— Photo by Victoria Kertz ©
Money was on the minds of Newport Beach residents who turned out to hear Newport Beach Councilman Will O’Neill’s city finance overview at the Speak Up Newport forum on Wednesday evening in the community room at the Newport Beach Civic Center.
The Stanford graduate and business attorney was a citizen member of Newport Beach’s Finance Committee for two years before being elected to the City Council. He represents district seven.
“We typically get no more than two members of the public at finance committee meetings, so you’re breaking all kinds of records,” the 33-year old councilman, possibly the youngest in Newport’s history, told an audience estimated at more than 50 residents.
While budgets can be a dry topic, O’Neill presented an in-depth and informative overview without losing the audience. Infused with interesting facts and humor, the presentation reflected his enthusiasm for civic finances, as well as the city.
“I love representing district seven,” he told the audience.
District seven, which includes Newport Ridge and much of Newport Coast, boasts some of the newest roads and buildings in the area. He took the opportunity to rib fellow council members in attendance about how his district was not in need of a lot of infrastructure repairs or improvements.
That is “certainly not true on Balboa Island, certainly not true on the peninsula,” he joked with Jeff Herdman of district five (including Balboa Island) and Diane Dixon of district one (including Balboa Peninsula), who joined former councilman and district seven representative Keith Curry in the audience. O’Neill jokingly said it also gave him the chance to “meddle in other districts,” which got a big laugh from everyone.
On a serious note, O’Neill said he believed annexing Newport Coast was one of the city’s best decisions, largely because it’s a large contributor of property taxes, and thus a huge source of funding.
The city’s revenue comes from a variety of taxes, mainly property tax, sales tax, and Transient Occupancy Tax (a bed tax via hotels and short-term rentals).
“Newport Beach remains a community with balanced budgets, steady revenue sources, consistent surpluses, and healthy reserves,” O’Neill said, citing the city’s impressive AAA-rating from Moody’s and all major credit agencies. Newport’s reserves total $75 million.
But just who is the largest payer of property tax? Overall, he said, it’s the Irvine Company.
And who pays the most in sales tax? Fletcher Jones Motorcars, followed by Newport Lexus.
Throughout the evening, O’Neill involved the audience at everything from guessing General Fund revenues of nearby cities (Newport’s was a remarkable $199.2 million during the 2016-2017 fiscal year) to the amount of money library fines brought in last year (a surprising $145,000).
So when people ask him how the city is doing financially, he always asks, “compared to what?”
Compared to most California cities, Newport Beach is doing pretty well, O’Neill says. Newport’s AAA credit rating “puts us in rarefied air,” he stated. Still, two issues receive a lot of attention.
“Rising unfunded pension liability and ongoing civic center debt payments, though, require long-term planning and fiscal prudence,” he wrote in an email.
O’Neill said that he expects that the debt service for the civic center COPs, next of BABs subsidy, will be around $8.2 million. However, the unfunded pension liability, which grew from just $2 million in 2007 to possibly exceeding $350 million next year, is the biggest financial challenge faced by the city.
“That increase,” O’Neill wrote in an email regarding pension funding, “is largely due to CalPERS’ decreasing investment returns and increasing expectation of pensioners’ age. Our City Manager’s budget proposal projects the city paying approximately $40 million (net of employee payments), of which about $9 million is discretionary.”
It’s a big number, but O’Neill assured the audience that Newport Beach is still doing better than other large cities in Orange County, and significantly better than cities up and down the state, some of whom are headed toward bankruptcy.
He said that it’s important to pay, since the city has the means to do so. Other cities, he remarked, cannot take the funds that Newport Beach has put in.
Cities without the means to pay down their pensions will be forced to cut local programs, and sometimes critical programs like public safety. He said he never wants to cut into the police, fire, and lifeguard funds out of necessity, and doesn’t want future decision makers to either.
“One of the core reasons I ran is to make sure that future councils will not have to face terrible choices, and that we make the right choices now,” said O’Neill.”
Approximately $108.8 million is proposed for public safety spending in 2017-2018, which makes up 54 percent of proposed spending from the General Fund.
O’Neill praised the finance department and director Dan Matusiewicz for their hard work on the city finances. The budget will be modified, rejected, or adopted after a public hearing during the June 13 city council meeting. The new fiscal year begins July 1.
At the onset of the presentation, O’Neill asked the audience to hold their questions until the end to save time and get everyone out in time to see the Anaheim Ducks play Game Seven of the Stanley Cup Playoffs Western Conference Second Round against the Edmonton Oilers (which the Ducks went on to win, 2-1).
Dixon, who introduced O’Neill at the start, declared his overview to be “one of the best deep-dives” into city finance she had ever heard.
Dixon will be the guest at the next Speak Up Newport event (date to be announced, typically the second Wednesday of each month), covering all that’s happening on the Balboa Peninsula.
A few thoughts:
(1) Quoting … ““That increase,” O’Neill wrote in an email regarding pension funding, “is largely due to CalPERS’ decreasing investment returns and increasing expectation of pensioners’ age. ”
The value to the employees has not changed and the primary reason the City must pay more is because for decades CalPERS has VERY materially (and purposefully) underestimated the TRUE expected cost of these promises ….. hence DEFERRING costs to later years. Had the citizens of CA been told the TRUE expected cost, they assuredly would have granted far less-rich pensions (and certainly protested SB400 and the local laws that followed, RETROACTIVELY increasing pensions)…. now ROUTINELY 2 to 4 times (4 to 6 times for safety workers) greater in value upon retirement than those typically granted similarly situated (in wages, age at retirement, and years of service) Private Sector workers.
(2) Quoting …… “He said that it’s important to pay, since the city has the means to do so. Other cities, he remarked, cannot take the funds that Newport Beach has put in.”
In the not too distant future MANY CA cities will be in crisis mode re their pensions. Keep in mind that CalPERS assets are “pooled” and the individual City contributions, payouts, etc, are simply bookkeeping records. When push-comes-to-shove there will be enormous pressure to use the surpluses of one City to keep monthly pension payout from ending in others.
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While Newport beech is in far better financial shape than most other CA cities, there will be accelerating pressure from pension promises that are grossly excessive (by any and every reasonable metric), are unnecessary, unfair to taxpayers, and clearly unaffordable.
The ONLY TRULY “effective” solution is to materially reduced FUTURE Service pension accruals for all CURRENT workers. While doing so is both legal and routine in Private Sector Plans, it is far more difficult in many States such as CA due to it’s “California Rule”. Hopefully, the CA Supreme Court’s anticipated ruling on several cases that impact the strength of CA’s California Rule will be adjudicated in a way which allows such FUTURE service reductions. While Newport Beach’s dependency on that outcome is not that immediate, for MANY CA cities it is the ONLY thing that will prevent their spiraling into insolvency.