It’s election time again (some call it “silly season”), and the voters of Newport Beach will be subject to statements from various candidates decrying what’s wrong with the stewardship of our city and in particular the control of city expenses.
While I too am seeking re‐election (I’m running unopposed), I am also chairman of the City Council’s Finance Committee, and feel compelled to spotlight a few facts for the voters to consider as they ponder election rhetoric. I believe I am well qualified to comment on financial issues by virtue of a deep knowledge of city operations and having successfully managed expense structures for large organizations for more than 20 years, including as chief financial officer of two Fortune 500 companies.
Through a combination of staff leadership and clear policy direction from the city Council, city expenses are significantly lower and better controlled today than at any time in recent history.
That $8 million revenue shortfall for last year you may have heard about? We eliminated it and ended the year in the black. For the current fiscal year, the budget is balanced and closes an $11 million revenue shortfall, and overall expenditures will be down $18 million. These reductions have been achieved without noticeable impact on services to the residents, and without use of operating reserves. In fact, based on preliminary results for the fiscal year that just ended, the city’s total unrestricted reserves actually rose by $3.5 million to $77.2 million, the highest level in the history of Newport Beach.
All of this was achieved while important new projects such as the OASIS Center and the Civic Center project are being delivered on time and significantly under originally estimated costs. The OASIS project is a great example, as it will open on schedule this weekend at a final cost 25 percent below original expectations. I am happy to stack up this performance against any other city in Orange County or California.
This performance most certainly was not accidental, nor will it be short-lived. That’s good, because our challenges are structural in nature, and the solutions must also be structural, rather than rely upon one‐time fixes like furloughs. Annualized expense reductions include $3 million from an early retirement program that reduced employment levels by approximately 40 positions, accompanied by a staff reorganization that will assure the permanency of the reductions.
By virtue of break‐through negotiations with our public employee unions, city staff now pays for part of their pension benefit cost, saving over $2 million per year. That in combination with an across‐the‐board hold on pay (no raises) will result in significant reductions in take-home pay for virtually all city staff.
For some staff, this will result in status quo salary levels for up to 42 months. Council is appreciative of staff’s sacrifices in this respect, and especially the cooperative spirit in which they were implemented. Other structural savings include $500,000/year from outsourcing street sweeping, continuing a long‐standing practice of evaluating outsourcing opportunities. The city today outsources over 50 different city services, from park maintenance to tree trimming to trash transfer. The 2011 budget includes the 2010 savings and adds to them, including additional outsourcing initiatives. While the city did implement some one‐time expense savings, by far the lion’s share of reductions have been structural and will therefore be long‐lasting.
This is not to say the city is without future challenges or that the job is anywhere near done, particularly in the area of retirement benefits. The city projects that annual employee pension costs will increase substantially in the next several years. The pension cost savings noted above constitute just the first step toward solving this problem, and mitigating future expense increases will require more employee cost sharing and changes in benefit structures. Council is committed to fully addressing this issue in partnership with staff. With regard to retiree medical benefits, we are fortunate that the city pioneered the conversion of its retiree medical program to a defined contribution approach over four years ago, fully addressing this issue by capping the on‐going expense and liability for that program….an achievement that has won accolades and envy from our peers.
Newport Beach is a special place to live (the just‐completed citizen survey shows 98% of our residents would concur with that statement). The city has important plans to preserve and improve our high quality of life through a variety of initiatives, and must also plan for the replacement of all key facilities over the next 25 years. This requires unwavering commitment on the part of both the council and the staff to a continuous program of increasing the city’s efficiency; however, our drive for efficiency must preserve the superior service standards and breadth of services that make our city so special.
Efficiency is properly defined as achievement of the desired standard with minimum input. There are many tools available to improve efficiency, including re‐organization, process improvement, improved management, outsourcing, new technology and better equipment. All of these tools have been and will be utilized going forward. It is not the city’s goal, per se, to reduce the number of employees working for the city. It is the city’s goal to continuously improve its efficiency. The natural outcome of that process will often result in lower employment levels since about 65% of the city’s total operating budget is compensation related. Those who would measure the efficiency of our city by comparing employee levels to other cities miss the point. Our objective is to increase efficiency by application of the full suite of tools noted above, whether by using city employees or outsourced employees – whichever might provide the best service for the best value.
Regardless of candidate musings during silly season or the outcome of the elections in November, the citizens of Newport Beach can count on the continuing dedication of city staff and city Council to achieve ever‐improving efficiency as far into the future as we can see.