NEWPORT BEACH – The city’s financial outlook for the foreseeable future looks well even as it grapples with its costly pension debt, city staff told the City Council and Finance Committee during a joint presentation of a proposed $282 million budget on Tuesday.
Based on budget performances of past years and barring a downturn in the economy or a substantial increase in pension payments, the city’s financials should remain stable for the next 20 years, said City Manager Dave Kiff.
“I call this a ‘We’re in good shape, but… budget,’” Kiff said, adding the city needs to watch sales and transient taxes closely and “pension expenses are not impossible to sustain, but challenging.”
In addition to a $300,000 surplus, Newport Beach will pay an extra $9.1 million toward pensions for fiscal year 2017-18, which begins July 1.
The pension debt was $2 million a decade ago and is expected to reach $353 million by next year.
“We believe this is the best way to handle the debt, is to pay it down… as quickly as you can,” Mayor Kevin Muldoon said. “If we do this in a disciplined manner we’ll protect our city from escalating debt for many more years.”
Deputy Finance Director Steve Montano said the accelerated payments would eventually help the city pay off the unfunded liability faster, eventually bringing down to zero.
The city will pay around $40 million to the California Public Employees Retirement System for 2017-18 and city employees will contribute around $10.5 million.
Only a handful of cities are paying more into their unfunded pensions than is required, Kiff said.
“We have the luxury of being a financially prosperous city,” he said. “What cities like us are doing this? The answer is not many, but many should.”
The biggest chunk of the budget is the general fund – $225.6 million – of which $108.8 million will be used to fund public safety.
The budget for Public Works, the second largest expense, is $37.7 million.
Around 65 percent of the general fund will be used to pay employee salaries, up 3 percent from last year, and benefits.
Councilwoman Diane Dixon said that while the city’s revenues and its cash reserves are doing well, the pension issue and costly seawall projects on Balboa Island are significant.
“I believe this budget is a solid budget but it is also a cautious one,” Dixon said.
Some of the cities biggest priorities are to invest more in Newport Harbor and the beaches. A seawall replacement on Balboa Island’s west end and a seawall cap on the north and south sides are expected to cost $7 million.
The budget proposes the largest infusion – $6 million – yet to harbor and beaches, Kiff said.
General fund revenues are projected at $209 million – the bulk of which comes from retail sales, property and transient occupancy taxes – a 5.3 percent increase from last year.
Montano noted that sales in department stores have stalled for the fifth-straight quarter and auto sales have slowed and auto leasing has increased.
Assessed property values in the city grew 6.5 percent, the sixth highest growth rate in Orange County.
The Finance Committee will meet June 1 to go over the budget and the council is expected to discuss the item on June 13.