Commentary: The unvarnished truth about Newport Beach liabilities

By Diane Dixon and Will O’Neill

July 21, 2016 5:16 PM PT

A recent commentary in the Daily Pilot embraced Newport Beach’s half-billion-dollar long-term debt while disparaging citizens asking legitimate questions about that debt’s effect on our city’s financial well-being.

We agree that city finances should absolutely be a central issue before the City Council and in the upcoming election, but a healthy and constructive debate requires accurate information.

Here are the facts. Our city’s Civic Center debt (principal, plus interest) exceeds $200 million. Our city’s unfunded pension liability is approximately $300 million, and that is projected to increase dramatically in coming years, thanks to dismal CalPERS investment returns. Combining the two, our city’s outstanding liabilities well exceed $500 million. Ten years ago that figure was less than $10 million.

Newport Beach pays more than $21 million per year to CalPERS to cover the unfunded pension liability. On the bond debt, the city pays more than originally projected because the city is receiving less money from the federal government to subsidize the Civic Center, debt due to the federal budget sequestration.

Going forward, our city will pay in excess of $50 million per year — more than a quarter of our general fund budget — toward ongoing pension liability, the unfunded liability and the Civic Center debt. The recently adopted budget decreased total city operations expenses 14.2% from $324 million to $278 million, a result of good financial management by the city staff, the Finance Committee and the City Council.

We are pleased if these numbers are familiar to you. They were discussed at multiple meetings of the Finance Committee, on which we sit. And at the council’s goal-setting meeting in January at Marina Park. And again at the annual joint Finance Committee/City Council meeting. And yet again at one of the mayor’s town hall meetings. And, finally, at the City Council meeting in June, when the budget was discussed at great length.

The commentary, which was written by City Council candidate Phil Greer, contended that the $46 million decrease in the overall budget from last year to this year has “everything to do” with removing Marina Park as a budget item. But Marina Park’s budget was $36 million, and that was paid over a three-year design and construction period. His assertion is not correct.

Mr. Greer then took aim at a recent op-ed written by us that called for a neutral third party to analyze our Civic Center debt. The most recent analysis of that debt cost the city $3,000. But Mr. Greer’s commentary claims, without proof, that hiring a different third-party advisor would increase the debt by $20 million. Again, this is not correct.

Mr. Greer also claimed that council members want to “gamble” with taxpayer money in the stock market, through a Section 115 trust (so named for a section of the Internal Revenue Code). He fails to mention that the city actually created a 115 Trust for retiree healthcare costs, with unanimous City Council approval, in 2009, with investment allocations in equities and fixed assets.

He also fails to mention that the Finance Committee has yet to study a 115 Trust investment strategy. But the Finance Committee has unanimously recommended hiring an actuary to help get our escalating unfunded pension liability under control. An actuarial study will allow the city to study pay-down plans based on independent actuarial data, instead of relying on generic, off-the-shelf actuarial projections supplied by CalPERS.

Mr. Greer’s commentary concludes by denigrating an independent audit of the Civic Center project that has preliminarily surfaced a $1.2 million overpayment. He disapproves of audits, apparently, although they are a fundamental pillar of responsible fiscal management.

At its core, Mr. Greer’s commentary is simply wrong to assert that Newport Beach residents should blithely embrace without question the city’s long-term debt at the unprecedented levels we face. The people of Newport Beach deserve to know the real numbers and the unvarnished truth so that together we can debate and develop a way forward that best serves the city and its taxpayers.

DIANE DIXON is Mayor of Newport Beach. WILL O’NEILL is a member of the Newport Beach Finance Committee and candidate for City Council, District 7.