January 2016.

The financial status of Newport Beach and its biggest challenge, the unfunded pension liability, were on the table for discussion during a community meeting last weekend.

“To me, this is the most persistent and significant gloom that hangs over most California cities, including our own,” said City Manager Dave Kiff during the annual City Council planning session held Saturday at Marina Park.

Overall though, said Kiff, “we’re in good shape.”

The last fiscal year ended on a great note with a $14.2 million budgetary surplus, noted Finance Director Dan Matusiewicz.

But there are challenges, Kiff added. At the top of that list is the unfunded pension liability.

According to Investopedia, an unfunded pension is an employer managed retirement plan that uses the employer’s current income to fund pension payments as they become necessary. This is in contrast to an advance funded pension plan where an employer sets aside funds systematically and in advance to cover any pension plan expenses such as payment to retirees and their beneficiaries.

unfunded_pension_3-768x438The total annual California Public Employees’ Retirement System (also known as CalPERS) cost to the city for the 2016 fiscal year came in at just over $36 million. The 2017 estimate exceeds $37.3 million, with employees contributing about $8.6 million of that, Matusiewicz explained, leaving about $28.7 million for the city’s portion.

Cities across the state are facing this issue and trying to find a solution. It’s a very challenging problem, Kiff said.

Unfunded pensions are one of the top issues that keep her awake at night, said Mayor Diane Dixon.

It’s clearly an important issue, Dixon noted, “I want (the city) to be planful and strategic.”

Newport is making progress on it, Kiff said. In order to more efficiently pay it down, city staff has come up with a payment plan called “Fresh Start.”

unfunded_pension_2-768x439The default option plan from PERS would see the city’s payment increase by about $1 million next year. It would slowly increase over the years. The PERS payment plan is biased toward cities that can’t afford to make drastic increases in their payment, Matusiewicz said, but Newport Beach doesn’t fall into that category.

The staff recommendation is to increase the payment to $2.7 million to “get a little bit ahead of it,” Matusiewicz said. This Fresh Start plan would help the city pay less in the long run and “reap significant savings down the road,” he noted.

In the Fresh Start plan, the city would pay approximately $6 million more in the first few years than it would through the PERS default plan, then roughly $1 million less for about the next 16 years.

“We want to jump to what the payment should be, especially while revenues are good, and then save over the long run,” Matusiewicz said.

The plan will be discussed in further detail with the Finance Committee, which next meets from 4 to 6 p.m. on Feb. 11 in the Crystal Cove conference room at the civic center. If the plan is approved by the Finance Committee, it will move onto an upcoming Council agenda.

The committee will analyze the Fresh Start plan and determine whether or not it’s the best plan and makes sense for the city, Dixon said. This may offer the city more control over the funds they send to PERS and over the city’s unfunded liability, she noted.

It definitely needs to be seriously considered, she continued. Staff might also consider a variation on the Fresh Start plan via a trust separate from CalPERS, Dixon suggested.

The city has also been taking other measures to mitigate the pension liabilities, including reducing the number of full-time staff and having a lower benefit tier for employees that transfer into the city. Also, any new hire goes into the pension reform tier, or PEPRA tier, which is a stable and less generous tier with an older retirement age. Newport Beach currently has many of those type of hires in the city, but it takes 20 to 25 years to see a positive impact from that, Kiff explained.

“No one is being brought into the city in the classic tier, the most generous tier,” Kiff said.

Employees are contributing a greater share of the pension cost, about $8.3 million in the 2015-16 fiscal year.

“The employees are also paying much more of the check that goes to Sacramento now,” Kiff said.

Between nine to 14 percent is deducted from each of the employees’ paychecks.

According to the 2016 fiscal year numbers, the employee pays more than half of the share of their own pension costs. The challenge comes when the total unfunded liability cost is calculated in and the employee pays only 22.7 percent and the city fills in the other 77.3 percent. Although, that amount is already higher than most other California cities and it’s steadily increasing.

Newport Beach is a few years ahead of the curve on that, Kiff said.

While increasing the employees’ share helps solve the pension problem, this makes it hard to recruit and retain employees, Kiff noted.

“No one else is asking employees to take as big of a deduction as we are,” he said, so they jump to nearby cities where the percentage paid by the employee is even less.

Another hurdle is that investment returns in 2014-15 were 2.4 percent, down from 18.4 the previous fiscal year. PERS anticipates that it’s about 7.5 percent each year, so the 2.4 percent fell “well short” of that target, Kiff said.

“The close of the most recent fiscal year doesn’t look any better,” for investment earnings, which translates into higher rates, Kiff explained. Higher rates that the city must pay to PERS to keep up with their obligations.

It is a very challenging moving target, he said.

“The ground shifts constantly and we’re going to be faced now, because of the current economic situation and the reduced returns…We have to consider accelerating that ‘fresh start’ or some other option,” Dixon said. “They keep moving the goal post.”

The meeting also covered current and future capital improvement projects and the mayor’s action plan for the year.

For more information, visit newportbeachca.gov.

Newport Faces Unfunded Pensions Dilemma

By Daniel Langhorne | NB Indy

Newport Beach mooring permit holders will see relief in the fees they pay to the city to park their boats offshore, ending years of debate at city hall over the appraisal for a fair market rent.

The Newport Beach City Council voted 5-2 to reduce the annual rental rate for off-shore moorings from $55.43 to $35 per linear foot. Likewise, onshore moorings were reduced from $27.21 to $17.50 per linear foot.

“I’m feeling that it is a significant step in the right direction,” said Carter Ford, communications and community relations chair for the Newport Mooring Association, which represents mooring permit holders in the city. “[T]his group is fair-minded and pleased to contribute their fair share suitably to the harbor.”

Dozens of mooring permit holders packed the council chambers on Tuesday to urge the council to follow the advice of its appraisal consultant, Netzer and Associates, and the Harbor Commission to slash the fees. The association originally lobbied for a $25 per foot fee for off-shore mooring but was content with the latest appraisal.

Carter and his fellow mooring permit holders believe that the city erroneously depended on an analysis conducted by city staff in 2010 to support rate hikes over five years.

The council’s decision to lower the fees was opposed by Councilmen Keith Curry and Ed Selich because of their concerns about a letter sent to the city by the State Lands Commission the day before the council meeting. The commission determined that that the appraisal lacked “important supporting discussion and analysis in a number of areas.”

As a trustee for Newport’s tidelands, which include Newport Bay, the city is charged with manage the harbor in a way that benefits all Californians.

“We’re now at risk of the [commission] coming in, taking control and setting fees that people in this room won’t agree with,” Curry said.

Councilman Marshall “Duffy” Duffield struck back at Curry by comparing the city’s past fee structure to that of landlord by offering a poor product to boaters but extracting unreasonable fees. He highlighted that the boaters using the offshore moorings have no access to parking, restrooms or work docks.

Curry also noted that it was unwise for the city to cut this revenue source while it faces a major seawall replacement project costing between $35 million and $68 million.

The argument for charging mooring permit holders more than fair market value did not go over well with Carter.

“It is patently inappropriate for a government entity, which is here to serve fairly the needs of all of its citizens, to decide to charge more than estimated by fair market value to meet other financial needs of the community,” he said.

The next issue on the horizon for mooring permit holders is a proposed overhaul of the city’s policies for the transfer or gifting of moorings from one permit holder to another. A hearing date has not been scheduled.


City Council Votes to Slash Mooring Fees




NEWPORT BEACH – Higher than expected revenues helped the city see a $14 million surplus in the most recent budget.

City officials said this month Newport Beach had a $14.2 million operating budget surplus, according to a preliminary report from during the 2014-15 fiscal year. General fund revenues were $185.9 million, which was $4.4 million higher than budgeted and $11.9 million higher than the previous fiscal year.

The three largest sources of revenue – property taxes, sales tax and hotel bed taxes – all saw increases this year, according to the report. Property taxes, which make up almost half of all general fund revenues, were $152,000 higher than budgeted; sales tax was $78,000 higher than budgeted; and bed taxes were $991,000 higher than budgeted, according to the report.

General fund expenditures were $12 million lower than budgeted, but $15.5 million higher than the previous year, according to a staff report.

The city reported a $9.7 million operating budget surplus in the audited 2013-14 budget, according to finance department data. Much of that money has been transferred to fund payments for the city’s debt obligations – especially pension obligations – or transferred to funds for neighborhood improvement.

Contact the writer: 714-796-7990 or [email protected]

NEWPORT BEACH, CA – Over the past week we have surveyed the community over the proposed increase in the sewer fee.

By way of background, since 2005 the city has maintained a schedule of improvements necessary to maintain the sewer system. In 2009 they adopted a master plan that updated the 2005 document with costs and fee increase requirements, including an increase in 2014. The council did not authorize the 2014 increase, it was an election year and then Mayor Rush Hill was facing a difficult re-election campaign. “They kicked the can down the road to help Rush Hill and delay the sewer improvements by years. How many sewage spills have we had recently that could have been averted,” declared Bob McCaffrey, Volunteer Chairman of Newport Residents for Reform.

Over the past decade the city’s budget has increased by 52%, nearly $100 million. “It’s time the city stopped spending on frivolous items like Taj Mahal, $225,000 bunnies, Marina Park, and the crazy art in the park. We need to get back to basic of local government like fixing the sewer system. We have plenty of money without the incessant picking of our pockets,” stated McCaffrey.

Last weekend I generated an online poll asking a series of questions about the sewer rate increase. 162 responded with each response transmitting to the seven city councilmembers and the city manager.

The results are below and reflect a clear sentiment that the public wants the city to reprioritize its spending and get back to basics.


“It’s clear to me that Newport’s voters are looking for a new way of doing business – the decade of shiny new objects is over,” concluded McCaffrey.


Hannah FryContact Reporter

Wastewater service could soon become more expensive for Newport Beach water customers.

The City Council on Tuesday will hold a public hearing to accept comments from ratepayers and calculate the number of residents who have sent letters to the city in protest of a proposal that would double wastewater rates over a five-year period.

If the council approves the increase, homeowners would see their bills rise about $2 per month beginning in March, according to a city staff report.

Residential and commercial water users in Newport Beach are charged on their regular bills for removal and treatment of wastewater, which includes sewage and water from sinks and showers, known as “gray water.”

In October, the council voted to move forward with the plan to raise rates and directed staff to send notices to 27,193 customers. If 50% of property owners — about 13,500 — are against the increase, the council cannot pass it, according to state law.

A typical single-family home in Newport pays about $9.75 per month for wastewater service. The proposal to increase the rate structure would mean the same home would pay $11.89 per month beginning in March and for the rest of 2016. The monthly rate for most customers would increase to $13.16 in 2017, $14.64 in 2018, $16.21 in 2019 and $18.02 in 2020.

George Murdoch, Newport’s general manager of utilities, said the city does not have plans to increase rates again immediately after 2020.

The rate increase would bring an additional $113,346 in revenue to city coffers in 2016. By 2020, the city would see an increase of about $1.8 million, according to the staff report.

The additional rate revenue is necessary for the city to improve its aging water system, Murdoch said.

“I don’t like to raise rates,” he said. “But this is a necessary increase. It’ll make our sewer system financially healthy and maintain our reserves.”

In 2013, the city contracted with HF&H, an Irvine-based consulting firm, to study rates for wastewater and recycled water services. Based on the study, the City Council decided in June 2014 to halve the cost to ratepayers of recycled water.

However, the study indicated that the city needs to bulk up its fund for wastewater service if it wants to pay for system improvements that are expected to cost about $30 million over the next 30 years. HF&H projected the city would have to dip into reserves to fund the projects, which by 2017 could wipe out the $900,000 the city has in wastewater reserves.

Since the last rate increase in 2005, the city has outsourced various water services and reduced expenditures in the capital improvement program, but it wasn’t enough to stave off a rate increase forever, Murdoch said. The city Finance Committee recently looked at outsourcing more water-related services but decided it wouldn’t be cost-effective.

Tuesday’s City Council meeting will begin at 7 p.m. at 100 Civic Center Drive.

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