HomeMy WebLinkAboutFinance Committee Agenda - April 29, 20141 This Finance Committee is subject to the Ralph M. Brown Act. Among other things, the Brown Act requires that the Finance
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CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA Newport Coast Conference Room, Bay 2E 100 Civic Center Drive, Newport Beach Tuesday, April 29, 2014 – 4:00 PM
Finance Committee Members: Staff Members:
Mike Henn, Council Member, Chair Keith Curry, Council Member
Tony Petros, Council Member
Dave Kiff, City Manager Dan Matusiewicz, Finance Director
Steve Montano, Deputy Finance Director
____________________________________________________ 1) CALL MEETING TO ORDER 2) ROLL CALL 3) PUBLIC COMMENTS
Public comments are invited on agenda and non-agenda items generally considered to be
within the subject matter jurisdiction of the Finance Committee. Speakers must limit comments to 3 minutes. Before speaking, we invite, but do not require, you to state your name for the
record. The Finance Committee has the discretion to extend or shorten the speakers’ time limit
on agenda or non-agenda items, provided the time limit adjustment is applied equally to all speakers. As a courtesy, please turn cell phones off or set them in the silent mode. 4) APPROVAL OF MINUTES Approval of the March 24, 2014, Finance Committee meeting minutes. 5) CURRENT BUSINESS
A. Review of FY 2014-15 Proposed Budget: Staff will provide an overview of the proposed
budget.
B. FFPP Project Planning Review: Staff will review the changes in the proposed list of projects, scope and timing since the last FFPT update and seek Finance Committee concurrence or
further direction on the proposed list of projects.
C. Phase I Changes to Council Policies F-2 (Reserve Policy) and B-2 (Recreation Fees and Related Equipment Replacement Reserves: Staff will review the easier of the proposed
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changes to Council Reserve Policy discussed at the last Finance Committee meeting (e.g.
increasing the contingency reserve to 25%) and seek direction on the more complicated policy changes (e.g. those that may require revision to the municipal code).
D. Quarterly Financial Review: Receive and file.
E. ERP Milestone Review: Receive and file.
F. Review and consider the Proposed Recycled Water Rates and Structure: Staff will review
the results and proposed recommendations regarding the recycled water rate study.
6) FINANCE COMMITTEE ANNOUNCEMENTS OR MATTERS WHICH MEMBERS WOULD LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM) 7) ADJOURNMENT
All documents distributed for this meeting are available in the
administration office of the Finance Department
1
CITY OF NEWPORT BEACH CITY COUNCIL FINANCE COMMITTEE
MARCH 24, 2014 MEETING MINUTES 1. CALL TO ORDER
The meeting was called to order at 4:00 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), Mayor Keith Curry and Council
Member Tony Petros
Staff present: City Manager Dave Kiff, Finance Director Dan Matusiewicz,
Deputy Finance Director Steve Montano, Accounting Manager Rukshana Virany,
IT Manager Rob Houston, Human Resources Supervisor Sheri Anderson and
Administrative Coordinator Tammie Frederickson
Members of the public: Jim Mosher, Carl Cassidy
Outside entities: Nitin Patel of White Nelson Diehl Evans
3. PUBLIC COMMENTS
Mr. Jim Mosher observed the Finance Director serves on the Board for Newport
Beach & Company and questioned whether they are a separate financial entity apart from the City. He also suggested that reports produced by the Finance
Department on revenue from sales tax received from hotels and restaurants could provide more transparency with a breakdown of the categories to show
free standing restaurants, restaurants in hotels, and other non-restaurant activity
in hotels.
Council Member Henn suggested the Finance Director meet with Mr. Moser to
provide clarification on his question regarding the separate functions of the
City’s Finance Department and the Finance Department of Newport Beach &
Company.
4. APPROVAL OF MINUTES
Mayor Curry moved, Council Member Petros seconded to approve the minutes
of the November 18, 2013, Finance Committee meeting. The Committee voted all ayes to approve the minutes. Council Member Henn instructed there be less
detail in future meeting minutes and to prepare the minutes as a summary of action items.
All documents distributed for this meeting are available in the
administration office of the Finance Department
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5. CURRENT BUSINESS
A. Review of June 30, 2013 Audit Results
Finance Director Dan Matusiewicz introduced Nitin Patel of White Nelson Diehl
Evans. Mr. Patel reviewed the scope of services of the audit and the audit
opinion letters that expressed the financial reports were fairly presented in
accordance with accounting principles; no significant deficiencies or material
weaknesses were noted and there were no management letter comments for
improvement.
Mr. Mosher commented the audit letter is just a form letter and similar audit
opinion letters from auditors can be found in other agency’s Comprehensive
Annual Financial Reports. He commented the auditor could have taken his fee
without ever having stepped foot in City Hall. He questioned if the taxpayers are
getting value for their money if the auditors can’t find even a typo. Mr. Mosher
said he finds it disturbing for the Committee to focus on this form letter and
nobody is concerned about the content of this important report.
Mr. Henn stated he considers the report to be important; he has read the report
and has no further questions concerning it. The auditors spent approximately 500 hours reviewing the financial statements and it is their purpose to express an
opinion on the financial statements taken as a whole fairly represents the results of operations and statements of conditions of the City. It is not their purpose to
find typos.
B. 2014 Finance Committee Workplan Overview
Mr. Matusiewicz proposed quarterly meetings of the Finance Committee in 2014
due to heavy staff immersion in the ERP implementation process.
Council Member Curry noted the workplan should include health care OPEB
review at the July meeting in conjunction with the CalPERS white paper discussion.
Mr. Mosher remarked the workplan seems rather thin with long intervals between meetings that may result in a financial review getting overlooked by this
Committee on issues that may arise. He reminded the Committee of the Brown Act provision that restricts a quorum of a committee from discussing any items
within the committee’s jurisdiction outside of the public forum.
Council Member Henn expressed support for a less expansive Finance
Committee workplan so that the Finance Department can focus on the work
involved with the ERP implementation.
C. Enterprise Resource Planning (ERP) Update
The Committee previewed the staff report for this item which is on the March 25,
2013, City Council agenda for consideration of an agreement for an ERP system
and implementation services with Tyler Technologies Inc.
All documents distributed for this meeting are available in the
administration office of the Finance Department
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Deputy Finance Director Steve Montano presented an overview of the ERP selection process, described the benefits to staff and the community, and
outlined the implementation schedule.
Council Member Henn commented that the staff report showed that the
evaluation process covered all the major points substantively.
Mr. Mosher suggested that there should be frequent feedback provided to the
Committee on how the implementation is going.
Mr. Cassidy applauded the Committee for the guidance shown to staff, he
thanked the management for the thoughtful process, and affirmed the commitment shown by staff to plan the implementation.
The Committee expressed unanimous support for recommending approval to the full Council and directed staff to review project milestones with the
Committee during the implementation.
D. Discretionary Reserve Level Discussion
Mr. Matusiewicz framed the purpose of the discussion as a means to develop an
understanding of how discretionary reserves are defined, how much is too much,
and a consistent method for defining the reserves every year. In defining the
discretionary reserves, he reviewed the General Fund categories for Committed
fund balance, Assigned fund balance, and Unassigned fund balance, and
identified certain reserves within those categories.
A series of adjustments were proposed to the current reserve structure. The
Committee expressed support for recommendations by Mr. Matusiewicz to
classify the Contingency Reserve in the Committed category instead of the
Unassigned category; collapse the PERS Rate Reserve into the Contingency
Reserve; consolidate the reserves into fewer categories; and increase
contingency reserve from 15% to 25% of operating budget.
The Committee instructed staff to bring back a recommendation to the July
Finance Committee meeting that identifies which of the several smaller reserves
can be either eliminated or consolidated with others. The Committee also instructed staff to evaluate whether discretionary reserves are established at the
appropriate levels. Per staff recommendation, the Committee directed staff to include a reallocation in the proposed Fiscal Year 2014-15 budget of the
overfunded amount in the Equipment Replacement discretionary reserve to address underfunding in the General Liability, Workers’ Comp and Compensated
Absences reserves.
6. FINANCE COMMITTEE ANNOUNCEMENTS OR MATTERS WHICH MEMBERS WOULD
LIKE PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-DISCUSSION ITEM)
No other items were discussed.
All documents distributed for this meeting are available in the
administration office of the Finance Department
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7. ADJOURNMENT
The Finance Committee adjourned at 6:17 p.m.
Filed with these minutes are copies of all material distributed at the meeting.
Attest:
Mike Henn, Chair Date Finance Committee Chair
CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA ITEM INFORMATION
Agenda Item No. 5B
April 29, 2014
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: FINANCE DEPARTMENT
Dan Matusiewicz, Finance Director
(949) 644-3123 or DanM@NewportBeachCA.gov
SUBJECT: FFPP PROJECT PLANNING REVIEW
SUMMARY:
City Council Policy F-28, Facilities Financial Planning Program (FFPP), requires that
staff prepare an update to the long-term facilities replacement plan in conjunction with the annual budget process for review, modification, and approval by the City Council. The Facilities Financial Planning Tool (FFPT) is an Excel-based model used to analyze
expected cash flows and funding requirements in order to meet the objectives of the
FFPP. Before the FFPT is updated, the assumptions (including cost, facility square
footage, timing of construction, and recent Council policy guidance on facility planning) that form the basis of the model are reviewed by an informal FFPP planning committee. This committee consists of the City Manager, Assistant City Manager, Public Works
Director, Recreation and Senior Services Director and representatives from the Fire and
Finance departments.
Due to project additions and several assumption changes, the future anticipated costs of the FFPP have increased significantly from the last FFPT update in 2013. Prior to
incorporating these changes into the FFPT, staff welcomes input regarding these project
additions and assumptions from the Finance Committee.
RECOMMENDATIONS:
Staff welcomes input on the proposed project plan and recommends that the Committee
receive and file the report and provide any additional input regarding the timing, scope and projects included in the FFPT.
FFPP Project Planning Review April 29, 2014
DISCUSSION:
The total net change in the cost of the FFPP since the last update in 2013 has resulted in
a $63.5 million increase. This increase is the result of the addition of several recreational
facilities, changes to facility square footage requirements, timing, and costs as indicated in greater detail below.
• Since the last update in 2013, new projects estimated at $24.3 million (net of an
assumed $6.5 million private contribution for the Girls and Boys Club) have been
added to the project plan. These include Pedestrian Bridge at Superior/PCH,
Parking Structure at Superior/PCH, Lower Castaways, Community Youth Center, Carroll Beek Center, Bonita Creek Community Center, among other projects.
• For projects with planned replacements within the next 20 years, there is a net
increase of $25.3 million in estimated project costs. Decreases of $6 million for Fire
Station at Mariner’s Mile and Sunset Ridge Park are offset by an increase of $6 million in the West Newport Community Center which now includes a pool. There
are also increases of $9.5 million for Marina Park, $5.3 million for Fire Station
replacements with Library additions, and $10 million for the anticipated Utilities/
Corporate Yard merger among other changes.
• For projects with planned replacements beyond the next 20 years, there is a net increase of $13.9 million in estimated project costs. This is mostly due to a
combination of increases in cost per square footage or increases in the replacement
square footage for the OASIS Senior Center, the Central Library, and the Fire
Station at Newport Coast.
Changes to Projects Fire Library
Municipal
Operations
Recreation
Facility Total
New Projects added to the FFFP - - - $24,292,350 $24,292,350
Replacements planned within next 20 years 1,950,000 - 10,375,000 13,000,000 25,325,000
Replacements planned after next 20 years 1,577,550 4,500,000 - 7,791,437 13,868,987
Total Net Change in FFFP Costs 3,527,550$ 4,500,000$ 10,375,000$ 45,083,787$ 63,486,337$
FFPP Project Planning Review April 29, 2014
KEY ASSUMPTIONS:
The timing and estimated project costs are updated by Public Works based on the best
available information at the time of the update. Construction costs are projected to
increase 2.5% annually. Project and cost projections are revised periodically and are assumed to include design and project management expenditures (except when concept and design expenditures have already been incurred).
Prepared by: Submitted by:
/s/Rukshana Virany
/s/Dan Matusiewicz
Rukshana Virany
Accounting Manager
Dan Matusiewicz
Finance Director
Attachments: FFPT Projects List FFPT 2013 Projects Compared with 2014
FFPT Projects List
FY FY FV Net
YR Current Repl Est $Current Age:Useful Years to Cost Est.Project Design Start Const Start Cost Est @ Private Proposed
Function Project Built Sq Ft Sq Ft /Sq Ft 2014 Life Start Date Estimate Year Year 2.5% Growth Contribtions Cost
1 Fire FS 1 - Peninsula & Library 1962 3,423 8,000 650 52 50 6 Mar-14 5,200,000 2017 2020 6,030,406 6,030,406
2 Fire FS 2 - Lido 1952 9,953 10,000 650 62 50 2 Jan-12 6,500,000 2015 2016 6,829,063 2,219,446 4,609,617
3 Fire FS 3 - Santa Barbara 1971 13,605 6,500 650 43 50 11 Jan-12 4,225,000 2022 2025 5,543,566 5,543,566
4 Fire FS 4 - Balboa Island 1994 4,597 4,400 650 20 50 30 Mar-14 2,860,000 2041 2044 5,999,043 5,999,043
5 Fire FS 5 - CDM & Library 1950 2,495 8,000 650 64 50 1 Mar-14 6,025,000 2015 2015 6,175,625 6,175,625
6 Fire FS 6 - Mariners (apparatus bay only)1957 2,926 1,500 550 57 50 2 Jan-12 825,000 2016 2016 866,766 866,766
7 Fire FS 7 - SAH 2007 11,027 6,500 650 7 50 43 Jan-12 4,225,000 2054 2057 12,216,672 12,216,672
8 Fire FS 8 - Npt. Coast 1995 11,027 11,027 650 19 50 31 Jan-12 7,167,550 2042 2045 15,410,281 15,410,281
9 Fire Lifeguard HQ Remodel 1988 6,167 7,725 180 26 50 50 Jan-12 1,800,000 2061 2064 6,186,796 6,186,796
10 Fire Newport Jr. Guard Building 0 NA 50 6 May-12 1,200,000 2017 2020 1,391,632 1,043,724 347,908
11 Library Library-Central Clerestory & Repairs 2013 1 50 -3 Jun-13 1,405,305 2008 2011 1,405,305 1,405,305
11 Library Library-Balboa (See FS 4 Above)1962 5,566 5,000 52 50 48 Jan-12 - 2059 2062 - -
12 Library Library-CDM (See FS 5 Above)1958 4,323 4,000 56 50 48 Jan-12 - 2059 2062 - -
13 Library Library-Mariners 2006 15,305 8 50 42 Jan-12 6,845,355 2053 2056 19,310,714 19,310,714
14 Library Library-Central 1997 50,930 65,000 550 17 50 38 Jan-12 35,750,000 2049 2052 91,365,646 91,365,646
15 MOD Utilities/Corporate Yard Merge NA 50 3 May-12 10,000,000 2016 2017 10,768,906 - 10,768,906
16 MOD Big Canyon Aux. Yard NA 50 1 May-12 1,400,000 2015 2015 1,435,000 1,435,000
17 Police Police Station @ Current Site 1973 60,000 650 41 50 3 N/A 64,375,000 2016 2017 69,324,834 69,324,834
18 Rec Facility Marina Park Girl Scout House( Las Arenas Park)1956 4,200 4,000 58 50 0 Jan-12 (2,200,000) 2011 2014 (2,200,000) 2,200,000 -
19 Rec Facility Marina Park 2015 24,000 -1 50 0 Jan-12 41,700,000 2011 2014 41,700,000 6,132,900 35,567,100
20 Rec Facility Newport Coast Ctr 2007 16,865 16,865 550 7 50 43 Jan-12 9,275,750 2054 2057 26,821,017 26,821,017
21 Rec Facility Newport Thearter Arts Center 1973 8,042 12,000 550 41 50 16 Jan-12 6,600,000 2027 2030 9,797,737 4,898,869 4,898,869
22 Rec Facility OASIS Sr. Ctr 2010 36,467 43,232 550 4 60 46 Jan-12 23,777,600 2057 2060 74,039,900 74,039,900
23 Rec Facility Sunset Ridge 2014 595,465 NA 0 50 0 Jan-12 8,500,000 2014 2014 8,500,000 8,500,000
24 Rec Facility West Newport Comm Ctr (incl pool)2017 11,980 25,000 550 -3 50 3 Jan-12 16,000,000 2015 2017 17,230,250 17,230,250
25 Rec Facility Bonita Creek - Artificial Turf 2015 160,000 NA 12 -1 15 1 Jan-12 2,000,000 2012 2015 2,050,000 2,050,000
26 Rec Facility 1499 Monrovia Land Purchase 2013 217,800 NA 1 ∞-1 Jan-12 4,308,199 N/A 2013 4,308,199 4,308,199
27 Rec Facility Sunset View Park 0 NA NA ∞5 Mar-14 500,000 2016 2019 565,704 565,704
28 Rec Facility Pedestrian Bridge at Superior/PCH 2017 -3 3 Mar-14 10,000,000 2016 2017 10,768,906 5,000,000 5,768,906
29 Rec Facility Parking Structure at Superior/PCH 2017 -3 3 Mar-14 8,400,000 2016 2017 9,045,881 9,045,881
30 Rec Facility Lower Castaways 2019 174,000 NA -5 ∞5 Jan-12 3,000,000 2015 2019 3,394,225 3,394,225
31 Rec Facility Eastbluff Park Extension 2016 NA -2 ∞2 Jan-12 200,000 2013 2016 210,125 210,125
32 Rec Facility Community Youth Center (CYC) - Grant Howald 1988 5,146 5,146 550 26 50 18 Jan-12 2,830,300 2029 2032 4,414,302 4,414,302
33 Rec Facility Caroll Beek Center 1980 1,555 1,555 550 34 50 19 Jan-12 855,250 2030 2033 1,367,246 1,367,246
34 Rec Facility Bonita Creek Community Ctr.1988 2,876 2,876 550 26 50 24 Jan-12 1,581,800 2035 2038 2,861,043 2,861,043
35 Rec Facility Cliff Drive Community Room 1960 750 750 550 54 50 22 Jan-12 412,500 2033 2036 710,148 710,148
36 Rec Facility Girls & Boys Club (East Bluff Park)1965 11,800 11,800 550 49 50 6 Jan-12 6,490,000 2017 2020 7,526,410 7,526,410 0
37 Rec Facility Lawn Bowling Facility (San Joaquin Hills Park)1974 2,750 2,750 550 40 50 25 Jan-12 1,512,500 2036 2039 2,804,090 2,804,090
Total 445,547,109 486,175,439 29,021,348 461,554,091
FFPT 2013 Projects Compared with 2014
Notes
Function Project
Est. Project
Cost
FY Start
Date Function Project
Est. Project
Cost Variance
FY
Start
Date
1 Fire FS 1 - Peninsula 4,225,000 2019 Fire FS 1 - Peninsula & Library 5,200,000 975,000 2020 Library added as well as sq. footage increased from 6,500 to 8,500
2 Fire FS 2 - Lido 4,225,000 2015 Fire FS 2 - Lido 6,500,000 2,275,000 2016 Lido replacement sq. ft. increased from 6,500 to 10,000
3 Fire FS 3 - Santa Barbara 4,225,000 2021 Fire FS 3 - Santa Barbara 4,225,000 - 2025 Deferred project from 2021 to 2025
4 Fire FS 4 - Balboa Island 4,225,000 2044 Fire FS 4 - Balboa Island 2,860,000 (1,365,000) 2044 Sq. footage decreased from 6,500 to 4,400
5 Fire FS 5 - CDM 4,225,000 2014 Fire FS 5 - CDM & Library 6,025,000 1,800,000 2015 Added Library to Fire Station and deferred project one year to 2015
6 Fire FS 6 - Mariners 4,225,000 2022 Fire FS 6 - Mariners (apparatus bay only)825,000 (3,400,000) 2016 Only construction of the apparatus bay now
7 Fire FS 7 - SAH 4,225,000 2057 Fire FS 7 - SAH 4,225,000 - 2057
8 Fire FS 8 - Npt. Coast 4,225,000 2045 Fire FS 8 - Npt. Coast 7,167,550 2,942,550 2045 Sq. footage increased from 6,500 to 11,027
9 Fire Lifeguard HQ Remodel 1,500,000 2014 Fire Lifeguard HQ Remodel 1,800,000 300,000 2014 Increased cost by $300K
10 Fire Newport Jr. Guard Building 1,200,000 2020 Fire Newport Jr. Guard Building 1,200,000 - 2020
Total 36,500,000 Total 40,027,550 3,527,550
11 Library Library-Balboa 2,250,000 2062 Library Library-Balboa - (2,250,000) 2062 Library added to FS 1 above
12 Library Library-CDM 3,000,000 2062 Library Library-CDM - (3,000,000) 2062 Library added to FS 5 above
13 Library Library-Mariners 6,845,355 2056 Library Library-Mariners 6,845,355 - 2056
14 Library Library-Central 26,000,000 2052 Library Library-Central 35,750,000 9,750,000 2052 Cost per sq. footage went up from$400 to $550
Total 38,095,355 Total 42,595,355 4,500,000
15 MOD Utilities/Corporate Yard Merge - 2015 MOD Utilities/Corporate Yard Merge 10,000,000 10,000,000 2017 Costs were only determined this year; project got deferred 2 years out to 2017
16 MOD Big Canyon Aux. Yard 1,025,000 2015 MOD Big Canyon Aux. Yard 1,400,000 375,000 2015 Costs increased $375K
Total 1,025,000 Total 11,400,000 10,375,000
17 Police Police Station @ Current Site 64,375,000 2020 Police Police Station @ Current Site 64,375,000 - 2020
18 Rec Facility Marina Park Girl Scout House - 2014 Rec Facility Marina Park Girl Scout House - - 2014
19 Rec Facility Marina Park 30,000,000 2014 Rec Facility Marina Park 39,500,000 9,500,000 2014
20 Rec Facility Newport Coast Ctr 9,984,797 2057 Rec Facility Newport Coast Ctr 9,275,750 (709,047) 2057 Cost went down as cost per sq. ft. went down from $602 to $550
21 Rec Facility Newport Thearter Arts Center (Net of private funding)3,000,000 2050 Rec Facility Newport Thearter Arts Center (Net of private funding)3,300,000 300,000 2030 Cost went up due to slight increase in cost per sq. ft.
22 Rec Facility OASIS Sr. Ctr 15,577,116 2060 Rec Facility OASIS Sr. Ctr 23,777,600 8,200,484 2060 Cost went up due to the cost per sq. ft. going up from $360 to $550
23 Rec Facility Sunset Ridge 11,000,000 2014 Rec Facility Sunset Ridge 8,500,000 (2,500,000) 2014 Costs went down $2.5M as the project got closer to being completed
24 Rec Facility West Newport Comm Ctr 10,000,000 2015 Rec Facility West Newport Comm Ctr (incl pool)16,000,000 6,000,000 2017 Costs went up due to the inclusion of a pool
25 Rec Facility Bonita Creek - Artificial Turf 2,000,000 2015 Rec Facility Bonita Creek - Artificial Turf 2,000,000 - 2015
26 Rec Facility West Newport Land Purchase 4,308,199 2013 Rec Facility 1499 Monrovia Land Purchase 4,308,199 - 2013
27 - Rec Facility Sunset View Park 500,000 500,000 2019
28 - Rec Facility Pedestrian Bridge at Superior/PCH (Net of private fund 5,000,000 5,000,000 2017
29 - Rec Facility Parking Structure at Superior/PCH 8,400,000 8,400,000 2017
30 - Rec Facility Lower Castaways 3,000,000 3,000,000 2019
31 - Rec Facility Eastbluff Park Extension 200,000 200,000 2016
32 - Rec Facility Community Youth Center (CYC) - Grant Howald 2,830,300 2,830,300 2032 New projects added this year - $30.8 million, or a net of $24.3 million
33 - Rec Facility Caroll Beek Center 855,250 855,250 2033 resulting from an assumed $6.5 million private funding for the
34 - Rec Facility Bonita Creek Community Ctr.1,581,800 1,581,800 2038 Girls & Boys Club
35 - Rec Facility Cliff Drive Community Room 412,500 412,500 2036
36 - Rec Facility Girls & Boys Club (East Bluff Park)6,490,000 6,490,000 2020
37 - Rec Facility Lawn Bowling Facility (San Joaquin Hills Park)1,512,500 1,512,500 2039
Total 85,870,112 Total 137,443,899 51,573,787
Total 297,247,109 69,976,337
Less:Private funding for the Girls & Boys Club (6,490,000) (6,490,000)
Grand Total 227,270,772 Grand Total 290,757,109 63,486,337
2013 FFPP Update 2014 FFPP Update
CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA ITEM INFORMATION
Agenda Item No. 5C
April 29, 2014
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Dan Matusiewicz, Finance Director
(949) 644-3123, DanM@newportbeachca.gov
SUBJECT: Phase I Changes to Council Policies F-2 (Reserve Policy) and
B-2 (Recreation Fees and Related Equipment Replacement Reserves)
SUMMARY:
At the March 24, 2014 Finance Committee meeting, the Finance Committee and staff
discussed the framework of, and proposed a number of specific adjustments to, Council Policy (F-2 - Reserve Policy) including a significant adjustment to the City’s Contingency
Reserve.
The Committee concurred with staff’s recommendations and further instructed staff to
bring back a recommendation that identifies which of the several smaller reserves can
be either eliminated or consolidated with others at the July Finance Committee.
Due to the timing of the FY 2014-15 Proposed Budget adoption, staff believes it is advantageous to implement changes to Policy F-2 in two phases: 1) changes that can
be made easily and amended with the adoption of the FY 2014-15 Proposed Budget
and 2) changes that may require a revision to the Municipal Code and will thus require
more time to bring forward for approval - after the adoption of the FY 2014-15 Proposed Budget.
RECOMMENDATION:
Review staff’s recommended changes to Council Policy (F-2 Reserve Policy) and related changes to Council Policy (B-2 Recreation Fees and Related Equipment Replacement Reserves), provide further guidance as needed, and direct staff to submit
policy changes to the City Council for final approval.
Phase I Changes to Council Policies F-2 and B-2 April 29, 2014
Page 2 DISCUSSION:
Recommended Phase I Changes
These are changes that can be made easily and amended with the adoption of the FY
2014-15 Proposed Budget or by no later than June 30, 2014:
1. Changes to the Contingency Reserve
a. Increase the Contingency Reserve Balance from 15% to 25%.
b. Remove restrictive parameters from the reserve requirement so that the balance will be reported as Unassigned vs. Committed (this action gives
further assurance to creditors and rating agencies that the Contingency
Reserve is indeed available, should a financial necessity arise).
2. Expand the Use of the Equipment Replacement Fund and Eliminate Specified Reserve Categories
The Equipment Replacement, internal service fund model has proven to be an
effective means to set funds aside for periodic capital replacement needs. Funds
are set-aside based on an annual assessment of the equipment’s age, condition
and anticipated future replacement date and cost. These funds are subsequently made available for the replacement of equipment after reaching its useful life.
Much of the current reserve policy pertains to small and relatively insignificant
reserve categories that are derived through a percentage allocation of certain
revenue sources. Reserve policies that can be eliminated at this time by utilizing
the Equipment Replacement Fund include:
a. Recreation Facility Rental Reserve (based on 10% facility rental service revenue): This reserve was intended to replace certain facility
equipment and furniture due to the wear and tear associated with facility
rentals.
b. Recreation Classes (based on 10% to 20% of recreational class revenue): This reserve was intended to replace certain recreation equipment utilized in recreation classes such as surfboards, sailboats
other waterfront activities. It was also intended to periodically resurface
tennis courts used during public tennis lessons.
c. Senior Fitness Center Reserve (based on 10% of fitness center fees): This reserve was established for the purpose of purchasing and replacing
fitness equipment.
d. Paramedic Program (based on prior Hoag Hospital contributions and
program income): This reserve was intended to acquire and replace
equipment utilized in paramedic services.
e. START Program (based on revenue generated by the sale of training videos/materials): The START program reserve was intended to
Phase I Changes to Council Policies F-2 and B-2 April 29, 2014
Page 3 periodically fund costs associated with the paramedic triage video and EMT related equipment.
3. Staff also recommends the following changes to the Reserve Policy:
a. Realigning the Oceanfront Encroachment Reserve as a Restricted
Reserve rather than a Council Commitment.
b. Add language describing the administrative process of reappropriating Capital Improvement Projects (CIPs).
c. Eliminate the examples referenced in the policy relating to City Manager
Assignments since they can vary from year to year.
d. Add additional flexibility in determining appropriate funding levels for
different types of equipment.
Recommended Phase II Changes
These are changes that may require a revision to the Municipal Code and will thus
require more time to bring forward for approval – after the adoption of the FY 2014-15
Proposed Budget.
1. Parking Revenue Set Asides
Similar to the success we have experienced with the use of the Equipment
Replacement Fund model, we have also had success funding many facilities via
the Facilities Financial Planning Fund. We also recommend that Finance Committee direct staff to review and rescind references to the Municipal Code that requires the City to set funds aside related to certain parking revenues
including parking fees to benefit off-street parking or other neighborhood
enhancements.
Neighborhood Revitalization needs in many areas may be disproportionate to the parking fees collected in any particular area. The funds collected may be further
diluted by requirements to set funds aside associated with Tidelands trust
property or other overlapping requirements. Instead, staff proposes the creation
of a Neighborhood Revitalization Fund. The Community Development Director and Public Works Director will collaboratively prepare a master plan of improvements and or maintenance needs with the input of relevant Citizen
Advisory Panels (CAPs) and or other Committees. Based on Council
prioritization of projects, timing and cash flow requirements, Finance staff will
determine the funding and or debt requirements to fund the projects during the annual budget development process. We believe this process will establish a more flexible and reliable funding source for neighborhood revitalization needs.
Phase I Changes to Council Policies F-2 and B-2 April 29, 2014
Page 4 2. Public, Educational and Government Access (PEG) Fees We also suggest that staff research the laws related to PEG fees derived from
cable franchise revenues to determine whether there is any ongoing financial
benefit of restricting a portion of cable franchise revenues for PEG purposes.
If the Finance Committee feels these proposals have merit, please direct staff to review the Municipal Code and related laws with the intent to rescind portions of the Municipal
Code that restrict the use of parking revenues and cable franchise revenues.
Prepared and Submitted by:
/s/Dan Matusiewicz
Dan Matusiewicz Finance Director
Attachments: A. Summary of Recommended Phased Revisions
B. Redline of Phase I revisions to Council Policy (F-2) & (B-2)
Summary of Reserve Policies
Policy/Phased
Reserve Name Restriction Purpose Minimum Revenue Set-Aside Revision Recommendation
Non-Discretionary Reserves
Park-in-lieu GC 664777 Park Development No Min or Max 100% of Quimby Act Park Fees NA NA - Externally Restricted
Oceanfront Encroachment Reserve LCP & L-12 Revenue Agreement No Min or Max 100% of Oceanfront Encroachment permit fee revenue NA NA - Externally Restricted
Upper Bay Restoration SB 573 No Min or Max 10% of Certain Lease Revenue NA NA - Externally Restricted
Discretionary Reserves
Strategic Savings
Facilities Financial Planning Reserve F-28 Facility Replacement Max. Annual Debt Service + Project Needs As determined by Facilities Financial Planning Tool (FFPT)NA None
Facilities Maintenance Plan NA Major Facility Maint.No Policy As determined by Facilities Maintenance Plan (Vertex)NA None
Equipment Replacement F-2 Equipment Replacement Accumulated Depreciation Rates sets annually based on projected replacement needs NA None
IT Strategic Fund NA System Replacement No Policy As determined by IT Strategic Plan NA None
Rec Facility Rentals B-2 Equipment Replacement No Min or Max 10% Facility Rental Services I Transition to Equipment Replacement Fund
Recreation Pgm-Equipment Replacement B-2 Equipment Replacement No Min or Max 10% to 20% of specified recreation classes I Transition to Equipment Replacement Fund
Sr. Fitness Cntr - Equipment Replacement B-2 Equipment Replacement No Min or Max 10% of fitness center membership fees I Transition to Equipment Replacement Fund
In Lieu Parking MC 12.44 Neighborhood Parking No Min or Max Annual fees collected In-lieu of owner-provided parking II Review, modify or eliminate MC.
Off Street Parking MC 12.44 Neighborhood Parking No Min or Max 50% of parking meter revenues in designated areas II Review, modify or eliminate MC.
Neighborhood Enhancement A MC 12.44 Neighborhood Vitalization No Min or Max Parking meter revenues in designated areas II Review, modify or eliminate MC.
Neighborhood Enhancement B MC 12.44 Neighborhood Vitalization No Min or Max 50% of parking meter revenues in designated areas II Review, modify or eliminate MC.
Cable Franchise MC 5.44 Public Access Channel No Min or Max Cable Franchise II Review, modify or eliminate MC.
Paramedic Program F-2 Paramedic Equipment Replacement No Min or Max Hoag Contribution & Program Income I Transition to Equipment Replacement Fund
START Program F-2 Paramedic Triage Video Program No Min or Max Profits generated by sale of training videos/materials I Transition to Equipment Replacement Fund
Oil and Gas Reserve F-2 Well Improvements No Min or Max $40,000 of oil and gas field production revenues annually NA None.
Administrative
Capital Reappropriations NA Accounting/Administrative None Unspent Capital Projects Reappropriated to the next FY NA None.
Risk Management
Worker's Compensation F-2 Prefunding Liability Exceed actuary's "Expected Level"Rates charged to departments to fund expected liability.NA None
General Liability F-2 Prefunding Liability Exceed actuary's "Expected Level"Rates charged to departments to fund expected liability.NA None
Retiree Insurance F-2 Prefunding Liability None Rates actuarially set to fund expected liability.NA None
Pension Management F-2 Prefunding Liability None None NA None
Compensated Absences F-2 Prefunding Liability 3-year average of annual cash flows 3.5% of Employee salaries NA None
PERS Rate Reserve F-2 Extraordinary Rate Changes No Minimum No Policy NA Reassign Bal. to Contingency Rsv
Unassigned Fund Balance - Contingency F-2 Contingency Reserve 15% of Operating Budget 25% of Operating Budget increase if applicable I Increase to 25% of Operating Budget
Unassigned Fund Balance - Residual NA Residual Unassigned Fund Balance NA NA Unassigned Fund Balance
Enterprise Fund Reserves
Water Fund
Stabilization and Contingency F-2 Rate Stabilization and Contingency 50% of Annual Operating Budget 50% of Operating Budget increase if applicable NA None
Infrastructure Replacement F-2 Infrastructure Replacement None Per recommendations from Water Master Plan NA None
Wastewater Fund
Stabilization and Contingency F-2 Rate Stabilization and Contingency 50% of Annual Operating Budget 50% of Operating Budget increase if applicable NA None
Infrastructure Replacement F-2 Infrastructure Replacement None Per recommendations from Wastewater Master Plan NA None
Phase I - Propose changes to Policy F-2 for April 29 Finance Committee and June Council Adoption
Phase II - Propose changes to Policy F-2 for Nov Finance Committee and December Council Adoption
F-2
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RESERVE POLICY
PURPOSE
To establish City Council policy for the administration of Reserves defined as fund
balances in governmental funds and net working capital in proprietary funds.
BACKGROUND
Prudent financial management dictates that some portion of the funds available to the
City be reserved for future use.
As a general budget principle concerning the use of reserves, the City Council decides
whether to appropriate funds from Reserve accounts. Even though a project or other
expenditure qualifies as a proper use of Reserves, the Council may decide that it is more
beneficial to use current year operating revenues or bond proceeds instead, thereby
retaining the Reserve funds for future use. Reserve funds will not be spent for any
function other than the specific purpose of the Reserve account from which they are
drawn without specific direction in the annual budget; or by a separate City Council
action. Information regarding Annual Budget Adoption and Administration is
contained in City Council Policy F-3.
GOVERNMENTAL FUNDS AND FUND BALANCE DEFINED
Governmental Funds including the General Fund, Special Revenue Funds, Capital
Projects Funds, Debt Service Funds and Permanent Funds have a short-term or current
flow of financial resources, measurement focus and basis of accounting and therefore,
exclude long-term assets and long-term liabilities. The term Fund Balance, used to
describe the resources that accumulate in these funds, is the difference between the
fund assets and fund liabilities of these funds. Fund Balance is similar to the measure
of net working capital that is used in private sector accounting. By definition, both
Fund Balance and Net Working Capital exclude long-term assets and long-term
liabilities.
PROPRIETARY FUNDS AND NET WORKING CAPITAL DEFINED
Proprietary Funds including Enterprise Funds and Internal Service Funds have a long-
term or economic resources measurement focus and basis of accounting and therefore,
include long-term assets and liabilities. This basis of accounting is very similar to that
used in private sector. However, instead of Retained Earnings, the term Net Assets is
used to describe the difference between fund assets and fund liabilities. Since Net
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Assets include both long-term assets and liabilities, the most comparable measure of
proprietary fund financial resources to governmental Fund Balance is Net Working
Capital, which is the difference between current assets and current liabilities. Net
Working Capital, like Fund Balance, excludes long-term assets and long-term liabilities.
GOVERNMENTAL FUND RESERVES (FUND BALANCE)
For Governmental Funds, the Governmental Accounting Standards Board (“GASB”)
Statement No. 54 defines five specific classifications of fund balance. The five
classifications are intended to identify whether the specific components of fund balance
are available for appropriation and are therefore “Spendable.” The classifications also
are intended to identify the extent to which fund balance is constrained by special
restrictions, if any. Applicable only to governmental funds, the five classifications of
fund balance are as follows:
CLASSIFICATIONS NATURE OF RESTRICTION
Non-spendable Cannot be readily converted to cash
Restricted Externally imposed restrictions
Committed City Council imposed commitment
Assigned City Manager assigned purpose/intent
Unassigned Residual balance not otherwise restricted
A. Non-spendable fund balance: That portion of fund balance that includes amounts
that are either (a) not in a spendable form, or (b) legally or contractually required to
be maintained intact. Examples of Non-spendable fund balance include:
1. Reserve for Inventories: The value of inventories purchased by the City but
not yet issued to the operating Departments is reflected in this account.
2. Reserve for Long Term Receivables and Advances: This Reserve is used to
identify and segregate that portion of the City’s financial assets which are not
due to be received for an extended period, so are not available for
appropriation during the budget year.
3. Reserve for Prepaid Assets: This reserve represents resources that have been
paid to another entity in advance of the accounting period in which the
resource is deducted from fund balance. A common example is an insurance
premium, which is typically payable in advance of the coverage period.
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Although prepaid assets have yet to be deducted from fund balance, they are
no longer available for appropriation.
4. Reserve for Permanent Endowment - Bay Dredging: The endowment specifies
that the principal amount will not be depleted and represents the asset
amounts to be held in the Bay Dredging Fund.
5. Reserve for Permanent Endowment - Ackerman Fund: The endowment
specifies that the principal amount will not be depleted and represents the
asset amount to be held in the Ackerman Fund.
B. Restricted fund balance: The portion of fund balance that reflects constraints placed
on the use of resources (other than non-spendable items) that are either (a)
externally imposed by creditors, grantors, contributors, or laws or regulations of
other governments; or (b) imposed by law through constitutional provisions or
enabling legislation. Examples of restricted fund balance are:
1. Reserve for Debt Service: Funds are placed in this Reserve at the time debt is
issued. The provisions governing the Reserve, if established, are in the Bond
Indenture and the Reserve itself is typically controlled by the Trustee.
2. Affordable Housing: A principal provision of the Newport Beach Housing
Element requires developers to provide housing units for lower income
households, the number of which is to be negotiated for each development
project. In lieu of constructing affordable housing, developers have paid into
this reserve which is used at the City Council’s discretion to provide alternate
methods for the delivery of affordable housing for lower income households.
3. Park In Lieu: Per NBMC 19.52 and California Government Code Section
664777 (The 1975 “Quimby Act”), a dedication of land or payment of fees for
park or recreational purposes in conjunction with residential development is
required. The fees collected can only be used for specific park or recreation
purposes as outlined in NBMC 19.52.030 and 19.52.070.
4. Upper Newport Bay Restoration Reserve: This reserve is the repository for
funds mandated by SB573, as well as special fees charged to permit holders as
an alternative to meeting certain specified mitigation criteria. In addition to
the mitigation fees, ten percent (10%) of Beacon Bay lease revenue is placed in
this Reserve. Funds in the Reserve are restricted for Upper Newport Bay
restoration projects.
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5. Permanent Endowment for Bay Dredging: The endowment also specifies that
the interest earnings on the principal amount can only be used for dredging
projects in the Newport Bay.
6. Permanent Endowment for Ackerman Fund: The endowment also specifies
that the interest earnings on the principal amount can only be used for
scholarships provided by the City.
6.7.Oceanfront Encroachment Reserve: In the early 1990’s, it was discovered by
survey that improvements to several ocean front parcels were encroaching
onto the public beach. The encroachment was relatively minor. The
negotiated solution was for the property owners to pay a permit fee each year
to the City. Revenue thus generated may only be used for ocean front
restoration projects and incidental costs of improvements and maintenance to
enhance public access and use of ocean beaches as approved by the City
Council. This Reserve is the repository for those funds. City Council Policy L-
12 contains additional background and details about the encroachment issue
The external restriction on this balance is imposed by the Local Coastal Plan
(LCP)..
7.8.
C. Committed fund balance: That portion of a fund balance that includes amounts that
can only be used for specific purposes pursuant to constraints imposed by formal
action by the government’s highest level of decision making authority, and remain
binding unless removed in the same manner. The City considers a resolution to
constitute a formal action for the purposes of establishing committed fund balance.
The action to constrain resources must occur within the fiscal reporting period;
however the amount can be determined subsequently. City Council imposed
Commitments are as follows:
1. Contingency Reserve: The Contingency Reserve shall have a target balance of
fifteen percent (15%) of General Fund “Operating Budget” as originally
adopted. Operating Budget for this purpose shall include current expenditure
appropriations and shall exclude Capital Improvement Projects and Transfers
Out. Appropriation and/or access to these funds are reserved for emergency
situations only. The parameters by which the Contingency Reserve could be
accessed would include the following circumstances:
a. A catastrophic loss of critical infrastructure requiring an expenditure of
greater than or equal to five percent (5%) of the General Fund, Operating
Budget, as defined above.
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b. A State or Federally declared state of emergency where the City response or
related City loss is greater than or equal to five percent (5%) of the General
Fund, Operating Budget.
c. Any settlement arising from a claim or judgment where the loss exceeds the
City’s insured policy coverage by an amount greater than or equal to five
percent (5%) of the General Fund, Operating Budget.
d. Deviation from budgeted revenue projections in the top three General Fund
revenue categories, namely, Property Taxes, Sales Taxes and Transient
Occupancy Taxes in a cumulative amount greater than or equal to five
percent (5%) of the General Fund, Operating Budget.
e. Any action by another government that eliminates or shifts revenues from the
City amounting to greater than or equal to five percent (5%) of the General
Fund, Operating Budget.
f. Inability of the City to meet its debt service obligations in any given year.
g. Any combination of factors 1) a.-f. amounting to greater than or equal to five
percent (5%) of the General Fund, Operating Budget in any one fiscal year.
Use of the Contingency Reserve must be approved by the City Council. Should
the Contingency Reserve commitment be used, the City Manager shall present a
plan to City Council to replenish the reserve within five years.
2.1.Facilities Financial Planning (FFP) ReserveFund: In conjunction with the
City’s Facilities Financial Plan, a sinking fund has been established to amortize
the cost of critical City facilities such as, but not limited to, the Civic Center,
Police Department buildings, Fire Stations, Library Branches and other Facility
Improvement Projects.
The Facilities Financial Planning Program establishes a level charge to the
General Fund that will perpetually replenish the cash flows necessary to
finance the construction of critical City facilities. This plan will be updated
annually as part of the budget process, or as conditions change. The City shall
strive to maintain fund balance in the Facilities Financial Planning Reserve at a
level equal to or greater than the maximum annual debt service of on existing
obligations.
The eligible uses of this reserve include the cash funding of public facility
improvements or the servicing of related debt.
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3. Oceanfront Encroachment Reserve: In the early 1990’s, it was discovered
by survey that improvements to several ocean front parcels were encroaching
onto the public beach. The encroachment was relatively minor. The
negotiated solution was for the property owners to pay a permit fee each year
to the City. Revenue thus generated may only be used for ocean front
restoration projects and incidental costs of improvements and maintenance to
enhance public access and use of ocean beaches as approved by the City
Council. This Reserve is the repository for those funds. City Council Policy L-
12 contains additional background and details about the encroachment issue.
4. Senior Center and Recreation Facility Rental Reserve: City Council Policy B-2
requires ten percent (10%) of gross revenues derived from OASIS Senior
Center and Recreation facilities rental fees to be set aside annually for
equipment replacement and/or facility refurbishment.
5.2.Off Street Parking: Per NBMC 12.44.025 fifty percent (50%) of parking meter
revenue collected in designated areas is set aside for acquisition, development
and improvement of off street parking facilities within those areas.
6. Paramedic Program (Hoag): In addition to the debt issuance agreements with
Hoag Hospital which required an original deposit, effective July 1, 2000, any
excess revenues generated by this program, after accounting for General City
Overhead of fifteen percent (15%), were to be accumulated for future
paramedic related purposes. Funds accumulated may be used only for
paramedic related purposes as directed by the City Council.
7. Recreational Instruction: City Council Policy B-2 requires ten percent (10%) to
twenty percent (20%) of gross annual revenues derived from specified
recreational classes to be set aside for the refurbishment of certain recreational
facilities, fee-based activity programs and equipment used in connection with
fee-based recreation classes.
8. Senior Fitness Center Reserve: City Council Policy B-2 requires ten percent
(10%) of the gross annual revenues derived from fitness center membership
fees to be set aside and used for new or replacement fitness equipment.
9.3.In Lieu Parking: Per NBMC 12.44.125 the City requires commercial businesses
to provide adequate off-street parking or where this is not possible, businesses
are afforded the opportunity to pay an annual fee and use parking spaces in a
municipal lot, providing such a lot is located within specified proximity to the
business. These funds can only be used to provide additional parking.
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10.4. Neighborhood Enhancement - A: NBMC 12.44.027 directs revenues from
parking meters in Zone 9 shall be apportioned to this Neighborhood
Enhancement A. Funds accumulated will only be used for the purpose of
enhancing and supplementing services to the West Newport area. Both the
nature of the supplemental services and the definition of the area served are
set forth in the Code Section above.
11.5. Neighborhood Enhancement - B: NBMC 12.44.027 directs that fifty
percent (50%) of revenues from parking meters in the Balboa Peninsula be
apportioned to this Neighborhood Enhancement B. Funds accumulated will
only be used for the purpose of enhancing and supplementing services in the
Balboa Peninsula. Specific details are contained in the Code Section.
12.6. Cable Franchise: Pursuant to the provisions of the Newport Beach
Municipal Code, Title 5, Business Licenses & Regulations, Chapter 5.44, in
return for the use of the City’s streets and public ways for the purpose of
installing, operating, maintaining, or reconstructing a cable system to provide
cable service, fees are collected by the City from cable providers. Those fees
are to be used by the City for support of Public, Education, and Government
access programming only.
13. START Program: The Fire Department's START Program developed by the
Fire Department and Hoag Hospital helps prepare emergency personnel to
quickly organize their resources to handle multi-casualty emergencies.
Training video and training materials are sold to other agencies. Any excess
revenues generated by this program shall only be used for production
expenses related to future START training materials and to enhance
paramedic, EMT, and MICN pre-hospital education as directed by the City
Council.
7. Oil and Gas Reserve: The annual $40,000 which is being set aside from the oil
and gas field production revenues is to be used to fund abandoned wells and
facilities as they go out of service.
14.8. Capital Reappropriation: This reserve represents an administrative
procedure that recognizes a portion of fund balance is not readily available to
fund new endeavors because it has been reappropriated through the budget
adoption process or amendment process.
Assigned fund balance: That portion of a fund balance that includes amounts that are
constrained by the City’s intent to be used for specific purposes but that are not
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restricted or committed. This policy hereby delegates the authority to the City Manager
or designee to modify or create new assignments of fund balance. Constraints imposed
on the use of assigned amounts may be changed by the City Manager or his designee.
Appropriations of balances are subject to Council Policy
F-3 concerning budget adoption and administration.
D. Examples of assigned fund balance may include but are not limited to:
1. Appropriations Reserves: This is a temporary repository for funds not yet fully
appropriated in the annual budget. It is normally used during the budget process to
set aside funds for known or strongly anticipated expenses that will need to be
addressed by budget amendment during the budget year. Sometimes the dollar
amount and/or appropriate account breakdown for such expenses cannot be
specifically identified at the time the budget is adopted, even though the funds will
be needed. In such cases, the funds will normally be budgeted to the Reserve for
Appropriations.
2. Change in Fair Market Value of Investments: As dictated by GASB 31, the City is
required to record investments at their fair value (market value). This accounting
practice is necessary to insure that the City’s investment assets are shown at their
true value as of the balance sheet. However, in a fluctuating interest rate
environment, this practice records market value gains or losses which may never be
actually realized. The City Manager may elect to reserve a portion of fund balance
associated with an unrealized market value gain. However, it is impractical to assign
a portion of fund balance associated with an unrealized market value loss.
3. PERS Rate Reserve: This Reserve may be established for the specific purpose of
helping to smooth out the year-to-year fluctuations in PERS rates.
When the City Manager or his designee authorizes a change in General Fund, Assigned
Fund Balance, City Council shall be notified quarterly.
D. Unassigned fund balance:
1. Contingency Reserve: The Contingency Reserve shall have a target balance of
fifteen percent (25%) of General Fund “Operating Budget” as originally
adopted. Operating Budget for this purpose shall include current expenditure
appropriations and shall exclude Capital Improvement Projects and Transfers
Out. Appropriation and/or access to these funds are generally reserved for
emergency or unforeseen situations but may be accessed by Council by simple
budget appropriation. Examples may include but are not limited to the
following:
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a. A catastrophic loss of critical infrastructure.
b. A State or Federally declared state of emergency.
c. Any settlement arising from a claim or judgment.
d. Deviation from budgeted revenue projections.
e. Any action by another government that eliminates or shifts revenues from the
City.
f. Inability of the City to meet its debt service obligations in any given year.
g. Other circumstances deemed necessary by City Council to meet the claims
and obligations of the City.
Should the Contingency Reserve be used, the City Manager shall present a
plan to City Council to replenish the reserve within five years.
E.2. Residual Fund Balance: The residual portion of available fund balance that
is not otherwise restricted, committed or assigned and is above and beyond the
Contingency Reserve target reserve balance..
PROPRIETARY FUND RESERVES (NET WORKING CAPITAL)
In the case of Proprietary Funds (Enterprise and Internal Service Funds), Generally
Accepted Accounting Principles (“GAAP”) does not permit the reporting of reserves on
the face of City financial statements. However, this does not preclude the City from
setting policies to accumulate financial resources for prudent financial management of
its proprietary fund operations. Since proprietary funds may include both long-term
capital assets and long-term liabilities, the most comparable measure of liquid financial
resources that is similar to fund balance in proprietary funds is net working capital
which is the difference between current assets and current liabilities. For all further
references to reserves in Proprietary Funds, Net Working Capital is the intended
meaning.
A. Water Enterprise Fund
1. Stabilization and Contingency Reserve: This Reserve is used to provide
sufficient funds to support seasonal variations in cash flows and in more extreme
conditions, to maintain operations for a reasonable period of time so the City
may reorganize in an orderly manner or effectuate a rate increase to offset
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sustained cost increases. The intent of the Reserve is to provide funds to offset
cost increases that are projected to be short-lived, thereby partially eliminating
the volatility in annual rate adjustments. It is not intended to offset ongoing,
long-term pricing structure changes. The target level of this reserve is fifty
percent (50%) of the annual operating budget. This reserve level is intended to
provide a reorganization period of 6 months with zero income or 24 months at a
twenty-five percent (25%) loss rate. The City Council must approve the use of
these funds, based on City Manager recommendation. Funds collected in excess
of the Stabilization reserve target would be available to offset future rate
adjustments, while extended reserve shortfalls would be recovered from future
rate increases. Should catastrophic losses to the infrastructure system occur, the
Stabilization and Contingency Reserve may be called upon to avoid disruption to
water distribution.
2. Infrastructure Replacement Funding Policy: This funding policy is intended to
be a temporary repository for cash flows associated with the funding of
infrastructure replacement projects provided by the Water Master Plan. The
contribution rate is intended to level-amortize the cost of infrastructure
replacement projects over a long period. The annual funding rate of the Water
Master Plan is targeted at an amount that, when combined with prior or future
year contributions, is sufficient to provide for the eventual replacement of assets
as scheduled in the plan. This contribution policy is based on the funding
requirements of the most current Water Master Plan. There are no minimum or
maximum balances contemplated by this funding policy. However, the
contributions level should be reviewed periodically or as major updates to the
Water Master Plan occur. Annual funding is contingent on many factors and
may ultimately involve a combined strategy of cash funding and debt issuance
with the intent to normalize the burden on Water customer rates.
B. Wastewater Enterprise Fund
1. Stabilization and Contingency Reserve: This Reserve is used to provide
sufficient funds to support seasonal variations in cash flows and in more extreme
conditions, to maintain operations for a reasonable period of time so the City
may reorganize in an orderly manner or effectuate a rate increase to offset
sustained cost increases. The intent of the Reserve is to provide funds to offset
cost increases that are projected to be short-lived, thereby partially eliminating
the volatility in annual rate adjustments. It is not intended to offset ongoing,
long-term pricing structure changes. The target level of this reserve is fifty
percent (50%) of the annual operating budget. This reserve level is intended to
provide a reorganization period of 6 months with zero income or 24 months at a
twenty-five percent (25%) loss rate. The City Council must approve use of these
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funds, based on City Manager recommendation. Funds collected in excess of the
Stabilization reserve target would be available to offset future rate adjustments,
while extended reserve shortfalls would be recovered from future rate increases.
Should catastrophic losses to the infrastructure system occur, the Stabilization
and Contingency Reserve may be called upon to avoid disruption to wastewater
service.
2. Infrastructure Replacement Funding Policy: This funding policy is intended to
be a temporary repository for cash flows associated with the funding of
infrastructure replacement projects provided by the Wastewater Master Plan.
The contribution rate is intended to level-amortize the cost of infrastructure
replacement projects over a long period of time. The annual funding rate of the
Wastewater Master Plan is targeted at an amount that, when combined with
prior or future year contributions, is sufficient to provide for the eventual
replacement of assets as scheduled in the plan. This contribution policy should
be updated periodically based on the most current Wastewater Master Plan.
There are no minimum or maximum balances contemplated by this funding
policy. However, the contributions level should be reviewed periodically or as
major updates to the Wastewater Master Plan occur. Annual funding is
contingent on many factors and may ultimately involve a combined strategy of
cash funding and debt issuance with the intent to normalize the burden on
Wastewater customer rates.
C. Internal Service Funds
Background.
Internal Service Funds are used to centrally manage and account for specific
program activity in a centralized cost center. Their revenue generally comes from
internal charges to departmental operating budgets rather than direct
appropriations. They have several functions.
--They work well in normalizing departmental budgeting for programs that have
life-cycles greater than one year; thereby facilitating level budgeting for
expenditures that will, by their nature, be erratic from year to year. This also
facilitates easier identification of long term trends.
--They act as a strategic savings plan for long-term assets and liabilities.
--From an analytical standpoint, they enable appropriate distribution of city-wide
costs to individual departments, thereby more readily establishing true costs of
various operations.
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Since departmental charges to the internal service fund duplicate the ultimate
expenditure from the internal service fund, they are eliminated when consolidating
entity-wide totals.
The measurement criteria, cash flow patterns, funding horizon and acceptable
funding levels are unique to each program being funded. Policy regarding target
balance and/or contribution policy, gain/loss amortization assumption, source data,
and governance for each of the City’s Internal Service Funds is set forth as follows:
1. For all Internal Service Funds: The Finance Director may transfer part or all of
any unencumbered fund balance between the Internal Service Funds provided
that the withdrawal of funds from the transferred fund would not cause
insufficient reserve levels or insufficient resources to carry out its intended
purpose. This action is appropriate when the decline in cash balance in any fund
is precipitated by an off-trend non-recurring event. The Finance Director will
make such recommendations as part of the annual budget adoption or through
separate Council action.
2. Equipment Maintenance Fund and Equipment Replacement Fund: The
Equipment Maintenance and Replacement Funds receive operating money from
the Departments to provide equipment maintenance and to fund the regular
replacement of major pieces of equipment (mostly vehicles) at their economic
obsolescence.
a. Equipment Maintenance Fund: The Equipment Maintenance Fund acts solely
as a cost allocation center (vs. a pre-funding center) and is funded on a pay-
as-you-go basis by departmental maintenance charges by vehicle type and
usage requirement. Because of this limited function, the target year-end
balance is zero.
Contribution rates (departmental charges) are set to include the direct costs
associated with maintaining the City vehicle fleet, including fleet
maintenance employee salary and benefits, operating expenses and
maintenance related capital outlay. Administrative overhead and
maintenance facility improvements and replacement costs are to be provided
outside of this cost unit.
Because of the limited purpose of this fund, a gain/loss assumption is not
needed.
Source data is ongoing city fleet inventory and maintenance cost information.
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Governance is achieved through annual management adjustment of
contribution rates on the basis of maintenance cost by vehicle and
distribution of costs based on fleet use by department.
b. Equipment Replacement Fund: Operating Departments are charged annual
amounts sufficient to accumulate funds for the replacement of vehicles,
communications equipment, parking equipment and other equipment
replacement determined appropriate by the Finance Director. The City
Manager recommends annual rate adjustments as part of the budget
preparation process. These adjustments are based on pricing, future
replacement schedules and other variables.
The age and needs of the equipment inventory vary from year to year.
Therefore the year-end fund balance will fluctuate in direct correlation to
accumulated depreciation. In general, it will increase in the years preceding
the scheduled replacement of relatively large percentage of the equipment, on
a dollar value basis. However, rising equipment costs, dissimilar future
needs, replacing equipment faster than their expected life or maintaining
equipment longer than their expected life all contribute to variation from the
projected schedule.
Target funding levels shall be determined by the Finance Director after
considering the age, expected life and cash flow anticipated by the
replacement equipment being funded. In light of the above, the target
funding level is not established in terms of a flat dollar figure or even a
percentage of the overall value of the equipment inventory. It is established
at fifty percent (50%) of the current accumulated depreciation value of the
equipment inventory, calculated on a replacement value basis. This will be
reconciled annually as part of the year-end close out process by the Finance
Department. If departmental replacement charges for equipment prove to be
excessive or insufficient with regard to this target funding level, new rates
established during the next budget cycle will be adjusted with a view toward
bringing the balance back to the target level over a three-year period.
3. Insurance Reserve Funds: The Insurance Reserve funds account for the activities
of general liability and workers’ compensation claims.
Background.
The City employs an actuary to estimate the liabilities associated with the general
liability and workers compensation activities. The costs typically associated with
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14
these programs include: claims administration, legal defense, insurance
premiums, self insured retention and the establishment of appropriate loss
reserves including “incurred-but-not reported” (IBNR) claims. In a prescribed
measurement methodology, the Actuary estimates the liabilities in conformity
with Generally Accepted Accounting Principles (GAAP).
The Actuary refers to this measurement level in his report as the “Expected
Level.” However, because actuarial estimates are subject to significant
uncertainties, actuaries typically recommend that a target funding level be set at
an amount in excess of expected liability as a margin to cover contingencies. A
typical target funding level would be set to obtain a specified confidence level
(the percent chance that resources set-aside will be sufficient to cover existing
claims).
Full funding of the Actuary’s “Target Funding Level” establishes a seventy-five
percent (75%) confidence there will be sufficient resources (including projected
interest) to pay the full amount of existing claims without future contributions.
Funding at the “Expected Level” produces a confidence level of only fifty percent
to sixty-five percent (50%-65%). Therefore, the target funding of insurance
reserves should exceed the “Expected Level” to account for adverse estimate
deviation.
Policy & Practice.
The City should target funding of its risk management obligations at not less
than the Expected Level, described above; and not more than an amount
sufficient to establish a seventy-five percent (75%) Confidence Level. Actuarial
losses should be recovered over a rolling 3-year basis while actuarial gains
should be amortized over a rolling 5-year basis. As part of the operating budget,
each department will be charged a rate equal to its proportionate share of the
total “revenue” required to fund the Insurance Reserve Fund at this level.
To lessen the impact of short-term annual rate change fluctuation, City
management may implement one-time fund transfers (rather than department
rate increases) when funding shortfalls appear to be due to unusually sharp and
non-recurring factors. Excess reserves in other areas may be transferred to the
internal service fund in these instances but such transfers should not exceed the
funding necessary to reach a seventy-five (75%) confidence level interval.
4. Compensated Absences Fund:
Background.
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15
The primary purpose of flex leave, vacation leave and sick leave is to provide
compensated time off as appropriate and approved. However, under certain
circumstances, typically at separation from service, some employees have the
option of receiving cash-out payments for some accumulated leave balances.
The Compensated Absences Fund is utilized primarily as a budget smoothing
technique for any such leave bank liquidations. The primary purpose of the
Compensated Absences Fund is to maintain a balance sufficient to facilitate this
smoothing.
Policy and Practice.
The contribution rate will be set to cover estimated annual cash flows based on a
three-year trailing average.
The minimum cash reserve should not fall below that three-year average. The
maximum cash reserve should not exceed fifty percent (50%) of the long term
liability. The target cash reserve shall be the median difference between the
minimum and maximum figures.
Each department will make contributions to the Compensated Absences Fund
through its operating budget as a specified percentage of salary. The Finance
Director will review and recommend adjustments to the percentage of salary
required during the annual budget development process. This percentage will
be set so as to maintain the reserve within the parameters established above.
5. Post Retirement Funding Policies:
a. Pension Funding:
(i) California Public Employees Retirement System (CalPERS): The City’s
principal Defined Benefit Pension program is provided through contract
with CalPERS. The City’s contributions to the plan include a fixed
employer paid member contribution and an actuarially determined
employer contribution that fluctuates each year based on an annual
actuarial plan valuation. This variable rate employer contribution
includes the normal cost of providing the contracted benefits plus or
minus an amortization of plan changes and net actuarial gains and losses
since the last valuation period.
It is the City’s policy to make contributions to the plan equaling at least
one hundred percent (100%) of the actuarially required contribution
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(annual pension cost). Because the City pays the entire actuarially
required contribution each year, by definition, its net pension obligation at
the end of each year is $0. Any unfunded actuarial liability (UAL) is
amortized and paid in accordance with the actuary’s funding
recommendations. The City will strive to maintain its UAL within a range
that is considered acceptable to actuarial standards. The City Council
shall consider increasing the annual CalPERS contribution should the
UAL status fall below acceptable actuarial standards.
(ii) Laborer’s International Union of North America (LIUNA): The City
provides funds to support a supplemental pension plan for some
employee associations through contract with LIUNA. This is funded at a
fixed percentage of total compensation on a pay-as-you-go basis. The City
is not contractually required to guarantee the level of the ultimate LIUNA
benefit to retirees, nor does it do so. Therefore the City’s liability for this
program is full funded each year.
b. Other Post Employment Benefits (OPEB Funding):
Background.
The City’s OPEB funding obligations consists of two retiree medical plans.
New Plan. Effective January 2006, the City and its employee associations
agreed to major changes to the Post Employment Healthcare Plan. New
employees and all current employees participate in a program that requires
certain defined employee and employer contributions while the employee is
in active service. However, once the contributions have been made to the
employee’s account, the City has transferred a substantial portion of the
funding risk to the employee.
Old Plan. Eligible employees who retired prior to the “New Plan” and
certain active employees were eligible to continue to receive post-retirement
medical benefits (a defined benefit plan). The cost was divided among the
City, current employees and retirees. In the past, this program was largely
funded on a pay-as-you-go basis, so there was a significant unfunded
liability. Recognizing this problem, the City began contributing to this
obligation in 2001. In 2008, these assets were placed in a pre-funding trust.
The City’s intention is to amortize the remaining unfunded liability within 20
years.
Policy & Practice.
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17
New Plan. Consistent with agreements between the City and Employee
Associations, the new defined contribution plan will be one hundred percent
(100%) funded, on an ongoing basis, as part of the annual budget process.
Funds to cover this expenditure will be contained within the salary section of
each department’s annual operating budget.
Old Plan. The City’s policy is to pre fund the explicit (cash subsidy) portion
of the Actuarial Accrued Liability (AAL) of the remnants of the old plan over
a 20-year amortization period, or less. This amount will be based on the
Annual Required Contribution (ARC) determined by a biennial actuarial
review; subject to review and analysis by the City. The City will strive to
maintain a funded status that will be within a range that is considered
acceptable to actuarial standards. The City Council shall consider increasing
the annual OPEB contribution should the funded status fall below acceptable
actuarial standards.
Adopted - January 24, 1994
Amended - April 10, 1995
Amended - April 27, 1998
Amended - March 14, 2000
Amended – May 8, 2001
Amended – April 23, 2002
Amended – April 13, 2004
Amended – September 15, 2008
Amended – November 12, 2008
Amended – May 24, 2011
Amended – September 27, 2011
Amended – May 14, 2013
Amended -
B-2
1
RECREATION FEES AND RELATED EQUIPMENT REPLACEMENT RESERVES
The instructional recreational programs for children and adults provided by the
Recreation & Senior Services Department will be conducted for a fee to offset associated
cost with managing such programs. Registration fees will be based on an amount
sufficient to acquire independent contractors, class materials and the administrative
overhead and a facility use fee. Occasionally, it may be necessary to conduct programs
in which revenues are not sufficient to be self-supporting as authorized by Chapter 3.36
of the Municipal Code. The Recreation & Senior Services Director or designee is
authorized to enter into agreements for securing independent contractors for approved
instructional recreation activities.
Certain fee based activities create additional wear and tear on equipment and facilities.
In these cases, it is appropriate to set aside a portion of the annual fees to replace or
mitigate the accelerated aging of the equipment or facility being used. Following is a
comprehensive list of Reserves serving as repository for these funds and ongoing
contribution amounts. As the need arises, City Council approval for expenditures of
funds from these Reserves, for the purposes intended, will be requested by the City
Manager.
Facility Rental Fees
A sum of money equivalent to 10% of the gross annual revenues derived from park and
facility rental fees shall be set aside annually for equipment replacement and or facility
refurbishment.
Recreation Classes
Surfing Reserve: A sum of money equivalent to 10% of the gross annual revenues
derived from the instructional classes in surfing shall be set aside and used for the
purpose of purchasing new or replacement surfboards or development of aquatic and
surf related activities.
Tennis Court Reserve: A total of 20% of the registration fees from tennis instructional
classes shall be set aside annually for refurbishment or development of courts or
development of new recreational programs or facilities.
Sailing Reserve: A total of 20% of the registration fees from the sailing instructional
classes and 100% of the proceeds from the agreement for the use of the 29th Street
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2
public dock shall be set aside annually for refurbishment and replacement of the
recreation sail boat fleet and development of waterfront activities program.
Senior Fitness Center Reserve: A sum of money equivalent to 10% of the gross annual
revenues derived from fitness center memberships shall be set aside and used for the
purpose of purchasing new or replacement fitness equipment.
Adopted - October 1963 Amended - December 8, 1975
Amended - August 30, 1966 Amended - November 27, 1978
Amended - November 25, 1968 Amended - November 28, 1988
Amended - March 1970 Reassigned - January 24, 1994
Amended - April 12, 1971 Amended - February 27, 1995
Amended - August 9, 1971 Amended - December 14, 1998
Amended - February 14, 1972 Amended – May 8, 2001
Amended - March 13, 1972 Amended – April 8, 2003
Amended – November 11, 1974 Amended – April 13, 2004
Amended – March 24, 1975 Amended – September 13, 2005
Amended – October 10, 2006
Amended – September 27, 2011
Formerly I-6
Formerly I-2
1
Quarterly Financial Report
Executive Summary
The City of Newport Beach Finance Department prepares quarterly financial reports for the City Council to review the status of revenues and expenditures for the City’s funds. This report contains information on resources and expenditures for the third quarter of
the fiscal year, which is the period between January 1, 2014, and March 31, 2014. The
City’s major General Fund revenue categories are performing according to their
projected levels for this year. Current expenditures are thus far performing within expected levels. Higher sales tax revenue resulting from lower unemployment and higher discretionary spending on transportation, dining, and leisure continues to support
a strong local economy through the third quarter. This report also describes some
noteworthy components of the Proposed FY 2014-15 Budget.
Economic Update Output at factories increased 1.2% in March, or 0.7% higher than anticipated figures
from the Federal Reserve showed. Capacity utilization, which measures manufacturing
plant utilization, rose to 79.2%, the highest since June 2008, from a revised 78.8% the
prior month. Housing starts climbed 2.8% in March to a 946,000 annualized rate following February’s 920,000 pace, which was higher than previously reported. According to The Wall Street Journal's monthly survey of economists, the next quarter’s
real gross domestic product will see an extra half-percentage point in growth amid a
burst of consumer and business spending that was delayed or postponed during the
bitterly cold and snowy winter across much of the U.S. A 3% annual growth rate in the Gross Domestic Product (GDP) is forecasted to persist through 2016, boosted by increased housing and business investments, as well as gains in consumer spending. In
light of the nation's expected 3% GDP growth, economists predict increases in overall
job opportunities in the range of 200,000-250,000, increased wages, along with a
potential increase in inflation. California's seasonally adjusted unemployment rate was 8.0% in February, compared
with the U.S. unemployment rate of 6.7%. At 5.8%, Orange County had the third lowest
unemployment rate among California counties. Orange County’s economic growth
trajectory is expected to continue rising faster than that of the nation, largely as the result of better employment prospects. Construction in Orange County posted the largest year-over-year increase with an overall gain of 8,600 jobs. Nearly 76% of the
growth was specialty trade contractors. Growth in the construction industry is important
because it creates a trickle-down effect that helps other industries – such as building
materials or transportation. Professional and business services added 8,100 payroll jobs. Sixty-two percent of the gain was in professional, scientific and technical services. Educational and health services and leisure and hospitality gained 5,600 jobs each.
Financial activities reported a decline of 1,700 jobs over the year. A loss of 2,200 jobs in
finance and insurance was offset by a gain of 500 jobs in real estate and rental and
leasing.
2
Orange County Unemployment 2012-2014
Source: State Employment Development Department
Top “3” Revenues
The General Fund’s top three revenue sources (Property Tax, Sales Tax, and Transient Occupancy Taxes) account for approximately 75% of General Fund revenues. With 75% of the year complete, General Fund revenues overall are at 70% of projections.
This is generally consistent with prior years as certain revenues are received in the
latter part of the fiscal year. Unlike prior periods, revenue results can be forecasted with
greater confidence by the third quarter of the fiscal year. The City has long taken a conservative approach to forecasting revenues and continues to do so in the preparation of the FY 14/15 budget. This fiscal conservatism has created a stable
financial base. As a result, even in a downturn, the City of Newport Beach is able to
maintain its services at a high level, while reducing expenses to accommodate reduced
revenues. The City’s fiscal discipline has allowed it to prepare balanced budgets and to save, both during prosperous and difficult economic periods.
Property Tax
Property tax is the top source of revenue for the City of Newport Beach, representing almost half (46.7%) of all General Fund revenues. Despite dramatic declines in the real estate market in past years, sales data demonstrates the high market values throughout
the residential communities of Newport Beach. As the chart below indicates, the
median sales price in Newport Beach has shown a rise between March Q1 2004 and
March Q1 2014. The cumulative rise in home sales since the depths of the recession (March Q1 2009) has also been strong.
3
City of Newport Beach Home Sales and Median Price History Single Family Residential Full Value Sales (01/01/2004 – 03/31/2014)
Overall, the City has received $48.8 million, or 60.1%, of its budgeted property taxes
through the third quarter of FY 13/14. Secured property taxes are recorded as they are
remitted, in large part, during December and April of each year. A large secured
property tax payment is expected in late April. Most property tax revenue categories through March are thus far meeting or exceeding the prior year collection trend and the
revenue category overall is 3.5% higher than at this same time last year. Prior year
penalties and interest receipts are down from last year due to the improved economic
status of homeowners. We are seeing a marked increase in secured property tax and
especially supplemental taxes. Supplemental assessments reflect the difference between the new assessed value and the old or prior assessed value upon a change in
ownership or new construction. The “RDA Dissolution” category is less than last year
due largely to a prior year one-time receipt from the county resulting from the dissolution
of the Santa Ana Heights redevelopment zone. Excluding this one-time decrease, total
property tax revenue would be up 7.1% overall from the prior year. The year-to-date actual for the RDA Dissolution is only 4.3% of budget due to the County posting the
payment earlier last year when compared to this year.
Source: HdL Companies
4
Sales Tax
The City’s sales tax base is largely generated from three main industry categories
including Autos and Transportation, General Consumer Goods, and Restaurants/Hotels as indicated in
the adjacent pie chart that depicts the
most recent available sales tax
statistics. The largest segment, “Autos and Transportation,” accounts
for 34% of total sales taxes and is
represented by 176 new and used
auto/boat/aircraft dealers, supply
stores and repair shops. The next largest segment, “General Consumer
Goods” accounts for 27% of total
sales taxes and is represented by a
multitude of stores and shops that
provide various consumer goods. The third largest sales tax segment, “Restaurants and Hotels,” accounts for 21% of total
sales tax and is represented by 438 restaurants, hotels, clubs and other amusement
places.
Property Taxes
Budget
2013-14
YTD Q3 Actual
2013-14
Percent of
2013-14
Budget
Realized
Prior Year
Q3 Actual
2012-13
Year-over-
Year Q3
Increase/
Decrease
Secured 64,620,213$ 39,788,653$ 61.57% 37,252,835$ 6.81%
Unsecured 2,513,641 2,018,648 80.31% 1,963,533 2.81%
Prior Year Penalties & Interest 1,200,000 665,977 55.50% 977,697 -31.88%
Supplemental 1,412,604 1,001,057 70.87% 420,400 138.12%
In Lieu of VLF 7,166,788 3,748,866 52.31% 3,508,049 6.86%
RDA Dissolution *600,000 25,781 4.30% 1,597,192 -98.39%
All Other Property Taxes 2,525,570 1,536,314 60.83% 1,429,763 7.45%
TOTAL 80,038,816$ 48,785,296$ 60.95% 47,149,470$ 3.47%
*2012-13 actual includes a one-time receipt resulting from the State's dissolution of redevelopment areas. By the end of FY
12/13, the total one-time revenue was $5.4 million.
Source: HdL Companies
5
Major Sales Tax
Industry Groups
Year-Over-
Year %
Change
Autos and Transportation 12.2%
General Consumer Goods 1.3%
Restaurants and Hotels 2.7%
Business and Industry 40.7%
Food and Drugs 23.2%
Fuel and Service Stations -7.1%
Building and Construction 19.5%
A national economy is a broad amalgamation of individual, business and
government spending or investment.
Governments typically pay close attention
to economic factors to measure the strength of an economy. Free market economies rely on consumer demand to
gauge the allocation and distribution of
economic resources. U.S. consumers
account for approximately 70% of the national economy. Year-over-year, most sales tax categories in Newport Beach are up over the prior year, which suggests
improved consumer perception and confidence in our local economy. The City received
$17.2 million, or 56.8%, of its budgeted sales taxes through the end of the third quarter.1
A comparison of sales tax performance from the prior year reveals that the City realized an 8.4% increase year-over-year.
Transient Occupancy Taxes
The City has received $12.3 million, or 71.3%, of its budgeted Transient Occupancy
Taxes (TOT) through the end of the third quarter. The amount collected represents an
11.5% increase over the same period last year. This increase is due to higher
occupancy rates in the City’s hotels, motels, cottages, and resorts and a strong travel and tourism business sector.
1 Businesses collecting sales and use taxes periodically remit the amount collected to the State Board of Equalization (BOE). To compensate for the lag time between the sales period and the time that the tax is
remitted to the City, the BOE advances 90% of the net sales tax collections for the same period of the prior year. The difference between the advances and total actual receipts for the quarter is remitted in the
form of “clean-up” payments, which are included in the March, June, September, and December remittances. The amount of sales tax realized through March represents seven monthly advance
payments and two clean-up (December 2013 and March 2014) payments. Relative to the amount budgeted, actual receipts are consistent with prior years.
Sales Taxes
Budget
2013-14
YTD Q3 Actual
2013-14
Percent of
2013-14
Budget
Realized
Prior Year
Q3 Actual
2012-13
Year-over-
Year Q3
Increase/
Decrease
Sales and Use Tax $22,267,601 $13,121,985 58.93% $12,130,810 8.17%
Property Tax in Lieu of Sales Tax 7,926,293 4,036,849 50.93% 3,698,531 9.15%
TOTAL 30,193,894$ 17,158,834$ 56.83% 15,829,342$ 8.40%
Budget
2013-14
YTD Q3 Actual
2013-14
Percent of
2013-14
Budget
Realized
Prior Year
Q3 Actual
2012-13
Year-over-
Year Q3
Increase/
Decrease
Transient Occupancy Taxes 17,291,420$ 12,330,525$ 71.31% 11,057,998$ 11.51%
6
The largest year-over-year transient
occupancy tax increases
were derived from the
Resort at Pelican Hill, Marriot Hotel, and the Island Hotel. As can be
seen from the adjacent
bar chart, TOT revenues
have maintained a sustained climb in recent years. It is anticipated
that TOT will finish the
year $790,000, or 4.8%,
higher than the FY 12/13 actual receipts. FY 14/15 TOT is forecasted at $18.31 million, or approximately 5.9% higher than FY 13/14.
Expenditures
With expenditures at 69% of the amended budget, the General and Tidelands Funds are generally on-track. We are anticipating overall department savings in excess of $1.8 million by year end. The table below aggregates General and Tidelands Funds
expenditures by department through March 31, 2014. Some departments incur a
greater or lower level of expenditures in the first half of the year than in the second half
due to the timing and seasonality of their operations or programs. This variability is generally consistent with prior years.
7
GENERAL AND TIDELANDS FUNDS EXPENDITURES BY DEPARTMENT
FY 2014-15 Proposed Budget Highlights The annual budget serves as the foundation for financial planning and control and
allows the City Council to prioritize expenditures in alignment with core community
values. The FY 14/15 budget as proposed is balanced and includes $165 million in
General Fund operating expenditures. The budget proposes a reduction of full-time
staff by 7 while adding some part-time staff in order to maintain services at a lower cost. Appropriations for operating expenditures are balanced in relation to projected revenue
sources and will not over-rely on one-time revenue sources or reserves. The City’s tax
and permit revenue sources have rebounded, which allows for funding a series of
important investments in the community, including:
Remaining a safe community
Adding more police staff and head towards a faster, more responsive community
paramedicine model by training more existing firefighters as paramedics.
Our Shining City by the Bay The community will continue to see upgrades in park amenities and how the
community looks, with more parks, a new sailing center and marina, more trees,
and adding more bike lanes/paths.
Department
Amended
Budget 2013-14
YTD Q3 Actual
2013-14
Percent of 2013-14
Budget Expended
Prior Year Q3
Actual 2012-13
Year-Over-Year Q3
Increase/Decrease
City Council $1,918,687 $1,142,650 60%$691,732 65%
City Clerk 655,701 506,743 77%568,656 -11%
City Manager 3,311,461 2,110,135 64%1,485,702 42%
Personnel 2,690,084 1,824,779 68%1,733,078 5%
City Attorney 2,292,833 1,462,902 64%1,497,617 -2%
Finance 7,048,989 4,793,718 68%4,370,813 10%
Police 45,158,844 33,034,557 73%28,747,280 15%
Fire 38,106,496 28,488,578 75%26,627,547 7%
Community Development 9,930,395 6,818,620 69%6,173,100 10%
Municipal Operations 26,735,237 17,633,875 66%17,381,524 1%
Library Services 7,797,842 5,317,309 68%5,151,964 3%
Recreation 9,467,382 6,713,936 71%6,382,262 5%
Public Works 8,921,551 5,611,774 63%5,473,671 3%
Capital Projects 8,834,350 3,379,674 38%7,570,281 -55%
Total $172,869,851 $118,839,249 69% $113,855,225 4%
8
Still getting smaller and smarter Along with a net reduction in staff positions, the City is finalizing the new dispatch
and records system in Police, paperless plan review, using paperless agendas,
revamping our financial software, and much more.
The following are noteworthy components of the Proposed FY 2014-15 Budget:
This is the first budget that reflects the outsourcing of residential refuse which resulted in the reduction of 10 full-time refuse positions. It also includes the “Newport Dividend,”
an initiative that temporarily waives City construction related fees for qualifying
residential development activities and helps people reinvest in their homes and yards.
The backdrop for these positive developments is an increasingly healthy local and
Southern California economy. The General Fund revenue picture continues to improve with solid results in the top three individual revenue sources: Property Taxes, Sales
Taxes and Sales Tax in Lieu, and Transient Occupancy Taxes (TOT). Overall, we are
anticipating a 2.6% increase in General Fund revenue from our FY 2013-14 revised
revenue estimates.
Total General Fund expenditures are increasing by $10.3 million or 6.7% over the FY
2013-14 Adopted Budget. Of this amount $2.4 million is due to one-time additions -
mostly in the Community Development, Police, and Fire Departments - and $5.9 million
is due to re-appropriated Capital Improvement Projects (CIPs) that have not yet been
completed. Note that in such areas as Community Development and in Recreation and Senior Services, the addition of staffing and consulting expenditure is offset by permit
and fee revenue. The summary that follows details the nature of the some of the major
proposed expenditures by department.
• Community Development – adding $1.5 million (mostly one-time) to provide contract
inspection, plan review services, and code
City of Newport Beach Full-Time Staff 2004-2015
9
enforcement staff and overtime due to the sustained uplift in construction activity within the community.
• Recreation and Senior
Services – adding almost $400,000 to
expand programs for
our community,
increasing staffing of
the preschool program due to higher
attendance, increasing
the safety and aesthetics of 32 city playgrounds, increasing staffing and funds to
protect air quality via new fire ring regulations, and more.
• Fire Department – adding $1.4 million ($550,000 one-time) to increase our focus
on emergency medical response. Medical response is now the predominant
service activity among fire departments. Better construction
standards and regulations, sprinklers in
buildings, and better fire prevention
awareness among the general public
has reduced fire risk. But the advent of the Affordable Care Act, with its focus
on wellness, avoiding hospitalization,
and post-hospital care will only
increase the role of community
paramedicine. Therefore, we are moving more firefighter positions to paramedic positions, procuring newer and
adding more life-saving equipment, and adding a new full-time Paramedic
Coordinator and other part-time medical support staff.
• Public Works – The Council’s continued focus on improving our infrastructure, from transportation to parks to facilities, translates into increasing our contractual
services budget for environmental engineering and technical support, among
other things.
• Police Department – We will add one
full-time Police Officer to complete last
year’s effort to create a focused Crime
Suppression Unit that will be able to
pre-empt certain crime trends; restore a Custody Officer to maintain
regulatory compliance with mandated
staffing levels (this follows a decision in
2013 to keep the jail service in-house);
10
and replace special equipment ($335,000 one-time).
The FY 2014-15 Proposed Budget presents an ambitious and wide-ranging capital
improvement program that provides major funding initiatives for neighborhood
revitalization projects, park improvements, road and pavement rehabilitations, transportation upgrades, and water quality and environmental improvements. In addition, significant work continues in FY 2014-15 on the major facilities projects
identified in the Facilities Financial Planning Program such as Marina Park, Sunset
Ridge Park, and the rehabilitation of fire stations, including our aptly-named “Fibrary” in
Corona del Mar. The proposed FY 2014-15 CIP budget consists of over $40.3 million in new
appropriations and an estimated $21.4 million in re-budgeted funds to be carried
forward from the current fiscal year for a total proposed CIP budget of just under $62
million. Conclusion
Newport Beach continues to be a financially secure municipality due to its strong
underlying tax base, governance, and careful fiscal decisions through the third quarter
of FY 2013-14. Our growing economy and the City Council’s decision-making in recent years provides the opportunity to commit resources for quality improvements while allowing the provision of high level public programs and services that the Newport
Beach population demands.
CITY OF NEWPORT BEACH FINANCE COMMITTEE AGENDA ITEM INFORMATION
Agenda Item No. 5E
April 29, 2014
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Dan Matusiewicz, Finance Director
(949) 644-3123, DanM@newportbeachca.gov
SUBJECT: Enterprise Resource Planning Software Implementation (ERP)
Update
BACKGROUND:
The purpose of this progress report is to inform the Finance Committee of the latest developments regarding the Enterprise Resource Planning (ERP) software implementation. An ERP is a business management software system that integrates all
of the City’s core functional requirements for financials, human capital management,
citizen services, and revenues. The ERP implementation is scheduled to take between
25 and 30 months and will consist of 5 major phases (see Project Timing Section below).
ID Installations/Implementations Start Finish Duration Q3 16Q1 15 Q2 15 Q4 15 Q2 16Q3 15Q3 14Q2 14 Q1 16Q4 14
JulOctJunJunJul Mar JunAprMayAugMaySepApr AugDecSepDec SepFebNovJanFebMarMayJanNovOctAugAprJul
1 371d10/01/201505/01/2014Finance
2 262d01/01/201601/01/2015Payroll/Human Resources
4 175d06/01/201610/01/2015Work Order/Request
196d09/30/201601/01/2016Business License/Misc.
255d05/20/201606/01/2015Utility Billing
Phase 1
Phase 2
Phase 4
Phase 5
Phase 3
5
3
Phases
Each phase has a life-cycle that requires involvement in chart of account development,
business process rules discovery and planning, conversion/interface development,
configuration, training, and testing.
PROGRESS:
Staff concluded contract negotiations Tyler Technologies Inc. (Tyler) on March 14. The
final agreement was approved by the City Council on March 25. Since this time, Tyler
has designated a project manager who will work in concert with the City and the Tyler Project Team to fulfill the responsibilities of the roles, project scope, and management
of the Tyler team’s activities toward the successful completion of the project. Staff
initiated reference checks on the designated Tyler project manager by speaking with
clients who have worked with her.
ERP Implementation Update April 29, 2014
Page 2 Staff has also scheduled the ERP implementation kick-off event for May 14-15. Participants will include Tyler staff, the management team, ERP project managers,
subject matter experts in City departments and other staff throughout the City that will
have a role in the successful implementation of the project. The purpose of the kick-off
meeting is to outline the ERP project progression, review roles and responsibilities, and inform staff of the necessary information for adequate project planning.
The objectives of the kick-off event are as follows:
• Provide communications on the overall project to key stakeholders.
• Identify, discuss, and facilitate the timely assignment of roles and responsibilities
related to the project.
• Confirm target live dates and review associated project milestones, critical path activities, and project tasks.
• Begin the process of building a unified Project Team.
This project must foster an environment of change and allow the creation of more
efficient and effective processes to support the City’s mission and goals. A meeting with the Tyler designated Change Manager will soon follow the kick-off.
Proceeding the kick-off, Finance Department staff will begin work on developing a new
chart of accounts structure and preparing for a series of Business Process Consulting
meetings with Tyler staff.
Prepared and submitted by:
/s/Steve Montano
Steve Montano
Deputy Finance Director
CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA ITEM INFORMATION
Agenda Item No. 5F
April 29, 2014
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Municipal Operations Department
George Murdoch, Acting Municipal Operations Director (949) 718-3401 or gmurdoch@newportbeachca.gov
SUBJECT: Adoption of a Recycled Water Rate
SUMMARY
The Municipal Operations Department has 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 recycled water portion of the study and propose the adoption
of an appropriate recycled water rate.
RECOMMENDATION:
Review the results and proposed recommendations of the recycled water rate study,
suggest further changes if needed, and recommend for submission to the City Council
for final approval.
DISCUSSION:
Background:
Recycled water is treated wastewater from the Orange County Sanitation District (OCSD). The Orange County Water District (OCWD) provides recycled water under the Green
Acres Project (GAP). GAP is a water recycling effort that provides reclaimed (or recycled)
water for landscape irrigation at parks, schools, and golf courses.
The City currently has five recycled water customers totaling 14 water connections. The customers include Big Canyon and Newport Beach Country Club golf courses; East Bluff
School, Our Lady Queen of Angels School, and the City which uses recycled water for
irrigation of medians and parks.
In 1991, the City entered into an agreement with OCWD for the distribution and sale of GAP water. The agreement stipulates the rules and regulations for the City to provide
recycled water. Included in this agreement is the stipulation that recycled water rates may
Adoption of a Recycled Water Rate April 29, 2014 Page 2
not exceed 80% of the potable water rate. The agreement term is for 25 years with five 5-
year automatic extensions, with an estimated ending term year of 2041.
The City subsequently entered into “End User Agreements” for the sale of recycled
water to large customers in 1996 for a 10-year term. These agreements, now expired, included provisions that OCWD and the City would provide funding to modify golf
courses and construct pump stations to facilitate the use of recycled water. However, in
2011, the City and the Big Canyon Country Club entered into an agreement that
provided for the delivery and sale of recycled water, and a pump station license
agreement.
Recycled Water Rate Study
In 2013, the City entered into an agreement with HF&H to conduct a Wastewater and
Recycled water rate study. The first priority of the City is to identify the recycled water
rates. The wastewater rate study is still being completed and will be discussed at a later date.
The current rates for recycled water are divided into two components:
• Fixed charge - a monthly service charge based on size of connection.
• Commodity charge - a monthly charge for all customers based on 80% of the
potable water rates.
Under the new rate structure the recycled commodity costs will not be linked to potable
water rates. The proposed methodology for the new rate structure has three components:
• Fixed charge - a monthly charge based on size of service connection.
• Commodity charge – a monthly charge for all customers based on the City’s cost of recycled water from OCWD.
• Pump Station charge – a monthly charge for users of pump stations based on
the cost to operate and maintain the stations and provide the recycled water.
The total revenue requirement for fiscal year 2014-15 is estimated to be $279,366 and
consists of:
• Fixed costs o Meter Reading/Replacement ($4,057) o Overhead - Other City Departments ($12,208) o Administration – MOD Staff Time ($25,433)
o Other agency fees – Health, County, etc. ($2,034)
• Commodity cost o The cost to purchase recycled water from OCWD ($173,417) or $0.86 per HCF
• Pump Station costs
o Inspections ($7,021) o Maintenance – Production, SCADA, Corrective ($13,109) o Source Change ($1,424)
Adoption of a Recycled Water Rate April 29, 2014 Page 3
o Rehabilitation – pumps, motors ($25,663)
o Station Replacement ($15,000)
These estimates are based on data included in the City’s prior year’s budget
documents; the 2011 cost allocation plan prepared by MGT America, Inc.; and the 2013 Fee Schedule adopted by City Council on October 22, 2013. As a result of this analysis,
staff is recommending an adoption of a five-year rate with a 2% annual adjustment to
reflect the anticipated increase future increases in the costs of maintaining the facilities.
Additionally, in the event OCWD increases the cost of recycled water by more than 2%,
staff recommends that the rate structure include an adjustment to reflect the actual commodity cost charged by OCWD. The City’s notification to rate payers, which is
required by the City’s regulations as well as State law included but not limited to
Proposition 218, will identify the rate structure including any such adjustment.
Proposed Five Year Rate Establishment
Monthly Service Charge
Current Year 1 Year 2 Year 3 Year 4 Year 5
5/8” or 3/4” $13.82 $18.91 $19.29 $19.68 $20.07 $20.47
1” $23.03 $31.53 $32.16 $32.80 $33.46 $34.13
1 ½” $46.06 $63.05 $64.32 $65.60 $66.91 $68.25
2” $73.70 $100.88 $102.90 $104.95 $107.05 $109.19
3” $138.18 $189.15 $192.94 $196.80 $200.73 $204.75
4” $230.30 $315.25 $321.56 $327.99 $334.55 $341.24
6” $460.61 $630.50 $643.11 $655.98 $669.10 $682.48
8” $736.98 $1,008.81 $1,028.99 $1,049.57 $1,070.56 $1,091.97
Commodity Charge
Per HCF $2.46 $0.855 $0.872 $0.890 $0.907 $0.926
Pump Station Charge
Per HCF none $0.361 $0.368 $0.375 $0.383 $0.391
Under the proposed rate structure, recycled water users will see a reduction in their bill.
Even accounting for a two percent annual increase beginning in the second year of the
new structure, the updated rates provide a significant savings for the City’s recycled
water users, while still allowing the City to maintain infrastructure to provide recycled
water service. Staff and the representatives from HF&H will present the proposed rates and structure to the Finance Committee and describe the notification requirements
under Proposition 218.
Adoption of a Recycled Water Rate April 29, 2014 Page 4
Estimated Cost Savings for Recycled Water Users
Customer Name Meter Size
Average
Monthly Flow (HCF)
Current
Monthly Bill
Year 1
Monthly Bill Difference
Newport Country
Club 6” 6,550 $16,820 $8,717 $ (8,103) (48)%
Our Lady Queen of Angels 2” 151 $446 $230 $ (215) (48)%
Big Canyon
Country Club 8” 5,256 $13,668 $5,504 $ (8,164) (60)%
Big Canyon
Country Club 6” 2,463 $6,518 $3,625 $ (2,894) (44)%
Eastbluff School 3” 321 $928 $464 $ (464) (50)%
Next Steps
Upon incorporation of the Finance Committee’s comments and recommendations, staff will present and recommend the proposed recycled rate and structure to the City
Council for final adoption. Staff will be required to issue Proposition 218 notices to the
owners of parcels that are subject to the recycled rate pursuant to California
Constitution Article XIII D, Section 6. There will be a 45-day public notice period, and all
written protests will be received and tabulated.
Following a public hearing on the proposed recycled rate and structure, the City Council
may thereafter proceed with rate establishment unless written protests against the
proposed rate are presented by a majority of owners of the parcels subject to the rate.
Prepared and Submitted by:
/s/George Murdoch
George Murdoch
Acting Municipal Operations Director
Attachment A. Revenue Requirement 5 Year Projection
Attachment A: Revenue Requirement 5-Year Projection
Budget Projected
FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19
Shared Recycled Water Costs
Purchased Water - OCWD $ 167,597.52 $ 173,416.88 $ 179,438.30 $ 182,810.16 $ 186,245.38 $ 189,745.15
Other agency fees $ 2,000.00 $ 2,034.60 $ 2,069.80 $ 2,105.61 $ 2,142.03 $ 2,179.09
Administration $ 25,000.00 $ 25,432.50 $ 25,872.48 $ 26,320.08 $ 26,775.41 $ 27,238.63
Overhead $ 12,000.00 $ 12,207.60 $ 12,418.79 $ 12,633.64 $ 12,852.20 $ 13,074.54
Meter Reading $ 1,488.00 $ 1,513.74 $ 1,539.93 $ 1,566.57 $ 1,593.67 $ 1,621.24
Total - Shared Recycled Water Costs $ 208,085.52 $ 214,605.32 $ 221,339.30 $ 225,436.05 $ 229,608.70 $ 233,858.66
Big Canyon Country Club
Inspections $ 3,451.00 $ 3,510.70 $ 3,571.44 $ 3,633.22 $ 3,696.08 $ 3,760.02
Scheduled Production Maintenance $ 1,877.00 $ 1,909.47 $ 1,942.51 $ 1,976.11 $ 2,010.30 $ 2,045.08
Scheduled SCADA Maintenance $ 1,579.00 $ 1,606.32 $ 1,634.11 $ 1,662.38 $ 1,691.14 $ 1,720.39
Corrective Maintenance $ 3,851.00 $ 3,917.62 $ 3,985.40 $ 4,054.34 $ 4,124.48 $ 4,195.84
Source Changeovers $ 700.00 $ 712.11 $ 724.43 $ 736.96 $ 749.71 $ 762.68
Pump Station Rehab/Maintenance $ 11,280.00 $ 18,584.40 $ 18,956.09 $ 19,335.21 $ 19,721.91 $ 20,116.35
Total - Big Canyon Country Club $ 22,738.00 $ 30,240.62 $ 30,813.96 $ 31,398.23 $ 31,993.62 $ 32,600.36
Newport Beach Country Club
Inspections $ 3,451.00 $ 3,510.70 $ 3,571.44 $ 3,633.22 $ 3,696.08 $ 3,760.02
Scheduled Production Maintenance $ 1,408.00 $ 1,432.36 $ 1,457.14 $ 1,482.35 $ 1,507.99 $ 1,534.08
Scheduled SCADA Maintenance $ 1,184.00 $ 1,204.48 $ 1,225.32 $ 1,246.52 $ 1,268.08 $ 1,290.02
Corrective Maintenance $ 2,987.00 $ 3,038.68 $ 3,091.24 $ 3,144.72 $ 3,199.13 $ 3,254.47
Source Changeovers $ 700.00 $ 712.11 $ 724.43 $ 736.96 $ 749.71 $ 762.68
Pump Station Rehab/Maintenance $ 6,940.00 $ 7,078.80 $ 7,220.38 $ 7,364.78 $ 7,512.08 $ 7,662.32
Total - Newport Beach Country Club $ 16,670.00 $ 16,977.13 $ 17,289.95 $ 17,608.56 $ 17,933.07 $ 18,263.59
Subtotal: Operating Expenses $ 247,493.52 $ 261,823.07 $ 269,443.21 $ 274,442.83 $ 279,535.39 $ 284,722.61
3% 2% 2% 2%
Depreciation Expenses To/(From) Reserves
Pump Station Facility Replacement $ 15,000.00 $ 15,000.00 $ 15,000.00 $ 15,000.00 $ 15,000.00 $ 15,000.00
Meters replacement $ 2,500.00 $ 2,543.25 $ 2,587.25 $ 2,632.01 $ 2,677.54 $ 2,723.86
Subtotal, Depreciation Expense $ 17,500.00 $ 17,543.25 $ 17,587.25 $ 17,632.01 $ 17,677.54 $ 17,723.86
Net Revenue Requirement $ 264,993.52 $ 279,366.32 $ 287,030.46 $ 292,074.84 $ 297,212.93 $ 302,446.47
3% 2% 2% 2%