms that have experience with meeting investment goals while providing continuity through challenging market cycles. These firms were then invited back to a finalist presentation and interview responding to sixteen specific questions that were provided to them in advance, and to respond to any other questions the Selection
Committee chose to probe further into.
While the three finalists met the qualifications; based on the technical content of the proposals, the quality and experience of the proposed engagement staff, comparable clients, and other intangibles; the
Selection Committee ranked Chandler as the top overall proposer deemed best able to meet the City’s overall needs. Sealed dollar cost bids were opened and revealed annual cost. Firms proposed a tiered
fee structure based on the total assets under management. The relative rankings, average fee rate and cost based on $185 million are summarized in the table to follow:
Investment Advisor Recommendation September 15, 2016
Page 3
While any of the three finalists would make a great choice, staff selected Chandler as the sole investment manager. The City values the relationship it has had with its past investment advisors, we believe
Chandler is currently the best fit for City at present because of their narrow focus on fixed income investments, frequent direct communication with portfolio managers, customizable solutions, favorable
pricing and other intangibles. Chandler also has proven track record of understanding and delivering on the City’s cash flow needs, a history of providing excellent service and has consistently performed well in
up and down market conditions. Since 1991, Chandler’s portfolio managers have worked diligently to invest the City’s portfolio in a manner that fulfills the specific objectives for safety, liquidity and income in a
prudent manner at a very competitive price. Chandler Asset Management is an SEC-registered investment advisor and woman-owned business enterprise with its principal place of business located in
San Diego, California. Chandler’s primary focus is managing funds for public agencies and other conservative-minded clients who are guided by the objectives of preservation of principal, access to cash, and maximization of investment outcome without undue exposure to risk.
Public Trust is a relatively new firm that has been in operation for five years. While Public Trust has highly experienced financial professionals, staff believes that having a few more years as an established
firm would make it more attractive. Although the City has been very satisfied with the past expert
performance of PFM, City Staff believes that a single investment manager could more efficiently manage its portfolio at a lower cost and streamline treasury operations without introducing new portfolio risk. In moving to one investment manager, the City will lower its fee structure from approximately $140,000 to
$114,000, a savings of over $25,000 per year based on a $185 million average balance. The City will also optimize the investment program by making better use of liquidity and long-term funds. There will be additional staff efficiency by reducing coordination efforts, reducing the number of quarterly meetings with
investment advisors year and fewer account reconciliations. The incremental cost of investing new funds is also reduced by reaching lower tiered pricing through one investment advisor.
Prepared by: Submitted by:
/s/ Steve Montano
/s/ Dan Matusiewicz
Steve Montano Dan Matusiewicz Deputy Finance Director Finance Director
Attachment:
A. Chandler Asset Management RFP Proposal
City of Newport Beach Finance Committee
September 14, 2017
Presented by Terry McCall, Principal
Portfolio Services for Government, LLC
Item No. 5A1
Investment Advisor Contract Discussion and Recommendation
Presentation
September 14, 2017
Terry McCall, Principal
Experience:
Principal and Owner of PSG, has advised numerous cities ,
counties , special districts and federal agencies since 2008
Former CFO City of Gresham, OR
Former Vice President, US Bank
PSG Scope
Assess the overall effectiveness of investment portfolio and
investment policies
Investment Advisor RFP development and selection
Investment Advisor Selection Process
Portfolio Services for Government (PSG) facilitated process
Issued Request for Proposals (May 2016)
6 firms responded
PSG analyzed/compared proposals
Staff narrowed to 3 finalists for interviews:
Chandler Asset Management
PFM Asset Management
Public Trust Advisors
Firms were evaluated
and ranked based on
qualifications and
experience,
management approach
and discipline, value
added services, and
fees.
Staff narrowed finalists
to Chandler and PFM
Notable Qualification Topics Chandler Asset Mgt PFM Asset Mgt
Firm highly qualified?Yes Yes
Assets Under Management 255 accounts
$9.5 Bn
668 accounts
$94.8 Bn
Accounts added last 3 years 153 210
Accounts closed last 3 years 3 (1.2% of 255)31 (4.6% of 668)
Reported performance
compared to benchmarks
(Note: Fairly similar;
differences were slight)
•Short-term lower
•Long-term higher
•Short-term higher
•Long-term lower
Selected Qualification
Topics Chandler Asset Mgt PFM Asset Mgt
Average accounts per
portfolio manager 21 40
Agree just 1 advisor
needed?Yes Yes
Advantage to City Workload & Costs Workload & Costs
Willingness to negotiate
fees?Yes No
Things to consider:
City’s portfolio size is a better fit for 1 advisor versus 2 or more
(Portfolios over $1 Billion may be able to justify multiple firms)
Staff likes both firms but sees the overall fit as better with
Chandler
Reconsideration of Investment Advisor
Recommendation
Finance Committee Meeting
September 14, 2017
Item No. 5A1
Investment Advisor Contract Discussion and Recommendation
Staff Presentation
September 14, 2017
Background
•During the September 16, 2016, Finance Committee meeting, staff
recommended retaining the investment advisory services of Chandler Asset
Management (Chandler) as its sole investment advisor and that the City enter
into a five-year contract based on the firm’s new proposal.
•The Finance Committee recommended the City Council enter into five-year
contracts with two firms, PFM and Chandler.
Background
The Finance Committee expressed the following concerns with hiring only one
investment advisor:
•The City would not realize a diversification of asset classes through the use of
only one investment advisory firm.
•Maintaining two investment advisors provides the means to evaluate the relative
performance of each firm (check and balance) and facilitate a spirit of
competition that will result in higher performance.
•Few local agencies only use one investment advisor, or at least those with a
portfolio size similar to Newport Beach
Strategies and Performance has been very similar
•California Government Code contains very specific provisions regarding the types of investments and practices permitted and statute specifies a percentage restriction on a certain categories of investment.
•There has been little variability in duration and asset class selection used by PFM and Chandler and in recent years.
•Market performance and strategies for both firms over the years has been very similar
•The City can measure relative performance relative to appropriate well known transparent benchmarks
Similar Performance over time
0.000%
1.000%
2.000%
3.000%
4.000%
5.000%
6.000%
Trailing 12 Months
Income Return
Prior Year Income Return Prior 3 Years Income
Return
Trailing 5 Years Income
Return
Income Return Comparison
CNB-Chandler CNB-PFM
0.000%
0.200%
0.400%
0.600%
0.800%
1.000%
1.200%
1.400%
1.600%
1.800%
Year to Date Total Return Prior Year Total Return Trailing 3 Years Total Return Prior 5 Years Total Return
Total Return
(Includes Unrealized Gains & Losses)
CNB-Chandler CNB-PFM
The City’s Investments Will be Exposed to no additional
risk under one vs. two Investment Advisors
The City’s Investments are registered in the City’s name and held by a custodial bank (Bank of New
York) so the likelihood of embezzlement by investment advisor is extremely limited.
Investments will continue to be broadly diversified over market classes, sectors and concentration will
be limited amongst entities that may pose a default risk (Corporate Bonds)
City receives a direct feed from the custodial bank
City monitors compliance with investment policy and risk metrics including corporate and sector
concentration risk, security ratings all independently from investment advisor
City receives market value pricing independently from investment advisor
Accounting for investment activity is reconciled daily
The Use of One Investment Advisor is Efficient, Less
Costly and Appropriate for a City of Newport Beach’s
Size
•In moving to one investment manager from two, the City will:
•Lower its fee structure
•Better manage short-term liquidity and long-term funds under one manager
•Streamline coordination efforts and allow staff to focus on matching assets with liabilities
and appropriate investment strategies
•Reducing the incremental cost of investing from 7 basis points (bps) to 4 bps on newly
invested capital.
•Chandler’s proposal would provide an annual savings of more than $25,000 per
year as compared to the City’s a two investment advisor arrangement.
•Staff was not successful with negotiating a lower fee structure than was
originally proposed by PFM. When asked, Chandler did accept a lower counter
fee proposal.
Cities with Investment Assets Larger Than
Newport Beach ($ millions)
Staff surveyed all
Orange County cities
and found that
Newport Beach is
the only City in the
County that uses
more than one
investment advisor
and approximately
half manage their
investments in-
house. Six cities in
Orange County have
portfolios larger
than Newport
Beach.
Chandler Manages Assets for Several Agencies with
Assets in Excess of $100 Million and Has Shown Greater
Responsiveness to the City’s Needs Over the Years
•Chandler manages assets for 22 public agencies in California with
assets greater than Newport Beach, and for nine agencies with
assets greater than $300 million.
•The average number of accounts served per portfolio manager for
Chandler is 21 while for PFM it is 40.
•The number of discontinued firm’s services in the last three years
for Chandler has been three; whereas for PFM the number is 31.
Assets Under Sole Chandler Management in
California ($ millions)
Flexibility in Executing Portfolio Strategies
4%
14%
82%
ONE-SIZE-FITS-ALL STRATEGY
Checking LAIF 1-3 Yr Strategy
1%10%
14%
61%
14%
CUSTOM STRATEGY
Checking LAIF 6-18 Month ALM 1-5 Yr Strategy 1-10 YR ALM or 115 Trust
Transition
In Summary: Benefits of Single Investment
Asset Management with Chandler
•The City benefits from working with Chandler serving largely California institutions with a public sector focus. Located in San Diego vs. Harrisburg Pennsylvania.
•Portfolio manager, Jayson Schmitt, CFA, Executive Vice President, is a Principal of Chandler and a member of the firm’s Executive Committee. Jayson has been working with the City of Newport Beach since 1995.
•As the City’s portfolio has grown and investment needs have changed, Chandler has provided opportunities to enhance returns through a custom investment strategies appropriate for related liabilities.
•The City benefits from Chandler’s portfolio manager-to-client ratio. Chandler has in-depth knowledge of the City’s investment program, risk tolerances, and objectives, and strives to be an extension of staff. Client since 1992.
Reconsideration of Investment Advisor
Recommendation
Finance Committee Meeting
September 14, 2017
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CITY OF NE\VPORT BEACH
BIIRTEL MISCELLANEOUS & SAFETY PLANS
/iSSOClATES, LLC ----------------------
Ca]PERS Actuarial Issues -6130/16 Valuation
Preliminary Results
Presented by John Bartel, President Prepared by Bianca Lin, Assistant Vice President Matthe\v Childs, Actuarial Analyst
Bartel Associates, LLC
September 14, 2017
Item No. 5B2
Review of Public Employees Retirement System (PERS) Valuation
Presentation
September 14, 2017
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5D
September 14, 2017
TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949)644-3123 or danm@newportbeachca.gov
SUBJECT: OPPOSITION LETTER TO CALPERS BOARD IMPOSED DIVESTMENT DIRECTIVES
DISCUSSION
The City of Newport Beach respectfully states its opposition to the divestment directives imposed by the
CalPERS Investment Committee and Board of Administration. These restrictions have a negative impact on investment performance, decrease assets available to fund benefits, and run counter to CalPERS’ Board
of Administration’s fiduciary duties.
With Finance Committee concurrence, staff will seek approval of the attached letter for submittal to the CalPERS Board of Administration.
Prepared by: Submitted by:
/s/ Steve Montano /s/ Dan Matusiewicz
Steve Montano Dan Matusiewicz Deputy Finance Director Finance Director
Attachment: A. Opposition Letter Regarding CalPERS Board Imposed Divestment Directives
ATTACHMENT A
OPPOSITION LETTER REGARDING CALPERS BOARD IMPOSED DIVESTMENT DIRECTIVES
Draft Letter
October 1, 2017
Mr. Rob Feckner President of the CalPERS Board of Administration 400 Q Street
Sacramento, CA 95811
RE: CalPERS Board Imposed Divestment Directives Dear Mr. Feckner:
From time to time, the Legislature and the CalPERS Board imposes divestment directives
on the CalPERS Investment Office to promote certain social objectives. Divestment directives can cause significant opportunity costs to the pension system’s return at a time when the system, plan sponsors and plan participants cannot afford to compromise
investment return.
The City of Newport Beach respectfully states its strong concern about divestment directives such as those imposed by the CalPERS Investment Committee on December
19, 2016. Divestment directives have a negative impact on investment performance,
decrease assets available to fund benefits, and run counter to CalPERS’ Board of
Administration’s (the “Board”) fiduciary duties. We bear the economic consequences of CalPERS’ investment decisions, and as a local agency and plan stakeholder, we strongly believe that:
• Investment policies, strategies and tactics should not be influenced by pressures
from interests outside of plan stakeholders.
• Divestment directives can jeopardize the plan funded status of the system,
increasing the burden on plan sponsors, plan participants and taxpayers.
• Portfolio construction should be designed to protect the Plan’s funded-ratio, minimize employer costs, and to achieve a long-term rate of return commensurate
with capital market benchmarks without artificial constraints imposed by the Board.
• Divestment directives hinder the Investment Office’s ability to maximize modern
portfolio strategies such as diversification, risk adjusted return selection and efficient frontier analysis.
• Divestment directives hinder the Investment Office’s ability to pick stocks by
market fundamentals and penalizes the stakeholders that the Board has a fiduciary duty to protect.
• Divestment directives broadcast that certain portfolio holdings may be available to
the market at a steep discount due to Board divestment directives.
• The foregone investment performance due to sustainable investing efforts are unacceptable and steps should be taken to minimize the impact to the portfolio
objectives.
• The Plan funded status is low and we remain in a challenging investment
environment with global GPD estimated to be 2.7% in 2017 by the World Bank.
• The extraordinary costs of divestment are unacceptable considering that previous divestment efforts cost the plan more than $3 billion, which continues to compound.
• Divestment efforts, while costly, have not been proven to measurably achieve the
intended social results.
• The Board’s governance duties should focus on broad polices already articulated
in the Investment Beliefs and the investment policy. Portfolio strategy and tactics
should be left to investment professionals.
Expectations for future investment returns have been ratcheted downward and therefore,
have required higher pension contributions. The City of Newport Beach, like many other public organizations in California, is focusing on ways to address the imbalance where
personnel expenditures continue to grow faster than revenues. Accrued pension liabilities
continue to exceed City assets set aside to fund the projected benefit obligations. In
Newport Beach, pension liabilities have increasingly begun to crowd out critical investments in infrastructure that benefit the Orange County and California economy as a whole.
We believe the Investment Office should base their investment decisions solely on market
fundamentals and modern portfolio theory having access to the full universe of investments at their disposal to achieve the best risk adjusted return appropriately aligned with the projected liabilities of the plan.
For these reasons, we respectfully urge the CalPERS Board to cease and reverse divestment
directives that create artificial barriers for the Investment Office and lessen potential investment return.
Thank you for your consideration of our viewpoint.
Sincerely,
KEVIN MULDOON DIANE DIXON
Mayor Council Member & Finance Committee Chair
City of Newport Beach City of Newport Beach
cc: Members of Newport Beach City Council
Marcie Frost, Chief Executive Officer
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5F
September 14, 2017 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949) 644-3123 or danm@newportbeachca.gov SUBJECT: BONITA CANYON COMMUNITY FACILITIES DISTRICT UPDATE
DISCUSSION
Prior to the development of Bonita Canyon, the City entered into a Joint Powers Agreement (JPA) with
Newport Mesa Unified School (NMUSD), to form a Community Facilities District (CFD) that issued $45 million of bonds in the JPA’s name to finance certain road, park and school improvements including Bonita
Canyon sports park. As with most CFDs, the school is the lead administrative agency and proposes to refinance the obligation to obtain an economic benefit to the assessed property owners within the district.
The City’s representatives on the JPA board include the City Manager and the Finance Director. The synopsis, included as Attachment A, summarizes the substance of the proposed transaction prepared by
the JPA’s municipal advisor, Fieldman Rolapp & Associates.
Submitted by:
/s/ Dan Matusiewicz
Dan Matusiewicz
Finance Director
Attachment:
A. Municipal Advisor Synopsis of the Proposed Refinancing
ATTACHMENT A
MUNICIPAL ADVISOR SYNOPSIS OF THE PROPOSED REFINANCING
September 5, 2017
Mr. Dan Matusiewicz
Finance Director
City of Newport Beach
3300 Newport Blvd.
Newport Beach, CA 92658
Dear Mr. Matusiewicz,
Below is a summary regarding the proposed refunding of currently outstanding Bonita Canyon Public
Financing Authority, CFD No. 98-1, Special Tax Bonds, Series 2012 (“Series 2012 Bonds”). You and I
discussed that we would provide such a summary to facilitate your presentation to the Finance
Committee of the City Council.
Issuer Summary
The Bonita Canyon Public Facilities Financing Authority (the “Authority”) was formed in December of
1997 between the City of Newport Beach, Irvine Unified School District, and Newport-Mesa Unified
School District under a joint exercise of powers agreement.
Community Facilities District No. 98-1 (“CFD No. 98-1”) was formed to finance the cost of school
facilities, public parks and recreations facilities, and street improvements. CFD No. 98-1 contains
approximately 335 acres and is located near Bonita Canyon Drive, MacArthur Boulevard, and the SR 73
Toll Road.
Irvine Unified School District subsequently withdrew from the Authority when lands within CFD No.
98-1 transferred from the jurisdiction of Irvine Unified School District to the jurisdiction of Newport-
Mesa Unified School District.
Refunding Summary
The 2017 Special Tax Bonds are proposed to be issued by the Authority to advance refund the Series
2012 Bonds. The Series 2012 Bonds were issued on January 31, 2012 in the principal amount of
$38,330,000 to refund, on a current basis, the Special Tax Bonds, Series 1998 (“Series 1998 Bonds”). The
Series 1998 Bonds were issued to finance a portion of the costs of certain school facilities, public parks
and recreation facilities, and street improvements. Below are summaries of the Series 2012 Bonds and
Series 1998 Bonds.
Given the high value of the property, short borrowing term, and the very strong demographics, we
believe and research validates that selling the 2017 Special Tax Bonds via a private placement will result
Date of
Issuance Par Amount Final
Maturity Reserve Fund True Interest
Cost
Original
Land Status
Value to
Lien
Series 2012 Bonds 1/31/2012 $38,330,000 9/1/2028 80% of Maximum
Annual Debt Service 4.52%Developed 20.0 to 1
Series 1998 Bonds 12/22/1998 $45,000,000 9/1/2028 100% of Maximum
Annual Debt Service 5.59%Undeveloped 4.4 to 1
Prior Bonds Summary
in higher savings and a lower borrowing rate than a public sale. The Private Placement Agent, Stifel,
Nicolaus & Company, Inc. (“Stifel”) has requested bids from the banks listed below. The banks listed are
all active direct purchasers of California municipal bonds. Formal bids by participating banks are due
September 11th.
BB&T Farmer’s & Merchant Bank PNC
California Bank and Trust JP Morgan Signature Public Funding
Capital One Key Government Finance Texas Capital Bank
City National Bank Opus Bank Umpqua Bank
Compass Bank BBVA Pacific West Bank Western Alliance Bank
Deutsche Bank Pinnacle Public Finance Zions Bank
Below is a description of current estimates of the financing results of the 2017 Special Tax Bonds.
A quick review and comparison of the currently outstanding bonds to the proposed refunding bonds
indicates a reduction in True Interest Cost from 4.52 % to 2.77%, a reduced Reserve Fund and annual
cash flow savings of approximately $270,000 per year. Net Present Value Savings exceed $2.5 Million
(net of all costs) and the maturity date of the bonds remains the same.
The Authority is expected to meet on October 26th to consider and potentially approve the financing, and
closing is expected to take place on November 9, 2017.
Please let me know if you have any questions or would like additional information.
Regards,
Thomas G. Johnsen
CC: Jeff Trader, NMUSD
Adam Bauer, FRA
Par Amount*$29,335,000
Final Maturity 9/1/2028
Reserve Fund*25% of Maximum Annual Debt Service
True Interest Cost*2.77%
Value to Lien Ratio*30.0 to 1
Net Present Value Savings($)*$2,580,000
Net Present Value Savings(%)*8.65%
Average Annual Gross Savings $270,000
Savings Allocation
50.1% to 477 individually owned single
family homes, ($137,000 savings/year or
$288 per home/year
49.9% to multi-family apartments($134,000
savings/year.)
*Preliminary, subject to change.
2017 Special Tax Bonds
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5G
September 14, 2017 TO: HONORABLE CHAIR AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949) 644-3123 or danm@newportbeachca.gov SUBJECT: BUDGET AMENDMENTS
EXECUTIVE SUMMARY
The purpose of this memorandum is to report on the budget amendments for the fourth quarter of Fiscal
Year 2016-2017. All budget amendments are in compliance with City Council Policy F-3, Budget Adoption and Administration.
DISCUSSION
The Finance Committee requested that staff provide a quarterly report of budget amendments including their effect on fund balance. City Council Policy F-3, Budget Adoption and Administration, identifies how
appropriations can be transferred, amended or reduced. Please find the list of budget amendments for the quarter ending June 30, 2017, as Attachment A.
Prepared by: Submitted by:
/s/ Susan Giangrande
/s/ Dan Matusiewicz
Susan Giangrande Dan Matusiewicz
Budget Manager Finance Director
Attachment:
A. Budget Amendments Fiscal Year 2016-2017 Quarter Ending June 30, 2017
ATTACHMENT A
BUDGET AMENDMENTS FISCAL YEAR 2016-2017 QUARTER ENDING JUNE 30, 2017
Date Amount
Amendment
Type Fund
Net Effect on Fund
Balance
Increase/(Decrease)Department Explanation
04/11/17 155,731.00 City Council General Fund (155,731.00) Library
To increase expenditure appropriations from the Visit Newport
Beach Arts Contribution to provide funding for a contract with
Arts OC to manage Phase III of the Sculpture Exhibition in
Civic Center Park.
Contributions (625,000.00)
To increase revenue estimates and expenditure appropriations
for the Bonita Canyon Pickleball Courts Project. Park Fees
which are maintained in the Contributions Fund will be used instead of the original plan04/25/17 225,000.00 City Council General Fund CIP 400,000.00 Public Works to use General Fund CIP appropriations.
05/01/17 4,493.00 City Manager General Fund - Police
To increase revenue estimates and expenditure appropriations
for reimbursement received from the California Office of
Emergency Services for the 911 for Kids educational materials.
05/01/17 12,000.00 City Manager General Fund - Fire
To transfer expenditure appropriations from Marine Operations Utilities/Telephone to Marine Operations Equipment to purchase Automatic Vehicle Locator functionality in the
Computer Aided Dispatching System.
05/02/17 9,300.00 City Manager General Fund - Library
To increase revenue estimates and expenditure appropriations
to accept a donation from the Newport Beach Public Library
Foundation as a donor-restricted gift for collection materials and literacy services and programming.
05/04/17 3,000.00 City Manager General Fund - City Manager
To transfer the Innovation Improvement Incentive Program
budget from Human Resources to the City Manager.
05/09/17 657,955.00 City Council 800 MHz Radio (657,955.00) Police
To increase expenditure appropriations from the 800 MHz
Radio Fund for the purchase of Motorola radio consoles in the
Police Department Communications Center.
05/09/17 25,000.00 City Council
Environmental
Liability (25,000.00) MOD
To increase expenditure appropriations from the Environmental
Liability Fund for a contract with EcoNomics for solid waste
consultant services.
05/09/17 40,000.00 City Council General Fund - Library
To increase revenue estimates and expenditure appropriations
to recognize literacy donations to be used for literacy
operations.
05/16/17 3,780.00 City Manager General Fund - Recreation
To increase revenue estimates and expenditure appropriations related to the Per Player Field Maintenance Agreement for the Adult Soccer League's Spring 2017 Season.
05/18/17 10,000.00 City Manager General Fund - City Attorney
To transfer expenditure appropriations from salary savings to
professional services to fund contract temporary staffing in the
City Attorney's Office.
06/02/17 2,400.00 City Manager General Fund - Library
To increase revenue esimates and expenditure appropriations
related to the return of a cultural arts grants that the Arts
Commisssion authorized to be re-issued.
06/13/17 72,469.10 City Council General Fund CIP - Public Works
To transfer expenditure appropriations in the General Fund CIP
from the Arroyo Canyon Bike Trail Project to the FY 17 SCE
Rule 20A Credits Purchase.
06/13/17 1,161,888.00 City Council General Fund CIP - Public Works
To transfer expenditure appropriations from the Corona del mar
Concrete Pavement Reconstruction Project Phase 1 and Phase 2, and from the Turf Replacement/Irrigation Project to fund the newport Heights Alley Replacement Project.
06/27/17 59,350.00 City Council Measure M - Public Works
To transfer expenditure appropriations from the Dover/Westcliff Pavement Rehabilitation Project to the MacArthur Boulevard Pavement Rehabilitation Project.
06/30/17 180,750.00 City Manager General Fund - CDD
Transfer original plan check budget to account used by the
contract for outside plan check services.
07/01/17 8,250.00 City Manager
Environmental
Contributions Fund (8,250.00) Public Works
To increase expenditure appropriations related to funds
received from the State Water Resources Control Board that
will be used on a metal studies and metals sampling project.
07/01/17 6,426.72 City Manager
Environmental
Contributions Fund (6,426.72) Public Works
To increase expenditure appropriations related to funds
received from the State Water Resources Control Board that
will be used on the Little Corona Infiltration Gallery.
07/28/17 106,301.64 City Manager AQMD Fund - City Manager
To transfer expenditure appropriations in the AQMD fund from
rolling equipment to electric vehicle charging equipment.
08/10/17 96,250.00 City Manager
Gas
Tax/Contributions
Fund - Public Works
To increase revenue esimates and transfer expenditure
appropriations related to a cooperative agreement with OCTA
to reimburse the City for some expenditures posted to the
Measure M2 Fund.
City of Newport Beach
Budget AmendmentsFiscal Year 2016-17Quarter Ending June 30, 2017
ATTACHMENT A
WORK PLAN
I:\Users\FIN\Shared\Admin\Finance Committee\WORKPLAN\2017\2017 FC Workplan 1
Updated 09/07/2017
Scheduled Date Agenda Title Agenda Description
Thursday, September 14, 2017 Investment Advisor Contract Discussion & Recommendation Staff will review the previous request for proposal process and
recommendations.
Public Employees Retirement System (PERS) Valuation Update Staff and indepenant actuary John Bartel discuss the latest changes to
actuarial valuation, changes to actuarial assumptions, a review of recent
investment returns andthe potential impact on future plan contribution rates.
Long Range Financial Planning Staff will demonstrate the "GovInvest" software tool that the City is using to
assist in the modeling of long-term pension plan liabilities and cost.
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 12, 2017 Investment Performance Review Staff and/or one or more investment advisors will describe the performance of
the City's investment portfolio.
Debt Policy Staff and a municipal advisor from KNN will present changes to current Debt
Policy F-6 that are required per SB1029 and other aspects of the policy the
committee wishes to discuss.
Review of Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the
remainder of the calendar year.
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.
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.
Risk Based Reserve Analysis City staff and or consultant will provide an update or present the results of the
study current reserve policies and risk exposure.
Insurance Coverage The City's insurance broker will prepare a presentation of current insurance
coverage, market conditions and or changes in coverage that the City might
consider.
Pension Discussion Agenda item reserved for any discussion regarding the status of the City's
pension liability, funding policy and Section 115 Pension Prefunding Funding
Trust.
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 Finance Committee Workplan Staff will review with the Committee the agenda topics scheduled for the
remainder of the calendar year.
Internal Control Review Staff will review the proposed internal control assessment timeline or results
with the Committee.
November
December
City of Newport Beach Finance Committee Work Plan 2017
October
September