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HomeMy WebLinkAboutApproved Minutes - September 12, 2024 Finance Committee Regular Meeting Minutes September 12, 2024 Page 1 of 5 I. CALL MEETING TO ORDER The meeting was called to order at 3:00 p.m. by Mayor Pro Tem/Chair Stapleton. II. ROLL CALL PRESENT: Joe Stapleton, Mayor Pro Tem/Chair Will O’Neill, Mayor Noah Blom, Councilmember Allen Cashion, Committee Member Keith Curry, Committee Member Nancy Scarbrough, Committee Member ABSENT: William Collopy, Committee Member (excused) STAFF PRESENT: Grace K. Leung, City Manager Jason Al-Imam, Finance Director/Treasurer Shelby Burguan, Deputy Finance Director Brittany Cleberg, Assistant Management Analyst Abigail Marin, Budget Analyst Anthony Alannouf, Budget Analyst MEMBERS OF THE Charles Klobe PUBLIC: Jim Mosher Mile Patricola III. PLEDGE OF ALLEGIANCE The Pledge of Allegiance was led by Committee Member Keith Curry. IV. PUBLIC COMMENTS A. ADDITIONAL MATERIALS RECEIVED Mayor Pro Tem/Chair Stapleton opened public comments. Jim Mosher, Newport Beach resident, spoke about the retention bonuses recently approved by the City Council and inquired whether the Police Chief was eligible for the bonus. He also commented on the ordinance requiring brick-and-mortar businesses to accept cash. In addition, Mr. Mosher pointed out that the final budget was approved in June. However, he could not locate the adopted budget on the city’s website. Finance Director/Treasurer Jason Al-Imam noted that within a few days the adopted budget would be posted online. Seeing no others, Mayor Pro Tem/Chair Stapleton closed public comments. V. CONSENT CALENDAR A. MINUTES OF MAY 30, 2024 Recommended Action: Approve and file. Mayor Pro Tem/Chair Stapleton requested the motion incorporate the amendments submitted by Jim Mosher. Finance Committee Regular Meeting Minutes September 12, 2024 Page 2 of 5 MOTION: Committee Member Keith Curry moved to approve the minutes of May 30, 2024, as amended and incorporating Mr. Mosher’s changes, seconded by Councilmember Noah Blom. The motion carried as follows: AYES: Cashion, Scarbrough, Blom, Stapleton, O’Neill, Curry NOES: None ABSENT: Collopy (excused) ABSTAIN: None VII. CURRENT BUSINESS A. ANNUAL REVIEW OF INVESTMENT POLICY Recommended Action: Review and discuss this report and recommend that the City Council formally approve the proposed changes by adopting a resolution. These changes are in furtherance of the City’s investment objectives. Finance Director/Treasurer Al-Imam explained there was one minor change proposed in the Investment Policy that is listed in the Glossary section due to a change in the Government Code. An investment’s term will be measured from the settlement date to final maturity rather than from the trade date to final maturity. Mayor Pro Tem/Chair Stapleton inquired about the change made in April. Finance Director/Treasurer Al-Imam explained the exact same change was touched on a year ago, and additional changes were made in April to remove LA County as an authorized investment vehicle. However, the changes that were made a year ago to the glossary section of the policy were overwritten when the updates were made to the policy in April. Mayor Pro Tem/Chair Stapleton opened public comments. Mr. Jim Mosher, Newport Beach resident, commented about the changes he submitted, and he was unclear if the change being proposed to the glossary was part of the formal policy. Finance Director/Treasurer Al-Imam responded that the change is part of the Investment Policy. He explained that, when it is taken before City Council for consideration, the Council approves a resolution, which incorporates the Investment Policy as an exhibit to the resolution and includes the glossary. Committee Member Cashion asked about achieving a certain benchmark rate of return and if that is a stated number or does it fluctuate. Finance Director/Treasurer Al-Imam explained they use two benchmarks; the 1-5 Year index and a 1-3 Year index, which are tracked because they have different weighted average maturities and over time either index may better align with the weighted average maturity of the City’s pooled investments. Genny Lynkiewicz, CFA, Senior Portfolio Manager for Chandler Asset Management added that the performance page in the investment report shows the rate of return for the benchmark indexes and the City’s investment portfolio over the past ten years. Seeing no others, Mayor Pro Tem/Chair Stapleton closed public comments. MOTION: Councilmember Noah Blom moved to approve the recommendation that City Council formally approve the proposed changes by adopting a resolution, seconded by Committee Member Nancy Scarbrough. The motion carried as follows: AYES: Cashion, Scarbrough, Blom, Stapleton, O’Neill, Curry NOES: None ABSENT: Collopy (excused) ABSTAIN: None Finance Committee Regular Meeting Minutes September 12, 2024 Page 3 of 5 B. ANNUAL REVIEW OF INVESTMENT PERFORMANCE Recommended Action: Receive and file. Genny Lynkiewicz, CFA, Senior Portfolio Manager for Chandler presented the City’s fiscal year-end (FYE) investment report and reported that recent economic data suggests positive but slower growth this year fueled by consumer spending. While the consumer has been resilient, declining savings rates, growing credit card debt, higher delinquencies, and a moderating labor market pose potential headwinds to future economic growth. Inflationary trends are subsiding, but core levels remain above the Federal Reserve’s target. The labor market is showing signs of cooling. For example, the U.S. economy added 142,000 jobs in August, below expectations of 165,000. In July, the Consumer Price Index (CPI) rose 0.2% month-over-month and 2.9% year-over-year, down from 3.0% in June and lower than expected. The Core CPI, which excludes volatile food and energy components, was up 0.2% month-over-month and 3.2% year-over-year in July, down from 3.3% in June. The Personal Consumption Expenditures (PCE) Index rose 0.2% from the previous month and 2.5% year-over year in July. Second quarter GDP increased at an annualized rate of 3.0%, revised up from the advanced estimate of 2.8%. The update reflects an upward revision to consumer spending. It was explained that bond yields have a direct impact on the City’s investment portfolio and investment returns. Ms. Lynkiewicz continued by discussing the City’s investment performance over the past year and went through the investment portfolio presentation and noted that a statement of compliance is also included in the report, which shows the City is in compliance with the Investment Policy and the Government Code. Committee Member Keith Curry inquired what the plans are for the T-bills as they roll off. Ms. Lynkiewicz answered they are directed by City staff as to what is most prudent from a liquidity standpoint, and that there has been some desire for diversification in longer termed investments. They must constantly revisit the City’s cashflow needs to see if there are any assets that can be invested longer term or if it will be needed for current and upcoming projects. Finance Director/Treasurer Al-Imam added that, when the T-bills were purchased during the lower rate environment a few years ago, the portfolio became overextended with longer-term investments. Since 2022, staff has worked to ensure that the portfolio is structured to provide sufficient liquidity. Mayor Pro Tem/Chair Stapleton inquired about credit risks and safety and if there was any way to push duration more long term on investments now while the rates are high if they suspect the rates will be lower in the future. Finance Director/Treasurer Al-Imam answered that Ms. Lynkiewicz reaches out regularly if she sees an opportunity for an investment that makes sense to yield it more long-term. Mayor Pro Tem/Chair Stapleton commented it is a great aggregator tool to put it all together but suggested it might make sense to see what the City’s returns would look like to pull out what the City was managing on their own and not include the hundred million liquidity portion of the portfolio with the portion that is actively invested. Councilmember Blom inquired what the largest source of revenue is. Finance Director/Treasurer Al-Imam replied that property tax is the largest source of revenue. The City receives property tax installments periodically throughout the year with a majority of its property tax revenue received in April, November and December. Therefore, the City’s investment portfolio generally has negative cashflows from May through November until the City’s receives the property tax installment payments in November and December. Mayor Pro Tem/Chair Stapleton opened the item to public comments. Finance Committee Regular Meeting Minutes September 12, 2024 Page 4 of 5 Seeing none, Mayor Pro Tem/Chair Stapleton closed public comments and received and filed the report. C. BUDGET AMENDMENTS FOR QUARTER ENDING JUNE 30, 2024 Recommended Action: Receive and file. Finance Director/Treasurer Al-Imam stated the budget amendments are routine in nature. Committee Member Scarbrough inquired about the real property general fund and what were Ruby’s Balboa Pier Concession and the high school. Deputy Finance Director Shelby Burguan stated it was the outsourcing of the auditorium and that the amount related to Ruby’s was associated with refuse collection. Mayor Pro Tem/Chair Stapleton opened public comments. Seeing none, Mayor Pro Tem/Chair Stapleton closed public comments and received and filed the report. D. DEPARTMENTAL OVERVIEWS Recommended Action: Based on an examination of the departments that have been reviewed over the past five years, it is recommended that the Utilities Department be reviewed at the Finance Committee meeting in January 2025. Finance Director/Treasurer Al-Imam stated in October they will be presenting on the Public Works Department. Approximately seventy-five percent of all funds are expended on public works, fire, police, and utilities. Over the last five years all departments have been reviewed. However, the Utilities Department has not been reviewed since 2021. Therefore, staff recommends that the Utilities Department be reviewed by the Finance Committee in January. The Committee agreed with staff’s recommendation. Mayor Pro Tem/Chair Stapleton opened public comments. Mr. Mosher commented that there were two slices of the pie that were too small to be labeled and mentioned the City Attorney’s Department had never been reviewed or discussed and their impact on the City’s finances is probably considerable. He indicated that a review might be useful. Seeing no others, Mayor Pro Tem/Chair Stapleton closed public comments. E. WORK PLAN REVIEW Recommended Action: Receive and file. A deep dive into the Public Works Department will take place at the next regularly scheduled meeting. There was a question about the size of the surplus for Fiscal Year 2023-2024. Finance Director/Treasurer Al-Imam stated that the year-end results for Fiscal Year 2023-2024 are currently under review and that staff is hoping to have that information available at the next regularly scheduled meeting. Committee Member Scarbrough inquired about the pension liability and recent investment returns for CalPERS. Finance Director/Treasurer Al-Imam indicated that CalPERS reported a preliminary investment return of just over 9% for Fiscal Year 2023-2024. Although CalPERS actuarial valuation reports are a year behind, City staff can model the impact of the 9% return which is expected to result in a $40 million reduction to the pension liability.