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City manager: Funds surplus focuses on infrastructure, capital improvement projects, neighborhood enhancements

By SARA HALL

A community forum this week summarized the city’s goals and priorities for 2022.

During Speak Up Newport’s monthly meeting held via a Zoom livestream on Wednesday (Feb. 9), City Manager Grace Leung condensed the City Council’s annual goal setting session held January 29.

Council’s planning session was about three hours and Leung highlighted some of the important topics from the meeting, including this fiscal year’s surplus funds and how staff is recommending using them for several important future capital improvement projects.

She also provided a revenue update and projections, and discussed expenditures and infrastructure.

At the annual planning session, council reviews the recommended budget, which ensures that the priorities of the city are implemented through the budget, Leung explained. The big focus this year is the surplus funds that have gone to long-term liabilities and come for capital improvements.

“It’s great for the city in making sure that we keep long-term infrastructure and long-term needs met,” Leung said. “I’m very excited about this next budget program and over the next year to have some of these key capital projects.”

This year’s adopted budget was for $234.1 million, but the most recent projection comes in at $249.2 million.

“After the first three months, we already saw it ticking upward,” Leung said.

It’s very healthy, she added. They weren’t sure where things would be financially during the COVID-19 pandemic, but as the city heads into more normal operations they’re seeing a “strong recovery” happening, Leung said.

The major revenue sources from property taxes, sales tax and Transient Occupancy Tax are all seeing solid growth, she said.

“These are critical for us,” Leung said. “These top three sources account for 75% of our general fund revenue. So really, where these revenues go is where we’re going to be going as a city.”

Property tax revenue is projected at $123 million for the 2021-22 FY. Newport Beach assessed values are continuing to increase, Leung noted. For 2022-23, growth is projected to be 6.5%, the strongest since 2018.

This year’s sales tax revenue is projected to hit $43 million. The growth in sales tax was a little bit of a surprise, she said. There have been very strong sales across the board, in all of the categories.

“Particularly, you’re seeing a lot more...goods rather than services,” Leung said. “People are purchasing things and we’re seeing the impact of that.”

When the pandemic first hit and a number of hotels closed, there was a big drop off in TOT revenue, Leung pointed out, but there’s been really strong growth recently and the 2021-22 FY is projected at $26 million in revenue.

“In 2021, it’s really popped back up,” she said.

While the hotels are coming back, they’re not at the pre-COVID numbers yet, Leung added. What is really making that revenue go back up is the residential TOT, or short-term lodging like Airbnb and vacation rentals, she noted.

The number of permits aren’t expanding, it’s the length of stay and room rates, Leung said.

“We’re seeing higher revenue from the existing permits,” she said.

So, with the recovery, growth and strong projections for 2021-22 FY, the preliminary revenue outlook for 2022-23 is very healthy, Leung noted. While there will probably be some more adjustments before heading to council, 2022-23 is projected to reach $264.7 million.

“Having this nice recovery on our revenue side really gives us an opportunity to look and make sure that our funding is set appropriately,” said Leung, who has recently been meeting with departments for their budget requests.

A big focus is long-term sustainability, she said.

“Where are areas that, if we have long-term liabilities, are we taking care of them? Are we addressing and putting money toward those things?” she asked.

In Newport Beach, the big priorities are the unfunded pension and infrastructure, Leung said.

Regarding the pension, Leung mentioned that the city has been paying more than required and it’s anticipated to be 100% funded in the next 10-15 years. It’s still challenging, considering the impact that CalPERS can have on their plan, she added, but they are dedicated to continuing that funding level.

Under infrastructure funding, Leung explained the three areas it breaks down into: Facilities Financing Plan, Harbor and Beaches Capital Plan and the Facilities Maintenance Plan.

It’s not the most fun topic, but it’s really critical to be maintained, she said. Financially, it’s good to ensure that the city’s infrastructure needs are being met for the long-term.

“We continue to look into these, this is going to be a focus area of this budget cycle: Do we have these funded at the right level? And do we need to put more funding on these? Because I think it’s important that we make sure the infrastructure is funded before we go and add any enhancements or any additional operating services,” Leung said. “You want to make sure what you have now is taken care of over the long-term.”

City manager Funds surplus city hall

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Newport Beach City Hall

Although the budget is still in development, two areas of service needs were highlighted at the planning session: Police and homeless services.

For the Newport Beach Police Department, the city is looking at incorporating body-worn cameras for officers. There is an approximate $450,000 initial cost and about $105,000 annual ongoing staff and $195,000 annual system costs, Leung explained. A big part of the cost comes from storing the data and maintaining it as public records, she noted, and that will likely require one full-time employee.

Homeless services was probably the longest discussion item at the planning meeting, Leung said.

“This is an important topic, we know, that’s high on the community’s mind and high on the council…priorities,” Leung said.

This is an issue they’ve been tackling since she first started three years ago, she noted. Although they’ve committed a lot of effort and resources, there is still more that needs to be done. It’s a complex issue, she added, long-term solutions aren’t easy and are very individualized.

The city has partnered with City Net, Costa Mesa Bridge Shelter, Trellis International, and Be Well OC, which has a mobile mental health van launching in Newport Beach next week.

They’re very excited to put this year’s surplus funds into capital improvements, Leung said. At the council planning session, city staff recommended using $10.5 million of the surplus for facilities maintenance and improvements and using $15.5 million for neighborhood enhancements.

Facilities projects for 2022-23 FY include: Balboa Peninsula fire station and branch library, a project they are hoping to model – in a way that makes sense – after the recently constructed similar “fibrary” in Corona del Mar; the central library lecture hall, a project being funded by a public-private partnership; and the junior lifeguard program and parking lot improvements, another public-private project.

Other future projects budgeted through the surplus funds include: About $1.7 million for Bonita Creek Park synthetic turf replacement in 2025; $64.6 million for police facility replacement by 2033 (the new facility’s land purchase timeline, which may be earlier than 2033, and cost are to be determined and not factored in); and $14.7 million for the Santa Barbara fire station replacement by 2035.

Neighborhood enhancements include: Balboa Island drainage, street pavement; Arroyo Park synthetic turf; landscaping; Peninsula Point street ends; storm drains; General Plan update; street lights and a city park assessment study.

Many of these items are street or infrastructure related, which Leung noted is always more cost-effective to do maintenance now rather than a major re-do later.

The city park assessment will review all parks in Newport Beach and analyze future needs.

Another future need is the Newport Pier-McFadden Plaza rehabilitation, Leung said. There is already some funding for a circulation project that was in the works, she noted, but after discussing it, council wanted to look at it more holistically and the needs of the pier itself.

“Essentially, we have money budgeted where we (can) replace pilings or replace pieces of the pier, but would it make sense, actually, to look at it in a bigger way, in a bigger redesign?

There’s a lot of services down there and circulation issues and conflicts happening, so they can look at the project creatively, Leung said.

There will be a lot of public input during the process, she confirmed.

“I’m sure a lot of people will be interested in (that project) and have a lot of input on such an iconic piece of our city,” Leung said.

During the Speak Up meeting, Leung also answered a number of questions related to crime, the boardwalk, pickleball, state mandates and more.

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Sara Hall covers City Hall and is a regular contributor to Stu News Newport.