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z NEWPORT BEACH
c�<,FORN'P City Council Staff Report
October 26, 2021
Agenda Item No. 15
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Scott Catlett, Finance Director — 949-644-3123,
scatlett@newportbeachca.gov
PREPARED BY: Steve Montano, Deputy Finance Director,
smontano@newportbeachca.gov
PHONE: 949-644-3240
TITLE: Fiscal Year 2020-21 Year -End Budget Results
ABSTRACT:
The City of Newport Beach (City) Finance Department prepares quarterly financial reports
to review the status of revenues and expenditures for the City's funds. This report contains
preliminary information on revenues, expenditures and estimated fund balance for the
fourth quarter of the fiscal year ending June 30, 2021. Because the City's financial records
are undergoing the customary audit review, the financial information presented in this
report is preliminary in nature and subject to adjustments as the year-end close process
continues through December. Any such adjustments are not anticipated to have a
material impact on the financial information presented in this report.
Year-to-date activity of the General Fund shows that revenues through the end of the
fourth quarter came in higher, and expenditures lower, than the revised budget. This
reflects the City's conservative budgeting and projection methodologies, consistent with
City Council Policy F-3, and a more rapid improvement in the economy than had been
anticipated.
RECOMMENDATION:
a) Determine this action is exempt from the California Environmental Quality Act (CEQA)
pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because
this action will not result in a physical change to the environment, directly or indirectly;
b) Review and concur with staff's recommended allocation of $31,000,000 of General
Fund surplus funds on hand;
c) Approve the one-time waiver of policy elements C and D of City Council Policy F-5 —
General Fund Surplus Utilization;
d) Approve Budget Amendment No. 22-019 to appropriate the surplus funds for the
purposes further outlined in this report;
e) Review and concur with staff's recommended allocation of $10.1 million of American
Rescue Plan Act Funds; and
f) Receive and file the attached report of budget amendments for the fourth quarter.
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Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
Page 2
DISCUSSION:
Economic Overview
California's unemployment rate remained at 7.6% in July as the state's employers added
114,400 non-farm payroll jobs, according to data released August 20 by the California
Employment Development Department (EDD). Orange County's unemployment rate
stood at 6.3% at the end of July 2021 compared to 6.4% in March 2021. Nonfarm payrolls
in California have increased over the past year in all 11 industry sectors with leisure and
hospitality growing the most at 25.1 %. Newport Beach's hotel occupancy rate stands at
60.7% as of August 21 and is 37.9% higher than at the same time last year. When
California finally reopened its economy in mid-June and dropped several COVID-related
restrictions, hotel occupancy soared. In Anaheim, the home of Disneyland, hotel
occupancy was at 70% in June, compared to 45% the previous year, according to the
global hospitality data and analytics company STIR. However, the continuing impacts from
the spread of the more highly contagious Delta -variant and the accompanying surge of
new COVID-19 cases and hospitalizations, mainly among the unvaccinated, has some
hoteliers concerned about the possible impact on tourism and a return of business
travelers.
Automobile sales, a major industry group, have experienced a classical V-shaped
recovery in the aftermath of the COVID-19 recession. New car sales dropped 68% or
more at many dealers around the state in the initial weeks after the state's pandemic
shutdown order in March 2020. Sales have since steadily rebounded and are now, in
2021, 13% higher than the same period in 2019, a year before the crisis began. Limited
supply has been overwhelmed by strong demand. Consumers are treating themselves to
more expensive models, with new cars reported to be 8% more costly this year. The
California New Car Dealers Association reports that Porsche, Mercedes and Tesla have
been the most sought-after brands in 2021. S&P Global and other research firms are
forecasting continued growth, in the 15% range, for the remainder of the year before sales
begin to flatten out in 2022.
The Conference Board expects consumer spending to continue to improve in the second
half of 2021, especially on in-person services, but the overall growth contribution derived
from consumer spending will moderate as much of the recovery in this facet of the
economy has already been achieved. However, the recent rapid surge in new COVID-19
cases presents a downside risk to consumer spending. The potential for a resurgence in
cases from new variants does have the potential to affect consumer confidence and
in-person spending.
General Fund Revenues
Most revenue categories performed at or higher than their budgeted levels this year due
to more favorable economic conditions than anticipated when the budget was developed
in April 2020. This performance trend led to a $17.7 million budget amendment during the
third quarter that aligned the budget with the higher anticipated results projected at that
time. This narrowed the budget -to -actual variance when compared to prior quarterly
reports; however, actual revenues were still $16.9 million or 7.7% higher than the current
year-to-date revised budget. When compared to the third quarter projected actual
revenues of $220.2 million, actual revenues were $15.4 million or 7% higher than
anticipated. As discussed in more detail below, the primary positive variances were in
sales tax and service fees & charges.
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Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
Page 3
Property Taxer.
3 113,313,535
$ 117,508,227
$ 117,508,227
$ 119,157,544 $
1,649,313
1.4%
Sales Tax
36,232,969
28,690,831
34.540_$00
38,956,275
4,415,475
12.8%
Transient 0lccupancy Tax
20,847,883
6,434,115
15.209.156
16,886,197
1.677.041
11.0%
Other Taxes
11,846,092
9,652,973
11,081,175
12,849,340
1,76x,165
16_011/0
Service Fees & Charges
20,913,897
17,350,903
14.407.566
18.264.952
3.857.386
26.8'Vo
Parking Revenue
5,529,753
4,621,160
5.529.797
7.074.653
1.545.056
27.9%
Licenses & Permits
4,752,252
4,239,333
5.042.454
5,133,399
90.94$
1.$°!a
Property Income
4,865,828
4,088,259
4.583.939
5,115,255
531,316
11.6%
Fines & Penalties
3,659,011
3,681,031
3.263.257
4,012,568
749.311
23.0°!
Intergovernmental Revenues
3,910,3x5
1,646,716
5.109.769
5,175,738
65.970
1.3%
Investment Earnings
1,295,547
1,112,200
1,112,200
1,598,624
486.424
43.7%
Miscellaneous Revenues
2,784,955
558,156
1259,282
1,359,034
99,752
7.9%
Total Revenues
$ 229,933,017
$ 199.583.904
3 218,647,622
$ 233,583,776 $
16,936,154
7.7%
* Based on preliminary year-end close data available as of August 30, 2021
Property Taxes - Property taxes are the single largest funding source and typically
represent just under 50% of all General Fund revenues. Property tax revenues for
FY 2020-21 were budgeted conservatively, anticipating the potential for delayed
payments due to economic hardship and the Governor's Executive Order suspending
penalties and interest of property taxes. For FY 2020-21, property taxes came in
$1,649,313 or 1.4% higher than budgeted. Despite new record price levels, statewide
growth in home sales slowed and pending sales dropped in the second quarter of 2021
for the first time since May 2020. Higher priced markets like Newport Beach continued to
do well while sales of lower priced properties remained below last year's levels. The
median home sales price of detached single-family residences in Newport Beach was
$3.1 million on June 30, 2021, up 15.9% from the prior quarter and 25% higher than the
prior year. Secured property tax payments came in strong, $1.2 million over budget, which
is an indication of timely property tax payments and higher valuations. With the recent
surge of home prices, this category will likely continue to improve, which bodes well for
future secured property tax revenues.
Sales Tax - The second largest funding source for the General Fund is sales tax revenue,
typically making up more than 15% of General Fund revenues. The City's sales tax base
is largely generated from three main industry categories including Autos and
Transportation, General Consumer Goods, and Restaurants/Hotels. Most of these
industries are also heavily impacted by tourism. The latest sales tax information shows
that retail and restaurants have been hit especially hard this past year, while autos and
transportation is showing quarter over quarter increases. Also, the California Department
of Tax and Fee Administration (CDTFA) has extended due dates and offered payment
plans to small businesses. This has, and will continue to create, timing issues related to
when revenues are received.
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Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
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The City's sales tax consultant provided an updated sales tax estimate at the end of the
third quarter, which resulted in an upwardly revised sales tax budget of $34.5 million. This
came as the result of increased consumer spending amid an environment of declining
COVID-19 cases. Actual Sales Tax revenues came in $4,415,475 or 12.8% higher than
anticipated and surpassed the previous highest annual sales tax revenues in FY 2018-19
of $38.5 million and the prior year receipts of $36.2 million. Businesses pivoted in creative
ways to reach their customers as they were able to open at some capacity sooner than
expected resulting in relatively strong consumer spending. For these reasons all three
main industry categories performed better than expected, with particularly strong growth
seen in the fourth quarter.
Transient Occupancy Tax — Transient occupancy tax (TOT) was the City's most
severely impacted revenue source as the pandemic unfolded, as most major hotels within
the city were temporarily closed toward the end of March 2020 and many didn't start
reopening until late May or early June, with some hotels remaining closed in the third
quarter. Also, short term rentals were not allowed to operate in the city from early April
2020 until May 20, 2020. All but one hotel are now operational, and the latest tax receipts
(July) indicate several hotels are reporting their highest monthly tax receipts ever. Staff
had budgeted FY 2020-21 TOT revenues very conservatively, expecting to realize 10%,
20%, and 25% of prior year revenue in the first, second and third quarters respectively.
Staff had anticipated that residential TOT would be similarly impacted economically, but
in fact, the negative impact has been limited to hotel TOT, with residential TOT revenues
coming in at just under $1 million higher than budgeted. The table below illustrates a
comparison of hotel TOT revenues by fiscal year and quarter. It is remarkable to note the
precipitous revenue increase in the last quarter accounted for 38.6% of revenue for
FY 2020-21. The fourth quarter receipts are much higher than the previous year and
somewhat narrowed the revenue loss gap when compared to prior years. The positive
improvement in this category has led to year-end revenue collections for this category
reaching 81 % of the prior year actuals.
Transient Occupancy Tax Receipts by Quarter FY18-FY21
1stQuarter
2,267,092
13.43%
4,959,179
23.79%
4,820,281
19.52%
4,340,572
19.01%
2nd Quarter
5,523,645
32.71%
7,730,446
37.08%
6,313,511
25.56%
5,962,939
26.11%
3rd Quarter
2,579,739
15.28%
5,545,740
26.60%
5,759,862
23.32%
5,217,752
22.85%
4th Quarter
6,515,721
38.59%
2,612,517
12.53%
7,803,792
31.60%
7,312,352
32.02%
TOTAL
$16,886,197
100°/
$20,847,883
100%
$24,697,446
100%
$22,833,614
100°/
A steady improvement in revenue and occupancy rates, combined with daily room rates
that have been consistently higher than in recent years, have been seen since December,
which is anticipated to continue given the easing of restrictions nationally and the
anticipated return of more significant numbers of leisure, and ultimately business,
travelers in the months ahead. In spite of the changing restrictions, revenues through the
end of the fiscal year were approximately $1.7 million or 11.0% over the revised budget.
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Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
Page 5
All Other Revenue — This category includes all other revenue sources other than the top
three (property tax, sales tax, and TOT). All Other Revenue is made up of the following:
• Other Taxes — real property transfer taxes, business license taxes, marine charter
taxes, and franchise fees.
• Service Fees & Charges — plan check fees, recreation classes, emergency medical
services fees, and numerous other cost -of -service fees.
• Parking Revenue — all General Fund related metered parking fees that are
assessed throughout the various parking zones of the City.
• Licenses and Permits — fees charged to process building related permits, street
closure permits, dog licenses, and police tow franchise fees.
• Property Income — City owned and managed income producing properties,
long-term ground leases to concessions, restaurants, hotels and other businesses
and organizations, and rental of City facilities to the public.
• Fines and Penalties — parking citation fines collected by the City, administrative
citation fines, fines remitted to the City from the County for vehicle code violations,
and false alarm penalties.
• Intergovernmental Revenues — federal, state, and local grant revenues, which
includes, but is not limited to, the City's portion of the '/2 cent sales tax revenue
paid to the County for public safety, state mandate reimbursements,
reimbursement for strike teams sent to assist with fires, and revenue sharing with
the County of Orange under the Waste Disposal Agreement (WDA).
• Investment Earnings — revenue generated from the investment of City funds.
• Miscellaneous Revenues — restricted revenue, damage to City property, bad debt,
donations and contributions, non-operating revenues such as proceeds from the
sale of materials and equipment, and other miscellaneous revenues.
Revenue accounts other than the top three were reduced by 20% across the board in the
FY 2020-21 budget. This was based on historical reductions to revenues during prior
recessions and with the understanding that some accounts would come in higher than
projected and others would come in lower. All other revenue (excluding the top three)
came in $9.2 million higher than the revised budget. This was primarily the result of the
following key variances.
Parking revenue through the fiscal year end came in strong at $1.5 million or 27.9% above
the revised budget, reflecting a continued increase in day travelers visiting the city and
beaches. Other Taxes came in $1.8 million or 16.0% over budget, with business license
taxes and property transfer taxes coming in strong, while marine charter taxes are below
budget. Strong home sales in the city have led the property transfer taxes to increase by
75% from the prior year, an increase of $1.7 million. Lastly, Service Fees & Charges came
in $3.9 million or 26.8% over budget, primarily due to plan check fees coming in higher
than anticipated due to steady activity in the construction field, including large projects
such as the Marriot renovation and other developments. Additionally, the City received
$1.6 million higher than budgeted revenues for the paramedic service fee due to a higher
number of transports and a reduction in collection times for these fees.
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Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
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It is important to note that the significant variance between adopted and revised budget
for intergovernmental revenues is partially attributable to COVID-19-related financial
assistance provided to the City from the Federal, State, and County governments. As of
June 2021, the City has received a total of $4.4 million of CARES Act funding, and is
expecting to receive another $860,000, bringing the total funding from CARES to
approximately $5.2 million. In addition to the CARES Act Funding, the City is planning to
file a claim to the Federal Emergency Management Agency (FEMA), however the
disposition of this claim will not be known for some time. The City also received $290,000
from the County of Orange during the third quarter for economic support initiatives for the
community's small businesses.
During the fourth quarter, the City received $5.1 million from the U.S. Department of
Treasury as part of the American Rescue Plan Act (ARPA) and will receive another
$5.1 million in the fourth quarter of fiscal year 2021-22. Staff have documented General
Fund revenue losses that exceed the total $10.1 million amount of ARPA funds allocated
to the City, which have been set aside in a Special Revenue Fund pending action by the
Council to allocate these funds. These funds are discussed later in this report in
conjunction with recommendations for the disposition of the unrestricted General Fund
reserves on hand in excess of the City's 25% contingency reserve requirement.
General Fund Expenditures
FY 2020-21 General Fund expenditures total $220.7 million and came in 3.1 % below the
revised budget, a savings of $7 million. Existing appropriations were enough to cover all
necessary expenditures during the fiscal year, with savings realized for salary and
benefits due to vacancies, professional and contract services, and maintenance and
repairs.
Salary & Benefits
$ 149,193,631
$ 153,841,452 $
152,365,914 $
(1,475,538)
-1.0%
Contract Services
24,088,461
25,635,070
21,894,363
(3,740,706)
-14.6%
Grant operating
600,000
1,166,409
1,046,476
(119,933)
-10.3%
Utilities
2,961,757
2,932,409
3,579,524
647,115
22.1%
Supplies & Materials
3,740,696
4,363,610
3,868,801
(494,809)
-11.3%
Maintenance & Repair
8,822,276
8,987,338
8,531,515
(455,823)
-5.1%
Travel & Training
813,368
807,792
445,276
(362,516)
-44.9%
General Expenses
2,125,501
2,299,060
2,079,421
(219,640)
-9.6%
Internal Svc Charge
25,977,295
25,977,295
25,977,295
(0)
0.0%
Risk management
750,915
750,915
383,068
(367,847)
-49.0%
Capital Expenditures
785,138
940,144
533,597
(406,548)
-43.2%
Total
$ 219,859,038
$ 227,701,494 $
220,705,249 $
(6,996,245)
-3.1%
* Based on preliminary year-end close data available as of August 30, 2021
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Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
Page 7
Significant expenditures for FY 2020-21 included:
• The budget covered increases in operating costs for janitorial and cleaning
expenses related to COVID-19, including street sweeping, beach clean-up and
park maintenance, public facilities and restroom janitorial services, day porter
services at the Central Library, power washing for public spaces and sidewalks
including temporary outdoor dining, and additional weekly cleaning of City vehicles
(mainly Public Safety departments).
• The Fire Department provided staffing for Strike Team deployments and incurred
$1.2 million in strike team and mutual aid costs through the end of the third quarter.
Reimbursement will be received from Cal OES, and these reimbursements over
time offset these costs with corresponding revenue.
• Public Safety saw increased expenditures relating to COVID-19 for disposable
medicine/EMS supplies for personal protective equipment, emergency cleaning
services, and related supplies. These costs were fully absorbed in the current year
budget, with CARES Act & FEMA reimbursement expected to offset the additional
expenditures.
• Departments have seen increased overtime costs relating to the pandemic for
emergency clean-up services such as beach and street clean-up relating to more
people enjoying the beach for outdoor recreational activities due to the shutdown
orders, and staffing COVID testing sites and vaccinations PODs that were able to
be absorbed due to other salary savings relating to vacancies.
Significant savings for FY 2020-21 included:
• Savings were achieved in salary and benefits. The City budgeted for $2 million in
salary savings and achieved an additional $1.5 million in savings at year end due
to vacancies and attrition.
• Contract Services realized savings for various professional service contracts,
including Recreation contract instructors due to some programs not being able to
run due to restrictions relating to the pandemic. A corresponding revenue decrease
was realized in Service Fees & Charges for these contract class expenditure
savings. Other contract savings were related to a delay in the City's parking meter
upgrade, which will occur in FY 2021-22.
• The Utilities spending category came in over budget due to increases in electricity
rates due to Southern California Edison raising rates during the year for wildfire
insurance premiums. The FY 2021-22 budget has been adjusted accordingly to
adequately fund future electricity expenditures, including for street lights. Other
increases in Utilities costs include water rate increases from the Irvine Ranch
Water District, which will be addressed in the fiscal year 2021-22 quarter one staff
report.
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Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
Page 8
The Tiered Budget Balancing Framework
The strategy employed to balance the budget for FY 2020-21 included a utilization of a
tiered budget balancing framework, which is illustrated below.
Professional and Contract Svcs.
$ 1,621,760 $ $ $
$
$ - $ 1,621,760
Other Non -Personnel Budgets
1,136,807
1,136,807
Personnel Services
- 2,000,000
2,000,000
Transfers Out
- 18,477,137
500,000
18,977,137
Capital Budgets
21500,000
-
2,500,000
Insurance
-
2,000,000
2,000,000
Equipment Replacement
2,500,000
- 2,500,000
Contingency Reserve Draw
Total
$ 2,758,567 2,000,000 $ 20,977,137 $
-
5,000,000 $
2,304,399 2,304,399
2,304,399r,i
Cuts Restored in First Quarter
- - -
(500,000)
,103
(2,304,399) (2,804,399)
Cuts To be Restored
Transfer to FFP
{8,500,000)
(8,500,000)
Transfer to Harbor Capital
{4,500,000)
(4,500,000)
Neighborhood Enhancement
{2,366,000)
(2,366,000)
Restoration Not Required
(2,758,567) (2,000,000) (5,611,137)
(4,500,000)
(14,869,704)
At the onset of budget adoption, $33 million of reductions were approved. $2.8 million of
reductions were restored in the first quarter which includes the tier 4 and tier 5 reductions,
with $4.8 million of tier 1 and tier 2 spending reductions achieved during the year. At the
end of the third quarter, $15.4 million of reductions were restored, including the
$8.5 million contribution to the Facilities Financing Plan (FFP), $4.5 million contribution
to Harbor CIP, and $2.4 million of Neighborhood Enhancement projects. $10.1 million of
the cuts implemented through the tiered budget balancing framework did not need to be
restored during the fiscal year, including $5.6 million of CIP projects not ready to move
forward, $2 million of fund balance returned from insurance funds, $2 million of fund
balance returned from the information technology fund, and $500,000 relating to the
facilities maintenance plan. With these restorations, all appropriate budget reductions
were addressed and restored by the end of the fourth quarter.
General Fund Reserves
We are fortunate that the City was in excellent financial health prior to the global
pandemic. Conservative budgeting and sound financial policies have resulted in a trend
of General Fund operating surpluses and strong reserve levels for several years. At the
end of FY 2019-20, the City had $24.1 million of prior year surplus funds on hand, with
approximately half of these funds attributable to FY 2018-19 operational savings and half
attributable to FY 2019-20 operational savings. Consistent with City Council Policy F-5,
General Fund Surplus Utilization, these funds would have normally been allocated to
paying down long-term obligations and funding infrastructure or neighborhood capital
improvements. However, given the strong evidence in early 2020 that the pandemic
would have significant financial impacts on the City, the FY 2018-19 surplus funds on
hand were redeployed to assist in balancing the FY 2020-21 budget along with the
reductions outlined in the Tiered Budget Balancing Framework. The FY 2019-20 surplus
funds were realized several months after adoption of the FY 2020-21 budget once the
books were closed for FY 2019-20, and these funds were also set aside as a resource to
respond to any additional negative budget impacts from the pandemic.
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Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
Page 9
Conservative budgeting practices coupled with better than expected consumer demand
have resulted in higher revenues and lower expenditures than budgeted in FY 2020-21.
Projected unrestricted General Fund resources of $30.6 million were forecasted in the
third quarter. The $16.9 million of tiered budget reductions restored during the budget
process, combined with appropriations made at that time by the Council toward
permanent supportive housing ($1 million), continued funding for the General Plan
Update project ($0.7 million), and the required contribution to the contingency reserve to
maintain a 25% reserve level in line with the increased FY 2021-22 budget ($2.7 million),
were projected to decrease the $30.6 million balance to $11.0 million.
Actual revenues exceeded budget by $16.9 million and exceeded the final projection
shared with the Council during the FY 2021-22 budget adoption process by $15.4 million.
Actual expenditures were below budget by $7 million and were below the final projection
by $6.1 million. As a result of the additional revenue received and expenditure budget
savings, as well as other adjustments outlined in the table below, unrestricted General
Fund resources are projected to be $31 million, an increase of $7 million versus the start
of the fiscal year.
General Fund Sources and Uses *
BEGINNING UNRESTRICTED FUND BALANCE $ 23,119,513 S 24,081,225 S 24.081.225 $ 24,081,225 S
SOURCES:
Operating Revenues
229,953,017
220.207.798
220.207.798
235,583,776
15,375,978
7.0°%
Less: Restricted Revenues
(2,785,622)
(615,145]
(815.145)
(958,152)
(143,007)
17.546
Prior Year Resources Carried Forward
1,744,227
2,075,632
2,075,632
2,075,632
3.072.666
– -
Release of Restricted Funds
2,492,301
3,645,023
3.645.023
2,392,197
(1,252,826)
(34.4%h
Transfers In from Other Funds
12,970,571
18,574,821
18.574,821
21,804,961
3,230,140
17.446
TOTAL SOURCES
244,374,494
243,688,129
243,688,129
260,898,414
17,210,285
7.1%
USES:
Operating Expenditures
211,066.539
226,794.667
226.794,867
220,705,249
(6.069.618)
(27°%)
Transfers Out
32,346,243
10,422,340
27.298.413
27,467,575
159,162
0.6%
Resources Carried Forward to FY 2021-22
-
3,072,666
3.072.666
--
Addition to 25% Contingency Reserve
-
2.697.265
2,697,265
-
—
TOTAL USES
243,412,782
237,217,207
256,790,545
253,942,755
{2,847,790
{1.145}
ENDING UNRESTRICTED FUND BALANCE
$ 24,081,225
$ 30,552,147
$ 10,978,809
$ 31,036,884
$ 20,058,075
182.7%
CHANGE IN FUND BALANCE $ 961,712 $ 6,470,922 S (13,102,416) $ 6,955.659
* Based on preliminary year-end close data available as of August 30, 2021
It is important to emphasize that the net change in unrestricted fund balance for the year
was only $7 million, with the remainder of the $31 million budget surplus being composed
of the carried forward budget surpluses from FY 2018-19 and FY 2019-20. While
originally those funds had been set aside to address the fiscal impact of the pandemic,
they ultimately were not needed to balance the FY 2020-21 budget due to the faster than
anticipated recovery of the economy. It should also be noted that the FY 2021-22 budget
is balanced as adopted, with revenues only approximately $32,000 higher than
expenditures. The $31 million of surplus funds on hand are therefore entirely one-time in
nature and do not reflect an ongoing excess of revenues over expenditures.
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Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
Page 10
Recommended Uses for Unrestricted General Fund Resources
Historically, year-end surplus funds have been held over until the end of the following
fiscal year for allocation. These allocations are made consistent with City Council Policy
F-5, which recommends that roughly 50% of surplus funds be allocated to long-term
obligations such as pensions, debt, and other long-term needs and 50% be allocated to
infrastructure or neighborhood capital improvements. As discussed with the Council
during the adoption of the FY 2021-22 budget, staff is recommending that action be taken
sooner, on a go -forward basis, as part of this year-end budget discussion. This approach
facilitates the allocation of resources on a timelier basis to liabilities, as well as enhances
the ability to plan for capital projects during the upcoming budget process.
As discussed, $31 million of unrestricted General Fund resources are available for use at
the Council's discretion at this time. These funds represent the accumulated budget
surpluses of fiscal years 2018-19, 2019-20, and 2020-21. As City Council Policy F-5 was
developed with significantly smaller surpluses in mind, staff does not believe that it would
be prudent to allocate 50% of the surplus to long-term liabilities as defined in the Policy.
That definition narrowly defines a liability to include the City's unfunded pension or retiree
medical liabilities and outstanding bonded or lease debt. The City already has an
aggressive plan in place to pay down the City's unfunded pension liability and has made
additional discretionary pension payments in fiscal years 2018-19, 2019-20, and 2020-
21. Additionally, all of the City's outstanding General Fund debt is non -callable. Staff
therefore believes that it is appropriate to consider a broader definition of long-term
liability in this instance when allocating the surplus funds, as further discussed below.
Staff recommends that the surplus funds be allocated as follows:
1. CaIPERS Unfunded Liability — $5 million to bring the City's annual unfunded liability
contribution to CaIPERS up from $35 million to $40 million, consistent with recent
years and the recommendation of the Finance Committee. Given that additional
discretionary payments have already been made in the three fiscal years that
contributed to the surplus funds on hand, staff is not recommending additional
contributions to CalPERS at this time. The City remains on track to eliminate the
legacy pension liability on the timeline previously discussed with the Council.
2. Facilities and Infrastructure Replacement Liabilities — $10.5 million toward
additional contributions to long-term infrastructure liabilities within the Facilities
Financing Plan and Harbor & Beaches Master Plan. While these are not long-term
liabilities under the definition in City Council Policy F-5, they are long-term obligations
that must be funded. A waiver or the Policy is therefore required to allocate these
funds. These funds would be set aside now, with specific allocations recommended
as part of the upcoming FY 2022-23 budget process.
Staff is in the process of reviewing the City's facilities and infrastructure replacement
needs to ensure that the project list is comprehensive and the funding adequate. While
the funding currently included in these plans is sizable, projects that have been
delayed or remain unfunded can be addressed with additional funding. It is therefore
likely that there will be a need for additional funding once this analysis is complete,
and this $10.5 million will be part of the solution to this issue. Staff is also evaluating
whether it is appropriate to index the currently flat annual contributions to facilities
replacement and maintenance to inflation, which will ensure that adequate funds are
set aside on an ongoing basis as costs or particular needs in any given year increase.
15-10
Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
Page 11
3. CIP and Neighborhood Enhancements — $15.5 million toward the FY 2022-23
capital improvement program, to include neighborhood enhancement projects. These
funds would be set aside now, with specific allocations recommended as part of the
upcoming FY 2022-23 budget process.
The Finance Committee met to review this item at its meeting on October 14, 2021. The
Committee concurred with staff's recommended allocation of the surplus funds as
presented in this report and with the waiver of City Council Policy F-5.
Recommended Allocation of ARPA Funds
As discussed earlier in this report, the City has $10.1 million of ARPA funds on hand as
well that have been allocated to the revenue loss expenditure category under the
program's guidelines. This facilitates using these funds for any eligible infrastructure
project or projects. It is staff's recommendation that the full $10.1 million of ARPA funds
also be allocated to the FY 2022-23 capital improvement program, with specific
allocations recommended as part of the upcoming FY 2022-23 budget process. At its
meeting on October 14, 2021, the Finance Committee also concurred with staff's
recommended allocation of the ARPA Funds.
Other Funds
Other funds that are subject to revenue volatility include Tidelands, Gas Tax, Measure M,
S131 RMRA (Road Maintenance and Rehabilitation Account), and the Water and
Wastewater funds. An analysis of the budget performance for these funds through the
fourth quarter of this fiscal year indicates that no budget adjustments are necessary and
variances between budgeted and actual amounts are within reason.
Quarterly Report of Budget Amendments
Attached to this report as Attachment C is the quarterly listing of Budget Amendments
that was previously provided to the Finance Committee. This listing is also provided to
the City Council as part of each quarterly budget update in an effort to enhance
transparency.
FISCAL IMPACT:
As a result of the strong operating results during FY 2021-22, $31 million of surplus funds
are on hand and available for the Council's appropriation. The attached Budget
Amendment appropriates these funds for the purposes discussed in this report and will
reduce the available fund balance in the General Fund. The full General Fund
contingency reserve of $55.3 million remains available following this action.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California
Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not
result in a direct or reasonably foreseeable indirect physical change in the environment)
and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA
Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no
potential for resulting in physical change to the environment, directly or indirectly.
15-11
Fiscal Year 2020-21 Year -End Budget Results
October 26, 2021
Page 12
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
ATTACHMENTS:
Attachment A — City Council Policy F-5 — General Fund Surplus Utilization
Attachment B — Budget Amendment
Attachment C — Budget Amendments for the Fourth Quarter
15-12
Attachment A
City Council Policy F-5 — General Fund Surplus Utilization
15-13
GENERAL FUND SURPLUS UTILIZATION
PURPOSE
F-5
To establish a City Council policy for the use of surplus funds resulting from unrestricted
General Fund annual revenues exceeding total actual expenditures, encumbrances, and
commitments for a given fiscal year.
BACKGROUND
Due to a variety of factors, such as economic expansion, frugal operations, or changes to
various projects and programs, the City of Newport Beach may end a fiscal year with a
surplus of revenues over expenditures, encumbrances and commitments. Budget Surplus
Funds are those surplus funds that result after closing the City's accounting records for a
fiscal year.
From time to time, the City Manager may recommend allocations to the City Council on the
use of Budget Surplus Funds consistent with the uses identified in this policy.
POLICY
A. One-time funds, such as grant proceeds, should be used for one-time expenditures;
therefore, the City Council should not use one-time and Budget Surplus Funds in a way
that creates new on-going expenditure requirements unless the City Council can
demonstrate that adequate resources exist to support the on-going expenditure
requirements.
B. After addressing approved budget amendments, reserve deficiencies and other matters of
fiscal concern, the City Manager or his/her designee may recommend that Budget
Surplus Funds be used to fund City needs in the manner described in this policy, as
approved by the City Council, at a public meeting.
C. Roughly fifty percent (50%) of the Budget Surplus Funds shall be used to address long-
term obligations such as pension liabilities, other post -employment benefits, bonded debt,
lease obligations and other long-term needs. Unlike ongoing needs such as salaries, long-
term needs do not require ongoing funding over an indeterminable period of time.
D. Roughly fifty percent (50%) of the Budget Surplus Funds shall be used to address
infrastructure or neighborhood capital improvements, guided by a philosophy that these
expenditures should seek to improve the community's safety, aesthetics, transportation,
and/or quality of life.
Adopted - June 14, 2016
1
15-14
Attachment B
Budget Amendment No. 22-019
15-15
EW PO
City of Newport Beach
BUDGET AMENDMENT
c�c'coner- 2021-22
BA#: 22-019
Department: Finance
ONETIME: ❑ Yes ❑ No
Requestor: Scott Catlett
Approvals
❑ CITY MANAGER'S APPROVAL ONLY
Finance Director: Date I
❑ COUNCIL APPROVAL REQUIRED City Clerk: Date
EXPLANATION FOR REQUEST:
To allocate unrestricted General Fund resources toward CalPERS unfunded liability, Facilities Financial Plan infrastructure ❑ from existing budget appropriations
liabilities, and neighborhood enhancement projects. ❑ from additional estimated revenues
❑ from unappropriated fund balance
REVENUES
Fund #
Org
Object
Project Description
Increase or (Decrease) $
513
51399
691010
INTERFUND TRANSFERS - TRANSFER IN GENERAL FUND
10,500,000.00
012
01299
691010
INTERFUND TRANSFERS - TRANSFER IN GENERAL FUND
15,500,000.00
Subtotal'
$ 26,000,000.00
EXPENDITURES
Fund #
Org
Object
Description
Increase or (Decrease) $
010
010
725003
(see attached) GENERAL FUND - PENSION UAL DISCRETIONARY MISC
1,659,113.91
010
010
725004
(see attached) GENERAL FUND - PENSION UAL DISCRETIONARY SFTY
3,340,886.09
010
01099
991513
GENERAL FUND INTERFUND TRANSFR - TRANSFER OUT FFP
10,500,000.00
010
01099
991012
GENERAL FUND INTERFUND TRANSFR - TRANSFER OUT CIP FUND
15,500,000.00
Subtotal
$ 31,000,000.00
FUND BALANCE
Fund #
Object
Description
Increase or (Decrease) $
010
300000
GENERAL FUND
- FUND BALANCE CONTROL
(31,000,000.00)
012
300000
GENERAL FUND
CAPITAL PROJECTS - FUND BALANCE CONTROL
15,500,000.00
513
300000
FACILITIES FINANCING PLAN - FUND BALANCE CONTROL
10,500,000.00
Subtotal
$ (5,000,000.00)
Fund Balance Change Required
15-16
Object Organization
725003 - PENSION UAL DISCRETIONARY MISC 01003 - GENERAL
FUND MISC NON OP
-
01005005
- CITY COUNCIL ADMIN
4,441.75
01010005
- CITY CLERK ADMIN
18,882.30
01015005
- CITY ATTORNEY ADMIN
50,235.17
01020005
- CITY MANAGER ADMIN
39,714.55
01020201-
CITY MGR PUBLIC INFO OFFICE
5,983.53
01025005
- HUMAN RESOURCES
52,558.55
01025251-
PERSONNEL MGMT & RECRUITING
-
01025252
- RISK MANAGEMENT & BENEFITS
-
01030005
- FINANCE ADMIN
24,932.43
01030301-
BUDGET
43,991.40
01030302
- ACCOUNTING
22,658.68
0103031-
REVENUE SERVICES
54,282.30
0103511-
EMERGENCY PREPAREDNESS
4,684.52
0103522 -
POLICE IT
32,530.10
01035351-
POLICE CHIEF
12,985.42
01035352
- POLICE SUPPORT SERVICES
149,772.61
01035353
- PATROL
31,677.14
01035354
- TRAFFIC
42,383.35
01035355
- DETECTIVES
36,109.87
01035356
- FLEET MAINTENANCE
6,542.06
01040005
- FIRE ADMINISTRATION
16,433.90
01040401-
FIRE OPERATIONS
2,239.59
01040402
- FIRE PREVENTION
28,494.15
01040403
- COMM ER RESPONSE TEAM (CERT)
4,952.10
01040404
- EMERGENCY MEDICAL SERVICES
9,386.42
01040405
-JUNIOR LIFEGUARDS
-
01040406
- LIFEGUARD OPERATIONS
2,859.00
01050005
- CDD ADMIN
28,154.89
0105041-
INSPECTIONS
48,415.26
0105042 -
PLAN CHECKS/PERMITS
79,107.12
01050501-
PLANNING
64,274.84
01050503
- CODE ENFORCEMENT
17,667.69
01050505
- REAL PROPERTY GEN FUND
8,064.56
01060005
- LIBRARY ADMIN
35,973.93
0106021-
CDM BRANCH LIBRARY
3,182.85
0106022 -
MARINERS BRANCH LIBRARY
24,358.89
0106023 -
CENTRAL LIBRARY
59,249.33
0106024 -
BALBOA BRANCH LIBRARY
6,851.89
01060601
-TECHNICAL PROCESSING
7,566.62
01060604
- LITERACY SERVICES
1,662.32
01070005
- RECREATION ADMIN
19,028.52
0107010 -
PROGRAM SUPPORT
51,022.71
0107012 -
ADULT SPORTS
2,703.91
0107014 -YOUTH
PROGRAMS
8,539.90
0107015 -
PRESCHOOL PROGRAMS
2,555.57
15-17
725003 - PENSION UAL DISCRETIONARY MISC 0107016 -
NATURAL RESOURCES
3,332.11
0107018 -
PARK PATROL
10,023.95
0107019 -
AQUATICS
-
0107020 -
NEWPORT COAST COMMUNITY CENTER
11,708.50
0107021 -
COMMUNITY YOUTH CENTER
5,545.65
0107022 -
CIVIC CENTER RENTALS
-
0107023 -
MARINA PARK
8,869.78
0107024 -
FACILITY MAINT & OPERATIONS
5,358.17
0107031-
OASIS
28,485.56
0107032 -
OASIS FITNESS CENTER
4,082.47
0107033 -
OASIS TRANSPORTATION
12,774.30
01080005
- PUBLIC WORKS ADMIN
35,161.18
0108011-
WQ/CONSERVATION/ENVIRONMENTAL
17,565.93
0108012 -
TRAFFIC & TRANSPORTATION
54,706.77
0108031-
PARKS
29,440.17
0108032 -
TREES
5,978.43
0108041-
FACILITY MAINTENANCE
17,607.34
0108051-
REFUSE
6,621.23
0108061-
STREETS/ASPHALT
90,932.48
01080801-
ENGINEERING SERVICES
91,862.62
01080807
- MOD ADMIN
16,769.29
0109062 -STORM
DRAINS/STREET SWEEPING
28,689.78
0109063 -
STREET LIGHT/ELECTRICAL
6,486.53
725004 - PENSION UAL DISCRETIONARY SFTY 01003 - GENERAL FUND MISC NON OP
-
01035351-
POLICE CHIEF
71,204.46
01035352
- POLICE SUPPORT SERVICES
46,359.97
01035353
- PATROL
1,070,842.13
01035354
- TRAFFIC
178,793.43
01035355
- DETECTIVES
423,198.33
01040005
- FIRE ADMINISTRATION
22,124.89
01040401-
FIRE OPERATIONS
1,075,821.41
01040404
- EMERGENCY MEDICAL SERVICES
304,382.40
01040405
-JUNIOR LIFEGUARDS
-
01040406
- LIFEGUARD OPERATIONS
148,159.05
Grand Total
5,000,000.00
15-18
Attachment C
Budget Amendments for the Fourth Quarter
15-19
City of Newport Beach
Fiscal Year 2020-21 Budget Amendments
Quarter Ending June 30, 2021
15-20
Net Effect on Fund
Balance
BA# Date
Type
Fund
Revenues
Expenditures
Increase/(Decrease) Department
Explanation
034 4/13/2021
City Council
GENERAL FUND
40,000.00
40,000.00
- Recreation & Senior Services
To increase revenue estimates and expenditure
appropriations from the grant reimbursement contribution
from the State of California, Department of Parks and
Recreation, Division of Boating and Waterways, for the
cost of two Zodiak Pro Classic Safety Boats for the Marina
Park Sailing Program.
035 4/13/2021
City Council
GENERAL FUND
-
(31,764.00)
(31,764.00) Fire
To transfer existing expenditure appropriations to the
IT ISF....................................................................................................................81,764.00...................................._.........................................................81,764.00..,
Information Technology Fund to fund the Lifeguard Tower
..........................................................................................................................................................................................................................................................
IT STRATEGIC FUND
(50,000.00)
(50,000.00)
Wireless Phone System.
036 3/29/2021
City Manager
GENERAL FUND
13,337.39
Finance
To transfer expenditure appropriations from salary savings
to professional services for temp A/P staffing.
037 4/13/2021
City Council
GENERAL FUND
165,000.00
(165,000.00) Public Works
To increase expenditure appropriations from Assessment
.............................................................................................................................................................................................................................
District #120 with an advance from General Fund
ASSESSMENT DIST #120
165,000.00
165,000.00
unappropriated fund balance for the engineering design
work.
038 4/27/2021
City Council
GENERAL FUND
-
169,162.00
(169,162.00) Public Works
To increase expenditure appropriations from
.............................................................................................................................................................................................
NEIGHBORHOOD ENHANCEMENT
169,162.00
169,162.00
unappropriated fund balance to award a contract
agreement to AToM Engineering Construction, Inc. for the
Dover Shores Traffic Calming Improvement Project. The
project's proposal includes installing speed cushions and
signing and striping improvements on roads in the Mariners
and Dover Shores neighborhoods.
The contract award follows a comprehensive City Council
approved neighborhood traffic calming study.
039 4/30/2021
City Manager
MEASURE M -COMPETITIVE FUND
(2,349,600.00)
(2,349,600.00)
Public Works
To adhere to the qualifications of Measure M and transfer
.........................................................................................................................................................................................................................
CONTRIBUTIONS FUND
2,349,600.00
2,349,600.00
the OCTA Bicycle program to the appropriate fund. This
project is funded by federal funds administered through
OCTA/Caltrans, but not tied to Measure M Comp.
040 5/5/2021
City Manager
GENERAL FUND
40,285.00
Finance
To transfer expenditure appropriations within the Finance
Department across classifications for the procurement of a
new postage machine.
041 5/5/2021
City Manager
MEASURE M -COMPETITIVE FUND
780,000.00
Public Works
To transfer expenditure appropriations for the West Coast
PARKS &COMMUNITY CENTERS
419,237.35
Hwy Intersection Improvements and Pedestrian Bridge
Project into its own unique project, 21 R16, rather than
combined with the Superior Ave Bridge/Pedestrian
Overcrossing project, 15T09.
042 5/5/2021
City Manager
GENERAL FUND
25,455.00
Finance
To transfer expenditure appropriations from salary savings
to professional services for temporary purchasing staffing.
15-20
City of Newport Beach
Fiscal Year 2020-21 Budget Amendments
Quarter Ending June 30, 2021
To transfer General Fund expenditure appropriations from
unused Homeless Shelter CIP project funds to City
Manager Outreach Services for ongoing homeless
outreach operating costs.
To transfer existing unappropriated CIOSA Bond fund
balance back to the General Fund. Following a good faith
effort to return excess special tax funds and the expiration
of the statute of limitations, remaining funds will be swept
into the General Fund and the City of Newport Beach
Special Improvement District No. 95-1 will be closed out.
044
5/26/2021
Net Effect on Fund
Manager
GENERAL FUND
Balance
BA# Date Type Fund
Revenues Expenditures
Increase/(Decrease)
Department Explanation
043 5/25/2021 City Council GENERAL FUND
993,552.80 265,285.80
728,267.00
Finance To transfer existing unappropriated 800 MHz fund balance
................................................................................................................................................................................
GENERAL FUND CAPITAL PROJECTS
265,285.80
back to the General Fund. The City is no longer required to
.....................................................................................................................................................................................................................................
'666
6/8/2021
City
charge General Fund contributions to acquire replacement
JAZRADIO FUND
446,656.00
(446,656.00)
equipment since the County is now funding all future
CIOSA BONDS AGENCY FUND
281,611.00
(281,611.00)
capital equipment purchases in its annual membership fee.
To transfer General Fund expenditure appropriations from
unused Homeless Shelter CIP project funds to City
Manager Outreach Services for ongoing homeless
outreach operating costs.
To transfer existing unappropriated CIOSA Bond fund
balance back to the General Fund. Following a good faith
effort to return excess special tax funds and the expiration
of the statute of limitations, remaining funds will be swept
into the General Fund and the City of Newport Beach
Special Improvement District No. 95-1 will be closed out.
044
5/26/2021
City
Manager
GENERAL FUND
5,447.00
Finance
To transfer funds from M&O to Capital for the purchase of
a scanner.
045
6/8/2021
City
Council
GENERAL FUND16,876,073.00
(16,876,073.00)
Finance
To restore Fiscal Year 2020-21 tiered budget reductions in
....................................................................................................................................................................................
GENERAL FUND CAPITAL PROJECTS
1,537,059.00
1,537,059.00
General Fund Capital Projects, Tidelands Harbor Capital
.................................................................................................................................................................................................
TIDELANDS HARBOR CAP FUND
4,500,000.00
4,500,000.00
Fund, Facilities Financing Plan Fund, and the
..........................................................................................................................................................................................................
FACILITIES FINANCING PLAN8,500,000.00
8,500,000.00
Neighborhood Enhancement Fund.
.............................................................................................................................................................................................
NEIGHBORHOOD ENHANCEMENT
2,339,014.00
2,339,014.00
046
5/27/2021
City
Manager
WATER ENTERPRISE FUND
35,000.00
Utilities
City Council approved an amendment for the BCR floating
cover repairs project on May 11, 2021. Given the recent
increase and inflation in material costs, transfer existing
appropriations from Water Conservation Activities to
Equipment N.O.0 to help cover costs for the BCR floating
cover repairs project.
047
6/3/2021
City
Manager
GENERAL FUND
4,500.00
4,500.00
Library
To increase revenue estimates and expenditures
appropriations and accept funding from the California State
Library for Literary Services (CLLS) annual grant program.
048
6/15/2021
City
Manager
TIDE & SUBMERGED LANDS FUND
-
5,000.00
Harbor
To transfer expenditure appropriations within the Harbor
Department to purchase two laptops.
050
7/14/2021
City
Manager
CONTRIBUTIONS FUND
527,520.00
527,520.00Utilities
To transfer expenditure appropriations and revenue
WATER CAPITAL FUND
(527,520.00)
.........................
527,520.00
estimates related to the Grant Assistance Agreement with
the U.S. Bureau of Reclamation for the Advanced Meter
Project from the Water Fund to the Contributions Fund.
15-21