Commentary: Newport is fiscally sound, and council intends to keep it that way

Councilman Petros is a nice guy.  But it appears that he is the city manager’s ventriloquist.  One of our volunteers annotated Petros’ commentary.  I thought you would enjoy it.

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Commentary: Newport is fiscally sound, and council intends to keep it that way

By Tony Petros

9:42 AM PDT, July 1, 2014

Two years into a four-year Newport Beach City Council term, it is not unusual for me to still feel like “the new guy.”

But in those two years, I’ve had opportunities to contribute to many city committee and council efforts and have added to my existing knowledge. I appreciate more how this multimillion-dollar operation works.

Fresh on the heels of the council’s adoption of a balanced budget for Newport Beach’s fiscal year 2014-15, I want to share a few highlights from my experience on the City Council’s Finance Committee and describe what this full-service, municipal operation is working on.

The 2014-15 budget is a $280-million plan. The approved expenditures are less than the revenue projections, putting Newport Beach on tap for another year of surplus and another year to further bolster reserves. [The city’s budget documents show in 2003 total revenues from all sources was $110 million. According to Tony this year budget is $280 million —  a 172% increase in 11 years.  Our population grew about 4,500 with the addition of Newport Coast in 2003.]

City revenues from its share of the property, sales and hotel occupancy taxes collected by the state have increased steadily over the past 10 years. The rise can be attributed to growth in our local business community, visitors and property values — not tax increases. Those tax rates are set by the state or voters.  [the growth has come in the size, depth, and cost of local government.  For example, last year the city librarian made more than the Governor of California.]

As these revenues grow, the city has more money to invest back into the public realm. We can build more parks, landscape more streets, improve more libraries and fund more public safety services. As we do, the value of our community will rise and subsequent revenues increase. [The only parks built by the city in the last decade is the passive park at PCH & Jamboree and basketball courts in West Newport.  Any new parks were built by the developers of the Castaways (Bob Henry Park), Newport Coast (Bonita Canyon Park, Newport Ridge Park, & Coastal Peak Park) as part of the development agreement negotiated with the County of Orange in the mid-80’s.] 

It is a prime example of a virtuous cycle. Ever-growing investment in the city leads to ever-growing valuation of our community and ever-growing reinvestment in neighborhoods, business, local environment and beaches.

For example, investment in public right-of-way spurs residence and business improvements, thus increasing the value of the property. Increased shopping opportunities provide for greater sales tax receipts. The increase in the number of hotel rooms, the quality of these destinations and the efforts of Visit Newport Beach increase hotel occupancy and the associated tax. [Visit Newport is a unregulated non-profit corporation with no public oversight.  It does not post agendas or have public meetings, yet it spends $4 million a year in hotel bed tax dollars.]

I believe the public-private investment strategy is working. The assessed valuation of Newport Beach properties has increased every year since 2003. And last year, we had the highest percent increase in assessed valuation of any city in Orange County.[The assessed valuation increase he references is due to the annexation of Newport Coast in 2003 – the housing values of the Coast are significant thus larding up the city coffers with significant additional property taxes.]

Our commitment to public investment is also evidenced in how the city serves its residents, businesses and visitors. Our employees are exceptional. My friends and colleagues around town expect a beautifully maintained community and high-quality recreation, library, police, lifeguard, fire, senior and other municipal services. They should and we are committed to continuing to deliver platinum-level service even as we further reduce the city’s full-time staff.  [Keep reducing.  Salaries and benefits were $130 million this year. 30 employees made more than the Governor of California, including the librarian.]

We know what you expect and we have the staff to deliver it. We also know, however, that government manpower here comes with a public pension system mandated by the state. That system is flawed and has issues that can’t be punted into the future.  [CalPERS does not set wages, salaries, and benefits.  They invest money.  The city council sets wages and benefits after negotiating with the respective bargaining units.  Blaming CalPERS for our local decisions is disingenuous.]

You have probably read or heard about the unfunded pension liabilities prevalent throughout California and the country. It’s a serious problem, and a lot of public agencies can barely get enough traction to make effective changes.

Not ours. We asked our employees to pay more toward the cost of their pensions and they agreed. They will fund $7.4 million of the city’s pension costs through payroll deductions in fiscal year 2014-15. The city took a major, but little noticed, step in 2013 to accelerate the payments on the city’s unfunded liability. [According to the Orange County Grand Jury Newport Beach has the highest unfunded pension liability of any city in the County.  At $3,100 per resident it needs to be paid down quicker.  Irvine is doing it in less than ten years.]

Doing so eliminates that liability in 21 to 25 years and saves the city millions in interest. We will not just pay down the current unfunded liability. We will pay it off, relieving taxpayers of this burden. The City Council and staff are not “kicking the can” down the road, hoping the problem goes away or the market makes a miraculous recovery. [See above.  Sometimes being #1 isn’t the goal.]

No, we’re dealing with it today.

I want to address one other topic, one that is often misconstrued — debt. There can be good reasons to issue bonds to fund improvements that will cross multiple generations. Our city fathers and mothers realized this years ago. Debt financed one of Newport Beach’s earliest school houses in 1905 and the city’s first water system in 1909.

Newport harbor’s jetties were funded by $700,000 in bonds in 1927 and 1928. And $1.16 million from FDR’s “New Deal” National Recovery Act of 1930 helped dredge the harbor, but an additional $640,000 in local bonds matched it. Many of the iconic places of Newport Beach were created through bond indebtedness, and those bonds were paid off and retired. [Each of the examples of debt cited resulted in the economic development of Newport Beach.  How does $228 million in debt for the Taj Mahal result in economic development for our city?  And, the land was free.]

Newport Beach has recently carried debt too. The Central Library was funded with bonds as was the water system that links to the groundwater basin in Fountain Valley. In 2011-12, our bonded debt was $126.6 million (this is the Civic Center’s bonds). At the end of the coming year, it will be $116.5 million. Debt service is 4.6% of our general fund revenues, which is well below the conservative threshold (at 8%) recommended by Moody’s, Fitch, and Standard and Poor’s. [Over the past decade, this crop of councilmembers has accrued more debt than the prior 90 years of the city’s history combined.  That’s not a legacy to be proud of.]

I’ve worked on a lot during my 30-plus months as the “new guy” on the council, and what I’ve shared here is merely a snapshot. The underlying theme is that the city is fiscally strong and getting even stronger. I attribute that to our citizens and businesses.

You just wouldn’t have us run the place any other way. That long-held expectation has meant we invest wisely, spend conservatively and manage carefully to keep our community’s virtuous cycle moving.  [Tony, $1,100 desk chairs and $225,000 in decorative bunnies at the city hall that was supposed to cost $90 million but ended up costing $228 million (debt service included) suggests differently.  But, you’re a nice guy for trying.]

TONY PETROS is a member of the Newport Beach City Council.

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