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HomeMy WebLinkAboutApproved Minutes - June 14, 2018Finance Committee Meeting Minutes June 14, 2018 Page 1 of 9 CITY OF NEWPORT BEACH FINANCE COMMITTEE JUNE 14, 2018 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), Mayor Pro Tem Will O'Neill, Council Member Kevin Muldoon (arrived 3:08 p.m.) Committee Member William Collopy, Committee Member Joe Stapleton, and Committee Member Larry Tucker ABSENT: Committee Member (VACANT) STAFF PRESENT: City Manager Dave Kiff, Assistant City Manager Carol Jacobs, Finance Director/Treasurer Dan Matusiewicz, Deputy Director/Finance Steve Montano, Accounting Manager Rukshana Virany, Budget Manager Susan Giangrande, Revenue Manager Evelyn Tseng, Senior Accountant Theresa Schweitzer, Human Resources Manager Briza Morales, Human Resources Director Barbara Salvini, Fire Chief Chip Duncan, Deputy Community Development Director Samir Ghosn, Purchasing Agent Anthony Nguyen, Public Works Finance and Administrative Manager Jamie Copeland, Fire Assistant Chief Jeff Boyles, Deputy Community Development Director Jim Campbell, Systems and Administrative Manager Dan Campagnolo, Fire Administrative Manager Angela Velazquez, Fire EMS Division Chief Kristin Thompson, and Administrative Specialist to the Finance Director Marlene Burns MEMBER OF THE PUBLIC: Jim Mosher OUTSIDE ENTITIES: Shayne Kavanagh (GFOA), Serena Sowers (Swiss Re), Rennetta Poncy and Courtney Ramirez (Alliant) III. PUBLIC COMMENTS Chair Dixon informed everyone that, effective today, Committee Member Patti Gorczyca resigned as a member of the Finance Committee. Chair Dixon opened public comments. Noting there were no members of the public who elected to speak on this item, Chair Dixon closed public comments. IV. CONSENT CALENDAR A. MINUTES OF MAY 10, 2018 Recommended Action: Approve and file. B. MINUTES OF MAY 24, 2018 Recommended Action: Finance Committee Meeting Minutes June 14, 2018 Page 2 of 9 Approve and file. MOTION: Mayor Pro Tem O’Neill moved, and Committee Member Collopy seconded, to approve the minutes of May 10 and May 24, 2018. The motion carried unanimously (5 -0, Muldoon absent). AYES: Collopy, Stapleton, Tucker, O’Neill and Dixon NOES: None. ABSENT: Muldoon ABSTAIN: None. V. CURRENT BUSINESS E. DISCUSS POTENTIAL BALLOT INITIATIVE THAT MAY REQUIRE A VOTE OF THE ELECTORATE PRIOR TO THE ISSUANCE OF CERTAIN CERTIFICATES OF PARTICIPATION (COPS) AND OTHER LEASE REVENUE OBLIGATIONS Summary: On the June 12 City Council agenda, Council members will discuss a potential ballot initiative that would require a vote of the electorate prior to the issuance of certain COPs and other lease revenue obligations. Recommended Action: Discuss and develop pros and cons to City Council as necessary. Chair Dixon proposed this item be continued to the June 28, 2018, Finance Committee meeting as the Committee has been advised by the City’s legal counsel to defer their discussion on this matter to the June 26, 2018, City Council meeting. Mayor Pro Tem O’Neill noted he would need to recuse himself if there were any deeper discussion of this item outside of continuing the meeting date. Committee Member Collopy expressed the fact that it could be moot to bring it back to Finance Committee on June 28. Mayor Pro Tem O’Neill requested to continue to the June 28 meeting and then discuss relevancy. Council Member Tucker noted that comments could be taken directly to City Council on June 26; however, if Council would continue consideration of the matter again then the topic would have relevance on June 28. Chair Dixon opened public comments. Jim Mosher requested clarification as to why the matter could not be discussed at this meeting. Mayor Pro Tem O’Neill noted it was upon the recommendation of the City’s legal counsel. Noting there were no other members of the public who elected to speak on this item, Chair Dixon closed public comments. MOTION: Chair Dixon moved, and Mayor Pro Tem O’Neill seconded, to continue this item to the June 28, 2018, Finance Committee Meeting. AYES: Dixon, O'Neill, Collopy, Stapleton and Tucker NOES: None. ABSENT: Muldoon ABSTAIN: None. Finance Committee Meeting Minutes June 14, 2018 Page 3 of 9 F. DISCUSS POTENTIAL REORGANIZATION OF FINANCE COMMMITTEE Summary: On the June 12 City Council agenda, Council members will discuss reorganizing the Finance Committee to be a 7-member all citizen’s committee (versus one with 3 Council Members and 4 citizens), starting July 1, 2019. Recommended Action: Discuss and develop pros and cons to City Council as necessary. Chair Dixon announced the City Council did not act to reorganize the membership of the Finance Committee and this matter does not require consideration. A. RESERVE POLICY Summary: Presentation of Draft Report: GFOA Risk Based Analysis of General Fund Reserve Requirements. Recommended Action: Staff recommends that the Finance Committee direct staff to bring any reserve policy changes for City Council approval, or continue to the next Finance Committee for further analysis and discussion. Finance Director Dan Matusiewicz introduced GFOA consultant Shayne Kavanagh, who participated via teleconference. A PowerPoint Presentation was displayed. Mr. Kavanagh provided an overview of the General Fund Reserve Study completed by GFOA. Council Member Muldoon arrives (3:08 p.m.). Shayne Kavanagh provided the definition of “risk” and noted the main categories of risk events most applicable to the City of Newport Beach (fires, floods, earthquakes, and recessions). Sources of data analyzed in the study came from the City’s own experience, experience of similar municipalities, and interviews with relevant City staff. The risks were combined into one model to display a diversified “pool” of risk, and also accounted for the unlikelihood of all extreme events happening during the same time period. The reserve amount recommended reflects various confidence levels. According the draft report, he noted there is an “efficient” level recommended between 80% and 90% confidence, at $10.4 million and $13.0 million, respectively. As there are “diminishing returns” in terms of the amount of money required in reserve to address very extreme circumstances, it is recommended the City consider other strategies for those items. Mr. Kavanagh spoke regarding the various assumptions for the report. He noted that working at the 80% to 90% confidence range is the most efficient range for use of reserve dollars. He also suggested an integrated risk management strategy to address various risk scenarios (insurance, reserves, other capital strategies). Overall, not every potential risk scenario was analyzed; however, all risks detailed in the City’s Disaster Plan were contemplated. Mr. Kavanagh noted the confidence level range of similar cities and the “best value range” recommended is roughly comparable to what other cities are putting aside. The model put forth today has the ability to analyze the financial impacts of more severe risk event scenarios. Mr. Kavanagh recommended a reserve policy that would include a range or parameter boundary rather than a specific hard number. Discussion ensued regarding reviewing “what-if” scenarios utilizing the model at a future Finance Committee meeting, the City Council’s appetite for risk, and recommendations for extreme “unknown” events. Mr. Kavanagh stated the model allows for the addition of a financial “cushion” which could change the resulting values in “what-if” scenarios. Finance Committee Meeting Minutes June 14, 2018 Page 4 of 9 Committee Member Collopy expressed concern that the report is overly simplistic, as this is just a General Fund reserve study and only contemplated certain risks such as fire, flood, earthquake, and revenue loss in an economic downtown. He was surprised the GFOA recommendation was significantly lower than the City’s current reserve amount, and acknowledged the 25% policy applied by staff was a metric, in combination with other conservative budget strategies, which allowed the City to accumulate a $50 million General Fund reserve. He strongly suggested further evaluation of the City’s “appetite” for risk and to go through the model to come up with a value or range of values that mirrors the City’s General Fund reserve risk strategy. He noted it appears from this study and other evaluation the City may have some flexibility with reserve dollars and there may be opportunity to put those funds to better use. City Manager Kiff noted a balanced budget has been presented each year and reserve dollars were not utilized to “balance” the budget. Discussion ensued regarding potential best uses for excess reserve funds, including various investments and the position of rating agencies as a result of decreasing reserve funds, Committee Member Tucker noted the City’s limited control over certain revenues, including property taxes, and the City’s ongoing obligations, particularly related to pensions. He also stated the City’s other reserve funds must also be reviewed. He said he might be willing to support reducing the General Fund reserve percentage from 25% to maybe as low as 20% but if that were to happen he would prefer any resulting funds available be used for the completion of projects that repaired or replaced critical infrastructure. Mayor Pro Tem O’Neill noted he would reserve his comments until after the insurance presentation. Council Member Muldoon stated he would prefer any extra funds realized as a change to the reserve policy be directed toward pension costs and inquired whether there would be a better investment of funds through the use of a Section 115 trust or other mechanism. Chair Dixon expressed support for the reserve study, especially the review of very extreme events, making comparison to events which recently occurred in Napa, California. She is interested in hearing about the use of insurance as part of the integrated risk strategy. City Manager Kiff commented extra funds generated could be invested more aggressively, such as through a Section 115 trust. This would maintain the City’s reserve level; however, liquidity could be impacted. Discussion ensued regarding various options for potential excess reserves, if it was determined that the $50 million, or 25% metric, is too high. Comments were made regarding investment constraints due to state and finance laws, utilizing the model to affirmatively review extreme “unknown” risk events, and the year-to-year and long-term financial impacts of adjusting the 25% policy. Finance Director Dan Matusiewicz commented the addition of financial assets to CalPERS has a concurrent increase in volatility. Committee Member Collopy suggested moving forward with utilizing the financial model to evaluate various risk scenarios, solidifying the true flexibility of reserve funds, and the potential for earnings with other forms of investment. Council Member Muldoon expressed his strong support to consider other investment opportunities for any excess reserve funds, in particular, focusing efforts on reducing the City’s pension liability. Finance Committee Meeting Minutes June 14, 2018 Page 5 of 9 Committee Member Tucker noted that the Finance Committee is performing its due diligence through review of the reserve policy, and ultimately, the City Council will have to make final decisions regarding their risk strategies and mitigation policies. Chair Dixon opened public comments. Noting there were no members of the public who elected to speak on this item, Chair Dixon closed public comments. By consensus, there was no further action taken on this item and it was continued to the meeting of June 28, 2018, for further review and discussion. B. PARAMETRIC INSURANCE Summary: Teleconference with Swiss Re and the GFOA to discuss parametric insurance options. Recommended Action: Receive and file. Serena Sowers, Swiss Re, participated through teleconference, and provided an overview of the parametric insurance options available to the City. A PowerPoint Presentation was displayed. She reviewed the various “perils,” or risk events, which on a larger scale, impact local governments in a more critical way. Their company, Swiss Re, partners with local agencies to match insurance solutions with public agency concerns/risks. Ms. Sowers described the various peril scenarios and provided data related to the steady increase in insurance losses over the last 37 years. She detailed the “protection gap” between what can be insured and what is actually insured. Public agencies bear the brunt of losses, as they are the “heart” of communities, and are the government source residents look to when recovering from disasters. The parametric insurance policies look to close this gap. Ms. Sowers detailed uninsured losses, which are projected to get worse over the next 15 years. This is based on evaluation of past disaster data, models of climate change, and other associated risks. The challenge is how to plan for and address the extreme unknown events. She commented that the Federal Government, through agencies like FEMA, are not a reliable source for economic/disaster recovery at the local level, as reimbursement or aid is not necessarily timely, and is typically focused on humanitarian, rather than recovery, types of effort. Ms. Sowers additionally spoke regarding the “rippling” effect on local budgets in response to natural or other types of disasters. Committee Member Tucker noted at this point he is most interested in learning about how parametric insurance works so he can decide whether he believes it is a good idea. In response to Committee Member Tucker’s inquiry regarding the type of events covered by parametric insurance, Ms. Sowers noted the policies are “event” based coverage that can provide quickness of payment in response to a triggering event. She also reinforced justifying the premiums for such policies through transparent data, such as that provided by other government agencies (USGS). The policies can be constructed to provide “fractional” payments at lower event thresholds. Committee Member Tucker inquired if the insured has to prove its damages. Ms. Sowers noted that the agency cannot have a “windfall” as a result of insurance. Discussion ensued utilizing the insurance by zip code example, and it was affirmed that a parametric policy can be constructed to focus on general areas or strategically focused on specific areas, which would result in larger losses if a triggering event were to occur. Policies can also be constructed that aggregate various types of risk events. Finance Committee Meeting Minutes June 14, 2018 Page 6 of 9 Chair Dixon opened public comments. In response to a question previously asked by the Committee, Jim Mosher noted that damages related to a risk event will all ultimately need to be justified regardless of when reimbursement occurs. He pointed out that the text of slide 17 stated that the insured has 12 months to determine the full extent of the loss and sign a letter attesting to the actual financial loss. Committee member Tucker confirmed with Ms. Sowers that the payout cannot exceed the loss that is shown. Noting there were no other members of the public who elected to speak on this item, Chair Dixon closed public comments. Ms. Sowers commented the insurance payouts in California are typically in the $10 to $50 million range. There is a “clawback” clause where any amounts not justified must be returned. Losses in excess of $100 million can be addressed through other capital solutions and would generate another conversation separate from today’s discussion. Any parametric insurance policy proposed would take into account the specifics related to the City of Newport Beach’s potential risks. Committee Member Tucker inquired regarding typical types of disputes related to insurance payouts that these types of policies generate. Ms. Sowers noted generally her organization works with their clients to ensure due diligence on both sides in response to a loss event and could inquire internally as to other dispute information. Committee Member Tucker inquired as to the process for developing premiums. Ms. Sowers noted that agency location, limits, and available budgets are the factors that go into developing a policy and the resulting premium. Each agency and situation is unique. Chair Dixon inquired whether separate policies would be required for different risk events. Ms. Sowers responded there is flexibility in structuring the policies and the quickness of payment in response to an event. Chair Dixon thanked Ms. Sowers for the presentation. By consensus, there was no further action taken on this item. C. MASTER FEE SCHEDULE Summary: Staff will present the Master Fee Schedule to the Finance Committee and subsequently will present to the City Council at the July 24, 2018, meeting. Recommended Action: Staff recommends that the Finance Committee direct staff to bring the fee changes for City Council approval or continue to the next Finance Committee for further analysis and discussion. Senior Accountant Theresa Schweitzer provided a staff report and a PowerPoint Presentation was displayed. She stated the methodology of establishing fees for services and related subsidies from the General Fund as directed by the City Council. There are several fees proposed by various Departments for the Finance Committee’s review and the study related to the cost of service delivery/provision was conducted in partnership with Erin Payton, a specialized consultant, of MGT America. Senior Accountant Schweitzer noted every Department’s fees are studied every three to five years and include the “fully-burdened” service delivery costs, inclusive of direct and indirect costs, salaries, benefits, and overhead. This also includes the pension costs related to employee salaries. Finance Committee Meeting Minutes June 14, 2018 Page 7 of 9 Finance Director Matusiewicz noted current accounting standards allow for the inclusion of pension costs in cost recovery, including voluntary increases in pension contributions. Senior Accountant Schweitzer reviewed the proposed fees for the Fire Department, including EMS, Junior Guards, and Marine Operations, along with their past review dates. The major changes in Fire were inclusive of changes in billing methodologies. The switch of responsibility of certain functions from Fire to Community Development resulted in changing format of certain fees and the deletion of 37 fees. The Coastal Development permit has been reviewed over the past year and a half, since implementation. The proposed permit fee is $2129. Council Member Muldoon recused himself at this point in the discussion. Senior Accountant Schweitzer mentioned the $415 fee for radio communication will be a flat fee rather than a “pass-through.” Council Member Muldoon returned to the meeting. Senior Accountant Schweitzer mentioned the new legislation related to payment plans for indigent and low-income individuals as related to parking citations ($5 for indigent, $25 for all other categories). The vehicle code violation fee will be added to the penalty schedule. There is also a recommendation to have all Department fees, which were not studied in this cycle tied to CPI increases automatically. Chair Dixon inquired as to the other Fire Department fee increases. Fire Administrative Manger Angela Velazquez provided detail regarding the ALS and BLS transport fees, fee recovery for when paramedic assessment vans are deployed, and the subsidies related to non-transport services. Chair Dixon opened public comments. Jim Mosher noted the extensive revisions detailed in Attachment C and inquired regarding idiosyncratic percentage increases. Senior Accountant Schweitzer and staff discussion ensued including, as directed by the City Council, certain services are more heavily subsidized to support community and quality-of-life related programs. Mr. Mosher also expressed concern with the “one-size-fits-all” calculation for the Coastal Development Permit, noting not all permit applications are similar in scope. Noting there were no other members of the public who elected to speak on this item, Chair Dixon closed public comments. Chair Dixon inquired regarding a policy on how subsidies are applied or considered. Senior Accountant Schweitzer noted a previous presentation where a “triangle” visualization was displayed to illustrate subsidies for community benefit and staff referenced memorialization of the practice in Municipal Code Section 3.36.030. MOTION: Committee Member Tucker moved, and Committee Member Collopy seconded, to direct staff to bring the fee changes for City Council approval. The motion carried (5 – 0, 1 abstention by Muldoon) as follows: AYES: Collopy, Stapleton, Tucker, O’Neill and Dixon NOES: None. ABSENT: None. ABSTAIN: Muldoon Finance Committee Meeting Minutes June 14, 2018 Page 8 of 9 D. PROPOSED REVISIONS TO COUNCIL POLICY F-14 AUTHORITY TO CONTRACT Summary: Staff will propose changes to Policy - F14 pursuant to the specified requirements in the Federal Uniform Guidance for Federal Awards. Changes are required to be approved by the City Council prior to June 30, 2018, for continued eligibility to receive Federal grant funding. Recommended Action: Staff recommends that the Finance Committee direct staff to bring the policy changes for City Council approval. Purchasing Agent Anthony Nguyen presented a staff report and referenced an updated version of the draft Council Policy F-14. The only contemplated changes are those displayed on Page 6 forward. He noted there is a Federal deadline to change the City’s policies related to a Uniform Guidance statement related to Federal awards on July 1, 2018. Once the changes to the policy are approved by the Finance Committee, they will be forwarded to the City Council for adoption. Mr. Nguyen stated the possible impacts of non-compliance, which could include the loss to the City of Federal funding for grants. Upon adoption of the policy changes, staff will follow-up with administrative procedures and user manuals to ensure the City’s procurement and contracting practices are in line with Federal guidelines. Mayor Pro Tem O’Neill inquired regarding the threshold for the City Manager to approve professional service agreements and other purchases. City Manager Kiff noted the amount has been the same during his tenure as City Manager. Finance Director Matusiewicz noted staff will return to the Finance Committee with a fuller review of the Council’s F-14 policy subsequent to the addition of the compliance paragraph requested at this time. Chair Dixon opened public comments. Jim Mosher expressed support for a more thorough review of the City’s contracting policies and the City Manager’s authority and discretion over procurement of services, especially in light of a potential new City Manager. Noting there were no other members of the public who elected to speak on this item, Chair Dixon closed public comments. G. WORK PLAN REVIEW Summary: Staff will review with the Committee the agenda topics scheduled for the remainder of the calendar year. Recommended Action: Receive and file. Discussion ensued regarding the Work Plan items. By unanimous consensus, the Committee will continue the conversation related to the reserve study and final recommendations to the June 28, 2018, meeting. Staff will also propose the Committee’s work plan from September through the end of the year. There was no further action taken on this item.