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HomeMy WebLinkAboutApproved Minutes - November 17, 2014Page 1 of 7 CITY OF NEWPORT BEACH CITY COUNCIL FINANCE COMMITTEE NOVEMBER 17, 2014 MEETING MINUTES 1) CALL MEETING TO ORDER The meeting was called to order at 3:03 p.m. in the Newport Coast Conference Room, Bay 2E, 100 Civic Center Drive, Newport Beach, California 92660. 2) ROLL CALL Present: Council Member Mike Henn (Chair), Council Member Keith Curry (arrived at 3:16 p.m.) and Council Member Tony Petros Staff present: City Manager, Dave Kiff; Deputy City Manager/Human Resources Director, Terri Cassidy (arrived at 3:38 p.m.); Finance Director, Dan Matusiewicz; Deputy Finance Director, Steve Montano; Budget Manager, Susan Giangrande; Assistant City Engineer, Mike Sinacori; Sr. Budget Analyst, Shannon Espinoza; Public Works Deputy Director, Mike Vukojevic; Fire Captain, Mike Mullen; Revenue Manager, Evelyn Tseng; Accounting Manager, Rukshana Virany; Acting Municipal Operations Department Co-Director, George Murdoch; Public Works Director, Dave Webb; and Administrative Specialist to the Finance Director, Marlene Burns Members of the public: Jim Mosher, Carl Cassidy, and Council Member-Elect Scott Peotter Outside entities: Sima Mostafaei from HF&H Consultants, LLC and Megan Nicolai from Orange County Register 3) PUBLIC COMMENTS Jim Mosher thanked the Committee for recognizing the importance of public comment and commented on the Finance Committee's work plan. He noted that a quarterly report has not been issued for a while and suggested preparing a template and inserting updated numbers so that reports can be issued on a more-timely basis. Additionally, he commented on a secondary review of the City's discretionary reserve policy and noted it is not on today's agenda. Chair Henn reported that there is a full agenda and that the committee and staff had to choose what items to include and not include on this agenda. Finance Director Dan Matusiewicz provided a status update of the Quarter Business Report and noting that staff has looked at an alternative form of delivery and determined to report on items as they come up instead of waiting until the end of a quarter. 4) APPROVAL OF MINUTES Approval of the July 21, 2014, Finance Committee meeting minutes. Chair Henn noted that he did not attend the Finance Committee meeting of July 21, 2014, and would abstain from the approval of the minutes. Chair Henn opened public comments. Jim Mosher made suggestions for corrections to the minutes. Chair Henn closed public comments. Page 2 of 7 Council Member Petros moved, and Council Member Curry seconded the approval of the July 21, 2014, Finance Committee meeting minutes. The Committee voted 2 ayes and 1 abstention (Chair Henn) to approve the minutes, as corrected by Mr. Jim Mosher. 5) CURRENT BUSINESS A. Wastewater Rate Study Results: The Municipal Operations Department retained the consulting services of HF&H to prepare a wastewater and recycled water rate study. The purpose of this presentation is to review the results of the wastewater rate portion of the study and propose the adoption of an appropriate wastewater rate. Acting Municipal Operations Department Co-Director Murdoch presented information regarding the make-up of the waste water enterprise fund and the items paid for by the fee. He provided details of the rates charged and noted that the proposed rate structure would eliminate surcharges and per-dwelling unit charges and would use only the fixed-meter charge and a commodity rate. He addressed current charges, effects on residents, balancing the budget, and meeting the City's reserve policy to fund Capital projects. He referenced the updated Wastewater Master Plan and further addressed actions needed to meet the City's reserve policy and fund Capital projects and operations. Council Member Petros commented on the City's reserve policy and what it is intended to do. He added that the intent of the reserve is to provide funds to offset cost increases that are projected to be short-lived therefore, partially eliminating the volatility of partial rate adjustments. It is not intended to offset long-term pricing structure changes. Chair Henn reported that the current rate structure does not allow for ongoing funding of Capital Improvement Projects in accordance with the Master Plan. He added that there is a need to increase rates in order to provide for the ongoing needs in CIPs. He continued noting that next year, rates will need to be increased in order to back fill the reserves to the policy level. Reserves are intended to cushion rate impacts from sudden, unplanned events. In response to Council Member Petros, Acting Municipal Operations Department Co-Director Murdoch reported that if the Sewer Master Plan is redone, there would need to be a change in the rate structure. He added that staff continuously reviews the Master Plan and that projects are prioritized according to need. Chair Henn noted that other than minor adjustments, there has not been a Master Plan study since 2009. He added that the Master Plan was not executed to the level that was planned. Chair Henn referenced Proposition 218 and added that charges in the enterprise fund must be directly related to costs incurred. Acting Municipal Operations Department Co-Director Murdoch addressed actions necessary in order to adjust rates under Proposition 218. City Manager Kiff commented on a subsidy of multi-family commercial that single-families are paying for and requested clarification of the matter. Discussion followed regarding justified and unjustified charges. Sima Mostafaei, HF&H, explained that all the costs have been identified as a fixed cost and that they need to be covered in order to maintain the system. Commodity charges would be the variable costs and would increase or decrease based on the flow. She added that the surcharges would be considered more of a fixed cost as the size of the meter could be aligned with the type of customer. She explained the process and calculation used for developing the rate structure. Page 3 of 7 Chair Henn stressed that the approach for developing commercial rates is analogous to the approach used for potable water. Sima Mostafaei, HF&H, added that the larger the meters, the larger the cost borne by customers with those meters. Chair Henn referenced a chart in the staff report noting that it sets forth the actual dollar impacts to customers. He added that it is a very small impact on the City's customer base. Acting Municipal Operations Department Co-Director Murdoch referenced a comparison of neighboring agencies and noted a difference in service in that the City maintains its own sewer lines. He addressed actions taken by the City resulting in not having to raise the rates over the last nine years and next steps. Chair Henn indicated this is an action item which would be to make a recommendation for the full Council. Chair Henn opened public comments. Jim Mosher reported that waste water from his home is handled by the Costa Mesa Sanitary District which participated in a rate study and Proposition 218 hearings. He stated that people were not as concerned about rate increases as they were with whether they were getting an equitable distribution of costs among single- and multi-family residences and commercial users. Chair Henn closed public comments. Acting Municipal Operations Department Co-Director Murdoch added that staff typically looks at the water meter and not the sewer connection size. He addressed options for adjusting rate structures. He noted that he feels comfortable with the proposed structure. In response to Chair Henn's question regarding practices of other jurisdictions, Ms. Mostafaei reported that the proposed schedule is in accordance with standard practices and addressed challenges in determining indoor and outdoor uses as residential customers do not have separate meters for irrigation. Council Member Petros moved, and Chair Henn seconded to move this item forward to Council for their consideration as proposed and discussed above. The Committee voted all ayes. Council Member Curry noted that when it gets to Council, he reserves the right to look at the status going forward and how schedule changes are justified. He added that in many cases, the size of meters for commercial customers is not clear. He noted the need for transparency. B. Preliminary FY 2013-14 Year-End Update: Staff will present preliminary financial results of year ending June 30, 2014. In response to Chair Henn's question regarding the expected completion date of the FY 2013-2014 Comprehensive Annual Financial Report, Finance Director Dan Matusiewicz reported that the auditors are finishing up their field work this week and the final financial report is expected to be completed in mid-December. Deputy Finance Director Steve Montano presented details of the staff report addressing reserve and surplus levels. Page 4 of 7 Deputy Finance Director Montano addressed revenues, a comparative income statement, higher-than-expected revenues, expenditures, net income, and General Fund reserves. Council Member Curry noted that reserves were spent on other capital projects and stated that an explanation is needed to track that money. He added that it was used for facilities. Chair Henn added that an increase in the contingency reserve was also approved, the number of reserves was reduced and money was consolidated into the contingency reserve. City Manager Kiff stated that the point is well-taken that the majority of reserve money went to facilities. Council Member Petros commented on the amount of money that went into the reserve from developer contributions. In response to his inquiry, Deputy Finance Director Montano reported that most of that money was from the Newport Center project as well as other projects. Deputy Finance Director Montano addressed the FFP (Facilities Financial Planning) reserves and noted that consistent contributions from the General Fund into the FFP will continue. He addressed future development contributions and presented a summary of all the available and discretionary reserves and all of the resources available to the City across all funds that are not classified as either non-spendable or restricted. Chair Henn opened public comments. Jim Mosher commented on available and discretionary reserves, Council commitments, and other City reserves. Chair Henn closed public comments. The report was received and filed. C. Facilities Financial Planning (FFP): Staff will review the latest draft iteration of the Facilities Financial Planning Tool for Finance Committee review and comment. Chair Henn reported that the FFP is a financial planning tool, explained its purpose and commented positively on the tool. Finance Director Matusiewicz provided details of the staff report addressing replacement of facilities on an on-going basis, developer contributions and the affordability of debt service. Discussion followed regarding development fees affecting the timing of the FFP and ensuring the City is conservative on incoming revenues. Finance Director Matusiewicz noted this is a living document which is reviewed yearly with the best available information. He added that the intent is to review it prior to the budget season so that informed decisions can be made regarding future programming. Chair Henn opened public comments. Council Member-Elect Scott Peotter commented on public benefits fees and in response to his question, Finance Director Matusiewicz reported that the public benefit fee is unrestricted but due to Council policy, 2% of the public benefit fee is set aside for public art. Jim Mosher suggested the FFP would be an appropriate topic for a study session for Council and the public to understand it. Page 5 of 7 Council Member Curry noted that it was a subject considered at the Council retreat held in January and that it was presented at a regular study session. Chair Henn noted that Mr. Mosher's point is germane as it relates to the new Council Members. Mr. Mosher suggested edits to the document. Chair Henn closed public comments. Chair Henn commented on projects that can be executed as cash expenditures and no debt. D. CalPERS Pension Plan Update and Analysis of Payment Alternatives: Staff will review the most significant changes since the last actuarial valuation. Staff will also review an analysis of alternative payment options to accelerate the pay-down of the City’s unfunded pension liability and request a Finance Committee recommendation to bring forth to City Council. Finance Director Matusiewicz reported that the City received its most recent CalPERS valuation in October for June 30, 2013, which sets the contribution rates for Fiscal Year 2015-2016. Council Member Curry noted that the City is dealing with liabilities as they were calculated two years ago because that is how CalPERS does it. City Manager Kiff reported that the youngest valuation is about fifteen months and the oldest is about two years. Finance Director Matusiewicz addressed adjustments made by CalPERS, effects on unfunded liabilities and the City's goal to pay off its unfunded liabilities over a fixed period of time. Finance Director Matusiewicz addressed accelerating payment options from the current option down to a ten, fifteen and twenty year plan. Instead of twenty, he analyzed a nineteen-year option. He addressed the schedules in the staff report using the various assumptions, the CalPERS amortization process, incremental costs and savings of the various options, and cutting payment durations. Chair Henn suggested showing total savings. Finance Director Matusiewicz addressed the unfunded liability balance, reductions using the various alternatives, and vulnerability to further changes in actuarial assumptions and market value fluctuations. Finance Director Matusiewicz recommended the nineteen-year payment alternative noting that it has the most bang for the buck. Chair Henn agreed with the need to be judicious in how the City selects among the three different alternatives. He noted that the City could do a new "fresh start" every year. He added that the City does not want to be in a position of selecting a mandatory solution that stands a potential for the City to wind up overfunded in its pension plan. He suggested that this needs to be analyzed every year. He noted that the more aggressive the alternative, the less flexibility there is to provide services, programs, capital improvements, and investments in the community going forward. Council Member Curry added that the entire PERS system is set up for a dollar-cost-averaging approach to funding over time. He agreed with Chair Henn regarding the need to be prudent in picking a payment, over time, that accelerates the payment, captures the present-value benefit, and does so in a way that allows the City to continue providing the same quality level of service that it provides while taking advantage of fluctuations in the market. Page 6 of 7 Council Member Petros reported that the compelling numbers for him were the costs-to-benefits. He added that he is comfortable with the nineteen-year acceleration. Chair Henn agreed that the nineteen-year plan is appropriate but noted that it can be adjusted in the future. Chair Henn opened public comments. Carl Cassidy opined that a number is missing as it relates to what the City earns by keeping the money. He added that there is a value to leaving the money in the City rather than sending it to Sacramento. Council Member Curry agreed and added that is why the City must be careful that it is not sending too much money to CalPERS because of the possibility of cutting services. Finance Director Matusiewicz addressed the current schedule and the proposed alternative. Discussion followed regarding consideration of the mortality rates. Chair Henn closed public comments. Chair Henn addressed actions needed at this time. City Manager Kiff noted that this will be included in Council's January agenda. Discussion followed regarding payment options differentiating between the additional discretionary payment (ADP) recommendation and the “fresh start” alternative. Council Member Curry moved, and Council Member Petros seconded to recommend to the City Council at its next meeting, approval of the nineteen-year, fresh start alternative. The Committee voted all ayes. Discussion followed regarding the timeline for moving forward on this matter It was suggested to allow the new Council to consider and act on this matter. Chair Henn commended staff for their hard work. E. Enterprise Resource Planning Software Implementation (ERP) Update: Staff will provide the Committee with a progress report on the Enterprise Resource Plan project to receive and file. Deputy Finance Director Montano provided a brief overview of the ERP noting it is the City's new, integrated public finance and Human Resources system. He addressed implementation, noted it is progressing as planned, and reported the "go-live" dates for the different elements. Chair Henn commented positively on the system. Finance Director Matusiewicz commended Budget Manager Susan Giangrande for her work on this project. 6) FINANCE COMMITTEE ANNOUNCEMENTS OR MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON- DISCUSSION ITEM)