Accountability in budget peaks and valleys
Op/Ed by Will O’Neill, Newport Beach Council Member
On March 12, 2020, our city’s finance committee met to discuss our city’s revenue assumptions for the next year’s budget. While COVID-19 was a topic, it was mostly an unknown variable with unknown financial consequences.
A week later, the governor issued his stay-at-home order. Three weeks later, the Finance Committee met again with much bleaker projections. The budget passed by the city council for 2020/21 included hiring freezes, substantial revenue and expenditure cuts and capital deferrals.
Whole books will be written about the events that happened between yesterday and today. For this topic, however, it suffices to recall how uncertain these months were for our families, our businesses, and our city as a whole.
Last Saturday, our City Council met for their annual planning session to discuss the priorities we can expect to place in our budget for next year. Projections are about as positive for the year ahead as projections were negative at the start of 2020.
These positive projections are largely attributable to substantial increases in property tax bases, increased local spending which has boosted sales tax revenues, and transitional occupancy tax collections which have rebounded from short-term housing.
Our largest operating expenses are, unsurprisingly, salaries and benefits for our more than 700 municipal employees. It’s also no surprise that our police and fire personnel account for the largest portion of budget labor costs and are expected to continue to do so for years to come. In other words, we will continue to prioritize and fund public safety.
With our short-term operations being well funded, our City Council has also been looking at ways to improve our long-term funding for capital improvements and debt management repayment.
Newport Beach will see a mix of new projects (like the Junior Lifeguard Building), maintenance of existing projects (like road and streetlight upgrades), and replacement of older projects (like the fire station/library at end of the Balboa Peninsula).
Over the next few months, we will be refining a well-founded existing plan for all of these projects and more.
Additionally, we were encouraged by the good news that our unfunded pension liability is expected to be reduced by nearly $100 million from just a few years ago. This reduction is occurring due to (1) a robust return on investment from CalPERS over the past fiscal year and (2) substantial annual incremental payments from the city.
While this is certainly good news, this news is tempered by the fact that CalPERS has missed its return on investment target two out of the last four years. If, however, CalPERS is able to achieve annual returns of 6.8% and future guidance stays the course, then Newport Beach will have fully paid off its unfunded retirement liability by 2030. Once paid off, a future city council will have the ability to decide what to do with the extra $45 million per year that is not needed to pay off its debts (don’t be surprised if former council members run again at that time!) .
Hopefully the future council will use this additional discretionary amount to invest in both needed large-scale projects, like a new police station, as well as tax relief.
At Newport Beach, we take financial responsibility seriously because we know that families work hard for every penny that comes in and want their elected representatives to be directly accountable for how and when we spend the money. I am grateful to live in a city where these values are local and well harvested.
Hon. Will O’Neill is currently a member of the Newport Beach City Council, in his third year as chairman of the city’s finance committee, and served as mayor in 2020.